PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO INC, 497, 1999-06-23

PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO INC
497, 1999-06-23

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FUND TYPE:
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Money market

INVESTMENT OBJECTIVE:
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High current income
consistent with the preservation of
principal and liquidity

PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.

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INSTITUTIONAL MONEY MARKET SERIES
(CLASS A SHARES)

PROSPECTUS: JUNE 11, 1999

As with all mutual funds, the
Securities and Exchange Commission
has not approved or disapproved the
Fund's shares, nor has the SEC
determined that this prospectus is
complete or accurate. It is a criminal
offense to state otherwise.

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TABLE OF CONTENTS
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1 Risk/Return Summary

1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 How the Fund Invests
5 Investment Objective and Policies
6 Other Investments
7 Additional Strategies
8 Rating of Fund Shares
8 Investment Risks

10 How the Fund is Managed

10 Board of Directors
10 Manager
10 Investment Adviser
10 Distributor
11 Year 2000 Readiness Disclosure

12 Fund Distributions and Tax Issues
12 Distributions
12 Tax Issues

14 How to Buy and Sell Shares of the Fund
14 How to Buy Shares
17 How to Sell Your Shares

20 Financial Highlights

22 The Prudential Mutual Fund Family

For More Information (Back Cover)

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Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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RISK/RETURN SUMMARY
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This section highlights key information about PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.-INSTITUTIONAL MONEY MARKET SERIES, which we refer to as "the
Fund." The Fund offers Class A shares and Class I shares. This prospectus
relates only to Class A shares. Additional information follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE PRESERVATION
OF PRINCIPAL AND LIQUIDITY. To achieve this objective we invest at least 80% of
the Fund's assets in dollar-denominated commercial paper, asset-backed
securities, obligations of financial institutions, funding agreements,
securities with demand features and other high-quality money market instruments
with remaining maturities of 13 months or less. Some of the money market
instruments we may purchase are issued by foreign companies and banks. While we
make every effort to achieve our investment objective and maintain a net asset
value of $1 per share, it is possible to lose money by investing in the Fund. To
date, the Fund's net asset value has never deviated from $1 per share.
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MONEY MARKET FUNDS

Money market funds--which hold high-quality short-term debt obligations--provide
investors with a lower risk, highly liquid investment option. These funds
attempt to maintain a net asset value of $1 per share, although there can be no
guarantee that they will always be able to do so.

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PRINCIPAL RISKS

Although we look to invest wisely, all investments involve risk. The money
market securities in which the Fund invests are generally subject to the risk
that the issuer of a particular security may be unable to make principal and
interest payments when they are due. There is also the risk that the securities
could lose value because interest rates change or investors lose confidence in
the ability of issuers in general to pay back their debt. With respect to the
Fund's investments in asset-backed securities, there is a risk of prepayment,
which means that if the underlying obligations are paid before they are due, the
security may discontinue paying an attractive rate of income. The Fund's
investments in foreign securities involve additional risks. For example, foreign
banks and companies generally are not subject to regulatory requirements
comparable to those applicable to U.S. banks and companies. In addition,
political developments and changes in currency rates may adversely affect the
value of the Fund's foreign securities. In all cases, however, we invest only in

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1

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RISK/RETURN SUMMARY
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U.S. dollar-denominated securities. Although investments in mutual funds involve
risk, investing in money market portfolios like the Fund is generally less risky
than investments in other types of funds. This is because the Fund invests only
in high-quality securities with remaining maturities of 13 months or less and
limits the average maturity of the portfolio to 90 days or less. To satisfy the
average maturity and maximum maturity requirements, securities with demand
features are treated as maturing on the date that the Fund can demand repayment
of the security.

An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

EVALUATING PERFORMANCE

A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation for the last 10 years. The tables compare the Fund's average annual
returns and yield for the periods indicated with those of a group of similar
mutual funds. They demonstrate the risk of investing in the Fund and how returns
can change. Past performance does not mean that the Fund will achieve similar
results in the future. For current yield information, you can call us at (800)
521-7466.

ANNUAL RETURNS(1) (CLASS A SHARES)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
9.39% 8.19% 6.23% 3.77% 2.94% 4.01% 5.82% 5.18% 5.50% 5.56%
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BEST QUARTER: 2.45% (2nd quarter of 1989)

WORST QUARTER: 0.71% (3rd quarter of 1993)
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(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES. THE TOTAL RETURN OF THE
CLASS A SHARES FROM 1-1-99 TO 3-31-99 WAS 1.22%.

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2 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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RISK/RETURN SUMMARY
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AVERAGE ANNUAL RETURNS(1) (AS OF 12/31/98)
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1 YEAR 5 YEARS 10 YEARS

Class A shares 5.56% 5.21% 5.64%
Lipper 5.30% 5.15% 5.57%
Average(2)

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7-DAY YIELD(1) (AS OF 3/31/99)
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Class A shares 4.82%
IBC Average(3) 4.63%

(1) THE FUND'S RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.

(2) THE LIPPER AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE U.S. TAXABLE MONEY MARKET FUNDS CATEGORY.

(3) THE IBC AVERAGE IS BASED UPON THE AVERAGE YIELD OF ALL MUTUAL FUNDS IN THE
INTERNATIONAL BUSINESS COMMUNICATIONS FINANCIAL DATA ALL TAXABLE MONEY
MARKET FUND CATEGORY.

FEES AND EXPENSES

These tables show the fees and expenses that you may pay if you buy and hold
shares of the Fund.

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SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
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CLASS A

Maximum sales charge (load) None
imposed on purchases (as a
percentage of offering price)

Maximum deferred sales charge (load) None
(as a percentage of the lower of
original purchase price or sale
proceeds)

Maximum sales charge (load) None
imposed on reinvested dividends
and other distributions
Redemption fees None

Exchange fee None

Corporate COMMAND Program annual fee(1) $125(2)

BusinessEdge Program annual fee(1) $185(2)

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RISK/RETURN SUMMARY
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ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
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CLASS A

Management fees .20%
+ Distribution and service (12b-1) fees .12%
+ Other expenses .06%
= Total annual Fund operating expenses .38%

- Fee waiver and expense .18%
reimbursement(3)

= Net annual Fund operating expenses .20%

(1) CORPORATE COMMAND AND BUSINESSEDGE ARE FINANCIAL SERVICES PROGRAMS
AVAILABLE THROUGH PRUDENTIAL SECURITIES INCORPORATED AND/OR PRUCO
SECURITIES CORPORATION. FOR MORE INFORMATION, YOU SHOULD CONSULT A
PRUDENTIAL SECURITIES FINANCIAL ADVISOR OR A PRUCO SECURITIES PREFERRED
AGENT.

(2) THE ANNUAL PROGRAM FEE AS A PERCENTAGE OF AVERAGE NET ASSETS IS .02% AND
.03% FOR THE COMMAND AND BUSINESSEDGE PROGRAMS, RESPECTIVELY, AND IS
CALCULATED BY DIVIDING $125 (THE TOTAL FEE FOR THE COMMAND PROGRAM) OR $185
(THE TOTAL FOR THE BUSINESSEDGE PROGRAM), RESPECTIVELY, BY THE AVERAGE
ACCOUNT SIZE IN THE FUND. THE ANNUAL PROGRAM FEE IS NOT PRORATED FOR
PURPOSES OF THIS CALCULATION TO GIVE EFFECT TO COMMAND PROGRAM OR
BUSINESSEDGE PROGRAM PARTICIPANTS WHO ALSO OWN SHARES IN OR SUBSCRIBE TO
VARIOUS SERVICES OFFERED BY THE RESPECTIVE PROGRAMS. A MAJOR PORTION OF THE
ANNUAL PROGRAM FEE IS NOT ATTRIBUTABLE TO THE FUND, BUT RATHER TO NONFUND
SERVICES PROVIDED BY THE PROGRAM.

(3) FOR THE FISCAL YEAR ENDING MARCH 31, 2000, THE DISTRIBUTOR OF THE FUND HAS
CONTRACTUALLY AGREED TO WAIVE A PORTION OF ITS FEES IN THE AMOUNT OF .07%
OF THE AVERAGE DAILY NET ASSETS OF CLASS A SHARES, AND THE MANAGER HAS
CONTRACTUALLY AGREED TO REIMBURSE THE FUND FOR OPERATING EXPENSES,
EXCLUSIVE OF DISTRIBUTION AND SERVICE (12B-1) FEES, IN EXCESS OF .15% OF
THE AVERAGE DAILY NET ASSETS OF CLASS A SHARES.

EXAMPLE

This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

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1 YR 3 YRS 5 YRS 10 YRS

Class A shares(1) $20 $104 $195 $463

(1) THE EXAMPLE REFLECTS THE AGREEMENT OF THE DISTRIBUTOR TO WAIVE A PORTION OF
ITS FEE AND THE AGREEMENT OF THE MANAGER TO REIMBURSE CERTAIN OPERATING
EXPENSES OF CLASS A SHARES FOR THE FISCAL YEAR ENDING MARCH 31, 2000. THE
MANAGER AND THE DISTRIBUTOR HAVE NOT ADVISED THE FUND OF THEIR RESPECTIVE
INTENTION TO DISCONTINUE THE WAIVERS AND/OR REIMBURSEMENTS FOR SUBSEQUENT
FISCAL YEARS. THE 3-YEAR, 5-YEAR AND 10-YEAR COSTS ONLY REFLECT THE 1-YEAR
WAIVER AND REIMBURSEMENT.

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4 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE
PRESERVATION OF PRINCIPAL AND LIQUIDITY. While we make every effort to achieve
our objective, we can't guarantee success.

The Fund invests in high-quality money market instruments to try to provide
investors with current income while maintaining a stable net asset value of $1
per share. We manage the Fund to comply with specific rules designed for money
market mutual funds. We will purchase obligations such as commercial paper,
asset-backed securities, certificates of deposit, time deposits of banks,
bankers' acceptances, bank notes, funding agreements and other obligations of
both banks and corporations. These obligations must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSROs), such as Moody's Investors Service (rated at least
Aa or Prime-2), Standard & Poor's Ratings Group (rated at least AA or A-2) and
Fitch IBCA (rated at least F2) or, if unrated, of comparable quality. We may
also purchase securities of the U.S. Government and its agencies. There is no
limitation as to the amount of assets we can invest in the securities of foreign
companies and banks. All securities that we purchase will be denominated in U.S.
dollars.

COMMERCIAL PAPER is short-term debt obligations of banks, corporations and
other borrowers. The obligations are usually issued by financially strong
businesses and often include a line of credit to protect purchasers of the
obligations. An ASSET-BACKED SECURITY is a loan or note that pays interest based
upon the cash flow of a pool of assets, such as mortgages, loans and credit card
receivables. FUNDING AGREEMENTS are contracts issued by insurance companies that
guarantee a return of principal, plus some amount of interest. When purchased by
money market funds, funding agreements will typically be short-term and will
provide an adjustable rate of interest. CERTIFICATES OF DEPOSIT, TIME DEPOSITS,
BANKERS' ACCEPTANCES and BANK NOTES are obligations issued by or through a bank.
These instruments depend upon the strength of the bank involved in the borrowing
to give investors comfort that the borrowing will be repaid when promised.

DEBT OBLIGATIONS in general, including those listed above and any others
that we may purchase, are basically written promises to repay a debt. Among the
various types of debt securities we may purchase, the terms of repayment may
vary, as may the commitment of other parties to honor the obligations of the
issuer of the security. We may purchase securities that include DEMAND

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5
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HOW THE FUND INVESTS
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FEATURES, which allow us to demand repayment of a debt obligation before the
obligation is due or "matures." This means that we can purchase longer-term
securities because of our expectation that we can demand repayment of the
obligation at an agreed-upon price within a relatively short period of time.
This procedure follows the rules applicable to money market funds.

Any of the money market instruments that the Fund may purchase may be
accompanied with the right to resell the instrument prior to the instrument's
maturity. In addition, we may separately purchase rights to resell these
instruments. These rights are referred to as "PUTS." The purchase of instruments
with puts or puts standing alone allows the Fund to sell the security when the
investment adviser believes it is appropriate to do so to honor redemption
requests or to buy more attractive securities.

The securities that we may purchase may change over time as new types of
money market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
the operation of money market funds.

For more information, see "Investment Risks" and the Statement of Additional
Information, "Description of the Fund, its Investments and Risks." The Statement
of Additional Information--which we refer to as the SAI--contains information
about the Fund. To obtain a copy, see the back cover of this prospectus.

Our investment objective is a fundamental policy that cannot be changed
without shareholder approval. The Board of the Fund can change investment
policies that are not fundamental.

OTHER INVESTMENTS

In addition to the principal strategies discussed above, we may also use the
following investments to increase the Fund's returns or protect its assets if
market conditions warrant.

The Fund may also invest in DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY.
Treasury securities have different interest rates and maturities, but they are
all backed by the full faith and credit of the U.S. Government.

Treasury debt obligations are sometimes "stripped" into their component
parts--the Treasury's obligation to make periodic interest payments and its
obligation to repay the amount borrowed. These STRIPPED SECURITIES are sold to
investors separately. Stripped securities do not make periodic interest
payments. They are typically sold at a discount and then redeemed for their face
value on their maturity dates. These securities increase in value when interest

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6 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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HOW THE FUND INVESTS
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rates fall and lose value when interest rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional debt securities. The Fund may try to
earn money by buying stripped securities at a discount and either selling them
after they increase in value or holding them until they mature.

The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, like
obligations of the Government National Mortgage Association (GNMA or "Ginnie
Mae"). Debt securities issued by other government entities, like obligations of
the Federal National Mortgage Association (FNMA or "Fannie Mae") and the Student
Loan Marketing Association (SLMA or "Sallie Mae"), are not backed by the full
faith and credit of the U.S. Government. However, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. The debt securities
of other issuers, like the Farm Credit System, depend entirely upon their own
resources to repay their debt.

The Fund may also use REPURCHASE AGREEMENTS, where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. These transactions constitute short-term cash loans by the Fund to
financial institutions. This creates a fixed return for the Fund.

ADDITIONAL STRATEGIES

The Fund may use REVERSE REPURCHASE AGREEMENTS, where we borrow money on a
temporary basis by selling a security with an obligation to repurchase it at an
agreed-upon price and time. The Fund's use of reverse repurchase agreements is
limited to 15% of the value of its total assets.

The Fund may also purchase money market obligations on a "WHEN-ISSUED" or
"DELAYED-DELIVERY" basis. When the Fund makes this type of purchase, the price
and interest rate are fixed at the time of purchase, but delivery and payment
for the obligations take place at a later time. The Fund does not earn interest
income until the date the obligations are delivered.

The Fund may purchase FLOATING RATE and VARIABLE RATE securities. These
securities pay interest at rates that change periodically to reflect changes in
market interest rates. Because these securities adjust the interest they pay,
they may be beneficial when interest rates are rising because of the additional
return the Fund will receive, and they may be detrimental when interest rates
are falling because of the reduction in interest payments to the Fund.

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HOW THE FUND INVESTS
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The Fund intends to purchase investment securities jointly with certain
other mutual funds. Our ability to engage in joint investment is subject to
conditions imposed by an order of the Securities and Exchange Commission. Joint
investment can allow the Fund to achieve better investment performance because
of reduced transaction costs and greater investment leverage.

The Fund also follows certain policies when it BORROWS MONEY (the Fund may
borrow up to 15% of the value of its net assets); LENDS ITS SECURITIES to others
(the Fund may lend up to 15% of its total assets, including collateral received
in the transaction); and HOLDS ILLIQUID SECURITIES (the Fund may hold up to 10%
of its net assets in illiquid securities, including securities with legal or
contractual restrictions, those without a readily available market, privately
placed commercial paper and repurchase agreements with maturities longer than
seven days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

RATING OF FUND SHARES

Duff & Phelps Credit Rating Co. (DCR) has given the Fund an AAA rating.
According to DCR, the AAA rating means the Fund's ability to meet redemption
requests in a timely manner for $1.00 per share is strong. This rating is based
on the Fund's risk management procedures, internal control systems, limitations
on market risk and experienced management team.

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception.

The Fund's investments in money market instruments involve both credit
risk--the possibility that the issuer of a particular security will default, and
market risk--the risk that an instrument will lose value because interest rates
change or investors lose confidence in the ability of issuers in general to pay
back their debt. To limit these risks, we invest only in high-quality securities
with remaining maturities of no more than 13 months.

Foreign securities (that is, securities of non-U.S.-based issuers) and
foreign markets involve additional risk. Foreign laws and accounting standards
typically are not as strict as they are in the U.S. Foreign fixed-income and
currency markets may be less stable than U.S. markets. Changes in the exchange
rates of foreign currencies can affect the value of foreign assets. There is a
risk that foreign companies and governments, just as is the case in the U.S.,
will not be prepared to handle issues that will arise when we reach the year
2000 if their computer systems cannot differentiate the year 2000 from the year
1900.

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8 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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HOW THE FUND INVESTS
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This chart outlines the key risks and potential rewards of the principal
strategies and certain other investments of the Fund. See, too, "Description of
the Fund, Its Investments and Risks" in the SAI.

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INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
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HIGH-QUALITY MONEY o Credit risk--the o Regular interest
MARKET OBLIGATIONS risk that default income
OF ALL TYPES of an issuer
would leave the o May be more
UP TO 100% Fund with unpaid secure than stock
interest or and equity
principal securities since
companies must
o Market risk--the pay their debts
risk that bonds before
and other debt they pay dividends
instruments may
lose value
because interest
rates change or
there is a lack
of confidence in
a group of
borrowers or an
industry
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MONEY MARKET o Foreign markets, o Investors may
OBLIGATIONS OF economies and realize higher
FOREIGN ISSUERS political systems returns based
(DOLLAR-DENOMINATED) may not be as upon higher interest
stable as those rates paid on foreign
UP TO 100% in the U.S. investments

o Differences in o Increased
foreign laws, diversification
accounting by expanding the allowable
standards, public choices of high-quality debt
information and securities
custody and
settlement
practices

o Year 2000
conversion may be
more of a problem
for some foreign
issuers

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ILLIQUID SECURITIES o May be difficult o May offer a more
to value precisely attractive yield
UP TO 10% OF NET than more widely
ASSETS o May be difficult traded securities
to sell at the
time or price
desired
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HOW THE FUND IS MANAGED
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BOARD OF DIRECTORS

The Board of Directors oversees the actions of the Manager, investment adviser
and Distributor and decides on general policies. The Board also oversees the
Fund's officers who conduct and supervise the daily business operations of the
Fund.

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended March 31, 1999, the Fund paid PIFM management fees, net of waiver, of .15%
of the Fund's average net assets.

As of March 31, 1999, PIFM served as the Manager to all 46 of the Prudential
Mutual Funds, and as Manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $71.6 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.

Prudential Investments Fixed Income Group is organized into teams that
specialize by sector. The Fixed Income Investment Policy Committee, which is
comprised of senior investment staff from each sector team, provides guidance to
the teams regarding duration risk, asset allocations and general risk
parameters. Portfolio managers contribute bottom up security selection within
those guidelines.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has a Distribution
and Service Plan under Rule 12b-1 of the Investment Company Act with respect to
Class A shares. Under the Plan and the Distribution Agreement,

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HOW THE FUND IS MANAGED
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PIMS pays the expenses of distributing the Fund's Class A shares and provides
certain shareholder support services. The Fund pays distribution and other fees
from the assets of Class A shares to PIMS as reimbursement to PIMS for its
services. These fees--known as 12b-1 fees--are shown in the "Fees and Expenses"
table. Because these fees are paid from the Fund's assets on a continuous basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges. PIMS does not receive
compensation from the Fund for distributing the Fund's Class I shares.

YEAR 2000 READINESS DISCLOSURE

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner. Moreover, the Fund at this time has not considered retaining alternative
service providers or directly undertaken efforts to achieve year 2000 readiness,
the latter of which would involve substantial expense without an assurance of
success.

Additionally, issuers of securities generally, as well as those purchased by
the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

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FUND DISTRIBUTIONS AND TAX ISSUES
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Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund distributes DIVIDENDS of ordinary income and any
realized net CAPITAL GAINS to shareholders. These distributions are subject to
taxes, unless you hold your shares in a 401(k) plan, an Individual Retirement
Account (IRA), or some other qualified tax-deferred plan or account.

The following briefly discusses some of the important tax issues you should
be aware of, but is not meant to be tax advice. For tax advice, please speak
with your tax adviser.

DISTRIBUTIONS

The Fund distributes DIVIDENDS of any net investment income to shareholders
every month. The dividends you receive from the Fund will be taxed as ORDINARY
INCOME, whether or not they are reinvested in the Fund.

Although the Fund is not likely to realize capital gains because of the
types of securities we purchase, any realized net CAPITAL GAINS will be paid to
shareholders (typically once a year). Capital Gains are generated when the Fund
sells assets for a profit.

For your convenience, Fund distributions of dividends and capital gains are
automatically reinvested in the Fund. If you ask us to pay the distributions in
cash, we will send you a check instead of purchasing more shares of the Fund.
Either way, the distributions are subject to taxes, unless your shares are held
in a qualified tax-deferred plan or account. For more information about
automatic reinvestment and other shareholder services, see "How to Buy, Sell and
Exchange Shares of the Fund--How To Buy Shares" at STEP 4: Additional
Shareholder Services.

TAX ISSUES

FORM 1099

Every year, you will receive a FORM 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.

Fund distributions are generally taxable in the year they are received,
except where we declare certain dividends in December of a calendar year but
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year.

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12 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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FUND DISTRIBUTIONS AND TAX ISSUES
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WITHHOLDING TAXES

If federal law requires you to provide the Fund with your tax identification
number and certifications as to your tax status, and you fail to do so, or if
you are otherwise subject to back-up withholding, we will withhold and pay to
the U.S. Treasury 31% of your distributions. Dividends of net investment income
and short-term capital gains paid to a nonresident foreign shareholder generally
will be subject to a U.S. withholding tax of 30%. This rate may be lower,
depending on any tax treaty the U.S. may have with the shareholder's country.

- --------------------------------------------------------------------------------
13

<PAGE>

HOW TO BUY AND SELL
- --------------------------------------------------------------------------------
SHARES OF THE FUND
- --------------------------------------------------------------------------------

HOW TO BUY SHARES

STEP 1: OPEN AN ACCOUNT

If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS), the Fund's Transfer Agent, at (800) 521-7466 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5030

After you have established an account, all purchases of Class A shares must
be made via wire transfer of funds to State Street Bank and Trust Company,
Boston, Massachusetts, the Fund's custodian. We have the right to reject any
purchase order (including an exchange into the Fund) or suspend or modify the
Fund's sale of its shares.

STEP 2: CHOOSE A SHARE CLASS

The Fund offers Class A and Class I shares. Except as noted below, the minimum
initial investment for Class A shares is $100,000 and the minimum subsequent
investment is $10,000. The minimum initial investment for Class I shares is $5
million and the minimum subsequent investment is $10,000. This prospectus only
describes how you can buy and sell Class A shares of the Fund. If you qualify to
purchase Class I shares, you should contact PMFS at the telephone number or
address above to request a Class I shares Fund prospectus. Class A shareholders
of the Fund who qualify to purchase Class I shares will have their Class A
shares exchanged for Class I shares on a quarterly basis. For purposes of the
minimum initial and subsequent investment requirements, a master account and its
subaccounts, as well as related institutional accounts (that is, accounts of
shareholders with a common institutional or corporate parent), may be combined.

PURCHASES THROUGH THE COMMAND PROGRAM OR THE BUSINESSEDGE PROGRAM

Class A shares of the Fund are available to shareholders who meet the minimum
investment requirements and participate in either the corporate COMMAND(sm)
Account Program (the COMMAND Program), which is available through Prudential
Securities Incorporated (Prudential Securities), or the Prudential
BusinessEdge(sm) Account Program (the BusinessEdge Program),

- --------------------------------------------------------------------------------
14 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
- --------------------------------------------------------------------------------

<PAGE>

which is available either through Prudential Securities or Pruco Securities
Corporation (Prusec). These programs offer integrated financial services that
link together various product components with the ability to invest in shares of
the Fund. If you participate in the COMMAND Program or the BusinessEdge Program,
your purchase of Class A shares must be made through your Prudential Securities
Financial Advisor or your Prusec broker, as applicable.

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

When you invest in a mutual fund, you buy shares of the Fund. Shares of a money
market mutual fund, like the Fund, are priced differently than shares of common
stock and other securities.

The price you pay for each share of the Fund is based on the share value.
The share value of a mutual fund--known as the NEt ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Fund values its securities using the amortized cost method.
The Fund seeks to maintain an NAV of $1 per share at all times.

We determine the NAV of our shares once each business day at 4:00 p.m., New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase,
sell, or exchange or when changes in the value of the Fund's portfolio do not
affect the NAV.

If your purchase order for Class A shares is received by PMFS by calling
(800) 521-7466 before 4:00 p.m., New York Time and federal funds are received by
the Custodian by wire transfer on the same business day, your purchase order
becomes effective as of 4:00 p.m., New York Time, and the shares you purchase
are entitled to dividend income earned on that day. Telephone calls to PMFS will
be recorded. In order to make investments that will generate income immediately,
the Fund must have federal funds available to it. Therefore, you are urged to
wire funds to the Custodian via the Federal Reserve Wire System as early in the
day as possible.

If you participate in the COMMAND Program or the BusinessEdge Program, you
must submit your purchase order to your Prudential Securities Financial Advisor
or Prusec broker, as applicable, by 2:00 p.m., New York Time. The Prudential
Securities Financial Advisor or Prusec broker will submit your order to the Fund
for Class A shares and will arrange for the transfer of federal funds from your
Program account to the Custodian. If your purchase

- --------------------------------------------------------------------------------
15

<PAGE>

order is received by 2:00 p.m., New York Time, the shares you purchase are
entitled to dividend income earned on that day.

STEP 4: ADDITIONAL SHAREHOLDER SERVICES

As a Fund shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the "FUND DISTRIBUTIONS AND TAX
ISSUES" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV. If you want your
distributions paid in cash (via wire transfer to your bank account), you can
indicate this preference on your application or notify the Transfer Agent in
writing (at the address below) at least five business days before the date we
determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5030

REPORTS TO SHAREHOLDERS. Every year, we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.

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 institution that wishes to use
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 provided. Subaccounts can be opened at the time of an initial
investment or at a later date.

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16 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
- --------------------------------------------------------------------------------

<PAGE>

HOW TO SELL YOUR SHARES

You can sell your shares of the Fund at any time, subject to certain
restrictions.

When you sell shares of the Fund--also known as redeeming shares--
the price you will receive will be the NAV next determined after the Transfer
Agent receives your order to sell. Redemption requests may be made by telephone
by calling PMFS at (800) 521-7466. When you call, you will be asked to provide
your name (as an authorized person on the account), account number and personal
identification number. Neither PMFS nor the Fund will be responsible for further
verification of the authenticity of instructions received by telephone.

During periods of severe market or economic conditions, telephone redemption
may be difficult. In such case, you should consider sending your redemption
request to PMFS by telecopy at telecopier number (732) 417-7869.

All redemptions are paid by wire transfer of the proceeds to the U.S.
commercial bank account or the Prudential Securities account designated on your
account application.

For Class A shares to be redeemed and the proceeds sent by wire transfer on
the same day, telephone instructions or your written redemption request must be
received by PMFS before 4:00 p.m., New York Time. Although we will wire
redemption proceeds on the same day as a request received before 4:00 p.m., New
York Time, you should be aware that federal wire restrictions and individual
bank hours of operation may restrict your access to the redemption proceeds
until the following business day. Class A shares redeemed before 4:00 p.m., New
York Time, are not entitled to income dividends declared on the day of the
redemption.

If you participate in the COMMAND Program or the BusinessEdge Program, you
must submit your redemption request to your Prudential Securities Financial
Advisor or Prusec broker, as applicable, by 2:00 p.m., New York Time, in order
to have the request processed on the same day.

RESTRICTIONS ON SALES

There are certain times when you may not be able to sell shares of the Fund or
when we may delay paying you the proceeds from a sale. This may happen during
unusual market conditions or emergencies when the Fund can't determine the value
of its assets or sell its holdings. For more information, see the SAI, "Purchase
and Redemption of Fund Shares."

- --------------------------------------------------------------------------------
17

<PAGE>

If you are selling more than $100,000 of shares, you want the check sent to
someone or some place that is not in our records, or you are a business or
trust, and if you hold your shares directly with the Transfer Agent, you may
have to have the signature on your sell order guaranteed by a financial
institution.

In addition, we may withhold wiring redemption proceeds if the Fund's
investment adviser determines that the Fund could be adversely affected by
making immediate payment, and we may take up to seven days to wire redemption
proceeds.

REDEMPTION IN KIND

If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

INVOLUNTARY REDEMPTION

If you make a sale that reduces your account value to less than $100,000, we may
sell the rest of your shares and close your account. We would do this to
minimize the Fund's expenses paid by other shareholders. We will give you 60
days' notice, during which time you can purchase additional shares to avoid this
action.

AUTOMATIC REDEMPTION FOR THE COMMAND PROGRAM OR
THE BUSINESSEDGE PROGRAM

If you participate in the COMMAND Program or the BusinessEdge Program, your Fund
shares will be automatically redeemed to cover any deficit in your account. The
amount of the redemption will be the nearest dollar amount necessary to cover
the deficit.

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18 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
- --------------------------------------------------------------------------------

<PAGE>

insufficient cash in your account, we will redeem an appropriate number of
shares of the Fund to satisfy any remaining deficit. You are entitled to any
dividends declared on the redeemed shares through the day before the redemption
is made. Dividends declared on the redemption date will be retained by
Prudential Securities or Prusec, as applicable, which has advanced monies to
satisfy deficits in your account.

Redemptions are automatically made, to the nearest dollar, on each day to
satisfy account deficits or to honor your redemption requests.

MANUAL REDEMPTION FOR THE COMMAND PROGRAM OR
THE BUSINESSEDGE PROGRAM.

If you participate in the COMMAND Program or the BusinessEdge Program, you may
redeem your Fund shares by submitting a written request to your Prudential
Securities Financial Advisor or Prusec broker, as applicable. You should not
send a manual redemption request to the Fund. If you do, we will forward the
request to Prudential Securities or Prusec, as appropriate, which could delay
your requested redemption.

The proceeds from a manual redemption will immediately become a free cash
balance in your Program account and will be automatically invested in the money
market mutual fund that you selected as the "Primary Fund" for cash sweeps in
your account. Both the COMMAND Program and the BusinessEdge Program require that
your written redemption request be signed by all persons in whose name Fund
shares are registered, exactly as they appear on your Program account client
statement. In certain situations, additional documents such as trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority may be required.

Under the COMMAND Program, Prudential Securities has the right to terminate
your Program account at any time for any reason. Likewise, under the
BusinessEdge Program, Prudential Securities or Prusec, as applicable, has the
right to terminate your Program account at any time for any reason. If a Program
account is terminated, all shares of the Fund held in the account will be
redeemed.

- --------------------------------------------------------------------------------
19

<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The financial highlights will help you evaluate the financial performance of
Class A shares of the Fund. The TOTAL RETURN in the chart represents the rate
that a shareholder earned on an investment in the Fund, assuming reinvestment of
all dividends and other distributions. The information is for Class A shares of
the Fund for the periods indicated.

Review this chart with the financial statements which appear in the SAI.
Additional performance information is contained in the annual report, which you
can receive at no charge.

The financial highlights for the two fiscal years ended March 31, 1999
were audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the three years ended March 31, 1997 were audited by
other independent auditors. These reports were unqualified.

<TABLE>
<CAPTION>
- -----------------------------------------------
CLASS A SHARES (FISCAL YEARS ENDED 3-31)
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:

Net investment income and net realized
gains .053(2) .055(2) .050 .056 .046
Dividends and distributions to
shareholders (.053) (.055) (.050) (.056) (.046)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN (1) 5.39% 5.63% 5.16% 5.72% 4.69%
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $361,167 $140,813 $478,045 $440,842 $476,229
AVERAGE NET ASSETS (000) $247,471 $217,881 $449,393 $519,946 $402,678

RATIOS TO AVERAGE NET ASSETS:
Net investment income 5.20%(2) 5.42%(2) 5.03% 5.56% 4.67%
Expenses, including distribution fee .20%(2) .29%(2) .46% .43% .46%
Expenses, excluding distribution fee .15%(3) .21%(3) .34% .31% .34%
- --------------------------------------------------------------------------------------------------------
</TABLE>

(1) TOTAL RETURN IS CALCULATED ASSUMING A PURCHASE OF SHARES ON THE FIRST DAY
AND A SALE ON THE LAST DAY OF EACH YEAR REPORTED AND INCLUDES REINVESTMENT
OF DIVIDENDS AND DISTRIBUTIONS.

(2) NET OF MANAGEMENT AND DISTRIBUTION FEE WAIVER/EXPENSE SUBSIDY.

(3) NET OF MANAGEMENT FEE WAIVER/EXPENSE SUBSIDY.

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20 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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21

<PAGE>

- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.

STOCK FUNDS

GLOBAL FUNDS

GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

- --------------------------------------------------------------------------------
22 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

BOND FUNDS

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 HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.

MONEY MARKET FUNDS

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

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- --------------------------------------------------------------------------------
23

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24 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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25

<PAGE>

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26 Prudential Institutional Liquidity Portfolio, Inc. (TELEPHONE)(800) 521-7466
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27

<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

Please read this prospectus before
you invest in the Fund and keep it
for future reference. For information
or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5005
(800) 521-7466
(732) 417-7555
(if calling from outside the U.S.)

- -------------------------------------

Outside Brokers Should Contact:

PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769

- -------------------------------------

Visit Prudential's Web Site At:
http://www.prudential.com

- -------------------------------------

Additional information about the
Fund can be obtained without charge
and can be found in the following
documents:

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)

ANNUAL REPORT

SEMI-ANNUAL REPORT

You can also obtain copies of Fund
documents from the Securities and
Exchange Commission as follows:

By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1(800) SEC-0330)
Via the Internet:
http://www.sec.gov

- -------------------------------------

CUSIP Numbers: Class A Shares--744350-10-9
Investment Company Act File No: 811-5336

MF137A [logo] Printed on Recycled Paper

<PAGE>

FUND TYPE:
- ------------------------------------

Money market

INVESTMENT OBJECTIVE:
- ------------------------------------

High current income
consistent with the preservation of
principal and liquidity

PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.

- -------------------------------------------------------------------------

INSTITUTIONAL MONEY MARKET SERIES

(CLASS I SHARES)

PROSPECTUS: JUNE 11, 1999

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares, nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1 Risk/Return Summary

1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 How the Fund Invests
5 Investment Objective and Policies
6 Other Investments
7 Additional Strategies
8 Rating of Fund Shares
8 Investment Risks

10 How the Fund is Managed
10 Board of Directors
10 Manager
10 Investment Adviser
10 Distributor
11 Year 2000 Readiness Disclosure

12 Fund Distributions and Tax Issues
12 Distributions
12 Tax Issues

14 How to Buy and Sell Shares of the Fund
14 How to Buy Shares
16 How to Sell Your Shares

20 Financial Highlights

22 The Prudential Mutual Fund Family

For More Information (Back Cover)

- --------------------------------------------------------------------------------
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. TELEPHONE (800) 521-7466

<PAGE>

- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

This section highlights key information about PRUDENTIAL INSTITUTIONAL LIQUIDITY
PORTFOLIO, INC.-INSTITUTIONAL MONEY MARKET SERIES, which we refer to as "the
Fund." The Fund offers Class A shares and Class I shares. This prospectus
relates only to Class I shares. Additional information follows this summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

- --------------------------------------------------------------------------------
MONEY MARKET FUNDS

Money market funds -- which hold high-quality short-term debt
obligations -- provide investors with a lower risk, highly liquid investment
option. These funds attempt to maintain a net asset value of $1 per share,
although there can be no guarantee that they will always be able to do so.
- --------------------------------------------------------------------------------

PRINCIPAL RISKS

- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

EVALUATING PERFORMANCE

A number of factors--including risk--can affect how the Fund performs. The
following bar chart shows the Fund's performance for each full calendar year of
operation. The tables compare the Fund's average annual returns and yield for
the periods indicated with those of a group of similar mutual funds. They
demonstrate the risk of investing in the Fund and how returns can change. Past
performance does not mean that the Fund will achieve similar results in the
future. For current yield information, you can call us at (800) 521-7466.

ANNUAL RETURNS(1) (CLASS I SHARES)
- --------------------------------------------------------------------------------
1998
----
5.61%

BEST QUARTER: 1.40% (3rd quarter of 1998) WORST QUARTER: 1.32% (4th quarter of
1998)
- --------------------------------------------------------------------------------

(1) THE FUND'S RETURNS ARE AFTER DEDUCTION OF EXPENSES. THE TOTAL RETURN OF THE
CLASS I SHARES FROM 1-1-99 TO 3-31-99 WAS 1.23%.

<PAGE>

- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

AVERAGE ANNUAL RETURNS(1) (AS OF 12/31/98)
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
------ ---------------------
Class I shares 5.61% 5.67% (since 7-9-97)
Lipper 5.30% 5.37% (since 6-30-97)
Average(2)

7-DAY YIELD(1) (AS OF 3/31/99)
- --------------------------------------------------------------------------------
Class I shares 4.87%
IBC Average(3) 4.63%

(1) THE FUND'S RETURNS AND YIELD ARE AFTER DEDUCTION OF EXPENSES.

(2) THE LIPPER AVERAGE IS BASED UPON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE U.S. TAXABLE MONEY MARKET FUNDS CATEGORY.

(3) THE IBC AVERAGE IS BASED UPON THE AVERAGE YIELD OF ALL MUTUAL FUNDS IN THE
INTERNATIONAL BUSINESS COMMUNICATIONS FINANCIAL DATA ALL TAXABLE MONEY
MARKET FUND CATEGORY.

FEES AND EXPENSES

These tables show the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
CLASS I
-------

Maximum sales charge (load) None
imposed on purchases (as a percentage of
offering price)

Maximum deferred sales charge (load) (as a None
percentage of the lower of original purchase
price or sale proceeds)

Maximum sales charge (load) None
imposed on reinvested dividends
and other distributions

Redemption fees None

Exchange fee None

Corporate COMMAND Program annual fee(1) $125(2)

BusinessEdge Program annual fee(1) $185(2)

- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I
-------

Management fees .20%

+ Distribution and service (12b-1) fees None

+ Other expenses .06%

= Total annual Fund operating expenses .26%

- Fee waiver and expense reimbursement(3) .11%

= Net annual Fund operating expenses .15%

(1) CORPORATE COMMAND AND BUSINESSEDGE ARE FINANCIAL SERVICES PROGRAMS
AVAILABLE THROUGH PRUDENTIAL SECURITIES INCORPORATED AND/OR PRUCO
SECURITIES CORPORATION. FOR MORE INFORMATION, YOU SHOULD CONTRACT A
PRUDENTIAL SECURITIES FINANCIAL ADVISOR OR A PRUCO SECURITIES PREFERRED
AGENT.

(2) THE ANNUAL PROGRAM FEE AS A PERCENTAGE OF AVERAGE NET ASSETS IS LESS THAN
.01% FOR BOTH THE COMMAND AND BUSINESSEDGE PROGRAMS AND IS CALCULATED BY
DIVIDING $125 (THE TOTAL FEE FOR THE COMMAND PROGRAM) OR $185 (THE TOTAL
FOR THE BUSINESSEDGE PROGRAM), RESPECTIVELY, BY THE AVERAGE ACCOUNT SIZE IN
THE FUND. THE ANNUAL PROGRAM FEE IS NOT PRORATED FOR PURPOSES OF THIS
CALCULATION TO GIVE EFFECT TO COMMAND PROGRAM OR BUSINESSEDGE PROGRAM
PARTICIPANTS WHO ALSO OWN SHARES IN OR SUBSCRIBE TO VARIOUS SERVICES
OFFERED BY THE RESPECTIVE PROGRAMS. A MAJOR PORTION OF THE ANNUAL PROGRAM
FEE IS NOT ATTRIBUTABLE TO THE FUND, BUT RATHER TO NONFUND SERVICES
PROVIDED BY THE PROGRAM.

(3) FOR THE FISCAL YEAR ENDING MARCH 31, 2000, THE MANAGER OF THE FUND HAS
CONTRACTUALLY AGREED TO REIMBURSE THE FUND FOR OPERATING EXPENSES IN EXCESS
OF .15% OF THE AVERAGE DAILY NET ASSETS OF CLASS I SHARES.

EXAMPLE

This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

- --------------------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
---- ----- ----- ------
Class I shares(1) $15 $73 $135 $320

(1) THE EXAMPLE REFLECTS THE AGREEMENT OF THE MANAGER TO REIMBURSE CERTAIN
OPERATING EXPENSES OF CLASS I SHARES FOR THE FISCAL YEAR ENDING MARCH 31,
2000. THE MANAGER HAS NOT ADVISED THE FUND OF ITS INTENTION TO DISCONTINUE
THE WAIVER AND/OR REIMBURSEMENT FOR SUBSEQUENT FISCAL YEARS. THE 3-YEAR,
5-YEAR AND 10-YEAR COSTS ONLY REFLECT THE 1-YEAR WAIVER AND REIMBURSEMENT.

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is HIGH CURRENT INCOME CONSISTENT WITH THE
PRESERVATION OF PRINCIPAL AND LIQUIDITY. While we make every effort to achieve
our objective, we can't guarantee success.

- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

obligation is due or "matures." This means that we can purchase longer-term
securities because of our expectation that we can demand repayment of the
obligation at an agreed-upon price within a relatively short period of time.
This procedure follows the rules applicable to money market funds.

For more information, see "Investment Risks" and the Statement of
Additional Information, "Description of the Fund, its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover of
this prospectus.

Our investment objective is a fundamental policy that cannot be changed
without shareholder approval. The Board of the Fund can change investment
policies that are not fundamental.

OTHER INVESTMENTS

In addition to the principal strategies discussed above, we may also use the
following investments to increase the Fund's returns or protect its assets if
market conditions warrant.

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

securities generally fluctuates more in response to interest rate movements than
the value of traditional debt securities. The Fund may try to earn money by
buying stripped securities at a discount and either selling them after they
increase in value or holding them until they mature.

ADDITIONAL STRATEGIES

The Fund intends to purchase investment securities jointly with certain
other mutual funds. Our ability to engage in joint investment is subject to

- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

conditions imposed by an order of the Securities and Exchange Commission. Joint
investment can allow the Fund to achieve better investment performance because
of reduced transaction costs and greater investment leverage.

RATING OF FUND SHARES

Duff & Phelps Credit Rating Co. (DCR) has given the Fund an AAA Rating.
According to DCR, the AAA rating means the Fund's ability to meet redemption
requests in a timely manner for $1.00 per share is strong. This rating is based
on the Fund's risk management procedures, internal control systems, limitations
on market risk and experienced management team.

INVESTMENT RISKS

As noted, all investments involve risk, and investing in the Fund is no
exception.

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------

INVESTMENT TYPE
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------

HIGH-QUALITY MONEY MARKET o Credit risk--the risk o Regular interest income
OBLIGATIONS OF ALL TYPES that default of an
issuer would leave o May be more secure
UP TO 100% the Fund with unpaid than stock and equity
interest or principal securities since
companies must
pay their debts before
o Market risk--the risk they pay dividends
that bonds and other
debt instruments may
lose value because
interest rates change
or there is a lack of
confidence in a group
of borrowers or an in-
dustry

- --------------------------------------------------------------------------------

MONEY MARKET OBLIGATIONS o Foreign markets, o Investors may realize
OF FOREIGN ISSUERS economies and higher returns based
(DOLLAR-DENOMINATED) political systems may upon higher interest
not be as stable as rates paid on foreign
UP TO 100% those in the U.S. investments
o Differences in o Increased
foreign laws, diversification
accounting standards, by expanding the
public information allowable choices of
and custody and high-quality debt
settlement practices securities
o Year 2000 conversion
may be more of a
problem for some
foreign issuers

- --------------------------------------------------------------------------------

ILLIQUID SECURITIES o May be difficult to o May offer a more
value precisely attractive yield than
UP TO 10% OF NET ASSETS more widely traded
o May be difficult to securities
sell at the time or
price desired

- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND IS MANAGED

- --------------------------------------------------------------------------------

BOARD OF DIRECTORS

MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077

As of March 31, 1999, PIFM served as the Manager to all 46 of the
Prudential Mutual Funds, and as Manager or administrator to 22 closed-end
investment companies, with aggregate assets of approximately $71.6 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is
the Fund's investment adviser. Its address is Prudential Plaza, 751 Broad
Street, Newark, NJ 07102. PIFM has responsibility for all investment advisory
services, supervises Prudential Investments and reimburses Prudential
Investments for its reasonable costs and expenses.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund.

<PAGE>

- --------------------------------------------------------------------------------
HOW THE FUND IS MANAGED

- --------------------------------------------------------------------------------

YEAR 2000 READINESS DISCLOSURE

The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received, since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner. Moreover, the Fund at this time has not considered retaining alternative
service providers or directly undertaken efforts to achieve year 2000 readiness,
the latter of which would involve substantial expense without an assurance of
success.

Additionally, issuers of securities generally, as well as those purchased
by the Fund, may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------

The following briefly discusses some of the important tax issues you should
be aware of, but is not meant to be tax advice. For tax advice, please speak
with your tax adviser.

DISTRIBUTIONS
The Fund distributes DIVIDENDS of any net investment income to shareholders
every month. The dividends you receive from the Fund will be taxed as ORDINARY
INCOME, whether or not they are reinvested in the Fund.

Although the Fund is not likely to realize capital gains because of the
types of securities we purchase, any realized net CAPITAL GAINS will be paid to
shareholders (typically once a year). CAPITAL GAINS are generated when the Fund
sells assets for a profit.

TAX ISSUES
Form 1099

Every year, you will receive a Form 1099, which reports the amount of dividends
and capital gains we distributed to you during the prior year. If you own shares
of the Fund as part of a qualified tax-deferred plan or account, your taxes are
deferred, so you will not receive a Form 1099. However, you will receive a Form
1099 when you take any distributions from your qualified tax-deferred plan or
account.

<PAGE>

- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS AND TAX ISSUES
- --------------------------------------------------------------------------------

Withholding Taxes

- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
HOW TO BUY AND SELL
SHARES OF THE FUND
- --------------------------------------------------------------------------------
HOW TO BUY SHARES

STEP 1: OPEN AN ACCOUNT

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5030

After you have established an account, all purchases of Class I shares must
be made via wire transfer of funds to State Street Bank and Trust Company,
Boston, Massachusetts, the Fund's custodian. We have the right to reject any
purchase order (including an exchange into the Fund) or suspend or modify the
Fund's sale of its shares.

STEP 2: CHOOSE A SHARE CLASS

The Fund offers Class A and Class I shares. Except as noted below, the minimum
initial investment for Class I shares is $5 million and the minimum subsequent
investment is $10,000. This prospectus only describes how you can buy and sell
Class I shares of the Fund. For purposes of the minimum initial and subsequent
investment requirements, a master account and its subaccounts, as well as
related institutional accounts (that is, accounts of shareholders with a common
institutional or corporate parent), may be combined.

PURCHASES THROUGH THE COMMAND PROGRAM OR THE BUSINESSEDGE PROGRAM

Class I shares of the Fund are available to shareholders who meet the minimum
investment requirements and participate in either the corporate COMMANDsm
Account Program (the COMMAND Program), which is available through Prudential
Securities Incorporated (Prudential Securities), or the Prudential
BusinessEdgesm Account Program (the BusinessEdge Program), which is available
either through Prudential Securities or Pruco Securities Corporation (Prusec).
These programs offer intergrated financial services that link together various
product components with the ability to invest in shares of the Fund.

<PAGE>

If you participate in the COMMAND Program or the BusinessEdge Program, your
purchase of Class I shares must be made through your Prudential Securities
Financial Advisor or your Prusec broker, as applicable.

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

When you invest in a mutual fund, you buy shares of the Fund. Shares of a money
market mutual fund, like the Fund, are priced differently than shares of common
stock and other securities.

The price you pay for each share of the Fund is based on the share value.
The share value of a mutual fund--known as the NET ASSET VALUE or NAV--is
determined by a simple calculation: it's the total value of the Fund (assets
minus liabilities) divided by the total number of shares outstanding. In
determining NAV, the Fund values its securities using the amortized cost method.
The Fund seeks to maintain an NAV of $1 per share at all times.

We determine the NAV of our shares once each business day at 4:00 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine NAV on days when we have not received any orders to purchase,
sell, or exchange or when changes in the value of the Fund's portfolio do not
affect the NAV.

If your purchase order for Class I shares is received by PMFS by calling
(800) 521-7466 before 4:00 p.m. New York Time and federal funds are received by
the Custodian by wire transfer on the same business day, your purchase order
becomes effective as of 4:00 p.m., New York Time, and the shares you purchase
are entitled to dividend income earned on that day. Telephone calls to PMFS will
be recorded. In order to make investments that will generate income immediately,
the Fund must have federal funds available to it. Therefore, you are urged to
wire funds to the Custodian via the Federal Reserve Wire System as early in the
day as possible.

If you participate in the COMMAND Program or the BusinessEdge Program, you
must submit your purchase order to your Prudential Securities Financial Advisor
or Prusec broker, as applicable, by 2:00 p.m., New York Time. The Prudential
Securities Financial Advisor or Prusec broker will submit your order to the Fund
for Class I shares and will arrange for the transfer of federal funds from your
Program account to the Custodian. If your purchase order is received by 2:00
p.m., New York Time, the shares you purchase are entitled to dividend income
earned on that day.

- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------

<PAGE>

STEP 4: ADDITIONAL SHAREHOLDER SERVICES

As a Fund shareholder, you can take advantage of the following services and
privileges:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5030

HOW TO SELL YOUR SHARES

You can sell your shares of the Fund at any time, subject to certain
restrictions.

When you sell shares of the Fund -- also known as redeeming shares -- the
price you will receive will be the NAV next determined after the Transfer

<PAGE>

Agent receives your order to sell. Redemption requests may be made by telephone
by calling PMFS at (800) 521-7466. When you call, you will be asked to provide
your name (as an authorized person on the account), account number and personal
identification number. Neither PMFS nor the Fund will be responsible for further
verification of the authenticity of instructions received by telephone.

During periods of severe market or economic conditions, telephone
redemption may be difficult. In such case, you should consider sending your
redemption request to PMFS by telecopy at telecopier number (732) 417-7869.

All redemptions are paid by wire transfer of the proceeds to the U.S.
commercial bank account or the Prudential Securities account designated on your
account application.

For Class I shares to be redeemed and the proceeds sent by wire transfer on
the same day, telephone instructions or your written redemption request must be
received by PMFS before 4:00 p.m., New York Time. Although we will wire
redemption proceeds on the same day as a request received before 4:00 p.m., New
York Time, you should be aware that federal wire restrictions and individual
bank hours of operation may restrict your access to the redemption proceeds
until the following business day. Class I shares redeemed before 4:00 p.m., New
York Time, are not entitled to income dividends declared on the day of the
redemption.

RESTRICTIONS ON SALES

If you are selling more than $50,000 of shares, if you want the check
sent to someone or some place that is not in our records, or you are a business
or trust, and if you hold your shares directly with the Transfer Agent, you may
have to have the signature on your sell order guaranteed by a financial
institution.

- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------

<PAGE>

REDEMPTION IN KIND

INVOLUNTARY REDEMPTION

If you make a sale that reduces your account to less than $5 million, we may
sell the rest of your shares and close your account. We do this to minimize the
Fund's expenses paid by other shareholders. We will give you 60 days' notice,
during which time you can purchase additional shares to avoid this action.

AUTOMATIC REDEMPTION FOR THE COMMAND PROGRAM OR
THE BUSINESSEDGE PROGRAM

The amount of the redemption will be the lesser of the total value of Fund
shares held in your account or the deficit in your account. A deficit in your
COMMAND Program account or BusinessEdge Program account may result from activity
arising under the Program, such as debit balances incurred by the use of the
Visa(R) Gold Debit Card Account (for the COMMAND Program) or the BusinessEdge
Visa(R) Debit Card Account (for the BusinessEdge Program), as well as ATM
transactions, cash advances and Program account checks. Your account will be
automatically scanned for deficits each day and, if there is insufficient cash
in your account, we will redeem an appropriate number of shares of the Fund to
satisfy any remaining deficit. You are entitled to any dividends declared on the
redeemed shares through the day before the redemption is made. Dividends
declared on the redemption date will be retained by Prudential Securities or
Prusec, as applicable, which has advanced monies to satisfy deficits in your
account.

Redemptions are automatically made, to the nearest dollar, on each day to
satisfy account deficits or to honor your redemption requests.

<PAGE>

MANUAL REDEMPTION FOR THE COMMAND PROGRAM OR
THE BUSINESSEDGE PROGRAM

- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The financial highlights will help you evaluate the financial performance of
Class I shares of the Fund. The TOTAL RETURN in the chart represents the rate
that a shareholder earned on an investment in the Fund, assuming reinvestment of
all dividends and other distributions. The information is for Class I shares of
the Fund for the periods indicated.

Review each chart with the financial statements which appear in the SAI.
Additional performance information is contained in the annual report, which you
can receive at no charge.

The financial highlights for the fiscal year ended March 31, 1999 and the
period from July 9, 1997 through March 31, 1998 were audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports were
unqualified.

CLASS I SHARES (FISCAL PERIODS ENDED 3-31)
PER SHARE OPERATING PERFORMANCE 1999 1998(1)
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00

INCOME FROM INVESTMENT OPERATIONS:

Net investment income and net
realized gains .053(4) .041(4)
Dividends and distributions to
shareholders (.053) (.041)
Net asset value, end of period $1.00 $1.00
TOTAL RETURN(2) 5.45% 4.15%

- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $1,750,229 $910,394
AVERAGE NET ASSETS (000) $1,470,082 $814,138

RATIOS TO AVERAGE NET ASSETS:

Net investment income 5.26%(4) 5.60%(3),(4)
Expenses .15%(4) .15%(3),(4)

- --------------------------------------------------------------------------------

(1) INFORMATION SHOWN IS FOR THE PERIOD FROM 7-9-97, WHEN CLASS I SHARES WERE
FIRST OFFERED, THROUGH 3-31-98.

(2) 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 LESS THAN A
FULL YEAR ARE NOT ANNUALIZED.

(3) ANNUALIZED.

(4) NET OF MANAGEMENT FEE WAIVER/EXPENSE SUBSIDY.

<PAGE>

- --------------------------------------------------------------------------------

[This page has been left blank intentionally.]

- --------------------------------------------------------------------------------
21

<PAGE>

- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

STOCK FUNDS

PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH
& INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE
FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
PRUDENTIAL UTILITY FUND, INC.
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS
EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES
FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND
FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

<PAGE>

- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------

BOND FUNDS

MONEY MARKET FUNDS

TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
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.
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

COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------

<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before
you invest in the Fund and keep it
for future reference. For information
or shareholder questions contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INSTITUTIONAL SERVICE DIVISION
P.O. BOX 15030
NEW BRUNSWICK, NJ 08906-5030
(800) 521-7466
(732) 417-7555
(if calling from outside the U.S.)

- ----------------------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769

- ----------------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com

- ----------------------------------------------

Additional information about the
Fund can be obtained without charge
and can be found in the following documents:

STATEMENT OF ADDITIONAL
INFORMATION (SAI)
(incorporated by reference into
this prospectus)
ANNUAL REPORT
SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents
from the Securities and Exchange
Commission as follows:

By Mail:

Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
1(800) SEC-0330)

Via the Internet:
http://www.sec.gov

- ----------------------------------------------
CUSIP Numbers:
Class I Shares--744350-60-4
Investment Company Act File No:
811-5336

MF137I [logo] Printed on Recycled Paper

<PAGE>
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Additional Information
Dated June 11, 1999

Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money
Market Series (the Fund) is an open-end, diversified, management investment
company whose investment objective is high current income consistent with the
preservation of principal and liquidity. The Fund pursues this objective by
investing primarily in a portfolio of short-term money market instruments
maturing within thirteen months of the date of acquisition. There can be no
assurance that the Fund's investment objective will be achieved. See "How the
Fund Invests" in the Fund's Prospectus and "Description of the Fund, its
Investments and Risks."

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 sets forth information about the
Fund. This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus for Class A shares or Class I
shares, dated June 11, 1999, a copy of which may be obtained from the Fund upon
request at the address or telephone number noted above.

TABLE OF CONTENTS
PAGE
----
Fund History ............................................................. B-2
Description of the Fund, its Investments and Risks ....................... B-2
Investment Restrictions .................................................. B-4
Management of the Fund ................................................... B-6
Control Persons and Principal Holders of Securities ...................... B-8
Investment Advisory and Other Services ................................... B-9
Brokerage Allocation and Other Practices ................................. B-11
Securities and Organization .............................................. B-12
Purchase and Redemption of Fund Shares ................................... B-12
Net Asset Value .......................................................... B-13
Taxes, Dividends and Distributions ....................................... B-13
Calculation of Yield ..................................................... B-15
Financial Statements ..................................................... B-16
Reports of Independent Accountants ....................................... B-24
Appendix I--Description of Ratings ....................................... I-1
Appendix II--Information Relating to Prudential .......................... II-1
================================================================================

MF137B

<PAGE>

FUND HISTORY

The Fund was organized as a corporation under the laws of Maryland on
September 1, 1987.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(a) CLASSIFICATION. The Fund is a diversified open-end management
investment company.

(b) INVESTMENT STRATEGIES AND RISKS.

The Fund's investment objective is high current income consistent with the
preservation of principal and liquidity. While the principal investment policies
and strategies for seeking to achieve this objective are described in the Fund's
Prospectus, the Fund may from time to time also utilize the securities,
instruments, policies and strategies described below in seeking to achieve its
objective. The Fund may not be successful in achieving its objective and you can
lose money.

OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES

Obligations issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Fund 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).
The Fund does not intend to purchase TIGRs or CATS during the coming year.

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.

DEMAND FEATURES AND GUARANTEES

The Fund may purchase demand features and guarantees. A demand feature
supporting a money market fund instrument can be relied upon in a number of
respects. First, the demand feature can be relied upon to shorten the maturity
of the underlying instrument. Second, the demand feature, if unconditional, can
be used to evaluate the credit quality of the underlying security. This means
that the credit quality of the underlying security can be based solely on the
credit quality of the unconditional demand feature supporting that security.

A GUARANTEE is a form of unconditional credit support that may include bond
insurance, a letter of credit, and an unconditional demand feature. A money
market fund holding a security subject to a guarantee may determine the credit
quality of the underlying security solely on the basis of the credit quality of
the supporting guarantee.

The Fund can invest 10% of its total assets in securities directly issued
by, or supported by, a demand feature provider or guarantor. Investment Company
Act Rule 2a-7 provides a more stringent limit on demand features and guarantees
that are "second tier securities" under the Rule; that is, those securities that
are rated in the second highest category by a specified number of rating
organizations. Specifically, Rule 2a-7 provides that a money market fund cannot
invest more than 5% of its total assets in securities directly issued by, or
supported by, second tier demand features or guarantees that are issued by the
institution that issued such second tier securities.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio to brokers, dealers and financial institutions, provided that
outstanding loans for the Fund do not exceed in the aggregate 15% of the value
of the Fund's total assets and, provided that such loans are callable at any
time by the Fund and are at all times secured by cash or U.S. Government
securities that is equal to at least the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Fund 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. Any voting rights,
or rights to consent, relating to the securities loaned pass to the borrower.
However, if a material event affecting the investment occurs, such loans will be
called so that the loaned securities may be voted by the Fund.

B-2
<PAGE>

A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund 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 Fund, and any gain or loss in the market price during the loan
would inure to the Fund.

The Fund 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.

ILLIQUID SECURITIES

The Fund may not 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 under procedures established by the
Board of Directors. 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 (NRSROs), 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 "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.

BORROWING

The Fund may borrow from banks (including through entering into reverse
repurchase agreements) up to and including 15% of the value of its net assets
taken at cost for temporary or emergency purposes. The Fund may pledge up to and
including 15% of its net assets to secure such borrowings. The Fund will not
purchase portfolio securities if its borrowings (other than permissible
securities loans) exceed 5% of its total assets.

REPURCHASE AGREEMENTS

The Fund 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). The repurchase

B-3
<PAGE>

agreements provide that the Fund 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 Fund, 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
Custodian, directly or through a sub-custodian, and will be maintained
physically or in a book-entry account.

The Fund 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 Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds limit any sale of such collateral upon a default
in the obligation to repurchase are less than the resale price, the Fund 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 trust is unsettled. As a result, under
these circumstances, there may be a restriction on the Fund's ability to sell
the collateral, and the Fund could suffer a loss.

The Fund 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 Fund may be aggregated with
those of such other investment companies and invested in one or more repurchase
agreements. The 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.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements have the characteristics of borrowing and
involve the sale of securities held by the Fund with an agreement to repurchase
the securities at a specified price, date and interest payment. The Fund 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 Fund 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 Fund 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 Fund's 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.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund 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 Fund 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 Fund at the time of entering into the transaction. The Fund will
limit such purchases to those in which the date of delivery and payment falls
within 90 days of the date of the commitment. The Fund will make commitments for
such when-issued transactions only with the intention of actually acquiring the
securities. The Fund's Custodian will segregate cash or other liquid assets
having a value equal to or greater than the Fund's purchase commitments. If the
Fund 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.

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the outstanding voting securities of the Fund. 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. With respect to the submission of a change in fundamental policy or
investment objective of the Fund, such matters shall be deemed to have been
effectively acted upon with respect to the Fund if a majority of the outstanding
voting securities of the Fund votes for the approval of such matters as provided
above.

B-4
<PAGE>

The following investment restrictions are fundamental policies of the Fund
and may not be changed except as described above.

The Fund may not:

1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions); provided that
the deposit or payment by the Fund 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 the
Fund 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.
The Fund will not 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 Fund's total assets, more than 5% of the value of the Fund's 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
the Fund's 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 the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily marketable.

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 Fund 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 the Fund's 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, the
Fund's obligations with respect to reverse repurchase agreements would exceed
15% of the value of the Fund's total assets.

14. Buy or sell commodities or commodity contracts, except that the Fund
may purchase and sell futures contracts and options thereon.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the action is taken, a later change in percentage
resulting from changing total or net asset values will not be considered a
violation of such policy. However, in the event that the Fund's asset coverage
for borrowings falls below 300%, the Fund will take action within three days to
reduce its borrowings, as required by applicable law.

B-5
<PAGE>

MANAGEMENT OF THE FUND

(A) DIRECTORS

The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser, and Distributor, decide upon matters of general
policy.

The Directors also review the actions of the officers of the Fund, who
conduct and supervise the daily business operations of the Fund.

<TABLE>
(B) MANAGEMENT INFORMATION--DIRECTORS AND OFFICERS

<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE (1) THE FUND PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS
- ------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (74) Director President and Director of BMC Fund, Inc., a closed-end
investment company; previously, 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; and
Director of The High Yield Income Fund, Inc.

Delayne Dedrick Gold (60) Director Marketing and Management Consultant; Director of The High Yield
Income Fund, Inc.
* Robert F. Gunia (52) Director Vice President of Prudential Investments (since September
and Vice 1997); Executive Vice President and Treasurer (since
President 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), and Executive Vice
President, Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund Management,
Inc. (PMF); Vice President and Director (since May 1989) of
The Asia Pacific Fund, Inc.; Director of The High Yield Income
Fund, Inc.
Don G. Hoff (63) Director Chairman and Chief Executive Officer (since 1980) of Intertec,
Inc. (investments); Chairman and Chief Executive Officer of
The Lamaur Corporation, Inc.; Director of Innovative Capital
Management, Inc. and The Greater China Fund, Inc; and
Chairman and Director of The Asia Pacific Fund, Inc.

Robert E. LaBlanc (64) Director President (since 1981) of Robert E. LaBlanc Associates, Inc.
(telecommunications); formerly, General Partner at Salomon
Brothers and Vice-Chairman of Continental Telecom; Director
of Storage Technology Corporation, Titan Corporation,
Salient 3 Communications, Inc. and Tribune Company; and
Trustee of Manhattan College.

Robin B. Smith (59) Director Chairman and Chief Executive Officer (since August 1996) of
Publishers Clearing House; formerly President and Chief
Executive Officer (January 1989-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.
</TABLE>

B-6
<PAGE>

POSITION WITH
NAME, ADDRESS AND AGE (1) THE FUND PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS FOR THE LAST FIVE YEARS
- ------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C>
Stephen Stoneburn (55) Director President and Chief Executive Officer (since June 1996) of
Quadrant Media Corp. (a publishing company); formerly
President (June 1995-June 1996) of Argus Integrated Media,
Inc.; Senior Vice President and Managing Director (January
1993-1995) of Cowles Business Media; Senior Vice President
(January 1991-1992) and Publishing Vice President (May
1989-December 1990) of Gralla Publications (a division of
United Newspapers, U.K.); and Senior Vice President of
Fairchild Publications, Inc.
* John R. Strangfeld, Jr. (45) Director Chief Executive Officer, Chairman, President and Director of
and President The Prudential Investment Corporation (since January 1990;
Executive Vice President of the Prudential Global Asset
Management Group of Prudential (since February 1998);
Chairman of Pricoa Capital Group (since August 1989);
Chief Executive Officer of Private Asset Management Group
of Prudential (November 1994-December 1998).
Nancy H. Teeters (68) Director Economist; Director of Inland Steel Industries; formerly, Vice
President and Chief Economist of International Business
Machines; Member of the Board of Governors of the Federal
Reserve System; Governor of the Horace H. Rackham School of
Graduate Studies of the University of Michigan; Assistant
Director of the Committee on the Budget of the US House of
Representatives; Senior Fellow at the Library of Congress;
Senior Fellow at the Brookings Institution; staff at Office
of Management and Budget, Council of Economic Advisors and
the Federal Reserve Board.

Robert C. Rosselot (38) Secretary Assistant General Counsel (since September 1997) of PIFM;
formerly, partner with the firm of Howard & Howard,
Bloomfield Hills, Michigan (December 1995-September 1997) and
Corporate Counsel, Federated Investors (1990-1995).
Grace C. Torres (40) Treasurer and First Vice President (since December 1996) of PIFM; First Vice
Principal President (since March 1994) of Prudential Securities;
Financial and formerly First Vice President (March 1994-September 1996),
Accounting Prudential Mutual Fund Management, Inc. and Vice President
Officer (July 1989-March 1994) of Bankers Trust Corporation.
Stephen M. Ungerman (45) Assistant Vice President and Tax Director (since March 1996) of
Treasurer Prudential Investments; formerly First Vice President of
Prudential Mutual Fund Management, Inc. (February
1993-September 1996).
</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, as defined in the Investment Company Act of 1940, as
amended (Investment Company Act), by reason of his affiliation with
Prudential Securities or PIFM.

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.

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 Board of Directors has 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, Mr. Beach is
scheduled to retire on December 31, 1999.

B-7
<PAGE>

Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Directors who is not an affiliated person of PIFM
annual compensation of $1,500, in addition to certain out-of-pocket expenses.
The amount of compensation paid to each Director may change as a result of the
introduction of additional funds upon which the Director will be asked to serve.
Directors may receive their Directors' 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). 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.
The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended March 31, 1999 to the Directors who are not affiliated
with the Manager and the aggregate compensation paid to such Directors for
service on the Fund's Board and that of all other funds managed by PIFM (Fund
Complex) for the calendar year ended December 31, 1998.

COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED 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 $1,500 None N/A $135,000(44/71)*
Stephen C. Eyre--Former Director $1,500 None N/A $ 45,000(14/17)*
Delayne D. Gold--Director $1,500 None N/A $135,000(44/71)*
Robert F. Gunia (1)--Director -- None N/A --
Don G. Hoff--Director $1,500 None N/A $ 45,000(14/17)*
Robert F. LaBlanc--Director $1,500 None N/A $ 45,000(14/17)*
Mendel A. Melzer (1)--Director -- None N/A --
Richard A. Redeker (1)--Former Director -- None N/A --
Robin B. Smith--Director $1,500 None N/A $ 90,000(32/41)*
Stephen Stoneburn--Director $1,500 None N/A $ 45,000(14/17)*
Brian M. Storms (1)--Former Director -- None N/A --
Nancy H. Teeters--Director $1,500 None N/A $ 90,000(26/47)*
</TABLE>

- ----------
* Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.

(1) Directors who are "interested," do not receive compensation from the Fund
Complex (including the Fund).

(2) Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998, including amounts deferred at the
election of Directors under the funds' Deferred Compensation Plans.
Including accrued interest, total deferred compensation amounted to
$116,225 for 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.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 14, 1999, the Directors and officers of the Fund, as a group,
beneficially owned less than 1% of the outstanding shares of Common Stock of the
Fund.

As of May 14, 1999, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding common stock of the Fund were: Goodnoise Corporation,
Attn: Joseph Howell, 719 Colorado Avenue, Palo Alto, CA 94303 owned 29,030,609
Class A shares; Prudential Health Care Plan IN Prudential Insurance Co. of
America, Ros2, Attn: Joanne Brown Lee STO, 56 North Livingston Avenue, Roseland,
NJ 07068 owned 177,858,412 Class I shares; Price Communications Wireless, Attn:
Kim Pressman, Park 80 West, Plaza II 7th Floor, Saddle Brook, NJ 07663 owned
88,749,439 Class I shares; Marc Turtletaub, c/o The Money Store, 707 3rd Street,
W, Sacramento, CA 95605 owned 91,644,285 Class I shares; and Special Liability
Account, Attn: Bart Battista, Two Gateway Center, 7th Floor, Newark, NJ 07102
owned 90,854,910 Class I shares.

As of May 14, 1999, Prudential Securities was the record holder for other
beneficial owners of Class A shares of the Fund, representing approximately
1.40% of the Class A shares then outstanding. In the event of any meetings of
shareholders, Prudential Securities will forward, or cause the forwarding of,
proxy materials to the beneficial owners for which it is the record holder.

B-8
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

(A) INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. 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--Manager" in the Prospectus. As of December 31, 1998, PIFM
managed and/or administered open-end and closed-end management investment
companies with assets of approximately $70.5 billion. According to the
Investment Company Institute, as of November 30, 1998, the Prudential Mutual
Funds were the 18th 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 with the Fund (the Management
Agreement), 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 the Fund and the composition of the Fund's portfolio,
including the purchase, retention, disposition and loan of securities and other
assets. 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 (the Custodian),
and PMFS, the Fund's transfer and dividend disbursing 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 the Management Agreement, a fee
at an annual rate of .20 of 1% of the Fund's average daily net assets. The fee
is computed daily and payable monthly. The Management Agreement also provides
that in the event the expenses of the Fund (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) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes 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. Reductions in excess of the total
compensation payable to PIFM will be paid by PIFM to the Fund. Currently, the
Fund believes that there are no such expense limitations.

In connection with its management of the corporate affairs of the Fund
pursuant to the Management Agreement, PIFM bears the following expenses:

(a) the salaries and expenses of all personnel of PIFM and the Fund,
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 the
subadvisory agreement between PIFM and PI (the Subadvisory Agreement).

Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses, including (a) the fees payable to the
Manager, (b) the fees and expenses of Directors who are not affiliated with PMF
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, if any, 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 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, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, and paying the fees
and expenses of notice filings made in accordance with state securities laws,
(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
expenses.

B-9
<PAGE>

The Management Agreement also provides that PIFM will not be liable for any
error of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The Management Agreement provides that
it will terminate automatically if assigned (as defined in the Investment
Company Act), and that it may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice. The Management
Agreement provides that it will continue in effect for a period of more than two
years from the date of 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, 1999, 1998 and 1997, PIFM received
management fees of $3,435,107, $1,622,396 and $898,786, respectively.
PIFM has entered into the Subadvisory Agreement with PI, 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 Fund's portfolio. The credit unit, with a staff including 7 credit
analysts, reviews on an ongoing basis commercial paper issuers, commercial
banks, non-bank financial institutions and issuers of other taxable fixed-income
obligations. Credit analysts have broad access to research and financial
reports, data retrieval services and industry analysts. They maintain
relationships with the management of corporate issuers and from time to time
visit companies in whose securities the Fund may invest.

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, 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 by the Board of Directors at least
annually in accordance with the requirements of the Investment Company Act.

(B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12B-1 PLAN
Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. Prior to July 1, 1998, Prudential
Securities Incorporated (Prudential Securities, also referred to as the
Distributor), One Seaport Plaza, New York, New York 10292, served as the
distributor of the Fund's shares.
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 federal securities laws.

DISTRIBUTION AND SERVICE PLAN
Under the Fund's Distribution and Service Plan for the Class A shares (the
Plan) and the Distribution Agreement, the Fund pays the Distributor a
distribution and service fee of up to 0.12% of the average daily net assets of
the Class A shares of the Fund, computed daily and payable monthly. Under the
Plan, the Fund is required to pay the distribution and service fee as
reimbursement of the expenses incurred by the Distributor. The Distributor will
incur the expenses of distributing the Class I shares, none of which are
reimbursed by or paid for by the Fund.

For the fiscal year ended March 31, 1999, the Distributor received payments
of $296,966 under the Plan. This amount was spent as reimbursement to brokers
who sold Fund shares.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
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 Plan or in any
agreement relating to the Plan (the Rule 12b-1 Directors), cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Directors or by the vote of the holders of a majority of the outstanding
Class A voting securities of the

B-10
<PAGE>

Fund on not more than 30 days' written notice to any other party to the Plan.
The Plan may not be amended to increase materially the amounts to be spent for
the services described therein without shareholder approval, and all material
amendments must also be approved by the Board of Directors in the manner
described above. The Plan will automatically terminate in the event of its
assignment.

Pursuant to the Plan, the Directors will be provided with, and will review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of the Fund by the Distributor. The report will include an itemization of
the distribution expenses and the purpose of such expenditures. In addition, as
long as the Plan remains in effect, the selection and nomination of Directors
shall be committed to the Rule 12b-1 Directors.

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.

NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of the
Fund's Class A shares. Interest charges on unreimbursed distribution expenses
equal to the prime rate plus one percent per annum may be added to the 6.25%
limitation. Sales from the reinvestment of dividends and distributions are not
included in the calculation of the 6.25% limitation. The annual asset-based
sales charge on Class A shares of the Fund may not exceed .75 of 1% per class.
The 6.25% limitation applies to Class A shares rather than on a per shareholder
basis. If aggregate sales charges were to exceed 6.25% of the total gross sales
of Class A shares, all sales charges on Class A shares would be suspended.

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 PIFM. 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. In connection with services rendered to the Fund, PMFS receives a
monthly fee plus its out-of-pocket expenses, including but not limited to
postage, stationary, printing, allocable communications and other costs.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent public accountants and in that capacity
audits the Fund's annual financial statements. PricewaterhouseCoopers LLP
provides audit services, accounting assistance, and consultation in connection
with Securities and Exchange Commission filings. The financial information for
the Fund provided under "Financial Statements" for the fiscal year ended March
31, 1999 has been audited by PricewaterhouseCoopers LLP, whose report is also
included under "Financial Statements."

BROKERAGE ALLOCATION AND OTHER PRACTICES

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.

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

B-11
<PAGE>

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 of such other accounts, whose aggregate assets are far
larger than those of the Fund, 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 fee it pays to the Manager by any amount that may be attributed to
the value of such services. The Fund will not effect any securities transactions
with or through Prudential Securities as broker or dealer.

During the fiscal years ended March 31, 1999, 1998 and 1997, the Fund paid
no brokerage commissions.

SECURITIES AND ORGANIZATION

Prudential Institutional Liquidity Portfolio, Inc. is authorized to issue
15 billion shares of common stock, $.001 par value per share divided into two
series, Institutional Money Market Series (10 billion shares) and Liquid Assets
Fund (5 billion shares). Only the Institutional Money Market Series is offered
at this time, which is divided into two classes, designated Class A and Class I
common stock. Of the 10 billion authorized shares of common stock of the
Institutional Money Market Series, 5 billion shares consist of Class A shares
and 5 billion shares consist of Class I shares.

Each class represents an interest in the same assets of the Fund 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, and (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. In accordance with the Fund's Articles of Incorporation, the
Board of Directors may authorize the creation of additional series and classes
within such series, with such preferences, privileges, limitations and voting
and dividend rights as the Board of Directors may determine. The Board of
Directors may increase or decrease the number of authorized shares without
approval by shareholders. Shares of the Fund, when issued, are fully paid,
nonassessable, fully transferable and redeemable at the option of the holder.

The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold 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% or more
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.

PURCHASE AND REDEMPTION OF FUND SHARES

The Fund reserves the right to reject any initial or subsequent purchase
order (including an exchange) and the right to limit investments in the Fund
solely to existing or past shareholders of the Fund.

Shares of the Fund may be purchased and redeemed by investors through the
Distributor or directly through Prudential Mutual Fund Services LLC (PMFS).
Shares may also be purchased through the corporate Command Program or the
Business-Edge Program available through Prudential Securities or Pruco
Securities Corporation (Prusec). The procedures for purchase and redemption of
Fund shares are described in the prospectus.

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 account
(i.e., accounts of shareholders with a common institutional or corporate
parent). The investment minimums as set forth in the relevant Prospectus under
"How to Buy and Sell Shares of the Fund--How to Buy Shares" are applicable to
the aggregate amounts invested by a group, and not to the amount credited to
each subaccount.

REOPENING AN ACCOUNT

Subject to the minimum investment restrictions, an investor may reopen an
account, without filing a new application, at any time during the calendar year
the account is closed, provided that the information on that application is
still applicable.

B-12
<PAGE>

REDEMPTION IN KIND

If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption price in whole or in part by
a distribution in kind of securities from the investment portfolio of the Fund,
in lieu of cash, in conformity with applicable rules of the SEC. Any such
securities will be readily marketable and will be valued in the same manner as
in a regular redemption. If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.

RESTRICTIONS ON SALE

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 (the Exchange) is closed other than customary weekend and holiday
closings or (b) during which trading on the Exchange is restricted; (2) for any
period during which an emergency exists as a result of which (a) disposal by the
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for the Fund 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 Fund. 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.

NET ASSET VALUE

The Fund's net asset value per share is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares.

The Fund uses the amortized cost method of valuation to determine the value
of its portfolio securities. In that regard, the Fund's Board of Directors has
determined to maintain a dollar-weighted average portfolio maturity of 90 days
or less, to purchase only instruments having remaining maturities of thirteen
months or less, and to invest only in securities determined by the investment
adviser under the supervision of the Board of Directors to be of minimal credit
risk and to be of "eligible quality" in accordance with regulations of the SEC.
The remaining maturity of an instrument held by the Fund that is subject to a
put is deemed to be the period remaining until the principal amount can be
recovered through demand or, in the case of a variable rate instrument, the next
interest reset date, if longer. The value assigned to the put is zero. The Board
of Directors also has established procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of a Fund's portfolio holdings by the Board, at such intervals as deemed
appropriate, to determine whether the Fund's 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.

The Fund computes its net asset value at 4:00 P.M. New York Time, on each
day the Exchange is open for trading. In the event the Exchange closes early on
any business day, the net asset value of the Fund's shares shall be determined
at a time between such closing and 4:00 P.M. New York Time. The Exchange is
closed on the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

TAXES, DIVIDENDS AND DISTRIBUTIONS

The Fund has elected to qualify, and the Fund intends to remain qualified,
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended. This relieves a fund (but not its shareholders) from
paying federal income tax on income which is distributed to shareholders, and,
if a fund did realize long-term capital gains, permits net capital gains of the
fund (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 fund.

B-13
<PAGE>

Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of a fund's 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 other income (including, but not limited to, gains from
options) derived with respect to its business of investing in such securities;
(b) a fund must 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 fund's 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 fund's 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 (c)
the fund must distribute to its shareholders at least 90% of its net investment
income and net short-term gains (i.e., the excess of net short-term capital
gains over net long-term capital losses) in each year.

Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. The Fund does not anticipate realizing long-term capital
gains or losses. Other gains or losses on the sale of securities will be
short-term capital gains or losses. In addition, debt securities acquired by the
Fund may be subject to original issue discount and market discount rules.

The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year, as well as all
undistributed ordinary income and undistributed capital gain net income from the
prior year or the twelve-month period ending on October 31 of such prior year,
respectively. To the extent it does not meet these distribution requirements,
the Fund will be subject to a non-deductible 4% excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed. The Fund 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.

It is anticipated that the net asset value per share of the Fund 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.
Distributions of net investment income and net short-term gains will be taxable
to the shareholder at ordinary income rates regardless of whether the
shareholder receives such distributions in additional shares or cash. Any gain
or loss realized upon a sale or redemption of shares by a shareholder who is not
a dealer in securities will generally be treated as long-term capital gain or
loss if the shares have been held for more than one year and otherwise as
short-term capital gain or loss. Any such loss, however, although otherwise
treated as short-term capital loss, will be 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. Furthermore, certain rules may apply
which would limit the ability of the shareholder to recognize any loss if, for
example, the shareholder replaced the shares within 30 days of the disposition
of the shares. Because none of the Fund's net income is anticipated to arise
from dividends on common or preferred stock, none of its distributions to
shareholders will be eligible for the dividends received deduction for
corporations under the Internal Revenue Code. Shareholders will be notified
annually by the Fund as to the federal tax status of distributions made by the
Fund.

Under the laws of certain states, distributions of net income may be
taxable to shareholders as income even though a portion of such distributions
may be derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from state income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.

The budget proposals issued by the Clinton Administration on February 1,
1999 include proposed changes with respect to the U.S. federal income tax
treatment of distributions from mutual funds to foreign investors. Under present
law, interest income and short-term capital gains received by a U.S. money
market fund are recharacterized as dividend income that is subject to U.S.
withholding tax when distributed to foreign investors. The proposal would treat
all income received by a U.S. money market fund that invests substantially all
its assets in U.S. debt securities or cash as interest that is exempt from U.S.
withholding tax. The proposal would be effective for mutual fund taxable years
beginning after the date of enactment.

There can be no certainty as to whether any such proposal will be enacted
or if enacted what its effective date might be.

B-14
<PAGE>

CALCULATION OF YIELD

The Fund will prepare a current quotation of yield daily. The yield quoted
will be the simple annualized yield for an identified seven calendar day period.
The yield calculation will be based on a hypothetical account having a balance
of exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares, but excluding any capital changes, divided by the value
of the account at the beginning of the base period. The yield will vary as
interest rates and other conditions affecting money market instruments change.
Yield also depends on the quality, length of maturity and type of instruments in
the Fund's portfolio, and its operating expenses. The Fund 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
The yield and effective yield for Class A shares of the Fund based on the 7
days ended March 31, 1999 were 4.82% and 4.94%, respectively. The yield and
effective yield for Class I shares of the Fund based on 7 days ended March 31,
1999, were 4.87% and 5.00%, respectively.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's 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.

The Fund's yield fluctuates, and an annualized yield quotation is not a
representation by the Fund as to what an investment in the Fund 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 Fund is
held, but also in changes in the Fund's expenses. Yield does not take into
account any federal or state income taxes.

B-15
<PAGE>

Portfolio of Investments PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
as of March 31, 1999 INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--7.1%
American Express Centurion Bank
$ 14,000 4.935%, 4/8/99(b) $ 14,000,000
Comerica Bank of Detroit
10,000 4.8175%, 4/19/99(b) 9,998,236
FCC National Bank
25,000 5.12%, 2/23/00 24,992,428
17,000 5.14%, 3/22/00 16,994,431
First Union National Bank
30,000 4.945%, 5/19/99(b) 30,000,000
Harris Trust & Savings of Chicago
40,101 5.05%, 2/14/00 40,090,867
Nationsbank, N.A.
13,000 5.03609%, 4/1/99(b) 12,997,889
--------------
149,073,851
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--0.5%
Morgan Guaranty Trust Co.
10,900 4.63%, 10/22/99 10,872,477
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--1.6%
Abbey National Treasury Services
PLC
33,000 4.90%, 6/29/99 33,000,000
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--12.8%
Banque Nationale de Paris
25,000 4.89%, 5/3/99 25,000,000
Barclays Bank PLC
18,000 4.8275%, 4/2/99(b) 17,997,584
Bayerische Landesbank Girozentrale
5,000 4.8125%, 4/12/99(b) 4,999,441
23,000 4.80438%, 4/30/99(b) 22,995,463
3,000 5.645%, 7/22/99 3,004,242
Canadian Imperial Bank of Commerce
5,000 5.73%, 4/27/99 5,001,993
Commerzbank AG
20,000 5.14%, 9/15/99 20,005,979
Deutsche Bank
15,000 5.01%, 1/24/00 14,995,276
Deutsche Bank
$ 5,000 4.97%, 2/2/00 $ 4,994,671
25,000 4.98%, 2/2/00 24,993,913
10,000 5.10%, 2/18/00 9,997,015
Royal Bank of Canada
23,000 4.84%, 4/6/99(b) 22,994,568
50,000 4.99%, 1/31/00 49,987,944
Svenska Handelsbanken, Inc.
4,000 5.79%, 5/7/99 4,002,342
Swiss Bank Corp.
2,000 5.68%, 6/4/99 2,001,613
20,000 5.74%, 6/11/99 19,997,765
Toronto Dominion Bank
10,000 5.02%, 2/4/00 9,997,551
8,000 5.06%, 2/10/00 7,997,338
--------------
270,964,698
- ------------------------------------------------------------
Commercial Paper--39.4%
Aon Corp.
21,091 4.85%, 4/20/99 21,037,013
10,000 4.90%, 4/27/99 9,964,611
24,055 4.93%, 5/6/99 23,939,703
Associates First Capital Corp.
35,000 4.85%, 5/17/99 34,783,097
10,000 4.88%, 5/24/99 9,928,156
Bank One Corp.
27,200 4.81%, 6/28/99 26,880,188
BankAmerica Corp.
10,000 4.84%, 8/25/99 9,803,711
Barton Capital Corp.
8,955 4.90%, 4/27/99 8,923,309
BBL North America, Inc.
22,000 4.80%, 5/3/99 21,906,133
Bradford & Bingley Building
Society
5,000 4.84%, 5/24/99 4,964,372
Chrysler Financial Co. LLC
6,700 4.83%, 5/28/99 6,648,762
CIT Group Holdings, Inc.
15,000 4.80%, 5/14/99 14,914,000
Clipper Receivables Corp.
1,374 5.00%, 4/16/99 1,371,138
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-16
<PAGE>

Portfolio of Investments PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
as of March 31, 1999 INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
Countrywide Home Loan, Inc.
$ 13,089 4.90%, 4/28/99 $ 13,040,898
11,000 4.89%, 5/20/99 10,926,786
12,666 4.90%, 5/24/99 12,574,629
25,000 4.92%, 5/24/99 24,818,917
Daimler Chrysler North America
Hldgs.
32,000 4.85%, 6/29/99 31,616,311
20,000 4.85%, 6/29/99 19,760,194
General Electric Capital Corp.
40,000 5.12%, 4/1/99 40,000,000
4,300 5.05%, 4/7/99 4,296,381
15,000 4.85%, 4/26/99 14,949,479
GTE Corp.
32,000 4.93%, 5/10/99 31,829,093
Hertz Corp.
20,008 5.05%, 4/5/99 19,996,773
ING America Insurance Holdings,
Inc.
18,780 4.925%, 6/24/99 18,564,186
1,580 4.87%, 9/15/99 1,544,306
Merrill Lynch & Co., Inc.
14,274 4.90%, 4/13/99 14,250,686
Mont Blanc Capital Corp.
21,583 4.95%, 4/12/99 21,550,356
17,000 4.88%, 5/21/99 16,884,778
Monte Rosa Capital Corp.
59,000 4.95%, 4/28/99 58,780,962
Morgan Stanley Dean Witter
50,000 4.85%, 5/20/99 49,669,931
Nordbanken North America, Inc.
50,000 4.87%, 5/18/99 49,682,097
Novartis Finance Corp.
15,813 4.90%, 4/21/99 15,769,954
30,000 4.90%, 4/26/99 29,897,917
Preferred Receivables Funding
Corp.
12,000 4.92%, 4/22/99 11,965,560
Receivables Capital Corp.
7,631 4.88%, 5/10/99 7,590,657
Toronto Dominion Hldgs.
23,343 4.90%, 6/4/99 23,139,657
20,000 4.90%, 6/8/99 19,814,889
UBS Finance, Inc.
3,450 4.80%, 5/24/99 3,425,620
Variable Funding Capital Corp.
$ 5,956 5.00%, 4/15/99 $ 5,944,419
Wells Fargo & Co.
13,180 5.04%, 4/30/99 13,126,489
13,000 4.82%, 5/28/99 12,900,788
Windmill Funding Corp.
18,000 4.86%, 6/3/99 17,846,910
21,524 4.85%, 6/23/99 21,283,320
--------------
832,507,136
- ------------------------------------------------------------
Loan Participations--0.6%
John Hancock Capital Corp.
13,000 5.14031%, 4/14/99(b)/(c)
(cost $13,000,000, date
purchased 1/14/99) 13,000,000
- ------------------------------------------------------------
Other Corporate Obligations--19.5%
Abbey National Treasury Services
PLC
33,000 5.72%, 6/11/99 32,995,082
Associates Corp. of North America
30,000 4.78%, 4/23/99(b) 29,998,275
6,500 8.25%, 6/1/99(b) 6,632,857
Bishops Gate Residental Mortgage
Trust 1998-2A
13,000 5.16344%, 4/1/99(b) 13,000,000
Chrysler Financial Co. LLC
13,000 9.50%, 6/15/99 13,394,293
32,000 6.375%, 7/28/99 32,338,868
CIT Group Holdings, Inc.
8,750 5.875%, 6/9/99 8,795,922
Ford Motor Credit Co.
5,000 5.83%, 9/15/99 5,032,688
General Electric Capital Corp.
9,000 4.905%, 6/9/99(b) 8,999,214
36,000 4.98%, 6/9/99(b) 36,000,000
Goldman Sachs Group, L.P.
21,000 5.0675%, 4/19/99(b)/(c)
(cost $21,000,000, date
purchased 6/3/96) 21,000,000
IBM Credit Corp.
25,000 4.87%, 4/5/99(b) 24,999,819
International Lease Finance Corp.
3,000 5.22625%, 6/2/99(b) 3,001,288
12,055 5.75%, 6/15/99 12,109,583
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-17
<PAGE>

Portfolio of Investments PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
as of March 31, 1999 INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Other Corporate Obligations (cont'd.)
Restructured Asset Securities
$ 31,000 4.9525%, 4/2/99(b)/(c)
(cost $31,000,000, date
purchased 8/28/98) $ 31,000,000
37,000 5.0525%, 4/12/99(b)/(c)
(cost $37,000,000, date
purchased 12/23/98) 37,000,000
Short-Term Repackaged Asset Trust
1998-E
18,000 4.93625%, 4/19/99(b)/(c)
(cost $18,000,000, date
purchased 9/23/98) 18,000,000
Strategic Money Market Trust
24,974 1999-B, 5.10052%, 6/15/99(b)/(c)
(cost $24,974,000, date
purchased 3/5/99) 24,974,000
52,000 1998-A, 5.10%, 6/16/99(b)/(c)
(cost $52,000,000, date
purchased 12/16/98) 52,000,000
--------------
411,271,889
- ------------------------------------------------------------
Repurchase Agreement(d)--0.7%
15,000 J.P. Morgan Securities, 5.0%,
dated 3/31/99, due 4/5/99, in
the amount of $15,010,417 (cost
$15,000,000, value of
collateral including accrued
interest-$15,300,001) 15,000,000
- ------------------------------------------------------------
Time Deposit - Eurodollar--17.5%
Banque Nationale de Paris
70,000 5.25%, 4/1/99 70,000,000
Deutsche Bank
49,000 5.125%, 4/1/99 49,000,000
Societe Generale
95,000 5.125%, 4/1/99 95,000,000
State Street Bank & Trust Co.
55,041 5.00%, 4/1/99 55,041,000
Suntrust Bank
100,000 5.25%, 4/1/99 100,000,000
--------------
369,041,000
- ------------------------------------------------------------
Total Investments--99.7%
(amortized cost $2,104,731,051(a)) 2,104,731,051
Other assets in excess of
liabilities--0.3% 6,664,873
--------------
Net Assets--100% $2,111,395,924
--------------
--------------
</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 $196,974,000.
The aggregate value ($196,974,000) is approximately 9.3% of net assets.
(d) Repurchase Agreement collateralized by U.S. Treasury or Federal agency
obligations.

The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of March 31, 1999 was as
follows:
<TABLE>
<S> <C>
Commercial Banks................................... 54.3%
Asset Backed Securities............................ 9.6
Short-Term Business Credit......................... 6.1
Motor Vehicle Parts................................ 5.2
Securities Brokers & Dealers....................... 4.0
Personal Credit Institutions....................... 3.9
Mortgage Banks..................................... 2.9
Accident & Health Insurance........................ 2.6
Pharmaceuticals.................................... 2.1
Insurance Agent.................................... 1.7
Phone Communications............................... 1.5
Office Machines.................................... 1.2
Fire, Marine, Casualty Insurance................... 1.0
Auto Rental & Leasing.............................. 0.9
Equipment Rental & Leasing......................... 0.7
Finance Services................................... 0.7
Repurchase Agreement............................... 0.7
Insurance.......................................... 0.6
-----
99.7
Other assets in excess of liabilities.............. 0.3
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-18
<PAGE>

Statement of Assets and PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Liabilities INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1999
<S> <C>
Investments, at amortized cost which approximates market value............................................. $2,104,731,051
Interest receivable........................................................................................ 9,249,514
Due from manager........................................................................................... 197,872
Deferred expenses and other assets......................................................................... 11,160
--------------
Total assets............................................................................................ 2,114,189,597
--------------
Liabilities
Dividends payable.......................................................................................... 2,190,993
Accrued expenses and other liabilities..................................................................... 594,556
Distribution fee payable................................................................................... 8,124
--------------
Total liabilities....................................................................................... 2,793,673
--------------
Net Assets................................................................................................. $2,111,395,924
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 2,111,396
Paid-in capital in excess of par........................................................................ 2,109,284,528
--------------
Net assets, March 31, 1999................................................................................. $2,111,395,924
--------------
--------------
Class A:
Net asset value, offering and redemption price per share
($361,167,204 / 361,167,204 shares of common stock issued and outstanding).............................. $1.00
--------------
--------------
Class I:
Net asset value, offering and redemption price per share
($1,750,228,720 / 1,750,228,720 shares of common stock issued and outstanding).......................... $1.00
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-19
<PAGE>

PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31, 1999
<S> <C>
Income
Interest.................................... $ 92,925,412
--------------
Expenses
Management fee.............................. 3,435,107
Distribution fee--Class A................... 296,966
Registration fees........................... 531,000
Transfer agent's fees and expenses.......... 250,000
Custodian's fees and expenses............... 146,000
Reports to shareholders..................... 60,000
Legal fees and expenses..................... 50,000
Audit fee and expenses...................... 25,000
Insurance expenses.......................... 22,000
Directors' fees............................. 12,000
Miscellaneous............................... 9,738
--------------
Total expenses........................... 4,837,811
Less: Expense subsidy (Note 4).............. (1,104,375)
Management fee waiver (Note 2)........... (858,777)
Distribution fee waiver (Note 2)......... (173,230)
--------------
Net expenses 2,701,429
--------------
Net investment income.......................... 90,223,983
--------------
Net Realized Gain on Investments
Net realized gain on investment transactions... 33,231
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 90,257,214
--------------
--------------
</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 1999 1998
<S> <C> <C>
Operations
Net investment income.... $ 90,223,983 $ 45,040,087
Net realized gain on
investment
transactions.......... 33,231 5,299
---------------- ---------------
Net increase in net
assets resulting from
operations............ 90,257,214 45,045,386
---------------- ---------------
Dividends and distributions (Note 1)
Class A............... (12,867,746) (11,814,111)
Class I............... (77,389,468) (33,231,275)
---------------- ---------------
(90,257,214) (45,045,386)
---------------- ---------------
Fund share transactions (net
of conversions) (Note 5)
Net proceeds from shares
sold.................. 14,846,339,434 8,138,663,244
Net asset value of shares
issued in reinvestment
of dividends and
distributions......... 78,273,080 41,968,951
Cost of shares
reacquired............ (13,864,423,952) (7,607,469,838)
---------------- ---------------
Net increase in net
assets from Fund share
transactions.......... 1,060,188,562 573,162,357
---------------- ---------------
Total increase.............. 1,060,188,562 573,162,357
Net Assets
Beginning of year........... 1,051,207,362 478,045,005
---------------- ---------------
End of year................. $ 2,111,395,924 $ 1,051,207,362
---------------- ---------------
---------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-20
<PAGE>

PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Institutional Liquidity Portfolio, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. The Fund consists of two series--the Institutional Money
Market Series (the "Series") and the Liquid Assets Series. The Liquid Assets
Series has not yet begun operations. The investment objective of the Series is
high current income consistent with the preservation of principal and liquidity.
The Series invests primarily in money market instruments maturing in 13 months
or less whose ratings are within the 2 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
Series 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, and the Series, in the preparation of its financial statements.

Securities Valuation: 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.

Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.

Federal Income Taxes: For federal income tax purposes, each Series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series 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 Series declares all of its net investment
income and net realized short-term capital gains or losses, if any, as dividends
daily to its shareholders of record at the time of such declaration. Payment of
dividends is made monthly. 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, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ("PIC"); PIC furnishes investment advisory services in
connection with the management of the 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 to PIFM is computed daily and payable monthly, at an
annual rate of .20 of 1% of the average daily net assets of the Series. PIFM has
agreed to waive a portion (.05 of 1% of the Series' average daily net assets) of
its management fee, which amounted to $858,777 ($.0004 per share) for the year
ended March 31, 1999. The Series is not required to reimburse PIFM for such
waiver.

The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A and Class I shares of the
Fund through May 31, 1998. Prudential Investment Management Services LLC
("PIMS") became the distributor of the Fund effective June 1, 1998 and is
serving the Fund under the same terms and conditions as under the arrangement
with PSI. The Fund compensated PSI and PIMS for distributing and servicing the
Fund's Class A shares, pursuant to the plan of distribution at an annual rate of
.12 of 1% of the Series' average daily net assets of the Class A shares. PSI and
PIMS have agreed to waive a portion (.07 of 1% of the Series' average daily net
assets) of the distribution fee, which amounted to $173,230 ($.0005 per share)
for the year ended March 31, 1999. The Series is not required to reimburse PSI
and PIMS for such waiver. The Class A distribution fee is accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
of the Class I shares of the Fund.

PSI, PIMS, PIFM and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.

The Fund has an uncommitted credit agreement (the "Agreement") with an
unaffiliated lender. The maximum commitment under the Agreement
- --------------------------------------------------------------------------------

B-21
<PAGE>

PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
is $100,000,000. Interest on any such borrowings outstanding will be at market
rates. The purpose of the Agreement is to serve as an alternative source of
funding for capital share redemptions. The Fund has not borrowed any amounts
pursuant to the Agreement during the year ended March 31, 1999. The Fund does
not pay a fee for the credit facility.
- ------------------------------------------------------------
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, 1999, the
Series incurred fees of $240,000 for the services of PMFS. As of March 31, 1999,
$20,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations also include certain out-of-pocket expenses paid to
nonaffiliates.
- ------------------------------------------------------------
Note 4. Expense Subsidy
PIFM has voluntarily agreed to subsidize operating expenses so that total Series
operating expenses do not exceed .20% and .15% of the average daily net assets
of the Class A and Class I shares, respectively. For the year ended March 31,
1999, such reimbursement amounted to $1,104,375 ($.0005 per share for Class A
and I shares; .06% of average net assets).
- ------------------------------------------------------------
Note 5. Capital
The Series offers Class A and Class I shares. 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.
There are 10 billion authorized shares of common stock, $.001 par value per
share, divided into 5 billion authorized Class A shares and 5 billion authorized
Class I shares.
As of March 31, 1999, Prudential owned 2,219,340 Class I shares.

Transactions in shares of common stock (at $1 per share) were as follows:
<TABLE>
<CAPTION>
Shares
and
Dollar
Class A Amount
- -------------------------------------------- ---------------
<S> <C>
Year ended March 31, 1999:
Shares sold................................. 912,064,251
Shares issued in reinvestment of dividends
and distributions......................... 11,977,599
Shares reacquired........................... (588,928,339)
---------------
Net increase in shares outstanding before
conversion................................ 335,113,511
Shares reacquired upon conversion into Class
I......................................... (114,759,453)
---------------
Net increase in shares outstanding.......... 220,354,058
---------------
---------------
Year ended March 31, 1998:
Shares sold................................. 1,563,160,572
Shares issued in reinvestment of dividends
and distributions......................... 12,370,105
Shares reacquired........................... (1,279,737,241)
---------------
Net increase in shares outstanding before
conversion................................ 295,793,436
Shares reacquired upon conversion into Class
I......................................... (633,025,295)
---------------
Net decrease in shares outstanding.......... (337,231,859)
---------------
---------------
<CAPTION>
Class I
- --------------------------------------------
<S> <C>
Year ended March 31, 1999:
Shares sold................................. 13,934,275,183
Shares issued in reinvestment of dividends
and
distributions............................. 66,295,481
Shares reacquired........................... (13,275,495,613)
---------------
Net increase in shares outstanding before
conversion................................ 725,075,051
Shares issued upon conversion from Class
A......................................... 114,759,453
---------------
Net increase in shares outstanding.......... 839,834,504
---------------
---------------
July 9, 1997(a) through March 31, 1998:
Shares sold................................. 6,575,502,672
Shares issued in reinvestment of dividends
and distributions......................... 29,598,846
Shares reacquired........................... (6,327,732,597)
---------------
Net increase in shares outstanding before
conversion................................ 277,368,921
Shares issued upon conversion from Class
A......................................... 633,025,295
---------------
Net increase in shares outstanding.......... 910,394,216
---------------
---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class I shares.
- --------------------------------------------------------------------------------

B-22
<PAGE>

PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
Financial Highlights INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class I
----------------------------------------------------------------- ----------
Year Ended March 31, Year Ended
----------------------------------------------------------------- March 31,
1999 1998 1997 1996 1995 1999
------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized
gains................................ .053(d) .055(d) .050 .056 .046 .053(e)
Dividends and distributions to
shareholders......................... (.053) (.055) (.050) (.056) (.046) (.053)
------------- -------- -------- -------- -------- ----------
Net asset value, end of period.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- -------- -------- -------- -------- ----------
------------- -------- -------- -------- -------- ----------
TOTAL RETURN(a):........................ 5.39% 5.63% 5.16% 5.72% 4.69% 5.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 361,167 $140,813 $478,045 $440,842 $476,229 $1,750,229
Average net assets (000)................ $ 247,471 $217,881 $449,393 $519,946 $402,678 $1,470,082
Ratios to average net assets:
Expenses, including distribution
fee............................... .20%(d) .29%(d) .46% .43% .46% .15%(e)
Expenses, excluding distribution
fee............................... .15%(e) .21%(e) .34% .31% .34% .15%(e)
Net investment income................ 5.20%(d) 5.42%(d) 5.03% 5.56% 4.67% 5.26%(e)

<CAPTION>
<S> <C>
July 9,
1997(b)
Through
March 31,
1998
---------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 1.000
Net investment income and net realized
gains................................ .041(e)
Dividends and distributions to
shareholders......................... (.041)
---------
Net asset value, end of period.......... $ 1.000
---------
---------
TOTAL RETURN(a):........................ 4.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $910,394
Average net assets (000)................ $814,138
Ratios to average net assets:
Expenses, including distribution
fee............................... .15(c)/(e)
Expenses, excluding distribution
fee............................... .15(c)/(e)
Net investment income................ 5.60(c)/(e)
</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. Total returns for less than a full year are
not annualized.
(b) Commencement of offering of Class I shares.
(c) Annualized.
(d) Net of management and distribution fee waiver/expense subsidy.
(e) Net of management fee waiver/expense subsidy.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-23
<PAGE>

Report of Independent PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
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,
1999, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the three years in the period 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 audits. We conducted our
audits 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
audits, which included confirmation of securities at March 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the two years in the period ended March 31, 1996 were audited by other
independent accountants, whose opinion dated May 9, 1996 was unqualified.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 20, 1999
- --------------------------------------------------------------------------------

B-24
<PAGE>

APPENDIX I

DESCRIPTION OF RATINGS

BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.--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. 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 risks appear somewhat larger than Aaa securities. Bonds
which are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Moody's
applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the company ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the company ranks in the lower end of its generic
rating category.

STANDARD & POOR'S RATINGS GROUP--Debt rated AAA has the highest rating
assigned by S&P. Capacity to pay interest and repay principal is extremely
strong. 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. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.

DUFF AND PHELPS CREDIT RATING CO.--The following summarizes the ratings
used by Duff & Phelps for long-term debt:

"AAA": Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.

"AA+", "AA" or "AA-": High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A+", "A" or "A-": Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

FITCH IBCA--The following summarizes the ratings used by Fitch IBCA
for long-term debt:

"AAA": Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This capacity
is highly unlikely to be adversely affected by foreseeable events.

"AA": Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.

"A": High credit quality. "A" ratings denote a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for
higher ratings.

"BBB": Good credit quality. "BBB" ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment grade category.

"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the "AAA" long-term rating
category or to categories below "CCC".

COMMERCIAL PAPER 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. Issuers rated "Prime-1" (or supporting institutions) have a

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superior ability for repayment of senior short-term debt obligations. Issuers
rated "Prime-2" (or supporting institutions) have a strong ability for repayment
of senior short-term debt obligations. Issuers rated "Prime-3" (or supporting
institutions) have an acceptable ability for repayment of senior short-term
obligations.

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. The
designation A-1 indicates that the degree of safety regarding timely payment is
strong. A "+" designation is applied to those issues rated A-1 which possess
extremely strong safety characteristics. 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. Issues carrying the designation A-3
have adequate capacity for timely payment. They are however, somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.

The following summarizes the ratings used by Duff & Phelps for short-term
debt, which apply to all obligations with maturities of under one year,
including commercial paper.

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.

D-3: Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

The following summarizes the ratings used by Fitch IBCA for short-term
debt, which apply to most obligations with maturities of less than 12 months, or
up to three years for U.S. public finance securities:

"F1": Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.

"F2": Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.

"F3": Fair credit quality. The capacity for timely payment of
financial commitments is adequate, however, near-term adverse changes could
result in a reduction to non-investment grade.

"B": Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial
and economic conditions.

"C": High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.

"D": Default. Denotes actual or imminent payment default.

"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to short-term ratings other than
"F1".

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APPENDIX II

INFORMATION RELATING TO 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 "How the Fund is Managed--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,
1996 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PlC) 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 PlC(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, 1996. Principal products and services include life and health insurance,
other healthcare products, property and casualty insurance, securities
brokerage, asset management, investment advisory services and real estate
brokerage. Prudential (together with its subsidiaries) employs almost 81,000
persons worldwide, and maintains a sales force of approximately 11,500 agents
and nearly 6,400 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 nearly 50 million people
worldwide. Long one of the largest issuers of individual life insurance, the
Prudential has 22 million life insurance policies in force today with a face
value of $1 trillion. Prudential has the largest capital base ($12.1 billion) of
any life insurance company in the United States. Prudential provides auto
insurance for approximately 1.6 million cars and insures approximately 1.2
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. As of
December 31, 1996, Prudential had more than $332 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In PENSIONS & INVESTMENTS, May 12, 1997,
Prudential was ranked third in terms of total assets under management.

REAL ESTATE. The Prudential Real Estate Affiliates, the fourth largest real
estate brokerage network in the United States, has more than 34,000 brokers and
agents and more than 1,100 offices in the United States.(2)

HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.6
million Americans receive healthcare from a Prudential managed care membership.

FINANCIAL SERVICES. The Prudential Bank, a wholly-owned subsidiary of
Prudential, has over $1 billion in assets and serves nearly 1.5 million
customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of December 31, 1997, Prudential Investments Fund Management LLC is the
eighteenth largest mutual fund company 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.

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(1) Prudential Investments, a business group of PIC, serves as the subadviser
to substantially all of the Prudential Mutual Funds. Wellington Management
Company LLP serves as the subadviser to Global Utility Fund, Inc.;
Nicholas-Applegate Capital Management as the subadviser to
Nicholas-Applegate Fund, Inc.; Jennison Associates LLC as the subadviser to
Prudential Jennison Series Fund, Inc., Prudential 20/20 Focus Fund and
Prudential Active Balanced Fund, a portfolio of Prudential Dryden Fund; and
Mercator Asset Management L.P. as the subadviser to International Stock
Series, a portfolio of Prudential World Fund, Inc. There are multiple
subadvisers for The Target Portfolio Trust.

(2) As of December 31, 1996.

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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.

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 PlC. In 1995,
Prudential Securities introduced Prudential Jennison Growth Fund, a growth-style
equity fund managed by Jennison Associates LLC, 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
approximately 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. PlC 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 Funds' 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)

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(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-U.S. accounts
managed by Prudential Mutual Fund Management LLC, a division of PlC, 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.

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Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC, 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.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1997, assets held by Prudential Securities for its
clients approximated $235 billion.

During 1997, approximately 29,000 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 program, 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. Three
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, 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.

Standard & Poor's rates Prudential Securities Incorporated BBB+ with a
"Stable Outlook."

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities Financial
Advisor or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

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(7) As of December 31, 1997.

(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 weighing 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.

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