As filed with the Securities and Exchange Commission on May 28, 1996
Securities Act Registration Statement No. 33-17224
Investment Company Act Registration No. 811-5336
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 15 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16 [X]
(Check appropriate box or boxes)
----------
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)
----------
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, 1996 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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER SHARE* OFFERING PRICE** FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 35,676,782 $1.00 $290,000 $100.00
============================================================================================
</TABLE>
* The calculation of the maximum offering price was made pursuant to Rule
24e-2 and was based on the offering price of $1.00 per share equal to the
net asset value per share as of the close of business on May 20, 1996
pursuant to Rule 457(d). The total number of shares redeemed during the
fiscal year ended March 31, 1996 amounted to 2,565,737,717 shares. Of this
number, no shares have been used for reduction pursuant to paragraph (a) of
Rule 24e-2 in all previous filings of post-effective amendments during the
current year and 2,530,350,935 shares have been used for reduction pursuant
to paragraph (c) of Rule 24f-2 in all previous filings during the current
year. 35,386,782 of the redeemed shares for the fiscal year ended March 31,
1996 are being used for the reductions in the post-effective amendment
being filed herein.
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 filed a notice under such Rule for its fiscal
year ended March 31, 1996 on or about May 24, 1996.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
PART A
<S> <C>
Item 1. Cover Page ...................................................... Cover Page
Item 2. Synopsis ........................................................ Fund Expenses; Fund 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 .......................................... 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
- --------------------------------------------------------------------------------
Prospectus dated May 30, 1996
- --------------------------------------------------------------------------------
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 Series 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 Series is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series 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 and the
Series 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, 1996, which
information is incorporated herein by reference (is legally considered a part of
this Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this 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
whose shares are offered in two series, each of which operates as a
separate 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. Only shares of the Institutional Money Market Series are offered
through this Prospectus.
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 U.S. Government obligations, financial
institution obligations and other 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 Policies" 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.
The Series may invest in foreign securities without limit. Investing in
securities of foreign companies and countries involves certain
considerations and risks not typically associated with investing in
securities of domestic companies. See "How the Fund Invests--Investment
Objective and Policies--Risks of Investing in Foreign Securities" at page 8.
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, 1996,
PMF served as manager or administrator to 60 investment companies,
including 38 mutual funds, with aggregate assets of approximately $52
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 Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Series' shares. The Fund reimburses PSI 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,
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 17.
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 14.
- --------------------------------------------------------------------------------
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 .................................................. .11%
---
Total Series Operating Expenses ................................. .43%
===
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: ................. $4 $14 $24 $54
- ----------
The above example is based on data for the Fund's fiscal year ended March 31,
1996. 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
================================================================================
The following financial highlights with respect to the five years ended March
31, 1996 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. Further performance information is contained in the annual report
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income
and net realized gains ..... .056 .046 .029 .033 .054 .076
Dividends and distributions .. (.056) (.046) (.029) (.033) (.054) (.076)
----- ----- ----- ----- ----- -----
Net asset value, end of
period ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ========
TOTAL RETURN(D): ............. 5.72% 4.69% 2.92% 3.40% 5.57% 8.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) ...................... $440,842 $476,229 $385,023 $497,214 $443,172 $519,802
Average net assets (000) ..... $519,946 $402,678 $445,867 $543,694 $540,380 $479,849
Ratios to average net assets:
Expenses, including
distribution fee ......... .43% .46% .48% .44% .42% .46%
Expenses, excluding
distribution fee ......... .31% .34% .36% .32% .30% .34%
Net investment income ...... 5.56% 4.67% 2.87% 3.28% 5.32% 7.58%
</TABLE>
DECEMBER 8,
1987(A)
YEAR ENDED MARCH 31, THROUGH
---------------------- MARCH 31,
1990 1989 1988
-------- -------- --------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period .................. $ 1.000 $ 1.000 $ 1.000
Net investment income
and net realized gains ..... .087 .079(b) .022(b)
Dividends and distributions .. (.087) (.079) (.022)
----- ----- -----
Net asset value, end of
period ..................... $ 1.000 $ 1.000 $ 1.000
======== ======== ========
TOTAL RETURN(D): ............. 9.07% 8.22% 2.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) ...................... $417,354 $264,281 $204,707
Average net assets (000) ..... $421,540 $227,044 $ 88,431
Ratios to average net assets:
Expenses, including
distribution fee ......... .38% .26%(b) .12%(b)(c)
Expenses, excluding
distribution fee ......... .26% .14%(b) .00%(b)(c)
Net investment income ...... 8.60% 7.89%(b) 6.69%(b)(c)
- ----------
(a) Commencement of operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods of
less than a full year are not annualized.
- --------------------------------------------------------------------------------
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, 1996:
Value of hypothetical account at end of period ............. $1.000951495
Value of hypothetical account at beginning of period ....... 1.000000000
------------
Base period return ......................................... $ .000951495
============
CURRENT YIELD (.000951495 x (365/7)) ....................... 4.96%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ........ 5.65%
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, 1996 was
63 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 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. Changes in the
credit quality of these institutions could cause losses to the Series and affect
its share price. In the event such a default should occur, the Fund is unable to
predict whether all or any portion of any loss sustained could subsequently be
recovered from the broker, dealer or financial institution.
8
<PAGE>
FLOATING RATE AND VARIABLE RATE SECURITIES
The Series 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 Series 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 resale price. 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 resale price,
the Series will suffer a loss. If the financial institution that is a party to
the repurchase agreement petitions for bankruptcy or becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under these extreme circumstances, there may be a restriction on the
Series' ability to sell the collateral, and the Series could suffer a loss.
Reverse repurchase agreements have the characteristics of borrowing and
involve the sale of securities held by the Series with an agreement to
repurchase the securities at a specified price, date and interest payment. The
Series intends
9
<PAGE>
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 Series 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' net assets would be
invested in such securities.
Subject to shareholder approval, the Board of Directors of the Fund has
approved a change in the Fund's restrictions and policies which would permit the
Series to hold up to 10% of its net assets in illiquid securities, including
securities with legal or contractual restrictions on resale (restricted
securities), securities that are not readily marketable in securities markets
either within or outside of the United States, privately placed commercial paper
and repurchase agreements which have a maturity of longer than seven days.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended (the Securities Act), and privately placed
commercial paper that have a readily available market are not considered
illiquid for purposes of this limitation. Investing in Rule 144A securities
could, however, have the effect of increasing the level of Fund illiquidity to
the extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing these securities. The Fund intends to comply with any
applicable state blue sky laws restricting the Fund's investments in illiquid
securities. See "Investment Restrictions" in the Statement of Additional
Information. The investment adviser will monitor the liquidity of such
restricted securities under the supervision of the Board of Directors.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.
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
10
<PAGE>
the market for the best terms at which to buy and sell; scheduling and
monitoring maturities and reinvestments; receipt, delivery and safekeeping of
securities; and portfolio recordkeeping.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
================================================================================
HOW THE FUND IS MANAGED
================================================================================
THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE
ACTIONS OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW,
DECIDES UPON MATTERS OF GENERAL POLICY. THE FUND'S OFFICERS CONDUCT AND
SUPERVISE THE DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER
FURNISHES DAILY INVESTMENT ADVISORY SERVICES.
For the fiscal year ended March 31, 1996, total expenses for the Series as
a percentage of average net assets were .43%. 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, 1996, 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, 1996, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $52 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 SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI 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 AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
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
11
<PAGE>
EXPENSES OF DISTRIBUTING THE SERIES' SHARES. These expenses include account
servicing fees paid to, or on account of, financial advisers of Prudential
Securities 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 Series shares, including lease, utility, communications and sales promotion
expenses. There are no carry forward amounts under the Plan and interest
expenses are not included under the Plan. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or other financial
institutions which are registered there as broker-dealers.
UNDER THE PLAN, THE SERIES 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, 1996, the Series paid a distribution
fee equal on an annual basis to .12% of the average daily net assets of the
Series. The Series records all payments made under the Plan as expenses in the
calculation of its net investment income.
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.
In addition to distribution and service fees paid by the Series 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 Series.
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 measures 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
12
<PAGE>
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.
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 Series 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 Series 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.
13
<PAGE>
================================================================================
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 SUBJECT TO
FEDERAL INCOME TAXES ON ITS NET 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
All dividends out of net investment income, together with distributions of
net short-term gains (i.e., the excess of net short-term capital gains over net
long-term capital losses), 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 Series 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 paid 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
14
<PAGE>
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.
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 WHICH
ARE CURRENTLY DIVIDED INTO TWO PORTFOLIOS OR SERIES, EACH OF WHICH CONSISTS OF
2.5 BILLION AUTHORIZED SHARES. ONLY SHARES OF THE INSTITUTIONAL MONEY MARKET
SERIES CURRENTLY ARE BEING OFFERED.
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.
15
<PAGE>
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 UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.
On May 17, 1996, Prudential, either directly or through one or more
controlled companies, owned approximately 61.7% of the Fund's outstanding voting
securities and may be deemed to be a controlling person of the Fund.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
================================================================================
SHAREHOLDER GUIDE
================================================================================
HOW TO BUY SHARES OF THE FUND
SHARES OF THE SERIES ARE CONTINUOUSLY OFFERED AT THEIR NET ASSET VALUE NEXT
DETERMINED AFTER AN ORDER AND, IN THE CASE OF A NEW ACCOUNT, A COMPLETED
APPLICATION FORM (THE APPLICATION) IS RECEIVED. THERE IS NO SALES CHARGE. THE
MINIMUM INITIAL INVESTMENT TO ESTABLISH A NEW ACCOUNT IS $100,000. A master
account and its subaccounts, as well as related institutional accounts (i.e.,
accounts of shareholders, with a common institutional or corporate parent), in
the Series may be aggregated for this minimum investment purpose. SUBSEQUENT
INVESTMENTS IN THE SERIES (OTHER THAN THROUGH THE REINVESTMENT OF DIVIDENDS AND
DISTRIBUTIONS) MUST BE MADE IN THE AMOUNT OF AT LEAST $10,000 BY WIRE TRANSFER
OF FUNDS. The 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
16
<PAGE>
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.
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.
17
<PAGE>
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.
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 RATINGS
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
An S&P 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
D 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.
D 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
D 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D 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 SERVICES, L.P.
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>
- --------------------------------------------------------------------------------
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 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 Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
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
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan 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 Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Global Utility Fund, Inc.
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
------------
EQUITY FUNDS
------------
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Jennison Fund, Inc.
Prudential Multi-Sector 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, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
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>
- --------------------------------------------------------------------------------
PROSPECTUS MAY 30, 1996
- --------------------------------------------------------------------------------
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 ................................................. 11
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 ........................................ 14
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 ................................................. 17
Shareholder Services .................................................... 18
DESCRIPTION OF SECURITY RATINGS ........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY ......................................... B-1
================================================================================
MF137A 44071B
- --------------------------------------------------------------------------------
CUSIP No.: 744350109
- --------------------------------------------------------------------------------
PRUDENTIAL
INSTITUTIONAL
LIQUIDITY
PORTFOLIO, INC.
----------
INSTITUTIONAL
MONEY MARKET SERIES
PRUDENTIAL MUTUAL FUNDS
BUILDING YOUR FUTURE [LOGO]
ON OUR STRENGTH (SM)
<PAGE>
PRUDENTIAL
INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (PILP)
NEW ACCOUNT APPLICATION
================================================================================
================================================================================
O FUND SELECTION -- PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (PILP)
Institutional Money Market Series (Fund #52)(PIMMS)
ACCOUNT NO:_____________
O 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.
O INITIAL INVESTMENT -- Minimum $100,000.
-- Subsequent Investment Minimum $10,000.
O 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>
O PRUDENTIAL REPRESENTATIVE (To Be Completed By Prudential Representative)
- -------------------------------------------------- ----------------- ---------
FA Name PSI Branch Ledger FA Number
- --------------------------------------------------------------------------------
Branch Telephone Number
O 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.
O 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)
O 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_________________
Note: If you wish to add additional bank instructions please attach a list.
<PAGE>
O 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)
O SIGNATURE(S) GUARANTEE BY:
Name of Bank or Firm____________________________________________________________
Officer and Title ___________________________ _________________________________
Signature Print Name of Officer
O 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 number 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 (8:00 a.m.-4:30 p.m. (est)) (908) 417-7806
If by Wire:
State Street Bank ABA Routing Number 0110-0002-8
Attention: PRU 8600 GRP
Re: PILP
Name of Fund: Institutional Money Market Series
DDA Number: 99034100
Account Registration Name:_____________________
Account Number:________________________________
Note: This Application must have a signature guarantee or corporate
certification. 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 the
(State)
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
named 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>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Statement of Additional Information
dated May 30, 1996
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 Series' 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, 1996, 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-8 11
Distributor .......................................... B-9 11
Purchase of Shares ................................... B-11 16
Net Asset Value ...................................... B-11 13
Portfolio Transactions ............................... B-12 13
Taxes ................................................ B-12 14
Calculation of Yield ................................. B-13 6
Custodian, Transfer and Shareholder Servicing
Agent and Independent Accountants .................. B-13 13
General Information .................................. B-14 15
Financial Statements ................................. B-15 --
Independent Auditors' Report ......................... B-22 --
Appendix A--Historical Performance Data .............. A-1 --
Appendix B--General Investment Information ........... B-1 --
Appendix C--Information Relating to The Prudential ... C-1 --
================================================================================
<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.
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.
B-2
<PAGE>
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.
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.
B-3
<PAGE>
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.
Subject to shareholder approval, the Board of Directors has approved
certain modifications of the Fund's investment restrictions and policies,
including (i) amendment of the Fund's industry concentration policy, as
reflected in Investment Restriction number 4, to permit investment of more than
25% of the Fund's assets in the securities of domestic banks, (ii) deletion of
Investment Restriction number 5, (iii) deletion of Investment Restriction number
6 and replacement of such restriction with a non-fundamental policy which can be
changed by the Board of Directors, (iv) deletion of Investment Restriction
number 10 and replacement of the restriction with a non-fundamental policy which
can be changed by the Board of Directors and (v) modification of Investment
Restriction number 11 so as to permit the Fund to invest up to 10% of its total
assets in the securities of other registered investment companies. Such
proposals will be submitted to shareholders at a special meeting to be held in
or about October 1996.
B-4
<PAGE>
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST FIVE YEARS
- --------------------- ------------- ----------------------
<S> <C> <C>
Eugene C. Dorsey (69) Director Retired president, Chief
c/o Prudential Mutual Fund Executive Officer and
Management, Inc. Trustee of the Gannett
One Seaport Plaza Foundation (now Freedom
New York, NY Forum); former publisher of
four Gannett newspapers and
Vice President of the
Gannett Company; past
Chairman, Independent
Sector, Washington, D.C.
(largest national coalition
of philanthropic
organizations); former
Chairman of the American
Council for the Arts;
Director of the advisory
board of Chase Manhattan
Bank of Rochester and The
High Yield Income Fund, Inc.
Donald D. Lennox (77) Director Chairman (since February 1990)
c/o Prudential Mutual Fund and Director (since April 1989)
Management, Inc. of International Imaging Materials
One Seaport Plaza Inc.; Retired Chairman, Chief
New York, NY Executive Officer and
Director of Schlegel
Corporation (industrial
manufacturing) (March
1987-February 1989); Director
of Gleason Corporation,
Personal Sound Technologies,
Inc. and The High Yield Income
Fund, Inc.
*Richard A. Redeker (52) President and Director President, Chief Executive
One Seaport Plaza Officer and Director
New York, NY (since October 1993), Prudential
Mutual Fund Management, 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 January
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 High Yield Income Fund,
Inc.
B-5
<PAGE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST FIVE YEARS
- --------------------- ------------- ----------------------
<S> <C> <C>
Stanley E. Shirk (79) Director Certified Public Accountant
c/o Prudential Mutual Fund and a former Senior Partner
Management, Inc. of the accounting firm of
One Seaport Plaza KPMG Peat Marwick; former
New York, NY Management and Accounting
Consultant for the
Association of Bank Holding
Companies, Washington, D.C.
and the Bank Administration
Institute, Chicago, Ill.;
Director of The High Yield
Income Fund, Inc.
Robin B. Smith (56) Director President (since September
c/o Prudential Mutual Fund 1981) and Chief Executive
Management, Inc. Officer (since January 1988)
One Seaport Plaza of Publishers Clearing
New York, NY House; Director of BellSouth
Corporation, The Omni-Com
Group, Inc., Spring
Industries, Inc., Texaco Inc.,
First Financial Fund, Inc.,
The High Yield Fund, Inc. and
The High Yield Income Fund,
Inc. and The High Yield Plus
Fund, Inc.
Robert F. Gunia (49) Vice President Chief Administrative Officer
One Seaport Plaza (since July 1990), Director (since
New York, NY January 1989), Executive Vice
President, 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 (50) Secretary Senior Vice President and
One Seaport Plaza Senior Counsel of PMF;
New York, NY 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 (38) Treasurer and Principal First Vice President (since
One Seaport Plaza Financial and January 1990) of PMF;
New York, NY Accounting Officer First Vice President of
Prudential Securities (since
January 1992).
Marguerite E.H. Morrison (40) Assistant Vice President and Associate
One Seaport Plaza Secretary General Counsel (since June
New York, NY 1991) of PMF; Vice President
and Associate General Counsel
of Prudential Securities.
Stephen M. Ungerman (42) Assistant Treasurer First Vice President of PMF
One Seaport Plaza (since February 1993); prior
New York, NY thereto, Senior Tax Manager of
Price Waterhouse (1981-January
1993).
</TABLE>
* "Interested" Director of the Fund, as defined in the Investment Company
Act of 1940 (the Investment Company Act).
Directors and officers of the Fund are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities.
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 Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Messrs. Lennox
and Shirk are scheduled to retire on December 31, 1997 and December 31, 1996,
respectively.
The Directors have nominated a new slate of Directors for the Fund which
will be submitted to shareholders at a special meeting scheduled to be held in
or about October 1996.
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 such 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 and Ms. Smith have
elected to receive each of their 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, 1996 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, 1995.
COMPENSATION TABLE
<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 $77,375(10/34)**
Donald D. Lennox-- Director $10,000 None N/A $86,250(10/22)**
Stanley E. Shirk-- Director $10,000 None N/A $79,000(10/19)**
Robin B. Smith-- Director* $10,000 None N/A $91,875(10/19)**
</TABLE>
* All compensation from the Fund for the fiscal year ended March 31, 1996
represents deferred compensation. Aggregate compensation from the Fund and
the Fund Complex for the calendar year ended December 31, 1995, including
accrued interest, amounted to approximately $11,355 and $10,826 for the
Fund and $85,783 and $100,741 for the Fund Complex for Mr. Dorsey and Ms.
Smith, respectively.
** Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
As of May 17, 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 17, 1995, The Prudential Insurance Company of America
(Prudential), Prudential Plaza, Newark, New Jersey 07101, either directly or
through one or more controlled companies, owned approximately 61.7% 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 17, 1995, Prudential Health Care Plan of
California, Inc., Attn: Jennifer Sirotta, Group Financial, 5800 Canoga Avenue,
WHW2, Woodland Hills, California 91367-6503, PRUCO Incorporated, The Prudential
Ins. Co., Attn: Rita Lombardi, 213 Washington St., Stop 093, Newark, New Jersey
07102-2917 were the beneficial owners of 28% and 10%, respectively, of the
Fund's outstanding voting securities.
B-7
<PAGE>
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 to all 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, 1996, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $52
billion. According to the Investment Company Institute, as of December 31, 1995,
the Prudential Mutual Funds were the 13th largest family of mutual funds in the
United States.
PMF is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, recordkeeping and
management and administration services to qualified plans.
Pursuant to 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 PMFS, 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, 1996. 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 11/2% 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.
B-8
<PAGE>
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 9,1996, and was approved by the shareholders of the Series on November
29, 1988.
For the fiscal years ended March 31, 1996, 1995 and 1994, the Series paid
management fees to PMF of $1,039,892, $805,357 and $891,735, 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. Investment advisory
services are provided to the Fund by a unit at PIC, known as Prudential Mutual
Fund Investment Management.
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 9, 1996, 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.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), One Seaport Plaza, New York, New York 10292, acts as the
distributor of the Fund's shares. Prior to January 2, 1996, Prudential Mutual
Fund Distributors, Inc. (PMFD), acted as distributor of the Fund's shares.
Prudential Securities is engaged in the securities underwriting and
securities and commodities brokerage business and is a member of the New York
Stock Exchange, other major securities and commodities exchanges and the
National Association of Securities Dealers, Inc. (NASD). Prudential Securities
is also engaged in the investment advisory business. Prudential Securities is a
wholly-owned subsidiary of Prudential Securities Group, Inc., which is an
indirect, wholly-owned subsidiary of Prudential. The services it provides to the
Fund are discussed in the Fund's Prospectus. See "How the Fund is
Managed--Distributor."
DISTRIBUTION AND SERVICE PLAN
Under the Fund's Distribution and Service Plan (the Plan) and the
Distribution Agreement, the Series pays the Distributor a distribution fee of up
to 0.12% of the average daily net assets of the Series, computed daily and
payable monthly.
B-9
<PAGE>
For the fiscal year ended March 31, 1996, PMFD and PSI incurred
distribution expenses in the aggregate of approximately $623,900 with respect to
the Series, under the Plan, all of which was recovered through the distribution
fee paid by the Series. It is estimated that of this amount approximately 75%
($467,925) was spent on payment of account servicing fees to financial advisers
and 25% ($155,975) 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 9, 1996, and
was approved by the shareholders of the Series on November 29, 1988. There are
no carryover amounts under the Plan, and therefore interest and carrying charges
are not incurred under the Plan. So long as the Plan is in effect, the selection
and nomination of Directors who are not interested persons of the Fund shall be
committed to the discretion of the Directors who are not interested persons. The
Board of Directors has determined that, in its judgment, there is a reasonable
likelihood that the Plan will benefit the Series and its shareholders.
Pursuant to the Plan, the Directors will be provided with, and will review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of the Series by the Distributor. 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
Series, 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 9, 1996. On November 3, 1995, the Board of
Directors approved the transfer of the Distribution Agreement with PMFD to
Prudential Securities.
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
B-10
<PAGE>
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.
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.
B-11
<PAGE>
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. (For purposes of this section, the
term "Manager" includes the Subadviser.) The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities, or an
affiliate, during the existence of the syndicate, is a principal underwriter (as
defined in the Investment Company Act), except in accordance with rules of the
SEC. The Fund will not deal with Prudential Securities or its affiliates on a
principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions for
such other accounts, whose aggregate assets are far larger than the Fund's, and
the services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. While such services are useful and important
in supplementing its own research and facilities, the Manager believes that the
value of such services is not determinable and does not significantly reduce
expenses. The Fund does not reduce the advisory fee it pays to the Manager by
any amount that may be attributed to the value of such services.
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, 1994, 1995 and 1996, 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, as amended. This relieves the Series (but not its shareholders) from
paying federal income tax on income which is distributed to shareholders, and
permits net capital gains of the Series (i.e., the excess of net long-term
capital gains over net short-term capital losses) to be treated as long-term
capital gains of the shareholders, regardless of how long shareholders have held
their shares in the 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
options thereon or foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b) the
Series derives less than 30% of its annual gross income from gains (without
reduction for losses) from the sale or other disposition of securities, options
thereon, futures contracts, options thereon, forward contracts and foreign
currencies, held for less than three months (except for foreign
B-12
<PAGE>
currencies directly related to the Series' business of investing in securities);
(c) the Series diversify 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 market value
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) and (d)
the Series distribute to its shareholders at least 90% of its net investment
income and net short-term gains (i.e., the excess of net short-term capital
gains over net long-term capital losses) in each year.
Gains or losses on sales of securities by the Series will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Series may be subject to original issue discount and market discount rules.
The Series is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Series is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Series will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the
Series pays income tax is treated as distributed.
CALCULATION OF YIELD
The Series will prepare a current quotation of yield daily. The yield
quoted will be the simple annualized yield for an identified seven calendar day
period. The yield calculation will be based on a hypothetical account having a
balance of exactly one share at the beginning of the seven-day period. The base
period return will be the change in the value of the hypothetical account during
the seven-day period, including dividends declared on any shares purchased with
dividends on the shares, but excluding any capital changes, divided by the value
of the account at the beginning of the base period. The yield will vary as
interest rates and other conditions affecting money market instruments change.
Yield also depends on the quality, length of maturity and type of instruments in
the Series' portfolio, and its operating expenses. The Series also may prepare
an effective annual yield computed by compounding the unannualized seven-day
period return as follows: by adding 1 to the unannualized seven-day period
return, raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
Effective yield = [(base period return+1)365/7]-1
Comparative performance information may be used from time to time in
advertising or marketing the Series' shares, including data from Lipper
Analytical Services, Inc., 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, 1996, the Series incurred fees of $240,000 for the services of PMFS.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.
B-13
<PAGE>
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. The Board of
Directors has authorized the creation of the Liquid Assets Series. No shares of
such Series have yet been issued.
B-14
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
(000) Description Value (Note 1)
- -----------------------------------------------------------------
Bank Notes--0.2%
Wachovia Bank of North Carolina
$1,000 4.625%, 6/14/96 $ 997,283
- -----------------------------------------------------------------
Certificates Of Deposit - Eurodollar--1.8%
Abbey National Treasury Services
Plc.
6,000 5.475%, 4/15/96 6,000,027
Bayerische Hypotheken-und
Wechsel-Bank
2,000 5.34%, 9/18/96 1,999,419
------------
7,999,446
- ----------------------------------------------------------------
Certificates of Deposit-Yankee--12.9%
Banque Nationale de Paris
8,000 5.20%, 4/15/96 8,000,000
10,000 5.23%, 4/15/96 10,000,000
7,000 5.17%, 5/1/96 6,999,658
National Westminster Bank, Plc.
7,000 5.21%, 4/30/96 6,999,894
Societe Generale
19,000 5.25%, 4/5/96 19,000,000
6,000 5.23%, 5/6/96 6,000,000
------------
56,999,552
- ----------------------------------------------------------------
Commercial Paper--49.0%
A. H. Robins Co., Inc.
1,140 5.19%, 4/12/96 1,138,192
American Brands, Inc.
2,000 5.15%, 5/10/96 1,988,842
American Honda Finance Corp.
1,000 5.40%, 4/8/96 998,950
1,000 5.38%, 4/9/96 998,804
4,000 5.22%, 4/29/96 3,983,760
1,000 5.20%, 5/10/96 994,367
1,000 5.25%, 5/10/96 994,312
1,632 5.35%, 5/30/96 1,617,690
Aristar, Inc.
$4,215 5.25%, 4/22/96 $ 4,202,092
1,670 5.55%, 5/10/96 1,659,959
Associates Corp. of North America
3,000 5.18%, 5/3/96 2,986,187
Avco Financial Services, Inc.
3,220 5.20%, 4/30/96 3,206,512
Bradford & Bingley Building Society
4,000 5.11%, 5/7/96 3,979,560
1,000 5.27%, 6/7/96 990,192
Caterpillar Financial Services Corp.
2,000 5.25%, 9/19/96 1,950,125
Cheltenham & Gloucester Plc.
2,000 5.16%, 5/10/96 1,988,820
CIT Group Holdings, Inc.
4,000 5.25%, 4/15/96 3,991,833
17,489 5.18%, 5/3/96 17,408,473
Corporate Asset Funding Co., Inc.
3,000 5.14%, 5/15/96 2,981,153
Countrywide Funding Corp.
8,000 5.30%, 4/22/96 7,975,267
10,000 5.30%, 4/26/96 9,963,194
Finova Capital Corp.
1,000 5.30%, 4/8/96 998,969
1,000 5.23%, 4/12/96 998,402
1,000 5.27%, 4/12/96 998,390
7,000 5.34%, 4/26/96 6,974,042
First Data Corp.
1,000 5.35%, 4/16/96 997,771
General Electric Capital Corp.
6,000 5.58%, 4/8/96 5,993,490
IBM Credit Corp.
15,280 5.20%, 4/26/96 15,224,822
8,000 5.26%, 5/21/96 7,941,555
ITT Industries, Inc.
4,700 5.28%, 4/4/96 4,697,932
4,200 5.50%, 5/2/96 4,180,108
Mitsubishi International Corp.
1,000 5.85%, 4/16/96 997,563
1,000 5.28%, 6/11/96 989,587
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-15
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
(000) Description Value (Note 1)
- ----------------------------------------------------------------
Commercial Paper (cont'd.)
Mitsubishi International Corp.
(cont'd.)
$1,000 5.30%, 6/11/96 $ 989,547
2,000 5.30%, 6/14/96 1,978,211
Nynex Corp.
1,000 5.32%, 4/8/96 998,965
PepsiCo, Inc.
6,700 5.40%, 5/10/96 6,660,805
Preferred Receivables Funding Corp.
1,000 5.30%, 4/11/96 998,528
1,000 5.22%, 4/17/96 997,680
7,000 5.15%, 6/5/96 6,934,910
Sears Roebuck Acceptance Corp.
9,000 5.25%, 4/11/96 8,986,875
7,000 5.12%, 6/13/96 6,927,324
Smith Barney, Inc.
2,000 5.28%, 5/1/96 1,991,200
Sumitomo Corp. of America
10,000 5.37%, 4/22/96 9,968,675
5,253 5.24%, 4/23/96 5,236,179
US West Communications, Inc.
7,484 5.17%, 5/17/96 7,434,560
USL Capital Corp.
5,000 5.32%, 4/25/96 4,982,267
15,144 5.37%, 5/17/96 15,040,087
Weyerhaeuser Mortgage Co.
2,000 5.30%, 4/22/96 1,993,817
Whirlpool Financial Corp.
5,000 5.20%, 4/26/96 4,981,944
2,000 5.45%, 5/10/96 1,988,192
------------
216,080,681
- ----------------------------------------------------------------
Medium-Term Obligations--4.2%
American General Finance Corp.
2,000 5.80%, 4/1/97 2,002,421
Associates Corp. of North America
2,000 4.75%, 8/1/96 1,994,529
Ford Motor Credit Corp.
1,200 8.875%, 8/1/96 1,211,305
General Electric Capital Corp.
$3,000 7.78%, 12/30/96 $ 3,048,677
General Electric Company
1,050 7.875%, 5/1/96 1,051,519
General Motors Acceptance Corp.
3,000 5.30%, 7/12/96 2,992,574
1,000 8.70%, 8/2/96 1,008,565
1,000 6.10%, 3/31/97 1,003,936
Grand Metropolitan Investment Corp.
1,000 8.125%, 8/15/96 1,009,073
International Lease Finance Corp.
2,000 4.75%, 7/15/96 1,997,053
Sears Roebuck Acceptance Corp.
1,000 8.98%, 7/11/96 1,008,906
------------
18,328,558
- ----------------------------------------------------------------
U.S. Government & Agencies Obligations--5.8%
Federal National Mortgage
Association
5,000 5.8125%, 10/4/96 4,996,824
United States Treasury Notes
5,000 6.875%, 2/28/97 5,076,229
10,000 6.625%, 3/31/97 10,130,698
5,000 6.875%, 3/31/97 5,082,045
------------
25,285,796
- ----------------------------------------------------------------
Adjustable Rate Instruments(b)--26.0%
American Express Centurion Bank
2,000 5.345%, 4/15/96 1,999,493
3,000 5.35281%, 4/19/96 2,999,438
Beneficial Corp.
16,000 5.22469%, 6/10/96 15,992,699
Federal National Mortgage
Association
10,000 5.535%, 4/1/96 10,000,000
General Electric Capital Corp.
1,000 5.40234%, 5/23/96 1,000,000
General Motors Acceptance Corp.
19,000 5.395%, 5/2/96 18,997,965
1,000 5.27%, 5/21/96 999,943
- --------------------------------------------------------------------------------
B-16 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal
Amount
(000) Description Value (Note 1)
- ----------------------------------------------------------------
Adjustable Rate Instruments(b) (cont'd.)
Goldman Sachs Group, L.P.
$25,000 5.8125%, 5/24/96 $ 25,000,000
Lehman Brothers Holdings, Inc.
6,000 5.5094%, 4/1/96 6,000,000
Merrill Lynch & Co., Inc.
15,000 5.3125%, 4/2/96 14,997,806
Money Market Auto Loan Trust 1990-1
700 5.575%, 4/15/96 700,081
Morgan Stanley Group, Inc.
3,000 5.74219%, 4/15/96 3,000,000
5,000 5.692945%, 4/17/96 5,000,000
2,000 5.375%, 5/15/96 2,000,000
SMM Trust Notes 1995-Q
4,000 5.375%, 4/15/96 3,999,711
Student Loan Marketing Association
2,000 5.30%, 4/2/96 1,999,643
------------
114,686,779
- ----------------------------------------------------------------
Total Investments--99.9%
(amortized cost $440,378,095(a)) 440,378,095
Other assets in excess of
liabilities--0.1% 463,630
------------
Net Assets--100% $440,841,725
============
- ----------
(a) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(b) The maturity date presented for these instruments is the next date on which
the rate of interest is adjusted.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of March 31, 1996 was as
follows:
Commercial Banks................................... 17.7%
Personal Credit Institutions....................... 15.4
Business Credit (Finance).......................... 13.7
Securities Brokers & Dealers....................... 13.2
Finance Lessors.................................... 5.3
Computer Rental & Leasing.......................... 4.8
Commodity Trading.................................. 4.6
U.S. Government Sovereign.......................... 4.6
Mortgage Banks..................................... 4.0
Federal Credit Agencies............................ 3.9
Asset Backed Securities............................ 3.7
Motor Vehicle Parts................................ 2.0
Telephone & Communications......................... 1.9
Household Appliances............................... 1.6
Beverages.......................................... 1.5
Equipment Rental & Lease........................... 0.5
Paper & Allied Products............................ 0.5
Tobacco............................................ 0.4
Electrical & Equipment............................. 0.2
Food & Kindred Products............................ 0.2
Pharmaceuticals.................................... 0.2
Other assets in excess of liabilities.............. 0.1
-----
100.0%
=====
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-17
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets March 31, 1996
Investments, at value...................................................................................... $440,378,095
Interest receivable........................................................................................ 2,837,611
Other assets............................................................................................... 8,038
-------------
Total assets............................................................................................ 443,223,744
-------------
Liabilities
Dividends payable.......................................................................................... 2,030,909
Accrued expenses and other liabilities..................................................................... 240,940
Management fee payable..................................................................................... 83,898
Distribution fee payable................................................................................... 26,272
-------------
Total liabilities....................................................................................... 2,382,019
-------------
Net Assets................................................................................................. $440,841,725
============
Net assets were comprised of:
Common stock, at par.................................................................................... $ 440,842
Paid-in capital in excess of par........................................................................ 440,400,883
-------------
Net assets at March 31, 1996............................................................................... $440,841,725
============
Net asset value, offering and redemption price per share
($440,841,725 / 440,841,725 shares of $.001 par value common stock issued and outstanding).............. $ 1.00
============
</TABLE>
- --------------------------------------------------------------------------------
B-18 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
- ----------------------------------------------------------------
Year Ended
Net Investment Income March 31, 1996
Income
Interest and discount earned................ $ 31,099,350
------------
Expenses
Management fee.............................. 1,039,892
Distribution fee............................ 623,935
Transfer agent's fees and expenses.......... 252,000
Custodian's fees and expenses............... 144,000
Registration fees........................... 54,000
Directors' fees............................. 40,000
Reports to shareholders..................... 38,000
Audit fee and expenses...................... 27,000
Legal fees and expenses..................... 20,000
Insurance expense........................... 15,000
Miscellaneous............................... 6,822
------------
Total expenses........................... 2,260,649
------------
Net investment income.......................... 28,838,701
Realized Gain on Investments
Net realized gain on investment transactions... 51,244
------------
Net Increase in Net Assets
Resulting from Operations...................... $ 28,889,945
============
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
- -----------------------------------------------------------------
Year Ended March 31,
Increase (Decrease) ----------------------------------
in Net Assets 1996 1995
--------------- ---------------
Operations
Net investment income..... $ 28,838,701 $ 18,800,412
Net realized gain on
investment
transactions........... 51,244 16,348
--------------- ---------------
Net increase in net assets
resulting from
operations............. 28,889,945 18,816,760
--------------- ---------------
Dividends and distributions
to shareholders........... (28,889,945) (18,816,760)
--------------- ---------------
Fund share transactions
Net proceeds from shares
subscribed............. 2,502,344,256 1,920,194,727
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 28,006,679 16,326,258
Cost of shares
reacquired............. (2,565,737,717) (1,845,315,406)
--------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions..... (35,386,782) 91,205,579
--------------- ---------------
Total increase (decrease).... (35,386,782) 91,205,579
Net Assets
Beginning of year............ 476,228,507 385,022,928
--------------- ---------------
End of year.................. $ 440,841,725 $ 476,228,507
=============== ===============
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-19
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
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 Policies
The following is a summary of significant accounting policies 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 Net 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated ("PSI")
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund reimbursed PMFD and
PSI for distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .12 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During year ended March 31, 1996, the
Fund incurred fees of $240,000 for the services of PMFS. As of March 31, 1996,
$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>
<TABLE>
<CAPTION>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights INSTITUTIONAL MONEY MARKET SERIES
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31,
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<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....................... .056 .046 .029 .033 .054
Dividends and distributions to shareholders........................ (.056) (.046) (.029) (.033) (.054)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
TOTAL RETURN(a):................................................... 5.72% 4.69% 2.92% 3.40% 5.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $440,842 $476,229 $385,023 $497,214 $443,172
Average net assets (000)........................................... $519,946 $402,678 $445,867 $543,694 $540,380
Ratios to average net assets:
Expenses, including distribution fee............................ .43% .46% .48% .44% .42%
Expenses, excluding distribution fee............................ .31% .34% .36% .32% .30%
Net investment income........................................... 5.56% 4.67% 2.87% 3.28% 5.32%
</TABLE>
- ----------
(a) 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>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Independent Auditors' Report INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
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, 1996, 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, 1996 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, 1996, 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 9, 1996
- --------------------------------------------------------------------------------
B-22
<PAGE>
APPENDIX--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and the
rate of inflation.
Each Investment Provides A Different Opportunity
(Value of $1 invested on 12/31/25)
[CHART OMITTED]
Source: Prudential Investment Corporation based on data from Ibbotson
Associates' EnCORR Software, Chicago, Illinois. Used with permission. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any portfolio.
Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile
than bond prices over the long-term.
Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are represented by a portfolio that contains
only one bond with a maturity of roughly 20 years. At the beginning of each
year a new bond with a then-current coupon replaces the old bond. Treasury bill
returns are for a one-month bill. Treasuries are guaranteed by the government
as to the timely payment of principal and interest; equities are not. Inflation
is measured by the consumer price index (CPI).
Impact of Inflation. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.
A-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1987
through 1995. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Fund Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.
Historical Total Returns of Different Bond Market Sectors
[GRAPH DEPICTING THE FOLLOWING INFORMATION HAS BEEN OMMITTED.]
<TABLE>
<CAPTION>
Year '87 '88 '89 '90 '91 '92 '93 '94 '95
- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds 2.0% 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% -3.4% 18.4%
Mortgage Securities 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.6% -1.6% 16.6%
U.S. Corporate Bonds 2.6% 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% -3.9% 22.3%
U.S. High Yield
Corporate Bonds 5.0% 12.5% 0.8% -9.5% 46.2% 15.8% 17.1% -1.0% 19.2%
World Government Bonds 35.2% 2.3% -3.4% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6%
Difference between highest and
lowest return in percent 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5
</TABLE>
1 Lehman Brothers Treasury Bond Index is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one
year.
2 Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
3 Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S.
dollar-denominated issues and include debt issued or guaranteed by foreign
sovereign governments, municipalities, governmental agencies or
international agencies. All bonds in the index have maturities of at least
one year.
4 Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at
least one year.
5 Salomon Brothers World Government Index (Non U.S.) includes over 800 bonds
issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada,
Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and
Austria. All bonds in the index have maturities of at least one year.
A-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 1986 through 1995. It does not represent the performance of any
Prudential Mutual Fund.
Average Annual Total Returns
of Major World Stock Markets
(1986-1995) (in U.S. dollars)
[CHART OMITTED]
Source: Morgan Stanley Capital International (MSCI). Used with permission.
Morgan Stanley Country indices are unmanaged indices which include those stocks
making up the largest two-thirds of each country's total stock market
capitalization. Returns reflect the reinvestment of all distributions. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
[CHART OMITTED]
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based
in the Standard & Poor's 500 Stock Index, a market-value-weighted index made up
of 500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
WORLD STOCK MARKET
CAPITILIZATION BY REGION
World Total: $9.2 Trillion
[CHART OMITTED]
Source: Morgan Stanley Capital International, December 1995. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1579 companies
in 22 countries (representing approximately 60% of the aggregate market value
of the stock exchanges). This chart is for illustrative purposes only and does
not represent the allocation of any Prudential Mutual Fund.
A-3
<PAGE>
This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.
LONG U.S. TREASURY BOND YIELD IN PERCENT (1926-1994)
[CHART OMITTED]
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. Yields represent that
of an annually renewed one-bond portfolio with a remaining maturity of
approximately 20 years. This chart is for illustrative purposes and should not
be construed to represent the yields of any Prudential Mutual Fund.
The following chart, although not relevant to share ownership in the Fund,
may provide useful information about the effects of a hypothetical investment
diversified over different asset portfolios. The chart shows the range of annual
total returns for major stock and bond indices for the period from December 31,
1975 through December 31, 1995. The horizontal "Best Returns Zone" band shows
that a hypothetical blended portfolio constructed of one-third U.S. stocks (S&P
500), one-third foreign stocks (EAFE Index), and one-third U.S. bonds (Lehman
Index) would have eliminated the "highest highs" and "lowest lows" of any single
asset class.
The Range of Annual Total Return for Major Stock &
Bond Indices Over the Past 20 Years
(12/31/75 - 12/31/95)
[CHART OMITTED]
- ----------
*Source: Prudential Investment Corporation based on data from Lipper Analytical
New Application (LANA). Past performance is not indicative of future results.
The S&P 500 Index is a weighted, unmanaged index comprised of 500 stocks which
provides a broad indication of stock price movements. The Morgan Stanley EAFE
Index is an unmanaged index comprised of 20 overseas stock markets in Europe,
Australia, New Zealand and the Far East. The Lehman Aggregate Index includes all
publicly-issued investment grade debt with maturities over one year, including
U.S. government and agency issues, 15 and 30 year fixed-rate government agency
mortgage securities, dollar denominated SEC registered corporate and government
securities, as well as asset-backed securities. Investors cannot invest directly
in stock or bond market indices.
A-4
<PAGE>
APPENDIX--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
payments. Duration is expressed as a measure of time in years--the longer the
duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
B-1
<PAGE>
APPENDIX--INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "Management of the Fund--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1995 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($11.4 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.7
million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500 firms.
It manages $36 billion of individual retirement plan assets, such as 401(k)
plans. In July 1995, Institutional Investor ranked Prudential the third largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1994. As of December 31, 1995, Prudential
had more than $314 billion in assets under management. Prudential's Money
Management Group (of which Prudential Mutual Funds is a key part) manages over
$190 billion in assets of institutions and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteen largest mutual fund
companies in the country, with over 2.5 million shareholders invested in more
than 50 mutual fund portfolios and variable annuities with more than 3.7 million
shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.
- ----------
(1) Prudential Mutual Fund Investment Management, a unit of PIC, serves as the
Subadviser to substantially all of the Prudential Mutual Funds. Wellington
Management Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Fund, Inc. and BlackRock Financial Management, Inc. as
subadviser to The BlackRock Government Income Trust. There are multiple
subadvisers for The Target Portfolio Trust.
(2) As of December 31, 1994.
C-1
<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty
mutual funds on its Honor Roll in its mutual fund issue of August 28, 1995.
Honorees are chosen annually among mutual funds (excluding sector funds) which
are open to new investors and have had the same management for at least five
years. Forbes considers, among other criteria, the total return of a mutual fund
in both bull and bear markets as well as a fund's risk profile. Prudential
Equity Fund is managed with a "value" investment style by PIC. In 1995,
Prudential Securities introduced Prudential Jennison Fund, a growth-style equity
fund managed by Jennison Associates Capital Corp., a premier institutional
equity manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of its
kind in the country) along with 100 or so other high yield bonds, which may be
considered for purchase.(3) Non-investment grade bonds, also known as junk bonds
or high yield bonds, are subject to a greater risk of loss of principal and
interest including default risk than higher-rated bonds. Prudential high yield
portfolio managers and analysts meet face-to-face with almost every bond issuer
in the High Yield Fund's portfolio annually, and have additional telephone
contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets--from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from Pulp and Paper Forecaster to Women's
Wear Daily--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over
1,200 companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their
visits overseas, often holding private meetings with a company in a foreign
language (our global equity managers speak 7 different languages, including
Mandarin Chinese).
Trading Data.(4) On an average day, Prudential Mutual Funds' U.S. and
foreign equity trading desks traded $77 million in securities representing over
3.8 million shares with nearly 200 different firms. Prudential Mutual Funds'
bond trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.(5) Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In 1994,
the Prudential Mutual Funds effected more than 40,000 trades in money market
securities and held on average $20 billion of money market securities.(6)
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services, Inc., the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On an
annual basis, that represents approximately 1.8 million telephone calls
answered.
- ----------
(3) As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
(4) Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts managed
by Prudential Mutual Fund Investment Management, a division of PIC, for the
year ended December 31, 1995.
(5) Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Government, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Government and Mortgage funds.
(6) As of December 31, 1994.
C-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for its
clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.(7)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities analysts were ranked as first-team finishers.(8)
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect(SM), a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(7) As of December 31, 1994.
(8) On an annual basis, Institutional Investor magazine surveys more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taking the number of votes awarded to an individual analyst
and weighting them based on the size of the voting institution. In total,
the magazine sends its survey to approximately 2,000 institutions and a
group of European and Asian institutions.
C-3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) Financial Statements:
(1) Financial statements included in the Prospectuses constituting
Part A of this Registration Statement:
Financial Highlights for Institutional Money Market Series
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:
Portfolio of Investments at March 31, 1996 for Institutional Money
Market Series
Statement of Assets and Liabilities at March 31, 1996 for
Institutional Money Market Series
Statement of Operations for the Year Ended March 31, 1996 for
Institutional Money Market Series
Statement of Changes in Net Assets for the Years Ended March 31, 1996
and 1995 for Institutional Money Market Series
Notes to Financial Statements for Institutional Money Market Series
Financial Highlights for Institutional Money Market Series
Independent Auditors' Report
(B) Exhibits:
1. (a) Articles of Restatement.*
(b) Articles Supplementary.*
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) Form of Management and Administrative Services Agreement between
the Fund, on behalf of the Liquid Assets Series, and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit No. 5(c)
to Post-Effective Amendment No. 10 to the Registation Statement on
Form N-1A (File No. 33-17224) filed via EDGAR on August 4, 1995.
C-1
<PAGE>
6. (a) Amended and Restated Distribution Agreement, incorporated by
reference to Exhibit No. 6(c) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-17224) filed via
EDGAR on May 26, 1995.
(b) Form of Distribution Agreement for the Liquid Assets Series,
incorporated by reference to Exhibit No. 6(d) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File No.
33-17224) filed via EDGAR on October 13, 1995.
(c) Amendment to 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.
(c) Opinion of Counsel.*
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 November 6, 1987.
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.
17. Financial Data Schedule.*
C-2
<PAGE>
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).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 17, 1996 there were 532 record holders of shares of common stock,
$.001 par value per share, of the Institutional Money Market Series of the Fund.
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
Agreements (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 Agreements (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
C-3
<PAGE>
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 Agreements 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Mutual Fund Management, Inc.
See "How the Fund Is Managed--Manager" in the Prospectuses 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 28, 1996).
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.
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
Stephen P. Fisher Senior Vice President Senior Vice President, PMF;
Senior Vice President,
Prudential Securities
Incorporated (Prudential
Securities); Vice President,
Prudential Mutual Fund
Distributors, Inc. (PMFD)
Frank W. Giordano Executive Vice Executive Vice President,
President, General General Counsel, Secretary
Counsel, Secretary and Director, PMF and PMFD;
and Director Senior Vice President,
Prudential Securities;
Director, Prudential Mutual
Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice President, Executive Vice President,
Chief Financial and Chief Financial and
Administrative Officer, Administrative Officer,
Treasurer and Director Treasurer and Director, PMF;
Senior Vice President,
Prudential Securities;
Executive Vice President,
Chief Financial Officer,
Treasurer and Director,
PMFD; Director, PMFS
Theresa A. Hamacher Director Director, PMF; Vice President,
751 Broad Street The Prudential Insurance
Newark, NJ 07102 Company of America
(Prudential); Vice
President, The Prudential
Investment Corporation
(PIC); President, Prudential
Mutual Fund Investment
Management (PMFIM)
Timothy J. O'Brien Director President, Chief Executive
Raritan Plaza One Officer, Chief Operating
Edison, NJ 08837 Officer and Director, PMFD;
Chief Executive Officer and
Director, PMFS; Director,
PMF
C-4
<PAGE>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
Richard A. Redeker President, Chief Executive President, Chief Executive
Officer and Director Officer and Director, PMF;
Executive Vice President,
Director and Member of
Operating Committee,
Prudential Securities;
Director, Prudential
Securities Group, Inc.
(PSG); Executive Vice
President, PIC; Director,
PMFD; Director, PMFS
S. Jane Rose Senior Vice President, Senior Vice President, Senior
Senior Counsel and Counsel and Assistant
Assistant Secretary Secretary, PMF; Senior Vice
President and Senior
Counsel, Prudential
Securities
Don Webber Executive Vice President Executive Vice President and
and Director of Sales Director of Sales, PMF
(b) The Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Manager" in the Prospectuses 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 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.
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
William M. Bethke Senior Vice President Senior Vice President,
Two Gateway Center Prudential; Senior Vice
Newark, NJ 07102 President, PIC
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential;
Vice President, PIC;
Director, PMF; President,
PMFIM
Richard A. Redeker Executive Vice President President, Chief Executive
One Seaport Plaza Officer and Director, PMF;
New York, New York 10292 Executive Vice President,
Director and Member of
Operating Committee,
Prudential Securities;
Director, PSG; Executive
Vice President, PIC;
Director, PMFD; Director,
PMFS
John L. Reeve Senior Vice President Managing Director, Prudential
Asset Management Group;
Senior Vice President, PIC
Eric A. Simonsen Vice President and Director Vice President and Director,
PIC; Executive Vice
President, Prudential
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Prudential Securities Incorporated
Prudential Securities is distributor for The BlackRock Government Income
Trust, Command Money Fund, Command Government Fund, Command Tax-Free Fund, The
Global Government Plus Fund, Inc., The Global Total Return Fund, Inc., Global
Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth
Equity Fund), Prudential Allocation Fund, Prudential California Municipal Fund,
Prudential Distressed Securities Fund, Inc., 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 Limited Maturity Fund, Inc., Prudential
Global Natural Resources Fund, Inc., Prudential Government Income Fund, Inc.,
Prudential Government Securities Trust, Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential Institutional Liquidity
Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Jennison Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential Mortgage
Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond
Fund, Prudential Municipal Series Fund, Prudential National Municipals Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Special Money Market
Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money
Fund, Inc., Prudential Utility Fund, Inc. and The Target Portfolio Trust.
Prudential Securities is also a depositor for the following unit investment
trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ----------- ----------
Robert Golden ...... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Alan D. Hogan ...... Executive Vice President, Chief None
Administrative Officer and Director
George A. Murray ... Executive Vice President and Director None
Leland B. Paton .... Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Martin Pfinsgraff .. Executive Vice President, Chief Financial None
Officer and Director
Vincent T. Pica II . Executive Vice President and Director None
One New York Plaza
New York, NY 10292
Richard A. Redeker . Executive Vice President and Director President and
Director
C-6
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ----------- ----------
Hardwick Simmons ... Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr. Executive Vice President, Secretary, None
General Counsel and Director
- ----------
(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.
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, One 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 Two 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 Prospectuses
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
The Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of the Post-Effective Amendment to the Registration Statement
relating to the Liquid Assets Series.
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 the Post-Effective Amendment to the
Registrant's 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 28 day of May, 1996.
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 28, 1996
- ------------------------- and Accounting Officer
EUGENE S. STARK
/s/ Eugene C. Dorsey Director May 28, 1996
- -------------------------
EUGENE C. DORSEY
/s/ Donald D. Lennox Director May 28, 1996
- -------------------------
DONALD D. LENNOX
/s/ Richard A. Redeker Director and President May 28, 1996
- -------------------------
RICHARD A. REDEKER
/s/ Stanley E. Shirk Director May 28, 1996
- -------------------------
STANLEY E. SHIRK
/s/ Robin B. Smith Director May 28, 1996
- -------------------------
ROBIN B. SMITH
C-8
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1. (a) Articles of Restatement.*
(b) Articles Supplementary.*
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 AmendmentNo. 3 to the
Registration Statement on Form N-1A (File No. 33-17224) filed on July 2,
1990.
(c) Form of Management and Administrative Services Agreement between the
Fund, on behalf of Liquid Assets Series, and Prudential Mutual Fund
Management, Inc. Incorporated by reference to Exhibit No. 5(c) to
Post-Effective Amendment No. 10 to the Registation Statement on Form
N-1A (File No. 33-17224) filed via EDGAR on August 4, 1995.
6. (a) Amended and Restated Distribution Agreement, incorporated by
reference to Exhibit No. 6(c) to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A (File No. 33-17224) filed via EDGAR
on May 26, 1995.
(b) Form of Distribution Agreement for the Liquid Assets Series,
incorporated by reference to Exhibit No. 6(d) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A (File No.
33-17224) filed via EDGAR on October 13, 1995.
(c) Amendment to 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.
(c) Opinion of Counsel.*
<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 November 6, 1987.
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.
17. 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).
ARTICLES OF RESTATEMENT
OF
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC., a Maryland corporation
having its principal offices in the city of Baltimore, Maryland and New York,
New York (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby restated in its entirety to
read as follows:
ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is
Prudential Institutional Liquidity Portfolio, Inc.
ARTICLE II.
Purposes
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940 and to
exercise and generally to enjoy all of the powers, rights and privileges granted
to, or conferred upon, corporations by the General Laws of the State of Maryland
now or hereinafter in force.
ARTICLE III.
Address in Maryland
The post office address of the place at which the principal office of the
Corporation in the State of Maryland is located is c/o CT Corporation System, 32
South Street, Baltimore, Maryland 21202.
The name of the Corporation's resident agent is the CT Corporation System,
and its post office address is 32 South Street, Baltimore, Maryland 21202. Said
resident agent is a corporation of the State of Maryland.
ARTICLE IV.
Common Stock
Section 1. (a) The total number of shares of stock which the Corporation
has authority to issue is 5 billion shares of common stock (the "Shares") of the
par value of $.001 each, having an aggregate par value of $5,000,000 (any
class(es) or series of Shares from time to time created by the Board of
Directors being herein referred to individually as a "Class" and collectively as
"Classes"). The Board of Directors of the Corporation shall have the power and
authority to classify or reclassify any unissued Shares from time to time by
setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such unissued Shares. The Board of Directors of the
Corporation shall have the power and authority to increase or decrease the
aggregate number of Shares of any Class that the Corporation has authority to
issue.
(b) A description of the relative preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of all Classes of Shares is as follows,
unless otherwise set forth in the Articles Supplementary filed with the Maryland
State Department of Assessments and Taxation describing any further Class or
Classes from time to time created by the Board of Directors:
(i) Assets Belonging to Class. All consideration received by the
Corporation for the issue or sale of Shares of a particular Class, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that Class for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of account of the Corporation. Such consideration,
assets, income, earnings, profits and proceeds, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Class as provided in the following
sentence, are herein referred to as assets belonging to that Class. In the
event that there are any assets, income, earnings, profits or proceeds
thereof, funds or payments which are not readily identifiable
<PAGE>
as belonging to any particular Class (collectively "General Items"), the
Board of Directors shall allocate such General Items to and among any one
or more of the Classes created from time to time, in such manner and on
such basis as the Board of Directors in its sole discretion deems fair and
equitable; and any General Items so allocated to a particular Class shall
belong to that Class. Each such allocation by the Board of Directors shall
be conclusive and binding upon the stockholders of all Classes for all
purposes.
(ii) Liabilities Belonging to Class. The assets belonging to each
particular Class shall be charged with the liabilities of the Corporation
in respect of that Class and with all expenses, costs, charges and reserves
attributable to that Class, and shall be so recorded upon the books of
account of the Corporation. Such liabilities, expenses, costs, charges and
reserves, together with any General Items (as hereinafter defined)
allocated to that Class as provided in the following sentence, so charged
to that Class are herein referred to as liabilities belonging to that
Class. In the event there are any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily identifiable
as belonging to any particular Class (collectively "General Items"), the
Board of Directors shall allocate and charge such General Items to and
among any one or more of the Classes created from time to time, in such
manner and on such basis as the Board of Directors in its sole discretion
deems fair and equitable; and any General Items so allocated and charged to
a particular Class shall belong to that Class. Each such allocation by the
Board of Directors shall be conclusive and binding upon the stockholders of
all Classes for all purposes.
(iii) Dividends. Dividends and distributions on Shares of a particular
Class may be paid to the holders of Shares of that Class at such times, in
such manner and from such of the income and capital gains accrued or
realized from the assets belonging to that Class, after providing for
actual and accrued liabilities belonging to that Class, as the Board of
Directors may determine.
(iv) Liquidation. In the event of the liquidation or dissolution of
the Corporation, the stockholders of each Class that has been created shall
be entitled to receive, as a Class, when and as declared by the Board of
Directors, the excess of the assets belonging to that Class over the
liabilities belonging to that Class. The assets so distributable to the
stockholders of any particular Class shall be distributed among such
stockholders in proportion to the number of Shares of that Class held by
them and recorded on the books of the Corporation.
(v) Voting. On each matter submitted to a vote of the stockholders,
each holder of a Share shall be entitled to one vote for each Share
standing in such holder's name on the books of the Corporation irrespective
of the Class thereof and all Shares of all Classes shall vote as a single
Class ("Single Class Voting"); provided, however, that (A) as to any matter
with respect to which a separate vote of any Class is required by the
Investment Company Act of 1940 or would be required under the Maryland
General Corporation Law, such requirements as to a separate vote by that
Class shall apply in lieu of Single Class Voting as described above; (B) in
the event that the separate vote requirements referred to in (A) above
apply with respect to one or more Classes, then, subject to (C) below, the
Shares of all other Classes shall vote as a single Class; and (C) as to any
matter which does not affect the interest of a particular Class, including
but not limited to any proposal to liquidate any other Class, only the
holders of Shares of the one or more affected Classes shall be entitled to
vote.
(vi) Quorum. The presence in person or by proxy of the holders of
record of one-third of the Shares of all Classes issued and outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of
any business at all meetings of the stockholders except as otherwise
provided by law or in these Articles of Incorporation and except that where
the holders of Shares of any Class are entitled to a separate vote as a
class (a "Separate Class") or where the holders of Shares of two or more
(but not all) classes are required to vote as a single class (a
2
<PAGE>
"Combined Class"), the presence in person or by proxy of the holders of
record of one-third of the Shares of that Separate Class or Combined Class,
as the case may be, issued and outstanding and entitled to vote thereat
shall constitute a quorum for such vote.
(vii) Equality. Each Share of any particular Class shall represent an
equal and proportionate interest in the assets belonging to that Class
(subject to the liabilities belonging to that Class); however, the
provisions of this sentence shall not restrict any distinctions permissible
pursuant to subjection (iii) of this Section 1(b) or otherwise under these
Articles of Incorporation that may exist with respect to stockholder
elections to receive dividends or distributions in cash or Shares of the
same Class or that may otherwise exist with respect to dividends and
distributions on Shares of the same Class.
Section 2. Each Share shall also be subject to the following provisions:
(a) The net asset value per Share of a particular Class shall be the
quotient obtained by dividing the value of the net assets of that Class (being
the value of the total assets belonging to that Class less the liabilities
belonging to that Class) by the total number of Shares of that Class
outstanding. Subject to subsection (b) of this Section 2, the value of the total
assets belonging to each Class shall be determined by, determined pursuant to
the direction of, or determined pursuant to procedures or methods (which
procedures or methods may differ from Class to Class) prescribed or approved by
the Board of Directors in its sole discretion, and shall be so determined at the
time or times (which time or times may differ from Class to Class) prescribed or
approved by the Board of Directors in its sole discretion.
(b) The net asset value of each Share of a particular Class, for the
purpose of the issue, redemption or repurchase of such Share, shall be
determined in accordance with any applicable provision of the Investment Company
Act of 1940, any applicable rule, regulation or order of the Securities and
Exchange Commission thereunder, and any applicable rule or regulation made or
adopted by any securities association registered under the Securities Exchange
Act of 1934.
(c) All Shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the stockholder, in the sense used in the
General Laws of the State of Maryland authorizing the formation of corporations.
Each holder of a Share of any Class, upon request to the Corporation accompanied
by surrender of the appropriate stock certificate or certificates, if any, in
proper form for transfer, shall be entitled to require the Corporation to redeem
all or any part of the Shares of that Class standing in the name of such holder
on the books of the Corporation at a redemption price per Share equal to the net
asset value per Share of that Class determined in accordance with subsection (a)
of this Section 2.
(d) Notwithstanding subsection (c) of this Section 2, the Board of
Directors of the Corporation may suspend the right of the holders of Shares of
any or all Classes to require the Corporation to redeem such Shares or may
suspend any voluntary purchase of such Shares:
(i) for any period (A) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings, or (B) during
which trading on the New York Stock Exchange is restricted;
(ii) for any period during which an emergency, as defined by the rules
of the Securities and Exchange Commission or any successor thereto, exists
as a result of which (A) disposal by the Corporation of securities owned by
it and belonging to the affected Class or Classes is not reasonably
practicable, or (B) it is not reasonably practicable for the Corporation
fairly to determine the value of the net assets of the affected Class or
Classes; or
(iii) for such periods as the Securities and Exchange Commission or
any successor thereto may by order permit for the protection of security
holders of the Corporation.
(e) All Shares now or hereafter authorized shall be subject to redemption
and redeemable at the option of the Corporation. The Board of Directors may by
resolution from time to time authorize the Corporation to require the redemption
of all or any part of the outstanding Shares of any Class upon the sending of
written notice thereof to each stockholder any of whose Shares are so redeemed
and upon such terms and conditions as the Board of Directors shall deem
3
<PAGE>
advisable, out of funds legally available therefor, at net asset value per Share
of that Class determined in accordance with subsection (a) of this Section 2 and
to take all other steps deemed necessary or advisable in connection therewith.
(f) The Board of Directors may by resolution from time to time authorize
the purchase by the Corporation, either directly or through an agent, of Shares
of any Class upon such terms and conditions and for such consideration as the
Board of Directors shall deem advisable out of funds legally available therefor
at prices per Share not in excess of their net asset value per Share of that
Class determined in accordance with subsection (a) of this Section 2 and to take
all other steps deemed necessary or advisable in connection therewith.
(g) Except as otherwise permitted by the Investment Company Act of 1940,
payment of the redemption price of Shares of any Class surrendered to the
Corporation for redemption pursuant to the provisions of subsection (c) or (e)
of this Section 2 or for purchase by the Corporation pursuant to the provisions
of subsection (f) of this Section 2 shall be made by the Corporation for such
purpose. Any such payment may be made in whole or in part in portfolio
securities or in cash, as the Board of Directors shall deem advisable, belonging
to such Class, and no stockholder shall have the right, other than as determined
by the Board of Directors, to have his Shares redeemed in portfolio securities.
(h) In the absence of any specification as to the purposes for which Shares
are redeemed or repurchased by the Corporation, all Shares so redeemed or
repurchased shall be deemed to be acquired for retirement in the sense
contemplated by the laws of the State of Maryland. Shares of any Class retired
by repurchase or redemption shall thereafter have the status of authorized but
unissued Shares of that Class.
Section 3. Notwithstanding any provision of law requiring action to be
taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the outstanding Shares of all Classes or
of the outstanding Shares of a particular Class or Classes, as the case may be,
such action shall be valid and effective if taken or authorized by the
affirmative vote of the holders of a majority of the total number of Shares of
all Classes or of the total number of Shares of such Class or Classes, as the
case may be, outstanding and entitled to vote thereupon pursuant to the
provisions of these Articles of Incorporation.
Section 4. No holder of Shares of any Class shall, as such holder, have any
preemptive right to purchase or subscribe for any Shares of that or any other
Class which the Corporation may issue or sell (whether out of the number of
Shares authorized by the Articles of Incorporation, or out of any Shares
acquired by the Corporation after the issue thereof, or otherwise).
Section 5. All persons who shall acquire Shares in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
ARTICLE V.
Directors
The By-Laws of the Corporation may fix the number of directors at no less
than three and may authorize the Board of Directors, by the vote of a majority
of the entire Board of Directors, to increase or decrease the number of
directors within a limit specified in the By-Laws (provided that, if there are
no Shares outstanding, the number of directors may be less than three but not
less than one), and to fill the vacancies created by any such increase in the
number of directors. Unless otherwise provided by the By-Laws of the
Corporation, the directors of the Corporation need not be stockholders.
The By-Laws of the Corporation may divide the directors of the Corporation
into classes and prescribe the tenure of office of the several classes; but no
class shall be elected for a period shorter than one year or for a period longer
than five years, and the term of office of at least one class shall expire each
year.
ARTICLE VI.
Miscellaneous
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for creating,
defining, limiting and regulating the powers of the Corporation, the directors
and the stockholders.
Section 1. The Board of Directors shall have the management and control of
the property, business and affairs of the Corporation and is hereby vested
4
<PAGE>
with all the powers possessed by the Corporation itself so far as is not
inconsistent with law or these Articles of Incorporation. In furtherance and
without limitation of the foregoing provisions, it is expressly declared that,
subject to these Articles of Incorporation, the Board of Directors shall have
power:
(a) to make, alter, amend or repeal from time to time the By-Laws of the
Corporation except as such power may otherwise be limited in the By-Laws.
(b) To issue Shares of any Class of the Corporation.
(c) To authorize the purchase of Shares of any Class in the open market or
otherwise, at prices not in excess of their net asset value for Shares of that
Class determined in accordance with subsection (a) of Section 2 of Article IV
hereof, provided that the Corporation has assets legally available for such
purpose, and to pay for such Shares in cash, securities or other assets then
held or owned by the Corporation.
(d) To declare and pay dividends and distributions from funds legally
available therefor on Shares of such Class or Classes, in such amounts, if any,
and in such manner (including declaration by means of a formula or other similar
method of determination whether or not the amount of the dividend or
distribution so declared can be calculated at the time of such declaration) and
to the stockholders of record as of such date, as the Board of Directors may
determine.
(e) To take any and all action necessary or appropriate to maintain a
constant net asset value per Share for Shares of any Class.
Section 2. Any determination made in good faith and so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of Shares, past, present and future, of each Class, and Shares are issued and
sold on the condition and undertaking, evidenced by acceptance of certificates
for such Shares by, or confirmation of such Shares being held for the account
of, any stockholder, that any and all such determinations shall be binding as
aforesaid.
Nothing in this Section 2 shall be construed to protect any director or
officer of the Corporation against any liability to the Corporation or its
stockholders to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Section 3. The directors of the Corporation may receive compensation for
their services, subject, however, to such limitations with respect thereto as
may be determined from time to time by the stockholders.
Section 4. Except as required by law, the holders of Shares shall have only
such right to inspect the records, documents, accounts and books of the
Corporation as may be granted by the Board of Directors of the Corporation.
Section 5. Any vote of stockholders authorizing liquidation of the
Corporation or proceedings for its dissolution may authorize the Board of
Directors to determine, as provided herein, or if provision is not made herein,
in accordance with generally accepted accounting principles, which assets are
the assets belonging to each Class available for distribution to stockholders of
that Class and may divide, or authorize the Board of Directors to divide, such
assets among the stockholders of that Class in such manner as to ensure that
each stockholder will receive an equal and proportionate amount of the value of
such assets (determined as aforesaid) belonging to such Class upon such
liquidation or dissolution.
Section 6. A director or officer of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except to the extent such exemption from
liability or limitation thereof is not permitted by law (including the
Investment Company Act of 1940) as currently in effect or as the same may
hereafter be amended.
No amendment, modification or repeal of this Article VI shall adversely
affect any right or protection of a director or officer that exists at the time
of such amendment, modification or repeal.
5
<PAGE>
ARTICLE VII.
Amendments
The Corporation reserves the right from time to time to amend, alter or
repeal any of the provisions of these Articles of Incorporation (including any
amendment that changes the terms of any of the outstanding Shares by
classification, reclassification or otherwise), and to add or insert any other
provisions that may, under the statutes of the State of Maryland at the time in
force, be lawfully contained in articles of incorporation, and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are subject to the provisions of this Article VII.
-----------------------
The term Articles of Incorporation as used herein and in the By-Laws of the
Corporation shall be deemed to mean these Articles of Incorporation as from time
to time amended and restated.
-----------------------
SECOND: The provisions set forth in these Articles of Restatement
constitute all of the provisions of the Charter of the Corporation as currently
in effect. These Articles do not amend the Charter of the Corporation.
THIRD: The restatement of the Charter of the Corporation has been approved
by the affirmative vote of a majority of the Directors of the Corporation at a
meeting duly called and held on April 9, 1996. The Corporation has five
Directors, Eugene C. Dorsey, Donald D. Lennox, Richard A. Redeker, Stanley E.
Shirk and Robin B. Smith, currently in office.
IN WITNESS WHEREOF, the Articles of Restatement have been executed on
behalf of Prudential Institutional Liquidity Portfolio, Inc. this 23rd day of
May, 1996.
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
By: /s/ RICHARD A. REDEKER
-----------------------------------------
Richard A. Redeker, President
Attest: /s/ MARGUERITE E. H. MORRISON
--------------------------------
Marguerite E. H. Morrison
Assistant Secretary
The undersigned, President of PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO,
INC., who executed on behalf of said Corporation the foregoing Articles of
Restatement of which this certificate is made a part, hereby acknowledges that
these Articles of Restatement are the act of the Corporation and affirms that,
to the best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/ RICHARD A. REDEKER
-----------------------------------------
Richard A. Redeker
6
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
ARTICLES SUPPLEMENTARY
CLASSIFYING AUTHORIZED STOCK
Prudential Institutional Liquidity Portfolio, Inc., a Maryland corporation,
having its principal offices in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly granted by Article IV of the
Articles of Restatement of the Corporation, as amended from time to time (the
"Charter"), the Board of Directors has duly classified 2,500,000,000 of
authorized but unissued shares of the Corporation's Common Stock (including all
outstanding shares) as shares of the Institutional Money Market Series and has
classified the remaining 2,500,000,000 authorized but unissued shares as shares
of the Liquid Assets Series, each such series to be a separate portfolio of
investments. The shares of each Series shall have the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as set forth in the
Articles of Incorporation of the Corporation applicable to capital stock
generally.
SECOND: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.
THIRD: These Articles Supplementary do not change the aggregate number of
authorized shares of Common Stock or the aggregate par value thereof.
FOURTH: These Articles Supplementary shall become effective at 9:00 a.m. on
June 3, 1996.
IN WITNESS WHEREOF, Prudential Institutional Liquidity Portfolio, Inc. has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Assistant Secretary on May 23, 1996.
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
WITNESS:
/s/ Marguerite E. H. Morrison By:/s/ Richard A. Redeker
- ----------------------------- -----------------------------
Marguerite E. H. Morrison, Richard A. Redeker,
Assistant Secretary President
<PAGE>
THE UNDERSIGNED, President of Prudential Institutional Liquidity Portfolio,
Inc., who executed on behalf of the Corporation Articles Supplementary of which
this Certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles Supplementary to be the corporate act
of said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
By:/s/ Richard A. Redeker
-----------------------------
Richard A. Redeker, President
2
EXHIBIT 6(c)
Amendment to Distribution Agreements
The Distribution Agreements between Prudential Mutual Fund Distributors,
Inc. and each of the Funds listed below are hereby transferred to Prudential
Securities Incorporated effective January 1, 1996.
Name of Fund Date of Agreement
- ------------ -----------------
The BlackRock Government Income Trust August 30, 1991 and amended
(Class A) and restated on April 12, 1995
Command Government Fund September 15, 1988 and
amended and restated on
April 12, 1995
Command Money Fund September 15, 1988 and
amended and restated on
April 12, 1995
Command Tax-Free Money Fund September 15, 1988 and
amended and restated on
April 12, 1995
Global Utility Fund, Inc. February 4, 1991 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 4, 1995
Nicholas-Applegate Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 12, 1995
Nicholas-Applegate Growth Equity Fund
Prudential Allocation Fund January 22, 1990 and
(Class A) amended and restated on
August 1, 1994 and
Strategy Portfolio May 3, 1995
Balanced Portfolio
1
<PAGE>
Prudential California Municipal Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
California Income Series
California Series
Prudential California Municipal Fund February 10, 1989 and
amended and restated on
California Money Market Series July 1, 1993 and May 5, 1995
Prudential Diversified Bond Fund, Inc. January 3, 1995 and amended
(Class A) and restated on June 13, 1995
Prudential Equity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Equity Income Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Europe Growth Fund, Inc. July 11, 1994 and amended
(Class A) and restated on June 13, 1995
Prudential Global Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Global Natural Resources Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Government Income Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
April 13, 1995
Prudential Government Securities Trust November 20, 1990 and
Money Market Series amended and restated on
U.S. Treasury Money Market Series July 1, 1993, May 2, 1995
and August 1, 1995
Prudential Growth Opportunity Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
2
<PAGE>
Prudential High Yield Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
Prudential Institutional Liquidity November 20, 1987 and
Portfolio, Inc. amended and restated on
Prudential Institutional Money Market Series July 1, 1993 and
April 11, 1995
Prudential Intermediate Global Income Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 10, 1995
Prudential MoneyMart Assets May 1, 1988 and amended
and restated on July 1, 1993
and May 10, 1995
Prudential Mortgage Income Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Prudential Multi-Sector Fund, Inc. August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Prudential Municipal Bond Fund August 1, 1994 and amended
(Class A) and restated on May 3, 1995
Insured Series
High Yield Series
Intermediate Series
Prudential Municipal Series Fund August 1, 1994 and amended
(Class A) and restated on May 5, 1995
Florida Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
3
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series February 10, 1989 and
Massachusetts Money Market Series amended and restated on
New Jersey Money Market Series July 1, 1993 and May 5, 1995
New York Money Market Series
Prudential National Municipals Fund, Inc. January 22, 1990 and
(Class A) amended and restated on
July 1, 1993, August 1, 1994
and May 2, 1995
Prudential Pacific Growth Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Global Limited Maturity Fund, Inc. August 1, 1994 and amended
(formerly Prudential Short-Term Global Income and restated on June 5, 1995
Fund Inc.)
(Class A)
Global Assets Portfolio
Limited Maturity Portfolio
Prudential Special Money Market Fund January 12, 1990 and
Money Market Series amended and restated on
April 12, 1995
Prudential Structured Maturity Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
Income Portfolio
Prudential Tax-Free Money Fund, Inc. May 2, 1988 and
amended and restated on
July 1, 1993, May 2, 1995 and
August 1, 1995
Prudential U. S. Government Fund August 1, 1994 and amended
(Class A) and restated on June 5, 1995
Prudential Utility Fund, Inc. August 1, 1994 and amended
(Class A) and restated on June 14, 1995
4
<PAGE>
EACH OF THE FUNDS LISTED ABOVE
By /s/ ROBERT F. GUNIA
----------------------------------------
Robert F. Gunia
Vice President
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC.
By /s/ STEPHEN P. FISHER
-----------------------------------------
Stephen P. Fisher
Vice President
AGREED TO AND ACCEPTED BY:
PRUDENTIAL SECURITIES INCORPORATED
By /s/ BRENDAN BOYLE
- -------------------------------------
Brendan Boyle
Senior Vice President
5
GARDNER, CARTON & DOUGLAS
SUITE 3400 - QUAKER TOWER
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610-4795
(312) 644-3000
TELECOPIER: (312) 644-3381
May 23, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Institutional Liquidity Portfolio, Inc.
Shares of Common Stock, $0.001 par value per share
Ladies and Gentlemen:
We have acted as counsel to Prudential Institutional Liquidity Portfolio,
Inc., a Maryland corporation (the "Fund"), in connection with its filing of
Post-Effective Amendment No. 15 to its Registration Statement on Form N-1A (File
No. 33-17224) (the "Amendment"). In addition to updating the information
contained therein, the Amendment registers 35,676,782 shares of Common Stock,
$0.001 par value per share, of the Institutional Money Market Series of the
Fund.
We have examined all instruments, documents and records which, in our
opinion, were necessary of examination for the purpose of rendering this
opinion. Based upon such examination, we are of the opinion that the
above-described shares of Common Stock will be, if and when issued by the Fund
in the manner and upon the terms set forth in said Amendment, validly authorized
and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment.
Very truly yours,
/s/ Gardner, Carton & Douglas
GARDNER, CARTON & DOUGLAS
PHD/KJF/cav
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 15 to Registration
Statement No. 33-17224 of Prudential Institutional Liquidity Portfolio, Inc. of
our report dated May 9, 1996, appearing in the Statement of Additional
Information, which is part of such Registration Statement, and to the references
to us under the headings "Financial Highlights" in the Prospectus, which is 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 27, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000822337
<NAME> PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
<SERIES>
<NUMBER> 001
<NAME> INSTITUTIONAL MONEY MARKET SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 440,378,095
<RECEIVABLES> 2,837,611
<ASSETS-OTHER> 8,038
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 443,223,744
<PAYABLE-FOR-SECURITIES> 2,382,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,382,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 440,841,725
<SHARES-COMMON-STOCK> 440,841,725
<SHARES-COMMON-PRIOR> 476,228,507
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 440,841,725
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,099,350
<OTHER-INCOME> 0
<EXPENSES-NET> 2,260,649
<NET-INVESTMENT-INCOME> 28,838,701
<REALIZED-GAINS-CURRENT> 51,244
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28,889,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,889,945)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,502,344,256
<NUMBER-OF-SHARES-REDEEMED> (2,565,737,717)
<SHARES-REINVESTED> 28,006,679
<NET-CHANGE-IN-ASSETS> (35,386,782)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,039,892
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,260,649
<AVERAGE-NET-ASSETS> 519,946,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
