(ICON)
Prudential
Europe
Index Fund
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Europe Index Fund
A Series of the Prudential Index Series Fund
Performance At A Glance.
A superheated market early in 1998 provided the European
markets with a good
annual return for the year ended September 30, 1998, despite
a 31% summer
correction. The drop in exports to Asia slowed European
economic growth, and
investors reacted strongly to emerging market problems,
including a Russian
debt default and currency devaluation. The MSCI Europe Index
bottomed on
October 5, buoyed by an interest rate cut and by signs that
governments
worldwide might take action against the threats to growth.
Cumulative Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
Since
Inception2
<S> <C>
Class Z 7.17% (5.06)
Lipper European Region Fund Avg.3 3.37%
MSCI Europe Index4 8.66%
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical
Services. Since Class Z shares have been in existence less
than a year, no
average annual total returns are presented. Without waiver
of management fees
and/or expense subsidization, the Fund's cumulative total
returns would have
been lower, as indicated in parentheses ( ).
2 Inception date: Class Z, 10/1/97. The Lipper reporting
period begins 9/30/97.
3 The Lipper Since Inception return is for all funds in the
European Region
Fund category.
4 The Morgan Stanley Capital International (MSCI) Europe
Index is an unmanaged,
weighted index comprised of approximately 620 companies
representing about 15
developed European countries. The Fund is neither sponsored
by nor affiliated
with Morgan Stanley & Co. Incorporated. The benchmark return
shown does not
reflect foreign dividend withholding taxes. Investors cannot
invest directly
in an index.
How Investments Compared.
(As of 9/30/98)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher returns means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they don't
fluctuate much in price but, historically, their returns
have been generally
among the lowest of the major investment categories.
<PAGE>
(PHOTO)
Portfolio
Manager's Report
The Prudential Europe Index Fund seeks to provide investment
results that
correspond to the price and yield of a broad-based index of
stocks of European
issuers. Currently, we use the Morgan Stanley Capital
International (MSCI)
Europe Index. The MSCI Europe Index consists of stocks in 15
countries. The
U.K. represented 31% of the MSCI Index on September 30 and
France and Germany
together made up 28%. The difference between the Fund's
return and that of the
Index is primarily fees, management expenses, and foreign
dividend withholding
taxes. There can be no assurance that the Fund will achieve
its investment
objective.
Index Funds.
What is the purpose of an index fund? An index fund is
designed to minimize the
risks of a portfolio manager's strategic decisions. It aims
to duplicate the
performance of an entire class of investments -- in this
case, European stocks.
Because the Fund tries to mirror an index, it has low
portfolio turnover and
expenses, providing an efficient way to share in the average
long-term
prosperity of Europe-based companies.
-- John Moschberger,
Fund Manager
Market Review.
- -------------------------------------------------
Continental Europe is following the same path America broke
early in this
decade: productivity improvements leading to economic
growth. Greater
flexibility in workplace regulation and the introduction of
temporary workers
are reducing unemployment in countries where it had been a
problem for a
generation. Consumer purchases and the capital investment
associated with
corporate restructuring are driving economic growth. A
downturn in exports to
Asia and emerging markets (including Russia) is expected to
slow this growth.
However, low commodity costs and falling prices on imported
manufactured goods
have held down inflation. Aggregate economic growth is
estimated at more than
2.5% for 1998. Interest rates are low and will be held down
by fear of
deflation and bank defaults.
The good economic news boded well for corporate earnings
prospects, but didn't
quite justify the levels European stock prices reached in
their 45% climb from
our reporting period's low to its peak in July. The
subsequent correction
brought prices back into touch with earnings prospects,
while still leaving
room for a good return for the 12 months. Although the MSCI
Europe Index is
still 10% above its 10-year average ratio of stock prices to
company earnings
(P/E), interest rates are low and investor interest high.
Cash is still
flowing into European mutual funds, although the pace of
investment has slowed.
Our discussion below of the best and worst performers for
the 12-month period
obscures the dramatic defensive turn taken by the European
markets this summer
as Russia's financial turmoil heightened. As in the United
States, stock prices
plunged and investors focused strongly on the stocks of
companies not exposed
to emerging markets or an economic slowdown. For example,
financial service
companies that had performed very well early in our
reporting period were
harshly punished afterward. Defensive utility stocks moved
up sharply.
Volkswagen, a firm with cyclical economic and international
exposure, more
than doubled in value early in our reporting period, then
peaked on July 9,
and fell 44% -- almost back to its start. (Investors based
in U.S. dollars saw
an even larger decline.) The volatility may persist if
global economic
conditions remain unstable.
Best Performers.
Of the markets with above-20% annual returns (in U.S.
dollars), only Italy was
large enough to constitute more than five percent of the
MSCI Index. Italy's
economy nudged into positive growth in the second quarter,
and inventories fell
to 6.5% (compared with a 10% long-term average). Olivetti
returned 355% to U.S.
investors, while banks continued to benefit from low
interest rates, which
pushed investors away from fixed-rate deposits toward bank-
managed mutual
funds. The two highest annual returns in the Europe Index
were those of
Belgium (up 41%) -- supported by two stocks that moved up
sharply in the
summer defensiveness, Tractebel (energy, up 100%) and
Electrabel (electric and
gas utility, up 87%) -- and Finland (up 31%), supported by
Nokia's 67% return.
Three large Continental economies provided the next highest
stock returns,
Germany (up 16%),
<PAGE>
Spain (up 15%), and France (up 15%). The leading German
stocks were spread
among many industries. They included an industrial company
(Mannesmann, up
93%), a retailer (Douglas, up 69%), an insurance company
(Aachener &
Muenchener, up 68%), and a software and consulting firm
(SAP, up 63%).
Although the stocks of many blue-chip firms also fell over
the year --
including Deutsche Bank, Siemens, Thyssen, and Volkswagen --
the strength of
the German market was broad. Economic growth for 1998 is
estimated at 2.5% or
more, but a high level of both exports and bank loans to
Eastern Europe is
likely to slow the pace of growth in 1999.
The Spanish market was led by El Aguila (up 91%), a beer
company with
relatively small market capitalization, followed by Union
Electrica Fenosa, an
electric utility (up 70%). Utilities generally had strong
results, while banks
with exposure to Latin America fell. The French market was
led by Cap Gemini
(software and consulting, up 111%). Two industrials also
were among the
leaders: Bouygues (up 93%) and Vivendi (up 74%). Seita, the
tobacco firm that
makes Gauloises and Gitanes, had the third strongest
performance of the year
(up 85%). Two smaller countries on the European periphery
had average returns
just below the larger markets: Portugal (up 14%) and Ireland
(up 11%).
The Slower Markets.
Switzerland (up 8%) and the United Kingdom (up 3.4%) were
the sluggish giants,
together comprising more than 40% of the Index. In both
countries, fear of
emerging market exposures hurt banking stocks: Credit Suisse
(down 20%), UBS
(down 17%), Johnson Mathey (down 50%), Barclays (down 43%),
and HSBC (down
47%). Industrials in these countries also had a bad year:
ABB was down 35%,
British Steel down 33%, and Pilkington down 61%. The Swiss
market was led by
Jelmoli Holdings (a retailer, up 48%), while the British
market was led by two
telecommunications-related companies, Vodafone (up 116%) and
British Telecom
(up 104%), and by Railtrack Group (up 99%). Strong sterling
hurt exports from
the U.K.
Austria, the Netherlands, and the Scandinavian countries
were the worst
performing markets, with Norway's 40% drop at the bottom.
Norway's economy is
largely oil-centered.
Looking Forward.
The shrinking exports to emerging markets, particularly to
Russia and Eastern
Europe, are likely to slow Europe's growth. However, the
discipline required
by European currency union process has strengthened its
ability to act
forcefully to prevent a deflationary contagion. For example,
late in October,
the Bank of Italy reduced its discount rate by a full
percentage point.
Consumer confidence remains high, at least in some
countries. There are
difficult problems to face in the year ahead, but also
strong positive trends,
and the threats are unlikely to catch leaders by surprise.
How The MSCI Europe Index Performed.
(CHART)
The performance cited does not represent the performance of
the Prudential
Europe Index Fund. Investors cannot invest directly in an
index.
Source: Lipper Analytical Services, Inc.
Portfolio Composition.
Countries expressed as a percentage
of net assets as of 9/30/98.
United Kingdom 30.4%
Germany 14.7%
France 12.5%
Switzerland 10.1%
Netherlands 7.5%
Italy 6.3%
Spain 4.3%
Sweden 3.8%
Belgium 2.6%
Finland 1.5%
Denmark 1.3%
Portugal 0.9%
Ireland 0.6%
Norway 0.6%
Austria 0.5%
Source: Prudential
1
<PAGE>
President's Letter
November 9, 1998
- ------------------------------------------------------------
- -------------------
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets
is decidedly mixed. After setting record highs earlier,
stocks, as measured by
the Dow Jones Industrial Average, experienced a series of
steep sell-offs in
late summer. The market rebounded in early fall, helped by
two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated
as investors fled troubled Asian and other emerging markets
for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S.
economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market
environment can be
challenging. That's why it is important to manage your
expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always
rise and fall -- that's what markets do. Although past
performance may not be
indicative of future results, stocks and bonds have, over
time, consistently
produced attractive returns that have kept ahead of
inflation. In fact,
investors who remained focused on the long term and did not
sell during the
recent market volatility were rewarded. Stock prices, as
measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since
their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond,
and money market mutual funds can help lessen the effects of
a market downturn
over time. In fact, a well-diversified portfolio may retain
or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will be glad to
review your current allocations. He or she will recommend
adjustments based
upon your goals, market conditions, risk tolerance, and
potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.6%
COMMON STOCKS--96.9%
- ------------------------------------------------------------
Austria--0.5%
100 Austrian Airlines $
3,104
482 Bank Austria AG
20,658
50 Boehler-Uddeholm AG
2,169
25 EA-Generali AG
4,784
80 Flughafen Wien AG
3,262
150 Oesterreichische
Electrizitaetswirtschafts AG,
Ser. A
23,834
130 OMV AG
11,642
65 Va Technologie AG
5,892
35 Wienerberger Baustoffindustrie AG
6,756
--------
- ----
82,101
- ------------------------------------------------------------
Belgium--2.6%
20 D'Ieteren SA
8,988
44 Barco Industries N.V.
10,333
6 Bekaert N.V.
3,227
68 Cimenteries CBR Cementbedrijven
5,235
12 Colruyt N.V.
9,559
30 Compaignie Maritime Belge SA
1,757
197 Delhaize-Le Lion SA
14,879
229 Electrabel SA
90,299
330 Fortis AG NPV
81,328
147 Fortis AG Strip VVPR
9
147 Fortis AG CVG
1,240
20 Glaverbel SA
2,407
86 Groupe Bruxelles Lambert SA
14,313
1,172 KBC Bankverzekerin
75,777
40 KBC Bankverzekerin
2
100 PetroFina SA
36,677
340 Solvay SA
22,673
320 Tractebel
51,957
6 Ucb SA
30,635
78 Union Miniere SA
3,040
--------
- ----
464,335
Denmark--1.3%
30 Bang & Olufsen Holding A/S $
2,030
129 Carlsberg A/S, Ser. A
7,503
94 Carlsberg A/S, Ser. B
5,769
5 D/S 1912, Ser. B
32,651
4 D/S Svendborg, Ser. B
37,136
235 Danisco A/S
15,901
206 Den Danske Bank Group
23,339
170 FLS Industries A/S, Ser. B
3,585
60 International Service Systems A/S
3,163
300 Novo Nordisk A/S, Ser. B
36,113
521 Tele Danmark A/S
51,731
212 Unidanmark A/S
15,345
--------
- ----
234,266
- ------------------------------------------------------------
Finland--1.5%
180 Cultor Oyj, Ser. 1
1,804
40 Instrumentarium Group, Ser. A
1,667
500 Kemira Oyj
3,292
350 Kesko Oyj
4,608
50 Kone Corp., Ser. B
5,011
3,200 Merita plc, Ser. A
16,350
150 Metra Oyj, Ser. B
2,918
1,840 Nokia Oyj, Ser. A
147,891
700 Nokia Oyj, Ser. K
55,506
500 Outokumpu Oyj, Ser. A
4,147
80 Pohjola Insurance Group, Ser. A
3,144
200 Sampo Insurance Co. Ltd., Ser. A
5,699
1,050 UPM-Kymmene Oyj
23,936
--------
- ----
275,973
- ------------------------------------------------------------
France--12.5%
140 Accor SA
29,350
660 Alcatel Alsthom SA
58,643
1,410 Axa-UAP
129,055
670 Banqe Paribas
36,101
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
France (cont'd.)
913 Banque Nationale de Paris $
48,869
100 Bouygues SA
18,109
130 Canal Plus
31,568
270 Cap Gemini SA
41,332
155 Carrefour SA
98,202
50 Club Mediterranee SA
3,720
400 Compagnie de Saint Gobain
53,026
50 Compagnie Francaise d'Etudes et de
Construction Technip
4,121
660 Compagnie General des Eaux
131,416
20 Compagnie Generale de Geophysique SA
1,178
550 Compagnie Generale des Etablissements
Michelin, Ser. B
21,589
22 Comptoirs Modernes
13,738
300 Danone
78,843
350 Dassault Systemes SA
13,239
1,110 Elf Aquitaine SA
136,849
100 Eridania Beghin-Say SA
18,680
30 Essilor International SA
11,026
280 Etablissements Economiques du
Casino Guichard-Perrachon SA
28,226
3,290 France Telecom SA
194,589
50 Groupe GTM
4,460
50 Imetal SA
4,639
396 L'Air Liquide
62,740
275 L'OREAL
127,815
400 Lafarge SA
35,398
450 Lagardere S.C.A.
12,838
110 Legrand SA
27,967
360 Louis Vuitton Moet Hennessy
49,136
30 Pathe SA
5,620
230 Pechiney
7,953
200 Pernod Ricard
14,720
475 Pinault-Printemps-Redoute SA
68,647
50 Primagaz Cie
4,255
80 Promodes
48,730
200 PSA Peugeot Citroen
34,114
1,490 Rhone-Poulenc SA, Ser. A
62,473
10 Sagem SA
6,316
450 Sanofi SA
66,158
610 Schneider SA
31,780
50 SEB SA $
3,886
100 SEITA
5,781
100 Sidel SA
6,851
50 Simco SA
3,898
200 Societe Bic SA
11,137
10 Societe Eurafrance SA
4,874
400 Societe Generale
44,248
120 Sodexho Alliance
20,875
600 Suez Lyonnaise des Eaux
102,127
610 Thomson CSF
18,611
990 Total SA, Ser. B
124,704
20 Unibail SA
2,801
950 Usinor SA
10,560
303 Valeo SA
21,624
--------
- ----
2,259,205
- ------------------------------------------------------------
Germany--14.0%
160 Adidas-Salomon AG
18,332
150 AGIV AG
3,500
975 Allianz AG
302,180
150 AMB Aachener & Muenchener
Beteiligungs AG
23,065
100 Axa Colonia Konzern AG
11,129
2,500 BASF AG
94,684
2,950 Bayer AG
111,374
1,620 Bayerische Vereinsbank AG
119,221
300 Beiersdorf AG, Ser. A
16,693
100 Bilfinger & Berger Bau AG
1,926
10 Buderus AG
4,365
500 Continental AG
11,936
2,300 Daimler-Benz AG
192,383
350 Degussa AG
14,973
2,130 Deutsche Bank AG
109,982
1,410 Deutsche Lufthansa AG
27,848
8,730 Deutsche Telekom
271,090
60 Douglas Holding AG
3,454
6 Douglas Holding AG NPV
348
1,990 Dresdner Bank AG
74,058
200 Fag Kugelfischer Georg Schaefer AG
2,010
200 Heidelberger Zement AG
13,223
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Germany (cont'd.)
250 Hochtief AG $
7,180
30 Karstadt AG
14,683
50 Linde AG
29,168
50 MAN AG
16,095
1,530 Mannesmann AG
140,060
650 Merck KGaA
26,251
950 Metro AG
66,105
320 Muenchener Rueckversicherungs-
Gesellschaft AG
141,107
12 Muenchener Ruckversicherungs-
Gesellschaft AG (Registered)
5,277
60 Preussag AG
20,732
1,840 RWE AG
85,375
240 SAP AG
101,666
270 Schering AG
27,907
50 SGL Carbon AG
3,425
2,290 Siemens AG
126,464
150 Thyssen AG
25,569
1,990 VEBA AG
103,587
105 Viag AG
72,121
1,220 Volkswagen AG
87,958
--------
- ----
2,528,504
- ------------------------------------------------------------
Ireland--0.6%
500 Ryanair Holdings plc
3,288
4,000 Allied Irish Banks plc
58,584
1,350 CRH plc
17,049
200 DCC plc
1,151
1,000 Fyffes plc
1,719
600 Greencore Group plc
2,197
1,000 Independent Newspapers plc
3,587
1,250 Irish Life plc
9,247
300 Irish Permanent plc
3,654
3,900 Jefferson Smurfit Group plc
5,829
600 Kerry Group plc, Ser. A
6,994
800 Tullow Oil plc
956
--------
- ----
114,255
Italy--6.3%
4,044 Assicurazioni Generali $
131,419
7,000 Banca Commerciale Italiana
42,044
7,400 Banca Intesa SpA
31,124
2,000 Banca Intesa SpA (Nonconvertible)
4,115
1,000 Banca Popolare di Milano
7,201
6,000 Benetton Group SpA
9,041
1,000 Bulgari SpA
4,720
500 Burgo (Cartiere) SpA
2,802
11,500 Credito Italiano
47,880
2,500 Edison SpA
19,002
31,900 ENI SpA
195,363
500 Falck Acciaierie & Ferriere Lombarde
3,645
16,100 Fiat SpA
41,116
3,500 Fiat SpA (Nonconvertible)
5,708
3,100 Istituto Bancario San Paolo diTorino
38,927
2,500 Istituto Mobilare Italiano SpA
32,981
15,000 Istituto Nazionale delle
Assicurazioni (INA)
38,125
500 Italcementi SpA
3,752
3,000 Italgas (Soc Ital) SpA
12,872
500 La Rinascente SpA
4,381
2,800 Magneti Marelli
3,889
140 Marzotto(Gaetano) & Figlia SpA
1,360
4,500 Mediaset SpA
30,160
2,400 Mediobanca SpA
22,076
500 Mondadori (Arnoldo) Editore SpA
5,807
19,000 Montedison SpA
18,144
10,500 Olivetti Group SpA
22,144
5,500 Parmalat Finanziaria SpA
8,105
7,700 Pirelli SpA
20,410
1,500 Riunione Adriatica di Sicurta SpA
15,790
500 Riunione Adriatica di Sicurta SpA
(Nonconvertible)
3,934
1,000 Sirti SpA
4,841
2,000 Snia BPD SpA
2,548
500 Societa Assicuratrice
Industriale(SAI)
4,841
6,000 Telecom Italia Mobile SpA (di Risp)
19,280
27,000 Telecom Italia Mobile SpA
157,185
3,500 Telecom Italia SpA (di Risp)
16,722
15,000 Telecom Italia SpA
103,256
--------
- ----
1,136,710
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Netherlands--7.5%
5,525 ABN AMRO Holding N.V. $
94,082
1,130 Akzo Nobel N.V.
40,163
101 ASR Verzekerings Groep N.V.
7,581
2,632 Elsevier N.V.
39,095
312 Getronics N.V.
14,151
1,206 Heineken N.V.
58,218
100 Hollandsche Beton Groep N.V.
1,226
93 IHC Caland N.V.
4,342
3,741 ING Groep N.V.
168,487
269 KLM Royal Dutch Airlines N.V.
6,778
2,286 Koninklijke Ahold N.V.
68,274
121 Koninklijke Hoogovens N.V.
3,389
1,874 Koninklijke KPN BT
57,858
107 Koninklijke Pakhoed Holdings N.V.
2,412
308 Oce N.V.
10,375
8,650 Royal Dutch Petroleum Co.
429,041
1,483 Royal Philips Electronics N.V.
79,851
100 Stork N.V.
2,302
1,819 TNT Post Group N.V.
46,318
2,570 Unilever N.V.
161,692
254 Wolters Kluwer N.V.
48,736
--------
- ----
1,344,371
- ------------------------------------------------------------
Norway--0.6%
200 Aker RGI ASA
2,513
200 Bergesen dy ASA, Ser. A
2,837
100 Bergesen dy ASA, Ser. B
1,324
2,300 Christiania Bank Og Kreditkasse
7,209
2,600 Den Norske Bank ASA
8,149
100 Dyno Industrier ASA
1,419
200 Elkem ASA
2,216
150 Kvaerner ASA, Ser. A
1,905
120 Leif Hoegh & Co. ASA
1,540
350 Merkantildata ASA
2,672
700 NCL Holdings ASA
1,560
1,150 Norsk Hydro ASA
41,871
100 Norske Skogindustrier ASA, Ser. A
2,513
600 Orkla ASA, Ser. A
8,106
160 Orkla ASA, Ser. B
1,902
200 Petroleum Geo Services
3,269
140 Sas Norge ASA
1,419
200 Schibsted ASA $
2,486
80 Smedvig ASA
735
1,100 Storebrand ASA, Ser. A
7,579
100 Tomra Systems ASA
2,121
--------
- ----
105,345
- ------------------------------------------------------------
Portugal--0.9%
878 Banco Comercial Portugues SA
23,687
520 Banco Espirito Santo e Comercial de
Lisboa
14,244
300 BPI-SGPS SA
8,265
220 Brisa-Auto Estradas de Portugal SA
10,016
350 Cimpor-Cimentos de Portugal, SGPS SA
9,750
50 Companhia de Seguros Tranquilidade
1,451
2,400 EDP-Electricadade de Portugal SA
55,165
300 Jeronimo Martins, SGPS SA
10,152
350 Portucel Industrial-Empresa Produtora
de Celulose SA
2,030
750 Portugal Telecom SA
27,268
170 Sonae Investimentos-Sociedade
Gestorade Participacoes Sociais SA
4,956
100 Unicer-Uniao Cervejeira
2,192
--------
- ----
169,176
- ------------------------------------------------------------
Spain--4.3%
200 Acerinox SA
3,843
119 Acs Actividades Co
3,376
967 Autopistas del Sol SA
14,771
218 Azucarera Ebro Agricolas
5,187
8,340 Banco Bilbao Vizcaya SA
89,232
4,713 Banco Central Hispanoamericano
43,625
4,686 Banco Santander SA
72,402
54 Coporacion Financiera Alba SA
6,507
2,028 Corporacion Bancaria de Espana
40,327
216 Corporacion Mapfre
4,295
200 Dragados & Construcciones SA
5,315
4,300 Endesa SA
96,857
220 Fomento de Construcion Y Contra
10,267
632 Gas Natural SDG SA
44,042
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Spain (cont'd.)
3,611 Iberdrola SA $
60,241
210 Metrovacesa SA
5,432
1,330 Repsol SA
56,172
164 Sociedade General de Aguas de
Barcelona SA
7,988
740 Tabacalera SA, Ser. A
16,486
4,200 Telefonica de Espana SA
153,141
709 Telepizza
4,741
1,073 Union Electrica Fenosa SA
16,050
300 Vallehermoso SA
3,347
50 Viscofan Industria Navarra Envolturas
Celulosicas SA
1,299
169 Zardoya Otis SA
4,651
--------
- ----
769,594
- ------------------------------------------------------------
Sweden--3.8%
2,800 ABB AB, Ser. A
25,375
1,100 ABB AB, Ser. B
9,898
500 AGA AB, Ser. A
6,510
400 AGA AB, Ser. B
4,952
50 Asticus AB
498
5,400 Astra AB, Ser. A
92,360
1,200 Astra AB, Ser. B
19,759
500 Atlas Copco AB, Ser. A
10,530
200 Atlas Copco AB, Ser. B
4,212
100 Diligentia AB
849
500 Drott AB
4,084
1,500 Electrolux AB, Ser. B
19,720
1,400 Forenings Sparbanken AB, Ser. A
32,165
800 Hennes & Mauritz AB, Ser. B
58,204
400 NetCom Systems AB
13,428
400 OM Gruppen AB
6,893
800 Sandvik AB, Ser. A
16,695
200 Sandvik AB, Ser. B
4,187
300 Securitas AB, Ser. B
15,393
2,000 Skandia Forsakring AB
26,039
2,200 Skandinaviska Enskilda Banken, Ser. A
19,235
500 Skanska AB, Ser. B $
16,497
100 SKF AB, Ser. A
1,264
200 SKF AB, Ser. B
2,476
1,000 Stora Kopparbergs Bergslags
Aktiebolag, Ser. A
9,509
100 Stora Kopparbergs Bergslags
Aktiebolag,
Ser. B
951
800 Svenska Cellulosa AB, Ser. B
15,827
800 Svenska Handelsbanken, Ser. A
30,021
50 Svenska Handelsbanken, Ser. B
1,720
300 Svenskt Stal AB, Ser. A
3,159
1,300 Swedish Match AB
4,049
7,900 Telefonaktiebolaget LM Ericsson
149,237
400 Trelleborg AB, Ser. B
3,370
600 Volvo AB, Ser. A
14,245
1,300 Volvo AB, Ser. B
31,859
300 Wm-Data AB, Ser. B
10,033
--------
- ----
685,203
- ------------------------------------------------------------
Switzerland--10.1%
30 ABB AG
30,448
15 ABB AG (Registered)
3,099
70 Adecco SA
25,941
25 Alusuisse-Lonza Holding AG
(Registered)
23,821
1,035 Credit Suisse Group
114,393
5 Danzas Holding AG
1,252
7 Fischer (Georg) AG
1,937
10 Forbo Holding AG
3,901
20 Holderbank Financiere Glarus AG
20,516
35 Holderbank Financiere Glarus AG
(Registered)
7,711
2 Jelmoli Holding AG
2,326
1 Kuoni Reisen AG
3,034
10 Merkur Holding AG
2,257
156 Nestle SA
310,352
251 Novartis AG
402,344
25 Novartis AG (Registered)
40,110
7 Roche Holdings AG
120,854
28 Roche Holdings AG (Registered)
301,377
50 Sairgroup
10,276
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Switzerland (cont'd.)
1 Schindler Holding AG $
1,138
1 Schindler Holding AG (Registered)
1,234
56 Schweizerische
Rueckversicherungs-Gesellschaft
111,044
3 SGS Societe Generale de Surveillance
Holding SA
2,169
10 SGS Societe Generale de Surveillance
Holding SA (Registered)
1,914
7 Sika Finanz AG
1,972
10 SMH AG
6,003
50 SMH AG (Registered)
7,404
10 Sulzer AG
4,948
841 UBS-Union Bank of Switzerland
164,031
180 Zurich Versicherungs-Gesellschaft
89,330
--------
- ----
1,817,136
- ------------------------------------------------------------
United Kingdom--30.4%
5,650 Abbey National plc
97,360
6,150 Allied Zurich
62,917
840 Anglian Water plc
13,533
3,050 Arjo Wiggins Appleton plc
5,222
3,450 Associated British Foods plc
35,148
4,400 BAA plc
44,827
6,150 Barclays plc
100,437
750 Barratt Development plc
2,434
3,457 Bass plc
41,418
1,450 BBA Group plc
7,417
15,629 BG plc
108,630
1,450 BICC plc
1,454
2,800 Blue Circle Industries plc
13,085
2,100 BOC Group plc
26,052
4,100 Boots Co. plc
70,581
550 Bowthorpe plc
3,094
1,900 BPB plc
7,620
7,500 British Aerospace plc
45,501
4,350 British Airways plc
26,613
6,150 British America Tobacco plc
45,986
1,900 British Land Co. plc
18,792
23,200 British Petroleum Co. plc
354,835
7,050 British Sky Broadcasting plc
60,024
7,800 British Steel plc
14,084
25,700 British Telecom plc $
346,339
13,406 BTR plc
24,206
1,400 Bunzl plc
5,020
750 Burmah Castrol plc
10,655
9,300 Cable & Wireless plc
88,663
4,100 Cadbury Schweppes plc
53,093
1,800 Caradon plc
3,793
2,100 Carlton Communications plc
13,989
16,800 Centrica plc
32,476
1,750 Coats Viyella plc
1,033
300 Cobham plc
3,174
5,100 Commercial Union plc
78,999
2,500 Compass Group plc
23,494
850 De La Rue plc
2,253
14,405 Diageo plc
137,087
1,400 Electrocomponents plc
7,810
1,170 Elementis plc
1,591
3,050 EMI Group plc
18,802
850 English China Clay plc
2,102
1,800 FKI plc
3,487
11,400 General Electric Co. plc
83,305
2,900 GKN plc
29,520
14,200 Glaxo Wellcome plc
419,164
3,600 Granada Group plc
45,272
1,000 Great Portland Estates plc
3,416
4,200 Great Universal Stores plc
47,821
3,047 Guardian Royal Exchange plc
13,230
10,100 Halifax plc
130,446
900 Hammerson plc
6,164
2,000 Hanson plc
12,678
400 Hepworth plc
965
3,400 HSBC Holdings plc (GBP)
63,673
7,100 HSBC Holdings plc (HKD)
127,052
300 Hyder plc
4,749
1,050 IMI plc
4,479
3,000 Imperial Chemical Industries plc
23,630
750 Johnson Matthey plc
3,878
7,850 J. Sainsbury plc
75,173
5,650 Kingfisher plc
52,425
4,450 Ladbroke Group plc
16,561
400 Laird Group plc
1,060
2,000 Land Securities plc
30,997
3,350 LASMO plc
9,906
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United Kingdom (cont'd.)
5,200 Legal & General Group plc $
58,323
200 Lex Service plc
1,169
21,450 Lloyds TSB Group plc
240,220
663 Lonrho plc
3,459
5,500 Lucas Varity plc
16,918
11,500 Marks & Spencer plc
88,335
1,156 MEPC plc
9,214
250 Meyer International plc
1,115
2,000 Misys plc
18,184
6,052 National Grid Co. plc
45,047
4,900 National Power plc
43,217
1,400 Next plc
9,992
400 Ocean Group plc
3,657
2,500 P & O Finance plc
23,792
2,500 Pearson plc
46,521
3,850 Pilkington plc
3,729
916 Provident Financial plc
12,142
7,700 Prudential Corp. plc
112,534
1,000 Racal Electronic plc
5,778
2,150 Railtrack Group plc
61,967
3,000 Rank Group plc
11,726
4,600 Reed International plc
38,773
11,400 Rentokil Initial plc
70,276
6,066 Reuters Group plc
50,924
1,900 Rexam plc
5,877
4,400 Rio Tinto Finance plc
52,454
1,000 RMC Group plc
10,876
5,600 Rolls-Royce plc
19,319
6,550 Royal & Sun Alliance Insurance Group
plc
56,768
3,450 Royal Bank Scotland Group plc
39,282
1,750 Rugby Group plc
2,335
4,100 Safeway plc
19,213
1,125 Schroders plc
18,449
2,450 Scottish & Newcastle plc
29,977
4,750 ScottishPower plc
46,011
455 Sears plc
1,198
1,000 Sedgwick Group plc
3,365
8,600 Siebe plc
27,768
1,350 Slough Estates plc
6,814
22,150 Smithkline Beecham plc
243,542
1,150 Smiths Industries plc
13,035
1,600 Southern Electric plc $
17,878
1,300 St. James's Place Capital plc
5,081
800 Stagecoach Holdings plc
15,471
3,350 Tarmac plc
4,725
1,600 Tate & Lyle plc
8,782
1,250 Taylor Woodrow plc
3,887
26,100 Tesco plc
74,072
1,191 Thames Water plc
23,721
600 Thorn plc
2,541
1,850 TI Group plc
11,192
950 Unigate plc
7,233
13,150 Unilever plc
112,518
1,155 United Biscuits Holding plc
4,024
2,000 United Utilities plc
32,323
766 Vickers plc
1,901
12,250 Vodafone Group plc
142,185
2,492 Williams plc
14,589
750 Willis Corroon Group plc
2,555
2,150 Wolseley plc
10,961
3,850 Zeneca Group plc
136,088
--------
- ----
5,475,716
Total common stocks
(cost US$16,903,691)
17,461,890
--------
- ----
- ------------------------------------------------------------
PREFERRED STOCKS--0.7%
- ------------------------------------------------------------
Germany--0.7%
10 Dyckerhoff AG, DM 20
3,201
10 Friedrich Grohe AG, DM 30
2,764
15 MAN AG, DM 16
3,060
510 RWE AG, DM 2.29
16,020
170 Sap AG, DM 4.07
80,659
400 Volkswagen AG, DM 11.63
18,189
--------
- ----
123,893
- ------------------------------------------------------------
Italy
4,500 Fiat SpA, L 90.91(a)
7,026
--------
- ----
Total preferred stocks
(cost US$107,099)
130,919
--------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- ------
- ------------------------------------------------------------
- ------
<TABLE>
<CAPTION>
Warrants/
Rights/Units Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
WARRANTS(a)
- ------------------------------------------------------------
France
20 Axa-UAP, expiring 12/31/98 $
393
- ------------------------------------------------------------
Germany
12 Munchener
Ruckversicherungs-Gesellschaft
AG, expiring 12/31/98
474
- ------------------------------------------------------------
Italy
400 Mediobanca SpA, expiring 12/31/99
1,072
--------
- ----
Total warrants (cost US$0)
1,939
--------
- ----
- ------------------------------------------------------------
RIGHTS(a)
- ------------------------------------------------------------
Netherlands
1,624 Koninklijke KNP BT, expiring 10/12/98
6,332
- ------------------------------------------------------------
Spain
50 Viscofan Envoltura, expiring 10/14/98
64
--------
- ----
Total rights
(cost US$8,852)
6,396
--------
- ----
- ------------------------------------------------------------
COMMON STOCK UNITS(a)
- ------------------------------------------------------------
Ireland
2,600 Waterford Wedgewood plc
(cost US$3,396)
2,409
--------
- ----
Total long term investments
(cost US$17,023,038)
17,603,553
--------
- ----
SHORT-TERM INVESTMENTS--1.3%
- ------------------------------------------------------------
U.S. Government Securities--0.1%
U.S. Treasury Bills
$10,000 4.20%, 12/17/98(b) $
9,912
10,000 4.64%, 12/17/98(b)
10,013
--------
- ----
(cost US$19,811)
19,925
--------
- ----
- ------------------------------------------------------------
REPURCHASE AGREEMENTS--1.2%
206,000 Joint Repurchase Agreement Account
5.52%, 10/1/98
(cost US$206,000; Note 5)
206,000
--------
- ----
- ------------------------------------------------------------
Total Investments--98.9%
(cost US$17,248,849; Note 4)
17,829,478
Other assets in excess of
liabilities--1.1%
196,832
--------
- ----
Net Assets--100% $
18,026,310
--------
- ----
--------
- ----
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as collateral for financial futures contracts.
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of September 30, 1998 was as follows:
<TABLE>
<S> <C>
Finance...............................................
23.1%
Utilities.............................................
14.1
Health Technology.....................................
11.2
Consumer Nondurables..................................
7.9
Energy Minerals.......................................
7.6
Process Industries....................................
6.2
Retail Trade..........................................
5.5
Producer Manufacturing................................
4.6
Electronic Technology.................................
3.8
Consumer Durables.....................................
3.0
Commercial Services...................................
2.2
Consumer Services.....................................
2.0
Industrial Services...................................
1.9
Transportation........................................
1.6
Nonenergy Minerals....................................
1.5
Technology Services...................................
1.5
Short-Term Investments................................
1.2
----
- -
98.9%
Other assets in excess of liabilities.................
1.1
----
- -
100.0%
----
- -
----
- -
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL INDEX
SERIES FUND
PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$17,248,849)................................................
............... $ 17,829,478
Foreign currency, at value (cost
$116,003)...................................................
.......... 117,346
Due from
Manager.....................................................
.................................. 187,073
Dividends and interest
receivable..................................................
.................... 92,370
Receivable for investments
sold........................................................
................ 1,543
Receivable for Fund shares
sold........................................................
................ 1,133
Other
assets......................................................
..................................... 284
- ------------------
Total
assets......................................................
.................................. 18,229,227
- ------------------
Liabilities
Accrued expenses and other
liabilities.................................................
................ 99,815
Payable for Fund shares
reacquired..................................................
................... 55,738
Payable for investments
purchased...................................................
................... 34,282
Due to broker - variation
margin......................................................
................. 6,808
Foreign withholding taxes
payable.....................................................
................. 6,274
- ------------------
Total
liabilities.................................................
.................................. 202,917
- ------------------
Net
Assets......................................................
....................................... $ 18,026,310
- ------------------
- ------------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
...... $ 1,695
Paid-in capital in excess of
par.........................................................
........... 17,212,907
- ------------------
17,214,602
Undistributed net investment
income......................................................
........... 213,033
Accumulated net realized gains on investments and foreign
currencies................................
24,945
Net unrealized appreciation on investments and foreign
currencies...................................
573,730
- ------------------
Net assets, September 30,
1998........................................................
................. $ 18,026,310
- ------------------
- ------------------
Net asset value per share
($18,026,310 / 1,694,799 shares of beneficial interest
issued and outstanding)...................... $
10.64
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Through
Net Investment Income September 30,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes
of $55,782)......................... $
380,469
Interest...............................
14,880
----------
- -
Total Income........................
395,349
----------
- -
Expenses
Management fee.........................
70,719
Custodian's fees and expenses..........
253,500
Registration fees......................
58,000
Reports to shareholders................
35,000
Legal fees and expenses................
22,000
Audit fees and expenses................
18,000
Trustee's fees.........................
7,000
Transfer agent's fees and expenses.....
1,000
Miscellaneous..........................
587
----------
- -
Total expenses......................
465,806
Less: Expense subsidy..................
(358,832)
----------
- -
Net expenses........................
106,974
----------
- -
Net investment income.....................
288,375
----------
- -
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions................
73,748
Financial futures transactions.........
(30,593)
Foreign currency transactions..........
(5,161)
----------
- -
37,994
----------
- -
Net change in unrealized appreciation
(depreciation) on:
Investments............................
580,515
Financial futures......................
(12,352)
Foreign currencies.....................
5,567
----------
- -
573,730
----------
- -
Net gain on investments and foreign
currencies.............................
611,724
----------
- -
Net Increase in Net Assets
Resulting from Operations................. $
900,099
----------
- -
----------
- -
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Increase (Decrease) Through
in Net Assets September 30,
1998
<S> <C>
Operations
Net investment income................... $
288,375
Net realized gain on investments and
foreign currency transactions........
37,994
Net change in unrealized appreciation of
investments and foreign currencies...
573,730
---------------
- ------
Net increase in net assets resulting
from operations......................
900,099
---------------
- ------
Dividends and distributions (Note 1):
Dividends from net investment income....
(108,089)
---------------
- ------
Fund share transactions (Note 6):
Net proceeds from shares sold...........
18,141,700
Net asset value of shares issued in
reinvestment of dividends............
108,032
Cost of shares reacquired...............
(1,015,432)
---------------
- ------
Net increase in net assets from Fund
share transactions...................
17,234,300
---------------
- ------
Total increase.............................
18,026,310
Net Assets
Beginning of period........................ -
- -
---------------
- ------
End of period(b)...........................
$18,026,310
---------------
- ------
---------------
- ------
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net investment income of
$175,125.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL
EUROPE INDEX FUND
- ------------------------------------------------------------
- --------------------
Prudential Index Series 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 five separate Funds.
Prudential Europe Index Fund
(the 'Fund') commenced investment operations on October 1,
1997 when 1,500,000
shares of beneficial interest of the Fund were sold for
$15,000,000 to The
Prudential Insurance Company of America ('The Prudential').
The Fund's investment objective 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 Morgan Stanley
Capital
International Europe 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 were no sales 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, under triparty repurchase agreements, as the
case may be, 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 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.
Forward Currency Contracts: A forward currency contract is a
commitment to
purchase or sell a foreign currency at a future date at a
negotiated forward
rate. The Fund enters into forward currency contracts in
order to hedge its
exposure to changes in foreign currency exchange rates on
its foreign
- ------------------------------------------------------------
- --------------------
13
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL
EUROPE INDEX FUND
- ------------------------------------------------------------
- --------------------
portfolio holdings or on specific receivables and payables
denominated in a
foreign currency. The contracts are valued daily at current
exchange rates and
any unrealized gain or loss is included in net unrealized
appreciation or
depreciation on investments. Gain or loss is realized on
settlement date of the
contract equal to the difference between settlement value of
the original and
renegotiated forward contracts. This gain or loss, if any,
is included in net
realized gain (loss) on foreign currency transactions. Risks
may arise upon
entering into these contracts from the potential inability
of the counter
parties to meet the terms of their contracts.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of
securities or commodities 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.
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 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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with 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 increase undistributed net investment
income by $32,747,
decrease accumulated realized gains by $13,049 and decrease
paid-in capital in
excess of par by $19,698 relating to net realized foreign
currency losses and
nondeductible offering cost. Net investment income, net
realized gains and net
assets were not affected by this change.
- ------------------------------------------------------------
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 to 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 so that total
Fund operating expenses do not exceed .60% on an annualized
basis of the Fund's
average daily net assets. This voluntary waiver may be
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL
EUROPE INDEX FUND
- ------------------------------------------------------------
- --------------------
terminated at any time without notice. For the period ended
September 30, 1998,
PIFM subsidized $358,832 of the expenses of the Fund (2.02%
of average net
assets, or $0.21 per share).
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Fund through
May 31, 1998.
Prudential Investment Management Services LLC ('PIMS')
became the distributor of
the Fund effective June 1, 1998 and is serving the Fund
under the same terms and
conditions as under the arrangement with PSI. No
distribution or service fees
are paid to PSI or PIMS as distributor of the Fund.
PSI, PIFM, PIMS and PIC are wholly owned subsidiaries of The
Prudential.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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 did not borrow any amounts pursuant to the Agreement
during the period
ended September 30, 1998. 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.
The Agreement
expired on December 30, 1997 and has been extended through
December 29, 1998
under the same terms.
- ------------------------------------------------------------
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. During the period
October 1, 1997
through September 30, 1998, the Fund incurred fees of
approximately $1,000 for
the services of PMFS. As of September 30, 1998,
approximately $200 of such fees
were due to PMFS. Transfer agent fees and expenses in the
Statement of
Operations include certain out-of-pocket expenses paid to
nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the period ended September 30, 1998 were $17,644,283 and
$656,636,
respectively.
The United States federal income tax cost basis of the
Fund's investments at
September 30, 1998 was $17,249,634 and, accordingly, net
unrealized appreciation
for federal income tax purposes was $579,844 (gross
unrealized
appreciation--$2,333,194; gross unrealized depreciation--
$1,753,350).
At September 30, 1998, the Fund had outstanding forward
currency contracts to
purchase foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contracts Receivable Value
Depreciation
- ------------------------------- --------------- -------
- ------------
<S> <C> <C>
<C>
British Pound,
expiring 10/2/98.............. $10,000 $10,002
$2
Finnish Markka,
expiring 10/2/98.............. 2,000 2,001
1
Spainsh Peseta,
expiring 10/2/98.............. 6,000 6,001
1
Swiss Franc,
expiring 10/2/98.............. 4,000 4,002
2
- -
$6
- -
- -
</TABLE>
At September 30, 1998, the Prudential Europe Index Series
had open buys of 100
EUROTOP and 10 FTSE 100 financial futures contracts expiring
on December 19,
1998.
The unrealized depreciation on such contracts as of
September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Value at Value on
Unrealized
Acquisition September 30, 1998
Depreciation
----------- ------------------
- ------------
<S> <C> <C>
<C>
EUROTOP.................. $ 242,300 $230,000
$ 12,300
FTSE 100................. 87,486 87,434
52
- ------
$ 12,352
- ------
- ------
</TABLE>
- ------------------------------------------------------------
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, 1998, the
Fund had a .028% undivided interest in the repurchase
agreements in the joint
account. This undivided interest represented $206,000 in
principal amount. As of
such date, the repurchase agreement in the joint account and
the value of the
collateral therefore was as follows:
- ------------------------------------------------------------
- --------------------
15
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL
EUROPE INDEX FUND
- ------------------------------------------------------------
- --------------------
Bear Stearns & Co., 5.58%, in the principal amount of
$210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral
including accrued
interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal
amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98.
The value of the
collateral including accrued interest was $111,084,883.
Goldman Sachs & Co., 5.45%, in the principal amount of
$210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral
including accrued
interest was $214,200,293.
Warburg Dillon Read LLC., 5.52%, in the principal amount of
$210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the
collateral
including accrued interest is $214,255,819.
- ------------------------------------------------------------
Note 6. Capital
The Fund has authorized an unlimited number of Class Z
shares of beneficial
interest at $.001 par value per share. Class Z shares are
not subject to any
sales or redemption charges and are offered exclusively for
sale to a limited
group of investors. Transactions in shares of beneficial
interest for the period
October 1, 1997 (commencement of investment operations)
through September 30,
1998 were as follows:
<TABLE>
<CAPTION>
Shares
-------
- --
<S> <C>
Shares sold........................................
1,771,843
Shares issued in reinvestment of dividends and
distributions....................................
11,206
Shares reacquired..................................
(88,250)
-------
- --
Net increase in shares outstanding.................
1,694,799
-------
- --
-------
- --
</TABLE>
As of September 30, 1998, 1,518,139 of the outstanding
shares were owned by The
Prudential.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Financial Highlights PRUDENTIAL
EUROPE INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
October 1, 1997(a)
Through
September 30, 1998
- -------------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................................................
.............. $ 10.00
- ------
Income from investment operations
Net investment
income(c)...................................................
............................. .18
Net realized and unrealized gain on investment and foreign
currency transactions........................
.53
- ------
Total from investment
operations..................................................
................... .71
- ------
Less distributions
Dividends from net investment
income......................................................
.............. (.07)
- ------
Net asset value, end of
period......................................................
.................... $ 10.64
- ------
- ------
TOTAL
RETURN(d):..................................................
...................................... 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................................
.................. $18,026
Average net assets
(000).......................................................
......................... $17,728
Ratios to average net assets:(b)(c)
Expenses....................................................
.........................................
.60%
Net investment
income......................................................
.......................... 1.64%
Portfolio
turnover....................................................
.................................. 4%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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 the period reported and
includes reinvestment
of dividends and distributions. Total returns are not
annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Report of Independant Accountants PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Trustees of
Prudential Index Series Fund--Prudential Europe 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
Index Series
Fund--Prudential Europe Index Fund (the 'Fund', one of the
portfolios
constituting Prudential Index Series Fund) at September 30,
1998, and the
results of its operations, the changes in its net assets and
the financial
highlights for the period October 1, 1997 (commencement of
operations) through
September 30, 1998, 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, 1998 by correspondence with the custodian and
brokers, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
PRUDENTIAL INDEX
SERIES FUND
Tax Information (Unaudited) PRUDENTIAL EUROPE
INDEX FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends paid by the Fund during such fiscal year.
Accordingly, we are advising
you that in the fiscal year ended September 30, 1998,
dividends paid from net
investment income were $.07 per class Z share which is
taxable as ordinary
income.
The Fund has elected to give the benefit of foreign tax
credits to its
shareholders. Accordingly, shareholders who must report
their gross income
dividends and distributions in a federal income tax return
will be entitled to a
foreign tax credit, or an itemized deduction, in computing
their U.S. income tax
liability. It is generally more advantageous to claim a
credit rather than to
take a deduction. For the fiscal year ended September 30,
1998, the Fund intends
on passing through 8.64% of ordinary income distributions as
a foreign tax
credit.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends, distributions
and foreign tax
credits received by you in calendar year 1998.
- ------------------------------------------------------------
- --------------------
18
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like
to help. So we'll
use this space from time to time to explain some of the
words you might have
read, but not understood. And if you have a favorite word
that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis
points.
Call Option: A contract giving the holder a right to buy
stocks or bonds at a
predetermined price (called the strike price) before a
predetermined expiration
date. A buyer of a call option generally expects to benefit
from a rise in the
price of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities
sliced in maturity ranges that bear differing interest
rates. These instruments
are sensitive to changes in interest rates and homeowner
refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate
of return of these financial products rises and falls --
sometimes very
suddenly -- in response to changes in some specific interest
rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on
overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a
commodity or financial instrument at a set price at a
specified date in the
future.
Leverage: The use of borrowed assets to enhance return on
equity. The
expectation is that the interest rate charged on borrowed
funds will be lower
than the return on the investment. While leverage can
increase profits, it can
also magnify losses.
Liquidity: The ease with which a financial instrument (or
mutual fund) can be
bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings
per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by
a certain time for a specified price. An option need not be
exercised.
Spread: The difference between two values; often used to
describe the
difference between "bid" and "asked for prices of" a
security.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
- ------------------------------------------------------------
- -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- ------------------------------------------------------------
- -------------------
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- ------------------------------------------------------------
- -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
- -------------------------------------------------
Prudential Europe Index Fund vs. the Morgan
Stanley Capital International (MSCI) Europe Index.
Class Z
(CHART)
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so an investor's shares, when
redeemed, may be worth more
or less than their original cost.
This graph is furnished to you in accordance with SEC
regulations. It compares
a $10,000 investment in the Prudential Europe Index Fund
(Class Z shares) with
a similar investment in the Morgan Stanley Capital
International (MSCI) Europe
Index (the Index) by portraying the initial account values
at the commencement
of operations of Class Z, and the subsequent account values
at the end of the
fiscal year (September 30), as measured on a quarterly
basis, beginning in
1997. For purposes of the graph, it has been assumed that
all dividends and
distributions were reinvested. Class Z shares are not
subject to a sales
charge or distribution fee. Class Z shares have been in
existence less than
one year, therefore no average annual returns are presented.
The Index is an unmanaged, weighted index comprised of
approximately 620
companies representing about 15 developed European
countries. The Index
includes the reinvestment of all dividends, but does not
reflect the payment
of transaction costs and advisory fees associated with an
investment in the
Fund. The securities in the Index may differ substantially
from the securities
in the Fund. The Index is not the only one that may be used
to characterize
performance of stock funds, and other indexes may portray
different
comparative performance. Investors cannot invest directly in
an index.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74431F811 MF174E7
(ICON)
Prudential
Pacific
Index Fund
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Pacific Index Fund
A Series of the Prudential Index Series Fund
Performance At A Glance.
All Pacific Region stock markets have fallen as the regional
economies
contract. Of the countries represented in our Fund, Hong
Kong and Malaysia
have the sharpest economic recessions, while Singapore and
Australia still
have positive growth, but all had deep drops in their
national stock indexes.
Our Fund performed in line with the MSCI Index and
considerably better than
the Lipper average of managed funds.
Cumulative Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
One
Since
Year
Inception2
<S> <C>
<C>
Class Z -35.54% (-36.66) -
36.32% (-37.52)
Lipper Pacific Region Fund Avg.3 -40.29%
- -40.29%
MSCI Pacific Free Index4 -35.38%
- -35.38%
</TABLE>
Average Annual Total Returns1 As of
9/30/98
<TABLE>
<CAPTION>
One
Since
Year
Inception2
<S> <C> <C>
Class Z -35.54% (-36.66) -
35.87% (-37.06)
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical
Services. Without waiver of management fees and/or expense
subsidization, the
Fund's cumulative and average annual total returns would
have been lower, as
indicated in parentheses ( ).
2 Inception date: Class Z, 9/24/97. The Lipper and Factset
reporting period
begins 9/30/97.
3 The Lipper Since Inception return is for all funds in the
Pacific Region Fund
category.
4 Source: Morgan Stanley Capital International, based on
data retrieved by
Factset. The Morgan Stanley Capital International (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.
The benchmark return
shown does not reflect the reduction of foreign dividend
withholding taxes.
Investors cannot invest directly in an index.Source: Lipper
Analytical
Services. Financial markets change, so a mutual fund's past
performance should
never be used to predict future results. The risks to each
of the investments
listed above are different -- we provide 12-month total
returns for several
Lipper mutual fund categories to show you that reaching for
higher returns
means tolerating more risk. The greater the risk, the larger
the potential
reward or loss. In addition, we've included historical 20-
year average annual
returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they don't
fluctuate much in price but, historically, their returns
have been generally
among the lowest of the major investment categories.
How Investments Compared.
(As of 9/30/98)
(CHART)
<PAGE>
(PHOTO)
Portfolio
Manager's Report
The Prudential Pacific Index Fund seeks to provide
investment results that
correspond to the price and yield of a broad-based index of
stocks of Pacific
Region issuers. Currently we use the Morgan Stanley Capital
International
(MSCI) Pacific Free Index. ("Free" means that it includes
companies that are
open to foreign investors.) Over the past year, the MSCI
Pacific Free Index
represented stocks in Japan, Australia, Hong Kong, Malaysia,
Singapore, and
New Zealand. Malaysia was removed from the list as of
9/30/98. The difference
between the Fund's return and that of the Index is primarily
fees, management
expenses, and foreign dividend withholding taxes. There can
be no assurance
that the Fund will achieve its investment objective.
Index Funds.
An index fund is designed to minimize the risks of a
portfolio manager's
strategic decisions. It aims to duplicate the performance of
an entire class
of investments -- in this case, Pacific Region stocks.
Because the Fund tries
to mirror an index, it has low portfolio turnover and
expenses, providing an
efficient way to share in the average long-term prosperity
of Pacific-based
companies.
-- John Moschberger,
Fund Manager
Market Review.
- -------------------------------------------------
The Pacific Region is undergoing a painful restructuring of
its financial and
economic system that should eventually lead to a resurgence
of rapid growth,
but is now accompanied by recession. It helps to remember
that the Region's
primary strength -- its large, ambitious, and educated
population -- is still
there. But Pacific countries have lacked an open and
rational means of
allocating capital to various enterprises. Interpersonal
relationships --
including family ties and long-standing business
affiliations -- counted for
far too much. The result was overbuilding and waste. As long
as international
investors would tolerate this, enough capital came in to
compensate for the
inefficiency.
Over the past 12 months, we have seen a broad and deep loss
of confidence in
the Pacific Region's financial system, triggered by
Thailand's currency crisis.
Japan, the dominating economy in the Region and a major
market for the smaller
countries, also fell into recession. The combination of
slowing intra-Regional
trade and a severe shortage of capital to finance trade and
investment has
pulled almost every Pacific economy into recession (with
Australia the notable
exception). The second quarter of 1998 marked three
successive quarters of
Japanese economic contraction, the longest since the
government began keeping
such statistics in 1955. Some of the forces that could
trigger a recovery
(overall consumer spending and capital investment) are
moving in the wrong
direction, although others (inventories and consumer durable
purchases) have
picked up. Japan normally absorbs 18% of the exports of
other Asian countries.
With Japanese imports shrinking at a 25% annual rate, other
economies are
being suffocated.
This is the backdrop for the sharp decline in value of
Pacific Region stocks
over the past year. Stock markets have been volatile because
their economic
underpinnings are uncertain and investor interest in the
region is unstable.
For example, stock markets rose early in 1998, but resumed
their decline by
March. October also saw a sharp rise, but it appeared
disproportionate to any
improvement in the economic fundamentals of the region.
Japan. Japan's economy shrank in the second quarter of 1998
at an annual rate
of 3.3%. Unemployment is at a historic high of 4.3%, and the
number of jobs is
dropping. Capital investment has been declining at 20% a
year. It is widely
believed that only strong government stimulus and/or
structural reform of the
financial sector will reignite growth. In mid-September, the
government
announced a plan adopting many of the strong proposals of
its parliamentary
opposition, but official adoption is far from full
implementation. The October
government takeover of the Long-Term Credit Bank of Japan is
the first
unambiguous sign of a determination to take action.
Japanese stocks constitute 78% of the MSCI Pacific Free
Index, which fell by
33% in our reporting period. The financial services
industry, which is
generally believed to have deep insolvency problems, had
broad and very sharp
reversals, including Fuji Bank (down 79%), Mitsui Trust &
Banking (down 82%),
Yasuda Trust & Banking (down 83%), Industrial Bank of Japan
(down 74%), and
Sakura Bank (down 70%). There were few positive returns for
the
<PAGE>
year anywhere else. Large industrial firms, like Fujitsu
(down 30%), Kawasaki
Heavy Industries (down 41%), and Mitsubishi Heavy Industries
(down 40%),
illustrate the depth of the bear market. Olympus Optical,
with a positive 61%
return, stands out like a beacon with its strong stock
performance.
Australia and New Zealand.
Australia's economy grew at a healthy 3.2% rate in the
second quarter of 1998,
despite depressed commodity prices and its chief customers'
economic recession.
It accomplished this primarily by replacing lost Asian
business with greater
exports to Europe and the United States. Its stocks
suffered, nonetheless,
from the regional bear market. At 10% of the Index, its 19%
decline was a
regional high. The News Corporation (Rupert Murdoch's global
corporation, up
25%) and Rothmans Holdings (a regional tobacco and paper
products company, up
34%) were the highlights. Unfortunately, New Zealand's
economy has followed a
more predictable path of consequences to declining export
levels and commodity
prices. Its stock market fell by 45%.
Hong Kong. Hong Kong is a developed economy with
particularly strong financial
and trade sectors that have been weakened by the evaporation
of regional trade.
Unemployment has doubled. Government intervention in the
markets has helped
support stock prices, concealing the magnitude of investors'
retreat.
Nonetheless, the market dropped 47%. The Index is dominated
by banks, real
estate firms, hotels, and trade-related businesses.
Malaysia. After two quarters of significant economic
contraction in Malaysia,
Prime Minister Mahathir dismissed his pro-reform Deputy
Prime Minister Anwar
Ibrahim and subsequently announced a series of exchange
control measures to
prime the economy. However, neither foreign capital nor
domestic capital that
has fled the country is likely to return in the absence of
measures to control
the cronyism and ego-driven investment that initially shook
investors'
confidence. Moreover, by charging his former heir apparent
with corruption and
sodomy, Dr. Mahathir created even more instability.
Malaysia's stock market
dropped 74% and has been removed from the MSCI indexes as of
September 30,
1998.
We have begun liquidating our Malaysian portfolio gradually
to reduce
transaction costs and impact on the market, although we will
not be able to
convert the funds from ringgit until September 1999. In
order to maintain full
exposure to the Pacific markets, we plan to buy an
equivalent amount of stock
index future contracts.
Singapore. Singapore's economy, like Hong Kong's, has a very
large component of
financial and trade services. Its stocks declined 49%, on
average. The only
stock in the MSCI Singapore Index to inch into positive
territory was the 0.3%
gain by Singapore Telecommunication.
Portfolio Composition
Sectors expressed as a percentage
of net assets as of 9/30/98.
Japan 76.9%
Australia 9.9%
Hong Kong 7.4%
Cash & Equivalents 2.3%
Singapore 2.3%
New Zealand 0.7%
Malaysia 0.5%
Source: Prudential
How The MSCI Pacific Index Performed.
(CHART)
The performance cited does not represent the performance of
the Prudential
Pacific Index Fund. Investors cannot invest directly in an
index.
Source: Lipper Analytical Services, Inc.
1
<PAGE>
President's Letter
November 9, 1998
- ------------------------------------------------------------
- -------------------
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets
is decidedly mixed. After setting record highs earlier,
stocks, as measured by
the Dow Jones Industrial Average, experienced a series of
steep sell-offs in
late summer. The market rebounded in early fall, helped by
two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated
as investors fled troubled Asian and other emerging markets
for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S.
economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market
environment can be
challenging. That's why it is important to manage your
expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always
rise and fall -- that's what markets do. Although past
performance may not be
indicative of future results, stocks and bonds have, over
time, consistently
produced attractive returns that have kept ahead of
inflation. In fact,
investors who remained focused on the long term and did not
sell during the
recent market volatility were rewarded. Stock prices, as
measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since
their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond,
and money market mutual funds can help lessen the effects of
a market downturn
over time. In fact, a well-diversified portfolio may retain
or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will be glad to
review your current allocations. He or she will recommend
adjustments based
upon your goals, market conditions, risk tolerance, and
potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.7%
COMMON STOCKS--97.1%
- ------------------------------------------------------------
Australia--9.3%
6,600 Amcor Ltd. $
22,972
8,000 Amp Ltd.
96,892
3,049 Australian Gas & Light Co.
20,983
7,600 Australian National Industries Ltd.
3,331
11,823 Boral Ltd.
16,455
2,300 Brambles Industries, Ltd.
49,621
22,597 Broken Hill Proprietary Co., Ltd.
161,667
9,265 Coca Cola Amatil Ltd.
24,413
12,196 Coles Myer Ltd.
52,006
9,682 Crown Ltd.(a)
2,236
10,300 CSR, Ltd.
21,662
2,869 Email Ltd.
4,401
1,231 F. H. Faulding Co. Ltd.
4,877
20,000 Fosters Brewing Group
43,590
4,766 Futuris Corp., Ltd.
3,980
12,313 General Property Trust
21,148
6,444 GIO Australia Holdings Ltd.
19,502
13,005 Goodman Fielder Ltd.
17,022
2,340 Great Central Mines Ltd.
1,871
4,000 Hardie (James) Industries
7,671
2,700 ICI Australia Ltd.
13,112
2,700 Leighton Holdings Ltd.
8,811
2,539 Lend Lease Corp. Ltd.
54,134
16,933 M.I.M. Holdings Ltd.
7,923
15,400 National Australia Bank Ltd.
185,961
2,300 Newcrest Mining Ltd.(a)
2,970
20,533 News Corp., Ltd.
132,308
17,499 Normandy Mining Ltd.
14,768
7,517 North Ltd.
14,077
10,400 Pacific Dunlop Ltd.
17,659
9,200 Pioneer International Ltd.
17,163
3,673 QBE Insurance Group Ltd.
13,378
6,473 QCT Resources Ltd.
4,294
3,300 Rio Tinto Ltd.
39,909
2,100 RGC Ltd.
3,134
1,200 Rothmans Holdings
8,258
6,406 Southcorp Ltd.
17,820
6,200 Santos Ltd.
17,148
4,000 Schroders Propriety Fund $
6,112
1,800 Smith (Howard) Ltd.
9,488
5,300 Star City Holdings Ltd.
3,013
3,315 Stockland Trust Group
7,304
3,000 Tabcorp Holdings Ltd.
17,412
53,500 Telstra Corp.
149,777
11,718 Western Mining Corp. Holdings Ltd.
35,234
12,796 Westfield Trust
25,388
19,500 Westpac Banking Corp.
107,243
---------
- ---
1,530,098
---------
- ---
- ------------------------------------------------------------
Hong Kong--7.4%
13,000 Bank of East Asia
18,371
35,000 Cathay Pacific Air
32,974
24,000 Cheung Kong Ltd.
111,196
26,000 China Light & Power Holdings, Ltd.
126,838
20,000 Chinese Estates Holdings
2,271
3,000 Dickson Concept Inc.
2,342
11,000 Hang Lung Deveopment Co.
9,654
20,000 Hang Seng Bank Ltd.
126,476
44,000 Hong Kong & China Gas Co.
53,946
11,000 Hong Kong & Shanghai Hotels
6,104
2,000 Hong Kong Aircraft Engineering Co.,
Ltd.
2,375
124,000 Hong Kong Telecommunications Ltd.
244,047
44,000 Hopewell Holdings Ltd.
4,429
41,000 Hutchison Whampoa Ltd.
215,887
9,000 Hysan Development Co.
6,214
8,000 Johnson Electric Holdings, Ltd.
15,177
4,000 Kumagai Gumi Ltd.
1,071
6,000 Miramar Hotel & Investment Co.
4,259
21,000 New World Development Co., Ltd.
28,186
14,000 Oriental Press Group
1,482
6,000 Peregrine Investments
8
38,000 Regal Hotel International
2,795
16,000 Shangri La Asia Ltd.
10,325
14,000 Shun Tak Holdings Ltd.
867
32,000 Sino Land Co.
8,177
14,000 South China Morning Post
5,511
25,000 Sun Hung Kai Properties Ltd.
88,566
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Hong Kong (cont'd.)
16,000 Swire-Pacific, Ltd. 'A' $
50,384
21,000 Tan Chong International
645
4,000 Television Broadcasts Ltd.
10,221
2,000 Varitronix International, Ltd.
3,885
23,000 Wharf Holdings Ltd.
24,340
2,000 Wing Lung Bank
4,078
---------
- ---
1,223,101
---------
- ---
- ------------------------------------------------------------
Japan--76.9%
4,000 77th Bank(a)
32,648
1,500 Acom Co., Ltd.
80,884
1,000 Advantest Corp.
42,609
7,000 Ajinomoto Co., Inc.
56,053
2,000 Alps Electric Co.
24,111
3,000 Amada Co.
13,885
1,000 Amano Corp.
8,000
3,000 Aoki Corp.
882
800 Aoyama Trading Co., Ltd.
17,103
500 Arabian Oil Co.
6,634
24,000 Asahi Bank
67,000
5,000 Asahi Breweries
59,506
16,000 Asahi Chemical Industries
48,898
12,000 Asahi Glass Co.
58,184
5,000 Ashikaga Bank
7,016
400 Autobacs Seven Co.
10,667
48,000 Bank Of Tokyo-Mitsubishi, Ltd.
308,551
11,000 Bank of Yokohama
20,445
9,000 Bridgestone Corp.
181,825
3,000 Brother Industries
6,612
9,000 Canon Inc.
183,147
3,000 Casio Computer Co.
19,196
8,000 Chiba Bank
25,859
6,000 Chichibu Onoda Cement Corp.
12,122
2,000 Chiyoda Corp.
1,984
2,000 Chugai Pharmacy Co.
13,708
3,000 Citizen Watch Co.
20,386
5,000 Cosmo Oil Co.
6,281
1,600 Credit Saison Co., Ltd.
31,031
600 CSK Corp.
9,301
8,000 Dai Nippon Printing Co., Ltd.
102,968
4,000 Daicel Chemical Industries $
6,406
4,000 Daido Steel Co.
4,261
7,000 Daiei Inc.
15,942
1,000 Daifuku Co.
3,703
3,000 Daiichi Pharmaceutical Co.
40,244
3,000 Daikin Industries
20,959
2,000 Daikyo Inc.
1,881
3,000 Daimaru Inc.
6,612
8,000 Dainippon Ink & Chemicals, Inc.
15,633
2,000 Dainippon Screen Manufacturing Co.,
Ltd.
3,776
1,400 Daito Trust Construction Co., Ltd.
9,010
6,000 Daiwa House Industries
54,658
2,000 Daiwa Kosho Lease Co., Ltd.
6,450
14,000 Daiwa Securities Co., Ltd.
32,912
5,000 Denki Kagaku Kogyo K.K.
7,383
9,000 Denso Corp.
131,244
41 East Japan Railway Co.
204,819
3,000 Ebara Corp.
19,902
3,000 Eisai Co., Ltd.
36,497
1,000 Ezaki Glico Co.
5,040
2,400 Fanuc Ltd.
71,408
30,000 Fuji Bank
60,608
5,000 Fuji Photo Film Co.
172,642
3,000 Fujikura Ltd.
11,108
5,000 Fujita Corp.
1,800
1,000 Fujita Kanko Inc.
8,081
19,000 Fujitsu Ltd.
164,708
7,000 Furukawa Electric Co., Ltd.
19,953
1,000 Gakken Co.
1,036
5,000 Gunma Bank
33,426
2,000 Gunze Ltd.
4,305
9,000 Hankyu Corp.
31,075
2,000 Hankyu Department Stores
9,991
3,000 Hazama Corp.
1,344
3,000 Higo Bank
11,350
400 Hirose Electric Co., Ltd.
20,599
35,000 Hitachi Ltd.
154,276
10,000 Hitachi Zosen Corp.
13,224
6,000 Hokuriku Bank
7,317
10,000 Honda Motor Co., Ltd.
304,878
1,000 House Foods Corp.
12,562
1,000 Hoya Corp.
35,998
2,000 Inax Corp.
7,170
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
26,000 Indonesia Bank $
95,504
2,000 Isetan Co.
16,529
3,000 Ishihara Sangyo Kaisha(a)
4,011
4,000 Ito Yokado Co., Ltd.
191,008
15,000 Itochu Corp.
18,733
2,000 Itoham Foods Inc.
6,979
2,000 Iwatani International Corp.
2,939
1,000 Jaccs Co., Ltd.
3,798
18,000 Japan Air Lines Co.(a)
41,654
11,000 Japan Energy Corp.
10,344
4,000 Japan Steel Works
4,026
2,000 JGC Corp.
3,967
9,000 Joyo Bank
32,133
3,000 Jusco Co.
41,985
10,000 Kajima Corp.
24,243
3,000 Kamigumi Co., Ltd.
12,166
2,000 Kandenko Co.
10,917
5,000 Kanebo Ltd.(a)
3,857
4,000 Kaneka Corp.
22,539
10,100 Kansai Electrical Power
174,739
3,000 Kansai Paint Co.
5,510
7,000 Kao Corp.
112,107
1,000 Katokichi Co.
11,607
15,000 Kawasaki Heavy Industries
30,304
6,000 Kawasaki Kisen Ltd.
8,816
33,000 Kawasaki Steel Corp.
38,789
5,000 Keihin Electric Express Railway Co.,
Ltd.
13,150
2,000 Kikkoman Corp.
10,021
3,000 Kinden Corp.
34,514
17,000 Kinki Nippon Railway
73,810
11,000 Kirin Brewery Co.
88,246
1,000 Kissei Pharmaceutical Co., Ltd.
14,179
1,000 Kokuyo Co.
13,297
10,000 Komatsu Ltd.
46,650
1,000 Komori Corp.
17,815
300 Konami Co.
8,066
4,000 Konica Corp.
15,310
2,000 Koyo Seiko Co.
10,138
14,000 Kubota Corp.
26,844
7,000 Kumagai Gumi Co.(a)
3,805
3,000 Kurabo Industries
2,997
3,000 Kuraray Co. $
27,108
2,000 Kureha Chemical Industry Co., Ltd.
4,026
1,000 Kurita Water Industries
10,432
1,900 Kyocera Corp.
83,191
4,000 Kyowa Hakko Kogyo Co., Ltd.
15,574
1,000 Kyudenko Co., Ltd.
5,951
3,000 Lion Corp.
10,447
1,000 Maeda Road Construction Co.
5,165
1,000 Makino Milling Machine
5,804
2,000 Makita Corp.
23,009
15,000 Marubeni Corp.
17,742
3,000 Maruha Corp.
2,711
4,000 Marui Co.(a)
58,184
22,000 Matsushita Electric Industrial Co.,
Ltd.
299,809
3,000 Meiji Milk Product Co., Ltd.
7,053
4,000 Meiji Seika Kaisha
11,460
4,000 Minebea Co.(a)
32,648
1,000 Misawa Homes Co.
2,395
23,000 Mitsubishi Chemical Corp.
44,270
16,000 Mitsubishi Corp.
77,579
22,000 Mitsubishi Electric Corp.
33,941
13,000 Mitsubishi Estate Co., Ltd.
85,285
5,000 Mitsubishi Gas Chemicals Co.
11,277
35,000 Mitsubishi Heavy Industries Ltd.
120,078
2,000 Mitsubishi Logistc Corp.
16,529
12,000 Mitsubishi Material Corp.
21,599
5,000 Mitsubishi Oil Co.
5,951
3,000 Mitsubishi Paper Mills
5,135
6,000 Mitsubishi Rayon Co.
14,634
13,000 Mitsubishi Trading & Banking
45,842
16,000 Mitsui & Co
66,059
8,000 Mitsui Engineering & Shipbuilding
Co., Ltd.(a)
5,642
8,000 Mitsui Fudosan Co., Ltd.
41,081
8,000 Mitsui Marine & Fire Insurance Co.,
Ltd.
32,912
5,000 Mitsui Mining & Smelting Co.
20,974
11,000 Mitsui O.S.K. Lines
15,920
1,000 Mitsui Soko Co.
2,645
12,000 Mitsui Trust & Banking Co.
10,667
5,000 Mitsukoshi Ltd.
10,285
1,000 Mori Seiki Co.
10,212
2,000 Murata Manufacturing Co., Ltd.
67,734
3,000 Mycal Corp.
17,191
2,000 Nagase & Co.
7,170
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
8,000 Nagoya Railroad Co. $
24,096
500 Namco Ltd.
11,571
5,000 Nankai Electric Railway Co.
20,019
16,000 NEC Corp.
104,026
4,000 NGK Insulators Ltd.
38,055
2,000 NGK Spark Plug Co.
16,280
5,000 Nichido Fire & Marine Insurance
22,076
3,000 Nichirei Corp.
5,069
3,000 Nihon Cement Co.
5,069
4,000 Nikon Corp.
28,416
1,000 Nippon Comsys Corp.
10,079
11,000 Nippon Express Co., Ltd.
47,678
6,000 Nippon Fire & Marine Insurance
19,174
5,000 Nippon Light Metal Co., Ltd.
4,555
2,000 Nippon Meat Packers, Inc.
23,244
13,000 Nippon Oil Co.
34,381
10,000 Nippon Paper Industries Co.
30,929
1,000 Nippon Sharyo Ltd.
1,984
4,000 Nippon Sheet Glass Co.
6,435
3,000 Nippon Shinpan Co.
3,967
2,000 Nippon Shokubai Co.
8,669
72,000 Nippon Steel Corp.
103,673
3,000 Nippon Suisan Kaisha(a)
2,887
132 Nippon Telegraph & Telephone Corp.
964,884
12,000 Nippon Yusen K.K.
35,351
3,000 Nishimatsu Construction Co.
13,378
26,000 Nissan Motor Co., Ltd.(a)
72,583
2,000 Nisshinbo Industries, Inc.
6,612
1,000 Nissin Food Products Co., Ltd.
15,501
2,000 Nitto Denko Corp.
23,509
38,000 NKK Corp.
18,983
2,000 NOF Corp.
3,012
20,000 Nomura Securities Co., Ltd.
143,991
2,000 Noritake Co.
8,448
6,000 NSK Ltd.
20,717
5,000 NTN Corp.
12,673
8,000 Obayashi Corp.
28,504
7,000 Odakyu Electric Railway
19,542
11,000 Oji Paper Co.
37,254
1,000 Okuma Corp.
4,408
3,000 Okumura Corp.
9,146
3,000 Olympus Optical Co. $
33,037
3,000 Omron Corp.
29,863
2,000 Onward Kashiyama & Co., Ltd.
24,640
3,000 Orient Corp.
5,642
700 Orix Corp.
48,597
26,000 Osaka Gas Co.
66,280
100 Oyo Corp.
1,387
4,000 Penta-Ocean Construction
7,111
2,000 Pioneer Electronic Corp.
33,132
2,000 Q.P. Corp.
12,871
3,000 Renown Inc.
1,433
1,000 Rohm Co., Ltd.
95,504
38,000 Sakura Bank
55,833
1,000 Sanden Corp.
5,973
2,000 Sankyo Aluminium Industry Co.
1,322
5,000 Sankyo Co.
110,931
1,000 Sanrio Co.(a)
9,477
2,000 Sanwa Shutter Corp.
7,611
20,000 Sanyo Electric Co.
52,454
3,000 Sapporo Breweries
9,256
1,000 Secom Co., Ltd.
62,445
1,000 Sega Enterprises Ltd.
16,897
1,000 Seino Transportation Co.
5,076
2,000 Seiyu Ltd.
3,776
6,000 Sekisui Chemical Corp., Ltd.
22,833
8,000 Sekisui House Ltd.
65,178
12,000 Sharp Corp.
71,672
500 Shimachu Co.
7,530
1,000 Shimano Inc.
22,701
8,000 Shimizu Corp.
21,099
4,000 Shin-Etsu Chemical Co., Ltd.
63,620
4,000 Shionogi & Co.
23,244
4,000 Shiseido Co., Ltd.
35,410
8,000 Shizuoka Bank
73,465
11,000 Showa Denko KK
7,273
1,000 Skylark Co.
9,697
700 SMC Corp.
47,517
3,000 Snow Brand Milk Products
9,102
4,300 Sony Corp.
299,787
33,000 Sumitomo Bank
230,311
18,000 Sumitomo Chemical Co., Ltd.
53,820
11,000 Sumitomo Corp.
44,042
7,000 Sumitomo Electric Industries
67,984
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
2,000 Sumitomo Forestry Co., Ltd. $
9,830
6,000 Sumitomo Heavy Industries Ltd.
9,345
7,000 Sumitomo Marine & Fire Insurance Co.
33,683
34,000 Sumitomo Metal Industries(a)
31,972
6,000 Sumitomo Metal Mining Co.
18,998
5,000 Sumitomo Osaka Cement Co.
8,265
10,000 Taisei Corp.
16,970
4,000 Taisho Pharmacy Co., Ltd.
84,337
1,000 Taiyo Yuden Co.
9,998
2,000 Takara Shuzo Co.
8,228
1,000 Takara Standard Co., Ltd.
6,862
3,000 Takashimaya Co.
19,196
9,000 Takeda Chemical Industries
241,331
1,000 Takuma Co., Ltd.
5,657
10,000 Teijin Ltd.
26,447
3,000 Teikoku Oil Co.
8,155
2,000 Toa Corp.
2,645
9,000 Tobu Railway Co.
21,488
1,000 Toei Co.
2,351
200 Toho Co.
20,555
5,000 Tohoku Electrical Power Co., Inc.
74,199
21,000 Tokai Bank
74,824
16,000 Tokio Marine & Fire Insurance Co.
143,403
2,000 Tokyo Broadcasting System Inc.
18,102
2,000 Tokyo Dome Corp.
8,081
14,100 Tokyo Electric Power Co.
270,357
2,000 Tokyo Electron Ltd.
48,927
30,000 Tokyo Gas Co.
63,253
1,400 Tokyo Steel Manufacturing Co.
4,926
1,000 Tokyo Style Co.
8,559
2,000 Tokyo Tatemono Co., Ltd.
1,910
3,000 Tokyotokeiba Co.
3,592
11,000 Tokyu Corp.
24,567
7,000 Toppan Printing Co.
72,047
15,000 Toray Industries Inc.
61,159
5,000 Tosoh Corp.
7,016
2,000 Tostem Corp.
27,329
4,000 Toto Ltd.
22,039
2,000 Toyo Engineering
1,837
2,000 Toyo Seikan Kaisha
26,080
7,000 Toyobo Co.
7,817
3,000 Toyoda Auto Loom Works Ltd. $
46,283
40,000 Toyota Motor Corp.
896,268
2,000 Tsubakimoto Chain Co.
4,599
8,000 Ube Industries Ltd.
9,756
600 Uni-Charm Corp.
23,494
5,000 Unitika Ltd.(a)
2,939
2,000 Uny Co.
31,443
2,000 Wacoal Corp.
19,218
2,000 Yamaguchi Bank
18,219
2,000 Yamaha Corp.
15,134
12,000 Yamaichi Securities Co.(d)
0
3,000 Yamanouchi Pharmaceutical Co., Ltd.
64,796
4,000 Yamato Transport Co.
43,491
2,000 Yamazaki Baking Co.
19,057
15,000 Yasuda Trust & Banking(a)
7,714
3,000 Yokogawa Electric Corp.
12,254
---------
- ---
12,643,717
---------
- ---
- ------------------------------------------------------------
Malaysia--0.5%
10,000 Amsteel Corp.
718
6,000 Berjaya Land Berhad
1,503
2,000 Edaran Otomobil
1,503
8,000 Golden Hope Plants
3,492
6,000 Highlands & Lowlands
2,121
9,000 Ioi Corp.
2,354
3,000 Jaya Tiasa Holdings
1,503
6,000 Kuala Lumpur Kepong Berhad
4,707
16,000 Magnum Corp. Berhad
3,094
10,000 Malayan Banking Berhad
7,182
4,000 Malaysia International Shipping
Corp.
2,814
1,000 Nestle Malay Berhad
2,505
3,200 Oriental Holdings Berhad
2,369
4,000 Perlis Plantations Berhad
2,475
8,800 Public Bank Berhad
1,491
10,000 Resorts World Berhad
6,261
2,200 Rothmans of Pall Mall Berhad
6,644
350 Silverstone Berhad(b)
0
6,000 Sime Darby Berhad
2,807
11,000 Telekom Malaysia Berhad
12,155
11,000 Tenaga Nasional Berhad
7,414
10,000 YTL Corp.
5,488
---------
- ---
80,600
---------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------
- ------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
New Zealand--0.7%
27,900 Brierley Investments Ltd. $
5,027
16,000 Carter Holt Harvey Ltd.
10,571
3,300 Fletcher Challenge Building
3,171
3,400 Fletcher Challenge Energy, Ltd.
5,071
8,000 Fletcher Challenge Forestry, Ltd.
1,642
6,700 Fletcher Challenge Paper
3,353
5,500 Lion Nathan Ltd.
13,213
19,300 Telecom Corp. Of New Zealand
73,896
---------
- ---
115,944
---------
- ---
- ------------------------------------------------------------
Singapore--2.3%
8,000 City Developments Ltd.
17,570
1,000 Creative Technology Ltd.(a)
9,200
2,000 Cycle & Carriage Ltd.(a)
3,241
10,000 DBS Land, Ltd.
6,945
7,500 Development Bank of Singapore Ltd.
30,272
3,000 First Capital Corp.
890
3,000 Fraser & Neave Ltd.
6,446
4,000 Hotel Properties Ltd.
926
2,000 Inchcape Motors Ltd.
1,003
2,000 Inchcape Marketing
528
8,000 Keppel Corp., Ltd.
9,450
3,000 Natsteel Ltd.
2,208
7,000 Neptune Orient Lines Ltd.
1,433
12,000 Overseas Chinese Banking Corp., Ltd.
30,201
1,000 Overseas Union Enterprise
1,235
3,000 Parkway Holdings Ltd.
3,455
14,000 S.T. Engineering(a)
13,462
1,000 Sembawang Shipyards Corp., Ltd.
1,668
10,000 Singapore Airlines Ltd.
54,906
3,828 Singapore Press Holdings Ltd.
31,811
7,000 Singapore Technologies Industrial
Corp.
6,856
64,000 Singapore Telecommunication
107,128
3,000 Straits Trading Co.(a)
1,336
10,000 United Overseas Bank Ltd.
29,204
6,000 United Overseas Land
2,422
10,000 United Industrial Corp.
2,908
---------
- ---
376,704
---------
- ---
Total common stocks
(cost US$24,874,915)
15,970,164
---------
- ---
PREFERRED STOCKS--0.6%
Australia
18,686 News Corp. Ltd.
(cost US$80,671) $
104,028
WARRANTS(a)
Hong Kong
2,000 Hong Kong & China Gas
Warrants expiring September 1999
@ HKD $12.27
91
900 Hysan Development
Warrants expiring April 1999
@ HKD $16.00
1
1,150 Wharf Holdings Ltd.
Warrants expiring December 1999
@ HKD $7.50
22
800 Kumagai Gumi Ltd.
Warrants expiring December 1999
@ HKD $5.00
10
---------
- ---
Total Warrants
124
---------
- ---
Total long-term investments
(cost US$24,955,586)
16,074,316
---------
- ---
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--0.2%
- ------------------------------------------------------------
U.S. Government Securities
United States
United States Treasury Bills(c),
$25 4.20%, 12/17/98
(cost US$24,734)
24,780
---------
- ---
- ------------------------------------------------------------
Total Investments--97.9%
(cost US$24,980,320; Note 4)
16,099,096
Other assets in excess of
liabilities--2.1%
342,061
---------
- ---
Net Assets--100% $
16,441,157
---------
- ---
---------
- ---
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Issue in bankruptcy.
(c) Pledged as initial margin for financial futures
contracts.
(d) Fair-valued security.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Portfolio of Investments as of September 30, 1998
- ------------------------------------------------------------
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of September 30, 1998 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Commercial Banking....................................
10.7%
Telecommunications....................................
9.4
Automobiles & Auto Parts..............................
8.7
Electronics...........................................
4.7
Appliances & Household Durables.......................
4.7
Electrical Utilities..................................
4.0
Drugs & Health Care...................................
4.0
Retail................................................
3.4
Real Estate...........................................
3.4
Diversified Industries................................
2.9
Chemicals.............................................
2.8
Railroads.............................................
2.5
Food & Beverages......................................
2.4
Financial Services....................................
2.2
Machinery & Equipment.................................
2.1
Building & Construction...............................
2.0
Oil & Gas.............................................
1.8
Photography...........................................
1.7
Insurance.............................................
1.7
Broadcasting & Other Media............................
1.6
Transportation & Warehousing..........................
1.5
Wholesale.............................................
1.4
Mining................................................
1.4
Printing & Publishing.................................
1.3
Iron & Steel..........................................
1.3
Office Equipment & Supplies...........................
1.2
Engineering & Construction............................
1.2
Electrical Equipment..................................
1.2%
Rubber................................................
1.1
Cosmetics & Toiletries................................
1.0
Computers.............................................
1.0
Electronic Components.................................
0.9
Airlines..............................................
0.8
Paper.................................................
0.6
Health Care/Acute.....................................
0.6
Building Materials & Components.......................
0.6
Property Investment...................................
0.4
Metals................................................
0.4
Glass Products........................................
0.4
Entertainment.........................................
0.4
Business Services.....................................
0.4
Hotels................................................
0.3
Diversified Resources.................................
0.3
U.S. Treasury Securities..............................
0.2
Gaming................................................
0.2
Containers............................................
0.2
Beverages.............................................
0.2
Apparel...............................................
0.2
Tobacco...............................................
0.1
Textiles..............................................
0.1
Paper & Packaging.....................................
0.1
Computer Software & Services..........................
0.1
Automobiles...........................................
0.1
Agriculture Sector....................................
0.1
----
- -
98.0%
Other assets in excess of liabilities.................
2.0
----
- -
100.0%
----
- -
----
- -
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Statement of Assets and Liabilities PRUDENTIAL
PACIFIC INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$24,980,320)................................................
............... $ 16,099,096
Foreign currency, at value (cost
$179,687)...................................................
.......... 168,132
Cash........................................................
...........................................
7,757
Receivable for investments
sold........................................................
................ 130,077
Due from
manager.....................................................
.................................. 122,097
Dividends and interest
receivable..................................................
.................... 64,196
Receivable for Fund shares
sold........................................................
................ 1,400
Other
assets......................................................
..................................... 221
- ------------------
Total
assets......................................................
.................................. 16,592,976
- ------------------
Liabilities
Accrued
expenses....................................................
................................... 70,234
Payable for investments
purchased...................................................
................... 68,750
Foreign withholding taxes
payable.....................................................
................. 8,677
Due to broker-variation
margin......................................................
................... 3,219
Payable for Fund shares
repurchased.................................................
................... 939
- ------------------
Total
liabilities.................................................
.................................. 151,819
- ------------------
Net
Assets......................................................
....................................... $ 16,441,157
- ------------------
- ------------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
...... $ 25,781
Paid-in capital in excess of
par.........................................................
........... 25,556,412
- ------------------
25,582,193
Undistributed net investment
income......................................................
........... 149,497
Accumulated net realized loss on
investments.................................................
....... (389,881)
Net unrealized depreciation on investments and foreign
currencies...................................
(8,900,652)
- ------------------
Net assets, September 30,
1998........................................................
................. $ 16,441,157
- ------------------
- ------------------
Net asset value per share
($16,441,157 / 2,578,120 shares of beneficial interest
issued and outstanding)...................... $
6.38
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
September
30,
Net Investment Income 1998
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $28,867)............................. $
270,050
Interest...................................
3,787
-----------
- --
Total income............................
273,837
-----------
- --
Expenses
Management fee.............................
79,309
Custodian's fees and expenses..............
200,000
Registration fees..........................
55,000
Legal fees and expenses....................
20,000
Audit fees and expenses....................
18,000
Reports to shareholders....................
15,000
Trustees' fees.............................
7,000
Transfer agent's fees and expenses.........
300
Miscellaneous..............................
5,620
-----------
- --
Total operating expenses................
400,229
Less: Expense subsidy (Note 2).............
(281,526)
-----------
- --
Net expenses............................
118,703
-----------
- --
Net investment income.........................
155,134
-----------
- --
Realized and Unrealized Loss on
Investments and Foreign Currency Transactions
Net realized loss on:
Investment transactions....................
(358,357)
Foreign currency transactions..............
(28,133)
Financial futures contracts................
(10,919)
-----------
- --
(397,409)
-----------
- --
Net change in unrealized depreciation on:
Investments................................
(8,581,191)
Foreign currencies.........................
(3,727)
Financial futures contracts................
(7,251)
-----------
- --
(8,592,169)
-----------
- --
Net loss on investments and foreign
currencies.................................
(8,989,578)
-----------
- --
Net Decrease in Net Assets
Resulting from Operations.....................
$(8,834,444)
-----------
- --
-----------
- --
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
September
24, 1997(a)
Year Ended
Through
Increase (Decrease) September 30,
September 30,
in Net Assets 1998
1997
<S> <C> <C>
Operations
Net investment income...... $ 155,134 $
53,553
Net realized loss on
investments and foreign
currency transactions... (397,409)
(46,210)
Net change in unrealized
depreciation on
investments and foreign
currencies.............. (8,592,169)
(308,483)
------------- -----------
- ----------
Net decrease in net assets
resulting from
operations.............. (8,834,444)
(301,140)
------------- -----------
- ----------
Dividends from net investment
income (Note 1)............ (25,244)
- --
------------- -----------
- ----------
Fund share transactions (Note
5)
Net proceeds from shares
sold.................... 942,289
25,000,200
Net asset value of shares
issued in reinvestment
of dividends............ 25,244
- --
Cost of shares
reacquired.............. (365,748)
- --
------------- -----------
- ----------
Net increase in net assets
from Fund share
transactions............ 601,785
25,000,200
------------- -----------
- ----------
Total increase (decrease)..... (8,257,903)
24,699,060
------------- -----------
- ----------
Net Assets
Beginning of period........... 24,699,060
0
------------- -----------
- ----------
End of period(b).............. $ 16,441,157
$24,699,060
------------- -----------
- ----------
------------- -----------
- ----------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net
investment income of...... $ 149,497 $
7,343
------------- -----------
- ----------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL INDEX SERIES
FUND
Notes to Financial Statements PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------------------
Prudential Index Series 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 five 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 ('MSCI-PFI').
- ------------------------------------------------------------
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. U.S. Government securities for which market
quotations are readily
available are 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 subadviser, does not represent fair
value, are valued at
fair value as determined by procedures established by the
Company's Trustees.
Due to current market conditions, the Company's Board of
Directors reduced the
valuation of securities held in Malaysian currency by 30
percent effective
September 30, 1998.
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 under triparty repurchase agreements, as the
case may be, 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.
All securities are valued as of 4:15 p.m., New York time.
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 year, 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 year.
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 year. 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 year-end exchange rates are reflected as a component
of unrealized
appreciation on investments and foreign currencies.
- ------------------------------------------------------------
- --------------------
12
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------------------
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 income is
recorded on the accrual basis. Expenses are recorded on the
accrual basis which
may require the use of certain estimates by management.
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 aniticipated 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.
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: For federal income tax purposes, each fund in the
Company is treated as a
separate tax paying entity. 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 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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income by $12,264,
decrease accumulated net realized loss on investments by
$7,528, and decrease
paid-in-capital by $19,792 for certain expenses not being
deductible for tax
purposes and for net realized foreign currency losses. 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 Company. 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 so that total
Fund operating expenses do not exceed .60% on an annualized
basis of the Fund's
average daily net assets. This voluntary waiver may be
terminated at any time
without notice. For the year ended September 30, 1998, PIFM
subsidized $281,526
of the expenses of the Fund (1.42% of average net assets
$0.11 per share).
- ------------------------------------------------------------
- --------------------
13
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL
PACIFIC INDEX FUND
- ------------------------------------------------------------
- --------------------
The Company had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Company
through May 31, 1998.
Prudential Investment Management Services ('PIMS') became
the Company's
distributor effective June 1, 1998 and is serving the
Company under the same
terms and conditions as under the arragement with PSI. No
distribution or
service fees are paid to PIMS as distributor of the Fund.
PSI, PIFM, PIC and PIMS are indirect, wholly owned
subsidiaries of The
Prudential.
The Company, along with other affiliated registered
investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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 did not borrow any amounts pursuant to the Agreement
during the year ended
September 30, 1998. 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. The
Agreement expired on
December 30, 1997 and has been extended through December 29,
1998 under the same
terms.
- ------------------------------------------------------------
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. During the year
ended September 30,
1998, the Fund incurred fees of approximately $200 for the
services of PMFS.
Transfer agent fees and expenses in the Statement of
Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended September 30, 1998 were $1,057,544 and
$302,382,
respectively.
The cost basis of investments for federal income tax
purposes at September 30,
1998 was $24,985,283 and, accordingly, net unrealized
depreciation for federal
income tax purposes was $8,886,187 (gross unrealized
appreciation--$152,556;
gross unrealized depreciation--$9,038,743).
The Fund elected to treat approximately $20,600 of net
currency losses and
$376,500 of net capital losses incurred during the 11-month
period ended
September 30, 1998 as having been incurred in the following
fiscal year.
During the year ended September 30, 1998, the Fund entered
into financial
futures contracts. Details of open contracts as of September
30, 1998 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration September 30,
Trade Appreciation/
Contracts Type Date 1998
Date (Depreciation)
- -------------- ----------- ---------- -------------
- -------- --------------
<S> <C> <C> <C>
<C> <C>
Long Positions:
10 Nikkei 300 Dec. 1998 $ 149,647
$156,898 $ (7,251)
- ------
- ------
</TABLE>
- ------------------------------------------------------------
Note 5. Capital
The Fund has authorized an unlimited number of Class Z
shares of beneficial
interest at $.001 par value per share. Class Z shares are
not subject to any
sales or redemption charges and are offered exclusively for
sale to a limited
group of investors. Transactions in shares of beneficial
interest for the fiscal
year ended September 30, 1998 and for the period September
24, 1997 through
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Shares
-------
- --
<S> <C>
Year ended September 30, 1998:
Shares sold........................................
122,342
Shares issued in reinvestment of dividends.........
3,333
Shares reacquired..................................
(47,575)
-------
- --
Net increase in shares outstanding.................
78,100
-------
- --
-------
- --
Period September 24, 1997* to
September 30, 1997:
Shares sold........................................
2,500,020
-------
- --
Net increase in shares outstanding.................
2,500,020
- ---------------
* Commencement of investment operations.
</TABLE>
As of September 30, 1998, 2,530,305 of the outstanding
shares were owned by The
Prudential.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Financial Highlights PRUDENTIAL PACIFIC
INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Year Ended September 24, 1997(a)
September 30, Through
1998 September 30, 1997
- ------------- ----------------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................................. $
9.88 $ 10.00
- ------ ------
Income from investment operations
Net investment
income(c)...................................................
...... 0.06 0.02
Net realized and unrealized loss on investment and foreign
currency
transactions................................................
.................. (3.55) (0.14)
- ------ ------
Total from investment
operations..............................................
(3.49) (0.12)
- ------ ------
Less distributions
Dividends from net investment
income.............................................
(.01) --
- ------ ------
Net asset value, end of
period...................................................
$ 6.38 $ 9.88
- ------ ------
- ------ ------
TOTAL
RETURN(d)...................................................
............... (35.54)% (1.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................................................
$16,441 $ 24,699
Average net assets
(000).......................................................
.. $19,827 $ 24,802
Ratios to average net assets: (c)
Expenses....................................................
.................. .60%
.60%(b)
Net investment
income......................................................
... .78% 13.14%(b)
Portfolio
turnover....................................................
........... 2% 0%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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 distributions. Total returns for
periods of less than a
full year are not annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Report of Independent Accountants PRUDENTIAL
PACIFIC INDEX FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Trustees
Prudential Index Series 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
Index Series
Fund--Prudential Pacific Index Fund (the 'Fund', one of the
portfolios
constituting Prudential Index Series Fund) at September 30,
1998, the results of
its operations for the year then ended and the changes in
its net assets and the
financial highlights for the year then ended and 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 audits.
We conducted our
audits of these financial statements in accordance with
generally accepted
auditing standards which require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial statements,
assessing the
accounting principles used and significant estimates made by
management, and
evaluating the overall financial statement presentation. We
believe that our
audits, which included confirmation of securities at
September 30, 1998 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
PRUDENTIAL INDEX
SERIES FUND
Tax Information (Unaudited) PRUDENTIAL
PACIFIC INDEX FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year-end (September 30, 1998) as to the
federal tax status of
dividends paid by the Fund during such fiscal year.
Accordingly, during the
fiscal year ended September 30, 1998, dividends paid from
net investment income
were $.01 per Class Z share which is taxable as ordinary
income.
We wish to advise you that the dividends received deduction
for the Fund is
zero. Only funds that invest in U.S. equity securities are
entitled to
pass-through a corporate dividends received deduction.
We are required by Massachusetts, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders. Please be advised that .15% of the
dividends paid from
ordinary income in the fiscal year ended September 30, 1998
qualify for each of
these states' tax exclusion.
The Fund has elected to give the benefit of foreign tax
credits to its
shareholders. Accordingly, shareholders who must report
their gross income
dividends and distributions in a federal income tax return
will be entitled to a
foreign tax credit, or an itemized deduction in computing
their U.S. income tax
liability. It is generally more advantageous to claim a
credit rather than take
a deduction. For the fiscal year ended September 30, 1998
the Fund intends on
passing through 14.6% of ordinary income distributions as a
foreign tax credit.
In January 1999, you will be advised on IRS Form 1099-DIV or
substitute 1099-DIV
as to the federal tax status of the dividends, distributions
and foreign tax
credits received by you in calendar year 1998.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
Comparing A $10,000 Investment.
- --------------------------------------------
Prudential Pacific Index Fund vs. the Morgan
Stanley Capital International (MSCI) Pacific
Free Index.
Class Z
(CHART)
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so an investor's shares, when
redeemed, may be worth
more or less than their original cost.
This graph is furnished to you in accordance with SEC
regulations. It compares
a $10,000 investment in the Prudential Pacific Index Fund
(Class Z shares) with
a similar investment in the Morgan Stanley Capital
International (MSCI) Pacific
Free Index (the Index) by portraying the initial account
values at the
commencement of operations of Class Z, and the subsequent
account values at the
end of the fiscal year (September 30), as measured on a
quarterly basis,
beginning in 1997. For purposes of the graph, and unless
otherwise indicated
in the accompanying table, it has been assumed that all
dividends and
distributions were reinvested. Class Z shares are not
subject to a sales charge
or distribution fee. Class Z shares have been in existence
less than one year,
therefore no average annual returns are presented. Without
waiver of management
fees and/or expense subsidization, the Fund's cumulative and
average annual
total returns would have been lower, as indicated in
parentheses ( ).
The Index is an unmanaged, diversified, capitalization-
weighted index currently
consisting of approximately 522 equity securities listed on
the stock exchanges
of Australia, Japan, Hong Kong, New Zealand, Singapore, and
Malaysia. The Index
includes the reinvestment of all dividends, but does not
reflect the payment of
transaction costs and advisory fees associated with an
investment in the Fund.
The securities in the Index may differ substantially from
the securities in the
Fund. The Index is not the only one that may be used to
characterize
performance of stock funds, and other indexes may portray
different comparative
performance. Investors cannot invest directly in an index.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74431F829 MF174E9
(ICON)
Prudential
Stock Index
Fund
ANNUAL
REPORT
Sept. 30, 1998
(LOGO)
<PAGE>
Prudential Stock Index Fund
A Series of the Prudential Index Series Fund
Performance At A Glance.
Despite a 19% drop this summer -- hovering on the edge of
the 20% definition of
a bear market -- S&P 500 stocks provided a nine percent
overall return for the
12 months ended September 30, 1998. This is a respectable,
although below-
average, return by historical standards. The Prudential
Stock Index Fund
performed in line with the Lipper S&P 500 Fund Average, and
well ahead of the
average equity managed mutual fund.
<TABLE>
<CAPTION>
One
Five Since
Year
Years Inception2
<C> <S> <C>
<C> <C>
Cumulative
Total Returns1
As of 9/30/98 Class Z 8.61% (8.56)
141.54% (141.23) 169.88% (169.53)
Class I 8.69 (8.64)
N/A 8.69 (8.55)
Lipper S&P 500
Fund Avg.3 8.48
142.78 **
S&P 500 Index4 9.08
147.85 ***
</TABLE>
<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 9/30/98 One
Five Since
Year
Years Inception2
<C> <S> <C>
<C> <C>
Class Z 8.61% (8.56)
19.29% (19.26) 18.33% (18.30)
Class I 8.69 (8.64)
N/A 7.42 (7.30)
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical
Services. Without waiver of management fees and/or expense
subsidization, the
Fund's cumulative and average annual total returns would
have been lower, as
indicated in parentheses ( ).
2 Inception dates: Class Z, 11/5/92; and Class I, 8/1/97.
For Class Z, the
Lipper reporting period begins 10/31/92. For Class I, the
Lipper reporting
period begins 7/31/97.
3 Lipper average returns are for all funds in each share
class for the one-
and five-year periods in the S&P 500 Fund category.
4 The Standard & Poor's 500 Composite Stock Price Index
(S&P 500 Index) is a
market capitalization-weighted index representing the
aggregate market value
of the common equity of 500 stocks primarily traded on the
New York Stock
Exchange. The S&P 500 is an unmanaged index and the total
return includes the
reinvestment of all dividends, but does not reflect the
payment of transaction
costs and advisory fees associated with an investment in the
Fund. The S&P 500
is not the only index that may be used to characterize
performance of equity
funds, and other indexes may portray different comparative
performance.
Investors cannot invest directly in an index.
** Lipper Since Inception returns are 172.20% for Class Z
and 7.97% for Class
I based on all funds in each share class.
***The S&P 500 Since Inception returns are 179.04% for Class
Z and 8.61% for
Class I.
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide 12-
month total returns for several Lipper mutual fund
categories to show you that
reaching for higher returns means tolerating more risk. The
greater the risk,
the larger the potential reward or loss. In addition, we've
included historical
20-year average annual returns. These returns assume the
reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is
usually exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they
don't fluctuate much in price but, historically, their
returns have been
generally among the lowest of the major investment
categories.
<PAGE>
(PHOTO)
Portfolio
Manager's Report
The Prudential Stock Index Fund aims to provide investment
results that mirror
the performance of Standard & Poor's 500 Composite Stock
Price Index. The S&P
500 is widely regarded as representative of the performance
of the U.S. stock
market as a whole, and is comprised of stocks that represent
more than 70% of
the total market value of all publicly traded U.S. common
stocks. The
difference between the Fund's return and that of the Index
is primarily fees
and management expenses. There can be no assurance that the
Fund will achieve
its investment objective.
The Rich Get Richer.
Over the past 12 months, the most expensive stocks -- the
most richly priced,
in financial jargon -- got richer (even more expensive).
Other stocks fell.
Few investors expected this. The Lipper Growth Fund Average
was negative. But
the few winning stocks drove the S&P 500 to a solidly
positive return. Our
Index Fund, of course, owned both the gainers and losers,
but averaged a good
return in a difficult market.
-- John Moschberger,
Fund Manager
Market Review.
Although the S&P 500 had a positive return over the 12
months ended September
30, 1998, gains became increasingly concentrated in a small
number of stocks.
As investors became more concerned about the impact of the
Asian economic
slowdown and Russian turmoil, they focused on the very
largest companies
because they expected large-company earnings to be stable
and their stocks
readily marketable. The price of the average stock for
companies that were
smaller than the largest fifth dropped sharply, with a clear
relation between
small size and large price decline. Market capitalization
(the market price
for all of a firm's outstanding stock) was the greatest
influence on stock
return within the S&P 500, and the S&P 500 outperformed the
indexes of smaller-
company stocks. Independent of size, earnings per share
(EPS) and EPS growth
also affected stock performance, according to a Lehman
Brothers analysis.
The Gaining Sectors.
The best-performing S&P 500 sector was communication
services (wireless, long-
distance, and local telephone service) with a 43% gain.
Bellsouth (up 67%) and
Airtouch Communications (up 61%) were the best performers.
Health care
companies accounted for 13% of the S&P 500 Index, and they
averaged a 38%
return. This was the primary contribution to the Index's
positive return for
the year. The health care sector includes industries with
very different
business outlooks: Drug retailers (up 56%) and drug
companies (up 50%) were
among the top three S&P 500 groups, while long-term-care
companies (down 50%)
and managed-care companies (down 30%) reflected the
difficulties in managing
health service delivery.
Utilities, up 30% on average, also had an excellent year.
They traditionally
perform well when investors are concerned about earnings
because demand for
their services is less dependent on economic growth and they
have not been
subjected to competitive pressures. Electric companies led
with a 35% gain.
There was a sharp drop in performance from these market
leaders to the next
best-performing sector, technology, up 13%. Computer-related
industries --
peripherals (up 48%), networking (up 38%), and software and
services (up 38%)
- -- had an excellent year. Electronics firms -- semiconductor
equipment (down
51%), instrumentation (down 23%) and semiconductors (down
13%) -- represented
the losers. These firms were particularly affected by the
Asian downturn.
Consumer staples (up 10%) and consumer cyclicals (companies
that perform
better in an economic expansion -- up 6%) completed the list
of positive
sectors. The staples were led by broadcasters (up 53%).
Individual company
performance stands out among consumer cyclicals: Wal-Mart
was up 50% and Home
Depot up 52%, while Toys R Us was down 54% and Sears Roebuck
down 21%; Ford
Motor was up 60%, while General Motors was down 11%.
<PAGE>
S&P 500 Index
Annual Total Return
by Sector as of 9/30/98.
Communication Services 43%
Health Care 38%
Utilities 30%
Technology 13%
Industrials 11%
Consumer Staples 10%
Consumer Cyclicals 6%
Financials -3%
Capital Goods -5%
Energy -5%
Transportation -13%
Basic Materials -16%
S&P 500 Index 9%
Source: Standard & Poor's
The Losing Sectors.
Financials were particularly hurt by fears of exposure first
to the Asian
financial crisis, then to the Russian default, and then to
hedge funds and
other market speculators. Although the sector overall only
declined 2.5%,
investment banks/brokerages fell 27% and money center banks
18%. These were
partially offset by the positive 15% returns of consumer
finance companies,
which serve the strong consumer part of the U.S. economy and
had little, if
any, exposure to the problems that worried investors.
General Electric alone comprises 3.2% of the S&P 500, but
even so, its 18%
return wasn't enough to pull the capital goods sector into
positive territory.
The sector's five percent decline was very broad-based,
reflecting concerns of
an economic slowdown. The energy sector lost five percent
also because of the
warm El Nino winter and a very unfavorable supply/demand
situation for oil.
Transportation averaged a 13% loss. Only the airlines
managed a gain (12%).
Airfreight, truckers, and railroads suffered from the
general fear of an
economic slowdown.
The biggest loser was basic materials, down 16%. The
president of Phelps
Dodge's mining and minerals division said, "We are dealing
with the lowest
annual average copper price, on an inflation-adjusted basis,
of the century."
The broad range of commodity prices, as captured by the
Goldman Sachs
Commodity Index, was at about 10-year lows. Forest products,
metals, chemicals,
and agricultural products all were cheap, and the companies
that made them
suffered. This is a cyclical sector, and the global economic
slowdown and
investors' fears of worse to come affected returns.
Looking Forward.
Historically, the stock market is a leading indicator. With
the S&P 500 19%
off its high, the market is clearly expecting a slowdown in
U.S. and global
economies. While asset prices may continue to fall if
expectations move from
recession to depression, we expect the market itself to
improve before the
economy does.
How The S&P 500 Index Performed.
(GRAPH)
The S&P 500 Index, composed of stocks representing
approximately 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", "S&P", "S&P 500", "Standard &
Poor's 500", and
"500" are trademarks of The McGraw-Hill Companies, 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. The
performance cited does not represent the performance of the
Prudential Stock
Index Fund. Past performance is not indicative of future
results. Investors
cannot invest directly in an index.
Source: Lipper Analytical Services, Inc.
- ------------------------------------------------------------
- -------------------
1
<PAGE>
President's Letter
November 9, 1998
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets
is decidedly mixed. After setting record highs earlier,
stocks, as measured by
the Dow Jones Industrial Average, experienced a series of
steep sell-offs in
late summer. The market rebounded in early fall, helped by
two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated
as investors fled troubled Asian and other emerging markets
for the safe haven
of U.S. debt securities - especially Treasuries. The U.S.
economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market
environment can be
challenging. That's why it is important to manage your
expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will
always rise and fall - that's what markets do. Although past
performance may
not be indicative of future results, stocks and bonds have,
over time,
consistently produced attractive returns that have kept
ahead of inflation.
In fact, investors who remained focused on the long term and
did not sell
during the recent market volatility were rewarded. Stock
prices, as measured
by the Standard & Poor's 500 Index, have rebounded nearly
25% since their
August Lows -- setting a new record high on November 23,
1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond,
and money market mutual funds can help lessen the effects of
a market downturn
over time. In fact, a well-diversified portfolio may retain
or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will be glad
to review your current allocations. He or she will recommend
adjustments based
upon your goals, market conditions, risk tolerance, and
potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
- ------------------------------------------------------------
- -------------------
2
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.8%
COMMON STOCKS--97.8%
- ------------------------------------------------------------
Aerospace/Defense--1.6%
3,325 Aeroquip-Vickers, Inc. $
95,594
68,724 Allied Signal, Inc.
2,431,111
123,584 Boeing Co.
4,240,476
15,106 General Dynamics Corp.
758,132
24,278 Lockheed Martin Corp.
2,447,526
8,120 Northrop Grumman Corp.
592,760
41,544 Raytheon Co.
2,240,779
24,663 Rockwell International Corp.
890,951
28,360 United Technologies Corp.
2,167,768
----------
- ----
15,865,097
- ------------------------------------------------------------
Airlines--0.4%
22,149 AMR Corp.(a)
1,227,885
9,242 Delta Airlines, Inc.
898,784
41,322 Southwest Airlines Co.
826,440
12,521 USAir Group, Inc.(a)
633,876
----------
- ----
3,586,985
- ------------------------------------------------------------
Aluminum--0.3%
28,529 Alcan Aluminum Ltd.
668,649
22,916 Aluminum Co. of America
1,627,036
8,836 Reynolds Metals Co.
448,979
----------
- ----
2,744,664
- ------------------------------------------------------------
Automobiles & Trucks--1.7%
78,533 Chrysler Corp.
3,759,767
4,579 Cummins Engine Co., Inc.
136,225
20,140 Dana Corp.
751,474
147,989 Ford Motor Co.
6,946,234
81,778 General Motors Corp.
4,472,234
22,699 Genuine Parts Co.
682,389
10,576 Johnson Controls, Inc.
491,784
8,760 Navistar International Corp.(a)
198,195
----------
- ----
17,438,302
Banking--7.4%
42,793 Associates First Capital Corp. $
2,792,243
86,194 Banc One Corp.
3,674,019
35,828 BankBoston Corp.
1,182,324
91,336 Bank of New York Co., Inc.
2,500,323
84,194 BankAmerica Corp.
5,062,164
11,877 Bankers Trust Corp.
700,743
7,989 Capital One Financial
826,861
105,084 Chase Manhattan Corp.
4,544,883
55,208 Citicorp
5,130,893
19,161 Comerica, Inc.
1,050,262
33,064 Fifth Third Bancorp
1,901,180
35,631 First Chicago Corp.
2,440,724
118,649 First Union Corp.
6,073,346
34,572 Fleet Financial Group, Inc.
2,538,881
6,964 Golden West Financial Corp.
569,742
14,955 H.F. Ahmanson & Co.
830,003
25,410 Huntington Bancshares, Inc.
638,426
21,690 J.P. Morgan & Co., Inc.
1,835,516
53,535 KeyCorp
1,545,823
32,273 Mellon Bank Corp.
1,777,032
19,086 Mercantile Bancorporation, Inc.
923,285
40,749 National City Corp.
2,686,887
116,894 NationsBank Corp.
6,253,829
13,581 Northern Trust Corp.
926,903
93,810 Norwest Corp.
3,359,571
37,136 PNC Bank Corp.
1,671,120
11,334 Providian Financial Corp.
961,265
12,829 Republic New York Corp.
506,746
19,731 State Street Corp.
1,076,573
22,077 Summit Bancorp
827,888
26,183 Suntrust Banks, Inc.
1,623,346
91,058 U.S. Bancorp
3,238,250
3,000 Union Planters Corp.
150,750
10,463 Wells Fargo & Co.
3,714,365
----------
- ----
75,536,166
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--2.7%
4,847 Adolph Coors Co. $
222,659
59,527 Anheuser Busch Companies, Inc.
3,214,458
8,338 Brown-Forman Corp.
500,280
302,732 Coca-Cola Co.
17,444,932
182,981 PepsiCo, Inc.
5,386,503
41,821 Seagram Co., Ltd.
1,199,740
----------
- ----
27,968,572
- ------------------------------------------------------------
Chemicals--1.8%
29,032 Air Products & Chemicals, Inc.
863,702
27,494 Dow Chemical Co.
2,349,019
139,415 E.I. du Pont de Nemours & Co.
7,824,667
9,693 Eastman Chemical Co.
488,891
4,273 FMC Corp.(a)
220,327
11,631 Hercules, Inc.
349,657
73,630 Monsanto Co.
4,150,891
9,098 Nalco Chemical Co.
268,391
1,450 Octel Corp.
19,937
22,245 Rohm & Haas Co.
618,689
11,816 Sigma-Aldrich Corp.
341,187
16,553 Union Carbide Corp.
713,848
----------
- ----
18,209,206
- ------------------------------------------------------------
Chemical-Specialty--0.2%
17,704 Engelhard Corp.
313,139
6,890 Great Lakes Chemical Corp.
267,849
15,765 Morton International, Inc.
344,859
19,079 Praxair, Inc.
623,645
10,164 Raychem Corp.
247,748
8,344 W.R. Grace & Co.
103,779
----------
- ----
1,901,019
Commercial Services--0.1%
10,019 Deluxe Corp. $
284,915
10,134 Moore Corp. Ltd.
107,041
----------
- ----
391,956
- ------------------------------------------------------------
Computer Software & Services--7.7%
43,262 3Com Corp.(a)
1,300,564
8,105 Adobe Systems, Inc.
281,142
5,205 Autodesk, Inc.
136,631
37,139 Automatic Data Processing, Inc.
2,776,140
8,000 BMC Software Inc.(a)
480,500
17,685 Cabletron Systems, Inc.(a)
198,956
8,895 Ceridian Corp.(a)
510,351
190,886 Cisco Systems, Inc.(a)
11,799,141
68,058 Computer Associates International,
Inc.
2,518,146
18,951 Computer Sciences Corp.(a)
1,032,829
157,820 Dell Computer Corp.(a)
10,376,665
61,404 EMC Corp.(a)
3,511,541
54,932 First Data Corp.
1,290,902
19,246 Gateway 2000 Inc.(a)
1,003,198
10,010 KLA Instruments Corp.(a)
248,999
25,808 Micron Technology, Inc.
785,531
302,553 Microsoft Corp.(a)
33,299,740
43,302 Novell, Inc.(a)
530,449
118,640 Oracle Corp.(a)
3,455,390
32,079 Parametric Technology Co.(a)
322,795
29,665 Seagate Technology, Inc.(a)
743,479
21,546 Silicon Graphics, Inc.(a)
201,994
46,112 Sun Microsystems, Inc.(a)
2,296,954
----------
- ----
79,102,037
- ------------------------------------------------------------
Construction--0.1%
9,737 Fluor Corp.
399,826
4,714 Foster Wheeler Corp.
64,818
4,791 Kaufman & Broad Home Corp.
112,289
5,743 Pulte Corp.
141,062
----------
- ----
717,995
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Containers--0.1%
3,758 Ball Corp. $
132,469
6,905 Bemis Co., Inc.
242,107
14,976 Crown Cork & Seal Co., Inc.(a)
400,608
19,126 Owens-Illinois, Inc.(a)
478,150
----------
- ----
1,253,334
- ------------------------------------------------------------
Cosmetics & Soaps--2.2%
6,657 Alberto-Culver Co.
155,607
33,472 Avon Products, Inc.
939,308
12,666 Clorox Co.
1,044,945
36,065 Colgate-Palmolive Co.
2,470,453
137,439 Gillette Co.
5,257,042
13,275 International Flavors & Fragrances,
Inc.
438,075
164,619 Procter & Gamble Co.
11,677,660
----------
- ----
21,983,090
- ------------------------------------------------------------
Diversified Gas--0.1%
25,503 Coastal Corp.
860,726
2,508 Eastern Enterprises, Inc.
105,649
5,423 NICOR, Inc.
224,716
3,576 Oneok, Inc.
121,584
----------
- ----
1,312,675
- ------------------------------------------------------------
Drugs & Medical Supplies--12.2%
189,074 Abbott Laboratories
8,212,902
8,391 Allergan, Inc.
489,825
11,403 ALZA Corp.(a)
494,605
161,691 American Home Products Corp.
8,468,566
31,331 Amgen, Inc.(a)
2,367,449
7,238 Bausch & Lomb, Inc.
284,996
35,037 Baxter International, Inc.
2,084,701
30,712 Becton Dickinson & Co.
1,263,031
13,188 Biomet, Inc.(a)
457,459
23,831 Boston Scientific Corp.(a)
1,224,318
122,307 Bristol-Myers Squibb Co.
12,704,640
6,856 C.R. Bard, Inc.
252,815
16,566 Cardinal Health, Inc. $
1,710,439
135,597 Eli Lilly & Co.
10,618,940
18,374 Guidant Corp.
1,364,269
164,874 Johnson & Johnson
12,901,390
8,203 Mallinckrodt, Inc.
166,623
57,779 Medtronic, Inc.
3,343,960
146,222 Merck & Co., Inc.
18,944,888
160,586 Pfizer, Inc.
17,012,079
62,014 Pharmacia & Upjohn, Inc.
3,112,328
89,962 Schering- Plough Corp.
9,316,690
10,366 St. Jude Medical, Inc.(a)
239,714
9,156 United States Surgical Corp.
381,691
100,556 Warner-Lambert Co.
7,591,978
----------
- ----
125,010,296
- ------------------------------------------------------------
Electronics--3.9%
17,062 Advanced Micro Devices, Inc.(a)
316,713
26,692 AMP, Inc.
954,239
16,006 Apple Computer, Inc.
610,229
4,741 Data General Corp.(a)
51,558
5,085 EG&G, Inc.
115,048
48,100 Electronic Data Systems Corp.
1,596,319
54,475 Emerson Electric Co.
3,391,069
10,106 Harris Corp.
323,392
127,718 Hewlett-Packard Co.
6,761,072
207,172 Intel Corp.
17,764,999
16,522 LSI Logic Corp.(a)
208,590
73,612 Motorola, Inc.
3,142,312
19,876 National Semiconductor Corp.(a)
192,549
5,941 Perkin-Elmer Corp.
408,072
12,227 Tandy Corp.
654,145
6,012 Tektronix, Inc.
93,186
48,288 Texas Instruments, Inc.
2,547,192
6,333 Thomas & Betts Corp.
241,050
----------
- ----
39,371,734
- ------------------------------------------------------------
Environmental Services--0.0%
39,256 Laidlaw, Inc. (Class 'B' Stock)
370,479
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services--3.7%
56,453 American Express Co. $
4,382,164
13,815 Bear Stearns Companies, Inc.
427,402
32,925 Charles Schwab Corp.
1,296,422
13,237 Countrywide Mortgage Investments,
Inc.
550,990
21,088 Dun & Bradstreet Corp.
569,376
18,630 Equifax, Inc.
664,858
83,132 Federal Home Loan Mortgage Corp.
4,109,838
127,234 Fannie Mae
8,174,784
30,314 Franklin Resources, Inc.
909,420
12,680 H&R Block, Inc.
524,635
60,950 Household International Corp.
2,285,625
14,187 Lehman Brothers Holdings, Inc.
400,783
61,362 MBNA Corp.
1,756,487
42,317 Merrill Lynch & Co., Inc.
2,004,768
73,618 Morgan Stanley Dean Witter & Co.
3,170,175
26,400 Regions Financial Corp.
957,000
21,064 SLM Holding Corp.
683,264
24,196 SunAmerica, Inc.
1,475,956
31,266 Synovus Financial Corp.
617,504
7,699 Transamerica Corp.
816,094
46,901 Washington Mutual, Inc.
1,582,909
----------
- ----
37,360,454
- ------------------------------------------------------------
Foods--2.6%
77,035 Archer-Daniels-Midland Co.
1,290,334
35,754 Bestfoods
1,731,834
55,147 Campbell Soup Co.
2,767,690
58,243 ConAgra, Inc.
1,568,921
19,036 General Mills, Inc.
1,332,520
5,700 Giant Foods, Inc.
246,169
44,814 H.J. Heinz & Co.
2,291,116
17,558 Hershey Foods Corp.
1,201,626
50,070 Kellogg Co.
1,649,180
17,389 Quaker Oats Co.
1,025,951
38,077 Ralston Purina Co.
1,113,752
57,543 Sara Lee Corp.
3,107,322
40,390 Sysco Corp.
951,689
78,352 Unilever N.V.
4,799,060
13,952 Wm. Wrigley Jr. Co.
1,059,480
----------
- ----
26,136,644
Forest Products--1.0%
6,549 Boise Cascade Corp. $
165,771
11,650 Champion International Corp.
364,791
26,823 Fort James Corp.
880,130
11,634 Georgia-Pacific Corp.
530,801
37,152 International Paper Co.
1,732,212
68,716 Kimberly-Clark Corp.
2,782,998
13,256 Louisiana-Pacific Corp.
270,091
12,269 Mead Corp.
361,169
3,337 Potlatch Corp.
113,666
11,879 Stone Container Corp.
102,456
7,345 Temple-Inland, Inc.
351,642
8,245 Union Camp Corp.
324,647
11,930 Westvaco Corp.
286,320
24,400 Weyerhaeuser Co.
1,029,375
13,680 Willamette Industries, Inc.
392,445
----------
- ----
9,688,514
- ------------------------------------------------------------
Gas Pipelines--0.6%
20,097 Cinergy Corp.
768,710
10,306 Columbia Gas System, Inc.(a)
604,189
11,445 Consolidated Natural Gas Co.
623,753
40,853 Enron Corp.,
2,157,549
3,832 Peoples Energy Corp.
137,952
52,892 Williams Companies, Inc.
1,520,645
----------
- ----
5,812,798
- ------------------------------------------------------------
Hospital Management--0.7%
79,931 Columbia/HCA Healthcare Corp.
1,603,615
9,260 HCR Manor Care Inc.
271,434
52,749 Healthsouth Corp.(a)
557,161
19,810 Humana, Inc.(a)
324,389
20,355 IMS Health Inc.
1,260,738
31,360 Service Corp. International
999,600
3,097 Shared Medical Systems Corp.
164,722
37,348 Tenet Healthcare Corp.(a)
1,073,755
23,306 United Healthcare Corp.
815,710
----------
- ----
7,071,124
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Housing Related--0.5%
5,104 Armstrong World Industries, Inc. $
273,064
7,097 Centex Corp.
244,847
4,250 Fleetwood Enterprises, Inc.
128,297
43,474 Lowe's Companies, Inc.
1,383,017
42,626 Masco Corp.
1,049,665
11,918 Maytag Corp.
569,084
6,714 Owens Corning(a)
218,625
29,283 Pioneer Hi-Bred International, Inc.
768,679
10,838 Stanley Works
322,430
7,240 Tupperware Corp.
85,070
9,039 Whirlpool Corp.
424,833
----------
- ----
5,467,611
- ------------------------------------------------------------
Insurance--4.3%
17,893 Aetna Life & Casualty Co.
1,243,564
102,808 Allstate Corp.
4,285,808
30,740 American General Corp.
1,963,517
128,925 American International Group, Inc.
9,927,225
20,593 Aon Corp.
1,328,248
20,334 Chubb Corp.
1,281,042
26,097 CIGNA Corp.
1,725,664
20,014 Cincinnati Financial Corp.
615,431
37,760 Conseco, Inc.
1,154,040
9,354 General Re Corp.
1,898,862
29,253 ITT Hartford Group, Inc.
1,387,689
13,091 Jefferson-Pilot Corp.
792,006
12,115 Lincoln National Corp.
996,459
31,370 Marsh & McLennan Companies, Inc.
1,560,657
11,972 MBIA, Inc.
642,747
13,720 MGIC Investment Corp.
505,925
8,693 Progressive Corp.
980,136
16,500 Provident Co., Inc.
556,875
17,629 SAFECO Corp.
734,909
29,417 St. Paul Companies, Inc.
956,053
17,215 Torchmark Corp.
618,664
141,688 Travelers Group, Inc.
5,313,300
17,285 UNUM Corp. $
858,848
25,408 Wachovia Corp.
2,166,032
----------
- ----
43,493,701
- ------------------------------------------------------------
Leisure--0.2%
11,899 Brunswick Corp.
153,943
12,724 Harrah's Entertainment, Inc.(a)
169,388
16,503 Hasbro, Inc.
486,839
9,102 King World Productions, Inc.(a)
237,790
36,113 Mattel, Inc.
1,011,164
21,907 Mirage Resorts, Inc.(a)
366,942
----------
- ----
2,426,066
- ------------------------------------------------------------
Lodging--0.1%
30,221 Hilton Hotels Corp.
515,646
30,652 Marriott International, Inc.
(Class 'A' Stock)
731,816
----------
- ----
1,247,462
- ------------------------------------------------------------
Machinery--0.7%
2,764 Briggs & Stratton Corp.
113,669
8,725 Case Corp.
189,769
45,028 Caterpillar, Inc.
2,006,560
4,296 Cincinnati Milacron, Inc.
66,320
14,520 Cooper Industries, Inc.
591,690
30,240 Deere & Co.
914,760
27,762 Dover Corp.
857,152
8,977 Eaton Corp.
562,746
5,521 Harnischfeger Industries, Inc.
62,111
20,295 Ingersoll-Rand Co.
769,942
9,582 PACCAR, Inc.
394,659
13,292 Parker Hannifin Corp.
394,606
7,642 Snap-On, Inc.
235,469
18,902 Thermo Electron Corp.(a)
284,711
7,537 Timken Co.
113,997
----------
- ----
7,558,161
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--3.5%
87,328 CBS Corp. $
2,117,704
30,138 Clear Channel Communications,
Inc.(a)
1,431,555
45,810 Comcast Corp.
2,150,207
11,704 Dow Jones & Co., Inc.
544,236
34,589 Gannett Co., Inc.
1,852,673
53,378 HBO & Co.
1,541,290
16,506 Interpublic Group of Companies, Inc.
890,292
10,183 Knight-Ridder, Inc.
453,144
12,000 McGraw Hill Companies, Inc.
951,000
74,881 Mediaone Group Inc.
3,327,524
6,696 Meredith Corp.
214,272
22,890 New York Times Co.
629,475
17,540 R.R. Donnelley & Sons, Co.
617,189
64,047 Tele-Communications, Inc.(a)
2,505,839
73,408 Time Warner, Inc.
6,427,788
10,738 Times Mirror Co.
570,456
15,341 Tribune Co.
771,844
43,516 Viacom, Inc.(a)
2,523,928
252,113 Walt Disney Co.
6,381,610
----------
- ----
35,902,026
- ------------------------------------------------------------
Mineral Resources--0.3%
4,898 ASARCO, Inc.
93,674
45,224 Barrick Gold Corp. (ADR) (Canada)
904,480
26,665 Battle Mountain Gold Co.
161,657
11,362 Cyprus Amax Minerals Co.
150,547
22,428 Freeport-McMoran Copper & Gold, Inc.
266,332
26,684 Homestake Mining Co.
323,543
19,303 INCO Ltd.
197,856
18,997 Newmont Mining Corp.
460,677
7,285 Phelps Dodge Corp.
380,186
31,270 Placer Dome, Inc.
431,917
----------
- ----
3,370,869
- ------------------------------------------------------------
Miscellaneous Basic Industry--5.3%
44,022 Applied Materials, Inc.(a)
1,111,556
35,458 BB&T Corp.
1,061,524
23,377 Browning-Ferris Industries, Inc.
707,154
103,459 Cendant Corp.(a)
1,202,711
8,384 Crane Co.
197,012
15,841 Ecolab, Inc.
450,479
21,608 Fortune Brands, Inc. $
640,137
399,524 General Electric Co.
31,787,128
18,164 General Instruments Corp.
392,797
5,658 General Signal Corp.
192,018
30,668 Illinois Tool Works, Inc.
1,671,406
14,986 ITT Industries, Inc.
507,651
14,134 Loews Corp.
1,192,556
5,061 Millipore Corp.
96,475
1,023 NACCO Industries, Inc.
102,300
21,267 Omnicom Group
957,015
14,504 Pall Corp.
321,808
21,674 PPG Industries, Inc.
1,182,588
9,918 Sealed Air Corp.
316,136
20,167 Textron, Inc.
1,222,624
14,849 TRW, Inc.
658,924
71,492 Tyco International Ltd.
3,949,933
11,874 W.W. Grainger, Inc.
500,192
70,013 Waste Management Inc.
3,365,000
----------
- ----
53,787,124
- ------------------------------------------------------------
Miscellaneous Consumer Growth--0.9%
9,598 American Greetings Corp.
379,721
11,532 Black & Decker Corp.
480,019
28,599 Corning, Inc.
841,883
39,565 Eastman Kodak Co.
3,058,869
4,358 Jostens, Inc.
90,429
49,699 Minnesota Mining & Manufacturing Co.
3,662,195
5,069 Polaroid Corp.
124,507
18,359 Rubbermaid, Inc.
439,469
----------
- ----
9,077,092
- ------------------------------------------------------------
Office Equipment & Supplies--2.8%
14,168 Avery Dennison Corp.
618,964
203,747 Compaq Computer Corp.(a)
6,443,499
15,402 Honeywell, Inc.
986,691
16,041 Ikon Office Solutions, Inc.
115,295
115,317 International Business Machines
Corp.
14,760,576
33,425 Pitney Bowes, Inc.
1,756,902
30,290 Unisys Corp.(a)
689,097
40,299 Xerox Corp.
3,415,340
----------
- ----
28,786,364
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum--6.9%
10,978 Amerada Hess Corp. $
633,293
117,069 Amoco Corp.
6,307,092
14,910 Anadarko Petroleum Corp.
586,149
12,387 Apache Corp.
332,127
9,645 Ashland Oil, Inc.
446,081
39,538 Atlantic Richfield Co.
2,804,727
22,282 Burlington Resources, Inc.
832,790
80,162 Chevron Corp.
6,738,618
299,392 Exxon Corp.
21,013,576
5,720 Kerr-McGee Corp.
260,260
95,581 Mobil Corp.
7,258,182
45,038 Occidental Petroleum Corp.
968,317
5,619 Pennzoil Co.
197,016
32,336 Phillips Petroleum Co.
1,459,162
263,531 Royal Dutch Petroleum Co. (ADR)
(Netherlands)
12,550,664
11,614 Sun Co., Inc.
371,648
20,458 Tenneco, Inc.
672,557
66,346 Texaco, Inc.
4,159,065
30,245 Union Pacific Resources Group, Inc.
372,392
29,239 Unocal Corp.
1,059,914
35,260 USX- Marathon Corp.
1,249,526
----------
- ----
70,273,156
- ------------------------------------------------------------
Petroleum Services--0.9%
38,079 Baker Hughes, Inc.
797,279
53,311 Halliburton Co.
1,522,695
6,058 Helmerich & Payne, Inc.
127,218
7,310 McDermott International, Inc.
196,913
12,301 Oryx Energy Co.(a)
159,144
46,152 PG&E Corp.
1,473,979
10,510 Rowan Companies, Inc.(a)
117,581
66,121 Schlumberger, Ltd.
3,326,713
28,639 Sempra Energy
746,404
12,859 Sonat, Inc.
384,163
----------
- ----
8,852,089
- ------------------------------------------------------------
Railroads--0.6%
58,723 Burlington Northern, Inc.
1,879,136
26,603 CSX Corp.
1,118,989
46,111 Norfolk Southern Corp. $
1,340,101
30,829 Union Pacific Corp.
1,314,086
----------
- ----
5,652,312
- ------------------------------------------------------------
Restaurants--0.6%
17,902 Darden Restaurants, Inc.
286,432
83,765 McDonald's Corp.
4,999,723
19,166 Tricon Global Restaurants, Inc.
747,474
15,279 Wendy's International, Inc.
339,003
----------
- ----
6,372,632
- ------------------------------------------------------------
Retail--5.4%
30,506 Albertson's, Inc.
1,651,137
34,221 American Stores Co.
1,101,488
18,100 AutoZone, Inc.
445,713
11,689 Circuit City Stores, Inc.
389,390
13,224 Consolidated Stores Corp.(a)
259,521
47,396 CVS Corp.
2,076,537
53,391 Dayton Hudson Corp.
1,908,728
13,223 Dillards, Inc.
374,376
23,513 Dollar General Corp.
626,020
25,775 Federated Department Stores, Inc.(a)
937,566
19,006 Fred Meyer, Inc.(a)
738,858
48,628 Gap, Inc.
2,565,127
4,177 Great Atlantic & Pacific Tea Co.,
Inc.
101,292
8,568 Harcourt General, Inc.
414,477
180,656 Home Depot, Inc.
7,135,912
30,984 J.C. Penney Co., Inc.
1,392,344
60,157 Kmart Corp.
718,124
19,200 Kohl's Corp.
748,800
31,861 Kroger Co.(a)
1,593,050
27,411 Limited, Inc.
601,329
8,396 Liz Claiborne, Inc.
219,870
4,682 Longs Drug Stores Corp.
188,158
28,781 May Department Stores Co.
1,482,221
19,102 Newell Co.
879,886
35,038 Nike, Inc.
1,289,836
19,000 Nordstrom, Inc.
470,250
6,657 Pep Boys - Manny, Moe & Jack
89,037
26,704 Price Costco, Inc.(a)
1,265,102
6,849 Reebok International Ltd.
92,890
31,387 Rite-Aid Corp.
1,114,239
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
47,696 Sears, Roebuck & Co. $
2,107,567
20,816 Sherwin-Williams Co.
450,146
15,412 Supervalu, Inc.
359,292
39,516 TJX Companies, Inc.
703,879
35,207 Toys 'R' Us, Inc.(a)
569,913
16,334 Venator Group Inc.
141,902
274,763 Wal-Mart Stores, Inc.
15,008,929
61,389 Walgreen Co.
2,704,953
17,840 Winn-Dixie Stores, Inc.
663,425
----------
- ----
55,581,284
- ------------------------------------------------------------
Rubber--0.1%
8,799 B.F. Goodrich Co.
287,617
9,588 Cooper Tire & Rubber Co.
172,584
19,471 Goodyear Tire & Rubber Co.
1,000,323
----------
- ----
1,460,524
- ------------------------------------------------------------
Steel - Producers--0.1%
25,237 Allegheny Teldyne, Inc.
449,534
10,226 Armco, Inc.(a)
51,130
15,334 Bethlehem Steel Corp.(a)
126,506
10,428 Nucor Corp.
423,637
10,909 USX Corp. - U.S. Steel Group
260,452
11,408 Worthington Industries, Inc.
142,600
----------
- ----
1,453,859
- ------------------------------------------------------------
Telecommunications--3.6%
34,034 Alltel Corp.
1,612,361
10,622 Andrew Corp.(a)
140,741
24,208 Ascend Communications, Inc.(a)
1,101,464
20,681 Frontier Corp.
566,142
161,322 Lucent Technologies, Inc.
11,141,301
221,300 MCI WorldCom, Inc.
10,816,054
34,020 Nextel Communications, Inc.
686,779
80,415 Northern Telecom, Ltd.
2,573,280
9,188 Scientific-Atlanta, Inc.
194,096
52,392 Sprint Corp.
3,772,224
23,447 Tellabs, Inc.(a)
933,484
62,975 US West, Inc.
3,302,252
----------
- ----
36,840,178
Textiles--0.1%
8,885 Fruit of the Loom, Inc.(a) $
133,830
5,040 National Service Industries, Inc.
160,650
4,048 Russell Corp.
106,260
2,188 Springs Industries, Inc.
76,033
15,534 V.F. Corp.
576,700
----------
- ----
1,053,473
- ------------------------------------------------------------
Tobacco--1.5%
298,579 Philip Morris Companies, Inc.
13,753,295
37,000 RJR Nabisco Holdings Corp.
931,938
22,199 UST, Inc.
656,258
----------
- ----
15,341,491
- ------------------------------------------------------------
Trucking & Shipping--0.1%
18,058 FDX Corp.
814,867
9,221 Ryder System, Inc.
229,373
----------
- ----
1,044,240
- ------------------------------------------------------------
Utilities - Communications--5.8%
70,231 AirTouch Communications Inc.(a)
4,003,167
134,493 Ameritech Corp.
6,371,606
221,624 AT&T Corp.
12,951,152
190,722 Bell Atlantic Corp.
9,238,097
120,828 BellSouth Corp.
9,092,307
117,914 GTE Corp.
6,485,270
225,418 SBC Communications, Inc.
10,017,012
25,970 Unicom Corp.
970,629
----------
- ----
59,129,240
- ------------------------------------------------------------
Utilities - Electric--2.5%
17,269 Ameren Corp.
724,219
23,771 American Electric Power, Inc.
1,160,322
17,729 Baltimore Gas & Electric Co.
591,705
18,182 Carolina Power & Light Co.
839,781
27,001 Central & South West Corp.
771,216
28,951 Consolidated Edison, Inc.
1,509,071
24,449 Dominion Resources, Inc.
1,091,037
17,487 DTE Energy Co.
790,194
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of September 30, 1998
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utilities - Electric (cont'd.)
44,231 Duke Energy Co. $
2,927,539
44,262 Edison International
1,136,980
30,115 Entergy Corp.
926,036
29,577 FirstEnergy Corp.
918,736
22,236 FPL Group, Inc.
1,549,571
16,028 GPU Inc.
681,190
35,679 Houston Industries, Inc.
1,110,509
23,524 Niagara Mohawk Power Corp.
361,682
18,173 Northern States Power Co.
509,980
36,182 Pacificorp
694,242
26,655 PECO Energy Co.
974,573
21,726 PP&L Resources, Inc.
562,160
29,097 Public Service Enterprise Group Inc.
1,143,876
85,615 Southern Co.
2,520,292
33,814 Texas Utilities Co.
1,574,464
----------
- ----
25,069,375
Total common stocks
(cost $863,652,224)
998,073,470
----------
- ----
<CAPTION>
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--2.2%
- ------------------------------------------------------------
U.S. Government Securities--0.1%
$1,500(b) United States Treasury Bill
4.66%, 12/17/98
(cost $1,485,049) $
1,485,049
----------
- ----
- ------------------------------------------------------------
Repurchase Agreement--2.1%
21,675 Joint Repurchase Agreement Account,
5.522%, 10/01/98 (Note 5)
(cost $21,675,000)
21,675,000
----------
- ----
Total short-term investments
(cost $23,160,049)
23,160,049
----------
- ----
- ------------------------------------------------------------
Total Investments--100.0%
(cost $886,812,273; Note 4)
1,021,233,519
Liabilities in excess of other
assets--0.0%
(451,458)
----------
- ----
Net Assets--100%
$1,020,782,061
----------
- ----
----------
- ----
</TABLE>
- ---------------
(a) Non-income producing.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$886,812,273)...............................................
................ $ 1,021,233,519
Cash........................................................
............................................
269,486
Receivable for Fund shares
sold........................................................
................. 5,064,008
Dividends and interest
receivable..................................................
..................... 1,443,344
Receivable from
Manager.....................................................
............................ 86,971
Receivable for investments
sold........................................................
................. 15,513
Prepaid
expenses....................................................
.................................... 12,583
- ------------------
Total
assets......................................................
................................... 1,028,125,424
- ------------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................... 4,040,065
Payable for investments
purchased...................................................
.................... 2,542,836
Due to broker-variation
margin......................................................
.................... 582,750
Accrued
expenses....................................................
.................................... 127,508
Management fee
payable.....................................................
............................. 50,204
- ------------------
Total
liabilities.................................................
................................... 7,343,363
- ------------------
Net
Assets......................................................
........................................ $
1,020,782,061
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 44,144
Paid-in capital in excess of
par.........................................................
............ 872,713,597
- ------------------
872,757,741
Undistributed net investment
income......................................................
............ 9,665,888
Accumulated net realized gain on
investments.................................................
........ 4,209,361
Net unrealized appreciation on
investments.................................................
.......... 134,149,071
- ------------------
Net assets, September 30,
1998........................................................
.................. $ 1,020,782,061
- ------------------
- ------------------
Class I:
Net asset value and redemption price per share
($639,408,023 / 27,641,382 shares of beneficial
interest issued and outstanding)..................
$23.13
- ------------------
- ------------------
Class Z:
Net asset value and redemption price per share
($381,374,038 / 16,501,694 shares of beneficial
interest issued and outstanding)..................
$23.11
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $77,842).................. $ 12,244,419
Interest.............................. 1,760,383
----------------
- --
Total income....................... 14,004,802
----------------
- --
Expenses
Management fee........................ 2,457,979
Transfer agent's fees and expenses.... 610,000
Custodian's fees and expenses......... 192,000
Reports to shareholders............... 115,000
Registration fees..................... 70,000
Legal fees............................ 30,000
Audit fees............................ 15,000
Trustees' fees........................ 7,000
Organization expense.................. 1,200
Miscellaneous......................... 28,657
----------------
- --
Total expenses..................... 3,526,836
Less: Expense subsidy (Note 2)........... (757,261)
----------------
- --
Net expenses....................... 2,769,575
----------------
- --
Net investment income.................... 11,235,227
----------------
- --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions............... 3,711,241
Financial futures contracts........... 950,761
----------------
- --
4,662,002
----------------
- --
Net change in unrealized appreciation (depreciation) on:
Investments........................... 18,357,270
Financial futures contracts........... (550,125)
----------------
- --
17,807,145
----------------
- --
Net gain on investments.................. 22,469,147
----------------
- --
Net Increase in Net Assets
Resulting from Operations................ $ 33,704,374
----------------
- --
----------------
- --
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase Year Ended September
30,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income........ $ 11,235,227 $
5,079,584
Net realized gain on
investment transactions
and financial futures
contracts................. 4,662,002
10,547,030
Net change in unrealized
appreciation on
investments............... 17,807,145
80,327,178
-------------- --------
- ----
Net increase in net assets
resulting from
operations................ 33,704,374
95,953,792
-------------- --------
- ----
Dividends and distributions
(Note 1):
Dividends to shareholders
from net investment
income.................... (5,903,209)
(3,111,526)
-------------- --------
- ----
Distributions to shareholders
from net realized gains... (10,316,301)
(1,795,111)
-------------- --------
- ----
Fund share transactions (Note
6):
Net proceeds from shares
sold...................... 1,025,544,442
447,194,409
Net asset value of shares
issued to shareholders in
reinvestment of
distributions............. 16,213,432
4,906,633
Cost of shares reacquired.... (536,468,042)
(229,519,348)
-------------- --------
- ----
Net increase in net assets
from Fund share
transactions.............. 505,289,832
222,581,694
-------------- --------
- ----
Net increase.................... 522,774,696
313,628,849
Net Assets
Beginning of year............... 498,007,365
184,378,516
-------------- --------
- ----
End of year(a).................. $1,020,782,061
$498,007,365
-------------- --------
- ----
-------------- --------
- ----
- ---------------
(a) Includes undistributed net
investment income of......... $ 9,665,888 $
4,093,229
-------------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
The Prudential Index Series Fund (the 'Company'), formerly
the Prudential Dryden
Fund 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 five separate
funds, one of which is the Prudential Stock Index Fund (the
'Fund').
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 were no sales 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.
Transfer agent fees are allocated based on shareholder
activity and number of
accounts for each class.
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.
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.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
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 investment income and net
capital gains, if
any, 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
such amount was deferred and amortized over a 60-month
period ending October
1997.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants, Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and decrease
accumulated net realized gain on investments and foreign
currencies by $240,641.
Net realized gains and net assets were not affected by this
change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
('PIFM'). Pursuant to this agreement PIFM has responsibility
for all investment
advisory services. PIFM has a subadvisory agreement with The
Prudential
Investment Corporation ('PIC'). PIC, subject to the
supervision of PIFM, manages
the assets of the Fund in accordance with its investment
objective and policies.
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. The management fee paid
to PIFM is computed
daily and payable monthly at an annual rate of .30 of 1% of
the Fund's average
daily net assets.
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. 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.
This voluntary waiver
may be terminated at any time without notice. For the year
ended September 30,
1998, PIFM subsidized $757,261 of the expenses of the Fund
(.09% of the average
net assets of the Fund $.00172 per share).
Prudential Securities Incorporated ('PSI') acted as the
distributor of the
Fund's shares through May 31, 1998. Prudential Investment
Management Services
('PIMS') became the distributor of the Fund effective June
1, 1998 and is
serving under the same terms and conditions as under the
agreement with PSI.
Under the distribution agreement, PSI and PIMS incurred the
expenses of
distributing the Fund's shares, none of which is reimbursed
or paid for by the
Fund.
PIC, PIFM, PIMS and PSI are wholly owned subsidiaries of The
Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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
during the year
ended September 30, 1998. 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.
The Agreement
expired on December 30, 1997 and has been extended through
December 29, 1998
under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the period ended
September 30, 1998,
the Fund incurred fees of approximately $595,000 for the
services of PMFS. As of
September 30, 1998, approximately $63,000 of such fees were
due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the period ended September 30, 1998 aggregated
$508,996,569 and $10,205,868,
respectively.
- ------------------------------------------------------------
- --------------------
15
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
On September 30, 1998, the Fund held 74 purchased financial
futures contracts on
the S&P 500 Index expiring by December 1998. The cost of
such contracts was
$19,253,175. The value of such contracts on September 30,
1998 was $18,981,000,
thereby resulting in an unrealized loss of $272,175.
The cost basis of investments for federal income tax
purposes was $886,812,273
and, accordingly, as of September 30, 1998, net unrealized
appreciation for
federal income tax purposes was $133,333,592 (gross
unrealized
appreciation--$181,624,220; gross unrealized depreciation--
$47,290,628).
- ------------------------------------------------------------
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. At September
30, 1998, the Fund
had a 3% undivided interest in the repurchase agreements in
the joint account.
The undivided interest represented $21,675,000 in principal
amount. As of such
date, each repurchase agreement in the joint account and the
collateral therefor
was as follows:
Warburg Dillon Read LLC, 5.52%, in the principal amount of
$210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the
collateral
including accrued interest was $214,255,819.
Bear Stearns & Co., 5.58%, in the principal amount of
$210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral
including accrued
interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal
amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98.
The value of the
collateral including accrued interest was $111,084,883.
Goldman Sachs & Co., 5.54%, in the principal amount of
$210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral
including accrued
interest was $214,200,293.
- ------------------------------------------------------------
Note 6. 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, 1998 and the fiscal year ended September 30,
1997 were as follows:
<TABLE>
<CAPTION>
Class I Shares Amount
- --------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold...................... 25,552,010 $
611,299,960
Shares issued in reinvestment of
dividends and distributions.... 498,260
10,662,778
Shares reacquired................ (12,681,495)
(302,961,258)
----------- ---------
- ----
Net increase in shares
outstanding.................... 13,368,775 $
319,001,480
----------- ---------
- ----
----------- ---------
- ----
August 1, 1997(a) through
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
- ---------------------------------
Year ended September 30, 1998:
Shares sold...................... 17,424,666 $
414,244,482
Shares issued in reinvestment of
dividends and distributions.... 259,498
5,550,654
Shares reacquired................ (9,685,172)
(233,506,784)
----------- ---------
- ----
Net increase in shares
outstanding.................... 7,998,992 $
186,288,352
----------- ---------
- ----
----------- ---------
- ----
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 decrease in shares
outstanding.................... (2,977,476) $
(89,365,727)
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
(a) Commencement of offering of Class I shares.
Of the shares outstanding at September 30, 1998, PIFM and
affiliates owned
8,304,318.76 shares of the Fund.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Financial Highlights
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z Class I
-------------
- ---------------------------------------------- ---------
- ----
Year Ended September 30, Year Ended
-------------
- ---------------------------------------------- September
30,
1998
1997 1996 1995 1994 1998
--------
- -------- -------- -------- ------- ---------
- ----
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 21.86
$ 16.06 $ 14.22 $ 11.27 $ 11.12 $
21.87
--------
- -------- -------- -------- ------- ---------
- ----
Income from investment operations:
Net investment income(b)................... .15
.46 .25 .23 .26 .31
Net realized and unrealized gain on
investment transactions................. 1.69
5.75 2.44 2.97 .11 1.55
--------
- -------- -------- -------- ------- ---------
- ----
Total from investment operations......... 1.84
6.21 2.69 3.20 .37 1.86
--------
- -------- -------- -------- ------- ---------
- ----
Less distributions:
Dividends from net investment income....... (.21)
(.26) (.28) (.22) (.18) (.22)
Distributions from net realized gains...... (.38)
(.15) (.57) (.03) (.04) (.38)
--------
- -------- -------- -------- ------- ---------
- ----
Total distributions...................... (.59)
(.41) (.85) (.25) (.22) (.60)
--------
- -------- -------- -------- ------- ---------
- ----
Net asset value, end of period............. $ 23.11
$ 21.86 $ 16.06 $ 14.22 $ 11.27 $
23.13
--------
- -------- -------- -------- ------- ---------
- ----
--------
- -------- -------- -------- ------- ---------
- ----
TOTAL RETURN(d)............................ 8.61%
39.34% 19.72% 29.02% 3.33%
8.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $381,374
$185,881 $184,379 $101,945 $50,119 $
639,408
Average net assets (000)................... $313,721
$254,644 $142,540 $ 71,711 $38,098 $
505,605
Ratios to average net assets:(b)
Expenses................................. .40%
.46% .60% .60% .60% .30%
Net investment income.................... 1.30%
1.66% 1.92% 2.55% 2.34% 1.42%
Portfolio turnover rate.................... 1%
5% 2% 11% 2% 1%
<CAPTION>
August 1,
1997(a)
Through
September 30,
1997
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 21.87
-------------
Income from investment operations:
Net investment income(b)................... .06
Net realized and unrealized gain 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(d)............................ 0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 312,127
Average net assets (000)................... $ 296,788
Ratios to average net assets:(b)
Expenses................................. .30%(c)
Net investment income.................... 1.73%(c)
Portfolio turnover rate.................... 5%
</TABLE>
- ---------------
(a) Commencement of offering of Class I shares.
(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 distributions. Total return for periods
of less than a full
year are not annualized. Total return includes the
effect of expense
subsidies.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Report of Independant Accountants
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
The Shareholders and Board of Trustees of
Prudential Index Series 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
Index Series
Fund--Prudential Stock Index Fund (the 'Fund,' one of the
portfolios
constituting Prudential Index Series Fund) (formerly The
Prudential Dryden
Fund--Prudential Stock Index Fund) at September 30, 1998,
the results of its
operations for the year then ended, the changes in its net
assets and the
financial highlights for each of the two years in the period
then ended, in
conformity with generally accepted accounting principles.
These financial
statements and financial highlights (hereafter referred to
as 'financial
statements') are the responsibility of the Fund's
management; our responsibility
is to express an opinion on these financial statements based
on our audits. We
conducted our audits of these financial statements in
accordance with generally
accepted auditing standards which require that we plan and
perform the audit to
obtain reasonable assurance about whether the financial
statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing
the accounting principles used and significant estimates
made by management, and
evaluating the overall financial statement presentation. We
believe that our
audits, which included confirmation of securities at
September 30, 1998 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above. The accompanying financial
highlights for each of
the three periods in the period ended September 30, 1996
were audited by other
independent accountants, whose opinion dated November 13,
1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
- ------------------------------------------------------------
- --------------------
18
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Federal Income Tax Information (Unaudited)
PRUDENTIAL STOCK INDEX FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends paid by the Fund during such fiscal year. During
1998, the Fund paid
dividends of $0.592 per Class I share and $0.585 per Class Z
share. Of these
amounts, $.31 per Class I and Class Z shares represent
distributions from
long-term capital gains taxable at 20%. The remaining $0.282
per Class I share
and $0.275 per Class Z share represent dividends from
ordinary income (net
investment income and short-term capital gains.) Further, we
wish to advise you
that 74.38% of the ordinary income dividends paid in the
fiscal year ended
September 30, 1998 qualified for the corporate dividends
received deduction
available to corporate taxpayers.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1998. The amounts that will be reported on such Form
1099 DIV will be the
amounts to use on your 1998 federal income tax return and
will differ from the
amounts which we must report for the Fund's fiscal year
ended September 30,
1998.
- ------------------------------------------------------------
- --------------------
19
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
Prudential Stock Index Fund vs. the S&P 500
Index.
Class Z
Prudential Stock Index Fund
-- S&P 500 Index
Average Annual Total
Returns - Class Z
18.33% Since Inception (18.30%)
19.29% for 5 Years (19.26%)
8.61% for 1 Year (8.56%)
Class I
Average Annual Total
Returns - Class I
7.42% Since Inception (7.30%)
8.69% for 1 Year (8.64%)
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Stock Index
Fund (Class Z and I
shares) with a similar investment in the Standard & Poor's
500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial
account values at the
commencement of operations and subsequent account values at
the end of each
fiscal year (September 30) beginning in 1992 for Class Z
shares and 1997 for
Class I shares. For purposes of each graph, and unless
otherwise indicated in
the accompanying tables, it has been assumed that all
recurring fees
(including management fees) were deducted and all dividends
and distributions
were reinvested. Without waiver of management fees and/or
expense
subsidization, the Fund's average annual total returns would
have been lower,
as indicated in parentheses ( ).
The Standard & Poor's 500 Composite Stock Price Index (S&P
500 Index) is a
market capitalization-weighted index representing the
aggregate market value
of the common equity of 500 stocks primarily traded on the
New York Stock
Exchange. The S&P 500 is an unmanaged index and the total
return includes the
reinvestment of all dividends, but does not reflect the
payment of transaction
costs and advisory fees associated with an investment in the
Fund. The S&P 500
is not the only index that may be used to characterize
performance of equity
funds, and other indexes may portray different comparative
performance.
Investors cannot invest directly in an index.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74431F209 MF174E
74431F860
(ICON)
Prudential
Bond
Market
Index Fund
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Bond Market Index Fund
A Series of the Prudential Index Series Fund
Performance At A Glance.
A financial crisis that spread from Asia to Russia and Latin
America during the
past year ended September 30, 1998 fueled demand for good
"safe haven" bonds
such as U.S. Treasuries. Indeed, conditions in global
financial markets
deteriorated to such an extent that the Federal Reserve cut
the federal funds
rate (the rate banks charge each other for overnight loans)
to bolster the U.S.
economic growth and reassure investors and lenders. Your
Prudential Bond Market
Index Fund provided an attractive, double-digit return
during the reporting
period primarily because of its heavy investment in
Treasuries.
Cumulative Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
Since
Inception2
<S> <C>
Class Z 10.79%
Lipper Intermediate U.S. Gov't Avg.3 10.53%
Lehman Brothers Aggregate Index4 11.51%
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical
Services. Since Class Z shares have been in existence less
than a year, no
average annual total returns are presented.
2 Inception date: Class Z, 10/1/97. The Lipper reporting
period begins 9/30/97.
3 The Lipper Since Inception return is for all funds in the
Intermediate U.S.
Government category.
4 Source: Lehman Brothers, based on data retrieved by Lipper
Analytical
Services, Inc. The Lehman Brothers Aggregate Index is an
unmanaged index that
measures the total return provided by a universe of bonds
weighted by market
value. The Fund is neither sponsored by nor affiliated with
Lehman Brothers
Inc. Investors cannot invest directly in an index.
How Investments Compared
(as of 9/30/98)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher returns means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they don't
fluctuate much in price but, historically, their returns
have been generally
among the lowest of the major investment categories.
<PAGE>
Portfolio
Manager's Report
The 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, which, in this case, is the Lehman
Brothers Aggregate
Index. The Lehman Aggregate is composed of U.S. government
securities,
corporate bonds, mortgage-backed securities, and asset-
backed securities, all
of which must be investment grade and pay a fixed interest
rate. The
difference between the Fund's return and that of the Index
is primarily due
to fees and management expenses. There can be no assurance
that the Fund will
achieve its investment objective.
New Manager.
James L. Herbst began managing the Fund in July of 1998.
Jim, who has been
with Prudential for 13 years, also heads trading of
investment-grade corporate
bonds for the institutional fixed-income division of
Prudential Investments.
- -- Jim Herbst,
Fund Manager
Market Review.
A Memorable Year.
The past 12 months may be remembered as one of the most
remarkable periods in
the history of the U.S. bond markets. For the first time
since 1967, the yield
on the 30-year U.S. Treasury bond, which moves in the
opposite direction of its
price, tumbled below 5.00%. The yield breached this historic
barrier as
investors bought Treasuries to escape a worsening global
financial crisis. The
U.S. Treasury is the world's largest single issuer of debt,
which is backed by
the full faith and credit of the federal government.
Therefore, Treasuries
were an ideal "safe haven" investment during the volatile
market conditions
that characterized our fiscal year.
The trouble began innocently enough when the Thai government
devalued the baht
and currencies of several neighboring countries also
weakened. Few, if any,
Wall Street analysts expected this regional affair to
eventually engulf
financial markets worldwide. But shortly after the Fund's
fiscal year began,
global financial markets came under fire. The sell-off in
U.S. stocks during
October 1997 was comparable to the dramatic decline that
occurred roughly 10
years earlier on "Black Monday." Investors dumped global
stocks, emerging
markets bonds, and to a lesser extent, U.S. corporate debt
securities and
purchased Treasuries as well as government bonds of key
European countries such
as France and Germany.
This "flight to quality" carried over into the new year, and
for good reason.
Corporate bankruptcies continued to soar in formerly
prosperous countries such
as Thailand, Indonesia, and South Korea. In January,
investors received a fresh
jolt from news that Hong Kong's largest investment bank had
failed. The crisis
also gripped Japan, where domestic banks were burdened with
bad loans that
amounted to billions. The Japanese economy, the world's
second largest, slid
into recession, hurt by slumping demand for Japanese-made
products both at
home and in the rest of Asia.
Calm Before The Storm.
By contrast, the U.S. economy picked up steam in the first
three months of
1998, powered by consumer spending, manufacturers' purchases
of equipment such
as computers, and spending for housing construction. Yet
surprisingly mild
inflationary pressures calmed investors who worried that
robust economic
growth could ignite higher inflation that would erode bond
returns. With
inflation in check, U.S. corporate bond prices recovered
nicely in the new
year. Although many Pacific Rim countries continued to
struggle, the region's
stocks and bonds began to improve in late winter as
investors grew increasingly
optimistic that Asian governments would enact much-needed
financial reforms.
But as it turned out, this modest rebound in the prices of
these securities
proved to be the calm before the storm.
Rate Cut To The Rescue.
The financial storm struck global stock and bond markets
with gale force during
the summer, particularly in August and September. The
Russian government
devalued the ruble in August and defaulted on some of its
ruble-denominated
bonds. Russian woes led to doubts about the stability of
currencies in China,
Hong Kong, and Brazil. Fearing a domino effect, investors
once again unloaded
stocks and riskier bonds in favor of Treasuries and select
European government
debt securities.
<PAGE>
Portfolio Composition
Sectors expressed as a percentage of
total long-term investments as of 9/30/98.
U.S. Treasury Securities 42%
Mortgage-Backed 31%
Corporates 20%
U.S. Government Agency 4%
Asset-Backed 2%
Foreign Gov't Obligations 1%
Source: Prudential Investments
Amid these turbulent market conditions, the Federal Reserve
lowered the federal
funds rate by a quarter percentage point to 5.25% on
September 29 to protect
the U.S. economic expansion by encouraging lenders and
investors to provide
businesses with credit. This was the first rate cut in more
than two years.
But some investors feared the modest change in monetary
policy might not remedy
the damage done to financial markets. Therefore, they
continued purchasing
Treasuries, causing the 30-year bond yield to tumble to
4.95% on September 30.
Treasuries Helped Us.
Your Fund benefited greatly from its 42% investment in
Treasuries, which
performed better than all other types of U.S. bonds during
the year ended
September 30, 1998, based on Lehman Brothers indexes. While
investors continued
to buy Treasuries, demand tapered off for other domestic,
fixed-income
securities, as indicated by a sharp drop in the issuance of
new bonds. For
example, the amount of new investment-grade corporate bonds
sold in August and
September totaled a combined $21.5 billion, down from a
monthly average of
$26.4 billion during the first seven months of 1998.
Corporate bonds suffered
from the same earnings concerns that plagued stocks. As a
result, the
difference between yields on corporate bonds and comparable
U.S. Treasuries
ballooned as investors required a greater compensation for
taking a chance on
corporate bonds. This same trend played out in the asset-
backed securities
market, where we reduced exposure to 2.0% of the Fund's
total long-term
investments as of September 30, 1998 from 6.0% earlier in
the year.
Mortgage-backed securities also fared poorly in the last few
months. Home
mortgage rates fell to the lowest level in three decades as
the rally in
Treasuries pushed down long-term interest rates. Consumers
took advantage of
this trend by refinancing their mortgages at lower rates.
This in turn led to
increased prepayments on securities backed by these
mortgages. Some of our
mortgage-backed securities were prepaid, forcing us to
reinvest the money in a
lower-interest-rate environment.
Shortly after our fiscal year ended, the 30-year Treasury
bond yield briefly
touched 4.71%, its lowest level in a generation. Then the
Federal Reserve cut
the federal funds rate to 5.00%, setting off a rally in
stocks and riskier
bonds. Although Treasuries lost ground as money flowed back
into equities, our
bond market outlook remains upbeat. Economic conditions that
favor bonds might
continue over the next 12 months as we expect the U.S.
economy to grow at a
moderate pace with low inflation. We also believe
corporate bond prices are
bound to recover from their current oversold positions. This
sell-off has
caused the difference between yields on corporate bonds and
comparable
Treasuries to rise to levels last seen in 1990 as investors
have demanded
greater compensation for taking a chance on corporate bonds.
We are confident
the positive fundamentals of our corporate bond holdings
will ultimately
outweigh the negative effects of the global financial
crisis, sparking a
rebound in prices.
Credit Quality
Expressed as a percentage of
total long-term investments as of 9/30/98.
Aaa 78%
Aa 4%
A 11%
Baa 7%
Source: Prudential Investments
1
<PAGE>
President's Letter
November 9, 1998
- ------------------------------------------------------------
- -------------------
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets
is decidedly mixed. After setting record highs earlier,
stocks, as measured by
the Dow Jones Industrial Average, experienced a series of
steep sell-offs in
late summer. The market rebounded in early fall, helped by
two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated
as investors fled troubled Asian and other emerging markets
for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S.
economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market
environment can be
challenging. That's why it is important to manage your
expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always
rise and fall -- that's what markets do. Although past
performance may not be
indicative of future results, stocks and bonds have, over
time, consistently
produced attractive returns that have kept ahead of
inflation. In fact,
investors who remained focused on the long term and did not
sell during the
recent market volatility were rewarded. Stock prices, as
measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since
their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond,
and money market mutual funds can help lessen the effects of
a market downturn
over time. In fact, a well-diversified portfolio may retain
or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will be glad to
review your current allocations. He or she will recommend
adjustments based
upon your goals, market conditions, risk tolerance, and
potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--94.4%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Domestic Corporate Bonds--16.6%
Finance--6.2%
Bankamerica Corp.
Aa3 7.20% 4/15/06 $ 330 $
359,578
Chase Manhattan Corp.
A1 7.125 3/01/05 250
265,958
Chemical Bank
Aa3 7.00 6/01/05 180
191,232
Citicorp
A1 7.625 5/01/05 300
330,201
Donaldson, Lufkin & Jenrette, Inc.
A3 6.50 6/01/08 350
348,477
First Union Corp.
A2 6.40 4/01/08 200
210,720
Goldman Sachs Group
A1 6.625 12/01/04 360
374,400
Merrill Lynch and Co., Inc.
Aa3 6.50 4/01/01 60
61,556
Spieker Properties LP
Baa2 6.65 12/15/00 325
328,705
- -----------
2,470,827
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Industrials--7.1%
Cox Communications, Inc.
Baa2 6.80 8/01/28 115
119,992
Ford Motor Co.
A1 9.98 2/15/47 220
317,814
General Motors Corp.
A2 7.70 4/15/16 500
561,050
Lockheed Martin Corp.
A3 7.70 6/15/08 210
239,014
News America Holdings, Inc.
Baa3 9.25 2/01/13 200
245,004
Northrop Grumman Corp.
Baa3 8.625 10/15/04 200
227,022
Penney (J.C.) & Co.
A2 9.05 3/01/01 250
271,460
Rockwell International Corp.
Aa3 6.625 6/01/05 450
480,240
TCI Communications, Inc.
Baa3 8.75 8/01/15 100
124,928
Time Warner, Inc.
Baa3 9.125 1/15/13 200
251,138
- -----------
2,837,662
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Utilities--3.3%
Carolina Power & Light Co.
A2 6.80 8/15/07 70
77,300
GTE Corp.
Baa1 6.36 4/15/06 350
372,785
Pacificorp
A2 6.375 5/15/08 300
313,449
Worldcom, Inc.
Baa2 6.40 8/15/05 500
527,610
- -----------
1,291,144
- -----------
Total domestic corporate bonds (cost $6,345,726)
6,599,633
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Asset Backed Securities--2.1%
Credit Card Receivables Trust, Series 1998-1
Aaa 6.478 12/22/04 291
295,752
World Financial Network Credit Card Master Trust, Series
1996 B, Class A
Aaa 6.95 4/15/06 500
532,500
- -----------
Total asset backed securities (cost $804,199)
828,252
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Collateralized Mortgage Obligations--2.3%
American Housing Trust, Series VI, Class 1-I
Aaa 9.15% 5/25/20 $ 166 $
178,992
Lb Commercial Conduit Mortgage Trust, Series 1998 C1,
Class A3
Aaa 6.48 1/18/08 300
318,375
Shurgard Securities Trust, Series 1, Class 1
AA(b) 8.24 6/15/01 380
407,669
- -----------
Total collateralized mortgage obligations (cost $883,553)
905,036
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Mortgage Backed Securities--27.2%
Federal Home Loan Mortgage Corp.
6.50 11/01/27 247 251,331
Federal Home Loan Mortgage Corp.
6.50 12/01/27 587 598,100
Federal Home Loan Mortgage Corp.
6.50 12/01/27 97 99,224
Federal Home Loan Mortgage Corp.(a)
7.00 11/12/28 1,000 1,026,560
Federal Home Loan Mortgage Corp.(a)
8.00 11/12/28 1,000 1,035,620
Federal National Mortgage Assoc.
9.50 7/01/25 324 347,749
Federal National Mortgage Assoc.(a)
6.50 10/14/28 1,000 1,016,870
Federal National Mortgage Assoc.(a)
6.50 10/19/28 500 510,465
Federal National Mortgage Assoc.(a)
7.50 10/19/28 1,000 1,029,680
Federal National Mortgage Assoc.(a)
7.50 11/12/28 2,500 2,578,900
Government National Mortgage Assoc.
8.49 1/15/19 260 283,287
Government National Mortgage Assoc.(a)
6.50 11/18/28 1,000 1,022,180
Government National Mortgage Assoc.(a)
7.50 11/18/28 1,000 1,036,560
- -----------
Total mortgage backed securities (cost $10,785,171)
10,836,526
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
U.S. Government Agency Obligations--4.1%
Federal National Mortgage Assoc.
7.40 7/01/04 600 675,564
Federal National Mortgage Assoc.
6.72 8/01/05 200 221,374
Small Business Administration
6.55 12/01/17 683 731,158
- -----------
Total U.S. government agency obligations (cost
$1,538,870)
1,628,096
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
U. S. Government Obligations(c)--39.1%
United States Treasury Bond
11.875 11/15/03 450 601,592
United States Treasury Bond
12.00 8/15/13 500 782,110
United States Treasury Bond
7.50 11/15/16 750 954,727
United States Treasury Bond
8.125 8/15/19 400 547,936
United States Treasury Bond
7.875 2/15/21 1,060 1,430,332
United States Treasury Bond
8.125 8/15/21 100 138,672
United States Treasury Bond
7.125 2/15/23 400 504,936
United States Treasury Bond
6.375 8/15/27 120 141,713
United States Treasury Bond
6.125 11/15/27 1,015 1,170,102
United States Treasury Note
5.375 1/31/00 445 449,726
United States Treasury Note
7.75 1/31/00 2,000 2,081,880
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount
Value
Description
(Unaudited) Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
U. S. Government Obligations(c) (cont'd.)
United States Treasury Note
6.00% 8/15/00 $ 1,400 $ 1,439,816
United States Treasury Note
6.25 8/31/00 750 775,432
United States Treasury Note
5.75 11/15/00 200 205,468
United States Treasury Note
6.25 1/31/02 2,300 2,431,882
United States Treasury Note
5.75 10/31/02 200 210,218
United States Treasury Note
5.50 1/31/03 625 653,025
United States Treasury Note
6.50 8/15/05 450 505,827
United States Treasury Note
5.625 5/15/08 500 546,875
- -----------
Total U. S. government obligations (cost $14,647,865)
15,572,269
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Foreign Corporate Bonds--1.6%
Hanson PLC (United Kingdom)
A3 7.375 1/15/03 300
322,461
Tyco International Group (Luxembourg)
Baa1 6.375 6/15/05 300
316,218
- -----------
Total foreign corporate bonds (cost $609,699)
638,679
- -----------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Foreign Government Obligations--1.4%
Quebec Hydro (Canada)
(cost $525,213)
A2 7.50 4/10/06
559,140
- -----------
Total long-term investments (cost $36,140,296)
37,567,631
- -----------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS--29.0%
Repurchase Agreement--28.0%
Joint Repurchase Agreement Account (Note 5)
NR 5.522 10/01/98 11,152
11,152,000
U.S. Government Obligations--1.0%
United States Treasury Note
6.00 8/15/99 375 379,279
- -----------
Total short-term investments (cost $11,527,795)
11,531,279
- -----------
Total Investments--123.4%
(cost $47,668,091; Note 4)
49,098,910
Liabilities in excess of other assets--(23.4)%
(9,309,302)
- -----------
Net Assets--100%
$39,789,608
- -----------
- -----------
</TABLE>
- ---------------
LP--Limited Partnership.
NR--Not rated by Moody's or Standard & Poor's.
PLC--Public Limited Company (British Corporation).
(a) Mortgage dollar roll, see Note 1.
(b) Standard & Poor's Rating.
(c) Pledged as collateral for dollor rolls.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Statement of Assets and Liabilities PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
- ------------------
<S>
<C>
Investments excluding repurchase agreement, at value (cost
$36,516,091)................................ $
37,946,910
Repurchase Agreement, at value (cost
$11,152,000)................................................
...... $ 11,152,000
Cash........................................................
...........................................
170
Receivable for investments
sold........................................................
................ 8,333,340
Interest
receivable..................................................
.................................. 428,254
Receivable for Fund shares
sold........................................................
................ 80,589
Due from
Manager.....................................................
.................................. 26,951
Prepaid
expenses....................................................
................................... 387
- ------------------
Total
assets......................................................
.................................. 57,968,601
- ------------------
Liabilities
Dollar roll
payable.....................................................
............................... 9,262,878
Payable for investments
purchased...................................................
................... 8,838,417
Accrued expenses and other
liabilities.................................................
................ 53,609
Payable for Fund shares
reacquired..................................................
................... 24,089
- ------------------
Total
liabilities.................................................
.................................. 18,178,993
- ------------------
Net
Assets......................................................
....................................... $ 39,789,608
- ------------------
- ------------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
...... $ 3,646
Paid-in capital in excess of
par.........................................................
........... 36,690,630
- ------------------
36,694,276
Undistributed net investment
income......................................................
.............. 1,462,703
Accumulated net realized gain on
investments.................................................
.......... 201,810
Net unrealized appreciation on
investments.................................................
............ 1,430,819
- ------------------
Net assets, September 30,
1998........................................................
................. $ 39,789,608
- ------------------
- ------------------
Class Z:
Net asset value per share
($39,789,608 / 3,646,071 shares of beneficial interest
issued and outstanding)...................
$10.91
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Through
Net Investment Income September 30,
1998
<S> <C>
Income
Interest............................... $2,038,989
----------------
- --
Expenses
Management fee......................... 83,862
Custodian's fees and expenses.......... 82,000
Registration fees...................... 72,000
Reports to shareholders................ 20,000
Legal fees............................. 20,000
Audit fee.............................. 18,000
Trustees' fees......................... 6,400
Transfer agent's fees and expenses..... 2,000
Miscellaneous.......................... 804
----------------
- --
Total operating expenses............ 305,066
Less: Expense subsidy (Note 2)......... (170,875)
----------------
- --
Net expenses........................ 134,191
----------------
- --
Net investment income.................... 1,904,798
----------------
- --
Realized and Unrealized Gain on
Investments
Net realized gain on investment
transactions........................... 220,276
Net change in unrealized appreciation
investments............................ 1,430,819
----------------
- --
Net gain on investments.................. 1,651,095
----------------
- --
Net Increase in Net Assets
Resulting from Operations................ $3,555,893
----------------
- --
----------------
- --
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Increase in Through
Net Assets September 30,
1998
<S> <C>
Operations
Net investment income.................... $ 1,904,798
Net realized gain on investment
transactions.......................... 220,276
Net change in unrealized appreciation on
investments........................... 1,430,819
---------------
- ---
Net increase in net assets resulting from
operations............................ 3,555,893
---------------
- ---
Dividends and distributions (Note 1)
Dividends from net investment income.....
(461,718)
---------------
- ---
Distributions from net realized gains....
(18,466)
---------------
- ---
Fund share transactions
Net proceeds from shares sold............ 38,076,778
Net asset value of shares issued in
reinvestment of distributions......... 469,351
Cost of shares reacquired................
(1,832,230)
---------------
- ---
Net increase in net assets from Fund
share transactions.................... 36,713,899
---------------
- ---
Total increase............................. 39,789,608
Net Assets
Beginning of period........................ 0
---------------
- ---
End of period(b)........................... $ 39,789,608
---------------
- ---
---------------
- ---
- ---------------
(a) Commencement of operations.
(b) Includes undistributed net investment
income of............................ $ 1,462,703
---------------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
Prudential Index Series 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 five separate funds. Prudential Bond
Market Index Fund
(the 'Fund') commenced investment operations on October 1,
1997 when 3,000,020
shares of beneficial interest of the Fund were sold for
$30,000,200 to the
Prudential Insurance Company of America ('The Prudential').
The Fund's investment objective 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 Lehman Brothers
Aggregate Bond 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.
Security 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 were no sales on such day, at the mean between the
last 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. U.S. Government
securities for which market
quotations are available are valued at a price provided by
an independent
broker/dealer or pricing service.
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 were no sales
on the applicable option exchange, on such day at the
average of the quoted bid
and asked prices as of the close of such exchange. 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 the quoted bid and asked prices
as of the close of
such exchange or board of trade. 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 that, in the
judgement 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, 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.
Dollar Rolls: The Fund enters into mortgage dollar rolls in
which the Fund sells
mortgage securities for delivery in the current month,
realizing a gain or loss
and simultaneously contracts to repurchase somewhat similar
(same type, coupon
and maturity) securities on a specified future date. During
the roll period, the
Fund forgoes principal and interest paid on the securities.
The Fund is
compensated by the interest earned on the cash proceeds of
the initial sale and
by the lower repurchase price at the future date. The
difference between the
sales proceeds and the lower repurchase price is recorded as
interest income.
The Fund maintains a segregated account, the dollar value of
which is at least
equal to its obligations, in respect of dollar rolls.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains or losses from
investment
transactions are calculated on the identified cost basis.
Interest income is
recorded on the accrual basis. The Fund accretes discounts
and amortizes
premiums on portfolio securities as adjustments to interest
income. 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 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.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
Taxes: For federal income tax purposes, each fund in the
Company is treated as a
separate taxpaying entity. 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 net investment income to its
shareholders.
Therefore, no federal income tax provision is required.
Deferred Offering Expenses: Approximately $20,000 of
expenses were incurred in
connection with the organization of the Fund. These costs
were deferred and
amortized over a period of one year from the date the Fund
commenced investment
operations.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with American
Institute of Certified
Public Accountants' 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 increase undistributed net investment income and decrease
paid-in capital by
$19,623 due to certain expenses not deductible for tax
purposes. Net investment
income, net realized gains and net assets were not affected
by this change.
- ------------------------------------------------------------
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 Company. 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 .25 of 1% of the Fund's average daily net assets.
The Company had a distribution agreement with Prudential
Securities Incorporated
('PSI') which acted as the distributor of the Company
through May 31, 1998.
Prudential Investment Management Services LLC ('PIMS')
became the Company's
distributor effective June 1, 1998 and is serving the
Company under the same
terms and conditions as under the arrangement with PSI. No
distribution or
service fees are paid to PIMS as distributor of the Fund.
PSI, PIFM, PIC and PIMS are indirect wholly owned
subsidiaries of The Prudential
Insurance Company of America.
PIFM has agreed to subsidize the operating expenses of the
Fund, so that total
Fund operating expenses do not exceed .40% on an annualized
basis of the Fund's
average daily net assets. This voluntary waiver may be
terminated at any time
without notice. For the period ended September 30, 1998,
PIFM subsidized
$170,875 of the expenses of the Fund (0.51% of the average
daily net assets
annualized or $0.047 per share).
The Company, along with other affiliated registered
investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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 did not borrow any amounts pursuant to the Agreement
during the period
ended September 30, 1998. The Fund pays a commitment fee at
an annual rate of
.055 of 1% on the unused portion of the credit facility. The
commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds.
The Agreement
expires on December 29, 1998.
- ------------------------------------------------------------
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. During the period
ended September 30,
1998, the Fund incurred fees of approximately $1,800 for the
services of PMFS.
As of September 30, 1998, approximately $300 of such fees
were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the period ended September 30, 1998, were $28,704,632
and $10,569,626,
respectively, which includes purchases and sales of U.S.
government obligations
of $18,880,614 and $4,995,544, respectively.
The federal income tax basis of the Fund's investments at
September 30, 1998 was
substantially the same as for financial reporting purposes
and, accordingly, net
unrealized appreciation for federal income tax purposes was
$1,430,819 (gross
unrealized appreciation-$1,435,414; gross unrealized
depreciation-$4,595).
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
The average balance of dollar rolls outstanding during the
period ended
September 30, 1998 was approximately $7,441,249. The value
of dollar rolls
outstanding at September 30, 1998 was $9,256,835, which was
16% of total assets.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Company, 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, 1998, the Fund had a 1.51% undivided interest in the
repurchase agreements
in the joint account. This undivided interest represented
$11,152,000 in
principal amount. As of such date, the repurchase agreements
in the joint
account and the value of the collateral therefore were as
follows:
Warburg Dillon Read LLC, 5.52%, in the principal amount of
$210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the
collateral
including accrued interest was $214,255,819.
Bear Stearns & Co., 5.58%, in the principal amount of
$210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral
including accrued
interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal
amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98.
The value of the
collateral including accrued interest was $111,084,883.
Goldman Sachs, & Co., 5.45%, in the principal amount of
$210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral
including accrued
interest was $214,200,293.
- ------------------------------------------------------------
Note 6. Capital
The Fund has authorized an unlimited number of shares of
Class Z beneficial
interest at $.001 per value per share. Transactions in
shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Class Z Shares
- -------------------------------------------------- --------
- -
<S> <C>
October 1, 1997(a) through
September 30, 1998:
Shares sold.......................................
3,776,725
Shares issued in reinvestment of dividends and
distributions...................................
46,470
Shares reacquired.................................
(177,124)
--------
- -
Net increase in shares outstanding................
3,646,071
</TABLE>
At September 30, 1998, 3,091,847 shares were owned by The
Prudential.
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Financial Highlights PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
October 1, 1997(c)
Through
September 30,
1998
- ------------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................................................
................ $ 10.00
- ------
Income from investment operations
Net investment
income(d)...................................................
............................... .55
Net realized and unrealized gain on investment
transactions...............................................
.52
- ------
Total from investment
operations..................................................
..................... 1.07
- ------
Less distributions
Dividends from net investment
income......................................................
................ (.15)
Distribution from net realized
gains.......................................................
............... (.01)
- ------
Total dividends and
distributions...............................................
....................... (.16)
- ------
Net asset value, end of
period......................................................
...................... $ 10.91
- ------
- ------
TOTAL
RETURN(a):..................................................
........................................ 10.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................................
.................... $ 39,790
Average net assets
(000).......................................................
........................... $ 33,637
Ratios to average net assets:(d)
Expenses....................................................
...........................................
.40%(b)
Net investment
income......................................................
............................ 5.68%(b)
Portfolio turnover
rate........................................................
........................ 33%
</TABLE>
- ---------------
(a) 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 each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized.
(c) Commencement of investment operations.
(d) Net of expense subsidy.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Report of Independent Accountants PRUDENTIAL BOND
MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Trustees of
Prudential Index Series Fund--Prudential Bond Market 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
Index Series
Fund--Prudential Bond Market Index Fund (the 'Fund,' one of
the portfolios
constituting Prudential Index Series Fund) at September 30,
1998, and the
results of its operations, the changes in its net assets and
the financial
highlights for the period October 1, 1997 (commencement of
operations) through
September 30, 1998, 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, 1998 by correspondence with the custodian and
brokers, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
- ------------------------------------------------------------
- --------------------
12
<PAGE>
Important Notice for Certain Shareholders PRUDENTIAL
INDEX SERIES FUND
(Unaudited) PRUDENTIAL
BOND MARKET INDEX FUND
- ------------------------------------------------------------
- --------------------
We are required by Massachusetts, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders providing the mutual fund meets
certain requirements
mandated by the prospective state's taxing authorities. We
are pleased to report
that 42% of the dividends paid by the Prudential Index
Series Fund--Prudential
Bond Market Index Fund qualify for such deduction.
For more information regarding your state and local taxes,
you should contact
your tax advisor or the state/local taxing authorities.
- ------------------------------------------------------------
- --------------------
13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, a nationally
recognized mutual fund
rating agency. We report both the cumulative total returns
and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's
performance -- it generally smoothes out returns and gives
you an idea how
much the Fund has earned in an average year, for a given
time period. Under
the performance box, you'll see legends that explain the
performance
information, whether fees and sales charges have been
included in returns,
and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
onsuccessful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio manager favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you. The net asset value fluctuates
daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets. The Fund is required to pay out the bulk of its
income to shareholders
every year, and this statement shows you how we do it --
through dividends and
distributions -- and how that affects the net assets. This
statement also
shows how money from investors flowed into and out of the
Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does
contain useful information. The Notes provide a brief
history and explanation
of your Fund's objectives. In addition, they also outline
how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the
Fund's shares, and more importantly, how much they are paid
for doing so.
Finally, the Notes explain how many shares are outstanding
and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information is fairly presented and complies with generally
accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to
include the performance of an unmanaged, broad based
securities index, as well.
The index does not reflect the cost of buying the securities
it contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly
used by investors to measure how well they are doing. A
definition of the
selected index is also provided. Investors generally cannot
invest directly in
an index.
<PGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
- ------------------------------------------------------------
- -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- ------------------------------------------------------------
- -------------------
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- ------------------------------------------------------------
- -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
Comparing A $10,000 Investment.
- -------------------------------------
Prudential Bond Market Index Fund vs.
the Lehman Brothers Aggregate Index.
Class Z
(CHART)
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so an investor's shares, when
redeemed, may be worth more
or less than their original cost.
This graph is furnished to you in accordance with SEC
regulations. It compares
a $10,000 investment in the Prudential Bond Market Index
Fund (Class Z shares)
with a similar investment in the Lehman Brothers Aggregate
Index (the Index)
by portraying the initial account values at the commencement
of operations of
Class Z, and the subsequent account values at the end of the
fiscal year
(September 30), as measured on a quarterly basis, beginning
in 1997. For
purposes of the graph, it has been assumed that all
dividends and distributions
were reinvested. Class Z shares are not subject to a sales
charge or
distribution fee. Class Z shares have been in existence less
than one year,
therefore no average annual returns are presented.
The Index is an unmanaged index that consists of three major
classes of
fixed-income investments: 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, with a
remaining maturity or
average life of at least one year, and generally have an
outstanding market
value of at least $100 million. The Index includes the
reinvestment of all
dividends, but does not reflect the payment of transaction
costs and advisory
fees associated with an investment in the Fund. The
securities in the Index
may differ substantially from the securities in the Fund.
The Index is not the
only one that may be used to characterize performance of
bond funds, and other
indexes may portray different comparative performance.
Investors cannot invest
directly in an index.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74431F837 MF174E5
(ICON)
Prudential
Small-Cap
Index Fund
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Small-Cap Index Fund
A Series of the Prudential Index Series Fund
Performance At A Glance.
The volatile 12 months ending September 30, 1998 included a
bear market for
small-cap stocks -- a 31% drop from the April 22 peak to the
September 1 low.
Small companies tend to be more vulnerable than larger firms
to an economic
slowdown, so when uncertainty about the consequences of
Asia's recession
eroded investors' confidence, small-cap stocks declined
significantly more
than those of larger firms. The Prudential Small-Cap Index
Fund performed in
line with the Index itself, and better than the average
managed small-cap
mutual fund.
Cumulative Total Returns1 As of
9/30/98
<TABLE>
<CAPTION>
Since
Inception2
<S> <C>
Class Z -18.98% (-20.08)
Lipper Small-Cap Fund Avg.3 -20.60%
S&P SmallCap 600 Index4 -18.67%
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical
Services. Since Class Z shares have been in existence less
than a year, no
average annual total returns are presented. Without waiver
of management fees
and/or expense subsidization, the Fund's cumulative total
returns would have
been lower, as indicated in parentheses ( ).
2 Inception date: Class Z, 10/1/97. The Lipper reporting
period begins 9/30/97.
3 The Lipper Since Inception return is for all funds in the
Small-Cap Fund
category.
4 The Standard & Poor's SmallCap 600 Stock Price Index (S&P
SmallCap 600 Index)
is a market capitalization-weighted index comprised of 600
domestic stocks
chosen for market size, liquidity, and industry group
representation. The Index
is unmanaged and the total return includes the reinvestment
of all dividends,
but does not reflect the payment of transaction costs and
advisory fees
associated with an investment in the Fund. The securities in
the Index may
differ substantially from the securities in the Fund. The
S&P SmallCap 600
Index is not the only index that may be used to characterize
performance of
stock funds, and other indexes may portray different
comparative performance.
Investors cannot invest directly in an index.
How Investments Compared.
(As of 9/30/98)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher returns means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they don't
fluctuate much in price but, historically, their returns
have been generally
among the lowest of the major investment categories.
<PAGE>
(PHOTO)
Portfolio
Manager's Report
The Prudential Small-Cap Index Fund seeks to provide
investment results that
correspond to the price and yield of a broad-based index of
small
capitalization stocks. Currently we use the Standard &
Poor's SmallCap 600
Stock Price Index (S&P SmallCap 600). The S&P SmallCap 600
consists of 600 U.S.
stocks selected to be representative of the industry
composition of the
small-cap market. On September 30, the market values of the
S&P SmallCap 600
ranged from $28 million to $3,212 million, with a median of
$385 million. The
difference between the Fund's return and that of the Index
is primarily fees
and management expenses. There can be no assurance that the
Fund will achieve
its investment objective.
A Leading Indicator.
Historically, small-cap stocks have tended to decline before
an economic
recession and outperform larger company stocks coming out of
a slump. Although
economists are not anticipating a U.S. recession, the poor
performance of
small-cap stocks signaled a sharp drop in earnings growth.
Investors appear to
have expected a recession. Looking forward, small-cap
stocks, as leading
indicators, may move up before the economy resumes speed.
-- Wai Chiang,
Fund Manager
Market Review.
- -------------------------------------------------
The past 12 months included a sharp economic contraction in
Asia, a slowdown in
the earnings growth of U.S. firms, a Russian debt default,
and large losses for
several hedge funds and banks. Investors became nervous, so
they focused on the
very safest investments: U.S. Treasury bonds and the stocks
of a few very large
companies. Small-cap stocks sank by 31% in the summer bear
market. The price of
the average stock for companies that were smaller than the
largest fifth
dropped sharply, with a clear relation between small size
and large price
decline. Market capitalization (the market price for all of
a firm's
outstanding stock) was the greatest influence on stock
return within the S&P
SmallCap 600, which itself underperformed large-company
stocks. Independent of
size, earnings per share (EPS) and EPS growth also affected
stock performance,
according to a Lehman Brothers analysis.
The Gaining Sectors.
Only two S&P SmallCap 600 sectors had positive average
returns: utilities (up
23%) and financials (up four percent). Utilities
historically tend to hold up
well in a downturn because of the stability of their
earnings growth. Electric
companies returned 34% and water companies 30%, on average,
a sharp contrast to
other industries in our universe. Performance in the
financial sector favored
companies less vulnerable to an economic slowdown, such as
life and health
insurers (up 34%) and multiline insurers (up 17%).
Investment management firms
(up 31%) also did well, while the more exposed investment
banks/brokers
declined by 10%. Small-cap financial firms tended to be less
exposed to
overseas difficulties than large companies in the same
industries, so their
performance was stronger.
The Losing Sectors.
Of the sectors with negative returns, basic materials fell
least (down 10%), a
contrast from the large-cap universe, where they were at the
bottom. The broad
range of commodity prices, as captured by the Goldman Sachs
Commodity Index,
was at about 10-year lows. Forest products, metals,
chemicals, and agricultural
products all were cheap, and the companies that made them
suffered. This is a
cyclical sector, and the global economic slowdown and
investors' fears of worse
to come affected returns. Among small companies, however,
there are more niche
players. Agricultural products (up 28%) and construction
(cement and
aggregates, up six percent) had positive returns, whereas
metals and chemical
firms lost ground.
The two consumer sectors, cyclicals (companies that perform
better in an
economic expansion) and staples, comprise many industries
and a wide range of
results. Consumer cyclicals (down 14%) were pulled down by
the 54% decline of
the lodging industry and the 41% drops of both gaming firms
and specialty
textile companies. Among the larger gains were the 26% gain
of household
furnishings and the 17% rise of both home furnishing
textiles and commercial
and consumer service companies. Consumer staples (down 17%)
suffered from the
58% drop of non-
<PAGE>
durable household products. Tobacco companies (down 48%) and
employment
services (down 49%) also had large impacts on the negative
result.
The health care sector fell 17%. As with larger companies,
drugs (up seven
percent) had relatively strong returns, while service
industries, such as
long-term care (down 59%) and managed care (down 46%),
reflected the
difficulties in managing and pricing health service
delivery. The exception to
this theme was specialized services (up 11%). Biotechnology
firms also averaged
a substantial 41% decline.
Transportation firms were down 25%, on average, because of
very poor
performance from companies focusing on moving larger goods -
- - air freight,
railroads, and truckers. Airlines (up 56%), by contrast, had
a very strong
year, while shippers (up nine percent) also had a positive
year. Capital goods
(down 27%) suffered from the uncertain future, with trucks
and parts (down
46%) and electrical equipment (down 39%) hurt the most. The
positive four
percent movement of office equipment and supplies firms
mitigated the declines
a little.
The technology sector (down 37%) was particularly hit by
Asian events.
Semiconductor equipment manufacturers (down 55%),
semiconductor manufacturers
(down 55%), and electronics component distributors (down
59%) were the poorest
performers.
The 49% decline of energy stocks was due to the warm El Nino
winter and a very
unfavorable supply/demand situation for oil. Communication
services in the
small-cap universe comprises only two long-distance
companies with an average
return of -49% for the year.
How The S&P SmallCap 600 Index Performed.
(GRAPH)
The S&P SmallCap 600 Index currently measures the
performance of selected U.S.
stocks with a market value no greater than $3.212 million
(as of September 30,
1998). "S&P SmallCap 600" and "Standard & Poor's 600" are
trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use
by 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. The
performance cited
does not represent the performance of the Prudential Small-
Cap Index Fund.
Past performance is not indicative of future results.
Investors cannot invest
directly in an index.
Source: Lipper Analytical Services, Inc.
S&P SmallCap 600 Index
Annual Total Return
by Sector as of 9/30/98.
Utilities 23%
Financial 4%
Basic Materials -10%
Consumer Cyclicals -14%
Consumer Staples -17%
Health Care -17%
Industrials -24%
Transportation -25%
Capital Goods -27%
Technology -37%
Communication Services -49%
Energy -49%
S&P SmallCap 600 Index -19%
Source: Standard & Poor's
1
<PAGE>
President's Letter
November 9, 1998
- ------------------------------------------------------------
- -------------------
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets
is decidedly mixed. After setting record highs earlier,
stocks, as measured by
the Dow Jones Industrial Average, experienced a series of
steep sell-offs in
late summer. The market rebounded in early fall, helped by
two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated
as investors fled troubled Asian and other emerging markets
for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S.
economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market
environment can be
challenging. That's why it is important to manage your
expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always
rise and fall -- that's what markets do. Although past
performance may not be
indicative of future results, stocks and bonds have, over
time, consistently
produced attractive returns that have kept ahead of
inflation. In fact,
investors who remained focused on the long term and did not
sell during the
recent market volatility were rewarded. Stock prices, as
measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since
their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond,
and money market mutual funds can help lessen the effects of
a market downturn
over time. In fact, a well-diversified portfolio may retain
or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will be glad to
review your current allocations. He or she will recommend
adjustments based
upon your goals, market conditions, risk tolerance, and
potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--93.0%
COMMON STOCKS--93.0%
- ------------------------------------------------------------
Advertising--1.1%
1,700 HA-LO Industries, Inc.(a) $
49,725
2,900 True North Communications, Inc.
64,344
2,500 Valassis Communications, Inc.
100,000
-------
- ----
214,069
- ------------------------------------------------------------
Aerospace--0.5%
1,400 BE Aerospace, Inc.(a)
30,800
2,400 Orbital Sciences Corp.(a)
67,350
1,400 Trimble Navigation, Ltd.(a)
14,088
-------
- ----
112,238
- ------------------------------------------------------------
Airlines--0.8%
4,350 Comair Holdings, Inc.
125,062
1,800 Mesa Air Group, Inc.(a)
9,000
1,500 SkyWest, Inc.
28,688
-------
- ----
162,750
- ------------------------------------------------------------
Automobiles & Trucks--1.1%
2,300 Breed Technologies, Inc.
14,088
1,100 Discount Auto Parts, Inc.(a)
26,469
4,600 Gentex Corp.
69,000
1,200 Simpson Industries, Inc.
12,075
1,450 Smith (A.O.) Corp.
28,456
800 Spartan Motors, Inc.
3,950
800 Standard Motor Products, Inc.
(Class 'A' Stock)
19,500
1,500 TBC Corp.(a)
9,000
1,400 Titan International, Inc.
15,575
1,500 Wabash National Corp.
22,125
-------
- ----
220,238
- ------------------------------------------------------------
Banks and Savings & Loans--7.2%
1,800 Astoria Financial Corp.(a)
75,825
1,000 Banknorth Group, Inc.
29,250
1,100 Carolina First Corp.
24,338
1,300 CCB Financial Corp. $
130,975
1,800 Centura Banks, Inc.
113,175
1,475 Commerce Bancorp, Inc.
58,355
3,800 Commercial Federal Corp.(a)
89,537
1,890 Downey Financial Corp.
45,006
4,200 First Merit Corp.
98,437
2,000 First Midwest Bancorp, Inc.
79,125
2,000 FirstBank Puerto Rico(a)
50,750
2,857 HUBCO, Inc.
72,496
600 JSB Financial, Inc.
30,788
3,400 Keystone Financial, Inc.
100,725
1,000 Premier Bancshares, Inc.
21,250
1,500 Queens County Savings Bank Corp.
40,125
2,000 Riggs National Corp.
49,000
1,300 Silicon Valley Bancshares
20,800
2,600 St. Paul Bancorp, Inc.
56,712
2,300 Susquehanna Bancshares, Inc.
43,413
1,500 Trustco Bank Corp.
40,219
2,600 United Bankshares, Inc.
67,112
2,800 UST Corp.
59,150
1,300 Whitney Holding Corp.
54,275
-------
- ----
1,450,838
- ------------------------------------------------------------
Broadcasting--0.4%
1,200 Metro Networks, Inc.(a)
43,950
2,000 Westwood One, Inc.(a)
35,750
-------
- ----
79,700
- ------------------------------------------------------------
Chemicals--1.8%
1,500 Cambrex Corp.
35,344
600 Chemed Corp.
16,838
1,200 Chemfirst, Inc.(a)
21,150
1,565 Enzo Biochem, Inc.
10,955
1,500 Geon Co.
26,625
1,500 Lilly Industries, Inc. (Class 'A'
Stock)
26,437
1,700 MacDermid, Inc.
51,425
1,000 Material Sciences Corp.(a)
8,750
700 McWhorter Technologies, Inc.(a)
14,131
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Chemicals (cont'd.)
1,700 Mississippi Chemical Corp.(a) $
20,613
1,700 OM Group, Inc.
47,919
500 Penford Corp.
7,500
600 Quaker Chemical Corp.
9,375
1,200 Scotts Co. (Class 'A'Stock)(a)
36,750
1,000 WD 40 Co.
23,937
-------
- ----
357,749
- ------------------------------------------------------------
Commercial Services--3.4%
1,750 AAR Corp.
34,344
1,300 ABM Industries, Inc.
38,025
1,500 ADVO, Inc.
36,656
2,100 Billing Concepts Corp.
29,400
2,400 Bowne & Co., Inc.
40,650
1,200 Catalina Marketing Corp.(a)
56,400
1,300 CDI Corp.
29,575
2,000 Central Parking Corp.
100,750
700 Central Vermont Public Service Corp.
7,569
900 Fair Issac & Co., Inc.
30,037
1,300 G & K Services, Inc. (Class 'A' Stock)
60,937
700 Insurance Auto Auctions, Inc.(a)
8,750
3,100 Interim Services, Inc.(a)
63,744
1,000 Merrill Corp.
15,687
1,300 NFO Worldwide, Inc.(a)
12,919
1,700 Norrell Corp.
25,500
1,600 Vantive Corp.
9,600
900 Volt Information Sciences, Inc.(a)
17,944
2,500 World Color Press, Inc.(a)
77,500
-------
- ----
695,987
- ------------------------------------------------------------
Computer Services--6.6%
3,400 Acxiom Corp.(a)
84,362
2,800 American Management Systems, Inc.(a)
76,650
1,400 Analysts International Corp.
42,000
1,400 BancTec, Inc.(a)
19,950
1,950 Boole & Babbage, Inc.(a)
45,338
1,800 BISYS Group, Inc.(a)
79,425
2,200 Cerner Corp.(a)
58,987
3,000 Ciber, Inc.
60,562
800 Consolidated Graphics, Inc.
30,400
900 Customtracks Corp. $
4,669
3,500 E Trade Group, Inc.
65,406
2,600 Harbinger Corp.(a)
18,850
1,300 Henry (Jack) & Associates, Inc.
62,075
1,700 HNC Software, Inc.
69,062
1,300 Hutchinson Technology, Inc.
22,263
2,045 Hyperion Software Corp.
44,351
2,600 Macromedia, Inc.(a)
42,250
1,200 Mercury Interactive Corp.
47,625
1,000 Micros Systems, Inc.
30,000
2,300 National Data Corp.
71,012
2,200 National Instruments Corp.
54,863
1,600 Platinum Software Corp.(a)
16,400
1,050 Progress Software Corp.(a)
27,169
3,100 Read-Rite Corp.(a)
24,219
1,200 Scott Technologies, Inc.
13,350
3,000 System Software Associates, Inc.
15,188
2,500 Technology Solutions Co.
28,125
1,000 Telxon Corp.
20,375
600 Wall Data, Inc.(a)
9,150
3,100 Whittman Hart, Inc.
56,962
2,800 Xylan Corp.(a)
37,100
1,600 Zebra Technologies Corp.
(Class 'A' Stock)(a)
53,600
-------
- ----
1,331,738
- ------------------------------------------------------------
Computers--1.3%
1,600 Auspex System, Inc.
4,850
1,300 Computer Task Group, Inc.
38,106
900 Digi International, Inc.
11,025
1,400 Exabyte Corp.(a)
9,100
1,400 Gerber Scientific, Inc.
37,800
1,200 MicroAge, Inc.(a)
13,200
2,000 National Computer Systems, Inc.
59,000
1,400 Network Equipment Technologies, Inc.
14,000
1,000 Standard Microsystems Corp.
7,125
2,700 Vanstar Corp.(a)
26,663
1,400 Xircom, Inc.
34,300
-------
- ----
255,169
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Construction--0.6%
500 Butler Manufacturing Co.(a) $
11,563
1,700 Insituform Technologies, Inc.(a)
22,525
3,400 Morrison Knudsen Corp.
(Class 'A' Stock)(a)
36,550
900 Southern Energy Homes, Inc.(a)
6,300
1,900 Standard Pacific Corp.
26,837
800 Stone & Webster, Inc.
25,400
-------
- ----
129,175
- ------------------------------------------------------------
Consumer Cyclical--2.1%
1,300 Barnes Group, Inc.
37,375
3,200 Champion Enterprises, Inc.(a)
74,400
3,400 D.R. Horton, Inc.
54,400
1,900 Eagle Hardware & Garden, Inc.
41,206
1,700 Justin Industries, Inc.
26,138
1,100 Manitowoc Co., Inc.
33,137
2,400 Mueller Industries, Inc.(a)
61,050
1,200 Myers Industries, Inc.
27,600
700 Republic Group, Inc.
9,319
1,100 Standard Products Co.
19,250
2,700 Wolverine World Wide, Inc.
29,362
1,200 Wynns International, Inc.
22,425
-------
- ----
435,662
- ------------------------------------------------------------
Consumer Growth & Stable--1.3%
3,100 Bio-Technology General Corp.(a)
20,537
3,400 Caseys Gen Stores, Inc.
51,000
900 Cooper Companies, Inc.
15,863
4,500 DeVry, Inc.(a)
105,469
2,800 Dimon, Inc.
29,575
1,500 Franklin Covey Co.
29,344
1,000 Nelson Thomas, Inc.
12,750
-------
- ----
264,538
- ------------------------------------------------------------
Containers & Packaging--0.5%
2,300 Aptargroup, Inc.
52,325
1,600 Caraustar Industries, Inc.
36,400
1,750 Shorewood Packaging Corp.(a)
23,625
-------
- ----
112,350
Cosmetics & Soaps--0.1%
1,200 Natures Sunshine Products, Inc. $
19,200
900 USA Detergents, Inc.(a)
7,200
-------
- ----
26,400
- ------------------------------------------------------------
Distribution/Wholesalers--0.6%
1,400 Applied Industrial Technologies, Inc.
22,838
3,300 Brightpoint, Inc.
25,369
900 Castle (A.M.) & Co.
13,556
300 Global Motorsport Group, Inc.
4,556
1,500 Hughes Supply, Inc.
42,750
700 Lawson Products, Inc.
15,400
500 Swiss Army Brands, Inc.
5,000
-------
- ----
129,469
- ------------------------------------------------------------
Drugs & Medical Supplies--6.3%
1,200 ADAC Laboratories
28,800
2,500 Advanced Tissue Sciences, Inc.(a)
7,578
2,000 Alliance Pharmaceutical Corp.
6,125
1,700 Alpharma, Inc. (Class 'A'Stock)
44,625
1,900 Ballard Medical Products
38,119
1,400 Bindley Western Industries, Inc.
46,200
1,800 Cephalon, Inc.(a)
13,162
1,500 Coherent, Inc.(a)
14,016
1,500 COR Therapeutics, Inc.(a)
11,625
1,300 Cygnus, Inc.(a)
4,550
800 Hologic, Inc.(a)
10,400
2,500 IDEXX Laboratories, Inc.(a)
59,687
1,400 Immune Response Corp.
16,100
1,700 Incyte Pharmaceuticals, Inc.(a)
36,125
2,100 Invacare Corp.
49,350
1,900 Jones Pharmaceutical, Inc.
54,625
1,800 Medimmune, Inc.(a)
116,550
1,600 Mentor Corp.
18,200
1,100 Molecular Biosystems, Inc.(a)
4,675
4,400 NBTY, Inc.(a)
34,650
2,000 North American Vaccine, Inc.(a)
22,000
1,300 Noven Pharmaceuticals, Inc.(a)
5,850
2,100 Owens & Minor, Inc.
24,412
1,600 Parexel International Corp.
62,400
2,250 Patterson Dental Co.(a)
83,250
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Drugs & Medical Supplies (cont'd.)
1,600 Pharmaceutical Product Development,
Inc. $
44,800
1,200 Protein Design Labs, Inc.(a)
28,800
2,000 Regeneron Pharmaceuticals, Inc.(a)
15,375
1,300 Resound Corp.(a)
5,525
2,100 Respironics, Inc.(a)
23,625
1,900 Roberts Pharmaceutical Corp.
36,337
3,500 Safeskin Corp.(a)
110,469
2,000 Sequus Pharmaceuticals, Inc.(a)
19,375
600 SpaceLabs Medical, Inc.(a)
9,300
2,000 Summit Technology, Inc.(a)
7,438
1,300 Sunrise Medical, Inc.(a)
13,000
700 Syncor International Corp.(a)
11,594
1,300 TheraTech, Inc.(a)
11,862
1,500 US Bioscience, Inc.(a)
10,688
1,600 Vertex Pharmaceuticals, Inc.(a)
36,800
1,000 VISX, Inc.(a)
67,000
800 Vital Signs, Inc.
13,250
-------
- ----
1,278,312
- ------------------------------------------------------------
Electrical Equipment--3.1%
800 Analogic Corp.
27,600
3,100 Anixter International, Inc.(a)
48,244
1,500 Applied Magnetics Corp.
6,375
2,400 Baldor Electric Co.
52,500
1,700 Belden, Inc.
22,844
2,350 Burr-Brown Corp.
39,950
2,400 C-Cube Microsystems, Inc.(a)
42,000
2,600 Cognex Corp.
30,225
700 Electro Scientific Industries, Inc.(a)
11,113
1,200 Electroglas, Inc.(a)
10,425
1,500 Etec Systems, Inc.(a)
39,094
800 Hadco Corp.(a)
19,400
650 Harmon Industries, Inc.
14,300
1,400 Helix Technology Corp.
13,825
900 Innovex, Inc.
10,913
1,200 Juno Lighting, Inc.
26,850
2,500 KEMET Corp.(a)
27,812
1,700 Kent Electronics Corp.(a)
17,000
3,300 Komag, Inc.(a)
10,106
1,100 Kuhlman Corp.
35,681
1,500 Kulicke & Soffa Industries, Inc.(a) $
20,437
2,200 Novellus Systems, Inc.
57,750
1,000 Technitrol, Inc.
20,000
1,500 Valence Technology, Inc.(a)
6,375
2,700 Vicor Corp.(a)
22,106
-------
- ----
632,925
- ------------------------------------------------------------
Electronics--3.3%
800 Alliant Techsystems, Inc.
53,000
600 Bell Industries, Inc.
7,163
700 Benchmark Electronics, Inc.(a)
15,969
1,700 BMC Industries, Inc.
10,200
1,850 Cable Design Technologies Corp.(a)
23,587
2,100 Checkpoint Systems, Inc.
18,244
900 CTS Corp.
26,550
1,900 Dallas Semiconductor Corp.
51,300
2,900 Digital Microwave Corp.
8,881
1,400 Dionex Corp.(a)
32,550
1,300 Envoy Corp.
28,437
2,000 Filenet Corp.
28,000
1,300 Harman International Industries, Inc.
47,694
800 Integrated Circuit Systems, Inc.(a)
7,975
900 Itron, Inc.(a)
5,963
1,100 Marshall Industries(a)
24,269
2,200 Methode Eletronics, Inc. (Class 'A'
Stock)
33,000
700 Park Electrochemical Corp.
9,537
1,500 Photronics, Inc.(a)
19,125
1,700 Pioneer-Standard Electronics, Inc.
10,731
900 Plexus Corp.(a)
17,437
3,200 S3, Inc.(a)
9,200
2,700 Sanmina Corp.(a)
75,937
1,000 SpeedFam International, Inc.(a)
10,750
500 Three-Five Systems, Inc.(a)
3,594
1,300 Ultratech Stepper, Inc.(a)
19,744
2,000 Unitrode Corp.(a)
21,250
2,900 VLSI Technology, Inc.(a)
22,112
500 Watkins Johnson Co.
9,313
700 Whittaker Corp.
10,369
1,300 X-Rite, Inc.
13,000
-------
- ----
674,881
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Environmental Services--0.2%
1,100 Dames & Moore, Inc. $
11,550
1,000 Ionics, Inc.(a)
26,500
900 TETRA Technologies, Inc.(a)
10,800
-------
- ----
48,850
- ------------------------------------------------------------
Exploration & Production--0.3%
2,400 Newfield Exploration Co.(a)
54,000
- ------------------------------------------------------------
Financial Services--4.4%
2,100 Americredit Corp.
51,188
2,100 Capital Resources Corp.
57,487
1,500 CMAC Investment Corp.
65,250
1,500 Cullen/Frost Bankers, Inc.
72,375
800 Dain Rauscher Corp.
25,200
1,300 Delphi Financial Group, Inc.(a)
51,188
2,400 Eaton Vance Corp.
55,350
1,100 Gallagher (Arthur J.) & Co.
45,375
3,600 Legg Mason, Inc.
94,725
1,800 Orion Capital Corp.
64,237
1,600 Pioneer Group, Inc.
26,400
1,478 Primark Corp.(a)
45,079
3,150 Raymond James Financial, Inc.
66,150
1,200 SEI Investments Corp.
83,400
1,200 U.S. Trust Corp.
79,650
-------
- ----
883,054
- ------------------------------------------------------------
Food & Beverage--2.3%
1,300 Canandaigua Wine, Inc.
(Class 'A' Stock)(a)
51,350
4,200 Chiquita Brands International, Inc.
44,363
500 Coca-Cola Bottling Co.
30,000
2,700 Earthgrains Co.
83,531
2,400 Fleming, Inc.
29,400
600 J & J Snack Foods Corp.(a)
11,100
700 Nash-Finch Co.
10,281
2,100 Ralcorp Holdings, Inc.
29,400
3,200 Richfood Holdings, Inc.
49,200
2,500 Smithfield Foods, Inc.(a)
44,219
1,800 Whole Foods Market, Inc.
75,825
-------
- ----
458,669
Forest Products--0.1%
900 Pope & Talbot, Inc. $
8,775
1,300 Universal Forest Products, Inc.
20,638
-------
- ----
29,413
- ------------------------------------------------------------
Furniture--1.4%
800 Bassett Furniture Industries, Inc.
23,400
700 Dixie Group, Inc.
4,550
2,000 Ethan Allen Interiors, Inc.(a)
72,500
3,400 La-Z-Boy, Inc.
66,725
3,400 Mohawk Industries, Inc.(a)
93,075
1,000 Thomas Industries, Inc.
21,437
-------
- ----
281,687
- ------------------------------------------------------------
Health Care--2.1%
1,500 Access Health, Inc.
55,312
2,000 American Oncology Resources, Inc.
20,250
3,700 Coventry Healthcare, Inc.(a)
24,513
800 Curative Health Services, Inc.
24,500
1,000 Datascope Corp.
22,125
900 Diagnostic Products Corp.
24,019
700 Hauser, Inc.
2,800
2,954 Integrated Health Services, Inc.
49,664
2,400 Liposome Co., Inc.(a)
13,650
2,000 Magellan Health Services, Inc.
21,625
1,200 NCS Healthcare, Inc.
21,150
800 Pharmaceutical Marketing Services
7,200
2,700 Renal Care Group, Inc.(a)
69,187
1,700 Sierra Health Services, Inc.(a)
33,469
1,600 Sola International, Inc.(a)
28,700
-------
- ----
418,164
- ------------------------------------------------------------
Hospitals/Hospital Management--1.5%
2,200 Genesis Health Ventures, Inc.(a)
26,950
4,512 Mariner Post-Acute Network, Inc.
23,124
1,100 Marquette Medical Systems, Inc.
47,781
3,100 Orthodontic Centers of America, Inc.(a)
51,731
1,000 Pediatrix Medical Group, Inc.(a)
44,875
4,300 PhyCor, Inc.(a)
21,500
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Hospitals/Hospital Management (cont'd.)
2,100 Universal Health Services, Inc.
(Class 'B' Stock)(a) $
87,675
-------
- ----
303,636
- ------------------------------------------------------------
Housing Related--0.9%
2,500 Fedders USA, Corp.
12,813
1,100 M.D.C. Holdings, Inc.
20,281
500 National Presto Industries, Inc.
18,750
1,100 Oak Industries, Inc.
29,700
3,000 Oakwood Homes Corp.
39,375
900 Ryland Group, Inc.
21,937
600 Skyline Corp.
17,400
700 U.S. Home Corp.
20,563
-------
- ----
180,819
- ------------------------------------------------------------
Insurance--5.2%
2,100 Allied Group, Inc.
100,931
2,700 American Bankers Insurance Group, Inc.
114,750
2,700 AMRESCO, Inc.
20,250
600 Compdent Corp.(a)
8,175
2,400 Enhance Financial Services Group, Inc.
70,950
700 Executive Risk, Inc.
31,544
1,580 Fidelity National Financial, Inc.
53,424
3,500 First American Financial Corp.
112,000
2,300 Fremont General Corp.
110,400
2,400 Frontier Insurance Group, Inc.
31,800
700 Galey & Lord, Inc.
8,356
800 Hilb, Rogal & Hamilton Co.
15,100
1,100 Life Resources Corp.
101,131
2,600 Mutual Risk Management Ltd.
91,975
1,200 NAC RE Corp.
59,100
1,200 Protective Life Corp.
43,200
1,900 Selective Insurance Group, Inc.
36,337
700 Trenwick Group, Inc.
20,388
1,100 Zenith National Insurance Corp.
27,569
-------
- ----
1,057,380
Leisure--1.9%
1,800 Arctic Cat, Inc. $
16,087
2,900 Aztar Corp.(a)
11,238
700 Carmike Cinemas, Inc. (Class 'A'
Stock)(a)
12,863
1,600 Family Golf Centers, Inc.(a)
28,400
1,100 Galoob Toys, Inc.(a)
12,513
500 GC Companies, Inc.(a)
19,312
2,700 Grand Casinos, Inc.(a)
21,431
1,700 Hollywood Park, Inc.(a)
17,637
800 Huffy Corp.
11,300
1,000 K2, Inc.(a)
17,687
1,950 Marcus Corp.
30,225
2,436 Midway Games, Inc.
28,471
2,000 Players International, Inc.(a)
9,500
1,800 Polaris Industries, Inc.
55,800
1,800 Primadonna Resorts, Inc.
13,838
3,400 Prime Hospitality Corp.(a)
23,800
1,700 Sturm Ruger & Co., Inc.
26,562
750 Thor Industries, Inc.
15,938
1,500 Winnebago Industries, Inc.
16,875
-------
- ----
389,477
- ------------------------------------------------------------
Machinery--1.9%
2,495 Applied Power, Inc. (Class 'A' Stock)
68,145
600 Astec Industries, Inc.(a)
25,575
900 Flow International Corp.(a)
8,325
1,400 Graco, Inc.
32,550
1,800 Halter Marine Group, Inc.
20,475
2,900 JLG Industries, Inc.
46,219
900 Lindsay Manufacturing Co.(a)
13,387
3,200 Paxar Corp.
28,400
1,300 Regal Beloit Corp.
28,925
600 Rival Co.
4,800
700 Robbins & Myers, Inc.
14,831
2,000 Roper Industries, Inc.
34,750
1,400 Royal Appliance Manufacturing Co.(a)
5,425
800 SPX Corp.
33,050
800 Toro Co.
16,550
-------
- ----
381,407
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Metals - Ferrous--0.4%
700 Acme Metals, Inc.(a) $
1,706
1,800 Birmingham Steel Corp.
14,288
900 Commercial Metals Co.
20,700
1,500 Northwestern Steel & Wire Co.(a)
2,953
900 Quanex Corp.
17,831
800 Steel Technologies, Inc.
5,800
1,200 WHX Corp.(a)
15,450
-------
- ----
78,728
- ------------------------------------------------------------
Metals - Nonferrous--0.3%
600 Amcast Industrial Corp.
8,813
1,800 AMCOL International Corp.
20,475
1,000 Commonwealth Industries, Inc.
8,125
3,500 Hecla Mining Co.(a)
17,719
1,100 IMCO Recycling, Inc.(a)
15,606
-------
- ----
70,738
- ------------------------------------------------------------
Mineral Resources--1.9%
2,300 Dekalb Genetics Corp.
211,600
2,466 Delta & Pine Land Co.
108,504
900 Dravo Corp.
11,362
500 Kronos, Inc.(a)
18,500
700 Lone Star Industries, Inc.
41,825
-------
- ----
391,791
- ------------------------------------------------------------
Miscellaneous Basic Industry--3.1%
1,800 Apogee Enterprises, Inc.
22,050
2,500 Blount International, Inc.
(Class 'A' Stock)
59,375
1,500 Clarcor, Inc.
23,063
2,300 Corn Products International, Inc.
58,075
600 CPI Corp.
14,212
1,000 Gibson Greetings, Inc.(a)
20,313
1,400 Global Industrial Technologies, Inc.
9,800
1,900 Griffon Corp.(a)
16,625
500 Insteel Industries, Inc.
2,406
3,400 Interface, Inc.
40,800
816 Intermagnetics General Corp.
5,712
1,600 Intermet Corp.(a)
20,300
1,500 Kaman Corp.
25,687
800 LSB Industies, Inc. $
2,700
1,000 Lydall, Inc.(a)
10,250
1,000 O'Sullivan Corp.
8,500
1,400 Pre Paid Legal Services, Inc.
35,787
800 SPS Technologies, Inc.(a)
37,250
800 Standex International Corp.
19,100
1,800 Superior Services, Inc.
50,737
1,400 Texas Industries, Inc.
35,175
2,400 Tredegar Industries, Inc.
43,950
1,800 Valmont Industries, Inc.
22,050
600 Walbro Corp.
4,838
1,400 Watsco, Inc.
21,000
900 Wolverine Tube, Inc.(a)
18,956
-------
- ----
628,711
- ------------------------------------------------------------
Office Equipment & Supplies--0.3%
2,000 John H. Harland Co.
27,125
400 Nashua Corp.
5,900
900 New England Business Service, Inc.
27,844
-------
- ----
60,869
- ------------------------------------------------------------
Oil & Gas--1.7%
1,900 Benton Oil & Gas Co.(a)
10,806
1,600 Cabot Oil & Gas Corp. (Class 'A' Stock)
24,400
700 Cascade Natural Gas Corp.
11,550
1,000 Cross (A.T.) Co. (Class 'A' Stock)
7,125
2,900 Cross Timbers Oil Co.
43,681
1,200 HS Resources, Inc.
13,725
1,700 Northwest Natural Gas Co.
47,016
6,700 Santa Fe Energy Resources, Inc.(a)
63,231
2,100 Snyder Oil Corp.
33,469
2,000 Southwest Gas Corp.
40,875
3,300 Vintage Petroleum, Inc.
37,950
600 Wiser Oil Co.
3,188
-------
- ----
337,016
- ------------------------------------------------------------
Oil & Gas Services--1.8%
2,100 Barrett Resources Corp.(a)
42,394
1,100 Daniel Industries, Inc.
15,056
2,100 Devon Energy Corp.
69,169
2,800 Input/Output, Inc.(a)
22,225
1,400 Oceaneering International, Inc.(a)
19,950
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas Services (cont'd.)
1,400 Offshore Logistics, Inc.(a) $
17,675
600 Pennsylvania Enterprises, Inc.
15,000
1,100 Plains Resources, Inc.(a)
18,562
2,500 Pogo Producing Co.
37,344
1,300 Pool Energy Services Co.(a)
11,863
3,200 Pride International, Inc.
25,600
1,300 Remington Oil And Gas Corp.
(Class 'B' Stock)(a)
5,606
1,400 Seitel, Inc.(a)
15,137
1,600 Southwestern Energy Co.
13,600
700 St. Mary Land & Exploration Co.
16,712
3,000 Tuboscope Vetco International, Inc.(a)
34,875
-------
- ----
380,768
- ------------------------------------------------------------
Paper and Related Products--0.5%
1,400 Brady (W.H.) Co. (Class 'A' Stock)
29,050
2,400 Buckeye Technologies, Inc.(a)
43,350
1,000 Schweitzer-Mauduit International, Inc.
21,750
-------
- ----
94,150
- ------------------------------------------------------------
Precious Metals--0.5%
1,400 Coeur d'Alene Mines Corp.
10,238
1,900 Getchell Gold Corp.(a)
40,019
2,000 Glamis Gold Ltd.
5,125
1,300 Stillwater Mining Co.(a)
41,031
-------
- ----
96,413
- ------------------------------------------------------------
Real Estate - Developers--0.3%
2,500 Toll Brothers, Inc.(a)
57,344
- ------------------------------------------------------------
Restaurants--2.2%
2,000 Applebee's International, Inc.
41,750
800 Au Bon Pain Co., Inc.
(Class 'A' Stock)(a)
4,875
1,200 CEC Entertainment, Inc.
24,300
1,300 Cheesecake Factory, Inc.(a)
20,150
3,150 CKE Restaurants, Inc.
93,712
1,325 Consolidated Products, Inc.
23,270
2,500 Foodmaker, Inc.(a)
39,219
600 IHOP Corp. $
22,125
1,900 Landry's Seafood Restaurants, Inc.
12,825
1,500 Luby's Cafeterias, Inc.
24,188
2,100 Ruby Tuesday, Inc.(a)
31,762
2,800 Ryan's Family Steak Houses, Inc.(a)
33,425
3,100 Shoney's, Inc.
5,813
1,200 Sonic Corp.(a)
21,000
100 Taco Cabana, Inc.(a)
606
1,500 TCBY Enterprises, Inc.
9,188
1,900 TriArc Companies, Inc.
(Class 'A' Stock)(a)
29,569
-------
- ----
437,777
- ------------------------------------------------------------
Retail--5.0%
1,700 AnnTaylor Stores Corp.(a)
34,531
2,400 Bombay Company, Inc.(a)
12,750
1,100 Books-A-Million, Inc.(a)
2,819
1,100 Brown Group, Inc.
16,913
800 Building Materials Holdings Corp.(a)
10,500
1,500 Cash America International, Inc.
16,688
1,700 Cato Corp. (Class 'A' Stock)
19,762
500 Damark International, Inc.
(Class 'A' Stock)(a)
3,625
1,500 Dress Barn, Inc.(a)
18,187
1,100 Express Scripts, Inc. (Class 'A' Stock)
90,475
1,300 Filene's Basement Corp.(a)
2,275
1,700 Footstar, Inc.(a)
38,569
2,200 Goody's Family Clothing, Inc.
26,400
700 Gottschalks, Inc.(a)
5,119
1,300 Hancock Fabrics, Inc.
12,513
900 J. Baker, Inc.(a)
4,050
1,800 Jan Bell Marketing, Inc.
11,700
1,200 Jo Ann Stores, Inc.
26,700
1,900 Just For Feet, Inc.
24,225
300 K-Swiss, Inc. (Class 'A' Stock)
6,975
1,100 Lechters, Inc.(a)
3,781
600 Lillian Vernon Corp.
8,138
2,600 Linens N Things, Inc.
71,500
2,000 Michaels Stores, Inc.(a)
51,000
1,400 O'Reilly Automotive, Inc.(a)
50,750
245 Payless Cashways, Inc.
260
6,600 Pier 1 Imports, Inc.
49,500
1,600 Regis Corp.
50,400
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
1,400 Russ Berrie & Co., Inc. $
26,687
1,700 Shopko Stores, Inc.
55,250
2,000 Sports Authority, Inc.
15,250
2,900 Stein Mart, Inc.(a)
23,200
3,000 Stride Rite Corp.
24,562
2,200 The Men's Wearhouse, Inc.
37,950
700 Timberland Co. (Class 'A' Stock)
25,550
3,600 Williams-Sonoma, Inc.(a)
76,725
2,400 Zale Corp.
61,500
-------
- ----
1,016,779
- ------------------------------------------------------------
Telecommunications--2.9%
1,700 Allen Telecom, Inc.(a)
11,369
3,400 Aspect Telecommunications Corp.(a)
81,600
1,600 Avid Technology, Inc.(a)
38,100
800 BroadBand Technologies, Inc.(a)
2,250
600 C-Cor Electronics, Inc.
7,725
1,000 California Microwave, Inc.(a)
8,250
500 Centigram Communications Corp.(a)
3,938
3,100 Commscope, Inc.
35,844
1,000 Dialogic Corp.
27,875
3,000 General Communication, Inc.(a)
11,062
2,300 General Semiconductor, Inc.
13,800
1,700 Intermediate Telephone, Inc.
21,994
3,200 International Rectifier Corp.(a)
16,400
900 InterVoice, Inc.(a)
20,644
1,500 Lattice Semiconductor Corp.(a)
37,125
917 Nova Corp.
28,125
2,700 P-COM, Inc.(a)
10,547
2,400 Picturetel Corp.(a)
15,450
1,000 Symmetricom, Inc.(a)
5,250
1,400 TCSI Corp.(a)
4,069
4,200 Tele-Save Holdings, Inc.
46,987
1,100 TJ International, Inc.
20,625
4,700 Vitesse Semiconductor Corp.(a)
111,037
-------
- ----
580,066
- ------------------------------------------------------------
Textiles--1.6%
600 Angelica Corp.
9,638
900 Ashworth, Inc.(a)
6,075
1,400 Authentic Fitness Corp. $
21,350
1,700 Cone Mills Corp.(a)
8,500
900 Cyrk, Inc.
9,450
1,600 Delta Woodside Industries, Inc.
6,300
1,600 Guilford Mills, Inc.
23,800
1,600 Gymboree Corp.(a)
12,000
500 Haggar Corp.
5,500
2,200 Hartmarx Corp.(a)
14,438
700 Johnston Industies, Inc.
2,231
1,400 Kellwood Co.
37,625
2,700 Nautica Enterprises, Inc.(a)
50,456
1,200 Oshkosh B'Gosh, Inc. (Class 'A' Stock)
24,900
600 Oxford Industries, Inc.
18,450
1,700 Phillips-Van Heusen Corp.
16,150
934 Pillowtex Corp.
27,436
1,100 St. John Knits, Inc.
17,737
1,900 Tultex Corp.
3,325
-------
- ----
315,361
- ------------------------------------------------------------
Transportation/Trucking/Shipping--1.9%
2,200 Air Express International Corp.
35,200
2,000 American Freightways, Inc.
15,000
1,200 Arkansas Best Corp.
6,900
1,600 Expeditors International of Washington,
Inc.
44,400
2,300 Fritz Companies, Inc.
15,669
1,100 Frozen Food Express Industries, Inc.
7,425
1,900 Heartland Express, Inc.(a)
31,350
1,300 Kirby Corp.(a)
27,300
700 Landstar Systems, Inc.(a)
19,731
800 M.S. Carriers, Inc.(a)
15,900
1,300 Pittston Burlington Group
9,669
600 Railtex, Inc.
7,050
3,900 Rollins Truck Leasing Corp.
43,631
900 Rural/Metro Corp.
7,200
1,700 USFreightways Corp.
33,787
3,125 Werner Enterprises, Inc.
49,219
1,700 Yellow Corp. (b)
22,950
-------
- ----
392,381
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX
SERIES FUND
September 30, 1998 PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- ---------
- ------------------------------------------------------------
- ---------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utilities - Electric--4.1%
500 Aquarion Co. $
16,844
2,000 Atmos Energy Corp.
57,125
500 Bangor Hydro-Electric Co.(a)
4,875
1,200 Central Hudson Gas & Electric Co.
50,250
900 CILCORP, Inc.
47,194
1,400 Commonwealth Energy Systems
50,925
600 Connecticut Energy Corp.
16,200
600 Consumers Water Co.
17,100
1,300 Eastern Utilities Associates
33,963
1,800 Energen Corp.
34,200
300 Green Mountain Power Corp.
3,431
1,900 KCS Energy, Inc.
9,738
1,300 New Jersey Resources Corp.
46,312
900 Orange & Rockland Utilities, Inc.
49,387
1,800 Philadelphia Suburban Corp.
48,262
2,000 Piedmont Natural Gas, Inc.
67,750
1,300 Public Service Co., Inc.
30,063
2,000 Sierra Pacific Resources
77,625
900 The United Illuminating Co.
47,025
800 TNP Enterprises, Inc.
27,950
2,400 United Water Resources, Inc.
40,800
2,400 Wicor, Inc.
57,300
-------
- ----
834,319
- ------------------------------------------------------------
Utilities - Water--0.1%
600 American States Water Co.
15,900
-------
- ----
Total long-term investments
(cost $23,886,281)
18,839,855
SHORT-TERM INVESTMENTS--6.4%
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITY--0.5%
$100 United States Treasury Bill,
4.66%, 12/17/98(b)
(cost $99,003) $
99,003
- ------------------------------------------------------------
REPURCHASE AGREEMENT--5.9%
1,186 Joint Repurchase Agreement Account,
5.52%, 10/1/98 (Note 5)
(cost $1,186,000)
1,186,000
-------
- ----
Total short-term investments
(cost $1,285,003)
1,285,003
- ------------------------------------------------------------
Total Investments--99.4%
(cost $25,171,283; Note 4)
20,124,858
Other assets in excess of
liabilities--0.6%
130,829
-------
- ----
Net Assets--100%
$20,255,687
-------
- ----
-------
- ----
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Statement of Assets and Liabilities PRUDENTIAL SMALL-
CAP INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$25,171,283)................................................
................ $ 20,124,858
Cash........................................................
............................................
229
Receivable for investments
sold........................................................
................. 167,455
Receivable from
Manager.....................................................
............................ 132,136
Receivable for Fund shares
sold........................................................
................. 28,616
Dividends and interest
receivable..................................................
..................... 11,222
Other
assets......................................................
...................................... 276
- ------------------
Total
assets......................................................
................................... 20,464,792
- ------------------
Liabilities
Accrued expenses and other
liabilities.................................................
................. 93,461
Payable for investments
purchased...................................................
.................... 71,596
Due to broker-variation
margin......................................................
.................... 28,345
Payable for Fund shares
repurchased.................................................
.................... 15,703
- ------------------
Total
liabilities.................................................
................................... 209,105
- ------------------
Net
Assets......................................................
........................................ $
20,255,687
- ------------------
- ------------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
....... $ 25,023
Paid-in capital in excess of
par.........................................................
............ 24,794,115
- ------------------
24,819,138
Undistributed net investment
income......................................................
............ 96,778
Accumulated net realized gain on
investments.................................................
........ 389,346
Net unrealized depreciation on
investments.................................................
.......... (5,049,575)
- ------------------
Net assets, September 30,
1998........................................................
.................. $ 20,255,687
- ------------------
- ------------------
Net asset value per share
($20,255,687 / 2,502,249 shares of beneficial interest
issued and outstanding).......................
$8.09
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Through
Net Investment Income September 30,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes
of $53)............................ $ 174,189
Interest.............................. 47,417
----------------
- --
Total income....................... 221,606
----------------
- --
Expenses
Management fee........................ 67,841
Custodian's fees and expenses......... 156,000
Registration fees..................... 39,000
Reports to shareholders............... 40,000
Legal fees............................ 20,000
Amortization of organization
expense............................ 19,620
Audit fees............................ 18,000
Transfer agent's fees and expenses.... 11,000
Trustees' fees........................ 7,000
Miscellaneous......................... 2,643
----------------
- --
Total operating expenses........... 381,104
Less: Expense subsidy (Note 2)........... (268,030)
----------------
- --
Net expenses....................... 113,074
----------------
- --
Net investment income.................... 108,532
----------------
- --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............... 542,275
Financial futures contracts........... (152,929)
----------------
- --
389,346
----------------
- --
Net change in unrealized depreciation on:
Investments........................... (5,046,425)
Financial futures contracts........... (3,150)
----------------
- --
Net loss on investments.................. (5,049,575)
----------------
- --
Net Decrease in Net Assets
Resulting from Operations................ $ (4,551,697)
----------------
- --
----------------
- --
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
October 1,
1997(a)
Increase in Through
Net Assets September 30,
1998
<S> <C>
Operations
Net investment income.................. $ 108,532
Net realized gain on investment
transactions........................ 389,346
Net change in unrealized
depreciation on investments......... (5,049,575)
----------------
- --
Net decrease in net assets resulting
from operations..................... (4,551,697)
----------------
- --
Dividends and distributions (Note 1):
Dividends to shareholders from net
investment income................... (31,374)
----------------
- --
Fund share transactions (Note 6):
Net proceeds from shares sold.......... 28,670,830
Net asset value of shares issued to
shareholders in reinvestment of
distributions....................... 31,360
Cost of shares reacquired.............. (3,863,432)
----------------
- --
Net increase in net assets from
Fund share transactions............. 24,838,758
----------------
- --
Net increase.............................. 20,255,687
----------------
- --
Net Assets
Beginning of period....................... --
----------------
- --
End of period(b).......................... $ 20,255,687
----------------
- --
----------------
- --
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net investment
income of............................. $ 77,158
----------------
- --
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL SMALL-CAP
INDEX FUND
- ------------------------------------------------------------
- --------------------
The Prudential Index Series 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 five separate funds (the
'Funds'). Prudential
Small-Cap Index Fund (the 'Fund') commenced investment
operations on October 1,
1997 when 1,860,203 shares of beneficial interest of the
Fund were sold for
$18,602,031 to The Prudential Insurance Company of America
('The Prudential').
The Fund's investment objective is to provide investment
results that correspond
to the price and yield performance of a broad-based index of
small cap stocks.
The Fund currently uses the Standard & Poor's 600 Small
Capitalization Stock
Price Index price for that purpose.
- ------------------------------------------------------------
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 were no sales 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
subadviser 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.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of
securities or commodities 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
or commodity. 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.
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.
Federal Income Taxes: It is the Fund's policy to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies
- ------------------------------------------------------------
- --------------------
15
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Notes to Financial Statements PRUDENTIAL SMALL-
CAP INDEX FUND
- ------------------------------------------------------------
- --------------------
and to distribute all of its taxable net investment income
and net capital
gains, if any, 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 Offering Expenses: Approximately $19,600 of costs
were incurred in
connection with the offering and initial registration of the
Fund and have been
deferred and are being amortized ratably over a period of
twelve months from the
date each of the Funds commenced investment operations. At
September 30, 1998,
deferred offering expenses were fully amortized.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with 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 increase
undistributed net investment
income by $19,620 and decrease paid-in capital in excess of
par by $19,620. Net
realized gains and net assets were not affected by this
change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investment Fund Management
LLC ('PIFM' or the 'Manager'.) Pursuant to this agreement
PIFM has
responsibility for all investment advisory services. PIFM
has entered into a
subadvisory agreement with The Prudential Investment
Corporation ('PIC'). PIC,
subject to the supervision of PIFM, manages the assets of
the Fund in accordance
with its investment objective and policies. 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. The
management fee paid to PIFM is computed daily and payable
monthly at an annual
rate of .30 of 1% of the Fund's average daily net assets.
PIFM has agreed to reimburse the Fund so that total
operating expenses do not
exceed .50% of the average net assets of the Fund for the
fiscal year ending
September 30, 1998. This voluntary waiver may be terminated
at any time without
notice. For the period ended September 30, 1998, PIFM
subsidized $268,030 for
the expenses of the Fund (1.18% of the average net assets of
the Fund/$.11 per
share.)
Prudential Securities Incorporated ('PSI') acted as the
distributor of the
Fund's shares through May 31, 1998. Prudential Investment
Management Services
('PIMS') became the distributor of the Fund effective June
1, 1998 and is
serving under the same terms and conditions as under the
agreement with PSI.
Under the distribution agreement, PSI and PIMS incurred the
expenses of
distributing the Fund's shares, none of which is reimbursed
or paid for by the
Fund.
PIC, PIFM, PIMS and PSI are wholly owned subsidiaries of The
Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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 did not borrow any amounts pursuant to the Agreement
during the period
ended September 30, 1998. 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.
The Agreement
expires on December 29, 1998.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
September 30, 1998,
the Fund incurred fees of approximately $3,000 for the
services of PMFS. As of
September 30, 1998, approximately $500 of such fees were due
to PMFS. Transfer
agent fees and expenses in the Statement of Operations also
include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the year ended September 30, 1998 aggregated $35,189,048
and $11,302,768,
respectively.
On September 30, 1998, the Fund held one purchased financial
futures contract on
the S&P Midcap 400 Index expiring December 30, 1998. The
cost of such contract
was $1,247,950. The value of the contract on September 30,
1998 was $1,244,800,
thereby resulting in an unrealized loss of $3,150.
The cost basis of investments for federal income tax
purposes is $25,171,284
and, accordingly, as of September 30, 1998, net unrealized
appreciation for
federal income tax purposes was $5,046,425 (gross unrealized
appreciation--$1,222,048; gross unrealized depreciation--
$6,268,473).
- ------------------------------------------------------------
- --------------------
16
<PAGE>
PRUDENTIAL
INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL
SMALL-CAP 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, 1998, the
Fund had a .161% undivided interest in the repurchase
agreements in the joint
account. The undivided interest represented $1,186,000 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., 5.55%, in the principal
amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98.
The value of the
collateral including accrued interest was $111,084,883.
Bear Stearns & Co., 5.58%, in the principal amount of
$210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral
including accrued
interest was $214,893,617.
Goldman, Sachs & Co., 5.45%, in the principal amount of
$210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral
including accrued
interest was $214,200,293.
Warburg Dillon Read LLC, 5.52%, in the principal amount of
$210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the
collateral
including accrued interest was $214,255,819.
- ------------------------------------------------------------
Note 6. Capital
The Series offers Class Z shares. 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. Transactions in shares of beneficial
interest during the year
ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Class Z Shares
- ------------------------------------------------- --------
- -
<S> <C>
Shares sold......................................
2,895,380
Shares issued in reinvestment of dividends and
distributions..................................
3,379
Shares reacquired................................
(396,510)
--------
- -
Net increase in shares outstanding...............
2,502,249
--------
- -
--------
- -
</TABLE>
Of the total shares outstanding on September 30, 1998, PIFM
and affiliates owned
1,898,856 shares of the Fund.
- ------------------------------------------------------------
- --------------------
17
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Financial Highlights PRUDENTIAL SMALL-
CAP INDEX FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
October 1, 1997(a)
through
September 30, 1998
- ---------------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year........................................................
............... $ 10.00
- ------
Income from investment operations
Net investment income
(b).........................................................
....................... .04
Net realized and unrealized gain (loss) on
investments.................................................
.. (1.94)
- ------
Total from investment
operations..................................................
.................... (1.90)
- ------
Less distributions:
Dividends from net investment
income......................................................
............... (.01)
- ------
Net asset value, end of
year........................................................
..................... $ 8.09
- ------
- ------
TOTAL
RETURN(c):..................................................
....................................... (18.98)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).......................................................
..................... $20,256
Average net assets
(000).......................................................
.......................... $22,676
Ratios to average net assets: (b)
Expenses....................................................
.......................................... .50%
Net investment
income......................................................
........................... .48%
Portfolio
turnover....................................................
................................... 52%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) 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 return includes
the effect of expense
subsidies.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 18
<PAGE>
PRUDENTIAL INDEX
SERIES FUND
Report of Independent Accountants PRUDENTIAL SMALL-
CAP INDEX FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Trustees of
Prudential Index Series Fund--Prudential Small-Cap 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
Index Series
Fund--Prudential Small-Cap Index Fund (the 'Fund,' one of
the portfolios
constituting Prudential Index Series Fund) at September 30,
1998, and the
results of its operations, the changes in its net assets and
the financial
highlights for the period October 1, 1997 (commencement of
operations) through
September 30, 1998, 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, 1998 by correspondence with the custodian and
brokers, provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
PRUDENTIAL INDEX
SERIES FUND
Tax Information (Unaudited) PRUDENTIAL SMALL-
CAP INDEX FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends and distributions paid by the Series during such
fiscal year end.
Accordingly, we are advising you that in the fiscal year
ended September 30,
1998, dividends paid from net investment income were $.01
per Class Z share
which is taxable as ordinary income.
We also wish to advise you that 34.76% of the dividends paid
from ordinary
income in the fiscal year ended September 30, 1998 qualified
for the corporate
dividends received deduction available to corporate
taxpayers.
We are required by Massachusetts, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders. Please be advised that 8.18% of the
dividends paid from
ordinary income in the fiscal year ended September 30, 1998,
qualify for each of
these states' tax exclusion.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends and
distributions received by you
in calendar year 1998.
- ------------------------------------------------------------
- --------------------
19
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
- ------------------------------------------------------------
- -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- ------------------------------------------------------------
- -------------------
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just based
on the current investment fad.
- ------------------------------------------------------------
- -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
- -------------------------------------------
Prudential Small-Cap Index Fund vs. the S&P
SmallCap 600 Stock Price Index.
Class Z
(CHART)
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so an investor's shares, when
redeemed, may be worth
more or less than their original cost.
This graph is furnished to you in accordance with SEC
regulations. It compares
a $10,000 investment in the Prudential Small-Cap Index Fund
(Class Z shares)
with a similar investment in the Standard & Poor's SmallCap
600 Stock Price
Index (S&P SmallCap 600 Index) by portraying the initial
account values at the
commencement of operations of Class Z, and the subsequent
account values at the
end of the fiscal year (September 30), as measured on a
quarterly basis,
beginning in 1997. For purposes of the graph, it has been
assumed that all
dividends and distributions were reinvested. Class Z shares
are not subject to
a sales charge or distribution fee. Class Z shares have been
in existence less
than one year, therefore no average annual returns are
presented.
The S&P SmallCap 600 Index is a market capitalization-
weighted index comprised
of 600 domestic stocks chosen for market size, liquidity,
and industry group
representation. The Index is unmanaged and the total return
includes the
reinvestment of all dividends, but does not reflect the
payment of transaction
costs and advisory fees associated with an investment in the
Fund. The
securities in the Index may differ substantially from the
securities in the
Fund. The Index is not the only one that may be used to
characterize
performance of stock funds, and other indexes may portray
different
comparative performance. Investors cannot invest directly in
an index.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74431F845 MF174E11
