PRUDENTIAL INDEX SERIES FUND, 485BPOS, 2000-12-05

PRUDENTIAL INDEX SERIES FUND
485BPOS, 2000-12-05

Previous: UNITEDGLOBALCOM INC, 4, 2000-12-05

Next: PRUDENTIAL INDEX SERIES FUND, 485BPOS, EX-99.(B), 2000-12-05

As filed with the Securities and Exchange Commission on December 5, 2000

Registration Nos. 33-48066
811-6677
================================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|

POST-EFFECTIVE AMENDMENT NO. 17 |X|

AND

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 |_|

AMENDMENT NO. 18 |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)

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

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

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

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)

|X| on December 5, 2000 pursuant to paragraph (b)

|_| 60 days after filing pursuant to paragraph (a)

|_| on (date) 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.

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

<PAGE>

PROSPECTUS DECEMBER 5, 2000

--------------------------------------------------------------------------------
PRUDENTIAL
STOCK INDEX FUND
--------------------------------------------------------------------------------
FUND TYPE Stock
--------------------------------------------------------------------------------
OBJECTIVE Provide investment results that correspond to the price and yield
performance of the S&P 500 Index
--------------------------------------------------------------------------------

[PRUDENTIAL ROCK LOGO]

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.

[PRUDENTIAL LOGO]

<PAGE>

--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------

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 and Strategies

10 Investment Risks

13 HOW THE FUND IS MANAGED
13 Board of Trustees
13 Manager
13 Investment Adviser
13 Portfolio Managers
14 Distributor

15 FUND DISTRIBUTIONS AND TAX ISSUES
15 Distributions

16 Tax Issues
17 If You Sell or Exchange Your Shares

19 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
19 How to Buy Shares
26 How to Sell Your Shares
29 How to Exchange Your Shares
31 Telephone Redemptions or Exchanges

32 FINANCIAL HIGHLIGHTS
32 Class A Shares
33 Class B Shares
34 Class C Shares
35 Class Z Shares
36 Class I Shares

38 THE PRUDENTIAL MUTUAL FUND FAMILY

For More Information (Back Cover)
--------------------------------------------------------------------------------
PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>
--------------------------------------------------------------------------------
RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

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 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, with or
without taking expenses into account. We sell a security within a reasonable
time after it has been removed from the Index. The Fund may use derivatives.

While we make every effort to achieve our objective, we can't guarantee
success.

--------------------------------------------------------------------------------
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 80% 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.
--------------------------------------------------------------------------------

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.

Some of our investment strategies may present above-average risks. The Fund
may use risk management techniques to try to preserve assets. We may use hedging
techniques to try to

--------------------------------------------------------------------------------
1
<PAGE>
--------------------------------------------------------------------------------
RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

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 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.

--------------------------------------------------------------------------------
2 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

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 by
showing how returns can change from year to year and by showing how the Fund's
average annual total returns compare with the S&P 500 Index. Past performance
does not mean that the Fund will achieve similar results in the future.

-----------------------------------
ANNUAL RETURNS (CLASS Z SHARES)
--------------------------------------------------------------------------------
[Bar Chart]
1993 1994 1995 1996 1997 1998 1999

9.21% 1.06% 36.72% 22.34% 32.28% 28.33% 20.50%
--------------------------------------------------------------------------------
Best Quarter: 21.30% Worst Quarter: -9.94%
(4th quarter of 1998) (3rd quarter of 1998)
--------------------------------------------------------------------------------

The total return of the Class Z shares from 1-1-00 to 9-30-00 was -1.29%.

----------------------------------------
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-99)
--------------------------------------------------------------------
1 YR 5 YRS SINCE INCEPTION

Class Z shares 20.50% 27.89% 21.16% (since 11-5-92)

Class I shares 20.69% N/A 21.23% (since 8-1-97)

S&P 500 Index(2) 21.03% 28.54% N/A(2)

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

1 The Fund's returns are after deduction of expenses. Without the management fee
waiver or expense reimbursement, the returns would have been lower. No
performance information is shown for Class A, B or C shares because they were
not available for the full calendar year ended 12-31-99.

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. These
returns do not include the effect of any operating expenses of a mutual fund.
These returns would be lower if they included the effect of operating
expenses. S&P 500 Index returns since the inception of each class are 21.74%
for Class Z and 21.29% for Class I shares. Source: Lipper Inc.

--------------------------------------------------------------------------------
3
<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 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. For more
information about which share class may be right for you, see "How to Buy, Sell
and Exchange Shares of the Fund."

----------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
-----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z CLASS I
<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)

Maximum sales charge (load) imposed on None None None None None
reinvested dividends and other
distributions

Redemption fees None None None None None

Exchange fee None None None None None

------------------------------------------------------------
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% 1.00% 1.00% None None
+ Other expenses .62% .23% .12% .18% .05%
= Total annual Fund operating expenses 1.22% 1.53% 1.42% .48% .35%
- Fee waiver or expense reimbursement(4) .57% .13% .05% .08% .05%
= Net annual Fund operating expenses(4) .65% 1.40% 1.37% .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, 2001, the Distributor of the Fund has
contractually agreed to reduce its distribution and service (12b-1) 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%,
1.37%, .40% and .30% of the average net assets for Class A, Class B, Class C,
Class Z and Class I shares, respectively, for the fiscal year ending September
30, 2001.

--------------------------------------------------------------------------------
4 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
RISK/RETURN SUMMARY
--------------------------------------------------------------------------------

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, except for the Manager's agreement to
subsidize expenses and the Distributor's reduction of distribution and service
(12b-1) fees for Class A shares during the first year. 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

Class A shares $ 66 $331 $615 $1,427
Class B shares $643 $771 $922 $1,690
Class C shares $338 $540 $864 $1,781
Class Z shares $ 41 $146 $261 $ 596
Class I shares $ 31 $107 $191 $ 438

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

You would pay the following expenses on the same investment if you did not sell
your shares:

---------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS

Class A shares $ 66 $331 $615 $1,427
Class B shares $143 $471 $822 $1,690
Class C shares $238 $540 $864 $1,781
Class Z shares $ 41 $146 $261 $ 596
Class I shares $ 31 $107 $191 $ 438

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

--------------------------------------------------------------------------------
5
<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is 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.

----------------------------------------
THE REPLICATION METHOD

The Fund attempts to replicate what the
S&P 500 Index does. The Fund is not
actively managed by portfolio managers
who buy and sell securities based on
research and analysis.
----------------------------------------

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, with or without taking expenses into
account. The Fund is not sponsored by or affiliated with S&P.

In addition to common stocks, the Fund can invest in equity-related
securities. These 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 removed from the Index, we will sell it within a reasonable time
thereafter. In addition, the Fund's holdings may change for other reasons, like
adding securities when they are added to the Index, or when we receive
securities of companies spun off from S&P 500 companies.

The investment adviser will try to minimize the difference between the
investment results of the Fund and that of the S&P 500 Index. Tracking will be
monitored regularly. In addition to potential tracking differences, brokerage,
transaction costs and other Fund expenses may cause the Fund's return to be
lower than the return of the S&P 500 Index.

DERIVATIVE STRATEGIES

We may use various derivative strategies to try to improve the Fund's returns.
We may use hedging strategies to try to protect the Fund's 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

--------------------------------------------------------------------------------
6 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

and securities indexes, and options on futures--involve costs and can be
volatile. Options, futures contracts and options on futures contracts are used,
if at all, primarily to invest uncommitted cash balances, to maintain liquidity
to meet redemptions, to facilitate tracking, to reduce transaction costs or to
hedge the Fund's portfolio. 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 equity securities and
securities indexes traded on U.S. or foreign securities exchanges or in 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, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, Its Investments and 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 AND STRATEGIES

In addition to the principal strategies, we also may use the following
investment strategies 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.

--------------------------------------------------------------------------------
7
<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

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.

Money Market Instruments

The Fund may temporarily hold cash or invest in high-quality foreign or
domestic money market instruments pending investment of proceeds from new sales
of 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. Money market instruments include 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.

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. The Fund uses repurchase agreements for cash management purposes only.

Temporary Defensive Investments

In response to adverse market, economic or political conditions, we may
temporarily invest up to 20% of the Fund's assets in high-quality MONEY MARKET
INSTRUMENTS. 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.

--------------------------------------------------------------------------------
8 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>
--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

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 for cash management purposes (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.

--------------------------------------------------------------------------------
9
<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

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 non-principal investments the Fund may
make. The investment types are listed in the order in which the portfolio
managers primarily invest. See, too, "Description of the Fund, Its Investments
and Risks" in the SAI.

<TABLE>
<CAPTION>
--------------------------
INVESTMENT TYPE ------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
O Individual stocks O Historically, stocks have
COMMON STOCKS OF could lose value outperformed other
U.S. COMPANIES IN O The equity markets investments over the long
S&P 500 INDEX could go down, resulting term
in a decline in value of O Generally, economic growth
At least 80% the Fund's investments means higher corporate
O Changes in economic or profits, which leads to an
political conditions, both increase in stock prices,
domestic and international, known as capital
may result in a decline in appreciation
value of the Fund's
investments

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

DERIVATIVES O Derivatives such O Hedges that correlate
as futures and options well with an underlying
Percentage varies; may not fully offset the position can reduce or
usually less than 20% underlying positions and eliminate investment
this could result in income or capital gains
losses to the Fund that at low cost
would not have otherwise O The Fund could make money
occurred and protect against losses
O Derivatives used if the investment analysis
for risk management may proves correct
not have the intended O One way to manage the
effects and may result in Fund's risk/return
losses or missed balance is by locking in
opportunities the value of an investment
O The other party to ahead of time
a derivatives contract
could default
O Certain types of
derivatives involve costs
to the Fund that can
reduce returns

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

--------------------------------------------------------------------------------
10 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

<TABLE>

<CAPTION>
--------------------------
INVESTMENT TYPE (cont'd)------------------------------------------------------------------------
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
O Foreign markets, O Investors can participate
FOREIGN SECURITIES DENOMINATED economies and political in foreign markets and
IN U.S. DOLLARS systems may not be as companies operating in
stable as in the U.S. those markets
Up to 20%: usually less O May be less liquid o Opportunities for
than 10% than U.S. stocks and bonds diversification
O Differences in
foreign laws, accounting
standards, public
information, custody and
settlement practices
provide less reliable
information on foreign
investments and involve
more risk
--------------------------------------------------------------------------------------------------
O Not all are insured or O Regular interest income
U.S. GOVERNMENT guaranteed by the U.S. O The U.S. government
SECURITIES government, but only by guarantees interest and
the issuing agency principal payments on
Up to 20%; usually less O Limits potential certain securities
than 10% for capital appreciation O Generally more
O Interest rate risk--the secure than lower-quality
value of most debt debt securities and
securities will fall equity securities
when interest rates rise O May preserve the
O Market risk--the risk Fund's assets
that instruments may
lose value in the market
because interest rates
change or there is a lack
of confidence in a group
of borrowers
--------------------------------------------------------------------------------------------------

</TABLE>

--------------------------------------------------------------------------------
11
<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND INVESTS
--------------------------------------------------------------------------------

<TABLE>

--------------------------------------------------------------------------------
12 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND IS 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 the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended September 30, 2000, the Fund paid PIFM management fees of .30 of 1% of the
Fund's average net assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of October 31, 2000, PIFM served as the
manager to all 41 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $77.7 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 pays Prudential Investments for its
services.

PORTFOLIO MANAGERS

The Fund is managed by John Moschberger and the Quantitative
Investment Management team.

John Moschberger is a portfolio manager of Prudential
Investment Quantitative Management, a unit of Prudential
Investments. He has managed index portfolios for Prudential's
clients since 1986. Mr. Moschberger has 17 years of investment
experience.

Mr. Moschberger is part of a team of 19 investment professionals, 7 of whom
hold Ph.D.s, with over 300 years of combined experience. The team is currently
responsible for the management of over $21 billion in assets.

--------------------------------------------------------------------------------
13
<PAGE>

--------------------------------------------------------------------------------
HOW THE FUND IS MANAGED
--------------------------------------------------------------------------------

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.

--------------------------------------------------------------------------------
14 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
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 or tax-deferred plan or account.
Dividends and distributions from the Fund also may be subject to state and local
income taxes.

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 or 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 distributes DIVIDENDS of any net investment income to shareholders--
typically 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. Capital gains 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 or tax-deferred plan or
account. For

--------------------------------------------------------------------------------
15
<PAGE>

--------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

more information about automatic reinvestment and other shareholder services,
see "Step 4: Additional Shareholder Services" in the next section.

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 or 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 or 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 generally 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 taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your distributions and sale proceeds.
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 to reflect the payout although this may not be apparent because the
value of each share of the Fund also will be affected by market changes, if any.
The distribution you receive makes up for the decrease in share value.

--------------------------------------------------------------------------------
16 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

However, the timing of your purchase does mean that part of your investment came
back to you as taxable income.

Qualified and Tax-Deferred 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 or
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.

[GRAPHICAL REPRESENTATION OF CHART]
---------------------------------------------
======> +$ CAPITAL GAIN
(taxes owed)
RECEIPTS
FROM SALE OR

======> -$ CAPITAL LOSS
(offset against gain)
---------------------------------------------

If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). If you acquire shares of the Fund and sell your shares
within 90 days, you may not be allowed to include certain charges incurred in
acquiring the shares for purposes of calculating gain or loss realized upon the
sale of the shares.

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.

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

--------------------------------------------------------------------------------
17
<PAGE>

--------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
--------------------------------------------------------------------------------

qualified or 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.

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 (IRS). 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.

--------------------------------------------------------------------------------
18 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<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 8179
PHILADELPHIA, PA 19101

You may purchase shares by check or wire. We do not accept cash or money
orders. To purchase by wire, call the number above to obtain an application.
After PMFS receives your completed application, you will receive an account
number. 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:

0 The amount of your investment

0 The length of time you expect to hold the shares and the
impact of the varying distribution fees

0 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

0 Whether you qualify for any waiver of sales charges

--------------------------------------------------------------------------------
19
<PAGE>

0 The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase

0 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 of
Year 2, 4% 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>

* The minimum investment requirement is $10,000 for investors listed under
"Qualifying for Class A Shares--Other Types of Investors."

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 and service 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. For the fiscal
year ending September 30, 2001, the Distributor of the Fund has contractually
agreed to reduce its distribution and service (12b-1) fees for Class A shares
to .25 of 1% of the average daily net assets of the Class A shares.

--------------------------------------------------------------------------------
20 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

Qualifying for Class A Shares

You can purchase Class A shares without any sales charge if (1) you invest at
least $1 million or (2) you exchange at least $1 million 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 the Class A purchase amount, you can:

0 Invest with an eligible group of related investors

0 Buy the Class A shares of two or more Prudential mutual funds at the same
time

0 Use your RIGHTS OF ACCUMULATION, which allow you to combine the current
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).

Benefit Plans. Certain individual and group retirement plans may purchase Class
A shares without any sales charge. For more information, 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:

0 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, or

0 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. Certain officers, employees or agents of Prudential
and its affiliates, Prudential mutual funds, the subadvisers of the Prudential
mutual funds and registered representatives and employees of brokers that

--------------------------------------------------------------------------------
21
<PAGE>

have entered into a dealer agreement with the Distributor also may purchase
Class A shares subject to a minimum investment amount of $10,000. 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.

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 (Prudential Securities) 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:

0 Purchase your shares through an account at Prudential
Securities,

0 Purchase your shares through an ADVANTAGE Account or an
Investor Account with Pruco Securities Corporation, or

0 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, who may require any supporting documents they
consider appropriate.

Qualifying for Class Z Shares

Benefit Plans. Certain group retirement plans may purchase Class Z shares 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 the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,

--------------------------------------------------------------------------------
22 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:

0 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, or

0 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.

OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:

0 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,

0 Current and former Directors/Trustees of the Prudential mutual funds
(including the Company), and

0 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
A, Class Z and Class I shares from their own resources based on a percentage of
the net asset value of shares sold or otherwise.

Qualifying for Class I Shares

BENEFIT PLANS. Certain group retirement plans may purchase Class I shares if
they meet the required minimum for 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.

--------------------------------------------------------------------------------
23
<PAGE>

MasterShare Accounts. Prudential Securities and participant MasterShare accounts
held at Prudential Securities may purchase Class I shares in connection with the
MasterShare plan.

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
Company's Board. Most national newspapers report the NAVs of most mutual funds,
which allows investors to check the price of mutual funds daily.

------------------------------------------
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.
------------------------------------------

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 (NYSE) is open for

--------------------------------------------------------------------------------
24 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

trading. The NYSE is closed on most national holidays and Good Friday. 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.

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 you 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.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 8159
PHILADELPHIA, PA 19101

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

--------------------------------------------------------------------------------
25

<PAGE>

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. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual 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 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 8149
PHILADELPHIA, PA 19101

--------------------------------------------------------------------------------
26 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

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. As permitted by the
Commission, 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 redemption
proceeds payable to or 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 signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker-dealer or credit union. For 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:

0 Amounts representing shares you purchased with reinvested dividends and
distributions

0 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

0 Amounts representing the cost of shares held beyond the CDSC period (six
years for Class B shares and 18 months for Class C shares).

--------------------------------------------------------------------------------
27
<PAGE>

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.

Waiver of the CDSC--Class B Shares

The CDSC will be waived if the Class B shares are sold:

0 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 held in joint tenancy,
provided the shares were purchased before the death or disability

0 To provide for certain distributions--made without IRS penalty--from a
tax-deferred retirement plan, IRA or Section 403(b) custodial account

0 On certain sales effected through 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

--------------------------------------------------------------------------------
28 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

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 and account
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 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, Class Z or Class I
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

--------------------------------------------------------------------------------
29
<PAGE>

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.

Participants in any fee-based and certain other programs for which the Fund
is an available option will have their Class Z shares, if any, exchanged for
Class A shares when they elect to leave such programs. Upon leaving a 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
the Prudential Securities 401(k) Plan for which the Fund's Class Z shares are 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.

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 8157
PHILADELPHIA, PA 19101

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.

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 the amount that 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

--------------------------------------------------------------------------------
30 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852
<PAGE>

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.

TELEPHONE REDEMPTIONS OR EXCHANGES

You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must call the Fund before 4:15 p.m. New York time. You will receive a redemption
or exchange amount based on that day's NAV.

The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail or through your broker.

The telephone redemption or exchange privilege may be modified or terminated
at any time. If this occurs, you will receive a written notice from the Fund.

--------------------------------------------------------------------------------
31

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights will help you evaluate the Fund's financial
performance for the past five years. 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 then offered 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.

CLASS A SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

-------------------------------------------
CLASS A SHARES (FISCAL PERIOD ENDED 9-30)
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $31.53
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) .12
Net realized and unrealized gain
on investment transactions .41
TOTAL FROM INVESTMENT OPERATIONS .53
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $32.06
TOTAL RETURN(3) 1.68%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $30,432
Average net assets (000) $19,055
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution and service (12b-1) fees(5) .65%(4)
Expenses, excluding distribution and service (12b-1) fees .40%(4)
Net investment income .72%(4)
Portfolio turnover 2%
--------------------------------------------------------------------------------

1 For the period from 11-18-99 (when Class A shares were first offered)
through 9-30-00.
2 Net of expense subsidy.
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. Total return includes the effect of expense
subsidies.
4 Annualized.
5 The Distributor of the Fund agreed to limit its distribution fee to .25 of
1% of the average daily net assets of the Class A shares.

--------------------------------------------------------------------------------
32 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS B SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

-------------------------------------------
CLASS B SHARES (FISCAL PERIOD ENDED 9-30)
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $31.53
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss(2) (.01)
Net realized and unrealized gain
on investment transactions .33
TOTAL FROM INVESTMENT OPERATIONS .32
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.85
TOTAL RETURN(3) 1.01%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $70,903
Average net assets (000) $42,919
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution and service (12b-1) fees 1.40%(4)
Expenses, excluding distribution and service (12b-1) fees .40%(4)
Net investment income (.05)%(4)
Portfolio turnover 2%
--------------------------------------------------------------------------------

1 For the period from 11-18-99 (when Class B shares were first offered)
through 9-30-00.
2 Net of expense subsidy.
3 Total return does not consider the effects of sales loads. 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. Total return includes the effect of expense
subsidies.
4 Annualized.

--------------------------------------------------------------------------------
33

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS C SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

-----------------------------------------
CLASS C SHARES (FISCAL PERIOD ENDED 9-30)

PER SHARE OPERATING PERFORMANCE 2000(1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $31.53
INCOME FROM INVESTMENT OPERATIONS:

Net investment income(2) __(5)
Net realized and unrealized gain
on investment transactions .32
TOTAL FROM INVESTMENT OPERATIONS .32
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $31.85
TOTAL RETURN(3) 1.01%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000(1)
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $32,308
Average net assets (000) $20,854
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution and service (12b-1) fees 1.37%(4)
Expenses, excluding distribution and service (12b-1) fees .37%(4)
Net investment income (.01)%(4)
Portfolio turnover 2%
--------------------------------------------------------------------------------

1 For the period from 11-18-99 (when Class C shares were first offered)
through 9-30-00.
2 Net of expense subsidy.
3 Total return does not consider the effect of sales loads. 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. Total return includes the effect of expense
subsidies.
4 Annualized.
5 Less than $.005 per share.

--------------------------------------------------------------------------------
34 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS Z SHARES

The financial highlights for the four years ended September 30, 2000 were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial statements for the one year ended September 30, 1996 were audited by
other independent auditors, whose reports were unqualified.

----------------------------------------
CLASS Z SHARES (FISCAL YEARS ENDED 9-30)

PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $28.96 $23.11 $21.86 $16.06 $14.22

INCOME FROM INVESTMENT OPERATIONS:

Net investment income(1) .29 .22 .15 .46 .25
Net realized and unrealized gain
on investment transactions 3.53 6.07 1.69 5.75 2.44
TOTAL FROM INVESTMENT OPERATIONS 3.82 6.29 1.84 6.21 2.69
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.32) (.26) (.21) (.26) (.28)
Distributions from net realized gains (.34) (.18) (.38) (.15) (.57)
TOTAL DISTRIBUTIONS (.66) (.44) (.59) (.41) (.85)
NET ASSET VALUE, END OF YEAR $32.12 $28.96 $23.11 $21.86 $16.06
TOTAL RETURN(2) 13.28% 27.41% 8.61% 39.34% 19.72%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $995,426 $866,762 $381,374 $185,881 $184,379
Average net assets (000) $980,790 $681,129 $313,721 $254,644 $142,540
RATIOS TO AVERAGE NET ASSETS:(1)
Expenses .40% .40% .40% .46% .60%
Net investment income .95% 1.16% 1.30% 1.66% 1.92%
Portfolio turnover 2% 3% 1% 5% 2%
--------------------------------------------------------------------------------

1 Net of expense subsidy.
2 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 includes the effect of
expense subsidies.

--------------------------------------------------------------------------------
35

<PAGE>

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

CLASS I SHARES

The financial highlights were audited by PricewaterhouseCoopers LLP, independent
accountants, whose report was unqualified.

------------------------------------------
CLASS I SHARES (FISCAL PERIODS ENDED 9-30)

PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997(1)
--------------------------------------------------------------------------------

NET ASSET VALUE, BEGINNING OF PERIOD $28.99 $23.13 $21.87 $21.87
INCOME FROM INVESTMENT OPERATIONS:

Net investment income(2) .33 .36 .31 .06
Net realized and unrealized gain
(loss) on investment transactions 3.53 5.96 1.55 (.06)

TOTAL FROM INVESTMENT OPERATIONS 3.86 6.32 1.86 --

--------------------------------------------------------------------------------
LESS DISTRIBUTIONS:

Dividends from net investment income (.35) (.28) (.22) --
Distributions from net realized gains (.34) (.18) (.38) --
TOTAL DISTRIBUTIONS (.69) (.46) (.60) --
NET ASSET VALUE, END OF PERIOD $32.16 $28.99 $23.13 $21.87
TOTAL RETURN(3) 13.38% 27.55% 8.69% 0%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997
--------------------------------------------------------------------------------

NET ASSETS, END OF PERIOD (000) $1,501,345 $1,019,034 $639,408 $312,127
Average net assets (000) $1,317,874 $ 915,642 $505,605 $296,788
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses .30% .30% .30% .30%(4)
Net investment income 1.05% 1.26% 1.42% 1.73%(4)
Portfolio turnover 2% 3% 1% 5%
--------------------------------------------------------------------------------

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 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. Total return includes the effect of expense
subsidies.

4 Annualized.

--------------------------------------------------------------------------------
36 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

<PAGE>

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

[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

--------------------------------------------------------------------------------
37

<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 EQUITY FUND, INC.
PRUDENTIAL INDEX SERIES FUND
Prudential Stock Index 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 COMPANY FUND, INC.
PRUDENTIAL TAX-MANAGED FUNDS
Prudential Tax-Managed Equity Fund
PRUDENTIAL TAX-MANAGED SMALL-CAP FUND, INC.
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL U.S. EMERGING GROWTH
FUND, INC.
PRUDENTIAL VALUE FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
Prudential Jennison Equity
Opportunity Fund
Prudential Jennison Growth Fund

NICHOLAS-APPLEGATE FUND, INC.
Nicholas-Applegate Growth Equity Fund
TARGET FUNDS
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund

ASSET ALLOCATION/BALANCED FUNDS

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 EUROPE GROWTH FUND, INC.

PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.

Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund

GLOBAL UTILITY FUND, INC.
TARGET FUNDS
International Equity Fund

GLOBAL BOND FUND

PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

--------------------------------------------------------------------------------
38 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

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

<PAGE>

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

BOND FUNDS

TAXABLE BOND FUNDS
PRUDENTIAL GOVERNMENT INCOME
FUND, INC.
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN
FUND, INC.

PRUDENTIAL SHORT-TERM CORPORATE BOND
FUND, INC.

Income Portfolio

PRUDENTIAL TOTAL RETURN BOND FUND, INC.

TARGET FUNDS
Total Return Bond Fund

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

New Jersey Series

New York 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
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 FUND

PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
Institutional Money Market Series

--------------------------------------------------------------------------------
39

<PAGE>

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

NOTES
-----

--------------------------------------------------------------------------------
40 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

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

<PAGE>

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

NOTES
-----

--------------------------------------------------------------------------------
41

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

<PAGE>

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

NOTES
-----

--------------------------------------------------------------------------------
42 PRUDENTIAL STOCK INDEX FUND (telephone) (800) 225-1852

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

<PAGE>

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

NOTES
-----

--------------------------------------------------------------------------------
43

--------------------------------------------------------------------------------
<PAGE>

FOR MORE INFORMATION

<S> <C>
Please read this prospectus before you You can also obtain copies of Fund
invest in the Fund and keep it for future documents from the Securities and
reference. For information or shareholder Exchange Commission as follows
questions contact
BY MAIL
PRUDENTIAL MUTUAL FUND SERVICES LLC Securities and Exchange Commission
P.O. BOX 8098 Public Reference Section
PHILADELPHIA, PA 19101 Washington, DC 20549-0102
(800) 225-1852 BY ELECTRONIC REQUEST
(732) 482-7555 (Calling from outside the U.S.) [email protected]
(The SEC charges a fee to copy
Outside Brokers should contact documents.)
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC IN PERSON
P.O. BOX 8310 Public Reference Room in Washington, DC
PHILADELPHIA, PA 19101 (For hours of operation, call
(800) 778-8769 1-202-942-8090)

Visit Prudential's website at VIA THE INTERNET
HTTP://WWW.PRUDENTIAL.COM on the EDGAR Database at
http://www.sec.gov
Additional information about the Fund can
be obtained without charge and can be
found in the following documents CUSIP Numbers Quotron Symbols

STATEMENT OF ADDITIONAL INFORMATION (SAI) Class A Shares--74438C-10-0 PSIAX
(incorporated by reference into this Class B Shares--74438C-20-9 PBSIX
prospectus) Class C Shares--74438C-30-8 PSICX
Class Z Shares--74438C-40-7 PSIFX
ANNUAL REPORT Class I Shares--74438C-50-6 PDSIX
(contains a discussion of the market
conditions and investment strategies that Investment Company Act File No. 811-6677
significantly affected the Fund's
performance)

SEMI-ANNUAL REPORT

MF174A [LOGO] Printed on Recycled Paper

</TABLE>

<PAGE>

PRUDENTIAL STOCK INDEX FUND

Statement of Additional Information
dated December 5, 2000

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

There can be no assurance that the Fund's investment objective will be
achieved. See "Description of the Fund, Its 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 the Fund dated December 5, 2000, a
copy of which may be obtained from the Company upon request.

TABLE OF CONTENTS

PAGE

Company History .......................................................... B-2

Description of the Fund, Its Investments and Risks ....................... B-2

Investment Restrictions .................................................. B-13

Management of the Company ................................................ B-14

Control Persons and Principal Holders of Securities ...................... B-17

Investment Advisory and Other Services ................................... B-17

Brokerage Allocation and Other Practices ................................. B-22

Capital Shares, Other Securities and Organization ........................ B-23

Purchase, Redemption and Pricing of Fund Shares .......................... B-24

Shareholder Investment Account ........................................... B-32

Net Asset Value .......................................................... B-37

Taxes, Dividends and Distributions ....................................... B-38

Performance Information .................................................. B-40

Financial Statements ..................................................... B-42

Report of Independent Accountants ........................................ B-80

Appendix I--General Investment Information ............................... I-1

Appendix II--Historical Performance Data ................................. II-1

Appendix III--5% Shareholders ............................................ III-1

MF174B

<PAGE>

COMPANY 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 (the 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. At the Board meeting held on May 24, 2000, the
Trustees of the Company approved a proposal to liquidate Prudential Bond Market
Index Fund, Prudential Europe Index Fund, Prudential Pacific Index Fund and
Prudential Small-Cap Index Fund. By August, 2000, the four Funds were
liquidated.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

CLASSIFICATION. The Company is an open-end, management investment company
offering one diversified Fund.

INVESTMENT STRATEGIES, POLICIES AND RISKS. This section describes the
Fund's principal and non-principal strategies and risks. The Fund has an
investment objective of providing 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 other words, it holds
each stock in its target index in about the same proportions as represented in
the index itself. This is called a "replication" method.

While the principal investment policies and strategies for seeking to
achieve this objective are described in the Fund's prospectus, the Fund may from
time to time also use the securities, instruments, policies and strategies
described below in seeking to achieve its objective. The Fund may not be
successful in achieving its objective and you could lose money.

The Fund is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the investment adviser, using a "passive" or indexing investment approach, will
attempt to approximate the investment performance of the index. The Fund is
managed without regard to tax ramifications. The Fund pursues its objective
through the investment policies described below.

The Fund seeks to provide investment results that correspond to the price
and yield performance of the S&P 500 Index. The S&P 500 Index is an unmanaged,
market-weighted index of 500 stocks selected by 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 80% of
the total market value of all publicly traded U.S. common stocks, is widely
regarded as representative of the performance of the U.S. stock market as a
whole. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500",
and "500" are trademarks of McGraw-Hill, Inc. and have been licensed for use by
Prudential and its affiliates and subsidiaries. The Fund is not sponsored,
endorsed, sold or promoted by S&P and S&P makes no representation regarding the
advisability of investing in the Fund.

To achieve its investment objective, the Fund intends to replicate the S&P
500 Index by holding all of the securities in approximately the same proportions
as they are represented in the S&P 500 Index. In addition, from time to time
adjustments may be made in the Fund's holdings due to factors which may include
changes in the composition of the S&P 500 Index or receipt of distributions of
securities of companies spun off from S&P 500 companies.

The Fund 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 indexes; and (iv) futures contracts on stock indexes and options thereon.

If net cash outflows from the Fund are anticipated, the Fund may sell
stocks (in proportion to their weighting in the 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. If the 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.

B-2

<PAGE>

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 THE FUND

The Fund will not invest in money market instruments, futures contracts,
options or warrants as part of a temporary defensive strategy, such as reducing
the Fund's investments in common stocks to protect against potential stock
market declines, except that the Fund has the ability to invest up to 20% of
total assets in temporary defensive investments, but it has no current intention
of doing so. The Fund intends to remain fully invested, to the extent
practicable, in a pool of securities which will approximate the investment
characteristics of the S&P 500 Index. Options, futures contracts and options on
futures contracts are used, if at all, primarily to invest uncommitted cash
balances, to maintain liquidity to meet redemptions, to facilitate tracking, to
reduce transaction costs or to hedge the Fund's portfolio.

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

EQUITY AND EQUITY-RELATED SECURITIES

The Fund invests primarily in equity securities, and the value of the
Fund's investments will go up and down with the performance of the stocks in the
S&P 500 Index.

The Fund may invest in equity-related securities. Equity-related securities
include common stocks, preferred stocks, securities convertible or exchangeable
for common stocks or preferred stocks, equity investments in partnerships, joint
ventures, other forms of non-corporate investments, American Depositary Receipts
(ADRs), American Depositary Shares (ADSs) and warrants and rights exercisable
for equity securities.

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 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.

EXCHANGE-TRADED FUNDS

The Fund is permitted to invest in exchane-traded funds. Shareholders may
be subject to duplicate management and advisory fees if the Fund does invest in
securities of other investment companies. Also these securities are not traded
at net asset value, i.e., they can be sold at a premium or with a discount.

B-3
<PAGE>

U.S. GOVERNMENT SECURITIES

Securities issued or guaranteed by the U.S. government or one of its
agencies, authorities or instrumentalities in which the Fund 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, the Fund will invest in obligations
issued by an instrumentality of the U.S. government only if the Funds'
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, its value upon conversion into its
underlying common stock). 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 Fund may invest in
these types of convertible securities.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

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

The Fund has the authority to enter into reverse repurchase agreements,
dollar rolls and forward rolls. The Fund does not plan to do so for the
foreseeable future. The Fund may enter into repurchase agreements with banks and
securities dealers that meet the creditworthiness standards established by the
investment adviser. 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 Fund receives
collateral equal to the resale price, which is marked-to-market daily. These
agreements permit the 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

B-4

<PAGE>

a result of its bankruptcy or otherwise, the 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 the 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, the
Fund may suffer a loss to the extent proceeds from the sale of the underlying
collateral are less than the repurchase price.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

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

To secure prices deemed advantageous at a particular time, the 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. The 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 the 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
the Fund to risk because the securities may experience fluctuations in value
prior to their actual delivery. The 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

The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or other liquid assets or secures an
irrevocable letter of credit in favor of the Fund in an amount equal to at least
100%, determined daily, of the market value of the securities loaned which are
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 the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower. As 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, the Fund will
not lend more than 30% of the value of its total assets. The Fund may pay
reasonable administration and custodial fees in connection with a loan.

The Fund will enter into securities lending transactions only with
Qualified Institutions. The 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. The 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.

B-5

<PAGE>

BORROWING

The 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. The Fund may pledge up to 20% of its total assets to secure these
borrowings. If the Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. If the Fund borrows to
invest in securities, any investment gains made on the securities in excess of
interest paid on the borrowing will cause the net asset value of the shares to
rise faster than would otherwise be the case. On the other hand, if the
investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Fund, the
net asset value of the Fund's shares will decrease faster than would otherwise
be the case. This is the speculative factor known as "leverage."

The 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. The 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. The
Fund will not purchase portfolio securities when borrowings exceed 5% of the
value of its total assets. Borrowing by the 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. The Fund may also borrow for temporary, extraordinary
or emergency purposes and for the clearance of transactions. The Fund may borrow
through forward rolls, dollar rolls or reverse repurchase agreements, although
the Fund currently does not have any intention of doing so.

SECURITIES OF FOREIGN ISSUERS

The Fund may invest 20% 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 the Fund. These risks
include political or economic instability in the country of the issuer, the
difficulty of predicting international trade patterns, the possibility of
imposition of exchange controls and the risk of currency fluctuations. Foreign
securities may be subject to greater fluctuations in price than securities
issued by U.S. corporations or issued or guaranteed by the U.S. government, its
instrumentalities or agencies. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States and,
with respect to certain foreign countries, there is a possibility of
expropriation, confiscatory taxation or diplomatic developments which could
affect investment in those countries.

If a security is denominated in a foreign currency, it will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of the Fund's securities
denominated in that currency. Such changes also will affect the Fund's income
and distributions to shareholders. Therefore, if the exchange rate for any such
currency declines after the Fund's income has been accrued and translated into
U.S. dollars, the Fund could be required to liquidate portfolio securities to
make such distributions, particularly in instances in which the amount of income
the Fund is required to distribute is not immediately reduced by the decline in
such currency. Similarly, if an exchange rate declines between the time the 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.

The Fund may invest a portion of its 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 the Funds' 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
Funds' 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.

B-6

<PAGE>

The economies of many of the countries in which the 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 the 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 the 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 member state's national
currency. By July 1, 2002, the euro is expected to become the sole legal tender
of the member states. During the transition period, the Fund will treat the euro
as a separate currency from the national currency of any member state.

The adoption by the member states of the euro will eliminate the
substantial currency risk among member states and will likely affect the
investment process and considerations of the Fund's investment adviser. To the
extent the Fund holds non-U.S. dollar-denominated securities, including those
denominated in the euro, the Fund will still be subject to currency risk due to
fluctuations in those currencies as compared to the U.S. dollar.

The medium- to long-term impact of the introduction of the euro in member
states cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general long-term ramifications
can be expected, such as changes in economic environment and changes in behavior
of investors, all of which will impact the Fund's investments.

RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

The Fund may also engage in various portfolio strategies to reduce certain
risks of its investments and to attempt to enhance return. The Fund, and thus
its investors, may lose money through any unsuccessful use of these strategies.
These strategies currently include the use of derivatives, such as options,
futures contracts and options thereon. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. New financial products and risk management techniques continue to be
developed, and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.

OPTIONS TRANSACTIONS

The Fund may purchase and write (that is, 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
the Fund's portfolio. The Fund may write covered put and call options to
generate additional income through the receipt of premiums and purchase call
options in an effort to protect against an increase in the price of securities
it intends to purchase. The Fund may also purchase put and call options to
offset previously written put and call options of the same series.

A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the security or securities in
the index subject to the option at a specified price (the exercise price or
strike price). The writer of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When the Fund writes a call
option, it gives up the potential for gain on the underlying securities in
excess of the exercise price of the option during the period that the option is
open.

A put option gives the purchaser, in return for a premium, the right, for a
specified period of time, to sell the securities subject to the option to the
writer of the put at the specified exercise price. The writer of the put option,
in

B-7

<PAGE>

return for the premium, has the obligation, upon exercise of the option, to
acquire the securities underlying the option at the exercise price. The Fund
might, therefore, be obligated to purchase the underlying securities for more
than the current market price.

The Fund will write only "covered" options. A written option is covered if,
as long as the Fund is obligated under the option, it (i) owns an offsetting
position in the underlying security or (ii) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, the Fund's losses are limited because it owns the
underlying position; under the second circumstance, in the case of a written
call option, the Fund's losses are potentially unlimited. There is no limitation
on the amount of call options the Fund may write.

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

The Fund may purchase and sell put and call options on securities indexes.
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 indexes are similar to options on
securities, except that the exercise of securities index options requires cash
payments and does not involve the actual purchase or sale of securities. When
purchasing or selling securities index options, the Fund is subject to the risk
that the value of its portfolio securities may not change as much as or more
than the index because the Fund's investments might 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 the Fund is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or dispose
of assets segregated until the options expire or are exercised. Similarly, if
the 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 the 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.

The 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 the 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 the 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. The
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.

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

B-8

<PAGE>

If the 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.

The 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 the Fund's net assets.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts and options
thereon which are traded on a commodities exchange or board of trade to reduce
certain risks of its investments and to attempt to enhance return in accordance
with regulations of the Commodity Futures Trading Commission (CFTC). The Fund,
and thus its investors, may lose money through any unsuccessful use of these
strategies. These futures contracts and related options will be on securities
indexes. A futures contract is an agreement to purchase or sell an agreed amount
of securities at a set price for delivery in the future. A stock index futures
contract is an agreement to purchase or sell cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. The Fund may purchase and sell futures contracts or related options as a
hedge against changes in market conditions.

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

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

The Fund's successful use of futures contracts and related options is
subject to various additional risks. The correlation between movements in the
price of a futures contract and the movements in the index is imperfect and
there is a risk that the value of the index underlying the futures contract may
increase or decrease at a greater rate than the related futures contracts
resulting in losses to the Fund. Certain futures exchanges or boards of trade
have established daily limits on the amount that the price of futures contracts
or related options may vary, either up or down, from the previous day's
settlement price. These daily limits may restrict the Fund's ability to purchase
or sell certain futures contracts or related options on any particular day.

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. The 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, the Fund is required to deposit "initial
margin," consisting of cash or U.S. government securities, in an amount
generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call or put option on a futures contract, in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
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

B-9

<PAGE>

represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs are all that is at risk. In contrast, when the 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.
The 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 RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES

Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject absent the use of
these strategies. The Fund, and thus its investors, may lose money through any
unsuccessful use of these strategies. Risks inherent in the use of options,
futures contracts and options on futures contracts include (1) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (2) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (3) the possible absence of a liquid secondary
market for any particular instrument at any time; (4) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; (5) the
risk that the counterparty may be unable to complete the transaction and (6) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
the Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate liquid assets in connection
with hedging transactions. See "Taxes, Dividends and Distributions."

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

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 the 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 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.

B-10

<PAGE>

SEGREGATED ASSETS

The 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

The Fund may hold up to 15% of its net assets in illiquid securities. If
the Fund were to exceed this limit, the investment adviser would take prompt
action to reduce the Fund's holdings in illiquid securities to no more than 15%
of its net assets, as required by applicable law. Illiquid securities include
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, 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. The Fund's investment in Rule 144A securities could have
the effect of increasing illiquidity to the extent that qualified institutional
buyers become, for a limited time, uninterested in purchasing Rule 144A
securities. 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.

B-11

<PAGE>

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

OTHER INVESTMENT TECHNIQUES

The 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 the 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. The Fund may not
invest more than 20% of its total assets in money market instruments as part of
a temporary defensive strategy. The Fund may invest uncommitted cash balances in
money market instruments or to maintain liquidity to meet redemptions. Money
market instruments include 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,
the Fund may engage in a substantial number of portfolio transactions, and the
Fund's portfolio turnover rate may exceed 100%, but the Fund's portfolio
turnover rate is not expected to exceed 100%. 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 the 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-12

<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 the 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 the 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.

The 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 the 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
the 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 the 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
the 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
the 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 the Fund of initial or
maintenance margin in connection with financial futures contracts is not
considered the purchase of a security on margin.)

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

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the 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 the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

B-13

<PAGE>

MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>

NAME AND ADDRESS ** POSITION WITH PRINCIPAL OCCUPATIONS
(AGE) COMPANY DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------

<S> <C> <C>
Saul K. Fenster (67) Trustee President (since December 1978) of New Jersey
Institute of Technology; Commissioner (since
1998) of the Middle States Association,
Commission on Higher Education; member (since
1985) of the New Jersey Commission on Science
and Technology; formerly a director or trustee
(1987-1999) of New Jersey State Chamber of
Commerce, Society of Manufacturing Engineering
Education Foundation, the Research and
Development Council of New Jersey, Prosperity
New Jersey, Inc., the Edison Partnership,
National Action Council for Minorities in
Engineering and IDT Corporation.

Delayne Dedrick Gold (63) Trustee Marketing and Management Consultant.

*Robert F. Gunia (53) Vice President Executive Vice President and Chief Administrative
and Trustee Officer (since June 1999) of Prudential
Investments; Executive Vice President and
Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM);
President (since April 1999) of Prudential
Investment Management Services LLC (PIMS);
formerly Corporate Vice President (September
1997-March 1999) of The Prudential Insurance
Company of America (Prudential); Senior Vice
President (March 1987-May 1999) of Prudential
Securities Incorporated (Prudential Securities)
and Chief Administrative Officer (July
1990-September 1996), Executive Vice President,
Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc.

Douglas H. McCorkindale Trustee Chairman (since June 2000) and President (since
(61) September 1997) of Gannett Co. Inc. (publishing
and media); President and Chief Executive
Officer (since August 2000) of Central
Newspapers Inc., formerly Vice Chairman (March
1984-May 2000) of Gannett Co., Inc.; Director
of Gannett Co. Inc., Continental Airlines,
Inc. and Global Crossing Ltd.

W. Scott McDonald, Jr.(63) Trustee Vice President (since 1997) of Kaludis
Consulting Group, Inc., a Sallie Mae company
serving higher education; formerly Principal of
Scott McDonald & Associates (1995-1997); Chief
Operating Officer (1991-1995) of Fairleigh
Dickinson University and Executive Vice
President and Chief Operating Officer
(1975-1991) of Drew University; Interim
President (1988-1990), Drew University; and a
founding director of School, College and
University Underwriters Ltd.

Thomas T. Mooney (58) Trustee President of the Greater Rochester Metro Chamber
of Commerce; former Rochester City Manager;
former Deputy Monroe County Executive; Trustee
of Center for Governmental Research, Inc.;
Director of Blue Cross of Rochester, Monroe
County Water Authority and Executive Service
Corps of Rochester.

</TABLE>

B-14

<PAGE>

NAME AND ADDRESS ** POSITION WITH PRINCIPAL OCCUPATIONS
(AGE) COMPANY DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------

<S> <C> <C>
Stephen P. Munn (58) 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).

*David R. Odenath, Jr. President and Officer in Charge, President, Chief Executive
(43) Trustee Officer and Chief Operating Officer (since June
1999), PIFM; Senior Vice President (since June
1999), Prudential; formerly Senior Vice President
(August 1993-May 1999), PaineWebber Group, Inc.

Richard A. Redeker (57) 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).

*Judy A. Rice (52) Director Executive Vice President (since 1999) of Prudential
Investments; Executive Vice President (since 1999)
of PIFM; formerly, various positions to Senior Vice
President (1992-1999), Prudential Securities, Inc; and
various positions to Managing Director (1975-1992),
Shearson Lehman Advisors; Governor of the Money Management
Institute; Member of the Prudential Securities Operating
Council, Board Member of the National Association
for Variable Annuities.

Robin B. Smith (60) Trustee Chairman and Chief Executive Officer (since
August 1996); formerly President and Chief
Executive Officer (January 1988-August 1996)
and President and Chief Operating Officer
(September 1981-December 1988) of Publishers
Clearing House; Director of BellSouth
Corporation, Texaco Inc., Spring Industries
Inc. and Kmart Corporation.

Louis A. Weil, III (59) Trustee Formerly Chairman (January 1999-July 2000),
President and Chief Executive Officer (January
1996-July 2000) and Director (since September
1991-July 2000) of Central Newspapers, Inc.;
Chairman of the Board (January 1996-July 2000),
Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers,
Inc.; Publisher (May 1989-March 1991) of Time
Magazine; and President, Publisher & Chief
Executive Officer (February 1986-August 1989)
of The Detroit News and member of the Advisory
Board, Chase Manhattan Bank-Westchester.

Clay T. Whitehead (62) Trustee President (since May 1983) of National Exchange
Inc. (new business development firm).

</TABLE>

B-15

<PAGE>

NAME AND ADDRESS ** POSITION WITH PRINCIPAL OCCUPATIONS
(AGE) COMPANY DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------

<S> <C> <C>
Grace C. Torres (41) Treasurer and First Vice President (since December 1996) of PIFM;
Principal First Vice President (since March 1993) of Prudential
Financial and Securities; formerly First Vice President (March
Accounting 1994-September 1996) of Prudential Mutual Fund
Officer Management, Inc.

Marguerite E.H. Secretary Department Vice President and Chief Legal Officer
Morrison (44) (since August 2000) of the Mutual Funds Law
Division of Prudential; Vice
President and Associate General
Counsel (since December 1996) of
PIFM; Vice President and Associate
General Counsel (since September
1987) of Prudential Securities and
formerly Vice President and
Associate General Counsel (June
1991-September 1996) of Prudential
Mutual Fund Management, Inc.

William V. Healey (47) Assistant Vice President and Associate General Counsel of
Secretary Prudential and Chief Legal Officer of
Prudential Investments, a business
unit of Prudential (since August
1998); Director, ICI Mutual
Insurance Company (since June
1999); formerly Associate General
Counsel of The Dreyfus Corporation
(Dreyfus), a subsidiary of Mellon
Bank, N.A. (Mellon Bank), and an
officer and/or director of various
affiliates of Mellon Bank and
Dreyfus.

Jonathan Shain (42) Assistant Assistant General Counsel of Prudential (since
Secretary August 1998); formerly, Attorney with Fleet
Bank, N.A. (January 1997- July 1998) and
Associate Counsel (August 1994-January 1997)
of New York Life Insurance Company.

</TABLE>

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

** 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.

The Company has Trustees who, in addition to overseeing the actions of the
Fund's 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 Fund.

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
75.

Pursuant to the terms of the Management Agreement for the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Company 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 $1,825 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 Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Trustees' fees 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 any Prudential mutual fund. 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 Fund.

The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who were not affiliated with the Manager for the fiscal year
ended September 30, 2000 and the aggregate compensation paid to such Trustees
for service on the Fund's Board and the boards of all other investment companies
managed by Prudential Investments Fund Management LLC (Fund Complex) for the
calender year ended December 31, 1999.

B-16

<PAGE>

COMPENSATION TABLE
------------------

TOTAL 1999
COMPENSATION
FROM COMPANY
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME AND POSITION FROM COMPANY TO TRUSTEES
----------------- ------------ -----------
<S> <C> <C>
Edward D. Beach--Former Trustee (a) $1,825 $142,500(43/70)*
Saul K. Fenster--Trustee** -- $ 35,000(5/21)*
Delayne D. Gold--Trustee $1,825 $144,500(43/70)*
Robert F. Gunia--Trustee+ -- None
Douglas H. McCorkindale--Trustee++ $1,825 $ 80,000(24/49)*
W. Scott McDonald, Jr.--Trustee** -- $ 35,000(5/21)*
Thomas T. Mooney--Trustee++ $1,825 $129,500(35/75)*
Stephen P. Munn--Trustee $1,825 $ 62,250(29/53)*
David R. Odenath, Jr.--Trustee+ -- None
Richard A. Redeker--Trustee $1,825 $ 95,000(29/53)*
Judy A. Rice--Trustee+ -- None
Robin B. Smith--Trustee++ $1,825 $ 96,000(32/44)*
Louis A. Weil, III--Trustee $1,825 $ 96,000(29/53)*
Clay T. Whitehead--Trustee $1,825 $ 77,000(38/66)*

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

(a) Mr. Beach retired on December 31, 1999.

* Indicates number of Funds/portfolios in Fund Complex to which aggregate
compensation relates.

** Messrs. Fenster and McDonald joined the Board in August 2000.

+ Interested Trustees do not receive compensation from the Fund or any fund
in the Fund Complex.

++ Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1999, includes amounts deferred at the
election of Trustees under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to $97,916,
$135,102 and $156,498 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 November 10, 2000,
the Trustees and officers of the Company, as a group, owned less than 1% of the
outstanding share of the Fund.

For beneficial owners, directly or indirectly, of more than 5% of any class
of shares of the Fund as of November 10, 2000, see Appendix III.

As of November 10, 2000, Prudential Securities was the record holder for
the beneficial owners of 468,133 Class A shares of the Fund (approximately 49%
of outstanding shares of such class); 1,476,954 Class B shares of the Fund
(approximately 62% of outstanding shares of such class); 1,059,478 Class C
shares of the Fund (approximately 92% of outstanding shares of such class);
Prudential Securities was the record holder for the beneficial owners of
3,999,942 Class Z shares of the Fund (approximately 12.8% of outstanding shares
of such class) and 10,417,579 Class I shares of the Fund (approximately 22% 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.

INVESTMENT ADVISORY AND OTHER SERVICES

MANAGER AND INVESTMENT ADVISER. The manager of the Fund is Prudential
Investments 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 Fund, comprise the
Prudential mutual funds. See "How the Fund is Managed--Manager" in the
prospectus. As of October 31, 2000, PIFM managed and/or administered open-end
and closed-end management investment companies with assets of approximately
$77.7 billion. According to the Investment Company Institute, as of June 30,
2000, the Prudential mutual funds were the 22nd largest family of mutual funds
in the United States.

B-17
<PAGE>

PIFM is a wholly-owned subsidiary of PIFM HoldCo, Inc., which is a
wholly-owned subsidiary of Prudential Asset Management Holding Company, which is
a wholly-owned subsidiary of Prudential. Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), an affiliate of PIFM, serves as the transfer agent
and dividend distribution agent for the Prudential mutual funds and, in
addition, provides customer service, recordkeeping and management and
administration services to qualified plans.

Pursuant to the Management Agreement for the Fund (the Management
Agreement), PIFM, subject to the supervision of the Company's Board of Trustees
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Fund and the composition of the 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
Fund. PIFM has hired The Prudential Investment Corporation, doing business as
Prudential Investments (PI, the investment adviser or the Subadviser), to
provide subadvisory services to the Fund. PIFM also administers the Fund's
business affairs and, in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by State Street Bank and Trust Company, the Fund's
custodian (the Custodian), and PMFS, the Fund's transfer and dividend disbursing
agent. The management services of PIFM for the Fund are not exclusive under the
terms of the Management Agreement and PIFM is free to, and does, render
management services to others.

For its services, PIFM receives, pursuant to the Management Agreement, a
fee at an annual rate of .30 of 1% of the Fund's average daily net assets. The
fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the 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
Fund's expenses.

In connection with its management of the business affairs of the Fund, PIFM
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 PIFM
or the Fund's investment adviser;

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

(c) the costs and expenses or fees payable to the investment adviser
pursuant to the subadvisory agreement between PIFM and the investment adviser
(the Subadvisory Agreement).

Under the terms of the Management Agreement, the Fund 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 Fund's 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 Fund,
pricing the Funds' shares and the cashiering function, (iv) the charges and
expenses of legal counsel and independent accountants for the Fund, (v)
brokerage commissions and any issue or transfer taxes chargeable to the Fund in
connection with its securities and futures transactions, (vi) all taxes and
corporate fees payable by the Fund to governmental agencies, (vii) the fees of
any trade associations of which the Fund may be a member, (viii) the cost of
stock certificates representing shares of the Fund, if any, (ix) the cost of
fidelity and liability insurance, (x) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
Commission, including the preparation and printing of the Fund'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,
(xiii) litigation and indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Fund's business and (xiv)
distribution fees.

The Management Agreement provides that PIFM will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The 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. The 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.

B-18

<PAGE>

For the fiscal years ended September 30, 2000, 1999 and 1998, PIFM received
management fees of $7,109,171, $4,790,313 and $2,457,979 from the Fund,
respectively. During these periods, the Manager subsidized certain expenses of
the Fund.

PIFM has entered into a Subadvisory Agreement with The Prudential
Investment Corporation, doing business as Prudential Investments (PI or the
Subadviser). The Subadvisory Agreement provides that the Subadviser furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, PI is obligated to keep certain books and records of the
Fund. The Subadviser determines what securities and other instruments are
purchased and sold for the Fund and is responsible for obtaining and evaluating
financial data relevant to the Fund. PIFM continues to have responsibility for
all investment advisory services to the Fund pursuant to the Management
Agreement and supervises the Subadviser's performance of such services.

The 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 Agreement. The 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. The 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.

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 A, Class B, Class C, Class Z and Class I shares of the Fund.

The Distributor of the Fund 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 Fund.

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 the
Company of behalf of the 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 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 the 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 to .25 of 1% of the average daily net assets of the Class A shares
of the Fund for the fiscal year ending September 30, 2001 and contractually
limited its distribution-related fees for the fiscal year ended September 30,
2000 to .25 of 1% of the average daily net assets of the Fund's Class A shares.

For the fiscal period ended September 30, 2000, the Fund paid total
distribution fees of $40,869 to PIMS under the Class A Plan. These amounts were
primarily expended for the payment of account servicing fees to financial
advisers and other persons who sell Class A shares.

CLASS B PLAN AND CLASS C PLANS. Under the Class B and Class C Plans, the
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 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 the Class B and Class C shares,
respectively, and (2) a service fee of .25 of 1% of the average daily net assets
of the 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

B-19

<PAGE>

receives contingent deferred sales charges from certain redeeming shareholders
and, with respect to Class C shares, an initial sales charge.

CLASS B PLAN. For the fiscal period ended September 30, 2000, the Distributor
received $368,209 from the Fund under the Class B Plan and spent approximately
$2,462,400 in distributing the Class B shares. It is estimated that of the
latter amount, approximately 1.2% ($30,700) was spent on printing and mailing of
prospectuses to other than current shareholders; 28.7% ($705,800) was spent on
compensation to broker-dealers for commissions to its representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses, incurred for distribution of Class B shares; and
70.1% ($1,725,900) was spent on the aggregate of (1) payments of commissions and
account servicing fees to financial advisers (16.4% or $402,700) and (2) an
allocation on account of overhead and other branch office distribution-related
expenses (53.7% or $1,323,200). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating
Prudential Securities' and Pruco Securities Corporation's (Prusec's) branch
offices in connection with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(b) the costs of client sales seminars, (c) expenses of mutual fund sales
coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.

The Distributor also receives the proceeds of contingent deferred sales charges
paid by Investors upon certain redemptions of Class B shares. For the fiscal
period ended September 30, 2000, the Distributor received approximately $59,700
in contingent deffered sales charges attributable to Class B shares.

CLASS C PLAN. For the fiscal period ended September 30, 2000, the Distributor
received $178,915 from the Fund under the Class C Plan and spent approximately
$462,600 in distributing the Fund's Class C shares. It is estimated that of the
latter amount, approximately 3.7% ($17,100) was spent on printing and mailing of
prospectuses to other than current shareholders; 1.4% ($6,800) was spent on
compensation to broker-dealers for commissions to representatives and other
expenses, including an allocation on account of overhead and other branch office
distribution-related expenses, incurred for distribution of Class C shares; and
94.8% ($438,700) was spent on the aggregate of (1) commission credits to
Prudential Securities branch offices, for payments of commissions and account
servicing fees to financial advisers (45.0% or $208,200) and (2) an allocation
on account of overhead and other branch office distribution-related expenses
(49.8% or $230,500).

The Distributor also receives an initial sales charge and the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. For the fiscal period ended September 30, 2000, the Distributor
received approximately $28,100 in contingent deferred sales charges attributable
to Class C shares. For the fiscal period ended September 30, 2000, the
Distributor also received approximately $315,500 in initial sales charges
attributable to Class C shares.

Distribution expenses attributable to the sale of Class A, Class B or Class
C shares of the 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. 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 the 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 Plan remains 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 Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.

B-20

<PAGE>

In addition to distribution and service fees paid by the 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 and Class I 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 the Fund. For the fiscal
year ending September 30, 2001, PIFM has contractually agreed to subsidize the
Fund's operating expenses so that total Fund operating expenses do not exceed
the amounts shown in the prospectus. 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 the 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 the Fund may not exceed .75
of 1% per class. The 6.25% limitation applies to each class of the 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.

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 Fund. Subcustodians provide
custodial services for the Fund's foreign assets held outside the United States.

Prudential Mutual Fund Services LLC (PMFS), 194 Wood Avenue South, Iselin,
New Jersey 08830, 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 the 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 the Fund.

CODES OF ETHICS

The Board of Trustees of the Fund has adopted a Code of Ethics. In
addition, PIFM, PI and PIMS have each adopted a Code of Ethics (the Codes). The
Codes permit personnel subject to the Codes to invest in securities, including
securities that may be purchased or held by the Fund. However, the protective
provisions of the Codes prohibit certain investments and limit such personnel
from making investments during periods when the Fund is making such investments.
The Codes are on public file with, and are available from, the Commission.

B-21

<PAGE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities and
options on securities and futures for the 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.
The 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 the
Fund's order.

In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best 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, the 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 the Fund.

The Manager maintains an internal allocation procedure to identify 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 the 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 the 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 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 the Fund's ability to pursue its present
investment objective. However, in the future in other

B-22

<PAGE>

circumstances, the 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 Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the 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, 2000, 1999 and 1998, the Company paid
no brokerage commissions to Prudential Securities.

The 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 September 30, 2000. As of September 30, 2000, the Fund held
securities of the following: Bear, Stearns & Co. Inc., $24,988,724; Chase
Securities Inc., $20,577,469; Credit Suisse First Boston Corp., $15,584,034;
Lehman Brothers Holdings, Inc., $3,706,604; Merrill Lynch & Co., Inc.,
$10,390,644; Morgan Stanley Dean Witter, $20,649,879; PaineWebber Group, Inc.,
$2,180,000; Salomon Smith Barney Inc. $7,635,397 and UBS Warburg
$23,376,050.

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, currently of one series. The
Fund 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 the 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 and Class I 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 Fund, 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 Fund under certain circumstances. Each 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 and Class I
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 the 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 Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund 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

B-23

<PAGE>

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 Fund 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 Company. 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 the 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 the 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, 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 Stock Index Fund, specifying on the wire the
account number assigned by PMFS and your name and identifying the class in which
you are investing (Class A, Class B, Class C, Class Z or Class I 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 the 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 Stock Index Fund,
Class A, Class B, Class C, Class Z or Class I shares 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.

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 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.

B-24

<PAGE>

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund 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 the Fund at
September 30, 2000, the maximum offering price of the Fund's shares is as
follows:

CLASS A

Net asset value, redemption price
and offering price per Class A share ................................ $32.06
======

CLASS B

Net asset value, redemption price
and offering price per Class B share ................................ $31.85
======

CLASS C

Net asset value and redemption price
per Class C share ................................................... $31.85

Sales charge (1% of offering price) ................................... .32
======
Offering price to public .............................................. $32.17
======

CLASS Z

Net asset value, redemption price
and offering price per Class Z share ................................ $32.12
======

CLASS I

Net asset value, redemption price
and offering price per Class I share ................................ $32.16
======

----------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions.

SELECTING A PURCHASE ALTERNATIVE

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 the 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 individual and group retirement and savings plans
may purchase Class A shares 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.

B-25
<PAGE>

OTHER INVESTORS. In addition, Class A shares may be purchased 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 members of the Board of Directors of Prudential,

o real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affiliates who
maintain an account at Prudential Securities, Pruco Securities Corporation
or with the Transfer Agent,

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,

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% or 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).

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 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.

For an investor to purchase Class A shares, 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.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential mutual funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases of Class A shares of other Prudential mutual funds.

An eligible group of related Fund investors includes any combination of the
following:

B-26

<PAGE>

o an individual,

o the individual's spouse, their children and their parents,

o the individual's and spouse's Individual Retirement Account (IRA),

o any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be
controlled by each of its general partners),

o a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children,

o a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse, and

o one or more employee benefit plans of a company controlled by an
individual.

Also, an eligible group of related Fund investors may include an employer
(or group of related employers) and one or more qualified retirement plans of
such employer or employers (an employer controlling, controlled by or under
common control with another employer is deemed related to that employer).

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.

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 the 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.

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 a 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.

B-27

<PAGE>

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 a 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, or

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.

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 option,

o current and former Director/Trustees of the Prudential mutual funds
(including the Company), and

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.

CLASS I SHARES

BENEFIT PLANS. Certain group retirement plans may purchase Class I shares
of the 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.

In addition, participant MasterShare accounts held at Prudential Securities
may purchase Class I shares.

RIGHTS OF ACCUMULATION

Reduced sales charges also are available through rights of accumulation,
under which an investor or an eligible group of related investors, as described
above under "Combined Purchase and Cumulative Purchase Privilege," may aggregate
the value of their existing holdings of shares of the Fund and shares of other
Prudential mutual funds (excluding money markets funds other than those acquired
pursuant to the exchange privilege) to determine whether they satisfy the Class
A purchase amount. Rights of accumulation may be applied across the classes of
shares of the Prudential mutual funds. However, the value of shares held
directly with the Transfer Agent and through your broker will not be aggregated
to determine the reduced sales charge. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering price (NAV plus maximum sales charge) as of the previous business day.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investor's holdings.
Right of accumulation are not available to individual participants in any
retirement or group plans.

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

B-28

<PAGE>

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.

If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates, signed in the 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 8149,
Philadelphia, Pennsylvania 19101, 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 the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the
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. The 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.

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 the 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 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.

B-29
<PAGE>

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, either individually or in joint
tenancy, 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.

B-30

<PAGE>

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 A copy of the Social Security
be considered disabled if he Administration award letter or
or she is unable to engage in a letter from a physician on
any substantial gainful the physician's letterhead
activity by reason of any stating that the shareholder
medically determinable (or, in the case of a trust,
physical or mental impairment the grantor (a copy of the
which can be expected to trust agreement identifying
result in death or to be of the grantor will be required
long-continued and indefinite as well)) is permanently
duration. disabled. The letter must also
indicate the date of disability.

Distribution from an IRA or A copy of the distribution
403(b) Custodial Account form from the 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.

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 the 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

B-31

<PAGE>

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 the 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. The Fund makes available to its
shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable Fund at
net asset value per share. 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 dividends or distributions in cash may
subsequently reinvest any 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 reinvestment will be made at the NAV per share next determined after
receipt of the check by the Transfer Agent. Shares purchased with reinvested
dividends or distributions will not be subject to any CDSC upon redemption.

B-32

<PAGE>

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the 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
Company at (800) 225-1852 to execute a telephone exchange of shares, on
weekdays, except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Company 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 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 8157, Philadelphia, PA
19101.

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 the Fund may be exchanged for Class Z shares of
other Prudential mutual funds.

CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential mutual funds 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.

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

(New Jersey Money Market Series)
(New York Money Market Series)

Prudential MoneyMart Assets, Inc. (Class A shares)

Prudential Tax-Free Money Fund, Inc.

B-33

<PAGE>

CLASS B AND CLASS C. Shareholders 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 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 the 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 Fund 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 Fund, or the
Distributor has the right to reject any exchange application relating to such
fund's shares.

B-34
<PAGE>

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 the 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 the 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.

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, quarterly, semi-annual or annual redemption 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 systematic 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 systematic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

B-35

<PAGE>

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 the 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 tax-deferred 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.

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 Fund 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. The 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.

B-36

<PAGE>

NET ASSET VALUE

The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of shares outstanding. NAV is calculated separately for each class of the
Fund. The Fund will compute its NAV at 4:15 P.M., New York time, on 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 the
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 the 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 indexes) 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 last 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 more than one 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 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 (or at the last bid price in the
absence of an asked price) provided by more than one principal market maker (if
available, otherwise a primary dealer). 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 (or at the last bid price in the
absence of an asked price) 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 (or at the last bid price in the absence of an asked price). Quotations
of foreign securities in a foreign currency are converted to U.S. dollar
equivalents at the current rate obtained from a recognized bank, dealer or
independent service on the day of valuation, 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 Company'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 or 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 analysts and legal and compliance personnel, on the basis of the
following factors: the issuer's financial condition and the markets in which it
does business, the cost of the security, the size of the holding and the
capitalization of the issuer, any available analyst, media or other reports of
information deemed reliable by the Manager or Subadviser regarding the issuer or
the markets or industry in which it operates, consistency with valuation of
similar securities held by other Prudential funds, 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

B-37
<PAGE>

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.

Although the legal rights of each class of shares of the 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 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

The Fund is qualified as, intends to remain qualified as and has elected to
be treated 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 the Fund which are
available for distribution to shareholders will be computed by taking into
account any capital loss carryforward of the Fund.

Qualification of the Fund as a regulated investment company under the
Internal Revenue Code 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 capital 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 the 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 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.

Certain futures contracts and certain listed options (referred to as
Section 1256 contracts) held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
their fair market value on the last day of the Fund's taxable year. Except with
respect to certain foreign currency forward 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.

B-38

<PAGE>

Forward currency contracts, options and futures contracts entered into by
the 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 Code. In the case of a straddle, the Fund
may be required 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 the 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 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, thereby reducing each shareholder's basis
in his or her Fund shares.

The 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. The 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, the 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, the Fund will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the 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 NAV 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. In addition, dividends and capital gains distributions
may also be subject to state and local income taxes. Therefore, prior to
purchasing shares of the Fund, the investor should carefully consider the impact
of dividends or capital gains distributions which are expected to be or have
been announced.

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 Fund on the reinvestment
date.

Any loss realized on a sale, redemption or exchange of shares of the 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 the 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 the 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 the Fund.

The 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 of 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,

B-39

<PAGE>

accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders. 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.

Shareholders are advised to consult their own tax advisers with respect to
the federal, state, and local tax consequences resulting from their investment
in the Fund.

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN

The Fund may from time to time advertise its average annual total return.
Average annual total return is determined separately for each class.

The Fund's "average annual total return" is computed according to a formula
prescribed by the Commission, 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 the Fund for the
one year and five years ended September 30, 2000 and from commencement of
operations (November 5, 1992) through September 30, 2000 was 13.28%, 21.20% and
18.78%, respectively. The average annual total return for Class I shares of the
Fund for the one year ended September 30, 2000 and from the commencement of
operations (August 1, 1997) through September 30, 2000 was 13.38% and 15.36%.

AGGREGATE TOTAL RETURN

The Fund may also advertise its aggregate total return. Aggregate total
return is determined separately for each class.

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

ERV - P
-------

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.

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.

B-40

<PAGE>

The 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 the 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 the 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 returns for the one year,
five years and since inception periods ended September 30, 2000 for the Fund's
Class Z shares were 13.28%, 161.47% and 289.49%, respectively. The aggregate
total returns for Class I shares of the Fund for the one year ended September
30, 2000 and the period from commencement of operations (August 1, 1997) through
September 30, 2000 were 13.38%, and 57.17%, respectively. The aggregate total
returns for Class A, Class B and Class C shares of the Fund for the period from
inception (November 18, 1999) through September 30, 2000 were 1.68%, 1.01% and
1.01%, respectively.

ADVERTISING. Advertising materials for the Fund may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Fund's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Fund also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.

From time to time, advertising materials for the Fund may include information
concerning retirement and investing for retirement, may refer to the approximate
number of Fund shareholders and may refer to Lipper rankings or Morningstar
ratings, other related analysis supporting those ratings, other industry
publications, business periodicals and market indexes. In addition, advertising
materials may reference studies or analyses performed by the Manager or its
affiliates. Advertising materials for sector funds, funds that focus on market
capitalizations, index funds and international/global funds may discuss the
potential benefits and risks of that investment style. Advertising materials for
fixed-income funds may discuss the benefits and risks of investing in the bond
market including discussions of credit quality, duration and maturity.

Set forth below is a chart which compares the performance of different types
of investments over the long term and rate of inflation.(1)

PERFORMANCE COMPARISON OF DIFFERENT TYPES OF INVESTMENTS
OVER THE LONG TERM (12/31/25 - 12/31/1999)

[GRAPHIC OMITTED]

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

(1) Source: Ibbotson Associates. All rights reserved. Common stock returns are
based on the Standard & Poor's 500 Composite Stock Price 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-41

<PAGE>
Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 96.1%
Common Stocks
-------------------------------------------------------------------------------------
Advertising
16,300 Young & Rubicam, Inc. $ 806,850
-------------------------------------------------------------------------------------
Aerospace/Defense 1.3%
180,584 Boeing Co. 11,376,792
42,006 General Dynamics Corp. 2,638,502
83,556 Lockheed Martin Corp. 2,754,006
14,920 Northrop Grumman Corp. 1,355,855
158,215 Honeywell International Inc. 5,636,409
68,744 Raytheon Co. 1,954,907
37,863 Rockwell International Corp. 1,145,356
93,320 United Technologies Corp. 6,462,410
----------------
33,324,237
-------------------------------------------------------------------------------------
Airlines 0.2%
28,149 AMR Corp.(a) 920,120
26,684 Delta Airlines, Inc. 1,184,103
99,083 Southwest Airlines Co. 2,402,763
16,821 USAir Group, Inc.(a) 511,989
----------------
5,018,975
-------------------------------------------------------------------------------------
Aluminum 0.2%
45,929 Alcan Aluminum Ltd. 1,329,070
163,144 ALCOA, Inc. 4,129,583
----------------
5,458,653
-------------------------------------------------------------------------------------
Automobiles & Trucks 0.8%
6,579 Cummins Engine Co., Inc. 196,959
35,740 Dana Corp. 768,410
111,184 Delphi Automotive Systems Corp. 1,681,658
372,463 Ford Motor Co. 9,427,970
110,478 General Motors Corp. 7,181,070
38,799 Genuine Parts Co. 739,606
17,776 Johnson Controls, Inc. 945,461
</TABLE>
See Notes to Financial Statements

B-42
<PAGE>
Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10,760 Navistar International Corp.(a) $ 322,127
31,370 Visteon Corp. 474,471
----------------
21,737,732
-------------------------------------------------------------------------------------
Banking 5.3%
79,900 AmSouth Bancorporation 998,750
146,786 Associates First Capital Corp. 5,577,868
333,767 Bank of America Corp. 17,481,047
145,436 Bank of New York Co., Inc. 8,153,506
225,316 Bank One Corp. 8,702,830
40,367 Capital One Financial 2,828,213
31,605 Charter One Financial, Inc. 770,372
251,676 Chase Manhattan Corp. 11,624,285
31,361 Comerica, Inc. 1,832,658
92,796 Fifth Third Bancorp 4,999,384
193,549 First Union Corp. 6,229,858
191,664 Firstar Corporation Wisconsin 4,288,482
183,826 FleetBoston Financial Corp. 7,169,214
34,692 Golden West Financial Corp. 1,860,359
54,429 Huntington Bancshares, Inc. 799,426
33,690 J.P. Morgan & Co., Inc. 5,504,104
86,935 KeyCorp 2,200,542
101,346 Mellon Financial Corp. 4,699,921
121,198 National City Corp. 2,681,506
43,162 Northern Trust Corp. 3,836,023
28,140 Old Kent Financial Corp. 814,301
59,436 PNC Bank Corp. 3,863,340
27,301 Providian Financial Corp. 3,467,227
35,900 SouthTrust Corp. 1,128,606
32,331 State Street Corp. 4,203,030
36,577 Summit Bancorp 1,261,907
62,683 Suntrust Banks, Inc. 3,122,397
149,458 U.S. Bancorp 3,400,169
29,400 Union Planters Corp. 972,038
327,240 Wells Fargo & Co. 15,032,587
----------------
139,503,950
</TABLE>
See Notes to Financial Statements

B-43
<PAGE>
Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Beverages 2.1%
10,347 Adolph Coors Co. $ 653,801
179,654 Anheuser Busch Companies, Inc. 7,601,610
15,138 Brown-Forman Corp. 828,806
493,932 Coca-Cola Co. 27,228,001
83,400(c) Coca-Cola Enterprises Inc. 1,329,188
289,181 PepsiCo, Inc. 13,302,326
83,621 Seagram Co., Ltd. 4,802,981
----------------
55,746,713
-------------------------------------------------------------------------------------
Chemicals 0.7%
46,832 Air Products & Chemicals, Inc. 1,685,952
129,582 Dow Chemical Co. 3,231,451
207,944 E.I. du Pont de Nemours & Co. 8,616,679
14,693 Eastman Chemical Co. 542,723
5,273 FMC Corp.(a) 353,621
17,731 Hercules, Inc. 250,450
42,970 Rohm & Haas Co. 1,248,816
18,516 Sigma-Aldrich Corp. 611,028
26,153 Union Carbide Corp. 987,276
----------------
17,527,996
-------------------------------------------------------------------------------------
Chemical-Specialty 0.1%
21,704 Engelhard Corp. 352,690
10,890 Great Lakes Chemical Corp. 319,213
31,579 Praxair, Inc. 1,180,265
23,944 W. R. Grace & Co. 164,615
----------------
2,016,783
-------------------------------------------------------------------------------------
Commercial Services
31,100 Convergys Corp.(a) 1,209,012
-------------------------------------------------------------------------------------
Computer Hardware 2.5%
513,640 Dell Computer Corp.(a) 15,826,533
63,392 Gateway, Inc.(a) 2,963,576
</TABLE>
See Notes to Financial Statements

B-44
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
355,634 International Business Machines Corp. $ 40,008,825
20,300 NCR Corp.(a) 767,594
112,919 Palm, Inc.(a) 5,977,650
----------------
65,544,178
-------------------------------------------------------------------------------------
Computer Software & Services 12.5%
24,510 Adobe Systems, Inc. 3,805,177
41,700 American Power Conversion Corp.(a) 800,119
12,105 Autodesk, Inc. 307,164
123,678 Automatic Data Processing, Inc. 8,270,966
46,900 BMC Software, Inc.(a) 896,963
39,485 Cabletron Systems, Inc.(a) 1,159,872
33,190 Ceridian Corp.(a) 931,394
1,410,744 Cisco Systems, Inc.(a) 77,943,606
35,200 Citrix Systems Inc.(a) 706,200
115,258 Computer Associates International, Inc. 2,903,061
33,951 Computer Sciences Corp.(a) 2,520,862
72,000 Compuware Corp.(a) 603,000
434,604 EMC Corp.(a) 43,080,121
82,232 First Data Corp. 3,212,187
36,520 KLA Instruments Corp.(a) 1,504,168
15,800 Mercury Interactive Corp.(a) 2,476,650
111,416 Micron Technology, Inc. 5,125,136
1,052,306 Microsoft Corp.(a) 63,467,206
67,102 Novell, Inc.(a) 666,826
568,520 Oracle Corp.(a) 44,770,950
62,779 Parametric Technology Co.(a) 686,645
57,700 PeopleSoft, Inc.(a) 1,611,994
23,800 Sapient Corp.(a) 968,363
44,165 Seagate Technology, Inc.(a) 3,047,385
79,600 Siebel Systems Inc.(a) 8,860,475
318,448 Sun Microsystems, Inc.(a) 37,178,804
3,305 SYNAVANT Inc.(a) 22,102
77,500(c) VERITAS Software Corp. 11,005,000
----------------
328,532,396
</TABLE>
See Notes to Financial Statements

B-45
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Construction 0.1%
13,537 Fluor Corp. $ 406,110
7,791 Kaufman & Broad Home Corp. 209,870
6,743 Pulte Corp. 222,519
21,500 Vulcan Materials Co. 864,031
----------------
1,702,530
-------------------------------------------------------------------------------------
Containers 0.1%
4,758 Ball Corp. 150,769
13,305 Bemis Co., Inc. 427,423
23,176 Crown Cork & Seal Co., Inc.(a) 247,694
27,126 Owens-Illinois, Inc.(a) 250,915
35,258 Pactiv Corp.(a) 394,449
----------------
1,471,250
-------------------------------------------------------------------------------------
Cosmetics & Soaps 1.3%
16,857 Alberto-Culver Co. 485,692
52,472 Avon Products, Inc. 2,144,793
46,032 Clorox Co. 1,821,141
114,730 Colgate-Palmolive Co. 5,415,256
210,139 Gillette Co. 6,488,042
22,975 International Flavors & Fragrances, Inc. 419,294
257,819 Procter & Gamble Co. 17,273,873
----------------
34,048,091
-------------------------------------------------------------------------------------
Diversified Gas 0.2%
43,203 Coastal Corp. 3,202,422
4,308 Eastern Enterprises, Inc. 274,904
7,423 NICOR, Inc. 268,620
5,576 Oneok, Inc. 221,646
----------------
3,967,592
-------------------------------------------------------------------------------------
Drugs & Medical Supplies 10.4%
309,174 Abbott Laboratories 14,705,088
26,182 Allergan, Inc. 2,210,743
21,703 ALZA Corp.(a) 1,877,310
262,191 American Home Products Corp. 14,830,178
205,224 Amgen, Inc.(a) 14,330,407
</TABLE>
See Notes to Financial Statements

B-46
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
13,038 Bausch & Lomb, Inc. $ 507,667
57,537 Baxter International, Inc. 4,592,172
50,612 Becton Dickinson & Co. 1,338,055
29,700 Biogen, Inc.(a) 1,811,700
37,782 Biomet, Inc.(a) 1,322,370
83,562 Boston Scientific Corp.(a) 1,373,550
394,614 Bristol-Myers Squibb Co. 22,542,325
12,056 C.R. Bard, Inc. 509,366
54,249 Cardinal Health, Inc. 4,784,084
225,197 Eli Lilly & Co. 18,269,107
60,848 Guidant Corp. 4,301,193
278,874 Johnson & Johnson 26,196,726
17,503 Mallinckrodt, Inc. 798,574
42,400 MedImmune, Inc.(a) 3,275,400
240,958 Medtronic, Inc. 12,484,636
460,844 Merck & Co., Inc. 34,304,075
1,262,062 Pfizer, Inc. 56,713,911
254,401 Pharmacia Corp. 15,311,760
292,024 Schering-Plough Corp. 13,579,116
15,766 St. Jude Medical, Inc.(a) 804,066
20,700 Watson Pharmaceuticals, Inc.(a) 1,342,913
----------------
274,116,492
-------------------------------------------------------------------------------------
Electronics 6.2%
58,924 Advanced Micro Devices, Inc.(a) 1,392,080
91,696 Agilent Technologies, Inc.(a) 4,487,373
80,000 Altera Corp.(a) 3,820,000
71,100 Analog Devices, Inc.(a) 5,870,194
67,112 Apple Computer, Inc. 1,728,134
42,600 Conexant Systems, Inc.(a) 1,783,875
92,100 Electronic Data Systems Corp. 3,822,150
86,675 Emerson Electric Co. 5,807,225
201,018 Hewlett-Packard Co. 19,498,746
1,341,588 Intel Corp. 55,759,751
61,644 LSI Logic Corp.(a) 1,803,087
61,000 Linear Technology Corp. 3,949,750
</TABLE>
See Notes to Financial Statements

B-47
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
56,400 Maxim Integrated Products, Inc.(a) $ 4,536,675
37,550 Molex Inc. 2,044,128
428,613 Motorola, Inc. 12,108,317
33,476 National Semiconductor Corp.(a) 1,347,409
10,985 PerkinElmer, Inc. 1,146,559
29,600 Sanmina Corp.(a) 2,771,300
118,100 Solectron Corp.(a) 5,447,362
11,312 Tektronix, Inc. 868,903
35,500 Teradyne, Inc.(a) 1,242,500
345,152 Texas Instruments, Inc. 16,286,860
17,733 Thomas & Betts Corp. 309,219
64,400 Xilinx Inc.(a) 5,514,250
----------------
163,345,847
-------------------------------------------------------------------------------------
Financial Services 6.5%
269,459 American Express Co. 16,369,634
25,598 Bear, Stearns & Co., Inc. 1,612,674
267,011 Charles Schwab Corp. 9,478,890
37,000 CIT Group, Inc. 647,500
895,182 Citigroup, Inc.(a) 48,395,777
25,837 Countrywide Mortgage Investments, Inc. 975,347
18,919 Deluxe Corp. 384,292
33,988 Dun & Bradstreet Corp. 1,170,462
29,930 Equifax, Inc. 806,239
141,432 Federal Home Loan Mortgage Corp. 7,646,167
203,634 Federal National Mortgage Association 14,559,831
49,914 Franklin Resources, Inc. 2,217,679
20,680 H&R Block, Inc. 766,453
95,550 Household International Corp. 5,410,519
25,087 Lehman Brothers Holdings, Inc. 3,706,604
162,843 MBNA Corp. 6,269,456
157,434 Merrill Lynch & Co., Inc. 10,390,644
225,836 Morgan Stanley Dean Witter & Co. 20,649,879
32,000 PaineWebber Group, Inc. 2,180,000
74,625 Paychex, Inc. 3,917,813
48,200 Regions Financial Corp. 1,093,538
</TABLE>
See Notes to Financial Statements

B-48
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
44,800 Stilwell Financial, Inc. $ 1,948,800
59,766 Synovus Financial Corp. 1,266,292
25,400 T. Rowe Price & Associates, Inc. 1,192,212
33,264(c) USA Education Incorporated 1,602,909
115,225 Washington Mutual, Inc. 4,587,395
----------------
169,247,006
-------------------------------------------------------------------------------------
Foods 1.3%
128,767 Archer-Daniels-Midland Co. 1,110,613
56,254 Bestfoods 4,092,479
81,747 Campbell Soup Co. 2,115,204
97,743 ConAgra, Inc. 1,960,969
59,072 General Mills, Inc. 2,097,056
70,114 H.J. Heinz & Co. 2,598,600
27,958 Hershey Foods Corp. 1,513,227
79,170 Kellogg Co. 1,914,924
27,789 Quaker Oats Co. 2,198,805
58,077 Ralston Purina Co. 1,375,699
174,686 Sara Lee Corp. 3,548,309
62,990 Sysco Corp. 2,917,224
114,835 Unilever N. V. 5,540,789
24,352 Wm. Wrigley Jr. Co. 1,823,356
----------------
34,807,254
-------------------------------------------------------------------------------------
Forest Products 0.6%
9,549 Boise Cascade Corp. 253,645
45,623 Fort James Corp. 1,394,353
34,668 Georgia-Pacific Corp. 814,698
93,684 International Paper Co. 2,687,560
109,416 Kimberly-Clark Corp. 6,106,780
29,156 Louisiana-Pacific Corp. 267,871
22,269 Mead Corp. 520,538
8,537 Potlatch Corp. 269,983
10,245 Temple-Inland, Inc. 388,029
22,130 Westvaco Corp. 590,594
</TABLE>
See Notes to Financial Statements

B-49
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
45,300 Weyerhaeuser Co. $ 1,828,988
21,980 Willamette Industries, Inc. 615,440
----------------
15,738,479
-------------------------------------------------------------------------------------
Gas Distribution
20,400 KeySpan Corp. 818,550
-------------------------------------------------------------------------------------
Gas Pipelines 0.8%
29,297 Cinergy Corp. 968,632
15,506 Columbia Gas System, Inc.(a) 1,100,926
46,259 El Paso Energy Corp. 2,850,711
145,006 Enron Corp. 12,706,151
5,832 Peoples Energy Corp. 194,643
39,398 Sempra Energy 819,971
85,692 Williams Companies, Inc. 3,620,487
----------------
22,261,521
-------------------------------------------------------------------------------------
Health Care 0.1%
19,260 Manor Care, Inc.(a) 302,141
57,576 McKesson HBOC, Inc. 1,759,667
19,000 Quintiles Transnational, Corp.(a) 302,813
12,000 Wellpoint Health Networks, Inc. 1,152,000
----------------
3,516,621
-------------------------------------------------------------------------------------
Hospital Management 0.5%
108,831 HCA-The Healthcare Company 4,040,351
71,749 Healthsouth Corp.(a) 582,961
25,810 Humana, Inc.(a) 277,458
66,110 IMS Health, Inc. 1,371,782
63,448 Tenet Healthcare Corp.(a) 2,307,921
34,506 United Health Group Inc. 3,407,467
----------------
11,987,940
-------------------------------------------------------------------------------------
Housing Related 0.2%
8,804 Armstrong Holdings, Inc. 105,098
10,097 Centex Corp. 324,366
43,100 Leggett & Platt, Inc. 681,519
91,026 Masco Corp. 1,695,359
</TABLE>
See Notes to Financial Statements

B-50
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
14,518 Maytag Corp. $ 450,966
56,227 Newell Rubbermaid, Inc. 1,282,678
17,714(c) Owens Corning(a) 46,499
14,838 Stanley Works 342,201
12,240 Tupperware Corp. 220,320
16,239 Whirlpool Corp. 631,291
----------------
5,780,297
-------------------------------------------------------------------------------------
Insurance 3.5%
27,493 Aetna Life & Casualty Co. 1,596,312
51,600 AFLAC, Inc. 3,305,625
155,808(c) Allstate Corp. 5,414,328
49,340 American General Corp. 3,848,520
461,476 American International Group, Inc. 44,157,485
50,689 Aon Corp. 1,989,543
34,034 Chubb Corp. 2,692,940
35,397 CIGNA Corp. 3,695,447
34,614 Cincinnati Financial Corp. 1,228,797
55,660(c) Conseco, Inc. 424,408
44,953 ITT Hartford Group, Inc. 3,278,759
21,991 Jefferson-Pilot Corp. 1,492,639
40,030 Lincoln National Corp. 1,926,444
53,170 Marsh & McLennan Companies, Inc. 7,058,317
19,372 MBIA, Inc. 1,377,834
21,720 MGIC Investment Corp. 1,327,635
13,393 Progressive Corp. 1,096,552
23,229 SAFECO Corp. 632,990
46,117 St. Paul Companies, Inc. 2,274,145
23,815 Torchmark Corp. 662,355
50,826 UnumProvident Corp. 1,385,009
40,808 Wachovia Corp. 2,313,303
----------------
93,179,387
-------------------------------------------------------------------------------------
Internet Services 1.3%
459,700 America Online, Inc.(a) 24,708,875
107,700 Yahoo! Inc.(a) 9,800,700
----------------
34,509,575
</TABLE>
See Notes to Financial Statements

B-51
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Leisure 0.2%
14,899 Brunswick Corp. $ 271,907
120,400 Carnival Corp. 2,964,850
23,724 Harrah's Entertainment, Inc.(a) 652,410
33,154 Hasbro, Inc. 379,199
86,613 Mattel, Inc. 968,983
----------------
5,237,349
-------------------------------------------------------------------------------------
Lodging 0.1%
84,021 Hilton Hotels Corp. 971,493
48,552 Marriott International, Inc. (Class 'A' Stock) 1,769,113
----------------
2,740,606
-------------------------------------------------------------------------------------
Machinery 0.4%
5,264 Briggs & Stratton Corp. 199,045
72,628 Caterpillar, Inc. 2,451,195
17,720 Cooper Industries, Inc. 624,630
45,840 Deere & Co. 1,524,180
41,262 Dover Corp. 1,936,735
14,577 Eaton Corp. 898,308
31,595 Ingersoll-Rand Co. 1,070,280
17,282 PACCAR, Inc. 640,514
24,192 Parker Hannifin Corp. 816,480
10,042 Snap-On, Inc. 236,615
34,202 Thermo Electron Corp.(a) 889,252
9,537 Timken Co. 130,538
----------------
11,417,772
-------------------------------------------------------------------------------------
Media 3.1%
112,138 Clear Channel Communications, Inc.(a) 6,335,797
182,120 Comcast Corp. 7,455,537
19,804 Dow Jones & Co., Inc. 1,198,142
55,489 Gannett Co., Inc. 2,940,917
58,312 Interpublic Group of Companies, Inc. 1,986,252
18,183 Knight-Ridder, Inc. 923,924
38,400 McGraw Hill Companies., Inc. 2,440,800
14,096 Meredith Corp. 415,832
</TABLE>
See Notes to Financial Statements

B-52
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
35,190 New York Times Co. $ 1,383,407
30,140 R.R. Donnelley & Sons, Co. 740,314
260,616 Time Warner, Inc. 20,393,202
68,627 Tribune Co. 2,993,853
301,552 Viacom, Inc.(a) 17,640,792
409,713 Walt Disney Co. 15,671,522
----------------
82,520,291
-------------------------------------------------------------------------------------
Mineral Resources 0.2%
80,424 Barrick Gold Corp. (ADR) (Canada) 1,226,466
42,628 Freeport-McMoran Copper & Gold, Inc. 375,659
47,684 Homestake Mining Co. 247,361
41,703 INCO Ltd. 672,461
36,897 Newmont Mining Corp. 627,249
18,130 Phelps Dodge Corp. 756,928
64,270 Placer Dome, Inc. 606,548
----------------
4,512,672
-------------------------------------------------------------------------------------
Miscellaneous Basic Industry 6.6%
29,000 Allied Waste Industries, Inc.(a) 266,438
161,944 Applied Materials, Inc.(a) 9,605,303
70,858 BB&T Corp. 2,134,597
137,259 Cendant Corp.(a) 1,492,692
10,383 Crane Co. 237,511
30,000(c) Danaher Corp. 1,492,500
26,941 Ecolab, Inc. 971,560
1 Energizer Holdings, Inc.(a) 23
29,808 Fortune Brands, Inc. 789,912
1,977,972 General Electric Co. 114,104,260
58,700 Harley-Davidson Inc. 2,810,262
61,368 Illinois Tool Works, Inc. 3,428,937
20,786 ITT Industries, Inc. 674,246
21,734 Loews Corp. 1,812,072
10,661 Millipore Corp. 516,392
28,100 Novellus Systems, Inc.(a) 1,308,406
35,767 Omnicom Group, Inc. 2,608,756
22,504 Pall Corp. 448,674
</TABLE>
See Notes to Financial Statements

B-53
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
42,364 PE Corp.-PE Biosystems Group $ 4,935,406
35,574 PPG Industries, Inc. 1,411,843
17,418(c) Sealed Air Corp. 788,164
30,967 Textron, Inc. 1,428,353
23,749 TRW, Inc. 964,803
338,172 Tyco International Ltd. 17,542,672
20,474 W.W. Grainger, Inc. 538,722
----------------
172,312,504
-------------------------------------------------------------------------------------
Miscellaneous Consumer Growth 1.1%
12,598 American Greetings Corp. 220,465
15,832 Black & Decker Corp. 541,257
57,699 Corning, Inc. 17,136,603
65,165 Eastman Kodak Co. 2,663,619
80,299 Minnesota Mining & Manufacturing Co. 7,317,246
17,369 Polaroid Corp. 233,396
----------------
28,112,586
-------------------------------------------------------------------------------------
Networking
23,900 Adaptec, Inc.(a) 478,000
-------------------------------------------------------------------------------------
Office Equipment & Supplies 1.0%
22,868 Avery Dennison Corp. 1,060,503
338,147 Compaq Computer Corp.(a) 9,326,094
24,352 Lexmark International Group, Inc.(a) 913,200
61,700 Network Appliance, Inc.(a) 7,859,038
78,800 Office Depot, Inc.(a) 615,625
52,025 Pitney Bowes, Inc. 2,051,736
92,950 Staples, Inc.(a) 1,318,728
63,990 Unisys Corp.(a) 719,888
133,098 Xerox Corp. 2,004,789
----------------
25,869,601
-------------------------------------------------------------------------------------
Petroleum 4.9%
19,478 Amerada Hess Corp. 1,303,809
50,918(c) Anadarko Petroleum Corp. 3,384,010
23,987 Apache Corp. 1,418,231
17,145 Ashland Oil, Inc. 577,572
</TABLE>
See Notes to Financial Statements

B-54
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
44,782 Burlington Resources, Inc. $ 1,648,537
130,562 Chevron Corp. 11,130,410
19,000 Devon Energy Corp. 1,142,850
696,407 Exxon Mobil Corp. 62,067,274
18,459 Kerr-McGee Corp. 1,222,909
74,138 Occidental Petroleum Corp. 1,617,135
47,536 Phillips Petroleum Co. 2,982,884
432,031 Royal Dutch Petroleum Co. (ADR) (Netherlands) 25,894,858
22,414 Sunoco, Inc. 603,777
110,646 Texaco, Inc. 5,808,915
27,000 Tosco Corp. 842,063
41,263 Transocean Sedco Forex Inc. 2,419,043
50,439 Unocal Corp. 1,787,432
64,660 USX-Marathon Corp. 1,834,728
----------------
127,686,437
-------------------------------------------------------------------------------------
Petroleum Services 0.8%
65,679 Baker Hughes, Inc. 2,438,333
124,550 Conoco, Inc. 3,355,066
90,511 Halliburton Co. 4,429,382
7,310 McDermott International, Inc. 80,410
73,352 PG&E Corp. 1,774,201
16,510 Rowan Companies, Inc.(a) 478,790
112,421 Schlumberger, Ltd. 9,253,654
----------------
21,809,836
-------------------------------------------------------------------------------------
Railroads 0.2%
89,523 Burlington Northern, Inc. 1,930,339
44,903 CSX Corp. 979,447
78,411 Norfolk Southern Corp. 1,146,761
49,929 Union Pacific Corp. 1,940,990
----------------
5,997,537
-------------------------------------------------------------------------------------
Restaurants 0.4%
24,902 Darden Restaurants, Inc. 518,273
265,330 McDonald's Corp. 8,009,649
</TABLE>
See Notes to Financial Statements

B-55
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
32,400 Starbucks Corp.(a) $ 1,298,025
32,966 Tricon Global Restaurants, Inc. 1,009,584
29,179 Wendy's International, Inc. 585,404
----------------
11,420,935
-------------------------------------------------------------------------------------
Retail 5.1%
81,713 Albertson's, Inc. 1,715,973
31,000 AutoZone, Inc. 703,313
59,200 Bed Bath & Beyond, Inc.(a) 1,443,925
39,500 Best Buy Co., Inc. 2,513,188
39,478 Circuit City Stores, Inc. 907,994
32,724 Consolidated Stores Corp.(a) 441,774
87,308 Costco Wholesale Corp. 3,050,323
78,296 CVS Corp. 3,626,083
27,523 Dillards, Inc. 292,432
67,050 Dollar General Corp. 1,123,088
42,575 Federated Department Stores, Inc.(a) 1,112,272
168,013 Gap, Inc. 3,381,262
13,868 Harcourt General, Inc. 818,212
460,984 Home Depot, Inc. 24,460,963
57,584 J.C. Penney Co., Inc. 680,211
102,757 Kmart Corp. 616,542
63,000 Kohl's Corp. 3,634,312
160,434 Kroger Co.(a) 3,619,792
88,822 Limited, Inc. 1,959,635
10,396 Liz Claiborne, Inc. 400,246
13,282 Longs Drug Stores Corp. 254,018
77,074 Lowe's Companies, Inc. 3,458,696
65,571 May Department Stores Co. 1,344,206
53,538 Nike, Inc. 2,144,866
29,700 Nordstrom, Inc. 462,206
37,754 RadioShack Corp. 2,439,852
19,149 Reebok International Ltd. 360,241
100,000 Safeway,Inc.(a) 4,668,750
72,096 Sears, Roebuck & Co. 2,337,352
36,316 Sherwin-Williams Co. 776,255
</TABLE>
See Notes to Financial Statements

B-56
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
32,212 Supervalu, Inc. $ 485,193
180,082 Target Corp. 4,614,601
25,400 Tiffany & Co. 979,488
63,016 TJX Companies, Inc. 1,417,860
55,407 Toys 'R' Us, Inc.(a) 900,364
891,426 Wal-Mart Stores, Inc. 42,899,876
199,778 Walgreen Co. 7,579,078
35,040 Winn-Dixie Stores, Inc. 503,700
----------------
134,128,142
-------------------------------------------------------------------------------------
Rubber 0.1%
21,899 B.F. Goodrich Co. 858,167
11,588 Cooper Tire & Rubber Co. 116,604
33,571 Goodyear Tire & Rubber Co. 604,278
----------------
1,579,049
-------------------------------------------------------------------------------------
Steel - Producers 0.1%
24,418 Allegheny Teldyne, Inc. 442,576
23,334 Bethlehem Steel Corp.(a) 70,002
18,428 Nucor Corp. 555,144
17,809 USX Corp. - U.S. Steel Group 270,474
13,408 Worthington Industries, Inc. 125,700
----------------
1,463,896
-------------------------------------------------------------------------------------
Telecommunications 6.4%
135,100 ADC Telecommunications, Inc. 3,632,923
64,334 Alltel Corp. 3,357,431
20,422 Andrew Corp.(a) 534,801
43,300 Broadcom Corp. (Class 'A' Stock)(a) 10,554,375
31,050 CenturyTel, Inc. 846,113
29,800 Comverse Technology, Inc.(a) 3,218,400
178,656 Global Crossing Ltd. 5,538,336
185,100 JDS Uniphase Corp.(a) 17,526,656
660,667 Lucent Technologies, Inc. 20,191,635
150,140 Nextel Communications, Inc.(a) 7,019,045
593,860 Nortel Networks Corp. 35,371,786
149,100 Qualcomm, Inc.(a) 10,623,375
</TABLE>
See Notes to Financial Statements

B-57
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
325,236 Qwest Communications International, Inc.(a) $ 15,631,655
33,476 Scientific-Atlanta, Inc. 2,129,911
173,484 Sprint Corp. (FON Group) 5,085,250
183,192(c) Sprint Corp. (PCS Group)(a) 6,423,170
82,294 Tellabs, Inc.(a) 3,929,538
573,200 Worldcom, Inc.(a) 17,410,950
----------------
169,025,350
-------------------------------------------------------------------------------------
Textiles
7,040 National Service Industries, Inc. 137,720
16,948 Russell Corp. 269,050
4,188 Springs Industries, Inc. 118,049
24,234 V.F. Corp. 598,277
----------------
1,123,096
-------------------------------------------------------------------------------------
Tobacco 0.6%
67,600 Nabisco Group Holding Corp. 1,926,600
463,579 Philip Morris Companies, Inc. 13,646,607
43,799 UST, Inc. 1,001,902
----------------
16,575,109
-------------------------------------------------------------------------------------
Travel
25,041 Sabre Holdings Corp.(a) 724,624
-------------------------------------------------------------------------------------
Trucking & Shipping 0.1%
57,016 Fedex Corp.(a) 2,528,089
11,221 Ryder System, Inc. 206,887
----------------
2,734,976
-------------------------------------------------------------------------------------
Utility Communications 3.8%
751,730 AT&T Corp. 22,082,069
376,556 BellSouth Corp. 15,156,379
679,601 SBC Communications, Inc. 33,980,050
43,170 Unicom Corp. 2,425,614
545,133 Verizon Communications 26,404,880
----------------
100,048,992
</TABLE>
See Notes to Financial Statements

B-58
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Utilities - Electric 2.0%
89,700 AES Corp.(a) $ 6,144,450
25,169 Ameren Corp. 1,053,952
68,391 American Electric Power, Inc. 2,675,798
21,800 CMS Energy Corp. 587,237
32,782 CP&L Energy, Inc. 1,366,600
45,251 Consolidated Edison, Inc. 1,544,190
32,129 Constellation Energy Group, Inc. 1,598,418
51,052 Dominion Resources, Inc. 2,964,207
30,287 DTE Energy Co. 1,158,478
71,731 Duke Energy Co. 6,150,933
65,562 Edison International 1,266,166
45,715 Entergy Corp. 1,702,884
47,777 FirstEnergy Corp. 1,286,993
21,700 Florida Progress Corp. 1,148,744
35,436 FPL Group, Inc. 2,329,917
22,228 GPU, Inc. 721,021
33,524 Niagara Mohawk Holdings, Inc. 528,003
36,655 PECO Energy Co. 2,219,918
20,000 Pinnacle West Capital Corp. 1,017,500
25,726 PPL Corp. 1,074,061
43,697 Public Service Enterprise Group, Inc. 1,952,710
58,079 Reliant Energy, Inc. 2,700,673
129,115 Southern Co. 4,188,168
53,814 TXU Corp. 2,132,380
69,783 Xcel Energy, Inc. 1,919,033
----------------
51,432,434
-------------------------------------------------------------------------------------
Waste Management 0.1%
125,413 Waste Management, Inc. 2,186,889
----------------
Total common stocks (cost $1,924,071,341) 2,528,064,590
----------------
</TABLE>

See Notes to Financial Statements

B-59
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Portfolio of Investments as of September 30, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 4.8%
Money Market Instruments 1.1%
29,600,744(d) Prudential Core Investment Fund--Taxable
Money Market Series $ 29,600,744
<CAPTION>
Principal
Amount
(000)
<C> <S> <C> <C>
Repurchase Agreement 3.4%
$ 90,549 Joint Repurchase Agreement Account,
6.50%, 10/02/00, Note 5 90,549,000
-------------------------------------------------------------------------------------
U.S. Government Securities 0.3%
6,500(b) United States Treasury Bills,
5.98%, 12/21/00 6,401,745
----------------
Total short-term investments
(cost $126,551,489) 126,551,489
----------------
Total Investments 100.9%
(cost $2,050,622,830; Note 4) 2,654,616,079
Liabilities in excess of other assets (0.9%) (24,201,930)
----------------
Net Assets 100% $ 2,630,414,149
----------------
----------------
</TABLE>

--------------------------------------------------------------------------------
ADR--American Depository Receipt.
(a) Non-income producing.
(b) Pledged as initial margin for financial futures contracts.
(c) Portion of securities on loan with an aggregate market value of $28,461,505;
cash collateral of $29,600,744 was received with which the Fund purchased
securities.
(d) Represents security purchased with cash collateral received for securities
on loan.
See Notes to Financial Statements

B-60
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $2,050,622,830) $2,654,616,079
Cash 130,602
Receivable for Fund shares sold 13,965,868
Dividends and interest receivable 2,120,511
Due from manager 496,526
Receivable for investments sold 99,575
Receivable for securities lending 33,287
Prepaid expenses 20,088
------------------
Total assets 2,671,482,536
------------------
LIABILITIES
Payable to broker for collateral for securities on loan 29,600,744
Payable for Fund shares reacquired 8,341,614
Due to broker-variation margin 1,492,095
Accrued expenses 1,044,363
Payable for investments purchased 465,514
Distribution fee payable 91,421
Securities lending rebate payable 32,636
------------------
Total liabilities 41,068,387
------------------
NET ASSETS $2,630,414,149
------------------
------------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 81,859
Paid-in capital in excess of par 2,012,389,051
------------------
2,012,470,910
Undistributed net investment income 17,285,612
Accumulated net realized gain on investments 584,853
Net unrealized appreciation on investments 600,072,774
------------------
Net assets, September 30, 2000 $2,630,414,149
------------------
------------------
</TABLE>
See Notes to Financial Statements

B-61
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value, offering and redemption price per share
($30,432,328 / 949,202 shares of beneficial interest
issued and outstanding) $32.06
------------------
------------------
Class B:
Net asset value, offering and redemption price per share
($70,902,720 / 2,226,416 shares of beneficial
interest issued and outstanding) $31.85
------------------
------------------
Class C:
Net asset value and redemption price per share
($32,307,492 / 1,014,488 shares of beneficial
interest issued and outstanding) $31.85
Sales charge (1% of offering price) .32
Offering price to public $32.17
------------------
------------------
Class Z:
Net asset value, offering and redemption price per share
($995,426,493 / 30,986,400 shares of beneficial
interest issued and outstanding) $32.12
------------------
------------------
Class I:
Net asset value, offering and redemption price per share
($1,501,345,116 / 46,682,102 shares of beneficial
interest issued and outstanding) $32.16
------------------
------------------
</TABLE>

See Notes to Financial Statements

B-62
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $86,700) $ 25,893,606
Interest 5,982,180
Income from securities loaned, net 15,579
------------------
Total income 31,891,365
------------------
Expenses
Management fee 7,109,171
Distribution fee--Class A 40,869
Distribution fee--Class B 368,209
Distribution fee--Class C 178,915
Transfer agent fee--Class A 97,600
Transfer agent fee--Class B 71,000
Transfer agent fee--Class C 14,000
Transfer agent fee--Class Z 1,269,600
Transfer agent fee--Class I 150
Reports to shareholders 345,000
Registration fees and expenses 340,000
Custodian's fees and expenses 220,000
Legal fees and expenses 40,000
Trustees' fees and expenses 28,700
Audit fee 15,000
Miscellaneous 47,055
------------------
Total expenses 10,185,269
Less: Expense subsidy (Note 2) (1,497,971)
------------------
Net expenses 8,687,298
------------------
Net investment income 23,204,067
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions 1,188,411
Foreign currency transactions (4,984)
Financial futures contracts 1,185,462
------------------
2,368,889
------------------
Net change in unrealized appreciation/depreciation on:
Investments 218,772,468
Financial futures contracts (704,225)
------------------
218,068,243
------------------
Net gain on investments 220,437,132
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $243,641,199
------------------
------------------
</TABLE>

See Notes to Financial Statements

B-63
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
2000 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 23,204,067 $ 19,421,960
Net realized gain on investment and
foreign currency transactions 2,368,889 24,134,380
Net change in unrealized
appreciation/depreciation
on investments and foreign currencies 218,068,243 247,855,460
--------------- ------------------
Net increase in net assets resulting
from operations 243,641,199 291,411,800
--------------- ------------------
Dividends and distributions (Note 1):
Dividends from net investment income
Class Z (9,917,456) (4,694,229)
Class I (12,228,311) (7,920,682)
--------------- ------------------
(22,145,767) (12,614,911)
--------------- ------------------
Distributions from net realized gains
Class Z (10,541,195) (3,159,577)
Class I (11,809,055) (4,863,575)
--------------- ------------------
(22,350,250) (8,023,152)
--------------- ------------------
Fund share transactions (net of
conversions)
(Note 6):
Net proceeds from shares sold 2,247,574,001 1,320,487,868
Net asset value of shares issued in
reinvestment of dividends and
distributions 44,452,564 20,622,768
Cost of shares reacquired (1,746,552,891) (746,871,141)
--------------- ------------------
Net increase in net assets from Fund
share transactions 545,473,674 594,239,495
--------------- ------------------
Net increase 744,618,856 865,013,232
NET ASSETS
Beginning of year 1,885,795,293 1,020,782,061
--------------- ------------------
End of year(a) $ 2,630,414,149 $1,885,795,293
--------------- ------------------
--------------- ------------------
---------------
(a) Includes undistributed net investment
income of: $ 17,285,612 $ 16,232,296
--------------- ------------------
--------------- ------------------
</TABLE>

See Notes to Financial Statements

B-64
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements
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 one separate fund, which is the Prudential Stock
Index Fund (the 'Fund'). 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 a pricing agent or principal market maker does not provide a valuation or
methodology or provides a valuation or methodology that, in the judgment of the
manager or subadviser, does not represent fair value, are valued by the
Valuation Committee or Board of Trustees in consultation with the manager or the
subadviser.

Foreign Currency Translation: The books and records of the Company 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 daily 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

B-65
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

rates from the fluctuations arising from changes in the market prices of
securities held at the end of the 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 portfolio securities sold during the
year. Accordingly, these realized foreign currency gains (losses) are included
in the reported net realized gains (losses) on investment transactions.

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

Repurchase Agreements: In connection with transactions in repurchase
agreements, 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.

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 distribution and 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

B-66
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

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.

Securities Lending: The Fund may lend its portfolio securities to
broker-dealers, qualified banks and certain institutional investors. The loans
are secured by collateral in an amount equal to at least the market value at all
times of the loaned securities plus any accrued interest and dividends. During
the time the securities are on loan, the Fund will continue to receive the
interest and dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the investment of
the cash collateral. Loans are subject to termination at the option of the
borrower or the Fund. Upon termination of the loan, the borrower will return to
the lender securities identical to the loaned securities. The Fund may pay
reasonable finders', administrative and custodial fees in connection with a loan
of its securities and may share the interest earned on the collateral with the
borrower. The Fund bears the risk of delay in recovery of, or even loss of
rights in, the securities loaned should the borrower of the securities fail
financially. Prudential Securities Incorporated ('PSI') is the securities
lending agent for the Fund. PSI is a wholly owned subsidiary of The Prudential.
For the year ended September 30, 2000, PSI has been compensated in the amounts
of $6,887.

Dividends and Distributions: 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-67
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

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

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

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

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 increase
accumulated net realized gain on investments by $4,984. Net investment income,
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
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 subadvisery agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. In connection therewith, the
subadviser is obligated to keep certain books and records of the Fund. PIFM pays
for the services of PIC, the cost of compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .30 of 1% of the average daily net assets of the Fund.

Effective January 1, 2000, the subadvisery fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .150 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Fund or its shareholders.

PIFM has agreed to reimburse the Fund so that total operating expenses do
not exceed .65%, 1.40%, 1.37%, .40% and .30% of the average daily net assets for

B-68
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

Class A, Class B, Class C, Class Z and Class I shares, respectively. For the
year ended September 30, 2000, PIFM subsidized $1,497,971 of the expenses of the
Fund (.57%, .13%, .05%, .08% and .05% of the average daily net assets of the
Class A, Class B, Class C, Class Z and Class I shares, respectively; $.0979,
$.0207, $.0080, $.0226 and $.0119 per Class A, Class B, Class C, Class Z and
Class I shares, respectively).

The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C, Class Z and Class I shares of the Fund. The Fund compensates
PIMS for distributing and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans of distribution, (the 'Class A, B and C plans'),
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable monthly. No distribution or service fees are paid to
PIMS as distributor for Class Z and Class I shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the year ended
September 30, 2000.

PIMS has advised the Fund that it received approximately $315,500 in
front-end sales charges resulting from sales of Class C shares during the year
ended September 30, 2000. From these fees, PIMS paid such sales charges to
affiliated broker-dealers which in turn paid commissions to salespersons and
incurred other distribution costs.

PIMS has advised the Fund that for the year ended September 30, 2000, they
received approximately $59,700 and $28,100 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PIC, PIFM and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America.

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.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was

B-69
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

.065 of 1% of the unused portion of the credit facility. The Fund did not borrow
any amounts pursuant to the SCA during the year ended September 30, 2000.

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,
2000, the Fund incurred fees of approximately $93,800, $57,800, $13,100,
$1,236,600 and $100 for the Class A, Class B, Class C, Class Z and Class I
shares, respectively, for the services of PMFS. As of September 30, 2000,
approximately $8,000, $2,000, $91,700 and $10 for the Class B, Class C, Class Z
and Class I shares, respectively, 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, 2000 aggregated $538,441,910 and $40,747,719,
respectively.

On September 30, 2000, the Fund held 271 long financial futures contracts
on the S&P 500 Index which expire in December 2000. The cost of such contracts
was $102,408,650. The value of such contracts on September 30, 2000 was
$98,488,175, thereby resulting in an unrealized loss of $3,920,475.

The cost basis of investments for federal income tax purposes was
$2,051,611,483 and, accordingly, as of September 30, 2000, net unrealized
appreciation for federal income tax purposes was $603,004,596 (gross unrealized
appreciation--$756,337,663; gross unrealized depreciation--$153,333,067).

The Fund will elect for United States Federal income tax purposes, to
treat net capital losses of approximately $2,388,000 and foreign currency losses
of approximately $5,000 incurred in the eleven months ended September 30, 2000
as having been incurred in the following fiscal year.

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, 2000, the Fund
had a 7.8% undivided interest in the repurchase agreements in the joint account.
The undivided interest represented $90,549,000 in principal amount. As of such
date, each repurchase agreement in the joint account and the collateral therefor
was as follows:

B-70
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.

Bear, Stearns & Co. Inc., 6.51%, in the principal amount of $300,000,000,
repurchase price $300,162,750, due 10/2/00. The value of the collateral
including accrued interest was $307,686,775.

Chase Securities Inc., 6.45%, in the principal amount of $264,084,000,
repurchase price $264,225,945, due 10/2/00. The value of the collateral
including accrued interest was $269,373,200.

Credit Suisse First Boston Corp., 6.54%, in the principal amount of
$200,000,000, repurchase price $200,109,000, due 10/2/00. The value of the
collateral including accrued interest was $206,853,792.

Salomon Smith Barney Inc., 6.45%, in the principal amount of $97,990,000,
repurchase price $98,042,670, due 10/2/00. The value of the collateral including
accrued interest was $102,042,316.

UBS Warburg, 6.52%, in the principal amount of $300,000,000, repurchase
price $300,163,000, due 10/2/00. The value of the collateral including accrued
interest was $306,002,065.

Note 6. Capital
The Fund offers Class A, Class B, Class C, Class Z and Class I shares. Class A,
Class Z and Class I shares are not subject to any sales or redemption charge and
are offered exclusively for sale to a limited group of investors. Class B shares
are sold with a contingent deferred sales charge which declines from 5% to zero
depending upon the period of time the shares are held. Class C shares are sold
with a front-end sales charge of 1% and a contingent deferred sales charge of 1%
during the first 18 months. Class B shares will automatically convert to Class A
shares on a quarterly basis approximately seven years after purchase.

The Fund has authorized an unlimited number of shares of beneficial
interest at $.001 par value divided into five classes, designated Class A, Class
B, Class C, Class Z and Class I. Transactions in shares of beneficial interest
were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------ ------------- ---------------
<S> <C> <C>
November 18, 1999(a) through September 30, 2000:
Shares sold 1,101,670 $ 34,348,468
Shares reacquired (248,733) (8,027,233)
------------- ---------------
Net increase (decrease) in shares outstanding before
conversion 852,937 26,321,235
Shares issued upon conversion from Class B 96,265 3,119,670
------------- ---------------
Net increase (decrease) in shares outstanding 949,202 $ 29,440,905
------------- ---------------
------------- ---------------
------------------------------
(a) Commencement of offering of Class A, Class B and Class C shares.
</TABLE>

B-71
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
------------------------------------------------------ ------------- ---------------
November 18, 1999(a) through September 30, 2000:
<S> <C> <C>
Shares sold 2,567,091 $ 81,736,917
Shares reacquired (243,963) (7,774,669)
------------- ---------------
Net increase (decrease) in shares outstanding before
conversion 2,323,128 73,962,248
Shares reacquired upon conversion into Class A (96,712) (3,119,670)
------------- ---------------
Net increase (decrease) in shares outstanding 2,226,416 $ 70,842,578
------------- ---------------
------------- ---------------
<CAPTION>
Class C
------------------------------------------------------
<S> <C> <C>
November 18, 1999(a) through September 30, 2000:
Shares sold 1,154,104 $ 36,799,201
Shares reacquired (139,616) (4,488,164)
------------- ---------------
Net increase (decrease) in shares outstanding 1,014,488 $ 32,311,037
------------- ---------------
------------- ---------------
<CAPTION>
Class Z
------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 33,137,817 $ 1,049,462,337
Shares issued in reinvestment of dividends and
distributions 653,914 20,415,201
Shares reacquired (32,730,083) (1,041,794,333)
------------- ---------------
Net increase (decrease) in shares outstanding 1,061,648 $ 28,083,205
------------- ---------------
------------- ---------------
Year ended September 30, 1999:
Shares sold 25,482,340 $ 725,667,595
Shares issued in reinvestment of dividends and
distributions 300,787 7,838,514
Shares reacquired (12,360,069) (353,240,852)
------------- ---------------
Net increase (decrease) in shares outstanding 13,423,058 $ 380,265,257
------------- ---------------
------------- ---------------
<CAPTION>
Class I
------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2000:
Shares sold 32,197,763 $ 1,045,227,078
Shares issued in reinvestment of dividends and
distributions 769,688 24,037,363
Shares reacquired (21,435,302) (684,468,492)
------------- ---------------
Net increase (decrease) in shares outstanding 11,532,149 $ 384,795,949
------------- ---------------
------------- ---------------
Year ended September 30, 1999:
Shares sold 20,880,114 $ 594,820,273
Shares issued in reinvestment of dividends and
distributions 490,382 12,784,254
Shares reacquired (13,861,925) (393,630,289)
------------- ---------------
Net increase (decrease) in shares outstanding 7,508,571 $ 213,974,238
------------- ---------------
------------- ---------------
</TABLE>

------------------------------
(a) Commencement of offering of Class A, Class B and Class C shares.

B-72
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
--------------------------
November 18, 1999(d)
Through September 30, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 31.53
--------
Income from investment operations:
Net investment income(a) .12
Net realized and unrealized gain on investment
transactions .41
--------
Total from investment operations .53
--------
Net asset value, end of period $ 32.06
--------
--------
TOTAL RETURN(b) 1.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 30,432
Average net assets (000) $ 19,055
Ratios to average net assets:(a)
Expenses, including distribution and service
(12b-1) fees .65%(c)
Expenses, excluding distribution and service
(12b-1) fees .40%(c)
Net investment income .72%(c)
Portfolio turnover rate 2%
</TABLE>

------------------------------
(a) Net of expense subsidy.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of 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.
(d) Commencement of offering of Class A shares.
See Notes to Financial Statements

B-73
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
--------------------------
November 18, 1999(d)
Through September 30, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 31.53
--------
Income from investment operations:
Net investment loss(a) (.01)
Net realized and unrealized gain on investment
transactions .33
--------
Total from investment operations .32
--------
Net asset value, end of period $ 31.85
--------
--------
TOTAL RETURN(b) 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 70,903
Average net assets (000) $ 42,919
Ratios to average net assets:(a)
Expenses, including distribution and service
(12b-1) fees 1.40%(c)
Expenses, excluding distribution and service
(12b-1) fees .40%(c)
Net investment income (.05)%(c)
Portfolio turnover rate 2%
</TABLE>

B-74
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
--------------------------
November 18, 1999(d)
Through September 30, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 31.53
--------
Income from investment operations:
Net investment income(a) --(e)
Net realized and unrealized gain on investment
transactions .32
--------
Total from investment operations .32
--------
Net asset value, end of period $ 31.85
--------
--------
TOTAL RETURN(b) 1.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 32,308
Average net assets (000) $ 20,854
Ratios to average net assets:(a)
Expenses, including distribution and service
(12b-1) fees 1.37%(c)
Expenses, excluding distribution and service
(12b-1) fees .37%(c)
Net investment income (.01)%(c)
Portfolio turnover rate 2%
</TABLE>

B-75
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
------------------
Year Ended
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 28.96
------------------
Income from investment operations:
Net investment income(a) .29
Net realized and unrealized gain on investment transactions 3.53
------------------
Total from investment operations 3.82
------------------
Less distributions:
Dividends from net investment income (.32)
Distributions from net realized gains (.34)
------------------
Total distributions (.66)
------------------
Net asset value, end of year $ 32.12
------------------
------------------
TOTAL RETURN(b) 13.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 995,426
Average net assets (000) $ 980,790
Ratios to average net assets:(a)
Expenses .40%
Net investment income .95%
Portfolio turnover rate 2%
</TABLE>

------------------------------
(a) Net of expense subsidy.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions. Total return includes the effect of expense subsidies.
See Notes to Financial Statements

B-76
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 23.11 $ 21.86 $ 16.06 $ 14.22
---------------- ---------------- ---------------- ----------------
.22 .15 .46 .25
6.07 1.69 5.75 2.44
---------------- ---------------- ---------------- ----------------
6.29 1.84 6.21 2.69
---------------- ---------------- ---------------- ----------------
(.26) (.21) (.26) (.28)
(.18) (.38) (.15) (.57)
---------------- ---------------- ---------------- ----------------
(.44) (.59) (.41) (.85)
---------------- ---------------- ---------------- ----------------
$ 28.96 $ 23.11 $ 21.86 $ 16.06
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
27.41% 8.61% 39.34% 19.72%
$866,762 $381,374 $185,881 $184,379
$681,129 $313,721 $254,644 $142,540
.40% .40% .46% .60%
1.16% 1.30% 1.66% 1.92%
3% 1% 5% 2%
</TABLE>

See Notes to Financial Statements

B-77
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class I
------------------
Year Ended
September 30, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 28.99
------------------
Income from investment operations:
Net investment income(a) .33
Net realized and unrealized gain on investment transactions 3.53
------------------
Total from investment operations 3.86
------------------
Less distributions:
Dividends from net investment income (.35)
Distributions from net realized gains (.34)
------------------
Total distributions (.69)
------------------
Net asset value, end of period $ 32.16
------------------
------------------
TOTAL RETURN(b) 13.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $1,501,345
Average net assets (000) $1,317,874
Ratios to average net assets:(a)
Expenses .30%
Net investment income 1.05%
Portfolio turnover rate 2%
</TABLE>

B-78
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class I
---------------------------------------------------------------------------------------
Year Ended September 30, August 1, 1997(d)
------------------------------------------ Through September 30,
1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 23.13 $ 21.87 $ 21.87
---------------- ---------------- ----------
.36 .31 .06
5.96 1.55 (.06)
---------------- ---------------- ----------
6.32 1.86 --
---------------- ---------------- ----------
(.28) (.22) --
(.18) (.38) --
---------------- ---------------- ----------
(.46) (.60) --
---------------- ---------------- ----------
$ 28.99 $ 23.13 $ 21.87
---------------- ---------------- ----------
---------------- ---------------- ----------
27.55% 8.69% 0%
$1,019,034 $639,408 $312,127
$ 915,642 $505,605 $296,788
.30% .30% .30%(c)
1.26% 1.42% 1.73%(c)
3% 1% 5%
</TABLE>

See Notes to Financial Statements

B-79
<PAGE>

Prudential Index Series Fund Prudential Stock Index Fund
Report of Independent Accountants

To 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') at September 30, 2000, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the four years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America,
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, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The
accompanying financial highlights for the year 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 22, 2000

B-80

<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.

The following chart shows the long-term performance of various asset
classes and the rate of inflation.

Small Stocks $6,640.79
Common Stocks $2,845.63
[GRAPHIC OMITTED] Long-Term Bonds $40.22
Treasury Bills $15.64
Inflation $9.40

Value of $1.00 invested on 1/1/1926 through 12/31/1999

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 1989
through 1999. 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
Fund invests.

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 the Prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

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

YEAR 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% (2.56)%
------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.86%
------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE BONDS(3) 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% (1.96)%
------------------------------------------------------------------------------------------------------
U.S. HIGH YIELD
BONDS(4) 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
------------------------------------------------------------------------------------------------------
WORLD GOVERNMENT
BONDS(5) (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3% (5.07)%
======================================================================================================
DIFFERENCE BETWEEN
HIGHEST AND LOWEST
RETURNS PERCENT 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4% 7.46%
------------------------------------------------------------------------------------------------------
</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, 1999. It does not represent
the performance of any Prudential mutual fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS
(12/31/1998 - 12/31/1999) (IN U.S. DOLLARS)

(GRAPHIC OMITTED)

Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/99. Used with permission. Morgan Stanley Country indexes are unmanaged
indexes 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 indexes.

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.

Capital Appreciation and Reinvesting Dividends $474,094
Capital Appreciation only $159,597

(GRAPHIC OMITTED)

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
indexes.

World Stock Market Capitalization By Region
World Total: $20.7 Trillion

(GRAPHIC OMITTED)

U.S. 49.0%
Europe 32.5%
Pacific Basin 16.4%
Canada 2.1%

Source: Morgan Stanley Capital International, December 31, 1999. 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 (1926-1999)

[GRAPHIC OMITTED]

-------------
Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1999. 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

APPENDIX III

Number of Shares
Name Address Class (% of Class)
---- ------- ----- ------------
<S> <C> <C> <C>
Atticus Trust Company 3 Charles Street St Helier A 68,416(7.1%)
RE: J. K. Tuerk Settlement Jersey JE2 4SF
Channel Islands
United Kingdom

National Investor Services 55 Water Street A 54,753(5.7%)
FBO 512-51526-28 32nd Floor
New York NY 10041

The Prudential Insurance Attn: Linda Bitondo A 245,711(25.7%)
Company 2 Gateway Center
Derivatives Management 10th Floor
Group C Mailstop NJ 04-10-5A
Newark NJ 07102

Pru Defined Contributions Attn: John Surdy Z 4,711,540(15%)
FBO PRU - 30 Scranton Office Park
DC QUALIFIED CLIENTS Moosic PA 18507

Prudential Trust Company Attn: John Surdy Z 10,837,667(34.7%)
FBO PRU - DC CLIENTS 30 Scranton Office Park
Moosic PA 18507

Pru Defined Contributions Att John Surdy Z 1,613,508(5.2%)
30 Scranton Office Park
Moosic PA 18507

Mastershare Restricted 113 Gail Court I 10,389,248(22.1%)
Account E Northport NY 11731

Prudential Trust Company Attn: Leann Yannuzzi I 16,641,130(35.4%)
FBO Prudential Employee 30 Ed Preate Dr
Saving Pl Scranton PA 18507

Prudential Trust Company Attn: John Surdy 13,190,135(28%)
FBO PRU - DC CLIENTS 30 Scranton Office Park
Moosic PA 18507

Marquette Trust Co Attn: Ann Mejia DCA/TR Adminis I 4,041,996(8.6%)
CO TTEE STST 13100 Wayzatz Blvd
Hawaii Deferred Minnetonka MN 55305
Compensation P
Marquette Trust Company

</TABLE>

III-1
<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*.

(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).

(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) (1) 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).

C-1

<PAGE>

(2) Amendment to Custodian Agreement. Incorporated by reference to
Exhibit (g)(2) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A filed on November 12, 1999 (File No. 33-48066).

(2) Amendment to Transfer Agency and Service Agreement. Incorporated
by reference to Exhibit (h)(2) to Post-Effective Amendment No. 15 to
the Registration Statement on Form N-1A filed on November 12, 1999
(File No. 33-48066).

(i) (1) Opinion and consent of Morris, Nichols, Arsht & Tunnell.
Incorporated by reference to Exhibit (i) to Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A filed on November
12, 1999 (File No. 33-48066).

(2) Consent of Morris, Nichols, Arsht & Tunnell.*

(j) Consent of Independent Accountants.*

(m) (1) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit (m)(1) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via EDGAR on July 30, 1999
(File No. 33-48066).

(2) Distribution and Service Plan for Class B shares. Incorporated by
reference to Exhibit (m)(2) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via EDGAR on July 30, 1999
(File No. 33-48066).

(3) Distribution and Service Plan for Class C shares. Incorporated by
reference to Exhibit (m)(3) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A filed via EDGAR on July 30, 1999
(File No. 33-48066).

(n) Amended Rule 18f-3 Plan. Incorporated by reference to Exhibit (o) to
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A filed via EDGAR on July 30, 1999 (File No. 33-48066).

(p) (1) Fund's Code of Ethics.*

(2) Code of Ethics of The Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential Investment
Management Services LLC.*

------------------
* 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

C-2

<PAGE>

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, 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 Agreement (Exhibit (d)(1) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)(2) 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" in the Prospectus 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, Newark, NJ 07102-4077.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS

<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, Officer in Charge,
President, Chief Executive President, Chief Executive
Officer and Chief Operating Officer and Chief
Officer Operating Officer, PIFM;
Senior Vice President. The
Prudential Insurance
Company of America
(Prudential).

Robert F. Gunia Executive Vice President and Executive Vice President and
Chief Administrative Officer Chief Administrative
Officer, PIFM; Vice
President, Prudential;
President, Prudential
Investment Management
Services LLC (PIMS)

</TABLE>

C-3

<PAGE>

<S> <C> <C>
William V. Healey Executive Vice President, Executive Vice President,
Chief Legal Officer and Chief Legal Officer and
Secretary Secretary, PIFM; Vice
President and Associate
General Counsel,
Prudential; Senior Vice
President, Chief Legal
Officer and Secretary, PIMS

Theodore F. Kilkuskie Executive Vice President Executive Vice President, PIFM

Stephen Pelletier Executive Vice President Executive Vice President, PIFM

Judy A. Rice Executive Vice President Executive Vice President, PIFM

Ajay Sawhney Executive Vice President Executive Vice President, PIFM

Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>

(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.

NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------

<S> <C> <C>
John R. Strangfeld, Chairman of the Board, President of Prudential Global Asset
Jr. President, Chief Management Group of Prudential; Senior
Executive Officer and Vice President,Prudential; Chairman of
Director the Board, President, Chief Executive
Officer and Director, PIC

Bernard Winograd Senior Vice President Chief Executive Officer, Prudential Real
and Director Estate Investors; Senior Vice President
and Director, PIC
</TABLE>

C-4

<PAGE>

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, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential California Municipal Fund, Prudential Diversified Funds, Inc.,
Prudential Equity Fund, Inc., Prudential Europe Growth Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Global Total Return 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 International Bond Fund, Inc., 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 Company Fund, Inc., Prudential
Special Money Market Fund, Inc., Prudential Tax-Free Money Fund, Inc.,
Prudential Tax-Managed Funds, Prudential Tax-Managed Small-Cap Fund, Inc.,
Prudential Total Return Bond Fund, Inc., Prudential 20/20 Focus Fund Inc.,
Prudential U.S. Emerging Growth Fund, Inc., Prudential Value Fund, Prudential
World Fund, Inc., Strategic Partners Series, The Prudential Investment
Portfolios, Inc., The Target Portfolio Trust and Target Funds.

(b) Information concerning directors and officers of PIMS is set forth
below.
<TABLE>
<CAPTION>

POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
<S> <C> <C>

Margaret Deverell .............. Vice President
and Chief Financial Officer None

Robert F. Gunia ................ President Vice President and Trustee

Kevin Frawley .................. Senior Vice President
213 Washington Street and Compliance Officer None
Newark, NJ 07102

William V. Healey .............. Senior Vice President, Secretary
and Chief Legal Officer Assistant Secretary

John R. Strangfeld, Jr. ........ Advisory Board Member None

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

(1) The address of each person named is 751 Broad Street, Prudential Plaza,
Newark, New Jersey 07102 unless otherwise noted.

C-5

<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, 194 Wood Avenue South, Iselin, New Jersey 08830. Documents
required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be
kept at Gateway Center Three, Newark, New Jersey 07102 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" in the
Prospectus 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-6

<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 certifies that it meets
all the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement under Rule 485(b) under the Securities Act and has duly
caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Newark, and
the State of New Jersey, on the 1st day of December, 2000.

PRUDENTIAL INDEX SERIES FUND

By /s/ DAVID R. ODENATH, JR.
--------------------------
David R. Odenath, 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> <C> <C>
/s/ GRACE C. TORRES Treasurer and Principal Financial December 1, 2000
----------------------------------- and Accounting Officer
Grace C. Torres

/s/ SAUL K. FENSTER Trustee December 1, 2000
-----------------------------------
Saul K. Fenster

/s/ DELAYNE DEDRICK GOLD Trustee December 1, 2000
-----------------------------------
Delayne Dedrick Gold

/s/ ROBERT F. GUNIA Trustee December 1, 2000
-----------------------------------
Robert F. Gunia

/s/ DOUGLAS H. McCORKINDALE Trustee December 1, 2000
-----------------------------------
Douglas H. McCorkindale

/s/ W. SCOTT McDONALD, JR. Trustee December 1, 2000
-----------------------------------
W. Scott McDonald, Jr.

/s/ THOMAS T. MOONEY Trustee December 1, 2000
-----------------------------------
Thomas T. Mooney

/s/ STEPHEN P. MUNN Trustee December 1, 2000
-----------------------------------
Stephen P. Munn

/s/ DAVID R. ODENATH, JR. Trustee December 1, 2000
-----------------------------------
David R. Odenath, Jr.

/s/ RICHARD A. REDEKER Trustee December 1, 2000
-----------------------------------
Richard A. Redeker

/s/ JUDY A. RICE Trustee December 1, 2000
-----------------------------------
Judy A. Rice

/s/ ROBIN B. SMITH Trustee December 1, 2000
-----------------------------------
Robin B. Smith

/s/ LOUIS A. WEIL, III Trustee December 1, 2000
-----------------------------------
Louis A. Weil, III

/s/ CLAY T. WHITEHEAD Trustee December 1, 2000
-----------------------------------
Clay T. Whitehead

</TABLE>

C-7

<PAGE>

INDEX TO EXHIBITS

SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----

(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*.

<PAGE>

SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----

(g)(1) 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).

(2) Amendment to Custodian Agreement. Incorporated by reference to
Exhibit (g)(2) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A filed via EDGAR on November 12, 1999. (File No.
33-48066)

(h)(1) 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 July 30, 1999 (File No.
33-48066). Incorporated by reference to Exhibit (h)(2) to
Post-Effective Amendment No. 15 to the Registration Statement on Form
N-1A filed via EDGAR on November 12, 1999.

(2) Consent of Morris, Nichols, Arsht & Tunnell.*

(j) Consent of Independent Accountants.*

(p) (1) Fund's Code of Ethics.*

(2) Code of Ethics of The Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential Investment
Management Services LLC.*

--------------------
*Filed herewith.