As filed with the Securities and Exchange Commission on June 6, 1997
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 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 19 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 20 /X/
(Check appropriate box or boxes)
--------------
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
(Exact name of registrant as specified in charter)
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
--------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(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)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously registered an indefinite number of shares of Common Stock, par value
$.001 per share. The Registrant filed a notice under such Rule for its fiscal
year ended March 31, 1997 on or about May 29, 1997.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
N-1A ITEM NO. LOCATION
- ------------- --------
PART A
Item 1. Cover Page .............................. Cover Page
Item 2. Synopsis ................................ Series Expenses; Fund
Highlights
Item 3. Condensed Financial Information ......... Series Expenses; Financial
Highlights; Calculation of
Yield
Item 4. General Description of Registrant ....... Cover Page; Fund Highlights;
How the Fund Invests;
General Information
Item 5. Management of the Fund Financial Highlights; How
the Fund is Managed; General
Information
Item 5A. Management's Discussion of Fund
Performance ............................. Not Applicable
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; How the
Fund Values its Shares;
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
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
(Class I Shares)
- --------------------------------------------------------------------------------
Prospectus dated __________, 1997
- --------------------------------------------------------------------------------
The Institutional Money Market Series (the Series) is one of two 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. Only Class I shares of the Series are offered
through this Prospectus. There can be no assurance that the Series' investment
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies."
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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 521-7466. The Fund also
offers Class A shares through the attached Prospectus dated , 1997 (the
Class A Prospectus), which is a part hereof.
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 , 1997, 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
SERIES EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
CLASS I SHARES**
----------------
Maximum Sales Load Imposed on Purchases .................... None
Maximum Sales Load Imposed on Reinvested Dividends ......... None
Maximum Deferred Sales Load ................................ None
Redemption Fees ............................................ None
Exchange Fee ............................................... None
ANNUAL SERIES OPERATING EXPENSES*
(as a percentage of average net assets)
CLASS I SHARES**
----------------
Management Fees (after waiver) ............................. .15%
12b-1 Fees ................................................. None
Other Expenses (after subsidy) ............................. 0%
----
Total Series Operating Expenses (after waiver and subsidy).. .15%
----
EXAMPLE
1 YEAR 3 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:
Class I ................................................. $2 $5
The above example is based on data for the Fund's fiscal year ended March 31,
1997. 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" in the Class A Prospectus. "Other Expenses"
includes operating expenses of the Series, such as Directors' and professional
fees, registration fees, reports to shareholders and transfer agency and
custodian fees.
- ----------
* Based on expenses expected to have been incurred if Class I shares had been
in existence during the entire fiscal year ended March 31, 1997, taking into
account the management fee waiver and the Manager's subsidy of other
expenses. Without the management fee waiver of .05 of 1% and the expense
subsidy, Management Fees and Total Series Operating Expenses would be .20%
and .34%, respectively, of the average net assets of the Series' Class I
shares. See "How the Fund is Managed--Manager--Fee Waivers" in the Class A
Prospectus.
** Class I shares of the Series are offered to, among others, investment
advisory clients of Prudential Securities which participate in the managed
account programs sponsored by Prudential Securities listed herein. See
"Shareholder Guide--How to Buy Shares of the Fund" in the Class A
Prospectus. Participants in these programs are charged an account program
fee based on the percentage of assets under management.
- --------------------------------------------------------------------------------
2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS
MANAGED--DISTRIBUTOR" IN THE CLASS A PROSPECTUS:
Prudential Securities Incorporated (Prudential Securities) serves as the
Distributor of Class I shares and incurs the expenses of distributing the
Series' Class I shares under a Distribution Agreement with the Fund, none of
which is reimbursed by or paid for by the Series.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE CLASS A PROSPECTUS:
The Fund has obtained an opinion of counsel to the effect that the exchange
of the Series' Class A shares for Class I shares does not constitute a taxable
event for federal income tax purposes. However, such opinion is not binding on
the Internal Revenue Service.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES
OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE CLASS A
PROSPECTUS:
Class I shares of the Series are available for purchase by the following
categories of investors: (i) institutional investors and (ii) investment
advisory clients of Prudential Securities Incorporated (Prudential Securities)
which participate in the following managed account programs sponsored by
Prudential Securities: Gibraltar Advisors, Prudential Securities Portfolio
Management (PSPM), Quantum Portfolio Management, Managed Assets Consulting
Services (MACS) and Prudential Securities Investment Supervisory Group. For all
investors other than investment advisory clients of Prudential Securities, the
minimum initial investment in Class I shares of the Series to establish a new
account is $5 million and subsequent investments in Class I shares must be made
in the amount of at least $ . There is no minimum initial or subsequent
investment requirement for investment advisory clients of Prudential Securities.
See "Purchase of Shares" in the Statement of Additional Information.
In connection with the sale of Class I shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
PURCHASES THROUGH PRUDENTIAL SECURITIES
[If you have an account with Prudential Securities (or open such an
account), you may ask Prudential Securities to purchase shares of the Series on
your behalf. On the business day following confirmation that a free credit
balance (i.e., immediately available funds) exists in your account, Prudential
Securities, at your request, will effect a purchase order for shares of the
Series in an amount up to such balance at the NAV determined on that day. Funds
held by Prudential Securities on behalf of its clients in the form of free
credit balances are delivered to the Series by Prudential Securities and begin
earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.]
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be beld by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities provides its clients with alternative forms of immediate access to
monies invested in shares of the Series.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call their
Prudential Securities Financial Advisor.
AUTOMATIC PURCHASE PROCEDURES. Prudential Securities will purchase shares
of the Series on behalf of participating clients each business day at current
net asset value pursuant to the automatic purchase procedures decribed below.
There is no sales charge. 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 oftering of its shares.
Free credit cash balances of $1.00 or more held in the account of a
participating client will automatically be invested in shares of the Series
(Autosweep) as described below. Specifically, an order to purchase shares of the
Series is placed (i) in the case of a free credit cash balance resulting from
the proceeds of a securities sale, on the settlement date of the securities
sale, and (ii) in the case of a free credit cash balance resulting from a
non-trade related credit (e.g., receipt of a dividend or interest payment,
maturity of a bond or a cash payment by the client into the clients' account),
on the business day after the receipt by Prudential Securities of the non-trade
related credit. Each time an order is placed under these procedures resulting
from the settlement of a securities sale, any non-trade related credit in the
client's account will also be automatically invested.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:00 P.M., New York time, on the business day the order is placed and cause
payment to be made in federal funds for the shares invested prior to 4:00 P.M.,
New York time, on the next business day. Prudential Securities will have the use
of free credit cash balances until monies are delivered to the Series.
HOW TO SELL YOUR SHARES
Shares will be redeemed each business day at NAV next determined in
accordance with the procedures described below.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Series may have these shares redeemed only by instructing their
Prudential Securities Financial Advisor orally or in writing.
Prudential Securities has advised the Series that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar, unless the client notifies Prudential Securities to the
contrary. The amount of the redemption will be the lesser of (a) the total value
of Series shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or satisfy any other debit balance in his or
her account other than through such automatic redemption procedure must do so
not later than the day of settlement for such securities transaction or the date
the debit balance is incurred. Prudential Securities clients who have elected to
utilize Autosweep will not be entitled to dividends declared on the date of
redemption.
AUTOMATIC REDEMPTION. Redemptions will be automatically effected by
Prudentia1 Securities on each business day at the NAV next determined to satisfy
debit balances arising from securities transactions in an account to the nearest
highest dollar or to satisfy redemption requests made on behalf of a
participating client. Each participating client's account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Series will be redeemed as of that
business day to satisfy any remaining debits in the account. In the event of an
automatic redemption of shares, the client will be entitled to dividends
declared on the redeemed shares through the business day preceding the day on
which the redemption is effective. Dividends declared on the date of redemption
will be retained by Prudential Securities which has advanced monies to satisfy
debits in the participating client's account.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE CLASS A PROSPECTUS:
The Fund does not currently offer an exchange privilege for the Series.
Class A shareholders of the Series who qualify to purchase Class I shares will
have their Class A shares exchanged for Class I shares on a quarterly basis.
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE CLASS A PROSPECTUS AS APPROPRIATE.
3
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
================================================================================
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS .......................................................... 2
What are the Fund's Risk Factors and Special
Characteristics? ....................................................... 2
SERIES 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
================================================================================
MF137I 444078X
- --------------------------------------------------------------------------------
Class I CUSIP No.: 744350
- --------------------------------------------------------------------------------
------------------
Prudential
Institutional
Liquidity
Portfolio, Inc.
==================
Institutional
Money Market Series
(Class I Shares)
PROSPECTUS
, 1997
------------------
[LOGO] PRUDENTIAL
INVESTMENTS
<PAGE>
Prudential
Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
- --------------------------------------------------------------------------------
Prospectus dated __________, 1997
- --------------------------------------------------------------------------------
The Institutional Money Market Series (the Series) is one of two 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. Only Class A shares of the Series are offered
through this Prospectus. 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 in Class A shares of the Series 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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, 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 , 1997, 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 NOR HAS THE 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.
WHAT ARE THE FUND'S 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 Investments Fund Management LLC (PIFM 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, 1997, PIFM served
as manager or administrator to [62] investment companies, including [40] mutual
funds, with aggregate assets of approximately $54.6 billion. The Prudential
Investment Corporation, doing business as Prudential Investments (PI, the
investment adviser or the Subadviser), furnishes investment advisory services in
connection with the management of the Fund under a Subadvisory Agreement with
PIFM. 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 Prudential Securities for
expenses related to the distribution of the Series' Class A shares at an annual
rate of up to .12 of 1% of the average daily net assets of the Class A shares of
the Series. See "How the Fund is Managed--Distributor" at page 11.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A shares of the Series 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 for Class A shares 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 LLC (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>
- --------------------------------------------------------------------------------
SERIES EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
CLASS A SHARES
--------------
Maximum Sales Load Imposed on Purchases ...................... None
Maximum Sales Load Imposed on Reinvested Dividends ........... None
Maximum Deferred Sales Load .................................. None
Redemption Fees .............................................. None
Exchange Fee ................................................. None
ANNUAL SERIES OPERATING EXPENSES*
(as a percentage of average net assets)
CLASS A SHARES
--------------
Management Fees (after waiver) ............................... .15%
12b-1 Fees (after waiver) .................................... .05%
Other Expenses (after subsidy) ............................... 0%
Total Series Operating Expenses (after waiver and subsidy) ... .20%
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:
Class A ................................. $2 $6 $11 $26
The above example is based on restated data for the Fund's fiscal year ended
March 31, 1997. 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 and transfer agency and custodian fees.
- ----------
* Based on expenses incurred during the fiscal year ended March 31, 1997,
taking into account the management and distribution fee waiver and the
Manager's expense subsidy which became effective June 2, 1997. Without the
management and distribution fee waivers and the expense subsidy, Management
Fees, Distribution Fees and Total Series Operating Expenses would be .20%,
.12% and .46%, respectively, of the average net assets of the Series' Class
A shares. See "How the Fund is Managed--Manager--Fee Waivers."
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
- --------------------------------------------------------------------------------
The following financial highlights with respect to the year ended March 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, and
with respect to the four years ended March 31, 1996, have been audited by
Deloitte & Touche LLP, independent auditors, each of whose reports thereon were
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
Class A share of common stock outstanding, total return, ratios to average net
assets and other supplemental data for each of the periods indicated. The
information is based on data contained in the financial statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A SHARES(e)
--------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income
and net realized gains ..... .050 .056 .046 .029 .033 .054 .076
Dividends and distributions . (.050) (.056) (.046) (.029) (.033) (.054) (.076)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(d): ............ 5.16% 5.72% 4.69% 2.92% 3.40% 5.57% 8.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) ..................... $478,045 $440,842 $476,229 $385,023 $497,214 $443,172 $519,802
Average net assets (000) .... $449,393 $519,946 $402,678 $445,867 $543,694 $540,380 $479,849
Ratios to average net assets:
Expenses, including
distribution fee .......... .46% .43% .46% .48% .44% .42% .46%
Expenses, excluding
distribution fee .......... .34% .31% .34% .36% .32% .30% .34%
Net investment income ...... 5.03% 5.56% 4.67% 2.87% 3.28% 5.32% 7.58%
</TABLE>
CLASS A SHARES(e)
-----------------------------------
DECEMBER 8,
1987(a)
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.
(e) Effective June 2, 1997, the shares were designated as Class A shares.
- --------------------------------------------------------------------------------
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, 1997:
CLASS A SHARES
--------------
Value of hypothetical account at end of period ................ $1.000984386
Value of hypothetical account at beginning of period .......... 1.000000000
------------
Base period return ............................................ $ .000984386
============
CURRENT YIELD (.000984386 x (365/7)) .......................... 5.13%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ........... 5.27%
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, 1997 was
69 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 Financial Data, Inc., 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 OF 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 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.
6
<PAGE>
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.
U.S. TREASURY OBLIGATIONS. 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.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. 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
whose total assets at the time of investment are more than $1 billion or its
equivalent. The term "certificates of deposit"
7
<PAGE>
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 foreign governments, their agencies and
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
governments, 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.
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.
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.
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.
8
<PAGE>
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 or sold by the Series with payment and delivery taking place in 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 or other liquid assets 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 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 or other liquid
assets, maturing not later than the expiration of the reverse repurchase
agreements and having a value equal to or greater than such commitments.
9
<PAGE>
ILLIQUID SECURITIES
The Series may 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 illiquidity to the
extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing these securities. 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 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.
10
<PAGE>
- --------------------------------------------------------------------------------
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, 1997, total expenses for the Series'
Class A shares as a percentage of average net assets were .46%. See "Financial
Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF UP TO.20 OF
1% OF THE AVERAGE DAILY NET ASSETS OF THE SERIES. PIFM is organized as a New
York limited liability company. It is the successor of Prudential Mutual Fund
Management, Inc., which transferred its assets to PIFM in September 1996. For
the fiscal year ended March 31, 1997, the Series paid management fees to PIFM of
.20% of its average daily net assets. See "Manager" in the Statement of
Additional Information.
As of April 30, 1997, PIFM served as the manager to [40] 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 [$54.6] billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM 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 PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE INVESTMENT
ADVISER OR THE SUBADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PIFM continues to have responsibility for all investment
advisory services and supervises PI's performance of such services.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance
Company of America (Prudential), a major diversified insurance and financial
services company.
FEE WAIVERS
Effective June 2, 1997, PIFM agreed to waive .05 of 1% of its management
fee and subsidize expenses and Prudential Securities has agreed to waive .07 of
1% of its distribution/service fee. The Series is not required to reimburse
PIFM or Prudential Securities for such management fee waiver or distribution fee
waiver, respectively. Thereafter, PIFM may from time to time agree to waive all
or a portion of its management fee and subsidize certain operating expenses of
the Series. Fee waivers and expense subsidies will increase the Series' yield
and total return. The fee waivers and expense subsidies may be discontinued at
any time. See "Series Expenses."
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' CLASS A 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.
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' CLASS A SHARES. 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, 1997, the Series paid a distribution
fee equal on an annual basis to .12% of the average daily net assets of the
Series' Class A shares. 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 (including Prudential Securities) 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 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.
12
<PAGE>
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 (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 act as 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 LLC (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 PIFM. 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 TIME
OF DAY FOR THE COMPUTATION OF THE NAV TO BE AS OF 4:00 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. The Series does not anticipate realizing long-term
capital gains. However, to the extent the Series does recognize long-term
capital gains, 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.
It is anticipated that the net asset value per share of the Series will
remain constant. However, if the net asset value per share fluctuates, a
shareholder may realize gain or loss upon the disposition of a share.
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 net 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 4:00 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 4:00 P.M., 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 23rd
day of the month effective July 1, 1997, 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 4:00 P.M., New York time, on the day of
payment. If the entire amount in an account is redeemed at any time during a
month, all dividends accrued with respect to that account during that month are
paid to the investor at the NAV as of 4:00 P.M., New York time, on the date of
redemption.
The calculation of net investment income for dividend purposes is made
immediately prior to the calculation of net asset value at 4:00 P.M., New York
time. In the case of a purchase order that becomes effective as of 4:00 P.M.,
New York time (the funds are received by wire that day), a shareholder begins to
earn dividends declared on that day.
The Fund will not accept purchase and redemption orders after 4:00 P.M.,
New York time. If a redemption request is received prior to 4:00 P.M., New York
time, the shareholder does not earn a dividend on that day but the redemption
proceeds are wired on that day.
Net income earned on Saturdays, Sundays and holidays is accrued in
calculating the dividend on the previous business day. Accordingly, an investor
who places a purchase order prior to 4:00 P.M., New York time, on a Friday
begins earning dividends that day. A shareholder which redeems its shares prior
to 4:00 P.M., New York time, on a Friday does not earn a dividend which reflects
the income earned by the Series on the Friday, or the following Saturday and
Sunday.
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 15 BILLION SHARES OF COMMON STOCK OF $.001 PAR VALUE WHICH
ARE CURRENTLY DIVIDED INTO TWO PORTFOLIOS OR SERIES. THE INSTITUTIONAL MONEY
MARKET SERIES HAS 10 BILLION AUTHORIZED SHARES AND THE LIQUID ASSETS SERIES HAS
5 BILLION AUTHORIZED SHARES. OF THE 10 BILLION AUTHORIZED SHARES OF THE
INSTITUTIONAL MONEY MARKET SERIES, THERE ARE 5 BILLION CLASS A SHARES (WHICH
CLASS INCLUDES SHARES OUTSTANDING PRIOR TO JUNE 2, 1997) AND 5 BILLION
AUTHORIZED CLASS I SHARES OF THE SERIES, RESPECTIVELY. EACH CLASS REPRESENTS AN
INTEREST IN THE SAME ASSETS OF THE SERIES AND IS IDENTICAL IN ALL RESPECTS
EXCEPT THAT (I) CLASS A SHARES ARE SUBJECT TO DISTRIBUTION AND/OR SERVICE FEES,
(II) CLASS I SHARES ARE NOT SUBJECT TO ANY DISTRIBUTION AND/OR SERVICE FEES,
(III) EACH CLASS HAS EXCLUSIVE VOTING RIGHTS ON ANY MATTER SUBMITTED TO
SHAREHOLDERS THAT RELATES SOLELY TO ITS ARRANGEMENT AND HAS SEPARATE VOTING
RIGHTS ON ANY MATTER SUBMITTED TO SHAREHOLDERS IN WHICH THE INTERESTS OF ONE
CLASS DIFFER FROM THE INTERESTS OF ANY OTHER CLASS AND (IV) CLASS I SHARES ARE
OFFERED EXCLUSIVELY FOR SALE TO A LIMITED GROUP OF INVESTORS.
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
15
<PAGE>
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 and
classes, with such preferences, privileges, limitations and voting and dividend
rights as the Board may determine.
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 23, 1997, Prudential, either directly or through one or more
controlled companies, owned approximately 64.29% of the Series' 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
GENERAL INFORMATION
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 FOR CLASS A
SHARES. 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 CLASS A SHARES OF 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 PMFS, the Fund's
shareholder servicing agent.
If a purchase order is telephoned to PMFS (toll-free) (800-521-7466) before
4:00 P.M., New York time, and federal funds are received by the Custodian on
that business day, the purchase order becomes effective as of 4:00 P.M., New
York time, and the shares are entitled to dividend income earned on that day.
All account transactions by telephone through PMFS will be recorded.
16
<PAGE>
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 4:00 P.M., New York time, are
urged to wire funds to the Custodian via the Federal Reserve Wire System 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 YOUR DESIGNATED BANK ACCOUNT OR YOUR 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 4:00 P.M., New York time. Any
request received prior to 4:00 P.M., New York time, will be wired the same day.
However, due to federal wire restrictions and individual bank hours of
operation, the proceeds may not be available to the client until the following
business day. Shares redeemed prior to 4:00 P.M., New York time, are not
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. [Retirement Services Signature
Guarantee]
[In order to allow for the management of the Series with maximum
flexibility, you are urged to initiate redemptions of shares as early in the day
as possible and to notify the Fund by at least 9:30 A.M., New York time, of
withdrawals in excess of $10 million.]
The Fund reserves the right to withhold wiring redemption proceeds to
shareholders if, in the judgment of the investment adviser, the Fund could be
adversely affected by making immediate payment, and may take up to seven days to
wire redemption proceeds. In making withdrawal requests, you must supply your
name(s), account number and personal identification number. Neither the Fund nor
PMFS will be responsible for further verification of the authenticity of
telephoned instructions.
You may change the bank account you have designated to receive amounts
withdrawn at any time by writing to PMFS with an appropriate signature guarantee
or by providing a certified copy of a corporate resolution authorizing the
change. Further documentation may be required when deemed appropriate by PMFS.
IF SHARES 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
17
<PAGE>
PURCHASE CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING
SHARES BY WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECKS.
REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Series to
make payment wholly or partly in cash, the Series may pay the redemption price
in whole or in part by a distribution in kind of securities from the investment
portfolio of the Series, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Series, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, pursuant to which the Series is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Series during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. 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.
The total value of a shareholder's investment in the Series at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by the Series at such time and income earned.
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
per household. You may request additional copies of such reports by calling
(800) 225-1852 or by writing to the Fund at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.
o SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to the
Fund at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, 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.
Prime-1: Issuers rated "Prime-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuers rated "Prime-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 Investments 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
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 Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
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 Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Company Value 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
Liquid Assets Series
- --------------------------------------------------------------------------------
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
================================================================================
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS .......................................................... 2
What are the Fund's Risk Factors and Special
Characteristics? ....................................................... 2
SERIES EXPENSES .......................................................... 4
FINANCIAL HIGHLIGHTS ..................................................... 5
CALCULATION OF YIELD ..................................................... 6
HOW THE FUND INVESTS ..................................................... 6
Investment Objective and Policies ....................................... 6
Other Investments and Policies .......................................... 8
Investment Restrictions ................................................. 10
HOW THE FUND IS MANAGED .................................................. 11
Manager ................................................................. 11
Distributor ............................................................. 11
Portfolio Transactions .................................................. 13
Custodian and Transfer and
Shareholder Servicing Agent ............................................ 13
HOW THE FUND VALUES ITS SHARES ........................................... 13
TAXES, DIVIDENDS AND DISTRIBUTIONS ....................................... 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 444078X
- --------------------------------------------------------------------------------
Class A CUSIP No.: 744350109
- --------------------------------------------------------------------------------
------------------
Prudential
Institutional
Liquidity
Portfolio, Inc.
==================
Institutional
Money Market Series
(Class A Shares)
PROSPECTUS
, 1997
------------------
[LOGO] Prudential
Investments
<PAGE>
PRUDENTIAL
INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (PILP)
NEW ACCOUNT APPLICATION
----------------------------------------
----------------------------------------
|_| FUND SELECTION -- PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (PILP)
Institutional Money Market Series (Fund #52)(PIMMS)
Class A Shares |_| ACCOUNT NO: ____________
Class I Shares |_|
|_| ACCOUNT REGISTRATION
The account should be registered as follows:
- --------------------------------------------------------------------------------
Name of Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
State
- --------------------------------------------------------------------------------
Attention of (Contact Person)(If Any)
Telephone # ( ) _____________________
- -------------------------------- ---------------------------------
Taxpayer Identification No. Taxpayer Identification No.
|_| INITIAL INVESTMENT -- Minimum $100,000 for Class A shares.
-- Subsequent Investment Minimum $10,000 for Class A
shares.
-- Minimum $5 million for Class I shares.
|_| DUPLICATE CONFIRMATION (other than Prudential Representative)
We hereby authorize Prudential Mutual Fund Services LLC to send duplicate
account statements for the above Fund account to:
Name ___________________________________________________________________________
Attention ______________________________________________________________________
Address ________________________________________________________________________
Street
________________________________________________________________________
City State zip
Name ___________________________________________________________________________
Attention ______________________________________________________________________
Address ________________________________________________________________________
Street
________________________________________________________________________
City State zip
<PAGE>
|_| PRUDENTIAL REPRESENTATIVE (To Be Completed By Prudential Representative)
_________________________________________________ _________________ _________
FA Name PSI Branch Ledger FA Number
________________________________________________________________________________
Branch Telephone Number
|_| AGENT AUTHORIZATION (to be completed by Prudential Securities CLIENTS only)
We hereby authorize the following Prudential representative to act as our agent
in connection with transactions under this authorization form:
Representative Name: ___________________________________________________________
Authorized Client Signature: ___________________________________________________
THIS AUTHORIZATION MAY NOT BE USED FOR A CHANGE OF SALES REPRESENTATIVE.
|_| DISTRIBUTION OPTION
Monthly dividends are to be:
|_| Invested in additional shares |_| Paid in cash
(Dividends will be invested in additional shares if no election is made)
|_| EXPEDITED REDEMPTION PAYMENTS
IF YOU WISH TO HAVE EXPEDITED REDEMPTIONS PLEASE FILL OUT THE SECTION BELOW.
Redemption proceeds will be sent only to the bank or Prudential Securities
account listed below, for credit to the investor's account. The investor hereby
authorizes Prudential Mutual Fund Services LLC to honor telephone or written
instructions without a signature guarantee for redemption of Fund shares.
Prudential Mutual Fund Services LLC's records of such instructions will be
binding on all parties and Prudential Mutual Fund Services LLC 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>
|_| SIGNATURE GUARANTEE (FOR INDIVIDUALS ONLY)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION". AN
"ELIGIBLE GUARANTOR INSTITUTION" INCLUDES ANY BANK, BROKER, DEALER OR CREDIT
UNION. For clients of Pruco Securities Corporation, a signature guarantee may be
obtained from the Agency or Office manager of most Prudential Insurance and
Financial Services offices.
_____________________________________ _________________________________
Shareholder Signature Co_Owner Signature (if any)
|_| SIGNATURE(S) GUARANTEE BY:
Name of Bank or Firm ___________________________________________________________
Officer and Title _____________________________ ______________________________
Signature Print Name of Officer
|_| SIGNATURE AND TAXPAYER IDENTIFICATION NUMBER CERTIFICATION (IF SHARES ARE
REGISTERED IN THE NAME OF A CORPORATION OR OTHER ORGANIZATION, AN AUTHORIZED
OFFICER MUST SIGN)
The undersigned represents and warrants that it has full right, power and
authority to make the investment applied for pursuant to this Application, and
the person or persons signing on behalf of the beneficial owner represent and
warrant that they are duly authorized to sign this Application and to purchase
or redeem shares of the Fund on behalf of the beneficial owner. The undersigned
hereby affirms receipt of a current Fund prospectus and certifies under penalty
of perjury that: (i) the number shown above is the correct taxpayer
identification number/Social Security 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 LLC Prudential Mutual Fund Services LLC
Institutional Service Division Attention: PILP
P.O. Box 15030 Raritan Plaza One
New Brunswick, NJ 08906-5030 Edison, NJ 08837
Institutional Service Division Telecopier Number:
Telephone Number:
1-800-521-7466 (8:00 a.m.- (908) 417-7806
4:30 p.m. (est))
If by Wire:
State Street Bank ABA Routing Number 0110-0002-8
Attention: PRU 8600 GRP
Re: PILP
Name of Fund: Institutional Money Market Series
DDA Number: 99034100
Account Registration Name: ______________________
Account Number: _________________________________
Note: 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 LLC.
<PAGE>
FOR CORPORATIONS ONLY
- --------------------------------------------------------------------------------
Resolution For Corporate Investor
A form of Secretary's Certificate evidencing the adoption of an appropriate
corporate resolution relating to a Fund account follows. You may use this form,
or you may use your own. The resolution submitted should be substantially
similar to that below, although it may be a blanket authorization not
specifically mentioning the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECRETARY'S CERTIFICATE
The undersigned hereby certifies and affirms that he/she is the duly
elected (Assistant) Secretary of
________________________________________________________________________________
(Corporate name)
a corporation organized under the laws of ____________________________, and that
(State)
the following is a true and correct copy of a resolution adopted by the
corporation's Board of Directors at a meeting duly called and held on _________
RESOLVED, that the __________________ of this corporation are hereby authorized
(Officers' titles)
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
(number required)
below:
_________________________________________ ___________________________________
(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.
Liquid Assets Series
- --------------------------------------------------------------------------------
Prospectus dated ___________, 1997
- --------------------------------------------------------------------------------
The Liquid Assets Series (the Series) is one of two 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."
Shares of the Series are offered only to investment advisory clients of
Prudential Securities Incorporated (Prudential Securities) (a) which participate
in the following managed account programs sponsored by Prudential Securities:
Gibraltar Advisors, Prudential Securities Portfolio Management (PSPM), Quantum
Portfolio Management (Quantum) and Prudential Securities Investment Supervisory
Group and (b) which are "Eligible Benefit Plans" as defined below. "Eligible
Benefit Plans" include (i) employee benefit plans as defined in Section 3(3) of
the Employee Retirement Income Security Act (ERISA) other than governmental
plans as defined in Section 3(32) of ERISA and church plans as defined in
Section 3(33) of ERISA, (ii) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, (iii) deferred
compensation and annuity plans under Section 457 or 403(b)(7) of the Internal
Revenue Code, and (iv) Individual Retirement Accounts (IRAs) as defined in
Section 408(a) of the Internal Revenue Code.
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 Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, 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 and the Series has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated ___________,
1997, which information is incorporated herein by reference (is legally
considered a part of this Prospectus) and is available without charge at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 Liquid Assets
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
5.
WHAT ARE THE FUND'S RISK FACTORS AND SPECIAL CHARACTERISTICS?
It is anticipated that the net asset value (NAV) of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in valuation,
it may result in periods during which the value of a security in the Series'
portfolio, as determined by amortized cost, is higher or lower than the price
the Series would receive if it sold such security. See "How the Fund Values its
Shares" at page 12.
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 7.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is reimbursed by the Series for administrative costs and
expenses it provides to the Series. As of April 30, 1997, PIFM served as manager
or administrator to [62] investment companies, including [40] mutual funds, with
aggregate assets of approximately $[54.6] billion. The Prudential Investment
Corporation, doing business as Prudential Investments (PI, the investment
adviser or the Subadviser), furnishes investment advisory services in connection
with the management of the Series under a Subadvisory Agreement with PIFM. See
"How the Fund is Managed--Manager" at page 9.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
WHO DISTRIBUTES THE SERIES' SHARES?
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor) acts as the Distributor of the Series' shares pursuant to a
distribution agreement with the Fund and serves without compensation from the
Series. See "How the Fund is Managed--Distributor" at page 10.
WHAT IS THE MINIMUM INVESTMENT?
There are no minimum investment requirements. See "Shareholder Guide--How
to Buy Shares of the Fund" at page 14 and "Shareholder Guide--Shareholder
Services" at page 16.
HOW DO I PURCHASE SHARES?
Shares of the Series are offered only to investment advisory clients of
Prudential Securities (a) which participate in the following managed account
programs sponsored by Prudential Securities: Gibraltar Advisors, Prudential
Securities Portfolio Management (PSPM), Quantum Portfolio Management (Quantum)
and Prudential Securities Investment Supervisory Group and (b) which are
"Eligible Benefit Plans" as defined below. "Eligible Benefit Plans" include (i)
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act (ERISA) other than governmental plans as defined in Section
3(32) of ERISA and church plans as defined in Section 3(33) of ERISA, (ii)
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code of 1986, as amended (Internal Revenue Code),
(iii) deferred compensation and annuity plans under Section 457 or 403(b)(7) of
the Internal Revenue Code, and (iv) Individual Retirement Accounts (IRAs) as
defined in Section 408(a) of the Internal Revenue Code. Prudential Securities
will purchase shares on behalf of these clients each business day pursuant to
automatic purchase procedures. See "Shareholder Guide--How to Buy Shares of the
Fund" at page 14.
HOW DO I SELL MY SHARES?
Prudential Securities will redeem shares on behalf of participating clients
each business day at the current net asset value (NAV) next determined pursuant
to automatic redemption procedures. [In addition, you may redeem shares of the
Series at any time at the NAV next determined by instructing your Prudential
Securities Financial Advisor.] See "Shareholder Guide--How to Sell Your Shares"
at page 15.
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 net asset value unless Prudential Securities has requested on your
behalf that they be paid to you in cash. See "Taxes, Dividends and
Distributions" at page 12.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
SERIES EXPENSES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ............................. None
Maximum Sales Load Imposed on Reinvested Dividends .................. None
Maximum Deferred Sales Load ......................................... None
Redemption Fees ..................................................... None
Exchange Fee ........................................................ None
ANNUAL SERIES OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ..................................................... 0
12b-1 Fees .......................................................... 0
Other Expenses ...................................................... 20%*
----
Total Series Operating Expenses ..................................... 20%
----
EXAMPLE
1 YEAR 3 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: ............... $2 $6
- ----------
The above example is based on expenses expected to have been incurred if the
Series had been in existence for the fiscal year ended March 31, 1997. 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 and certain administrative
costs.
* Shares of the Series are offered to investment advisory clients of
Prudential Securities (a) which participate in certain managed account
programs sponsored by Prudential Securities described herein and (b) which
are "Eligible Benefit Plans" as defined herein. See "Shareholder Guide--How
to Buy Shares of the Fund." Participants in these programs are charged an
account program fee based on a percentage of assets under management. The
Series is not charged a separate investment management fee. [The Series
pays an administrative fee to the Manager for its actual costs and expenses
and a transfer agency fee to an affiliate of the Manager. These fees are
included in "Other Expenses" above. See "How the Fund is Managed--Manager"
and "--Custodian and Transfer and Shareholder Servicing Agent."]
- --------------------------------------------------------------------------------
4
<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 WILL ALSO
CALCULATE ITS "EFFECTIVE ANNUAL YIELD" assuming weekly compounding.
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND DOES NOT INDICATE FUTURE
PERFORMANCE.
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 Financial Data, Inc., 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 in its portfolio. If a
portfolio security no longer presents minimal credit risks or is in default, the
Series will dispose of the security as soon as reasonably practicable unless the
Board of Directors determines that to do so is not in the best interest of the
Series and its shareholders.
The Series utilizes the amortized cost method of valuation in accordance
with regulations of the Securities and Exchange Commission (SEC). See "How the
Fund Values its Shares." Accordingly, the Series will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of "eligible quality," as determined by the Fund's investment adviser under
the supervision of the Board of Directors. "Eligible quality," for this purpose,
means (i) a security rated in one of the two highest rating categories by at
least two nationally recognized statistical rating 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.
5
<PAGE>
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.
UNDER NORMAL MARKET CONDITIONS, THE SERIES WILL INVEST ITS ASSETS IN HIGH
QUALITY U.S. DOLLAR-DENOMINATED MONEY MARKET OBLIGATIONS OF DOMESTIC AND FOREIGN
ISSUERS, INCLUDING THE U.S. GOVERNMENT AND FINANCIAL INSTITUTIONS AS 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.
U.S. TREASURY OBLIGATIONS. 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.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. 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) of (a) banks
organized under the laws of the United States or any state thereof (including
foreign branches of such banks) or (b) U.S. branches of foreign banks or (c)
foreign banks and foreign branches thereof; provided that such banks have, at
the time of acquisition by the Series of such obligations, total assets of not
less 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 foreign governments, their
6
<PAGE>
agencies and 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 a foreign 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. 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.
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.
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 or sold by the Series with payment and delivery taking place in the
7
<PAGE>
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 or other liquid assets 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 participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC pursuant to an
order of the SEC. See "Investment Objective and Policies--Repurchase Agreements"
in the Statement of Additional Information.
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 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
8
<PAGE>
cash, or other liquid assets, maturing not later than the expiration of the
reverse repurchase agreements and having a value equal to or greater than such
commitments.
SECURITIES LENDING
The Series may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash collateral in an amount equal to a least
100% of the market value of the securities loaned. During the time the portfolio
securities are on loan, the borrower will pay the Series an amount equivalent to
any interest paid on such securities and the Series may invest the cash
collateral and earn additional income.
ILLIQUID SECURITIES
The Series may 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. The Series' investment in
Rule 144A securities could have the effect of increasing illiquidity to the
extent that qualified institutional buyers become, for a limited time,
uninterested in purchasing Rule 144A securities. The 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.
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.
The Series is responsible for the payment of certain fees and expenses
including, among others, the following:(i) certain administrative costs and
expenses of the Manager; (ii) the fees of unaffiliated Directors; (iii) the fees
of the Fund's Custodian and Transfer and Shareholder Servicing Agent; (iv) the
fees of the Fund's legal counsel and independent accountants; (v) brokerage
commissions, if any, incurred in connection with portfolio transactions; (vi)
all taxes and charges of governmental agencies; and (vii) expenses related to
shareholder communications including all expenses of shareholders' and Board of
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE MANAGER
OF THE FUND. PIFM is organized as a New York limited liability
9
<PAGE>
company. It is the successor of Prudential Mutual Fund Management, Inc., which
transferred its assets to PIFM in September 1996. See "Manager" in the Statement
of Additional Information.
As of April 30, 1997, PIFM served as the manager to [40] 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 $54.6 billion.
UNDER THE MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (THE
ADMINISTRATIVE SERVICES AGREEMENT) WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE SERIES AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information. PIFM is reimbursed by the
Series for the administrative costs and expenses it incurs in providing services
to the Series. These administrative costs and expenses include the following:
(i) furnishing office facilities; (ii) paying the salaries and expenses of the
Fund's officers and other personnel engaged in administering the Fund's
business; (iii) monitoring financial and shareholder accounting services
provided by State Street Bank and Trust Company and Prudential Mutual Fund
Services LLC, respectively; (iv) responding to shareholder inquiries and
disseminating information to shareholders; (v) monitoring compliance with the
Series' registration statements and other operating documents, with federal and
state securities laws and rules thereunder and with the Internal Revenue Code;
(vi) preparing semi-annual and annual reports to shareholders; (vii) preparing
filings required by the SEC; (viii) preparing federal, state and local tax
returns; (ix) maintaining the Series' registration in each of the 50 states,
District of Columbia and Puerto Rico; (x) preparing information required by the
Board of Directors for ongoing review, approval and action; and (xi) organizing
meetings of the Board of Directors and annual and special meetings of the
Series' shareholders. See "Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE INVESTMENT
ADVISER OR THE SUBADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Administrative Services Agreement, PIFM continues to have responsibility for all
investment advisory services and supervises PIC's performance of such services.
PIFM 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 WITHOUT
COMPENSATION FROM THE SERIES AS THE FUND'S DISTRIBUTOR PURSUANT TO A
DISTRIBUTION AGREEMENT. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
The Manager (or one of its affiliates) may make payments out of its own
resources to dealers (including Prudential Securities) and other persons who
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.
10
<PAGE>
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition
of a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to the payment of a
$5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling (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 Series, 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 LLC (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 PIFM. Its mailing address is P.O.
Box 15005, New Brunswick, New Jersey 08906-5005.
PMFS provides customary transfer agency services to the Series, including
the handling of shareholder communications, the processing of shareholder
transactions, the maintenance of shareholder account records, payment of
dividends and distributions and related functions. For these services, PMFS
receives an annual fee ($9.50) per shareholder account, a new account set up fee
($2.00) for each manually-established account and a monthly inactive zero
balance account fee ($0.20) per shareholder account plus its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communications and other costs.
- --------------------------------------------------------------------------------
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
11
<PAGE>
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV TO BE AS OF 4:00 P.M., NEW
YORK TIME, ON EACH DAY THE FUND IS OPEN FOR BUSINESS.
The Series will compute its NAV once daily on the days that the New York
Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem Series shares have been received or days on which
changes in the value of the Series' portfolio securities do not materially
affect the net asset value. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Series determines the value of its portfolio securities by the
amortized cost method. This method 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. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained from a similar fund which
marks its portfolio securities to market each day. For example, during periods
of declining interest rates, if the use of the amortized cost method resulted in
a lower value of the Series' portfolio on a given day, a prospective investor in
the Series would be able to obtain a somewhat higher yield and existing
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates. The Board of Directors has established
procedures designed to stabilize, to the extent reasonably possible, the net
asset value of the shares of the Series at $1.00 per share.
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
TAXATION OF THE SERIES
THE SERIES INTENDS TO ELECT TO QUALIFY AND TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER 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. The Series does not anticipate realizing long-term
capital gains. However, to the extent the Series does recognize long-term
capital gains, 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 his or her shares.
It is anticipated that the net asset value per share of the Series will
remain constant. However, if the net asset value per share fluctuates, a
shareholder may realize gain or loss upon the disposition of a share.
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
12
<PAGE>
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. Some
classes of Eligible Benefit Plans are exempt from federal income tax.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds on the accounts of most 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 net 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
All of the Series's net income is declared as dividends daily to the
shareholders of record at the time of such declaration. Dividends declared are
accrued throughout the month and are distributed in the form of full and
fractional hares on or about the 23rd day of the month effective July 1, 1997.
The dividend distribution date may be changed without further notice to
shareholders. Dividends are reinvested at the net asset value determined as of
4:00 p.M., New York time, on the day of payment. Unless otherwise requested by
the shareholder, such dividends are automatically invested monthly in additional
Series shares at net asset value. Shareholders may receive cash payments from
the Series equal to the dividends earned during the month by completing the
appropriate section on the application form or by notifying PMFS at least five
business days prior to the payable date. Cash distributions are paid by check
within five business days after the dividend payment date. If the entire amount
in an account is redeemed at any time during a month, all dividends accrued with
respect to that account during that month are paid to the investor at the NAV as
of 4:00 P.M., New York time, on the date of redemption.
The calculation of net investment income for dividend purposes is made
immediately prior to the calculation of net asset value at 4:00 P.M., New York
time. In the case of a purchase order that becomes effective as of 4:00 P.M.,
New York time (the funds are received by wire that day), a shareholder begins to
earn dividends declared on that day.
The Fund will not accept purchase and redemption orders after 4:00 P.M.,
New York time. If a redemption request is received prior to 4:00 P.M., New York
time, the shareholder does not earn a dividend on that day but the redemption
proceeds are wired on that day.
Net income earned on Saturdays, Sundays and holidays is accrued in
calculating the dividend on the previous business day. Accordingly, an investor
who places a purchase order prior to 4:00 P.M., New York time, on a Friday
begins earning dividends that day. A shareholder which redeems its shares prior
to 4:00 P.M., New York time, on a Friday does not earn a dividend which reflects
the income earned by the Series on the Friday, or the following Saturday and
Sunday.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent the Series does not meet certain minimum distribution requirements by the
end of each calendar year. The Series intends to make timely distributions in
order to avoid this excise tax. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be treated
as having been received by shareholders on December 31 of the calendar year in
which declared. Under this rule, therefore, a shareholder may be taxed in the
prior year on dividends or distributions actually received in January of the
following year.
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
13
<PAGE>
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 15 BILLION SHARES OF COMMON STOCK OF $.001 PAR VALUE WHICH
ARE CURRENTLY DIVIDED INTO TWO PORTFOLIOS OR SERIES; THE SERIES HAS 5 BILLION
AUTHORIZED SHARES AND THE INSTITUTIONAL MONEY MARKET SERIES HAS 10 BILLION
AUTHORIZED SHARES.
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 Prudential
Securities 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
debts and expenses of the Series have been paid. The Series' shares do not have
cumulative voting rights for the election of Directors. Pursuant to the Fund's
Articles of Incorporation, the Board of Directors may authorize the creation of
additional series, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine.
THE FUND 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.
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 OFFERED ONLY TO INVESTMENT ADVISORY CLIENTS OF
PRUDENTIAL SECURITIES (A) WHICH PARTICIPATE IN THE FOLLOWING MANAGED ACCOUNT
PROGRAMS SPONSORED BY PRUDENTIAL SECURITIES: GIBRALTAR ADVISORS, PRUDENTIAL
SECURITIES PORTFOLIO MANAGEMENT (PSPM), QUANTUM PORTFOLIO MANAGEMENT (QUANTUM)
AND PRUDENTIAL
14
<PAGE>
SECURITIES INVESTMENT SUPERVISORY GROUP AND (B) WHICH ARE "ELIGIBLE BENEFIT
PLANS" AS DEFINED BELOW. "ELIGIBLE BENEFIT PLANS" INCLUDE (I) EMPLOYEE BENEFIT
PLANS AS DEFINED IN SECTION 3(3) OF ERISA OTHER THAN GOVERNMENTAL PLANS AS
DEFINED IN SECTION 3(32) OF ERISA AND CHURCH PLANS AS DEFINED IN SECTION 3(33)
OF ERISA, (II) PENSION, PROFIT-SHARING OR OTHER EMPLOYEE BENEFIT PLANS QUALIFIED
UNDER SECTION 401 OF THE INTERNAL REVENUE CODE, (III) DEFERRED COMPENSATION AND
ANNUITY PLANS UNDER SECTION 457 OR 403(B)(7) OF THE INTERNAL REVENUE CODE, AND
(IV) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) AS DEFINED IN SECTION 408(A) OF THE
INTERNAL REVENUE CODE. SEE "PURCHASE OF SHARES" IN THE STATEMENT OF ADDITIONAL
INFORMATION FOR A LIST OF THE MANAGED ACCOUNT PROGRAMS SPONSORED BY PRUDENTIAL
SECURITIES THE INVESTMENT ADVISORY CLIENTS OF WHICH ARE ELIGIBLE TO PURCHASE
SHARES OF THE SERIES.
PURCHASES THROUGH PRUDENTIAL SECURITIES
If you have an account with Prudential Securities (or open such an
account), you may ask Prudential Securities to purchase shares of the Series on
your behalf. On the business day following confirmation that a free credit
balance (i.e., immediately available funds) exists in your account, Prudential
Securities, at your request, will effect a purchase order for shares of the
Series in an amount up to such balance at the NAV determined on that day. Funds
held by Prudential Securities on behalf of its clients in the form of free
credit balances are delivered to the Series by Prudential Securities and begin
earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Fund and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities provides its clients with alternative forms of immediate access to
monies invested in shares of the Series.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call their
Prudential Securities Financial Advisor.
AUTOMATIC PURCHASE PROCEDURES. Prudential Securities will purchase shares
of the Series on behalf of participating clients each business day at current
net asset value pursuant to the automatic purchase procedures described below.
There is no sales charge. There are no minimum investment requirements. 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.
Free credit cash balances of $1.00 or more held in the account of a
participating client will automatically be invested in shares of the Series
(Autosweep) as described below. Specifically, an order to purchase shares of the
Series is placed (i) in the case of a free credit cash balance resulting from
the proceeds of a securities sale, on the settlement date of the securities
sale, and (ii) in the case of a free credit cash balance resulting from a
non-trade related credit (e.g., receipt of a dividend or interest payment,
maturity of a bond or a cash payment by the client into the clients' account),
on the business day after the receipt by Prudential Securities of the non-trade
related credit. Each time an order is placed under these procedures resulting
from the settlement of a securities sale, any non-trade related credit in the
client's account will also be automatically invested.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:00 P.M., New York time, on the business day the order is placed and cause
payment to be made in federal funds for the shares invested prior to 4:00 P.M.,
New York time, on the next business day. Prudential Securities will have the use
of free credit cash balances until monies are delivered to the Series.
15
<PAGE>
HOW TO SELL YOUR SHARES
Shares will be redeemed each business day at NAV next determined in
accordance with the procedures described below.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Series may have these shares redeemed only by instructing their
Prudential Securities Financial Advisor orally or in writing.
Prudential Securities has advised the Series that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar, unless the client notifies Prudential Securities to the
contrary. The amount of the redemption will be the lesser of (a) the total net
asset value of Series shares held in the client's Prudential Securities account
or (b) the deficiency in the client's Prudential Securities account at the close
of business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or satisfy any other debit balance in his or
her account other than through such automatic redemption procedure must do so
not later than the day of settlement for such securities transaction or the date
the debit balance is incurred. Prudential Securities clients who have elected to
utilize Autosweep will not be entitled to dividends declared on the date of
redemption.
AUTOMATIC REDEMPTION. Redemptions will be automatically effected by
Prudential Securities on each business day at the NAV next determined to satisfy
debit balances arising from securities transactions in an account to the nearest
highest dollar or to satisfy redemption requests made on behalf of a
participating client. Each participating client's account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Series will be redeemed as of that
business day to satisfy any remaining debits in the account. In the event of an
automatic redemption of shares, the client will be entitled to dividends
declared on the redeemed shares through the business day preceding the day on
which the redemption is effective. Dividends declared on the date of redemption
will be retained by Prudential Securities which has advanced monies to satisfy
debits in the participating client's account.
INVOLUNTARY REDEMPTION. Because of the relatively high cost of maintaining
an account, the Fund reserves the right to redeem, upon 60 days' written notice,
an account which is reduced by a shareholder to an NAV of $500 or less due to
redemption. You may avoid such redemption by increasing the NAV of your account
to an amount in excess of $500.
REDEMPTION IN KIND. If the Board of Directors of the Fund determines that
it would be detrimental to the best interests of the remaining shareholders of
the Series to make payment wholly or partly in cash, the Series may pay the
redemption price in whole or in part by a distribution in kind of securities
from the portfolio of the Series, in lieu of cash, in conformity with applicable
rules of the SEC. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage costs in converting the assets into cash. The method of
valuing portfolio securities is described under "How the Fund Values its
Shares," and such valuation will be made as of the same time the redemption
price is determined. The Series, however, has elected to be governed by Rule
18f-1 under the Investment Company Act pursuant to which the Series is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Series during any 90-day period for any one shareholder.
The Fund may suspend the right of redemption or postpone the date of
payment for a period of up to seven days. Suspensions or postponements may not
exceed seven days except (1) 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; (2) for any
period during which an emergency exists as a result of which (a) disposal by the
Series of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for the Series
16
<PAGE>
fairly to determine the value of its net assets; or (3) for such other periods
as the SEC may by order permit for the protection of shareholders of the Series.
The SEC by rules and regulations determines the conditions under which (i)
trading shall be deemed to be restricted and (ii) an emergency is deemed to
exist within the meaning of clause (2) above.
The total value of a shareholder's investment in the Series at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by the Series at such time and income earned.
Prudential Securities has the right to terminate an account for any reason.
In such event, all shares held in a shareholder's account will be redeemed.
SHAREHOLDER SERVICES
As a shareholder in the Series, you can take advantage of the following
additional services and privileges:
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
per household. You may request additional copies of such reports by calling
(800) 225-1852 or by writing to the Fund at Gateway Center Three, 100 Mulberry
Street, Newark, New Jersey 07102-4077.
o EXCHANGE PRIVILEGE. The Fund does not currently offer an exchange
privilege for shares of the Series.
o SHAREHOLDER INQUIRIES. Shareholder inquiries should be addressed to the
Fund at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, or by telephone, at (800) 521-7466 (toll-free).
17
<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 the best 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 risk appear somewhat larger than the 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. The obligations have an original
maturity not exceeding one year, unless explicitly noted.
Prime-1: Issuers rated "Prime-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuers rated "Prime-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
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-1
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT RATINGS
AAA: Bonds rated AAA are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA: Bonds rated AA are considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
SHORT-TERM DEBT RATINGS
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 Investments 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
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 Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
- --------------------------------------------
EQUITY FUNDS
- --------------------------------------------
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balanced Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Company Value 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
Liquid Assets Series
- --------------------------------------------------------------------------------
B-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
================================================================================
TABLE OF CONTENTS
Page
----
FUND HIGHLIGHTS ................................................ 2
What are the Fund's Risk Factors and Special
Characteristics? ............................................. 2
SERIES EXPENSES ................................................ 4
CALCULATION OF YIELD ........................................... 5
HOW THE FUND INVESTS ........................................... 5
Investment Objective and Policies ............................. 5
Other Investments and Policies ................................ 7
Investment Restrictions ....................................... 9
HOW THE FUND IS MANAGED ........................................ 9
Manager ....................................................... 9
Distributor ................................................... 10
Portfolio Transactions ........................................ 11
Custodian and Transfer and
Shareholder Servicing Agent .................................. 11
HOW THE FUND VALUES ITS SHARES ................................. 11
TAXES, DIVIDENDS AND DISTRIBUTIONS ............................. 12
GENERAL INFORMATION ............................................ 14
Description of Common Stock ................................... 14
Additional Information ........................................ 14
SHAREHOLDER GUIDE .............................................. 14
How to Buy Shares of the Fund ................................. 14
How to Sell Your Shares ....................................... 16
Shareholder Services .......................................... 17
DESCRIPTION OF SECURITY RATINGS ................................ A-1
THE PRUDENTIAL MUTUAL FUND FAMILY .............................. B-1
================================================================================
MF137A 44071B
- --------------------------------------------------------------------------------
CUSIP No.: 744350505
- --------------------------------------------------------------------------------
Prudential
Institutional
Liquidity
Portfolio, Inc.
=========================
Liquid Assets Series
- -------------------------
PROSPECTUS
,1997
- -------------------------
[LOGO] Prudential
Investments
<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Statement of Additional Information
dated _________, 1997
The Institutional Money Market Series (the IMM Series) and the Liquid
Assets Series (LA Series) are each 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 each Series is high current income
consistent with the preservation of principal and liquidity. There can be no
assurance that either Series' investment objective will be achieved. See
"Investment Objective and Policies." The Fund's address is Gateway Center Three,
100 Mulberry Street, Newark, New Jersey 07102-4077, 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 Prospectus of the IMM Series (Class A or Class I)
dated ___________, 1997 and the Prospectus of the LA Series dated ____________,
1997, a copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE CROSS-REFERENCE
TO PAGE IN TO PAGE IN
THE IMM SERIES THE LA SERIES
PAGE PROSPECTUS PROSPECTUS
---- ---------- ----------
<S> <C> <C> <C>
Investment Objective and Policies B-2 6 5
Investment Restrictions B-4 10 9
Directors and Officers B-5 11 9
Manager B-9 11 9
Distributor B-10 11 10
Purchase of Shares B-12 16 14
Net Asset Value B-13 13 11
Portfolio Transactions B-13 13 11
Taxes B-14 14 12
Calculation of Yield B-14 6 5
Custodian, Transfer and Shareholder Servicing
Agent and Independent Accountants B-15 13 11
General Information B-15 15 14
Financial Statements B- -- --
Independent Auditors' Report B- -- --
Appendix A--Historical Performance Data A-1 -- --
Appendix B--General Investment Information B-1 -- --
Appendix C--Information Relating to The Prudential C-1 -- --
</TABLE>
================================================================================
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each 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
Each 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, a 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 a 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
a 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 that Series.
Each 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.
[Neither Series intends to lend its securities during the coming year.]
LIQUIDITY PUTS
A Series may purchase instruments of the types described in its 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 a 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. A 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 a Series, the
expiration dates of the available puts, any future commitments for securities
purchases, the yield, quality and maturity dates of the
B-2
<PAGE>
underlying securities, alternative investment opportunities and the desirability
of retaining the underlying securities in such Series' portfolio.
Each 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.
Each 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 a Series and issued or guaranteed by the issuer
providing the guarantee or put are limited to 10% of a 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.
ILLIQUID SECURITIES
Neither Series may hold more than 10% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale and
repurchase agreements which have a maturity of longer than seven days.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
securities.
Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper and foreign
securities will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be
B-3
<PAGE>
"traded flat" (i.e., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.
SECURITIES OF OTHER INVESTMENT COMPANIES
A Series may invest up to 10% of its total assets in securities of other
registered investment companies. Generally, each Series does not intend to
invest more than 5% of its total assets in such securities. To the extent that a
Series invests in securities of other registered investment companies,
shareholders of the Series may be subject to duplicate management and advisory
fees.
REPURCHASE AGREEMENTS
The Liquid Assets Series participates in a joint repurchase account with
other investment companies managed by Prudential Investments Fund Management LLC
(PIFM or the Manager) pursuant to an order of the Securities and Exchange
Commission. On a daily basis, any uninvested cash balances of the Series may be
aggregated with those of such other investment companies and invested in one or
more repurchase agreements. Each fund participates in the income earned or
accrued in the joint account based on the percentage of its investment. In
connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be, under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which equals or
exceeds the resale price of the agreement. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
The IMM Series does not currently participate in the joint repurchase
account.
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 a 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 or instrumentalities) if as a result, with respect to 75% of the
value of the Series' total assets, more than 5% of the value of the Series'
total assets would be invested in the securities of a single issuer.
5. Purchase any securities (other than obligations of the U.S. Government,
its agencies and instrumentalities) if, as a result, 25% or more of the value of
a Series' total assets (determined at the time of investment) would be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to money market instruments of domestic banks. For purposes of this
exception, domestic banks shall include all banks which are organized under the
laws of United States or a state (as defined in the Investment Company Act),
U.S. branches of foreign banks that are subject to the same regulations as U.S.
banks and foreign branches of domestic banks.
6. Buy or sell real estate or interests in real estate, except that a
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. A Series may not purchase interests
in real estate limited partnerships which are not readily marketable.
B-4
<PAGE>
7. 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.
8. Make investments for the purpose of exercising control or management.
9. 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 10% 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.
10. 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.
11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 15% of the value of a Series' total assets).
12. Purchase common stock or other voting securities, preferred stock,
warrants or other equity securities, except as may be permitted by restriction
number 9.
13. 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.
14. Buy or sell commodities or commodity contracts, except that a 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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS AND
NAME, ADDRESS AND AGE(1) WITH THE FUND OTHER AFFILIATIONS
- ------------------------ ------------- -----------------------------
<S> <C> <C>
Edward D. Beach (72) Director President and Director of BMC Fund, Inc., a closed-end investment
company; prior thereto, Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Accountant; Secretary and
Treasurer of Broyhill Family Foundation Inc.; Member of the Board of
Trustees of Mars Hill College; Director of The High Yield Income
Fund, Inc.
Stephen C. Eyre (73) Director Executive Director of The John A. Hartford Foundation, Inc.
(charitable foundation) (since May 1985); Director of Faircom, Inc.;
Trustee Emeritus of Pace University.
Delayne Dedrick Gold (58) Director Marketing and Management Consultant; Director of The High Yield
Income Fund, Inc.
*Robert F. Gunia (50) Director Comptroller (since May 1996) of Prudential Investments; Executive
Vice President and Treasurer (since December 1996) of Prudential
Investments Fund Management LLC (PIFM); Senior Vice President (since
March 1987) of Prudential Securities Incorporated (Prudential
Securities); formerly Chief Administrative Officer (July
1990-September 1996), Director (January 1989-September 1996),
Executive Vice President, Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund Management, Inc.; Vice
President and Director (since May 1989) of The Asia Pacific Fund,
Inc.; Director of The High Yield Income Fund, Inc.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS AND
NAME, ADDRESS AND AGE(1) WITH THE FUND OTHER AFFILIATIONS
- ------------------------ ------------- -----------------------------
<S> <C> <C>
Don G. Hoff (61) Director Chairman and Chief Executive Officer of Intertec, Inc. (investments)
since 1980; Chairman and CEO of EHS, Inc.; Director of Innovative
Capital Management, Inc. and The Greater China Fund, Inc.;
Chairman and Director of The Asia Pacific Fund, Inc.
Robert E.LaBlanc (62) Director President of Robert E.LaBlanc Associates, Inc. (telecommunications)
since 1981; formerly General Partner at Salomon Brothers; formerly
Vice-Chairman of Continental Telecom; Director of Storage
Technology Corporation, Titan Corporation and Tribune Company;
Trustee of Manhattan College.
*Mendel A. Melzer, CFA (35) Director Chief Investment Officer (since October 1996) of Prudential Mutual
751 Broad Street Funds; formerly Chief Financial Officer (November 1995-September
Newark, NJ 07102 1996) of Prudential Investments, Senior Vice President and Chief
Financial Officer (April 1993-November 1995) of Prudential Preferred
Financial Services, Managing Director (April 1991-April 1993) of
Prudential Investment Advisors, and Senior Vice President (July
1989-April 1991) of Prudential Capital Corporation; Chairman and
Director of Prudential Series Fund, Inc.; Director of The High Yield
Income Fund, Inc.
*Richard A. Redeker (53) President Employee of Prudential Investments; formerly President, Chief
751 Broad Street and Director Executive Officer and Director (October 1993-September 1996) of PIFM,
Newark, NJ 07102 formerly Executive Vice President, Director and Member of the
Operating Committee (October 1993-September 1996) of Prudential
Securities, Director (October 1993-September 1996) of Prudential
Securities Group, Inc. (PSG), Executive Vice President (July
1994-September 1996) of The Prudential Investment Corporation (PIC)
and Director (January 1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. (PMFD) and Prudential Mutual Fund Services, Inc.;
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.
Robin B. Smith (57) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief Executive
Officer (January 1988-August 1996) and President and Chief Operating
Officer (September 1981-December 1988) of Publishers Clearing House;
Director of BellSouth Corporation, Texaco Inc., Springs
Industries Inc. and Kmart Corporation.
Stephen Stoneburn (53) Director President and Chief Executive Officer of Quadrant Media Corp. (a
publishing Company) (since June 1996); formerly President of
Argus Integrated Media, Inc. (June 1995-June 1996); formerly Senior
Vice President and Managing Director, Cowles Business Media (January
1993-1995); prior thereto, Senior Vice President (January 1991-1992)
and Publishing Vice President (May 1989-December 1990) of Gralla
Publications (a division of United Newspapers, U.K.; formerly Senior
Vice President of Fairchild Publications, Inc.
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS AND
NAME, ADDRESS AND AGE(1) WITH THE FUND OTHER AFFILIATIONS
- ------------------------ ------------- -----------------------------
<S> <C> <C>
Nancy H. Teeters (66) Director Economist; formerly Vice President and Chief Economist (March 1986-
June 1990) of International Business Machines Corporation;
formerly member of the Board of Governors of the Horace Rackham
School of Graduate Studies of the University of Michigan; Director
of Inland Steel Corporation (since July 1991) and First Financial
Fund, Inc.
Susan C. Cote (42) Vice President Vice President of Finance, Prudential Mutual Funds & Annuities
(PMF&A); Executive Vice President (since February 1997) and Chief
Financial Officer (since May 1996) of PIFM; Managing Director,
Prudential Investments and Vice President, PIC (February 1995-May
1996); Senior Vice President (January 1989-January 1995) of
Prudential Mutual Fund Management, Inc.; Senior Vice President
(January 1992-January 1995) of Prudential Securities.
Thomas A. Early (42) Vice President Vice President and General Counsel, PMF&A; Executive Vice President,
Secretary and General Counsel (since December 1996), PIFM; Vice
President and General Counsel (since March 1994), Prudential
Retirement Services; formerly Associate General Counsel and Chief
Financial Services Officer, Frank Russell Company (1988-1994).
S. Jane Rose (51) Secretary Senior Vice President and Senior Counsel of PIFM; Senior Vice
President and Senior Counsel of Prudential Securities (since July
1992); formerly Vice President and Associate General Counsel of
Prudential Securities.
Grace C. Torres (38) Treasurer and First Vice President (since March 1994) of PIFM; First Vice President
Principal (since March 1994) of Prudential Securities; Vice President of
Financial and Bankers Trust (July 1989-March 1994).
Accounting
Officer
Stephen M. Ungerman (43) Assistant Tax Director (since March 1996) of Prudential Investments and the
Treasurer Private Asset Group of The Prudential Insurance Company of America;
First Vice President (February 1993-September 1996) of Prudential
Mutual Fund Management, Inc.; prior thereto, Senior Tax Manager
(1981-January 1993) at Price Waterhouse LLP.
</TABLE>
- ----------
(1) UNLESS OTHERWISE NOTED, THE ADDRESS FOR EACH OF THE ABOVE PERSONS IS C/O
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC, GATEWAY CENTER THREE, 100
MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077.
* "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-7
<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. Beach
and Eyre are scheduled to retire on December 31, 1999 and December 31, 1998,
respectively.
The Fund pays each of its Directors who is not an affiliated person of PIFM
or Prudential Investments (PI) annual compensation of $1,500, 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.
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, 1997 and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other funds managed by Prudential
Investments Fund Management LLC (Fund Complex) for the calendar year ended
December 31, 1996. In October 1996, shareholders elected a new Board of
Directors. Below is listed all Directors who have served the Fund during its
most recent fiscal year, as well as the new Directors who took office after the
shareholder meeting in October .
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(2)
----------------- ----------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
Edward D. Beach--Director $ 375 None N/A $166,000(21/39)*
Eugene C. Dorsey--Former Director $7,500 None N/A $ 98,583(12/36)*
Stephen C. Eyre--Director $ 375 None N/A $ 34,250( 4/ 5)*
Delayne D. Gold--Director $ 375 None N/A $175,308(21/42)*
Robert D. Gunia(1)--Director -- None N/A --
Don G. Hoff--Director $ 375 None N/A $ 50,042( 5/ 7)*
Robert F. LaBlanc--Director $ 375 None N/A $ 34,542( 4/ 4)*
Donald D. Lennox--Former Director $7,500 None N/A $ 90,000(10/22)*
Mendel A. Melzer(1)--Director -- None N/A --
Richard A. Redeker(1)--Director -- None N/A --
Stanley E. Shirk--Former Director $7,500 None N/A $ 71,000( 7/18)*
Robin B. Smith--Director $7,875 None N/A $ 89,957(11/20)*
Stephen Stoneburn--Director $ 375 None N/A $ 30,375( 4/ 6)*
Nancy H. Teeters--Director $ 375 None N/A $103,583(11/28)*
</TABLE>
- ----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
(1) Robert F. Gunia, Mendel A. Melzer and Richard A. Redeker, who are
interested Directors, do not receive compensation from the Fund or any fund
in the Fund Complex.
(2) Total compensation from all the funds in the Fund Complex for the calendar
year ended December 31, 1996, including amounts deferred at the election of
Directors under the funds' Deferred Compensation Plans. Including accrued
interest, total deferred compensation amounted to $111,535 for former
Director Eugene C. Dorsey and $109,294 for Director Robin B. Smith.
Currently, Ms. Smith has agreed to defer some of her fees at the T-Bill
rate and other fees at the Fund rate.
As of May 16, 1997, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund.
B-8
<PAGE>
As of May 16, 1997, The Prudential Insurance Company of America
(Prudential), Prudential Plaza, Newark, New Jersey 07101, either directly or
through one or more controlled companies, owned approximately 64.29% of the
outstanding voting securities of the IMM Series 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 16, 1997, Prudential Health
Care Plan of California, Inc., Attn: Jennifer Sirotta, Group Financial, 5800
Canoga Avenue, WHW2, Woodland Hills, California 91367-6503, The Prudential Ins.
Co., Attn: Elizabeth Petrat, 213 Washington St., 9th Fl., Newark, New Jersey
07102-2992, P.G. Realty, Inc., Prudential Insurance Co. of America, c/o Chris
Jay, Chicago Agricultural Inv. Office,802 Warrenville Road, Suite 60, Lisle, IL
60532-1396 and Prudential Health Care Plan Inc., Prudential Ins. Co. of America
(ROS2), Attn: Joanne Brown Lee (STO), 56 North Livingston Ave., Roseland, NJ
07068-1733 were the beneficial owners of 13.8%,14.3%, 5.4%, and 12.7%,
respectively, of the IMM Series' outstanding voting securities.
MANAGER
The manager of the Fund is Prudential Investments Fund Management LLC,
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 (PIFM
or the Manager). PIFM serves as manager to all of the other investment companies
that, together with the Fund, comprise the Prudential Mutual Funds. See "How the
Fund is Managed" in each Prospectus. As of April 30, 1997, PIFM managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $[54.6] billion. According to the Investment Company Institute,
as of December 31, 1996, the Prudential Mutual Funds were the 15th largest
family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities Incorporated. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), a wholly-owned subsidiary
of PIFM, 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 for the IMMS Series (the Management
Agreement) and the Management and Administrative Services Agreement
(Administrative Services Agreement) for the LA Series, PIFM, 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 each Series and
the composition of the Series' portfolio, including the purchase, retention,
disposition and loan of securities. In connection therewith, PIFM is obligated
to keep certain books and records of the Fund. PIFM 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 PIFM for the Fund are not exclusive under the terms of
the Management Agreement and PIFM is free to, and does, render management
services to others.
For its services, PIFM receives, pursuant to the Management Agreement with
the Fund, a fee at an annual rate of .20 of 1% of the average daily net assets
of the IMM 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 PIFM, but excluding interest, taxes,
brokerage commissions, distribution fees and litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business) 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 PIFM will be reduced by the amount of such excess, or,
if such reduction exceeds the compensation payable to PIFM, PIFM will pay to the
Fund 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, 1997.
Currently, the Fund believes that there are no such expense limitations.
For its services, PIFM receives its reasonable costs and expenses from the
LA Series pursuant to the Administrative Services Agreement.
In connection with its management of the corporate affairs of the Fund,
PIFM 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 PIFM or the Fund's investment adviser;
(b) all expenses incurred by PIFM or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those
assumed by the Fund, as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI), pursuant to a
subadvisory agreement between PIFM and PI (the Subadvisory Agreement).
Under the terms of the Management Agreement and the Administrative Services
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
B-9
<PAGE>
not affiliated with the Manager or the Fund's investment adviser, (c) the fees
and certain expenses of the Fund's Custodian and Transfer and Dividend
Disbursing Agent, including the cost of providing records to the Manager in
connection with its obligation of maintaining required records of the Fund and
of pricing the Fund's shares, (d) the charges and expenses of the Fund's legal
counsel and independent accountants, (e) brokerage commissions and any issue or
transfer taxes chargeable to the Fund in connection with its securities and
futures transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade association of which the Fund
is a member, (h) the cost of stock certificates representing and/or
non-negotiable share deposit receipts evidencing shares of the Fund, (i) the
cost of fidelity and liability insurance, (j) the fees and expenses involved in
registering and maintaining registration of the Fund and of its shares with the
SEC and registering the Fund and qualifying its shares under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders, (l) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business and (m) distribution fees.
The Management Agreement and the Administration Services Agreement also
provide that PIFM 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 and the Administration Services Agreement relate, except a loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Management Agreement and the Administration Services
Agreement each provide that each will terminate automatically if assigned (as
defined in the Investment Company Act), and that each may be terminated without
penalty by either party upon not more than 60 days' nor less than 30 days'
written notice. The Management Agreement and the Administration Services
Agreement provide that each said agreement 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.
For the fiscal years ended March 31, 1997, 1996 and 1995, the IMM Series
paid management fees to PIFM of $898,786, $1,039,892 and $805,357, respectively.
PIFM has entered into the Subadvisory Agreement with PI (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PI furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PI is obligated to keep certain books and records
of the Fund. PIFM continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises PI's performance of
such services. PI is reimbursed by PIFM for the reasonable costs and expenses
incurred by PI in furnishing services to PIFM.
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' portfolios. 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 provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or, in the case of IMM
Series, upon the termination of the Management Agreement and, in the case of LA
Series, upon the termination at the Administration Services Agreement. The
Subadvisory Agreement may be terminated of the Fund, PIFM or PI 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.
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 such Series' Prospectus. See "How the Fund is
Managed--Distributor."
B-10
<PAGE>
DISTRIBUTION AND SERVICE PLAN
Under the Distribution and Service Plan (the Plan) and the Distribution
Agreement, the IMM Series pays the Distributor a distribution fee of up to 0.12%
of the average daily net assets of the Class A shares of the Series, computed
daily and payable monthly. There is no plan of distribution for Class I shares
of the IMM Series or for the LA Series. Prudential Securities incurs the
expenses of distributing the IMM Series Class I shares and the shares of the LA
Series under the Distribution Agreement, none of which are reimbursed by or paid
for by the Fund. See "How the Fund is Managed--Distributor" in each Prospectus.
For the fiscal year ended March 31, 1997, PSI incurred distribution
expenses in the aggregate of approximately $539,300 with respect to the IMM
Series, under the Plan, all of which was recovered through the distribution fee
paid by the IMM Series. It is estimated that of this amount approximately 75%
($404,475) was spent on payment of account servicing fees to financial advisers
and 25% ($134,825) on allocation of overhead and other office
distribution-related expenses with respect to the IMM 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 Class A shares of the IMM Series.
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 IMM 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 Class A shareholders
of the IMM 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 IMM Series at any time, by vote of 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) or by a vote of a majority of the outstanding
voting securities of the Class A shares 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.
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,
B-11
<PAGE>
1980 through December 31, 1990. Without admitting or denying the allegations,
PSI consented to a reprimand, agreed to cease and desist from future violations,
and to provide voluntary donations to the State of Texas in the aggregate amount
of $1,500,000. The firm agreed to suspend the creation of new customer accounts,
the general solicitation of new accounts, and the offer for sale of securities
in or from PSI's North Dallas office to new customers during a period of twenty
consecutive business days, and agreed that its other Texas offices would be
subject to the same restrictions for a period of five consecutive business days.
PSI also agreed to institute training programs for its securities salesmen in
Texas.
On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI
entered into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for any
alleged criminal activity related to the sale of certain limited partnership
programs from 1983 to 1990. In connection with these agreements, PSI agreed to
add the sum of $330,000,000 to the Fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director serves as an independent "ombudsman" whom PSI employees
can call anonymously with complaints about ethics and compliance. Prudential
Securities reports any allegations or instances of criminal conduct and material
improprieties to the new director. The new director submits compliance reports
which identify all such allegations or instances of criminal conduct and
material improprieties every three months and will continue to do so 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 each 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.
CLASS I SHARES OF THE INSTITUTIONAL MONEY MARKET SERIES
Class I shares of the IMM Series are offered to a limited group of
investors, including institutional investors and investment advisory clients of
Prudential Securities which participate in the following managed account
programs sponsored by Prudential Securities: Gibraltar Advisors, Prudential
Securities Portfolio Management (PSPM), Quantum Portfolio Management, Managed
Assets Consulting Services (MACS) and Prudential Securities Investment
Supervisory Group. For investors other than investment advisory clients of
Prudential Securities, the minimum initial investment in Class I shares of the
IMM Series to establish a new account is $5 million [ and the mimimum subsequent
investment is $ ]. There is no minimum initial or subsequent investment
requirement for investment advisory clients of Prudential Securities.
A Prudential Securities client who applies to participate in these managed
account programs will be eligible to purchase Class I shares of the IMM Series
during the period between submission to and acceptance of the application by
Prudential Securities. Investment advisory clients of Prudential Securities
which receive Investment Management Consulting Services and Managed Assets
Consulting Services are not eligible to purchase Class I shares of the IMM
Series. Eligibility of participants is within the discretion of Prudential
Securities.
LIQUID ASSETS SERIES
Shares of the LA Series are offered to investment advisory clients of
Prudential Securities (for which Prudential Securities acts as a fiduciary)
which are Eligible Benefit Plans as described in the LA Series' Prospectus and
which participate in the following
B-12
<PAGE>
managed account programs sponsored by Prudential Securities: Gibraltar Advisors,
PSPM, Quantum Portfolio Management and Prudential Securities Investment
Supervisory Group. Investment Management Services, a unit of the Client Advisory
Service Group of Prudential Securities, administers the PSPM and Quantum
Portfolio Management programs. A Prudential Securities client who applies to
participate in these managed account programs will be eligible to purchase
shares of the LA Series during the period between submission to and acceptance
of the application by Prudential Securities. Investment advisory clients of
Prudential Securities which receive Investment Management Consulting Services
and Managed Assets Consulting Services Custom Services are not eligible to
purchase shares of the LA Series. Eligibility of participants is within the
discretion of Prudential Securities.
NET ASSET VALUE
Each 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, a Series' price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures will
include review of a Series' portfolio holdings by the Board, at such intervals
as deemed appropriate, to determine whether a Series' net asset value calculated
by using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board, and
if such deviation exceeds 1/2 of 1%, the Board will promptly consider what
action, if any, will be initiated. In the event the Board of Directors
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, the Board will take
such corrective action as it regards necessary and appropriate, including the
sale of portfolio instruments prior to maturity to realize gains or losses, the
shortening of average portfolio maturity, the withholding of dividends or the
establishment of net asset value per share by using available market quotations.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. (For purposes of this section, the
term "Manager" includes the Subadviser.) The Fund does not normally incur any
brokerage commission expense on such transactions. In the market for money
market instruments, securities are generally traded on a "net" basis, with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Portfolio securities may not be purchased
from any underwriting or selling syndicate of which Prudential Securities, or an
affiliate, during the existence of the syndicate, is a principal underwriter (as
defined in the Investment Company Act), except in accordance with rules of the
SEC. The Fund will not deal with Prudential Securities or its affiliates on a
principal basis.
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable under the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager may consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions for
such other accounts, whose aggregate assets are far larger than the Fund's, and
the services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. While such services are useful and important
in supplementing its own research and facilities, the Manager believes that the
value of such services is not determinable and does not significantly reduce
expenses. The Fund does not reduce the advisory fee it pays to the Manager by
any amount that may be attributed to the value of such services.
B-13
<PAGE>
Subject to the above considerations, Prudential Securities may act as a
securities broker (or futures commission merchant) for the Fund. In order for
Prudential Securities to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Prudential Securities must
be reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
This standard would allow Prudential Securities to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Board of Directors of
the Fund, including a majority of the Directors who are not "interested"
persons, has adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to Prudential Securities are
consistent with the foregoing standard. Brokerage transactions with Prudential
Securities are also subject to such fiduciary standards as may be imposed by
applicable law.
During the fiscal years ended March 31, 1995, 1996 and 1997, the Fund paid
no brokerage commissions.
TAXES
The IMM Series has elected to qualify and intends to remain qualified and
the LA Series intends to elect to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. This
relieves a Series (but not its shareholders) from paying federal income tax on
income which is distributed to shareholders, and, if a Series did not realize
long-term capital gains 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 that 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) a
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 currencies
directly related to the Series' business of investing in securities); (c) a
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 a 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 a Series will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. The Series do not anticipate realizing long-term capital
gains. Other gains or losses on the sale of securities will be short-term
capital gains or losses. In addition, debt securities acquired by a Series may
be subject to original issue discount and market discount rules.
Each Series is required to distribute 98% of its ordinary income in the
same calendar year in which it is earned. Each 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, a Series will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which a Series
pays income tax is treated as distributed.
It is anticipated that the net asset value per share of each Series will
remain constant. However, if the net asset value per share fluctuates and a loss
is realized on a sale, redemption or exchange of shares of a Series by a
shareholder, certain rules may apply which would limit the ability of the
shareholder to recognize such loss if, for example, the shareholder replaced the
shares within 30 days of the disposition of the shares.
Dividends and distributions may also be subject to state and local taxes.
B-14
<PAGE>
CALCULATION OF YIELD
Each 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
a Series' portfolio, and its operating expenses. Each 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., IBC Financial Data,
Inc., The Bank Rate Monitor, other industry publications, business periodicals
and market indices.
Each 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
a 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 LLC (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, 1997, the IMM Series incurred fees of $240,000 for the services of
PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
GENERAL INFORMATION
The Fund was incorporated on September 1, 1987 and originally consisted of
four series: the Institutional Money Market Series, the Institutional Government
Series, the Institutional Domestic Liquid Assets Series and the Institutional
Tax-Exempt Series. On or about June 30, 1989, sales of shares of the
Institutional Domestic Liquid Assets Series and the Institutional Tax-Exempt
Series were discontinued. Effective October 12, 1989, no shares remained
outstanding in those Series. On or about April 24, 1992, sales of shares of the
Institutional Government Series were discontinued. Effective May 15, 1992, no
shares remained outstanding in the Institutional Government Series. On August
28, 1995, the Board of Directors authorized the creation of the Liquid Assets
Series, although shares of such Series were not issued prior to the date of this
Statement of Additional Information.
B-15
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--11.1%
American Express Centurion Bank
$4,000 5.4075%, 4/9/97 (b) $ 4,000,000
1,000 5.4075%, 4/14/97 (b) 999,913
1,000 5.49734%, 4/22/97 (b) 999,928
Comerica Bank
2,000 5.3375%, 4/7/97 (b) 1,998,933
7,000 5.3325%, 4/11/97 (b) 6,995,901
FCC National Bank
3,000 5.77%, 4/15/97 2,999,934
First Bank National Association
4,000 5.3575%, 4/16/97 (b) 3,998,405
1,000 5.37266%, 4/16/97 (b) 999,609
4,000 5.585%, 4/16/97 (b) 4,000,000
First Union National Bank of North
Carolina
5,000 5.95%, 6/6/97 5,003,021
Morgan Guaranty Trust Co.
13,000 5.38281%, 5/14/97 (b) 12,994,106
NBD Bank, N.A.
2,000 6.50%, 5/27/97 2,003,036
PNC Bank, N.A.
6,000 5.3575%, 4/1/97 6,000,000
------------
52,992,786
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--0.8%
Canadian Imperial Bank of Commerce
1,000 5.45%, 4/1/97 1,000,000
CoreStates Bank, N.A.
1,000 5.38875%, 4/18/97 (b) 999,677
1,000 5.5325%, 4/23/97 (b) 1,000,000
First Union National Bank of North
Carolina
1,000 5.67%, 4/28/97 999,960
------------
3,999,637
Certificates Of Deposit - Eurodollar--3.2%
Abbey National Treasury Services PLC
$3,000 5.42%, 4/24/97 $ 3,000,043
Bank of Scotland
3,000 5.94%, 6/10/97 3,001,248
Bayerische Landesbank Girozentrale
3,000 5.50%, 6/9/97 3,000,416
Berliner Handels Und Frankfurt Bank
6,000 5.62%, 8/11/97 6,000,215
------------
15,001,922
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--12.1%
Banque Nationale de Paris
3,000 5.58%, 4/2/97 2,999,991
14,000 5.43%, 5/5/97 14,000,381
Chase Manhattan Bank
19,000 5.43%, 5/6/97 19,000,000
Deutsche Bank
2,000 5.69%, 10/28/97 1,999,654
Landesbank Hessen-Thuringen
Girozentrale
5,000 6.01%, 7/18/97 5,004,621
Royal Bank of Canada
2,000 5.725%, 10/17/97 1,999,584
Societe Generale
5,000 5.85%, 5/13/97 5,001,361
Swiss Bank Corp.
8,000 5.98%, 3/19/98 7,998,525
------------
58,004,117
- ------------------------------------------------------------
Commercial Paper--49.5%
ABN-AMRO North America Finance, Inc.
1,850 5.90%, 4/3/97 1,849,394
AC Acquisition Holding Co.
1,000 5.36%, 5/9/97 994,342
Aetna Services, Inc.
3,000 5.60%, 5/7/97 2,983,200
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-16
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
American Honda Finance Corp.
$1,000 5.38%, 4/8/97 $ 998,954
5,000 5.37%, 4/23/97 4,983,592
Aristar, Inc.
1,000 5.65%, 4/1/97 1,000,000
1,045 5.65%, 4/4/97 1,044,508
Asset Securitization Cooperative
Corp.
4,000 5.80%, 4/11/97 3,993,556
Barton Capital Corp.
15,000 5.55%, 4/30/97 14,932,937
3,000 5.75%, 5/6/97 2,983,229
2,867 5.34%, 5/9/97 2,850,840
Caterpillar Financial Services Corp.
5,000 5.38%, 4/28/97 4,979,825
1,000 5.35%, 5/16/97 993,313
2,000 5.35%, 6/16/97 1,977,411
Coca-Cola Enterprises, Inc.
6,000 5.33%, 5/7/97 5,968,020
Columbia/HCA Healthcare Corp.
8,000 5.39%, 4/4/97 7,996,407
CoreStates Financial Corp.
1,000 5.62625%, 4/24/97 (b) 1,000,000
Corporate Receivables Corp.
3,000 5.37%, 6/10/97 2,968,675
Countrywide Home Loans, Inc.
17,173 5.67%, 5/13/97 17,059,401
Creditanstalt Finance
1,000 5.40%, 4/4/97 999,550
CXC, Inc.
3,000 5.35%, 5/12/97 2,981,721
2,000 5.45%, 5/15/97 1,986,678
1,000 5.60%, 6/23/97 987,089
Delaware Funding Corp.
4,000 5.45%, 5/14/97 3,973,961
Eiger Capital Corp.
3,000 5.69%, 4/28/97 2,987,197
Enterprise Funding Corp.
6,000 5.33%, 5/7/97 5,968,020
Falcon Asset Securitization Corp.
4,000 5.75%, 4/30/97 3,981,472
Finova Capital Corp.
$2,000 5.50%, 5/19/97 $ 1,985,333
2,000 5.61%, 5/23/97 1,983,793
First Data Corp.
3,000 5.70%, 4/29/97 2,986,700
GTE Corp.
10,000 5.45%, 4/8/97 9,989,403
1,000 6.00%, 4/11/97 998,333
Halifax Building Society
2,000 5.69%, 4/29/97 1,991,149
Indosuez North America, Inc.
6,000 5.36%, 4/15/97 5,987,493
7,000 5.37%, 4/16/97 6,984,337
JES Developments, Inc.
1,000 6.00%, 4/4/97 999,500
Kredietbank Financial Corp.
20,000 5.38%, 6/2/97 19,814,689
MCI Communications Corp.
3,000 5.45%, 7/7/97 2,955,946
6,000 5.54%, 7/7/97 5,910,437
Mckenna Triangle National Corp.
3,000 5.30%, 4/14/97 2,994,258
Merrill Lynch & Co., Inc.
13,000 5.35%, 4/9/97 12,984,544
Mitsubishi International Corp.
5,000 5.36%, 4/3/97 4,998,511
1,000 5.75%, 4/24/97 996,326
National Bank of Canada
6,000 5.41%, 7/7/97 5,912,538
Nationwide Building Society
1,000 5.35%, 4/7/97 999,108
3,000 5.35%, 5/6/97 2,984,396
14,515 5.31%, 5/13/97 14,425,080
Preferred Receivables Funding Corp.
1,865 5.34%, 4/22/97 1,859,191
3,000 5.60%, 5/27/97 2,973,867
Special Purpose Accounts Receivables Corp.
2,000 5.85%, 4/18/97 1,994,475
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-17
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
Texas Instruments, Inc.
$1,630 5.30%, 4/14/97 $ 1,626,880
Triple A One Funding Corp.
1,326 5.41%, 4/9/97 1,324,406
WCP Funding, Inc.
6,536 5.35%, 4/21/97 6,516,574
------------
230,600,559
- ------------------------------------------------------------
Other Corporate Obligations--23.1%
American General Finance Corp.
2,000 5.80%, 4/1/97 2,000,000
2,109 7.70%, 11/15/97 2,133,519
Associates Corp. of North America
3,000 6.74%, 6/23/97 3,008,111
2,000 6.875%, 6/30/97 2,005,934
1,500 7.75%, 11/1/97 1,517,791
2,250 8.375%, 1/15/98 2,293,824
Avco Financial Services, Inc.
3,000 5.45609%, 5/15/97 (b) 2,999,729
BP America, Inc.
1,500 8.875%, 12/1/97 1,531,321
Capita Equipment Receivable Trust
1996-1, Al
4,713 5.60%, 10/15/97 4,713,477
Ford Motor Credit Corp.
3,500 6.80%, 8/15/97 3,513,946
1,000 8.70%, 8/15/97 1,010,793
2,500 9.375%, 12/15/97 2,560,523
General Electric Capital Corp.
1,030 6.043%, 6/6/97 1,030,771
General Motors Acceptance Corp.
23,000 5.5425%, 5/2/97 (b) 22,992,929
1,000 5.68906%, 6/2/97 1,000,220
1,000 7.00%, 7/7/97 1,003,315
Goldman Sachs Group, L.P.
$21,000 5.69531%, 8/22/97 (cost $21,000,000,
date purchased 6/3/96) (b)(c) $ 21,000,000
International Lease Finance Corp.
3,250 5.96875%, 4/16/97 (b) 3,256,854
Morgan Stanley Group, Inc.
3,000 5.6875%, 4/15/97 (b) 3,000,000
2,000 5.65625%, 5/15/97 (b) 2,000,000
Norwest Financial, Inc.
2,000 6.50%, 11/15/97 2,008,859
Short-Term Card Account Trust 1996-1
18,000 5.4575%, 4/15/97 (b) 18,000,000
Short-Term Repackaged Asset Trust
1996-A
6,000 5.4375%, 4/15/97 (cost $5,999,093,
date purchased 12/27/96) (b)(c) 5,999,093
SMM Trust Notes 1997-Q
5,000 5.4375%, 4/15/97 (b) 5,000,000
Transamerica Finance Corp.
1,000 6.90%, 12/1/97 1,007,242
------------
116,588,251
- ------------------------------------------------------------
Total Investments--99.8%
(amortized cost $477,187,272(a)) 477,187,272
Other assets in excess of
liabilities--0.2% 857,733
------------
Net Assets--100% $478,045,005
------------
------------
</TABLE>
- ---------------
(a) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(b) Variable rate instrument. The maturity date presented for these instruments
is the later of the next date on which the security can be redeemed at par
or the next date on which the rate of interest is adjusted.
(c) Private placement restricted as to resale and does not have a readily
available market; the aggregate cost of such securities is $26,999,093. The
aggregate value ($26,999,093) is approximately 5.6% of net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-18
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Portfolio of Investments as of March 31, 1997
- ------------------------------------------------------------
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of March 31, 1997 was as
follows:
<TABLE>
<S> <C>
Commercial Banks................................... 38.5%
Asset Backed Securities............................ 20.3
Securities Brokers & Dealers....................... 11.1
Personal Credit Institutions....................... 5.4
Finance Lessors.................................... 5.2
Business Credit (Finance).......................... 4.4
Telephone & Communications......................... 4.2
Mortgage Banks..................................... 3.6
Hospitals.......................................... 1.7
Commodity Trading.................................. 1.3
Beverages.......................................... 1.2
Equipment Rental & Leasing......................... 0.7
Accident & Health Insurance........................ 0.6
Computer Rental & Leasing.......................... 0.6
Electronics & Computers............................ 0.3
Petroleum Refining................................. 0.3
Bank Holding Companies............................. 0.2
Pharmaceuticals.................................... 0.2
-----
99.8
Other assets in excess of liabilities.............. 0.2
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-19
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1997
<S> <C>
Investments, at amortized cost which approximates market value............................................. $477,187,272
Cash....................................................................................................... 52,974
Interest receivable........................................................................................ 3,351,142
Other assets............................................................................................... 8,888
--------------
Total assets............................................................................................ 480,600,276
--------------
Liabilities
Dividends payable.......................................................................................... 2,217,871
Accrued expenses........................................................................................... 212,258
Management fee payable..................................................................................... 94,325
Distribution fee payable................................................................................... 30,817
--------------
Total liabilities....................................................................................... 2,555,271
--------------
Net Assets................................................................................................. $478,045,005
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 478,045
Paid-in capital in excess of par........................................................................ 477,566,960
--------------
Net assets, March 31, 1997................................................................................. $478,045,005
--------------
--------------
Net asset value, offering and redemption price per share
($478,045,005 / 478,045,005 shares of $.001 par value common stock issued and outstanding).............. $1.00
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-20
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31, 1997
<S> <C>
Income
Interest and discount earned................ $ 24,655,385
--------------
Expenses
Management fee.............................. 898,786
Distribution fee............................ 539,271
Transfer agent's fees and expenses.......... 250,000
Custodian's fees and expenses............... 134,000
Registration fees........................... 75,000
Reports to shareholders..................... 60,000
Legal fees and expenses..................... 38,000
Directors' fees............................. 33,000
Audit fees and expenses..................... 25,000
Insurance expenses.......................... 12,000
Miscellaneous............................... 3,624
--------------
Total expenses........................... 2,068,681
--------------
Net investment income.......................... 22,586,704
Realized Gain on Investments
Net realized gain on investment transactions... 11,251
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 22,597,955
--------------
--------------
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended March 31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income..... $ 22,586,704 $ 28,838,701
Net realized gain on
investment
transactions........... 11,251 51,244
--------------- ---------------
Net increase in net assets
resulting from
operations............. 22,597,955 28,889,945
--------------- ---------------
Dividends and distributions
to shareholders (Note
1)........................ (22,597,955) (28,889,945)
--------------- ---------------
Fund share transactions
Proceeds from shares
subscribed............. 2,069,514,977 2,502,344,256
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 21,346,132 28,006,679
Cost of shares
reacquired............. (2,053,657,829) (2,565,737,717)
--------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions..... 37,203,280 (35,386,782)
--------------- ---------------
Total increase (decrease).... 37,203,280 (35,386,782)
Net Assets
Beginning of year............ 440,841,725 476,228,507
--------------- ---------------
End of year.................. $ 478,045,005 $ 440,841,725
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-21
<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 their 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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM 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 PIFM is computed daily and payable monthly, at an annual
rate of .20 of 1% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), who acts as the distributor of the Fund's shares. The Fund reimbursed
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.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended March 31, 1997, the
Fund incurred fees of $240,000 for the services of PMFS. As of March 31, 1997,
$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-22
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<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....................... .050 .056 .046 .029 .033
Dividends and distributions to shareholders........................ (.050) (.056) (.046) (.029) (.033)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):................................................... 5.16% 5.72% 4.69% 2.92% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $478,045 $440,842 $476,229 $385,023 $497,214
Average net assets (000)........................................... $449,393 $519,946 $402,678 $445,867 $543,694
Ratios to average net assets:
Expenses, including distribution fee............................ .46% .43% .46% .48% .44%
Expenses, excluding distribution fee............................ .34% .31% .34% .36% .32%
Net investment income........................................... 5.03% 5.56% 4.67% 2.87% 3.28%
</TABLE>
- ---------------
(a) 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. B-23
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Report of Independent Accountants INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Institutional Liquidity
Portfolio, Inc.--Institutional Money Market Series (the 'Fund') at March 31,
1997, the results of its operations and the changes in its net assets and the
financial highlights for the year then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at March 31, 1997 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The accompanying Statement of Changes in Net Assets for the
year ended March 31, 1996, and Financial Highlights for each of the four years
in the period ended March 31, 1996 were audited by other independent
accountants, whose opinion dated May 9, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 28, 1997
- --------------------------------------------------------------------------------
B-24
<PAGE>
APPENDIX A--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.
[The following table was depicted as a line graph in the printed material]
[GRAPHIC OMITTED]
Value of $1.00 invested on 1/1/26 through 12/31/96:
- Small Stocks $4,495.99
- Common Stocks $1,370.95
- Long-Term Bonds $33.73
- Treasury Bills $13.54
- Inflation $8.87
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 1926-1980 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are 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
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds(1) 2.0% 7.0% 14.4% 8.5 % 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7%
- ----------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities(2) 4.3% 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4%
- ----------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate
Bonds(3) 2.6% 9.2% 14.1% 7.1 % 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3%
- ----------------------------------------------------------------------------------------------------
U.S.
High Yield
Corporate
Bonds(4) 5.0% 12.5% 0.8 % (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4%
- ----------------------------------------------------------------------------------------------------
World
Government
Bonds(5) 35.2% 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1%
====================================================================================================
Difference between highest
and lowest return percent 33.2 10.2 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7%
- ----------------------------------------------------------------------------------------------------
</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 1996. It does not represent the performance of any
Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS
OF MAJOR WORLD STOCK MARKETS
(1986-1996) (IN U.S. DOLLARS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Hong Kong 23.8%
Belgium 20.7%
Sweden 19.4%
Netherland 19.3%
Spain 17.9%
Swtizerland 17.1%
France 15.3%
U.K. 15.0%
U.S. 14.8%
Japan 12.8%
Austria 10.9%
Germany 10.7%
</TABLE>
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)
1969-1995
Capital Appreciation and Reinvesting Dividends--$228,416
Capital Appreciation Only--$80,463
Source: Stocks, Bonds, Bills, and Inflation 1996 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 on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.
WORLD STOCK MAREKT CAPITALIZATION BY REGION
WORLD TOTAL: $9.2 TRILLION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. 40.8%
Pacific
Basin 28.7%
Europe 28.3%
Canada 2.2%
</TABLE>
Source: Morgan Stanley Capital International, December 1996. 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 (1926-1996)
(PASTE-UP CHART)
- ----------
Source: Stocks, Bonds, Bills, and Inflation 1996 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 1926-1995. 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, 1996. 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 RETURNS FOR MAJOR STOCK &
BOND INDICES OVER THE PAST 20 YEARS
(12/31/75-12/31/95)*
S&P 500 EAFE Lehman Aggregate
37.6% 69.9% 32.6%
-7.2% -23.2% -2.9%
Best Returns Zone
With a Diversified Blend
1/3 S&P 500 Index
1/3 EAFE Index
1/3 Lehman Aggregate Index
- ----------
* 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 B--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 C--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. Prudential provides auto insurance for more than 1.7 million
cars and insures more than 1.4 million homes.
Money Management. 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 Investments (of which
Prudential Mutual Funds is a key part) manages over $190 billion in assets of
institutions and individuals.
Real Estate. 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, 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
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Investments Fund Management is the fifteenth 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 the subadviser to
Nicholas-Applegate Fund, Inc., Jennison Associates Capital Corp. as the
subadviser to Prudential Jennison Series Fund, Inc. and Prudential Active
Balanced Fund, a portfolio of Prudential Dryden Fund, Mercator Assets
Management LP, as the subadviser to International Stock Series, a portfolio
of Prudential World Fund, Inc. and BlackRock Financial Management, Inc. as
the 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, 1997 for Institutional Money
Market Series
Statement of Assets and Liabilities at March 31, 1997 for Institutional
Money Market Series
Statement of Operations for the Year Ended March 31, 1997 for
Institutional Money Market Series
Statement of Changes in Net Assets for the Years Ended March 31, 1997
and 1996 for Institutional Money Market Series
Notes to Financial Statements for Institutional Money Market Series
Financial Highlights for Institutional Money Market Series
Report of Independent Accountants.
(b) EXHIBITS:
1. (a) Articles of Restatement, incorporated by reference to Exhibit
1(a) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 33-17224) filed via EDGAR on May
28, 1996.
(b) Articles Supplementary, incorporated by reference to Exhibit
1(b) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (File No. 33-17224) filed via EDGAR on May
28, 1996.
(c) Articles Supplementary.*
(d) Articles of Amendment.*
2. (a) Amended By-Laws of the Registrant.*
(b) Amendment to Bylaws.*
4. (a) Specimen certificates for shares of common stock, $.001 par
value per share, of the Registrant.*
(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.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management
Inc. and The Prudential Investment Corporation.*
(c) Management and Administrative Services Agreement between the
Fund, on behalf of the Liquid Assets Series, and Prudential
Investments Fund Management LLC.*.
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, incorporated by reference
to Exhibit 6(c) to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A (File No. 33-17224) filed via
EDGAR on May 28, 1996.
(d) Amended and Restated Distribution Agreement.*
C-1
<PAGE>
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company.*
(b) Subcustodian Agreement between State Street Bank and Trust
Company and Security Pacific National Bank.*
(c) Subcustodian Agreement for Repurchase Transactions between State
Street Bank and Trust Company and Security Pacific National Bank.*
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services.*
10. Opinion of Counsel.*
11. Consent of Independent Accountants.*
15. Distribution and Service Plan for Institutional Money Market
Services, as amended and restated 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 filed as Exhibit 27 for electronic
purposes.*
18. Rule 18 f-3 Plan.*
- ----------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 16, 1997 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, as amended (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
C-2
<PAGE>
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 Investments
Fund Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution 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 Investments Fund Management LLC.
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 PIFM 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.
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102.
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
Brian Storms Officer-In-Charge. President, Prudential
Mutual Funds &
President, Chief Executive Annuities (PMF & A),
Officer and Chief Officer-In-Charge,
Operating Officer President, Chief
Executive Officer and
Chief Operating Officer,
PIFM
Robert F. Gunia Executive Vice President Comptroller, Prudential
and Treasurer Investments; Executive
Vice President and
Treasurer, PIFM; Senior
Vice President of
Prudential Securities
Incorporated (Prudential
Securities)
Thomas A. Early Executive Vice President, Vice President and General
Counsel, PMF & A
Secretary and General Executive Vice
Counsel President, Secretary and
General Counsel, PIFM;
Vice President and
General Counsel,
Prudential Retirement
Services
C-3
<PAGE>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ---------------- ------------------ ---------------------
Susan C. Cote Executive Vice President, Vice President of Finance,
PMF & A; Executive Vice
Chief Financial Officer President, Chief
Financial Officer, PIFM;
Managing Director,
Prudential Investments
and Vice President, PIC
Neil A. McGuinness Executive Vice President Executive Vice President,
PMF & A; Executive Vice
President, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President,
PMF & A; Executive Vice
President, PIFM
(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
- ---------------- ----------------- ---------------------
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of
President and Chief Executive Prudential Investments
Officer and Director
Jonathan M. Greene Senior Vice President President--Investment
and Director Management of Prudential
Investments
John R. Strangfeld Vice President and President of Private Asset
Director Management Group of
Prudential
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 Dryden Fund, Prudential Emerging Growth Fund, Inc., Prudential
Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity
Fund, Inc., Prudential Government Income Fund, Inc., Prudential Government
Securities Trust, Prudential High Yield Fund, Inc., Prudential Institutional
Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc.,
Prudential Jennison Series 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 Natural Resources Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Small Company Value Fund, Inc.,
Prudential Special Money Market Fund, Inc., Prudential Structured Maturity Fund,
Inc., Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc.,
Prudential World 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
C-4
<PAGE>
(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
Hardwick Simmons ..... Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr. .. Executive Vice President, Secretary, None
General Counsel and Director
Brian Storms ......... Director None
- ----------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
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, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102, and Prudential
Mutual Fund Services LLC, 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 LLC.
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 this Post-Effective Amendment to the Registration
Statement relating to the Liquid Assets Series.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 Newark, and
State of New Jersey, on the 6th day of June, 1997.
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/ Edward D. Beach Director June 6, 1997
- -----------------------
EDWARD D. BEACH
/s/ Stephen C. Eyre Director June 6, 1997
- -----------------------
STEPHEN C. EYRE
/s/ Delayne D. Gold Director June 6, 1997
- -----------------------
DELAYNE D. GOLD
/s/ Robert F. Gunia Director June 6, 1997
- -----------------------
ROBERT F. GUNIA
/s/ Don G. Hoff Director June 6, 1997
- -----------------------
DON G. HOFF
/s/ Robert E. LaBlanc Director June 6, 1997
- -----------------------
ROBERT E. LABLANC
/s/ Mendel A. Melzer Director June 6, 1997
- -----------------------
MENDEL A. MELZER
/s/ Richard A. Redeker President and Director June 6, 1997
- -----------------------
RICHARD A. REDEKER
/s/ Robin B. Smith Director June 6, 1997
- -----------------------
ROBIN B. SMITH
/s/ Stephen Stoneburn Director June 6, 1997
- -----------------------
STEPHEN STONEBURN
/s/ Nancy H. Teeters Director June 6, 1997
- -----------------------
NANCY H. TEETERS
/s/ Grace C. Torres Treasurer, Principal Financial and June 6, 1997
- ----------------------- Accounting Officer
GRACE C. TORRES
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1. (a) Articles of Restatement, incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A
filed via EDGAR on May 28, 1996 (File No. 33-17224)
(b) Articles Supplementary, incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 15 to the Registration statement on Form N-1A
filed via EDGAR on May 28, 1996 (File No. 33-17224)
(c) Articles Supplementary.*
(d) Articles of Amendment.*
2. (a) Amended By-Laws of the Registrant.*
(b) Amendment to the Bylaws.*
4. (a) Specimen certificates for shares of common stock, $.001 par value per
share, of the Registrant.*
(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.*
(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation.*
(c) Amended Management and Administrative Services Agreement between the
Fund, on behalf of Liquid Assets Series, and Prudential Investments Fund
Management LLC.*
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, incorporated by reference to
Exhibit 6(c) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A filed via EDGAR on May 28, 1996 (File No. 33-17224).
(d) Amended and Restated Distribution Agreement.*
8. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company.*
(b) Amendment to Custodian Contract.*
(c) Subcustodian Agreement between State Street Bank and Trust Company and
Security Pacific National Bank.*
(d) Subcustodian Agreement for Repurchase Transactions between State Street
Bank and Trust Company and Security Pacific National Bank.*
9. Transfer Agency and Service Agreement between the Registrant and Prudential
Mutual Fund Services.*
10. Opinion of Counsel.*
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11. Consent of Independent Accountants.*
13. Not applicable.
15. Distribution and Service Plan for Institutional Money Market Series, as
amended and restated 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 filed as Exhibit 27 for electronic purposes.*
18. Rule 18f-3 Plan.*
- ----------
*Filed herewith.
ARTICLES SUPPLEMENTARY
OF
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
*****
Pursuant to Section 2-208.1
of the Maryland General Corporation Law
*****
Prudential Institutional Liquidity Portfolio, Inc., a Maryland Corporation
having its principal offices in Baltimore, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
SECOND: The amount of shares the Corporation is authorized to issue is
being increased. The Corporation currently has 5,000,000,000 authorized shares,
par value $.001 per share, with an aggregate par value of $5,000,000. The
authorized shares are divided equally into two series; 2,500,000,000 shares with
an aggregate par value of $2,500,000 designated the Institutional Money Market
Series and 2,500,000,000 shares with an aggregate par value of $2,500,000
designated the Liquid Assets Series.
THIRD: The number of shares the Corporation is authorized to issue is
hereby increased to 15,000,000,000 authorized shares, par value $.001 per share,
with an aggregate par value of $15,000,000. The authorized shares are divided
into two series with 10,000,000,000 shares with an aggregate par value of
$10,000,000 designated Institutional Money Market Series and 5,000,000,000
shares, with an aggregate par value of $5,000,000 designated Liquid Asset
Series. The Institutional Money Market Series is further divided into two
classes of shares with 5,000,000,000 shares with an aggregate par value of
$5,000,000 being designated Class A and 5,000,000,000 shares with an aggregate
par value of $5,000,000 being designated Class I. On the date of this filing,
all issued and outstanding shares of Institutional Money Market Series shall be
designated Class A shares and Articles of Amendment are being filed concurrently
herewith to confirm such additional designation.
FOURTH: The Class I shares shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and other rights as
the Class A (the differing rights of which are hereby repeated for ease of
reference), except that (i) expenses related to the distribution of each class
of shares shall be borne solely by such class; (ii) the bearing of such expenses
solely by shares of each class shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class; (iii) although
Class A shares are not subject to a front-end load or contingent deferred sales
charge, the Class A common stock shall be subject to a Rule 12b-1 distribution
fee as determined by the Board of Directors from time to time; and (iv) the
Class I common stock shall not be subject to a front-end sales load, a
contingent deferred sales charge or a Rule 12b-1 distribution fee. All shares of
each particular class shall represent an equal proportionate interest in that
class, and each shares of any particular class shall be equal to each other
share of that class.
<PAGE>
FIFTH: In accordance with Section 2-105(c) of the Maryland General
Corporation Law and pursuant to a resolution duly adopted by the Board of
Directors of the Corporation at a meeting held on May 29, 1997, the number of
authorized shares of which the Corporation has authority to issue is hereby
increased and divided into two series, with 5,000,000,000 shares designated
Liquid Asset Series and with 10,000,000,000 shares designated Institutional
Money Market Series with the Institutional Money Market Series further divided
into 2 classes of shares, consisting of 5,000,000,000 Class A shares and
5,000,000,000 Class I shares.
SIXTH: (a) As of immediately before the increase the total number of shares
of stock of all classes which the Corporation has authority to issue is
5,000,000,000 shares of Common Stock (par value $.001 per share).
(b) As increased the total number of shares of stock of all classes which
the Corporation has authority to issue is 15,000,000,000 shares of Common Stock
(par value $.001 per share).
(c) The aggregate par value of all shares having a par value is $5,000,000
before the increase and $15,000,000 as increased.
IN WITNESS WHEREOF, PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC., has
caused these presents to be signed in its name and on its behalf of its Vice
President and attested by its Secretary on May 29, 1997.
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
By: /s/ THOMAS A. EARLY
----------------------------------
Thomas A. Early
Vice President
Attest: /s/ S. JANE ROSE
-------------------------------
S. Jane Rose
Secretary
THE UNDERSIGNED, Vice President of Prudential Institutional Liquidity
Portfolio, Inc., who executed on behalf of the Corporation the foregoing
Articles Supplementary of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation and hereby certifies
that to the best of his knowledge, information and belief the matters and facts
set forth therein with respect to the authorization and approval thereof therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ THOMAS A. EARLY
----------------------------------
Thomas A. Early
Vice President
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
ARTICLES OF AMENDMENT
CHANGING NAMES OF SERIES
PURSUANT TO MGCL SECTION 2-605(B)
Prudential Institutional Liquidity Portfolio, Inc., a Maryland Corporation
having its principal offices in Baltimore, Maryland (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 amended to provide as
follows:
The name and designation of the "Institutional Money Market Series" of
Common Stock outstanding on the date hereof is hereby amended to add the
designation of "Class A" to such outstanding shares.
SECOND: The amendment does not change the outstanding capital stock of the
Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation has been
approved by the Board of Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law.
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
<PAGE>
IN WITNESS WHEREOF, PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO,
INC., has caused these presents to be signed in its name and on its behalf of
its Vice President and attested by its Secretary on May 29, 1997.
PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.
By: /s/ THOMAS A. EARLY
----------------------------------
Thomas A. Early
Vice President
Attest: /s/ S. JANE ROSE
-----------------------------
S. Jane Rose
Secretary
THE UNDERSIGNED, Vice President of Prudential Institutional Liquidity
Portfolio, Inc., who executed on behalf of the Corporation the foregoing
Articles Supplementary of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation and hereby certifies
that to the best of his knowledge, information and belief the matters and facts
set forth therein with respect to the authorization and approval thereof therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ THOMAS A. EARLY
----------------------------------
Thomas A. Early
Vice President
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
By-Laws
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders of the
Corporation shall be held in the month of January of each year, on such date and
at such hour as may from time to time be designated by the Board of Directors
and stated in the notice of such meeting, or in such other month as the Board of
Directors shall select, for the transaction of such business as may properly be
brought before the meeting; provided, however, that an annual meeting shall not
be required to be held in any year in which none of the following is required to
be acted on by stockholders under the Investment Company Act of 1940: election
of directors; approval of the investment advisory agreement; ratification of the
selection of independent public accountants; and approval of a distribution
agreement; except that in 1988 the date of such annual meeting shall be deferred
sine die.
<PAGE>
Section 3. MEETINGS. Meetings of the stockholders for any purpose or
purposes may be called by the Chairman of the Board, the President or a majority
of the Board of Directors, and shall be called by the Secretary upon receipt of
the request in writing signed by stockholders holding not less than 25% of the
common stock issued and outstanding and entitled to vote thereat. Such request
shall state the purpose or purposes of the proposed meeting. The Secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing such notice of meeting and upon payment to the Corporation of such
costs, the Secretary shall give notice stating the purpose or purposes of the
meeting as required in this Article and by-law to all stockholders entitled to
notice of such meeting. No meeting need be called upon the request of the
holders of shares entitled to cast less than a majority of all votes entitled to
be cast at such meeting to consider any matter which is substantially the same
as a matter voted upon at any meeting of stockholders held during the preceding
twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than ten days' and
not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof and the general nature of the
business proposed to be transacted thereat, shall be given to each stockholder
entitled to vote thereat by leaving the same with such stockholder or at such
stockholder's residence or usual place of business or by mailing it, postage
prepaid, and
-2-
<PAGE>
addressed to such stockholder at such stockholder's address as it appears upon
the books of the Corporation. If mailed, notice shall be deemed to be given when
deposited in the United States mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. RECORD DATES. The Board of Directors may fix, in advance, a date
not exceeding sixty days preceding the date of any meeting of stockholders, any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting or entitled to receive such dividends or rights, as the case may
be; and only stockholders of record on such date shall be entitled to notice of
and to vote at such meeting or to receive such dividends or rights, as the case
may be. In the case of a meeting of stockholders, such date shall not be less
than ten days prior to the date fixed for such meeting.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or by
proxy of the holders of record of one-third of the shares of the common stock of
the Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum at all meetings of the stockholders except as otherwise
-3-
<PAGE>
provided in the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the holders of a
majority of the stock present in person or by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until stockholders owning the requisite amount of stock entitled to
vote at such meeting shall be present. At such adjourned meeting at which
stockholders owning the requisite amount of stock entitled to vote thereat shall
be represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 7. VOTING AND INSPECTORS. At all meetings, stockholders of record
entitled to vote thereat shall have one vote for each share of common stock
standing in his name on the books of the Corporation (and such stockholders of
record holding fractional shares, if any, shall have proportionate voting
rights) on the date for the determination of stockholders entitled to vote at
such meeting, either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by
statute or by the Articles of Incorporation or by these By-Laws.
-4-
<PAGE>
At any election of directors, the Chairman of the meeting may, and upon the
request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of director shall be appointed such
inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if he is not present, by a Vice-President, or
if none of them is present, by a Chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as a Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor the Assistant Secretary is present, then the meeting
shall elect its Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the Secretary of the meeting, who
shall decide all questions concerning the qualification of voters, the validity
of the proxies and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the
-5-
<PAGE>
Chairman of the meeting, in which event such inspectors of election shall decide
all such questions.
ARTICLE II
Board of Directors
Section 1. NUMBER AND TENURE OF OFFICE. The business and affairs of the
Corporation shall be conducted and managed by a Board of Directors of not less
than three nor more than twelve directors, as may be determined from time to
time by vote of a majority of the directors then in office, provided that if
there is no stock outstanding the number of directors may be less than three but
not less than one. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of directors, a majority of the remaining directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next meeting of stockholders or until his successor is chosen and
qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors and may elect directors to fill the vacancies created by any
such increase in the number of directors until the next meeting of stockholders
or until their successors are duly chosen and qualified. The
-6-
<PAGE>
Board of Directors, by the vote of a majority of the entire Board, may likewise
decrease the number of directors to a number not less than three.
Section 4. PLACE OF MEETING. The directors may hold their meetings, have
one or more offices, and keep the books of the Corporation, outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the directors may from time to
time determine.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held from time to time upon call of the Chairman of the Board, the President,
the Secretary or two or more of the directors, by oral or telegraphic or written
notice duly served on or sent or mailed to each director not less than one day
before such meeting. No notice need be given to any director who attends in
person or to any director who, in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice. Such
notice or waiver of notice need not state the purpose or purposes of such
meeting.
-7-
<PAGE>
Section 7. QUORUM. One-third of the directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the directors present at any meeting at which the1re
is a quorum shall be the act of the directors, except as may be otherwise
specifically provided by statute or by the Articles of Incorporation or by these
By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the directors an
Executive Committee to consist of such number of directors (not less than three)
as the Board may from time to time determine. The Chairman of the Committee
shall be elected by the Board of Directors. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management of the business and
affairs of the Corporation. The Executive Committee may fix its own rules of
procedure, and may meet when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a
-8-
<PAGE>
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the remaining members may appoint a member of
the Board of Directors to act in his place.
Section 9. OTHER COMMITTEES. The Board of Directors, by the affirmative
vote of a majority of the whole Board, may appoint from the directors other
committees which shall in each case consist of such number of directors (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all the members of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such committee.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at the meeting unless
otherwise provided by the Investment Company Act of 1940.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the Board of
-9-
<PAGE>
Directors or any committee thereof may be taken without a meeting, if a written
consent to such action is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or such committee, unless otherwise
provided by the Investment Company Act of 1940.
Section 12. COMPENSATION OF DIRECTORS. No director shall receive any stated
salary or fees from the Corporation for his services as such it such director
is, other than by reason of being such director, an interested person (as such
term is defined by the Investment Company Act of 1940) of the Corporation or of
its investment adviser, administrator or principal underwriter. Except as
provided in the preceding sentence, directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
Section 13. REMOVAL OF DIRECTORS. No director shall continue to hold office
after the holders of record of not less than two-thirds of the Corporation's
outstanding common stock of all series have declared that that director be
removed from office either by declaration in writing filed with the
Corporation's secretary or by votes cast in person or by proxy at a meeting
called for the purpose. The directors shall promptly call a meeting of
stockholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
-10-
<PAGE>
of not less than 10 percent of the Corporation's outstanding common stock of all
series.
ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the Corporation
shall be chosen by the Board of Directors. These may include a Chairman of the
Board of Directors (who shall be a director) and shall include a President (who
shall be a director), one or more Vice-Presidents (the number thereof to be
determined by the Board of Directors), a Secretary and a Treasurer. The Board of
Directors or the Executive Committee may also in its discretion appoint
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees, who shall have such authority and perform such duties as the Board or
the Executive Committee may determine. The Board of Directors may fill any
vacancy which may occur in any office. Any two offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 2. TERM OF OFFICE. The term of office of all officers shall be one
year and until their respective successors are chosen and qualified. Any officer
may be removed from office at any time with or without cause by the vote of a
majority of the whole Board of Directors.
-11-
<PAGE>
Section 3. POWERS AND DUTIES. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES FOR SHARES. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of stock
of the Corporation owned by him in such form as the Board from time to time
prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation, containing
the names and addresses of the stockholders and the number of shares held by
them respectively, shall be kept at the principal office of the Corporation or,
if
-12-
<PAGE>
the Corporation employs a Transfer Agent, at the office of the Transfer Agent of
the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
or the Executive Committee may determine the conditions upon which a new
certificate of stock of the Corporation of any class may be issued in place of a
certificate which is alleged to have been lost, stolen or destroyed; and may, in
its discretion, require the owner of such certificate or such owner's legal
representative to give bond, with sufficient surety, to the Corporation and each
Transfer Agent, if any, to indemnify it and each such Transfer Agent against any
and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of April
and shall end on the last day of March in each year.
-13-
<PAGE>
ARTICLE VII
INDEMNIFICATION
Directors, officers, employees and agents of the Corporation shall not be
liable to the Corporation, any stockholder, officer, director, employee or other
person for any action or failure to act except for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office. The Corporation shall indemnify directors, officers,
employees and agents of the Corporation against judgments, fines, settlements
and expenses to the fullest extent authorized and in the manner permitted by
applicable federal and state law. The Corporation may purchase insurance to
protect itself and its directors, officers, employees and agents against
judgments, fines, settlements and expenses to the fullest extent authorized and
in the manner permitted by applicable federal and state law. Nothing contained
in this Article VII shall be construed to indemnify directors, officers,
employees and agents of the Corporation against, nor to permit the Corporation
to purchase insurance that purports to protect against, any liability to the
Corporation or any stockholder, officer, director, employee, agent or other
person to whom he or she 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.
-14-
<PAGE>
ARTICLE VIII
CUSTODIAN
Section 1. The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, each having a capital, surplus
and undivided profits aggregating not less than fifty million dollars
($50,000,000), and, to the extent required by the Investment Company Act of
1940, the funds and securities held by the Corporation shall be kept in the
custody of one or more such custodians, provided such custodian or custodians
can be found ready and willing to act, and further provided that the Corporation
may use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Corporation, such foreign banks as the Board of Directors
may approve and as shall be permitted by law.
Section 2. The Corporation shall upon the resignation or inability to serve
of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the Corporation be
delivered directly to the successor custodian; and
(iii) in the event that no successor custodian can be found, submit to
the stockholders before permitting delivery of the cash and securities
owned by the Corporation
-15-
<PAGE>
otherwise than to a successor custodian, the question whether or not this
Corporation shall be liquidated or shall function without a custodian.
ARTICLE IX
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors; but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by stockholders.
-16-
As of 10/12/89
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
By-Laws
ARTICLE I
Stockholders
Section 2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held in the month of January of
each year on such date and at such hour as may from time to time be
designated by the Board of Directors and stated in the notice of such
meeting, or in such other month as the Board of Directors shall select,
for the transaction of such business as may properly be brought before
the meeting; provided, however, that an annual meeting of stockholders
shall not be required to be held in any year in which the election of
directors is not required to be acted on by stockholders under the
Investment Company Act of 1940.
================================================================================
============= =============
Number Shares
============= =============
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
-----------------------------------------
ACCOUNT NO. ALPHA CODE CUSIP
-----------------------------------------
SEE REVERSE SIDE FOR CERTAIN RESTRICTIONS
THIS IS TO CERTIFY that
[SPECIMEN VOID]
Is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE
COMMON STOCK OF
Prudential Institutional Liquidity Portfolio, Inc.
hereafter called the "Corporation," transferable on the books of the Corporation
by the owner in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
held subject to the provisions of the Articles of Incorporation and By-Laws of
the Corporation and all amendments thereto, all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
[SEAL] Dated:
/s/ [illegible] /s/ [illegible]
--------------- ---------------
Secretary President
Countersigned:
PRUDENTIAL MUTUAL FUND SERVICES, INC.
TRANSFER AGENT
BY
--------------------------
AUTHORIZED SIGNATURE
================================================================================
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
MANAGEMENT AGREEMENT
Agreement, made this 31st day of July, 1989 between Prudential
Institutional Liquidity Portfolio, Inc., a Maryland corporation (the "Fund"),
and Prudential Mutual Fund Management, Inc., a Delaware corporation (the
"Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act") ; and
WHEREAS, the shares of common stock of the Fund are divided
into separate series, each of which was established by the Board of Directors of
the Fund in accordance with Fund's Articles of Incorporation, and the Board of
Directors may from time to time terminate such series or establish and terminate
additional series; and
WHEREAS, the Fund desires to retain the Manager to render or
contract to obtain as hereinafter provided investment advisory services to the
Fund and the Fund also desires to avail itself of the facilities available to
the Manager with respect to the administration of its day to day corporate
affairs, and the Manager is willing to render such investment advisory and
administrative services;
<PAGE>
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of
the Fund and administrator of its corporate affairs for the period and on the
terms set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services herein described, for the compensation herein
provided. The Manager will enter into an agreement, dated the date hereof, with
The Prudential Investment Corporation ("PIC") pursuant to which PIC shall
furnish to the Fund the investment advisory services specified therein in
connection with the management of the Fund. Such agreement in the form attached
as Exhibit A is hereinafter referred to as the "Subadvisory Agreement." The
Manager will continue to have responsibility for all investment advisory
services furnished pursuant to the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the
Fund, the Manager shall administer the Fund's corporate affairs and, in
connection therewith, shall furnish the Fund with office facilities and with
clerical, bookkeeping and record keeping services at such office facilities and,
subject to Section 1 hereof and the Subadvisory Agreement, the Manager shall
manage the investment operations of each series of the Fund and the composition
of the portfolio of each series, including the purchase, retention and
disposition thereof, in accordance with the investment objectives, policies and
restrictions of each such series as stated in the Prospectus (hereinafter
defined) and subject to the following understandings:
2
<PAGE>
(a) The Manager shall provide supervision of each series'
investments and determine from time to time what investments or securities
will be purchased, retained, sold or loaned by each series of the Fund,
and what portion of the assets will be invested or held uninvested as
cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund
and with the instructions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities and futures contracts
to be purchased or sold by each series of the Fund and will place orders
pursuant to its determinations with or through such persons, brokers,
dealers or futures commission merchants (including but not limited to
Prudential-Bache Securities Inc.) in conformity with the policy with
respect to brokerage as set forth in the Fund's Registration Statement and
Prospectus (hereinafter defined) or as the Board of Directors may direct
from time to time. In providing the Fund with investment supervision, it
is recognized that the Manager will give primary consideration to securing
the most favorable price and efficient execution. Consistent with this
policy, the Manager may consider the financial responsibility, research
and investment information and other services provided by brokers,
3
<PAGE>
dealers or futures commission merchants who may effect or be a party to
any such transaction or other transactions to which other clients of the
Manager may be a party. It is understood that Prudential-Bache Securities
Inc. may be used as principal broker for securities transactions but that
no formula has been adopted for allocation of the Fund's investment
transaction business. It is also understood that it is desirable for the
Fund that the Manager have access to supplemental investment and market
research and security and economic analysis provided by brokers or futures
commission merchants and that such brokers may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers or futures commission merchants on the basis of
seeking the most favorable price and efficient execution. Therefore, the
Manager is authorized to pay higher brokerage commissions for the purchase
and sale of securities and futures contracts for each series of the Fund
to brokers or futures commission merchants who provide such research and
analysis, subject to review by the Fund's Board of Directors from time to
time with respect to the extent and continuation of this practice. It is
understood that the services provided by such broker or futures commission
merchant may be useful to the Manager in connection with its services to
other clients.
On occasions when the Manager deems the purchase or sale of a
security or a futures contract to be in the best interest
4
<PAGE>
of the Fund (and each series of the Fund) as well as other clients of the
Manager or the Subadviser, the Manager, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be so sold or purchased
in order to obtain the most favorable price or lower brokerage commissions
and efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Manager in the manner it considers
to be the most equitable and consistent with its fiduciary obligations to
the Fund (and each series of the Fund) and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the Fund's portfolio transactions and shall render to the Fund's Board of
Directors such periodic and special reports as the Board may reasonably
request.
(e) The Manager shall be responsible for the financial and
accounting records to be maintained by the Fund (including those being
maintained by the Fund's Custodian).
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the Fund's
assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
5
<PAGE>
3. The Fund has delivered to the Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the
Secretary of State of Maryland (such Articles of Incorporation, as
in effect on the date hereof and as amended from time to time, are
herein called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the
date hereof and as amended from time to time, are herein called the
"By-Laws");
(c) Certified resolutions of the Board of Directors of the
Fund authorizing the appointment of the Manager and approving the
form of this agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange Commission
(the "Commission") relating to the Fund and shares of the Fund's
Common Stock and all amendments thereto;
(e) Notification of Registration of the Fund under the 1940
Act on Form N-8A as filed with the Commission and all amendments
thereto; and
(f) Prospectus of the Fund (such Prospectus and Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the
"Prospectus").
6
<PAGE>
4. The Manager shall authorize and permit any of its
directors, officers and employees who may be elected as directors or officers of
the Fund to serve in the capacities in which they are elected. All services to
be furnished by the Manager under this Agreement may be furnished through the
medium of any such directors, officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records
required to be maintained by it pursuant to paragraph 2 hereof. The Manager
agrees that all records which it maintains for the Fund are the property of the
Fund and it will surrender promptly to the Fund any such records upon the Fund's
request, provided however that the Manager may retain a copy of such records.
The Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained by the
Manager pursuant to Paragraph 2 hereof.
6. During the term of this Agreement, the Manager shall pay
the following expenses:
(i) 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 the Manager or the Fund's investment adviser,
(ii) all expenses incurred by the Manager or by the Fund in
connection with managing the ordinary course of the Fund's business
other than those assumed by the Fund herein, and
(iii) the costs and expenses payable to PIC pursuant to the
Subadvisory Agreement.
7
<PAGE>
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection
with the management of the investment and reinvestment of the Fund's
assets of each series,
(b) the fees and expenses of directors who are not affiliated
persons of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i)
the custodial function and the recordkeeping connected therewith,
(ii) preparing and maintaining the general accounting records of the
Fund and the providing of any such records to the Manager useful to
the Manager in connection with the Manager's responsibility for the
accounting records of the Fund pursuant to Section 31 of the 1940
Act and the rules promulgated thereunder, (iii) the pricing of the
shares of each series of the Fund, including the cost of any pricing
service or services which may be retained pursuant to the
authorization of the Board of Directors of the Fund, and (iv) for
both mail and wire orders, the cashiering function in connection
with the issuance and redemption of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes
8
<PAGE>
chargeable to each series of the Fund in connection with its
securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to
federal, state or other governmental agencies,
(h) the fees of any trade associations of which the Fund may
be a member,
(i) the cost of stock certificates representing, and/or
non-negotiable share deposit receipts evidencing, shares of each
series of the Fund,
(j) the cost of fidelity, directors and officers and errors
and omissions insurance,
(k) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the
Securities and Exchange Commission, registering the Fund as a broker
or dealer and qualifying its shares under state securities laws,
including the preparation and printing of the Fund's registration
statements, prospectuses and statements of additional information
for filing under federal and state securities laws for such
purposes,
(l) allocable communications expenses with respect to investor
services and all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing reports to shareholders in
the amount necessary for distribution to the shareholders,
9
<PAGE>
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the
Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of
Distribution adopted in conformity with Rule 12b-1 under the 1940
Act.
7. In the event the expenses of the Fund for any fiscal year
(including the fees payable to the Manager 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
jurisdictions in which shares of the Fund are then qualified for offer and sale,
the compensation due the Manager will be reduced by the amount of such excess,
or, if such reduction exceeds the compensation payable to the Manager, the
Manager will pay to the Fund the amount of such reduction which exceeds the
amount of such compensation.
8. For the services provided and the expenses assumed pursuant
to this Agreement, the Fund will pay to the Manager as full compensation
therefor a fee at an annual rate of .20 of 1% of the average daily net assets of
each series of the Fund. This fee will be computed daily and will be paid to the
Manager monthly. Any reduction in the fee payable and any payment by the Manager
to the Fund pursuant to paragraph 7 shall be made monthly. Any such
10
<PAGE>
reductions or payments are subject to readjustment during the year.
9. The Manager shall not be liable for any error of judgment
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
10. This Agreement shall continue in effect for a period of
more than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated with
respect to any series by the Fund at any time, without the payment of any
penalty, by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of such series, or by
the Manager at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of the Manager who may
11
<PAGE>
also be a director, officer or employee of the Fund to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit or restrict the right of the Manager to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association.
12. Except as otherwise provided herein or authorized by the
Board of Directors of the Fund from time to time, the Manager shall for all
purposes herein be deemed to be an independent contractor and shall have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
13. During the term of this Agreement, the Fund agrees to
furnish the Manager at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Fund or the public, which refer in any way
to the Manager, prior to use thereof and not to use such material if the Manager
reasonably objects in writing within five business days (or such other time as
may be mutually agreed) after receipt thereof. In the event of termination of
this Agreement, the Fund will continue to furnish to the Manager copies of any
of the above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager
12
<PAGE>
such other information relating to the business affairs of the Fund as the
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the
consent of each series of the Fund must be obtained in conformity with the
requirements of the 1940 Act.
15. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New
York, N.Y. 10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza,
New York, N.Y. 10292, Attention: President.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
17. The Fund may use the name "Prudential Institutional
Liquidity Portfolio, Inc." or any name including the word "Prudential" only for
so long as this Agreement or any extension, renewal or amendment hereof remains
in effect, including any similar agreement with any organization which shall
have succeeded to the Manager's business as Manager or any extension, renewal or
amendment thereof remain in effect. At such time as such an agreement shall no
longer be in effect, the Fund will (to the extent that it lawfully can) cease to
use such a name or any other name indicating that it is advised by, managed by
or otherwise connected with the Manager, or any organization which shall have so
succeeded to such businesses. In no event shall the Fund use
13
<PAGE>
the name "Prudential Institutional Liquidity Portfolio, Inc." or any name
including the word "Prudential" if the Manager's function is transferred or
assigned to a company of which The Prudential Insurance Company of America does
not have control.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
By /s/ Laurence C. McQuade
----------------------------
PRUDENTIAL MUTUAL FUND MANAGEMENT,
INC.
By /s/ M. J. DOWNEY
----------------------------
14
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
SUBADVISORY AGREEMENT
Agreement made as of this 31st day of July, 1989 between Prudential
Mutual Fund Management, Inc., a Delaware Corporation ("PMF" or the "Manager"),
and The Prudential Investment Corporation, a New Jersey Corporation (the
"Subadviser").
WHEREAS, the Manager has entered into a Management Agreement, dated
July 31, 1989 (the "Management Agreement"), with Prudential Institutional
Liquidity Portfolio, Inc. (the "Fund"), a Maryland corporation and a diversified
open-end management investment company registered under the Investment Company
Act of 1940, (the "1940 Act"), pursuant to which PMF will act as Manager of the
Fund.
WHEREAS, the shares of common stock of the Fund are divided into
separate series, each of which was established by the Board of Directors of the
Fund in accordance with the Fund's Articles of Incorporation, and the Board of
Directors may from time to time terminate such series or establish and terminate
additional series; and
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and of the Board of
Directors of the Fund, the Subadviser shall manage the investment operations of
each series of the Fund and the composition of the portfolio of each series,
including the purchase, retention and disposition thereof, in accordance with
the investment objectives, policies and restrictions of each such series as
stated in the Prospectus, (such Prospectus and Statement of Additional
Information as currently in effect and as amended or supplemented from time to
time, being herein called the "Prospectus") and subject to the following
understandings:
(i) The Subadviser shall provide supervision of each series'
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by each series
of the Fund, and what portion of the assets will be invested or held
uninvested as cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Fund and with the
instructions of the Manager and of the Board of Directors of the Fund
and will conform to and comply with the
1
<PAGE>
requirements of the 1940 Act, the Internal Revenue Code of 1986 and
all other applicable federal and state laws and regulations.
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by each series of the Fund and will
place orders with or through such persons, brokers, dealers or futures
commission merchants (including but not limited to Prudential-Bache
Securities Inc.) to carry out the policy with respect to brokerage as
set forth in the Fund's Registration Statement and Prospectus or as
the Board of Directors may direct from time to time. In providing the
Fund with investment supervision, it is recognized that the Subadviser
will give primary consideration to securing the most favorable price
and efficient execution. Within the framework of this policy, the
Subadviser may consider the financial responsibility, research and
investment information and other services provided by brokers, dealers
or futures commission merchants who may effect or be a party to any
such transaction or other transactions to which the Subadviser's other
clients may be a party. It is understood that Prudential-Bache
Securities Inc. may be used as a principal broker for securities
transactions but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also understood that
it is desirable for the Fund that the Subadviser have access to
supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants who may
execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore,
the Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for each series of the Fund with
such brokers or futures commission merchants, subject to review by the
Fund's Board of Directors from time to time with respect to the extent
and continuation of this practice. It is understood that the services
provided by such brokers or futures commission merchants may be useful
to the Subadviser in connection with the Subadviser's services to
other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund
(and each series of the Fund) as well as other clients of the
Subadviser, the Subadviser, to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate
the securities or futures contracts to be sold or purchased in order
to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities or
futures contracts so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and
consistent with its fiduciary obligations to the Fund (and each
2
<PAGE>
series of the Fund) and to such other clients.
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by subparagraphs
(b) (5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Fund's Board of Directors
such periodic and special reports as the Board may reasonably request.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets and shall provide the Manager with such information
upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
(b) The Subadviser shall authorize and permit any of its
directors, officers and employees who may be elected as directors or
officers of the Fund to serve in the capacities in which they are
elected. Services to be furnished by the Subadviser under this
Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records
required to be maintained by the Subadviser pursuant to paragraph 1(a)
hereof and shall timely furnish to the Manager all information
relating to the Subadviser's services hereunder needed by the Manager
to keep the other books and records of the Fund required by Rule 31a-1
under the 1940 Act. The Subadviser agrees that all records which it
maintains for the Fund are the property of the Fund and the Subadviser
will surrender promptly to the Fund any of such records upon the
Fund's request, provided however that the Subadviser may retain a copy
of such records. The Subadviser further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act
any such records as are required to be maintained by it pursuant to
paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all services
to be provided to the Fund pursuant to the Management Agreement and shall
oversee and review the Subadviser's performance of its duties under this
Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs and
expenses incurred by the Subadviser determined in a manner acceptable to the
Manager in furnishing the services described in paragraph 1 hereof.
3
<PAGE>
4. The Subadviser shall not be liable for any error of judgment or for
any loss suffered by the Fund or the Manager in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the Subadviser's part in the performance of its
duties or from its reckless disregard of its obligations and duties under this
Agreement.
5. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated with respect to each
series by the Fund at any time, without the payment of any penalty, by the Board
of Directors of the Fund or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, or by the Manager or the
Subadviser at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in the
1940 Act) or upon the termination of the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
of the Subadviser's directors, officers, or employees who may also be a
director, officer or employee of the Fund to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any business, whether of a similar or a dissimilar nature, nor limit or
restrict the Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish
the Subadviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other material prepared for
distribution to stockholders of the Fund or the public, which refer to the
Subadviser in any way, prior to use thereof and not to use material if the
Subadviser reasonably objects in writing five business days (or such other time
as may be mutually agreed) after receipt thereof. Sales literature may be
furnished to the Subadviser hereunder by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
8. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.
9. This Agreement shall be governed by the laws of the State of New
York.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ M. J. DOWNEY
------------------------------------
THE PRUDENTIAL INVESTMENT CORPORATION
By /s/ ZIMMERMAN
------------------------------------
5
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
(Liquid Assets Series)
Amended Management and Administrative Services Agreement
Agreement, made this 1st day of November, 1996, as amended on May 29, 1997,
between Prudential Institutional Liquidity Portfolio, Inc. (the Fund), a
Maryland corporation, and Prudential Investments Fund Management LLC (the
Manager), a Delaware corporation, with respect to the Liquid Assets Series of
the Fund.
WITNESSETH
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act);
and
WHEREAS, the shares of common stock of the Fund are divided into separate
series, each of which was established by the Board of Directors of the Fund in
accordance with the Fund's Articles of Incorporation, and the Board of Directors
may from time to time terminate such series or establish and terminate
additional series; and
WHEREAS, the Fund has entered into a management agreement dated July 31,
1989 with the Manager with respect to other series of the Fund and
notwithstanding Section 8 of that agreement and references in that agreement to
the effect that it covers the series of the Fund, this Management and
Administrative Services Agreement shall govern the arrangement between the
Manager and the Fund with respect to the Liquid Assets Series; and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment
<PAGE>
advisory services to the Liquid Assets Series and the Fund also desires to avail
itself of the facilities available to the Manager with respect to the
administration of the day to day corporate affairs of the Liquid Assets Series,
and the Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Liquid
Assets Series and administrator of its corporate affairs for the period and on
the terms set forth in this Agreement. The Manager accepts such appointment and
agrees to render the services herein described, subject to reimbursement of
certain administrative costs as herein provided. Pursuant to a subadvisory
agreement (the Subadvisory Agreement), dated July 31, 1989, with The Prudential
Investment Corporation (PIC), PIC furnishes to each series of the Fund
(including the Liquid Assets Series) investment advisory services in connection
with the management of the Fund. The Manager shall have responsibility for all
investment advisory services furnished to the Liquid Assets Series pursuant to
the Subadvisory Agreement.
2. Subject to the supervision of the Board of Directors of the Fund, the
Manager shall administer the corporate affairs of the Liquid Assets Series and,
in connection therewith, shall furnish the Liquid Assets Series with office
facilities and with clerical, bookeeping and recordkeeping services at such
2
<PAGE>
office facilities and, subject to Section 1 hereof, the Manager shall manage the
investment operations of the Liquid Assets Series and the composition of its
portfolio, including the purchase, retention and disposition thereof, in
accordance with its investment objectives, policies and restrictions as stated
in the Prospectus (hereinafter defined) and subject to the following
understandings:
(a) The Manager shall provide supervision of the Liquid Assets Series'
investments and determine from time to time what investments or securities
will be purchased, retained, sold or loaned by it, and what portion of its
assets will be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus (hereinafter defined) of the Fund and
with the instructions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations.
(c) The Manager shall determine the securities to be purchased or sold
by the Liquid Assets Series and will place orders pursuant to its
determinations with or through such persons, brokers or dealers (including
but
3
<PAGE>
not limited to Prudential Securities Incorporated) in conformity with the
policy with respect to brokerage as set forth in the Fund's Registration
Statement and prospectus (hereinafter defined) or as the Board of Directors
may direct from time to time. In providing the Liquid Assets Series with
investment supervision, it is recognized that the Manager will give primary
consideration to securing the most favorable price and efficient execution.
Consistent with this policy, the Manager may consider the financial
responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may
be a party. It is understood that prudential Securities Incorporated may be
used as principal broker for securities transactions but that no formula
has been adopted for allocation of the Series' investment transaction
business. It is also understood that it is desirable for the Liquid Assets
Series that the Manager have access to supplemental investment and market
research and security and economic analysis provided by brokers and that
such brokers may execute brokerage transactions at a higher cost to the
Series than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is
4
<PAGE>
authorized to pay higher brokerage commissions for the purchase and sale of
securities for the Liquid Assets Series to brokers who provide such
research and analysis, subject to review by the Fund's Board of Directors
from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such broker may be
useful to the Manager in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of the Liquid Assets Series as well as other
clients of the Manager or the Subadviser, the Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order
to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Liquid
Assets Series and to such other clients.
(d) The Manager shall maintain all books and records with respect to
the portfolio transactions of the Liquid Assets Series and shall render to
the Fund's Board of Director such periodic and special reports as the
5
<PAGE>
Board may reasonably request.
(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund (including those being maintained by
the Fund's Custodian) with respect to the Liquid Assets Series.
(f) The Manager shall provide the Fund's Custodian on each business
day with information relating to all transactions concerning the assets of
the Liquid Assets Series.
(g) The investment management services of the Manager to the Liquid
Assets Series under this Agreement are not to be deemed exclusive, and the
Manager shall be free to render similar services to others.
3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Articles of Incorporation of the Fund, as filed with the Secretary
of State of Maryland (such Articles of Incorporation, as in effect on the
date hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors of the Fund
authorizing the appointment of the Manager and
6
<PAGE>
approving the form of this agreement;
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-1A (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to
the Liquid Assets Series of the Fund and shares of its Common Stock and all
amendments thereto;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and
(f) Prospectus of the Liquid Assets Series (such Prospectus and
Statement of Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the "Prospectus").
4. The Manager shall authorize and permit any of its directors, officers
and employees who may be elected as directors or officers of the Fund to serve
in the capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
directors, officers or employees of the Manager.
5. The Manager shall keep the books and records required to be maintained
by it pursuant to paragraph 2 hereof. The Manager agrees that all records which
it maintains for the Liquid Assets Series of the Fund are the property of the
Fund and will surrender promptly to the Fund any such records upon the Fund's
request, provided however that the Manager may retain a copy
7
<PAGE>
of such records. The Manager further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any such records as are required to
be maintained by the Manager pursuant Paragraph 2 hereof.
6. During the term of this Agreement, the Manager assumes and will pay the
costs and expenses payable to PIC for furnishing investment advisory services to
the Liquid Assets Series pursuant to the Subadvisory Agreement.
The Liquid Assets Series assumes and will pay the expenses described below:
(a) the allocable and direct (out-of-pocket) administrative costs and
expenses incurred by the Manager that are subject to reimbursement by the
Liquid Assets Series as set forth in paragraph 8 hereof;
(b) the fees and expenses of directors who are not affiliated persons
of the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii)
preparing and maintaining the general accounting records of the Liquid
Assets Series and the providing of any such records to the Manager useful
to the Manager in connection with the Manager's responsibility for the
accounting records of the Liquid Assets Series pursuant to Section 31 of
the 1940 Act and the rules promulgated thereunder, (iii) the pricing of the
8
<PAGE>
shares of the Liquid Assets Series, including the cost of any pricing
service or services which may be retained pursuant to the authorization of
the Board of Directors of the Fund, and (iv) for both mail and wire orders,
the cashiering function in connection with the issuance and redemption of
the securities of the Liquid Assets Series,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the
maintenance of each shareholder account of the Liquid Assets Series,
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Liquid Assets Series in connection with its securities transactions,
(g) all taxes and corporate fees payable by the Fund with respect to
the Liquid Assets Series to federal, state or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of stock certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the Liquid Assets Series,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering
9
<PAGE>
and maintaining registration of the Liquid Assets Series of the Fund and of
its shares with the Securities and Exchange Commission, registering the
Fund as a broker or dealer and qualifying its shares under state securities
laws, including the preparation and printing of the registration
statements, prospectuses and statements of additional information with
respect to the Liquid Assets Series for filing under federal and state
securities laws for such purposes,
(1) expenses of shareholders' and directors meetings and of preparing,
printing and mailing reports to shareholders in the amount necessary for
distribution to the shareholders, and
(m) Litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business.
7. In the event the expenses of the Liquid Assets Series for any fiscal
year (excluding interest, taxes, brokerage commissions, 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 jurisdictions in which shares of the Liquid Assets Series are
then qualified for offer and sale, the reimbursement due the Manager will be
reduced by the amount of such excess.
10
<PAGE>
8. For the administrative services provided and the expenses assumed
pursuant to this Agreement, the Fund will reimburse the Manager for reasonable
costs and expenses of the Liquid Assets Series incurred by the Manager. The
costs and expenses subject to reimbursement include the allocable direct and
indirect costs and expenses incurred by the Manager in providing the following
facilities and services, among others, to the Liquid Assets Series: (i)
furnishing office facilities; (ii) paying the salaries and expenses of the
Fund's officers and other personnel engaged in administering the Liquid Assets
Series business; (iii) paying the costs and expenses incurred in managing the
Series portfolio; (iv) monitoring financial and shareholder accounting services
provided to the Series; (v) responding to shareholder inquiries and
disseminating information to shareholders; (vi) monitoring compliance with the
Series' registration statements and other operating documents, with federal and
state securities laws and rules thereunder and with the Internal Revenue Code of
1986, as amended; (vii) preparing semi-annual and annual reports to
shareholders; (viii) preparing filings required by the Securities and Exchange
Commission; (iv) preparing federal, state and local tax returns; (x) maintaining
the Series' registration in each of the 50 states, District of Columbia and
Puerto Rico; (xi) preparing information required by the Board of Directors for
ongoing review, approval and action and (xii) organizing meetings of the Board
of Directors and annual and special meetings of the Series' shareholders.
11
<PAGE>
This reimbursement amount will be computed daily and will be paid to the
Manager monthly. Any reduction in the amount of reimbursement payable pursuant
to paragraph 7 shall be made monthly and is subject to readjustment during the
year.
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Liquid Assets Series in connection with the matters to
which this Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
10. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated with respect to the
Liquid Assets Series by the Fund at any time, without the payment of any
penalty, by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities as defined in the 1940 Act) of the Series, or by
the Manager at any time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall terminated automatically in the event of its assignment (as defined
12
<PAGE>
in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Board of
Directors of the Fund from time to time, the Manager shall for all purposes
herein be deemed to be an independent contractor and shall have no authority to
act for or represent the Liquid Assets Series or the Fund in any way or
otherwise be deemed an agent of the Series or the Fund.
13 During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manger reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above
13
<PAGE>
mentioned materials which refer in any way to the Manager. Sales literature may
be furnished to the Manager hereunder by first-class or overnight mail,
facsimile transmission equipment or hand delivery. The Fund shall furnish or
otherwise make available to the Manager such other information relating to the
business affairs of the Fund as the Manager at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of the
Series must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y. 10292,
Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York, N.Y.
10292, Attention: President.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
17. The Fund may use the name "Prudential Institutional Liquidity
Portfolio, Inc." or any name including the work "Prudential" only for so long as
this Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the Manager's business as Manager or any extension, renewal or amendment
thereof remain in effect. at such time as
14
<PAGE>
such an agreement shall no longer be in effect, the Fund will (to the extent
that it lawfully can) cease to use such a name or any other name indicating that
it is advised by, managed by or otherwise connected with the Manager, or any
organization which shall have so succeeded to such businesses. In no event shall
the Fund use the name "Prudential Institutional Liquidity Portfolio, Inc." or
any name including the word "Prudential" if the Manager's function is
transferred or assigned to a company of which The Prudential Insurance Company
of America does not have control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
(Liquid Assets Series)
By /s/ RICHARD A. REDEKER
------------------------------------
Richard A. Redeker, President
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC.
By /s/ SUSAN C. COTE
------------------------------------
Susan C. Cote, Vice President
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Amended and Restated
Distribution Agreement
Agreement dated as of November 20, 1987, as amended and restated on July 1,
1993, April 11, 1995, and on May 29, 1997 between Prudential Institutional
Liquidity Portfolio, Inc., a Maryland corporation (the Fund), and Prudential
Securities Incorporated, a Delaware corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its shares for
sale continuously;
WHEREAS, the shares of the Fund may be divided into classes and/or series
(all such shares being referred to herein as Shares) and the Fund currently is
authorized to offer Class A and Class I Shares;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Shares from
and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Shares; and
WHEREAS, upon approval by the holders of the respective classes and/or
series of Shares of the Fund it is contemplated that the Fund will adopt a plan
(or plans) of distribution pursuant to Rule 12b-1 under the Investment Company
Act with respect to certain of its classes and/or series of Shares (the Plans)
authorizing payments by the Fund to the Distributor with respect to the
distribution of such classes and/or series of Shares and the maintenance of
related shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Shares of the Fund to sell Shares to the public on behalf of
the Fund and the Distributor
<PAGE>
hereby accepts such appointment and agrees to act hereunder. The Fund hereby
agrees during the term of this Agreement to sell Shares of the Fund through the
Distributor on the terms and conditions set forth below.
Section 2. Exclusive Nature of Duties
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Shares, except that:
2.1 The exclusive rights granted to the Distributor to sell Shares of the
Fund shall not apply to Shares of the Fund issued in connection with the merger
or consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company by
the Fund.
2.2 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to reinvestment of dividends or capital gains distributions or through
the exercise of any conversion feature or exchange privilege.
2.3 Such exclusive rights shall not apply to Shares issued by the Fund
pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean the
Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. Purchase of Shares from the Fund
3.1 The Distributor shall have the right to buy from the Fund on behalf of
investors the Shares needed, but not more than the Shares needed (except for
clerical errors in transmission) to fill unconditional orders for Shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers).
3.2 The Shares shall be sold by the Distributor on behalf of the Fund and
delivered by the Distributor or selected
2
<PAGE>
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of any or all classes
and/or series of its Shares at times when redemption is suspended pursuant to
the conditions in Section 4.3 hereof or at such other times as may be determined
by the Board of Directors. The Fund shall also have the right to suspend the
sale of any or all classes and/or series of its Shares if a banking moratorium
shall have been declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that the
Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Shares. The Fund (or its agent) will confirm
orders upon their receipt, will make appropriate book entries and upon receipt
by the Fund (or its agent) of payment therefor, will deliver deposit receipts
for such Shares pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds or federal funds. The
Distributor agrees to cause such payment and such instructions to be delivered
promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Shares by the Fund
4.1 Any of the outstanding Shares may be tendered for redemption at any
time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its Articles of Incorporation as amended from time to time, and
in accordance with the applicable provisions of the Prospectus. The price to be
paid to redeem or repurchase the Shares shall be equal to the net asset value
determined as set forth in the Prospectus. All payments by the Fund hereunder
shall be made in the manner set forth in Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Shares shall be
paid by the Fund as follows: (i) in the case of Shares subject to a contingent
deferred sales charge, any applicable contingent deferred sales charge shall be
paid to the Distributor, and the balance shall be paid to or for the account of
the redeeming shareholder, in each case in accordance with applicable provisions
of the Prospectus; and (ii) in the case of all other Shares, proceeds shall be
paid to or for the account of the redeeming shareholder, in each case in
accordance with applicable provisions of the Prospectus.
3
<PAGE>
4.3 Redemption of any class and/or series of Shares or payment may be
suspended at times when the New York Stock Exchange is closed for other than
customary weekends and holidays, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund
5.1 Subject to the possible suspension of the sale of Shares as provided
herein, the Fund agrees to sell its Shares so long as it has Shares of the
respective class and/or series available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent public accountants. The Fund
shall make available to the Distributor such number of copies of its Prospectus
and annual and interim reports as the Distributor shall reasonably request.
5.3 The Fund shall take and, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Shares as the Distributor reasonably may
expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that at the time of its
effectiveness there will be no untrue statement of a material fact in the
Registration Statement,that there will be no omission to state a material fact
in the Registration Statement required to be stated therein or necessary to make
the statements therein not misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Shares for sales under the
securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Shares in any
state from the terms set forth in its Registration Statement, to qualify as a
foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its
Shares. Any such qualification
4
<PAGE>
may be withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9 hereof, the expense of qualification and
maintenance of qualification shall be borne by the Fund. The Distributor shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.
Section 6. Duties of the Distributor
6.1 The Distributor shall devote reasonable time and effort to effect sales
of Shares, but shall not be obligated to sell any specific number of Shares.
Sales of the Shares shall be on the terms described in the Prospectus. The
Distributor may enter into like arrangements with other investment companies.
The Distributor shall compensate the selected dealers as set forth in the
Prospectus.
6.2 In selling the Shares, the Distributor shall use its best efforts in
all respects duly to conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Shares, provided that the Fund shall
approve the forms of such agreements. Within the United States, the Distributor
shall offer and sell Shares only to such selected dealers as are members in good
standing of the NASD. Shares sold to selected dealers shall be for resale by
such dealers only at the offering price determined as set forth in the
Prospectus.
Section 7. Reimbursement of the Distributor under the Plan
7.1 With respect to Class A shares, the Fund shall reimburse the
Distributor for costs incurred by it in performing its duties under the
Distribution and Service Plan and this Agreement including amounts paid on a
reimbursement basis to Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), affiliates of the
Distributor, under the selected dealer agreements between the
5
<PAGE>
Distributor and Prudential Securities and Prusec, respectively, amounts paid to
other securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and institutions and amounts
paid for personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid monthly or
at such other intervals as the Directors may determine but shall not be paid at
a rate that exceeds .12 of 1% per annum of the assets of the shares of the Fund.
Payment of the distribution and service fee shall be subject to the limitations
of Section 2830 of the NASD Conduct Rules.
7.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Directors of the commissions and account servicing
fees to be paid by the Distributor to account executives of the Distributor and
to broker-dealers and financial institutions which have dealer agreements with
the Distributor. So long as the Plan (or any amendment thereto) is in effect, at
the request of the Directors or any agent or representative of the Fund, the
Distributor shall provide such additional information as may reasonably be
requested concerning the activities of the Distributor hereunder and the costs
incurred in performing such activities.
7.3 Costs of the Distributor subject to reimbursement hereunder are costs
of performing distribution activities and may include, among other:
(a) Amounts paid to Prudential Securities in reimbursement of costs
incurred by Prudential Securities in performing services under a selected
dealer agreement between Prudential Securities and the Distributor for sale
of shares of the Fund, including sales commissions and account servicing
fees paid to, or on account of, account executives and indirect and
overhead costs associated with the performance of distribution activities,
including central office and branch expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer agreement between
Prusec and the Distributor for sale of shares of the Fund, including sales
commissions and account servicing fees paid to, or on account of, agents
and indirect and overhead costs associated with distribution activities;
(c) sales commissions and account servicing fees paid to, or on
account of, broker-dealers and financial institutions (other than
Prudential Securities and Prusec) which have entered into
6
<PAGE>
selected dealer agreements with the Distributor with respect to shares of
the Fund;
(d) amounts paid to, or on account of, account executives of
Prudential Securities, Prusec, or other broker-dealers or financial
institutions for personal services and/or the maintenance of shareholder
accounts; and
(e) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund Prospectuses, and
periodic financial reports and sales literature to persons other than
current shareholders of the Fund.
Indirect and overhead costs referred to in clause (b) of the foregoing sentence
include (i) lease expenses, (ii) salaries and benefits of personnel including
operations and sales support personnel, (iii) utility expenses, (iv)
communications expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
7.4 With respect to the Class I shares the Distributor will incur the
expenses of distributing Class I shares, none of which are reimbursed by or paid
for by the Fund.
Section 8. Allocation of Expenses
The Fund shall bear all costs and expenses of the continuous offering of
its shares (except for those costs and expenses borne by the Distributor
pursuant to a Plan and subject to the requirements of Rule 12b-1 under the
Investment Company Act), including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and all amendments and supplements thereto, and preparing
and mailing annual and periodic reports and proxy materials to shareholders
(including but not limited to the expense of setting in type any such
Registration Statements, Prospectuses, annual or periodic reports or proxy
materials). The Fund shall also bear the cost of expenses of qualification of
its shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5.4 hereof and the cost and expense payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5.4 hereof. As set forth in Section 7
above, the Fund shall also bear the expenses it assumes pursuant to any Plan, so
long as such Plan is in effect.
7
<PAGE>
Section 9. Indemnification
9.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Distributor,
its officers, directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a material fact contained in the Registration Statement
or Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus; provided,
however, that this indemnity agreement shall not inure to the benefit of any
such officer, director, trustee or controlling person unless a court of
competent jurisdiction shall determine in a final decision on the merits, that
the person to be indemnified was not liable by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations under this Agreement (disabling
conduct), or, in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnified person was not liable by
reason of disabling conduct, by (a) a vote of a majority of a quorum of
directors or trustees who are neither "interested persons" of the Fund as
defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The Fund's
agreement to indemnify the Distributor, its officers and directors or trustees
and any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors or trustees, or any such controlling person, such
notification to be given by letter or telegram addressed to the Fund at its
principal business office. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issue and sale of any Shares.
9.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
8
<PAGE>
investigating or defending against such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 10. Duration and Termination of this Agreement
10.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the applicable class and/or
series of the Fund, and (b) by the vote of a majority of those Directors who are
not parties to this Agreement or interested persons of any such parties and who
have no direct or indirect financial interest in this Agreement or in the
operation of any of the Fund's Plans or in any agreement related thereto
(Independent Directors), cast in person at a meeting called for the purpose of
voting upon such approval.
10.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Independent Directors or by vote of a majority
of the outstanding voting securities of the applicable class and/or series of
the Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
10.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
9
<PAGE>
Section 11. Amendments to this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the applicable class
and/or series of the Fund, and (b) by the vote of a majority of the Independent
Directors cast in person at a meeting called for the purpose of voting on such
amendment.
Section 12. Separate Agreement as to Classes and/or Series
The amendment or termination of this Agreement with respect to any class
and/or series shall not result in the amendment or termination of this Agreement
with respect to any other class and/or series unless explicitly so provided.
Section 13. Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Securities Incorporated
By: /s/ FRANK W. GIORDANO
---------------------------------
Frank W. Giordano
Senior Vice President
Prudential Institutional Liquidity
Portfolio, Inc.
By: /s/ RICHARD A. REDEKER
---------------------------------
Richard A. Redeker
President
10
EXHIBIT 99B.8(a)
CUSTODIAN CONTRACT
Between
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Employment of Custodian and Property to be Held by It.....................-1-
2. Duties to the Custodian with Respect to Property of The Fund Held
By the Custodian in the United States.....................................-2-
2.1 Holding Securities.................................................-2-
2.2 Delivery of Securities.............................................-2-
2.3 Registration of Securities.........................................-6-
2.4 Bank Accounts......................................................-6-
2.5 Availability of Federal Funds......................................-7-
2.6 Collection of Income...............................................-7-
2.7 Payment of Fund Monies.............................................-8-
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased..............................................-10-
2.9 Appointment of Agents.............................................-10-
2.10 Deposit of Securities in Securities Systems.......................-10-
2.10A Fund Assets Held in the Custodian's Direct Paper System...........-12-
2.11 Segregated Account................................................-14-
2.12 Ownership Certificates for Tax Purposes...........................-14-
2.13 Proxies...........................................................-15-
2.14 Communications Relating to Fund Portfolio Securities..............-15-
2.15 Reports to Fund by Independent Public Accountants.................-15-
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.............................................-16-
3.1 Appointment of Foreign Sub-Custodians.............................-16-
3.2 Assets to be Held.................................................-16-
3.3 Foreign Securities Depositories...................................-17-
3.4 Segregation of Securities.........................................-17-
3.5 Agreements with Foreign Banking Institutions......................-17-
3.6 Access of Independent Accountants of the Fund.....................-18-
3.7 Reports by Custodian..............................................-18-
3.8 Transactions in Foreign Custody Account...........................-18-
3.9 Liability of Foreign Sub-Custodians...............................-19-
3.10 Monitoring Responsibilities.......................................-20-
3.11 Branches of U.S. Banks............................................-20-
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund..-20-
-i-
<PAGE>
5. Proper Instructions.....................................................-21-
6. Actions Permitted without Express Authority.............................-22-
7. Evidence of Authority...................................................-23-
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income...........................-23-
9. Records.................................................................-24-
10. Opinion of Fund's Independent Accountant................................-24-
11. Compensation of Custodian...............................................-24-
12. Responsibility of Custodian.............................................-25-
13. Effective Period, Termination and Amendment.............................-26-
14. Successor Custodian.....................................................-27-
15. Interpretative and Additional Provisions................................-29-
16. Massachusetts Law to Apply..............................................-29-
17. Prior Contracts.........................................................-29-
-ii-
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Prudential Institutional Liquidity Portfolio, inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at One Seaport Plaza, New York, New York 10292,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporationt. The Fund agrees to deliver to the Custodian all securities and
cash owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of capital stock, $.001 par value, ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall from time to time employ one or more sub-custodians located
in the United States, but only in accordance with an applicable vote by the
Board of Directors of the Fund, and provided that the
-1-
<PAGE>
Custodian shall have no more or less responsibility or liability to the Fund on
account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodians for the Fund's securities and other assets the foreign banking
institutions and foreign securities depositories designated in Schedule "A"
hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
BY THE CUSTODIAN IN THE UNITED STATES.
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in the
United States, including all domestic securities owned by the Fund, other than
(a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book-entry
system account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
(1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
-2-
<PAGE>
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
(4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name of the
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
-3-
<PAGE>
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
(10) For delivery in connection with any loans of securities made by the
Fund, BUT ONLY against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any
loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Fund prior to the receipt of
such collateral;
(11) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Fund, BUT ONLY against receipt of
amounts borrowed;
-4-
<PAGE>
(12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
(13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the Fund's currently effective
prospectus and statement of additional information ("prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15) For any other proper corporate purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and
-5-
<PAGE>
certified by the Secretary or an Assistant Secretary, specifying the
securities to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom delivery
of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the Fund or in
the name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, UNLESS the Fund has
authorized in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
Fund, or in the name or nominee name of any agent appointed pursuant to Section
2.9 or in the name or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of the Fund under
the terms of this Contract shall be in "street name" or other good delivery
form.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; PROVIDED, however, that
every such bank or trust company shall be qualified to act as a custodian under
the Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such
-6-
<PAGE>
bank or trust company shall be approved by vote of a majority of the Board of
Directors of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper Instructions,
make federal funds available to the Fund as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of the Fund which are deposited into the Fund's account.
2.6 COLLECTION OF INCOME. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held hereunder
to which the Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and other
payments with respect to United States bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to the Fund's custodian
account. Without limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when due on
securities held hereunder. Income due the Fund on united States securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the timely delivery
to the Custodian of the income to which the Fund is properly entitled.
-7-
<PAGE>
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of the Fund in the following cases only:
(1) Upon the purchase of domestic securities options, futures contracts or
options on futures contracts for the account of the Fund but only (a)
against the delivery of such securities, or evidence of title to such
options, futures contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose) registered
in the name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer; (b)
in the case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.10 hereof; (c)
in the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.10A; or (d) in
the case of repurchase agreements entered into between the Fund and
the Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase by the Fund of securities
-8-
<PAGE>
owned by the Custodian along with written evidence of the agreement by
the Custodian to repurchase such securities from the Fund.
(2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;
(4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, BUT ONLY upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of Board of
Directors or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
-9-
<PAGE>
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In
any and every case where payment for purchase of securities for the account of
the Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to so
pay in advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by the
Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; PROVIDED, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep domestic securities of the Fund in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include
-10-
<PAGE>
any assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
(2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
(3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The Custodian
shall transfer domestic securities sold for the account of the Fund
upon (i) receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all
advices from the Securities System of transfers of domestic securities
for the account of the Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund in the form of a
written advice or notice and shall furnish promptly to the Fund copies
of daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund.
-11-
<PAGE>
(4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding domestic securities
deposited in the Securities System;
(5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 13 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that the Fund has not been made whole
for any such loss or damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
-12-
<PAGE>
(2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of the Fund;
(5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Securities System for
the account of the Fund;
(6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from
time to time;
-13-
<PAGE>
2.11 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash, government securities or liquid,
high-grade debt obligations in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, BUT ONLY, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of
-14-
<PAGE>
income or other payments with respect to domestic securities of the Fund held by
it and in connection with transfers of such securities.
2.13 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Fund or a nominee of the Fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices relating to such
securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. The Custodian
shall transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise of call
and put options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of the
domestic securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the domestic securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three business days prior to the date on which the
Custodian is to take such action.
2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with reports
by independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including domestic securities deposited
-15-
<PAGE>
and/or maintained in a Securities System, relating to the services provided by
the Custodian under this Contract; such reports shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE OF
THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Custodian is authorized and
instructed to employ as sub-custodians for the Fund's securities and other
assets maintained outside of the United States the foreign banking institutions
and foreign securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", together with a
certified resolution of the Fund's Board of Directors, the Custodian and the
Fund may agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities depositories to
act as sub-custodians. Upon receipt of Proper Instructions from the Fund the
Custodian shall cease the employment of any one or more of such sub-custodians
for maintaining custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Fund's foreign securities transactions.
-16-
<PAGE>
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the terms
hereof.
3.4 SEGREGATION OF SECURITIES. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each foreign
sub-custodian. Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a custody
account for the Custodian on behalf of the Fund and physically segregate in that
account securities and other assets of the Fund, and, in the event that such
institution deposits the Fund's securities in a foreign securities depository,
that it shall identify on its books as belonging to the Custodian, as agent for
the Fund, the securities so deposited (all collectively referred to as the
"Account").
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Exhibit I hereto and shall provide that: (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e)
-17-
<PAGE>
assets of the Fund held by the foreign sub-custodian will be subject only to the
instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a foreign sub-custodian insofar as such
books and records relate to the performance of such foreign banking institutions
under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Fund indicating, as to securities
acquired for the Fund, the identity of the entity having physical possession of
such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT
(a) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall make or
cause its foreign sub-custodian to transfer, exchange or deliver foreign
securities owned by the Fund, but except to the extent explicitly provided
herein only in any of the cases specified in section 2.2.
(b) Upon receipt of Proper instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian shall pay out
or cause its foreign sub-
-18-
<PAGE>
custodians to pay out monies of the Fund, but except to
the extent explicitly provided herein only in any of the cases specified in
Section 2.7.
(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(d) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, the Custodian and Fund from and
against any loss, damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.
-19-
<PAGE>
3.10 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or is notified by a foreign
banking institution employed as a foreign sub-custodian that there appears to be
a substantial likelihood that its shareholders equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.11 BRANCHES OF U.S. BANKS. Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the Fund
assets maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a)(5) of the Investment Company Act of 1940 which meets
the qualification set forth in Section 26(a) of said Act. The appointment of any
such branch as a sub-custodian shall be governed by Article 1 of this Contract.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with
-20-
<PAGE>
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS.
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the officers of the Fund shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of Directors has authorized (i) The
Prudential Insurance Company of America ("Prudential"), as investment adviser of
the Fund pursuant to an Investment Advisory Agreement dated November 20, 1987,
between Prudential and the Fund, to deliver proper instructions with respect to
all matters for which proper instructions are required by Article 2 or Article 3
except Section 2.2 (13), Section 2.2 (14), Section 2.7 (3), Section 2.7 (4),
Section 2.7 (5), and Section 2.7 (7) hereof and (ii) Prudential Mutual Fund
management, Inc. (PMF) as administrator of the Fund pursuant to an
Administration Agreement dated November 20, 1987,
-21-
<PAGE>
between PMF and the Fund, to deliver proper instructions with respect to matters
set forth in Section 2.2 (13), Section 2.7 (3), Section 2.7 (4) and Section 2.7
(5). The Custodian may rely upon the certificate of an officer of Prudential or
PMF, as the case may be, with respect to the person or persons authorized on
behalf of Prudential or PMF, respectively, to sign, initial or give proper
instructions for the purposes of Article 2 or Article 3. Upon receipt of a
certificate of the Secretary of an Assistant Secretary as to the authoriztion by
the Board of Directord of the Fund accompanied by a detailed description of
procedures approved by the board of directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Fund's assets.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion, without express authority from the
Fund:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to the
Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as otherwise
directed by the Board of Directors of the Fund.
-22-
<PAGE>
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an office of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
-23-
<PAGE>
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other periodic
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.
-24-
<PAGE>
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody or any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
-25-
<PAGE>
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or wilful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of such
Securities System, as required
-26-
<PAGE>
in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not act under Section 2.10A hereof in the absence
of receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Directors has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of the
Direct Paper System; PROVIDED FURTHER, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Articles of Incorporation, and further,
provided, that the Fund may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
-27-
<PAGE>
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
-28-
<PAGE>
15. INTERPRETATIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretative or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretative or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
-29-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 20th day of November, 1987.
ATTEST PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
/S/ ANITA L JENNINGS
- --------------------- By /S/ M. J. DOWNEY
--------------------
ATTEST
STATE STREET BANK AND TRUST COMPANY
/S/ J. FARRELL
- -------------------------
Assistant Secretary
By /S/ P.A. NOONAN
-----------------------
Vice President
-30-
EXHIBIT 1
CUSTODIAN AGREEMENT
To:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the Bank)
establish a custody account and a cash account for each custodian/employee
benefit plan identified in the Schedule attached to this Agreement and each
additional account which is identified to this Agreement. Each such custody or
cash account as applicable will be referred to herein as the "Account" will be
subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares
bonds, debentures, notes and other securities and other property which
is delivered to the Bank for that State Street Account (the
"Property").
2. a. Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing
agency, incorporated or organized under the laws of a country
other than the United States, unless such depository or clearing
house operates the central system for handling of securities or
equivalent book-entries in that country or operates a
transnational system for the central handling of securities or
equivalent book-entries;
b. When securities held for an Account are deposited in a securities
depository or clearing agency by the Bank, the Bank shall
identify on its books as belonging to State Street as agent for
such Account, the securities so deposited.
3. The Bank represents that either:
a. It currently has stockholders' equity in excess of $200 million
(U.S. dollars or the equivalent of U.S. dollars computed in
accordance with generally accepted U.S. accounting principles)
and will promptly inform State Street in the event that there
appears to be a substantial likelihood that its stockholders'
equity will decline below $200 million, or in the event, at such
time as its stockholders' equity in fact declines below $200
million; or
b. It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order
permits State Street to employ the Bank as a subcustodian,
notwithstanding the fact that the Bank's stockholders' equity is
currently below $200 million or may in the future decline below
$200 million due to currency fluctuation.
<PAGE>
4. Upon the written instructions of State Street, as permitted by
Paragraph 8, the Bank is authorized to pay cash from the Account and
to sell, assign, transfer, deliver or exchange, or to purchase for the
Account, any and all stocks, shares, bonds, debentures, notes and
other securities ("Securities"), bullion, coin and other property, but
only as provided in such written instruction. The bank shall not be
held liable for any act or omission to act ?? instructions given on
purported to be given should there be any in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the
Account;
b. To promptly exchange securities where the exchange is pur???
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the securities themselves);
c. To promptly surrender securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fracti??
interest resulting from a rights issue, stock dividend or split
is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the ??
endeavor to obtain State Street Bank's instructions, ???????
these not be received in time for the Bank to take timely action,
the Bank is authorized to sell such rights entitl??? or
fractional interest and to credit the Account;
e. To hold registered in the name of the nominee of the Bank ??? its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the
Bank deems it appropriate, such ownership and other certificates
as may be required to obtain the payment of income from the
Property; and
g. To pay or cause to be paid, from the Account any and all taxes
and levies in the nature of taxes imposed on such assets by any
governmental authority and shall use reasonable efforts, to
promptly reclaim any foreign withholding tax relating to the
Account.
6. If the Bank shall receive any proxies, notices, reports or other
communications relative to any of the Securities of the Account in
connection with tender offers, reorganization, mergers,
consolidations, or similar events which may have an impact upon
issuer thereof, the Bank shall promptly transmit any such
communication to State Street Bank by means as will permit State
Street Bank to take timely action with respect thereto.
<PAGE>
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the
Property provided that any such appointment shall not relieve the Bank
of any of its responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street; (ii)
telex or tested telex instructions of State Street; (iii) other forms
of instruction in computer readable form as shall be customarily
utilized for the transmission of like information; and (iv) such other
forms of communication as from time to time shall be agreed upon by
State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this agreement. The content of such reports
shall include but not be limited to any transfer to or from any
account held by the Bank hereunder and such other information as State
Street may reasonably request.
10. In addition to its obligations under Section 23 hereof, the Bank shall
maintain such other records as may be necessary to identify the assets
hereunder as belonging to each custodian/employee benefit plan
identified in our Schedule attached to this agreement and each
additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises
inspection and audit at reasonable times by officers of, auditors
employed by or other representatives of State Street (including to the
extent permitted under law) the independent public accountants
for any entity whose Property is being held hereunder and shall be
retained for such period as shall be agreed by State Street and the
Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from
time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties, as are set forth or contemplated herein or contained in
instructions given to the Bank which are not contrary to this
Agreement, shall maintain adequate insurance and agrees to indemnify
and hold harmless, State Street and each Account from and against
loss, damage, cost, expense, liability or claim arising out of or in
connection with the Bank's performance of its obligations hereunder.
14. The bank agrees (i) the property held hereunder is not subject to any
right, charge, security interest, lien or claim of any kind in favor
of the Bank or any of its agents or its creditors except a claim or
payment for their safe custody and administration and (ii) the
beneficial ownership of the property shall be freely transferable
without the payment of money or other value other than for safe
custody or administration.
15. The bank agrees to meet State Street Operating Requirements (See
Exhibit A).
<PAGE>
16. This Agreement may be terminated by the Bank or State Street by 60
days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement ???????? pursuant to
notice which has been given in a timely fashion, ??????? deliver
the Property to the beneficial owner unless the Bank ????????
received from the beneficial owner 60 days' prior to the date on which
this Agreement is to be terminated written instructions of State
Street specifying the name(s) of the person(s) to whom the Property
shall be delivered.
17. The Bank and State Street shall each use its best efforts to
???????? the confidentiality of the Property in each Account,
subject, however, to the provisions of any laws requiring the
disclosure of the Property.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given
when received in writing or by confirmed telex by the Bank or State
Street at their respective addresses set forth below or at such other
address as be specified in each case in a notice similarly given:
To State Street Master Trust Division, Global Cust???
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Bank
19. This Agreement shall be governed by and construed in accordance with
the laws of except to the extent that such laws are
preempted by the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
----------------------------------------
Vice President
Date:
--------------------------------------
Agreed to by:
By: /s/ M. J. DOWNEY
----------------------
Date: 12/1/87
--------------------
0043k/4
<PAGE>
PRUDENTIAL MUTUAL FUNDS(1)
State Street
Global Custody Network
----------------------
SECURITIES DEPOSITORY
OR
COUNTRY BANK CLEARING AGENCY
- ------- ---- ---------------
Luxembourg -- Cedel
Transnational -- The Euroclear System
Cedel
United Kingdom State Street Bank and The Bank of England,
Trust Company, London The Central Gilts Office
branch, and State Street (CGO); The Central London
Limited, a subsidiary Moneymarkets Office (CMO)
of State Street Bank
and Trust Company
- ----------
(1) This schedule applies to money market funds and to the following
non-money market funds:
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential High Yield Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
SUBCUSTODIAN AGREEMENT
between
STATE STREET BANK AND TRUST COMPANY
and
SECURITY PACIFIC NATIONAL COMPANY
<PAGE>
SUBCUSTODIAN AGREEMENT
AGREEMENT dated as of December 19, 1988, between State Street Bank and
Trust Company organized under the laws of the Commonwealth of Massachusetts (the
"Custodian"), and Security Pacific National Bank (the "Subcustodian").
WITNESSETH:
WHEREAS, the Custodian has entered into a custodian agreement dated
November 20, 1987 with Prudential Institutional Liquidity Portfolio (the
"Fund"), an open-end management investment company, comprised of four separate
series, Institutional Domestic Liquid Assets Series, Institutional Government
Series, Institutional Money Market Series, Institutional Tax-Exempt Series
("Series") whose shares are registered pursuant to the Investment Company Act of
1940;
WHEREAS, the Custodian desires to utilize Subcustodian for the purpose
of holding cash and short term securities ("Securities") of the Fund;
WHEREAS, the Subcustodian is a bank within the meaning of Section
2(a)(5) of the Investment Company Act of 1940 having an aggregate capital
surplus and undivided profits of not less than two million ($2,00O,00O);
NOW THEREFORE, the Custodian and Subcustodian hereby agree as follows:
I. The Custodian may from time to time deposit Securities or cash with the
Subcustodian. The Subcustodian shall not be responsible for any property of the
Fund not delivered to the Subcustodian.
<PAGE>
II. The Subcustodian shall hold and dispose of the Securities hereafter held by
or deposited with the Subcustodian as follows:
A. 1) The Subcustodian shall hold in a separate account, and physically
segregated at all times from those of any other persons, firms, corporations, or
other series, pursuant to the provisions hereof, all Securities received by it
for the account of the Custodian as custodian with respect to such Series. All
such Securities are to be held or disposed of by the Subcustodian for and
subject at all times to, the instructions of the Custodian pursuant to the terms
of this Agreement.
B. Upon receipt of instructions from the Custodian, the Subcustodian
shall release or deliver Securities owned by a Series only for the following
purposes:
(1) upon sale of Securities for the account of such Series against
receipt of payment therefor in Federal funds or;
(2) to the issuer thereof or its agent when Securities are called,
redeemed, retired or otherwise become payable, provided that payment as
aforesaid is to be delivered to the Subcustodian;
(3) for exchange for a different number of bonds or certificates
representing the same aggregate face amount or number of units, for exchange or
conversion pursuant to any plan of merger, consolidation, recapitalization,
reorganization or readjustment of the Securities of the issuer of such
Securities, or pursuant to provisions for conversion contained in such
-2-
<PAGE>
Securities, or pursuant to any deposit agreement; provided that, in any such
case, the new Securities and cash, if any, are to be delivered to the
Subcustodian;
(4) in the case of warrants, rights or similar Securities the
surrender thereof in the exercise of such warrants, rights or similar
Securities; provided that the surrender of interim receipts or temporary
Securities for definitive Securities may be made at any time; provided that, in
any such case, the new Securities are to be delivered to the Subcustodian;
(5) in the case of tender offers or similar offers to purchase
received in writing, the delivery of Securities to the designated depository or
other receipt agent. The Subcustodian shall have full responsibility for
transmitting to the Custodian any such offers received by it. Thereafter, the
Custodian, if it desires to respond to such offer, shall have full
responsibility for providing the Subcustodian with all necessary instructions in
timely enough fashion for the Subcustodian to act thereon prior to any
expiration time for such offer;
(6) upon receipt from the Custodian of instructions directing
disposition of Securities in a manner other than or for purposes other than the
manners and purposes enumerated in the foregoing five items; provided, however,
the disposition pursuant to this item (6) shall be made by the Subcustodian only
upon receipt of instructions from the Custodian specifying the amount of such
Securities to be delivered, the purpose for which
-3-
<PAGE>
the delivery is to be made, and the name of the person or persons to whom such
delivery is to be made.
III. The Subcustodian shall hold and dispose of cash held by or deposited with
the Subcustodian as follows:
A. The Subcustodian shall open and maintain a separate account or
accounts for each Series in the name of the Custodian as custodian with respect
to such series, subject only to draft or order by the Subcustodian acting
pursuant to the terms of this Agreement. The Subcustodian shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
for the account of the Custodian as custodian for such Series.
B. Upon receipt of instructions from the Custodian, the Subcustodian
shall make payments of cash for the account of a Series from such cash only for
the following purposes:
(1) upon the purchase of Securities for the account of such Series
but only against the delivery of such Securities to the Subcustodian.
(2) in connection with the subscription, conversion, exchange,
tender or surrender of Securities owned by such Series as set forth in Paragraph
II.B hereof; and
(3) for deposit with the Custodian or with such other banking
institutions as may from time to time be approved by the Fund. All deposits will
be effected by the transfer of Federal Reserve funds to the Custodian or such
other banks.
IV. All instructions shall be in writing executed by the Custodian, and the
Subcustodian shall not be required to act on
-4-
<PAGE>
instructions otherwise communicated; provided, however, that the Subcustodian
may in its discretion act on the basis of instructions received from the
Custodian via telecommunications facilities. The Subcustodian may require that
instructions received via telecommunications facilities be authenticated. The
Subcustodian may receive and accept a certificate signed by the Assistant
Secretary of the Custodian as conclusive evidence of the authority of any person
to act on behalf of the Custodian, and such certificate may be considered as in
full force and effect until receipt by the Subcustodian or written notice the
contrary.
V. Unless and until the Subcustodian receives instructions from the Custodian to
the contrary, the Subcustodian shall:
A. Present for payment all coupons and other income items held by it for
the account of the Custodian as custodian for the Fund which call for payment
upon presentation and hold the cash received by it upon such payment for the
account of the Custodian as custodian for the Fund;
B. Collect interest and cash dividends received, with notice to the
Custodian, for the account of the Custodian as custodian for the Fund;
C. Hold for the account of the Custodian as custodian for the Fund
hereunder all stock dividends, rights and similar Securities issued with respect
to any Securities held by it hereunder.
VI. The Subcustodian shall execute on behalf of the Custodian, in the Fund's
name, any declarations, affidavits, or
-5-
<PAGE>
certificates of ownership which may be necessary or useful from time to time for
the Subcustodian to perform any or several of its obligations arising under the
provisions of this Agreement.
VII. If the Subcustodian shall receive any notices or reports in respect of
Securities held by it hereunder, it shall promptly upon receipt thereof transmit
to the Custodian by airmail, telecommunications facilities, or comparable means
any such notices or reports.
VIII. On each day on which there is a cash or Securities transaction for the
account of the Custodian as custodian for the Fund, the Subcustodian shall
dispatch to the Custodian separate cash and Securities advices (each designating
the affected Series). The Subcustodian shall furnish to the Custodian at the end
of every month a statement of the cash and Securities held by the Subcustodian
and any agent for the Custodian as custodian for the Fund. Such statements shall
be broken down by Series and shall be sent by airmail, telecommunications
facilities or comparable means to the Custodian within 15 days after the end of
each month. The Subcustodian shall furnish the Custodian with such additional
statements as the Custodian may reasonably request.
IX. As compensation for the services rendered pursuant to this Agreement, the
Custodian shall pay the Subcustodian a fee computed in accordance with the
schedule attached hereto as Exhibit A, as such schedule may be amended from time
to time by written agreement between the Custodian and Subcustodian.
-6-
<PAGE>
X. Upon request, the Custodian shall deliver, or shall request the Fund to
deliver, to the Subcustodian, such proxies, powers-of-attorney or other
instruments as may be necessary or desirable in connection with the performance
by the Subcustodian of its obligations under this Agreement.
XI. So long as and to the extent that it is in the exercise of reasonable care,
the Subcustodian shall not be responsible for the title, validity or genuineness
of any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement. The Subcustodian shall not be liable for any action
taken or omitted in good faith upon any notice, request, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties. The Subcustodian shall be obligated to exercise
reasonable care and diligence in carrying out the provisions of this Agreement
and shall indemnify and hold harmless the Custodian from any loss, claim,
expense (including counsel fees) or liability for its actions but shall be
without liability for any action taken or thing done by it in good faith and
without negligence. The Subcustodian shall be entitled to and may act upon
advice of counsel (who may be counsel for the Company) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant to such
advice.
XII. This Agreement may be terminated at any time by the Custodian or the
Subcustodian by giving written notice to the other party at least thirty (30)
days prior to the date on which such termination is to become effective. In the
event of
-7-
<PAGE>
termination, the Subcustodian will deliver any Securities held by it or any
agent to the Custodian or to such successor subcustodian as the Custodian shall
instruct in a manner to be mutually agreed upon by the parties hereto or, in the
absence of such agreement, in a reasonable manner. Further in the event of
termination, the Subcustodian shall be entitled to receive prior to the delivery
of the Securities held by it or any agent all accrued fees and unreimbursed
expenses the payment of which is contemplated by Paragraph IX hereof upon
receipt by the Custodian of a final statement setting forth such fees and
expenses.
XIII. Except as the parties shall from time to time otherwise agree, all
instructions, notices, reports and other communications contemplated by this
Agreement shall be dispatched as follows:
If to the Custodian: State Street Bank and Trust Company
Mutual Funds Division
P.O. Box 1713
Boston, MA 02105
Attention:
Telex Number:
If to the Subcustodian: Security Pacific National Bank
299 N. Euclid Avenue
Pasadena, California 91101
Attn: Tess Palacio
XIV. This Agreement constitutes the entire understanding and agreement of the
parties hereto, and neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated except by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
-8-
<PAGE>
XV. This Agreement shall be binding upon and shall inure to the benefit of the
Custodian and the Subcustodian and their successors and assignees provided that
neither the Custodian nor the Subcustodian may assign this Agreement or any of
the rights or obligations hereunder without the prior written consent of the
other party.
XVI. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
XVII. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. This Agreement shall become effective when one or more counterparts
have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
STATE STREET BANK AND TRUST COMPANY
(the "Custodian)
/s/ [Illegible]
--------------------------------
Vice President
SECURITY PACIFIC NATIONAL BANK
(the "Subcustodian)
/s/ Gerald M. Sheridan
--------------------------------
-9-
SUBCUSTODIAN AGREEMENT
FOR REPURCHASE TRANSACTIONS
between
STATE STREET BANK AND TRUST COMPANY
and
SECURITY PACIFIC NATIONAL BANK
<PAGE>
SUBCUSTODIAN AGREEMENT
FOR REPURCHASE TRANSACTIONS
AGREEMENT dated as of April 14, 1988, between State Street Bank and Trust
Company, organized under the laws of the Commonwealth of Massachusetts (the
"Custodian"), and Security Pacific National Bank (the "Subcustodian").
WITNESSETH:
WHEREAS, the Custodian has entered into a custodian agreement dated
November 20, 1987 with Prudential Institutional Liquidity Portfolio, Inc.
("Company"), an open-end management investment company, comprised of four
separate series, Institutional Domestic Liquid Assets Series, Institutional
Government Series, Institutional Money Market Series, and Institutional
Tax-Exempt Series ("the Series") whose shares are registered pursuant to the
Investment Company Act of 1940;
WHEREAS, the Custodian desires to utilize Subcustodian for the purpose of
holding cash and government securities in separate accounts for each series
(said government securities being hereinafter referred to as "Securities") of
the Company for the purpose of effecting Repurchase transactions;
WHEREAS, the Subcustodian is a bank within the meaning of Section 2(a) (5)
of the Investment Company Act of 1940 having an aggregate capital, surplus and
undivided profits of not less than two million dollars ($2,OOO,OOO);
NOW THEREFORE, the Custodian and Subcustodian hereby agree as follows:
<PAGE>
I. The Custodian may from time to time deposit or direct or cause the
deposit of Securities or cash with the Subcustodian. The Subcustodian shall not
be responsible for any property of the Company not delivered to the
Subcustodian.
II. For each Series the Subcustodian shall hold in a separate account and
physically segregated at all times from those of any other persons, firms or
corporations pursuant to the provisions hereof, all Securities received by it
and all agreements received by it which evidence an interest in such Securities
owned by each series of the Company. All Securities are to be held or disposed
of by the Subcustodian for, and subject at all times to, the instructions of the
Custodian pursuant to the terms of this Agreement.
III. The Subcustodian may deposit and/or maintain securities owned by each
Series of the Company in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board rules and
regulations, if any, and subject to the following provisions:
(1) The Subcustodian may keep securities of each Series of the
Company in the Securities System provided that such securities are
represented in an account ("Account") of the Subcustodian in the
Securities System which shall not include any assets of the Subcustodian
other than assets held as a fiduciary, custodian or otherwise for
customers;
-2-
<PAGE>
(2) The records of the Subcustodian with respect to securities of
each Series of the Company which are maintained in a Securities System
shall identify by book-entry those securities belonging to each Series of
the Company;
(3) The Subcustodian shall pay for securities purchased for the
account of each Series of the Company upon (i) receipt of advice from the
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Subcustodian to reflect such payment and transfer for the account of each
Series of the Company. The Subcustodian shall transfer securities sold for
the account of each Series of the Company upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records
of the Subcustodian to reflect such transfer and payment for the account
of each Series of the Company. Copies of all advices from the Securities
System of transfers of securities for the account of each Series of the
Company shall identify the Series, be maintained for each Series of the
Company by the Subcustodian and be provided to the Custodian at its
request. Upon request, the Subcustodian shall furnish the Custodian
confirmation of each transfer to or from the account of each Series of the
Company in the form of a written advice of notice and shall furnish to the
Custodian copies of daily transaction
-3-
<PAGE>
sheets reflecting each day's transactions in the Securities System for the
account of each Series of the Company.
(4) The Subcustodian shall provide the Custodian with any report
obtained by the Subcustodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System:
(5) Anything to the contrary in this Agreement notwithstanding, the
Subcustodian shall be liable to the Custodian for any loss or damage to
the Company's securities resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the Subcustodian or
any of its agents or of any of its or their employees or from failure of
the Subcustodian or any such agent to enforce effectively such rights as
it may have against the Securities System; at the election of the
Custodian, it shall be entitled to be subrogated to the rights of the
Subcustodian with respect to any claim against the Securities System or
any other person which the Subcustodian may have as a consequence of any
such loss or damage if and to the extent that the Custodian has not been
made whole for any such loss or damage.
IV. Upon receipt of instructions from the Custodian, the Subcustodian
shall release or deliver Securities owned by a Series of the Company for the
purposes of sale, redemption, retirement, substitution, or as otherwise becoming
payable or for exchange or conversion as follows:
-4-
<PAGE>
(1) Upon sale of Securities for the account of a Series of the
Company against receipt of payment therefor by cash, or bank credit;
(2) To the issuer thereof or its agent when such Securities are
called, redeemed, retired or otherwise become payable, provided that the
cash is to be delivered to the Subcustodian;
(3) In substitution for different Government Securities representing
Securities;
(4) Upon receipt from the Custodian of instructions directing
disposition of Securities in a manner other than or for purposes other
than the manners and purposes enumerated in the foregoing three items;
provided, however, that disposition pursuant to this item (4) shall be
made by the Subcustodian only upon receipt of instructions from the
Custodian specifying the amount of such Securities to be delivered, the
purpose for which the delivery is to be made, and the name of the person
or persons to whom such delivery is to be made.
V. The Subcustodian shall hold and dispose of cash hereafter held by or
deposited with the Subcustodian as follows:
A. The Subcustodian shall open and maintain a separate account or accounts
in the name of the Custodian as custodian for each Series of the Company,
subject only to draft or order by the Subcustodian acting pursuant to the terms
of this Agreement. The Subcustodian shall hold in such account or accounts,
subject to the provisions hereof, all cash received by
-5-
<PAGE>
it for the account of the Custodian as custodian for each Series of the Company.
B. Upon receipt of instructions from the Custodian, the Subcustodian shall
make payments of cash for the account of a Series of the Company from such cash
only for the following purposes:
(1) Upon the purchase of Securities for the account of a Series of
the Company but only against the delivery of such Securities to be held as
provided in Paragraph II hereof;
(2) In connection with the subscription, conversion, exchange,
substitution, tender or surrender of Securities owned by a Series of the
Company as set forth in Paragraph IV hereof; and
(3) For deposit with the Custodian or with such other banking
institutions as the Custodian may direct. All deposits will be effected by
the transfer of Federal Reserve funds to the Custodian or such other
banks.
VI. All instructions shall be in writing executed by the Custodian, and
the Subcustodian shall not be required to act on instructions otherwise
communicated; provided, however, that the Subcustodian may in its discretion act
on the basis of oral instructions or instructions received via
telecommunications facilities if the Subcustodian reasonably believes such
instructions to have been dispatched by the Custodian. All such oral
instructions shall be confirmed in writing. The Subcustodian may require that
instructions received via
-6-
<PAGE>
telecommunications facilities be authenticated. The Subcustodian shall be
protected in acting upon any instructions, notice, request, consent, certificate
or other instrument or paper reasonably believed by it to be genuine and to have
been properly executed. The Subcustodian may receive and accept a certificate
signed by a Vice President or an Assistant Vice President of the Custodian as
conclusive evidence of the authority of any person to act on behalf of the
Custodian, and such certificate may be considered as in full force and effect
until receipt by the Subcustodian of written notice to the contrary.
VII. Unless and until the Subcustodian receives instructions from the
Custodian to the contrary, the Subcustodian shall:
A. Present for payment all coupons and other income items held by it for
the account of the Custodian as custodian for each Series of the Company which
call for payment upon presentation and hold the cash received by it upon such
payment for the account of the Custodian as custodian for each Series of the
Company;
B. Collect interest received, with notice to the Custodian, for the
account of the Custodian as custodian for each Series of the Company;
VIII. On each day on which there is a cash or Securities transaction for
the account of the Custodian as custodian for each Series of the Company, the
Subcustodian shall dispatch to the Custodian (and to the appropriate Series of
the Company if
-7-
<PAGE>
requested) cash and Securities advices. The Subcustodian shall furnish to the
Custodian at the end of every month a statement of the cash and Securities held
by the Subcustodian and any agent for the Custodian as custodian for each Series
of the Company. Such statements shall be sent by U.S. mail, to the Custodian
within 15 days after the end of each month. The Subcustodian shall furnish the
Custodian with such additional statements as the Custodian may reasonably
request.
IX. As compensation for the services under this Agreement, the Custodian
shall pay the Subcustodian such fees as may be agreed upon from time to time.
X. So long as and to the extent that it is in the exercise of reasonable
care, the Subcustodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement. The Subcustodian shall not be liable
for any action taken or omitted in good faith upon any notice, request,
certificate or other instrument reasonably believed by it to be genuine and to
be signed by the proper party or parties. The Subcustodian shall be obligated to
exercise reasonable care and diligence in carrying out the provisions of this
Agreement and shall indemnify and hold harmless the Custodian from any loss,
claim, expense (including counsel fees) or liability for its actions but shall
be without liability for any action taken or thing done by it in good faith and
without negligence. The Subcustodian shall be entitled to and may act upon
advice of counsel (who may be counsel for the
-8-
<PAGE>
Company) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
XI. This Agreement may be terminated at any time by the Custodian or the
Subcustodian by giving written notice to the other party at least thirty (30)
days prior to the date on which such termination is to become effective. In the
event of termination, the Subcustodian will deliver any Securities held by it
pursuant to Paragraph II hereof and cash held by it or any agent to the
Custodian or to such successor subcustodian as the Custodian shall instruct in a
manner to be mutually agreed upon by the parties hereto.
XII. Except as the parties shall from time to time otherwise agree, all
instructions, notices, reports and other communications contemplated by this
Agreement shall be dispatched as follows:
If to the Custodian: State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: John Henrich
Telex Number: 940956 St St BK2QNCY
If to the Subcustodian: Security Pacific National Bank
299 N. Euclid Avenue
Pasadena, California 91101
Attn: Tess Palacio
XIII. This Agreement constitutes the entire understanding and agreement of
the parties hereto, and neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated except by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought. This Agreement shall be binding upon and
-9-
<PAGE>
shall inure to the benefit of the Custodian and the Subcustodian and their
successors and assignees provided that neither the Custodian nor the
Subcustodian may assign this Agreement or any of the rights or obligations
hereunder without the prior written consent of the other party. This Agreement
shall be construed in accordance with and governed by the laws of the State of
New York.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
STATE STREET BANK AND TRUST COMPANY
(the "Custodian")
/s/ [ILLEGIBLE]
--------------------------------------
Vice President
SECURITY PACIFIC NATIONAL BANK
(the "Subcustodian")
/s/ Gerald M. Sheridan
--------------------------------------
Vice President
-10-
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO,INC.
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent.................... 1
Article 2 Fees and Expenses............................................ 5
Article 3 Representations and Warranties of the Agent.................. 5
Article 4 Representations of Warranties of the Fund.................... 5
Article 5 Duty of Care and Indemnification............................. 7
Article 6 Documents and Covenants of the Fund and the Agent............ 10
Article 7 Termination of Agreement..................................... 12
Article 8 Assignment................................................... 12
Article 9 Affiliations................................................. 13
Article 10 Amendment.................................................... 14
Article 11 Applicable Law............................................... 14
Article 12 Miscellaneous................................................ 14
Article 13 Merger of Agreement.......................................... 15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 20th day of November, 1987 by and between
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC., a Maryland corporation,
having its principal office and place of business at One Seaport Plaza, New
York, New York 10292 (the "Fund"), and PRUDENTIAL MUTUAL FUND SERVICES, INC., a
New Jersey corporation, having its principal office and place of business at
Raritan Plaza I, Edison, New Jersey 08818 (the "Agent" or "PMFS").
WHEREAS, the Fund desires to appoint PMFS as its transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as, the
transfer agent for the authorized and issued shares of the common stock of each
series of the Fund, $.001 par value ("Shares"), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Fund or any series thereof
("Shareholders") and set out in the currently effective prospectus and statement
of additional
1
<PAGE>
information ("prospectus") of the Fund, including without limitation any
periodic investment plan or periodic withdrawal program.
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefor to the Custodian of the
Fund authorized pursuant to the Articles of Incorporation of the Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions declared
by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases or
redemptions of Shares of the Fund as such charges may
2
<PAGE>
be reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act") a record
of the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding and shall notify the Fund in case any proposed issue of
Shares by the Fund would result in an overissue. In case any issue of Shares
would result in an overissue, PMFS shall refuse to issue such Shares and shall
not countersign and issue any certificates requested for such Shares. When
recording the issuance of Shares, PMFS shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing
3
<PAGE>
proxies, receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total number of Shares sold
in each State or other jurisdiction.
(c) In addition, the Fund shall (i) identify to PMFS in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of PMFS for the Fund's registration status under the
Blue Sky or securities laws of any State or other jurisdiction is solely limited
to the initial establishment of transactions subject to Blue Sky compliance by
the Fund and the reporting of such transactions to the Fund as provided above
and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
4
<PAGE>
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and PMFS.
Article 2 FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund agrees to
pay PMFS an annual maintenance fee for each Shareholder account and certain
transactional fees as set out in the fee schedule attached hereto as Schedule A.
Such fees and out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund agrees
to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS for
the items set out in Schedule A attached hereto. In addition, any other expenses
incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to PMFS by the Fund upon
request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing
5
<PAGE>
and in good standing under the laws of New Jersey and it is duly qualified to
carry on its business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and Exchange
Commission (SEC) as a Transfer Agent pursuant to the requirements of Section 17A
of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.05 A registration statement under the Securities Act
6
<PAGE>
of 1933 (the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall indemnify and
hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the
7
<PAGE>
Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities or Blue Sky laws of any
State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by PMFS as a result of PMFS' lack of good faith, negligence or willful
misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information,
8
<PAGE>
data, records or documents provided to PMFS or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. PMFS, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.06 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who
9
<PAGE>
may be required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto;
(c) The current registration statements and any amendments and supplements
thereto filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary of the
Fund as to such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems to be
appropriate or necessary for the proper
10
<PAGE>
performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other person except
as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized
11
<PAGE>
officer of the Fund as to such inspection. PMFS reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
Article 8 ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any person or entity including but not limited to: (i)
Prudential- Bache Securities Inc. ("Prudential-Bache"), a registered
broker-dealer, (ii) The Prudential Insurance Company of America
12
<PAGE>
("Prudential"), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential-Bache or Prudential subsidiary or affiliate duly registered
as a broker-dealer and/or a transfer agent pursuant to the 1934 Act or (vi) any
other Prudential-Bache or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
Article 9 AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential-Bache
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers, employees,
agents and Shareholders of the Fund, and the directors, officers, employees,
agents and shareholders of the Fund's investment adviser and/or distributor, are
or may be interested in the Agent as directors, officers, employees, agents,
shareholders or otherwise, and that the directors, officers, employees, agents
or shareholders of the Agent may be interested in the Fund as directors,
officers, employees, agents, Shareholders or otherwise, or in the investment
adviser and/or distributor as
13
<PAGE>
officers, directors, employees, agents, shareholders or otherwise.
Article 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 11 APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12 MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less.
12.02 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, PMFS will (a) give prompt notification to the Fund's distributor
("Distributor") of such
14
<PAGE>
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as PMFS may, in its sole discretion, deem
appropriate or as the Fund and the Distributor may instruct PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Prudential Institutional Liquidity Portfolio, Inc.
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza I
Edison, NJ 08818
Attention: President
Article 13 MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
By: /s/ M.J. DOWNEY
-----------------------------------
ATTEST:
/s/ S. JANE ROSE
- ------------------------------
PRUDENTIAL MUTUAL FUND
SERVICES, INC.
By: /s/ FRED A. FIANDACA
-----------------------------------
ATTEST:
/s/ PG BERMAN
- ------------------------------
16
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
GENERAL -- Fees are based on a monthly charge for account maintenance. The
effective period of this fee schedule is November 20, 1987 to December 3, 1987
and shall continue thereafter from year to year, unless otherwise amended.
Monthly Fee $20,000
PAYMENT -- An invoice will be presented to the Fund on a monthly basis.
PRUDENTIAL INSTITUTIONAL PRUDENTIAL MUTUAL FUND
LIQUIDITY PORTFOLIO, INC. SERVICES, INC.
NAME: /s/ S. COTE NAME: /s/ FRED A. FIANDACA
- -------------------------------- ---------------------------------
TITLE: TREASURER TITLE: PRESIDENT
DATE: NOVEMBER 20, 1987 DATE: NOVEMBER 20, 1987
<PAGE>
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors, including a majority of the independent
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Investments Fund Management
LLC, the Fund's Manager, will be responsible for reporting any potential or
existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: May 29, 1997
GARDNER, CARTON & DOUGLAS
SUITE 3400-QUAKER TOWER WASHINGTON, D.C.
321 NORTH CLARK STREET LIBERTYVILLE, ILLINOIS
WRITER'S DIRECT DIAL NUMBER CHICAGO, ILLINOIS 60610-4795 DENVER, COLORADO
(312) 644-3000 DALLAS, TEXAS
TELEX: 25-3628
TELECOPIER: (312) 245-8680
November 4, 1987
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Institutional Liquidity
Portfolio, Inc., Indefinite Number of
Shares of Common Stock, $.001 par value
---------------------------------------
Ladies and Gentlemen:
As counsel for Prudential Institutional Liquidity Portfolio, Inc., a
Maryland corporation (the "Fund"), we have examined the proceedings taken and
being taken for the registration by the Fund on Form N-1A of an indefinite
number of shares of its Common Stock, $.001 par value.
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 Form N-1A, validly authorized
and issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Fund's
Registration Statement on Form N-1A, as it may be amended.
Very truly yours,
/s/ Gardner, Carton & Douglas
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 19 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated May
28, 1997, relating to the financial statements and financial highlights of
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series, which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodian, Transfer and Shareholder Servicing Agent and
Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
New York, NY
June 3, 1997
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
(the Fund)
PLAN PURSUANT TO RULE 18F-3
The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of Directors,
including a majority of the independent Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are not subject to either an initial or
contingent deferred sales charge but are subject to a
distribution or service fee pursuant to Rule 12b-1 under the
1940 Act (Rule 12b-1 fee) not to exceed .12 of 1% per annum of
the average daily net assets of the class.
CLASS I SHARES: Class I shares are not subject to either an initial or
contingent deferred sales charge nor are they subject to
any Rule 12b-1 fee.
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses not
allocated to a particular class, will be allocated to each class on the basis of
the relative net assets (settled shares). "Relative net assets (settled shares)"
are net assets valued in accordance with generally accepted accounting
principles but excluding the value of subscriptions receivable in relation to
the net assets of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of shares, to
the extent paid, will be paid on the same day and at the same time, and will be
determined in the same manner and will be in the same amount, except that the
amount of the dividends and other distributions declared and paid by a
particular class may be different from that paid by another class because of
Rule 12b-1 fees and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for a class of shares with
similar characteristics, if any, of the other Prudential Mutual Funds (subject
to certain minimum investment requirements) at relative net asset value without
the imposition of any sales charge.
<PAGE>
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors, including a majority of the independent
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Investments Fund Management
LLC, the Fund's Manager, will be responsible for reporting any potential or
existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.
Dated: May 29, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000822337
<NAME> THE PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO
<SERIES>
<NUMBER> 001
<NAME> THE PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 477,187,272
<INVESTMENTS-AT-VALUE> 477,187,272
<RECEIVABLES> 3,403,916
<ASSETS-OTHER> 9,088
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 480,600,276
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,555,271
<TOTAL-LIABILITIES> 2,555,271
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 478,045,005
<SHARES-COMMON-STOCK> 478,045,005
<SHARES-COMMON-PRIOR> 314,093,623
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 478,045,005
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24,655,385
<OTHER-INCOME> 0
<EXPENSES-NET> 2,068,681
<NET-INVESTMENT-INCOME> 22,586,704
<REALIZED-GAINS-CURRENT> 11,251
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22,597,955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (22,597,955)
<NUMBER-OF-SHARES-SOLD> 2,069,514,977
<NUMBER-OF-SHARES-REDEEMED> (2,053,657,829)
<SHARES-REINVESTED> 21,346,132
<NET-CHANGE-IN-ASSETS> 37,203,280
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 898,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,068,681
<AVERAGE-NET-ASSETS> 449,393,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
