Notes to Financial Statements (Unaudited) PRUDENTIAL
BOND MARKET INDEX FUND
Taxes: For federal income tax purposes, each fund in the Company is treated as a
separate taxpaying entity. It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net investment income to its
shareholders. Therefore, no federal income tax provision is required.
Note 2. Agreements
The Company has a management agreement with Prudential Investments Fund
Management LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for
all investment advisory services and supervises the subadviser's performance of
such services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Company. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Company, occupancy
and certain clerical and bookkeeping costs of the Company. The Company bears all
other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .25 of 1% of the Fund's average daily net assets.
The Company has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS') which acts as the distributor of the Fund. No distribution
or service fees are paid to PIMS as distributor of the Fund.
PIFM, PIC and PIMS are indirect wholly owned subsidiaries of The Prudential
Insurance Company of America.
PIFM has agreed to subsidize the operating expenses of the Fund, so that total
Fund operating expenses do not exceed .40% on an annualized basis of the Fund's
average daily net assets. This voluntary waiver may be terminated at any time
without notice. For the six months ended March 31, 1999, PIFM subsidized $67,098
of the expenses of the Fund (0.33% of the average daily net assets annualized or