As filed with the Securities and Exchange Commission on May 26, 1995
Securities Act Registration Statement No. 33-17224
Investment Company Act Registration No. 811-5336
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10 [X]
(Check appropriate box or boxes)
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PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (212) 214-1250
S. Jane Rose, Esq.
One Seaport Plaza
New York, New York 10292
(Name and Address of Agent for Service of Process)
Approximate date of proposed public offering:
As soon as practicable after the effective
date of the Registration Statement.
It is proposed that this filing will become effective
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 30, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously registered an indefinite number of shares of Common Stock, par value
$.001 per share. The Registrant will file a notice under such Rule for its
fiscal year ended March 31, 1995 on or before May 31, 1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
N-1A Item No. Location
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Part A
<S> <C>
Item 1. Cover Page ........................................................... Cover Page
Item 2. Synopsis ............................................................. Fund Expenses; Financial Highlights
Item 3. Condensed Financial Information ...................................... Fund Expenses; Calculation of Yield
Item 4. General Description of Registrant .................................... Cover Page; How the Fund Invests; General
Information
Item 5. Management of the Fund ............................................... Financial Highlights; How the Fund Is Managed;
General Information
Item 6. Capital Stock and Other Securities ................................... Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered ................................. Shareholder Guide; How the Fund Values Its Shares
Item 8. Redemption or Repurchase ............................................. Shareholder Guide; General Information
Item 9. Pending Legal Proceedings ............................................ Not Applicable
Part B
Item 10. Cover Page ........................................................... Cover Page
Item 11. Table of Contents .................................................... Table of Contents
Item 12. General Information and History ...................................... General Information
Item 13. Investment Objectives and Policies ................................... Investment Objective and Policies; Investment
Restrictions
Item 14. Management of the Fund ............................................... Directors and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities .................. Directors and Officers
Item 16. Investment Advisory and Other Services ............................... Manager; Distributor; Custodian, Transfer and
Shareholder Servicing Agent and Independent
Accountants
Item 17. Brokerage Allocation and Other Practices ............................. Portfolio Transactions
Item 18. Capital Stock and Other Securities ................................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered ......... Net Asset Value; Purchase of Shares
Item 20. Tax Status ........................................................... Taxes
Item 21. Underwriters ......................................................... Distributor
Item 22. Calculation of Performance Data ...................................... Calculation of Yield
Item 23. Financial Statements ................................................. Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
<PAGE>
Prudential
Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
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Prospectus dated May 30, 1995
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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. There can be no assurance that the Series' investment objective
will be achieved. 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 30, 1995, 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. There can be no assurance that the Series' investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Polices" at
page 6.
Risk Factors and Special Characteristics
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 13.
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, 1995, PMF served as
manager or administrator to 69 investment companies, including 39 mutual funds,
with aggregate assets of approximately $48 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.
2
<PAGE>
Who Distributes the Series' 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 minimum subsequent
investment is $10,000. The Series reserves the right to impose a higher or lower
minimum subsequent amount from time to time as it may deem appropriate. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 16 and "Shareholder
Guide--Shareholder Services" at page 18.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities
Incorporated (Prudential Securities or PSI), 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 13 and "Shareholder Guide--How to Buy Shares of the Fund" at page 16.
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.
3
<PAGE>
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 ................................................. .14%
---
Total Series Operating Expenses ................................ .46%
===
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 $26 $58
- ----------
The above example is based on data for the Fund's fiscal year ended March 31,
1995. 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" includes operating expenses of
the Series, such as Directors' and professional fees, registration fees, reports
to shareholders, transfer agency and custodian fees.
4
<PAGE>
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, 1995 have been audited by Deloitte & Touche LLP, 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,
1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized
gains .................................... .046 .029 .033 .054 .076 .087 .079** .022**
Dividends and distributions ................ (.046) (.029) (.033) (.054) (.076) (.087) (.079) (.022)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN:# ............................. 4.69% 2.92% 3.40% 5.57% 8.00% 9.07% 8.22% 2.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ............ $476,229 $385,023 $497,214 $443,172 $519,802 $417,354 $264,281 $204,707
Average net assets (000) ................... $402,678 $445,867 $543,694 $540,380 $479,849 $421,540 $227,044 $ 88,431
Ratios to average net assets:
Expenses, including distribution fee ..... .46% .48% .44% .42% .46% .38% .26%** .12%**/+
Expenses, excluding distribution fee ..... .34% .36% .32% .30% .34% .26% .14%** .00%**/+
Net investment income .................... 4.67% 2.87% 3.28% 5.32% 7.58% 8.60% 7.89%** 6.69%**/+
</TABLE>
- ---------
* Commencement of operations.
** Net of expense subsidy.
+ Annualized.
# 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.
5
<PAGE>
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, 1995:
Value of hypothetical account at end of period ............... $1.001118584
Value of hypothetical account at beginning of period ......... 1.000000000
------------
Base period return ........................................... $ .001118584
============
Current yield ([.001118584] x (365/7)) ....................... 5.83%
Effective annual yield, assuming weekly compounding .......... 6.00%
The yield will fluctuate from time to time and does not indicate future
performance.
The weighted average life to maturity of the Series on March 31, 1995 was
51 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., Morningstar Publications, Inc., IBC/Donoghue's Money Fund
Report, The Bank Rate Monitor, other industry publications, 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). The Series' 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
whether the Series should continue to hold the security. If a portfolio security
no longer presents minimal credit risks or
6
<PAGE>
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 organizations 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
organization 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. Government.
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 obligations 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 under certain circumstances
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.
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 associations
7
<PAGE>
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 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
8
<PAGE>
unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from the broker, dealer or financial institution.
Floating Rate and Variable Rate Securities
The Fund may purchase "floating rate" and "variable rate" obligations. The
interest rates on such obligations fluctuate generally with changes in market
interest rates, and in some cases, the Fund is able to demand repayment of the
principal amount of such obligations at par plus accrued interest. For
additional information concerning variable rate and floating rate obligations,
see "Investment Objective and Policies" in the Statement of Additional
Information.
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
securities 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 acquisition,
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
9
<PAGE>
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 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 agreements 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.
Illiquid Securities
The Fund may not 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.
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 institutions
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 establish 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.
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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.
For the fiscal year ended March 31, 1995, total expenses for the Series as
a percentage of average net assets were .46%. 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, 1995, 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, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies. These companies have
aggregate assets of approximately $48 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 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 or PSI) and representatives of 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.
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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, 1995, the Fund paid PMFD a distribution
fee equal on an annual basis to .12% of the average daily net assets of the
Series.
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, 1995, PMFD incurred distribution
expenses of $483,214 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 out of its own
resources to dealers and other persons which distribute shares of the Fund. Such
payments may be calculated by reference to the net asset value of shares sold by
such persons or otherwise.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner, who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (the NASD) to resolve allegations that
from 1980 through 1990 PSI sold certain limited partnership interests in
violation of securities laws to persons for whom such securities were not
suitable and misrepresented the safety, potential returns and liquidity of these
investments. Without admitting or denying the allegations asserted against it,
PSI consented to the entry of an SEC Administrative Order which stated that
PSI's conduct violated the federal securities laws, directed PSI to cease and
desist from violating the federal securities laws, pay civil penalties, and
adopt certain remedial measure to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to the payment of a
$5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity separate from PSI, which has no beneficial ownership
therein, and the Fund's assets, which are held by State Street Bank and Trust
Company, an independent custodian, are separate and distinct from PSI.
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<PAGE>
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" 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, New Brunswick, 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 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
(the Internal Revenue Code). Accordingly, the Series will not be
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<PAGE>
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.
Withholding Taxes
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders) with the required certifications regarding the
shareholder's status under the federal income tax law. However, dividends of net
investment income and short-term capital gains to a foreign shareholder will
generally be subject to U.S. withholding tax at the rate of 30% (or lower treaty
rate).
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 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.
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<PAGE>
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
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 12, 1995, Prudential, either directly or through one or more
controlled companies, owned approximately 52% of the Fund's outstanding voting
securities and may be deemed to be a controlling person of the Fund.
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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 Series reserves the right to impose a higher or lower minimum
subsequent amount from time to time as it may deem appropriate. 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.
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.
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<PAGE>
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 effective 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 redemption request and
on the certificates, if any, or stock power must be guaranteed 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 authorizing 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 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.
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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:
o 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.
o 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.
o Exchange Privilege. The Fund does not currently offer an exchange
privilege for shares of the Series.
o 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.
o 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).
18
<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 Ratings Group
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. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
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 Credit Rating Co
Long-Term Debt 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.
Short-Term Debt Ratings
Duff 1+: 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 good fundamental protection factors. Risk factors are
minor.
Duff 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2: 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+'.
Short-Term Debt 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>
Prudential
Institutional Liquidity Portfolio, Inc. (PILP)
New Account Application
-----------------------------------------
- -- Fund Selection--Prudential Institutional Liquidity Portfolio, Inc. (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 credit
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.
- ------------------------- ------------------------------------------- --------
Signature Corporate Officer or Title (if appropriate) Date
- ------------------------- ------------------------------------------- --------
Signature Corporate Officer or Title (if appropriate) Date
Acceptance Date:
----------------------------------
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 08837
Institutional Service Division
Telephone Number: Telecopier Number:
1-800-521-7466 (908) 417-7806
(8:00 a.m.-4:30 p.m. (est))
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.
<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 , and that
--------------------------
(State)
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 hereby
---------------------------
(Officers' titles)
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>
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 Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
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
Hawaii Income 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, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
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 Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
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 OF CONTENTS
Page
----
FUND HIGHLIGHTS ......................................................... 2
Risk Factors and Special Characteristics ............................... 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
Investment Restrictions ................................................ 10
HOW THE FUND IS MANAGED ................................................. 11
Manager ................................................................ 11
Distributor ............................................................ 11
Portfolio Transactions ................................................. 13
Custodian and Transfer and Shareholder Servicing Agent ................. 13
HOW THE FUND VALUES ITS SHARES .......................................... 13
TAXES, DIVIDENDS AND DISTRIBUTIONS ...................................... 13
GENERAL INFORMATION ..................................................... 15
Description of Common Stock ............................................ 15
Additional Information ................................................. 16
SHAREHOLDER GUIDE ....................................................... 16
How to Buy Shares of the Fund .......................................... 16
How to Sell Your Shares ................................................ 16
Shareholder Services ................................................... 18
DESCRIPTION OF SECURITY RATINGS ......................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ....................................... B-1
MF137A 44071B
CUSIP No.: 750350109
Prudential
Institutional
Liquidity
Portfolio, Inc.
---------------
Institutional
Money Market Series
Prudential Mutual Funds
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH (SM)
PROSPECTUS MAY 30, 1995
<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Statement of Additional Information
dated May 30, 1995
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. There can be no assurance that the Fund's investment objective
will be achieved. 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 30, 1995, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
Cross-reference
to page in
Page Prospectus
---- --------------
Investment Objective and Policies ........................ B-2 6
Investment Restrictions .................................. B-3 10
Directors and Officers ................................... B-5 11
Manager .................................................. B-7 11
Distributor .............................................. B-9 11
Purchase of Shares ....................................... B-11 16
Net Asset Value .......................................... B-11 13
Portfolio Transactions ................................... B-11 13
Taxes .................................................... B-12 13
Calculation of Yield ..................................... B-13 6
Custodian, Transfer and Shareholder Servicing
Agent and Independent Accountants ....................... B-13 13
General Information ...................................... B-13 15
Financial Statements ..................................... B-14 --
Independent Auditor's Report ............................. B-22 --
- --------------------------------------------------------------------------------
<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.
Floating Rate and Variable Rate Securities
The Fund may purchase "floating rate" and "variable rate" securities.
Investments in floating or variable rate securities normally will involve
securities which provide that the rate is set as a spread to a designated base
rate, such as rates on Treasury bills, and, in some cases, that the purchaser
can demand payment of the obligation at specified intervals or after a specified
notice period (in each case a period of less than thirteen months) at par plus
accrued interest, which amount may be more or less than the amount paid for
them. Variable rate securities provide for a specified periodic adjustment in
the interest rate, while floating rate securities have an interest rate which
changes whenever there is a change in the designated base interest rate.
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.
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.
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.
B-3
<PAGE>
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.
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.
B-4
<PAGE>
<TABLE>
DIRECTORS AND OFFICERS
<CAPTION>
Position with Principal Occupations
Name, Address and Age the Fund During Past Five Years
- --------------------- ---------- ----------------------
<S> <C> <C>
Eugene C. Dorsey (68) Director Retired president, Chief Executive Officer and Trustee
c/o Prudential Mutual Fund of the Gannett Foundation (now Freedom Forum); former
Management, Inc. publisher of four Gannett newspapers and Vice President
One Seaport Plaza of the Gannett Company; past Chairman, Independent Sector,
New York, NY 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 (76) 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 Director
One Seaport Plaza 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.
*Richard A. Redeker (51) President and 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. (PSG); Executive Vice President (since July
1994), The Prudential Investment Corporation (PIC); Director
(since January 1994), Prudential Mutual Fund Distributors,
Inc. (PMFD); Director (since January 1994), Prudential
Mutual Fund Services, Inc. (PMFS); formerly Senior Executive
Vice President and Director of Kemper Financial Services, Inc.
(September 1978-September 1993); President and Director of
The Global Government Plus Fund, Inc., The Global Total
Return Fund and The High Yield Income Fund, Inc.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age the Fund During Past Five Years
- --------------------- ---------- ----------------------
<S> <C> <C>
Stanley E. Shirk (78) 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 (55) 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 Total Return
Fund, Inc., The High Yield Income Fund, Inc. and
The High Yield Plus Fund, Inc.
Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President,
New York, NY Treasurer and Chief Financial Officer (since June
1987) of PMF; Senior Vice President (since March
1987) of Prudential Securities; Executive Vice President,
Treasurer, Comptroller and Director, PMFD (since
March 1991); Director, PMFS (since June 1987); Vice
President and Director of The Asia Pacific Fund, Inc.
(since May 1989).
S. Jane Rose (49) 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 (since July 1992) of
Prudential Securities; formerly Vice President
and Associate General Counsel of Prudential Securities.
Eugene S. Stark (37) Treasurer and Principal First Vice President (since January 1990) of PMF;
One Seaport Plaza Financial and First Vice President of Prudential Securities (since
New York, NY Accounting Officer January 1992).
Marguerite E.H. Morrison (39) Assistant Vice President and Associate General Counsel (since
One Seaport Plaza Secretary June 1991) of PMF; Vice President and Associate
New York, NY General Counsel of Prudential Securities.
<FN>
- ----------
* "Interested" Director of the Fund, as defined in the Investment Company
Act of 1940 (the Investment Company Act).
</FN>
</TABLE>
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).
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.
Directors may receive their Director's fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Director's fees in installments which accrue interest at a
rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills
at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund (the Fund rate). The minimum
initial investment requirement is waived for Directors who receive their fees
pursuant to a deferred fee agreement. Payment of the interest so accrued is also
deferred and accruals become payable at the option of the Director. The Fund's
obligation to make payments of deferred Directors' fees, together with interest
thereon, is a general obligation of the Fund. Mr. Dorsey has elected to receive
his Director's fees pursuant to the deferred fee agreement.
Pursuant to the terms of the Management Agreement with the Fund, the
Manager pays all compensation of officers of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended March 31, 1995 and the aggregate compensation paid to such Directors for
service on the Fund's board and that of all other funds managed by Prudential
Mutual Fund Management, Inc. (Fund Complex) for the calendar year ended December
31, 1994.
<TABLE>
Compensation Table
<CAPTION>
Approximate
Pension or Compensation
Retirement Estimated From Fund
Aggregate Benefits Accrued Annual And Fund
Compensation As Part of Fund Benefits Upon Complex Paid
Name and Position From Fund Expenses Retirement to Directors
----------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Eugene C. Dorsey--Director* ........................... $10,000 None N/A $61,000(7)**
Donald D. Lennox--Director ............................ $10,000 None N/A $90,000(10)**
Stanley E. Shirk--Director ............................ $10,000 None N/A $79,000(8)**
Robin B. Smith--Director .............................. $10,000 None N/A $68,800(7)**
<FN>
- ----------
* All compensation from the Fund for the fiscal year ended March 31, 1995
represents deferred compensation. Aggregate compensation from the Fund and
the Fund Complex for the calendar year ended December 31, 1994, including
accrued interest, amounted to approximately $10,600 for the Fund and $63,600
for the Fund Complex for Mr. Dorsey.
** Indicates number of funds in Fund Complex to which aggregate compensation
relates.
</FN>
</TABLE>
As of May 5, 1995, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund.
As of May 12, 1995, Prudential Insurance Company of America (Prudential),
Prudential Plaza, Newark, New Jersey 07101, either directly or through one or
more controlled companies, owned approximately 52% 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 5, 1995, Prudential Health Care Plan of California, Inc., Attn: David
Carlson Group Financial, 5800 Canoga Avenue, WHW2, Woodland Hills, California
91367-6503, PRUCO Incorporated, The Prudential Ins. Co., Attn: Apryl Basile, 213
Washington St., 9th Floor, Newark, New Jersey 07102-2919 were the beneficial
owners of 22.3%, and 8.9%, 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, 1995, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $48
billion. According to the Investment Company Institute, as of December 31, 1994,
the Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.
B-7
<PAGE>
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 with
the Fund, 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. No such reductions were required during the fiscal year ended March
31, 1995. 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 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 11, 1995, and was approved by the shareholders of the Series on
November 29, 1988.
B-8
<PAGE>
For the fiscal years ended March 31, 1995, 1994 and 1993, the Series paid
management fees to PMF of $805,357, $891,735, and $1,087,387, 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, with a staff including 7 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 11, 1995, 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 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 1994, Institutional Investor ranked
Prudential the second largest institutional money manager of the 300 largest
money management organizations in the United States as of December 31, 1993.
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, 1995, PMFD incurred distribution
expenses in the aggregate of approximately $483,200 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%
($362,400) was spent on payment of account servicing fees to financial advisers
and 25% ($120,800) 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 11, 1995, 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
B-9
<PAGE>
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 11, 1995.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI
entered into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for any
alleged criminal activity related to the sale of certain limited partnership
programs from 1983 to 1990. In connection with these agreements, PSI agreed to
add the sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
B-10
<PAGE>
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 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 requirements, an investor may reopen an
account, without filing a new application form, 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
B-11
<PAGE>
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.
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, 1993, 1994 and 1995, 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.
B-12
<PAGE>
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., Morningstar Publications, Inc., Donoghue's Money Fund
Report, The Bank Rate Monitor, other industry publications, business
periodicals, and market indices.
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, 1995, the Series incurred fees of $240,000 for the services of PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, 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-13
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC. Portfolio of Investments
INSTUTIONAL MONEY MARKET SERIES March 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- ------- ----------- --------
<C> <S> <C>
BANKERS ACCEPTANCE--FOREIGN
ISSUERS--0.3%
Rabobank Nederland
$ 1,572 6.45%, 5/1/95................ $ 1,563,532
------------
BANK HOLDING PAPER--4.4%
Bankers Trust New York Corp.
10,000 5.15%, 4/3/95................ 9,997,139
Citicorp
7,000 6.03%, 5/1/95................ 6,964,825
NationsBank Corp.
1,000 6.10%, 5/9/95................ 993,561
PNC Funding Corp.
3,000 6.07%, 4/17/95............... 2,991,907
------------
20,947,432
------------
BANK NOTES--6.2%
Bank One, Indianapolis, NA
1,000 7.18%, 2/5/96................ 1,003,324
Fifth Third Bank, Cincinnati,
NA
5,000 6.00%, 4/7/95................ 4,999,956
NationsBank of Texas, NA
1,000 6.82%, 10/31/95.............. 1,000,883
3,000 7.55%, 1/9/96................ 3,018,420
2,500 7.30%, 1/26/96............... 2,508,533
17,000 7.00%, 2/6/96................ 17,007,774
------------
29,538,890
------------
CERTIFICATES OF DEPOSIT--FOREIGN
ISSUERS--12.4%
Banque Nationale de Paris
1,000 6.25%, 4/12/95............... 1,000,039
Canadian Imperial Bank of
Commerce
19,000 6.04%, 4/10/95............... 19,000,019
Fuji Bank, Ltd.
$ 3,000 6.10%, 4/3/95................ $ 3,000,003
3,000 6.15%, 4/28/95............... 3,000,022
15,000 6.12%, 5/3/95................ 15,000,000
Industrial Bank of Japan,
Ltd.
1,000 6.36%, 4/24/95............... 1,000,000
Rabobank Nederland
4,000 6.66%, 2/27/96............... 3,992,997
Societe Generale
1,000 7.60%, 1/11/96............... 1,005,602
Sumitomo Bank, Ltd.
1,000 6.48%, 4/3/95................ 1,000,018
11,000 6.15%, 5/4/95................ 11,000,100
------------
58,998,800
------------
COMMERCIAL PAPER--DOMESTIC
ISSUERS--37.1%
American Express Credit Corp.
4,000 6.18%, 8/21/95............... 3,902,493
American Home Products Corp.
5,700 6.52%, 5/1/95................ 5,669,030
Aristar, Inc.
1,400 6.15%, 4/27/95............... 1,393,782
1,000 6.12%, 5/5/95................ 994,220
1,000 6.13%, 5/11/95............... 993,189
Beneficial Corp.
3,000 6.05%, 4/28/95............... 2,986,388
CIT Group Holdings, Inc.
2,000 6.10%, 4/3/95................ 1,999,323
Corporate Asset Funding Co.,
Inc.
15,187 6.10%, 4/13/95............... 15,156,120
Countrywide Funding Corp.
9,000 6.00%, 4/3/95................ 8,997,000
3,000 6.15%, 4/11/95............... 2,994,875
</TABLE>
See Notes to Financial Statements.
B-14
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTUTIONAL MONEY MARKET SERIES
<TABLE>
<CAPTION>
<C> <S> <C>
Principal
Amount Value
(000) Description (Note 1)
- --------- ----------- --------
COMMERCIAL PAPER--DOMESTIC
ISSUERS--(cont'd)
Dayton Hudson Corp.
$ 2,000 6.105%, 5/17/95.............. $ 1,984,398
Dean Witter, Discover & Co.
4,000 6.00%, 4/5/95................ 3,997,333
Duracell, Inc.
980 6.10%, 4/3/95................ 979,668
1,000 6.15%, 4/11/95............... 998,292
Finova Capital Corp.
4,145 6.12%, 4/6/95................ 4,141,477
1,500 6.17%, 4/19/95............... 1,495,372
4,000 6.15%, 5/11/95............... 3,972,667
Ford Motor Credit Co.
12,000 6.04%, 5/31/95............... 11,879,200
5,000 6.11%, 7/12/95............... 4,913,441
5,000 6.20%, 9/11/95............... 4,859,639
General Motors Acceptance
Corp.
1,000 6.15%, 4/17/95............... 997,267
3,599 6.17%, 4/17/95............... 3,589,131
5,423 6.10%, 4/19/95............... 5,406,460
10,000 6.55%, 5/4/95................ 9,939,958
Heller Financial, Inc.
2,000 6.05%, 5/4/95................ 1,988,908
Honeywell, Inc.
1,000 6.05%, 4/7/95................ 998,992
IBM Credit Corp.
5,000 6.125%, 4/20/95.............. 4,983,837
ITT Corp.
3,000 6.10%, 4/10/95............... 2,995,425
4,445 6.13%, 4/27/95............... 4,425,321
7,000 6.15%, 5/5/95................ 6,959,342
3,000 6.15%, 5/8/95................ 2,981,037
2,540 6.125%, 5/22/95.............. 2,517,960
ITT Financial Corp.
3,000 6.10%, 4/13/95............... 2,993,900
Merrill Lynch & Co., Inc.
$ 9,000 6.00%, 4/10/95............... $ 8,986,500
Morgan Stanley Group, Inc.
4,000 6.05%, 5/1/95................ 3,979,833
NYNEX Corp.
5,000 6.07%, 5/3/95................ 4,973,022
1,000 6.25%, 5/3/95................ 994,444
Preferred Receivables Funding
Corp.
6,945 6.00%, 4/5/95................ 6,940,370
3,000 6.00%, 4/20/95............... 2,990,500
Riverwoods Funding Corp.
1,000 6.00%, 4/5/95................ 999,333
USL Capital Corp.
3,000 6.05%, 5/2/95................ 2,984,371
Weyerhauser Mortgage Co.
1,500 6.10%, 4/20/95............... 1,495,171
Whirlpool Financial Corp.
3,210 6.10%, 4/19/95............... 3,200,209
2,000 6.10%, 4/26/95............... 1,991,528
WMX Technologies, Inc.
2,000 5.20%, 5/12/95............... 1,988,156
------------
176,608,882
------------
COMMERCIAL PAPER--FOREIGN
ISSUERS--4.6%
75 State Street Capital Corp.
1,000 6.03%, 4/17/95............... 997,320
American Honda Finance Corp.
12,996 6.15%, 5/15/95............... 12,898,313
B.B. Finance, Inc.
3,000 6.25%, 4/6/95................ 2,997,396
Canadian Imperial Holdings,
Inc.
4,000 6.00%, 4/20/95............... 3,987,333
Fundex Corp.
1,088 6.15%, 4/24/95............... 1,083,725
------------
21,964,087
------------
</TABLE>
See Notes to Financial Statements.
B-15
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTUTIONAL MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
- --------- ----------- --------
OTHER CORPORATE OBLIGATIONS--3.5%
<C> <S> <C>
Associates Corp. of North
America
$ 5,000 4.50%, 2/15/96............... $ 4,903,179
Atlantic Richfield Co.
1,000 10.375%, 7/15/95............. 1,010,561
BP North America, Inc.
1,000 10.15%, 3/15/96.............. 1,030,960
CIT Group Holdings, Inc.
1,400 8.75%, 2/15/96............... 1,423,396
Commercial Credit Co.
1,000 9.20%, 6/15/95............... 1,005,506
Ford Motor Credit Corp.
1,000 8.875%, 3/15/96.............. 1,017,917
Morgan Stanley Group, Inc.
6,000 9.875%, 5/1/95............... 6,016,876
------------
16,408,395
------------
VARIABLE RATE INSTRUMENTS(+)--26.6%
American Express Centurion
Bank
2,000 6.125%, 4/5/95............... 1,999,931
4,000 6.125%, 4/18/95.............. 3,999,296
1,000 6.125%, 4/19/95.............. 999,962
Beneficial Corp.
10,000 6.36%, 4/3/95................ 10,000,000
Boatmen's National Bank of
St. Louis
19,500 6.35%, 4/3/95................ 19,500,000
General Electric Capital
Corp.
5,000 6.09375%, 4/26/95............ 5,000,000
4,000 6.125%, 4/28/95.............. 4,000,359
Goldman Sachs Group L.P.
18,000 6.3125%, 5/30/95............. 18,000,000
Key Bank of New York, NA
18,500 6.26%, 4/3/95................ 18,493,194
Lehman Brothers Holdings,
Inc.
10,000 6.325%, 4/24/95.............. 10,000,000
Merrill Lynch & Co., Inc.
$ 5,000 6.135%, 4/3/95............... $ 4,999,508
3,000 6.135%, 4/24/95.............. 2,999,721
Money Market Auto Loan
Trust 1990-1
7,000 6.275%, 4/17/95.............. 7,000,000
Money Market Credit Card
Trust 1989-1
1,773 6.22%, 4/10/95............... 1,772,729
Morgan Stanley Group, Inc.
3,000 6.375%, 4/17/95.............. 3,000,000
5,000 6.3763%, 4/19/95............. 5,000,000
2,000 6.4375%, 5/15/95............. 2,000,000
PNC Bank, NA
8,000 5.92%, 4/3/95................ 7,999,689
------------
126,764,389
------------
MEDIUM-TERM OBLIGATIONS--3.0%
Ford Motor Credit Corp.
2,000 6.125%, 12/11/95............. 1,991,902
General Electric Capital
Corp.
4,000 6.95%, 3/1/96................ 4,011,088
General Motors Acceptance
Corp.
3,150 6.85%, 5/12/95............... 3,153,733
2,000 6.50%, 5/23/95............... 1,998,773
Westdeutsche Landesbank
Girozentrale
3,000 6.85%, 3/1/96................ 3,004,266
------------
14,159,762
------------
YANKEE EURO-TIME DEPOSITS--6.4%
Dai-Ichi Kangyo Bank, Ltd.
23,500 6.4375%, 4/3/95.............. 23,500,000
Mitsubishi Bank, Ltd.
7,000 6.1875%, 4/14/95............. 7,000,000
------------
30,500,000
------------
</TABLE>
See Notes to Financial Statements.
B-16
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
<TABLE>
<CAPTION>
Value
Description (Note 1)
----------- --------
<S> <C>
Total Investments--104.5%
(amortized cost
$497,454,169*)............. $497,454,169
Liabilities in excess of
other assets--(4.5%)....... (21,225,662)
------------
Net Assets--100%............. $476,228,507
============
</TABLE>
* The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(+) For purposes of amortized cost valuation, the maturity date of variable rate
instruments is considered to be the earliest of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
The industry classification of portfolio holdings and net liabilities shown as a
percentage of net assets as of March 31, 1995 was as follows:
<TABLE>
<S> <C>
Commercial Banks......................... 39.6%
Personal Credit Institutions............. 18.5
Securities Brokers & Dealers............. 14.5
Asset Backed............................. 7.4
Business Credit (Finance)................ 6.7
Financial Services....................... 5.2
Domestic Bank Holding Companies.......... 3.8
Mortgage Banks........................... 2.5
Telephone & Communications............... 1.3
Pharmaceutical........................... 1.2
Household Appliances..................... 1.1
Equipment Rental & Leasing............... .6
Electrical............................... .4
Petroleum Refining....................... .4
Refuse/Sanitary Systems.................. .4
Variety Stores........................... .4
Paper & Allied Products.................. .3
Regulatory Controls...................... .2
Liabilities in excess of other assets.... (4.5)
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements.
B-17
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
March 31,
Assets 1995
------------
<S> <C>
Investments, at value..................................................................... $497,454,169
Cash...................................................................................... 185,748
Interest receivable....................................................................... 1,577,762
Other assets.............................................................................. 19,172
------------
Total assets............................................................................ 499,236,851
------------
Liabilities
Payable for investments purchased......................................................... 20,222,097
Dividends payable......................................................................... 2,469,000
Accrued expenses and other liabilities.................................................... 202,872
Management fee payable.................................................................... 86,568
Distribution fee payable.................................................................. 27,807
------------
Total liabilities....................................................................... 23,008,344
------------
Net Assets................................................................................ $476,228,507
============
Net assets were comprised of:
Common stock, at par.................................................................... $ 476,229
Paid-in capital in excess of par........................................................ 475,752,278
------------
Net assets at March 31, 1995.............................................................. $476,228,507
============
Net asset value, offering and redemption price per share
($476,228,507 (divided by) 476,228,507 shares of $.001 par value common stock issued
and outstanding)........................................................................ $1.00
=====
</TABLE>
See Notes to Financial Statements.
B-18
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
March 31,
1995
-----------
<S> <C>
Net Investment Income
Income
Interest and discount earned........ $20,672,654
-----------
Expenses
Management fee...................... 805,357
Distribution fee.................... 483,214
Transfer agent's fees and
expenses.......................... 250,000
Custodian's fees and expenses....... 165,000
Registration fees................... 40,000
Directors' fees..................... 40,000
Reports to shareholders............. 31,000
Audit fees.......................... 27,000
Legal fees.......................... 13,000
Insurance expense................... 13,000
Miscellaneous....................... 4,671
-----------
Total expenses.................... 1,872,242
-----------
Net investment income................. 18,800,412
Realized Gain on Investments
Net realized gain on investment
transactions........................ 16,348
-----------
Net Increase in Net Assets Resulting
from Operations....................... $18,816,760
===========
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Increase (Decrease)
in Net Assets
Operations
Net investment
income............. $ 18,800,412 $ 12,776,570
Net realized gain on
investment
transactions...... 16,348 76,316
--------------- ---------------
Net increase in net
assets resulting
from operations... 18,816,760 12,852,886
--------------- ---------------
Dividends and
distributions to
shareholders........ (18,816,760) (12,852,886)
--------------- ---------------
Fund share
transactions
Net proceeds from
shares
subscribed........ 1,920,194,727 2,092,856,313
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions..... 16,326,258 12,113,835
Cost of shares
reacquired........ (1,845,315,406) (2,217,160,989)
--------------- ---------------
Net increase
(decrease) in net
assets from Fund
share
transactions...... 91,205,579 (112,190,841)
--------------- ---------------
Total increase
(decrease).......... 91,205,579 (112,190,841)
Net Assets
Beginning of year..... 385,022,928 497,213,769
--------------- ---------------
End of year........... $ 476,228,507 $ 385,022,928
=============== ===============
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
B-19
<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 vices, Inc. ("PMFS"), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's
transfer agent. During the year ended March 31, 1995, the Fund incurred fees of
$240,000 for the services of PMFS. As of March 31, 1995, $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-20
<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Financial Highlights
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<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............... .046 .029 .033 .054 .076
Dividends and distributions to shareholders................ (.046) (.029) (.033) (.054) (.076)
-------- -------- -------- -------- --------
Net asset value, end of year............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
======== ======== ======== ======== ======
TOTAL RETURN#:............................................. 4.69% 2.92% 3.40% 5.57% 8.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).............................. $476,229 $385,023 $497,214 $443,172 $519,802
Average net assets (000)................................... $402,678 $445,867 $543,694 $540,380 $479,849
Ratios to average net assets:
Expenses, including distribution fee..................... .46% .48% .44% .42% .46%
Expenses, excluding distribution fee..................... .34% .36% .32% .30% .34%
Net investment income.................................... 4.67% 2.87% 3.28% 5.32% 7.58%
</TABLE>
- ---------------
# Total return is calculated assuming a purchase of shares on the first day and
a sale on the last day of each year reported and includes reinvestment of
dividends and distributions.
See Notes to Financial Statements.
B-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
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, 1995, 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, 1995 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, 1995, 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 LLP
New York, New York
May 11, 1995
B-22
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Financial statements included in the Prospectus constituting Part
A of this Registration Statement:
Financial Highlights
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the Year Ended March 31, 1995
Statement of Changes in Net Assets for the Years Ended March 31,
1995 and 1994
Notes to Financial Statements
Financial Highlights
Independent Auditors' Report
(b) Exhibits:
1. (a) Amended Articles of Incorporation of the Registrant,
incorporated by reference to Exhibit No. 1 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (File No.
33-17224) filed on November 6, 1987.
(b) Amendment to Articles of Incorporation dated January 16, 1989,
incorporated by reference to Exhibit No. 1(b) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File No.
33-17224) filed on May 30, 1989.
2. (a) Amended By-Laws of the Registrant, incorporated by reference to
Exhibit No. 2 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988.
(b) Amendment to By-Laws, incorporated by reference to Exhibit
No. 2(b) to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990.
4. (a) Specimen certificates for shares of common stock, $.001 par
value per share, of the Registrant, incorporated by reference to
Exhibit No. 4 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988.
(b) Instruments defining rights of holders of the securities being
offered, incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A (File No. 33-17224) filed
on July 2, 1990.
C-1
<PAGE>
(c) Form of Management Agreement between the Liquid Assets Series of
the Registrant and Prudential Mutual Fund Management, Inc.
incorporated by reference to Exhibit No. 5 to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A (File
No. 33-17224) filed on May 29, 1992.
6. (a) Distribution Agreement among the Registrant, Prudential-Bache
Securities Inc. and Prudential Mutual Fund Distributors, Inc.,
incorporated by reference to Exhibit No. 6 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File No.
33-17224) filed on May 30, 1989.
(b) Amended and Restated Distribution Agreement between the
Registrant and Prudential Mutual Fund Distributors, Inc., as amended
on July 1, 1993, incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A (File No. 33-17224) filed via Edgar on May 27, 1994.
(c) Amended and Restated Distribution Agreement.*
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit No. 8(a) to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on May 30, 1989.
(b) Subcustodian Agreement between State Street Bank and Trust
Company and Security Pacific National Bank, incorporated by
reference to Exhibit No. 8(b) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A (File No. 33-17224) filed
on May 30, 1989.
(c) Subcustodian Agreement for Repurchase Transactions between State
Street Bank and Trust Company and Security Pacific National Bank,
incorporated by reference to Exhibit No. 8(c) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File
No. 33-17224) filed on May 30, 1989.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989.
10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A (File No. 33-17224) filed on November 6, 1987.
(b) Opinion of Counsel, incorporated by reference to Exhibit
No. 10(b) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 33-17224) filed via Edgar on
May 27, 1994.
11. Consent of Independent Auditors.*
13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on May 30, 1989.
15. (a) Plan of Distribution pursuant to Rule 12b-1, incorporated by
reference to Exhibit No. 15 to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on
May 30, 1989.
(b) Distribution and Service Plan between the Registrant and
Prudential Mutual Fund Distributors, Inc., as amended on July 1,
1993, incorporated by reference to Exhibit No. 15(b) to Post
Effective Amendment No. 8 to the Registration Statement on Form
N-1A (File No. 33-17224) filed via Edgar on May 27, 1994.
27. Financial Data Schedule.*
Other Exhibits
Powers of Attorney for:
Eugene C. Dorsey**
Donald D. Lennox**
Stanley F. Shirk**
Robin B. Smith**
- ----------
* Filed herewith.
** Executed copies filed under Other Exhibits to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A filed on May 30, 1989
(File No. 33-17224).
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of May 5, 1995 there were 587 record holders of shares of common stock,
$.001 par value per share, of the Registrant.
Item 27. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act of
1940 (the 1940 Act) and pursuant to Article VII of the Registrant's By-Laws
(Exhibit 2(a) to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any stockholder,
officer, director, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same
exceptions. Section 2-418 of Maryland General Corporation Law permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant. As permitted by
Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution
Agreement (Exhibit 6 to the Registration Statement), the Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibits 5(a) and 5(c) to the
Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b)
to the Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
C-3
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund Is Managed--Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice President, Executive Vice President, Director of Marketing
Director of Marketing and and Director, PMF; Senior Vice President,
Director Prudential Securities Incorporated (Prudential
Securities); Chairman and Director of Prudential
Mutual Fund Distributors, Inc. (PMFD)
Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President,
Prudential Securities; Vice President, PMFD
Frank W. Giordano Executive Vice Executive Vice President, General Counsel,
President, General Secretary and Director, PMF; Senior Vice President,
Counsel, Secretary and Prudential Securities; Executive Vice President, General
Director Counsel, Secretary and Director, PMFD; Director, Prudential
Mutual Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and
Chief Financial and Administrative Officer, Treasurer and Director, PMF;
Administrative Officer, Senior Vice President, Prudential Securities;
Treasurer and Director Executive Vice President, Treasurer, Comptroller
and Director, PMFD; Director, PMFS
Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating
Officer and Director, PMFD; Chief Executive Officer and
Director, PMFS; Director, PMF
Richard A. Redeker President, Chief Executive President, Chief Executive Officer and Director, PMF;
Officer and Director Executive Vice President, Director and Member of
Operating Committee, Prudential Securities; Director, PSG;
Executive Vice President, PIC; Director, PMFD;
Director, PMFS
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with PMF Principal Occupations
---------------- ----------------- ---------------------
<S> <C> <C>
S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant
Senior Counsel and Secretary, PMF; Senior Vice President and Senior
Assistant Secretary Counsel, Prudential Securities
</TABLE>
(b) The Prudential Investment Corporation (PIC).
The business and other connections of PIC's directors and executive
officers are as set forth below. Except as otherwise indicated, the address of
each person is Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
Name and Address Position with PIC Principal Occupations
---------------- ----------------- ---------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice President and Senior Vice President and Chief Financial and
Chief Financial and Compliance Officer, PIC; Vice President,
Compliance Officer Prudential
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior
51 JFK Pkwy. and Director Vice President and Director, PIC
Short Hills, NJ 07078
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC
Harry E. Knapp, Jr. President, Director and President, Director and Chief Executive Officer,
Chief Executive Officer PIC; Vice President, Prudential
William P. Link Senior Vice President Executive Vice President, Prudential;
Four Gateway Center Senior Vice President, PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF:
Executive Vice President, Director and Member of
Operating Committee, Prudential Securities; Director,
PSG: Executive Vice President, PIC; Director, PMFD;
Director, PMFS
Arthur F. Ryan Director Chairman of the Board, President and Chief Executive
Officer, Prudential; Director, PIC; Chairman of the
Board and Director, PSG
Eric A. Simonsen Vice President and Director President and Chief Executive Officer, Prudential
Asset Management Group; Vice President and Director, PIC;
Executive Vice President, Prudential
Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice
President, PIC
</TABLE>
Item 29. Principal Underwriters
(a) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
C-5
<PAGE>
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets Fund), Prudential
Municipal Series Fund (Connecticut Money Market Series, Massachusetts Money
Market Series, New York Money Market Series and New Jersey Money Market Series),
Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money
Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of The BlackRock Government Income
Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Adjustable Rate Securities
Fund Inc., Prudential Allocation Fund, Prudential California Municipal Fund
(California Income Series and California Series), Prudential Diversified Bond
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Fund, Inc., Prudential
Global Genesis Fund, Inc. Prudential Global Natural Resources Fund, Inc.,
Prudential GNMA Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Growth Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (Arizona Series, Georgia Series, Hawaii Income Series,
Maryland Series, Massachusetts Series, Michigan Series, Minnesota Series, New
Jersey Series, North Carolina Series, Ohio Series and Pennsylvania Series),
Prudential National Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential Strategist Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government
Fund, and Prudential Utility Fund, Inc.
(b) Prudential Mutual Fund Distributors, Inc.
Positions and Positions and
Offices with Offices with
Name(1) Underwriter Registrant
- ------- ------------- -------------
Joanne Accurso-Soto . Vice President None
Dennis Annarumma .... Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman ... Vice President None
Brendan D. Boyle .... Chairman and Director None
Stephen P. Fisher ... Vice President None
Frank W. Giordano ... Executive Vice President, General None
Counsel, Secretary and Director
Robert F. Gunia ..... Executive Vice President, Treasurer, Vice President
Comptroller and Director
Timothy J. O'Brien .. President, Chief Executive Officer, None
Chief Operating Officer and Director
Richard A. Redeker .. Director President and
Director
Andrew J. Varley .... Vice President None
Anita L. Whelan .... Vice President and Assistant Secretary None
- ----------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
C-6
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 745 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport
Plaza, New York, New York 10292, and Prudential Mutual Fund Services, Inc.,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Three
Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
One Seaport Plaza and the remaining accounts, books and other documents required
by such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services, Inc.
Item 31. Management Services
Other than as set forth under the captions "How the Fund is
Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service contract.
Item 32. Undertakings
Not Applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 26th day of May, 1995.
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
/s/ RICHARD A. REDEKER
------------------------------------------
Richard A. Redeker, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ EUGENE S. STARK Treasurer and Principal Financial May 26, 1995
- ----------------------------- and Accounting Officer
Eugene S. Stark
/s/ EUGENE C. DORSEY Director May 26, 1995
- -----------------------------
Eugene C. Dorsey
/s/ DONALD D. LENNOX Director May 26, 1995
- -----------------------------
Donald D. Lennox
/s/ RICHARD A. REDEKER Director and President May 26, 1995
- -----------------------------
Richard A. Redeker
/s/ STANLEY E. SHIRK Director May 26, 1995
- -----------------------------
Stanley E. Shirk
/s/ ROBIN B. SMITH Director May 26, 1995
- -----------------------------
Robin B. Smith
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1. (a) Amended Articles of Incorporation of the Registrant. Incorporated by
reference to Exhibit No. 1 to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on
November 6, 1987.
(b) Amendment to Articles of Incorporation dated January 16, 1989.
Incorporated by reference to Exhibit No. 1(b) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File No.
33-17224) filed on May 30, 1989.
2. (a) Amended By-Laws of the Registrant. Incorporated by reference to
Exhibit No. 2 to Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988.
(b) Amendment to By-Laws. Incorporated by reference to Exhibit No. 2(b)
to Post-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on July 2, 1990.
4. (a) Specimen certificates for shares of common stock, $.001 par value
per share, of the Registrant. Incorporated by reference to Exhibit No. 4
to Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on May 20, 1988.
(b) Instruments defining rights of holders of securities being offered,
incorporated by reference to Exhibit Nos. 1 and 2 above.
5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit No. 5(a) to
Post-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on July 2, 1990.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on July 2,
1990.
(c) Form of Management Agreement between the Liquid Assets Series of the
Registrant and Prudential Mutual Fund Management, Inc. incorporated by
reference to Exhibit No. 5 to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on May 29,
1992.
6. (a) Distribution Agreement among the Registrant, Prudential-Bache
Securities Inc. and Prudential Mutual Fund Distributors, Inc.
Incorporated by reference to Exhibit No. 6 to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A (File No. 33-17224)
filed on May 30, 1989.
(b) Amended and Restated Distribution Agreement between the Registrant
and Prudential Mutual Fund Distributors, Inc., as amended on July 1,
1993, incorporated by reference to Exhibit 6(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
33-17224) filed via Edgar on May 27, 1994.
(c) Amended and Restated Distribution Agreement.*
8. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit No. 8(a) to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 33-17224) filed on May 30, 1989.
(b) Subcustodian Agreement between State Street Bank and Trust Company
and Security Pacific National Bank. Incorporated by reference to Exhibit
No. 8(b) to Post-Effective Amendment No. 2 to the Registration Statement
on Form N-1A (File No. 33-17224) filed on May 30, 1989.
(c) Subcustodian Agreement for Repurchase Transactions between State
Street Bank and Trust Company and Security Pacific National Bank.
Incorporated by reference to Exhibit No. 8(c) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File No.
33-17224) filed on May 30, 1989.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989.
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 33-17224) filed on November 6, 1987.
(b) Opinion of Counsel, incorporated by reference to Exhibit No. 10(b)
to Post-Effective No. 8 to the Registration Statement on Form N-1A
(File No. 33-17224) filed via Edgar on May 27, 1994.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11. Consent of Independent Auditors.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
(File No. 33-17224) filed on May 30, 1989.
15. (a) Plan of Distribution pursuant to Rule 12b-1. Incorporated by
reference to Exhibit No. 15 to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on May 30,
1989.
(b) Distribution and Service Plan between the Registrant and Prudential
Mutual Fund Services, Inc., as amended on July 1, 1993, incorporated by
reference to Exhibit No. 15(b) to Post Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 33-17224) filed via Edgar
on May 27, 1994.
27. Financial Data Schedule.*
Other Exhibits
Powers of Attorney for:
Eugene C. Dorsey**
Donald D. Lennox**
Stanley F. Shirk**
Robin B. Smith**
------------
*Filed herewith.
**Executed copies filed under Other Exhibits to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A filed on May 30, 1989
(File No. 33-17224).
EXHIBIT 99.B6
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Amended and Restated
Distribution Agreement
Agreement dated as of November 20, 1987, as amended and restated on July 1,
1993 and April 11, 1995, between Prudential Institutional Liquidity
Portfolio, Inc., a Maryland Corporation (the Fund) and Prudential Mutual Fund
Distributors, Inc., a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's shares from
and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of the shares of
the Fund and the maintenance of shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares to the public on behalf of the Fund and
the Distributor hereby accepts such appointment and agrees to act hereunder. The
Fund hereby agrees during the term of this Agreement to sell shares of the Fund
through the Distributor on the terms and conditions set forth below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's shares, except that:
2.1 The exclusive rights granted to the Distributor to sell shares of the
Fund shall not apply to shares of the Fund issued in connection with the merger
or consolidation of any other
<PAGE>
investment company or personal holding company with the Fund or the acquisition
by purchase or otherwise of all (or substantially all) the assets or the
outstanding shares of any such company by the Fund.
2.2 Such exclusive rights shall not apply to shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the shares needed, but not more than the shares needed (except for
clerical errors in transmission) to fill unconditional orders for shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected dealers, as described in Section 6.4
hereof, to investors at the offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its shares at
times when redemption is suspended pursuant to the conditions in Section 4.3
hereof or at such other times as may be determined by the Directors/Trustees.
The Fund shall also have the right to suspend the sale of its shares if a
banking moratorium shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its agent) will confirm
orders
2
<PAGE>
upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund to or for the account of the redeeming shareholder, in each
case in accordance with applicable provisions of the Prospectus.
4.3 Redemption of shares or payment may be suspended at times when the New
York Stock Exchange is closed for other than customary weekends and holidays,
when trading on said Exchange is restricted, when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or during any other period when the Securities and
Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of shares as provided
herein, the Fund agrees to sell its shares so long as it has shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor
3
<PAGE>
shall reasonably request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Directors/Trustees and the shareholders, all necessary action to
fix the number of authorized shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
shares. Any such qualification may be withheld, terminated or withdrawn by the
Fund at any time in its discretion. As provided in Section 8.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of shares of the Fund, but shall not be obligated to sell any specific number of
shares. Sales of the shares shall be on the terms described in the Prospectus.
The Distributor may enter into like arrangements with other investment
companies. The Distributor shall compensate the selected dealers as set forth in
the Prospectus.
6.2 In selling the shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
4
<PAGE>
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell shares only to such selected dealers as are members in good
standing of the NASD. Shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. Reimbursement of the Distributor under the Plan
7.1 The Fund shall reimburse the Distributor for costs incurred by it in
performing its duties under the Distribution and Service Plan and this Agreement
including amounts paid on a reimbursement basis to Prudential Securities
Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec),
affiliates of the Distributor, under the selected dealer agreements between the
Distributor and Prudential Securities and Prusec, respectively, amounts paid to
other securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and institutions and amounts
paid for personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid monthly or
at such other intervals as the Directors/Trustees may determine but shall not be
paid at a rate that exceeds .12 of 1% per annum of the assets of the shares of
the Fund. Payment of the distribution and service fee shall be subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
7.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Directors/Trustees of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Directors/Trustees or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
7.3 Costs of the Distributor subject to reimbursement hereunder are costs
of performing distribution activities and may
5
<PAGE>
include, among others:
(a) Amounts paid to Prudential Securities in reimbursement of costs
incurred by Prudential Securities in performing services under a selected
dealer agreement between Prudential Securities and the Distributor for sale
of shares of the Fund, including sales commissions and account servicing
fees paid to, or on account of, account executives and indirect and
overhead costs associated with the performance of distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer agreement between
Prusec and the Distributor for sale of shares of the Fund, including sales
commissions and account servicing fees paid to, or on account of, agents
and indirect and overhead costs associated with distribution activities;
(c) sales commissions and account servicing fees paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into selected dealer
agreements with the Distributor with respect to shares of the Fund;
(d) amounts paid to, or on account of, account executives of
Prudential Securities, Prusec, or other broker-dealers or financial
institutions for personal services and/or the maintenance of shareholder
accounts; and
(e) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund Prospectuses, and
periodic financial reports and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clause (b) of the foregoing sentence
include (i) lease expenses, (ii) salaries and benefits of personnel including
operations and sales support personnel, (iii) utility expenses, (iv)
communications expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 8. Allocation of Expenses
8.1 The Fund shall bear all costs and expenses of the continuous offering
of its shares, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required Registration
Statements and/or Prospectuses under the Investment Company Act or the
Securities Act, and all
6
<PAGE>
amendments and supplements thereto, and preparing and mailing annual and
periodic reports and proxy materials to shareholders (including but not limited
to the expense of setting in type any such Registration Statements,
Prospectuses, annual or periodic reports or proxy materials). The Fund shall
also bear the cost of expenses of qualification of the shares for sale, and, if
necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof
and the cost and expense payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification pursuant to
Section 5.4 hereof. As set forth in Section 7 above, the Fund shall also bear
the expenses it assumes pursuant to the Plan with respect to the shares of the
Fund, so long as the Plan is in effect.
8.2 If the Plan is terminated or discontinued, the costs previously
incurred by the Distributor in performing the duties set forth in Section 6
hereof shall be borne by the Distributor and will not be subject to
reimbursement by the Fund.
Section 9. Indemnification
9.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
director, trustee or controlling person unless a court of competent jurisdiction
shall determine in a final decision on the merits, that the person to be
indemnified was not liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement (disabling conduct), or, in
the absence of such a decision, a reasonable determination, based upon a review
of the facts, that the indemnified person was not liable by reason of disabling
7
<PAGE>
conduct, by (a) a vote of a majority of a quorum of directors or trustees who
are neither "interested persons" of the Fund as defined in Section 2(a)(19) of
the Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors and any such controlling person as
aforesaid is expressly conditioned upon the Fund's being promptly notified of
any action brought against the Distributor, its officers or directors or any
such controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any shares.
9.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors/Trustees and any person who controls the Fund, if any,
within the meaning of Section 15 of the Securities Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors/Trustees or any such controlling person may incur under
the Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors/Trustees or
officers or such controlling person resulting from such claims or demands shall
arise out of or be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor to the Fund for
use in the Registration Statement or Prospectus or shall arise out of or be
based upon any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or Prospectus or
necessary to make such information not misleading. The Distributor's agreement
to indemnify the Fund, its officers and Directors/Trustees and any such
controlling person as aforesaid, is expressly conditioned upon the Distributor's
being promptly notified of any action brought against the Fund, its officers and
Directors/Trustees or any such controlling person, such notification being given
to the Distributor at its principal business office.
Section 10. Duration and Termination of this Agreement
10.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Directors/Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities of the shares of the Fund, and (b)
by the vote of a majority of those Directors/Trustees who are not parties to
this Agreement or interested persons of any such parties
8
<PAGE>
and who have no direct or indirect financial interest in this Agreement or in
the operation of the Fund's Plan or in any agreement related thereto (Rule 12b-1
Directors/Trustees), cast in person at a meeting called for the purpose of
voting upon such approval.
10.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors/Trustees or by vote of a
majority of the outstanding voting securities of the shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
10.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 11. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Directors/Trustees of the Fund, or by the vote
of a majority of the outstanding voting securities of the shares of the Fund,
and (b) by the vote of a majority of the Rule 12b-1 Directors/Trustees cast in
person at a meeting called for the purpose of voting on such amendment.
Section 12. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /S/ ROBERT F. GUNIA
--------------------------
Name: Robert F. Gunia
Title: Executive Vice President
Prudential Institutional
Liquidity Portfolio, Inc.
By: /S/ RICHARD A. REDEKER
--------------------------
Name: Richard A. Redeker
Title: President
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 9 to Registration
Statement No. 33-17224 of Prudential Institutional Liquidity Portfolio, Inc. of
our report dated May 11, 1995, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement, and "Custodian, Transfer and
Shareholder Servicing Agent and Independent Accountants" in the Statement of
Additional Information.
Deloitte & Touche LLP
New York, New York
May 25, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> PILP, INSTITUTIONAL MONEY MARKET SERIES
<NUMBER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 497,454,169
<RECEIVABLES> 1,577,762
<ASSETS-OTHER> 204,920
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 499,236,851
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,008,344
<TOTAL-LIABILITIES> 23,008,344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 476,228,507
<SHARES-COMMON-STOCK> 476,228,507
<SHARES-COMMON-PRIOR> 385,022,928
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 476,228,507
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,672,654
<OTHER-INCOME> 0
<EXPENSES-NET> 1,872,242
<NET-INVESTMENT-INCOME> 18,800,412
<REALIZED-GAINS-CURRENT> 16,348
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,816,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,816,760)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,920,194,727
<NUMBER-OF-SHARES-REDEEMED> (1,845,315,406)
<SHARES-REINVESTED> 16,326,258
<NET-CHANGE-IN-ASSETS> 91,205,579
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 805,357
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,872,242
<AVERAGE-NET-ASSETS> 402,678,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
