As filed with the Securities and Exchange Commission on July 30, 1999
Registration Nos. 33-48066
811-6677
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
POST-EFFECTIVE AMENDMENT NO. 12 |X|
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT NO. 13 |X|
(CHECK APPROPRIATE BOX OR BOXES)
-------------------
PRUDENTIAL INDEX SERIES FUND
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525
MARGUERITE E.H. MORRISON, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Name and Address of Agent for Service)
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COPIES TO:
PAUL H. DYKSTRA
GARDNER, CARTON & DOUGLAS
321 N. CLARK STREET
CHICAGO, ILLINOIS 60610-4795
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the Registration Statement.
It is proposed that this filing will become effective (check appropriate
box):
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)
|X| on October 4,1999 pursuant to paragraph (a) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered . . . Shares of beneficial interest,
par value $.001 per share.
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<PAGE>
FUND TYPE:
- --------------------------------
Stock
INVESTMENT OBJECTIVE:
- --------------------------------
Provide investment results
that correspond to the price
and yield performance of the
S&P 500 Index
[GRAPHIC OMITTED]
PRUDENTIAL
STOCK INDEX FUND
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PROSPECTUS: October 4, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
[LOGO] PRUDENTIAL
INVESTMENTS
<PAGE>
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TABLE OF CONTENTS
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1 Risk/Return Summary
1 Investment Objective and Principal Strategies
1 Principal Risks
3 Evaluating Performance
4 Fees and Expenses
6 How the Fund Invests
6 Investment Objective and Policies
7 Other Investments
8 Derivative Strategies
8 Additional Strategies
9 Investment Risks
12 How the Fund is Managed
12 Board of Trustees
12 Manager
12 Investment Adviser
12 Distributor
13 Year 2000 Readiness Disclosure
14 Fund Distributions and Tax Issues
14 Distributions
15 Tax Issues
16 If You Sell or Exchange Your Shares
18 How to Buy, Sell and Exchange Shares of the Fund
18 How to Buy Shares
26 How to Sell Your Shares
29 How to Exchange Your Shares
31 Financial Highlights
32 Class Z Shares
33 Class I Shares
34 The Prudential Mutual Fund Family
For More Information (Back Cover)
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Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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RISK/RETURN SUMMARY
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This section highlights key information about PRUDENTIAL STOCK INDEX FUND, which
we refer to as "the Fund." The Fund is a series of Prudential Index Series Fund
(the Company). Additional information follows this summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to seek to PROVIDE INVESTMENT RESULTS THAT
CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX (S&P 500 INDEX). The Fund intends to invest at least
80% of its total assets in securities included in the S&P 500 Index in the same
proportions as those of the Index. The Fund tries to achieve a correlation
between its performance and the performance of the S&P 500 Index of at least
0.95, without taking into account expenses. The Fund may invest in foreign
securities denominated in U.S. dollars and may use derivatives.
While we make every effort to achieve our objective, we can't guarantee
success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The Fund's
performance will not precisely correspond to the performance of the S&P 500
Index. Potential tracking differences, brokerage and other costs and other Fund
expenses may cause the Fund's return to be lower than that of the S&P 500 Index.
Since the Fund invests primarily in common stock, there is the risk that the
price of a particular stock we own could go down, or the value of the equity
markets or a sector of them could go down. Stock markets are volatile.
Generally, the stock prices of large and medium-sized companies are more stable
than the stock prices of small companies.
Since we invest in foreign securities, there are different risks than if
we invested only in U.S. stocks. Foreign markets are often more volatile than
U.S. markets and are generally not subject to regulatory requirements comparable
to those in the U.S.
Some of our investment strategies may present above-average risks. The
Fund may use risk management techniques to try to preserve assets or enhance
return. Derivatives may not fully offset the underlying positions and this could
result in losses to the Fund that would not otherwise have occurred.
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DID YOU KNOW...
The Fund employs a "passively managed"--or index--investment approach. We hold
the same mix of stocks as is held in the S&P 500 Index. The S&P 500 Index is an
unmanaged, market-weighted index of 500 stocks selected by Standard & Poor's
Corporation (S&P) on the basis of their market size, liquidity and industry
group representation. The S&P 500 Index is composed of stocks representing more
than 70% of the total market value of all publicly traded U.S. common stocks and
is widely regarded as representative of the performance of the U.S. stock
market as a whole.
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1
<PAGE>
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RISK/RETURN SUMMARY
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Like any mutual fund, an investment in the Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests-Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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2 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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RISK/RETURN SUMMARY
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EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart shows the Fund's performance for each full calendar year of operation.
The bar chart and table below demonstrate the risk of investing in the Fund and
how the Fund's average annual returns compare with those of a broad measure of
market performance. Past performance does not mean that the Fund will achieve
similar results in the future.
[The following table was depicted as a bar graph in the printed material.]
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ANNUAL RETURNS (CLASS Z SHARES)
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1993 1994 1995 1996 1997 1998
9.21% 1.06% 36.72% 22.34% 32.28% 28.33%
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BEST QUARTER: 21.33% (4th quarter of 1998) WORST QUARTER: (9.94)% (3rd quarter
of 1998)
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* RETURN FOR THE SIX MONTHS ENDED JUNE 30, 1999 WAS 12.04% FOR CLASS Z
SHARES.
- ---------------------------------------
AVERAGE ANNUAL RETURNS(1) (AS OF 12/31/98)
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1 YEAR 5 YEARS SINCE INCEPTION
Class Z shares 28.33% 23.47% 21.27% (since 11-5-92)
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Class I shares 28.33% N/A 21.59% (since 8-1-97)
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S&P 500 Index(2) 28.60% 24.05% N/A(2)
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(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES. WITHOUT THE MANAGEMENT
FEE WAIVER OR EXPENSE REIMBURSEMENT, THE AVERAGE ANNUAL RETURNS WOULD HAVE
BEEN LOWER.
(2) THE S&P 500 INDEX--AN UNMANAGED INDEX OF 500 STOCKS OF LARGE U.S.
COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE PERFORMED. S&P 500
INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE % FOR CLASS Z AND % FOR
CLASS I. SOURCE: LIPPER INC.
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3
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RISK/RETURN SUMMARY
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FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each share class of the Fund--Class A, B, C, Z and I.
Each share class has different (or no) sales charges--known as loads--and
expenses, but represents an investment in the same fund. Class A, Class Z and
Class I shares are available only to a limited group of investors. Before the
date of this Prospectus, only Class Z and Class I shares were offered. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."
<TABLE>
<CAPTION>
- --------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
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CLASS A CLASS B CLASS C CLASS Z CLASS I
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<S> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed on None None 1% None None
purchases (as a percentage of offering price)
- ---------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None 5%(2) 1%(3) None None
(as a percentage of the lower of original
purchase price or sale proceeds)
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Maximum sales charge (load) imposed on None None None None None
reinvested dividends and other distributions
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Redemption fees None None None None None
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Exchange fee None None None None None
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</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- ---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z CLASS I
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fees .30% .30% .30% .30% .30%
- ---------------------------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees .30%(4) 1.00% 1.00%(4) None None
- ---------------------------------------------------------------------------------------------------
+ Other expenses .19% .19% .19% .19% .09%
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= Total annual Fund operating expenses .79% 1.49% 1.49% .49% .39%
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- - Fee waiver or expense reimbursement .14% .09% .09% .09% .09%
- ---------------------------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES .65% 1.40% 1.40% .40% .30%
</TABLE>
(1) YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
(2) THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES
BY 1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH
YEAR. CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS
AFTER PURCHASE.
(3) THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
(4) FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000, THE DISTRIBUTOR OF THE FUND
HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE FEES FOR
CLASS A SHARES TO .25 OF 1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A
SHARES. THE MANAGER HAS CONTRACTUALLY AGREED TO SUBSIDIZE THE FUND'S
OPERATING EXPENSES SO THAT TOTAL FUND OPERATING EXPENSES DO NOT EXCEED
.65%, 1.40%, 1.40%, .40% AND .30% OF THE AVERAGE NET ASSETS FOR CLASS A,
CLASS B, CLASS C, CLASS Z AND CLASS I SHARES, RESPECTIVELY.
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4 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and the cost of investing in the Fund with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. After the first year, the example
does not take into account the Manager's agreement to subsidize expenses and the
Distributor's agreement to reduce distribution and service (12b-1) fees for
Class A shares. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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1 YR 3 YRS 5 YRS 10 YRS
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Class A shares $ 66 $ 238 $ 425 $ 965
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Class B shares $ 643 $ 762 $ 905 $1,493
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Class C shares $ 341 $ 558 $ 897 $1,854
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Class Z shares $ 41 $ 148 $ 265 $ 607
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Class I shares $ 31 $ 116 $ 210 $ 484
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You would pay the following expenses on the same investment if you did not sell
your shares:
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1 YR 3 YRS 5 YRS 10 YRS
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Class A shares $ 66 $ 238 $ 425 $ 965
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Class B shares $ 143 $ 462 $ 805 $1,493
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Class C shares $ 241 $ 558 $ 897 $1,854
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Class Z shares $ 41 $ 148 $ 265 $ 607
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Class I shares $ 31 $ 116 $ 210 $ 484
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5
<PAGE>
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to PROVIDE INVESTMENT RESULTS THAT
CORRESPOND TO THE PRICE AND YIELD PERFORMANCE OF THE S&P 500 INDEX. While we
make every effort to achieve our objective, we can't guarantee success.
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[To Come]
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The Fund intends to invest at least 80% of its total assets in securities
included in the S&P 500 Index in the same proportions as those of the Index. The
Fund tries to achieve a correlation between its performance and the performance
of the S&P 500 Index of at least 0.95, without taking into account expenses. The
Fund may invest the balance of its assets in (1) equity-related securities, (2)
U.S. government obligations, (3) put and call options on securities and stock
indexes, and (4) futures contracts on stock indexes and options.
In addition to common stocks, equity-related securities include
nonconvertible preferred stocks, convertible securities, American Depositary
Receipts (ADRs), warrants and rights that can be exercised to obtain stock;
investments in various types of business ventures, including partnerships and
joint ventures; real estate investment trusts (REITs) and similar securities.
Convertible securities are securities--like bonds, corporate notes and preferred
stocks--that we can convert into the company's common stock or some other equity
security.
When deciding whether to sell securities, we follow the S&P 500 Index.
When a security is sold from the Index, we sell it too.
The investment adviser will try to minimize the difference between the
investment results of the Fund and that of the S&P 500 Index. Trading will be
monitored regularly. In addition to potential trading differences, brokerage,
other transaction costs and other Fund expenses may cause the Fund's return to
be lower than the return of the S&P 500 Index.
For more information, see "Investment Risks" and the Statement of
Additional Information, "Description of the Funds, Their Investments and
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6 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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HOW THE FUND INVESTS
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Risks." The Statement of Additional Information--which we refer to as the
SAI--contains additional information about the Fund and the Company. To obtain a
copy, see the back cover page of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board can change investment policies
that are not fundamental.
OTHER INVESTMENTS
In addition to the principal strategies, we may also make the following
investments to try to increase the Fund's returns or protect its assets if
market conditions warrant.
FOREIGN SECURITIES
We may invest in FOREIGN EQUITY SECURITIES DENOMINATED IN U.S. DOLLARS. For
these purposes, we do not consider ADRs and other similar receipts or shares to
be foreign securities.
U.S. GOVERNMENT SECURITIES
The Fund may invest in securities issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. government. Not all U.S. government
securities are backed by the full faith and credit of the United States. Some
are supported only by the credit of the issuing agency.
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's assets in MONEY MARKET INSTRUMENTS,
including commercial paper of domestic and foreign corporations, certificates of
deposit, bankers' acceptances, time deposits of domestic and foreign banks
and short-term obligations issued or guaranteed by the U.S. government and its
agencies. Investing heavily in these securities limits our ability to achieve
capital appreciation, but can help to preserve the Fund's assets when the equity
markets are volatile.
The Fund also may temporarily hold cash or invest in high-quality foreign
or domestic money market instruments pending investment of proceeds from new
sales of the Fund shares or to meet ordinary daily cash needs. This is subject
to the policy of normally investing at least 80% of the Fund's assets in
securities included in the S&P 500 Index.
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7
<PAGE>
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HOW THE FUND INVESTS
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REPURCHASE AGREEMENTS
The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is in effect a loan by the
Fund.
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve the Fund's returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available, or
that the Fund will not lose money. Derivatives--such as futures on securities
indexes, options on securities and securities indexes, and options on
futures--involve costs and can be volatile. With derivatives, the investment
adviser tries to predict whether the underlying investment--a security, market
index, currency, interest rate or some other benchmark--will go up or down at
some future date. We may use derivatives to try to reduce risk or to increase
return consistent with the Fund's overall investment objective. The investment
adviser will consider other factors (such as cost) in deciding whether to employ
any particular strategy or use any particular instrument. Any derivatives we use
may not match the Fund's underlying holdings.
OPTIONS
The Fund may purchase and sell put and call options on securities and securities
indexes traded on U.S. or foreign securities exchanges or on the
over-the-counter market. An option is the right to buy or sell securities in
exchange for a premium. The Fund will sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell stock index futures contracts and related options
on stock index futures. A futures contract is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index.
For more information about these strategies, see the SAI, "Description of
the Funds, Their Investments and Risks--Risk Management and Return Enhancement
Strategies."
ADDITIONAL STRATEGIES
The Fund also follows certain policies when it BORROWS MONEY (the Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others
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8 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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HOW THE FUND INVESTS
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(the Fund can lend up to 30% of the value of its total assets, including
collateral received in the transaction); and HOLDS ILLIQUID SECURITIES (the Fund
may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions, those without a readily
available market, and repurchase agreements with maturities longer than seven
days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. This chart outlines the key risks and potential rewards of the Fund's
principal investments and certain other investments the Fund may make. See, too,
"Description of the Funds, Their Investments and Risks" in the SAI.
<TABLE>
<CAPTION>
- ------------------------
INVESTMENT TYPE ----------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS OF o Individual stocks could o Historically, stocks have
U.S. COMPANIES IN S&P lose value outperformed other
500 INDEX o The equity markets could investments over the long
go down, resulting in a term.
AT LEAST 80% decline in value of the o Generally, economic
Fund's investments growth means higher
o Changes in economic or corporate profits, which
political conditions, both leads to an increase in
domestic and stock prices, known as
international, may result capital appreciation
in a decline in value of
the Fund's investments
- ----------------------------------------------------------------------------------------
FOREIGN SECURITIES o Foreign markets, o Investors can participate
DENOMINATED IN U.S. economies and political in foreign markets and
DOLLARS systems may not be as companies operating in
stable as in the U.S., those markets
particularly those in o Opportunities for
developing countries diversification
UP TO 20% o May be less liquid than
U.S. stocks and bonds
o Differences in foreign
laws, accounting
standards, public
information, custody and
settlement practices
</TABLE>
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9
<PAGE>
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HOW THE FUND INVESTS
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<TABLE>
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<S> <C> <C>
o Year 2000 conversion
may be more of a
problem for some foreign
issuers
- ----------------------------------------------------------------------------------------
DERIVATIVES o Derivatives such as o Hedges that correlate
futures and options may well with underlying
PERCENTAGE VARIES not fully offset the position can reduce or
underlying positions and eliminate investment
this could result in losses income or capital gains
to the Fund that would at low cost
not have otherwise o The Fund could make
occurred money and protect
o Derivatives used for risk against losses if the
management may not investment analysis
have the intended effects proves correct
and may result in losses o Derivatives that involve
or missed opportunities leverage could generate
o The other party to a substantial gains at low
derivatives contract could cost
default o One way to manage the
o Derivatives that involve Fund's risk/return balance
leverage could magnify is to lock in the value of
losses an investment ahead of
o Certain types of time
derivatives involve costs to
the Fund that can reduce
returns
- ----------------------------------------------------------------------------------------
</TABLE>
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10 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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HOW THE FUND INVESTS
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<TABLE>
<CAPTION>
- ------------------------
INVESTMENT TYPE (CONT'D)----------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES o Not all are insured or o Regular interest income
guaranteed by the U.S. o The U.S. Government
Up to 20% Government, but only by the guarantees interest and
issuing agency principal payments on
o Limits potential for capital certain securities
appreciation o Generally more secure
o Interest rate risk--the value than lower quality debt
of most debt securities will securities and equity
fall when interest rates rise securities
o Market risk--the risk that o May preserve the Fund's
instruments may lose assets
value in the market
because interest rates
change or there is a lack
of confidence in a group
of borrowers or any industry
- ----------------------------------------------------------------------------------------
ILLIQUID SECURITIES o May be difficult to value o May offer a more
precisely attractive yield or
UP TO 15% OF NET ASSETS o May be difficult to sell at potential for growth
the time or price desired than more widely traded
securities
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS o Limits potential for capital o May preserve the Fund's
appreciation assets
UP TO 100% ON A TEMPORARY o Credit risk--the risk that
BASIS the default of an issuer
would leave the Fund with
unpaid interest or principal
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</TABLE>
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11
<PAGE>
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HOW THE FUND IS MANAGED
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BOARD OF TRUSTEES
The Board of Trustees oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Company's officers, who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended September 30, 1998, the Fund paid PIFM management fees of .30 of 1% of the
Fund's average net assets.
As of August 31, 1999, PIFM served as the Manager to all of the Prudential
mutual funds, and as Manager or administrator to closed-end investment
companies, with aggregate assets of approximately $ billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C, Z and I shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z and Class I. These
fees--known as 12b-1 fees--are shown in the "Fees and Expenses" tables.
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12 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
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HOW THE FUND IS MANAGED
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased
by the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.
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13
<PAGE>
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FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified tax-deferred plan or account.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.
DISTRIBUTIONS
The Fund declares daily and distributes DIVIDENDS of any net investment
income to shareholders once a year. For example, if the Fund owns Acme Corp.
stock and the stock pays a dividend, the Fund will pay out a portion of this
dividend to its shareholders, assuming the Fund's income is more than its costs
and expenses. The dividends you receive from the Fund will be taxed as ordinary
income whether or not they are reinvested in the Fund.
The Fund also distributes realized net CAPITAL GAINS to
shareholders--typically once a year--which are generated when the Fund sells its
assets for a profit. For example, if the Fund bought Acme Corp. stock for a
total of $1,000 and more than one year later sold the shares for a total of
$1,500, the Fund has net long-term capital gains of $500, which it will pass on
to shareholders (assuming the Fund's total gains are greater than any losses it
may have). Capital gains are taxed differently depending on how long the Fund
holds the security--if a security is held more than one year before it is sold,
LONG-TERM capital gains are taxed at the rate of 20%, but if the security is
held one year or less, SHORT-TERM capital gains are taxed at ordinary income
rates of up to 39.6%. Different rates apply to corporate shareholders.
For your convenience, Fund distributions of dividends and capital gains
are AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us
to pay the distributions in cash, we will send you a check if your account is
with the Transfer Agent. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
- --------------------------------------------------------------------------------
14 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of the Fund decreases by the amount of the
dividend and the market changes (if any) to reflect the payout. The distribution
you receive makes up for the decrease in share value. However, the timing of
your purchase does mean that part of your investment came back to you as taxable
income.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax, unless you hold shares in a qualified
tax-deferred plan or account. The amount of tax you pay depends on how long you
owned your shares. If you sell shares of the Fund for a loss, you may have a
capital loss, which you may use to offset certain capital gains you have.
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
- --------------------------------------------------------------------------------
+$ Capital Gain
Receipts----> (taxes owed)
from or
Sale-----> -$ Capital Loss
(offset against gain)
- --------------------------------------------------------------------------------
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
- --------------------------------------------------------------------------------
16 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.
- --------------------------------------------------------------------------------
17
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C, Class Z and
Class I shares of the Fund, although Class A, Class Z and Class I shares are
available only to a limited group of investors.
Multiple share classes let you choose a cost structure that better meets
your needs. With Class A shares, you pay no sales charge and the operating
expenses each year are lower than the expenses of Class B and Class C shares,
but the operating expenses are higher than those of Class Z and Class I shares.
With Class B shares, you only pay a sales charge if you sell your shares within
six years (that is why it is called a Contingent Deferred Sales Charge or CDSC),
but the operating expenses each year are higher than those of the Class A, Class
Z and Class I shares. With Class C shares, you pay a 1% front-end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A, Class Z and Class I
shares.
When choosing a share class, you should consider the following:
o The amount of your investment
o The length of time you expect to hold the shares and the impact of
the varying distribution fees
o The different sales charges that may apply to a share class--Class
B's CDSC vs. Class C's low front-end sales charge and low CDSC
- --------------------------------------------------------------------------------
18 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
o Whether you qualify for any waiver of sales charges
o The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
o Whether you qualify to purchase Class A, Class Z or Class I shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z CLASS I
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minimum purchase $1,000,000 $1,000(1) $2,500(1) None None
amount
- ------------------------------------------------------------------------------------------
Minimum amount for $100 $100(1) $100(1) None None
subsequent purchases
- ------------------------------------------------------------------------------------------
Maximum initial None None 1% of the None None
sales charge public
offering
price
- ------------------------------------------------------------------------------------------
Contingent Deferred None If sold 1% on sales None None
Sales Charge (CDSC)(2) during: made within
Year 1, 5% 18 months
Year 2, 4% of purchase(2)
Year 3, 3%
Year 4, 2%
Years 5/6, 1%
Year 7, 0%
- ------------------------------------------------------------------------------------------
Annual distribution .30 of 1% 1% 1% None None
and service (12b-1) (.25 of 1%
fees shown as a currently)
percentage of average
net assets(3)
- ------------------------------------------------------------------------------------------
</TABLE>
(1) THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "ADDITIONAL SHAREHOLDER
SERVICES--AUTOMATIC INVESTMENT PLAN."
(2) FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES--CONTINGENT DEFERRED SALES CHARGE (CDSC)."
(3) THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE
FEE FOR CLASS A, CLASS B AND C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1%
SERVICE FEE), AND IS .75 OF 1% FOR CLASS B AND CLASS C SHARES.
- --------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
QUALIFYING FOR CLASS A SHARES
You can purchase Class A shares if you invest at least $1 million or if you
exchange into the Fund from another Fund.
IF YOU INVEST MORE THAN $1 MILLION, YOU MAY QUALIFY TO BUY CLASS Z OR CLASS I
SHARES.
To satisfy this purchase amount, you can:
o Invest with an eligible group of related investors
o Buy the Class A shares of two or more Prudential mutual funds at the
same time
o Use your RIGHTS OF ACCUMULATION, which allow you to combine the
value of Prudential mutual fund shares you already own with the
value of the shares you are purchasing for purposes of determining
the applicable sales charge (note: you must notify the Transfer
Agent if you qualify for Rights of Accumulation)
o Sign a LETTER OF INTENT, stating in writing that you or a group of
related investors will purchase a certain amount of shares in the
Fund and other Prudential mutual funds within 13 months.
BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares, provided that they meet the required minimum for amount of assets,
average account balance or number of eligible employees. For more information
about these requirements, call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. You may purchase Class A shares if you are an investor in
certain programs sponsored by broker-dealers, investment advisers and financial
planners who have agreements with Prudential Investments Advisory Group relating
to:
o Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services.
o Mutual fund "supermarket" programs where the sponsor links its
customers' accounts to a master account in the sponsor's name and
the sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
- --------------------------------------------------------------------------------
20 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
OTHER TYPES OF INVESTORS. Certain officers, employees or agents of Prudential
and its affiliates, Prudential mutual funds, the subadvisers of the Prudential
mutual funds and clients of brokers that have entered into a selected dealer
agreement with the Distributor also may purchase Class A shares subject to the
previously stated minimum. To qualify you must notify the Transfer Agent or your
broker at the time of purchase. For more information, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in a PruArray Plan and other plans if
Prudential also provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of the redemption. To qualify for this waiver, you must do one of
the following:
o Purchase your shares through an account at Prudential Securities
o Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation
o Purchase your shares through another broker.
This waiver is not available to investors who purchase shares directly
from the Transfer Agent. If you are entitled to the waiver, you must notify
either the Transfer Agent or your broker. The Transfer Agent may require any
supporting documents it considers appropriate.
QUALIFYING FOR CLASS Z SHARES
Certain group retirement plans may purchase Class Z shares, provided that they
meet the required minimum amount of assets, average account balance or
- --------------------------------------------------------------------------------
21
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
which includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:
o Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges a management, consulting or other
fee for its services
o Mutual fund "supermarket" programs, where the sponsor links its
customers' accounts to a master account in the sponsor's name and
the sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
o Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option
o Current and former Directors/Trustees of the Prudential mutual funds
(including the Company)
o Prudential with an investment of $10 million or more.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares and a finder's fee for Class Z and Class I
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.
- --------------------------------------------------------------------------------
22 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
QUALIFYING FOR CLASS I SHARES
Certain group retirement plans may purchase Class I shares provided that they
meet the required minimum amount of assets, average account balance and certain
other conditions. All shares must be held in a single omnibus account. For
more information about these requirements, call Prudential at (800) 353-2847.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you received with reinvested dividends
and other distributions. Since the 12b-1 fees for Class A shares are lower than
for Class B shares, converting to Class A shares lowers your Fund expenses.
When we do the conversion, you will get fewer Class A shares than the
number of converted Class B shares if the price of the Class A shares is higher
than the price of Class B shares. The total dollar value will be the same, so
you will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase,
sell or exchange Fund shares, or when changes in the value of the Fund's
portfolio do not materially affect the NAV.
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
- --------------------------------------------------------------------------------
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class C shares, you'll pay the public offering price, which is the NAV next
determined after we receive your order to purchase, plus an initial sales charge
(unless you're entitled to a waiver). For Class A, Class B, Class Z and Class I
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge a separate or additional fee for purchases of
shares.
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
- --------------------------------------------------------------------------------
24 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan and how to open accounts for you
and your employees will be included in the retirement plan kit you receive in
the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
will send one annual shareholder report, one semi-annual shareholder report and
one annual prospectus per household, unless you instruct us or your broker
otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, your broker must receive your order to sell by 4:15 p.m. New York
Time to process the sale on that day. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent
to someone or some place that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For
- --------------------------------------------------------------------------------
26 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
o Amounts representing shares you purchased with reinvested dividends
and distributions
o Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B
shares and 18 months for Class C shares
o Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares
that are subject to the CDSC, we will apply the CDSC to amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is calculated based on the lesser of the original purchase price or the
redemption proceeds. For purposes of determining how long you've held your
shares, all purchases during the month are grouped together and considered to
have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
o After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy (with rights of survivorship), provided the shares were
purchased before the death or disability
o To provide for certain distributions--made without IRS penalty--from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account
o On certain sales from a Systematic Withdrawal Plan
For more information on the above and other waivers, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Waiver of Contingent Deferred
Sales Charge--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."
- --------------------------------------------------------------------------------
28 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential mutual fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
I shares, though, can be exchanged for Class Z shares of other Prudential mutual
funds. Class B and Class C shares may not be exchanged into money market funds
other than Prudential Special Money Market Fund, Inc. After an exchange, at
redemption, the CDSC will be calculated from the first day of the month after
initial purchase, excluding any time shares were held in a money market fund. We
may change the terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There is no sales charge for such exchanges. However, if you exchange--and
then sell--Class B shares within approximately six years of your original
purchase, or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted in calculating the required holding periods for CDSC
liability.
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUND
- --------------------------------------------------------------------------------
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A
shares, we will automatically exchange your Class B or Class C shares which are
not subject to a CDSC for Class A shares. We make such exchanges on a quarterly
basis if you qualify for this exchange privilege. We have obtained a legal
opinion that this exchange is not a "taxable event" for federal income tax
purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
into the Fund by any person, group or commonly controlled account. The Fund may
notify a market timer of rejection of an exchange or purchase order after the
day the order is placed. If the Fund allows a market timer to trade Fund shares,
it may require the market timer to enter into a written agreement to follow
certain procedures and limitations.
- --------------------------------------------------------------------------------
30 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS Z SHARES
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by PricewaterhouseCoopers LLP,
independent accountants, whose report was unqualified.
<TABLE>
<CAPTION>
- ------------------------------------------------------
CLASS Z SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING
PERFORMANCE 1999(3) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 23.11 $ 21.86 $ 16.06 $ 14.22 $ 11.27 $ 11.12
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(1) .09 .15 .46 .25 .23 .26
Net realized and
unrealized gain
on investment transactions 6.16 1.69 5.75 2.44 2.97 .11
TOTAL FROM INVESTMENT
OPERATIONS 6.25 1.84 6.21 2.69 3.20 .37
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.26) (.21) (.26) (.28) (.22) (.18)
Distributions in excess of
net investment income (.18) (.38) (.15) (.57) (.03) (.04)
TOTAL DISTRIBUTIONS (.44) (.59) (.41) (.85) (.25) (.22)
NET ASSET VALUE, END OF
PERIOD $28.92 $ 23.11 $ 21.86 $ 16.06 $ 14.22 $ 11.27
TOTAL RETURN(4) 27.19% 8.61% 39.34% 19.72% 29.02% 3.33%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL
DATA 1999(3) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF
OF PERIOD (000) $704,718 $ 381,374 $ 185,881 $ 184,379 $ 101,945 $ 50,119
Average net assets (000) $542,470 $ 313,721 $ 254,644 $ 142,540 $ 71,711 $ 38,098
RATIOS TO AVERAGE NET
ASSETS:(1)
Expenses .40%(2) .40% .46% .60% .60% .60%
Net investment income 1.15%(2) 1.30% 1.66% 1.92% 2.55% 2.34%
Portfolio turnover 2% 1% 5% 2% 11% 2%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) NET OF EXPENSE SUBSIDY.
(2) ANNUALIZED.
(3) FOR THE SIX MONTH PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(4) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST
DAY AND SOLD ON THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR
PERIODS OF LESS THAN A FULL YEAR IS NOT ANNUALIZED.
- --------------------------------------------------------------------------------
32 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS I SHARES
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
CLASS I SHARES (FISCAL PERIODS ENDED 9-30) -----------------------------
PER SHARE OPERATING PERFORMANCE 1999(3) 1998 1997(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 23.13 $ 21.87 $ 21.87
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) .17 .31 .06
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 6.09 1.55 (.06)
TOTAL FROM INVESTMENT OPERATIONS 6.26 1.86 --
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.28) (.22) --
Distributions in excess of net
investment income (.18) (.38) --
TOTAL DISTRIBUTIONS (.46) (.60) --
NET ASSET VALUE, END OF PERIOD $28.93 $ 23.13 $ 21.87
TOTAL RETURN(4) 27.24% 8.69% 0%
<CAPTION>
- ---------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999(3) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, END OF PERIOD (000) $949,978 $ 639,408 $ 312,127
Average net assets (000) $798,233 $ 505,605 $ 296,788
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses .30%(5) .30% .30%(5)
Net investment income 1.24%(5) 1.42% 1.73(3)
Portfolio turnover 20% 1% 5%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM 8-1-97 (WHEN CLASS I SHARES WERE FIRST OFFERED)
THROUGH 9-30-97.
(2) NET OF EXPENSE SUBSIDY.
(3) FOR THE SIX MONTH PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(4) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A
FULL YEAR IS NOT ANNUALIZED.
(5) ANNUALIZED.
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For more information about these funds, contact your financial adviser or
call us at (800) 225-1852. Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCE FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY
FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
34 Prudential Stock Index Fund [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
35
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
HTTP://WWW.PRUDENTIAL.COM
- --------------------------------------------------------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP Numbers:
Class A:
Class B:
Class C:
Class Z: --74431-20-9
Class I: --74431-86-0
Investment Company Act File No:
811-6677
MF177A
[RECYCLE LOGO] Printed on Recycled Paper
<PAGE>
FUND TYPE:
- --------------------------------
Stock or bond
INVESTMENT OBJECTIVE:
- --------------------------------
Provide investment results
that correspond to the
performance of the
applicable index
[GRAPHIC OMITTED]
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
PROSPECTUS: OCTOBER __, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.
[LOGO] PRUDENTIAL
INVESTMENTS
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1 Risk/Return Summary
1 Investment Objectives and Principal Strategies
2 Principal Risks
4 Evaluating Performance
8 Fees and Expenses
11 How the Funds Invest
11 Investment Objectives and Policies
17 Other Investments
18 Derivative Strategies
19 Additional Strategies
19 Investment Risks
23 How the Funds are Managed
23 Board of Trustees
23 Manager
23 Investment Adviser
23 Distributor
24 Year 2000 Readiness Disclosure
25 Fund Distributions and Tax Issues
25 Distributions
26 Tax Issues
27 If You Sell or Exchange Your Shares
28 How to Buy, Sell and Exchange Shares of the Funds
28 How to Buy Shares
32 How to Sell Your Shares
34 How to Exchange Your Shares
36 Financial Highlights
37 Prudential Bond Market Index Fund
38 Prudential Europe Index Fund
39 Prudential Pacific Index Fund
40 Prudential Small-Cap Index Fund
41 The Prudential Mutual Fund Family
For More Information (Back Cover)
- --------------------------------------------------------------------------------
PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
This prospectus provides information about four of the five series of PRUDENTIAL
INDEX SERIES FUND, which we refer to as "the Company." Those four series are
PRUDENTIAL BOND MARKET INDEX FUND, PRUDENTIAL EUROPE INDEX FUND, PRUDENTIAL
PACIFIC INDEX FUND and PRUDENTIAL SMALL-CAP INDEX FUND (each referred to as a
"Fund" and collectively as "the Funds"). To obtain information about the fifth
series, Prudential Stock Index Fund, see the back cover page of this prospectus.
While the four Funds have some common attributes, such as many of their
investment policies, each focuses on a different index. Therefore, some sections
of this prospectus deal with each Fund separately, while other sections address
all four Funds at the same time. Additional information follows this summary.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Each Fund's investment objective is to seek to provide investment results
that correspond to the performance of the applicable index. This means we
seek investments whose price or total return will increase over time. Each
Fund normally invests at least 80% of its total assets in equity-related
securities of a broad-based index, except for Bond Market Index Fund, which
invests in fixed income securities represented in a broad bound index.
o 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, currently the Lehman Brothers Aggregate Bond
index.
o PRUDENTIAL EUROPE INDEX FUND seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of European issuers, currently the Morgan Stanley Capital
International Europe Index.
o PRUDENTIAL PACIFIC INDEX FUND seeks to provide investment results that
correspond to the price and yield
- --------------------------------------------------------------------------------
DID YOU KNOW...
Each Fund employs a "passively managed"--or index--investment approach by
holding the same mix of stocks as is held in the applicable Index. Each Fund
uses a "sampling" technique. Using sophisticated computer programs, the Funds
select securities that will recreate their target indexes in terms of industry
weightings, market capitalization and other characteristics. For instance, if
20% of the Lehman Brothers Aggregate Bond Index were made up of corporate bonds,
the Bond Market Index Fund would invest about 20% of its assets in corporate
bonds that have similar characteristics as a group to those in that Index.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
performance of a broad-based index of securities of issuers in the Pacific
region, currently the Morgan Stanley Capital International Pacific Free
Index.
o PRUDENTIAL SMALL-CAP INDEX FUND seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
small cap stocks, currently the Standard & Poor's 600 Small Capitalization
Stock Index (S&P 600 Index).
Each Fund intends that at least 80% of its total assets will be invested
in securities included in the applicable index. Each Fund attempts to achieve a
correlation between its performance and the performance of the applicable index
of at least 0.95, without taking into account expenses. Each Fund may invest in
foreign securities and may use derivatives. Each Fund sells securities when they
are no longer in the applicable index.
While we make every effort to achieve our objective, we can't guarantee
success.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The Funds'
performance will not precisely correspond to the performance of the index whose
performance each Fund seeks to replicate. Potential tracking differences,
brokerage and other costs and other Fund expenses may cause a Fund's return to
be lower than that of the applicable index.
Since Prudential Bond Market Index Fund invests primarily in fixed income
securities, there are interest rate risks, income risk, credit risk and
prepayment risk. Interest rate risk is the chance that bond prices overall will
decline over short or even long periods due to rising interest rates. Interest
rate risk should be least for shorter-term bonds, and greatest for longer-term
bonds. Income risk is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally higher for short-term bonds,
and lower for long-term bonds. Credit risk is the chance that a bond issuer will
fail to pay interest and principal in a timely manner, reducing the Fund's
return. Prepayment risk is the chance that during periods of falling interest
rates, a mortgage-backed bond issuer will repay a higher-yielding bond before
its maturity date. Forced to reinvest the unanticipated proceeds at lower rates,
the Fund would experience a decline in income and lose the opportunity for
additional price appreciation associated with falling rates.
Since the Prudential Europe Index Fund, Prudential Pacific Index Fund and
Prudential Small-Cap Index Fund invest primarily in common stock, there is the
risk that the price of a particular stock we own could go down, or the value of
the equity markets or a sector of them could go down. Stock markets are
volatile. Generally, the stock prices of small-sized companies are less stable
than the stock prices of large- and medium-sized companies.
Since we invest in foreign securities, there are different risks than if
we invested only in U.S. stocks. Foreign markets are often more volatile than
U.S.
- --------------------------------------------------------------------------------
2 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
markets and are generally not subject to regulatory requirements comparable to
those in the U.S.
Some of our investment strategies may present above-average risks. A Fund
may use risk management techniques to try to preserve assets or enhance return.
Derivatives may not fully offset the underlying positions and this could result
in losses to the Fund that would not otherwise have occurred.
Like any mutual fund, an investment in a Fund could lose value and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Funds Invest-Investment Risks."
An investment in a Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
EVALUATING PERFORMANCE
A number of factors--including risk--affect how each Fund performs. The
following bar chart shows each Fund's performance for each full calendar year of
operation. The bar chart and table below demonstrate the risk of investing in
the Fund and how the Fund's average annual returns compare with those of a broad
measure of market performance. Past performance does not mean that the Fund will
achieve similar results in the future.
PRUDENTIAL BOND MARKET INDEX FUND
[The following table was depicted as a bar graph in the printed material.]
- --------------------------------
ANNUAL RETURNS (CLASS Z SHARES)
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
BEST QUARTER: % (quarter of 199 ) WORST QUARTER: ( )% (quarter of 199 )
- --------------------------------------------------------------------------------
RETURN FOR THE SIX MONTHS ENDED JUNE 30, 1999 WAS ____% FOR CLASS Z SHARES.
AVERAGE ANNUAL RETURNS(1)
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
Class Z shares % % (since 10/1/97)
- --------------------------------------------------------------------------------
Lehman Index (2) % %
- --------------------------------------------------------------------------------
(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES.
(2) THE LEHMAN BROTHERS AGGREGATE INDEX IS AN UNMANAGED INDEX THAT MEASURES
THE TOTAL RETURN (CAPITAL CHANGE PLUS INCOME) PROVIDED BY A GROUP OF FIXED
INCOME SECURITIES, WEIGHTED BY MARKET VALUE. SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
4 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE INDEX FUND
[The following table was depicted as a bar graph in the printed material.]
- --------------------------------
ANNUAL RETURNS (CLASS Z SHARES)
- ----------------------------------------------------------
1998
- --------------------------------------------------------------------------------
BEST QUARTER: % (quarter of 199 ) WORST QUARTER: ( )% (quarter of 199 )
- --------------------------------------------------------------------------------
RETURN FOR THE SIX MONTHS ENDED JUNE 30, 1999 WAS ____% FOR CLASS Z SHARES.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
1 YEAR SINCE INCEPTION
Class Z shares % % (since 10/1/97)
- --------------------------------------------------------------------------------
MSCI Europe Index (2) % %
- --------------------------------------------------------------------------------
(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES.
(2) THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI)--EUROPE INDEX IS AN
UNMANAGED, DIVERSIFIED CAPITALIZATION WEIGHTED INDEX CURRENTLY CONSISTING
OF THE EQUITY SECURITIES OF 592 COMPANIES LOCATED IN 15 DEVELOPED EUROPEAN
COUNTRIES. IT GIVES A BROAD LOOK AT HOW EUROPEAN STOCKS PERFORMED.
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
PRUDENTIAL PACIFIC INDEX FUND
[The following table was depicted as a bar graph in the printed material.]
- --------------------------------
ANNUAL RETURNS (CLASS Z SHARES)
- ----------------------------------------------------------
1998
- --------------------------------------------------------------------------------
BEST QUARTER: % (quarter of 199 ) WORST QUARTER: ( )% (quarter of 199 )
- --------------------------------------------------------------------------------
RETURN FOR THE SIX MONTHS ENDED JUNE 30, 1999 WAS ____% FOR CLASS Z SHARES.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
1 YEAR SINCE INCEPTION
Class Z shares % % (since 9/24/97)
- --------------------------------------------------------------------------------
MSCI Pacific Free Index (2) % %
- --------------------------------------------------------------------------------
(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES.
(2) THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) PACIFIC FREE INDEX IS AN
UNMANAGED DIVERSIFIED CAPITALIZATION WEIGHTED INDEX CURRENTLY CONSISTING
OF 50% EQUITY SECURITIES LISTED ON THE STOCK EXCHANGE OF AUSTRALIA, JAPAN,
HONG KONG, NEW ZEALAND AND SINGAPORE. SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
6 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
PRUDENTIAL SMALL-CAP INDEX FUND
[The following table was depicted as a bar graph in the printed material.]
- --------------------------------
ANNUAL RETURNS (CLASS Z SHARES)
- ----------------------------------------------------------
1998
- --------------------------------------------------------------------------------
BEST QUARTER: % (quarter of 199 ) WORST QUARTER: ( )% (quarter of 199 )
- --------------------------------------------------------------------------------
RETURN FOR THE SIX MONTHS ENDED JUNE 30, 1999 WAS ____% FOR CLASS Z SHARES.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS(1)
1 YR SINCE INCEPTION
Class Z shares % % (since 10/1/97)
- --------------------------------------------------------------------------------
S&P 600 Index (2) % %
- --------------------------------------------------------------------------------
(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES.
(2) THE S&P 600 INDEX--AN UNMANAGED INDEX OF 600 STOCKS OF SMALLER U.S.
COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES OF SMALLER COMPANIES
HAVE PERFORMED. SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of a Fund. For more information, see "How to Buy,
Sell and Exchange Shares of the Funds."
- --------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------------------
CLASS Z
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None
- ---------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None
- ---------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested
dividends and other distributions None
- ---------------------------------------------------------------------
Redemption fees None
- ---------------------------------------------------------------------
Exchange fee None
- ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
8 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
- ----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
Management fees .25%
- --------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
+ Other expenses .48%
- --------------------------------------------------------------------------------
= TOTAL ANNUAL FUND OPERATING EXPENSES .73%
- --------------------------------------------------------------------------------
- - Expense reimbursement .33%
- --------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES .40%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
Management fees .40%
- --------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
+ Other expenses .20%
- --------------------------------------------------------------------------------
= TOTAL ANNUAL FUND OPERATING EXPENSES 2.16%
- --------------------------------------------------------------------------------
- - Expense reimbursement 1.56%
- --------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES .60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
Management fees .40%
- --------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
+ Other expenses 1.32%
- --------------------------------------------------------------------------------
= TOTAL ANNUAL FUND OPERATING EXPENSES 1.72%
- --------------------------------------------------------------------------------
- - Expense reimbursement 1.12%
- --------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES .60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUDENTIAL SMALL CAP INDEX FUND
- --------------------------------------------------------------------------------
Management fees .30%
- --------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
+ Other expenses 1.02%
- --------------------------------------------------------------------------------
= TOTAL ANNUAL FUND OPERATING EXPENSES 1.32%
- --------------------------------------------------------------------------------
- - Expense reimbursement .82%
- --------------------------------------------------------------------------------
= NET ANNUAL FUND OPERATING EXPENSES .50%
- --------------------------------------------------------------------------------
(1) YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
(2) FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000, PIFM HAS CONTRACTUALLY
AGREED TO SUBSIDIZE THE FUND'S OPERATING EXPENSES SO THAT TOTAL FUND
OPERATING EXPENSES DO NOT EXCEED .40%, .60%, .60% AND .50% OF THE AVERAGE
NET ASSETS OF PRUDENTIAL BOND MARKET INDEX FUND, PRUDENTIAL EUROPE INDEX
FUND, PRUDENTIAL PACIFIC INDEX FUND AND PRUDENTIAL SMALL-CAP INDEX FUND,
RESPECTIVELY.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Funds
and the cost of investing in a Fund with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in a Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. After the first year, the example
does not take into account the Manager's agreement to subsidize expenses.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
- --------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- --------------------------------------------------------------------------------
Prudential Bond Market Fund $41 $200 $373 $ 875
- --------------------------------------------------------------------------------
Prudential Europe Index Fund $ $ $ $
- --------------------------------------------------------------------------------
Prudential Pacific Index Fund $61 $432 $828 $1,937
- --------------------------------------------------------------------------------
Prudential Small-Cap Index Fund $51 $514 $887 $1,933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective is to seek to PROVIDE INVESTMENT RESULTS THAT
CORRESPOND TO THE PERFORMANCE OF THE APPLICABLE INDEX. While we make every
effort to achieve our objective, we can't guarantee success.
PRUDENTIAL BOND MARKET INDEX FUND
Prudential Bond Market Index Fund seeks to provide investment results that
correspond to the total return performance of a broad-based index of
fixed-income securities. The Prudential Bond Market Index Fund currently uses
the Lehman Brothers Aggregate Index. The Lehman Brothers Aggregate Index is an
unmanaged index that measures the total return (capital change plus income)
provided by a universe of fixed-income securities, weighted by market value.
To achieve its investment objective, Prudential Bond Market Index Fund
will purchase securities that as a group reflect the performance of the Lehman
Brothers Aggregate Index. The Fund intends to hold a representative sample of
the securities that reflect the three major classes of fixed-income investments
in the Lehman Brothers Aggregate Index: U.S. Treasury and government agency
securities, investment-grade corporate debt obligations and mortgage-backed
securities. The securities included in the Index must be U.S. dollar-denominated
and investment-grade, and have a fixed rate coupon, a remaining maturity or
average life of at least one year and generally have an outstanding market value
of at least $100 million. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the Lehman Brothers Aggregate Index. As of June 30, 1999, U.S.
Treasury and agency securities comprised % and %, respectively, of the
Index's total market value, corporate bonds comprised %, asset-backed
securities comprised % and mortgage-backed securities comprised %.
- --------------------------------------------------------------------------------
[To Come]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE INDEX FUND
Prudential Europe Index Fund seeks to provide investment results that correspond
to the price and yield performance of a broad-based index of securities of
European issuers. The Prudential Europe Index Fund currently uses the
MSCI-Europe Index. The MSCI-Europe Index is an unmanaged, diversified,
capitalization weighted index currently consisting of the equity securities of
592 companies located in 15 developed European countries. These countries are:
Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. The Fund is neither sponsored by nor affiliated with Morgan Stanley &
Co. Incorporated.
To achieve its investment objective, Prudential Europe Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Europe Index. The Fund intends to invest in a
representative sample of the stocks included in the MSCI-Europe Index in
approximately the same proportions as they are represented in that index. In
addition, from time to time adjustments may be made in the holdings of the Fund
due to factors which may include changes in the composition of the MSCI-Europe
Index. The United Kingdom, Germany and France dominate the MSCI-Europe Index,
with %, % and %, respectively, of the market capitalization of the Index as of
June 30, 1999.
- --------------------------------------------------------------------------------
12 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
PRUDENTIAL PACIFIC INDEX FUND
Prudential Pacific Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of issuers in the Pacific region. The Prudential Pacific Index Fund
currently uses the MSCI-Pacific Free Index. The MSCI-Pacific Free Index is an
unmanaged, diversified, capitalization weighted index currently consisting of
508 equity securities listed on the stock exchanges of Australia, Japan, Hong
Kong, New Zealand and Singapore. The Fund is neither sponsored by nor affiliated
with Morgan Stanley & Co. Incorporated.
To achieve its investment objective, Prudential Pacific Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Pacific Free Index. The Fund intends to invest in a
representative sample of the equity securities included in the MSCI-Pacific Free
Index in approximately the same proportions as they are represented in the
MSCI-Pacific Free Index. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the MSCI-Pacific Free Index. The MSCI-Pacific Free Index is
dominated by the Japanese stock market, which represented % of the market
capitalization of the Index as of June 30, 1999.
PRUDENTIAL SMALL-CAP INDEX FUND
Prudential Small-Cap Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
small-cap stocks. The Prudential Small-Cap Index Fund currently uses the S&P 600
Index. The S&P 600 Index is an unmanaged, market-value weighted index (stock
price times the number of shares outstanding) of 600 smaller company U.S. common
stocks that cover all industry sectors. Inclusion in the S&P 600 Index in no way
implies an opinion by Standard & Poor's Corporation (S&P) as to a stock's
attractiveness as an investment. The S&P 600 Index currently measures the
performance of selected U.S. stock with a market value of no greater than $
million (as of June 30, 1999).
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
To achieve its investment objective, Prudential Small-Cap Index Fund will
purchase equity securities that as a group reflect the price and yield
performance of the S&P 600 Index. The Fund intends to purchase a representative
sample of the 600 stocks included in the S&P 600 Index in approximately the same
proportions as they are represented in the S&P 600 Index. In addition, from time
to time adjustments may be made in the holdings of the Fund due to factors which
may include changes in the composition of the S&P 600 Index or receipt of
distributions of securities of companies spun off from S&P 600 companies.
INVESTMENT POLICIES APPLICABLE TO EACH FUND
The Funds are each expected to invest in over 250 stocks (or bonds for the
Prudential Bond Market Index Fund). Stocks are selected for inclusion in each
applicable Fund's portfolio based on country, market capitalization, industry
weightings and fundamental characteristics such as return variability, earnings
valuation and yield. Each Fund's portfolio is constructed to have aggregate
investment characteristics similar to those of its respective index. In order to
parallel the performance of its respective index, Prudential Europe Index Fund
and Prudential Pacific Index Fund will invest in each country in approximately
the same percentage as the country's weight in the index.
The Funds may not hold all of the issues that comprise their respective
indexes because of the costs involved and the illiquidity of many of the
- --------------------------------------------------------------------------------
14 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
securities. Instead, each Fund will attempt to hold a representative sample of
the securities in its respective index, which will be selected utilizing a
statistical technique known as "sampling" or "portfolio optimization." Under
this technique, each stock is considered for inclusion in the portfolio based on
its contribution to certain country, capitalization, industry and fundamental
investment characteristics. Each applicable Fund's portfolio is constructed so
that, in the aggregate, the country, capitalization, industry and fundamental
investment characteristics resemble those of its respective index. Over time,
portfolio composition is altered (or "rebalanced") to reflect changes in the
characteristics of the indices.
Due to the use of this sampling technique, the Funds' portfolios are not
expected to track their benchmark indices with the same degree of accuracy as
large capitalization domestic index funds. Each Fund will attempt to achieve a
correlation between its performance and that of its respective index of at least
0.95, without taking into account expenses. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when a Fund's net asset value,
including the value of its dividends and capital gains distributions, increases
or decreases in exact proportion to changes in its respective index. The
investment adviser will, of course, attempt to minimize any tracking
differential (that is, the statistical measure of the difference between the
investment results of a Fund and that of its respective index). However, in
addition to potential tracking differences, brokerage and other transaction
costs, as well as other expenses, may cause a Fund's return to be lower than the
return of its respective index. Consequently, there can be no assurance as to
how closely a Fund's performance will correspond to the performance of its
respective index.
The Funds intend to remain fully invested, to the extent practicable, in a
pool of securities which will approximate the investment characteristics of
their respective indexes.
When deciding whether to sell securities, we follow the applicable index.
When a security is sold from the index, we sell it too.
EQUITY AND EQUITY-RELATED SECURITIES
Each Fund other than Prudential Bond Market Index Fund invests primarily in
equity securities, and the value of these Funds' investments will go up and down
with the performance of the stocks in the applicable index.
In addition to common stocks, equity-related securities include
nonconvertible preferred stocks, convertible securities, American Depositary
Receipts (ADRs), warrants and rights that can be exercised to obtain stock;
investments in various types of business ventures, including partnerships and
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
joint ventures; real estate investment trusts (REITs) and similar securities.
Convertible securities are securities--like bonds, corporate notes and preferred
stocks--that we can convert into the company's common stock or some other equity
security.
FOREIGN SECURITIES
Prudential Europe Index Fund and Prudential Pacific Index Fund invest primarily
in equity securities of foreign companies. For these purposes, we do not
consider ADRs and other similar receipts or shares to be foreign securities.
FIXED-INCOME OBLIGATIONS
Prudential Bond Market Index Fund invests primarily in fixed-income securities
including U.S. Treasury obligations and securities issued or guaranteed by U.S.
government agencies and instrumentalities, investment-grade corporate debt
obligations and mortgage-backed securities. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some are supported
only by the credit of the issuing agency. The Fund may invest in debt securities
rated investment grade (BBB/Baa or above).
MONEY MARKET INSTRUMENTS
The Funds also may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of the Fund shares or to meet ordinary daily cash needs subject to the policy of
normally investing at least 80% of the Fund's assets in securities included in
the applicable index.
For more information, see "Investment Risks" and the Statement of
Additional Information, "Description of the Funds, Their Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--
- --------------------------------------------------------------------------------
16 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
contains additional information about the Fund and the Company. To obtain a
copy, see the back cover page of this prospectus.
Each Fund's investment objective can be changed by the Board without
shareholder approval. The Board also can change investment policies that are not
fundamental.
OTHER INVESTMENTS
In addition to the principal strategies, we may also make the following
investments to try to increase a Fund's returns or protect its assets if
market conditions warrant.
REPURCHASE AGREEMENTS
A Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. This creates a fixed return for the Fund and is in effect a loan by the
Fund.
DOLLAR ROLLS
Prudential Bond Market Index Fund may use dollar rolls as part of its investment
strategy. When the Fund enters into a dollar roll, the Fund sells securities to
be delivered in the current month and repurchases substantially similar (some
type and coupon) securities to be delivered on a specified future date by the
same party. The Fund is paid the difference between the current sales price and
the forward price for the future purchase and the interest earned on the cash
proceeds of the initial sale.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
DERIVATIVE STRATEGIES
We may use various derivative strategies to try to improve a Fund's returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available, or
that a Fund will not lose money. Derivatives--such as futures on equity or debt
securities or indexes, options on securities, securities indexes or currencies,
and options on futures--involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark--will go
up or down at some future date. We may use derivatives to try to reduce risk or
to increase return consistent with a Fund's overall investment objective. The
investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy or use any particular instrument. Any
derivatives we use may not match the Fund's underlying holdings.
OPTIONS
The Funds may purchase and sell put and call options on securities and
securities indexes traded on U.S. or foreign securities exchanges on NASDAQ or
in the over-the-counter market. Prudential Europe Index Fund and Prudential
Pacific Index Fund also may purchase and sell, put and call options on
currencies. An option is the right to buy or sell securities in exchange for a
premium. The Fund will sell only covered options.
FUTURES CONTRACTS AND RELATED OPTIONS
FOREIGN CURRENCY AND FORWARD CONTRACTS
Each Fund may purchase and sell futures contracts and related options on
securities indexes. A futures contract is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. Prudential Europe Index Fund
and Prudential Pacific Index Fund may also enter into foreign currency forward
contracts to protect the value of its assets against future changes in the level
of foreign exchange rates. A foreign currency forward contract is an obligation
to buy or sell a given currency on a future date at a set price.
For more information about these strategies, see the SAI, "Description of
the Funds, Their Investments and Risks--Risk Management and Return Enhancement
Strategies."
- --------------------------------------------------------------------------------
18 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
ADDITIONAL STRATEGIES
Each Fund also follows certain policies when it BORROWS MONEY (each Fund can
borrow up to 20% of the value of its total assets); LENDS ITS SECURITIES to
others (each Fund can lend up to 30% of the value of its total assets, including
collateral received in the transaction); and HOLDS ILLIQUID SECURITIES (each
Fund may hold up to 15% of its net assets in illiquid securities, including
securities with legal or contractual restrictions, those without a readily
available market, and repurchase agreements with maturities longer than seven
days). The Funds are subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in a Fund is no exception.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other investments the Fund may make. See, too,
"Description of the Funds, Their Investments and Risks" in the SAI.
<TABLE>
<CAPTION>
- ------------------------
INVESTMENT TYPE -----------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS o Individual stocks could lose o Historically, stocks have
PRUDENTIAL EUROPE INDEX FUND value outperformed other
PRUDENTIAL PACIFIC INDEX FUND investments over the long
PRUDENTIAL SMALL-CAP INDEX FUND o The equity markets could go term
down, resulting in a decline
AT LEAST 80% in value of the Fund's o Generally, economic growth
investments means higher corporate
profits, which leads to an
o Changes in economic or increase in stock prices,
political conditions, both known as capital appreciation
domestic and international,
may result in a decline in
value of the Fund's
investments
- -----------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCKS o Stocks of small companies are o Highly successful smaller
PRUDENTIAL SMALL-CAP more volatile and may decline companies can outperform
INDEX FUND more than those in the S&P larger ones
500 Index
AT LEAST 80% o Small companies are more
likely to reinvest earnings
and not pay dividends
o Changes in interest rates may
affect the securities of
small companies more than the
securities of larger
companies
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------
INVESTMENT TYPE (CONT'D) ----------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN SECURITIES o Foreign markets, economies o Investors can participate in
and political systems may not foreign markets and companies
PRUDENTIAL EUROPE INDEX FUND be as stable as in the U.S., operating in those markets
PRUDENTIAL PACIFIC INDEX FUND particularly those in
developing countries o Opportunities for
diversification
AT LEAST 80% o May be less liquid than U.S.
stocks and bonds
o Differences in foreign laws,
accounting standards, public
information, custody and
settlement practices
o Year 2000 conversion may be
more of a problem for some
foreign issuers
- -----------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS o The Fund's share price, yield o Bonds have generally
and total return will outperformed money market
PRUDENTIAL BOND MARKET fluctuate in response to bond instruments over the long
INDEX FUND market movements term with less risk than
stock
AT LEAST 80 o Credit risk--the default of
an issuer would leave a Fund o Most bonds will rise in value
with unpaid interest or when interest rates fall
principal. The lower a bond's
quality, the higher its o Regular interest income
potential volatility
o Generally more secure than
o Market risk--the risk that stock since companies must
the market value of an pay their debts before paying
investment may move up or stockholders
down, sometimes rapidly or
unpredictably. Market risk o Investment-grade bonds have a
may affect an industry, a lower risk of default
sector, or the market as a
whole o Bonds with longer maturity
dates typically have higher
o Interest rate risk--the value yields
of most bonds will fall when
interest rates rise: the o Intermediate-term securities
longer a bond's maturity and may be less susceptible to
the lower its credit quality, loss of principal than longer
the more its value typically term securities
falls. It can lead to price
volatility.
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------
INVESTMENT TYPE (CONT'D) ----------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES o Derivatives such as futures o Hedges that correlate well
options and foreign currency with underlying position can
PERCENTAGE VARIES forward contracts that are reduce or eliminate
used for hedging purposes investment income or capital
options may not fully offset gains at low cost
the underlying positions and
this could result in losses o The Fund could make money and
to the Fund that would not protect against losses if the
have otherwise occurred investment analysis proves
correct
o Derivatives used for risk
management may not have the o Derivatives that involve
intended effects and may leverage could generate
result in losses or missed substantial gains at low cost
opportunities
o One way to manage the Fund's
o The other party to a risk/return balance is to
derivatives contract could lock in the value of an
default investment ahead of time
o Derivatives that involve
leverage could magnify losses
o Certain types of derivatives
involve costs to the Fund
that can reduce returns
- -----------------------------------------------------------------------------------------------------
DOLLAR ROLLS o May magnify underlying o May magnify underlying
investment losses investment gains.
PRUDENTIAL BOND MARKET
INDEX FUND o Investment costs may exceed
potential underlying
UP TO __% investment gains
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS INVEST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------
INVESTMENT TYPE (CONT'D) ----------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES o Not all are insured or o Regular interest income
guaranteed by the U.S. o The U.S. Government
UP TO 20% Government, but only by the guarantees interest and
issuing agency principal payments on
o Limits potential for capital certain securities
appreciation o Generally more secure
o Interest rate risk--the value than lower quality debt
of most debt securities will securities and equity
fall when interest rates rise securities
o Market risk--the risk that o May preserve the Fund's
instruments may lose assets
value in the market
because interest rates
change or there is a lack
of confidence in a group
of borrowers or any industry
- -----------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES o May be difficult to value o May offer a more attractive
precisely yield or potential for growth
UP TO 15% OF NET ASSETS than more widely traded
o May be difficult to sell at securities
the time or price desired
- -----------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS o Limits potential for capital o May preserve the Fund's
appreciation assets
o Credit risk--the default of
an issuer would leave the
Fund with unpaid interest or
principal
o Market risk--the risk that
instruments may lose value in
the market because interest
rates change or there is a
lack of confidence in a group
of borrowers or an industry
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
22 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS ARE MANAGED
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The Board of Trustees oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Company's officers, who conduct and supervise the daily business operations of
the Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with each Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended September 30, 1998, the Funds paid PIFM management fees shown below.
Annual Management
Fund Fee Paid to PIFM
---- ----------------
Prudential Bond Market Index Fund .25%
Prudential Europe Index Fund .40%
Prudential Pacific Index Fund .40%
Prudential Small-Cap Index Fund .30%
As of June 30, 1999, PIFM served as the Manager to all ______ of the
Prudential mutual funds, and as Manager or administrator to ______ closed-end
investment companies, with aggregate assets of approximately $ billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is
the Funds' investment adviser. Its address is Prudential Plaza, 751 Broad
Street, Newark, NJ 07102. PIFM has responsibility for all investment advisory
services, supervises Prudential Investments and reimburses Prudential
Investments for its reasonable costs and expenses.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes each Fund's
shares under a Distribution Agreement with the Fund. Under the
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
HOW THE FUNDS ARE MANAGED
- --------------------------------------------------------------------------------
Distribution Agreement, PIMS pays the expenses of distributing each Fund's Class
Z shares and provides certain shareholder support services.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Funds and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Manager,
the Distributor, the Transfer Agent and the Custodian have advised the Funds
that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Company's Board receives, and has
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on a Fund. Moreover, the Funds at
this time have not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.
Additionally, issuers of securities generally, as well as those purchased
by a Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by a Fund.
- --------------------------------------------------------------------------------
24 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
Investors who buy shares of a Fund should be aware of some important tax issues.
For example, each Fund distributes DIVIDENDS of ordinary income and any realized
net CAPITAL GAINS to shareholders. These distributions are subject to taxes,
unless you hold your shares in a 401(k) plan, an Individual Retirement Account
(IRA), or some other qualified tax-deferred plan or account.
Also, if you sell shares of a Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified tax-deferred plan or account.
The following briefly discusses some of the important federal tax issues
you should be aware of, but is not meant to be tax advice. For tax advice,
please speak with your tax adviser.
DISTRIBUTIONS
Each Fund declares daily and distributes DIVIDENDS of any net investment
income to shareholders once a year. For example, if a Fund owns Acme Corp. stock
and the stock pays a dividend, the Fund will pay out a portion of this dividend
to its shareholders, assuming the Fund's income is more than its costs and
expenses. The dividends you receive from a Fund will be taxed as ordinary income
whether or not they are reinvested in the Fund.
Each Fund also distributes realized net CAPITAL GAINS to shareholders--
typically once a year--which are generated when a Fund sells its assets for a
profit. For example, if a Fund bought Acme Corp. stock for a total of $1,000 and
more than one year later sold the shares for a total of $1,500, the Fund has net
long-term capital gains of $500, which it will pass on to shareholders (assuming
the Fund's total gains are greater than any losses it may have). Capital gains
are taxed differently depending on how long a Fund holds the security--if a
security is held more than one year before it is sold, LONG-TERM capital gains
are taxed at the rate of 20%, but if the security is held one year or less,
SHORT-TERM capital gains are taxed at ordinary income rates of up to 39.6%.
Different rates apply to corporate shareholders.
For your convenience, a Fund's distributions of dividends and capital
gains are AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you
ask us to pay the distributions in cash, we will send you a check if your
account is with the Transfer Agent. Otherwise, if your account is with a broker,
you will receive a credit to your account. Either way, the distributions may be
subject to taxes, unless your shares are held in a qualified tax-deferred plan
or account. For more information about automatic reinvestment and other
shareholder services, see "Step 4: Additional Shareholder Services" in the next
section.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of a Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.
Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year. Corporate
shareholders are eligible for the 70% dividends-received deduction for certain
dividends.
WITHHOLDING TAXES
If federal tax law requires you to provide a Fund with your tax identification
number and certifications as to your tax status, and you fail to do this, we
will withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. If you are subject to backup withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of a Fund just before the record date (the date that
determines who receives the distribution), that distribution will be paid to
you. As explained above, the distribution may be subject to income or capital
gains taxes. You may think you've done well since you bought shares one day and
soon thereafter received a distribution. That is not so because when dividends
are paid out, the value of each share of a Fund decreases by the amount of the
dividend and the market changes (if any) to reflect the payout. The distribution
you receive makes up for the decrease in share value. However, the timing of
your purchase does mean that part of your investment came back to you as taxable
income.
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26 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------
QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts, contributions are not tax deductible, but
distributions from the plan may be tax free. Please contact your financial
adviser for information on a variety of Prudential mutual funds that are
suitable for retirement plans offered by Prudential.
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of a Fund for a profit, you have REALIZED A CAPITAL GAIN,
which is subject to tax, unless you hold shares in a qualified tax-deferred plan
or account. The amount of tax you pay depends on how long you owned your shares.
If you sell shares of a Fund for a loss, you may have a capital loss, which you
may use to offset certain capital gains you have.
- --------------------------------------------------------------------------------
+$ Capital Gain
Receipts----> (taxes owed)
from or
Sale-----> -$ Capital Loss
(offset against gain)
- --------------------------------------------------------------------------------
Exchanging your shares of a Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of a Fund, see the back cover
page of this prospectus. We have the right to reject any purchase order
(including an exchange into a Fund) or suspend or modify a Fund's sale of its
shares.
STEP 2: CLASS Z SHARES
Individual investors can choose only Class Z shares of the Fund; Class Z shares
are available only to a limited group of investors.
- --------------------------------------------------------------------------------
CLASS Z
- --------------------------------------------------------------------------------
Minimum purchase
amount None
- --------------------------------------------------------------------------------
Minimum amount for
subsequent purchases None
- --------------------------------------------------------------------------------
Maximum initial
sales charge None
- --------------------------------------------------------------------------------
Contingent Deferred
Sales Charge (CDSC) None
- --------------------------------------------------------------------------------
Annual distribution
and service (12b-1)
fees shown as a
percentage of average
net assets None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
28 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
QUALIFYING FOR CLASS Z SHARES
Certain group retirement plans may purchase Class Z shares provided that they
meet the required minimum amount of assets, average account balance or number of
eligible employees. For more information about these requirements, call
Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
which includes mutual funds as investment options and the Fund as an available
option. Class Z shares also can be purchased by investors in certain programs
sponsored by broker-dealers, investment advisers and financial planners who have
agreements with Prudential Investments Advisory Group relating to:
o Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges a management, consulting or other
fee for its services
o Mutual fund "supermarket" programs, where the sponsor links its
customers' accounts to a master account in the sponsor's name and
the sponsor charges a fee for its services.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
o Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option
o Current and former Directors/Trustees of the Prudential mutual funds
(including the Company)
o Prudential with an investment of $10 million or more.
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
finder's fee for Class Z shares from their own resources based on a percentage
of the net asset value of shares sold or otherwise.
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of a Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the Fund (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Company's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase,
sell or exchange Fund shares, or when changes in the value of a Fund's portfolio
do not materially affect the NAV.
- --------------------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds ACME Corp. stock in
its portfolio and the price of ACME stock goes up while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.
- --------------------------------------------------------------------------------
WHAT PRICE WILL YOU PAY FOR SHARES OF A FUND?
You will pay the NAV next determined after we receive your order to purchase
(remember, there are no up-front sales charges for these share classes). Your
broker may charge a separate or additional fee for purchases of shares.
- --------------------------------------------------------------------------------
30 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, each Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in your Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of a Fund for as
little as $50 by having the funds automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs, or SEP IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan and how to open accounts for you
and your employees will be included in the retirement plan kit you receive in
the mail.
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks.
REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Funds. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of a Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, your broker must receive your order to sell by 4:15 p.m. New York
Time to process the sale on that day. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase by wire,
certified
- --------------------------------------------------------------------------------
32 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
check or cashier's check. Your broker may charge you a separate or additional
fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of a Fund, or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, you want the check sent
to someone or some place that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--Signature Guarantee."
REDEMPTION IN KIND
If the sales of a Fund's shares you make during any 90-day period reach the
lesser of $250,000 or 1% of the value of the Fund's net assets, we can then give
you securities from the Fund's portfolio instead of cash. If you want to sell
the securities for cash, you would have to pay the costs charged by a broker.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to
- --------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
avoid delay. If your retirement plan account is held for you by your employer or
plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of a Fund for Class Z shares in certain other
Prudential mutual funds--as well as certain money market funds--if you satisfy
the minimum investment requirements. For example, you can exchange Class Z
shares of the Fund for Class Z shares of another Prudential mutual fund, but you
can't exchange Class Z shares for Class A, Class B or Class C shares. We may
change the terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
- --------------------------------------------------------------------------------
34 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
- --------------------------------------------------------------------------------
EXCHANGE SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage a
Fund's investments. When market timing occurs, a Fund may have to sell portfolio
securities to have the cash necessary to redeem the market timer's shares. This
can happen at a time when it is not advantageous to sell any securities, so the
Fund's performance may be hurt. When large dollar amounts are involved, market
timing can also make it difficult to use long-term investment strategies because
we cannot predict how much cash a Fund will have to invest. When, in our
opinion, such activity would have a disruptive effect on portfolio management,
each Fund reserves the right to refuse purchase orders and exchanges into the
Fund by any person, group or commonly controlled account. A Fund may notify a
market timer of rejection of an exchange or purchase order after the day the
order is placed. If a Fund allows a market timer to trade Fund shares, it may
require the market timer to enter into a written agreement to follow certain
procedures and limitations.
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights will help you evaluate each Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of a Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and report of independent
accountants, which appear in the annual report and the SAI and are available
upon request. Additional performance information for each share class is
contained in the annual report, which you can receive at no charge.
- --------------------------------------------------------------------------------
36 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PRUDENTIAL BOND MARKET INDEX FUND
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.
- ------------------------------------------------------
CLASS Z SHARES (FISCAL YEARS ENDED 9-30)
PER SHARE OPERATING
PERFORMANCE 1999(4) 1998(1)
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.91 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (5) .27 .55
Net realized and
unrealized gain
on investment
transactions (.28) .52
TOTAL FROM INVESTMENT
OPERATIONS (.01) 1.07
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.53) (.15)
Distributions in excess of
net investment income (.06) (.01)
TOTAL DISTRIBUTIONS (.59) (.16)
NET ASSET VALUE, END OF
PERIOD $10.31 $10.91
TOTAL RETURN(3) (.08%) 10.79%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA 1999 1998
NET ASSETS, END OF
PERIOD (000) 43,191 $39,790
Average net assets (000) 41,151 $33,637
RATIOS TO AVERAGE NET
ASSETS:(5)
Expenses .40% .40%
Net investment income 5.28% 5.68%
Portfolio turnover 71% 33%
- --------------------------------------------------------------------------------
(1) FOR THE PERIOD 10-1-97 (WHEN CLASS Z SHARES WERE FIRST OFFERED) THROUGH
9-30-98.
(2) ANNUALIZED.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS. IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST
DAY AND SOLD ON THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR
PERIODS OF LESS THAN A FULL YEAR IS NOT ANNUALIZED.
(4) FOR THE SIX MONTH PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(5) NET OF EXPENSE SUBSIDY.
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PRUDENTIAL EUROPE INDEX FUND
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.
- ------------------------------------------------------
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999(4) 1998(1)
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.64 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .18
Net realized and unrealized gain
on investments and foreign
currency transactions 1.63 .53
TOTAL FROM INVESTMENT OPERATIONS 1.67 .71
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.23) (.07)
Distributions from net
realized gains (.03) --
TOTAL DISTRIBUTIONS (.26) (.07)
NET ASSET VALUE, END OF PERIOD $12.05 $10.64
TOTAL RETURN(3) 15.80% 7.17%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $22,691 $18,026
Average net assets (000) $21,164 $17,728
RATIOS TO AVERAGE NET ASSETS:(2)(5)
Expenses .60% .60%
Net investment income .65% 1.64%
Portfolio turnover 1% 4%
- --------------------------------------------------------------------------------
(1) FOR THE PERIOD FROM 10-1-97 (WHEN CLASS Z SHARES WERE FIRST OFFERED)
THROUGH 9-30-98.
(2) NET OF EXPENSE SUBSIDY.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A
FULL YEAR IS NOT ANNUALIZED.
(4) FOR THE SIX MONTH PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(5) ANNUALIZED.
- --------------------------------------------------------------------------------
38 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PRUDENTIAL PACIFIC INDEX FUND
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports were unqualified.
<TABLE>
<CAPTION>
- ------------------------------------------------------
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999(4) 1998 1997(1)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.38 $9.88 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) .03 .06 .02
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions 2.46 (3.55) (0.14)
TOTAL FROM INVESTMENT OPERATIONS 2.49 (3.49) (0.12)
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.01) --
NET ASSET VALUE, END OF PERIOD $8.81 $6.38 $9.88
TOTAL RETURN(3) 37.84% (35.54)% (1.20)%
- ----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- ----------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $23,760 $16,441 $24,699
Average net assets (000) $20,323 $19,827 $24,802
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses .60%(5) .60% .60%(5)
Net investment income .80%(5) .78% 13.14%(5)
Portfolio turnover 1% 2% 0%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM 9-24-97 (WHEN CLASS Z SHARES WERE FIRST OFFERED)
THROUGH 9-30-97.
(2) NET OF EXPENSE SUBSIDY.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A
FULL YEAR IS NOT ANNUALIZED.
(4) FOR THE SIX MONTHS PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(5) ANNUALIZED.
- --------------------------------------------------------------------------------
39
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PRUDENTIAL SMALL-CAP INDEX FUND
With the exception of the information for the six months ended March 31, 1999,
the financial highlights were audited by, PricewaterhouseCoopers LLP independent
accountants, whose reports were unqualified.
- ------------------------------------------------------
CLASS Z SHARES (FISCAL PERIODS ENDED 9-30)
PER SHARE OPERATING PERFORMANCE 1999(4) 1998(1)
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $8.09 $10.00
INCOME FROM INVESTMENT OPERATIONS: .02
Net investment income(2) .04
Net realized and unrealized gain .59
(loss) on investments (1.94)
TOTAL FROM INVESTMENT OPERATIONS .61 (1.90)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.01)
Dividends from net realized gains (.19) --
TOTAL DISTRIBUTIONS (.24) (.01)
NET ASSET VALUE, END OF PERIOD 8.46 $8.09
TOTAL RETURN(3) 7.49% (18.98)%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $25,876 $20,256
Average net assets (000) $24,904 $22,676
RATIOS TO AVERAGE NET ASSETS:
Expenses .50(5) .50%
Net investment income .67(5) .48%
Portfolio turnover 12% 52%
- --------------------------------------------------------------------------------
(1) FOR THE PERIOD FROM 8-1-97 (WHEN CLASS Z SHARES WERE FIRST OFFERED)
THROUGH 9-30-97.
(2) NET OF EXPENSE SUBSIDY.
(3) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER
DISTRIBUTIONS, BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS
CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE
LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A
FULL YEAR IS NOT ANNUALIZED.
(4) FOR THE SIX MONTH PERIOD ENDED 3-31-99. THESE RESULTS ARE UNAUDITED.
(5) ANNUALIZED.
- --------------------------------------------------------------------------------
40 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For more information about these funds, contact your financial adviser or
call us at (800) 225-1852. Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCE FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
BOND FUNDS
TAXABLE BOND FUNDS
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
42 PRUDENTIAL INDEX SERIES FUND [CLIP ART] (800) 225-1852
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in a Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------------------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
HTTP://WWW.PRUDENTIAL.COM
- --------------------------------------------------------------------------------
Additional information about a Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected a Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
1(800) SEC-0330)
Via the Internet:
http://www.sec.gov
- --------------------------------------------------------------------------------
CUSIP Numbers:
Prudential Bond Market Index Fund
Class Z: 74431F-83-7
Prudential Europe Index Fund
Class Z: 74431F-81-1
Prudential Pacific Index Fund
Class Z: 74431F-82-9
Prudential Small-Cap Index Fund
Class Z: 74431F-84-5
Investment Company Act File No:
811-6677
MF177A
[RECYCLE LOGO] Printed on Recycled Paper
<PAGE>
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Additional Information
dated October , 1999
Prudential Bond Market Index Fund, Prudential Europe Index Fund,
Prudential Pacific Index Fund, Prudential Small-Cap Index Fund and Prudential
Stock Index Fund (each a Fund and collectively, the Funds) are each a series of
Prudential Index Series Fund (the Company).
The investment objective of Prudential Bond Market Index Fund is to seek
to provide investment results that correspond to the total return performance of
a broad-based index of fixed-income securities. The Prudential Bond Market Index
Fund currently uses the Lehman Brothers Aggregate Index for that purpose.
The investment objective of Prudential Europe Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of European issuers. The Prudential Europe
Index Fund currently uses the Morgan Stanley Capital International Europe Index
for that purpose.
The investment objective of Prudential Pacific Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of issuers in the Pacific region. The
Prudential Pacific Index Fund currently uses the Morgan Stanley Capital
International Pacific Index for that purpose.
The investment objective of Prudential Small-Cap Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of small cap stocks. The Prudential Small-Cap Index Fund
currently uses the Standard & Poor's 600 Small Capitalization Stock Index for
that purpose.
The investment objective of Prudential Stock Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.
There can be no assurance that a Fund's investment objective will be
achieved. See "Description of the Funds, Their Investments and Risks."
The Company's address is Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Prudential Stock Index Fund dated
October , 1999, and the Prospectus of Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund and Prudential
Small-Cap Index Fund dated October , 1999, copies of which may be obtained
from the Company upon request.
TABLE OF CONTENTS
PAGE
----
Fund History.............................................................. B-2
Description of the Funds, Their Investments and Risks..................... B-2
Investment Restrictions................................................... B-13
Management of the Company................................................. B-14
Control Persons and Principal Holders of Securities....................... B-18
Investment Advisory and Other Services.................................... B-20
Brokerage Allocation and Other Practices.................................. B-20
Capital Shares, Other Securities and Organization.........................
Purchase, Redemption and Pricing of Fund Shares........................... B-22
Shareholder Investment Account............................................ B-23
Net Asset Value........................................................... B-25
Taxes, Dividends and Distributions........................................ B-26
Performance Information................................................... B-29
Financial Statements...................................................... B-32
Report of Independent Accountants--Prudential Bond Market Index Fund...... B-
Report of Independent Accountants--Prudential Europe Index Fund........... B-
Report of Independent Accountants--Prudential Pacific Index Fund.......... B-
Report of Independent Accountants--Prudential Small-Cap Index Fund........ B-
Report of Independent Accountants--Prudential Stock Index Fund............ B-
Appendix--Description of Ratings.......................................... A-1
Appendix I--General Investment Information................................ I-1
Appendix II--Historical Performance Data.................................. II-1
Appendix III--Information Relating to Prudential.......................... III-1
MF174B
<PAGE>
FUND HISTORY
The Company changed its name from The Prudential Institutional Fund to
Prudential Dryden Fund effective October 30, 1996. In addition, Stock Index Fund
changed its name to Prudential Stock Index Fund at the same time. On February
19, 1997, the Trustees approved the addition of the following four Funds to the
Company: Prudential Bond Market Index Fund, Prudential Europe Index Fund,
Prudential Pacific Index Fund and Prudential Small-Cap Index Fund. The Company
changed its name from Prudential Dryden Fund to Prudential Index Series Fund
effective January 23, 1998.
DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS
(A) CLASSIFICATION. The Company is a diversified, open-end, management
investment company.
(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS. Each Fund has an
investment objective of providing investment results that correspond to the
performance of a specific broad-based index of securities. In seeking to track a
particular index, a fund generally uses one of two methods to select stocks or
bonds in which it invests. Prudential Stock Index Fund intends to invest at
least 80% of its total assets in securities included in its corresponding index.
In other words, it holds each stock or bond in its target index in about the
same proportions as represented in the Index itself. This is called a
"replication" method.
Other index funds may use a different security selection process. Because
it would be very expensive to buy and sell all of the securities held in certain
indexes, funds tracking these indexes use a "sampling" technique. Using
sophisticated computer programs, the funds select securities that will recreate
their target indexes in terms of industry weightings, market capitalization and
other characteristics. Each of Prudential Bond Market Index Fund, Prudential
Europe Index Fund, Prudential Pacific Index Fund and Prudential Small-Cap Index
Fund uses this method of indexing. While the principal investment policies and
strategies for seeking to achieve these objectives are described in the Funds'
prospectuses, each Fund may from time to time also use the securities,
instruments, policies and strategies described below in seeking to achieve its
objective. A Fund may not be successful in achieving its objective and you could
lose money.
The investment objective of Prudential Bond Market Index Fund is to seek
to provide investment results that correspond to the total return performance of
a broad-based index of fixed-income securities. The Prudential Bond Market Index
Fund currently uses the Lehman Brothers Aggregate Index for that purpose.
The investment objective of Prudential Europe Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of European issuers. The Prudential Europe
Index Fund currently uses the MSCI-Europe Index for that purpose.
The investment objective of Prudential Pacific Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of securities of issuers in the Pacific region. The
Prudential Pacific Index Fund currently uses the MSCI-Pacific Free Index for
that purpose.
The investment objective of Prudential Small-Cap Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
a broad-based index of small cap stocks. The Prudential Small-Cap Index Fund
currently uses the S&P 600 Index for that purpose.
The investment objective of Prudential Stock Index Fund is to seek to
provide investment results that correspond to the price and yield performance of
the S&P 500 Index.
The investment objective of Prudential Stock Index Fund is fundamental.
Each other Fund's investment objective and the investment policies (other than
their investment restrictions) of all Funds are not fundamental and so may be
changed by the Board of Trustees (Trustees) without shareholder approval.
However, shareholders would be notified prior to a material change in a Fund's
investment objective and policies. The broad-based indices used by the Funds
(except Prudential Stock Index Fund) may be changed from time to time at the
discretion of the Subadviser under the supervision of the Trustees.
The Funds are not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment.
B-2
<PAGE>
Instead, the investment adviser for the Funds, using a "passive" or indexing
investment approach, will attempt to approximate the investment performance of
the respective indices by holding a portfolio of stocks or bonds selected
through statistical procedures. The Funds are managed without regard to tax
ramifications. Each Fund pursues its objective through the investment policies
described below. While each Fund will seek to achieve its objective, the Funds
will differ with respect to the degree of risk that they involve.
PRUDENTIAL BOND MARKET INDEX FUND
Prudential Bond Market Index Fund seeks to provide investment results that
correspond to the total return performance of a broad-based index of
fixed-income securities. The Prudential Bond Market Index Fund currently uses
the Lehman Brothers Aggregate Index for that purpose. The Lehman Brothers
Aggregate Index is an unmanaged index that measures the total return (capital
change plus income) provided by a universe of fixed-income securities, weighted
by market value. The Fund is neither sponsored by nor affiliated with Lehman
Brothers Inc. See "Investment Objectives and Policies--Investment Policies
Applicable to Prudential Bond Market Index Fund" in the Statement of Additional
Information.
To achieve its investment objective, Prudential Bond Market Index Fund
will purchase securities that as a group reflect the performance of the Lehman
Brothers Aggregate Index. The Fund intends to hold a representative sample of
the securities that reflect the three major classes of fixed-income investments
in the Lehman Brothers Aggregate Index: U.S. Treasury and Government agency
securities, investment-grade corporate debt obligations and mortgage-backed
securities. The securities included in the Index must be U.S. dollar-denominated
and investment-grade, and have a fixed rate coupon, a remaining maturity or
average life of at least one year and generally have an outstanding market value
of at least $100 million. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the Lehman Brothers Aggregate Index. As of September 30, 1998,
U.S. Treasury and agency securities comprised 42% and 4%, respectively, of the
Index's total market value, corporate bonds comprised 21%, asset-backed
securities comprised 2% and mortgage-backed securities comprised 31%.
Prudential Bond Market Index Fund intends to invest at least 80% of its
total assets in the types of securities included in the Lehman Brothers
Aggregate Index in the same proportions as the Index. The Fund may invest the
balance of its assets in: (i) money market instruments; (ii) put and call
options on fixed-income securities and bond indices; and (iii) bond futures
contracts and options thereon.
If net cash outflows from Prudential Bond Market Index Fund are
anticipated, the Fund may sell securities (in proportion to their weighting in
the Lehman Brothers Aggregate Index) in amounts in excess of those needed to
satisfy the cash outflows and hold the balance of the proceeds in short-term
investments if such a transaction appears, taking into account transaction
costs, to be more efficient than selling only the amount of securities needed to
meet the cash requirements. If Prudential Bond Market Index Fund does hold
unhedged short-term investments as a result of the patterns of cash flows to and
from the Fund, such holdings may cause its performance to differ from that of
the Lehman Brothers Aggregate Index.
The Fund is not sponsored, endorsed, sold or promoted by Lehman Brothers
Inc.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities may be classified as private, governmental or
government related, depending on the issuer or guarantor. Private
mortgage-backed securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-backed securities are backed by the
full faith and credit of the United States. Government National Mortgage
Association (GNMA), the principal U.S. guarantor of such securities, is a wholly
owned corporate instrumentality of the United States within the Department of
Housing and Urban Development. Pass-through securities issued by the Federal
National Mortgage Association (FNMA) are guaranteed as to timely payment of
principal and interest by FNMA, which guarantee is not backed by the full faith
and credit of the U.S. Government. The Federal Home Loan Mortgage Corporation
(FHLMC) is a corporate instrumentality of the United States, the stock of which
is owned by the Federal Home Loan Banks. Participation certificates representing
interests in mortgages from FHLMC's national portfolio are guaranteed as to the
timely payment of interest and ultimate, but generally not timely, collection of
principal by FHLMC. The obligations of the FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by the full faith and credit of
the U.S. Government.
B-3
<PAGE>
Prudential Bond Market Index Fund expects that private and governmental
entities may create mortgage loan pools offering pass-through investments in
addition to those described above. The mortgages underlying these securities may
be alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may be
shorter than previously customary. As new types of mortgage-backed securities
are developed and offered to investors, the Fund, consistent with its investment
objective and policies, will consider making investments in those new types of
securities.
The average maturity of pass-through pools of mortgage-backed securities
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's stated maturity may be shortened by unscheduled payments on the
underlying mortgages. Factors affecting mortgage prepayments include the level
of interest rates, general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. Common practice is to assume that prepayments
will result in an average life ranging from two to ten years for pools of fixed
rate 30-year mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Fund's yield will correspondingly
decline. Thus, mortgage-backed securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Fund purchases mortgage-backed securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.
PRUDENTIAL EUROPE INDEX FUND
Prudential Europe Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of European issuers. The Prudential Europe Index Fund currently uses
the MSCI-Europe Index for that purpose. The MSCI-Europe Index is an unmanaged,
diversified, capitalization weighted index currently consisting of the equity
securities of 592 companies located in 15 developed European countries. These
countries are: Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. The Fund is neither sponsored by nor affiliated with Morgan Stanley &
Co. Incorporated. See "Investment Objectives and Policies--Investment Policies
Applicable to Prudential Europe Index Fund" in the Statement of Additional
Information.
To achieve its investment objective, Prudential Europe Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Europe Index. The Fund intends to invest in a
representative sample of the stocks included in the MSCI-Europe Index in
approximately the same proportions as they are represented in that index. In
addition, from time to time adjustments may be made in the holdings of the Fund
due to factors which may include changes in the composition of the MSCI-Europe
Index. The United Kingdom, Germany and France dominate the MSCI-Europe Index,
with 31.1%, 15.1% and 12.9%, respectively, of the market capitalization of the
Index as of September 30, 1998.
Prudential Europe Index Fund intends to invest at least 80% of its total
assets in securities included in the MSCI-Europe Index in the same proportions
as the Index. The Fund may invest the balance of its assets in: (i) money market
instruments; (ii) equity-related securities; (iii) put and call options on
securities, stock indices and foreign currencies; (iv) forward foreign currency
exchange contracts; and (v) financial futures contracts on stocks and currencies
and options thereon.
If net cash outflows from Prudential Pacific Index Fund are anticipated,
the Fund may sell stocks (in proportion to their weighting in the Morgan Stanley
Capital International Pacific Free Index (MSCI-Pacific Free Index)) in amounts
in excess of those needed to satisfy the cash outflows and hold the balance of
the proceeds in short-term investments if such a transaction appears, taking
into account transaction costs, to be more efficient than selling only the
amount of stocks needed to meet the cash requirements. If Prudential Pacific
Index Fund does hold unhedged short-term investments as a result of the patterns
of cash flows to and from the Fund, such holdings may cause its performance to
differ from that of the MSCI-Pacific Free Index.
B-4
<PAGE>
The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley &
Co. Incorporated.
PRUDENTIAL PACIFIC INDEX FUND
Prudential Pacific Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
securities of issuers in the Pacific region. The Prudential Pacific Index Fund
currently uses the MSCI-Pacific Free Index for that purpose. The MSCI-Pacific
Free Index is an unmanaged, diversified, capitalization weighted index currently
consisting of 508 equity securities listed on the stock exchanges of Australia,
Japan, Hong Kong, New Zealand and Singapore. The Fund is neither sponsored by
nor affiliated with Morgan Stanley & Co Incorporated.
To achieve its investment objective, Prudential Pacific Index Fund will
purchase the equity securities that as a group reflect the price and yield
performance of the MSCI-Pacific Free Index. The Fund intends to invest in a
representative sample of the equity securities included in the MSCI-Pacific Free
Index in approximately the same proportions as they are represented in the
MSCI-Pacific Free Index. In addition, from time to time adjustments may be made
in the holdings of the Fund due to factors which may include changes in the
composition of the MSCI-Pacific Free Index. The MSCI-Pacific Free Index is
dominated by the Japanese stock market, which represented 78% of the market
capitalization of the Index as of September 30, 1998.
Prudential Pacific Index Fund intends to invest at least 80% of its total
assets in securities included in the MSCI-Pacific Free Index in the same
proportions as the Index. The Fund may invest the balance of its assets in: (i)
money market instruments; (ii) equity-related securities; (iii) put and call
options on securities, stock indices and foreign currencies; (iv) forward
foreign currency exchange contracts; and (v) financial futures contracts on
stocks and currencies and options thereon.
If net cash outflows from Prudential Europe Index Fund are anticipated,
the Fund may sell stocks (in proportion to their weighting in the Morgan Stanley
Capital International Europe Index (MSCI-Europe Index)) in amounts in excess of
those needed to satisfy the cash outflows and hold the balance of the proceeds
in short-term investments if such a transaction appears, taking into account
transaction costs, to be more efficient than selling only the amount of stocks
needed to meet the cash requirements. If Prudential Europe Index Fund does hold
unhedged short-term investments as a result of the patterns of cash flows to and
from the Fund, such holdings may cause its performance to differ from that of
the MSCI-Europe Index.
The Fund is not sponsored, endorsed, sold or promoted by Morgan Stanley &
Co. Incorporated.
PRUDENTIAL SMALL-CAP INDEX FUND
Prudential Small-Cap Index Fund seeks to provide investment results that
correspond to the price and yield performance of a broad-based index of
small-cap stocks. The Prudential Small-Cap Index Fund currently uses the S&P 600
Index for that purpose. The S&P 600 Index is an unmanaged, market-value weighted
index (stock price times the number of shares outstanding) of 600 smaller
company U.S. common stocks that cover all industry sectors. Inclusion in the S&P
600 Index in no way implies an opinion by Standard & Poor's Corporation (S&P) as
to a stock's attractiveness as an investment. The S&P 600 Index currently
measures the performance of selected U.S. stocks with a market value of no
greater than $3.212 million (as of September 30, 1998). "S&P 600(R)," "Standard
& Poor's 600" and "600" are trademarks of McGraw-Hill, Inc. and have been
licensed for use by The Prudential Insurance Company of America (Prudential) and
its affiliates and subsidiaries. Prudential Small-Cap Index Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund.
To achieve its investment objective, Prudential Small-Cap Index Fund will
purchase equity securities that as a group reflect the price and yield
performance of the S&P 600 Index. The Fund intends to purchase a representative
sample of the 600 stocks included in the S&P 600 Index in approximately the same
proportions as they are represented in the S&P 600 Index. In addition, from time
to time adjustments may be made in the holdings of the Fund due to factors which
may include changes in the composition of the S&P 600 Index or receipt of
distributions of securities of companies spun off from S&P 600 companies.
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Prudential Small-Cap Index Fund intends to invest at least 80% of its
total assets in securities included in the S&P 600 Index in the same proportions
as the Index. The Fund may invest the balance of its assets in: (i)
equity-related securities; (ii) money market instruments, including obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities;
(iii) put and call options on securities and stock indices; and (iv) stock index
futures contracts and options thereon.
If net cash outflows from Prudential Small-Cap Index Fund are anticipated,
the Fund may sell stocks (in proportion to their weighting in the Standard &
Poor's 600 Small Capitalization Stock Index (S&P 600 Index)) in amounts in
excess of those needed to satisfy the cash outflows and hold the balance of the
proceeds in short-term investments if such a transaction appears, taking into
account transaction costs, to be more efficient than selling only the amount of
stocks needed to meet the cash requirements. If Prudential Small-Cap Index Fund
does hold unhedged short-term investments as a result of the patterns of cash
flows to and from the Fund, such holdings may cause its performance to differ
from that of the S&P 600 Index.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S
CORPORATION (S&P). S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
TO THE SHAREHOLDERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE
ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR
THE ABILITY OF THE S&P 600 INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE.
S&P'S ONLY RELATIONSHIP TO PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (THE
MANAGER) AND ITS AFFILIATES IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE
NAMES OF S&P AND OF THE S&P 600 INDEX WHICH IS DETERMINED, COMPOSED AND
CALCULATED BY S&P WITHOUT REGARD TO THE MANAGER OR THE FUND. S&P HAS NO
OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR THE SHAREHOLDERS INTO
CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P 600 INDEX. S&P IS
NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES
AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE SHARES OF
THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE
ADMINISTRATION, MARKETING OR TRADING OF THE FUND.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 600
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE MANAGER, SHAREHOLDERS, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 600 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
PRUDENTIAL STOCK INDEX FUND
Prudential Stock Index Fund seeks to provide investment results that
correspond to the price and yield performance of the S&P 500 Index. The S&P 500
Index is an unmanaged, market-weighted index of 500 stocks selected by S&P on
the basis of their market size, liquidity and industry group representation.
Inclusion in the S&P 500 Index in no way implies an opinion by S&P as to a
stock's attractiveness as an investment. The S&P 500 Index, composed of stocks
representing more than 70% of the total market value of all publicly traded U.S.
common stocks, is widely regarded as representative of the performance of the
U.S. stock market as a whole. "Standard & Poors(R)", "S&P(R)", "S&P 500(R)",
"Standard & Poor's 500", and "500" are trademarks of McGraw-Hill, Inc. and have
been licensed for use by Prudential and its affiliates and subsidiaries.
Prudential Stock Index Fund is not sponsored, endorsed, sold or promoted by S&P
and S&P makes no representation regarding the advisability of investing in the
Fund. See "Investment Objectives and Policies--Investment Policies Applicable to
Prudential Stock Index Fund" in the Statement of Additional Information
regarding certain additional disclaimers and limitations of liability on behalf
of S&P.
To achieve its investment objective, the Fund will purchase equity
securities that as a group reflect the price and yield performance of the S&P
500 Index. Prudential Stock Index Fund intends to purchase a statistically
selected
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sample of the 500 stocks included in the S&P 500 Index in approximately the same
proportions as they are represented in the S&P 500 Index. In addition, from time
to time adjustments may be made in the Fund's holdings due to factors which may
include changes in the composition of the S&P 500 Index or receipt of
distributions of securities of companies spun off from S&P 500 companies.
Prudential Stock Index Fund intends that at least 80% of its total assets
will be invested in securities included in the S&P 500 Index in the same
proportions as that of the Index. The Fund may invest the balance of its assets
in: (i) equity-related securities; (ii) obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities; (iii) put and call options
on securities and stock indices; and (iv) futures contracts on stock indices and
options thereon.
If net cash outflows from Prudential Stock Index Fund are anticipated, the
Fund may sell stocks (in proportion to their weighting in the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index)) in amounts in excess of those
needed to satisfy the cash outflows and hold the balance of the proceeds in
short-term investments if such a transaction appears, taking into account
transaction costs, to be more efficient than selling only the amount of stocks
needed to meet the cash requirements. The Fund will not increase its holdings of
cash in anticipation of any decline in the value of the S&P 500 Index or of the
stock markets generally. If Prudential Stock Index Fund does hold unhedged
short-term investments as a result of the patterns of cash flows to and from the
Fund, such holdings may cause its performance to differ from that of the S&P 500
Index.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY S&P. S&P MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE SHAREHOLDERS OF THE FUND
OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN
SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P 500
INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE. S&P'S ONLY RELATIONSHIP TO THE
MANAGER AND ITS AFFILIATES IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE
NAMES OF S&P AND OF THE S&P 500 INDEX WHICH IS DETERMINED, COMPOSED AND
CALCULATED BY S&P WITHOUT REGARD TO THE MANAGER OR THE FUND. S&P HAS NO
OBLIGATION TO TAKE THE NEEDS OF THE MANAGER OR THE SHAREHOLDERS INTO
CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P 500 INDEX. S&P IS
NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES
AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE SHARES OF
THE FUND. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE
ADMINISTRATION, MARKETING OR TRADING OF THE FUND.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE RESULTS TO BE OBTAINED BY THE MANAGER, SHAREHOLDERS, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT POLICIES APPLICABLE TO EACH FUND
The Funds are each expected to invest in over 250 stocks (or bonds for the
Prudential Bond Market Index Fund). Stocks are selected for inclusion in each
applicable Fund's portfolio based on country, market capitalization, industry
weightings and fundamental characteristics such as return variability, earnings
valuation and yield. Each Fund's portfolio is constructed to have aggregate
investment characteristics similar to those of its respective index. In order to
parallel the performance of its respective index, Prudential Europe Index Fund
and Prudential Pacific Index Fund will invest in each country in approximately
the same percentage as the country's weight in the index.
The Funds may not hold all of the issues that comprise their respective
indices because of the costs involved and the illiquidity of many of the
securities. Instead, each Fund will attempt to hold a representative sample of
the securities in its respective index, which will be selected utilizing a
statistical technique known as "portfolio optimization." Under this technique,
each stock is considered for inclusion in the portfolio based on its
contribution
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to certain country, capitalization, industry and fundamental investment
characteristics. Each applicable Fund's portfolio is constructed so that, in the
aggregate, the country, capitalization, industry and fundamental investment
characteristics resemble those of its respective index. Over time, portfolio
composition is altered (or "rebalanced") to reflect changes in the
characteristics of the indices.
Due to the use of this sampling or "portfolio optimization" technique, the
Funds' portfolios (other than the portfolio of Prudential Stock Index Fund) are
not expected to track their benchmark indices with the same degree of accuracy
as large capitalization domestic index funds. Each Fund will attempt to achieve
a correlation between its performance and that of its respective index of at
least 0.95, in each case without taking into account expenses. A correlation of
1.00 would indicate perfect correlation, which would be achieved when a Fund's
net asset value, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in its
respective index. The investment adviser will, of course, attempt to minimize
any tracking differential (I.E., the statistical measure of the difference
between the investment results of a Fund and that of its respective index).
Tracking will be monitored at least on a monthly basis. All tracking maintenance
activities will be reviewed regularly to determine whether any changes in
policies or techniques are necessary. However, in addition to potential tracking
differences, brokerage and other transaction costs, as well as other expenses,
may cause a Fund's return to be lower than the return of its respective index.
Consequently, there can be no assurance as to how closely a Fund's performance
will correspond to the performance of its respective index.
The Funds will not invest in money market instruments, futures contracts,
options or warrants as part of a temporary defensive strategy, such as reducing
a Fund's investments in common stocks to protect against potential stock market
declines. The Funds intend to remain fully invested, to the extent practicable,
in a pool of securities which will approximate the investment characteristics of
their respective indices. Options, futures contracts and options on futures
contracts are used, if at all, primarily to invest uncommitted cash balances, to
maintain liquidity to meet redemptions, to facilitate tracking, to reduce
transaction costs or to hedge a Fund's portfolio. Prudential Europe Index Fund
and Prudential Pacific Index Fund also may enter into foreign currency forward
contracts in order to maintain the same currency exposure as their respective
indices, but not as part of a defensive strategy to protect against fluctuations
in exchange rates.
In order to invest uncommitted cash balances, maintain liquidity to meet
redemptions, or for incidental return enhancement purposes, the Funds may also
(i) enter into repurchase agreements, when-issued, delayed delivery and forward
commitment transactions; and (ii) lend their portfolio securities.
EQUITY AND EQUITY-RELATED SECURITIES
EACH FUND OTHER THAN PRUDENTIAL BOND MARKET INDEX FUND INVESTS PRIMARILY
IN EQUITY SECURITIES, AND THE VALUE OF THESE FUNDS' INVESTMENTS WILL GO UP AND
DOWN WITH THE PERFORMANCE OF THE STOCKS IN THE APPLICABLE INDEX. INVESTMENT BY
PRUDENTIAL SMALL-CAP INDEX FUND IN SMALL COMPANIES INVOLVES GREATER RISK THAN IS
CUSTOMARILY ASSOCIATED WITH MORE ESTABLISHED COMPANIES. These companies often
have sales and earnings growth rates which exceed those of large companies;
however, smaller companies often have limited operating histories, product
lines, markets or financial resources, and may lack management depth. These
companies may be subject to intense competition from larger entities, and the
securities of these companies may have limited marketability and may be subject
to more abrupt or erratic movements in price than securities of larger companies
or the market averages in general.
The Funds other than Prudential Bond Market Index Fund may invest in
equity-related securities. Equity-related securities include common stocks,
preferred stocks, securities convertible or exchangeable for common stocks or
preferred stocks, equity investments in partnerships, joint ventures, other
forms of non-corporate investments, American Depositary Receipts (ADRs),
American Depositary Shares (ADSs) and warrants and rights exercisable for equity
securities. See "Investment Objectives and Policies--Investment Policies
Applicable to Each of the Funds--Convertible Securities, Warrants and Rights" in
the Statement of Additional Information.
ADRs and ADSs are U.S. dollar-denominated certificates or shares issued by
a United States bank or trust company and represent the right to receive
securities of a foreign issuer deposited in a domestic bank or foreign branch of
a U.S. bank and traded on a U.S. exchange or in an over-the-counter market.
Generally, ADRs are in registered form. There are no fees imposed on the
purchase or sale of ADRs when purchased from the issuing
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bank or trust company in the initial underwriting, although the issuing bank or
trust company may impose charges for the collection of dividends and the
conversion of ADRs into the underlying securities. Investment in ADRs has
certain advantages over direct investment in the underlying foreign securities
since: (i) ADRs are U.S. dollar-denominated investments that are registered
domestically, easily transferable, and for which market quotations are readily
available; and (ii) issuers whose securities are represented by ADRs are usually
subject to comparable auditing, accounting and financial reporting standards as
domestic issuers.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or one of its
agencies, authorities or instrumentalities in which the Funds may invest include
debt obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by an agency or instrumentality of the U.S. Government, including the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the U.S., Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks, Federal Land
Banks, FNMA, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board, Student Loan Marketing Association and Resolution Trust
Corporation. Direct obligations of the U.S. Treasury include a variety of
securities that differ in their interest rates, maturities and dates of
issuance. Because the U.S. Government is not obligated by law to provide support
to an instrumentality that it sponsors, a Fund will invest in obligations issued
by an instrumentality of the U.S. Government only if the Fund's investment
adviser determines that the instrumentality's credit risk does not render its
securities unsuitable for investment by the Fund.
CONVERTIBLE SECURITIES, WARRANTS AND RIGHTS
A convertible security is a bond, debenture, corporate note, preferred
stock or other similar security that may be converted into or exchanged for a
prescribed amount of common stock or other equity securities of the same or a
different issuer within a particular period of time at a specified price or
formula. A warrant or right entitles the holder to purchase equity securities at
a specific price for a specific period of time. Convertible securities are
senior to common stocks in a corporation's capital structure, but are usually
subordinated to similar nonconvertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation dependent upon a
market price advance in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (that is, its value as a fixed-income security)
or its "conversion value" (that is, value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the security's underlying stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
In recent years, convertibles have been developed which combine higher or
lower current income with options and other features. The Funds may invest in
these types of convertible securities.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. A
Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the resale price. In the event of a default or
bankruptcy by a seller, the Fund that has entered into the repurchase agreement
will promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to
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repurchase are less than the repurchase price, the Fund will suffer a loss. Each
Fund may participate in a joint repurchase account managed by PIFM pursuant to
an order of the Commission.
Each Fund has the authority to enter into reverse repurchase agreements,
dollar rolls and forward rolls, but no Fund plans to do so for the foreseeable
future; the Funds may enter into repurchase agreements. Each Fund may enter into
such agreements with banks and securities dealers that meet the creditworthiness
standards established by the Company's Trustees (Qualified Institutions). The
investment adviser will monitor the continued creditworthiness of Qualified
Institutions, subject to the oversight of the Company's Trustees. The resale
price of the securities purchased reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or date of
maturity of the purchased security. The Funds receive collateral equal to the
resale price, which is marked-to-market daily. These agreements permit each Fund
to keep all its assets earning interest while retaining "overnight" flexibility
to pursue investments of a longer-term nature.
The use of repurchase agreements and reverse repurchase agreements involve
certain risks. For example, if the seller of securities under a repurchase
agreement defaults on its obligation to repurchase the underlying securities, as
a result of its bankruptcy or otherwise, a Fund will seek to dispose of such
securities, which action could involve costs or delays. If the seller becomes
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, the Fund's ability to dispose of the underlying
securities may be restricted. Finally, it is possible that a Fund may not be
able to substantiate its interest in the underlying securities. To minimize this
risk, the securities underlying the agreement will be held by the Custodian at
all times in an amount at least equal to the repurchase price, including accrued
interest. If the counterparty fails to resell or repurchase the securities, a
Fund may suffer a loss to the extent proceeds from the sale of the underlying
collateral are less than the repurchase price.
FIXED-INCOME SECURITIES
Prudential Bond Market Index Fund will invest primarily in fixed-income
securities including U.S. Treasury obligations and securities issued or
guaranteed by U.S. Government agencies and instrumentalities, investment-grade
corporate debt obligations and mortgage-backed securities.
U.S. Treasury securities, including bills, notes and bonds, are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates
and the lengths of their maturities. Obligations issued or guaranteed by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government may or may not be backed by the "full faith and credit" of
the United States.
The Fund may invest in debt securities of U.S. issuers that have
securities outstanding that are rated at the time of purchase at least BBB by
Standard & Poor's Ratings Group (S&P Ratings) or Baa by Moody's Investors
Service (Moody's) or comparably rated by a similar nationally recognized
statistical rating organization (NRSRO) or, if not rated, of comparable quality
in the opinion of the investment adviser. Securities rated Baa by Moody's are
considered to be investment grade, although they have speculative
characteristics. Changes in economic or other circumstances are more likely to
lead to a weakened capacity of issuers whose securities are rated BBB or Baa to
pay interest or repay principal than is the case for issuers of higher rated
securities. See "Description of Ratings" in the Appendix.
In general, the ratings of Moody's, S&P Ratings, Duff and Phelps, Inc.
(Duff & Phelps) and other NRSROs represent the opinions of those organizations
as to the quality of debt obligations that they rate. These ratings are relative
and subjective, are not absolute standards of quality and do not evaluate the
market risk of securities. These ratings will be among the initial criteria used
for the selection of portfolio securities. Among the factors that the rating
agencies consider are the long-term ability of the issuer to pay principal and
interest and general economic trends.
Subsequent to its purchase by a Fund, an issue of debt obligations may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require the sale of the debt obligation
by the Fund, but the Fund's Subadviser will consider the event in its
determination of whether the Fund should continue to hold the obligation. In
addition, to the extent that the ratings change as a result of changes in rating
organizations or their rating systems or owing to a corporate restructuring of
Moody's, S&P Ratings, Duff &
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Phelps or another NRSRO, the Fund will attempt to use comparable ratings as
standards for its investments in accordance with its investment objectives and
policies.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price or yield to the Fund at the time of entering into the transaction. The
Funds' Custodian will segregate cash or other liquid assets having a value equal
to or greater than the Funds' purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities, the value may be more or less than the purchase price and an
increase in the percentage of a Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
To secure prices deemed advantageous at a particular time, each Fund may
purchase securities on a when-issued or delayed delivery basis, in which case
delivery of the securities occurs beyond the normal settlement period; payment
for or delivery of the securities would be made at the same time or prior to the
reciprocal delivery or payment by the other party to the transaction. A Fund
will enter into when-issued or delayed delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Fund may include securities purchased on a "when, as and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
Securities purchased on a when-issued or delayed delivery basis may expose
a Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. A Fund does not accrue income with respect to a
when-issued or delayed delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed delivery basis may involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
SECURITIES LENDING
Each Fund may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
segregated pursuant to applicable regulations. During the time portfolio
securities are on loan, the borrower will pay the Fund that has loaned its
portfolio securities an amount equivalent to any dividend or interest paid on
such securities and that Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower. As with any extension of credit, there are risks of delay in recovery
and in some cases loss of rights in the collateral should the borrower of the
securities fail financially. As a matter of fundamental policy, a Fund will not
lend more than 30% of the value of its total assets. A Fund may pay reasonable
administration and custodial fees in connection with a loan.
A Fund will enter into securities lending transactions only with Qualified
Institutions. A Fund will comply with the following conditions whenever it lends
securities: (i) the Fund must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the value of the loan is "marked
to market" on a daily basis; (iii) the Fund must be able to terminate the loan
at any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower except that, if a material event adversely
affecting the investment in the loaned securities occurs, the Fund must
terminate the loan and regain the right to vote the securities. A Fund may pay
reasonable finders', administrative and custodial fees in connection with a loan
of its securities. In these transactions, there are risks of delay in recovery
and in some cases even of loss of rights in the collateral should the borrower
of the securities fail financially.
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BORROWING
Each Fund may borrow up to 20% of the value of its total assets
(calculated when the loan is made) from banks to take advantage of investment
opportunities, for temporary, extraordinary or emergency purposes or for the
clearance of transactions. Each Fund may pledge up to 20% of its total assets to
secure these borrowings. If a Fund's asset coverage for borrowings falls below
300%, the Fund will take prompt action to reduce its borrowings. If a Fund
borrows to invest in securities, any investment gains made on the securities in
excess of interest paid on the borrowing will cause the net asset value of the
shares to rise faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Fund, the
net asset value of the Fund's shares will decrease faster than would otherwise
be the case. This is the speculative factor known as "leverage."
Each Fund may borrow from time to time, at the Subadviser's discretion, to
take advantage of investment opportunities, when yields on available investments
exceed interest rates and other expenses of related borrowing, or when, in the
Subadviser's opinion, unusual market conditions otherwise make it advantageous
for the Fund to increase its investment capacity. A Fund will only borrow when
there is an expectation that it will benefit the Fund after taking into account
considerations such as interest income and possible losses upon liquidation.
Borrowing by a Fund creates an opportunity for increased net income but, at the
same time, creates risks, including the fact that leverage may exaggerate
changes in the net asset value of Fund shares and in the yield on the Fund. A
Fund may also borrow for temporary, extraordinary or emergency purposes and for
the clearance of transactions. A Fund may borrow through forward rolls, dollar
rolls or reverse repurchase agreements, although no Fund other than Prudential
Bond Market Index Fund currently has any intention of doing so. Prudential Bond
Market Index Fund may use dollar rolls as described in its Prospectus.
DOLLAR ROLLS
Prudential Bond Market Index Fund may use dollar rolls as part of its
investment strategy. The Fund may enter into dollar rolls in which the Fund
sells securities for delivery in the current month and simultaneously contracts
to repurchase substantially similar (same type and coupon) securities on a
specified future date from the same party. During the roll period, the Fund
forgoes principal and interest paid on the securities. The Fund is compensated
by the difference between the current sales price and the forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale.
Dollar rolls involve the risk that the market value of the securities
retained by the Fund may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. Dollar rolls are
speculative techniques involving leverage and are considered borrowings by the
Fund, which are limited to 20% of the Fund's total assets. The Fund may cover
dollar rolls by segregating with its custodian cash or liquid assets equal in
value to its obligations for dollar rolls. Covered rolls (I.E., those for which
there is an offsetting cash position or a cash equivalent security position) are
not considered borrowings for the purposes of the 20% limitation.
SECURITIES OF FOREIGN ISSUERS
PRUDENTIAL EUROPE INDEX FUND AND PRUDENTIAL PACIFIC INDEX FUND WILL INVEST
PRIMARILY IN EQUITY SECURITIES OF FOREIGN COMPANIES. PRUDENTIAL STOCK INDEX FUND
MAY INVEST A PORTION OF ITS ASSETS IN EQUITY SECURITIES OF FOREIGN ISSUERS
DENOMINATED IN U.S. CURRENCY. FOREIGN SECURITIES INVOLVE CERTAIN RISKS WHICH
SHOULD BE CONSIDERED CAREFULLY BY AN INVESTOR IN THESE FUNDS. THESE RISKS
INCLUDE POLITICAL OR ECONOMIC INSTABILITY IN THE COUNTRY OF THE ISSUER, THE
DIFFICULTY OF PREDICTING INTERNATIONAL TRADE PATTERNS, THE POSSIBILITY OF
IMPOSITION OF EXCHANGE CONTROLS AND THE RISK OF CURRENCY FLUCTUATIONS. Foreign
securities may be subject to greater fluctuations in price than securities
issued by U.S. corporations or issued or guaranteed by the U.S. Government, its
instrumentalities or agencies. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries.
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IF A SECURITY IS DENOMINATED IN A FOREIGN CURRENCY, IT WILL BE AFFECTED BY
CHANGES IN CURRENCY EXCHANGE RATES AND IN EXCHANGE CONTROL REGULATIONS, AND
COSTS WILL BE INCURRED IN CONNECTION WITH CONVERSIONS BETWEEN CURRENCIES. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of a Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. In addition, although Prudential Europe Index
Fund and Prudential Pacific Index Fund will receive income in foreign
currencies, the two Funds will be required to compute and distribute their
income in U.S. dollars. Therefore, if the exchange rate for any such currency
declines after the Funds' income has been accrued and translated into U.S.
dollars, the Funds could be required to liquidate portfolio securities to make
such distributions, particularly in instances in which the amount of income the
Funds are required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time a Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. Prudential Europe
Index Fund and Prudential Pacific Index Fund may, but need not, enter into
futures contracts on foreign currencies, foreign currency forward contracts and
options on foreign currencies for hedging purposes, including, locking-in the
U.S. dollar price of the purchase or sale of securities denominated in a foreign
currency; locking-in the U.S. dollar equivalent of interest or dividends to be
paid on such securities which are held by the Fund; and protecting the U.S.
dollar value of such securities which are held by the Fund.
The Funds (other than Prudential Bond Market Index Fund) may invest a
portion of their assets in equity securities of foreign issuers denominated in
U.S. currency. ADRs and ADSs are not deemed to be foreign securities.
The value of a Fund's foreign investments may be significantly affected by
changes in currency exchange rates. The dollar value of a foreign security
generally decreases when the value of the dollar rises against the foreign
currency in which the security is denominated and tends to increase when the
value of the dollar falls against such currency. In addition, the value of the
Fund's assets may be affected by losses and other expenses incurred in
converting between various currencies in order to purchase and sell foreign
securities and by currency restrictions and exchange control regulation.
The economies of many of the countries in which a Fund may invest are not
as developed as the economy of the U.S. and may be subject to significantly
different forces. Political or social instability, expropriation or confiscatory
taxation, and limitations on the removal of funds or other assets, could also
adversely affect the value of investments.
Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, in general, there is less publicly available
information about foreign securities than is available about domestic
securities. Many foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by a Fund may be reduced by a withholding tax at the source
which would reduce dividend income payable to shareholders.
Brokerage commission rates in foreign countries are likely to be higher.
The securities markets in many of the countries in which a Fund may invest will
have substantially less trading volume than the principal U.S. markets. As a
result, the securities of some companies in these countries may be less liquid
and more volatile than comparable U.S. securities. There is generally less
government regulation and supervision of foreign stock exchanges, brokers and
issuers which may make it difficult to enforce contractual obligations.
RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED
SECURITIES. On January 1, 1999, 11 of the 15 member states of the European
Monetary Union introduced the "euro" as a common currency. During a three-year
transitional period, the euro will coexist with each participating state's
currency and, on July 1, 2002, the euro is expected to become the sole currency
of the participating states. During the transition period, the Fund will treat
the euro as a separate currency from that of any participating state.
The conversion may adversely effect a Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of
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recognizing the euro as a distinct currency at the time of, and following, euro
conversion. In addition, the conversion could cause markets to become more
volatile.
The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indexes, and other features may require the realization of a gain or loss by the
Fund as determined under existing law.
The Funds, Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable each Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. No Fund has borne any expense relating to these actions.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Funds may also engage in various portfolio strategies to reduce
certain risks of their investments and to attempt to enhance return. A Fund, and
thus its investors, may lose money through any unsuccessful use of these
strategies. These strategies currently include the use of derivatives, such as
options, futures contracts and options thereon. A Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" and "Taxes, Dividends and
Distributions" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed, and each Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.
OPTIONS TRANSACTIONS
Each Fund may purchase and write (I.E., sell) put and call options on any
security in which it may invest or options on any securities index. These
options are traded on U.S. exchanges or in the over-the-counter market to hedge
a Fund's portfolio. Prudential Europe Index Fund and Prudential Pacific Index
Fund also may purchase and write put and call options on currencies. Each Fund
may write covered put and call options to generate additional income through the
receipt of premiums and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase. Each
Fund may also purchase put and call options to offset previously written put and
call options of the same series. See "Investment Objectives and
Policies--Investment Policies Applicable to Each of the Funds--Options on
Securities and Securities Indices" in the Statement of Additional Information.
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the security, currency or
securities in the index subject to the option at a specified price (the exercise
price or strike price). The writer of a call option, in return for the premium,
has the obligation, upon exercise of the option, to deliver, depending upon the
terms of the option contract, the underlying securities or a specified amount of
cash to the purchaser upon receipt of the exercise price. When a Fund writes a
call option, it gives up the potential for gain on the underlying securities in
excess of the exercise price of the option during the period that the option is
open.
A put option gives the purchaser, in return for a premium, the right, far
a specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. A Fund might, therefore, be obligated to purchase the underlying
securities or currency for more than the current market price.
Each Fund will write only "covered" options. A written option is covered
if, as long as a Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or (ii) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, a Fund's losses
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are limited because it owns the underlying position; under the second
circumstance, in the case of a written call option, a Fund's losses are
potentially unlimited. There is no limitation on the amount of call options the
Fund may write.
Each Fund may also write a call option, which can serve as a limited short
hedge because decreases in value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.
Each Fund may purchase and sell put and call options on securities
indices. Securities index options are designed to reflect price fluctuations in
a group of securities or segment of the securities market rather than price
fluctuations in a single security. Options on securities indices are similar to
options on securities, except that the exercise of securities index options
requires cash payments and does not involve the actual purchase or sale of
securities. When purchasing or selling securities index options, each Fund is
subject to the risk that the value of its portfolio securities may not change as
much as or more than the index because the Fund's investments generally will not
match the composition of the index.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
A number of risk factors are associated with options transactions. There
is no assurance that a liquid secondary market on an options exchange will exist
for any particular option, at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written, a
Fund will not be able to sell the underlying securities or dispose of assets
segregated until the options expire or are exercised. Similarly, if a Fund is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any profit
and may incur transaction costs upon the purchase or sale of underlying
securities. The ability to terminate over-the-counter (OTC) option positions is
more limited than the ability to terminate exchange-traded option positions
because a Fund would have to negotiate directly with a counterparty. In
addition, with OTC options, there is a risk that the counterparty in such
transactions will not fulfill its obligations.
A Fund pays brokerage commissions or spreads in connection with its
options transactions, as well as for purchases and sales of underlying
securities. The writing of options could result in significant increases in a
Fund's turnover rate.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
option on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will vary
from the value of the index.
Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund as the call writer will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as a common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities
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portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
A Fund will not purchase put options or call options if, after any such
purchase, the aggregate premiums paid for such options would exceed 20% of the
Fund's net assets. The aggregate value of the obligations underlying put options
will not exceed 25% of a Fund's net assets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade to reduce
certain risks of its investments and to attempt to enhance return in accordance
with regulations of the Commodity Futures Trading Commission (CFTC). The Funds,
and thus their investors, may lose money through any unsuccessful use of these
strategies. These futures contracts and related options will be on securities
indices. A futures contract is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. A Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.
A Fund may not purchase or sell futures contracts and related options to
attempt to enhance return, if immediately thereafter the sum of the amount of
initial margin deposits on the Fund's existing futures and options on futures
and premiums paid for such related options would exceed 5% of the market value
of the Fund's total assets. A Fund may purchase and sell futures contracts and
related options, without limitation, for BONA FIDE hedging purposes in
accordance with regulations of the CFTC (I.E., to reduce certain risks of its
investments).
Futures contracts and related options are generally subject to segregation
requirements of the Commission and coverage requirements of the CFTC. If a Fund
does not hold the security underlying the futures contract, the Fund will be
required to segregate on an ongoing basis with its Custodian cash or other
liquid assets in an amount at least equal to the Fund's obligations with respect
to such futures contract.
A Fund's successful use of futures contracts and related options is
subject to various additional risks. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect and
there is a risk that the value of the indices underlying the futures contract
may increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict each Fund's ability to
purchase or sell certain futures contracts or related options on any particular
day.
A futures contract on securities or currency is an agreement to buy and
sell securities or currency at a specified price at a designated date. Futures
contracts and options thereon may be entered into for hedging purposes and for
the other purposes described in each Prospectus. A Fund may enter into futures
contracts in order to hedge against changes in interest rates, stock market
prices or currency exchange rates.
The purchase of futures or call options thereon can serve as a long hedge,
and the sale of futures or the purchase of put options thereon can serve as a
short hedge. Writing call options on futures contracts can serve as a limited
short hedge, and writing put options on futures contracts can serve as a limited
long hedge.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract, a Fund is required to deposit "initial margin,"
consisting of cash or U.S. Government securities, in an amount generally equal
to 10% or less of the contract value. Margin must also be deposited when writing
a call or put option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin does
not represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned
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to the Fund at the termination of the transaction if all contractual obligations
have been satisfied. Under certain circumstances, such as periods of high
volatility, a Fund may be required by an exchange to increase the level of its
initial margin payment.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs are all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
Each Fund intends to enter into futures and options on futures transactions only
on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES
Participation in the options or futures markets involves investment risks
and transaction costs to which a Fund would not be subject absent the use of
these strategies. A Fund, and thus its investors, may lose money through any
unsuccessful use of these strategies. Risks inherent in the use of options,
futures contracts and options on futures contracts include (1) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (2) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (3) the possible absence of a liquid secondary
market for any particular instrument at any time; (4) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; (5) the
risk that the counter party may be unable to complete the transaction and (6)
the possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
a Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate liquid assets in connection
with hedging transactions. See "Taxes, Dividends and Distributions."
Each Fund will generally purchase options and futures on an exchange only
if there appears to be a liquid secondary market for such options or futures; a
Fund will generally purchase OTC options only if the investment adviser believes
that the other party to options will continue to make a market for such options.
However, there can be no assurance that a liquid secondary market will continue
to exist or that the other party will continue to make a market. Thus, it may
not be possible to close an options or futures transaction. The inability to
close options and futures positions also could have an adverse impact on a
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by a Fund of margin deposits or collateral in the event of bankruptcy of a
broker with whom the Fund has an open position in an option, a futures contract
or related option.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to segregate cash or
securities.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or options on futures contracts
might not correlate perfectly with movements in the prices of the
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investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contract
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures market are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
FOREIGN CURRENCY FORWARD CONTRACTS, OPTIONS AND FUTURES TRANSACTIONS
Prudential Europe Index Fund's and Prudential Pacific Index Fund's
transactions in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of a forward contract with respect to specific receivables or
payables of a Fund generally arising in connection with the purchase or sale of
its securities and accruals of interest or dividends receivable and Fund
expenses. Position hedging is the sale of a foreign currency with respect to
security positions denominated or quoted in that currency. A Fund may not
position hedge with respect to a particular currency for an amount greater than
the aggregate market value (determined at the time of making any sale of a
forward contract) of securities, denominated or quoted in, or currently
convertible into, such currency. A forward contract generally has no deposit
requirements, and no commissions are charged for such trades.
A Fund may enter into a forward contract to hedge against risk in the
following circumstances: (i) during the time period when the Fund contracts for
the purchase or sale of a security denominated in a foreign currency, or (ii)
when the Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security which it holds. By entering into a forward
contract for a fixed amount of dollars for the purchase or sale of the amount of
foreign currency involved in the underlying transaction, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when the Subadviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract, for a fixed
amount of dollars, to sell the amount of foreign currency approximating the
value of some or all of the securities of the Fund denominated in such foreign
currency. Further, the Fund may enter into a forward contract in one foreign
currency, or basket of currencies, to hedge against the decline or increase in
value in another foreign currency. Use of a different currency or basket of
currencies magnifies the risk that movements in the price of the forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged.
Forward currency contracts (i) are traded in an interbank market conducted
directly between currency traders (typically commercial banks or other financial
institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. Failure
by the Fund's counterparty to make or take delivery of the underlying currency
at the maturity of the forward contract would result in the loss to the Fund of
any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would continue
to be subject to market risk with respect to the position, and would continue to
be required to maintain a position in the securities or currencies that are the
subject of the hedge or to segregate cash or other liquid assets in an amount
equal to the position. A Fund's ability to enter into foreign currency forward
contracts may be limited by certain requirements for qualification as a
regulated investment company under the Internal Revenue Code. See "Taxes,
Dividends and Distributions."
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Prudential Europe Index Fund and Prudential Pacific Index Fund may
purchase and write put and call options on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic) and OTC options
for hedging purposes in a manner similar to that in which foreign currency
forward contracts and futures contracts on foreign currencies will be employed.
Options on foreign currencies are similar to options on securities, except that
the Fund has the right to take or make delivery of a specified amount of foreign
currency, rather than securities.
Generally, the OTC foreign currency options used by these Funds are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
If the Subadviser anticipates purchasing a foreign security and also
anticipates a rise in the value of such foreign currency (thereby increasing the
cost of such security), the Fund may purchase call options or write put options
on the foreign currency. The Fund could also enter into a long forward contract
or a long futures contract on such currency, or purchase a call option, or write
a put option, on a currency futures contract. The use of such instruments could
offset, at least partially, the effects of the adverse movements of the exchange
rates.
FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS
Prudential Europe Index Fund and Prudential Pacific Index Fund may use
options on foreign currencies, futures on foreign currencies, options on futures
on foreign currencies and forward currency contracts, to hedge against movements
in the values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no futures contract, forward contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the Subadviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the contract will not correlate perfectly with movements in the
price of the currency being hedged is magnified when this strategy is used.
The value of futures contracts, options on futures contracts, forward
contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of futures contracts, forward
contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the futures contracts or options until they
reopen.
Settlement of futures contracts, forward contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
B-19
<PAGE>
COVERED FORWARD CURRENCY CONTRACTS, FUTURES CONTRACTS AND OPTIONS
Transactions using forward currency contracts, futures contracts and
options (other than options that a Fund has purchased) expose the Fund to an
obligation to another party. No Fund will enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other options, forward currency contracts or futures contracts,
or (2) liquid assets with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund will comply with the
Securities and Exchange Commission (Commission) guidelines regarding cover for
these instruments and, if the guidelines so require, segregate cash or liquid
assets with its Custodian in the prescribed amount.
Assets used as cover or segregated cannot be sold while the position in
the corresponding forward currency contract, futures contract or option is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of a Fund's assets to cover or segregation could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
SEGREGATED ASSETS
Each Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. Government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be marked-to-market daily.
ILLIQUID SECURITIES
Each of the Funds may hold up to 15% of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days, securities with legal or contractual restrictions on resale
(restricted securities) and securities that are not readily marketable in
securities markets either within or outside the United States. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading,
B-20
<PAGE>
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. (NASD).
Restricted securities eligible for resale pursuant to Rule 144A and
privately placed commercial paper for which there is a readily available market
are treated as liquid only when deemed liquid under procedures established by
the Board of Trustees. A Fund's investment in Rule 144A securities could have
the effect of increasing illiquidity to the extent that qualified institutional
Buyers become, for a limited time, uninterested in purchasing Rule 144A
securities. The Subadviser will monitor the liquidity of such restricted
securities, subject to the supervision of the Trustees. In reaching liquidity
decisions, the Subadviser will consider, among other things, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). In addition, in order for commercial
paper that is issued in reliance on Section 4(2) of the Securities Act to be
considered liquid, (a) it must be rated in one of the two highest rating
categories by at least two NRSROs, or if only one NRSRO rates the securities, by
that NRSRO, or, if unrated, be of comparable quality in the view of the
investment adviser, and (b) it must not be "traded flat" (that is, without
accrued interest) or in default as to principal or interest.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities unless a Fund and the counterparty have provided for the Fund, at the
Fund's election, to unwind the OTC option. The exercise of such an option would
ordinarily involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the securities used as "cover" as liquid. A Fund will also treat
non-U.S. Government IOs and POs as illiquid so long as the staff of the SEC
maintains its position that such securities are illiquid.
OTHER INVESTMENT TECHNIQUES
Each Fund may take advantage of opportunities in the area of options and
futures contracts and any other derivative instruments that are not presently
contemplated for use by such Fund or that are not currently available but that
may be developed, to the extent such opportunities are both consistent with its
investment objective and legally permissible for the Fund. Before entering into
such transactions or making any such investment, the Fund will provide
appropriate disclosure in its Prospectus.
TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS. When conditions
dictate a defensive strategy, or pending investment of proceeds from sales of a
Fund's shares, the Fund may invest in money market instruments, including
commercial paper of domestic or foreign corporations, certificates of deposit,
bankers' acceptances and time obligations of domestic or foreign banks, foreign
government securities and obligations issued or guaranteed by the U.S.
Government, its instrumentalities or its agencies. Investments in foreign
securities may be subject to certain risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, the seizure or nationalization of foreign deposits and foreign exchange
controls or other restrictions.
PORTFOLIO TURNOVER. As a result of the investment policies described
above, a Fund may engage in a substantial number of portfolio transactions, and
a Fund's portfolio turnover rate may exceed 100%, but no Fund's portfolio
turnover rate is expected to exceed 100% except for Prudential Bond Market Index
Fund. The portfolio turnover rate is generally the percentage computed by
dividing the lesser of portfolio purchases or sales (excluding all securities,
including options, whose maturities or expiration date at acquisition were one
year or less) by the monthly average value of the long-term portfolio. High
portfolio turnover (100% or more) involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by a Fund. In
addition, high portfolio turnover may also mean that a proportionately greater
amount of distributions to shareholders will be taxed as ordinary income rather
than long-term capital gains compared to investment companies with lower
portfolio turnover. See "Brokerage Allocation and Other Practices" and "Taxes,
Dividends and Distributions."
B-21
<PAGE>
INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the Company
as fundamental policies of the Funds, except as otherwise indicated. Under the
Investment Company Act of 1940, as amended (Investment Company Act), a
fundamental policy of a Fund may not be changed without the vote of a majority
of the outstanding voting securities of the Fund. As defined in the Investment
Company Act, a "majority of a Fund's outstanding voting securities" means the
lesser of (1) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are present in person or represented by proxy or (2)
more than 50% of the outstanding shares.
A Fund may not:
1. Purchase any security if, as a result, with respect to 75% of the
Fund's total assets, more than 5% of the value of its total assets (determined
at the time of investment) would then be invested in the securities of any one
issuer.
2. Purchase a security if more than 10% of the outstanding voting
securities of any one issuer would be held by the Fund.
3. Purchase a security if, as a result, 25% or more of the value of its
total assets (determined at the time of investment) would be invested in
securities of one or more issuers having their principal business activities in
the same industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities.
4. Purchase or sell real estate or interests therein (including limited
partnership interests), although a Fund may purchase securities of issuers which
engage in real estate operations and securities which are secured by real estate
or interests therein.
5. Purchase or sell commodities or commodity futures contracts, except
that a Fund may purchase and sell financial futures contracts and options
thereon and that forward contracts are not deemed to be commodities or commodity
futures contracts.
6. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that a Fund may invest in the
securities of companies which operate, invest in or sponsor such programs.
7. Issue senior securities, borrow money or pledge its assets, except that
each Fund may borrow from banks or through forward rolls, dollar rolls or
reverse repurchase agreements up to 20% of the value of its total assets to take
advantage of investment opportunities, for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and may pledge up to 20% of the
value of its total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a "when-issued" or delayed
delivery basis; the purchase and sale of options, financial futures contracts
and options thereon; the entry into repurchase agreements and collateral and
margin arrangements with respect to any of the foregoing, will not be deemed to
be a pledge of assets nor the issuance of senior securities.
8. Make loans except by the purchase of fixed-income securities in which a
Fund may invest consistently with its investment objective and policies or by
use of reverse repurchase and repurchase agreements, forward rolls, dollar rolls
and securities lending arrangements.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. (For the
purpose of this restriction, the deposit or payment by any Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)
11. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws. The Fund has no limit with respect to
investments in restricted securities.
B-22
<PAGE>
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of a Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Fund's asset
coverage for borrowings falls below 300%, the Fund will take prompt action to
reduce its borrowings, as required by applicable law.
MANAGEMENT OF THE FUND
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
Edward D. Beach (74) Trustee President and Director of BMC
Fund, Inc., a closed-end
investment company; formerly,
Vice Chairman of Broyhill
Furniture Industries, Inc.;
Certified Public Accountant;
Secretary and Treasurer of
Broyhill Family Foundation,
Inc.; Member of the Board of
Trustees of Mars Hill College
and Director or Trustee of 44
funds within the Prudential
Mutual Funds.
Delayne Dedrick Gold (60) Trustee Marketing and Management
Consultant and Director or
Trustee of 44 funds within
the Prudential Mutual Funds.
*Robert F. Gunia (52) Vice President Vice President (since September
and Trustee 1997) of The Prudential
Insurance Company of America
(Prudential); Executive Vice
President and Treasurer
(since December 1996) of
Prudential Investments Fund
Management LLC (PIFM); Senior
Vice President (since March
1987) of Prudential
Securities Incorporated
(Prudential Securities);
formerly Chief Administrative
Officer (July 1990-September
1996), Director (January
1989-September 1996) and
Executive Vice President,
Treasurer and Chief Financial
Officer (June 1987-September
1996) of Prudential Mutual
Fund Management, Inc.; Vice
President and Director of The
Asia Pacific Fund, Inc.
(since May 1989) and Director
or Trustee of 33 other funds
within the Prudential Mutual
Funds.
Douglas H. McCorkindale (59) Trustee Vice Chairman (since March
1984) and President (since
September 1997) of Gannett
Co. Inc. (publishing and
media); Director of Gannett
Co. Inc., Frontier
Corporation and Continental
Airlines, Inc. and Director
or Trustee of 33 other funds
within the Prudential Mutual
Funds.
Thomas T. Mooney (57) Trustee President of the Greater
Rochester Metro Chamber of
Commerce; former Rochester
City Manager; Trustee of
Center for Governmental
Research, Inc.; Director of
Blue Cross of Rochester, The
Business Council of New York
State, Monroe County Water
Authority, Rochester Jobs,
Inc., Monroe County
Industrial Development
Corporation, Northeast
Midwest Institute; President,
Director and Treasurer of
First Financial Funds, Inc.
and The High Yield Plus Fund,
Inc. and Director or Trustee
of 33 other funds within the
Prudential Mutual Funds.
Stephen P. Munn (56) Trustee Chairman (since January
1994), Director and President
(since 1988) and Chief
Executive Officer
(1988-December 1993) of
Carlisle Companies
Incorporated (manufacturer of
industrial products) and
Director or Trustee of 18
funds within the Prudential
Mutual Funds.
B-23
<PAGE>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
Richard A. Redeker (55) Trustee Formerly President, Chief
Executive Officer and
Director (October
1993-September 1996),
Prudential Mutual Fund
Management, Inc., Executive
Vice President, Director and
Member of the Operating
Committee (October
1993-September 1996),
Prudential Securities;
Director (October
1993-September 1996) of
Prudential Securities Group,
Inc., Executive Vice
President, The Prudential
Investment Corporation (PIC)
(January 1994-September
1996), Director (January
1994-September 1996) of
Prudential Mutual Fund
Distributors, Inc. and
Prudential Mutual Fund
Services, Inc.; and Senior
Executive Vice President and
Director of Kemper Financial
Services, Inc. (September
1978-September 1993) and
Director or Trustee of 30
funds within the Prudential
Mutual Funds.
Robin B. Smith (59) Trustee Chairman and Chief Executive
Officer (since August 1996)
of Publishers Clearing House;
formerly President and Chief
Executive Officer (January
1988-August 1996) and
President and Chief Operating
Officer (September
1981-December 1988) of
Publishers Clearing House;
Director of BellSouth
Corporation, Texaco Inc.,
Spring Industries Inc. and
Kmart Corporation and
Director or Trustee of 32
funds within the Prudential
Mutual Funds.
*John R. Strangfeld, Jr. (45) President and Chief Executive Officer,
Trustee Chairman, President and
Director (since January
1990), of The Prudential
Investment Corporation,
Executive Vice President
(since February 1998),
Prudential Global Asset
Management Group of
Prudential, and Chairman
(since August 1989), Pricoa
Capital Group; formerly
various positions to Chief
Executive Officer (November
1994-December 1998), Private
Asset Management Group of
Prudential and Senior Vice
President (January
1986-August 1989), Prudential
Capital Group, a unit of
Prudential; and President and
Director or Trustee of 44
funds within the Prudential
Mutual Funds.
Louis A Weil, III (58) Trustee Chairman (since January
1999), President and Chief
Executive Officer (since
January 1996) and Director
(since September 1991) of
Central Newspapers, Inc.;
Chairman of the Board (since
January 1996), Publisher and
Chief Executive Officer
(August 1991-December 1995)
of Phoenix Newspapers, Inc.;
formerly Publisher (May
1989-March 1991) of Time
Magazine; President,
Publisher & CEO (February
1986-August 1989) of The
Detroit News and member of
the Advisory Board, Chase
Manhattan Bank-Westchester
and Director or Trustee of 30
funds within the Prudential
Mutual Funds.
Clay T. Whitehead (60) Trustee President (since May 1983)
of National Exchange Inc.
(new business development
firm) and Director or Trustee
of 18 funds within the
Prudential Mutual Funds.
B-24
<PAGE>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) COMPANY DURING PAST FIVE YEARS
- ------------------------ ------------- ----------------------
Grace C. Torres (39) Treasurer and First Vice President (since
Principal December 1996) of PIFM; First
Financial and Vice President (since March
Accounting 1993) of Prudential
Officer Securities; formerly First
Vice President (March
1994-September 1996) of
Prudential Mutual Fund
Management, Inc. and Vice
President (July 1989-March
1994) of Bankers Trust
Corporation.
Stephen M. Ungerman (45) Assistant Tax Director (since March 1996)
Treasurer of Prudential Investments and
The Private Asset Group of
The Prudential Insurance
Company of America
(Prudential); formerly First
Vice President (February
1993-September 1996) of
Prudential Mutual Fund
Management, Inc.
Marguerite E.H. Morrison (43) Secretary Vice President (since December
1996) of PIFM; Vice President
and Associate General Counsel
(since September 1987) of
Prudential Securities;
formerly Vice President and
Associate General Counsel
(June 1991-September 1996) of
Prudential Mutual Fund
Management, Inc.
- ----------
(1) Unless otherwise stated, the address of the Trustees and Officers is c/o
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.
* "Interested" Trustee, as defined in the Investment Company Act, by reason
of his affiliation with Prudential, PIFM or Prudential Securities.
The Company has Trustees who, in addition to overseeing the actions of the
Funds' Manager, Subadviser and Distributor, decide upon matters of general
policy. The Trustees also review the actions of the Company's officers, who
conduct and supervise the daily business operations of the Funds.
The Trustees have adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age of
72, except that retirement is being phased in for Trustees who were age 68 or
older as of December 31, 1993. Under this phase-in provision, Mr. Beach is
scheduled to retire on December 31, 1999.
Pursuant to the terms of each Management Agreement with the Funds, the
Manager pays all compensation of officers and employees of the Funds as well as
the fees and expenses of all Trustees of the Funds who are affiliated persons of
the Manager. The Company currently pays each of its Trustees who is not an
affiliated person of The Manager or the investment adviser annual compensation
of $4,000 in addition to certain out-of-pocket expenses. The amount of annual
compensation paid to each Trustee may change as a result of the introduction of
additional funds on whose boards the Trustee may be asked to serve.
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Company. Under the terms of the agreement, the Company
accrues daily the amount of such Trustees' fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to Commission exemptive
order, at the daily rate of return of the Company. Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Trustee. The Company's obligation to make payments of deferred Trustees' fees,
together with interest thereon, is a general obligation of the Company.
The interested Trustees serve without compensation. The following table
sets forth the aggregate compensation paid by the Company to the Trustees who
were not affiliated with the Manager for the fiscal year ended September 30,
1998 and the aggregate compensation paid to such Trustees for service on the
Company's Board and that of all other funds managed by Prudential Investments
Fund Management LLC (Fund Complex) for the year ended December 31, 1998.
B-25
<PAGE>
COMPENSATION TABLE
TOTAL 1998
COMPENSATION
FROM COMPANY
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME AND POSITION FROM COMPANY TO TRUSTEES
- ----------------- ------------ -----------
Edward D. Beach--Trustee $3,750 $135,000(44/71)*
Delayne D. Gold--Trustee $3,750 135,000(44/71)*
Robert F. Gunia--Trustee+ -- None
Douglas H. McCorkindale--Trustee++ $3,750 70,000(20/35)*
Thomas T. Mooney--Trustee++ $3,750 115,000(31/64)*
Stephen P. Munn--Trustee $3,750 45,000(15/21)*
Richard A. Redeker--Trustee+ -- None
Robin B. Smith--Trustee++ $3,750 90,000(27/34)*
John R. Strangfeld, Jr.--Trustee+ -- --
Louis A. Weil, III--Trustee $3,750 90,000(26/50)*
Clay T. Whitehead--Trustee $3,750 45,000(15/21)*
- ----------
* Indicates number of Funds/portfolios in Fund Complex (including the
Company) to which aggregate compensation relates.
+ Interested Trustees do not receive compensation from the Company or any
fund in the Fund Complex. Mr. Redeker is no longer an interested Trustee.
++ Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to $71,145,
$119,740 and $116,225 for Messrs. McCorkindale and Mooney and Ms. Smith,
respectively.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Trustees of the Company are eligible to purchase Class Z shares of the
Fund, which are sold without either an initial sales charge or contingent
deferred sales charge to a limited group of investors. As of July 23, 1999,
the Trustees and officers of the Company, as a group, owned less than 1% of the
outstanding share of any Fund.
As of July 23, 1999, beneficial owners, directly or indirectly, of more
than 5% of any class of shares of a Fund were:
NUMBER OF SHARES
NAME ADDRESS CLASS % OF CLASS
- ---- ------- ----- ----------
As of July 23, 1999, Prudential Securities was the record holder for the
beneficial owners of 817,501 shares of Prudential Bond Market Index Fund
(approximately 20% of outstanding shares of such Fund); 292,217 shares of
Prudential Europe Index Fund (approximately 16% of outstanding shares of such
Fund); 140,038 shares of Prudential Pacific Index Fund (approximately 5% of
outstanding shares of such Fund); 981,831 shares of Prudential Small-Cap Index
Fund (approximately 32% of outstanding shares of such Fund), 3,726,080 Class Z
shares of Prudential Stock Index Fund (approximately 20% of outstanding shares
of such Class) and 140,038 Class I shares of Prudential Stock Index Fund
(approximately .4% of outstanding shares of such Class). In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy material to the beneficial owners for which it is the
record holder.
B-26
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(A) MANAGER AND INVESTMENT ADVISER. The manager of each Fund is Prudential
Investments Fund Management LLC (formerly Prudential Mutual Fund Management LLC)
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077. PIFM serves as manager to all of the other investment
companies that, together with the Funds, comprise the Prudential Mutual Funds.
See "How the Funds are Managed--Manager" in the Prospectus. As of April 30,
1999, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately billion. According to the
Investment Company Institute, as of December 31, 1998, the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities and The Prudential Insurance
Company of America (Prudential). Prudential Mutual Fund Services LLC (PMFS or
the Transfer Agent), a wholly owned subsidiary of PIFM, serves as the transfer
agent for the Prudential Mutual Funds and, in addition, provides customer
service, recordkeeping and management and administration services to qualified
plans.
Pursuant to two Management Agreements with the Company (each a Management
Agreement and collectively, the Management Agreements), PIFM, subject to the
supervision of the Company's Board of Trustees and in conformity with the stated
policies of each Fund, manages both the investment operations of each Fund and
the composition of each Fund's portfolio, including the purchase, retention,
disposition and loan of securities. In connection therewith, PIFM is obligated
to keep certain books and records of the Company. PIFM also administers the
Company's business affairs and, in connection therewith, furnishes the Company
with office facilities, together with those ordinary clerical and bookkeeping
services which are not being furnished by State Street Bank and Trust Company,
the Funds' custodian (the Custodian), and PMFS, the Funds' transfer and dividend
disbursing agent. The management services of PIFM for the Funds are not
exclusive under the terms of the Management Agreements and PIFM is free to, and
does, render management services to others.
For its services, PIFM receives, pursuant to the Management Agreements, a
fee at an annual rate of .25 of 1% of Prudential Bond Market Index Fund's
average daily net assets, .40 of 1% of Prudential Europe Index Fund's average
daily net assets, .40 of 1% of Prudential Pacific Index Fund's average daily net
assets, .30 of 1% of Prudential Small-Cap Index Fund's average daily net assets
and .30 of 1% of Prudential Stock Index Fund's average daily net assets. The fee
is computed daily and payable monthly. Each Management Agreement also provides
that, in the event the expenses of a Fund (including the fees of PIFM, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to PIFM will be
reduced by the amount of such excess. No jurisdiction currently limits the
Funds' expenses.
In connection with its management of the business affairs of the Company,
the Manager bears the following expenses:
(a) the salaries and expenses of all of its and the Company's personnel
except the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Funds' Subadviser;
(b) all expenses incurred by the Manager or by the Company in connection
with managing the ordinary course of the Company's business, other than those
assumed by the Company as described below; and
(c) the costs and expenses or fees payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI, the investment
adviser or the Subadviser), pursuant to two subadvisory agreements between the
Manager and the Subadviser (collectively, the Subadvisory Agreements).
Under the terms of the Management Agreements, the Company is responsible
for the payment of the following expenses: (i) the fees payable to the Manager,
(ii) the fees and expenses of Trustees who are not affiliated persons of the
Manager or the Funds' Subadviser, (iii) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Company, pricing the Funds' shares and the cashiering function, (iv) the charges
and expenses of legal counsel and independent accountants for the Company, (v)
brokerage commissions and any issue or transfer
B-27
<PAGE>
taxes chargeable to the Company in connection with its securities and futures
transactions, (vi) all taxes and corporate fees payable by the Company to
governmental agencies, (vii) the fees of any trade associations of which the
Company may be a member, (viii) the cost of stock certificates representing
shares of Funds of the Company, if any, (ix) the cost of fidelity and liability
insurance, (x) the fees and expenses involved in registering and maintaining
registration of the Company and of its shares with the Commission, including the
preparation and printing of the Company's registration statements and
prospectuses for such purposes, and paying the fees and expenses of notice
filings made in accordance with state securities laws, (xi) licensing fees, if
any, (xii) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders and (xiii)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Company's business.
The Management Agreements provide that PIFM will not be liable for any
error of judgment or for any loss suffered by the Company in connection with the
matters to which the Management Agreements relate, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
Each Management Agreement provides that it will terminate automatically if
assigned and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. Each Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.
Prudential Institutional Fund Management, Inc., the manager of Prudential
Stock Index Fund until October 30, 1996, received for the period from September
30, 1996 through October 30, 1996, and for the fiscal year ended September 30,
1996, the following management fees from the Fund, expressed both as a dollar
amount and as a percentage of the Fund's average daily net assets: $64,568
(.40%), $570,160 (.40%), respectively. For the period from October 30, 1996
through September 30, 1997, PIFM received the following management fee,
expressed as both a dollar amount and as an annualized percentage of the Fund's
average daily net assets: $921,557 (.30%). During this period the Manager
subsidized certain expenses of the Fund.
For the fiscal period ended September 30, 1997, PIFM received management
fees of $1,630 from Prudential Pacific Index Fund.
For the fiscal period ended September 30, 1998, PIFM received management
fees of $83,862 from Prudential Bond Market Index Fund, $70,719 from Prudential
Europe Index Fund, $79,309 from Prudential Pacific Index Fund, $67,841 from
Prudential Small-Cap Index Fund, and $2,457,979 from Prudential Stock Index
Fund.
The Manager has entered into two Subadvisory Agreements with the
Subadviser. The Subadvisory Agreements provide that the Subadviser furnish
investment advisory services in connection with the management of the Funds. The
Subadviser is reimbursed by the Manager for the reasonable costs and expenses
incurred in furnishing its services. In connection therewith, the Subadviser
subject to the supervision of PIFM is obligated to keep certain books and
records of the Funds. The Subadviser determines what securities and other
instruments are purchased and sold for the Funds and is responsible for
obtaining and evaluating financial data relevant to the Funds. PIFM continues to
have responsibility for all investment advisory services to all the Funds
pursuant to the Management Agreements and supervises the Subadviser's
performance of such services.
Each Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreements. Each Subadvisory Agreement may be
terminated by the Company, the Manager or the Subadviser upon not more than 60
days', nor less than 30 days', written notice. Each Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act.
(B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLANS. Prudential
Investment Management Services LLC (the Distributor), Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077, acts as the distributor of the
Class Z shares of Prudential Bond Market Index Fund, Prudential Europe Index
Fund, Prudential Pacific Index Fund and Prudential Small-Cap Index Fund, and the
Class Z and Class I shares of Prudential Stock
B-28
<PAGE>
Index Fund. Effective October , 1999, PIMS also acts as the distributor of the
Class A, Class B and Class C shares of Prudential Stock Index Fund. PIMS is a
subsidiary of Prudential.
The Distributor of the Funds incurs the expenses of distributing the Class
Z and Class I shares under a Distribution Agreement with the Company, none of
which are reimbursed by or paid for by the Funds.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by
Prudential Stock Index Fund under Rule 12b-1 under the Investment Company Act,
the Distributor incurs the expenses of distributing the Fund's Class A, Class B
and Class C shares.
The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of, brokers or financial institutions
which have entered into agreements with the Distributor, advertising expenses,
the cost of printing and mailing prospectuses to potential investors and
indirect and overhead costs of the Distributor associated with the sale of
Prudential Stock Index Fund shares, including lease, utility, communications and
sales promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
The distribution and/or service fees may also be used by the Distributor
to compensate on a continuing basis brokers in consideration for the
distribution, marketing, administrative and other services and activities
provided by brokers with respect to the promotion of the sale of Prudential
Stock Index Fund's shares and the maintenance of related shareholder accounts.
CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related expenses with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
The Class A Plan provides that (1) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (2) total distribution
fees (including the service fee of .25 of 1%) may not exceed .30 of 1% of the
average daily net assets of the Class A shares. The Distributor has
contractually agreed to limit its distribution-related fees payable under the
Class A Plan of .25 of 1% of the average daily net assets of the Class A shares
for the fiscal year ending September 30, 2000.
CLASS B PLAN AND CLASS C PLANS. Under the Class B and Class C Plans,
Prudential Stock Index Fund pays the Distributor for its distribution-related
expenses with respect to Class B and Class C shares at an annual rate of 1% of
the average daily net assets of each of the Class B and Class C shares. The
Class B and Class C Plans provide for the payment to the Distributor of (1) an
asset-based sales charge of .75 of 1% of the average daily net assets of each of
the Class B and Class C shares, respectively, and (2) a service fee of .25% of
1% of the average daily net assets of each of Class B and Class C shares. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. The Distributor also receives contingent deferred sales
charges from certain redeeming shareholders and, with respect to Class C shares,
an initial sales charge.
Distribution expenses attributable to the sale of Class A, Class B or
Class C shares of Prudential Stock Index Fund will be allocated to each such
class based upon the ratio of sales of each such class to the sales of Class A,
Class B and Class C shares of the Fund other than expenses allocable to a
particular class. The distribution fee and sales charge of one class will not be
used to subsidize the sale of another class.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Trustees, including a majority of the Trustees who are not
interested persons of the Company and who have no direct or indirect financial
interest in the Class A, Class B and Class C Plan or in any agreement related to
the Plans (the Rule 12b-1 Trustees), cast in person at a meeting called for the
purpose of voting on such continuance. A Plan may be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Trustees or by the
vote of the holders of a majority of the outstanding shares of the applicable
class of the Fund on not more than 60 days', nor less than 30 days', written
notice to any other party to the Plan.
B-29
<PAGE>
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Trustees in the manner described
above. Each Plan will automatically terminate in the event of its assignment.
The Fund will not be contractually obligated to pay expenses incurred under any
Plan if it is terminated or not continued.
Pursuant to each Plan, the Trustees will review at least quarterly a
written report of the distribution expenses incurred on behalf of each class of
shares of Prudential Stock Index Fund by the Distributor. The report includes an
itemization of the distribution expenses and the purposes of such expenditures.
In addition, as long as the Plans remain in effect, the selection and nomination
of the Rule 12b-1 Trustees shall be committed to the Rule 12b-1 Trustees.
Pursuant to the Distribution Agreement, the Company has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the federal securities laws.
In addition to distribution and service fees paid by Prudential Stock
Index Fund under the Class A, Class B and Class C Plans, the Manager (or one of
its affiliates) may make payments to dealers (including Prudential Securities)
and other persons who distribute shares of the Fund (including Class Z shares).
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
FEE WAIVERS/SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee
and subsidize all or a portion of the operating expenses of a Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class A shares as described above. Fee waivers and subsidies will
increase a Fund's total return.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not included in the calculation of the 6.25%
limitation. The annual asset-based sales charge of a Fund may not exceed .75 of
1% per class. The 6.25% limitation applies to each class of a Fund rather than
on a per shareholder basis. If aggregate sales charges were to exceed 6.25% of
total gross sales of any class, all sales charges on shares of that class would
be suspended.
(C) OTHER SERVICE PROVIDERS. State Street Bank and Trust Company, One
Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the
portfolio securities of each Fund and cash and in that capacity maintains
certain financial and accounting books and records pursuant to an agreement with
the Company. Subcustodians provide custodial services for the Fund's foreign
assets held outside the United States.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the
Company. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to each Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, payment of dividends and distributions and related
functions. For these services, PMFS receives an annual fee per shareholder
account of $10.00, a new account set-up fee for each manually established
account of $2.00 and a monthly inactive zero balance account fee per shareholder
account of $.20. PMFS is also reimbursed for its out-of-pocket expenses,
including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, serves as the Company's independent accountants, and in that
capacity audits the annual financial statements of each Fund.
B-30
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities and
options on securities and futures for a Fund, the selection of brokers, dealers
and futures commission merchants to effect the transactions and the negotiation
of brokerage commissions, if any. The term "Manager" as used in this section
includes the Subadviser. Broker-dealers may receive brokerage commissions on
portfolio transactions, including options and the purchase and sale of
underlying securities upon the exercise of options. On foreign securities
exchanges, commissions may be fixed. Orders may be directed to any broker or
futures commission merchant including, to the extent and in the manner permitted
by applicable law, Prudential Securities and its affiliates. Brokerage
commissions on United States securities, options and futures exchanges or boards
of trade are subject to negotiation between the Manager and the broker or
futures commission merchant.
In the over-the-counter markets, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and U.S. Government agency securities may be purchased
directly from the issuer, in which case no commissions or discounts are paid. A
Fund will not deal with Prudential Securities in any transaction in which
Prudential Securities (or any affiliate) acts as principal, except in accordance
with rules of the Commission. Thus, it will not deal in the over-the-counter
market with Prudential Securities acting as market maker, and it will not
execute a negotiated trade with Prudential Securities if execution involves
Prudential Securities acting as principal with respect to any part of a Fund's
order.
In placing orders for portfolio securities of a Fund, the Manager's
overriding objective is to obtain the possible combination of favorable price
and efficient execution. The Manager seeks to effect each transaction at a price
and commission that provides the most favorable total cost or proceeds
reasonably attainable in the circumstances. The factors that the Manager may
consider in selecting a particular broker, dealer or futures commission merchant
(firms) are the Manager's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio
transaction; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular transaction;
confidentiality; the execution, clearance and settlement capabilities of the
firms; the availability of research and research related services provided
through such firms; the Manager's knowledge of the financial stability of the
firms; the Manager's knowledge of actual or apparent operational problems of
firms; and the amount of capital, if any, that would be contributed by firms
executing the transaction. Given these factors, a Fund may pay transaction costs
in excess of that which another firm might have charged for effecting the same
transaction.
When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research products and/or services, such as
research reports, research compilations, statistical and economic data, computer
data bases, quotation equipment and services, research oriented computer
software, hardware and services, reports concerning the performance of accounts,
valuations of securities, investment related periodicals, investment seminars
and other economic services and consultants. Such services are used in
connection with some or all of the Manager's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with a Fund.
The Manager maintains an internal allocation procedure to identity those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to a Fund and its other clients. The Manager
makes a good faith determination that the research and/or service is reasonable
in light of the type of service provided and the price and execution of the
related portfolio transactions.
When the Manager deems the purchase or sale of equities to be in the best
interests of a Fund or its other clients, including Prudential, the Manager may,
but is under no obligation to, aggregate the transactions in order to obtain the
most favorable price or lower brokerage commissions and efficient execution. In
such event, allocation
B-31
<PAGE>
of the transactions, as well as the expenses incurred in the transaction, will
be made by the Manager in the manner it considers to be most equitable and
consistent with its fiduciary obligations to its clients.
The allocation of orders among firms and the commission rates paid are
reviewed periodically by the Company's Trustees. Portfolio securities may not be
purchased from any underwriting or selling syndicate of which Prudential
Securities or any affiliate during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Company, will not significantly affect a Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, a Fund may
be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Funds. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for a Fund, the commissions, fees or other remuneration received by Prudential
Securities (or any affiliate) must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other firms or futures
commission merchants in connection with comparable transactions involving
similar securities or futures contracts being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated firm or
futures commission merchant in a commensurate arm's-length transaction.
Furthermore, the Trustees of the Company, including a majority of the
non-interested Trustees, have adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to Prudential
Securities (or any affiliate) are consistent with the foregoing standard. In
accordance with Section 11(a) of the Securities Exchange Act of 1934, as
amended, Prudential Securities may not retain compensation for effecting
transactions on a national securities exchange for a Fund unless the Fund has
expressly authorized the retention of such compensation. Prudential Securities
must furnish to the Company at least annually a statement setting forth the
total amount of all compensation retained by Prudential Securities from
transactions effected for the Funds during the applicable period. Brokerage and
futures transactions with Prudential Securities (or any affiliate) also are
subject to such fiduciary standards as may be imposed upon Prudential Securities
(or such affiliate) by applicable law.
During the years ended September 30, 1998, 1997 and 1996, the Company paid
no brokerage commissions to Prudential Securities.
Each Fund is required to disclose its holdings of securities of its
regular brokers and dealers (as defined under Rule 10b-1 of the Investment
Company Act) and their parents at March 31, 1999. As of March 31, 1999, the
Funds held securities of in the aggregate amount of .
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Company is authorized to issue an unlimited number of shares of
beneficial interest, $.001 par value per share, divided into five series. Each
Fund offers one class of shares, except Prudential Stock Index Fund, which
offers five classes, designated Class A, Class B, Class C, Class I and Class Z
shares. Each class of shares represents an interest in the same assets of
Prudential Stock Index Fund and is identical in all respects except that (1)
each class is subject to different sales charges and distribution and/or service
fees (except for Class Z shares, which are not subject to any sales charges and
distribution and/or service fees), which may affect performance, (2) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege, (4) only
Class B shares have a conversion feature, (5) Class A, Class I and Class Z
shares are offered exclusively for sale to a limited group of investors and (6)
Class I shares are subject to nominal transfer agency fees and are held in a
single omnibus account. In accordance with the Company's Declaration of Trust,
the Trustees may authorize the creation of additional series and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. The voting rights of the
shareholders of a series or class can be modified only by the vote of
shareholders of that series or class.
Shares of the Company, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Company under certain circumstances. Each
B-32
<PAGE>
share of each class is equal as to earnings, assets and voting privileges,
except as noted above, and each class of shares (with the exception of Class Z
shares, which are not subject to any distribution or service fees) bears the
expenses related to the distribution of shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of each Fund
is entitled to its portion of all of the Fund's assets after all debt and
expenses of the Fund have been paid. Since Class B and Class C shares generally
bear higher distribution expenses than Class A shares, the liquidation proceeds
to shareholders of those classes are likely to be lower than to Class A
shareholders and Class I and Class Z shareholders, whose shares are not subject
to any distribution and/or service fees.
The Company does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Company will not be required to hold meetings of
shareholders unless, for example, the election of Trustees is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon the vote of 10% of
the Company's outstanding shares for the purpose of voting on the removal of one
or more Trustees or to transact any other business.
Under the Declaration of Trust, the Trustees may authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives
and policies and share purchase, redemption and net asset value procedures) with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. All consideration received by the Company for shares of
any additional series, and all assets in which such consideration is invested,
would belong to that series (subject only to the rights of creditors of that
series) and would be subject to the liabilities related thereto. Under the
Investment Company Act, shareholders of any additional series of shares would
normally have to approve the adoption of any advisory contract relating to such
series and of any changes in the investment policies related thereto.
The Trustees have the power to alter the number and the terms of office of
the Trustees, provided that always at least a majority of the Trustees have been
elected by the shareholders of the Fund. The voting rights of shareholders are
not cumulative, so that holders of more than 50 percent of the shares voting
can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
PURCHASE REDEMPTION AND PRICING OF FUND SHARES
Shares of Prudential Stock Index Fund may be purchased at a price equal to
the next determined net asset value (NAV) plus a sales charge which, at the
election of the investor, may be imposed either (1) at the time of purchase
(Class C shares) or (2) on a deferred basis (Class B or Class C shares). Class
A, Class I and Class Z shares of the Fund are offered to a limited group of
investors at NAV without any sales charges.
PURCHASE BY WIRE
For an initial purchase of shares of a Fund by wire, you must complete an
application and telephone PMFS to receive an account number at (800) 225-1825
(toll-free). The following information will be requested: your name, address,
tax identification number, class election (Prudential Stock Index Fund only),
dividend distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to State
Street Bank and Trust Company (State Street), Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Index Series Fund,
specifying on the wire the account number assigned by PMFS and your name and
identifying the Fund and, if an investment in Prudential Stock Index Fund, the
class in which you are eligible to invest (Class A, Class B, Class C or Class Z
shares).
If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 P.M., New York Time) on a business day, you may
purchase shares of a Fund as of that day.
In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential Index
Series Fund, Class A, Class B, Class C or Class Z shares (Prudential Stock Index
Fund only) and your name and individual account number. It is not necessary to
call PMFS to make subsequent purchase orders utilizing Federal Funds. The
minimum amount which may be invested by wire is $1,000.
B-33
<PAGE>
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (i) reorganizations, (ii) statutory mergers, or
(iii) other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the applicable Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market and (d) are approved by the Fund's investment adviser.
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Company and the
Distributor, Class Z, Class A*, Class B* and Class I shares are sold at NAV and
Class C* shares are sold with a 1% sales charge. Using the NAV of each Fund at
March 31, 1999, the maximum offering price of each Fund's shares is as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL
BOND MARKET EUROPE PRUDENTIAL PACIFIC SMALL-CAP PRUDENTIAL STOCK
INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS Z
Net asset value, redemption price
and offering price per Class Z share $10.31 $12.05 $ 8.70 $ 8.46 $28.91
====== ====== ====== ====== ======
CLASS I
Net asset value, redemption price
and offering price per Class I share N/A N/A N/A N/A $28.92
======
</TABLE>
- ----------
* Class B and Class C shares of Prudential Stock Index Fund are subject to a
contingent deferred sales charge on certain redemptions. Class A, B and C
shares of Prudential Stock Index Fund were not available on March 31,
1999.
SELECTING A PURCHASE ALTERNATIVE (PRUDENTIAL STOCK INDEX FUND ONLY)
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to Prudential Stock Index Fund:
If you qualify for Class I shares, it is more advantageous to purchase
them than any other class of shares. If you qualify to purchase Class Z shares,
it is more advantageous to purchase them than Class A, Class B or Class C
shares. If you qualify for Class A shares, it is more advantageous for you to
purchase Class A shares over either Class B or Class C shares regardless of how
long you intend to hold your investment.
CLASS A SHARES
BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares at NAV, if they meet the required minimum for amount of assets,
average account balance or number of eligible employees. For more information
about these requirements, call Prudential at (800) 353-2847.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV,
through the Distributor or the Transfer Agent, by:
o officers of the Prudential Mutual Funds (including the Company),
o employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who
maintain an "employee related" account at Prudential Securities or
the Transfer Agent,
o employees of subadvisers of the Prudential Mutual Funds provided
that purchases at NAV are permitted by such person's employer,
o Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries,
o registered representatives and employees of brokers who have entered
into a selected dealer agreement with the Distributor provided that
purchases at NAV are permitted by such person's employer,
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o investors who have a business relationship with a financial adviser
who joined Prudential Securities from another investment firm,
provided that (1) the purchase is made within 180 days of the
commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (2) the
purchase is made with proceeds of a redemption of shares of any
open-end non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or
service fee of .25 of 1% of less) and (3) the financial adviser
served as the client's broker on the previous purchase,
o investors in Individual Retirement Accounts, provided the purchase
is made in a directed rollover to such Individual Retirement Account
or with the proceeds of a tax-free rollover of assets from a Benefit
Plan for which Prudential provides administrative or recordkeeping
services and further provided that such purchase is made within 60
days of receipt of the Benefit Plan distribution,
o orders placed by broker-dealers, investment advisers or financial
planners who have entered into an agreement with the Distributor,
who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for
their services (for example, mutual fund "wrap" or asset allocation
programs), and
o orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the
accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and the broker-dealer,
investment adviser or financial planner charges the clients a
separate fee for its services (for example, mutual fund "supermarket
programs").
Class A shares also may be purchased at NAV by members of the Board of
Directors of Prudential.
Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in Prudential Stock Index Fund in connection with different pricing
options for their programs. Investors should consider carefully any separate
transaction and other fees charged by these programs in connection with
investing in each available share class before selecting a share class.
For an investor to purchase Class A shares at NAV, at the time of the sale
either the Transfer Agent must be notified directly by the Investor or the
Distributor must be notified by the broker facilitating the transaction that the
sale qualifies. The sale will be effected subject to confirmation of your
entitlement.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Although there is no sales charge imposed at the time of purchase,
redemptions of Class B shares may be subject to a CDSC. See "Sale of
Shares--Contingent Deferred Sales Charge" below.
The Distributor will pay, from its own resources, sales commissions of up
to 4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of Prudential Stock Index Fund to sell the Class B shares without an
initial sales charge being deducted at the time of purchase. The Distributor
anticipates that it will recoup its advancement of sales commissions from the
combination of the CDSC and the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at (800)
353-2847.
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INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account at Prudential Securities; (2) investors purchasing shares
through an ADVANTAGE Account or an Investor Account with Prusec; and (3)
investors purchasing shares through other brokers. This waiver is not available
to investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through your broker if you are entitled to
this waiver and provide the Transfer Agent with such supporting documents as it
may deem appropriate.
CLASS Z SHARES
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares
of Prudential Stock Index Fund if they meet the required minimum for amount of
assets, average account balance or number of eligible employees. For more
information about these requirements, call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and Prudential Stock
Index Fund as an available option. Class Z shares also can be purchased by
investors in certain programs sponsored by broker-dealers, investment advisers
and financial planners who have agreements with Prudential Investments Advisory
Group relating to:
o Mutual fund "wrap" or asset allocation programs where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services.
o Mutual fund "supermarket" programs where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also are available for purchase
by the following categories of investors:
o certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option
o current and former Director/Trustees of the Prudential mutual funds
(including the Company)
o Prudential with an investment of $10 million or more
In connection with the sale of Class Z shares, the Manager, the
Distributor or one of their affiliates may pay brokers, financial advisers and
other persons which distribute shares a finder's fee, from its own resources,
based on a percentage of the net asset value of shares sold by such persons.
SALE OF SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for that day (that is,
4:15 P.M., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.
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If you hold shares of a Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.
If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates, signed in the name(s) shown on the face
of the certificates, must be received by the Transfer Agent, the Distributor or
your broker in order for the redemption request to be processed. If redemption
is requested by a corporation, partnership, trust or fiduciary, written evidence
of authority acceptable to the Transfer Agent must be submitted before such
request will be accepted. All correspondence and documents concerning
redemptions should be sent to the Fund in care of its Transfer Agent, Prudential
Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010, the Distributor or to your broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed
$100,000, (2) are to be paid to a person other than the record owner, (3) are to
be sent to an address other than the address on the Transfer Agent's records, or
(4) are to be paid to a corporation, partnership, trust or fiduciary, and your
shares are held directly with the Transfer Agent, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a PruArray Plan, if the proceeds of the
redemption are invested in another investment option of the plan in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker, payment for shares presented for redemption will
be credited to your account at your broker, unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (1) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (2) when trading on such Exchange is restricted, (3) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) during any other period
when the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of a Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets in cash. Each Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.
[INVOLUNTARY REDEMPTION. In order to reduce expenses of the Company, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.]
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of Prudential Stock Index Fund
at the NAV next determined after the order is received, which must be within 90
days after the date of the redemption. Any CDSC paid in connection with such
redemption will be credited (in shares) to your account. (If less than a full
repurchase is made, the credit will be on a PRO RATA basis.) You must notify the
Transfer Agent, either directly or through the Distributor or your broker, at
the time the repurchase privilege is exercised to adjust your account for the
CDSC you previously paid. Thereafter, any redemptions will be subject to the
CDSC applicable
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<PAGE>
at the time of the redemption. See "Contingent Deferred Sales Charge" below.
Exercise of the repurchase privilege will generally not affect federal tax
treatment of any gain realized upon redemption. However, if the redemption was
made within a 30 day period of the repurchase and if the redemption resulted in
a loss, some or all of the loss, depending on the amount reinvested, may not be
allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 5% to zero over a six-year period. Class C
shares redeemed within 18 months of purchase will be subject to a 1% of CDSC.
The CDSC will be deducted from the redemption proceeds and reduce the amount
paid to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower than
the amount of all payments by you for shares during the preceding six years, in
the case of Class B shares, and 18 months, in the case of Class C shares. A CDSC
will be applied on the lesser of the original purchase price or the current
value of the shares being redeemed. Increases in the value of your shares or
shares acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.
The following table sets forth the rates of the CDSC applicable to
redemption of Class B shares:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------ -------------------
First ......................................... 5.0%
Second......................................... 4.0%
Third.......................................... 3.0%
Fourth......................................... 2.0%
Fifth.......................................... 1.0%
Sixth.......................................... 1.0%
Seventh........................................ None
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
payments for the purchase of Class B shares made during the preceding six years
and 18 months for Class C shares; then of amounts representing the cost of
shares held beyond the applicable CDSC period; and finally, of amounts
representing the cost of shares held for the longest period of time within the
applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for
a cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decide to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain, or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person,
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<PAGE>
either individually or in joint tenancy (with rights of survivorship), at the
time of death or initial determination of disability, provided that the shares
were purchased prior to death or disability.
The CDSC also will be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. For more information, call Prudential at (800) 353-2847.
Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential Mutual Funds, The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account or units of The
Stable Value Fund.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on
certain redemptions from a Systematic Withdrawal Plan. On an annual basis, up to
12% of the total dollar amount subject to the CDSC may be redeemed without
charge. The Transfer Agent will calculate the total amount available for this
waiver annually on the anniversary date of your purchase. The CDSC will be
waived (or reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Trustees of the Company.
You must notify the Company's Transfer Agent either directly or through
your broker at the time of redemption, that you are entitled to waiver of the
CDSC and provide the Transfer Agent with such supporting documentation as it may
deem appropriate. The waiver will be granted subject to confirmation of your
entitlement. In connection with these waivers, the Transfer Agent will require
you to submit the supporting documentation set forth below.
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
- ------------------ ----------------------
Death A copy of the shareholder's death
certificate or, in the case of a trust, a
copy of the grantor's death certificate,
plus a copy of the trust agreement
identifying the grantor.
Disability--An individual will be A copy of the Social Security
considered disabled if he or she is Administration award letter or a letter
unable to engage in any substantial from a physician on the physician's
gainful activity by reason of any letterhead stating that the shareholder
medically determinable physical or (or, in the case of a trust, the grantor)
mental impairment which can be is permanently disabled. The letter must
expected to result in death or to be also indicate the date of disability.
of long-continued and indefinite
duration.
Distribution from an IRA or 403(b) A copy of the distribution form from the
Custodial Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that
the shareholder is over age 59 and is
taking a normal distribution--signed by
the shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the
reason for the distribution.
Excess Contributions A letter from the shareholder (for an
IRA) or the plan administrator/trustee on
company letterhead indicating the amount
of the excess and whether or not taxes
have been paid.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
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<PAGE>
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since Prudential Stock Index Fund tracks amounts paid rather than the
number of shares bought on each purchase of Class B shares, the number of Class
B shares eligible to convert to Class A shares (excluding shares acquired
through the automatic reinvestment of dividends and other distributions) (the
Eligible Shares) will be determined on each conversion date in accordance with
the following formula: (1) the ratio of (a) the amounts paid for Class B shares
purchased at least seven years prior to the conversion date to (b) the total
amount paid for all Class B shares purchased and then held in your account (2)
multiplied by the total number of Class B shares purchased and then held in your
account. Each time any Eligible Shares in your account convert to Class A
shares, all shares or amounts representing Class B shares then in your account
that were acquired through the automatic reinvestment of dividends and other
distributions will convert to Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for at total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (that is, $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C, Class I and
Class Z shares will not constitute "preferential dividends" under the Internal
Revenue Code and (2) that the conversion of shares does not constitute a taxable
event. The conversion of Class B shares into Class A shares may be suspended if
such opinions or rulings are no longer available. If conversions are suspended,
Class B shares of Prudential Stock Index Fund will continue to be subject,
possibly indefinitely, to their higher annual distribution and service fee.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. Each Fund makes available to its
shareholders the following privileges and plans.
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<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable Fund.
An investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the broker. Any
shareholder who receives a cash payment representing a dividend or distribution
may reinvest such dividend or distribution at NAV by returning the check or the
proceeds to the Transfer Agent within 30 days after the payment date. Such
investment will be made at the NAV per share next determined after receipt of
the check or proceeds by the Transfer Agent.
EXCHANGE PRIVILEGE
The Company makes available to its shareholders the privilege of
exchanging their shares of a Fund for shares of certain other Prudential Mutual
Funds, including one or more specified money market funds, subject in each case
to the minimum investment requirements of such funds. Shares of such other
Prudential Mutual Funds may also be exchanged for shares of a Fund. All
exchanges are made on the basis of the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a redemption
and purchase for tax purposes. For retirement and group plans having a limited
menu of Prudential Mutual Funds, the exchange privilege is available for those
funds eligible for investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.
If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds, if the investor is eligible to purchase Class Z shares
of other Prudential Mutual Funds or, if not eligible, the investor may exchange
Class Z shares for Class A shares of other Prudential Mutual Funds.
CLASS I. Class I shares of Prudential Stock Index Fund may be exchanged
for Class Z shares of other Prudential Mutual Funds.
CLASS A. Shareholders of Prudential Stock Index Fund may exchange their
Class A shares for Class A shares of certain other Prudential Mutual Funds,
shares of Prudential Government Securities Trust (Short-Intermediate Term
Series) and shares of the money market funds specified below. No fee or sales
load will be imposed upon the exchange. Shareholders of money market funds who
acquired such shares upon exchange of Class A shares may use the exchange
privilege only to acquire Class A shares of the Prudential Mutual Funds
participating in the exchange privilege.
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The following money market funds participate in the Class A exchange
privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of Prudential Stock Index Fund may
exchange their Class B shares and Class C shares of the Fund for Class B and
Class C shares of certain other Prudential Mutual Funds and shares of Prudential
Special Money Market Fund, Inc., a money market fund. No CDSC will be payable
upon such exchange, but a CDSC may be payable upon the redemption of the Class B
and Class C shares acquired as a result of an exchange. The applicable sales
charge will be that imposed by the fund in which shares were initially purchased
and the purchase date will be deemed to be the first day of the month after the
initial purchase, rather than the date of the exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund without subjecting such shares to any CDSC. Shares of any
fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares or Class Z shares. Under
this exchange privilege, amounts representing any Class B and Class C shares
which are not subject to a CDSC held in such a shareholder's account will be
automatically exchanged for Class A shares for shareholders who qualify to
purchase Class A shares on a quarterly basis, unless the shareholder elects
otherwise.
Shareholders who qualify to purchase Class Z shares will have their Class
B and Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC including the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the NAV above the total
amount of payments for the purchase of Class B or Class C
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shares and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker that they are eligible for this special exchange privilege.
Participants in any fee-based program for which Prudential Stock Index
Fund is an available option will have their Class A shares, if any, exchanged
for Class Z shares when they elect to have those assets become a part of the
fee-based program. Upon leaving the program (whether voluntarily or not), such
Class Z shares (and, to the extent provided for in the program, Class Z shares
acquired through participation in the program) will be exchanged for Class A
shares at NAV. Similarly, participants in Prudential Securities' 401(k) Plan for
which the Fund's Class Z shares is an available option and who wish to transfer
their Class Z shares out of the Prudential Securities 401(k) Plan following
separation from service (that is, voluntary or involuntary termination of
employment or retirement) will have their Class Z shares exchanged for Class A
shares at NAV.
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Company's Transfer Agent,
the Distributor or your broker. The exchange privilege may be modified,
terminated or suspended on 60 days' notice and any fund, including the Funds, or
the Distributor has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
The following chart shows how much you would need in monthly investments
to achieve specified lump sums to finance your investment goals.(2)
PERIOD OF MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
------------------------------ -------- -------- -------- --------
25 Years....................... $ 105 $ 158 $ 210 $ 263
20 Years....................... 170 255 340 424
15 Years....................... 289 433 578 722
10 Years....................... 547 820 1,093 1,366
5 Years....................... 1,361 2,041 2,721 3,402
- ----------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition,
fees, room and board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of a Fund.
The investment return and principal value of an investment will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
See "Automatic Investment Plan."
AUTOMATIC INVESTMENT PLAN (AIP)
Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of a Fund monthly by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of a Fund. The investor's
bank must be a member of the Automatic Clearing House System. Stock certificates
are not issued to AIP participants.
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Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Distributor, your broker or the Transfer Agent. Such withdrawal plan provides
for monthly or quarterly checks in any amount, except as provided below, up to
the value of the shares in the shareholder's account. Withdrawals of Class B or
Class C shares may be subject to a CDSC.
In the case of shares held through the Transfer Agent (1) a $10,000
minimum account value applies, (2) withdrawals may not be for less than $100 and
(3) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at NAV on
shares held under this plan. See "Shareholder Investment Account--Automatic
Reinvestment of Dividends and Distributions."
The Distributor, Transfer Agent or your broker acts as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or
income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the CDSC applicable to the redemption of Class B and
Class C shares of Prudential Stock index Fund. Each shareholder should consult
his or her own tax adviser with regard to the tax consequences of the plan,
particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, and the administration, custodial fees and other details are
available from the Distributor or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, an 8% rate of return and a 39.6% federal income tax bracket
and shows how much more retirement income can accumulate within an IRA as
opposed to a taxable individual savings account.
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TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
---------- ------- ---
10 years.................................. $ 26,165 $ 31,291
15 years.................................. 44,676 58,649
20 years.................................. 68,109 98,846
25 years.................................. 97,780 157,909
30 years.................................. 135,346 244,692
- ----------
(1) The chart is for illustrative purposes only and does not represent the
performance of a Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in a traditional IRA account will be subject to tax when
withdrawn from the account. Distributions from a Roth IRA which meet the
conditions required under the Internal Revenue Code will not be subject to
tax upon withdrawal from the account.
MUTUAL FUND PROGRAMS
From time to time, the Company (or a Fund of the Company) may be included
in a mutual fund program with other Prudential Mutual Funds. Under such a
program, a group of portfolios will be selected and thereafter marketed
collectively. Typically, these programs are created with an investment theme,
such as to seek greater diversification, protection from interest rate movements
or access to different management styles. In the event such a program is
instituted, there may be a minimum investment requirement for the program as a
whole. A Fund may waive or reduce the minimum initial investment requirements in
connection with such a program.
The mutual funds in the program may be purchased individually or as a part
of a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, investors should consult their financial
advisor concerning the appropriate blend of portfolios for them. If investors
elect to purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
Each Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of shares outstanding. NAV is calculated separately for each class of
Prudential Stock Index Fund. Each Fund will compute its NAV at 4:15 P.M., New
York Time, one each day the New York Stock Exchange is open for trading except
on days on which no orders to purchase, sell or redeem Fund shares have been
received or days on which changes in the value of the Fund's portfolio
securities do not affect NAV. In the event the New York Stock Exchange closes
early on any business day, the NAV of each Fund's shares shall be determined at
a time between such closing and 4:15 P.M., New York Time. The New York Stock
Exchange is closed on the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the Trustees, the value of investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sales
price on such exchange system on the day of valuation, or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, or at
the bid price on such day in the absence of an asked price. Corporate bonds
(other than convertible debt securities) and U.S. Government securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent or principal market maker which uses
information with respect to transactions in bonds, quotations from bond dealers,
agency ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary
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<PAGE>
market is believed by the Manager in consultation with the Subadviser to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers. Options on stock and stock indexes
traded on an exchange are valued at the mean between the most recently quoted
bid and asked prices on the respective exchange and futures contracts and
options thereon are valued at their last sales prices as of the close of trading
on the applicable commodities 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 mean between the most recently quoted bid and asked prices on such exchange
or board of trade. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer and forward currency exchange contracts are valued at
the current cost of covering or offsetting such contracts. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Trustees.
Securities or other assets for which reliable market quotations are not
readily available, or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation of methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Trustees), does not represent fair value, are valued by the Valuation
Committee or Board of Trustees in consultation with the Manager or the
Subadviser, including its portfolio manager, traders, and its research and
credit analysis, on the basis of the following factors: cost of the security,
transactions in comparable securities, relationships among various securities
and such other factors as may be determined by the Manager, Subadviser, Board of
Trustees or Valuation Committee to materially affect the value of the security.
Short-term debt securities are valued at cost, with interest accrued or discount
amortized to the date of maturity, if their original maturity was 60 days or
less, unless this is determined by the Trustees not to represent fair value.
Short-term securities with remaining maturities of more than 60 days, for which
market quotations are readily available, are valued at their current market
quotations as supplied by an independent pricing agent or principal market
maker.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at the current rate obtained from a recognized bank or
dealer. If such quotations are not available, the rate of exchange will be
determined in good faith by or under procedures established by the Trustees of
the Company.
Trading in securities on European and Pacific securities exchanges and OTC
markets is normally completed well before the close of business on each business
day in New York (I.E., a day on which the NYSE is open for trading). In
addition, European or Pacific securities trading generally or in a particular
country or countries may not take place on all business days in New York.
Furthermore, trading takes place in various foreign markets on days which are
not business days in New York and on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in a Fund's calculation of net asset
values unless, pursuant to procedures adopted by the Trustees, the Subadviser
deems that the particular event would materially affect net asset value, in
which case an adjustment will be made.
The proceeds received by each Fund for each issue or sale of its shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Fund and constitute the underlying assets of that Fund. The underlying
assets of each Fund will be segregated on the books of account, and will be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities of the Company. Expenses with respect to any two or more
Funds are to be allocated in proportion to the net asset values of the
respective Funds except where allocations of direct expenses can otherwise be
fairly made.
Although the legal rights of each class of shares of Prudential Stock
Index Fund are substantially identical, the different expenses borne by each
class will result in different NAVs. The NAV of Class B and Class C shares will
generally be lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class I and Class Z shares will generally be higher than the NAV of
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<PAGE>
Class A, Class B or Class C shares as a result of the fact that Class I and
Class Z shares are not subject to any distribution or service fee. It is
expected, however, that the NAV per share of each class will tend to converge
immediately after the recording of dividends, if any, which will differ by
approximately the amount of the distribution and/or service fee expense accrual
differential among the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income tax
on income and capital gains which are distributed to shareholders, and permits
net capital gains of the Fund (that is, the excess of net long-term capital
gains over net short-term capital losses) to be treated as long-term capital
gains of the shareholders, regardless of how long shareholders have held their
shares in the Fund. Net capital gains of a Fund which are available for
distribution to shareholders will be computed by taking into account any capital
loss carryforward of the Fund.
Qualification of a Fund as a regulated investment company requires, among
other things, that (a) the Fund derive at least 90% of its annual gross income,
without reduction for losses from the sale or other disposition of securities or
foreign currencies, from payments with respect to securities loans, Interest,
dividends and gains from the sale or other disposition of securities or options
thereon or foreign currencies, or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of Investing in such securities or currencies; (b) the Fund diversify
Its holdings so that, at the end of each quarter of the taxable year, (1) at
least 50% of the value of the Fund's assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the value of the assets of the Fund and 10%
of the outstanding voting securities of such issuer, and (2) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities); and (c) the Fund distribute to its
shareholders at least 90% of its net investment income and net short-term gains
(that is, the excess of net short-term capital gains over net long-term capital
losses) in each year.
Gains or losses on sales of securities by a Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds an offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. If securities are purchased by the Fund pursuant to the
exercise of a put option written by it, the Fund will subtract the premium
received from its cost basis in the securities purchased. Certain transactions
of the Fund may be subject to wash sale, short sale, constructive sale, straddle
and anti-conversion provisions of the Internal Revenue Code which may, among
other things, require the Fund to defer recognition of losses. In addition, debt
securities acquired by the Fund may be subject to original issue discount and
market discount rules which, respectively, may cause the Fund to accrue income
in advance of the receipt of cash with respect to interest or cause gains to be
treated as ordinary income.
Special rules will apply to most options on stock indexes, futures
contracts and options thereon, and foreign currency forward contracts in which a
Fund may invest. These investments will generally constitute "Section 1256
contracts" and will be required to be "marked to market" for federal income tax
purposes at the end of the Fund's taxable year; that is, treated as having been
sold at market value. Except with respect to certain forward foreign currency
exchange contracts, 60 percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
Forward currency contracts, options and futures contracts entered into by
a Fund may create "straddles" for federal income tax purposes. Positions which
are part of a straddle will be subject to certain wash sale, short sale and
constructive sale provisions of the Internal Revenue Code. In the case of a
straddle, the Fund may be required
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<PAGE>
to defer the recognition of losses on positions it holds to the extent of any
unrecognized gain on offsetting positions held by the Fund
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to under
the internal Revenue Code as "Section 988" gains or losses, increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
Shareholders electing to receive dividends and distributions in the form
of additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the NAV of a share of the relevant Fund on the
reinvestment date.
Each Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. Each Fund
also is required to distribute during the calendar year 98% of the capital gain
net income it earned during the twelve months ending on October 31 of such
calendar year. In addition, each Fund must distribute during the calendar year
any undistributed ordinary income and undistributed capital gain net income from
the prior year or the twelve month period ending on October 31 of such prior
year, respectively. To the extent it does not meet these distribution
requirements, a Fund will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which a Fund
pays income tax is treated as distributed.
Any dividends or distributions paid shortly after a purchase by an
investor may have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of a Fund, the investor should carefully consider the impact of dividends
or capital gains distributions which are expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of a Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares and sells or otherwise disposes of such
shares within 90 days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain or
loss realized upon a sale or exchange of shares of the Fund.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known. Foreign shareholders
are advised to consult their own tax advisers with respect to the particular tax
consequences of an investment in a Fund.
A Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or on any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
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The Fund may make a "mark-to-market" election with respect to any marketable
stock it holds of a PFIC. If the election is in effect, at the end of the Fund's
taxable year, the Fund will recognize the amount of gains, if any, as ordinary
income with respect to PFIC stock. No loss will be recognized on PFIC stock,
except to the extent of gains recognized in prior years. Alternatively, the
Fund, if it meets certain requirements, may elect to treat any PFIC in which it
invests as a "qualified electing fund," in which case, in lieu of the foregoing
tax and interest obligation, the Fund will be required to include in income each
year its PRO RATA share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above. Dividends and distributions also may be subject to
state and local taxes.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN
A Fund may from time to time advertise its average annual total return.
Average annual total return is determined separately for each class.
A Fund's "average annual total return" is computed according to a formula
prescribed by the SEC, expressed as follows:
P(1+T)^n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value (ERV) at the end of a 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year period.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return for the Class Z shares of Prudential Stock
Index Fund for the one year and five years ended March 31, 1999 and from
commencement of operations (November 5, 1992) through March 31, 1999 was 18.23%,
25.65% and 21.26%, respectively. The average annual total return for Class I
shares of Prudential Stock Index Fund from the commencement of operations
(August 1, 1997) through March 31, 1999 and the year ended March 31, 1999 was
21.54% and 18.24%, respectively. The average annual total return for the Class Z
shares of Prudential Pacific Index Fund from commencement of operations
(September 24, 1997) through March 31, 1999 and for the one year ended March 31,
1999 was 7.48% and 9.87%, respectively. The average annual total return from
the commencement of operations (October 1, 1997) through March 31, 1999 for
Prudential Bond Market Index Fund, Prudential Europe Index Fund and Prudential
Small-Cap Index Fund was 7.03%, 15.54% and (9.70%), respectively, and for the
year ended March 31, 1999 was 6.35%, 4.95% and (18.55%), respectively.
AGGREGATE TOTAL RETURN
A Fund may also advertise its aggregate total return. Aggregate total
return is determined separately for each class.
A Fund's aggregate total return represents the cumulative change in the
value of an investment in the Fund for the specified period and is computed by
the following formula:
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ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value (ERV) at the end of a 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year period
assuming reinvestment of all dividends and distributions and the
effect of the maximum annual fee for participation in the Company.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities. The aggregate total return for the one year
ended March 31, 1999 and the period from commencement of operations (September
24, 1997) through March 31, 1999 for Class Z shares of Prudential Pacific Index
Fund was 9.87% and (11.11%), respectively. The aggregate total returns for the
one year, five years and since inception periods ended March 31, 1999 for
Prudential Stock Index Fund's Class Z shares were 18.25%, 213.14% and 243.24%,
respectively. The aggregate total return for Class I shares of Prudential Stock
Index Fund for the one year ended March 31, 1999 and the period from
commencement of operations (August 1, 1997) through March 31, 1999 was 18.24%,
and 38.29%, respectively. The aggregate total return since inception (October 1,
1997) through March 31, 1999 for Prudential Bond Market Index Fund, Prudential
Europe Index Fund and Prudential Small-Cap Index Fund was 10.69%, 24.11% and
(12.91%), respectively, and for the one year period ended March 31, 1999 was
(6.35%), 4.95% and (18.58%), respectively.
From time to time, the performance of a Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)
EDGAR REPRESENTATION OF CHART
PERFORMANCE COMPARISON OF
DIFFERENT TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/25 - 12/31/98)
Common Stocks 11.2%
Long-Term Govt. Bonds 5.3%
Inflation 3.1%
- ----------
(1) Source: Ibbotson Associates. All rights reserved. Common stock returns are
based on the Standard & Poor's 500 Stock Index, a market-weighted, unmanaged
index of 500 common stocks in a variety of industry sectors. It is a commonly
used indicator of broad stock price movements. This chart is for illustrative
purposes only and is not intended to represent the performance of any particular
investment or fund. Investors cannot invest directly in an index. Past
performance is not a guarantee of future results.
B-50
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-51
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-52
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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 dollar rolls.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-53
<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. B-54
<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. B-55
<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.
- --------------------------------------------------------------------------------
B-56
<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 $28,705,632 and $10,569,626,
respectively, which includes purchases and sales of U.S. government obligations
of $16,880,613 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).
- --------------------------------------------------------------------------------
B-57
<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
At September 30, 1998, 3,091,847 shares were owned by The
Prudential.
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-58
<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. B-59
<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
- --------------------------------------------------------------------------------
B-60
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-61
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-62
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-63
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-64
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-65
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-66
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-67
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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
------------
<CAPTION>
Principal
Amount
- ------------------------------------------------------------
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.
<TABLE>
<S> <C>
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:
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. B-68
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities 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. B-69
<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. B-70
<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
- --------------------------------------------------------------------------------
B-71
<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
- --------------------------------------------------------------------------------
B-72
<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
- --------------------------------------------------------------------------------
B-73
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
agreement in the joint account and the value of the collateral therefore was as
follows: 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.
- --------------------------------------------------------------------------------
B-74
<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. B-75
<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
B-76
<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. B-77
<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. B-78
<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. B-79
<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. B-80
<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. B-81
<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. B-82
<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>
<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. B-83
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
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. B-84
<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. B-85
<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.
- --------------------------------------------------------------------------------
B-86
<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).
- --------------------------------------------------------------------------------
B-87
<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
</TABLE>
- ---------------
* Commencement of investment operations.
As of September 30, 1998, 2,530,305 of the outstanding shares were owned by The
Prudential.
- --------------------------------------------------------------------------------
B-88
<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. B-89
<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
B-90
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-91
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-92
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-93
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-94
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-95
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-96
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-97
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-98
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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. B-99
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of 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
Principal
Amount
(000) Description Value (Note 1)
- ------------------------------------------------------------
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. B-100
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
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. B-101
<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. B-102
<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
- --------------------------------------------------------------------------------
B-103
<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).
- --------------------------------------------------------------------------------
B-104
<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.
- --------------------------------------------------------------------------------
B-105
<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. B-106
<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
B-107
<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. B-108
<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. B-109
<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. B-110
<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. B-111
<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. B-112
<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. B-113
<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>
- ------------------------------------------------------------
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. B-114
<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. B-115
<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. B-116
<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. B-117
<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. B-118
<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.
- --------------------------------------------------------------------------------
B-119
<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.
- --------------------------------------------------------------------------------
B-120
<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.
- --------------------------------------------------------------------------------
B-121
<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. B-122
<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
- --------------------------------------------------------------------------------
B-123
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.0%
COMMON STOCKS
- ------------------------------------------------------------
Aerospace/Defense--1.3%
4,325 Aeroquip-Vickers, Inc. $ 247,877
82,824 Allied Signal, Inc. 4,073,905
147,484 Boeing Co. 5,032,891
19,506 General Dynamics Corp. 1,253,261
59,056 Lockheed Martin Corp. 2,225,673
9,920 Northrop Grumman Corp. 593,960
48,744 Raytheon Co. 2,857,617
29,563 Rockwell International Corp. 1,254,580
32,860 United Technologies Corp. 4,450,476
--------------
21,990,240
- ------------------------------------------------------------
Airlines--0.3%
27,649 AMR Corp.(a) 1,619,195
20,984 Delta Airlines, Inc. 1,458,388
50,922 Southwest Airlines Co. 1,540,390
12,521 USAir Group, Inc.(a) 611,181
--------------
5,229,154
- ------------------------------------------------------------
Aluminum--0.2%
33,529 Alcan Aluminum Ltd. 865,468
56,632 Alcoa Inc. 2,332,530
8,836 Reynolds Metals Co. 426,889
--------------
3,624,887
- ------------------------------------------------------------
Automobiles & Trucks--1.3%
6,579 Cummins Engine Co., Inc. 233,966
23,340 Dana Corp. 886,920
181,289 Ford Motor Co. 10,288,151
98,378 General Motors Corp. 8,546,589
29,599 Genuine Parts Co. 852,821
12,876 Johnson Controls, Inc. 803,140
8,760 Navistar International Corp.(a) 352,042
--------------
21,963,629
Banking--6.8%
17,600 AmSouth Bancorporation $ 800,800
109,286 Associates First Capital Corp. 4,917,870
115,836 Bank of New York Co., Inc. 4,162,856
175,716 Bank One Corp. 9,675,362
257,967 BankAmerica Corp. 18,218,920
44,528 BankBoston Corp. 1,928,619
13,477 Bankers Trust Corp. 1,189,345
10,289 Capital One Financial 1,553,639
126,784 Chase Manhattan Corp. 10,309,124
23,561 Comerica, Inc. 1,471,090
39,064 Fifth Third Bancorp 2,575,783
146,949 First Union Corp. 7,852,587
34,800 Firstar Corporation Wisconsin 3,114,600
84,944 Fleet Financial Group, Inc. 3,196,018
8,464 Golden West Financial Corp. 808,312
29,710 Huntington Bancshares, Inc. 919,153
26,790 J.P. Morgan & Co., Inc. 3,305,216
69,035 KeyCorp 2,092,624
38,373 Mellon Bank Corp. 2,700,500
25,086 Mercantile Bancorporation, Inc. 1,191,585
49,649 National City Corp. 3,295,452
16,881 Northern Trust Corp. 1,499,244
44,736 PNC Bank Corp. 2,485,644
20,901 Providian Financial Corp. 2,299,110
15,629 Republic New York Corp. 720,888
22,700 SouthTrust Corp. 846,994
24,631 State Street Corp. 2,024,360
25,677 Summit Bancorp 1,001,403
47,283 Suntrust Banks, Inc. 2,943,367
109,558 U.S. Bancorp 3,731,819
20,900 Union Planters Corp. 918,294
246,340 Wells Fargo & Co. 8,637,296
--------------
112,387,874
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-124
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Beverages--2.6%
4,847 Adolph Coors Co. $ 261,738
72,527 Anheuser Busch Companies, Inc. 5,525,651
10,238 Brown-Forman Corp. 589,965
367,732 Coca-Cola Co. 22,569,551
58,700 Coca-Cola Enterprises, Inc. 1,775,675
219,181 PepsiCo, Inc. 8,589,155
59,121 Seagram Co., Ltd. 2,956,050
--------------
42,267,785
- ------------------------------------------------------------
Chemicals--1.3%
37,032 Air Products & Chemicals, Inc. 1,268,346
33,294 Dow Chemical Co. 3,102,585
169,015 E.I. du Pont de Nemours & Co. 9,813,433
11,693 Eastman Chemical Co. 491,837
4,273 FMC Corp.(a) 210,979
17,731 Hercules, Inc. 447,708
92,230 Monsanto Co. 4,236,815
9,098 Nalco Chemical Co. 241,666
25,245 Rohm & Haas Co. 847,285
13,516 Sigma-Aldrich Corp. 395,343
19,753 Union Carbide Corp. 892,589
--------------
21,948,586
- ------------------------------------------------------------
Chemical-Specialty--0.2%
21,704 Engelhard Corp. 367,611
8,890 Great Lakes Chemical Corp. 326,708
19,865 Morton International, Inc. 730,039
22,679 Praxair, Inc. 817,861
10,164 Raychem Corp. 229,325
8,344 W.R. Grace & Co. 101,171
--------------
2,572,715
- ------------------------------------------------------------
Commercial Services--0.0%
12,019 Deluxe Corp. 350,054
10,134 Moore Corp. Ltd. 100,073
--------------
450,127
Computer Software & Services--10.8%
55,762 3Com Corp.(a) $ 1,299,952
11,505 Adobe Systems, Inc. 652,909
152,300 America Online, Inc.(a) 22,235,800
9,005 Autodesk, Inc. 364,140
94,378 Automatic Data Processing, Inc. 3,904,890
31,100 BMC Software, Inc.(a) 1,152,644
23,185 Cabletron Systems, Inc.(a) 189,827
19,790 Ceridian Corp.(a) 723,572
235,886 Cisco Systems, Inc.(a) 25,844,260
79,458 Computer Associates International,
Inc. 2,825,725
22,951 Computer Sciences Corp.(a) 1,266,608
54,000 Compuware Corp.(a) 1,289,250
379,940 Dell Computer Corp.(a) 15,530,047
75,504 EMC Corp.(a) 9,645,636
65,432 First Data Corp. 2,797,218
23,446 Gateway 2000 Inc.(a) 1,607,516
13,710 KLA Instruments Corp.(a) 665,792
36,308 Micron Technology, Inc. 1,751,861
752,306 Microsoft Corp.(a) 67,425,425
54,302 Novell, Inc.(a) 1,367,732
215,160 Oracle Corp.(a) 5,674,845
39,679 Parametric Technology Co.(a) 783,660
33,500 Peoplesoft Inc.(a) 489,937
36,965 Seagate Technology, Inc.(a) 1,092,778
27,546 Silicon Graphics, Inc.(a) 459,674
57,812 Sun Microsystems, Inc.(a) 7,222,887
--------------
178,264,585
- ------------------------------------------------------------
Construction--0.1%
13,537 Fluor Corp. 365,499
11,714 Foster Wheeler Corp. 142,032
5,791 Kaufman & Broad Home Corp. 130,660
5,743 Pulte Corp. 119,526
--------------
757,717
- ------------------------------------------------------------
Containers--0.1%
3,758 Ball Corp. 176,391
6,905 Bemis Co., Inc. 214,487
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-125
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Containers (cont'd.)
20,176 Crown Cork & Seal Co., Inc.(a) $ 576,277
22,126 Owens-Illinois, Inc.(a) 553,150
--------------
1,520,305
- ------------------------------------------------------------
Cosmetics & Soaps--2.3%
6,657 Alberto-Culver Co. 155,607
40,072 Avon Products, Inc. 1,885,888
18,366 Clorox Co. 2,152,266
43,065 Colgate-Palmolive Co. 3,961,980
165,039 Gillette Co. 9,809,506
15,275 International Flavors & Fragrances,
Inc. 573,767
199,519 Procter & Gamble Co. 19,540,392
--------------
38,079,406
- ------------------------------------------------------------
Diversified Gas--0.1%
33,403 Coastal Corp. 1,102,299
3,508 Eastern Enterprises, Inc. 127,604
7,423 NICOR, Inc. 266,764
5,576 Oneok, Inc. 138,006
--------------
1,634,673
- ------------------------------------------------------------
Drugs & Medical Supplies--11.1%
227,374 Abbott Laboratories 10,643,945
10,191 Allergan, Inc. 895,534
14,303 ALZA Corp.(a) 547,090
198,191 American Home Products Corp. 12,931,963
75,962 Amgen, Inc.(a) 5,687,655
9,638 Bausch & Lomb, Inc. 626,470
43,237 Baxter International, Inc. 2,853,642
38,012 Becton Dickinson & Co. 1,456,335
16,788 Biomet, Inc.(a) 704,047
59,962 Boston Scientific Corp.(a) 2,432,209
297,514 Bristol-Myers Squibb Co. 19,133,869
6,856 C.R. Bard, Inc. 345,800
40,549 Cardinal Health, Inc. 2,676,234
163,897 Eli Lilly & Co. 13,910,758
44,148 Guidant Corp. 2,670,954
201,874 Johnson & Johnson 18,913,070
9,903 Mallinckrodt, Inc. 263,667
87,079 Medtronic, Inc. 6,247,918
356,844 Merck & Co., Inc. $ 28,614,428
194,486 Pfizer, Inc. 26,984,932
75,514 Pharmacia & Upjohn, Inc. 4,710,186
219,824 Schering- Plough Corp. 12,159,015
10,366 St. Jude Medical, Inc.(a) 252,671
123,156 Warner-Lambert Co. 8,151,388
--------------
183,813,780
- ------------------------------------------------------------
Electronics--4.1%
19,062 Advanced Micro Devices, Inc.(a) 295,461
33,792 AMP, Inc. 1,814,208
19,106 Apple Computer, Inc. 686,622
9,741 Data General Corp.(a) 98,628
5,085 EG&G, Inc. 134,117
74,600 Electronic Data Systems Corp. 3,632,087
66,175 Emerson Electric Co. 3,503,139
12,106 Harris Corp. 346,534
152,618 Hewlett-Packard Co. 10,349,408
250,072 Intel Corp. 29,789,827
19,522 LSI Logic Corp.(a) 608,842
90,012 Motorola, Inc. 6,593,379
22,876 National Semiconductor Corp.(a) 213,033
7,241 Perkin-Elmer Corp. 702,829
37,100 Solectron Corp. (a) 1,801,669
13,627 Tandy Corp. 869,573
6,012 Tektronix, Inc. 151,803
58,188 Texas Instruments, Inc. 5,775,159
7,633 Thomas & Betts Corp. 286,715
--------------
67,653,033
- ------------------------------------------------------------
Financial Services--5.2%
67,153 American Express Co. 7,890,478
17,760 Bear, Stearns & Co., Inc. 793,650
60,487 Charles Schwab Corp. 5,814,313
336,858 Citigroup, Inc. 21,516,805
15,837 Countrywide Mortgage Investments,
Inc. 593,888
25,688 Dun & Bradstreet Corp. 915,135
20,630 Equifax, Inc. 709,156
155,634 Fannie Mae 10,777,654
100,632 Federal Home Loan Mortgage Corp. 5,748,603
35,914 Franklin Resources, Inc. 1,010,081
14,680 H&R Block, Inc. 695,465
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-126
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services (cont'd.)
72,050 Household International Corp. $ 3,287,281
16,887 Lehman Brothers Holdings, Inc. 1,008,998
117,643 MBNA Corp. 2,808,727
53,517 Merrill Lynch & Co., Inc. 4,732,910
86,718 Morgan Stanley Dean Witter & Co. 8,666,380
25,900 Paychex, Inc. 1,228,631
33,400 Regions Financial Corp. 1,156,475
24,364 SLM Holding Corp. 1,017,197
36,566 Synovus Financial Corp. 747,318
19,698 Transamerica Corp. 1,398,558
90,725 Washington Mutual, Inc. 3,708,384
--------------
86,226,087
- ------------------------------------------------------------
Foods--1.8%
89,034 Archer-Daniels Midland Co. 1,307,687
43,054 Bestfoods 2,023,538
64,947 Campbell Soup Co. 2,642,531
71,243 ConAgra, Inc. 1,821,149
23,436 General Mills, Inc. 1,770,883
55,314 H.J. Heinz & Co. 2,620,501
21,958 Hershey Foods Corp. 1,229,648
60,070 Kellogg Co. 2,031,117
19,989 Quaker Oats Co. 1,250,562
49,077 Ralston Purina Co. 1,309,742
137,186 Sara Lee Corp. 3,395,353
49,390 SYSCO Corp. 1,299,574
96,052 Unilever N.V. 6,381,455
16,752 Wm. Wrigley Jr. Co. 1,515,009
--------------
30,598,749
- ------------------------------------------------------------
Forest Products--0.8%
6,549 Boise Cascade Corp. 211,205
15,450 Champion International Corp. 634,416
34,723 Fort James Corp. 1,100,285
13,734 Georgia-Pacific Corp. 1,019,749
46,652 International Paper Co. 1,968,131
80,416 Kimberly-Clark Corp. 3,854,942
13,256 Louisiana-Pacific Corp. 246,893
15,269 Mead Corp. 469,522
3,337 Potlatch Corp. 113,249
7,345 Temple-Inland, Inc. 460,899
10,045 Union Camp Corp. $ 674,271
16,730 Westvaco Corp. 351,330
31,100 Weyerhaeuser Co. 1,726,050
15,680 Willamette Industries, Inc. 591,920
--------------
13,422,862
- ------------------------------------------------------------
Gas Pipelines--0.5%
22,097 Cinergy Corp. 607,667
11,306 Columbia Gas System, Inc.(a) 590,739
13,845 Consolidated Natural Gas Co. 674,078
49,653 Enron Corp. 3,190,205
3,832 Peoples Energy Corp. 123,822
33,239 Sempra Energy 637,773
64,992 Williams Companies, Inc. 2,567,184
--------------
8,391,468
- ------------------------------------------------------------
Health Care--0.2%
42,376 McKesson HBOC, Inc. 2,796,816
- ------------------------------------------------------------
Hospital Management--0.5%
96,831 Columbia/HCA Healthcare Corp. 1,833,737
16,260 HCR Manor Care Inc. 370,931
61,749 Healthsouth Corp.(a) 640,646
21,810 Humana, Inc.(a) 376,223
48,610 IMS Health Inc. 1,610,206
45,260 Service Corp. International 644,955
3,097 Shared Medical Systems Corp. 172,464
44,248 Tenet Healthcare Corp.(a) 837,947
27,306 United Healthcare Corp. 1,436,978
--------------
7,924,087
- ------------------------------------------------------------
Housing Related--0.5%
6,104 Armstrong World Industries, Inc. 275,825
8,097 Centex Corp. 270,237
4,250 Fleetwood Enterprises, Inc. 121,656
53,674 Lowe's Companies, Inc. 3,247,277
49,326 Masco Corp. 1,393,460
14,518 Maytag Corp. 876,524
8,714 Owens Corning(a) 277,214
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-127
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Housing Related (cont'd.)
38,083 Pioneer Hi-Bred International, Inc. $ 1,432,873
12,838 Stanley Works 328,974
7,240 Tupperware Corp. 130,320
11,339 Whirlpool Corp. 616,558
--------------
8,970,918
- ------------------------------------------------------------
Insurance--3.4%
21,393 Aetna Life & Casualty Co. 1,775,619
125,108 Allstate Corp. 4,636,815
37,740 American General Corp. 2,660,670
183,721 American International Group, Inc. 22,161,346
24,893 Aon Corp. 1,574,482
24,734 Chubb Corp. 1,448,485
31,497 CIGNA Corp. 2,639,842
27,214 Cincinnati Financial Corp. 991,610
46,060 Conseco, Inc. 1,422,103
34,253 ITT Hartford Group, Inc. 1,945,999
14,891 Jefferson-Pilot Corp. 1,008,865
15,915 Lincoln National Corp. 1,573,596
37,870 Marsh & McLennan Companies, Inc. 2,809,481
13,972 MBIA, Inc. 810,376
18,020 MGIC Investment Corp. 631,826
10,593 Progressive Corp. 1,520,095
19,700 Provident Companies, Inc. 680,881
21,229 SAFECO Corp. 858,448
33,617 St. Paul Companies, Inc. 1,044,228
20,215 Torchmark Corp. 639,299
19,585 UNUM Corp. 931,512
30,408 Wachovia Corp. 2,468,749
--------------
56,234,327
- ------------------------------------------------------------
Leisure--0.5%
13,899 Brunswick Corp. 264,949
90,800 Carnival Corp. 4,409,475
19,724 Harrah's Entertainment, Inc.(a) 375,989
30,154 Hasbro, Inc. 872,581
9,102 King World Productions, Inc.(a) 278,180
41,113 Mattel, Inc. 1,022,686
25,907 Mirage Resorts, Inc.(a) 550,524
--------------
7,774,384
Lodging--0.1%
38,921 Hilton Hotels Corp. $ 547,327
36,952 Marriott International, Inc.
(Class 'A' Stock) 1,242,511
--------------
1,789,838
- ------------------------------------------------------------
Machinery--0.6%
2,764 Briggs & Stratton Corp. 136,300
11,725 Case Corp. 297,522
52,428 Caterpillar, Inc. 2,408,411
14,520 Cooper Industries, Inc. 618,915
34,040 Deere & Co. 1,314,795
34,562 Dover Corp. 1,136,226
10,977 Eaton Corp. 784,855
22,521 Harnischfeger Industries, Inc. 128,088
25,995 Ingersoll-Rand Co. 1,290,002
12,582 PACCAR, Inc. 518,221
15,292 Parker Hannifin Corp. 523,751
7,642 Snap-On, Inc. 221,618
21,902 Thermo Electron Corp.(a) 297,046
7,537 Timken Co. 122,476
--------------
9,798,226
- ------------------------------------------------------------
Manufacturing--0.1%
19,800 Danaher Corp. 1,034,550
8,296 Milacron, Inc. 130,662
--------------
1,165,212
- ------------------------------------------------------------
Media--3.3%
107,328 CBS Corp. 4,393,740
39,538 Clear Channel Communications,
Inc.(a) 2,651,517
54,610 Comcast Corp. 3,437,017
307,013 Disney (Walt) Co. 9,555,780
21,840 Donnelley (R.R.) & Sons, Co. 702,975
14,904 Dow Jones & Co., Inc. 703,282
42,389 Gannett Co., Inc. 2,670,507
21,906 Interpublic Group of Companies, Inc. 1,705,930
12,283 Knight-Ridder, Inc. 614,150
29,000 McGraw Hill Companies., Inc. 1,580,500
90,681 Mediaone Group, Inc. 5,758,243
6,696 Meredith Corp. 210,506
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-128
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media (cont'd.)
26,990 New York Times Co. $ 769,215
183,416 Time Warner, Inc. 13,033,999
10,738 Times Mirror Co. 580,523
17,641 Tribune Co. 1,154,383
52,916 Viacom, Inc.(a) 4,441,637
--------------
53,963,904
- ------------------------------------------------------------
Mineral Resources--0.2%
8,898 ASARCO, Inc. 122,348
58,824 Barrick Gold Corp. (ADR) (Canada) 1,003,684
34,665 Battle Mountain Gold Co. 95,329
11,362 Cyprus Amax Minerals Co. 137,764
22,428 Freeport-McMoran Copper & Gold, Inc. 243,905
34,684 Homestake Mining Co. 299,150
21,303 INCO Ltd. 283,596
24,297 Newmont Mining Corp. 425,197
9,285 Phelps Dodge Corp. 457,286
34,270 Placer Dome, Inc. 383,396
--------------
3,451,655
- ------------------------------------------------------------
Miscellaneous Basic Industry--5.3%
55,422 Applied Materials, Inc.(a) 3,418,845
46,358 BB&T Corp. 1,677,580
27,777 Browning-Ferris Industries, Inc. 1,071,151
127,759 Cendant Corp.(a) 2,012,204
10,383 Crane Co. 251,139
19,541 Ecolab, Inc. 693,705
24,608 Fortune Brands, Inc. 952,022
490,824 General Electric Co. 54,297,405
24,564 General Instruments Corp. 744,596
36,768 Illinois Tool Works, Inc. 2,275,020
14,986 ITT Industries, Inc. 530,130
17,334 Loews Corp. 1,293,550
5,061 Millipore Corp. 122,097
1,523 NACCO Industries, Inc. 112,797
25,767 Omnicom Group 2,059,750
16,504 Pall Corp. 273,348
25,574 PPG Industries, Inc. 1,310,667
12,518 Sealed Air Corp. 615,729
23,867 Textron, Inc. 1,846,709
17,249 TRW, Inc. $ 784,829
97,456 Tyco International Ltd. 6,992,468
13,874 W.W. Grainger, Inc. 597,449
88,013 Waste Management, Inc. 3,905,577
--------------
87,838,767
- ------------------------------------------------------------
Miscellaneous Consumer Growth--0.6%
9,598 American Greetings Corp. 243,549
11,532 Black & Decker Corp. 639,305
35,599 Corning, Inc. 2,135,940
48,165 Eastman Kodak Co. 3,076,539
6,358 Jostens, Inc. 135,108
58,899 Minnesota Mining & Manufacturing Co. 4,167,104
5,069 Polaroid Corp. 101,697
--------------
10,499,242
- ------------------------------------------------------------
Office Equipment & Supplies--2.8%
17,368 Avery Dennison Corp. 998,660
250,947 Compaq Computer Corp.(a) 7,951,883
18,502 Honeywell, Inc. 1,402,683
18,041 Ikon Office Solutions, Inc. 231,150
138,317 International Business Machines
Corp. 24,516,688
40,925 Pitney Bowes, Inc. 2,608,969
68,250 Staples, Inc.(a) 2,243,719
39,090 Unisys Corp.(a) 1,082,304
97,498 Xerox Corp. 5,203,956
--------------
46,240,012
- ------------------------------------------------------------
Petroleum--4.8%
13,578 Amerada Hess Corp. 683,143
16,910 Anadarko Petroleum Corp. 638,353
12,387 Apache Corp. 322,836
11,645 Ashland Oil, Inc. 476,717
48,238 Atlantic Richfield Co. 3,521,374
25,982 Burlington Resources, Inc. 1,037,656
98,062 Chevron Corp. 8,672,358
362,592 Exxon Corp. 25,585,398
12,259 Kerr-McGee Corp. 402,251
116,781 Mobil Corp. 10,276,728
49,038 Occidental Petroleum Corp. 882,684
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-129
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum (cont'd.)
39,336 Phillips Petroleum Co. $ 1,858,626
322,131 Royal Dutch Petroleum Co. (ADR)
(Netherlands) 16,750,812
13,614 Sunoco, Inc. 490,955
24,258 Tenneco, Inc. 677,708
79,746 Texaco, Inc. 4,525,586
37,245 Union Pacific Resources Group, Inc. 442,284
33,839 Unocal Corp. 1,245,698
48,260 USX- Marathon Corp. 1,327,150
--------------
79,818,317
- ------------------------------------------------------------
Petroleum Services--0.7%
49,479 Baker Hughes, Inc. 1,202,958
67,811 Halliburton Co. 2,610,723
9,058 Helmerich & Payne, Inc. 205,503
7,310 McDermott International, Inc. 185,034
55,052 PG&E Corp. 1,710,053
16,510 Rowan Companies, Inc.(a) 209,471
80,921 Schlumberger, Ltd. 4,870,433
15,859 Sonat, Inc. 475,770
--------------
11,469,945
- ------------------------------------------------------------
Railroads--0.4%
71,923 Burlington Northern, Inc. 2,364,469
34,503 CSX Corp. 1,343,460
55,211 Norfolk Southern Corp. 1,456,190
36,729 Union Pacific Corp. 1,962,706
--------------
7,126,825
- ------------------------------------------------------------
Restaurants--0.7%
19,902 Darden Restaurants, Inc. 410,479
203,130 McDonald's Corp. 9,204,328
23,466 Tricon Global Restaurants, Inc. 1,648,486
17,279 Wendy's International, Inc. 491,372
--------------
11,754,665
- ------------------------------------------------------------
Retail--6.2%
36,706 Albertson's, Inc. 1,993,595
39,821 American Stores Co. 1,314,093
22,000 AutoZone, Inc. $ 668,250
14,289 Circuit City Stores, Inc. 1,094,895
15,224 Consolidated Stores Corp.(a) 461,478
58,996 CVS Corp. 2,802,310
66,391 Dayton Hudson Corp. 4,423,300
16,223 Dillards, Inc. 411,659
26,512 Dollar General Corp. 901,408
32,875 Federated Department Stores, Inc.(a) 1,319,109
86,442 Gap, Inc. 5,818,627
4,177 Great Atlantic & Pacific Tea Co.,
Inc. 125,310
10,968 Harcourt General, Inc. 486,019
220,856 Home Depot, Inc. 13,748,286
40,684 J.C. Penney Co., Inc. 1,647,702
74,157 Kmart Corp.(a) 1,246,765
23,900 Kohl's Corp. 1,693,912
37,861 Kroger Co.(a) 2,266,927
8,396 Liz Claiborne, Inc. 273,920
4,682 Longs Drug Stores Corp. 142,508
52,772 May Department Stores Co. 2,064,685
23,706 Meyer, (Fred), Inc.(a) 1,395,691
41,328 Newell Rubbermaid, Inc. 1,963,061
42,138 Nike, Inc. 2,430,836
22,200 Nordstrom, Inc. 907,425
6,073 Pep Boys - Manny, Moe & Jack 92,613
33,404 Price Costco, Inc.(a) 3,058,554
6,849 Reebok International Ltd. 108,728
36,687 Rite-Aid Corp. 917,175
72,000 Safeway Inc.(a) 3,694,500
58,096 Sears, Roebuck & Co. 2,625,213
25,216 Sherwin-Williams Co. 709,200
15,412 Supervalu, Inc. 317,873
36,311 The Limited, Inc. 1,438,823
49,316 TJX Companies, Inc. 1,676,744
35,207 Toys 'R' Us, Inc.(a) 662,332
332,563 Wal-Mart Stores, Inc. 30,658,152
146,478 Walgreen Co. 4,138,003
20,740 Winn-Dixie Stores, Inc. 775,157
--------------
102,474,838
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-130
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Rubber--0.1%
11,799 B.F. Goodrich Co. $ 404,853
9,588 Cooper Tire & Rubber Co. 176,180
24,971 Goodyear Tire & Rubber Co. 1,243,868
--------------
1,824,901
- ------------------------------------------------------------
Steel - Producers--0.1%
29,237 Allegheny Teldyne, Inc. 553,676
15,334 Bethlehem Steel Corp.(a) 126,505
14,828 Nucor Corp. 653,359
12,909 USX Corp. - U.S. Steel Group 303,361
11,408 Worthington Industries, Inc. 134,044
--------------
1,770,945
- ------------------------------------------------------------
Telecommunications--4.7%
40,134 Alltel Corp. 2,503,358
10,622 Andrew Corp.(a) 130,783
33,608 Ascend Communications, Inc.(a) 2,812,570
11,300 Century Telephone Enterprises, Inc. 793,825
27,581 Frontier Corp. 1,430,764
197,622 Lucent Technologies, Inc. 21,293,771
273,500 MCI WorldCom, Inc.(a) 24,221,844
43,620 Nextel Communications, Inc.(a) 1,597,583
99,315 Northern Telecom, Ltd. 6,169,944
11,188 Scientific- Atlanta, Inc. 304,873
131,288 Sprint Corp. 9,385,038
28,947 Tellabs, Inc.(a) 2,829,569
74,275 US West, Inc. 4,089,767
--------------
77,563,689
- ------------------------------------------------------------
Textiles--0.1%
11,885 Fruit of the Loom Ltd. 123,307
5,040 National Service Industries, Inc. 171,675
6,048 Russell Corp. 121,716
4,188 Springs Industries, Inc. 113,338
16,934 V.F. Corp. 799,073
--------------
1,329,109
Tobacco--0.9%
363,079 Philip Morris Companies, Inc. $ 12,775,842
46,200 RJR Nabisco Holdings Corp. 1,155,000
28,299 UST, Inc. 739,312
--------------
14,670,154
- ------------------------------------------------------------
Transportation--0.0%
47,256 Laidlaw, Inc. (Class 'B' Stock) 274,676
- ------------------------------------------------------------
Trucking & Shipping--0.1%
21,758 FDX Corp. 2,019,414
9,221 Ryder System, Inc. 254,730
--------------
2,274,144
- ------------------------------------------------------------
Utilities-Communications--5.5%
86,231 AirTouch Communications Inc.(a) 8,332,070
165,593 Ameritech Corp. 9,583,695
315,987 AT&T Corp. 25,219,713
231,522 Bell Atlantic Corp. 11,966,793
292,556 BellSouth Corp. 11,720,525
143,214 GTE Corp. 8,664,447
291,418 SBC Communications, Inc. 13,733,073
33,370 Unicom Corp. 1,220,091
--------------
90,440,407
- ------------------------------------------------------------
Utilities - Electric--1.7%
28,200 AES Corp.(a) 1,050,450
20,969 Ameren Corp. 758,816
30,071 American Electric Power, Inc. 1,193,443
20,729 Baltimore Gas & Electric Co. 525,998
24,282 Carolina Power & Light Co. 918,163
35,101 Central & South West Corp. 822,680
36,451 Consolidated Edison, Inc. 1,651,686
27,449 Dominion Resources, Inc. 1,013,897
20,487 DTE Energy Co. 787,469
55,731 Duke Energy Co. 3,044,306
55,162 Edison International 1,227,354
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-131
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL STOCK INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utilities - Electric (cont'd.)
38,115 Entergy Corp. $ 1,048,163
33,677 FirstEnergy Corp. 940,851
26,236 FPL Group, Inc. 1,397,067
19,428 GPU, Inc. 724,907
16,600 New Century Energies, Inc. 565,437
26,524 Niagara Mohawk Holdings Inc. 356,416
21,173 Northern States Power Co. 490,949
42,482 PacifiCorp 732,815
35,155 PECO Energy Co. 1,625,919
21,726 PP&L Resources, Inc. 537,719
34,897 Public Service Enterprise Group Inc. 1,332,629
41,279 Reliant Energy Inc. 1,075,834
102,315 Southern Co. 2,385,218
42,214 Texas Utilities Co. 1,759,796
--------------
27,967,982
Total common stocks
(cost $1,164,999,410) 1,572,005,647
--------------
SHORT-TERM INVESTMENTS--5.2%
U.S. Government Securities--0.3%
United States Treasury Bill,
$5,000 4.45%, 6/17/99
(cost $4,952,945) $ 4,952,945
--------------
- ------------------------------------------------------------
Repurchase Agreement--4.9%
81,013 Joint Repurchase Agreement Account,
4.912%, 4/1/99(Note 5)
(cost $81,013,000) 81,013,000
--------------
Total short-term investments
(cost $85,965,945) 85,965,945
- ------------------------------------------------------------
Total Investments--100.2%
(cost $1,250,965,355) 1,657,971,592
Liabilities in excess of other
assets--(0.2%) (3,275,411)
--------------
Net Assets--100% $1,654,696,181
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing.
(b) Pledged as initial margin on futures contracts.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-132
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
<S> <C>
Investments, at value (cost $1,250,965,355)................................................................ $1,657,971,592
Cash....................................................................................................... 118,953
Receivable for Fund shares sold............................................................................ 10,134,559
Dividends and interest receivable.......................................................................... 1,620,219
Receivable from Manager.................................................................................... 199,221
Prepaid expenses........................................................................................... 6,289
--------------
Total assets............................................................................................ 1,670,050,833
--------------
Liabilities
Payable for investments purchased.......................................................................... 7,071,007
Payable for Fund shares reacquired......................................................................... 6,842,890
Due to broker-variation margin............................................................................. 1,321,600
Accrued expenses........................................................................................... 119,155
--------------
Total liabilities....................................................................................... 15,354,652
--------------
Net Assets................................................................................................. $1,654,696,181
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 57,208
Paid-in capital in excess of par........................................................................ 1,230,853,720
--------------
1,230,910,928
Undistributed net investment income..................................................................... 5,105,325
Accumulated net realized gain on investments............................................................ 12,808,441
Net unrealized appreciation on investments.............................................................. 405,871,487
--------------
Net assets, March 31, 1999................................................................................. $1,654,696,181
--------------
--------------
Class I:
Net asset value and redemption price per share
($949,977,905 / 32,836,037 shares of beneficial interest issued and outstanding)..................... $28.93
--------------
--------------
Class Z:
Net asset value and redemption price per share
($704,718,276 / 24,371,980 shares of beneficial interest issued and outstanding)..................... $28.92
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-133
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $12,677)................... $ 8,568,489
Interest............................... 1,791,897
----------------
Total income........................ 10,360,386
----------------
Expenses
Management fee......................... 2,005,545
Transfer agent's fees and expenses..... 405,000
Custodian's fees and expenses.......... 96,000
Reports to shareholders................ 50,000
Registration fees...................... 33,000
Legal fees............................. 15,000
Audit fees............................. 12,000
Trustees' fees......................... 4,000
Miscellaneous.......................... 16,286
----------------
Total expenses...................... 2,636,831
Less: Expense subsidy (Note 2)............ (330,793)
----------------
Net expenses........................ 2,306,038
----------------
Net investment income..................... 8,054,348
----------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions................ 5,991,435
Financial futures contracts............ 10,630,797
----------------
16,622,232
----------------
Net change in unrealized appreciation (depreciation) on:
Investments............................ 272,584,991
Financial futures contracts............ (862,575)
----------------
271,722,416
----------------
Net gain on investments................... 288,344,648
----------------
Net Increase in Net Assets
Resulting from Operations................. $296,398,996
----------------
----------------
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL STOCK INDEX FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income....... $ 8,054,348 $ 11,235,227
Net realized gain on
investment transactions
and financial futures
contracts................ 16,622,232 4,662,002
Net change in unrealized
appreciation on
investments.............. 271,722,416 17,807,145
-------------- --------------
Net increase in net assets
resulting from
operations............... 296,398,996 33,704,374
-------------- --------------
Dividends and distributions (Note 1):
Dividends to shareholders
from net investment
income................... (12,614,911) (5,903,209)
-------------- --------------
Distributions to
shareholders from net
realized gains........... (8,023,152) (10,316,301)
-------------- --------------
Fund share transactions (Note
6):
Net proceeds from shares
sold..................... 692,642,494 1,025,544,442
Net asset value of shares
issued to shareholders in
reinvestment of
distributions............ 20,622,769 16,213,432
Cost of shares reacquired... (355,112,076) (536,468,042)
-------------- --------------
Net increase in net assets
from Fund share
transactions............. 358,153,187 505,289,832
-------------- --------------
Net increase................... 633,914,120 522,774,696
Net Assets
Beginning of period............ 1,020,782,061 498,007,365
-------------- --------------
End of period(a)............... $1,654,696,181 $1,020,782,061
-------------- --------------
-------------- --------------
- ---------------
(a) Includes undistributed net
investment income of........ $ 5,105,325 $ 9,665,888
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-134
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) 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.
Repurchase Agreements: 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.
- --------------------------------------------------------------------------------
B-135
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) 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.
- ------------------------------------------------------------
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 six months ended March 31,
1999, PIFM subsidized $330,793 of the expenses of the Fund (.02% of the average
net assets of the Fund $.006 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.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements are to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 six months ended March 31, 1999,
the Fund incurred fees of approximately $390,000 for the services of PMFS. As of
March 31, 1999, approximately $75,000 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 six months ended March 31, 1999 aggregated $316,624,301 and $21,268,200,
respectively.
On March 31, 1999, the Fund held 236 purchased financial futures contracts on
the S&P 500 Index expiring by June 1999. The cost of such contracts was
$77,439,450. The value of such contracts on March 31, 1999 was $76,304,700,
thereby resulting in an unrealized loss of $1,134,750.
The cost basis of investments for federal income tax purposes was $1,250,970,994
and, accordingly, as of March 31, 1999, net unrealized appreciation for federal
income tax purposes was $407,000,598 (gross unrealized
appreciation--$441,008,887; gross unrealized depreciation--$34,008,289).
- --------------------------------------------------------------------------------
B-136
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL STOCK 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. At March 31, 1999, the Fund had
a 14.6% undivided interest in the repurchase agreements in the joint account.
The undivided interest represented $81,013,000 in principal amount. As of such
date, each repurchase agreement in the joint account and the collateral therefor
was as follows:
Bear, Stearns & Co., 4.92%, in the principal amount of $170,000,000, repurchase
price $170,023,233, due 4/1/99. The value of the collateral including accrued
interest was $174,282,442.
Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.
Solomon Smith Barney, Inc., 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.
SBC Warburg Dillon Read, Inc., 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
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 six months ended March
31, 1999 and the fiscal year ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Class I Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold...................... 11,896,497 $ 324,474,059
Shares issued in reinvestment of
dividends and distributions.... 490,382 12,784,255
Shares reacquired................ (7,192,224) (192,760,487)
----------- -------------
Net increase in shares
outstanding.................... 5,194,655 $ 144,497,827
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Six months ended March 31, 1999:
Shares sold...................... 13,550,491 $ 368,168,435
Shares issued in reinvestment of
dividends and distributions.... 300,787 7,838,514
Shares reacquired................ (5,980,992) (162,351,589)
----------- -------------
Net increase in shares
outstanding.................... 7,870,286 $ 213,655,360
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
</TABLE>
Of the shares outstanding at March 31, 1999, PIFM and affiliates owned
10,897,468 shares of the Fund.
- --------------------------------------------------------------------------------
B-137
<PAGE>
Financial Highlights PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
---------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
March 31, -----------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 23.11 $ 21.86 $ 16.06 $ 14.22 $ 11.27 $ 11.12
----------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income(a)............................ .09 .15 .46 .25 .23 .26
Net realized and unrealized gain on investment
transactions..................................... 6.16 1.69 5.75 2.44 2.97 .11
----------- -------- -------- -------- -------- -------
Total from investment operations.................. 6.25 1.84 6.21 2.69 3.20 .37
----------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income................ (.26) (.21) (.26) (.28) (.22) (.18)
Distributions from net realized gains............... (.18) (.38) (.15) (.57) (.03) (.04)
----------- -------- -------- -------- -------- -------
Total distributions............................... (.44) (.59) (.41) (.85) (.25) (.22)
----------- -------- -------- -------- -------- -------
Net asset value, end of period...................... $ 28.92 $ 23.11 $ 21.86 $ 16.06 $ 14.22 $ 11.27
----------- -------- -------- -------- -------- -------
----------- -------- -------- -------- -------- -------
TOTAL RETURN(b)..................................... 27.19% 8.61% 39.34% 19.72% 29.02% 3.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 704,718 $381,374 $185,881 $184,379 $101,945 $50,119
Average net assets (000)............................ $ 542,470 $313,721 $254,644 $142,540 $ 71,711 $38,098
Ratios to average net assets:(a)
Expenses.......................................... .40%(c) .40% .46% .60% .60% .60%
Net investment income............................. 1.15%(c) 1.30% 1.66% 1.92% 2.55% 2.34%
Portfolio turnover rate............................. 2% 1% 5% 2% 11% 2%
</TABLE>
- ---------------
(a) Net of expense subsidy.
(b) 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.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-138
<PAGE>
Financial Highlights PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL STOCK INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I
-----------------------------------------------
August 1,
Six Months 1997(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 23.13 $ 21.87 $ 21.87
----------- ------------- -------------
Income from investment operations:
Net investment income(b)............................ .17 .31 .06
Net realized and unrealized gain on investment
transactions..................................... 6.09 1.55 (.06)
----------- ------------- -------------
Total from investment operations.................. 6.26 1.86 --
----------- ------------- -------------
Less distributions:
Dividends from net investment income................ (.28) (.22) --
Distributions from net realized gains............... (.18) (.38) --
----------- ------------- -------------
Total distributions............................... (.46) (.60) --
----------- ------------- -------------
Net asset value, end of period...................... $ 28.93 $ 23.13 $ 21.87
----------- ------------- -------------
----------- ------------- -------------
TOTAL RETURN(d)..................................... 27.24% 8.69% 0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 949,978 $ 639,408 $ 312,127
Average net assets (000)............................ $ 798,233 $ 505,605 $ 296,788
Ratios to average net assets:(b)
Expenses.......................................... .30%(c) .30% .30%(c)
Net investment income............................. 1.24%(c) 1.42% 1.73%(c)
Portfolio turnover rate............................. 2% 1% 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. B-139
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.1%
COMMON STOCKS--96.6%
- ------------------------------------------------------------
Austria--0.4%
40 Austria Tabak AG $ 2,695
100 Austrian Airlines 3,250
482 Bank Austria AG 28,672
50 Boehler-Uddeholm AG 2,405
25 EA-Generali AG 5,290
80 Flughafen Wien AG 3,384
150 Oesterreichische
Electrizitaetswirtschafts AG, Ser.
A 23,916
130 OMV AG 11,494
65 Va Technologie AG 4,677
35 Wienerberger Baustoffindustrie AG 6,144
------------
91,927
- ------------------------------------------------------------
Belgium--2.3%
20 D'Ieteren SA 9,047
44 Barco Industries N.V. 7,434
6 Bekaert N.V. 2,656
68 Cimenteries CBR Cementbedrijven 6,104
12 Colruyt N.V. 7,851
30 Compaignie Maritime Belge SA 1,144
197 Delhaize-Le Lion SA 18,248
229 Electrabel SA 82,078
147 Fortis AG CVG 681
2,970 Fortis AG NVP 109,658
1,323 Fortis AG Strip VVPR 14
20 Glaverbel SA 1,842
106 Groupe Bruxelles Lambert SA 19,339
40 KBC Bancassurance Holding Strip N.V. 2
1,245 KBC Bancassurance Holding N.V. 82,997
110 PetroFina SA 60,208
340 Solvay SA 20,849
340 Tractebel 53,590
600 Ucb SA $ 26,888
78 Union Miniere SA 2,700
------------
513,330
- ------------------------------------------------------------
Denmark--1.0%
30 Bang & Olufsen Holding A/S 2,092
129 Carlsberg A/S, Ser. A 5,228
94 Carlsberg A/S, Ser. B 3,796
5 D/S 1912, Ser. B 37,403
4 D/S Svendborg, Ser. B 42,414
235 Danisco A/S 10,752
206 Den Danske Bank Group 21,640
170 FLS Industries A/S, Ser. B 3,334
60 International Service Systems A/S 3,899
300 Novo Nordisk A/S, Ser. B 33,553
521 Tele Danmark A/S 51,612
212 Unidanmark A/S 14,473
------------
230,196
- ------------------------------------------------------------
Finland--2.4%
180 Cultor Oyj, Ser. 1 3,440
40 Instrumentarium Group, Ser. A 1,296
500 Kemira Oyj 3,131
350 Kesko Oyj 5,248
50 Kone Corp., Ser. B 5,263
3,200 Merita plc, Ser. A 17,135
150 Metra Oyj, Ser. B 3,028
2,000 Nokia Oyj, Ser. A 321,932
610 Nokia Oyj, Ser. K 98,123
500 Outokumpu Oyj, Ser. A 5,155
80 Pohjola Insurance Group, Ser. A 4,232
200 Sampo Insurance Co. Ltd., Ser. A 6,262
1,660 Sonera Group Oyj 27,598
130 Tieto Corp, Ser. B 5,354
1,050 UPM-Kymmene Oyj 29,019
------------
536,216
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-140
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
France--12.6%
150 Accor SA $ 37,246
840 Alcatel Alsthom SA 96,579
1,450 Axa-UAP 192,230
720 Banqe Paribas 80,373
913 Banque Nationale de Paris 79,444
110 Bouygues SA 30,520
130 Canal Plus 38,104
290 Cap Gemini SA 48,559
160 Carrefour SA 123,332
50 Club Mediterranee SA 4,426
410 Compagnie de Saint Gobain 65,066
50 Compagnie Francaise d'Etudes et de
Construction Technip 5,339
660 Compagnie General des Eaux 162,384
20 Compagnie Generale de Geophysique SA 745
550 Compagnie Generale des Etablissements
Michelin, Ser. B 24,671
310 Danone 78,012
350 Dassault Systemes SA 12,960
1,150 Elf Aquitaine SA 156,183
100 Eridania Beghin-Say SA 14,812
40 Essilor International SA 13,344
310 Etablissements Economiques du Casino
Guichard-Perrachon SA 27,510
4,190 France Telecom SA 338,806
50 Groupe GTM 4,966
50 Imetal SA 5,776
376 L'Air Liquide 56,017
280 L'OREAL 177,138
430 Lafarge SA 38,762
450 Lagardere S.C.A. 14,618
110 Legrand SA 23,098
380 Louis Vuitton Moet Hennessy 94,150
30 Pathe SA 7,708
230 Pechiney 8,318
200 Pernod Ricard 12,707
505 Pinault-Printemps-Redoute SA 80,579
50 Primagaz Cie 3,881
80 Promodes 48,883
200 PSA Peugeot Citroen 28,760
1,610 Rhone-Poulenc SA, Ser. A 72,828
20 Sagem SA $ 11,001
450 Sanofi SA 75,787
660 Schneider SA 36,517
50 SEB SA 3,671
150 SEITA 10,194
100 Sidel SA 7,827
50 Simco SA 4,372
200 Societe Bic SA 10,526
10 Societe Eurafrance SA 4,804
420 Societe Generale 80,710
120 Sodexho Alliance 19,627
600 Suez Lyonnaise des Eaux 111,024
610 Thomson CSF 18,637
1,020 Total SA, Ser. B 125,644
20 Unibail SA 2,505
950 Usinor SA 12,512
303 Valeo SA 23,716
------------
2,867,908
- ------------------------------------------------------------
Germany--12.7%
160 Adidas-Salomon AG 14,276
150 AGIV AG 2,826
1,015 Allianz AG 309,009
150 AMB Aachener & Muenchener
Beteiligungs AG 17,975
100 Axa Colonia Konzern AG 9,932
2,690 BASF AG 98,448
3,110 Bayer AG 116,505
1,700 Bayerische Vereinsbank AG 101,675
300 Beiersdorf AG, Ser. A 22,185
100 Bilfinger & Berger Bau AG 1,879
10 Buderus AG 3,228
500 Continental AG 12,361
4,021 DaimlerChrysler AG 349,885
2,250 Deutsche Bank AG 115,745
1,520 Deutsche Lufthansa AG 33,230
9,050 Deutsche Telekom 368,826
100 Douglas Holding AG 4,248
6 Douglas Holding AG NPV 246
2,110 Dresdner Bank AG 84,511
200 Fag Kugelfischer Georg Schaefer AG 1,501
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-141
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Germany (cont'd.)
200 Heidelberger Zement AG $ 12,199
250 Hochtief AG 8,286
30 Karstadt AG 10,704
50 Linde AG 28,555
500 MAN AG 14,008
1,600 Mannesmann AG 204,343
650 Merck KGaA 22,455
1,130 Metro AG 70,719
412 Muenchener Ruckversicherungs-
Gesellschaft AG 83,175
342 Muenchener Ruckversicherungs-
Gesellschaft AG (Registered) 68,121
60 Preussag AG 32,193
1,980 RWE AG 87,641
260 SAP AG 74,524
290 Schering AG 33,766
50 SGL Carbon AG 2,094
2,420 Siemens AG 161,719
1,700 Thyssen AG 33,586
2,070 VEBA AG 108,832
115 Viag AG 63,429
1,310 Volkswagen AG 87,259
------------
2,876,099
- ------------------------------------------------------------
Ireland--0.6%
4,000 Allied Irish Banks plc 69,093
1,350 CRH plc 23,304
200 DCC plc 1,544
1,000 Fyffes plc 2,354
600 Greencore Group plc 2,105
1,000 Independent Newspapers plc 4,534
1,250 Irish Life plc 12,145
300 Irish Permanent plc 4,567
3,900 Jefferson Smurfit Group plc 7,873
600 Kerry Group plc, Ser. A 8,000
500 Ryanair Holdings plc 4,093
800 Tullow Oil plc 553
------------
140,165
Italy--6.9%
7,600 Alitalia SpA $ 25,845
4,264 Assicurazioni Generali 170,784
7,500 Banca Commerciale Italiana 61,536
9,400 Banca Intesa SpA 55,408
2,000 Banca Intesa SpA (Nonconvertible) 5,808
1,000 Banca Popolare di Milano 9,317
6,000 Benetton Group SpA 10,785
1,000 Bulgari SpA 6,240
500 Burgo (Cartiere) SpA 3,509
2,740 Edison SpA 25,232
34,370 ENI SpA 218,921
16,960 Fiat SpA 56,028
3,500 Fiat SpA (Nonconvertible) 6,272
5,872 Istituto Bancario San Paolo di Torino 95,407
16,700 Istituto Nazionale delle
Assicurazioni (INA) 50,481
500 Italcementi SpA 5,506
3,500 Italgas (Soc Ital) SpA 17,003
500 La Rinascente SpA 3,903
2,800 Magneti Marelli 4,051
140 Marzotto (Gaetano) & Figlia SpA 1,186
4,810 Mediaset SpA 45,229
2,400 Mediobanca SpA 32,258
500 Mondadori (Arnoldo) Editore SpA 7,476
19,000 Montedison SpA 19,692
11,500 Olivetti Group SpA 36,004
5,500 Parmalat Finanziaria SpA 7,838
8,670 Pirelli SpA 24,710
1,680 Riunione Adriatica di Sicurta SpA 17,575
500 Riunione Adriatica di Sicurta SpA
(Nonconvertible) 4,448
1,000 Sirti SpA 5,938
2,000 Snia BPD SpA 2,699
500 Societa Assicuratrice Industriale
(SAI) 6,396
28,350 Telecom Italia Mobile SpA 190,676
6,000 Telecom Italia Mobile SpA (di Risp) 23,189
15,410 Telecom Italia SpA 163,702
3,500 Telecom Italia SpA (di Risp) 20,782
20,260 Unicredito Italiano SpA 109,362
16,000 Unione Immobiliare SpA 8,378
------------
1,559,574
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-142
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Netherlands--8.1%
5,968 ABN AMRO Holding N.V. $ 124,349
2,420 AEGON N.V. 220,895
1,180 Akzo Nobel N.V. 43,695
324 Buhrmann N.V. 5,632
2,632 Elsevier N.V. 39,212
365 Getronics N.V. 13,476
550 Hagemeyer N.V. 16,923
1,307 Heineken N.V. 65,894
100 Hollandsche Beton Groep N.V. 1,053
93 IHC Caland N.V. 3,514
3,896 ING Groep N.V. 214,719
269 KLM Royal Dutch Airlines N.V. 7,551
2,650 Koninklijke Ahold N.V. 101,562
121 Koninklijke Hoogovens N.V. 4,010
2,004 Koninklijke KPN BT 79,724
107 Koninklijke Pakhoed Holdings N.V. 2,593
308 Oce N.V. 7,648
8,890 Royal Dutch Petroleum Co. 472,676
1,523 Royal Philips Electronics N.V. 124,055
100 Stork N.V. 1,959
2,019 TNT Post Group N.V. 60,813
2,650 Unilever N.V. 184,099
180 Vedior N.V. 4,168
284 Wolters Kluwer N.V. 51,509
------------
1,851,729
- ------------------------------------------------------------
Norway--0.5%
200 Aker RGI ASA 2,225
200 Bergesen dy ASA, Ser. A 2,743
100 Bergesen dy ASA, Ser. B 1,294
2,300 Christiania Bank Og Kreditkasse 8,987
2,600 Den Norske Bank ASA 9,520
100 Dyno Industrier ASA 1,682
200 Elkem ASA 2,950
150 Kvaerner ASA, Ser. A 2,669
120 Leif Hoegh & Co. ASA 1,366
350 Merkantildata ASA 3,147
700 NCL Holdings ASA 1,503
1,150 Norsk Hydro ASA 46,871
100 Norske Skogindustrier ASA, Ser. A 3,261
600 Orkla ASA, Ser. A 9,199
160 Orkla ASA, Ser. B $ 2,132
200 Petroleum Geo Services 3,054
140 Sas Norge ASA 1,205
200 Schibsted ASA 2,381
80 Smedvig ASA 895
1,100 Storebrand ASA, Ser. A 8,113
200 Tomra Systems ASA 7,453
------------
122,650
- ------------------------------------------------------------
Portugal--0.8%
878 Banco Comercial Portugues SA 26,540
520 Banco Espirito Santo e Comercial de
Lisboa 14,001
300 BPI-SGPS SA 9,117
220 Brisa-Auto Estradas de Portugal SA 10,189
350 Cimpor-Cimentos de Portugal, SGPS SA 9,786
50 Companhia de Seguros Tranquilidade 1,414
2,560 EDP-Electricadade de Portugal SA 50,521
300 Jeronimo Martins, SGPS SA 10,688
350 Portucel Industrial-Empresa Produtora
de Celulose SA 1,912
750 Portugal Telecom SA 33,594
170 Sonae Investimentos-Sociedade
Gestorade Participacoes Sociais SA 6,622
100 Unicer-Uniao Cervejeira 2,127
------------
176,511
- ------------------------------------------------------------
Spain--4.1%
200 Acerinox SA 5,074
119 Acs Actividades Co. 3,687
967 Autopistas del Sol SA 12,392
218 Azucarera Ebro Agricolas 4,279
8,610 Banco Bilbao Vizcaya SA 128,274
4,713 Banco Central Hispanoamericano 59,072
4,686 Banco Santander SA 96,120
2,028 Corporacion Bancaria de Espana 48,736
54 Corporacion Financiera Alba SA 7,724
216 Corporacion Mapfre 4,279
200 Dragados & Construcciones SA 6,564
4,110 Endesa SA 103,739
220 Fomento de Construcion Y Contra 13,538
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-143
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Spain (cont'd.)
632 Gas Natural SDG SA $ 58,336
3,756 Iberdrola SA 55,633
210 Metrovacesa SA 4,908
1,330 Repsol SA 68,490
164 Sociedade General de Aguas de
Barcelona SA 9,862
740 Tabacalera SA, Ser. A 14,995
4,384 Telefonica de Espana SA 185,955
709 Telepizza 5,412
1,073 Union Electrica Fenosa SA 16,021
300 Vallehermoso SA 3,206
100 Viscofan Industria Navarra Envolturas
Celuosicas SA 1,324
169 Zardoya Otis SA 4,247
------------
921,867
- ------------------------------------------------------------
Sweden--3.7%
3,000 ABB AB, Ser. A 37,213
1,100 ABB AB, Ser. B 13,645
500 AGA AB, Ser. A 6,263
400 AGA AB, Ser. B 5,010
50 Asticus AB 705
5,600 Astra AB, Ser. A 128,372
1,400 Astra AB, Ser. B 31,752
500 Atlas Copco AB, Ser. A 13,560
200 Atlas Copco AB, Ser. B 5,302
100 Diligentia AB 791
500 Drott AB 4,408
1,700 Electrolux AB, Ser. B 33,698
1,500 Forenings Sparbanken AB, Ser. A 35,297
850 Hennes & Mauritz AB, Ser. B 64,089
400 NetCom Systems AB 13,620
400 OM Gruppen AB 5,010
800 Sandvik AB, Ser. A 15,955
200 Sandvik AB, Ser. B 3,989
1,200 Securitas AB, Ser. B 18,971
2,000 Skandia Forsakring AB 37,213
2,200 Skandinaviska Enskilda Banken, Ser. A 26,888
500 Skanska AB, Ser. B 17,025
100 SKF AB, Ser. A 1,405
200 SKF AB, Ser. B 2,846
800 Svenska Cellulosa AB, Ser. B $ 17,366
900 Svenska Handelsbanken, Ser. A 31,357
50 Svenska Handelsbanken, Ser. B 1,605
300 Svenskt Stal AB, Ser. A 3,758
1,300 Swedish Match AB 4,553
8,100 Telefonaktiebolaget LM Ericsson 197,008
400 Trelleborg AB, Ser. B 3,867
600 Volvo AB, Ser. A 15,505
1,300 Volvo AB, Ser. B 34,069
300 Wm-Data AB, Ser. B 11,711
------------
843,826
- ------------------------------------------------------------
Switzerland--10.0%
33 ABB AG 43,654
15 ABB AG (Registered) 3,973
70 Adecco SA 35,517
25 Alusuisse-Lonza Holding AG
(Registered) 27,497
1,090 Credit Suisse Group 203,250
7 Fischer (Georg) AG 2,317
10 Forbo Holding AG 4,155
20 Holderbank Financiere Glarus AG 22,363
35 Holderbank Financiere Glarus AG
(Registered) 9,305
2 Jelmoli Holding AG 1,897
1 Kuoni Reisen AG 3,716
10 Merkur Holding AG 2,351
162 Nestle SA 294,307
254 Novartis AG 412,023
25 Novartis AG (Registered) 40,705
7 Roche Holdings AG 124,853
29 Roche Holdings AG (Registered) 353,648
50 Sairgroup 10,759
1 Schindler Holding AG 1,553
3 Schindler Holding AG (Registered) 5,057
56 Schweizerische Rueckversicherungs-
Gesellschaft 123,907
3 SGS Societe Generale de Surveillance
Holding SA 2,471
10 SGS Societe Generale de Surveillance
Holding SA (Registered) 2,121
7 Sika Finanz AG 1,866
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-144
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Switzerland (cont'd.)
14 SMH AG $ 8,891
50 SMH AG (Registered) 6,942
10 Sulzer AG 6,384
300 Swisscom AG 117,151
881 UBS-Union Bank of Switzerland 276,773
190 Zurich Versicherungs-Gesellschaft 121,562
------------
2,270,968
- ------------------------------------------------------------
United Kingdom--30.5%
5,850 Abbey National plc 120,973
6,550 Allied Zurich 88,290
840 Anglian Water plc 10,305
3,050 Arjo Wiggins Appleton plc 6,844
3,450 Associated British Foods plc 24,254
4,400 BAA plc 49,010
6,350 Barclays plc 182,874
750 Barratt Development plc 3,572
3,457 Bass plc 46,849
1,450 BBA Group plc 9,901
16,629 BG plc 97,847
1,450 BICC plc 2,200
2,800 Blue Circle Industries plc 16,091
2,100 BOC Group plc 29,222
4,100 Boots Co. plc 59,435
550 Bowthorpe plc 3,787
1,900 BPB plc 8,281
7,500 British Aerospace plc 50,124
4,350 British Airways plc 30,318
6,550 British America Tobacco plc 54,666
1,900 British Land Co. plc 16,363
39,950 British Petroleum Co. plc 675,223
7,050 British Sky Broadcasting plc 60,944
7,800 British Steel plc 15,991
26,450 British Telecom plc 430,398
1,400 Bunzl plc 5,503
750 Burmah Castrol plc 11,502
9,800 Cable & Wireless plc 121,973
4,300 Cadbury Schweppes plc 61,779
1,800 Caradon plc 3,966
2,100 Carlton Communications plc 20,713
16,800 Centrica plc $ 29,561
1,750 Coats Viyella plc 1,243
300 Cobham plc 4,511
5,350 Commercial Union plc 84,120
2,900 Compass Group plc 33,566
850 De La Rue plc 3,094
15,005 Diageo plc 168,468
1,400 Electrocomponents plc 10,503
1,170 Elementis plc 1,757
3,050 EMI Group plc 21,799
850 English China Clay plc 3,170
1,800 FKI plc 4,562
11,400 General Electric Co. plc 102,413
2,900 GKN plc 43,678
14,950 Glaxo Wellcome plc 501,258
3,850 Granada Group plc 77,688
1,000 Great Portland Estates plc 3,204
4,200 Great Universal Stores plc 45,596
3,047 Guardian Royal Exchange plc 18,015
10,550 Halifax plc 129,435
900 Hammerson plc 6,066
2,000 Hanson plc 17,935
400 Hepworth plc 1,082
3,600 HSBC Holdings plc (GBP) 116,055
7,350 HSBC Holdings plc (HKD) 234,692
300 Hyder plc 3,802
1,050 IMI plc 4,466
3,400 Imperial Chemical Industries plc 30,462
7,850 J. Sainsbury plc 48,661
750 Johnson Matthey plc 5,648
5,650 Kingfisher plc 71,051
4,450 Ladbroke Group plc 20,689
400 Laird Group plc 1,427
2,000 Land Securities plc 26,475
3,350 LASMO plc 6,814
5,400 Legal & General Group plc 63,897
200 Lex Service plc 1,329
22,150 Lloyds TSB Group plc 333,610
663 Lonrho plc 4,891
5,500 Lucas Varity plc 25,415
12,200 Marks & Spencer plc 80,302
1,156 MEPC plc 8,024
250 Meyer International plc 1,614
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-145
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United Kingdom (cont'd.)
2,000 Misys plc $ 20,276
6,052 National Grid Co. plc 44,233
4,900 National Power plc 37,612
1,400 Next plc 16,046
360 Ocean Group plc 5,416
2,500 P & O Finance plc 36,483
2,500 Pearson plc 57,227
3,850 Pilkington plc 5,159
916 Provident Financial plc 14,255
8,150 Prudential Corp. plc 106,239
1,000 Racal Electronic plc 6,433
2,150 Railtrack Group plc 49,146
3,000 Rank Group plc 10,957
4,600 Reed International plc 40,916
11,900 Rentokil Initial plc 72,999
6,066 Reuters Group plc 88,914
1,477 Rexam plc 4,900
4,400 Rio Tinto Finance plc 60,730
1,000 RMC Group plc 13,447
5,600 Rolls-Royce plc 23,730
6,550 Royal & Sun Alliance Insurance Group
plc 61,856
3,650 Royal Bank Scotland Group plc 79,604
1,750 Rugby Group plc 3,164
4,100 Safeway plc 16,050
1,125 Schroders plc 26,261
2,450 Scottish & Newcastle plc 26,657
3,400 Scottish Hydro-Electric plc 30,764
4,750 ScottishPower plc 41,560
15,745 Siebe plc 69,325
1,350 Slough Estates plc 6,941
22,850 Smithkline Beecham plc 329,952
1,150 Smiths Industries plc 16,838
1,300 St. James's Place Capital plc 5,173
4,000 Stagecoach Holdings plc 14,626
3,471 Tarmac plc 5,925
1,600 Tate & Lyle plc 10,771
1,250 Taylor Woodrow plc $ 3,602
28,150 Tesco plc 74,639
1,191 Thames Water plc 18,073
1,850 TI Group plc 11,976
950 Unigate plc 6,740
13,600 Unilever plc 126,019
1,155 United Biscuits Holding plc 3,524
2,000 United Utilities plc 23,892
766 Vickers plc 1,651
12,950 Vodafone Group plc 240,409
2,492 Williams plc 16,091
2,150 Wolseley plc 16,313
4,000 Zeneca Group plc 189,454
------------
6,914,214
------------
Total common stocks
(cost US$18,595,453) 21,917,180
------------
- ------------------------------------------------------------
PREFERRED STOCKS--0.5%
- ------------------------------------------------------------
Germany--0.5%
10 Dyckerhoff AG, DM 21.43 2,699
10 Friedrich Grohe AG, DM 24.00 2,450
150 MAN AG, DM 1.60 2,931
510 RWE AG, DM 1.80 14,976
180 Sap AG, EUR 1.60 57,909
400 Volkswagen AG, DM 1.60 16,021
------------
96,986
- ------------------------------------------------------------
Italy
4,500 Fiat SpA, L 120.00(a) 7,579
------------
Total preferred stocks
(cost US$111,336) 104,565
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-146
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL EUROPE INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Warrants/
Units Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
WARRANTS(a)
- ------------------------------------------------------------
France
20 Axa-UAP, expiring 12/31/01 $ 102
- ------------------------------------------------------------
Germany
12 Muenchener
Ruckversicherungs-Gesellschaft AG,
expiring 6/3/02 428
- ------------------------------------------------------------
Italy
400 Mediobanca SpA, expiring 12/31/00 1,213
------------
Total warrants (cost US$0) 1,743
------------
COMMON STOCK UNITS(a)
------------------------------------------------------------
Ireland
2,600 Waterford Wedgewood plc
(cost US$3,396) 2,049
------------
Total long-term investments
(cost US$18,710,185) 22,025,537
------------
SHORT-TERM INVESTMENTS--1.2%
<CAPTION>
Principal
Amount
- ------------------------------------------------------------
U.S. Government Securities--0.2%
U.S. Treasury Bills
$50,000 4.37%, 6/17/99(b)
(cost US$49,533) 49,521
------------
- ------------------------------------------------------------
Repurchase Agreement--1.0%
227,000 Joint Repurchase Agreement Account
4.91%, 4/1/99
(cost US$227,000; Note 5) 227,000
------------
Total short-term investments
(cost US$276,533) 276,521
------------
Total Investments--98.3%
(cost US$18,986,718; Note 4) $ 22,302,058
Other assets in excess of
liabilities--1.7% 388,769
------------
Net Assets--100% $ 22,690,827
------------
------------
</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 March 31, 1999 was as follows:
<TABLE>
<S> <C>
Finance............................................... 23.1%
Utilities............................................. 15.0
Health Technology..................................... 10.6
Energy Minerals....................................... 8.3
Consumer Non-Durables................................. 7.3
Process Industries.................................... 6.2
Electronic Technology................................. 5.2
Retail Trade.......................................... 4.6
Producer Manufacturing................................ 3.8
Consumer Durables..................................... 3.2
Commercial Services................................... 2.3
Consumer Services..................................... 2.1
Transportation........................................ 1.8
Non-Energy Minerals................................... 1.4
Industrial Services................................... 1.1
Technology Services................................... 1.1
Repurchase Agreement.................................. 1.0
U.S. Government Obligations........................... 0.2
-----
98.3
Other assets in excess of liabilities................. 1.7
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-147
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
--------------
<S> <C>
Investments, at value (cost $18,986,718)................................................................... $ 22,302,058
Foreign currency, at value (cost $355,625)................................................................. 350,910
Cash....................................................................................................... 731
Dividends and interest receivable.......................................................................... 94,983
Due from Manager........................................................................................... 77,556
Receivable for Fund shares sold............................................................................ 7,137
Due from broker- variation margin.......................................................................... 6,527
Deferred expenses and other assets......................................................................... 112
Forward currency contracts-net amount receivable from counterparties....................................... 20
--------------
Total assets............................................................................................ 22,840,034
--------------
Liabilities
Accrued expenses and other liabilities..................................................................... 128,762
Foreign withholding taxes payable.......................................................................... 18,925
Payable for Fund shares reacquired......................................................................... 1,520
--------------
Total liabilities....................................................................................... 149,207
--------------
Net Assets................................................................................................. $ 22,690,827
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 18,826
Paid-in capital in excess of par........................................................................ 19,428,096
--------------
19,446,922
Distribution in excess of net investment income......................................................... (134,565)
Accumulated net realized gains on investment transactions and foreign currencies........................ 62,563
Net unrealized appreciation on investments and foreign currencies....................................... 3,315,907
--------------
Net assets, March 31, 1999................................................................................. $ 22,690,827
--------------
--------------
Net asset value per share
($22,690,827 / 1,882,563 shares of beneficial interest issued and outstanding).......................... $ 12.05
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-148
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes
of $7,974)............................ $ 124,110
Interest................................. 7,907
--------------
Total Income.......................... 132,017
--------------
Expenses
Management fee........................... 42,212
Custodian's fees and expenses............ 125,000
Reports to shareholders.................. 22,000
Registration fees........................ 17,000
Audit fee and expenses................... 9,000
Legal fees and expenses.................. 6,000
Trustees' fees........................... 3,000
Transfer agent's fees and expenses....... 2,000
Miscellaneous............................ 529
--------------
Total expenses........................ 226,741
Less: Subsidy expense (Note 2)........... (163,433)
--------------
Net expenses.......................... 63,308
--------------
Net investment income....................... 68,709
--------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions.................. 26,079
Foreign currency transactions............ (13,050)
Financial futures transactions........... 64,139
--------------
77,168
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 2,734,711
Foreign currencies....................... (10,720)
Financial futures........................ 18,186
--------------
2,742,177
--------------
Net gain on investments and foreign
currencies............................... 2,819,345
--------------
Net Increase in Net Assets
Resulting from Operations................... $ 2,888,054
--------------
--------------
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
Statement of Operations (Unaudited)
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 1, 1997(a)
Ended Through
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income...... $ 68,709 $ 288,375
Net realized gain on
investments and foreign
currency transactions... 77,168 37,994
Net change in unrealized
appreciation/depreciation
on investments and
foreign currencies...... 2,742,177 573,730
----------- ---------------------
Net increase in net assets
resulting from
operations.............. 2,888,054 900,099
----------- ---------------------
Dividends and distributions
(Note 1):
Dividends from net
investment income....... (403,257) (108,089)
----------- ---------------------
Distributions from net
realized gains.......... (52,600) --
----------- ---------------------
Fund share transactions (Note
6):
Net proceeds from shares
sold.................... 2,987,825 18,141,700
Net asset value of shares
issued in reinvestment
of
dividends and
distributions........... 455,044 108,032
Cost of shares
reacquired.............. (1,210,549) (1,015,432)
----------- ---------------------
Net increase in net assets
from Fund share
transactions............ 2,232,320 17,234,300
----------- ---------------------
Total increase................ 4,664,517 18,026,310
Net Assets
Beginning of period........... 18,026,310 --
----------- ---------------------
End of period(b).............. $22,690,827 $18,026,310
----------- ---------------------
----------- ---------------------
- ---------------
(a) Commencement of investment
operations.
(b) Undistributed net
investment income......... $ -- $ 213,033
----------- ---------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-149
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) 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
- --------------------------------------------------------------------------------
B-150
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) 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 of Position was to reclassify $13,050 of foreign currency losses
from accumulated net realized gains on investments to distributions in excess of
net investment income. 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 terminated at any time
without notice. For the six months ended March
- --------------------------------------------------------------------------------
B-151
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
31, 1999, PIFM subsidized $163,433 of the expenses of the Fund (1.55% of average
daily net assets, annualized, or $0.09 per share).
The Fund has a distribution agreement with PIMS, which acts as the distributor
of the Fund. No distribution or service fees are paid to PIMS as distributor of
the Fund.
PIFM, PIMS and PIC are wholly owned subsidiaries of The Prudential.
As of March 11, 1999, the Fund, along with other unaffiliated registered
investment companies (the 'Funds'), entered into a syndicated agreement ('SCA')
with an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
The Funds pay a commitment fee at an annual rate of .065 of 1% on the unused
portion of the credit facility, which is accrued and paid quarterly on a pro
rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March 11,
1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements is to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 six months ended March 31,
1999, the Fund incurred fees of approximately $1,800 for the services of PMFS.
As of March 31, 1999, approximately $400 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 six months ended March 31, 1999 were $1,936,525 and $249,378,
respectively.
The United States federal income tax cost basis of the Fund's investments at
March 31, 1999 was $19,126,322 and, accordingly, net unrealized appreciation for
federal income tax purposes was $3,175,736 (gross unrealized
appreciation--$4,168,821; gross unrealized depreciation--$993,085).
At March 31, 1999, the Fund had open buys of 100 EUROTOP and 40 FTSE 100
financial futures contracts expiring on June 19, 1999.
The unrealized appreciation on such contracts as of March 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Value at Value on Unrealized
Acquisition March 31, 1999 Appreciation
----------- -------------- ------------
<S> <C> <C> <C>
EUROTOP..................... $ 292,300 $292,800 $ 500
FTSE 100.................... 200,690 203,886 3,196
FTSE 100.................... 87,489 89,627 2,138
-----
$5,834
-----
-----
</TABLE>
At March 31, 1999, the Fund had outstanding forward currency contracts to sell
foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current Unrealized
Sale Contracts Receivable Value Appreciation
- ------------------------------- --------------- ------- ------------
<S> <C> <C> <C>
Great Britain Pound,
expiring 4/1/99............... $20,020 $20,000 $ 20
------ ------- ----
------ ------- ----
</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 March 31, 1999, the Fund
had a .04% undivided interest in the repurchase agreements in the joint account.
This undivided interest represented $227,000 in principal amount. As of such
date, the repurchase agreement in the joint account and the value of the
collateral therefore was as follows:
Bear, Stearns & Co., Inc., 4.92%, in the principal amount of $170,000,000,
repurchase price $170,023,223, due 4/1/99. The value of the collateral including
accrued interest was $174,282,442.
Salomon Smith Barney, Inc., 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.
Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.
- --------------------------------------------------------------------------------
B-152
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
SBC Warburg Dillon Read, Inc., 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
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 were as
follows:
<TABLE>
<CAPTION>
Six months ended March 31, 1999: Shares
- --------------------------------------------------- ---------
<S> <C>
Shares sold........................................ 249,936
Shares issued in reinvestment of dividends and
distributions.................................... 39,397
Shares reacquired.................................. (101,569)
---------
Net increase in shares outstanding................. 187,764
---------
---------
<CAPTION>
October 1, 1997(a) through September 30, 1998:
- ---------------------------------------------------
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 March 31, 1999, 1,544,903 of the outstanding shares were owned by The
Prudential.
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-153
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Financial Highlights (Unaudited) PRUDENTIAL EUROPE INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 1, 1997(a)
Ended Through
March 31, September 30,
1999 1998
----------- ------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................................. $ 10.64 $ 10.00
----------- ------
Income from investment operations
Net investment income(c).............................................................. .04 .18
Net realized and unrealized gain on investment and foreign currency transactions...... 1.63 .53
----------- ------
Total from investment operations................................................... 1.67 .71
----------- ------
Less distributions
Dividends from net investment income.................................................. (.23) (.07)
Distributions from net realized gains................................................. (.03) --
----------- ------
Total distributions................................................................ (.26) (.07)
----------- ------
Net asset value, end of period........................................................ $ 12.05 $ 10.64
----------- ------
----------- ------
TOTAL RETURN(d):...................................................................... 15.80% 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................................................... $22,691 $ 18,026
Average net assets (000).............................................................. $21,164 $ 17,728
Ratios to average net assets:(b)/(c)
Expenses........................................................................... .60% .60%
Net investment income.............................................................. .65% 1.64%
Portfolio turnover.................................................................... 1% 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 each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-154
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.0%
COMMON STOCKS--96.4%
- ------------------------------------------------------------
Australia--9.0%
6,600 Amcor Ltd. $ 32,926
11,900 AMP Ltd. 129,781
3,109 Australian Gas Light Co. 22,087
12,202 Boral Ltd. 17,576
2,600 Brambles Industries, Ltd. 65,815
20,231 Broken Hill Proprietary Co., Ltd. 171,835
10,168 Coca Cola Amatil Ltd. 43,920
12,807 Coles Myer Ltd. 69,206
9,100 Colonial Ltd. 36,031
3,300 CRA Ltd. 45,924
9,682 Crown Ltd.(a) 4,891
1,000 CSL Ltd. 8,292
10,300 CSR Ltd. 22,239
2,955 Email Ltd. 5,094
1,249 F. H. Faulding & Co. Ltd. 7,414
18,800 Fosters Brewing Group Ltd. 55,099
4,907 Futuris Corp., Ltd. 6,259
14,254 General Property Trust 24,844
6,768 GIO Australia Holdings Ltd. 19,340
13,251 Goodman Fielder Ltd. 13,665
4,000 Hardie (James) Industries Ltd. 8,765
2,788 ICI Australia Ltd. 14,613
2,700 Leighton Holdings Ltd. 8,883
5,549 Lend Lease Corp. Ltd. 70,403
17,560 M.I.M. Holdings Ltd. 7,873
2,400 Mayne Nickless Ltd. 7,881
15,841 National Australia Bank Ltd. 286,602
2,300 Newcrest Mining Ltd.(a) 4,474
21,966 News Corp., Ltd. 161,908
17,823 Normandy Mining Ltd.(a) 14,182
7,681 North Ltd. 12,175
10,400 Pacific Dunlop Ltd. 18,061
9,200 Pioneer International Ltd. 18,185
3,836 QBE Insurance Group Ltd. 15,869
2,100 RGC Ltd. 0
1,200 Rothmans Holdings Ltd. 10,685
6,531 S.A. Brewing Holdings Ltd. 26,441
6,200 Santos Ltd. 17,854
4,000 Schroders Property Fund $ 6,113
1,825 Smith (Howard) Ltd. 14,118
3,258 Smorgon Steel Group Ltd. 4,115
5,300 Star City Holdings Ltd. 5,389
3,425 Stockland Trust Group 8,328
2,500 Suncorp-Metway Ltd. 15,156
3,000 TABCORP Holdings Ltd. 22,734
55,200 Telstra Corp. 287,759
2,200 Wesfarmers Ltd. 20,585
12,918 Western Mining Corp. Holdings Ltd. 40,952
13,373 Westfield Trust 28,326
20,936 Westpac Banking Corp. Ltd. 152,042
1,377 Westralian Sands Ltd. 3,137
11,400 Woolworths Ltd. 36,355
------------
2,152,201
------------
- ------------------------------------------------------------
Hong Kong--7.3%
13,000 Bank of East Asia 22,059
35,000 Cathay Pacific Airways 40,196
25,000 Cheung Kong Ltd. 190,333
26,000 China Light & Power Holdings, Ltd. 124,807
20,000 Chinese Estates Holdings 2,942
3,000 Dickson Concept Inc. 2,439
11,000 Hang Lung Development Co. 13,343
21,000 Hang Seng Bank Ltd. 193,076
44,000 Hong Kong & China Gas Co. 62,171
4,000 Hong Kong Construction Holdings 1,626
11,000 Hong Kong & Shanghai Hotels 8,446
2,000 Hong Kong Aircraft Engineering Co.
Ltd. 2,942
130,000 Hong Kong Telecommunications Ltd. 256,660
8,800 Hopewell Holdings Ltd. 4,258
42,000 Hutchison Whampoa Ltd. 330,600
9,000 Hysan Development Co. 11,730
10,000 Johnson Electric Holdings, Ltd. 28,195
6,000 Miramar Hotel & Investment Co. 6,310
21,000 New World Development Co., Ltd. 41,325
14,000 Oriental Press Group 1,264
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-155
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Hong Kong (cont'd.)
6,000 Peregrine Investments Holdings Ltd. $ 8
38,000 Regal Hotel International 3,727
16,000 Shangri-La Asia Ltd. 16,311
14,000 Shun Tak Holdings Ltd. 2,710
32,000 Sino Land Co. 16,827
14,000 South China Morning Post 7,768
26,000 Sun Hung Kai Properties Ltd. 194,592
17,000 Swire-Pacific, Ltd. 'A' 78,972
4,000 Television Broadcasts Ltd. 14,581
2,000 Varitronix International, Ltd. 3,123
23,000 Wharf Holdings Ltd. 35,318
2,000 Wing Lung Bank 6,994
------------
1,725,653
------------
- ------------------------------------------------------------
Japan--77.1%
4,000 77th Bank, Ltd.(a) 38,673
1,600 Acom Co., Ltd. 113,079
1,000 Advantest Corp. 76,416
7,000 Ajinomoto Co., Inc. 83,340
2,000 Alps Electric Co. Ltd. 33,691
3,000 Amada Co. Ltd. 15,959
1,000 Amano Corp. 7,684
3,000 Aoki Corp. 1,951
800 Aoyama Trading Co., Ltd. 21,616
500 Arabian Oil Co. 8,486
26,000 Asahi Bank Ltd. 137,212
5,000 Asahi Breweries Ltd. 65,439
16,000 Asahi Chemical Industry Co., Ltd. 93,625
13,000 Asahi Glass Co. Ltd. 94,402
5,000 Ashikaga Bank 9,668
400 Autobacs Seven Co. Ltd. 16,381
49,000 Bank of Tokyo-Mitsubishi, Ltd. 675,234
12,000 Bank of Yokohama 30,398
9,000 Bridgestone Corp. 229,503
3,000 Brother Industries, Ltd. 9,221
9,000 Canon Inc. 222,663
3,000 Casio Computer Co. 20,341
8,000 Chiba Bank 34,991
10,000 Chichibu Onoda Cement Corp. 28,287
2,000 Chiyoda Corp. 4,323
2,000 Chugai Phamacy Co. 23,102
3,000 Citizen Watch Co. 20,772
5,000 Cosmo Oil Co. $ 8,993
1,700 Credit Saison Co. Ltd. 37,322
600 CSK Corp. 18,948
8,000 Dai Nippon Printing Co., Ltd. 121,591
4,000 Daicel Chemical Industries, Ltd. 13,172
4,000 Daido Steel Co. 5,674
7,000 Daiei Inc. 20,155
1,000 Daifuku Co. Ltd. 6,628
3,000 Daiichi Pharmaceutical Co. 50,410
3,000 Daikin Industries Ltd. 29,714
2,000 Daikyo Inc. 3,901
3,000 Daimaru Inc. 14,186
8,000 Dainippon Ink & Chemicals, Inc. 26,412
2,000 Dainippon Screen Manufacturing Co.,
Ltd. 7,768
1,400 Daito Trust Construction Co., Ltd. 14,706
6,000 Daiwa House Industries 68,496
2,000 Daiwa Kosho Lease Co., Ltd 7,346
14,000 Daiwa Securities Co., Ltd. 75,065
5,000 Denki Kagaku Kogyo K.K. 8,528
9,000 Denso Corp. 176,687
43 East Japan Railway Co. 255,611
3,000 Ebara Corp. 33,134
3,000 Eisai Co., Ltd. 62,695
1,000 Ezaki Glico Co. 6,029
2,700 Fanuc Ltd. 110,344
32,000 Fuji Bank 189,411
5,000 Fuji Photo Film Co. 189,141
4,000 Fujikura Ltd. 21,616
5,000 Fujita Corp. 3,842
1,000 Fujita Kanko Inc. 9,204
20,000 Fujitsu Ltd. 321,202
7,000 Furukawa Electric Co. Ltd. 28,962
1,000 Gakken Co. 1,182
5,000 Gunma Bank 39,390
2,000 Gunze Ltd. 4,644
9,000 Hankyu Corp. 39,137
2,000 Hankyu Department Stores 14,253
3,000 Hazama Corp. 2,432
3,000 Higo Bank Ltd. 12,640
400 Hirose Electric Co., Ltd. 33,437
36,000 Hitachi Ltd. 266,588
10,000 Hitachi Zosen Corp. 12,835
6,000 Hokuriku Bank 11,399
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-156
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
10,000 Honda Motor Co., Ltd. $ 451,744
1,000 House Foods Corp. 14,186
1,000 Hoya Corp. 56,742
2,000 Inax Corp. 13,611
28,000 Indonesia Bank 189,141
2,000 Isetan Co. 19,083
3,000 Ishihara Sangyo Kaisha(a) 4,610
4,000 Ito Yokado Co., Ltd. 257,367
15,000 Itochu Corp. 31,158
2,000 Itoham Foods Inc. 8,241
2,000 Iwatani International Corp. 4,323
1,000 JACCS Co., Ltd. 4,230
20,000 Japan Air Lines Co.(a) 65,355
11,000 Japan Energy Corp. 12,446
4,000 Japan Steel Works 4,729
2,000 JGC Corp. 4,340
9,000 Joyo Bank 38,149
3,000 JUSCO Co., Ltd. 52,183
11,000 Kajima Corp. 33,437
3,000 Kamigumi Co., Ltd. 13,932
2,000 Kandenko Co. 13,341
5,000 Kanebo Ltd.(a) 5,488
4,000 Kaneka Corp. 31,749
10,600 Kansai Electrical Power Co., Inc. 214,363
3,000 Kansai Paint Co. 7,954
7,000 Kao Corp. 154,564
1,000 Katokichi Co. 13,687
15,000 Kawasaki Heavy Industries Ltd. 32,678
6,000 Kawasaki Kisen Ltd. 11,804
35,000 Kawasaki Steel Corp. 59,107
5,000 Keihin Elecetric Express Railway
Co., Ltd. 16,339
2,000 Kikkoman Corp. 13,645
3,000 Kinden Corp. 41,797
18,000 Kinki Nippon Railway 96,361
11,000 Kirin Brewery Co. 128,920
1,000 Kissei Pharmaceutical Co., Ltd. 20,265
1,000 Kokuyo Co. 16,499
10,000 Komatsu Ltd. 51,423
1,000 Komori Corp. 18,534
450 Konami Co. 16,643
4,000 Konica Corp. 16,820
2,000 Koyo Seiko Co. $ 12,007
15,000 Kubota Corp. 39,897
7,000 Kumagai Gumi Co.(a) 6,147
3,000 Kurabo Industries 3,673
3,000 Kuraray Co. 32,551
2,000 Kureha Chemical Industry Co. Ltd. 5,201
1,000 Kurita Water Industries 16,364
2,100 Kyocera Corp. 113,130
4,000 Kyowa Hakko Kogyo Co., Ltd. 21,008
1,000 Kyudenko Co., Ltd. 6,122
3,000 Lion Corp. 11,323
1,000 Maeda Road Construction Co. 6,333
1,000 Makino Milling Machine Co., Ltd. 6,147
2,000 Makita Corp. 22,309
15,000 Marubeni Corp. 28,498
3,000 Maruha Corp. 3,166
4,000 Marui Co.(a) 68,057
22,000 Matsushita Electric Industrial Co.,
Ltd. 429,114
3,000 Meiji Milk Product Co., Ltd. 9,575
4,000 Meiji Seika Kaisha 17,901
4,000 Minebea Co.(a) 41,341
1,000 Misawa Homes Co. 3,394
24,000 Mitsubishi Chemical Corp. 68,091
17,000 Mitsubishi Corp. 111,247
24,000 Mitsubishi Electric Corp. 80,250
14,000 Mitsubishi Estate Co., Ltd. 142,447
5,000 Mitsubishi Gas Chemicals Co. 14,017
37,000 Mitsubishi Heavy Industries Ltd. 167,145
2,000 Mitsubishi Logistics Corp. 23,018
12,000 Mitsubishi Material Corp. 25,838
5,000 Mitsubishi Oil Co. 8,613
3,000 Mitsubishi Paper Mills 4,990
6,000 Mitsubishi Rayon Co. 15,148
14,000 Mitsubishi Trading & Banking 145,166
18,000 Mitsui & Co. 121,743
8,000 Mitsui Engineering & Shipbuilding
Co., Ltd.(a) 7,431
9,000 Mitsui Fudosan Co., Ltd. 81,086
8,000 Mitsui Marine & Fire Insurance Co.,
Ltd. 40,530
5,000 Mitsui Mining & Smelting Co. 24,149
11,000 Mitsui O.S.K. Lines 22,663
1,000 Mitsui Soko Co. 3,580
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-157
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
12,000 Mitsui Trust & Banking Co. $ 17,732
5,000 Mitsukoshi Ltd. 13,975
1,000 Mori Seiki Co. 11,475
2,000 Murata Manufacturing Co., Ltd. 106,392
3,000 Mycal Corp. 18,517
2,000 Nagase & Co. 8,191
8,000 Nagoya Railroad Co. 28,236
500 Namco Ltd. 13,172
5,000 Nankai Electric Railway Co. 23,938
17,000 NEC Corp. 204,551
4,000 NGK Insulators Ltd. 45,191
2,000 NGK Spark Plug Co. 23,068
5,000 Nichido Fire & Marine Insurance 29,300
3,000 Nichirei Corp. 6,257
4,000 Nikon Corp. 48,636
1,000 Nippon Comsys Corp. 14,017
12,000 Nippon Express Co., Ltd. 71,029
6,000 Nippon Fire & Marine Insurance 19,049
5,000 Nippon Light Metal Co., Ltd. 5,488
2,000 Nippon Meat Packers, Inc. 28,236
13,000 Nippon Oil Co. 50,823
10,000 Nippon Paper Industries Co. 50,241
1,000 Nippon Sharyo Ltd. 3,057
4,000 Nippon Sheet Glass Co. 13,848
3,000 Nippon Shinpan Co. 6,839
2,000 Nippon Shokubai Co. 11,332
74,000 Nippon Steel Corp. 151,837
3,000 Nippon Suisan Kaisha(a) 3,876
134 Nippon Telegraph & Telephone Corp. 1,312,505
13,000 Nippon Yusen K.K. 51,592
3,000 Nishimatsu Construction Co. 15,807
27,000 Nissan Motor Co., Ltd.(a) 104,872
2,000 Nisshinbo Industries, Inc. 7,650
1,000 Nissin Food Products Co., Ltd. 22,207
2,000 Nitto Denko Corp. 35,211
38,000 NKK Corp. 24,065
2,000 NOF Corp. 3,867
21,000 Nomura Securities Co., Ltd. 219,877
2,000 Noritake Co. 10,724
6,000 NSK Ltd. 27,865
5,000 NTN Corp. 17,268
8,000 Obayashi Corp. $ 44,583
7,000 Odakyu Electric Railway 26,184
11,000 Oji Paper Co. 58,608
1,000 Okuma Corp. 5,142
3,000 Okumura Corp. 12,311
3,000 Olympus Optical Co. 39,517
3,000 Omron Corp. 37,491
2,000 Onward Kashiyama & Co., Ltd. 23,727
3,000 Orient Corp. 7,827
700 Orix Corp. 52,546
28,000 Osaka Gas Co. 96,462
100 Oyo Corp. 1,544
4,000 Penta-Ocean Construction 7,532
2,000 Pioneer Electronic Corp. 37,153
2,000 Q.P. Corp. 15,705
3,000 Renown Inc. 2,330
1,000 Rohm Co., Ltd. 119,480
40,000 Sakura Bank 121,253
1,000 Sanden Corp. 8,410
2,000 Sankyo Aluminium Industry Co. 1,908
5,000 Sankyo Co. 107,236
1,000 Sanrio Co.(a) 18,576
2,000 Sanwa Shutter Corp. 10,301
22,000 Sanyo Electric Co. 77,092
3,000 Sapporo Breweries Ltd. 14,135
1,000 Secom Co., Ltd. 94,739
1,000 Sega Enterprises Ltd. 18,154
1,000 Seino Transportation Co. 5,911
2,000 Seiyu Ltd. 9,525
6,000 Sekisui Chemical Corp., Ltd. 42,709
8,000 Sekisui House Ltd. 85,114
12,000 Sharp Corp. 126,657
500 Shimachu Co. 11,864
1,000 Shimano Inc. 24,360
9,000 Shimizu Corp. 36,477
4,000 Shin-Etsu Chemical Co., Ltd. 105,041
4,000 Shionogi & Co. 35,126
4,000 Shiseido Co., Ltd. 55,391
8,000 Shizuoka Bank 96,597
11,000 Showa Denko K.K. 11,332
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-158
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
1,000 Skylark Co. $ 19,843
700 SMC Corp. 62,653
3,000 Snow Brand Milk Products 16,465
4,400 Sony Corp. 406,823
33,000 Sumitomo Bank 446,669
18,000 Sumitomo Chemical Co., Ltd. 72,499
12,000 Sumitomo Corp. 78,730
8,000 Sumitomo Electric Industries 94,841
2,000 Sumitomo Forestry Co., Ltd. 13,763
6,000 Sumitomo Heavy Industries Ltd. 12,919
7,000 Sumitomo Marine & Fire Insurance Co. 44,803
40,000 Sumitomo Metal Industries(a) 48,299
6,000 Sumitomo Metal Mining 25,585
5,000 Sumitomo Osaka Cement Co. 11,272
10,000 Taisei Corp. 23,474
4,000 Taisho Pharmacy Co., Ltd. 124,968
1,000 Taiyo Yuden Co. 12,961
2,000 Takara Shuzo Co. 12,666
1,000 Takara Standard Co., Ltd. 7,093
3,000 Takashimaya Co. 27,485
9,000 Takeda Chemical Industries 348,814
1,000 Takuma Co. Ltd. 6,713
10,000 Teijin Ltd. 40,361
3,000 Teikoku Oil Co. 9,905
2,000 Toa Corp. 3,496
9,000 Tobu Railway Co. 26,522
1,000 Toei Co. 2,786
200 Toho Co. 27,105
5,500 Tohoku Electrical Power Co., Inc. 83,640
22,000 Tokai Bank 141,923
17,000 Tokio Marine & Fire Insurance Co. 193,929
2,000 Tokyo Broadcasting System Inc. 25,416
2,000 Tokyo Dome Corp. 11,652
14,600 Tokyo Electric Power Co. 314,363
2,000 Tokyo Electron Ltd. 103,521
32,000 Tokyo Gas Co. 78,088
1,400 Tokyo Steel Manufacturing Co. 6,715
1,000 Tokyo Style Co. 10,133
2,000 Tokyo Tatemono Co. Ltd. 4,188
3,000 Tokyotokeiba Co. 4,610
11,000 Tokyu Corp. 28,701
7,000 Toppan Printing Co. $ 91,674
15,000 Toray Industries Inc. 77,894
5,000 Tosoh Corp. 9,246
2,000 Tostem Corp. 36,984
4,000 Toto Ltd. 29,756
2,000 Toyo Engineering 2,195
2,000 Toyo Seikan Kaisha 43,148
7,000 Toyobo Co., Ltd. 9,694
3,000 Toyoda Auto Loom Works Ltd. 54,843
40,000 Toyota Motor Corp. 1,158,490
2,000 Tsubakimoto Chain Co. 4,644
8,000 Ube Industries Ltd. 15,402
700 Uni-Charm Corp. 31,445
5,000 Unitika Ltd.(a) 3,462
2,000 Uny Co. Ltd. 36,308
2,000 Wacoal Corp. 23,119
2,000 Yamaguchi Bank 21,532
2,000 Yamaha Corp. 21,177
12,000 Yamaichi Securities Co.(d) 0
4,000 Yamanouchi Pharmaceutical Co., Ltd. 126,657
4,000 Yamato Transport Co. 65,321
2,000 Yamazaki Baking Co. 26,868
15,000 Yasuda Trust & Banking(a) 18,492
3,000 Yokogawa Electric Corp. 14,768
------------
18,320,059
------------
- ------------------------------------------------------------
Malaysia
350 Silverstone Berhad (b) 0
- ------------------------------------------------------------
New Zealand--0.6%
27,900 Brierley Investment Ltd 6,844
16,000 Carter Holt Harvey Ltd. 15,018
3,300 Fletcher Challenge Building 4,453
3,400 Fletcher Challenge Energy, Ltd. 6,491
8,000 Fletcher Challenge Forestry, Ltd. 3,114
6,700 Fletcher Challenge Paper 4,288
5,500 Lion Nathan Ltd. 13,786
19,900 Telecom Corp. of New Zealand 96,788
------------
150,782
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-159
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
PRUDENTIAL PACIFIC INDEX FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Singapore--2.4%
8,000 City Developments Ltd. $ 41,655
1,000 Creative Technology Ltd.(a) 11,629
2,000 Cycle & Carriage Ltd.(a) 8,447
10,000 DBS Land, Ltd. 14,753
6,500 Development Bank of Singapore, Ltd. 49,263
3,000 First Capital Corp. 2,916
3,000 Fraser & Neave Ltd. 10,674
4,000 Hotel Properties Ltd. 1,874
2,000 Inchcape Motors Ltd. 2,314
8,000 Keppel Corp., Ltd. 21,568
3,000 NatSteel Ltd. 3,142
7,000 Neptune Orient Lines Ltd. 2,389
11,000 Oversea-Chinese Banking Corp., Ltd. 74,458
1,000 Overseas-Union Enterprise 1,718
3,000 Parkway Holdings, Ltd. 5,866
27,000 S.T. Engineering(a) 24,368
15,872 Sembcorp Industries 17,355
9,000 Singapore Airlines Ltd. 65,086
3,445 Singapore Press Holdings Ltd. 38,068
67,000 Singapore Telecommunications, Ltd. 95,355
3,000 Straits Trading Co.(a) 2,690
8,000 United Overseas Bank Ltd. 49,986
6,000 United Overseas Land 4,061
10,000 UTD Industrial Corp. 5,207
2,000 Venture Manufacturing Ltd. 9,025
------------
563,867
------------
Total common stocks
(cost $25,248,834) 22,912,562
------------
- ------------------------------------------------------------
PREFERRED STOCKS--0.6%
Australia
19,371 News Corp. Ltd.
(cost $85,789) 132,603
- ------------------------------------------------------------
Units
WARRANTS(a)
Hong Kong
2,000 Chinese Estates Holdings
Warrants expiring November 1999
@ HKD 0.97 88
2,000 Chinese Estates Holdings
Warrants expiring November 2000
@ HKD 1.02 $ 58
2,000 Hong Kong & China Gas Co.
Warrants expiring September 1999
@ HKD 12.27 77
800 Hong Kong Construction Holdings
Warrants expiring December 1999
@ HKD 5.00 31
900 Hysan Development Co.
Warrants expiring April 1999
@ HKD 16.00 1
1,150 Wharf Holdings Ltd.
Warrants expiring December 1999
@ HKD 17.50 60
------------
Total warrants 315
------------
Total long-term investments
(cost $25,334,623) 23,045,480
------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--0.1%
------------------------------------------------------------
U.S. Government Securities
$30 United States Treasury Bill(c),
4.37%, 6/17/99
(cost $29,718) 29,718
------------
- ------------------------------------------------------------
Total Investments--97.1%
(cost $25,364,341; Note 4) 23,075,198
Other assets in excess of
liabilities--2.9% 684,812
------------
Net Assets--100% $ 23,760,010
------------
------------
</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. B-160
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Portfolio of Investments as of March 31, 1999 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
The industry classification of portfolio holdings and other
assets in excess of liabilities shown as a percentage of net
assets as of March 31, 1999 was as follows:
<S> <C>
Commercial Banking.................................... 13.7%
Telecommunications.................................... 8.6
Automobiles & Auto Parts.............................. 8.1
Electronics........................................... 5.3
Appliances & Household Durables....................... 4.6
Real Estate........................................... 4.0
Drugs & Health Care................................... 3.9
Retail................................................ 3.1
Electrical Utilities.................................. 3.1
Chemicals............................................. 2.8
Diversified Industries................................ 2.7
Railroads............................................. 2.2
Food & Beverage....................................... 2.2
Financial Services.................................... 2.2
Building & Construction............................... 1.9
Machinery & Equipment................................. 1.8
Wholesale............................................. 1.6
Oil & Gas............................................. 1.6
Photography........................................... 1.5
Insurance............................................. 1.5
Transportation & Warehousing.......................... 1.4
Computers............................................. 1.4
Broadcasting & Other Media............................ 1.4
Iron & Steel.......................................... 1.3
Engineering & Construction............................ 1.2
Office Equipment & Supplies........................... 1.1
Electrical Equipment.................................. 1.1
Rubber................................................ 1.0
Mining................................................ 1.0%
Printing & Publishing................................. 0.9
Electronic Components................................. 0.9
Cosmetics & Toiletries................................ 0.9
Airlines.............................................. 0.7
Paper................................................. 0.6
Health Care/Acute..................................... 0.6
Building Materials & Components....................... 0.6
Glass Products........................................ 0.5
Property Investment................................... 0.4
Metals................................................ 0.4
Business Services..................................... 0.4
Hotels................................................ 0.3
Entertainment......................................... 0.3
Retail Trade.......................................... 0.2
Publishing............................................ 0.2
Gaming................................................ 0.2
Diversified Resources................................. 0.2
Diversified Funds..................................... 0.2
Containers............................................ 0.2
Computer Software & Services.......................... 0.2
Beverages............................................. 0.2
Apparel............................................... 0.2
Textiles.............................................. 0.1
Paper & Packaging..................................... 0.1
Diversified Manufacturing............................. 0.1
Diversified Operations................................ 0.1
Tobacco............................................... 0.1
-----
97.1
Other assets in excess of liabilities................. 2.9
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-161
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
--------------
<S> <C>
Investments, at value (cost $25,364,341)................................................................... $ 23,075,198
Foreign currency, at value (cost $496,720)................................................................. 541,578
Cash....................................................................................................... 77,782
Due from manager........................................................................................... 48,798
Dividends and interest receivable.......................................................................... 104,955
Receivable for Fund shares sold............................................................................ 1,127
Other assets............................................................................................... 52
--------------
Total assets............................................................................................ 23,849,490
--------------
Liabilities
Accrued expenses........................................................................................... 70,434
Foreign withholding taxes payable.......................................................................... 13,443
Due to broker-variation margin............................................................................. 5,409
Payable for investments purchased.......................................................................... 194
--------------
Total liabilities....................................................................................... 89,480
--------------
Net Assets................................................................................................. $ 23,760,010
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 26,981
Paid-in capital in excess of par........................................................................ 26,537,128
--------------
26,564,109
Undistributed net investment income..................................................................... 29,712
Accumulated net realized loss on investments............................................................ (610,927)
Net unrealized depreciation on investments and foreign currencies....................................... (2,222,884)
--------------
Net assets, March 31, 1999................................................................................. $ 23,760,010
--------------
--------------
Net asset value per share
($23,760,010 / 2,698,076 shares of beneficial interest issued and outstanding).......................... $ 8.81
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-162
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes
of $15,064)........................... $ 137,060
Interest................................. 5,302
--------------
Total income.......................... 142,362
--------------
Expenses
Management fee........................... 40,535
Custodian's fees and expenses............ 101,500
Registration fees........................ 10,000
Audit fee and expenses................... 9,000
Reports to shareholders.................. 5,000
Legal fees and expenses.................. 3,500
Trustees' fees........................... 3,000
Transfer agent's fees and expenses....... 500
Miscellaneous............................ 1,079
--------------
Total operating expenses.............. 174,114
Less: Expense subsidy (Note 2)........... (113,310)
--------------
Net expenses.......................... 60,804
--------------
Net investment income....................... 81,558
--------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions.................. (258,126)
Foreign currency transactions............ (44,576)
Financial futures contracts.............. 37,080
--------------
(265,622)
--------------
Net change in unrealized depreciation on:
Investments.............................. 6,592,128
Foreign currencies....................... 57,949
Financial futures contracts.............. 27,691
--------------
6,677,768
--------------
Net gain on investments and foreign
currencies............................... 6,412,146
--------------
Net Increase in Net Assets
Resulting from Operations................... $6,493,704
--------------
--------------
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL PACIFIC INDEX FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income............ $ 81,558 $ 155,134
Net realized loss on investments
and foreign currency
transactions.................. (265,622) (397,409)
Net change in unrealized
appreciation (depreciation) on
investments and foreign
currencies.................... 6,677,768 (8,592,169)
----------- -------------
Net increase (decrease) in net
assets resulting from
operations.................... 6,493,704 (8,834,444)
----------- -------------
Dividends from net investment income
(Note 1)......................... (156,767) (25,244)
----------- -------------
Fund share transactions (Note 5)
Net proceeds from shares sold.... 1,892,138 942,289
Net asset value of shares issued
in reinvestment of
dividends..................... 156,767 25,244
Cost of shares reacquired........ (1,066,989) (365,748)
----------- -------------
Net increase in net assets from
Fund share transactions....... 981,916 601,785
----------- -------------
Total increase (decrease)........... 7,318,853 (8,257,903)
----------- -------------
Net Assets
Beginning of period................. 16,441,157 24,699,060
----------- -------------
End of period(a).................... $23,760,010 $ 16,441,157
----------- -------------
----------- -------------
- ---------------
(a) Includes undistributed net
investment income of............ $ 29,712 $ 149,497
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-163
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) 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 15 percent effective
February 26, 1999.
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.
Repurchase Agreements: 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 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 period. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the 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
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
- --------------------------------------------------------------------------------
B-164
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
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 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: 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 decrease undistributed net investment income and to
decrease accumulated net realized loss on investments by $44,576, relating to
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 six months ended March 31, 1999, PIFM subsidized
$113,310 of the expenses of the Fund (1.12% of average net assets annualized or
$0.04 per share).
The Company has a distribution agreement with Prudential Investment Management
Services ('PIMS'), which acts as the distributor of the Company. No distribution
or service fees are paid to PIMS as distributor of the Fund.
- --------------------------------------------------------------------------------
B-165
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential.
As of March 11, 1999, the Company, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements are to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 six months ended March 31,
1999, the Fund incurred fees of approximately $400 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 six months ended March 31, 1999 were $887,459 and $292,539,
respectively.
The cost basis of investments for federal income tax purposes at March 31, 1999
was $25,408,791 and, accordingly, net unrealized depreciation for federal income
tax purposes was $2,333,591 (gross unrealized appreciation--$1,361,291; gross
unrealized depreciation--$3,694,882).
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 occurred in the current fiscal year.
During the six months ended March 31, 1999, the Fund entered into financial
futures contracts. Details of open contracts as of March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration March 31, Trade Appreciation/
Contracts Type Date 1999 Date (Depreciation)
- -------------- ------------------- ---------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Long Positions:
1 Hang Seng Apr. 1999 $70,294 $ 69,746 $ 548
2 ASX All Ordinaries Jun. 1999 93,746 95,419 (1,673)
20 Nikkei 300 Jun. 1999 425,061 403,496 21,565
------
$ 20,440
------
------
</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 were as
follows:
<TABLE>
<CAPTION>
Shares
--------
<S> <C>
Six months ended March 31, 1999:
Shares sold......................................... 232,439
Shares issued in reinvestment of dividends.......... 20,021
Shares reacquired................................... (132,504)
--------
Net increase in shares outstanding.................. 119,956
--------
--------
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
--------
--------
</TABLE>
As of March 31, 1999, 2,522,480 of the outstanding shares were owned by The
Prudential.
- --------------------------------------------------------------------------------
B-166
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Financial Highlights (Unaudited) PRUDENTIAL PACIFIC INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 24,
Six Months 1997(a)
Ended Year Ended Through
March 31, September 30, September 30,
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 6.38 $ 9.88 $ 10.00
----------- ------ ------
Income from investment operations
Net investment income(b)................................................. 0.03 0.06 0.02
Net realized and unrealized gain (loss) on investment and foreign
currency transactions................................................. 2.46 (3.55) (0.14)
----------- ------ ------
Total from investment operations...................................... 2.49 (3.49) (0.12)
----------- ------ ------
Less distributions
Dividends from net investment income..................................... (.06) (.01) --
----------- ------ ------
Net asset value, end of period........................................... $ 8.81 $ 6.38 $ 9.88
----------- ------ ------
----------- ------ ------
TOTAL RETURN(d).......................................................... 37.84% (35.54)% (1.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................... $23,760 $16,441 $24,699
Average net assets (000)................................................. $20,323 $19,827 $24,802
Ratios to average net assets:(b)
Expenses.............................................................. .60%(c) .60% .60%(c)
Net investment income................................................. .80%(c) .78% 13.14%(c)
Portfolio turnover....................................................... 1% 2% 0%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-167
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.1%
COMMON STOCKS--95.1%
- ------------------------------------------------------------
Advertising--1.1%
3,450 HA-LO Industries, Inc.(a) $ 42,478
3,500 True North Communications, Inc. 98,438
3,000 Valassis Communications, Inc. 155,250
-----------
296,166
- ------------------------------------------------------------
Aerospace--0.7%
1,000 Aviation Sales Co.(a) 44,500
1,900 BE Aerospace, Inc.(a) 28,025
2,900 Orbital Sciences Corp.(a) 82,106
1,700 Trimble Navigation, Ltd.(a) 16,575
-----------
171,206
- ------------------------------------------------------------
Airlines--0.5%
2,275 Comair Holdings, Inc. 53,747
2,200 Mesa Air Group, Inc.(a) 13,750
1,900 SkyWest, Inc. 54,862
-----------
122,359
- ------------------------------------------------------------
Automobiles & Trucks--1.3%
2,800 Breed Technologies, Inc. 9,975
1,300 Discount Auto Parts, Inc.(a) 27,950
5,700 Gentex Corp. 122,906
1,400 Simpson Industries, Inc. 13,475
1,850 Smith (A.O.) Corp. 35,150
900 Spartan Motors, Inc. 5,288
1,000 Standard Motor Products, Inc. (Class
'A' Stock) 20,687
1,600 TBC Corp.(a) 9,700
1,600 Titan International, Inc. 12,300
3,600 Tower Automotive, Inc.(a) 67,055
1,800 Wabash National Corp. 20,925
-----------
345,411
Banks--6.2%
1,400 Anchor BanCorp, Inc. $ 21,525
1,800 Banknorth Group, Inc. 50,850
1,800 Carolina First Corp. 39,600
2,100 Centura Banks, Inc. 122,194
2,158 Commerce Bancorp, Inc. 89,017
4,800 Commercial Federal Corp.(a) 111,300
2,190 Downey Financial Corp. 40,104
7,000 First Merit Corp. 180,250
2,300 First Midwest Bancorp, Inc. 87,400
2,300 FirstBank Puerto Rico(a) 55,344
3,457 HUBCO, Inc. 116,026
800 JSB Financial, Inc. 40,100
2,000 Maf Bancorp, Inc. 44,500
1,900 Premier Bancshares, Inc. 37,525
1,900 Provident Bankshares Corp. 49,637
1,700 Queens County Savings Bank Corp. 45,900
2,400 Riggs National Corp. 40,500
1,600 Silicon Valley Bancshares 33,100
3,300 St. Paul Bancorp, Inc. 71,466
2,800 Susquehanna Bancshares, Inc. 51,450
2,140 Trustco Bank Corp. 53,500
3,400 United Bankshares, Inc. 77,775
3,300 UST Corp. 72,084
1,900 Whitney Holding Corp. 70,122
-----------
1,601,269
- ------------------------------------------------------------
Broadcasting--0.5%
1,300 Metro Networks, Inc.(a) 71,500
2,300 Westwood One, Inc.(a) 65,550
-----------
137,050
- ------------------------------------------------------------
Chemicals--2.2%
1,900 Cambrex Corp. 42,037
800 Chemed Corp. 20,600
1,500 Chemfirst, Inc.(a) 35,250
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-168
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Chemicals (cont'd.)
1,400 Dames & Moore, Inc. $ 15,663
1,865 Enzo Biochem, Inc. 17,484
1,800 Geon Co. 40,950
1,300 Ionics, Inc.(a) 39,162
1,800 Lilly Industries, Inc., (Class 'A'
Stock) 27,788
2,000 MacDermid, Inc. 67,875
1,200 Material Sciences Corp.(a) 7,650
800 McWhorter Technologies, Inc.(a) 10,900
2,000 Mississippi Chemical Corp.(a) 18,750
1,900 OM Group, Inc. 62,700
500 Penford Corp. 7,438
700 Quaker Chemical Corp. 9,888
1,500 Scotts Co. (Class 'A' Stock)(a) 56,062
2,300 Tetra Tech, Inc. 48,444
1,000 TETRA Technologies, Inc.(a) 6,750
1,200 WD 40 Co. 34,800
-----------
570,191
- ------------------------------------------------------------
Commercial Services--3.6%
2,150 AAR Corp. 38,297
1,700 ABM Industries, Inc. 51,850
1,700 ADVO, Inc. 32,831
2,900 Billing Concepts Corp. 34,438
2,800 Bowne & Co., Inc. 32,725
1,500 Catalina Marketing Corp.(a) 128,812
1,500 CDI Corp. 36,094
2,300 Central Parking Corp. 79,350
800 Central Vermont Public Service Corp. 8,050
1,100 Fair Issac & Co., Inc. 40,769
1,600 G & K Services, Inc. (Class 'A' Stock) 73,900
800 Insurance Auto Auctions, Inc.(a) 9,700
3,700 Interim Services, Inc.(a) 55,500
1,200 Lason, Inc.(a) 67,500
1,200 Merrill Corp. 16,050
1,600 NFO Worldwide, Inc.(a) 16,000
2,000 Norrell Corp. 26,125
1,982 Quintiles Transnational, Corp.(a) 74,828
2,000 Vantive Corp. 24,125
1,200 Volt Information Sciences, Inc.(a) 19,725
3,000 World Color Press, Inc.(a) 63,750
-----------
930,419
Computer Services--7.3%
6,100 Acxiom Corp.(a) $ 161,650
3,300 American Management Systems, Inc.(a) 112,612
1,700 Analysts International Corp. 19,550
1,500 BancTec, Inc.(a) 18,469
2,100 BISYS Group, Inc.(a) 118,125
2,500 Cerner Corp.(a) 40,156
4,200 Ciber, Inc. 80,587
1,200 Consolidated Graphics, Inc.(a) 69,300
1,100 Customtracks Corp. 16,500
1,800 Dendrite International, Inc.(a) 40,163
1,200 Factset Research Systems, Inc. 51,900
3,200 Harbinger Corp.(a) 21,600
1,600 Henry (Jack) & Associates, Inc. 58,800
2,000 HNC Software, Inc. 65,500
1,900 Hutchinson Technology, Inc. 47,262
2,345 Hyperion Software Corp. 34,003
3,476 Inacom Corp.(a) 26,939
3,200 Macromedia, Inc.(a) 145,000
2,800 Mercury Interactive Corp. 99,750
1,300 Micros Systems, Inc.(a) 42,900
2,700 National Data Corp. 113,400
2,600 National Instruments Corp. 74,100
3,100 Platinum Software Corp.(a) 22,863
1,350 Progress Software Corp.(a) 46,069
3,800 Read-Rite Corp.(a) 25,056
1,400 Scott Technologies, Inc. 24,325
3,700 System Software Associates, Inc. 8,325
3,200 Technology Solutions Co. 22,800
1,200 Telxon Corp. 11,325
800 Wall Data, Inc.(a) 11,500
4,000 Whittman Hart, Inc. 86,000
3,300 Xylan Corp.(a) 121,481
2,500 Zebra Technologies Corp. (Class 'A'
Stock)(a) 59,375
-----------
1,897,385
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-169
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Computers--1.2%
2,000 Auspex System, Inc. $ 21,375
1,451 BMC Software, Inc.(a) 53,787
1,600 Computer Task Group, Inc. 34,200
1,000 Digi International, Inc. 6,750
1,700 Exabyte Corp.(a) 8,075
1,800 Gerber Scientific, Inc. 36,338
2,500 MicroAge, Inc.(a) 61,250
1,600 Network Equipment Technologies, Inc. 14,300
1,200 Standard Microsystems Corp. 9,450
1,900 Xircom, Inc.(a) 47,737
-----------
301,324
- ------------------------------------------------------------
Construction--0.9%
600 Butler Manufacturing Co.(a) 14,062
1,800 Dycom Industries, Inc. 78,300
2,100 Insituform Technologies, Inc.(a) 36,750
4,100 Morrison Knudsen Corp. (Class 'A'
Stock)(a) 40,744
900 Southern Energy Homes, Inc.(a) 4,838
2,300 Standard Pacific Corp. 29,612
1,000 Stone & Webster, Inc. 22,875
-----------
227,181
- ------------------------------------------------------------
Consumer Cyclical--2.1%
1,500 Barnes Group, Inc. 28,125
3,800 Champion Enterprises, Inc.(a) 73,625
5,000 D.R. Horton, Inc. 83,750
2,300 Eagle Hardware & Garden, Inc. 87,832
2,000 Justin Industries, Inc. 22,000
1,400 Manitowoc Co., Inc. 58,625
2,800 Mueller Industries, Inc.(a) 62,650
1,400 Myers Industries, Inc. 29,575
900 Republic Group, Inc. 13,556
1,200 Standard Products Co. 19,500
3,400 Wolverine World Wide, Inc. 32,300
1,500 Wynns International, Inc. 26,156
-----------
537,694
Consumer Growth & Stable--1.2%
3,800 Bio-Technology General Corp.(a) $ 22,681
4,100 Caseys Gen. Stores, Inc. 60,475
1,100 Cooper Companies, Inc. 16,912
5,500 DeVry, Inc.(a) 159,500
3,400 Dimon, Inc. 12,963
1,600 Franklin Covey Co. 14,400
1,100 Nelson Thomas, Inc. 11,000
-----------
297,931
- ------------------------------------------------------------
Containers & Packaging--0.6%
2,800 Aptargroup, Inc. 72,800
2,000 Caraustar Industries, Inc. 46,000
2,150 Shorewood Packaging Corp.(a) 42,194
-----------
160,994
- ------------------------------------------------------------
Cosmetics & Soaps--0.1%
1,400 Natures Sunshine Products, Inc. 15,400
1,000 USA Detergent, Inc.(a) 6,250
-----------
21,650
- ------------------------------------------------------------
Distribution/Wholesalers--0.7%
1,700 Applied Industrial Technologies, Inc. 18,912
4,100 Brightpoint, Inc. 24,216
1,100 Castle (A.M.) & Co. 13,269
1,900 Hughes Supply, Inc. 43,225
1,950 Insight Enterprises, Inc.(a) 48,262
800 Lawson Products, Inc. 16,400
600 Swiss Army Brands, Inc. 5,719
-----------
170,003
- ------------------------------------------------------------
Drugs & Medical Supplies--7.9%
1,600 ADAC Laboratories 21,800
3,000 Advanced Tissue Sciences, Inc.(a) 6,469
2,600 Alliance Pharmaceutical Corp. 7,150
2,100 Alpharma, Inc. (Class 'A' Stock) 82,425
2,400 Ballard Medical Products 58,500
1,800 Barr Laboratories, Inc.(a) 54,900
1,700 Bindley Western Industries, Inc. 48,556
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-170
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Drugs & Medical Supplies (cont'd.)
900 Biomatrix, Inc.(a) $ 70,200
2,200 Cephalon, Inc.(a) 19,250
1,900 Coherent, Inc.(a) 26,125
1,900 COR Therapeutics, Inc.(a) 18,881
1,600 Cygnus, Inc.(a) 12,000
3,600 Dura Pharmaceuticals, Inc.(a) 50,850
1,000 Hologic, Inc.(a) 9,063
1,600 IDEC Pharmaceuticals Corp.(a) 82,200
3,000 IDEXX Laboratories, Inc.(a) 71,812
1,800 Immune Response Corp. 15,863
2,200 Incyte Pharmaceuticals, Inc.(a) 44,137
2,300 Invacare Corp. 55,919
2,300 Jones Pharmaceutical, Inc. 79,925
1,100 Maxxim Medical, Inc. 20,763
4,200 Medimmune, Inc.(a) 248,587
1,900 Mentor Corp. 27,906
1,400 Molecular Biosystems, Inc.(a) 3,763
5,300 NBTY, Inc.(a) 25,837
2,500 North American Vaccine, Inc.(a) 15,000
1,600 Noven Pharmaceuticals, Inc.(a) 7,400
2,500 Owens & Minor, Inc. 25,312
1,900 Parexel International Corp. 39,306
2,650 Patterson Dental Co.(a) 114,612
1,900 Pharmaceutical Product Development,
Inc. 63,769
1,016 Priority Healthcare Corp. 45,974
1,400 Protein Design Labs, Inc.(a) 21,088
2,400 Regeneron Pharmaceuticals, Inc.(a) 15,900
1,600 Resound Corp.(a) 6,000
2,500 Respironics, Inc.(a) 32,969
2,500 Roberts Pharmaceutical Corp. 51,875
4,200 Safeskin Corp.(a) 31,237
700 SpaceLabs Medical, Inc.(a) 11,769
2,400 Summit Technology, Inc.(a) 26,400
1,700 Sunrise Medical, Inc.(a) 10,625
900 Syncor International Corp.(a) 25,088
2,100 US Bioscience, Inc.(a) 22,838
2,000 Vertex Pharmaceuticals, Inc.(a) 50,500
2,400 VISX, Inc.(a) 258,150
1,000 Vital Signs, Inc. 18,000
-----------
2,056,693
Electrical Equipment--3.8%
1,000 Analogic Corp. $ 32,937
3,200 Anixter International, Inc.(a) 38,200
3,300 Applied Magnetics Corp. 13,819
2,900 Baldor Electric Co. 58,362
1,900 Belden, Inc. 32,419
2,850 Burr-Brown Corp. 66,975
2,900 C-Cube Microsystems, Inc.(a) 57,456
3,100 Cognex Corp. 73,431
900 Electro Scientific Industries, Inc.(a) 41,850
1,500 Electroglas, Inc.(a) 19,313
1,700 Etec Systems, Inc.(a) 50,044
1,100 Hadco Corp.(a) 34,650
850 Harmon Industries, Inc. 17,053
1,700 Helix Technology Corp. 26,138
1,100 Innovex, Inc. 14,713
1,500 Juno Lighting, Inc. 33,656
3,000 KEMET Corp.(a) 34,500
2,100 Kent Electronics Corp.(a) 20,869
4,100 Komag, Inc.(a) 17,938
1,800 Kulicke & Soffa Industries, Inc.(a) 45,450
3,100 Novellus Systems, Inc. 170,887
1,300 Technitrol, Inc. 29,981
2,000 Valence Technology, Inc.(a) 13,250
3,300 Vicor Corp.(a) 41,250
-----------
985,141
- ------------------------------------------------------------
Electronics--4.8%
900 Alliant Techsystems, Inc.(a) 69,919
700 Bell Industries, Inc. 7,263
900 Benchmark Electronics, Inc.(a) 27,000
2,100 BMC Industries, Inc. 9,319
2,250 Cable Design Technologies Corp.(a) 24,750
2,400 Checkpoint Systems, Inc. 19,950
1,100 CTS Corp. 54,381
2,200 Dallas Semiconductor Corp. 84,975
4,800 Digital Microwave Corp. 40,200
1,800 Dionex Corp.(a) 67,950
2,400 Filenet Corp. 16,800
1,400 Harman International Industries, Inc. 51,450
900 Integrated Circuit Systems, Inc.(a) 16,256
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-171
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electronics (cont'd.)
1,100 Itron, Inc.(a) $ 10,312
1,300 Marshall Industries(a) 17,550
2,700 Methode Eletronics, Inc. (Class 'A'
Stock) 30,037
1,600 Micrel, Inc.(a) 80,100
800 Park Electrochemical Corp. 18,800
1,900 Photronics, Inc.(a) 35,387
2,000 Pioneer-Standard Electronics, Inc. 13,125
1,200 Plexus Corp.(a) 33,450
4,000 S3, Inc.(a) 30,000
4,500 Sanmina Corp.(a) 286,875
1,200 SpeedFam International, Inc.(a) 14,400
500 Three-Five Systems, Inc.(a) 4,313
1,600 Ultratech Stepper, Inc.(a) 22,600
2,500 Unitrode Corp.(a) 35,469
3,600 VLSI Technology, Inc.(a) 69,750
500 Watkins Johnson Co. 11,312
900 Whittaker Corp. 19,744
1,600 X-Rite, Inc. 10,400
-----------
1,233,837
- ------------------------------------------------------------
Exploration & Production--0.3%
3,200 Newfield Exploration Co.(a) 72,400
- ------------------------------------------------------------
Financial Services--4.5%
4,900 Americredit Corp. 64,313
2,500 Capital Resources Corp. 43,125
1,800 CMAC Investment Corp. 70,200
2,100 Cullen/Frost Bankers, Inc. 100,669
1,000 Dain Rauscher Corp. 34,000
1,630 Delphi Financial Group, Inc.(a) 55,216
2,800 Eaton Vance Corp. 56,350
1,400 Gallagher (Arthur J.) & Co. 64,400
1,900 Jefferies Group, Inc. 90,131
4,400 Legg Mason, Inc. 148,225
2,100 Orion Capital Corp. 65,625
2,000 Pioneer Group, Inc. 29,625
1,678 Primark Corp.(a) 35,658
3,750 Raymond James Financial, Inc. 74,062
1,400 SEI Investments Corp. 129,500
1,500 U.S. Trust Corp. 111,281
-----------
1,172,380
Food & Beverage--2.2%
1,400 Canandaigua Wine, Inc. (Class 'A'
Stock)(a) $ 70,525
5,100 Chiquita Brands International, Inc. 51,956
700 Coca-Cola Bottling Co. 38,675
3,400 Earthgrains Co. 75,437
3,000 Fleming, Inc. 25,688
700 J & J Snack Foods Corp.(a) 14,088
1,700 Michael Foods, Inc. 32,406
800 Nash-Finch Co. 6,700
2,400 Ralcorp Holdings, Inc. 45,600
3,700 Richfood Holdings, Inc. 79,781
2,900 Smithfield Foods, Inc.(a) 65,794
2,100 Whole Foods Market, Inc. 72,187
-----------
578,837
- ------------------------------------------------------------
Forest Products--0.2%
1,000 Pope & Talbot, Inc. 6,375
1,600 Universal Forest Products, Inc. 32,800
-----------
39,175
- ------------------------------------------------------------
Furniture--1.6%
1,000 Bassett Furniture Industries, Inc. 22,125
800 Dixie Group, Inc. 5,700
2,200 Ethan Allen Interiors, Inc.(a) 91,438
4,100 La-Z-Boy, Inc. 77,900
1,400 Libbey, Inc. 43,400
4,800 Mohawk Industries, Inc.(a) 144,000
1,200 Thomas Industries, Inc. 22,500
-----------
407,063
- ------------------------------------------------------------
Health Care--1.7%
2,500 American Oncology Resources, Inc. 22,500
4,600 Coventry Healthcare, Inc.(a) 34,500
1,000 Curative Health Services, Inc. 11,500
1,200 Datascope Corp. 32,400
1,100 Diagnostic Products Corp. 26,675
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-172
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Health Care (cont'd.)
800 Hauser, Inc. $ 2,100
4,054 Integrated Health Services, Inc. 22,297
3,000 Liposome Co., Inc.(a) 40,312
2,400 Magellan Health Services, Inc. 10,050
2,600 Medquist, Inc.(a) 78,000
1,500 NCS Healthcare, Inc. 18,000
2,300 Organogenesis, Inc.(a) 26,594
500 Pharmaceutical Marketing Services 7,507
3,400 Renal Care Group, Inc.(a) 66,725
2,100 Sierra Health Services, Inc.(a) 27,300
1,900 Sola International, Inc.(a) 22,919
-----------
449,379
- ------------------------------------------------------------
Hospitals/Hospital Management--1.0%
2,700 Genesis Health Ventures, Inc.(a) 13,163
5,712 Mariner Post-Acute Network, Inc. 12,495
3,700 Orthodontic Centers of America, Inc.(a) 58,275
1,200 Pediatrix Medical Group, Inc.(a) 33,750
5,900 PhyCor, Inc.(a) 28,025
2,600 Universal Health Services, Inc. (Class
'B' Stock)(a) 112,450
-----------
258,158
- ------------------------------------------------------------
Housing Related--0.9%
2,800 Fedders Corp. 14,175
1,400 M.D.C. Holdings, Inc. 20,125
600 National Presto Industries, Inc. 21,263
1,400 Oak Industries, Inc. 44,450
3,600 Oakwood Homes Corp. 50,625
1,200 Ryland Group, Inc. 30,375
700 Skyline Corp. 19,425
1,100 U.S. Home Corp. 35,887
-----------
236,325
- ------------------------------------------------------------
Insurance--3.5%
3,400 American Bankers Insurance Group, Inc. 176,800
3,400 AMRESCO, Inc. 26,137
800 Compdent Corp.(a) 10,000
2,900 Enhance Financial Services Group, Inc. 65,975
900 Executive Risk, Inc. $ 63,900
2,268 Fidelity National Financial, Inc. 34,020
4,700 First American Financial Corp. 74,319
5,500 Fremont General Corp. 104,844
2,900 Frontier Insurance Group, Inc. 34,437
900 Galey & Lord, Inc. 3,994
900 Hilb, Rogal & Hamilton Co. 15,244
3,200 Mutual Risk Management Ltd. 122,400
1,500 NAC RE Corp. 80,531
2,200 Selective Insurance Group, Inc. 38,775
700 Trenwick Group, Inc. 19,688
1,300 Zenith National Insurance Corp. 31,606
-----------
902,670
- ------------------------------------------------------------
Leisure--1.6%
1,000 Anchor Gaming Inc., Corp.(a) 43,750
2,100 Arctic Cat, Inc. 20,869
3,500 Aztar Corp.(a) 16,844
900 Carmike Cinemas, Inc. (Class 'A'
Stock)(a) 16,256
2,000 Family Golf Centers, Inc.(a) 14,875
600 GC Companies, Inc.(a) 18,862
2,000 Hollywood Park, Inc.(a) 20,625
900 Huffy Corp. 10,800
1,300 K2, Inc.(a) 10,238
2,350 Marcus Corp. 28,200
2,936 Midway Games, Inc. 25,506
2,500 Players International, Inc.(a) 15,625
2,000 Polaris Industries, Inc. 63,500
4,000 Prime Hospitality Corp.(a) 39,750
2,100 Sturm Ruger & Co., Inc. 21,000
950 Thor Industries, Inc. 21,494
1,700 Winnebago Industries, Inc. 23,800
-----------
411,994
- ------------------------------------------------------------
Machinery--1.7%
3,095 Applied Power, Inc. (Class 'A' Stock) 84,339
1,500 Astec Industries, Inc.(a) 46,312
1,100 Flow International Corp.(a) 10,863
1,200 Gardner Machinery, Inc.(a) 19,050
1,600 Graco, Inc. 35,300
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-173
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Machinery (cont'd)
2,200 Halter Marine Group, Inc. $ 12,787
3,400 JLG Industries, Inc. 46,325
1,000 Lindsay Manufacturing Co.(a) 19,875
3,700 Paxar Corp. 27,519
1,600 Regal Beloit Corp. 28,900
800 Robbins & Myers, Inc. 13,800
2,400 Roper Industries, Inc. 57,300
1,500 Royal Appliance Manufacturing Co.(a) 5,625
1,000 Toro Co. 31,375
-----------
439,370
- ------------------------------------------------------------
Metals-Ferrous--0.6%
700 Acme Metals, Inc.(a) 175
1,800 Birmingham Steel Corp. 7,088
1,100 Commercial Metals Co. 22,000
3,600 Mascotech, Inc. 55,800
1,100 Quanex Corp. 17,050
1,500 Reliance Steel and Aluminum Co. 43,219
800 Steel Technologies, Inc. 6,300
1,300 WHX Corp.(a) 10,237
-----------
161,869
- ------------------------------------------------------------
Metals-Non Ferrous--0.4%
700 Amcast Industrial Corp. 11,288
2,100 AMCOL International Corp. 21,000
1,300 Brush Wellman, Inc. 18,850
1,200 Commonwealth Industries, Inc. 10,800
4,300 Hecla Mining Co.(a) 11,825
1,300 IMCO Recycling, Inc.(a) 16,737
1,600 RTI International Metals, Inc.(a) 15,000
-----------
105,500
- ------------------------------------------------------------
Mineral Resources--0.6%
3,066 Delta & Pine Land Co. 94,280
950 Kronos, Inc.(a) 23,275
1,600 Lone Star Industries, Inc. 49,600
-----------
167,155
Miscellaneous Basic Industry--3.5%
2,100 Apogee Enterprises, Inc. $ 24,938
2,900 Blount International, Inc. (Class 'A'
Stock) 83,737
2,000 Clarcor, Inc. 34,125
2,800 Corn Products International, Inc. 67,025
800 CPI Corp. 17,900
1,300 Esterline Technologies Corp. 16,819
1,500 Florida Rock Industries, Inc. 51,187
1,200 Gibson Greetings, Inc.(a) 8,775
1,700 Global Industrial Technologies, Inc. 17,850
2,300 Griffon Corp.(a) 15,813
600 Insteel Industries, Inc. 3,375
4,100 Interface, Inc. 39,462
916 Intermagnetics General Corp. 7,557
2,000 Intermet Corp.(a) 26,750
1,800 Kaman Corp. 23,063
1,600 Kroll - O' Gara Co.(a) 43,400
900 LSB Industies, Inc. 2,475
1,200 Lydall, Inc.(a) 9,975
1,200 O' Sullivan Corp. 9,900
1,900 Pre-Paid Legal Services, Inc.(a) 46,550
1,300 Service Experts, Inc.(a) 17,550
1,000 SPS Technologies, Inc.(a) 39,250
1,000 Standex International Corp. 21,875
2,500 Superior Services, Inc.(a) 49,531
1,700 Texas Industries, Inc. 42,181
2,900 Tredegar Industries, Inc. 89,719
1,900 Valmont Industries, Inc. 26,362
600 Walbro Corp. 5,400
2,200 Watsco, Inc. 32,175
1,100 Wolverine Tube, Inc.(a) 23,238
-----------
897,957
- ------------------------------------------------------------
Office Equipment & Supplies--0.3%
2,400 John H. Harland Co. 31,050
500 Nashua Corp. 5,750
1,100 New England Business Service, Inc. 31,556
-----------
68,356
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-174
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas--1.4%
2,300 Benton Oil & Gas Co.(a) $ 8,338
1,900 Cabot Oil & Gas Corp. (Class 'A' Stock) 27,431
800 Cascade Natural Gas Corp. 11,950
1,200 Cross (A.T.) Co. (Class 'A' Stock) 8,775
3,500 Cross Timbers Oil Co. 24,719
1,400 HS Resources, Inc. 12,250
1,900 Northwest Natural Gas Co. 41,562
7,900 Santa Fe Energy Resources, Inc.(a) 57,769
2,600 Snyder Oil Corp. 38,512
2,400 Southwest Gas Corp. 66,000
1,200 Stone Energy Corp.(a) 38,400
4,100 Vintage Petroleum, Inc. 36,900
-----------
372,606
- ------------------------------------------------------------
Oil & Gas Services--1.7%
2,500 Barrett Resources Corp.(a) 62,656
1,300 Daniel Industries, Inc. 19,825
2,500 Devon Energy Corp. 68,906
3,900 Input/Output, Inc.(a) 24,619
1,700 Oceaneering International, Inc.(a) 25,712
1,600 Offshore Logistics, Inc.(a) 18,600
800 Pennsylvania Enterprises, Inc. 19,200
1,300 Plains Resources, Inc.(a) 19,500
3,100 Pogo Producing Co. 40,300
1,600 Pool Energy Services Co.(a) 24,500
3,900 Pride International, Inc. 32,175
1,600 Remington Oil and Gas Corp. (Class 'B'
Stock)(a) 4,600
1,800 Seitel, Inc.(a) 25,088
1,900 Southwestern Energy Co. 13,419
800 St. Mary Land & Exploration Co. 13,900
3,500 Tuboscope Vetco International, Inc.(a) 31,500
-----------
444,500
- ------------------------------------------------------------
Paper and Related Products--0.4%
1,800 Brady (W.H.) Co. (Class 'A' Stock) 37,688
2,800 Buckeye Technologies, Inc.(a) 39,200
1,200 Schweitzer-Mauduit International, Inc. 13,800
-----------
90,688
Precious Metals--0.5%
1,700 Coeur d'Alene Mines Corp. $ 7,012
2,400 Getchell Gold Corp.(a) 62,850
2,650 Stillwater Mining Co.(a) 69,894
-----------
139,756
- ------------------------------------------------------------
Real Estate-Developers--0.2%
2,900 Toll Brothers, Inc.(a) 52,563
- ------------------------------------------------------------
Restaurants--2.3%
2,400 Applebee's International, Inc. 59,550
800 Au Bon Pain Co., Inc. (Class 'A'
Stock)(a) 4,200
1,400 CEC Entertainment, Inc. 50,225
1,600 Cheesecake Factory, Inc.(a) 38,000
4,095 CKE Restaurants, Inc. 80,876
2,006 Consolidated Products, Inc. 35,231
3,000 Foodmaker, Inc.(a) 76,500
800 IHOP Corp. 31,400
2,300 Landry's Seafood Restaurants, Inc. 14,734
1,800 Luby's Cafeterias, Inc. 30,375
2,600 Ruby Tuesday, Inc.(a) 45,175
3,100 Ryan's Family Steak Houses, Inc.(a) 37,394
1,500 Sonic Corp.(a) 40,406
1,000 Taco Cabana, Inc.(a) 8,813
1,700 TCBY Enterprises, Inc. 10,200
2,300 TriArc Companies, Inc. (Class 'A'
Stock)(a) 40,106
-----------
603,185
- ------------------------------------------------------------
Retail--6.5%
2,000 AnnTaylor Stores Corp.(a) 88,375
2,900 Bombay Company, Inc.(a) 11,600
1,300 Books-A-Million, Inc.(a) 13,244
1,400 Brown Group, Inc. 18,463
900 Building Materials Holdings Corp.(a) 9,113
1,900 Cash America International, Inc. 24,463
2,100 Cato Corp. (Class 'A' Stock) 19,556
400 Damark International, Inc. (Class 'A'
Stock)(a) 3,450
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-175
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
1,800 Dress Barn, Inc.(a) $ 24,975
2,700 Express Scripts, Inc. (Class 'A' Stock) 232,031
1,900 Footstar, Inc.(a) 60,800
2,600 Goody's Family Clothing, Inc. 36,238
900 Gottschalks, Inc.(a) 6,188
1,500 Hancock Fabrics, Inc. 9,469
1,100 J. Baker, Inc.(a) 4,125
2,200 Jan Bell Marketing, Inc.(a) 9,350
1,500 Jo Ann Stores, Inc. 20,625
2,400 Just For Feet, Inc. 30,000
800 K-Swiss, Inc. (Class 'A' Stock) 20,200
1,300 Lechters, Inc.(a) 2,803
700 Lillian Vernon Corp. 8,400
3,100 Linens N Things, Inc. 140,662
2,200 Michaels Stores, Inc.(a) 54,312
1,700 O'Reilly Automotive, Inc.(a) 76,075
1,600 Pacific Sunwear of California(a) 55,600
7,600 Pier 1 Imports, Inc. 61,750
2,850 Regis Corp. 75,881
1,800 Russ Berrie & Co., Inc. 47,025
2,100 Shopko Stores, Inc. 62,737
2,400 Sports Authority, Inc. 17,550
3,500 Stein Mart, Inc.(a) 35,000
3,600 Stride Rite Corp. 44,100
2,700 The Men's Wearhouse, Inc. 77,962
900 Timberland Co. (Class 'A' Stock) 56,756
4,400 Williams-Sonoma, Inc.(a) 124,300
2,900 Zale Corp. 99,144
-----------
1,672,972
- ------------------------------------------------------------
Telecommunications--3.6%
2,100 Allen Telecom, Inc.(a) 12,731
3,900 Aspect Telecommunications Corp.(a) 25,838
1,900 Avid Technology, Inc.(a) 33,131
700 C-Cor Electronics, Inc. 12,075
1,100 California Microwave, Inc.(a) 11,825
500 Centigram Communications Corp.(a) 4,938
3,900 Commscope, Inc. 81,656
1,300 Dialogic Corp. 39,650
3,800 General Communication, Inc.(a) 17,338
2,800 General Semiconductor, Inc. 20,300
2,000 Intermediate Telephone, Inc. 31,125
4,000 International Rectifier Corp.(a) $ 28,000
2,200 InterVoice, Inc.(a) 24,200
1,900 Lattice Semiconductor Corp.(a) 86,569
3,400 P-COM, Inc.(a) 25,925
3,000 Picturetel Corp.(a) 21,000
1,400 Plantronics, Inc.(a) 87,587
1,100 Symmetricom, Inc.(a) 6,944
1,700 TCSI Corp.(a) 3,241
3,800 Tele-Save Holdings, Inc. 39,662
1,200 TJ International, Inc. 28,950
5,900 Vitesse Semiconductor Corp.(a) 298,687
-----------
941,372
- ------------------------------------------------------------
Textiles--1.1%
700 Angelica Corp. 9,800
1,100 Ashworth, Inc.(a) 3,850
1,800 Authentic Fitness Corp. 27,787
1,900 Cone Mills Corp.(a) 9,263
1,200 Cyrk, Inc. 9,075
1,800 Delta Woodside Industries, Inc. 8,663
1,800 Guilford Mills, Inc. 15,750
1,800 Gymboree Corp.(a) 16,087
600 Haggar Corp. 6,075
2,700 Hartmarx Corp.(a) 13,163
800 Johnston Industies, Inc. 1,700
1,700 Kellwood Co. 37,506
2,900 Nautica Enterprises, Inc.(a) 32,806
1,400 Oshkosh B'Gosh, Inc. (Class'A' Stock) 24,762
600 Oxford Industries, Inc. 14,625
2,100 Phillips-Van Heusen Corp. 14,569
1,134 Pillowtex Corp. 16,089
1,300 St. John Knits, Inc. 34,287
-----------
295,857
- ------------------------------------------------------------
Transportation/Trucking/Shipping--2.2%
2,600 Air Express International Corp. 39,325
2,500 American Freightways, Inc. 32,187
1,500 Arkansas Best Corp. 10,219
2,000 Expeditors International of Washington,
Inc. 108,000
2,800 Fritz Companies, Inc.(a) 19,250
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-176
<PAGE>
Portfolio of Investments as of PRUDENTIAL INDEX SERIES FUND
March 31, 1999 (Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Transportation/Trucking/Shipping (cont'd.)
1,300 Frozen Food Express Industries, Inc. $ 8,288
2,300 Heartland Express, Inc.(a) 34,931
1,600 Kirby Corp.(a) 30,300
800 Landstar Systems, Inc.(a) 26,500
1,000 M.S. Carriers, Inc.(a) 26,437
1,500 Pittston Burlington Group 10,406
700 Railtex, Inc. 7,963
4,500 Rollins Truck Leasing Corp. 42,469
1,100 Rural/Metro Corp. 8,731
2,100 USFreightways Corp. 69,037
3,725 Werner Enterprises, Inc. 58,669
2,000 Yellow Corp. 34,750
-----------
567,462
- ------------------------------------------------------------
Utilities - Electric--3.8%
900 Aquarion Co. 24,750
2,400 Atmos Energy Corp. 57,750
500 Bangor Hydro-Electric Co.(a) 6,344
1,300 Central Hudson Gas & Electric Co. 46,556
1,100 CILCORP, Inc. 66,069
1,700 Commonwealth Energy Systems 65,450
800 Connecticut Energy Corp. 19,400
1,600 Eastern Utilities Associates 45,300
2,300 Energen Corp. 34,356
400 Green Mountain Power Corp. 3,875
2,200 KCS Energy, Inc. 2,888
1,400 New Jersey Resources Corp. 49,787
1,100 Orange & Rockland Utilities, Inc. 63,181
3,202 Philadelphia Suburban Corp. 72,645
2,400 Piedmont Natural Gas, Inc. 84,000
1,600 Public Service Co., Inc. 45,400
2,500 Sierra Pacific Resources 87,969
1,200 The United Illuminating Co. 50,325
1,100 TNP Enterprises, Inc. 31,625
2,900 United Water Resources, Inc. 60,175
2,900 Wicor, Inc. 58,725
-----------
976,570
Utilities - Water--0.1%
700 American States Water Co. $ 16,975
-----------
Total long-term investments
(cost $28,864,360) 24,616,348
-----------
------------------------------------------------------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--5.2%
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITY--0.8%
$200(b) United States Treasury Bill,
4.45%, 6/17/99
(cost $198,118) 198,118
- ------------------------------------------------------------
REPURCHASE AGREEMENT--4.4%
1,152 Joint Repurchase Agreement Account,
4.91%, 4/1/99 (Note 5)
(cost $1,152,000) 1,152,000
-----------
Total short-term investments
(cost $1,350,118) 1,350,118
- ------------------------------------------------------------
Total Investments--100.3%
(cost $30,214,478; Note 4) 25,966,466
Liabilities in excess of other
assets--(0.3%) (90,430)
-----------
Net Assets--100% $25,876,036
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as initial margin on futures contracts.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-177
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
<S> <C>
Investments, at value (cost $30,214,478)................................................................... $ 25,966,466
Cash....................................................................................................... 32,849
Receivable for investments sold............................................................................ 45,992
Receivable from Manager.................................................................................... 30,226
Dividends and interest receivable.......................................................................... 14,726
Receivable for Fund shares sold............................................................................ 13,653
Other assets............................................................................................... 69
--------------
Total assets............................................................................................ 26,103,981
--------------
Liabilities
Payable for investments purchased.......................................................................... 144,147
Accrued expenses and other liabilities..................................................................... 62,476
Payable for Fund shares repurchased........................................................................ 13,572
Due to broker - variation margin........................................................................... 7,750
--------------
Total liabilities....................................................................................... 227,945
--------------
Net Assets................................................................................................. $ 25,876,036
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 30,595
Paid-in capital in excess of par........................................................................ 29,482,797
--------------
29,513,392
Undistributed net investment income..................................................................... 41,463
Accumulated net realized gain on investments............................................................ 580,544
Net unrealized depreciation on investments.............................................................. (4,259,363)
--------------
Net assets, March 31, 1999................................................................................. $ 25,876,036
--------------
--------------
Net asset value per share
($25,876,036 / 3,059,451 shares of beneficial interest issued and outstanding).......................... $8.46
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-178
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $17)......................... $ 101,252
Interest................................. 44,319
--------------
Total income.......................... 145,571
--------------
Expenses
Management fee........................... 37,254
Custodian's fees and expenses............ 79,800
Registration fees........................ 18,500
Reports to shareholders.................. 9,800
Audit fees............................... 9,000
Legal fees............................... 5,000
Transfer agent's fees and expenses....... 2,600
Trustees' fees........................... 2,100
Miscellaneous............................ 715
--------------
Total operating expenses.............. 164,769
Less: Expense subsidy (Note 2).............. (102,676)
--------------
Net expenses.......................... 62,093
--------------
Net investment income....................... 83,478
--------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions.................. 436,719
Financial futures contracts.............. 281,895
--------------
718,614
--------------
Net change in unrealized depreciation on:
Investments.............................. 798,412
Financial futures contracts.............. (8,200)
--------------
790,212
--------------
Net gain on investments..................... 1,508,826
--------------
Net Increase in Net Assets
Resulting from Operations................... $1,592,304
--------------
--------------
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 1, 1997(a)
Ended through
Increase (Decrease) March 31, September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income........ $ 83,478 $ 108,532
Net realized gain on
investment transactions
and financial futures
contracts................. 718,614 389,346
Net change in unrealized
appreciation on
investments and financial
futures contracts......... 790,212 (5,049,575)
----------- -------------------
Net increase in net assets
resulting from
operations................ 1,592,304 (4,551,697)
----------- -------------------
Dividends and distributions
(Note 1):
Dividends to shareholders
from net investment
income.................... (138,793) (31,374)
----------- -------------------
Distributions to shareholders
from net realized gains... (527,416) --
----------- -------------------
Fund share transactions (Note
6):
Net proceeds from shares
sold...................... 7,469,219 28,670,830
Net asset value of shares
issued to shareholders in
reinvestment of
distributions............. 665,853 31,360
Cost of shares reacquired.... (3,440,818) (3,863,432)
----------- -------------------
Net increase in net assets
from Fund share
transactions... 4,694,254 24,838,758
----------- -------------------
Net increase.................... 5,620,349 20,255,687
----------- -------------------
Net Assets
Beginning of period............. 20,255,687 --
----------- -------------------
End of period(b)................ $25,876,036 $20,255,687
----------- -------------------
----------- -------------------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net
investment income of........ $ 41,463 $ 96,778
----------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-179
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) 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 was no sale on such day, at the mean between the closing bid and asked
prices quoted on such day or at the bid price in the absence of an asked price.
Securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued by a principal market maker or independent pricing
agent.
U.S. Government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for which
the pricing agent or principal market maker does not provide a valuation or
methodology or provides a valuation or methodology that, in the judgment of the
subadvisers does not represent fair value, are valued at fair value as
determined under procedures established by the Trustees.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians under triparty repurchase
agreements, as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
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.
- --------------------------------------------------------------------------------
B-180
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
Federal Income 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 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.
- ------------------------------------------------------------
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 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 six months ended March
31, 1999. This voluntary waiver may be terminated at any time without notice.
For the six months ended March 31, 1999, PIFM subsidized $102,676 for the
expenses of the Fund (.64% of the average net assets of the Fund/$.03 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 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.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements are to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 six months ended March 31, 1999,
the Fund incurred fees of approximately $2,300 for the services of PMFS. As of
March 31, 1999, approximately $900 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 six months ended March 31, 1999 aggregated $7,415,121 and $2,437,041,
respectively.
On March 31, 1999, the Fund held the following two futures contracts expiring
June 1999.
<TABLE>
<CAPTION>
Unrealized
Future Cost Market Value Gain/(Loss)
- ------------ -------- ------------ -----------
<S> <C> <C> <C>
Russell 2000 $809,100 $797,000 $ (12,100)
Mid Cap 400 367,550 368,300 750
-----------
$ (11,350)
-----------
-----------
</TABLE>
The cost basis of investments for federal income tax purposes is $30,368,269
and, accordingly, as of March 31, 1999, net unrealized depreciation for federal
income tax purposes was $4,401,803 (gross unrealized appreciation--$2,618,752;
gross unrealized depreciation--$7,020,555).
- ------------------------------------------------------------
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
- --------------------------------------------------------------------------------
B-181
<PAGE>
Notes to Financial Statements PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
March 31, 1999, the Fund had a .21% undivided interest in the repurchase
agreements in the joint account. The undivided interest represented $1,152,000
in principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefore was as follows:
Bear Stearns & Co., Inc., 4.92%, in the principal amount of $170,000,000,
repurchase price $170,023,233, due 4/1/99. The value of the collateral including
accrued interest was $174,282,442.
Salomon Smith Barney, Inc. 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.
Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.
SBC Warburg Dillon Read, Inc., 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
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 for the six
months ended March 31, 1999 and the year ended September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Class Z Shares
- ------------------------------------------------- ---------
<S> <C>
Six months ended March 31, 1999:
Shares sold...................................... 880,619
Shares issued in reinvestment of dividends and
distributions.................................. 77,335
Shares reacquired................................ (400,752)
---------
Net increase in shares outstanding............... 557,202
---------
---------
Year ended September 30, 1998:
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 shares outstanding at March 31, 1999, PIFM and affiliates owned 4,342,666
shares of the Fund.
- --------------------------------------------------------------------------------
B-182
<PAGE>
Financial Highlights PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL SMALL-CAP INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
------------------------------------
Six Months October 1, 1997(a)
Ended through
March 31, September 30,
1999 1998
----------- ------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................................... $ 8.09 $ 10.00
----------- ------
Income from investment operations
Net investment income(c)................................................................ .02 .04
Net realized and unrealized gain (loss) on investment................................... .59 (1.94)
----------- ------
Total from investment operations..................................................... .61 (1.90)
----------- ------
Less distributions:
Dividends from net investment income.................................................... (.05) (.01)
Distributions from net realized capital gains........................................... (.19) --
----------- ------
Total dividends and distributions.................................................... (.24) (.01)
----------- ------
Net asset value, end of period.......................................................... $ 8.46 $ 8.09
----------- ------
----------- ------
TOTAL RETURN(d):........................................................................ 7.49% (18.98)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......................................................... $25,876 $ 20,256
Average net assets (000)................................................................ $24,904 $ 22,676
Ratios to average net assets:(c)
Expenses............................................................................. .50%(b) .50%
Net investment income................................................................ .67%(b) .48%
Portfolio turnover...................................................................... 12% 52%
</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 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. B-183
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--88.3%
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds--18.0%
Finance--6.5%
BankAmerica Corp. Aa3 7.20% 4/15/06 $ 330 $ 346,658
BankAmerica Corp. Aa3 7.125 5/01/06 110 115,752
BankBoston Corp. A3 6.125 3/15/02 115 115,147
Chase Manhattan Corp. A1 7.125 3/01/05 250 261,558
Chemical Bank Aa3 7.00 6/01/05 180 186,518
Citicorp A1 7.625 5/01/05 300 318,546
Donaldson, Lufkin & Jenrette, Inc. A3 6.50 6/01/08 350 341,960
First Union Corp. A2 7.50 7/15/06 110 117,240
Goldman Sachs Group A1 6.625 12/01/04 360 364,837
Heller Financial, Inc. A3 6.00 3/19/04 200 198,242
Lehman Brothers Holdings, Inc. Baa1 6.625 2/05/06 35 34,568
Merrill Lynch and Co., Inc. Aa3 6.50 4/01/01 60 61,066
Spieker Properties LP Baa2 6.65 12/15/00 325 326,879
------------
2,788,971
- ------------------------------------------------------------------------------------------------------------------------------
Industrials--8.0%
Coca Cola Enterprises, Inc. A3 8.50 2/01/22 50 59,192
Comcast Corp. Baa3 6.20 11/15/08 400 394,708
Delta Air Lines, Inc. Baa3 9.75 5/15/21 150 186,567
Ford Motor Co. A1 9.98 2/15/47 220 306,935
General Motors Corp. A2 5.85 1/14/09 300 288,828
General Motors Corp. A2 7.70 4/15/16 500 545,455
Lockheed Martin Corp. Baa1 7.70 6/15/08 210 228,190
Lucent Technologies, Inc. A2 6.45 3/15/29 150 145,928
News America Holdings, Inc. Baa3 9.25 2/01/13 200 241,648
Northrop Grumman Corp. Baa3 8.625 10/15/04 200 220,528
Penney (J.C.) & Co. A2 9.05 3/01/01 250 263,437
Rockwell International Corp. A1 6.625 6/01/05 450 464,517
TCI Communications, Inc. A2 8.75 8/01/15 100 121,537
------------
3,467,470
- ------------------------------------------------------------------------------------------------------------------------------
Utilities--3.5%
AT&T Corp. A1 6.00 3/15/09 150 149,028
Carolina Power & Light Co. A2 6.80 8/15/07 70 73,421
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-184
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Utilities (cont'd.)
GTE Corp. Baa1 6.36% 4/15/06 $ 250 $ 252,900
GTE Corp. Baa1 7.51 4/01/09 75 82,246
Pacificorp A2 6.375 5/15/08 300 302,655
Worldcom, Inc. Baa2 7.55 4/01/04 600 639,456
------------
1,499,706
------------
Total corporate bonds (cost $7,742,020) 7,756,147
- ------------------------------------------------------------------------------------------------------------------------------
Asset Backed Securities--1.8%
Credit Card Receivables Trust, Series 1998-I Aaa 6.478 12/22/04 285 283,235
World Financial Network Credit Card Master Trust, Series
1996 B, Class A Aaa 6.95 4/15/06 500 515,000
------------
Total asset backed securities (cost $797,327) 798,235
- ------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Securities--2.0%
American Housing Trust, Series VI, Class 1-I Aaa 9.15 5/25/20 147 156,984
Lb Commercial Conduit Mortgage Trust, Series 1998 C1, Class
A3 Aaa 6.48 1/18/08 300 302,092
Shurgard Securities Trust, Series 1, Class 1 AA(b) 8.24 6/15/01 380 393,122
------------
Total collateralized mortgage obligations (cost $863,038) 852,198
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage Backed Securities--28.9%
Federal Home Loan Mortgage Corp. 6.50 11/01/28 914 910,289
Federal Home Loan Mortgage Corp.(a) 8.00 11/12/28 1,000 1,040,310
Federal Home Loan Mortgage Corp.(a) 7.00 11/18/28 1,000 1,015,000
Federal National Mortgage Assoc. 9.50 7/01/25 251 267,450
Federal National Mortgage Assoc.(a) 6.00 10/14/28 2,000 1,985,000
Federal National Mortgage Assoc.(a) 6.50 10/14/28 1,000 995,310
Federal National Mortgage Assoc.(a) 6.50 10/19/28 500 504,530
Federal National Mortgage Assoc.(a) 7.50 10/19/28 1,000 1,031,560
Federal National Mortgage Assoc.(a) 7.50 11/12/28 2,500 2,568,750
Government National Mortgage Assoc. 8.49 1/15/19 128 135,851
Government National Mortgage Assoc.(a) 6.50 11/18/28 1,000 995,620
Government National Mortgage Assoc.(a) 7.50 11/18/28 1,000 1,030,000
------------
Total mortgage backed securities (cost $12,451,158) 12,479,670
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-185
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations--28.4%
United States Treasury Bond(c) 11.875% 11/15/03 $ 450 $ 569,038
United States Treasury Bond(c) 12.00 8/15/13 500 728,125
United States Treasury Bond(c) 7.50 11/15/16 750 880,665
United States Treasury Bond(c) 8.125 8/15/19 400 503,688
United States Treasury Bond(c) 7.875 2/15/21 1,975 2,444,991
United States Treasury Bond(c) 8.125 8/15/21 100 127,109
United States Treasury Bond(c) 7.125 2/15/23 400 461,812
United States Treasury Bond(c) 6.375 8/15/27 120 128,344
United States Treasury Bond(c) 5.25 11/15/28 520 484,983
United States Treasury Note(c) 6.00 8/15/00 1,400 1,418,592
United States Treasury Note(c) 6.25 8/31/00 750 762,540
United States Treasury Note(c) 5.75 11/15/00 200 202,250
United States Treasury Note(c) 6.25 1/31/02 975 1,003,333
United States Treasury Note(c) 5.75 10/31/02 200 203,688
United States Treasury Note(c) 5.50 1/31/03 125 126,309
United States Treasury Note(c) 6.50 8/15/05 60 63,619
United States Treasury Note(c) 5.875 11/15/05 1,095 1,125,112
United States Treasury Note(c) 5.625 5/15/08 770 783,837
United States Treasury Note 4.75 11/15/08 275 264,902
------------
Total U.S. government obligations (cost $12,141,525) 12,282,937
- ------------------------------------------------------------------------------------------------------------------------------
U. S. Government Agency Obligations--6.5%
Federal Home Loan Mortgage Corp. 4.75 12/14/01 1,250 1,233,850
Federal National Mortgage Assoc. 5.125 2/13/04 700 687,421
Federal National Mortgage Assoc. 6.72 8/01/05 200 209,624
Small Business Administration 6.55 12/01/17 664 679,972
------------
Total U.S. government agency obligations (cost $2,793,933) 2,810,867
- ------------------------------------------------------------------------------------------------------------------------------
Foreign Corporate Bonds--1.4%
Hanson PLC (United Kingdom) A3 7.375 1/15/03 300 314,880
Tyco International Group (Luxembourg) Baa1 6.375 6/15/05 300 301,818
------------
Total foreign corporate bonds (cost $608,651) 616,698
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-186
<PAGE>
Portfolio of Investments as of March 31, 1999 PRUDENTIAL INDEX SERIES FUND
(Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Foreign Government Obligations--1.3%
Quebec Hydro (Canada)
(cost $524,835) A2 7.50% 4/01/16 $ 500 $ 545,520
------------
Total long-term investments (cost $37,922,487) 38,142,272
------------
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--36.5%
Repurchase Agreement--26.7%
Joint Repurchase Agreement Account (Note 5) NR 4.912 4/01/99 11,516 11,516,000
U.S. Government Obligations--9.8%
United States Treasury Note(c) 5.375 1/31/00 445 446,740
United States Treasury Note(c) 7.75 1/31/00 2,000 2,045,940
United States Treasury Note 5.50 3/31/00 1,750 1,760,395
------------
Total short-term investments (cost $15,752,838) 15,769,075
------------
Total Investments--124.8%
(cost $53,675,325; Note 4) 53,911,347
Liabilities in excess of other assets--(24.8)% (10,720,746)
------------
Net Assets--100% $ 43,190,601
------------
------------
</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. B-187
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Statement of Assets and Liabilities (Unaudited)
PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
--------------
<S> <C>
Investments excluding repurchase agreement, at value (cost $42,159,325).................................... $ 42,395,347
Repurchase Agreement, at value (cost $11,516,000).......................................................... 11,516,000
Cash....................................................................................................... 691
Receivable for investments sold............................................................................ 12,726,980
Dividends and interest receivable.......................................................................... 490,380
Receivable for Fund shares sold............................................................................ 36,617
Due from Manager........................................................................................... 6,624
Prepaid expenses........................................................................................... 92
--------------
Total assets............................................................................................ 67,172,731
--------------
Liabilities
Payable for investments purchased.......................................................................... 12,747,782
Dollar roll payable........................................................................................ 11,172,559
Accrued expenses........................................................................................... 56,556
Payable for Fund shares reacquired......................................................................... 5,233
--------------
Total liabilities....................................................................................... 23,982,130
--------------
Net Assets................................................................................................. $ 43,190,601
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 4,191
Paid-in capital in excess of par........................................................................ 42,338,772
--------------
42,342,963
Undistributed net investment income........................................................................ 564,871
Accumulated net realized gain on investments............................................................... 46,745
Net unrealized appreciation on investments................................................................. 236,022
--------------
Net assets, March 31, 1999................................................................................. $ 43,190,601
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($43,190,601 / 4,191,034 shares of beneficial interest issued and outstanding)....................... $10.31
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-188
<PAGE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Interest..................................... $ 1,165,868
--------------
Expenses
Management fee............................... 51,298
Custodian's fees and expenses................ 41,000
Registration fees............................ 24,000
Audit fee.................................... 10,000
Reports to shareholders...................... 9,000
Legal fees................................... 7,000
Directors fees............................... 3,000
Transfer agent's fees and expenses........... 3,000
Miscellaneous................................ 877
--------------
Total operating expenses.................. 149,175
Less: Expense subsidy (Note 2)............... (67,098)
--------------
Net expenses.............................. 82,077
--------------
Net investment income.......................... 1,083,791
--------------
Realized and Unrealized Gain (Loss) on
Investments
Net realized gain on investment transactions... 49,802
Net change in unrealized appreciation
investments.................................. (1,194,797)
--------------
Net loss on investments........................ (1,144,995)
--------------
Net Decrease in Net Assets
Resulting from Operations...................... $ (61,204)
--------------
--------------
</TABLE>
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 1, 1997(a)
Ended Through
Increase in March 31, September 30,
Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 1,083,791 $ 1,904,798
Net realized gain on investment
transactions................ 49,802 220,276
Net change in unrealized
appreciation on investments (1,194,797) 1,430,819
----------- ------------------
Net increase (decrease) in net
assets resulting from
operations.................. (61,204) 3,555,893
----------- ------------------
Dividends and distributions (Note 1)
Dividends from net investment
income...................... (1,981,623) (461,718)
----------- ------------------
Distributions from net realized
gains....................... (204,867) (18,466)
----------- ------------------
Fund share transactions
Net proceeds from shares
sold........................ 5,731,367 38,076,778
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,184,408 469,351
Cost of shares reacquired...... (2,267,088) (1,832,230)
----------- ------------------
Net increase in net assets from
Fund share transactions..... 5,648,687 36,713,899
----------- ------------------
Total increase................... 3,400,993 39,789,608
Net Assets
Beginning of period.............. 39,789,608 --
----------- ------------------
End of period(b)................. $43,190,601 $ 39,789,608
----------- ------------------
----------- ------------------
- ---------------
(a) Commencement of operations.
(b) Includes undistributed net
investment income of....... $ 564,871 $ 1,462,703
----------- ------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-189
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) 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.
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 price and
asked prices on such day or at the bid price on such day 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,
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.
- --------------------------------------------------------------------------------
B-190
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) 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 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 to its
shareholders. Therefore, no federal income tax provision is required.
- ------------------------------------------------------------
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 has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS') which acts as the distributor of the Fund. No distribution
or service fees are paid to PIMS as distributor of the Fund.
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 six months ended March 31, 1999, PIFM subsidized $67,098
of the expenses of the Fund (0.33% of the average daily net assets annualized or
$0.016 per share).
As of March 11, 1999, the Company, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements are to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
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 six months ended March 31,
1999, the Fund incurred fees of approximately $2,900 for the services of PMFS.
As of March 31, 1999, approximately $600 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 six months ended March 31, 1999, were $30,390,894 and $27,466,943,
respectively, which includes purchases and sales of U.S. government obligations
of $27,150,497 and $26,163,348, respectively.
The federal income tax basis of the Fund's investments at March 31, 1999 was
$53,696,672 and, accordingly, net unrealized appreciation for federal income tax
purposes was $214,675 (gross unrealized appreciation-$356,026; gross unrealized
depreciation-$141,351).
The average balance of dollar rolls outstanding during the six months ended
March 31, 1999 was approximately $10,027,648. The value of dollar rolls
outstanding at March 31, 1999 was $11,166,080, which was 17% 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 March 31,
1999, the Fund had a 2.08% undivided interest in the repurchase agreements in
the joint account. This undivided interest represented $11,516,000 in principal
amount. As of such date, the repurchase agreements in the joint account and the
value of the collateral therefore were as follows:
- --------------------------------------------------------------------------------
B-191
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Notes to Financial Statements (Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
Bear Stearns & Co. Inc., 4.92%, in the principal amount of $170,000,000,
repurchase price $170,023,233, due 4/1/99. The value of the collateral including
accrued interest was $174,282,442.
Salomon Smith Barney Inc., 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $174,947,170.
Morgan Stanley Dean Witter, 4.90%, in the principal amount of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the collateral including
accrued interest was $173,474,773.
Warburg Dillon Read LLC, 4.97%, in the principal amount of $44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
Note 6. Capital
The Fund has authorized an unlimited number of shares of Class Z beneficial
interest at $.001 par value per share. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Class Z Shares
- -------------------------------------------------- ---------
<S> <C>
Six months ended March 31, 1999:
Shares sold....................................... 548,895
Shares issued in reinvestment of dividends and
distributions................................... 213,322
Shares reacquired................................. (217,254)
---------
Net increase in shares outstanding................ 544,963
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 March 31, 1999, 3,220,966 shares were owned by The Prudential.
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
B-192
<PAGE>
PRUDENTIAL INDEX SERIES FUND
Financial Highlights (Unaudited) PRUDENTIAL BOND MARKET INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 1, 1997(c)
Ended Through
March 31, September 30,
1999 1998
---------- ------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................................... $ 10.91 $ 10.00
---------- ------
Income from investment operations
Net investment income(d)................................................................. .27 .55
Net realized and unrealized gain (loss) on investment transactions....................... (.28) .52
---------- ------
Total from investment operations...................................................... (.01) 1.07
---------- ------
Less distributions
Dividends from net investment income..................................................... (.53) (.15)
Distributions from net realized gains.................................................... (.06) (.01)
---------- ------
Total dividends and distributions..................................................... (.59) (.16)
---------- ------
Net asset value, end of period........................................................... $ 10.31 $ 10.91
---------- ------
---------- ------
TOTAL RETURN(a):......................................................................... (.08)% 10.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................................... $ 43,191 $ 39,790
Average net assets (000)................................................................. $ 41,151 $ 33,637
Ratios to average net assets:(b)(d)
Expenses.............................................................................. .40% .40%
Net investment income................................................................. 5.28% 5.68%
Portfolio turnover rate............................................................... 71% 33%
</TABLE>
- ---------------
(a) 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. B-193
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF RATINGS
S&P RATINGS CORPORATE BOND RATINGS:
AAA-Bonds rated AAA have the highest rating assigned by S&P Ratings to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more sus ceptibleto the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC, or C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
MOODY'S CORPORATE BOND RATINGS:
AAA-Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.
AA-Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be a greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A-Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds rated Baa are considered as medium grade obligations, I.E., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA-Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well-safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
A-1
<PAGE>
CA-Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other market shortcomings.
C-Bonds rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DUFF & PHELPS BOND RATINGS:
AAA-Bonds rated AAA by Duff & Phelps are considered to be of the highest
credit quality. The risk factors are negligible, being only slightly more than
for risk-free U.S. Treasury debt.
AA+, AA, AA-Bonds rated AA+, AA or AA- are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions.
A+, A, A-Bonds rated A+, A or A- have protection factors which are average
but adequate; however, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB-Bonds rated BBB+, BBB or BBB- have below average protection
factors but are still considered sufficient for prudent investment. These bonds
demonstrate considerable variability in risk during economic cycles.
BB+, BB, BB-Bonds rated BB+, BB or BB- are below investment grade but are
still deemed likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within this
category.
B+, B, B-Bonds rated B+, B or B- are below investment grade and possess
the risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC-Bonds rated CCC are well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD-Bonds rated DD are defaulted debt obligations. The issuer failed to
meet scheduled principal and/or interest payments.
S&P COMMERCIAL PAPER RATINGS:
Commercial paper rate A-1 by S&P Ratings indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
A-1+. Capacity for timely payment on commercial paper rated A-2 is strong, but
the relative degree of safety is not as high as for issues designated A-1.
MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
A-2
<PAGE>
DUFF & PHELPS COMMERCIAL PAPER RATINGS:
Duff & Phelps commercial paper ratings are divided into three categories,
ranging from "1" for the highest quality obligations to "3" for the lowest. No
ratings are issued for companies whose paper is not deemed investment grade.
Issues assigned the Duff 1 rating are considered top grade. This category is
further divided into three gradations as follows: Duff 1 plus--highest certainty
of timely payment, short-term liquidity, including internal operating factors
and/or ready access to alternative sources of funds, is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations; Duff
1--very high certainty or timely payment liquidity factor are excellent and
supported by strong fundamental protection factors, risk factors are minor; Duff
1 minus-high certainty of timely payment, liquidity factors are strong and
supported by good fundamental protection factors, risk factors are very small.
Issues rated Duff 2 represent a good certainty of timely payment; liquidity
factors and company fundamentals are sound; although ongoing internal funds
needs may enlarge total financing requirements, access to capital markets is
good; risk factors are small. Duff 3 represents a satisfactory grade;
satisfactory liquidity and other protection factors qualify issue as to
investment grade; risk factors are larger and subject to more variation;
nevertheless timely payment is expected.
A-3
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, that is, principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and
the rate of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
[CHART]
EDGAR REPRESENTATION OF CHART
Value of $1.00 invested on 1/1/26 through 12/31/98.
Small Stocks $5,116.95
Common Stocks $2,350.89
Long-Term Bonds $44.18
Treasury Bills $14.94
Inflation $9.16
Source: Ibbotson Associates. Used with permission. This chart is for
illustrative purposes only and is not indicative of the past, present, or future
performance of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and reinvesting any
gains. Bond returns are due mainly to reinvesting interest. Also, stock prices
are usually more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Funds or of any sector in which the
Funds invest.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fees and Expenses" in each Prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 4.3% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT
GRADE
CORPORATE
BONDS(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- ---------------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.45 12.8% 1.6%
- ---------------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3%) 5.3%
===========================================================================================================================
DIFFERENCE
BETWEEN HIGHEST
AND LOWEST RETURN
PERCENT 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7 17.1 8.4
</TABLE>
(1) LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
(2) LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3) LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year. Source: Lipper Inc.
(4) LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
(5) SALOMON SMITH BARNEY WORLD GOVERNMENT INDEX (NON U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1998. It does not represent
the performance of any Prudential Mutual Fund.
TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS 12/31/85-12/31/98
TOTAL RETURNS OF MAJOR
WORLD STOCK MARKETS
(12/31/85 - 12/31/98) in U.S. Dollars
EDGAR REPRESENTATION OF CHART
Belgium 22.7%
Spain 22.5%
The Netherlands 20.8%
Sweden 19.9%
Switzerland 18.3%
USA 18.1%
Hong Kong 17.8%
France 17.4%
UK 16.7%
Germany 13.4%
Austria 8.9%
Japan 6.5%
Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/98. Used with permission. Morgan Stanley Country indices are unmanaged
indices which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[Chart]
Capital Appreciation and Reinvesting Dividends -- $391,707
Capital Appreciation only -- $133,525
Source: Lipper Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential Mutual Fund. Common stock total
return is based on the Standard & Poor's 500 Stock Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indices.
WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: $15.8 TRILLION
EDGAR REPRESENTATION OF CHART
Canada 1.8%
Pacific Basin 12.5%
Europe 34.7%
U.S. 51.0
Source: Morgan Stanley Capital International, December 31,
1998. Used with permission. This chart represents the
capitalization of major world stock markets as measured by
the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the
value of approximately 1577 companies in 22 countries
(representing approximately 60% of the aggregate market
value of the stock exchanges). This chart is for
illustrative purposes only and does not represent the
allocation of any Prudential Mutual Fund.
II-3
<PAGE>
This chart below shows the historical volatility of general interest
rates as measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1998)
[CHART]
- ----------
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1997. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
Mutual Fund.
II-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance
Company of America (Prudential) and its subsidiaries as well as information
relating to the Prudential Mutual Funds. See "Management of the Funds--Manager"
in each Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1997 and is subject to change thereafter. All information relies on
data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Funds.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs almost 81,000 persons
worldwide, and maintains a sales force of approximately 11,500 agents and nearly
6,500 domestic and international financial advisors. Prudential is a major
issuer of annuities, including variable annuities. Prudential seeks to develop
innovative products and services to meet consumer needs in each of its business
areas. Prudential uses the Rock of Gibraltar as its symbol. The Prudential rock
is a recognized brand name throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 40 million people
worldwide. Long one of the largest issuers of life insurance, Prudential has 25
million life insurance policies in force today with a face value of almost $1
trillion. Prudential has the largest capital base ($12.1 billion) of any life
insurance company in the United States. Prudential provides auto insurance for
approximately 1.5 million cars and insures approximately 1.2 million homes.
MONEY MANAGEMENT. Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
As of December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential, (of which
Prudential Mutual Funds is a key part) manages over $211 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.
REAL ESTATE. The Prudential Real Estate Affiliates is one of the largest
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers with over 1,400 offices across the
United States.(2)
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.(3)
FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of Prudential, has over $1 billion in assets and serves nearly 1.5
million customers across 50 states.
- ----------
(1) PIC serves as the subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the
subadviser to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as
one of the subadvisers to Prudential Diversified Funds, Prudential 20/20
Focus Fund, Prudential Sector Funds, Inc. and The Prudential Investment
Portfolios, Inc. and Mercator Asset Management LP, as the subadviser to
International Stock Series, a portfolio of Prudential World Fund, Inc.
There are multiple subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1996.
(3) As of December 10, 1998, Prudential announced its intention to sell
Prudential Health Care to Aetna Inc. for $1 billion.
III-1
<PAGE>
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of 31, 1999, Prudential Investments Fund Management was the 20th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with more
than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage
over $55 billion in mutual fund and variable annuity assets. Some of
Prudential's portfolio managers have over 20 years of experience managing
investment portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, a
premier institutional equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase(4). Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of different bond issuers in the investment grade corporate and
municipal bond markets--from IBM to small municipalities, such as Rockaway
Township, New Jersey. These analysts consider among other things sinking fund
provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services
from almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to
collect detailed information on which to trade. From natural gas prices in the
Rocky Mountains to the results of local municipal elections, a Prudential
portfolio manager or trader is able to monitor it if it's important to a
Prudential Mutual Fund.
Prudential Mutual Funds trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers have met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.
- ----------
(4) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.
III-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities(5).
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment and financial
planning areas.
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect(SM), a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(5) As of December 31, 1998.
III-3
<PAGE>
<TABLE>
<CAPTION>
APPENDIX IV
Number of Shares
Name Address Fund/Class (% of Class)
- --------------------- ------------------------------ ------------------- ----------------
<S> <C> <C> <C> >
PAMCO VCA Attn. Jay Duffy Bond Market Index/Z 3,267,307(79%)
DA Account 30 Scranton Office Park
Moosic, PA 18507
PMG IIA Fund Prudential Insurance Co. Europe Index/Z 1,556,476(84%)
Three Gateway Center, 10th Fl.
100 Mulberry St.
Newark, NJ 07102
PMG IIA Fund Prudential Insurance Co. Pacific Index/Z 2,559,557(95%)
Three Gateway Center, 10th Fl.
100 Mulberry St.
Newark, NJ 07102
PMG IIA Fund Prudential Insurance Co. Small-Cap Index/Z 1,957,674(65%)
Three Gateway Center, 10th Fl.
100 Mulberry St.
Newark, NJ 07102
Prudential Trust Attn. John Surdy Stock Index/Z 7,193,433(38%)
Company, 30 Scranton Office Park
FBO Prudential-DC Moosic, PA 18507
Clients
Prudential Defined Attn. John Surdy Stock Index/Z 4,280,650(22%)
Contribution Svcs, 30 Scranton Office Park
FBO Prudential-DC Moosic, PA 18507
Qualified Clients
Prudential Defined Attn. John Surdy Stock Index/Z 1,036,473(5%)
Contribution Svcs, 30 Scranton Office Park
FBO Prudential Bank Moosic, PA 18507
& Trust
Prudential Employee Attn. Steve Albert Stock Index/I 15,296,256(44%)
Savings Plan 30 Scranton Office Park
Moosic, PA 18507
Prudential Trust Attn. John Surdy Stock Index/I 10,731,648(32%)
Company, 30 Scranton Office Park
FBO Prudential-DC Moosic, PA 18507
Clients
Boston Safe Deposit 1 Cabot Road Stock Index/I 4,135,640(12%)
and Trust, TTE for Medford, MA 02155
K-Mart 401k, PRT S
Marquette Trust Co., Attn. Ann Mejia Stock Index/I 4,375,199(12%)
TTE State of Hawaii 13100 Wayzata Blvd.
Deferred Compensation Minnetonka, MN 55305
Plan
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) (1) Certificate of Trust of the Registrant. Incorporated by
reference to Exhibit 1(a) to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed via EDGAR on April 4, 1997
(File No. 33-48066).
(2) First Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed via
EDGAR on April 4, 1997 (File No. 33-48066).
(3) Second Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed via
EDGAR on November 27, 1996 (File No. 33-48066).
(4) Declaration of Trust of the Registrant. Incorporated by
reference to Exhibit 1(d) to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed via EDGAR on April 4, 1997
(File No. 33-48066).
(5) First Amendment to Declaration of Trust of the Registrant.
Incorporated by reference to Exhibit 1(e) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed via
EDGAR on April 4, 1997 (File No. 33-48066).
(6) Second Amendment to Declaration of Trust of the Registrant.
Incorporated by reference to Exhibit 1(f) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed via
EDGAR on November 27, 1996 (File No. 33-48066).
(7) Third Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(g) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed on
January 22, 1998 (File No. 33-48066).
(8) Third Amendment to Declaration of Trust of the Registrant.
Incorporated by reference to Exhibit 1(h) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed on
January 22, 1998 (File No. 33-48066).
(b) By-Laws of the Registrant as revised and restated October 5, 1992.
Incorporated by reference to Exhibit 2 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A filed via EDGAR on
April 4, 1997 (File No. 33-48066).
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibits (a) and (b).
(d) (1) Management Agreement for Prudential Stock Index Fund with
Prudential Mutual Fund Management LLC. Incorporated by reference to
Exhibit 5(e) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A filed via EDGAR on November 27, 1996 (File
No. 33-48066).
(2) Subadvisory Agreement between Prudential Mutual Fund Management
LLC and The Prudential Investment Corporation. Incorporated by
reference to Exhibit 5(f)(i) to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A filed via EDGAR on November
27, 1996 (File No. 33-48066).
(3) Management Agreement for Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund and
Prudential Small-Cap Index Fund, with Prudential Investments Fund
Management LLC. Incorporated by reference to Exhibit 5(c) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed on January 22, 1998 (File No. 33-48066).
(4) Subadvisory Agreement between Prudental Investments Fund
Management LLC and The Prudential Investment Corporation for
Prudential Bond Market Index Fund, Prudential Europe Index Fund,
Prudential Pacific Index Fund and Prudential Small-Cap Index Fund.
Incorporated by reference
C-1
<PAGE>
to Exhibit 5(d) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed on January 22, 1998 (File
No. 33-48066).
(e) (1) Amended Distribution Agreement. Incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A filed on November 27, 1998 (File No.
33-48066).
(2) Form of Selected Dealer Agreement. Incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A filed on November 27, 1998 (File No.
33-48066).
(g) Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A filed via EDGAR on April 4, 1997 (File No. 33-48066).
(h) Transfer Agency and Service Agreement. Incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A filed via EDGAR on April 4, 1997 (File No.
33-48066).
(i) Opinion and consent of Morris, Nichols, Arsht & Tunnell.*
(j) Consent of Independent Accountants.*
(m) (1) Distribution and Service Plan for Class A shares.*
(2) Distribution and Service Plan for Class B shares.*
(3) Distribution and Service Plan for Class C shares.*
(o) Amended Rule 18f-3 Plan.*
- ----------
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None.
ITEM 25. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended (the 1940 Act), and pursuant to Del. Code Ann. title 12 sec.
3817, a Delaware business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article VII, Section 2 of the Agreement and Declaration
of Trust states that (i) the Registrant shall indemnify any present trustee or
officer to the fullest extent permitted by law against liability, and all
expenses reasonably incurred by him or her in connection with any claim, action,
suit or proceeding in which he or she is involved by virtue of his or her
service as a trustee, officer or both, and against any amount incurred in
settlement thereof and (ii) all persons extending credit to, contracting with or
having any claim against the Registrant shall look only to the assets of the
appropriate Series (or if no Series has yet been established, only to the assets
of the Registrant). Indemnification will not be provided to a person adjudged by
a court or other adjudicatory body to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties (collectively "disabling conduct"). In
the event of a settlement, no indemnification may be provided unless there has
been a determination, as specified in the Declaration of Trust, that the officer
or trustee did not engage in disabling conduct. As permitted by Section 17(i) of
the 1940 Act, pursuant to Section 8 of the Distribution Agreement (Exhibit
(e)(1) to the Registration Statement), the Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (Securities Act) may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1940 Act and is, therefore,
C-2
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1940 Act and
will be governed by the final adjudication of such issue.
The Registrant intends to purchase an insurance policy insuring its
officers and trustees against liabilities, and certain costs of defending claims
against such officers and trustees, to the extent such officers and trustees are
not found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and trustees under certain circumstances.
Section 9 of the Management Agreements (Exhibits (d)(1) and (d)(3) to the
Registration Statement) and Section 4 of the Subadvisory Agreements (Exhibits
(d)(2) and (d)(4) to the Registration Statement) limit the liability of
Prudential Investments Fund Management LLC (PIFM) and The Prudential Investment
Corporation (PIC), respectively, to liabilities arising from willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws, and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Investments Fund Management LLC (PIFM).
See "How the Fund is Managed--Manager" and "How the Funds are
Managed--Manager" in the Prospectuses constituting Part A of this Registration
Statement and "Investment Advisory and Other Services" in the Statement of
Additional Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PIFM's directors and principal
executive officers are set forth below. The address of each person is Gateway
Center Three, 100 Mulberry Street, 9th Floor, Newark, NJ 07102-4077.
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
Robert F. Gunia Executive Vice President Vice President, Prudential;
and Treasurer Executive Vice President and
Treasurer; PIFM; Senior Vice
President of Prudential
Securities Incorporated
(Prudential Securities)
Neil A. McGuinness Executive Vice President Executive Vice President and
Director of Marketing,
Prudential Mutual Funds &
Annuities (PMF&A); Executive
Vice President, PIFM
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Investment Adviser" and "How the Funds are
Managed--Investment Adviser" in the Prospectuses constituting Part A of this
Registration Statement and "Investment Advisory and Other Services" in the
Statement of Additional Information constituting Part B of this Registration
Statement.
The business and other connections of PIC's directors and principal
executive officers are as set forth below. The address of each person is 751
Broad Street, Newark, NJ 07102.
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<PAGE>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
Jeffrey Hiller Chief Compliance 0fficer Chief Compliance Officer,
Prudential Private Asset
Management
John R. Strangfeld, Jr. Chairman of the Board, President of Private Asset
President, Chief Executive Management Group of
Officer and Director Prudential; Senior Vice
President, Prudential;
Chairman of the Board,
President, Chief
Executive Officer and
Director, PIC
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS).
PIMS is distributor for Cash Accumulation Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, The Global Total Return Fund, Inc.,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Balanced Fund, Prudential California Municipal
Fund, Prudential Diversified Bond Fund, Inc., Prudential Distressed Securities
Fund, Inc. Prudential Diversified Funds, Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential Index Series Fund, Prudential
Institutional Liquidity Portfolio, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential Investment
Portfolios, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc.,Prudential Real Estate Securities
Fund, Prudential Sector Funds, Inc., Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential Tax-Managed Equity Fund, Prudential 20/20 Focus Fund,
Prudential World Fund, Inc. and The Target Portfolio Trust.
(b) Information concerning directors and officers of PIMS is set forth
below.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ----------- ----------
Margaret Deverell....... Vice President
and Chief Financial Officer None
Robert F. Gunia.......... President Vice President and
Trustee
Kevin Frawley............ Senior Vice President
and Compliance Officer None
William V. Healey........ Senior Vice President, Secretary
and Chief Legal Officer None
Brian Henderson.......... Senior Vice President
and Chief Operating Officer None
John R. Strangfeld, Jr... Advisory Board Member President and
Trustee
- ----------
(1) The address of each person named is Prudential Plaza, Newark, New Jersey
07102 unless otherwise noted.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
C-4
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts, The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102; the Registrant, Gateway Center
Three, 100 Mulberry Street, Newark, NJ 07102-4077; and Prudential Mutual Fund
Services LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents required by
Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at 751
Broad Street, Newark, New Jersey 07102 and 51 JFK Parkway, Short Hills, New
Jersey 07078, for Prudential Bond Market Index Fund, Prudential Europe Index
Fund, Prudential Pacific Index Fund, Prudential Small-Cap Index Fund and
Prudential Stock Index Fund and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
rules promulgated thereunder will be kept by State Street Bank and Trust Company
and Prudential Mutual Fund Services LLC.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the caption "How the Fund is Managed" or
"How the Funds are Managed" in the Prospectuses and under the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Post-Effective
Amendment to the Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS
Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Fund has duly caused
this Post-Effective Amendment to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, duly authorized, in the City of Newark,
and the State of New Jersey, on the 30th day of July, 1999.
PRUDENTIAL INDEX SERIES FUND
By /s/ JOHN R. STRANGFELD, JR.
---------------------------------------
JOHN R. STRANGFELD, JR., PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GRACE C. TORRES Treasurer and Principal Financial July 30, 1999
- --------------------------- and Accounting Officer
GRACE C. TORRES
/s/ EDWARD D. BEACH Trustee July 30, 1999
- ---------------------------
EDWARD D. BEACH
/s/ DELAYNE DEDRICK GOLD Trustee July 30, 1999
- ---------------------------
DELAYNE DEDRICK GOLD
/s/ ROBERT F. GUNIA Trustee July 30, 1999
- ---------------------------
ROBERT F. GUNIA
/s/ DOUGLAS H. McCORKINDALE Trustee July 30, 1999
- ---------------------------
DOUGLAS H. MCCORKINDALE
/s/ THOMAS T. MOONEY Trustee July 30, 1999
- ---------------------------
THOMAS T. MOONEY
/s/ STEPHEN P. MUNN Trustee July 30, 1999
- ---------------------------
STEPHEN P. MUNN
/s/ RICHARD A. REDEKER Trustee July 30, 1999
- ---------------------------
RICHARD A. REDEKER
/s/ ROBIN B. SMITH Trustee July 30, 1999
- ---------------------------
ROBIN B. SMITH
/s/ JOHN R. STRANGFELD, Jr. President and Trustee July 30, 1999
- ---------------------------
JOHN R. STRANGFELD, JR.
/s/ LOUIS A. WEIL, III Trustee July 30, 1999
- ---------------------------
LOUIS A. WEIL, III
/s/ CLAY T. WHITEHEAD Trustee July 30, 1999
- ---------------------------
CLAY T. WHITEHEAD
C-6
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
(a) (1) Certificate of Trust of the Registrant. Incorporated by
reference to Exhibit 1(a) to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed via EDGAR on April 4, 1997
(File No. 33-48066).
(2) First Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed via
EDGAR on April 4, 1997 (File No. 33-48066).
(3) Second Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed via
EDGAR on November 27, 1996 (File No. 33-48066).
(4) Declaration of Trust of the Registrant. Incorporated by
reference to Exhibit 1(d) to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A filed via EDGAR on April 4, 1997
(File No. 33-48066).
(5) First Amendment to Declaration of Trust of the Registrant.
Incorporated by reference to Exhibit 1(e) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed via
EDGAR on April 4, 1997 (File No. 33-48066).
(6) Second Amendment to Declaration of Trust of the Registrant.
Incorporated by reference to Exhibit 1(f) to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A filed via
EDGAR on November 27, 1996 (File No. 33-48066).
(7) Third Amendment to Certificate of Trust of the Registrant.
Incorporated by reference to Exhibit 1(g) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed on
January 22, 1997 (File No. 33-48066).
(8) Third Amendment to Declation of Trust of the Registrant.
Incorporated by reference to Exhibit 1(h) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed on
January 22, 1997 (File No. 33-48066).
(b) By-Laws of the Registrant as revised and restated October 5, 1992.
Incorporated by reference to Exhibit 2 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A filed via EDGAR on
April 4, 1997 (File No. 33-48066).
(c) Instruments defining rights of shareholders. Incorporated by
reference to Exhibits (a) and (b).
(d) (1) Management Agreement for Prudential Stock Index Fund with
Prudential Mutual Fund Management LLC. Incorporated by reference to
Exhibit 5(e) to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A filed via EDGAR on November 27, 1996 (File
No. 33-48066).
(2) Subadvisory Agreement between Prudential Mutual Fund Management
LLC and The Prudential Investment Corporation. Incorporated by
reference to Exhibit 5(f)(i) to Post-Effective Amendment No. 7 to
the Registration Statement on Form N-1A filed via EDGAR on November
27, 1996 (File No. 33-48066).
(3) Management Agreement for Prudential Bond Market Index Fund,
Prudential Europe Index Fund, Prudential Pacific Index Fund and
Prudential Small-Cap Index Fund, with Prudential Investments Fund
Management LLC. Incorporated by reference to Exhibit 5(c) to
Post-Effective Amendment No. 10 to the Registration Statement on
Form N-1A filed on January 22, 1997 (File No. 33-48066).
<PAGE>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
(4) Subadvisory Agreement between Prudental Investments Fund
Management LLC and The Prudential Investment Corporation for
Prudential Bond Market Index Fund, Prudential Europe Index Fund,
Prudential Pacific Index Fund and Prudential Small-Cap Index Fund.
Incorporated by reference to Exhibit 5(d) to Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A filed on
January 22, 1997 (File No. 33-48066).
(e) (1) Amended Distribution Agreement. Incorporated by reference to
Exhibit 6(a) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A filed on November 27, 1998 (File No.
33-48066).
(2) Form of Selected Dealer Agreement. Incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A filed on November 27, 1998 (File No.
33-48066).
(g) Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A filed via EDGAR on April 4, 1997 (File No. 33-48066).
(h) Transfer Agency and Service Agreement. Incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A filed via EDGAR on April 4, 1997 (File No.
33-48066).
(i) Opinion and consent of Morris, Nichols, Arsht & Tunnell.*
(j) Consent of Independent Accountants.*
(m) (1) Distribution and Service Plan for Class A shares.*
(2) Distribution and Service Plan for Class B shares.*
(3) Distribution and Service Plan for Class C shares.*
(o) Amended Rule 18f-3 Plan.*
- ----------
* Filed herewith.
<TABLE>
<S> <C> <C>
RICHARD L. SUTTON MORRIS, NICHOLS, ARSHT & TUNNELL RACHEL A. DWARES
JOHANNES R. KRAHMER 1201 north market street JEFFREY R. WOLTERS
O. FRANCIS BIONDI p.o. box 1347 MARYELLEN NOREIKA
LEWIS S. BLACK, JR. wilmington, delaware 19899-1347 DAVID J. TEKLITS
PAUL WELSH _____ S. MARK HURD
WILLIAM O. LAMOTTE, III RODGER D. SMITH*
DOUGLAS E. WHITNEY telephone (302) 658-9200 LISA K. W. CROSSLAND
WILLIAM H. SUDELL, JR. telecopy (302) 658-3989 ERIC D. SCHWARTZ
MARTIN P. TULLY LUCINDA C.
THOMAS R. HUNT, JR. CUCUZZELLA
A. GILCHRIST SPARKS, III MONA A. LEE
RICHARD D. ALLEN STANFORD L.
DAVID LEY HAMILTON STEVENSON, III
JOHN F. JOHNSTON J. ANDREW HUFFMAN
WALTER C. TUTHILL DEREK C. ABBOTT
DONALD F. PARSONS, JR. July 30, 1999 JESSICA ZELDIN
JACK B. BLUMENFELD BRADLEY JAMES ENNA
DONALD NELSON ISKEN DAVID A. HARRIS
DONALD E. REID ELIZABETH A. BROWN
DENISON H. HATCH, JR. PATRICIA A. O'NEILL
THOMAS C. GRIMM GREGORY W.
KENNETH J. NACHBAR WERKHEISER
ANDREW M. JOHNSTON WENDY L. WALTER
MARY B. GRAHAM CHRISTOPHER F.
MICHAEL HOUGHTON CARLTON
MATTHEW B. LEHR STEPHANIE L. NAGEL
THOMAS R. PULSIFER JOELLE E. POLESKY
JON E. ABRAMCZYK RICHARD W. ELLIS
ALAN J. STONE FRANCIS X. GORMAN
LOUIS G. HERING JOHN D. PIRNOT
FREDERICK H. ALEXANDER MEGAN E. WARD
R. JUDSON SCAGGS, JR.
WILLIAM M. LAFFERTY
KAREN JACOBS LOUDEN
KAREN L. PASCALE ANDREW B.
DONNA L. CULVER KIRKPATRICK, JR.
JULIA HEANEY DAVID A. DREXLER
JONATHAN I. LESSNER WALTER L. PEPPERMAN, II
ROBERT J. DEHNEY
COLM F. CONNOLLY
OF COUNSEL
</TABLE>
Prudential Index Series Fund
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102-4077
Re: Prudential Index Series Fund
----------------------------
Ladies and Gentlemen:
We acted as special Delaware counsel to Prudential Index Series
Fund, a Delaware business trust (the "Trust"), in connection with the formation
of the Trust and related matters. In such capacity, we rendered an opinion
concerning the Trust dated October 30, 1992, a copy of which is attached hereto
(the "Prior Opinion"). Capitalized terms used herein and not otherwise herein
defined are used as defined in the Prior Opinion.
In rendering this further opinion, we have examined the documents
referenced in our Prior Opinion and, in addition, copies of: (i) a Second
Amendment to Agreement and Declaration of Trust of the Trust dated as of October
28, 1996 (the "Second Amendment"); (ii) a Third Amendment to Agreement and
Declaration of Trust dated as of October 15, 1997 (the "Third Amendment"); (iii)
a Second Amendment to the Certificate as filed in the Recording Office on
October 29, 1996; (iv) a Third Amendment to the Certificate as filed in the
Recording Office on January 14, 1998; (v) certain minutes of meetings of the
Board of Trustees of the Trust dated February 19, 1997, August 26, 1997 and May
26, 1999; (vii) Post-Effective Amendments Nos. 1-12 to the Registration
Statement of the Trust on Form N1-A, as filed with the Securities and Exchange
Commission (the "Post-Effective Amendments"); and (viii) a certification of good
standing of the Trust obtained from the Recording Office as of a recent date.
The opinions hereinafter expressed are based upon the same assumptions,
effective as of the date of the Prior Opinion and the date hereof, as set forth
in the Prior Opinion, including as applicable to the new documents herein
referenced. For purposes of this supplemental opinion, (A) references to the
Governing Instrument in the Prior Opinion shall be deemed references to the
Governing
<PAGE>
Prudential Index Series Fund
July 30, 1999
Page 2
Instrument as amended by the Second Amendment and the Third Amendment, (B)
references to the Registration Statement of the Trust in the Prior Opinion shall
be deemed references to the Registration Statement as amended by the
Post-Effective Amendments and (C) references in the Prior Opinion to Applicable
Shares shall be deemed references to Shares of the currently existing Series of
the Trust (and classes thereof).
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, we hereby reconfirm to you as of the date
hereof the opinions set forth in the Prior Opinion.
We consent to the filing of this supplemental opinion as an
Exhibit to the Registration Statement. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. This
supplemental opinion is intended solely for the benefit of the addressee hereof
and, except as provided in the foregoing sentence, may not be furnished or
quoted to, or relied upon, by any other person or entity for any purpose without
our prior written consent. This opinion speaks only as of the date hereof and is
based on our understandings and assumptions as to present facts and our review
of the above-referenced documents and certificates and the application of
Delaware law as the same exists on the date hereof, and we undertake no
obligation to update or supplement this supplemental opinion after the date
hereof for the benefit of any person or entity with respect to any facts or
circumstances that may hereafter come to our attention or any changes in facts
or law that may hereafter occur or take effect.
Very truly yours,
MORRIS, NICHOLS, ARSHT & TUNNELL
Walter C. Tuthill
<PAGE>
[Letterhead of Morris, Nichols, Arsht & Tunnell]
October 30, 1992
The Prudential Institutional Fund
Prudential Plaza
751 Broad Street
Newark, New Jersey 07102-3777
Re: The Prudential Institutional Fund
---------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to The Prudential
Institutional Fund, a Delaware business trust (the "Trust"), in connection with
certain matters relating to the organization of the Trust and the proposed
issuance of Shares of certain Series of the Trust (the "Applicable Shares")
pursuant to and as described in Registration Statement No. 33-48066 on Form N-1A
filed with the Securities and Exchange Commission, as amended by Pre-Effective
Amendment Nos. 1 and 2 thereto (as amended, the "Registration Statement").
Capitalized terms used herein and not otherwise herein defined are used as
defined in the Agreement and Declaration of Trust of the Trust dated May 11,
1992, as amended by the First Amendment to Agreement and Declaration of Trust of
the Trust dated as of July 7, 1992 (as amended, the "Governing Instrument").
In rendering this opinion, we have examined copies of the
following documents, each in the form provided to us: the Certificate of Trust
of the Trust as filed in the Office of the Secretary of State of the State of
Delaware (the "Recording Office") on May 11, 1992 (the "Certificate"), as
amended by a First Amendment thereto as filed in the Recording Office on June 1,
1992; the Governing Instrument; a Purchase Agreement dated as
<PAGE>
The Prudential Institutional Fund
October 30, 1992
Page 2
of July 7, 1992 between the Trust and Prudential Institutional Fund Management,
Inc.; the revised By-Laws of the Trust as adopted on October 5, 1992;
Resolutions of the Sole Trustee of the Trust dated May 11, 1992; a Written
Consent of Sole Trustee of the Trust dated as of July 7, 1992; a Written Consent
of Sole Trustee of the Trust dated as of October 5, 1992; a Consent of Sole
Shareholder of the Trust dated as of October 5, 1992; minutes of a meeting of
the Board of Trustees of the Trust dated October 12, 1992; the Registration
Statement; the Trust's Notification of Registration Filed Pursuant to Section
8(a) of the Investment Company Act of 1940 on Form N-8A as filed with the
Securities and Exchange Commission on May 21, 1992; and a certificate of good
standing of the Trust obtained as of a recent date from the Recording Office. In
such examinations, we have assumed the genuineness of all signatures, the
conformity to original documents of all documents submitted to us as copies or
drafts of documents to be executed and the legal capacity of natural persons to
complete the execution of documents. We have further assumed for the purpose of
this opinion: (i) the due authorization, execution and delivery by, or on behalf
of, each of the parties thereto of the above-referenced instruments,
certificates and other documents (provided that we do not assume due
authorization of any of the foregoing on behalf of the Trust), and of all
documents contemplated by the Governing Instrument, By-Laws, applicable
Resolutions of the Sole Trustee or Trustees and the Registration Statement
(including the Prospectus and Statement of Additional Information forming a part
thereof) (collectively, the "Operative Documents") to be executed by investors
acquiring Applicable Shares (the "Shareholders" and each, individually, a
"Shareholder"); (ii) the payment of consideration for Applicable Shares, and the
application of such consideration, as provided in the Governing Instrument, and
compliance with the other terms, conditions and restrictions set forth in the
Operative Documents in connection with the issuance of Applicable Shares; (iii)
that appropriate notation of the names and addresses of, the number of
Applicable Shares held by, and the consideration paid by, Shareholders will be
maintained in the appropriate registers and other books and records of the Trust
in connection with the issuance, redemption or transfer of Applicable Shares;
(iv) that no event has occurred subsequent to the filing
<PAGE>
The Prudential Institutional Fund
October 30, 1992
Page 3
of the Certificate that would cause a termination or reorganization of the Trust
under Section 2 or 3 of Article VIII of the Governing Instrument; (v) that the
activities of the Trust have been and will be conducted in accordance with the
terms of the Governing Instrument and the Delaware Business Trust Act, 12 Del.
C. ss.ss. 3801 et seq. (the "Delaware Act"); and (vi) that each of the documents
examined by us is in full force and effect and has not been modified,
supplemented or otherwise amended, except as herein referenced. No opinion is
expressed herein with respect to the requirements of, or compliance with,
federal or state securities or blue sky laws. Further, we have not participated
in the preparation of the Registration Statement or any other offering
documentation relating to the Trust, the Applicable Shares or the related
Series, and we assume no responsibility for their contents. As to any facts
material to our opinion, other than those assumed, we have relied without
independent investigation on the above-referenced documents and on the accuracy,
as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
1. The Trust is a duly organized and validly existing business
trust in good standing under the laws of the State of Delaware.
2. The issuance of the Applicable Shares has been duly authorized
on behalf of the Trust and, when issued to Shareholders in accordance with the
terms, conditions, requirements and procedures set forth in the Operative
Documents, the Applicable Shares will constitute legally issued, fully paid and
non-assessable Shares of beneficial interest in the Trust.
3. Under the Delaware Act and the terms of the Governing
Instrument, each Shareholder of the Trust, in such capacity, will be entitled to
the same limitation of personal liability as that extended to stockholders of
private corporations for profit organized under the General Corporation Law of
the State of Delaware; provided, however, that we express no opinion
<PAGE>
The Prudential Institutional Fund
October 30, 1992
Page 4
with respect to the liability of any Shareholder who is, was or may become a
named Trustee of the Trust. Neither the existence nor exercise of the voting
rights granted to Shareholders under the Governing Instrument will, of itself,
cause a Shareholder to be deemed a trustee of the Trust under the Delaware Act.
Notwithstanding the foregoing or the opinion expressed in paragraph 2 above, we
note that, pursuant to Section 5 of Article IV of the Governing Instrument, the
Trustees have the power to cause Shareholders, or Shareholders of a particular
Series, to have the obligation to pay certain custodian, transfer, servicing or
similar agent charges by setting off the same against declared but unpaid
dividends or by reducing Share ownership.
We consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
We understand that the firm of Arnold & Porter may rely as to
matters of Delaware law on the opinions set forth above in connection with the
rendering of its opinion to you dated on or about the date hereof concerning the
issuance of Applicable Shares, and we hereby consent to such reliance. Except as
provided above, the opinions set forth above are expressed solely for the
benefit of the addressee hereof and may not be furnished or quoted to, or relied
upon, by any other person or entity for any purpose without our prior written
consent.
Sincerely,
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ WALTER C. TUTHILL
-----------------------------
Walter C. Tuthill
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 12 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
November 20, 1998, relating to the financial statements and financial highlights
of Prudential Index Series Fund (consisting of Prudential Pacific Index Fund,
Prudential Stock Index Fund, Prudential Small-Cap Index Fund, Prudential Bond
Market Index Fund and Prudential Europe Index Fund), which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into each Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Investment
Advisory and Other Services" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such
Prospectuses.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 30, 1999
PRUDENTIAL INDEX SERIES FUND
Prudential Stock Index Fund
Distribution and Service Plan
(Class A Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Stock Index Fund (the Fund), a series of Prudential Index
Series Fund (the Company) and by Prudential Investment Management Services LLC,
the Fund's distributor (the Distributor).
The Company has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Trustees of the Company, including a majority of
those Trustees who are not "interested persons" of the Company (as defined in
the Investment Company Act) and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the Rule
12b-1 Trustees), have determined by votes cast in person at a meeting called for
the purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund
1
<PAGE>
for Distribution Activities (defined below) are primarily intended to result in
the sale of Class A shares of the Fund within the meaning of paragraph (a)(2) of
Rule 12b-1 promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network, including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum
2
<PAGE>
of the average daily net assets of the Class A shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Trustees may determine. Amounts payable under the Plan shall be subject
to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes will be
subject to the review of the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
3
<PAGE>
(a) sales commissions and trailer commissions paid to, or on account of,
account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
Distribution Activities, including central office and branch expenses;
(c) amounts paid to Prudential Securities or Prusec for performing
services under a selected dealer agreement between Prudential
Securities or Prusec and the Distributor for sale of Class A shares of
the Fund, including sales commissions, trailer commissions paid to, or
on account of, agents and indirect and overhead costs associated with
Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities or Prusec) which have entered into selected
dealer agreements with the Distributor with respect to Class A shares
of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Company will provide to the Board of Trustees
of the Company for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Company such additional information as
the Board shall from time to time reasonably request, including information
about Distribution Activities undertaken or to be undertaken by the Distributor.
4
<PAGE>
The Distributor will inform the Board of Trustees of the Company of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and financial institutions
which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Company and a majority of the Rule
12b-1 Trustees by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class A shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan
5
<PAGE>
shall be approved by a majority of the Board of Trustees of the Company and a
majority of the Rule 12b-1 Trustees by votes cast in person at a meeting called
for the purpose of voting on the Plan.
8. Rule 12b-1 Trustees
While the Plan is in effect, the selection and nomination of the Trustees
shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
The Company shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: May 26, 1999
PRUDENTIAL INDEX SERIES FUND
Prudential Stock Index Fund
Distribution and Service Plan
(Class B Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Stock Index Fund (the Fund), a series of Prudential Index
Series Fund (the Company) and by Prudential Investment Management Services LLC,
the Fund's distributor (the Distributor).
The Company has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class B shares issued by the Fund
(Class B shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class B shares.
A majority of the Board of Trustees of the Company, including a majority
who are not "interested persons" of the Company (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Trustees), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
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Activities (defined below) are primarily intended to result in the sale of Class
B shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class B
shares of the Fund are referred to herein as "Distribution Activities."
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2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Trustees. The allocation of distribution expenses among classes will be subject
to the review of the Board of Trustees. Payments hereunder will be applied to
distribution expenses in the order in which they are
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incurred, unless otherwise determined by the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prudential Securities or Prusec for performing services
under a selected dealer agreement between Prudential Securities or Prusec
and the Distributor for sale of Class B shares of the Fund, including sales
commissions and trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available medium,
including the cost of printing and mailing Fund prospectuses, statements of
additional information and periodic financial reports and sales literature
to persons other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prudential Securities or Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Company will provide to the Board of Trustees
of the Company for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of
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Trustees of the Company such additional information as they shall from time to
time reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Trustees of the Company of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Company and a majority of the Rule
12b-1 Trustees by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class B shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
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materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Trustees of the Company and a majority of the Rule 12b-1 Trustees by votes cast
in person at a meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Trustees
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
The Company shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: May 26, 1999
PRUDENTIAL INDEX SERIES FUND
Prudential Stock Index Fund
Distribution and Service Plan
(Class C Shares)
Introduction
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (NASD) has been
adopted by Prudential Stock Index Fund (the Fund), a series of Prudential Index
Series Fund (the Company) and by Prudential Investment Management Services LLC,
the Fund's distributor (the Distributor).
The Company has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class C shares issued by the Fund
(Class C shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class C shares.
A majority of the Board of Trustees of the Company, including a majority
who are not "interested persons" of the Company (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the Rule 12b-1
Trustees), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption and continuation of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
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Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
The Plan
The material aspects of the Plan are as follows:
1. Distribution Activities
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Distributor's distribution network including sales personnel and branch office
and central support systems, and also using such other qualified broker-dealers
and financial institutions as the Distributor may select, including Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities Corporation
(Prusec). Services provided and activities undertaken to distribute Class C
shares of the Fund are referred to herein as "Distribution Activities."
2. Payment of Service Fee
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum
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of the average daily net assets of the Class C shares (service fee). The Fund
shall calculate and accrue daily amounts payable by the Class C shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Trustees may determine.
3. Payment for Distribution Activities
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Trustees may determine. Amounts payable under the Plan shall be
subject to the limitations of Rule 2830 of the NASD Conduct Rules.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the the Fund's shares
over the Fund's fiscal year or such other allocation method approved by the
Board of Trustees. The allocation of distribution expenses among classes will be
subject to the review of the Board of Trustees. Payments hereunder will be
applied to distribution expenses in the order in which they are incurred, unless
otherwise determined by the Board of Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
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(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and branch
expenses;
(c) amounts paid to Prudential Securities or Prusec for performing services
under a selected dealer agreement between Prudential Securities or Prusec
and the Distributor for sale of Class C shares of the Fund, including sales
commissions and trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available medium,
including the cost of printing and mailing Fund prospectuses, statements of
additional information and periodic financial reports and sales literature
to persons other than current shareholders of the Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other than
Prudential Securities or Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class C shares of the Fund.
4. Quarterly Reports; Additional Information
An appropriate officer of the Company will provide to the Board of Trustees
of the Company for review, at least quarterly, a written report specifying in
reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Trustees of the Company such additional information as
they shall from time to time reasonably request, including information about
Distribution Activities undertaken or to be undertaken by the Distributor.
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The Distributor will inform the Board of Trustees of the Company of the
commissions and account servicing fees to be paid by the Distributor to account
executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. Effectiveness; Continuation
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Trustees of the Company and a majority of the Rule
12b-1 Trustees by votes cast in person at a meeting called for the purpose of
voting on the continuation of the Plan.
6. Termination
This Plan may be terminated at any time, without the payment of any
penalty, by a majority of the Rule 12b-1 Trustees, or by vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Class C shares of the Fund, or by the Distributor, on sixty (60) days'
written notice to the other party. This Plan shall automatically terminate in
the event of its assignment.
7. Amendments
The Plan may not be amended to change the combined service and distribution
expenses to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments
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of the Plan shall be approved by a majority of the Board of Trustees of the
Company and a majority of the Rule 12b-1 Trustees by votes cast in person at a
meeting called for the purpose of voting on the Plan.
8. Rule 12b-1 Trustees
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. Records
The Company shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.
Dated: May 26, 1999
PRUDENTIAL INDEX SERIES FUND
(the Fund)
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares in each investment
portfolio (each a Portfolio). Any material amendment to this plan is subject to
prior approval of the Board of Trustees, including a majority of the independent
Trustees. The Fund currently offers Class I and Class Z Shares.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to a distribution and/or service
fee pursuant to Rule 12b-1 under the 1940 Act (Rule 12b-1
fee) not to exceed .30 of 1% per annum of the average daily
net assets of the class.
CLASS B SHARES: Class B shares are not subject to an initial sales charge
but are subject to a high contingent deferred sales charge
(declining from 5% to zero over a six-year period) which
will be imposed on certain redemptions and a Rule 12b-1 fee
not to exceed 1% per annum of the average daily net assets
of the class. The contingent deferred sales charge is waived
for certain eligible investors. Class B shares automatically
convert to Class A shares approximately seven years after
purchase.
CLASS C SHARES: Class C shares are subject to a low initial sales charge and
a 1% contingent deferred sales charge which will be imposed
on certain redemptions within the first 18 months after
purchase and a Rule 12b-1 fee not to exceed 1% per annum of
the average daily net assets of the class.
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Class Z SHARES: Class Z shares are not subject to either an initial or
contingent deferred sales charge, nor are they subject to
any Rule 12b-1 fee.
Class I SHARES: Class I shares are not subject to either an initial or
contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee. Class I shares, are subject to minimal
transfer agency fees or expenses.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class of a Portfolio will be allocated to
each class of such Portfolio on the basis of the net asset value of that
class in relation to the net asset value of the Portfolio.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by each Portfolio to each class of
shares, to the extent paid, will be paid on the same day and at the same
time, and will be determined in the same manner and will be in the same
amount, except that the amount of the dividends and other distributions
declared and paid by a particular class of the Portfolio may be different
from that paid by another class of the Portfolio because of Rule 12b-1 fees
and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Holders of Class A Shares, Class B Shares, Class C Shares, Class Z Shares
and Class I Shares shall have such exchange privileges as set forth in the
Portfolio's current prospectus. Exchange privileges may vary among classes
and among holders of a Class.
CONVERSION FEATURES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be
effected at relative net asset value without the imposition of any
additional sales charge.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of
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one class differ from the interests of any other class.
B. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Trustees, including a majority of the independent
Trustees, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Investments Fund Management
LLC, the Fund's Manager, will be responsible for reporting any potential or
existing conflicts to the Trustees.
C. For purposes of expressing an opinion on the financial statements of each
Portfolio of the Fund, the methodology and procedures for calculating the
net asset value and dividends/distributions of the Fund's several classes
and the proper allocation of income and expenses among such classes will be
examined annually by the Fund's independent auditors who, in performing
such examination, shall consider the factors set forth in the relevant
auditing standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Date: February 19, 1997
Amended: June 1, 1998
Amended: May 26, 1999
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