PRUDENTIAL
INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Institutional Money Market Series
______________________________________________________________________________
Prospectus dated May 31, 1994
______________________________________________________________________________
The Institutional Money Market Series (the Series) is a series of Prudential
Institutional Liquidity Portfolio, Inc. (the Fund), an open-end, diversified
management investment company, or mutual fund. The Fund offers investors an
efficient and economical means of investing in a professionally managed
portfolio of high quality money market instruments. The investment objective
of the Series is high current income consistent with the preservation of
principal and liquidity. See "How the Fund Invests--Investment Objective and
Policies." The minimum initial investment is $100,000.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share. See "How the Fund Values
Its Shares."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 521-7466.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated May 31, 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge at the address or telephone number
noted above.
______________________________________________________________________________
Investors are advised to read the Prospectus and retain it for future
reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
What Is Prudential Institutional Liquidity Portfolio, Inc.?
Prudential Institutional Liquidity Portfolio, Inc. is a mutual fund. A
mutual fund pools the resources of investors by selling its shares to the
public and investing the proceeds of such sale in a portfolio of securities
designed to achieve its investment objective. Technically, the Fund is an
open-end, diversified management investment company.
What Is the Series' Investment Objective?
The Series' investment objective is high current income consistent with
the preservation of principal and liquidity. The Series invests primarily in a
portfolio of high quality money market instruments maturing in thirteen months
or less. See "How the Fund Invests--Investment Objective and Polices" at page
6.
What Are the Series' Special Characteristics and Risks?
It is anticipated that the net asset value of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in
valuation, it may result in periods during which the value of a security in
the Series' portfolio, as determined by amortized cost, is higher or lower
than the price the Series would receive if it sold such security. See "How the
Fund Values Its Shares" at page 12.
Who Manages the Fund?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of
.20 of 1% of the Series' average daily net assets. As of April 30, 1994, PMF
served as manager or administrator to 66 investment companies, including
37 mutual funds, with aggregate assets of approximately $49 billion. The
Prudential Investment Corporation (PIC or the Subadviser) furnishes investment
advisory services in connection with the management of the Fund under a
Subadvisory Agreement with PMF. See "How the Fund Is Managed--Manager" at page
11.
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Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor) acts
as the Distributor of the Series' shares. The Fund reimburses PMFD for
expenses related to the distribution of the Series' shares at an annual rate
of up to .12 of 1% of the average daily net assets of the Series. See "How the
Fund Is Managed--Distributor" at page 11.
What Is the Minimum Investment?
The minimum initial investment is $100,000. A master account and its
subaccounts, as well as related institutional accounts (i.e., accounts of
shareholders, with a common institutional or corporate parent), in the Series
may be aggregated for this minimum investment purpose. The subsequent minimum
investment is $10,000. See "Shareholder Guide--How to Buy Shares of the Fund"
at page 15 and "Shareholder Guide-- Shareholder Services" at page 17.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities,
Pruco Securities Corporation (Prusec) or directly from the Fund, through its
transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer
Agent), at the net asset value per share (NAV) next determined after receipt
of your purchase order by the Transfer Agent or Prudential Securities. To open
an account, a completed application form must be received by PMFS. See "How
the Fund Values Its Shares" at page 12 and "Shareholder Guide--How to Buy
Shares of the Fund" at page 15.
How Do I Sell My Shares?
You may redeem shares of the Series at any time at the NAV next
determined after PMFS receives your sell order. See "Shareholder Guide--How to
Sell Your Shares" at page 16.
How Are Dividends and Distributions Paid?
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 13.
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FUND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases . . . . . . . . . . . . . None
Maximum Sales Load Imposed on Reinvested Dividends. . . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None
Annual Series Operating Expenses
(as a percentage of average net assets)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . .20%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12%
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .16%
---
Total Series Operating Expenses . . . . . . . . . . . . . . . . . .48%
===
Example 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment,
assuming (1)5% annual return
and (2) redemption at the end
of each time period: . . . . . . . $5 $15 $27 $60
- ------------
The above example is based on data for the Fund's fiscal year ended March 31,
1994. The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the table is to assist an investor in understanding the various
costs and expenses that an investor in the Series will bear, whether directly
or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" include operating
expenses of the Series, such as Directors' and professional fees, registration
fees, reports to shareholders, transfer agency and custodian fees.
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FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the periods indicated)
The following financial highlights with respect to the five years ended
March 31, 1994 have been audited by Deloitte & Touche, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and the notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a share of common stock outstanding,
total return, ratios to average net assets and other supplemental data for
each of the periods indicated. The information is based on data contained in
the financial statements.
<TABLE>
<CAPTION>
December 8,
1987*
Year Ended March 31, through
-------------------------------------------------------------------------- March 31,
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period. . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net
realized gains . . . . . . . . .029 .033 .054 .076 .087 0.079** 0.022**
Dividends and distributions . . (.029) (.033) (.054) (.076) (.087) (0.079) (0.022)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN:#. . . . . . . . . 2.92% 3.40% 5.57% 8.00% 9.07% 8.22% 2.24% ++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period(000). $385,023 $497,214 $443,172 $519,802 $417,354 $264,281 $204,707
Average net assets (000). . . . $445,867 $543,694 $540,380 $479,849 $421,540 $227,044 $ 88,431
Ratios to average net assets:
Expenses, including
distribution fee. . . . . . . .48% .44% .42% .46% .38% .26%** .12%**/+
Expenses, excluding
distribution fee. . . . . . . .36% .32% .30% .34% .26% .14%** .00%**/+
Net investment income. . . . . 2.87% 3.28% 5.32% 7.58% 8.60% 7.89%** 6.69%**/+
- ------------
* Commencement of operations.
** Net of expense subsidy.
+ Annualized.
++ Restated.
# Total return represents the change in net asset value from the first day to the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized.
</TABLE>
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CALCULATION OF YIELD
The Series calculates its "current yield" based on the net
change, exclusive of realized and unrealized capital gains or losses, in the
value of a hypothetical account over a seven calendar day base period. The
Series also calculates its "effective annual yield" assuming weekly
compounding. The following is an example of the current and effective annual
yield calculations as of March 31, 1994:
Value of hypothetical account at end of period. . . . . $1.000605598
Value of hypothetical account at beginning of period. . 1.000000000
------------
Base period return. . . . . . . . . . . . . . . . . . . $ .000605598
============
Current yield ([.0000605598] x (365/7)). . . . . . . . . 3.16%
Effective annual yield, assuming weekly compounding . . 3.21%
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND IS NOT NECESSARILY
REPRESENTATIVE OF FUTURE INCOME OR DIVIDENDS.
The weighted average life to maturity of the Series on March 31, 1994 was
62 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the
shares of the Series, including data from Lipper Analytical Services, Inc.,
Donoghue's Money Fund Report, The Bank Rate Monitor, other industry publica-
tions, business periodicals, and market indices.
HOW THE FUND INVESTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is high current income consistent
with the preservation of principal and liquidity. The Series pursues its
investment objective through the investment policies described below. There
can be no assurance that this objective will be achieved.
The Series' investment objective is a fundamental policy and, therefore,
may not be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company
Act of 1940, as amended (the Investment Company Act). Fund policies that are
not fundamental may be modified by the Board of Directors.
The assets of the Series will be invested in high quality money market
instruments maturing in thirteen months or less, and the dollar-weighted
average maturity of the portfolio of the Series will be 90 days or less. The
Series also may hold cash reserves as the investment adviser deems necessary
for temporary defensive or emergency purposes.
In selecting portfolio securities for investment by the Series, the
investment adviser considers ratings assigned by major rating services,
information concerning the financial history and condition of the issuer and
its revenue and expense prospects. The Board of Directors monitors the credit
quality of securities purchased for the Series' portfolio. If a portfolio
security held by the Series is assigned a lower rating or ceases to be rated,
the investment adviser under the supervision of the Board of Directors will
promptly reassess whether that security presents minimal credit risks and
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whether the Series should continue to hold the security. If a portfolio
security no longer presents minimal credit risks or is in default, the Series
will dispose of the security as soon as reasonably practicable unless the
Board of Directors determines that to do so is not in the best interest of the
Series and its shareholders.
The Series utilizes the amortized cost method of valuation in accordance
with regulations of the Securities and Exchange Commission (SEC). See "How the
Fund Values Its Shares." Accordingly, the Series will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of "eligible quality," as determined by the Fund's investment adviser
under the supervision of the Board of Directors. "Eligible quality," for this
purpose, means (i) a security rated in one of the two highest rating
categories by at least two nationally recognized statistical rating organiza-
tions assigning a rating to the security or issuer (or, if only one such
rating organization assigned a rating, that rating organization) or (ii) an
unrated security deemed of comparable quality by the Fund's investment adviser
under the supervision of the Board of Directors.
As long as the Series utilizes the amortized cost method of valuation, it
will also comply with certain diversification requirements and will invest no
more than 5% of its total assets in "second-tier securities," with no more
than 1% of the Series' assets in any one issuer of a second-tier security. A
"second-tier security," for this purpose, is a security of "eligible quality"
that does not have the highest rating from at least two rating organizations
assigning a rating to that security or issuer (or, if only one rating organi-
zation assigned a rating, that rating organization) or an unrated security
that is deemed of comparable quality by the Fund's investment adviser under
the supervision of the Fund's Board of Directors.
The Series will invest at least 80%, and generally not less than 100%, of
its assets in high quality U.S. dollar-denominated money market obligations of
domestic and foreign issuers and U.S. Government and financial institution
obligations described below. There is no limitation on the percentage of the
Series' assets that may be invested in each of these categories. In addition,
the Series may utilize the investment techniques described below under "Other
Investments and Policies."
U.S. Government Obligations. The Series may invest in obligations issued
or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities.
The Series may invest in U.S. Treasury obligations, including bills,
notes, bonds and other debt obligations issued by the U.S. Treasury. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. They differ
primarily in their interest rates, the lengths of their maturities and the
dates of their issuances.
The Series may also invest in obligations issued by agencies of the U.S.
Government or instrumentalities established or sponsored by the U.S. Govern-
ment. These obligations, including those which are guaranteed by federal
agencies or instrumentalities, may or may not be backed by the full faith and
credit of the United States. Obligations of the Government National Mortgage
Association (GNMA), the Farmers Home Administration and the Small Business
Administration are backed by the full faith and credit of the United States.
In the case of obligations not backed by the full faith and credit of the
United States, the Series must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States if the agency or instrumentality does
not meet its commitments. Instruments in which the Series may invest which are
not backed by the full faith and credit of the United States include obliga-
tions issued by the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation (FHLMC), the Federal National Mortgage Association (FNMA), the
Resolution Funding Corporation, the Student Loan Marketing Association, and
the Tennessee Valley Authority, each of which has the right to borrow from the
U.S. Treasury to meet its obligations, and obligations of the Farm Credit
System, the obligations of which may be satisfied only by the individual
credit of the issuing agency. The Series' investment in mortgage-backed
securities (e.g., GNMA, FNMA and FHLMC certificates) will be made only to the
extent such securities are used as collateral for repurchase agreements
entered into by the Series.
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Financial Institution Obligations. The Series may invest in obligations
(including certificates of deposit and bankers' acceptances) which are issued
or guaranteed by commercial banks, savings banks and savings and loan associa-
tions whose total assets at the time of investment are more than $1 billion or
its equivalent. The term "certificates of deposit" includes both Eurodollar
certificates of deposit, for which there is generally a market, and Eurodollar
time deposits, for which there is generally not a market. Eurodollars are U.S.
dollars deposited in branches of banks outside the United States.
Other Money Market Instruments. The Series may invest in commercial
paper, variable amount demand master notes, bills, notes and other obligations
issued by a U.S. company, a foreign company or the Canadian government, its
agencies or instrumentalities, maturing in thirteen months or less,
denominated in U.S. dollars, which, at the date of investment, are of
"eligible quality." If such obligations are guaranteed or supported by a
letter of credit issued by a bank, such bank (including a foreign bank) must
meet the requirements set forth above under "Financial Institution
Obligations." If such obligations are guaranteed or insured by an insurance
company or other non-bank entity, such insurance company or other non-bank
entity must represent a credit of comparable quality, as determined by the
Fund's investment adviser under the supervision of the Fund's Board of
Directors. In the case of instruments issued by foreign companies or the
Canadian government, the Series will only invest in instruments which are not
currently subject to foreign withholding taxes.
Risks of Investing in Foreign Securities. There is no limitation on the
percentage of the Series' assets that may be invested in foreign securities
(which do not include obligations of foreign branches of U.S. banks). Since
the portfolio of the Series may contain obligations of foreign issuers, an
investment in the Series involves certain risks. These risks include future
political and economic developments in the country of the issuer, the possible
imposition of withholding taxes on interest income payable on such obligations
held by the Series, the possible seizure or nationalization of foreign
deposits and the possible establishment of exchange controls or other foreign
governmental laws or restrictions which might affect adversely the payment of
principal and interest on such obligations held by the Series. In addition,
there may be less publicly available information about a foreign issuer than
about a domestic issuer, and such issuers may not be subject to the same
accounting, auditing and financial recordkeeping standards and requirements as
domestic issuers. Securities issued by foreign issuers may be subject to
greater fluctuations in price than securities issued by U.S. entities.
Finally, in the event of a default with respect to any such foreign debt
obligations, it may be more difficult for the Fund to obtain or to enforce a
judgment against the issuers of such securities.
The Series presently does not intend to invest in foreign government
obligations other than those of the Canadian government, its agencies or
instrumentalities. Canadian government obligations include the Government of
Canada treasury bills and promissory notes issued by the various provinces.
The Canada bills are direct, unsecured, unconditional obligations of Canada
and are a charge on and payable out of the Consolidated Revenue Fund of
Canada. The provincial notes represent direct, unsecured, unconditional
obligations of the provinces themselves.
OTHER INVESTMENTS AND POLICIES
Liquidity Puts
The Series may purchase instruments of the types described above together
with the right to resell the instruments to brokers, dealers or financial
institutions at an agreed-upon price or yield within a specified period prior
to the maturity date of the instruments. Such a right to resell is commonly
known as a "put," and the aggregate price that the Series pays for instruments
with a put may be higher than the price that otherwise would be paid for the
instruments. Puts may be exercised prior to the expiration date in order to
fund obligations to purchase other securities or meet redemption requests.
Since the value of the put is dependent on the ability of the put writer
to meet its obligation to repurchase, the Series' policy is to enter into put
transactions only with such brokers, dealers or financial institutions which
present minimal
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credit risks. There is a credit risk associated with the purchase of puts in
that the broker, dealer or financial institution might default on its
obligation to repurchase an underlying security. In the event such a default
should occur, the Fund is unable to predict whether all or any portion of any
loss sustained could subsequently be recovered from the broker, dealer or
financial institution.
When-Issued and Delayed Delivery Securities
The Series may purchase securities on a "when-issued" or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased by the Series with payment and delivery taking place as much as a
month or more into the future in order to secure what is considered to be an
advantageous price and yield to the Series at the time of entering into the
transaction. The Series will limit such purchases to those in which the date
for delivery and payment falls within 90 days of the date of the commitment.
The Series will make commitments for such when-issued transactions only with
the intention of actually acquiring the securities. The Fund's Custodian will
maintain, in a segregated account of the Series, cash, U.S. Government securi-
ties or other high grade, liquid debt obligations having a value equal to or
greater than the Series' purchase commitments. If the Series chooses to
dispose of the right to acquire a when-issued security prior to its acquisi-
tion, it could, as with the disposition of any other portfolio security, incur
a gain or loss due to market fluctuations. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase and settlement.
Pledging of Assets and Borrowing
The Series may borrow (including through entering into reverse repurchase
agreements) up to 15% of the value of its total assets (computed at the time
the loan is made) from banks for temporary, extraordinary or emergency
purposes. The Series may pledge up to 15% of its total assets to secure such
borrowings. The Series will not purchase portfolio securities if its
borrowings exceed 5% of its net assets.
Repurchase Agreements and Reverse Repurchase Agreements
The Series may purchase securities and concurrently enter into
"repurchase agreements" with the seller, whereby the seller agrees to
repurchase such securities at a specified price within a specified time
(generally seven days or less). Repurchase agreements will only be entered
into with member banks of the Federal Reserve System or primary reporting
dealers in U.S. Government obligations and will be fully secured only by
obligations permitted by the Series' investment policies. The repurchase
agreements provide that the Series will sell the underlying instruments back
to the dealer or the bank at the specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. The
difference between the purchase price and the resale price represents the
interest earned by the Series, which is unrelated to the coupon rate or
maturity of the purchased security. Repurchase agreements will at all times be
fully collateralized in an amount at least equal to the repurchase price,
including accrued interest earned on the underlying securities. Such
collateral will be held by the Fund's Custodian, either physically or in a
book-entry account.
The Series will enter into repurchase transactions only with parties
which meet creditworthiness standards approved by the Fund's Board of
Directors. The Fund's investment adviser monitors the creditworthiness of such
parties under the general supervision of the Board of Directors. In the event
of a default or bankruptcy by a seller, the Series 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 Series will suffer a loss. If the financial
institution that is a party to the repurchase agreement petitions for
bankruptcy or becomes subject to the U.S. Bankruptcy Code, the law regarding
the rights of the Fund is unsettled. As a result, under these extreme
circumstances, there may be a restriction on the Series' ability to sell the
collateral, and the Series could suffer a loss.
Reverse repurchase agreements have the characteristics of borrowing and
involve the sale of securities held by the Series with an agreement to
repurchase the securities at a specified price, date and interest payment. The
Series intends
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only to use the reverse repurchase technique when it will be to its advantage
to do so. These transactions are only advantageous if the Series has an
opportunity to earn a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that cash. The Series may be
unable to realize earnings from the use of the proceeds equal to or greater
than the interest required to be paid. The use of reverse repurchase agree-
ments may exaggerate any increase or decrease in the value of the Series'
portfolio. The Fund's Custodian will maintain in a segregated account cash, U.S.
Government securities or other high grade, liquid debt obligations, maturing
not later than the expiration of the reverse repurchase agreements and having
a value equal to or greater than such commitments.
Suitability for Investors
The Series is designed as an economic and convenient vehicle for those
institutional and high net worth individual investors seeking to obtain the
yields available from money market instruments while maintaining liquidity.
The Series is designed particularly for banks and other depositary institu-
tions seeking investment of short-term monies held in accounts for which the
institutions act in fiduciary, advisory, agency, custodial or other similar
capacities. The Series may be equally suitable for the investment of
short-term funds held or managed by corporations, employee benefit plans and
others, if consistent with the objectives of the particular account and any
applicable state and federal laws and regulations. The Series can arrange for
special processing to assist banks and other institutions desiring to estab-
lish multiple accounts. See "Shareholder Guide--Shareholder
Services--Subaccounting and Special Services."
The Series offers the advantages of large purchasing power and
diversification. Generally, in purchasing money market instruments from
dealers, the percentage difference between the bid and asked prices tends to
decrease as the size of the transaction increases. In addition, yields on
short-term money market instruments generally tend to increase as maturities
are extended. Thus, when yields on longer-term money market instruments are
higher than yields on shorter-term money market instruments, ownership of
Series shares may allow an investor to obtain the advantages of short-term
liquidity and the higher yields available from the Series' holdings of
longer-term instruments. This benefit will be reduced to the extent of the
Series' expenses and may be unavailable during periods when interest rates are
higher for money market instruments with maturities shorter than the weighted
average maturity of the Series. The Series also offers investors the
opportunity to participate in a portfolio of money market instruments which is
more diversified in terms of issuers and maturities than the investor's
individual investment might otherwise permit.
Investment in the Series relieves investors of many management and
administrative burdens usually associated with the direct purchase and sale of
money market instruments. These include selection of portfolio investments;
surveying the market for the best terms at which to buy and sell; scheduling
and monitoring maturities and reinvestments; receipt, delivery and safekeeping
of securities; and portfolio recordkeeping.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
The Fund has a Board of Directors which, in addition to overseeing the
actions of the Fund's Manager, Subadviser and Distributor, as set forth below,
decides upon matters of general policy. The Fund's officers conduct and
supervise the daily business operations of the Fund. The Fund's Subadviser
furnishes daily investment advisory services.
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For the fiscal year ended March 31, 1994, total expenses for the Series
as a percentage of average net assets were .48%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the manager of the Fund and is compensated
for its services at an annual rate of .20 of 1% of the average daily net
assets of the Series. It was incorporated in May 1987, under the laws of the
State of Delaware.
For the fiscal year ended March 31, 1994, the Series paid management fees
to PMF of .20% of its average daily net assets. See "Manager" in the Statement
of Additional Information.
As of April 30, 1994, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 29 closed-end investment companies. These companies have
aggregate assets of approximately $49 billion.
Under the Management Agreement with the Fund, PMF manages the investment
operations of the Series and also administers the Fund's corporate affairs.
See "Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory
services in connection with the management of the Fund and is reimbursed by
PMF for its reasonable costs and expenses incurred in providing such services.
Under the Management Agreement, PMF continues to have responsibility for all
investment advisory services and supervises PIC's performance of such services.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the Fund's Distributor. It is a
wholly-owned subsidiary of PMF.
Under a Distribution and Service Plan (the Plan) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution and
service agreement (the Distribution Agreement), the Distributor incurs the
expenses of distributing the Fund's shares. These expenses include account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities Incorporated (Prudential Securities) and Pruco Securities
Corporation (Prusec), an affiliated broker-dealer, account servicing fees paid
to, or on account of, other broker-dealers or financial institutions (other
than national banks) which have entered into agreements with the Distributor,
advertising expenses, the cost of printing and mailing prospectuses to
potential investors and indirect and overhead costs of Prudential Securities
and Prusec associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses. There are no carry forward
amounts under the Plan and interest expenses are not included under the Plan.
The State of Texas requires that shares of the Fund may be sold in that state
only by dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plan, the Fund reimburses the Distributor for its
distribution-related expenses at an annual rate of up to .12 of 1% of the
average daily net assets of the Series. Account servicing fees are paid based
on the average balance of the Series' shares held in the accounts of the
customers of financial advisers. The entire distribution fee may be used to
pay account servicing fees.
For the fiscal year ended March 31, 1994, the Fund paid PMFD a
distribution fee equal on an annual basis to .12% of the average daily net
assets of the Series.
11
<PAGE>
The Plan provides that it shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Board of Directors of the Fund, including a majority of the Directors who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to
the Plan. The Board of Directors is provided with and reviews quarterly
reports of expenditures under the Plan.
For the fiscal year ended March 31, 1994, PMFD incurred distribution
expenses of $535,041 for the Series, all of which were recovered through the
distribution fees paid by the Series to PMFD. The Fund records all payments
made under the Plan as expenses in the calculation of its net investment
income.
In addition to distribution and service fees paid by the Fund under the
Plan, the Manager (or one of its affiliates) may make payments to dealers and
other persons which distribute shares of the Fund. Such payments may be
calculated by refererence to the net asset value of shares sold by such
persons or otherwise.
PORTFOLIO TRANSACTIONS
Prudential Securities may also act as a broker for the Fund, provided
that the commissions, fees or other remuneration it receives are fair and
reasonable. See "Portfolio Transactions and Brokerage" in the Statement of
Additional Information.
CUSTODIAN AND TRANSFER AND SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company (State Street), One Heritage Drive,
North Quincy, Massachusetts 02171, serves as Custodian for the Series'
portfolio securities and cash and, in that capacity, maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent),
Raritan Plaza One, Edison, New Jersey 08837, serves as Transfer Agent and as
Shareholder Servicing Agent and in those capacities maintains certain books
and records for the Fund. PMFS is a wholly-owned subsidiary of PMF. Its
mailing address is P.O. Box 15005, NewBrunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
The Series' net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. The Board of Directors has fixed the specific
times of day for the computation of the NAV to be as of 12:00 noon and 4:30
P.M., New York time, on each day the Fund is open for business.
The Fund is open for business and its net asset value is calculated on
every day on which the Boston office of the Federal Reserve System is open,
except Good Friday. The Boston office of the Federal Reserve has designated
the following holiday closings: New Year's Day, Martin Luther King's Birthday,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas. The Boston office
of the Federal Reserve may change this holiday closing schedule. In addition,
the Fund is closed for business on Good Friday. The Fund reserves the right to
reject any purchase order.
It is the intention of the Fund to maintain an NAV of $1.00, although
there can be no assurance that the Series will do so. The portfolio
instruments of the Series are valued on the basis of amortized cost valuation
in accordance with regulations issued by the SEC. This involves valuing an
instrument at its cost and thereafter assuming a constant
12
<PAGE>
amortization to maturity of any discount or premium regardless of the impact
of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the
price the Series would receive if it sold the instrument. The Fund's Board of
Directors has established procedures designed to stabilize, to the extent
reasonably possible, the NAV of the shares of the Series at $1.00 per share.
See "Net Asset Value" in the Statement of Additional Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Taxation of the Series
The Series has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. Accordingly, the Series will not be subject to federal income taxes
on its investment income and capital gains, if any, that it distributes to its
shareholders provided that it distributes to shareholders each year at least
90% of such income. If the Series defers until the subsequent calendar year
the distribution of more than a minimal amount of income, it will be subject
to a 4% nondeductible excise tax on the deferred distribution. The Series
intends to make timely and complete distributions in order to avoid any such
taxes.
Taxation of Shareholders
Dividends out of net investment income and net realized short-term
capital gains generally will be taxable to shareholders as ordinary income
whether or not reinvested. However, the Series intends to declare capital
gains distributions to the extent of its net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses). Capital
gains distributions, if any, are taxable to shareholders as net long-term
capital gains, regardless of the length of time a shareholder has owned its
shares. The Series does not anticipate realizing long-term capital gains.
Any gain or loss realized upon a sale or redemption of shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder, if the shares have been held for six months or less.
Dividends and distributions may be subject to state and local taxes.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
Dividends and Distributions
NET INVESTMENT INCOME AND NET REALIZED SHORT-TERM CAPITAL GAINS, IF ANY,
OF THE SERIES WILL BE DECLARED AS A DIVIDEND DAILY IMMEDIATELY PRIOR TO THE
CALCULATION OF THE SERIES' NET ASSET VALUE AS OF 4:30 P.M., NEW YORK TIME. Net
investment income of the Series (from the time of the immediately preceding
declaration) consists of interest accrued or discount earned (including both
original issue and market discount) on the obligations in the Series, less
amortization of premium and the estimated expenses of the Series applicable to
that dividend period. The Series does not expect to realize long-term capital
gains or losses.
The net investment income of the Series for dividend purposes is
determined on a daily basis. Each such dividend will be payable to
shareholders of record at the time of its declaration (including for this
purpose holders of shares purchased, but excluding holders of shares redeemed
as of 12:00 noon, New York time, on that day). Dividends declared are accrued
throughout the month and are distributed in the form of full and fractional
shares on or about the last business day of the month, unless the shareholder
elects in writing not less than five business days prior to the dividend
13
<PAGE>
distribution date to receive such distributions in cash. The dividend
distribution date may be changed without further notice to shareholders.
Dividends are reinvested at the net asset value determined as of 4:30 P.M.,
New York time, on the day of payment. If the entire amount in an account is
withdrawn at any time during a month, all dividends accrued with respect to
that account during that month are paid to the investor.
The calculation of net investment income for dividend purposes is made
immediately prior to the calculation of net asset value at 4:30 P.M., New York
time. Thus, in the case of a purchase order that becomes effective as of 12:00
noon, New York time, a shareholder is entitled to dividends declared on that
day. In the case of a purchase order that becomes effective as of 4:30 P.M.,
New York time, a shareholder begins to earn dividends declared on the next
business day. If a redemption request is received prior to 12:00 noon, New
York time, the shareholder does not earn a dividend on that day but the
redemption proceeds are ordinarily wired on that day. If a redemption request
is received after 12:00 noon, New York time, and prior to 4:30 P.M., New York
time, the shareholder is entitled to the dividend declared on that day but the
redemption proceeds are ordinarily wired on the following business day.
Net income earned on Saturdays, Sundays and holidays is accrued in
calculating the dividend on the previous business day. Accordingly, a
shareholder which redeems its shares effective as of 4:30 P.M., New York time,
on a Friday earns a dividend which reflects the income earned by the Series on
the following Saturday and Sunday. On the other hand, an investor whose
purchase order is effective as of 4:30 P.M., New York time, on a Friday does
not begin earning dividends until the following business day.
Should the Series incur or anticipate any unusual expense or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Board of Directors would at that time
consider whether to adhere to the present dividend policy described above or
to revise it in light of the then prevailing circumstances. For example, if
the net asset value per share of the Series is reduced, or is anticipated to
be reduced, below $1.00, the Board of Directors may suspend further dividend
payments of the Series until net asset value is returned to $1.00 per share.
Thus, such expenses or losses or depreciation could result in shareholders
receiving no dividends for the period during which they held their shares and
in their receiving upon redemption a price per share lower than that which
they paid.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on September 1, 1987. The Fund is
authorized to issue 5 billion shares of common stock of $.001 par value.
The Board of Directors may increase or decrease the aggregate number of
shares of common stock that the Fund has authority to issue. The Fund does not
intend to issue stock certificates unless requested. 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 as described under "Shareholder Guide--How to
Sell Your Shares." All shares of the Series are equal as to earnings, assets
and voting privileges. There are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of common stock
of the Series is entitled to its portion of all of the Series' assets after
all debt and expenses of the Series have been paid. The Series' shares do not
have cumulative voting rights for the election of Directors. Pursuant to the
Fund's Articles of Incorporation, the Board of Directors may authorize the
creation of additional Series, with such preferences, privileges, limitations
and voting and dividend rights as the Board may determine. The Fund currently
has one Series.
The Fund does not intend to hold annual shareholder meetings unless
required by law. The Fund will not be required to hold annual meetings of
shareholders unless, for example, the election of Directors is required to be
14
<PAGE>
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting for the purpose of
voting on the removal of one or more Directors or to transact other business.
On May 13, 1994, Prudential, either directly or through one or more
controlled companies, owned approximately 57% of the Fund's outstanding voting
securities and may be deemed to be a controlling person of the Fund.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the Fund with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
Shares of the Series are continuously offered at their net asset value
next determined after an order and, in the case of a new account, a completed
application form (the Application) is received. There is no sales charge. The
minimum initial investment to establish a new account is $100,000. A master
account and its subaccounts, as well as related institutional accounts (i.e.,
accounts of shareholders, with a common institutional or corporate parent), in
the Series may be aggregated for this minimum investment purpose. Subsequent
investments in the Series (other than through the reinvestment of dividends
and distributions) must be made in the amount of at least $10,000 by wire
transfer of funds. The Fund does not intend to issue stock certificates unless
requested. The Series reserves the right to reject any purchase order or to
suspend or modify the continuous offering of its shares.
Investments in the Fund must be made via wire transfer of funds to State
Street Bank and Trust Company, Boston, Massachusetts, the Fund's Custodian. To
open an account, the completed Application must be received by Prudential
Mutual Fund Services, Inc. (PMFS), the Fund's shareholder servicing agent.
If a purchase order is telephoned to PMFS (toll-free) (800-521-7466)
before 12:00 noon, New York time, and federal funds are received by the
Custodian on that business day, the purchase order becomes effective as of
12:00 noon, New York time, and the shares are entitled to dividend income
earned on that day. If the purchase order is telephoned to PMFS after 12:00
noon, New York time, and prior to 4:30 P.M., New York time, and federal funds
are received by the Custodian on that business day, the purchase order becomes
effective as of 4:30 P.M., New York time, on that business day but the shares
do not begin earning dividends until the next business day. Thus the Fund
would have the benefit of the investor's wired funds until the next dividend
declaration. See "Taxes, Dividends and Distributions." If the purchase order
is telephoned to PMFS after 4:30 P.M., New York time, or if federal funds are
not received by the Custodian on that day, the purchase order becomes
effective as of 12:00 noon, New York time, on the following business day
provided that federal funds are received by the Custodian on that following
business day. All account transactions by telephone through PMFS will be
recorded.
In order to make investments which will generate income immediately, the
Fund must have federal funds available to it. Therefore, investors who desire
to have their purchase orders become effective as of 12:00 noon, New York
time, are urged to wire funds to the Custodian via the Federal Reserve Wire
System so that the purchase order may be effective on that day. If clearing
house funds are transferred to the Custodian via the Bank Wire System, the
purchase order will be effective as of 12:00 noon, New York time, on the
business day following the day on which the funds are transferred. In order to
allow the investment adviser to manage the portfolio with maximum flexibility,
investors are urged to initiate the purchase of shares as early in the day as
possible.
15
<PAGE>
HOW TO SELL YOUR SHARES
You can redeem all or any part of the value of your account on any
business day by instructing the Fund to redeem your shares as described below.
Redemptions may be requested by telephone and are effected at the per share
net asset value next determined after receipt of the request for redemption in
proper form.
You must designate on your Application the U.S. commercial bank account
or Prudential Securities account into which you wish the proceeds of
withdrawals from your account in the Fund deposited. You may withdraw an
amount from your account in the Fund by instructing PMFS to have the proceeds
of withdrawal wired directly to the designated bank account or Prudential
Securities account. PMFS accepts withdrawal instructions by telephone at (800)
521-7466 once you identify yourself as a person authorized on the completed
Application and provide your account number and your personal identification
number.
During periods of severe market or economic conditions, the telephone
redemption privilege may be difficult to implement. If you are unable to reach
PMFS by telephone, a redemption request may be telecopied to PMFS (telecopier
number (908) 417-7806).
In order for shares to be redeemed and withdrawal proceeds to be wired on
the same day as the request is made, telephone instructions or the written
redemption request must be received prior to 12:00 noon, New York time. If a
redemption request is received after 12:00 noon but prior to 4:30 P.M., New
York time, shares will be redeemed at the net asset value determined as of
4:30 P.M., New York time, on that day, and the redemption proceeds ordinarily
will be wired on the next business day. If the redemption request is received
after 4:30 P.M., New York time, shares will be redeemed and proceeds will be
wired on the next business day based on the net asset value determined as of
12:00 noon, New York time, on that next business day. Shares redeemed effec-
tive as of 12:00 noon, New York time, do not earn income dividends declared on
the day of redemption. Shares redeemed effective as of 4:30 P.M., New York
time, are entitled to income dividends declared on the day of redemption. See
"Taxes, Dividends and Distributions."
If a written request for redemption is submitted, the signatures on the
redemption request must be exactly as shown on the completed Application. If
the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemp-
tion request and on the certificates, if any, or stock power must be guaran-
teed by an "eligible guarantor institution", and in the case of a corporate
shareholder, a corporate resolution must accompany the request. 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 offices.
In order to allow for the management of the Series with maximum
flexibility, you are urged to initiate redemptions of shares as early in the
day as possible and to notify the Fund by at least 9:30 A.M., New York time,
of withdrawals in excess of $10 million.
The Fund reserves the right to withhold wiring redemption proceeds to
shareholders if, in the judgment of the investment adviser, the Fund could be
adversely affected by making immediate payment, and may take up to seven days
to wire redemption proceeds. In making withdrawal requests, you must supply
your name(s), account number and personal identification number. Neither the
Fund nor PMFS will be responsible for further verification of the authenticity
of telephoned instructions.
You may change the bank account you have designated to receive amounts
withdrawn at any time by writing to PMFS with an appropriate signature
guarantee or by providing a certified copy of a corporate resolution authoriz-
ing the change. Further documentation may be required when deemed appropriate
by PMFS.
If shares withdrawn represent an investment made via clearing house
funds, the Fund reserves the right to withhold the redemption proceeds until
it is reasonably assured of the crediting of such funds to its account. If
16
<PAGE>
shares being redeemed were purchased by check, payment may be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided by purchasing shares by
wire or by certified or official bank checks.
The Fund reserves the right to redeem, upon 60 days' written notice, an
account which is reduced by you because of a redemption to a net asset value
of less than $100,000. You may avoid this redemption by increasing the net
asset value of your account to $100,000 or more.
Under the Investment Company Act, the right of redemption may be
suspended or date of payment postponed at times when the New York Stock
Exchange is closed (other than customary weekend or holiday closings), trading
on the New York Stock Exchange is restricted, and under certain emergency or
other circumstances as determined by the SEC. In case of suspension of the
right of redemption, requests for redemption may be withdrawn or shareholders
may receive payment based on the net asset value determined next after the
termination of the suspension.
SHAREHOLDER SERVICES
As a shareholder in the Series, you can take advantage of the following
additional services and privileges:
. Shareholder Investment Account. Upon the initial purchase of shares of
the Series, a Shareholder Investment Account is established for you under
which your shares are held by PMFS.
PMFS maintains an account for you expressed in terms of full and
fractional shares of the Series rounded to the nearest 1/1000th of a share.
All investments in the Series are credited to your account in the form of
shares immediately upon acceptance and become entitled to dividends as
described in "Taxes, Dividends and Distributions." PMFS will also maintain
subaccounts for investors. See "Subaccounting and Special Services" below.
Stock certificates are issued only upon your written request. PMFS will
provide a confirmation of all investments in or withdrawals from an account.
Within ten days after the end of each month, PMFS will send you a statement
setting forth a summary of the transactions in your account for the month and
the month-end balance of full and fractional shares held in the account.
. Subaccounting and Special Services. Special processing can be arranged
with PMFS for corporations, banks and other institutions that wish to open
multiple accounts (a master account and subaccounts). An investor wishing to
avail itself of PMFS's subaccounting facilities or other special services for
individual or multiple accounts will be required to enter into a separate
agreement with PMFS. Charges for these services, if any, will be determined on
the basis of the level of services to be rendered. Subaccounts may be opened
at the time of the initial investment or at a later date.
. Exchange Privilege. The Fund does not currently offer an exchange
privilege for shares of the Series.
. Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in the annual reports are audited
by independent accountants. In order to reduce duplicate mailing and printing
expenses the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292.
. Shareholder Inquiries. Shareholder inquiries should be addressed to the
Fund at One Seaport Plaza, New York, New York 10292, or by telephone, at (800)
521-7466 (toll-free).
17
<PAGE>
Prudential
Institutional Liquidity Portfolio, Inc. (PILP)
New Account Application
[ ] Fund Selection -- Prudential Institutional Liquidity Portfolio (PILP)
Institutional Money Market Series (Fund #52)(PIMMS)
Account No:_____________
[ ] Account Registration
The account should be registered as follows:
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
Name of Account
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
Street
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
State
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
Attention of (Contact Person)(If Any)
Telephone # ( )_______________________________
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
Taxpayer Identification No. Taxpayer Identification No.
[ ] Initial Investment -- Minimum $100,000 per Fund or Series.
-- Subsequent Investment Minimum $10,000 per Fund or
Series.
[ ] Duplicate Confirmation (other than Prudential Representative)
We hereby authorize Prudential Mutual Fund Services, Inc. to send duplicate
account statements for the above Fund account to:
Name __________________________________________________________________________
Attention _____________________________________________________________________
Address _______________________________________________________________________
Street
_________________________________________________________________________
City State zip
Name __________________________________________________________________________
Attention _____________________________________________________________________
Address _______________________________________________________________________
Street
_________________________________________________________________________
City State zip
<PAGE>
[ ] Prudential Representative (To Be Completed By Prudential Representative)
__________________________________________ __ __ __ __ __
FA Name PSI Branch Ledger FA Number
_______________________________________________________________________________
Branch Telephone Number
[ ] Agent Authorization (to be completed by Prudential Securities clients
only)
We hereby authorize the following Prudential representative to act as our agent
in connection with transactions under this authorization form:
Representative Name: __________________________________________________________
Authorized Client Signature: __________________________________________________
This authorization may not be used for a change of sales representative.
[ ] Distribution Option
Monthly dividends are to be:
[ ] Invested in additional shares [ ]Paid in cash
Dividends will be invested in additional shares if no election is made)
[ ] Expedited Redemption Payments
If you wish to have expedited redemptions please fill out the section below.
Redemption proceeds will be sent only to the bank or Prudential Securities
account listed below, for credit to the investor's account. The investor hereby
authorizes Prudential Mutual Fund Services, Inc. to honor telephone or written
instructions without a signature guarantee for redemption of Fund shares.
Prudential Mutual Fund Services, Inc.'s records of such instructions will be
binding on all parties and Prudential Mutual Fund Services, Inc. will not be
liable for any loss, expense or cost arising out of such transactions.
If convenient, enclose a specimen copy of your check or deposit slip (marked
"VOID") if applicable for the bank listed below. Proceeds from redemptions must
be wired to either a commercial bank account or a Prudential Securities
account--not both. To facilitate the wiring of your redemption proceeds, the
indicated bank should be a commercial bank:
COMMERCIAL PRUDENTIAL SECURITIES ACCOUNT
1. Account Name ___________________ Account Name: Prudential Securities
___________________ Account Number: 722-00-011
Bank Name ___________________ Bank Name: Morgan Guaranty
Trust Company
Bank Address ___________________ Bank Routing Number: 021-000-238
___________________ FOR FURTHER CREDIT TO:
Account No. __ __ __ __ __ __ __ PSI Account Name __________________________
Bank Routing No. _ _ _ _ _ _ _ _ _ PSI Account Number _ _ _-_ _ _ _ _ _-_-_ _
<PAGE>
[ ] Signature Guarantee (for individuals only)
The signature(s) must be guaranteed by an "eligible guarantor institution". An
"eligible guarantor institution" includes any bank, broker, dealer or creditor
union. For clients of Pruco Securities Corporation, a signature guarantee may be
obtained from the Agency or Office manager of most Prudential Insurance and
Financial Services offices.
_____________________________________ __________________________________
Shareholder Signature Co-Owner Signature (if any)
[ ] Signature(s) Guarantee By:
Name of Bank or Firm ___________________________________________________________
Officer and Title ____________________________ _______________________________
Signature Print Name of Officer
[ ] Signature and Taxpayer Identification Number Certification (If shares are
registered in the name of a corporation or other organization, an
authorized officer must sign)
The undersigned represents and warrants that it has full right, power and
authority to make the investment applied for pursuant to this Application, and
the person or persons signing on behalf of the beneficial owner represent and
warrant that they are duly authorized to sign this Application and to purchase
or redeem shares of the Fund on behalf of the beneficial owner. The
undersigned hereby affirms receipt of a current Fund prospectus and certifies
under penalty of perjury that: (i) the number shown above is the correct
taxpayer identification number/Social Security # and (ii) there has been no
notification that this account is subject to backup withholding.
[ ] Please check box if there has been notification that this account is
subject to backup withholding.
<TABLE>
<CAPTION>
<S> <C>
_________________________________________ __________________________________________ ________
Signature Corporate Officer or Title (if appropriate) Date
_________________________________________ __________________________________________ ________
Signature Corporate Officer or Title (if appropriate) Date
</TABLE>
Acceptance Date: _______________________________
<TABLE>
<CAPTION>
<S> <C>
Mail Directly to: Overnight Mail Address:
Prudential Mutual Fund Services, Inc. Prudential Mutual Fund Services, Inc.
Institutional Service Division Attention: PILP
P.O. Box 15030 Raritan Plaza One
New Brunswick, NJ 08906-5030 Edison, NJ 98837
Institutional Service Division Telephone Number: Telecopier Number:
1-800-521-7466 (8:00 a.m.-4:30 p.m. (est)) (908) 417-7806
If by Wire:
State Street Bank ABA Routing Number 0110-0002-8
Attention: PRU 8600 GRP
Re: PILP
Name of Fund: Institutional Money Market Series
DDA Number: 99034100
Account Registration Name: _____________________
Account Number: ________________________________
Note: After this Application is received, you will be contacted by an Account Administrator to review
operations procedures.
FUNDS WILL NOT BE INVESTED WITHOUT DIRECT TELEPHONE CONTACT WITH PRUDENTIAL MUTUAL FUND SERVICES, INC.
</TABLE>
<PAGE>
FOR CORPORATIONS ONLY
Resolution For Corporate Investor
A form of Secretary's Certificate evidencing the adoption of an appropriate
corporate resolution relating to a Fund account follows. You may use this form,
or you may use your own. The resolution submitted should be substantially
similar to that below, although it may be a blanket authorization not
specifically mentioning the Fund.
SECRETARY'S CERTIFICATE
The undersigned hereby certifies and affirms that he/she is the duly
elected (Assistant) Secretary of
_______________________________________________________________________________
(Corporate name)
a corporation organized under the laws of _____________________________________,
(State)
and that the following is a true and
correct copy of a resolution adopted by the corporation's Board of Directors at
a meeting duly called and held on _________________.
RESOLVED, that the ___________________________________ of this corporation are
(Officers' titles)
hereby authorized to open an account
in the name of the corporation with the Prudential Institutional Liquidity
Portfolio, Inc., a registered investment company, and from to time to time to
deposit therein such funds of the corporation as they may deem necessary or
appropriate; that the persons named below are authorized to endorse checks and
other negotiable instruments for deposit in said account and to issue over their
names instructions for the redemption of shares of the Prudential Institutional
Liquidity Portfolio, Inc. held in such account by any means described in its
current prospectus, including check-writing; provided that such instructions are
issued by any _________________________ of the persons name below:
(number required)
______________________________________ _____________________________________
(print or type name and title) (signature)
______________________________________ _____________________________________
(print or type name and title) (signature)
______________________________________ _____________________________________
(print or type name and title) (signature)
______________________________________
(Corporate Name)
By: __________________________________ CORPORATE SEAL
Dated ________________________________
(Secretary or Assistant Secretary)
<PAGE>
DESCRIPTION OF SECURITY RATINGS
Moody's Investors Service
Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Short-Term Debt
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
Short-Term Ratings
VMIG-1: Variable rate short-term indebtedness rated "VMIG-1" is of the
best quality. There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to the market
for refinancing.
Standard & Poor's Corporation
Bond Ratings
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. A "+" designation is applied to those issues rated
A-1 which possess extremely strong safety characteristics.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-1
<PAGE>
Duff & Phelps Inc.
Bond Ratings
AAA: Bonds rated AAA are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA: Bonds rated AA are considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time
to time because of economic conditions.
Commercial Paper Ratings
Duff 1: Issues assigned the Duff 1 rating are considered top grade. This
category is further divided into three gradations as follows: Duff 1
plus--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations; Duff 1--very high certainty of timely payment. Liquidity factors
are excellent and supported by strong fundamental protection factors. Risk
factors are minor; Duff 1 minus--High certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2: Issues assigned the Duff 2 rating represent a good certainty of
timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Fitch Investors Service, Inc.
Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated `AAA'. Because bonds rated
in the `AAA' and `AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated `F-1+'.
Commercial Paper Ratings
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
`F-1+'.
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the `F-1+' and `F-1' categories.
A-2
<PAGE>
[THIS PAGE IS LEFT BLANK INTENTIONALLY]
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Fund at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund
Prudential Government Plus Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund
Prudential Structured Maturity Fund
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund
Global Funds
Prudential Global Fund, Inc.
Prudential Global Genesis Fund
Prudential Global Natural Resources Fund
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential FlexiFund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
B-1
<PAGE>
No dealer, sales representative or any other person has been
authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Fund or the Distributor. This Prospectus
does not constitute an offer by the Fund or by the
Distributor to sell or a solicitation of any offer to buy
any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such
jurisdiction.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PROSPECTUS
Page MAY 31,
---- 1994
<S> <C> <C>
FUND HIGHLIGHTS ....................................... 2
FUND EXPENSES ......................................... 4
FINANCIAL HIGHLIGHTS .................................. 5
CALCULATION OF YIELD .................................. 6
HOW THE FUND INVESTS .................................. 6
Investment Objective and Policies .................... 6
Other Investments and Policies ....................... 8 Prudential
Investment Restrictions .............................. 10 Institutional
HOW THE FUND IS MANAGED ............................... 10 Liquidity Portfolio
Manager .............................................. 11 Inc.
Distributor .......................................... 11
Portfolio Transactions ............................... 12 Institutional
Custodian and Transfer and Money Market Series
Shareholder Servicing Agent ......................... 12 --------------------------
HOW THE FUND VALUES ITS SHARES ........................ 12
TAXES, DIVIDENDS AND DISTRIBUTIONS .................... 13
GENERAL INFORMATION ................................... 14
Description of Common Stock .......................... 14
Additional Information ............................... 15
SHAREHOLDER GUIDE ..................................... 15 Prudential Mutual Funds
How to Buy Shares of the Fund ........................ 15 Building Your Future
How to Sell Your Shares .............................. 16 On Our Strength (sm) [logo]
Shareholder Services ................................. 17
DESCRIPTION OF SECURITY RATINGS ....................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ..................... B-1
- ------------------------------------------------------------
- ------------------------------------------------------------
MF137A 44071B
CUSIP No.: 750350109
</TABLE>
<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Statement of Additional Information
dated May 31, 1994
The Institutional Money Market Series (the Series) is a series of
Prudential Institutional Liquidity Portfolio, Inc. (the Fund), an open-end,
diversified management investment company. The Fund offers investors an
efficient and economical means of investing in a professionally managed
portfolio of high quality money market instruments. The investment objective
of the Series is high current income consistent with the preservation of
principal and liquidity. See "Investment Objective and Policies." The minimum
initial investment is $100,000. The Fund's address is One Seaport Plaza,
New York, New York 10292, and its telephone number is (800) 521-7466.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Fund's Prospectus dated May 31, 1994, a copy
of which may be obtained from the Fund upon request.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- ----------------
<S> <C> <C>
Investment Objective and Policies .......................... B-2 6
Investment Restrictions .................................... B-3 10
Directors and Officers ..................................... B-5 10
Manager .................................................... B-7 11
Distributor ................................................ B-9 11
Purchase of Shares ......................................... B-9 15
Net Asset Value ............................................ B-10 12
Portfolio Transactions ..................................... B-10 12
Taxes ...................................................... B-11 13
Calculation of Yield ....................................... B-11 6
Custodian, Transfer and Shareholder Servicing
Agent and Independent Accountants ......................... B-12 12
General Information ........................................ B-12 14
Financial Statements ....................................... B-13 -
Independent Auditor's Report ............................... B-21 -
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is high current income consistent
with the preservation of principal and liquidity.
Obligations Issued or Guaranteed by the U.S. Government, its Agencies and
Instrumentalities.
The Series may invest in component parts of U.S. Treasury notes or bonds,
namely, either the corpus (principal) of such Treasury obligations or one of
the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (i) Treasury obligations from which the
interest coupons have been stripped, (ii) the interest coupons that are
stripped, (iii) book-entries at a Federal Reserve member bank representing
ownership of Treasury obligation components, or (iv) receipts evidencing the
component parts (corpus or coupons) of Treasury obligations that have not
actually been stripped. Such receipts evidence ownership of component parts of
Treasury obligations (corpus or coupons) purchased by a third party (typically
an investment banking firm) and held on behalf of the third party in physical
or book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. Treasury obligations, including those
underlying such receipts, are backed by the full faith and credit of the U.S.
Government.
Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Series in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain United States Treasury notes or bonds. Such notes and bonds
are held in custody by a bank on behalf of the owners. These custodial
receipts are known by various names, including "Treasury Receipts," "Treasury
Investment Growth Receipts" (TIGRs) and "Certificates of Accrual on Treasury
Securities" (CATS).
Lending of Securities
Consistent with applicable regulatory requirements, the Series may lend
its portfolio securities to brokers, dealers and financial institutions,
provided that outstanding loans do not exceed in the aggregate 15% of the
value of the Series' total assets and provided that such loans are callable at
any time by the Series and are at all times secured by cash or equivalent
collateral that is equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that the Series
continues to receive payments in lieu of the interest on the loaned
securities, while at the same time earning interest either directly from the
borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business day's notice or
by the Series at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Series could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions 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.
However, these loans of portfolio securities will only be made to firms
determined to be creditworthy pursuant to procedures approved by the Board of
Directors of the Fund. On termination of the loan, the borrower is required to
return the securities to the Series, and any gain or loss in the market price
during the loan would inure to the Series.
The Series will pay reasonable finders', administrative and custodial
fees in connection with a loan of its securities or may share the interest
earned on collateral with the borrower.
The Series does not intend to lend its securities during the coming year.
Liquidity Puts
The Series may purchase instruments of the types described in the
Prospectus under "How the Fund Invests--Investment Objective and Policies"
together with the right to resell the instruments at an agreed-upon price or
yield within a specified period prior to the maturity date of the instruments.
Such a right to resell is commonly known as a "put," and the aggregate price
which the Series pays for instruments with puts may be higher than the price
which otherwise would be paid for the instruments. Consistent with the Series'
investment objective and applicable rules issued by the Securities and
Exchange Commission (SEC) and subject to the supervision of the Board of
Directors, the purpose of this practice is to permit the Series to be fully
invested while preserving the necessary liquidity to meet unusually large
redemptions and to purchase at a later date securities other than those
subject to the put. The Series may choose to exercise puts during periods in
which proceeds from sales of its shares and from recent sales of portfolio
securities are insufficient to meet redemption requests or when the funds
available are otherwise allocated for investment. In determining whether to
exercise puts prior to their expiration date and in selecting which puts to
exercise in such circumstances, the investment adviser considers, among other
things, the amount of cash available to the Series, the expiration dates of
the available puts, any future commitments for securities purchases, the
yield, quality and maturity dates of the underlying securities, alternative
investment opportunities and the desirability of retaining the underlying
securities in the Series' portfolio.
B-2
<PAGE>
The Series values instruments which are subject to puts at amortized
cost; no value is assigned to the put. The cost of the put, if any, is carried
as an unrealized loss from the time of purchase until it is exercised or it
expires.
The Series will invest no more than 5% of its total assets in securities
issued by or subject to puts from the same institution. For purposes of this
limitation, unconditional puts or guarantees with respect to a security will
not be deemed to be issued by the institution providing the guarantee or put
if the value of all securities held by the Series and issued or guaranteed by
the issuer providing the guarantee or put are limited to 10% of the Series'
total assets.
Illiquid Securities
The Series may invest up to 10% of its total assets (determined at the
time of investment) in securities for which market quotations are not readily
available and in repurchase agreements which have a maturity longer than seven
days.
Securities of Other Investment Companies
The Series may invest up to 5% of its total assets in securities of other
registered investment companies. Generally, the Series does not intend to
invest in such securities. If the Series invests in securities of other
registered investment companies, shareholders of the Series may be subject to
duplicate management and advisory fees.
Transactions in Options and Futures Contracts
The Series has the right to enter into futures contracts and to purchase
and sell put and call options on futures contracts; however, the Series does
not intend to enter into futures contracts for the coming year. The Series may
purchase options to protect it against anticipated adverse variations in price
and yield resulting from changes in interest rates. A "put" option is a
contract which gives the purchaser, in return for a premium, the right to sell
the underlying security at a specified price during the term of the option.
The Series may also purchase a "call" option, or an option to buy securities,
which gives the Series the right to call upon the writer of the option to
deliver a specified amount of a security on or before a fixed date, at a
predetermined price. Purchasing options enables the Series to hedge against
changes in the value of its assets without involving an obligation to buy or
sell securities. The risk in purchasing an option is limited to the cost of
the option.
The Series will not engage in any transactions involving futures
contracts or options thereon except in compliance with Rule 4.5 adopted by the
Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act,
under which the Fund would be exempt from the definition of a "commodity pool
operator," subject to compliance with certain conditions. In accordance with
CFTC regulations, the Fund may purchase or sell futures contracts or options
thereon for bona fide hedging transactions. In addition, the Fund may use
futures contracts and options thereon for any other purpose to the extent that
the aggregate initial margin and option premium does not exceed 5% of the
liquidation value of the Fund. The Fund has undertaken with certain state
securities commissions that, so long as the shares of the Fund are registered
in those states, the Series will not purchase put or call options if after
such purchase, the total premiums paid for such options exceed 5% of the total
assets of the Series, provided that this limitation does not extend to
liquidity puts. See "How the Fund Invests--Investment Objective and Policies"
in the Prospectus.
By entering into futures contracts, the Series agrees to purchase or sell
securities at a future date, or receive or pay an amount in cash determined by
the value of an index. Futures contracts sales would be used to protect the
value of the Series' investments against expected increases in interest rates,
while futures contract purchases would be used to offset the impact of
interest rate declines. The Series may use these instruments solely as a hedge
against anticipated interest rate variations and not for speculation.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Series. A "majority of
the outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by a Series of initial or maintenance margin in
connection with options or futures contracts is not considered the purchase of
a security on margin.
B-3
<PAGE>
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money (including through the entry
into reverse repurchase agreement transactions) or pledge its assets, except
that a Series may borrow up to 15% of the value of its total assets
(calculated when the loan is made) from banks for temporary, extraordinary or
emergency purposes and may pledge up to 15% of the value of its total assets
to secure such borrowings. No Series will purchase portfolio securities if its
borrowings exceed 5% of its net assets. The purchase or sale of securities on
a "when-issued" or delayed delivery basis, the entry into reverse repurchase
agreements and the purchase and sale of financial futures contracts and
collateral arrangements with respect thereto are not deemed to be a pledge of
assets and such arrangements are not deemed to be the issuance of a senior
security.
4. Purchase any security (other than obligations of the U.S. Government,
its agencies and instrumentalities and obligations of domestic branches of
U.S. banks) if as a result: (i) more than 5% of the Series' total assets
(determined at the time of investment) would then be invested in securities of
a single issuer, except that, with respect to certificates of deposit, time
deposits and bankers' acceptances, up to 25% of the value of a Series' total
assets may be invested without regard to the 5% limitation or (ii) 25% or more
of the Series' total assets (determined at the time of investment) would be
invested in one or more issuers having their principal business activities in
the same industry.
5. Purchase securities, other than obligations of the U.S. Government,
its agencies or instrumentalities, of any issuer having a record, together
with predecessors, of less than three years of continuous operations if,
immediately after such purchase, more than 5% of a Series' total assets would
be invested in such securities.
6. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or Director of the Fund or the investment adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and
Directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
7. Buy or sell real estate or interests in real estate, except that the
Series may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts. The Series may not
purchase interests in real estate limited partnerships which are not readily
marketable.
8. 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.
9. Make investments for the purpose of exercising control or management.
10. Purchase securities for which there are legal or contractual
restrictions on resale or invest in securities for which there is no readily
available market, including repurchase agreements having maturities of more
than seven days, if more than 10% of the Series' total assets would be
invested in such securities.
11. Invest in securities of other registered investment companies, except
by purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (determined at
the time of investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Series may invest in the securities of
companies which invest in or sponsor such programs.
13. Make loans, except through (i) repurchase agreements and (ii) loans
of portfolio securities (limited to 15% of the value of the Series' total
assets).
14. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by restriction
number 11.
15. Enter into reverse repurchase agreements if, as a result thereof, a
Series' obligations with respect to reverse repurchase agreements would exceed
15% of the value of the Series' total assets.
16. Buy or sell commodities or commodity contracts, except that the
Series may purchase and sell futures contracts and options thereon.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of a Series' 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.
B-4
<PAGE>
In order to comply with certain "blue sky" restrictions, the Fund will
not as a matter of operating policy:
1. Invest in securities of other registered investment companies except
as they may be acquired as part of a merger, consolidation or acquisition of
assets. Mortgage-backed securities and asset-backed securities are not
considered investment companies for purposes of any limitation.
2. Invest in futures contracts or options thereon.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position with Principal Occupations
Name and Address the Fund During Past Five Years
- ---------------- ------------- ----------------------
<S> <C> <C>
Eugene C. Dorsey Director Retired president, Chief Executive Officer and
c/o Prudential Mutual Fund Trustee of the Gannett Foundation (now Freedom
Management, Inc. Forum); former publisher of four Gannett newspapers
One Seaport Plaza and Vice President of the Gannett Company;
New York, NY past chairman, Independent Sector, Washington, D.C.
(largest national coalition of philanthropic
organizations); former chairman of the American
Council for the Arts; Director of the advisory board
of Chase Manhattan Bank of Rochester and The High
Yield Income Fund, Inc.
Donald D. Lennox Director Chairman (since February 1990) and Director (since
c/o Prudential Mutual Fund April 1989) of International Imaging Materials Inc.;
Management, Inc. Retired Chairman, Chief Executive Officer and
One Seaport Plaza Director of Schlegel Corporation (industrial manufacturing)
New York, NY (March 1987-February 1989); Director of Gleason Corporation,
Navistar International Corporation, Personal Sound
Technologies, Inc., The Global Government Plus
Fund, Inc. and The High Yield Income Fund, Inc.
*Lawrence C. McQuade President and Director Vice Chairman of PMF (since 1988); Managing Director,
One Seaport Plaza Investment Banking, Prudential Securities
New York, NY (1988-1991); Director of Quixote Corporation (since
February 1992) and BUNZL P.L.C. (since June
1991); formerly Director of Crazy Eddie Inc.
(1987-1990) and Kaiser Tech., Ltd. and Kaiser
Aluminum and Chemical Corp. (March 1987-November
1988); formerly Executive Vice President and
Director of W.R. Grace & Co. (1975-1987);
President and Director of The Global Government
Plus Fund, Inc., The Global Yield Fund, Inc. and
The High Yield Income Fund, Inc.
*Richard A. Redeker Director President, Chief Executive Officer and Director (since
One Seaport Plaza October 1993), Prudential Mutual Fund Management,
New York, NY Inc. (PMF); Executive Vice President, Director and
Member of the Operating Committee (since October
1993), Prudential Securities Incorporated
(Prudential Securities); Director (since October
1993) of Prudential Securities Group, Inc.;
formerly Senior Executive Vice President and
Director of Kemper Financial Services, Inc.
(September 1978-September 1993); Director of The
Global Government Plus Fund, Inc. and The High
Yield Income Fund, Inc.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name and Address the Fund During Past Five Years
- ---------------- ------------- ----------------------
<S> <C> <C>
Stanley E. Shirk Director Certified Public Accountant and a former Senior
c/o Prudential Mutual Fund Partner of the accounting firm of KPMG Peat
Management, Inc. Marwick; former Management and Accounting
One Seaport Plaza Consultant for the Association of Bank Holding
New York, NY Companies, Washington, D.C. and the Bank
Administration Institute, Chicago, Ill.;
Director of The High Yield Income Fund, Inc.
Robin B. Smith Director President (since September 1981) and Chief Executive
c/o Prudential Mutual Fund Officer (since January 1988) of Publishers Clearing
Management, Inc. House; Director of The Omnicom Group, Inc., Huffy
One Seaport Plaza Corporation, Spring Industries, Inc., Texaco, Inc.,
New York, NY First Financial Fund, Inc., The Global Yield Fund,
Inc., The High Yield Income Fund, Inc. and The
High Yield Plus Fund, Inc.
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990),
One Seaport Plaza Director (since January 1989), Executive Vice
New York, NY President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Vice
President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior
One Seaport Plaza Counsel (since June 1987) and First Vice President
New York, NY (June 1987-December 1990) of PMF; Senior Vice
President and Senior Counsel of Prudential
Securities (since July 1992); formerly Vice
President and Associate General Counsel of
Prudential Securities.
Susan C. Cote Treasurer and Principal Senior Vice President of PMF; Senior Vice President
One Seaport Plaza Financial and (since January 1992) and Vice President (January
New York, NY Accounting Officer 1986-December 1991) of Prudential Securities.
Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since
One Seaport Plaza Secretary Secretary June 1991) of PMF; Vice President and
New York, NY Associate General Counsel of Prudential Securities.
- -------------------
* "Interested" Director of the Fund, as defined in the Investment Company Act of 1940 (the Investment Company Act).
Directors and officers of the Fund are also trustees, directors and officers of some or all of the other
investment companies distributed by Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
</TABLE>
B-6
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
The Fund pays each of its Directors who is not an affiliated person of
PMF or The Prudential Investment Corporation (PIC) annual compensation of
$10,000, in addition to certain out-of-pocket expenses.
As of May 13, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund. As of May 13,
1994, Prudential Insurance Company of America (Prudential), Prudential Plaza,
Newark, New Jersey 07101, either directly or through one or more controlled
companies, owned approximately 57% of the Fund's outstanding voting securities
and may be deemed to be a controlling person of the Fund. Prudential is a
mutual insurance company organized under the laws of New Jersey. As of May 13,
1994, Prudential Health Care Plan of California, Inc., 5800 Canoga Avenue,
WHW2, Woodland Hills, California 91367-6503, Prudential High Yield Trust DTD
1990, Three Gateway Center, Mail Stop 121, 100 Mulberry Street, Newark, New
Jersey 07102-4004, Prudential Interfunding, Gateway Center 4, 6th Floor,
Newark, New Jersey 07102, and Pru Supply Capital Assets Inc., 4 Gateway
Center, 6th Floor, Newark, New Jersey 07102-4007 were the beneficial owners of
8.63%, 8.79%, 10.5% and 16.3%, respectively, of the Fund's outstanding voting
securities.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc., One
Seaport Plaza, New York, New York 10292 (PMF or the Manager). PMF serves as
manager of the other investment companies, that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund Is Managed" in the
Prospectus. As of April 30, 1994, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $49
billion. According to the Investment Company Institute, as of December 31,
1993, the Prudential Mutual Funds were the 12th largest family of mutual funds
in the United States.
Pursuant to the Management Agreement with the Series (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors
and in conformity with the stated policies of the Fund, manages both the
investment operations of the Series and the composition of the Series'
portfolio, including the purchase, retention, disposition and loan of
securities. In connection therewith, PMF is obligated to keep certain books
and records of the Fund. PMF also administers the Fund's corporate 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,
and Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the
Fund's transfer and shareholder servicing agent. The management services of
PMF for the Fund are not exclusive under the terms of the Management Agreement
and PMF is free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a
fee at an annual rate of .20 of 1% of the average daily net assets of the
Series. The fee is computed daily and payable monthly. The Management
Agreement provides that, in the event the expenses of the Fund for any fiscal
year (including the fees payable to PMF, 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) exceed the lowest applicable annual expense limitation
established and enforced pursuant to the statute or regulations of any
jurisdiction in which shares of the Fund are then qualified for offer and
sale, the compensation due to PMF will be reduced by the amount of such
excess, or, if such reduction exceeds the compensation payable to PMF, PMF
will pay to the Series the amount of such reduction which exceeds the amount
of such compensation. Any such reductions or payments are subject to
readjustment during the year. The most restrictive of such annual limitations
is believed to be 2 1/2% of the Series' average daily net assets up to $30
million, 2% of the next $70 million of such assets and 1 1/2% of such assets in
excess of $100 million.
In connection with its management of the corporate affairs of the Fund,
PMF bears the following expenses:
(a) the salaries and expenses of all personnel of the Fund and the
Manager, except the fees and expenses of Directors who are not affiliated
persons of PMF or the Fund's investment adviser;
(b) all expenses incurred by PMF 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 payable to PIC pursuant to a subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses, including (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated with
the Manager or the
B-7
<PAGE>
Fund's investment adviser, (c) the fees and certain expenses of the Fund's
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of the Fund's legal counsel and independent
accountants, (e) brokerage commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities and futures
transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade association of which the Fund
is a member, (h) the cost of stock certificates representing and/or
non-negotiable share deposit receipts evidencing shares of the Fund, (i) the
cost of fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
SEC and registering the Fund and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders, (l) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business and (m) distribution fees.
The Management Agreement also provides that PMF will not be liable for
any error of judgment or 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 (as defined in the Investment Company Act), 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 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.
The Management Agreement was last approved by the Board of Directors of
the Fund, including a majority of the Directors who are not parties to the
agreement or interested persons of such parties as defined in the Investment
Company Act, on April 12,1994, and was approved by the shareholders of the
Series on November 29, 1988.
For the fiscal years ended March 31, 1994, 1993, and 1992, the Series
paid management fees to PMF of $891,735, $1,087,387 and $1,080,760,
respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser),
a wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides
that PIC furnish investment advisory services in connection with the
management of the Fund. In connection therewith, PIC is obligated to keep
certain books and records of the Fund. PMF continues to have responsibility
for all investment advisory services pursuant to the Management Agreement and
supervises PIC's performance of such services. PIC is reimbursed by PMF for
the reasonable costs and expenses incurred by PIC in furnishing services to
PMF.
The Subadviser maintains a corporate credit unit which provides
credit analysis and research on taxable fixed-income securities including
money market instruments. The portfolio manager consults routinely with the
credit unit in managing the Series' portfolio. The credit unit, which
currently maintains a staff of 17 persons including 12 credit analysts,
reviews on an ongoing basis commercial paper issuers, commercial banks,
non-bank financial institutions and issuers of other taxable fixed-income
obligations. Credit analysts have broad access to research and financial
reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Series may invest.
The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the directors who are not parties to such contract or
interested persons of such parties as defined in the Investment Company Act,
on April 12, 1994, and was approved by the shareholders of the Series on
November 29, 1988.
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 Fund, PMF or PIC 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.
The Manager and the Subadviser are indirect subsidiaries of Prudential
which, as of December 31, 1993, is one of the largest financial institutions
in the world and the largest insurance company in North America. Prudential
has been engaged in the insurance business since 1875. In July 1993,
Institutional Investor ranked Prudential the third largest institutional money
manager of the 300 largest money management organizations in the United States
as of December 31, 1992.
B-8
<PAGE>
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), a
wholly-owned subsidiary of PMF, succeeded to the duties and obligations of
Prudential Securities under the Distribution Agreement among PMFD, Prudential
Securities and the Fund (the Distribution Agreement) effective June 1, 1988.
See "How the Fund Is Managed--Distributor" in the Prospectus.
Distribution and Service Plan
Under the Fund's Distribution and Service Plan (the Plan) and the
Distribution Agreement, the Fund pays PMFD, as distributor, a distribution fee
of up to 0.12% of the average daily net assets of the Series, computed daily
and payable monthly.
For the fiscal year ended March 31, 1994, PMFD incurred distribution
expenses in the aggregate of approximately $535,041 with respect to the
Series, under the Plan, all of which was recovered through the distribution
fee paid by the Series to PMFD. It is estimated that of this amount
approximately 75% ($401,300) was spent on payment of account servicing fees to
financial advisers and 25% ($133,700) on allocation of overhead and other office
distribution-related expenses with respect to the Series. The term "overhead
and other office distribution-related expenses" represents (a) the expenses of
operating Prudential Securities' branch offices in connection with the sale of
shares of the Series, 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, and (c) travel expenses of mutual fund sales
coordinators to promote the sale of shares of the Series.
The Plan was last approved by the Board of Directors of the Fund,
including a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to the Plan (the Rule 12b-1 Directors),
cast in person at a meeting called for the purpose of voting on such Plan, on
April 12, 1994, and was approved by the shareholders of the Series on November
29, 1988. There are no carryover amounts under the Plan, and therefore
interest and carrying charges are not incurred under the Plan. So long as the
Plan is in effect, the selection and nomination of Directors who are not
interested persons of the Fund shall be committed to the discretion of the
Directors who are not interested persons. The Board of Directors has
determined that, in its judgment, there is a reasonable likelihood that the
Plan will benefit the Series and its shareholders.
Pursuant to the Plan, the Directors will be provided with, and will
review, at least quarterly, a written report of the distribution expenses
incurred on behalf of the Fund by PMFD. The report will include an itemization
of the distribution expenses and the purpose of such expenditures.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Directors in the manner described above. The Plan may be terminated with
respect to the Series at any time, by vote of a majority of the Rule 12b-1
Directors or by a vote of a majority of the outstanding voting securities of
the Series (as defined in the Investment Company Act). The Fund's Distribution
Agreement provides that it will terminate automatically if assigned and that
it may be terminated, without payment of any penalty, by a majority of the
Rule 12b-1 Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on 60 days' written notice to
the other party.
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 Securities Act of 1933, as amended. The Distribution
Agreement was last approved by the Board of Directors, including a majority of
the Rule 12b-1 Directors, on April 12, 1994.
PURCHASE OF SHARES
Multiple Accounts
An institution may open a single master account by filing an Application
with PMFS, signed by personnel authorized to act for the institution.
Individual subaccounts may be opened at the time the master account is opened
by listing them, or they may be added at a later date by written advice.
Procedures will be available to identify subaccounts by name and number within
the master account name. The foregoing procedures would also apply to related
institutional accounts (i.e., accounts of shareholders with a common
institutional or corporate parent). The investment minimums as set forth in
the Prospectus under "Shareholder Guide-- How to Buy Shares of the Fund" are
applicable to the aggregate amounts invested by a group, and not to the amount
credited to each subaccount.
PMFS provides each institution with a written confirmation for each
transaction in a subaccount. Further, PMFS is able to provide, to each
institution on a daily or monthly basis, a statement which sets forth for each
master account its share balance and
B-9
<PAGE>
income earned for the month. In addition, each institution receives a statement
for each individual account setting forth transactions in the sub-account for
the year-to-date, the total number of shares owned as of the dividend payment
date and the dividends paid for the current month, as well as for the
year-to-date.
Reopening an Account
Subject to the minimum investment restrictions, an investor may reopen an
account, without filing a new Application, at any time during the calendar
year the account is closed, provided that the information on the old form is
still applicable.
NET ASSET VALUE
The Series uses the amortized cost method of valuation to determine the
value of its portfolio securities. In that regard, the Fund's Board of
Directors has determined to maintain a dollar-weighted average portfolio
maturity of 90 days or less, to purchase only instruments having remaining
maturities of thirteen months or less, and to invest only in securities
determined by the investment adviser under the supervision of the Board of
Directors to be of minimal credit risk and to be of "eligible quality" in
accordance with regulations of the SEC. The remaining maturity of an
instrument held by the Fund that is subject to a put is deemed to be the
period remaining until the principal amount can be recovered through demand
or, in the case of a variable rate instrument, the next interest reset date,
if longer. The value assigned to the put is zero. The Board of Directors also
has established procedures designed to stabilize, to the extent reasonably
possible, the Series' price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures will include review of the Series'
portfolio holdings by the Board, at such intervals as deemed appropriate, to
determine whether the Series' net asset value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Board, and if such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will
be initiated. In the event the Board of Directors determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing shareholders, the Board will take such corrective action
as it regards necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize gains or losses, the shortening of
average portfolio maturity, the withholding of dividends or the establishment
of net asset value per share by using available market quotations.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. (For purposes of this
section, the term "Manager" includes the Subadviser.) The Fund does not
normally incur any brokerage commission expense on such transactions. In the
market for money market instruments, 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 may be purchased directly from an
issuer, in which case no commissions or discounts are paid. Portfolio
securities may not be purchased from any underwriting or selling syndicate of
which Prudential Securities, or an 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 SEC. The Fund will not deal with
Prudential Securities or its affiliates on a principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most
favorable total cost or proceeds reasonably attainable under the
circumstances. While the Manager generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available. Within the framework of this policy, the
Manager may consider research and investment services provided by brokers or
dealers who effect or are parties to portfolio transactions of the Fund, the
Manager or the Manager's other clients. Such research and investment services
are those which brokerage houses customarily provide to institutional
investors and include statistical and economic data and research reports on
particular companies and industries. Such services are used by the Manager in
connection with all of its investment activities, and some of such services
obtained in connection with the execution of transactions for the Fund may be
used in managing other investment accounts. Conversely, brokers furnishing
such services may be selected for the execution of transactions for such other
accounts, whose aggregate assets are far larger than the Fund's, and the
services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. While such services are useful and
important in supplementing its own research and facilities, the Manager
believes that the value of such services is not determinable and does not
significantly reduce expenses. The Fund does not reduce the advisory fee it
pays to the Manager by any amount that may be attributed to the value of such
services.
B-10
<PAGE>
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 to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Prudential Securities must
be reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Board of
Directors of the Fund, including a majority of the Directors who are not
"interested" persons, has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to
Prudential Securities are consistent with the foregoing standard. Brokerage
transactions with Prudential Securities are also subject to such fiduciary
standards as may be imposed by applicable law.
During the fiscal years ended March 31, 1992, 1993 and 1994, the Fund
paid no brokerage commissions.
TAXES
The Series has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. This relieves the Series (but not its shareholders) from paying federal
income tax on income which is distributed to shareholders, provided that it
distributes at least 90% of its net investment income and short-term capital
gains. In addition, distributions of net capital gains of the Series (i.e., the
excess of net long-term capital gains over net short-term capital losses), if
any, will be treated as long-term capital gains of the shareholders, regardless
of how long shareholders have held their shares in the Series.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Series' annual gross income (without
reduction for losses from the sale or other disposition of securities or foreign
currencies) be derived from interest, dividends, payments with respect to
securities loans, and gains from the sale or other disposition of securities 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 Series derives less than 30%
of its annual gross income from gains (without reduction for losses) from the
sale or other disposition of securities held for less than three months; and (c)
the Series diversifies its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Series' assets is
represented by cash, U.S. Government obligations and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Series' assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government obligations).
Gains or losses on sales of securities by the Series will be
treated as long-term capital gains or losses if the securities have been held by
it for more than one year. Other gains or losses on the sale of securities will
be short-term capital gains or losses. In addition, debt securities acquired by
the Series may be subject to original issue discount and market discount rules.
The Series is required to distribute 98% of its ordinary income in the
same calendar year in which it is earned. The Series is also 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, as
well as all 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 Series will be subject to a non-deductible 4%
excise tax on the undistributed amount. For purposes of this excise tax,
income on which the Series pays income tax is treated as distributed.
CALCULATION OF YIELD
The Series will prepare a current quotation of yield daily. The yield
quoted will be the simple annualized yield for an identified seven calendar
day period. The yield calculation will be based on a hypothetical account
having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares, but excluding any
capital changes, divided by the value of the account at the beginning of the
base period. The yield will vary as interest rates and other conditions
affecting money market instruments change. Yield also depends on the quality,
length of maturity and type of instruments in the Series' portfolio, and its
operating expenses. The Series also may prepare an effective annual yield
computed by compounding the unannualized seven-day period return as follows:
by adding 1 to the unannualized seven-day period return, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return+1)365/7]-1
Comparative performance information may be used from time to time in
advertising or marketing the Series' shares, including data from Lipper
Analytical Services, Inc., Donoghue's Money Fund Report, The Bank Rate
Monitor, other industry publications, business periodicals, and market
indices.
B-11
<PAGE>
The Series' yield fluctuates, and an annualized yield quotation is not a
representation by the Series as to what an investment in the Series will
actually yield for any given period. Actual yields will depend upon not only
changes in interest rates generally during the period in which the investment
in the Series is held, but also on changes in the Series' expenses. Yield does
not take into account any federal or state income taxes.
CUSTODIAN, TRANSFER AND SHAREHOLDER SERVICING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities,
and in that capacity maintains cash and certain financial and accounting books
and records pursuant to an agreement with the Fund.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as the Transfer and Shareholder Servicing Agent of
the Fund. It is a wholly-owned subsidiary of PMF. 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 a monthly fee plus its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications and other costs. For the fiscal year ended
March 31, 1994, the Series incurred fees of $257,000 for the services of PMFS.
Deloitte & Touche, 1633 Broadway, New York, New York 10019, serve as the
Fund's independent accountants and in that capacity audit the Fund's annual
financial statements.
GENERAL INFORMATION
The Fund was incorporated on September 1, 1987 and originally consisted
of four series: the Institutional Money Market Series, the Institutional
Government Series, the Institutional Domestic Liquid Assets Series and the
Institutional Tax-Exempt Series. On or about June 30, 1989, sales of shares of
the Institutional Domestic Liquid Assets Series and the Institutional
Tax-Exempt Series were discontinued. Effective October 12, 1989, no shares
remained outstanding in those Series. On or about April 24, 1992, sales of
shares of the Institutional Government Series were discontinued. Effective May
15, 1992, no shares remained outstanding in the Institutional Government
Series.
B-12
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC. Portfolio of Investments
INSTITUTIONAL MONEY MARKET SERIES March 31, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
BANK NOTES--8.1%
Huntington National Bank
$ 8,000 3.45%, 4/28/94............... $ 8,000,391
1,000 3.30%, 5/10/94............... 999,470
NationsBank North Carolina
2,180 3.65%, 6/7/94................ 2,180,490
NBD Bank, N.A.
1,000 3.56%, 7/11/94............... 999,058
PNC Bank, N.A.
12,000 3.30%, 6/10/94............... 11,995,187
Republic National Bank
5,000 4.30%, 3/8/95................ 4,985,554
Society National Bank
Cleveland
2,000 3.55%, 1/20/95............... 1,997,406
------------
31,157,556
------------
CERTIFICATES OF DEPOSIT--
FOREIGN ISSUERS--7.5%
Banque Nationale De Paris
2,000 3.35%, 7/7/94................ 1,996,404
Barclays Bank PLC
9,000 3.25%, 6/13/94............... 9,000,540
Commerzbank
2,000 3.56%, 8/12/94............... 2,001,375
Norinchukin Bank
4,000 3.31%, 4/7/94................ 3,999,520
Societe Generale
3,000 3.40%, 5/2/94................ 3,000,176
9,000 3.80%, 6/3/94................ 8,999,838
------------
28,997,853
------------
COMMERCIAL PAPER--DOMESTIC
ISSUERS--42.3%
American Cyanamid Co.
2,800 3.80%, 6/7/94................ 2,780,198
4,140 3.80%, 6/17/94............... 4,106,351
Aristar, Inc.
$ 1,000 3.75%, 4/27/94............... $ 997,292
1,000 3.80%, 5/19/94............... 994,933
Avco Financial Services, Inc.
9,800 3.85%, 6/2/94................ 9,735,021
Bear Stearns Cos., Inc.
1,000 3.85%, 6/20/94............... 991,444
2,000 3.85%, 6/27/94............... 1,981,392
Bell Atlantic Financial
Service, Inc.
2,000 3.65%, 4/26/94............... 1,994,931
5,000 3.70%, 5/26/94............... 4,971,736
Ciesco, Inc.
5,000 3.09%, 4/4/94................ 4,998,712
Corporate Asset Funding Co.,
Inc.
1,675 3.35%, 4/13/94............... 1,673,130
12,387 3.35%, 10/6/94............... 12,170,296
Corporate Receivables Corp.
3,000 3.79%, 6/8/94................ 2,978,523
Dean Witter, Discover & Co.
2,000 3.74%, 5/31/94............... 1,987,533
Falcon Asset Securitization
Corp.
1,225 3.70%, 5/2/94................ 1,221,097
General Electric Capital
Corp.
10,005 3.23%, 7/11/94............... 9,914,335
11,000 3.43%, 9/29/94............... 10,810,302
General Motors Acceptance
Corp.
21,300 3.24%, 5/9/94................ 21,227,154
GTE Corp.
5,000 3.72%, 4/14/94............... 4,993,283
</TABLE>
B-13 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Heller Financial, Inc.
$ 3,000 3.65%, 4/25/94............... $ 2,992,700
Household Finance Corp.
9,000 3.22%, 4/4/94................ 8,997,585
International Business
Machines Corp.
7,000 3.67%, 4/11/94............... 6,992,864
International Lease Finance
Corp.
1,000 3.17%, 5/11/94............... 996,478
ITT Corp.
1,000 3.73%, 5/9/94................ 996,063
Merrill Lynch & Co., Inc.
1,730 3.12%, 4/6/94................ 1,729,250
2,300 3.78%, 6/7/94................ 2,283,819
2,000 3.82%, 6/21/94............... 1,982,810
Morgan Stanley Group, Inc.
3,000 3.75%, 5/16/94............... 2,985,937
Norwest Corp.
5,000 3.69%, 5/10/94............... 4,980,012
Nynex Corp.
4,000 3.93%, 7/5/94................ 3,958,517
PepsiCo, Inc.
1,500 3.68%, 4/8/94................ 1,498,927
Preferred Receivables Funding
Corp.
10,405 3.65%, 4/25/94............... 10,379,681
8,500 3.80%, 6/8/94................ 8,438,989
Smith Barney Shearson, Inc.
3,000 3.64%, 4/28/94............... 2,991,810
------------
162,733,105
------------
COMMERCIAL PAPER--FOREIGN
ISSUERS--12.7%
Abbey National North America
Corp.
6,000 3.22%, 4/7/94................ 5,996,780
American Honda Finance Corp.
1,000 3.75%, 4/4/94................ 999,687
ANZ Bank, Ltd.
$ 4,300 3.33%, 4/4/94................ $ 4,298,807
BAT Capital Corp.
900 3.70%, 4/25/94............... 897,780
Bradford & Bingley Building
Society
2,400 3.22%, 4/6/94................ 2,398,927
Isetan of America, Inc.
2,424 3.90%, 6/21/94............... 2,402,729
Kubota Finance (USA), Inc.
5,000 3.75%, 5/24/94............... 4,972,396
Leeds Permanent Building
Society
6,000 3.20%, 4/11/94............... 5,994,667
Maguire/Thomas Partners
3,674 3.69%, 4/7/94................ 3,671,740
Mitsubishi International
Corp.
600 3.80%, 5/12/94............... 597,403
980 3.85%, 6/10/94............... 972,664
800 4.00%, 7/5/94................ 791,556
NS Finance, Inc.
1,000 3.69%, 4/28/94............... 997,232
SRD Finance, Inc.
1,000 3.70%, 4/26/94............... 997,431
1,000 3.75%, 5/10/94............... 995,938
Sumitomo Corp. of America
2,000 3.85%, 5/26/94............... 1,988,236
5,000 4.08%, 9/16/94............... 4,904,800
Toronto Dominion Holdings
(U.S.A.), Inc.
5,000 3.37%, 9/7/94................ 4,925,579
------------
48,804,352
------------
</TABLE>
B-14 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
OTHER CORPORATE
OBLIGATIONS--2.2%
American General Finance
Corp.
$ 2,365 9.25%, 7/1/94................ $ 2,398,127
Capital Auto Receivable Asset
Trust
1,550 3.30%, 4/15/94, 1993-3 A4.... 1,550,099
31 3.35%, 6/15/94, 1993-2 A1.... 31,438
Ford Motor Credit Corp.
1,000 8.00%, 6/1/94................ 1,007,193
Norwest Financial, Inc.
1,600 8.90%, 6/15/94............... 1,616,575
Philip Morris Companies, Inc.
2,050 9.60%, 5/10/94............... 2,063,250
------------
8,666,682
------------
VARIABLE RATE
INSTRUMENTS(D)--27.3%
Avco Financial Services, Inc.
4,000 3.73126%, 4/27/94............ 4,000,000
Federal Home Loan Mortgage
Corp.
8,000 3.575%, 6/15/94.............. 8,000,000
Ford Motor Credit Corp.
8,000 4.1719%, 6/23/94............. 8,000,000
Goldman Sachs Group, L.P.
23,000 3.50%, 8/2/94................ 23,000,000
Household Finance Corp.
5,000 3.55%, 4/12/94............... 5,000,000
Lehman Brothers Holdings,
Inc.
$ 11,000 3.9531%, 4/29/94............. $ 11,000,000
Merrill Lynch & Co., Inc.
12,000 3.20%, 4/20/94............... 12,000,000
Money Market Auto Loan Trust,
5,000 3.795%, 4/15/94, 1990-1...... 5,000,000
Money Market Credit Card
Trust,
3,000 3.72%, 4/11/94, 1989-1....... 2,999,687
Morgan Stanley Group, Inc.
3,000 3.28%, 4/15/94............... 3,000,000
5,000 3.87271%, 4/20/94............ 5,000,000
2,000 3.5925%, 5/13/94............. 2,000,000
Nynex Corp.
16,000 3.73%, 4/5/94................ 16,000,000
------------
104,999,687
------------
Total Investments--100.1%
(amortized cost
$385,359,235*)............. 385,359,235
Liabilities in excess of
other
assets--(0.1%)............. (336,307)
------------
Net Assets--100%............. $385,022,928
------------
------------
</TABLE>
- ---------------
* The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(D) For purposes of amortized cost valuation, the maturity date of variable
rate instruments is considered to be the next date on which the security
can be redeemed at par or the next date on which the rate of interest is
adjusted.
B-15 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
The industry classification of portfolio holdings and net liabilities shown as
a percentage of net assets as of March 31, 1994 was as follows:
<TABLE>
<S> <C>
Commercial Banks............................ 25.4%
Securities Brokers & Dealers................ 18.9
Personal Credit Institutions................ 16.9
Asset Backed................................ 13.4
Telephone Communications.................... 8.3
Business Credit (Finance)................... 6.1
Commodity Trading Firms..................... 2.4
Federal Credit Agencies..................... 2.1
Chemicals & Allied Products................. 1.8
Office Machines............................. 1.8
Bank Holding Companies--Domestic............ 1.3
Tobacco..................................... 0.8
Beverages................................... 0.4
Equipment Rental & Leasing.................. 0.3
Finance Services............................ 0.2
-----
100.1
Liabilities in excess of other assets....... (0.1)
-----
100.0%
-----
-----
</TABLE>
B-16 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets March 31, 1994
--------------
<S> <C>
Investments, at amortized cost which approximates value................................. $385,359,235
Interest receivable..................................................................... 1,176,992
Other assets............................................................................ 23,871
--------------
Total assets.......................................................................... 386,560,098
--------------
Liabilities
Dividends payable....................................................................... 969,855
Accrued expenses........................................................................ 311,159
Bank overdraft.......................................................................... 166,468
Due to Manager.......................................................................... 68,344
Due to Distributor...................................................................... 21,344
--------------
Total liabilities..................................................................... 1,537,170
--------------
Net Assets.............................................................................. $385,022,928
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 385,023
Paid-in capital in excess of par...................................................... 384,637,905
--------------
Net assets at March 31, 1994............................................................ $385,022,928
--------------
--------------
Net asset value, offering and redemption price per share
($385,022,928 / 385,022,928 shares of $.001 par value common stock issued and
outstanding).......................................................................... $1.00
--------------
--------------
</TABLE>
See Notes to Financial Statements.
B-17
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
March 31,
Net Investment Income 1994
-----------
<S> <C>
Income
Interest and discount earned........ $14,896,025
-----------
Expenses
Management fee...................... 891,735
Distribution fee.................... 535,041
Transfer agent's fees and
expenses............................ 257,000
Custodian's fees and expenses....... 184,000
Registration fees................... 95,000
Directors' fees..................... 50,000
Audit fees.......................... 30,000
Reports to shareholders............. 22,000
Insurance expense................... 16,500
Legal fees.......................... 14,000
Miscellaneous....................... 24,179
-----------
Total expenses.................... 2,119,455
-----------
Net investment income................. 12,776,570
Realized Gain on Investments
Net realized gain on investment
transactions........................ 76,316
-----------
Net Increase in Net Assets
Resulting from Operations............. $12,852,886
-----------
-----------
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended March 31,
Increase (Decrease) ---------------------------------
in Net Assets 1994 1993
--------------- ---------------
<S> <C> <C>
Operations
Net investment
income.............. $ 12,776,570 $ 17,824,731
Net realized gain on
investment
transactions...... 76,316 394,996
--------------- ---------------
Net increase in net
assets resulting
from operations... 12,852,886 18,219,727
--------------- ---------------
Dividends and
distributions to
shareholders........ (12,852,886) (18,219,727)
--------------- ---------------
Fund share
transactions
(at $1 per share)
Proceeds from shares
subscribed........ 2,092,856,313 2,168,239,637
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions..... 12,113,835 17,946,742
Cost of shares
reacquired.......... (2,217,160,989) (2,132,144,119)
--------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions...... (112,190,841) 54,042,260
--------------- ---------------
Total increase
(decrease).......... (112,190,841) 54,042,260
Net Assets
Beginning of year..... 497,213,769 443,171,509
--------------- ---------------
End of year........... $ 385,022,928 $ 497,213,769
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-18
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Notes to Financial Statements
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money
Market Series (the "Fund") is registered under the Investment Company Act of
1940 as an open-end, diversified management investment company. The investment
objective of the Fund is high current income consistent with the preservation
of principal and liquidity. The Fund invests primarily in money market
instruments maturing in thirteen months or less whose ratings are within the
two highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Fund to meet its obligations may be
affected by economic developments in a specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuations: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a
security at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: It is the intent of the Fund 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.
Dividends and Distributions: The Fund declares all of its net investment income
and net realized short-term capital gains/losses, if any, as dividends daily to
its shareholders of record at the time of such declaration. Net investment
income for dividend purposes includes interest accrued or discount earned less
amortization of premium and the estimated expenses applicable to the dividend
period. The Fund does not expect to realize long-term capital gains or losses.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. ("PMF"). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of
such services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the 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 PMF is computed daily and payable monthly, at an
annual rate of .20 of 1% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), who acts as the distributor of the Fund's
shares. To reimburse PMFD for its expenses incurred pursuant to a plan of
distribution, the Fund pays PMFD a reimbursement which is accrued daily and
payable monthly at an annual rate of .12 of 1% of the average daily net assets
of the Fund. PMFD pays various broker-dealers or financial institutions,
including Prudential Securities Incorporated ("PSI") and Pruco Securities
Corporation, affiliated broker-dealers, for account servicing fees and other
expenses incurred by such broker-dealers.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. ("PMFS"), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the year ended March 31, 1994, the Fund incurred fees of approximately $240,000
for the services of PMFS. As of March 31, 1994, approximately $20,000 of such
fees were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations include certain out-of-pocket expenses paid to non-affiliates.
B-19
<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Financial Highlights
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
--------- -------- -------- -------- --------
Net asset value, beginning of year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains............... .029 .033 .054 .076 .087
Dividends and distributions to shareholders................ (.029) (.033) (.054) (.076) (.087)
--------- -------- -------- -------- --------
Net asset value, end of year............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
TOTAL RETURN#:............................................. 2.92% 3.40% 5.57% 8.00% 9.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).............................. $ 385,023 $497,214 $443,172 $519,802 $417,354
Average net assets (000)................................... $ 445,867 $543,694 $540,380 $479,849 $421,540
Ratios to average net assets:
Expenses, including distribution fee..................... .48% .44% .42% .46% .38%
Expenses, excluding distribution fee..................... .36% .32% .30% .34% .26%
Net investment income.................................... 2.87% 3.28% 5.32% 7.58% 8.60%
</TABLE>
- ---------------
# Total return includes reinvestment of dividends and distributions.
See Notes to Financial Statements.
B-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Institutional Liquidity Portfolio, Inc.--
Institutional Money Market Series
We have audited the accompanying statement of assets and liabilities of
Prudential Institutional Liquidity Portfolio, Inc.-- Institutional Money Market
Series, including the portfolio of investments, as of March 31, 1994, the
related statements of operations for the year then ended and of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series as
of March 31, 1994, the results of its operations, the changes in its net assets
and the financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche
New York, New York
May 5, 1994
B-21
