-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YBhjZIs1UbaHo5yOCz8ql7x7RnN2CnqWQYjN6yY8VsjJrrqXs8HzinSBBLmPB/Mi fS4PyYck2tKhk7FbZFTDag== 0000950110-94-000209.txt : 19940531 0000950110-94-000209.hdr.sgml : 19940531 ACCESSION NUMBER: 0000950110-94-000209 CONFORMED SUBMISSION TYPE: 485B24E PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940527 EFFECTIVENESS DATE: 19940527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO INC CENTRAL INDEX KEY: 0000822337 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 133454426 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1933 Act SEC FILE NUMBER: 033-17224 FILM NUMBER: 94531188 FILING VALUES: FORM TYPE: 485B24E SEC ACT: 1940 Act SEC FILE NUMBER: 811-05336 FILM NUMBER: 94531189 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122141225 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 485B24E 1 POST EFFECTIVE AMENDMENT NO 8 TO FORM N-1A As filed with the Securities and Exchange Commission on May 27, 1994 Registration Statement No. 33-17224 ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO. 8 [X] AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] AMENDMENT NO. 9 [x] (Check appropriate box or boxes) PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (Exact name of registrant as specified in charter) ONE SEAPORT PLAZA NEW YORK, NEW YORK 10292 (Address of Principal Executive Offices) (Zip Code) ------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250 S. JANE ROSE, ESQ. ONE SEAPORT PLAZA NEW YORK, NEW YORK 10292 (NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS) APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX): [ ] immediately upon filing pursuant to paragraph (b) [X] on May 31, 1994 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a) [ ] on (date) pursuant to paragraph (a) of Rule 485.
CALCULATION OF REGISTRATION FEE ================================================================================================================================ PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION BEING REGISTERED REGISTERED PER SHARE* OFFERING PRICE** FEE - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.001 per share. . . . . . . . . . . . . . . . . Indefinite*** N/A N/A N/A - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.001 per share. . . . . . . . . . . . . . . . . 124,594,676 $1.00 $124,594,676 $100.00 ================================================================================================================================ * Computed under Rule 457(d) on the basis of the offering price per share on the close of business on May 25, 1994. ** Registrant elects to calculate the maximum aggregate offering price pursuant to Rule 24e-2. $2,092,856,313 of shares was used for reductions pursuant to paragraph (c) of Rule 24f-2 during the year ended March 31, 1994. $124,304,676 of shares is the amount of redeemed shares used for reduction for this amendment. *** Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has previously registered an indefinite number of shares of Common Stock, par value $.001 per share. The Registrant will file a notice under such Rule for its fiscal year ended March 31, 1994 on or before May 31, 1994.
=============================================================================== CROSS REFERENCE SHEET (AS REQUIRED BY RULE 495) N-1A Item No. Location - ------------- -------- Part A Item 1. Cover Page . . . . . . . . . . . . . Cover Page Item 2. Synopsis . . . . . . . . . . . . . . Fund Expenses Item 3. Condensed Financial Information. . . Fund Expenses; Financial Highlights; Calculation of Yield Item 4. General Description of Registrant. . Cover Page; How the Fund Invests; General Information Item 5. Management of the Fund . . . . . . . Financial Highlights; How the Fund Is Managed; General Information Item 6. Capital Stock and Other Securities . Taxes, Dividends and Distributions; General Information Item 7. Purchase of Securities Being Offered Shareholder Guide; How the Fund Values Its Shares Item 8. Redemption or Repurchase . . . . . . Shareholder Guide; General Information Item 9. Pending Legal Proceedings. . . . . . Not Applicable Part B Item 10. Cover Page . . . . . . . . . . . . . Cover Page Item 11. Table of Contents. . . . . . . . . . Table of Contents Item 12. General Information and History. . . General Information Item 13. Investment Objectives and Policies . Investment Objective and Policies; Investment Restrictions Item 14. Management of the Fund . . . . . . . Directors and Officers; Manager; Distributor Item 15. Control Persons and Principal Holders of Securities . . . . . . . . . . . Directors and Officers Item 16. Investment Advisory and Other Services. . . . . . . . . . . . . . Manager; Distributor; Custodian, Transfer and Shareholder Servicing Agent and Independent Accountants Item 17. Brokerage Allocation and Other Practices . . . . . . . . . . . . . Portfolio Transactions Item 18. Capital Stock and Other Securities . Not Applicable Item 19. Purchase, Redemption and Pricing of Securities Being Offered. . . . . . Net Asset Value; Purchase of Shares Item 20. Tax Status . . . . . . . . . . . . . Taxes Item 21. Underwriters . . . . . . . . . . . . Distributor Item 22. Calculation of Performance Data. . . Calculation of Yield Item 23. Financial Statements . . . . . . . . Financial Statements Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Post-Effective Amendment to the Registration Statement. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Institutional Money Market Series ______________________________________________________________________________ Prospectus dated May 31, 1994 ______________________________________________________________________________ The Institutional Money Market Series (the Series) is a series of Prudential Institutional Liquidity Portfolio, Inc. (the Fund), an open-end, diversified management investment company, or mutual fund. The Fund offers investors an efficient and economical means of investing in a professionally managed portfolio of high quality money market instruments. The investment objective of the Series is high current income consistent with the preservation of principal and liquidity. See "How the Fund Invests--Investment Objective and Policies." The minimum initial investment is $100,000. An investment in the Fund is neither insured nor guaranteed by the U.S. Government and there can be no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share. See "How the Fund Values Its Shares." The Fund's address is One Seaport Plaza, New York, New York 10292, and its telephone number is (800) 521-7466. ______________________________________________________________________________ This Prospectus sets forth concisely the information about the Fund that a prospective investor ought to know before investing. Additional information about the Fund has been filed with the Securities and Exchange Commission in a Statement of Additional Information, dated May 31, 1994, which information is incorporated herein by reference (is legally considered a part of this Prospectus) and is available without charge at the address or telephone number noted above. ______________________________________________________________________________ Investors are advised to read the Prospectus and retain it for future reference. ______________________________________________________________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. FUND HIGHLIGHTS What Is Prudential Institutional Liquidity Portfolio, Inc.? Prudential Institutional Liquidity Portfolio, Inc. is a mutual fund. A mutual fund pools the resources of investors by selling its shares to the public and investing the proceeds of such sale in a portfolio of securities designed to achieve its investment objective. Technically, the Fund is an open-end, diversified management investment company. What Is the Series' Investment Objective? The Series' investment objective is high current income consistent with the preservation of principal and liquidity. The Series invests primarily in a portfolio of high quality money market instruments maturing in thirteen months or less. See "How the Fund Invests--Investment Objective and Polices" at page 6. What Are the Series' Special Characteristics and Risks? It is anticipated that the net asset value of the Series will remain constant at $1.00 per share, although this cannot be assured. In order to maintain such constant net asset value, the Series will value its portfolio securities at amortized cost. While this method provides certainty in valuation, it may result in periods during which the value of a security in the Series' portfolio, as determined by amortized cost, is higher or lower than the price the Series would receive if it sold such security. See "How the Fund Values Its Shares" at page 12. Who Manages the Fund? Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of the Fund and is compensated for its services at an annual rate of .20 of 1% of the Series' average daily net assets. As of April 30, 1994, PMF served as manager or administrator to 66 investment companies, including 37 mutual funds, with aggregate assets of approximately $49 billion. The Prudential Investment Corporation (PIC or the Subadviser) furnishes investment advisory services in connection with the management of the Fund under a Subadvisory Agreement with PMF. See "How the Fund Is Managed--Manager" at page 11. 2 Who Distributes the Fund's Shares? Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor) acts as the Distributor of the Series' shares. The Fund reimburses PMFD for expenses related to the distribution of the Series' shares at an annual rate of up to .12 of 1% of the average daily net assets of the Series. See "How the Fund Is Managed--Distributor" at page 11. What Is the Minimum Investment? The minimum initial investment is $100,000. A master account and its subaccounts, as well as related institutional accounts (i.e., accounts of shareholders, with a common institutional or corporate parent), in the Series may be aggregated for this minimum investment purpose. The subsequent minimum investment is $10,000. See "Shareholder Guide--How to Buy Shares of the Fund" at page 15 and "Shareholder Guide-- Shareholder Services" at page 17. How Do I Purchase Shares? You may purchase shares of the Series through Prudential Securities, Pruco Securities Corporation (Prusec) or directly from the Fund, through its transfer agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at the net asset value per share (NAV) next determined after receipt of your purchase order by the Transfer Agent or Prudential Securities. To open an account, a completed application form must be received by PMFS. See "How the Fund Values Its Shares" at page 12 and "Shareholder Guide--How to Buy Shares of the Fund" at page 15. How Do I Sell My Shares? You may redeem shares of the Series at any time at the NAV next determined after PMFS receives your sell order. See "Shareholder Guide--How to Sell Your Shares" at page 16. How Are Dividends and Distributions Paid? The Series expects to declare daily and pay monthly dividends of net investment income and short-term capital gains, if any. Dividends and distributions will be automatically reinvested in additional shares of the Series at NAV unless you request that they be paid to you in cash. See "Taxes, Dividends and Distributions" at page 13. 3 FUND EXPENSES Shareholder Transaction Expenses Maximum Sales Load Imposed on Purchases . . . . . . . . . . . . . None Maximum Sales Load Imposed on Reinvested Dividends. . . . . . . . None Deferred Sales Load . . . . . . . . . . . . . . . . . . . . . . . None Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . None Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None Annual Series Operating Expenses (as a percentage of average net assets) Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . .20% 12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12% Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .16% --- Total Series Operating Expenses . . . . . . . . . . . . . . . . . .48% === Example 1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1)5% annual return and (2) redemption at the end of each time period: . . . . . . . $5 $15 $27 $60 - ------------ The above example is based on data for the Fund's fiscal year ended March 31, 1994. The example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. The purpose of the table is to assist an investor in understanding the various costs and expenses that an investor in the Series will bear, whether directly or indirectly. For more complete descriptions of the various costs and expenses, see "How the Fund is Managed." "Other Expenses" include operating expenses of the Series, such as Directors' and professional fees, registration fees, reports to shareholders, transfer agency and custodian fees. 4 FINANCIAL HIGHLIGHTS (for a share outstanding throughout each of the periods indicated) The following financial highlights with respect to the five years ended March 31, 1994 have been audited by Deloitte & Touche, independent accountants, whose report thereon was unqualified. This information should be read in conjunction with the financial statements and the notes thereto, which appear in the Statement of Additional Information. The following financial highlights contain selected data for a share of common stock outstanding, total return, ratios to average net assets and other supplemental data for each of the periods indicated. The information is based on data contained in the financial statements.
December 8, 1987* Year Ended March 31, through -------------------------------------------------------------------------- March 31, 1994 1993 1992 1991 1990 1989 1988 -------- -------- -------- -------- -------- -------- ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period. . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Net investment income and net realized gains . . . . . . . . .029 .033 .054 .076 .087 0.079** 0.022** Dividends and distributions . . (.029) (.033) (.054) (.076) (.087) (0.079) (0.022) -------- -------- -------- -------- -------- -------- -------- Net asset value, end of period. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ======== ======== ======== ======== ======== ======== ======== TOTAL RETURN:#. . . . . . . . . 2.92% 3.40% 5.57% 8.00% 9.07% 8.22% 2.24% ++ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period(000). $385,023 $497,214 $443,172 $519,802 $417,354 $264,281 $204,707 Average net assets (000). . . . $445,867 $543,694 $540,380 $479,849 $421,540 $227,044 $ 88,431 Ratios to average net assets: Expenses, including distribution fee. . . . . . . .48% .44% .42% .46% .38% .26%** .12%**/+ Expenses, excluding distribution fee. . . . . . . .36% .32% .30% .34% .26% .14%** .00%**/+ Net investment income. . . . . 2.87% 3.28% 5.32% 7.58% 8.60% 7.89%** 6.69%**/+ - ------------ * Commencement of operations. ** Net of expense subsidy. + Annualized. ++ Restated. # Total return represents the change in net asset value from the first day to the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized.
5 CALCULATION OF YIELD The Series calculates its "current yield" based on the net change, exclusive of realized and unrealized capital gains or losses, in the value of a hypothetical account over a seven calendar day base period. The Series also calculates its "effective annual yield" assuming weekly compounding. The following is an example of the current and effective annual yield calculations as of March 31, 1994: Value of hypothetical account at end of period. . . . . $1.000605598 Value of hypothetical account at beginning of period. . 1.000000000 ------------ Base period return. . . . . . . . . . . . . . . . . . . $ .000605598 ============ Current yield ([.0000605598] x (365/7)). . . . . . . . . 3.16% Effective annual yield, assuming weekly compounding . . 3.21% THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND IS NOT NECESSARILY REPRESENTATIVE OF FUTURE INCOME OR DIVIDENDS. The weighted average life to maturity of the Series on March 31, 1994 was 62 days. Yield is computed in accordance with a standardized formula described in the Statement of Additional Information. In addition, comparative performance information may be used from time to time in advertising or marketing the shares of the Series, including data from Lipper Analytical Services, Inc., Donoghue's Money Fund Report, The Bank Rate Monitor, other industry publica- tions, business periodicals, and market indices. HOW THE FUND INVESTS INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Series is high current income consistent with the preservation of principal and liquidity. The Series pursues its investment objective through the investment policies described below. There can be no assurance that this objective will be achieved. The Series' investment objective is a fundamental policy and, therefore, may not be changed without the approval of the holders of a majority of the Series' outstanding voting securities, as defined in the Investment Company Act of 1940, as amended (the Investment Company Act). Fund policies that are not fundamental may be modified by the Board of Directors. The assets of the Series will be invested in high quality money market instruments maturing in thirteen months or less, and the dollar-weighted average maturity of the portfolio of the Series will be 90 days or less. The Series also may hold cash reserves as the investment adviser deems necessary for temporary defensive or emergency purposes. In selecting portfolio securities for investment by the Series, the investment adviser considers ratings assigned by major rating services, information concerning the financial history and condition of the issuer and its revenue and expense prospects. The Board of Directors monitors the credit quality of securities purchased for the Series' portfolio. If a portfolio security held by the Series is assigned a lower rating or ceases to be rated, the investment adviser under the supervision of the Board of Directors will promptly reassess whether that security presents minimal credit risks and 6 whether the Series should continue to hold the security. If a portfolio security no longer presents minimal credit risks or is in default, the Series will dispose of the security as soon as reasonably practicable unless the Board of Directors determines that to do so is not in the best interest of the Series and its shareholders. The Series utilizes the amortized cost method of valuation in accordance with regulations of the Securities and Exchange Commission (SEC). See "How the Fund Values Its Shares." Accordingly, the Series will limit its portfolio investments to those instruments which present minimal credit risks and which are of "eligible quality," as determined by the Fund's investment adviser under the supervision of the Board of Directors. "Eligible quality," for this purpose, means (i) a security rated in one of the two highest rating categories by at least two nationally recognized statistical rating organiza- tions assigning a rating to the security or issuer (or, if only one such rating organization assigned a rating, that rating organization) or (ii) an unrated security deemed of comparable quality by the Fund's investment adviser under the supervision of the Board of Directors. As long as the Series utilizes the amortized cost method of valuation, it will also comply with certain diversification requirements and will invest no more than 5% of its total assets in "second-tier securities," with no more than 1% of the Series' assets in any one issuer of a second-tier security. A "second-tier security," for this purpose, is a security of "eligible quality" that does not have the highest rating from at least two rating organizations assigning a rating to that security or issuer (or, if only one rating organi- zation assigned a rating, that rating organization) or an unrated security that is deemed of comparable quality by the Fund's investment adviser under the supervision of the Fund's Board of Directors. The Series will invest at least 80%, and generally not less than 100%, of its assets in high quality U.S. dollar-denominated money market obligations of domestic and foreign issuers and U.S. Government and financial institution obligations described below. There is no limitation on the percentage of the Series' assets that may be invested in each of these categories. In addition, the Series may utilize the investment techniques described below under "Other Investments and Policies." U.S. Government Obligations. The Series may invest in obligations issued or guaranteed as to principal and interest by the U.S. Government or its agencies or instrumentalities. The Series may invest in U.S. Treasury obligations, including bills, notes, bonds and other debt obligations issued by the U.S. Treasury. These instruments are direct obligations of the U.S. Government and, as such, are backed by the "full faith and credit" of the United States. They differ primarily in their interest rates, the lengths of their maturities and the dates of their issuances. The Series may also invest in obligations issued by agencies of the U.S. Government or instrumentalities established or sponsored by the U.S. Govern- ment. These obligations, including those which are guaranteed by federal agencies or instrumentalities, may or may not be backed by the full faith and credit of the United States. Obligations of the Government National Mortgage Association (GNMA), the Farmers Home Administration and the Small Business Administration are backed by the full faith and credit of the United States. In the case of obligations not backed by the full faith and credit of the United States, the Series must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States if the agency or instrumentality does not meet its commitments. Instruments in which the Series may invest which are not backed by the full faith and credit of the United States include obliga- tions issued by the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA), the Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority, each of which has the right to borrow from the U.S. Treasury to meet its obligations, and obligations of the Farm Credit System, the obligations of which may be satisfied only by the individual credit of the issuing agency. The Series' investment in mortgage-backed securities (e.g., GNMA, FNMA and FHLMC certificates) will be made only to the extent such securities are used as collateral for repurchase agreements entered into by the Series. 7 Financial Institution Obligations. The Series may invest in obligations (including certificates of deposit and bankers' acceptances) which are issued or guaranteed by commercial banks, savings banks and savings and loan associa- tions whose total assets at the time of investment are more than $1 billion or its equivalent. The term "certificates of deposit" includes both Eurodollar certificates of deposit, for which there is generally a market, and Eurodollar time deposits, for which there is generally not a market. Eurodollars are U.S. dollars deposited in branches of banks outside the United States. Other Money Market Instruments. The Series may invest in commercial paper, variable amount demand master notes, bills, notes and other obligations issued by a U.S. company, a foreign company or the Canadian government, its agencies or instrumentalities, maturing in thirteen months or less, denominated in U.S. dollars, which, at the date of investment, are of "eligible quality." If such obligations are guaranteed or supported by a letter of credit issued by a bank, such bank (including a foreign bank) must meet the requirements set forth above under "Financial Institution Obligations." If such obligations are guaranteed or insured by an insurance company or other non-bank entity, such insurance company or other non-bank entity must represent a credit of comparable quality, as determined by the Fund's investment adviser under the supervision of the Fund's Board of Directors. In the case of instruments issued by foreign companies or the Canadian government, the Series will only invest in instruments which are not currently subject to foreign withholding taxes. Risks of Investing in Foreign Securities. There is no limitation on the percentage of the Series' assets that may be invested in foreign securities (which do not include obligations of foreign branches of U.S. banks). Since the portfolio of the Series may contain obligations of foreign issuers, an investment in the Series involves certain risks. These risks include future political and economic developments in the country of the issuer, the possible imposition of withholding taxes on interest income payable on such obligations held by the Series, the possible seizure or nationalization of foreign deposits and the possible establishment of exchange controls or other foreign governmental laws or restrictions which might affect adversely the payment of principal and interest on such obligations held by the Series. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer, and such issuers may not be subject to the same accounting, auditing and financial recordkeeping standards and requirements as domestic issuers. Securities issued by foreign issuers may be subject to greater fluctuations in price than securities issued by U.S. entities. Finally, in the event of a default with respect to any such foreign debt obligations, it may be more difficult for the Fund to obtain or to enforce a judgment against the issuers of such securities. The Series presently does not intend to invest in foreign government obligations other than those of the Canadian government, its agencies or instrumentalities. Canadian government obligations include the Government of Canada treasury bills and promissory notes issued by the various provinces. The Canada bills are direct, unsecured, unconditional obligations of Canada and are a charge on and payable out of the Consolidated Revenue Fund of Canada. The provincial notes represent direct, unsecured, unconditional obligations of the provinces themselves. OTHER INVESTMENTS AND POLICIES Liquidity Puts The Series may purchase instruments of the types described above together with the right to resell the instruments to brokers, dealers or financial institutions at an agreed-upon price or yield within a specified period prior to the maturity date of the instruments. Such a right to resell is commonly known as a "put," and the aggregate price that the Series pays for instruments with a put may be higher than the price that otherwise would be paid for the instruments. Puts may be exercised prior to the expiration date in order to fund obligations to purchase other securities or meet redemption requests. Since the value of the put is dependent on the ability of the put writer to meet its obligation to repurchase, the Series' policy is to enter into put transactions only with such brokers, dealers or financial institutions which present minimal 8 credit risks. There is a credit risk associated with the purchase of puts in that the broker, dealer or financial institution might default on its obligation to repurchase an underlying security. In the event such a default should occur, the Fund is unable to predict whether all or any portion of any loss sustained could subsequently be recovered from the broker, dealer or financial institution. When-Issued and Delayed Delivery Securities The Series may purchase securities on a "when-issued" or delayed delivery basis. When-issued or delayed delivery transactions arise when securities are purchased by the Series with payment and delivery taking place as much as a month or more into the future in order to secure what is considered to be an advantageous price and yield to the Series at the time of entering into the transaction. The Series will limit such purchases to those in which the date for delivery and payment falls within 90 days of the date of the commitment. The Series will make commitments for such when-issued transactions only with the intention of actually acquiring the securities. The Fund's Custodian will maintain, in a segregated account of the Series, cash, U.S. Government securi- ties or other high grade, liquid debt obligations having a value equal to or greater than the Series' purchase commitments. If the Series chooses to dispose of the right to acquire a when-issued security prior to its acquisi- tion, it could, as with the disposition of any other portfolio security, incur a gain or loss due to market fluctuations. The securities so purchased are subject to market fluctuation and no interest accrues to the purchaser during the period between purchase and settlement. Pledging of Assets and Borrowing The Series may borrow (including through entering into reverse repurchase agreements) up to 15% of the value of its total assets (computed at the time the loan is made) from banks for temporary, extraordinary or emergency purposes. The Series may pledge up to 15% of its total assets to secure such borrowings. The Series will not purchase portfolio securities if its borrowings exceed 5% of its net assets. Repurchase Agreements and Reverse Repurchase Agreements The Series may purchase securities and concurrently enter into "repurchase agreements" with the seller, whereby the seller agrees to repurchase such securities at a specified price within a specified time (generally seven days or less). Repurchase agreements will only be entered into with member banks of the Federal Reserve System or primary reporting dealers in U.S. Government obligations and will be fully secured only by obligations permitted by the Series' investment policies. The repurchase agreements provide that the Series will sell the underlying instruments back to the dealer or the bank at the specified price and at a fixed time in the future, usually not more than seven days from the date of purchase. The difference between the purchase price and the resale price represents the interest earned by the Series, which is unrelated to the coupon rate or maturity of the purchased security. Repurchase agreements will at all times be fully collateralized in an amount at least equal to the repurchase price, including accrued interest earned on the underlying securities. Such collateral will be held by the Fund's Custodian, either physically or in a book-entry account. The Series will enter into repurchase transactions only with parties which meet creditworthiness standards approved by the Fund's Board of Directors. The Fund's investment adviser monitors the creditworthiness of such parties under the general supervision of the Board of Directors. In the event of a default or bankruptcy by a seller, the Series will promptly seek to liquidate the collateral. To the extent that the proceeds from any sale of such collateral upon a default in the obligation to repurchase are less than the repurchase price, the Series will suffer a loss. If the financial institution that is a party to the repurchase agreement petitions for bankruptcy or becomes subject to the U.S. Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under these extreme circumstances, there may be a restriction on the Series' ability to sell the collateral, and the Series could suffer a loss. Reverse repurchase agreements have the characteristics of borrowing and involve the sale of securities held by the Series with an agreement to repurchase the securities at a specified price, date and interest payment. The Series intends 9 only to use the reverse repurchase technique when it will be to its advantage to do so. These transactions are only advantageous if the Series has an opportunity to earn a greater rate of interest on the cash derived from the transaction than the interest cost of obtaining that cash. The Series may be unable to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid. The use of reverse repurchase agree- ments may exaggerate any increase or decrease in the value of the Series' portfolio. The Fund's Custodian will maintain in a segregated account cash, U.S. Government securities or other high grade, liquid debt obligations, maturing not later than the expiration of the reverse repurchase agreements and having a value equal to or greater than such commitments. Suitability for Investors The Series is designed as an economic and convenient vehicle for those institutional and high net worth individual investors seeking to obtain the yields available from money market instruments while maintaining liquidity. The Series is designed particularly for banks and other depositary institu- tions seeking investment of short-term monies held in accounts for which the institutions act in fiduciary, advisory, agency, custodial or other similar capacities. The Series may be equally suitable for the investment of short-term funds held or managed by corporations, employee benefit plans and others, if consistent with the objectives of the particular account and any applicable state and federal laws and regulations. The Series can arrange for special processing to assist banks and other institutions desiring to estab- lish multiple accounts. See "Shareholder Guide--Shareholder Services--Subaccounting and Special Services." The Series offers the advantages of large purchasing power and diversification. Generally, in purchasing money market instruments from dealers, the percentage difference between the bid and asked prices tends to decrease as the size of the transaction increases. In addition, yields on short-term money market instruments generally tend to increase as maturities are extended. Thus, when yields on longer-term money market instruments are higher than yields on shorter-term money market instruments, ownership of Series shares may allow an investor to obtain the advantages of short-term liquidity and the higher yields available from the Series' holdings of longer-term instruments. This benefit will be reduced to the extent of the Series' expenses and may be unavailable during periods when interest rates are higher for money market instruments with maturities shorter than the weighted average maturity of the Series. The Series also offers investors the opportunity to participate in a portfolio of money market instruments which is more diversified in terms of issuers and maturities than the investor's individual investment might otherwise permit. Investment in the Series relieves investors of many management and administrative burdens usually associated with the direct purchase and sale of money market instruments. These include selection of portfolio investments; surveying the market for the best terms at which to buy and sell; scheduling and monitoring maturities and reinvestments; receipt, delivery and safekeeping of securities; and portfolio recordkeeping. INVESTMENT RESTRICTIONS The Series is subject to certain investment restrictions which, like its investment objective, constitute fundamental policies. Fundamental policies cannot be changed without the approval of the holders of a majority of the Series' outstanding voting securities, as defined in the Investment Company Act. See "Investment Restrictions" in the Statement of Additional Information. HOW THE FUND IS MANAGED The Fund has a Board of Directors which, in addition to overseeing the actions of the Fund's Manager, Subadviser and Distributor, as set forth below, decides upon matters of general policy. The Fund's officers conduct and supervise the daily business operations of the Fund. The Fund's Subadviser furnishes daily investment advisory services. 10 For the fiscal year ended March 31, 1994, total expenses for the Series as a percentage of average net assets were .48%. See "Financial Highlights." MANAGER Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport Plaza, New York, New York 10292, is the manager of the Fund and is compensated for its services at an annual rate of .20 of 1% of the average daily net assets of the Series. It was incorporated in May 1987, under the laws of the State of Delaware. For the fiscal year ended March 31, 1994, the Series paid management fees to PMF of .20% of its average daily net assets. See "Manager" in the Statement of Additional Information. As of April 30, 1994, PMF served as the manager to 37 open-end investment companies, constituting all of the Prudential Mutual Funds, and as manager or administrator to 29 closed-end investment companies. These companies have aggregate assets of approximately $49 billion. Under the Management Agreement with the Fund, PMF manages the investment operations of the Series and also administers the Fund's corporate affairs. See "Manager" in the Statement of Additional Information. Under a Subadvisory Agreement between PMF and The Prudential Investment Corporation (PIC or the Subadviser), PIC furnishes investment advisory services in connection with the management of the Fund and is reimbursed by PMF for its reasonable costs and expenses incurred in providing such services. Under the Management Agreement, PMF continues to have responsibility for all investment advisory services and supervises PIC's performance of such services. PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential Insurance Company of America (Prudential), a major diversified insurance and financial services company. DISTRIBUTOR Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), One Seaport Plaza, New York, New York 10292, is a corporation organized under the laws of the State of Delaware and serves as the Fund's Distributor. It is a wholly-owned subsidiary of PMF. Under a Distribution and Service Plan (the Plan) adopted by the Fund under Rule 12b-1 under the Investment Company Act and a distribution and service agreement (the Distribution Agreement), the Distributor incurs the expenses of distributing the Fund's shares. These expenses include account servicing fees paid to, or on account of, financial advisers of Prudential Securities Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec), an affiliated broker-dealer, account servicing fees paid to, or on account of, other broker-dealers or financial institutions (other than national banks) which have entered into agreements with the Distributor, advertising expenses, the cost of printing and mailing prospectuses to potential investors and indirect and overhead costs of Prudential Securities and Prusec associated with the sale of Fund shares, including lease, utility, communications and sales promotion expenses. There are no carry forward amounts under the Plan and interest expenses are not included under the Plan. The State of Texas requires that shares of the Fund may be sold in that state only by dealers or other financial institutions which are registered there as broker-dealers. Under the Plan, the Fund reimburses the Distributor for its distribution-related expenses at an annual rate of up to .12 of 1% of the average daily net assets of the Series. Account servicing fees are paid based on the average balance of the Series' shares held in the accounts of the customers of financial advisers. The entire distribution fee may be used to pay account servicing fees. For the fiscal year ended March 31, 1994, the Fund paid PMFD a distribution fee equal on an annual basis to .12% of the average daily net assets of the Series. 11 The Plan provides that it shall continue in effect from year to year provided that each such continuance is approved annually by a majority vote of the Board of Directors of the Fund, including a majority of the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to the Plan. The Board of Directors is provided with and reviews quarterly reports of expenditures under the Plan. For the fiscal year ended March 31, 1994, PMFD incurred distribution expenses of $535,041 for the Series, all of which were recovered through the distribution fees paid by the Series to PMFD. The Fund records all payments made under the Plan as expenses in the calculation of its net investment income. In addition to distribution and service fees paid by the Fund under the Plan, the Manager (or one of its affiliates) may make payments to dealers and other persons which distribute shares of the Fund. Such payments may be calculated by refererence to the net asset value of shares sold by such persons or otherwise. PORTFOLIO TRANSACTIONS Prudential Securities may also act as a broker for the Fund, provided that the commissions, fees or other remuneration it receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in the Statement of Additional Information. CUSTODIAN AND TRANSFER AND SHAREHOLDER SERVICING AGENT State Street Bank and Trust Company (State Street), One Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the Series' portfolio securities and cash and, in that capacity, maintains certain financial and accounting books and records pursuant to an agreement with the Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105. Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Raritan Plaza One, Edison, New Jersey 08837, serves as Transfer Agent and as Shareholder Servicing Agent and in those capacities maintains certain books and records for the Fund. PMFS is a wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, NewBrunswick, New Jersey 08906-5005. HOW THE FUND VALUES ITS SHARES The Series' net asset value per share or NAV is determined by subtracting its liabilities from the value of its assets and dividing the remainder by the number of outstanding shares. The Board of Directors has fixed the specific times of day for the computation of the NAV to be as of 12:00 noon and 4:30 P.M., New York time, on each day the Fund is open for business. The Fund is open for business and its net asset value is calculated on every day on which the Boston office of the Federal Reserve System is open, except Good Friday. The Boston office of the Federal Reserve has designated the following holiday closings: New Year's Day, Martin Luther King's Birthday, Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas. The Boston office of the Federal Reserve may change this holiday closing schedule. In addition, the Fund is closed for business on Good Friday. The Fund reserves the right to reject any purchase order. It is the intention of the Fund to maintain an NAV of $1.00, although there can be no assurance that the Series will do so. The portfolio instruments of the Series are valued on the basis of amortized cost valuation in accordance with regulations issued by the SEC. This involves valuing an instrument at its cost and thereafter assuming a constant 12 amortization to maturity of any discount or premium regardless of the impact of fluctuating interest rates on the market value of the instrument. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Series would receive if it sold the instrument. The Fund's Board of Directors has established procedures designed to stabilize, to the extent reasonably possible, the NAV of the shares of the Series at $1.00 per share. See "Net Asset Value" in the Statement of Additional Information. TAXES, DIVIDENDS AND DISTRIBUTIONS Taxation of the Series The Series has elected to qualify and intends to remain qualified as a regulated investment company under the Internal Revenue Code of 1986, as amended. Accordingly, the Series will not be subject to federal income taxes on its investment income and capital gains, if any, that it distributes to its shareholders provided that it distributes to shareholders each year at least 90% of such income. If the Series defers until the subsequent calendar year the distribution of more than a minimal amount of income, it will be subject to a 4% nondeductible excise tax on the deferred distribution. The Series intends to make timely and complete distributions in order to avoid any such taxes. Taxation of Shareholders Dividends out of net investment income and net realized short-term capital gains generally will be taxable to shareholders as ordinary income whether or not reinvested. However, the Series intends to declare capital gains distributions to the extent of its net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses). Capital gains distributions, if any, are taxable to shareholders as net long-term capital gains, regardless of the length of time a shareholder has owned its shares. The Series does not anticipate realizing long-term capital gains. Any gain or loss realized upon a sale or redemption of shares by a shareholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held more than one year and otherwise as short-term capital gain or loss. Any such loss, however, although otherwise treated as a short-term capital loss, will be treated as long-term capital loss to the extent of any capital gain distributions received by the shareholder, if the shares have been held for six months or less. Dividends and distributions may be subject to state and local taxes. Shareholders are advised to consult their own tax advisers regarding specific questions as to federal, state or local taxes. Dividends and Distributions NET INVESTMENT INCOME AND NET REALIZED SHORT-TERM CAPITAL GAINS, IF ANY, OF THE SERIES WILL BE DECLARED AS A DIVIDEND DAILY IMMEDIATELY PRIOR TO THE CALCULATION OF THE SERIES' NET ASSET VALUE AS OF 4:30 P.M., NEW YORK TIME. Net investment income of the Series (from the time of the immediately preceding declaration) consists of interest accrued or discount earned (including both original issue and market discount) on the obligations in the Series, less amortization of premium and the estimated expenses of the Series applicable to that dividend period. The Series does not expect to realize long-term capital gains or losses. The net investment income of the Series for dividend purposes is determined on a daily basis. Each such dividend will be payable to shareholders of record at the time of its declaration (including for this purpose holders of shares purchased, but excluding holders of shares redeemed as of 12:00 noon, New York time, on that day). Dividends declared are accrued throughout the month and are distributed in the form of full and fractional shares on or about the last business day of the month, unless the shareholder elects in writing not less than five business days prior to the dividend 13 distribution date to receive such distributions in cash. The dividend distribution date may be changed without further notice to shareholders. Dividends are reinvested at the net asset value determined as of 4:30 P.M., New York time, on the day of payment. If the entire amount in an account is withdrawn at any time during a month, all dividends accrued with respect to that account during that month are paid to the investor. The calculation of net investment income for dividend purposes is made immediately prior to the calculation of net asset value at 4:30 P.M., New York time. Thus, in the case of a purchase order that becomes effective as of 12:00 noon, New York time, a shareholder is entitled to dividends declared on that day. In the case of a purchase order that becomes effective as of 4:30 P.M., New York time, a shareholder begins to earn dividends declared on the next business day. If a redemption request is received prior to 12:00 noon, New York time, the shareholder does not earn a dividend on that day but the redemption proceeds are ordinarily wired on that day. If a redemption request is received after 12:00 noon, New York time, and prior to 4:30 P.M., New York time, the shareholder is entitled to the dividend declared on that day but the redemption proceeds are ordinarily wired on the following business day. Net income earned on Saturdays, Sundays and holidays is accrued in calculating the dividend on the previous business day. Accordingly, a shareholder which redeems its shares effective as of 4:30 P.M., New York time, on a Friday earns a dividend which reflects the income earned by the Series on the following Saturday and Sunday. On the other hand, an investor whose purchase order is effective as of 4:30 P.M., New York time, on a Friday does not begin earning dividends until the following business day. Should the Series incur or anticipate any unusual expense or loss or depreciation which would adversely affect its net asset value per share or income for a particular period, the Board of Directors would at that time consider whether to adhere to the present dividend policy described above or to revise it in light of the then prevailing circumstances. For example, if the net asset value per share of the Series is reduced, or is anticipated to be reduced, below $1.00, the Board of Directors may suspend further dividend payments of the Series until net asset value is returned to $1.00 per share. Thus, such expenses or losses or depreciation could result in shareholders receiving no dividends for the period during which they held their shares and in their receiving upon redemption a price per share lower than that which they paid. GENERAL INFORMATION DESCRIPTION OF COMMON STOCK The Fund was incorporated in Maryland on September 1, 1987. The Fund is authorized to issue 5 billion shares of common stock of $.001 par value. The Board of Directors may increase or decrease the aggregate number of shares of common stock that the Fund has authority to issue. The Fund does not intend to issue stock certificates unless requested. Shares of the Fund, when issued, are fully paid, nonassessable, fully transferable and redeemable at the option of the holder. Shares are also redeemable at the option of the Fund under certain circumstances as described under "Shareholder Guide--How to Sell Your Shares." All shares of the Series are equal as to earnings, assets and voting privileges. There are no conversion, preemptive or other subscription rights. In the event of liquidation, each share of common stock of the Series is entitled to its portion of all of the Series' assets after all debt and expenses of the Series have been paid. The Series' shares do not have cumulative voting rights for the election of Directors. Pursuant to the Fund's Articles of Incorporation, the Board of Directors may authorize the creation of additional Series, with such preferences, privileges, limitations and voting and dividend rights as the Board may determine. The Fund currently has one Series. The Fund does not intend to hold annual shareholder meetings unless required by law. The Fund will not be required to hold annual meetings of shareholders unless, for example, the election of Directors is required to be 14 acted on by shareholders under the Investment Company Act. Shareholders have certain rights, including the right to call a meeting for the purpose of voting on the removal of one or more Directors or to transact other business. On May 13, 1994, Prudential, either directly or through one or more controlled companies, owned approximately 57% of the Fund's outstanding voting securities and may be deemed to be a controlling person of the Fund. ADDITIONAL INFORMATION This Prospectus, including the Statement of Additional Information which has been incorporated by reference herein, does not contain all the information set forth in the Registration Statement filed by the Fund with the SEC under the Securities Act of 1933. Copies of the Registration Statement may be obtained at a reasonable charge from the SEC or may be examined, without charge, at the office of the SEC in Washington, D.C. SHAREHOLDER GUIDE HOW TO BUY SHARES OF THE FUND Shares of the Series are continuously offered at their net asset value next determined after an order and, in the case of a new account, a completed application form (the Application) is received. There is no sales charge. The minimum initial investment to establish a new account is $100,000. A master account and its subaccounts, as well as related institutional accounts (i.e., accounts of shareholders, with a common institutional or corporate parent), in the Series may be aggregated for this minimum investment purpose. Subsequent investments in the Series (other than through the reinvestment of dividends and distributions) must be made in the amount of at least $10,000 by wire transfer of funds. The Fund does not intend to issue stock certificates unless requested. The Series reserves the right to reject any purchase order or to suspend or modify the continuous offering of its shares. Investments in the Fund must be made via wire transfer of funds to State Street Bank and Trust Company, Boston, Massachusetts, the Fund's Custodian. To open an account, the completed Application must be received by Prudential Mutual Fund Services, Inc. (PMFS), the Fund's shareholder servicing agent. If a purchase order is telephoned to PMFS (toll-free) (800-521-7466) before 12:00 noon, New York time, and federal funds are received by the Custodian on that business day, the purchase order becomes effective as of 12:00 noon, New York time, and the shares are entitled to dividend income earned on that day. If the purchase order is telephoned to PMFS after 12:00 noon, New York time, and prior to 4:30 P.M., New York time, and federal funds are received by the Custodian on that business day, the purchase order becomes effective as of 4:30 P.M., New York time, on that business day but the shares do not begin earning dividends until the next business day. Thus the Fund would have the benefit of the investor's wired funds until the next dividend declaration. See "Taxes, Dividends and Distributions." If the purchase order is telephoned to PMFS after 4:30 P.M., New York time, or if federal funds are not received by the Custodian on that day, the purchase order becomes effective as of 12:00 noon, New York time, on the following business day provided that federal funds are received by the Custodian on that following business day. All account transactions by telephone through PMFS will be recorded. In order to make investments which will generate income immediately, the Fund must have federal funds available to it. Therefore, investors who desire to have their purchase orders become effective as of 12:00 noon, New York time, are urged to wire funds to the Custodian via the Federal Reserve Wire System so that the purchase order may be effective on that day. If clearing house funds are transferred to the Custodian via the Bank Wire System, the purchase order will be effective as of 12:00 noon, New York time, on the business day following the day on which the funds are transferred. In order to allow the investment adviser to manage the portfolio with maximum flexibility, investors are urged to initiate the purchase of shares as early in the day as possible. 15 HOW TO SELL YOUR SHARES You can redeem all or any part of the value of your account on any business day by instructing the Fund to redeem your shares as described below. Redemptions may be requested by telephone and are effected at the per share net asset value next determined after receipt of the request for redemption in proper form. You must designate on your Application the U.S. commercial bank account or Prudential Securities account into which you wish the proceeds of withdrawals from your account in the Fund deposited. You may withdraw an amount from your account in the Fund by instructing PMFS to have the proceeds of withdrawal wired directly to the designated bank account or Prudential Securities account. PMFS accepts withdrawal instructions by telephone at (800) 521-7466 once you identify yourself as a person authorized on the completed Application and provide your account number and your personal identification number. During periods of severe market or economic conditions, the telephone redemption privilege may be difficult to implement. If you are unable to reach PMFS by telephone, a redemption request may be telecopied to PMFS (telecopier number (908) 417-7806). In order for shares to be redeemed and withdrawal proceeds to be wired on the same day as the request is made, telephone instructions or the written redemption request must be received prior to 12:00 noon, New York time. If a redemption request is received after 12:00 noon but prior to 4:30 P.M., New York time, shares will be redeemed at the net asset value determined as of 4:30 P.M., New York time, on that day, and the redemption proceeds ordinarily will be wired on the next business day. If the redemption request is received after 4:30 P.M., New York time, shares will be redeemed and proceeds will be wired on the next business day based on the net asset value determined as of 12:00 noon, New York time, on that next business day. Shares redeemed effec- tive as of 12:00 noon, New York time, do not earn income dividends declared on the day of redemption. Shares redeemed effective as of 4:30 P.M., New York time, are entitled to income dividends declared on the day of redemption. See "Taxes, Dividends and Distributions." If a written request for redemption is submitted, the signatures on the redemption request must be exactly as shown on the completed Application. If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a person other than the record owner, (c) are to be sent to an address other than the address on the Transfer Agent's records, or (d) are to be paid to a corporation, partnership, trust or fiduciary, the signature(s) on the redemp- tion request and on the certificates, if any, or stock power must be guaran- teed by an "eligible guarantor institution", and in the case of a corporate shareholder, a corporate resolution must accompany the request. An "eligible guarantor institution" includes any bank, broker, dealer or credit union. The Transfer Agent reserves the right to request additional information from, and make reasonable inquiries of, any eligible guarantor institution. For clients of Prusec a signature guarantee may be obtained from the agency or office manager of most Prudential Insurance and Financial Services offices. In order to allow for the management of the Series with maximum flexibility, you are urged to initiate redemptions of shares as early in the day as possible and to notify the Fund by at least 9:30 A.M., New York time, of withdrawals in excess of $10 million. The Fund reserves the right to withhold wiring redemption proceeds to shareholders if, in the judgment of the investment adviser, the Fund could be adversely affected by making immediate payment, and may take up to seven days to wire redemption proceeds. In making withdrawal requests, you must supply your name(s), account number and personal identification number. Neither the Fund nor PMFS will be responsible for further verification of the authenticity of telephoned instructions. You may change the bank account you have designated to receive amounts withdrawn at any time by writing to PMFS with an appropriate signature guarantee or by providing a certified copy of a corporate resolution authoriz- ing the change. Further documentation may be required when deemed appropriate by PMFS. If shares withdrawn represent an investment made via clearing house funds, the Fund reserves the right to withhold the redemption proceeds until it is reasonably assured of the crediting of such funds to its account. If 16 shares being redeemed were purchased by check, payment may be delayed until the Fund or its Transfer Agent has been advised that the purchase check has been honored, up to 10 calendar days from the time of receipt of the purchase check by the Transfer Agent. Such delay may be avoided by purchasing shares by wire or by certified or official bank checks. The Fund reserves the right to redeem, upon 60 days' written notice, an account which is reduced by you because of a redemption to a net asset value of less than $100,000. You may avoid this redemption by increasing the net asset value of your account to $100,000 or more. Under the Investment Company Act, the right of redemption may be suspended or date of payment postponed at times when the New York Stock Exchange is closed (other than customary weekend or holiday closings), trading on the New York Stock Exchange is restricted, and under certain emergency or other circumstances as determined by the SEC. In case of suspension of the right of redemption, requests for redemption may be withdrawn or shareholders may receive payment based on the net asset value determined next after the termination of the suspension. SHAREHOLDER SERVICES As a shareholder in the Series, you can take advantage of the following additional services and privileges: . Shareholder Investment Account. Upon the initial purchase of shares of the Series, a Shareholder Investment Account is established for you under which your shares are held by PMFS. PMFS maintains an account for you expressed in terms of full and fractional shares of the Series rounded to the nearest 1/1000th of a share. All investments in the Series are credited to your account in the form of shares immediately upon acceptance and become entitled to dividends as described in "Taxes, Dividends and Distributions." PMFS will also maintain subaccounts for investors. See "Subaccounting and Special Services" below. Stock certificates are issued only upon your written request. PMFS will provide a confirmation of all investments in or withdrawals from an account. Within ten days after the end of each month, PMFS will send you a statement setting forth a summary of the transactions in your account for the month and the month-end balance of full and fractional shares held in the account. . Subaccounting and Special Services. Special processing can be arranged with PMFS for corporations, banks and other institutions that wish to open multiple accounts (a master account and subaccounts). An investor wishing to avail itself of PMFS's subaccounting facilities or other special services for individual or multiple accounts will be required to enter into a separate agreement with PMFS. Charges for these services, if any, will be determined on the basis of the level of services to be rendered. Subaccounts may be opened at the time of the initial investment or at a later date. . Exchange Privilege. The Fund does not currently offer an exchange privilege for shares of the Series. . Reports to Shareholders. The Fund will send you annual and semi-annual reports. The financial statements appearing in the annual reports are audited by independent accountants. In order to reduce duplicate mailing and printing expenses the Fund will provide one annual and semi-annual shareholder report and annual prospectus per household. You may request additional copies of such reports by calling (800) 225-1852 or by writing to the Fund at One Seaport Plaza, New York, New York 10292. . Shareholder Inquiries. Shareholder inquiries should be addressed to the Fund at One Seaport Plaza, New York, New York 10292, or by telephone, at (800) 521-7466 (toll-free). 17 Prudential Institutional Liquidity Portfolio, Inc. (PILP) New Account Application [ ] Fund Selection -- Prudential Institutional Liquidity Portfolio (PILP) Institutional Money Market Series (Fund #52)(PIMMS) Account No:_____________ [ ] Account Registration The account should be registered as follows: __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Name of Account __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Street __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ State __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Attention of (Contact Person)(If Any) Telephone # ( )_______________________________ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ Taxpayer Identification No. Taxpayer Identification No. [ ] Initial Investment -- Minimum $100,000 per Fund or Series. -- Subsequent Investment Minimum $10,000 per Fund or Series. [ ] Duplicate Confirmation (other than Prudential Representative) We hereby authorize Prudential Mutual Fund Services, Inc. to send duplicate account statements for the above Fund account to: Name __________________________________________________________________________ Attention _____________________________________________________________________ Address _______________________________________________________________________ Street _________________________________________________________________________ City State zip Name __________________________________________________________________________ Attention _____________________________________________________________________ Address _______________________________________________________________________ Street _________________________________________________________________________ City State zip [ ] Prudential Representative (To Be Completed By Prudential Representative) __________________________________________ __ __ __ __ __ FA Name PSI Branch Ledger FA Number _______________________________________________________________________________ Branch Telephone Number [ ] Agent Authorization (to be completed by Prudential Securities clients only) We hereby authorize the following Prudential representative to act as our agent in connection with transactions under this authorization form: Representative Name: __________________________________________________________ Authorized Client Signature: __________________________________________________ This authorization may not be used for a change of sales representative. [ ] Distribution Option Monthly dividends are to be: [ ] Invested in additional shares [ ]Paid in cash Dividends will be invested in additional shares if no election is made) [ ] Expedited Redemption Payments If you wish to have expedited redemptions please fill out the section below. Redemption proceeds will be sent only to the bank or Prudential Securities account listed below, for credit to the investor's account. The investor hereby authorizes Prudential Mutual Fund Services, Inc. to honor telephone or written instructions without a signature guarantee for redemption of Fund shares. Prudential Mutual Fund Services, Inc.'s records of such instructions will be binding on all parties and Prudential Mutual Fund Services, Inc. will not be liable for any loss, expense or cost arising out of such transactions. If convenient, enclose a specimen copy of your check or deposit slip (marked "VOID") if applicable for the bank listed below. Proceeds from redemptions must be wired to either a commercial bank account or a Prudential Securities account--not both. To facilitate the wiring of your redemption proceeds, the indicated bank should be a commercial bank: COMMERCIAL PRUDENTIAL SECURITIES ACCOUNT 1. Account Name ___________________ Account Name: Prudential Securities ___________________ Account Number: 722-00-011 Bank Name ___________________ Bank Name: Morgan Guaranty Trust Company Bank Address ___________________ Bank Routing Number: 021-000-238 ___________________ FOR FURTHER CREDIT TO: Account No. __ __ __ __ __ __ __ PSI Account Name __________________________ Bank Routing No. _ _ _ _ _ _ _ _ _ PSI Account Number _ _ _-_ _ _ _ _ _-_-_ _ [ ] Signature Guarantee (for individuals only) The signature(s) must be guaranteed by an "eligible guarantor institution". An "eligible guarantor institution" includes any bank, broker, dealer or creditor union. For clients of Pruco Securities Corporation, a signature guarantee may be obtained from the Agency or Office manager of most Prudential Insurance and Financial Services offices. _____________________________________ __________________________________ Shareholder Signature Co-Owner Signature (if any) [ ] Signature(s) Guarantee By: Name of Bank or Firm ___________________________________________________________ Officer and Title ____________________________ _______________________________ Signature Print Name of Officer [ ] Signature and Taxpayer Identification Number Certification (If shares are registered in the name of a corporation or other organization, an authorized officer must sign) The undersigned represents and warrants that it has full right, power and authority to make the investment applied for pursuant to this Application, and the person or persons signing on behalf of the beneficial owner represent and warrant that they are duly authorized to sign this Application and to purchase or redeem shares of the Fund on behalf of the beneficial owner. The undersigned hereby affirms receipt of a current Fund prospectus and certifies under penalty of perjury that: (i) the number shown above is the correct taxpayer identification number/Social Security # and (ii) there has been no notification that this account is subject to backup withholding. [ ] Please check box if there has been notification that this account is subject to backup withholding.
_________________________________________ __________________________________________ ________ Signature Corporate Officer or Title (if appropriate) Date _________________________________________ __________________________________________ ________ Signature Corporate Officer or Title (if appropriate) Date
Acceptance Date: _______________________________
Mail Directly to: Overnight Mail Address: Prudential Mutual Fund Services, Inc. Prudential Mutual Fund Services, Inc. Institutional Service Division Attention: PILP P.O. Box 15030 Raritan Plaza One New Brunswick, NJ 08906-5030 Edison, NJ 98837 Institutional Service Division Telephone Number: Telecopier Number: 1-800-521-7466 (8:00 a.m.-4:30 p.m. (est)) (908) 417-7806 If by Wire: State Street Bank ABA Routing Number 0110-0002-8 Attention: PRU 8600 GRP Re: PILP Name of Fund: Institutional Money Market Series DDA Number: 99034100 Account Registration Name: _____________________ Account Number: ________________________________ Note: After this Application is received, you will be contacted by an Account Administrator to review operations procedures. FUNDS WILL NOT BE INVESTED WITHOUT DIRECT TELEPHONE CONTACT WITH PRUDENTIAL MUTUAL FUND SERVICES, INC.
FOR CORPORATIONS ONLY Resolution For Corporate Investor A form of Secretary's Certificate evidencing the adoption of an appropriate corporate resolution relating to a Fund account follows. You may use this form, or you may use your own. The resolution submitted should be substantially similar to that below, although it may be a blanket authorization not specifically mentioning the Fund. SECRETARY'S CERTIFICATE The undersigned hereby certifies and affirms that he/she is the duly elected (Assistant) Secretary of _______________________________________________________________________________ (Corporate name) a corporation organized under the laws of _____________________________________, (State) and that the following is a true and correct copy of a resolution adopted by the corporation's Board of Directors at a meeting duly called and held on _________________. RESOLVED, that the ___________________________________ of this corporation are (Officers' titles) hereby authorized to open an account in the name of the corporation with the Prudential Institutional Liquidity Portfolio, Inc., a registered investment company, and from to time to time to deposit therein such funds of the corporation as they may deem necessary or appropriate; that the persons named below are authorized to endorse checks and other negotiable instruments for deposit in said account and to issue over their names instructions for the redemption of shares of the Prudential Institutional Liquidity Portfolio, Inc. held in such account by any means described in its current prospectus, including check-writing; provided that such instructions are issued by any _________________________ of the persons name below: (number required) ______________________________________ _____________________________________ (print or type name and title) (signature) ______________________________________ _____________________________________ (print or type name and title) (signature) ______________________________________ _____________________________________ (print or type name and title) (signature) ______________________________________ (Corporate Name) By: __________________________________ CORPORATE SEAL Dated ________________________________ (Secretary or Assistant Secretary) DESCRIPTION OF SECURITY RATINGS Moody's Investors Service Bond Ratings Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than Aaa bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Short-Term Debt Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. Short-Term Ratings VMIG-1: Variable rate short-term indebtedness rated "VMIG-1" is of the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Standard & Poor's Corporation Bond Ratings AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. Commercial Paper Ratings A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 385 days. A-1: The A-1 designation indicates that the degree of safety regarding timely payment is strong. A "+" designation is applied to those issues rated A-1 which possess extremely strong safety characteristics. A-2: Capacity for timely payment on issues with the designation A-2 is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-1 Duff & Phelps Inc. Bond Ratings AAA: Bonds rated AAA are considered to be of the highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA: Bonds rated AA are considered to be of high credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Commercial Paper Ratings Duff 1: Issues assigned the Duff 1 rating are considered top grade. This category is further divided into three gradations as follows: Duff 1 plus--Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations; Duff 1--very high certainty of timely payment. Liquidity factors are excellent and supported by strong fundamental protection factors. Risk factors are minor; Duff 1 minus--High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. Duff 2: Issues assigned the Duff 2 rating represent a good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. Fitch Investors Service, Inc. Bond Ratings AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated `AAA'. Because bonds rated in the `AAA' and `AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated `F-1+'. Commercial Paper Ratings F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated `F-1+'. F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the `F-1+' and `F-1' categories. A-2 [THIS PAGE IS LEFT BLANK INTENTIONALLY] THE PRUDENTIAL MUTUAL FUND FAMILY Prudential Mutual Fund Management offers a broad range of mutual funds designed to meet your individual needs. We welcome you to review the investment options available through our family of funds. For more information on the Prudential Mutual Funds, including charges and expenses, contact your Prudential Securities financial adviser or Prusec registered representative or telephone the Fund at (800) 225-1852 for a free prospectus. Read the prospectus carefully before you invest or send money. Taxable Bond Funds Prudential Adjustable Rate Securities Fund, Inc. Prudential GNMA Fund Prudential Government Plus Fund Prudential Government Securities Trust Intermediate Term Series Prudential High Yield Fund Prudential Structured Maturity Fund Income Portfolio Prudential U.S. Government Fund The BlackRock Government Income Trust Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Yield Series Insured Series Modified Term Series Prudential Municipal Series Fund Arizona Series Florida Series Georgia Series Maryland Series Massachusetts Series Michigan Series Minnesota Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund Global Funds Prudential Global Fund, Inc. Prudential Global Genesis Fund Prudential Global Natural Resources Fund Prudential Intermediate Global Income Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential Short-Term Global Income Fund, Inc. Global Assets Portfolio Short-Term Global Income Portfolio Global Utility Fund, Inc. Equity Funds Prudential Equity Fund, Inc. Prudential Equity Income Fund Prudential FlexiFund Conservatively Managed Portfolio Strategy Portfolio Prudential Growth Fund, Inc. Prudential Growth Opportunity Fund Prudential IncomeVertible(R) Fund, Inc. Prudential Multi-Sector Fund, Inc. Prudential Utility Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Money Market Funds o Taxable Money Market Funds Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund Money Market Series Prudential MoneyMart Assets o Tax-Free Money Market Funds Prudential Tax-Free Money Fund Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series o Command Funds Command Money Fund Command Government Fund Command Tax-Free Fund o Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series B-1 No dealer, sales representative or any other person has been authorized to give any information or to make any representations, other than those contained in this Prospectus, in connection with the offer contained herein, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Fund or the Distributor. This Prospectus does not constitute an offer by the Fund or by the Distributor to sell or a solicitation of any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. - ------------------------------------------------------------
TABLE OF CONTENTS PROSPECTUS Page MAY 31, ---- 1994 FUND HIGHLIGHTS ....................................... 2 FUND EXPENSES ......................................... 4 FINANCIAL HIGHLIGHTS .................................. 5 CALCULATION OF YIELD .................................. 6 HOW THE FUND INVESTS .................................. 6 Investment Objective and Policies .................... 6 Other Investments and Policies ....................... 8 Prudential Investment Restrictions .............................. 10 Institutional HOW THE FUND IS MANAGED ............................... 10 Liquidity Portfolio Manager .............................................. 11 Inc. Distributor .......................................... 11 Portfolio Transactions ............................... 12 Institutional Custodian and Transfer and Money Market Series Shareholder Servicing Agent ......................... 12 -------------------------- HOW THE FUND VALUES ITS SHARES ........................ 12 TAXES, DIVIDENDS AND DISTRIBUTIONS .................... 13 GENERAL INFORMATION ................................... 14 Description of Common Stock .......................... 14 Additional Information ............................... 15 SHAREHOLDER GUIDE ..................................... 15 Prudential Mutual Funds How to Buy Shares of the Fund ........................ 15 Building Your Future How to Sell Your Shares .............................. 16 On Our Strength (sm) [logo] Shareholder Services ................................. 17 DESCRIPTION OF SECURITY RATINGS ....................... A-1 THE PRUDENTIAL MUTUAL FUND FAMILY ..................... B-1 - ------------------------------------------------------------ - ------------------------------------------------------------ MF137A 44071B CUSIP Nos.: 750350109
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Statement of Additional Information dated May 31, 1994 The Institutional Money Market Series (the Series) is a series of Prudential Institutional Liquidity Portfolio, Inc. (the Fund), an open-end, diversified management investment company. The Fund offers investors an efficient and economical means of investing in a professionally managed portfolio of high quality money market instruments. The investment objective of the Series is high current income consistent with the preservation of principal and liquidity. See "Investment Objective and Policies." The minimum initial investment is $100,000. The Fund's address is One Seaport Plaza, New York, New York 10292, and its telephone number is (800) 521-7466. This Statement of Additional Information is not a prospectus and should be read in conjunction with the Fund's Prospectus dated May 31, 1994, a copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS Cross-reference to page in Page Prospectus ---- ---------------- Investment Objective and Policies .......................... B-2 6 Investment Restrictions .................................... B-3 10 Directors and Officers ..................................... B-5 10 Manager .................................................... B-7 11 Distributor ................................................ B-9 11 Purchase of Shares ......................................... B-9 15 Net Asset Value ............................................ B-10 12 Portfolio Transactions ..................................... B-10 12 Taxes ...................................................... B-11 13 Calculation of Yield ....................................... B-11 6 Custodian, Transfer and Shareholder Servicing Agent and Independent Accountants ......................... B-12 12 General Information ........................................ B-12 14 Financial Statements ....................................... B-13 - Independent Auditor's Report ............................... B-21 -
- ------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Series is high current income consistent with the preservation of principal and liquidity. Obligations Issued or Guaranteed by the U.S. Government, its Agencies and Instrumentalities. The Series may invest in component parts of U.S. Treasury notes or bonds, namely, either the corpus (principal) of such Treasury obligations or one of the interest payments scheduled to be paid on such obligations. These obligations may take the form of (i) Treasury obligations from which the interest coupons have been stripped, (ii) the interest coupons that are stripped, (iii) book-entries at a Federal Reserve member bank representing ownership of Treasury obligation components, or (iv) receipts evidencing the component parts (corpus or coupons) of Treasury obligations that have not actually been stripped. Such receipts evidence ownership of component parts of Treasury obligations (corpus or coupons) purchased by a third party (typically an investment banking firm) and held on behalf of the third party in physical or book-entry form by a major commercial bank or trust company pursuant to a custody agreement with the third party. Treasury obligations, including those underlying such receipts, are backed by the full faith and credit of the U.S. Government. Obligations issued or guaranteed as to principal and interest by the U.S. Government may be acquired by the Series in the form of custodial receipts that evidence ownership of future interest payments, principal payments or both on certain United States Treasury notes or bonds. Such notes and bonds are held in custody by a bank on behalf of the owners. These custodial receipts are known by various names, including "Treasury Receipts," "Treasury Investment Growth Receipts" (TIGRs) and "Certificates of Accrual on Treasury Securities" (CATS). Lending of Securities Consistent with applicable regulatory requirements, the Series may lend its portfolio securities to brokers, dealers and financial institutions, provided that outstanding loans do not exceed in the aggregate 15% of the value of the Series' total assets and provided that such loans are callable at any time by the Series and are at all times secured by cash or equivalent collateral that is equal to at least the market value, determined daily, of the loaned securities. The advantage of such loans is that the Series continues to receive payments in lieu of the interest on the loaned securities, while at the same time earning interest either directly from the borrower or on the collateral which will be invested in short-term obligations. A loan may be terminated by the borrower on one business day's notice or by the Series at any time. If the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates, and the Series could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms determined to be creditworthy pursuant to procedures approved by the Board of Directors of the Fund. On termination of the loan, the borrower is required to return the securities to the Series, and any gain or loss in the market price during the loan would inure to the Series. The Series will pay reasonable finders', administrative and custodial fees in connection with a loan of its securities or may share the interest earned on collateral with the borrower. The Series does not intend to lend its securities during the coming year. Liquidity Puts The Series may purchase instruments of the types described in the Prospectus under "How the Fund Invests--Investment Objective and Policies" together with the right to resell the instruments at an agreed-upon price or yield within a specified period prior to the maturity date of the instruments. Such a right to resell is commonly known as a "put," and the aggregate price which the Series pays for instruments with puts may be higher than the price which otherwise would be paid for the instruments. Consistent with the Series' investment objective and applicable rules issued by the Securities and Exchange Commission (SEC) and subject to the supervision of the Board of Directors, the purpose of this practice is to permit the Series to be fully invested while preserving the necessary liquidity to meet unusually large redemptions and to purchase at a later date securities other than those subject to the put. The Series may choose to exercise puts during periods in which proceeds from sales of its shares and from recent sales of portfolio securities are insufficient to meet redemption requests or when the funds available are otherwise allocated for investment. In determining whether to exercise puts prior to their expiration date and in selecting which puts to exercise in such circumstances, the investment adviser considers, among other things, the amount of cash available to the Series, the expiration dates of the available puts, any future commitments for securities purchases, the yield, quality and maturity dates of the underlying securities, alternative investment opportunities and the desirability of retaining the underlying securities in the Series' portfolio. B-2 The Series values instruments which are subject to puts at amortized cost; no value is assigned to the put. The cost of the put, if any, is carried as an unrealized loss from the time of purchase until it is exercised or it expires. The Series will invest no more than 5% of its total assets in securities issued by or subject to puts from the same institution. For purposes of this limitation, unconditional puts or guarantees with respect to a security will not be deemed to be issued by the institution providing the guarantee or put if the value of all securities held by the Series and issued or guaranteed by the issuer providing the guarantee or put are limited to 10% of the Series' total assets. Illiquid Securities The Series may invest up to 10% of its total assets (determined at the time of investment) in securities for which market quotations are not readily available and in repurchase agreements which have a maturity longer than seven days. Securities of Other Investment Companies The Series may invest up to 5% of its total assets in securities of other registered investment companies. Generally, the Series does not intend to invest in such securities. If the Series invests in securities of other registered investment companies, shareholders of the Series may be subject to duplicate management and advisory fees. Transactions in Options and Futures Contracts The Series has the right to enter into futures contracts and to purchase and sell put and call options on futures contracts; however, the Series does not intend to enter into futures contracts for the coming year. The Series may purchase options to protect it against anticipated adverse variations in price and yield resulting from changes in interest rates. A "put" option is a contract which gives the purchaser, in return for a premium, the right to sell the underlying security at a specified price during the term of the option. The Series may also purchase a "call" option, or an option to buy securities, which gives the Series the right to call upon the writer of the option to deliver a specified amount of a security on or before a fixed date, at a predetermined price. Purchasing options enables the Series to hedge against changes in the value of its assets without involving an obligation to buy or sell securities. The risk in purchasing an option is limited to the cost of the option. The Series will not engage in any transactions involving futures contracts or options thereon except in compliance with Rule 4.5 adopted by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act, under which the Fund would be exempt from the definition of a "commodity pool operator," subject to compliance with certain conditions. In accordance with CFTC regulations, the Fund may purchase or sell futures contracts or options thereon for bona fide hedging transactions. In addition, the Fund may use futures contracts and options thereon for any other purpose to the extent that the aggregate initial margin and option premium does not exceed 5% of the liquidation value of the Fund. The Fund has undertaken with certain state securities commissions that, so long as the shares of the Fund are registered in those states, the Series will not purchase put or call options if after such purchase, the total premiums paid for such options exceed 5% of the total assets of the Series, provided that this limitation does not extend to liquidity puts. See "How the Fund Invests--Investment Objective and Policies" in the Prospectus. By entering into futures contracts, the Series agrees to purchase or sell securities at a future date, or receive or pay an amount in cash determined by the value of an index. Futures contracts sales would be used to protect the value of the Series' investments against expected increases in interest rates, while futures contract purchases would be used to offset the impact of interest rate declines. The Series may use these instruments solely as a hedge against anticipated interest rate variations and not for speculation. INVESTMENT RESTRICTIONS The following restrictions are fundamental policies. Fundamental policies are those which cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Series. A "majority of the outstanding voting securities," when used in this Statement of Additional Information, means the lesser of (i) 67% of the voting shares represented at a meeting at which more than 50% of the outstanding voting shares are present in person or represented by proxy or (ii) more than 50% of the outstanding voting shares. A Series may not: 1. Purchase securities on margin (but a Series may obtain such short-term credits as may be necessary for the clearance of transactions); provided that the deposit or payment by a Series of initial or maintenance margin in connection with options or futures contracts is not considered the purchase of a security on margin. B-3 2. Make short sales of securities or maintain a short position. 3. Issue senior securities, borrow money (including through the entry into reverse repurchase agreement transactions) or pledge its assets, except that a Series may borrow up to 15% of the value of its total assets (calculated when the loan is made) from banks for temporary, extraordinary or emergency purposes and may pledge up to 15% of the value of its total assets to secure such borrowings. No Series will purchase portfolio securities if its borrowings exceed 5% of its net assets. The purchase or sale of securities on a "when-issued" or delayed delivery basis, the entry into reverse repurchase agreements and the purchase and sale of financial futures contracts and collateral arrangements with respect thereto are not deemed to be a pledge of assets and such arrangements are not deemed to be the issuance of a senior security. 4. Purchase any security (other than obligations of the U.S. Government, its agencies and instrumentalities and obligations of domestic branches of U.S. banks) if as a result: (i) more than 5% of the Series' total assets (determined at the time of investment) would then be invested in securities of a single issuer, except that, with respect to certificates of deposit, time deposits and bankers' acceptances, up to 25% of the value of a Series' total assets may be invested without regard to the 5% limitation or (ii) 25% or more of the Series' total assets (determined at the time of investment) would be invested in one or more issuers having their principal business activities in the same industry. 5. Purchase securities, other than obligations of the U.S. Government, its agencies or instrumentalities, of any issuer having a record, together with predecessors, of less than three years of continuous operations if, immediately after such purchase, more than 5% of a Series' total assets would be invested in such securities. 6. Invest in securities of any issuer if, to the knowledge of the Fund, any officer or Director of the Fund or the investment adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such officers and Directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer. 7. Buy or sell real estate or interests in real estate, except that the Series may purchase and sell securities which are secured by real estate, securities of companies which invest or deal in real estate and publicly traded securities of real estate investment trusts. The Series may not purchase interests in real estate limited partnerships which are not readily marketable. 8. Act as underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. 9. Make investments for the purpose of exercising control or management. 10. Purchase securities for which there are legal or contractual restrictions on resale or invest in securities for which there is no readily available market, including repurchase agreements having maturities of more than seven days, if more than 10% of the Series' total assets would be invested in such securities. 11. Invest in securities of other registered investment companies, except by purchases in the open market involving only customary brokerage commissions and as a result of which not more than 5% of its total assets (determined at the time of investment) would be invested in such securities, or except as part of a merger, consolidation or other acquisition. 12. Invest in interests in oil, gas or other mineral exploration or development programs, except that the Series may invest in the securities of companies which invest in or sponsor such programs. 13. Make loans, except through (i) repurchase agreements and (ii) loans of portfolio securities (limited to 15% of the value of the Series' total assets). 14. Purchase common stock or other voting securities, preferred stock, warrants or other equity securities, except as may be permitted by restriction number 11. 15. Enter into reverse repurchase agreements if, as a result thereof, a Series' obligations with respect to reverse repurchase agreements would exceed 15% of the value of the Series' total assets. 16. Buy or sell commodities or commodity contracts, except that the Series may purchase and sell futures contracts and options thereon. Whenever any fundamental investment policy or investment restriction states a maximum percentage of a Series' assets, it is intended that if the percentage limitation is met at the time the investment is made, a later change in percentage resulting from changing total or net asset values will not be considered a violation of such policy. B-4 In order to comply with certain "blue sky" restrictions, the Fund will not as a matter of operating policy: 1. Invest in securities of other registered investment companies except as they may be acquired as part of a merger, consolidation or acquisition of assets. Mortgage-backed securities and asset-backed securities are not considered investment companies for purposes of any limitation. 2. Invest in futures contracts or options thereon.
DIRECTORS AND OFFICERS Position with Principal Occupations Name and Address the Fund During Past Five Years - ---------------- ------------- ---------------------- Eugene C. Dorsey Director Retired president, Chief Executive Officer and c/o Prudential Mutual Fund Trustee of the Gannett Foundation (now Freedom Management, Inc. Forum); former publisher of four Gannett newspapers One Seaport Plaza and Vice President of the Gannett Company; New York, NY past chairman, Independent Sector, Washington, D.C. (largest national coalition of philanthropic organizations); former chairman of the American Council for the Arts; Director of the advisory board of Chase Manhattan Bank of Rochester and The High Yield Income Fund, Inc. Donald D. Lennox Director Chairman (since February 1990) and Director (since c/o Prudential Mutual Fund April 1989) of International Imaging Materials Inc.; Management, Inc. Retired Chairman, Chief Executive Officer and One Seaport Plaza Director of Schlegel Corporation (industrial manufacturing) New York, NY (March 1987-February 1989); Director of Gleason Corporation, Navistar International Corporation, Personal Sound Technologies, Inc., The Global Government Plus Fund, Inc. and The High Yield Income Fund, Inc. *Lawrence C. McQuade President and Director Vice Chairman of PMF (since 1988); Managing Director, One Seaport Plaza Investment Banking, Prudential Securities New York, NY (1988-1991); Director of Quixote Corporation (since February 1992) and BUNZL P.L.C. (since June 1991); formerly Director of Crazy Eddie Inc. (1987-1990) and Kaiser Tech., Ltd. and Kaiser Aluminum and Chemical Corp. (March 1987-November 1988); formerly Executive Vice President and Director of W.R. Grace & Co. (1975-1987); President and Director of The Global Government Plus Fund, Inc., The Global Yield Fund, Inc. and The High Yield Income Fund, Inc. *Richard A. Redeker Director President, Chief Executive Officer and Director (since One Seaport Plaza October 1993), Prudential Mutual Fund Management, New York, NY Inc. (PMF); Executive Vice President, Director and Member of the Operating Committee (since October 1993), Prudential Securities Incorporated (Prudential Securities); Director (since October 1993) of Prudential Securities Group, Inc.; formerly Senior Executive Vice President and Director of Kemper Financial Services, Inc. (September 1978-September 1993); Director of The Global Government Plus Fund, Inc. and The High Yield Income Fund, Inc.
B-5
Position with Principal Occupations Name and Address the Fund During Past Five Years - ---------------- ------------- ---------------------- Stanley E. Shirk Director Certified Public Accountant and a former Senior c/o Prudential Mutual Fund Partner of the accounting firm of KPMG Peat Management, Inc. Marwick; former Management and Accounting One Seaport Plaza Consultant for the Association of Bank Holding New York, NY Companies, Washington, D.C. and the Bank Administration Institute, Chicago, Ill.; Director of The High Yield Income Fund, Inc. Robin B. Smith Director President (since September 1981) and Chief Executive c/o Prudential Mutual Fund Officer (since January 1988) of Publishers Clearing Management, Inc. House; Director of The Omnicom Group, Inc., Huffy One Seaport Plaza Corporation, Spring Industries, Inc., Texaco, Inc., New York, NY First Financial Fund, Inc., The Global Yield Fund, Inc., The High Yield Income Fund, Inc. and The High Yield Plus Fund, Inc. Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), One Seaport Plaza Director (since January 1989), Executive Vice New York, NY President, Treasurer and Chief Financial Officer (since June 1987) of PMF; Senior Vice President (since March 1987) of Prudential Securities; Vice President and Director of The Asia Pacific Fund, Inc. (since May 1989). S. Jane Rose Secretary Senior Vice President (since January 1991), Senior One Seaport Plaza Counsel (since June 1987) and First Vice President New York, NY (June 1987-December 1990) of PMF; Senior Vice President and Senior Counsel of Prudential Securities (since July 1992); formerly Vice President and Associate General Counsel of Prudential Securities. Susan C. Cote Treasurer and Principal Senior Vice President of PMF; Senior Vice President One Seaport Plaza Financial and (since January 1992) and Vice President (January New York, NY Accounting Officer 1986-December 1991) of Prudential Securities. Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since One Seaport Plaza Secretary Secretary June 1991) of PMF; Vice President and New York, NY Associate General Counsel of Prudential Securities. - ------------------- * "Interested" Director of the Fund, as defined in the Investment Company Act of 1940 (the Investment Company Act). Directors and officers of the Fund are also trustees, directors and officers of some or all of the other investment companies distributed by Prudential Securities or Prudential Mutual Fund Distributors, Inc. (PMFD).
B-6 The officers conduct and supervise the daily business operations of the Fund, while the Directors, in addition to their functions set forth under "Manager" and "Distributor," review such actions and decide on general policy. The Fund pays each of its Directors who is not an affiliated person of PMF or The Prudential Investment Corporation (PIC) annual compensation of $10,000, in addition to certain out-of-pocket expenses. As of May 13, 1994, the Directors and officers of the Fund, as a group, owned less than 1% of the outstanding common stock of the Fund. As of May 13, 1994, Prudential Insurance Company of America (Prudential), Prudential Plaza, Newark, New Jersey 07101, either directly or through one or more controlled companies, owned approximately 57% of the Fund's outstanding voting securities and may be deemed to be a controlling person of the Fund. Prudential is a mutual insurance company organized under the laws of New Jersey. As of May 13, 1994, Prudential Health Care Plan of California, Inc., 5800 Canoga Avenue, WHW2, Woodland Hills, California 91367-6503, Prudential High Yield Trust DTD 1990, Three Gateway Center, Mail Stop 121, 100 Mulberry Street, Newark, New Jersey 07102-4004, Prudential Interfunding, Gateway Center 4, 6th Floor, Newark, New Jersey 07102, and Pru Supply Capital Assets Inc., 4 Gateway Center, 6th Floor, Newark, New Jersey 07102-4007 were the beneficial owners of 8.63%, 8.79%, 10.5% and 16.3%, respectively, of the Fund's outstanding voting securities. MANAGER The manager of the Fund is Prudential Mutual Fund Management, Inc., One Seaport Plaza, New York, New York 10292 (PMF or the Manager). PMF serves as manager of the other investment companies, that, together with the Fund, comprise the Prudential Mutual Funds. See "How the Fund Is Managed" in the Prospectus. As of April 30, 1994, PMF managed and/or administered open-end and closed-end management investment companies with assets of approximately $49 billion. According to the Investment Company Institute, as of December 31, 1993, the Prudential Mutual Funds were the 12th largest family of mutual funds in the United States. Pursuant to the Management Agreement with the Series (the Management Agreement), PMF, subject to the supervision of the Fund's Board of Directors and in conformity with the stated policies of the Fund, manages both the investment operations of the Series and the composition of the Series' portfolio, including the purchase, retention, disposition and loan of securities. In connection therewith, PMF is obligated to keep certain books and records of the Fund. PMF also administers the Fund's corporate affairs and, in connection therewith, furnishes the Fund with office facilities, together with those ordinary clerical and bookkeeping services which are not being furnished by State Street Bank and Trust Company, the Fund's custodian, and Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's transfer and shareholder servicing agent. The management services of PMF for the Fund are not exclusive under the terms of the Management Agreement and PMF is free to, and does, render management services to others. For its services, PMF receives, pursuant to the Management Agreement, a fee at an annual rate of .20 of 1% of the average daily net assets of the Series. The fee is computed daily and payable monthly. The Management Agreement provides that, in the event the expenses of the Fund for any fiscal year (including the fees payable to PMF, but excluding interest, taxes, brokerage commissions, distribution fees and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business) exceed the lowest applicable annual expense limitation established and enforced pursuant to the statute or regulations of any jurisdiction in which shares of the Fund are then qualified for offer and sale, the compensation due to PMF will be reduced by the amount of such excess, or, if such reduction exceeds the compensation payable to PMF, PMF will pay to the Series the amount of such reduction which exceeds the amount of such compensation. Any such reductions or payments are subject to readjustment during the year. The most restrictive of such annual limitations is believed to be 2 1/2% of the Series' average daily net assets up to $30 million, 2% of the next $70 million of such assets and 1 1/2% of such assets in excess of $100 million. In connection with its management of the corporate affairs of the Fund, PMF bears the following expenses: (a) the salaries and expenses of all personnel of the Fund and the Manager, except the fees and expenses of Directors who are not affiliated persons of PMF or the Fund's investment adviser; (b) all expenses incurred by PMF or by the Fund in connection with managing the ordinary course of the Fund's business, other than those assumed by the Fund, as described below; and (c) the costs and expenses payable to PIC pursuant to a subadvisory agreement between PMF and PIC (the Subadvisory Agreement). Under the terms of the Management Agreement, the Fund is responsible for the payment of the following expenses, including (a) the fees payable to the Manager, (b) the fees and expenses of Directors who are not affiliated with the Manager or the B-7 Fund's investment adviser, (c) the fees and certain expenses of the Fund's Custodian and Transfer and Dividend Disbursing Agent, including the cost of providing records to the Manager in connection with its obligation of maintaining required records of the Fund and of pricing the Fund's shares, (d) the charges and expenses of the Fund's legal counsel and independent accountants, (e) brokerage commissions and any issue or transfer taxes chargeable to the Fund in connection with its securities and futures transactions, (f) all taxes and corporate fees payable by the Fund to governmental agencies, (g) the fees of any trade association of which the Fund is a member, (h) the cost of stock certificates representing and/or non-negotiable share deposit receipts evidencing shares of the Fund, (i) the cost of fidelity and liability insurance, (j) the fees and expenses involved in registering and maintaining registration of the Fund and of its shares with the SEC and registering the Fund and qualifying its shares under state securities laws, including the preparation and printing of the Fund's registration statements and prospectuses for such purposes, (k) allocable communications expenses with respect to investor services and all expenses of shareholders' and Directors' meetings and of preparing, printing and mailing reports, proxy statements and prospectuses to shareholders, (l) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business and (m) distribution fees. The Management Agreement also provides that PMF will not be liable for any error of judgment or any loss suffered by the Fund in connection with the matters to which the Management Agreement relates, except a loss resulting from willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Management Agreement provides that it will terminate automatically if assigned (as defined in the Investment Company Act), and that it may be terminated without penalty by either party upon not more than 60 days' nor less than 30 days' written notice. The Management Agreement provides that it will continue in effect for a period of more than two years from its execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the Investment Company Act. The Management Agreement was last approved by the Board of Directors of the Fund, including a majority of the Directors who are not parties to the agreement or interested persons of such parties as defined in the Investment Company Act, on April 12,1994, and was approved by the shareholders of the Series on November 29, 1988. For the fiscal years ended March 31, 1994, 1993, and 1992, the Series paid management fees to PMF of $891,735, $1,087,387 and $1,080,760, respectively. PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that PIC furnish investment advisory services in connection with the management of the Fund. In connection therewith, PIC is obligated to keep certain books and records of the Fund. PMF continues to have responsibility for all investment advisory services pursuant to the Management Agreement and supervises PIC's performance of such services. PIC is reimbursed by PMF for the reasonable costs and expenses incurred by PIC in furnishing services to PMF. The Subadviser maintains a corporate credit unit which provides credit analysis and research on taxable fixed-income securities including money market instruments. The portfolio manager consults routinely with the credit unit in managing the Series' portfolio. The credit unit, which currently maintains a staff of 17 persons including 12 credit analysts, reviews on an ongoing basis commercial paper issuers, commercial banks, non-bank financial institutions and issuers of other taxable fixed-income obligations. Credit analysts have broad access to research and financial reports, data retrieval services and industry analysts. They maintain relationships with the management of corporate issuers and from time to time visit companies in whose securities the Series may invest. The Subadvisory Agreement was last approved by the Board of Directors, including a majority of the directors who are not parties to such contract or interested persons of such parties as defined in the Investment Company Act, on April 12, 1994, and was approved by the shareholders of the Series on November 29, 1988. The Subadvisory Agreement provides that it will terminate in the event of its assignment (as defined in the Investment Company Act) or upon the termination of the Management Agreement. The Subadvisory Agreement may be terminated by the Fund, PMF or PIC upon not more than 60 days' nor less than 30 days' written notice. The Subadvisory Agreement provides that it will continue in effect for a period of more than two years from its execution only so long as such continuance is specifically approved at least annually in accordance with the requirements of the Investment Company Act. The Manager and the Subadviser are indirect subsidiaries of Prudential which, as of December 31, 1993, is one of the largest financial institutions in the world and the largest insurance company in North America. Prudential has been engaged in the insurance business since 1875. In July 1993, Institutional Investor ranked Prudential the third largest institutional money manager of the 300 largest money management organizations in the United States as of December 31, 1992. B-8 DISTRIBUTOR Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), a wholly-owned subsidiary of PMF, succeeded to the duties and obligations of Prudential Securities under the Distribution Agreement among PMFD, Prudential Securities and the Fund (the Distribution Agreement) effective June 1, 1988. See "How the Fund Is Managed--Distributor" in the Prospectus. Plan of Distribution Under the Fund's Distribution and Service Plan (the Plan) and the Distribution Agreement, the Fund pays PMFD, as distributor, a distribution fee of up to 0.12% of the average daily net assets of the Series, computed daily and payable monthly. For the fiscal year ended March 31, 1994, PMFD incurred distribution expenses in the aggregate of approximately $535,041 with respect to the Series, under the Plan, all of which was recovered through the distribution fee paid by the Series to PMFD. It is estimated that of this amount approximately 75% ($401,300) was spent on payment of account servicing fees to financial advisers and 25% ($133,700) on allocation of overhead and other office distribution-related expenses with respect to the Series. The term "overhead and other office distribution-related expenses" represents (a) the expenses of operating Prudential Securities' branch offices in connection with the sale of shares of the Series, including lease costs, the salaries and employee benefits of operations and sales support personnel, utility costs, communications costs and the costs of stationery and supplies, (b) the costs of client sales seminars, and (c) travel expenses of mutual fund sales coordinators to promote the sale of shares of the Series. The Plan was last approved by the Board of Directors of the Fund, including a majority of the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to the Plan (the Rule 12b-1 Directors), cast in person at a meeting called for the purpose of voting on such Plan, on April 12, 1994, and was approved by the shareholders of the Series on November 29, 1988. There are no carryover amounts under the Plan, and therefore interest and carrying charges are not incurred under the Plan. So long as the Plan is in effect, the selection and nomination of Directors who are not interested persons of the Fund shall be committed to the discretion of the Directors who are not interested persons. The Board of Directors has determined that, in its judgment, there is a reasonable likelihood that the Plan will benefit the Series and its shareholders. Pursuant to the Plan, the Directors will be provided with, and will review, at least quarterly, a written report of the distribution expenses incurred on behalf of the Fund by PMFD. The report will include an itemization of the distribution expenses and the purpose of such expenditures. The Plan may not be amended to increase materially the amount to be spent for the services described therein without approval of the shareholders of the Fund, and all material amendments of the Plan must also be approved by the Directors in the manner described above. The Plan may be terminated with respect to the Series at any time, by vote of a majority of the Rule 12b-1 Directors or by a vote of a majority of the outstanding voting securities of the Series (as defined in the Investment Company Act). The Fund's Distribution Agreement provides that it will terminate automatically if assigned and that it may be terminated, without payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on 60 days' written notice to the other party. Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the Distributor to the extent permitted by applicable law against certain liabilities under the Securities Act of 1933, as amended. The Distribution Agreement was last approved by the Board of Directors, including a majority of the Rule 12b-1 Directors, on April 12, 1994. PURCHASE OF SHARES Multiple Accounts An institution may open a single master account by filing an Application with PMFS, signed by personnel authorized to act for the institution. Individual subaccounts may be opened at the time the master account is opened by listing them, or they may be added at a later date by written advice. Procedures will be available to identify subaccounts by name and number within the master account name. The foregoing procedures would also apply to related institutional accounts (i.e., accounts of shareholders with a common institutional or corporate parent). The investment minimums as set forth in the Prospectus under "Shareholder Guide-- How to Buy Shares of the Fund" are applicable to the aggregate amounts invested by a group, and not to the amount credited to each subaccount. PMFS provides each institution with a written confirmation for each transaction in a subaccount. Further, PMFS is able to provide, to each institution on a daily or monthly basis, a statement which sets forth for each master account its share balance and B-9 income earned for the month. In addition, each institution receives a statement for each individual account setting forth transactions in the sub-account for the year-to-date, the total number of shares owned as of the dividend payment date and the dividends paid for the current month, as well as for the year-to-date. Reopening an Account Subject to the minimum investment restrictions, an investor may reopen an account, without filing a new Application, at any time during the calendar year the account is closed, provided that the information on the old form is still applicable. NET ASSET VALUE The Series uses the amortized cost method of valuation to determine the value of its portfolio securities. In that regard, the Fund's Board of Directors has determined to maintain a dollar-weighted average portfolio maturity of 90 days or less, to purchase only instruments having remaining maturities of thirteen months or less, and to invest only in securities determined by the investment adviser under the supervision of the Board of Directors to be of minimal credit risk and to be of "eligible quality" in accordance with regulations of the SEC. The remaining maturity of an instrument held by the Fund that is subject to a put is deemed to be the period remaining until the principal amount can be recovered through demand or, in the case of a variable rate instrument, the next interest reset date, if longer. The value assigned to the put is zero. The Board of Directors also has established procedures designed to stabilize, to the extent reasonably possible, the Series' price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures will include review of the Series' portfolio holdings by the Board, at such intervals as deemed appropriate, to determine whether the Series' net asset value calculated by using available market quotations deviates from $1.00 per share based on amortized cost. The extent of any deviation will be examined by the Board, and if such deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be initiated. In the event the Board of Directors determines that a deviation exists which may result in material dilution or other unfair results to investors or existing shareholders, the Board will take such corrective action as it regards necessary and appropriate, including the sale of portfolio instruments prior to maturity to realize gains or losses, the shortening of average portfolio maturity, the withholding of dividends or the establishment of net asset value per share by using available market quotations. PORTFOLIO TRANSACTIONS The Manager is responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any. (For purposes of this section, the term "Manager" includes the Subadviser.) The Fund does not normally incur any brokerage commission expense on such transactions. In the market for money market instruments, securities are generally traded on a "net" basis, with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. Portfolio securities may not be purchased from any underwriting or selling syndicate of which Prudential Securities, or an affiliate, during the existence of the syndicate, is a principal underwriter (as defined in the Investment Company Act), except in accordance with rules of the SEC. The Fund will not deal with Prudential Securities or its affiliates on a principal basis. In placing orders for portfolio securities of the Fund, the Manager is required to give primary consideration to obtaining the most favorable price and efficient execution. This means that the Manager will seek to execute each transaction at a price and commission, if any, which provide the most favorable total cost or proceeds reasonably attainable under the circumstances. While the Manager generally seeks reasonably competitive spreads or commissions, the Fund will not necessarily be paying the lowest spread or commission available. Within the framework of this policy, the Manager may consider research and investment services provided by brokers or dealers who effect or are parties to portfolio transactions of the Fund, the Manager or the Manager's other clients. Such research and investment services are those which brokerage houses customarily provide to institutional investors and include statistical and economic data and research reports on particular companies and industries. Such services are used by the Manager in connection with all of its investment activities, and some of such services obtained in connection with the execution of transactions for the Fund may be used in managing other investment accounts. Conversely, brokers furnishing such services may be selected for the execution of transactions for such other accounts, whose aggregate assets are far larger than the Fund's, and the services furnished by such brokers may be used by the Manager in providing investment management for the Fund. While such services are useful and important in supplementing its own research and facilities, the Manager believes that the value of such services is not determinable and does not significantly reduce expenses. The Fund does not reduce the advisory fee it pays to the Manager by any amount that may be attributed to the value of such services. B-10 Subject to the above considerations, Prudential Securities may act as a securities broker (or futures commission merchant) for the Fund. In order for Prudential Securities to effect any portfolio transactions for the Fund, the commissions, fees or other remuneration received by Prudential Securities must be reasonable and fair compared to the commissions, fees or other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold during a comparable period of time. This standard would allow Prudential Securities to receive no more than the remuneration which would be expected to be received by an unaffiliated broker in a commensurate arm's-length transaction. Furthermore, the Board of Directors of the Fund, including a majority of the Directors who are not "interested" persons, has adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to Prudential Securities are consistent with the foregoing standard. Brokerage transactions with Prudential Securities are also subject to such fiduciary standards as may be imposed by applicable law. During the fiscal years ended March 31, 1992, 1993 and 1994, the Fund paid no brokerage commissions. TAXES The Series has elected to qualify and intends to remain qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. This relieves the Series (but not its shareholders) from paying federal income tax on income which is distributed to shareholders, provided that it distributes at least 90% of its net investment income and short-term capital gains. In addition, distributions of net capital gains of the Series (i.e., the excess of net long-term capital gains over net short-term capital losses), if any, will be treated as long-term capital gains of the shareholders, regardless of how long shareholders have held their shares in the Series. Qualification as a regulated investment company requires, among other things, that (a) at least 90% of the Series' annual gross income (without reduction for losses from the sale or other disposition of securities or foreign currencies) be derived from interest, dividends, payments with respect to securities loans, and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such securities or currencies; (b) the Series derives less than 30% of its annual gross income from gains (without reduction for losses) from the sale or other disposition of securities held for less than three months; and (c) the Series diversifies its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Series' assets is represented by cash, U.S. Government obligations and other securities limited in respect of any one issuer to an amount not greater than 5% of the Series' assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government obligations). Gains or losses on sales of securities by the Series will be treated as long-term capital gains or losses if the securities have been held by it for more than one year. Other gains or losses on the sale of securities will be short-term capital gains or losses. In addition, debt securities acquired by the Series may be subject to original issue discount and market discount rules. The Series is required to distribute 98% of its ordinary income in the same calendar year in which it is earned. The Series is also required to distribute during the calendar year 98% of the capital gain net income it earned during the twelve months ending on October 31 of such calendar year, as well as all undistributed ordinary income and undistributed capital gain net income from the prior year or the twelve-month period ending on October 31 of such prior year, respectively. To the extent it does not meet these distribution requirements, the Series will be subject to a non-deductible 4% excise tax on the undistributed amount. For purposes of this excise tax, income on which the Series pays income tax is treated as distributed. CALCULATION OF YIELD The Series will prepare a current quotation of yield daily. The yield quoted will be the simple annualized yield for an identified seven calendar day period. The yield calculation will be based on a hypothetical account having a balance of exactly one share at the beginning of the seven-day period. The base period return will be the change in the value of the hypothetical account during the seven-day period, including dividends declared on any shares purchased with dividends on the shares, but excluding any capital changes, divided by the value of the account at the beginning of the base period. The yield will vary as interest rates and other conditions affecting money market instruments change. Yield also depends on the quality, length of maturity and type of instruments in the Series' portfolio, and its operating expenses. The Series also may prepare an effective annual yield computed by compounding the unannualized seven-day period return as follows: by adding 1 to the unannualized seven-day period return, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result. Effective yield = [(base period return+1)365/7]-1 Comparative performance information may be used from time to time in advertising or marketing the Series' shares, including data from Lipper Analytical Services, Inc., Donoghue's Money Fund Report, The Bank Rate Monitor, other industry publications, business periodicals, and market indices. B-11 The Series' yield fluctuates, and an annualized yield quotation is not a representation by the Series as to what an investment in the Series will actually yield for any given period. Actual yields will depend upon not only changes in interest rates generally during the period in which the investment in the Series is held, but also on changes in the Series' expenses. Yield does not take into account any federal or state income taxes. CUSTODIAN, TRANSFER AND SHAREHOLDER SERVICING AGENT AND INDEPENDENT ACCOUNTANTS State Street Bank and Trust Company, One Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the Fund's portfolio securities, and in that capacity maintains cash and certain financial and accounting books and records pursuant to an agreement with the Fund. Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New Jersey 08837, serves as the Transfer and Shareholder Servicing Agent of the Fund. It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services to the Fund, including the handling of shareholder communications, the processing of shareholder transactions, the maintenance of shareholder account records, payment of dividends and distributions and related functions. For these services, PMFS receives a monthly fee plus its out-of-pocket expenses, including but not limited to postage, stationery, printing, allocable communications and other costs. For the fiscal year ended March 31, 1994, the Series incurred fees of $257,000 for the services of PMFS. Deloitte & Touche, 1633 Broadway, New York, New York 10019, serve as the Fund's independent accountants and in that capacity audit the Fund's annual financial statements. GENERAL INFORMATION The Fund was incorporated on September 1, 1987 and originally consisted of four series: the Institutional Money Market Series, the Institutional Government Series, the Institutional Domestic Liquid Assets Series and the Institutional Tax-Exempt Series. On or about June 30, 1989, sales of shares of the Institutional Domestic Liquid Assets Series and the Institutional Tax-Exempt Series were discontinued. Effective October 12, 1989, no shares remained outstanding in those Series. On or about April 24, 1992, sales of shares of the Institutional Government Series were discontinued. Effective May 15, 1992, no shares remained outstanding in the Institutional Government Series. B-12 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Portfolio of Investments INSTITUTIONAL MONEY MARKET SERIES March 31, 1994
Principal Amount Value (000) Description (Note 1) BANK NOTES--8.1% Huntington National Bank $ 8,000 3.45%, 4/28/94............... $ 8,000,391 1,000 3.30%, 5/10/94............... 999,470 NationsBank North Carolina 2,180 3.65%, 6/7/94................ 2,180,490 NBD Bank, N.A. 1,000 3.56%, 7/11/94............... 999,058 PNC Bank, N.A. 12,000 3.30%, 6/10/94............... 11,995,187 Republic National Bank 5,000 4.30%, 3/8/95................ 4,985,554 Society National Bank Cleveland 2,000 3.55%, 1/20/95............... 1,997,406 ------------ 31,157,556 ------------ CERTIFICATES OF DEPOSIT-- FOREIGN ISSUERS--7.5% Banque Nationale De Paris 2,000 3.35%, 7/7/94................ 1,996,404 Barclays Bank PLC 9,000 3.25%, 6/13/94............... 9,000,540 Commerzbank 2,000 3.56%, 8/12/94............... 2,001,375 Norinchukin Bank 4,000 3.31%, 4/7/94................ 3,999,520 Societe Generale 3,000 3.40%, 5/2/94................ 3,000,176 9,000 3.80%, 6/3/94................ 8,999,838 ------------ 28,997,853 ------------ COMMERCIAL PAPER--DOMESTIC ISSUERS--42.3% American Cyanamid Co. 2,800 3.80%, 6/7/94................ 2,780,198 4,140 3.80%, 6/17/94............... 4,106,351 Aristar, Inc. $ 1,000 3.75%, 4/27/94............... $ 997,292 1,000 3.80%, 5/19/94............... 994,933 Avco Financial Services, Inc. 9,800 3.85%, 6/2/94................ 9,735,021 Bear Stearns Cos., Inc. 1,000 3.85%, 6/20/94............... 991,444 2,000 3.85%, 6/27/94............... 1,981,392 Bell Atlantic Financial Service, Inc. 2,000 3.65%, 4/26/94............... 1,994,931 5,000 3.70%, 5/26/94............... 4,971,736 Ciesco, Inc. 5,000 3.09%, 4/4/94................ 4,998,712 Corporate Asset Funding Co., Inc. 1,675 3.35%, 4/13/94............... 1,673,130 12,387 3.35%, 10/6/94............... 12,170,296 Corporate Receivables Corp. 3,000 3.79%, 6/8/94................ 2,978,523 Dean Witter, Discover & Co. 2,000 3.74%, 5/31/94............... 1,987,533 Falcon Asset Securitization Corp. 1,225 3.70%, 5/2/94................ 1,221,097 General Electric Capital Corp. 10,005 3.23%, 7/11/94............... 9,914,335 11,000 3.43%, 9/29/94............... 10,810,302 General Motors Acceptance Corp. 21,300 3.24%, 5/9/94................ 21,227,154 GTE Corp. 5,000 3.72%, 4/14/94............... 4,993,283
B-13 See Notes to Financial Statements. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES
Principal Amount Value (000) Description (Note 1) Heller Financial, Inc. $ 3,000 3.65%, 4/25/94............... $ 2,992,700 Household Finance Corp. 9,000 3.22%, 4/4/94................ 8,997,585 International Business Machines Corp. 7,000 3.67%, 4/11/94............... 6,992,864 International Lease Finance Corp. 1,000 3.17%, 5/11/94............... 996,478 ITT Corp. 1,000 3.73%, 5/9/94................ 996,063 Merrill Lynch & Co., Inc. 1,730 3.12%, 4/6/94................ 1,729,250 2,300 3.78%, 6/7/94................ 2,283,819 2,000 3.82%, 6/21/94............... 1,982,810 Morgan Stanley Group, Inc. 3,000 3.75%, 5/16/94............... 2,985,937 Norwest Corp. 5,000 3.69%, 5/10/94............... 4,980,012 Nynex Corp. 4,000 3.93%, 7/5/94................ 3,958,517 PepsiCo, Inc. 1,500 3.68%, 4/8/94................ 1,498,927 Preferred Receivables Funding Corp. 10,405 3.65%, 4/25/94............... 10,379,681 8,500 3.80%, 6/8/94................ 8,438,989 Smith Barney Shearson, Inc. 3,000 3.64%, 4/28/94............... 2,991,810 ------------ 162,733,105 ------------ COMMERCIAL PAPER--FOREIGN ISSUERS--12.7% Abbey National North America Corp. 6,000 3.22%, 4/7/94................ 5,996,780 American Honda Finance Corp. 1,000 3.75%, 4/4/94................ 999,687 ANZ Bank, Ltd. $ 4,300 3.33%, 4/4/94................ $ 4,298,807 BAT Capital Corp. 900 3.70%, 4/25/94............... 897,780 Bradford & Bingley Building Society 2,400 3.22%, 4/6/94................ 2,398,927 Isetan of America, Inc. 2,424 3.90%, 6/21/94............... 2,402,729 Kubota Finance (USA), Inc. 5,000 3.75%, 5/24/94............... 4,972,396 Leeds Permanent Building Society 6,000 3.20%, 4/11/94............... 5,994,667 Maguire/Thomas Partners 3,674 3.69%, 4/7/94................ 3,671,740 Mitsubishi International Corp. 600 3.80%, 5/12/94............... 597,403 980 3.85%, 6/10/94............... 972,664 800 4.00%, 7/5/94................ 791,556 NS Finance, Inc. 1,000 3.69%, 4/28/94............... 997,232 SRD Finance, Inc. 1,000 3.70%, 4/26/94............... 997,431 1,000 3.75%, 5/10/94............... 995,938 Sumitomo Corp. of America 2,000 3.85%, 5/26/94............... 1,988,236 5,000 4.08%, 9/16/94............... 4,904,800 Toronto Dominion Holdings (U.S.A.), Inc. 5,000 3.37%, 9/7/94................ 4,925,579 ------------ 48,804,352 ------------
B-14 See Notes to Financial Statements. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES
Principal Amount Value (000) Description (Note 1) OTHER CORPORATE OBLIGATIONS--2.2% American General Finance Corp. $ 2,365 9.25%, 7/1/94................ $ 2,398,127 Capital Auto Receivable Asset Trust 1,550 3.30%, 4/15/94, 1993-3 A4.... 1,550,099 31 3.35%, 6/15/94, 1993-2 A1.... 31,438 Ford Motor Credit Corp. 1,000 8.00%, 6/1/94................ 1,007,193 Norwest Financial, Inc. 1,600 8.90%, 6/15/94............... 1,616,575 Philip Morris Companies, Inc. 2,050 9.60%, 5/10/94............... 2,063,250 ------------ 8,666,682 ------------ VARIABLE RATE INSTRUMENTS(D)--27.3% Avco Financial Services, Inc. 4,000 3.73126%, 4/27/94............ 4,000,000 Federal Home Loan Mortgage Corp. 8,000 3.575%, 6/15/94.............. 8,000,000 Ford Motor Credit Corp. 8,000 4.1719%, 6/23/94............. 8,000,000 Goldman Sachs Group, L.P. 23,000 3.50%, 8/2/94................ 23,000,000 Household Finance Corp. 5,000 3.55%, 4/12/94............... 5,000,000 Lehman Brothers Holdings, Inc. $ 11,000 3.9531%, 4/29/94............. $ 11,000,000 Merrill Lynch & Co., Inc. 12,000 3.20%, 4/20/94............... 12,000,000 Money Market Auto Loan Trust, 5,000 3.795%, 4/15/94, 1990-1...... 5,000,000 Money Market Credit Card Trust, 3,000 3.72%, 4/11/94, 1989-1....... 2,999,687 Morgan Stanley Group, Inc. 3,000 3.28%, 4/15/94............... 3,000,000 5,000 3.87271%, 4/20/94............ 5,000,000 2,000 3.5925%, 5/13/94............. 2,000,000 Nynex Corp. 16,000 3.73%, 4/5/94................ 16,000,000 ------------ 104,999,687 ------------ Total Investments--100.1% (amortized cost $385,359,235*)............. 385,359,235 Liabilities in excess of other assets--(0.1%)............. (336,307) ------------ Net Assets--100%............. $385,022,928 ------------ ------------
- --------------- * The cost of securities for federal income tax purposes is substantially the same as for financial reporting purposes. (D) For purposes of amortized cost valuation, the maturity date of variable rate instruments is considered to be the next date on which the security can be redeemed at par or the next date on which the rate of interest is adjusted. B-15 See Notes to Financial Statements. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES The industry classification of portfolio holdings and net liabilities shown as a percentage of net assets as of March 31, 1994 was as follows: Commercial Banks............................ 25.4% Securities Brokers & Dealers................ 18.9 Personal Credit Institutions................ 16.9 Asset Backed................................ 13.4 Telephone Communications.................... 8.3 Business Credit (Finance)................... 6.1 Commodity Trading Firms..................... 2.4 Federal Credit Agencies..................... 2.1 Chemicals & Allied Products................. 1.8 Office Machines............................. 1.8 Bank Holding Companies--Domestic............ 1.3 Tobacco..................................... 0.8 Beverages................................... 0.4 Equipment Rental & Leasing.................. 0.3 Finance Services............................ 0.2 ----- 100.1 Liabilities in excess of other assets....... (0.1) ----- 100.0% ----- -----
B-16 See Notes to Financial Statements. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Statement of Assets and Liabilities
Assets March 31, 1994 -------------- Investments, at amortized cost which approximates value................................. $385,359,235 Interest receivable..................................................................... 1,176,992 Other assets............................................................................ 23,871 -------------- Total assets.......................................................................... 386,560,098 -------------- Liabilities Dividends payable....................................................................... 969,855 Accrued expenses........................................................................ 311,159 Bank overdraft.......................................................................... 166,468 Due to Manager.......................................................................... 68,344 Due to Distributor...................................................................... 21,344 -------------- Total liabilities..................................................................... 1,537,170 -------------- Net Assets.............................................................................. $385,022,928 -------------- -------------- Net assets were comprised of: Common stock, at par.................................................................. $ 385,023 Paid-in capital in excess of par...................................................... 384,637,905 -------------- Net assets at March 31, 1994............................................................ $385,022,928 -------------- -------------- Net asset value, offering and redemption price per share ($385,022,928 / 385,022,928 shares of $.001 par value common stock issued and outstanding).......................................................................... $1.00 -------------- --------------
See Notes to Financial Statements. B-17 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Statement of Operations
Year Ended March 31, Net Investment Income 1994 ----------- Income Interest and discount earned........ $14,896,025 ----------- Expenses Management fee...................... 891,735 Distribution fee.................... 535,041 Transfer agent's fees and expenses............................ 257,000 Custodian's fees and expenses....... 184,000 Registration fees................... 95,000 Directors' fees..................... 50,000 Audit fees.......................... 30,000 Reports to shareholders............. 22,000 Insurance expense................... 16,500 Legal fees.......................... 14,000 Miscellaneous....................... 24,179 ----------- Total expenses.................... 2,119,455 ----------- Net investment income................. 12,776,570 Realized Gain on Investments Net realized gain on investment transactions........................ 76,316 ----------- Net Increase in Net Assets Resulting from Operations............. $12,852,886 ----------- -----------
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Statement of Changes in Net Assets
Year Ended March 31, Increase (Decrease) --------------------------------- in Net Assets 1994 1993 --------------- --------------- Operations Net investment income.............. $ 12,776,570 $ 17,824,731 Net realized gain on investment transactions...... 76,316 394,996 --------------- --------------- Net increase in net assets resulting from operations... 12,852,886 18,219,727 --------------- --------------- Dividends and distributions to shareholders........ (12,852,886) (18,219,727) --------------- --------------- Fund share transactions (at $1 per share) Proceeds from shares subscribed........ 2,092,856,313 2,168,239,637 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions..... 12,113,835 17,946,742 Cost of shares reacquired.......... (2,217,160,989) (2,132,144,119) --------------- --------------- Net increase (decrease) in net assets from Fund share transactions...... (112,190,841) 54,042,260 --------------- --------------- Total increase (decrease).......... (112,190,841) 54,042,260 Net Assets Beginning of year..... 497,213,769 443,171,509 --------------- --------------- End of year........... $ 385,022,928 $ 497,213,769 --------------- --------------- --------------- ---------------
See Notes to Financial Statements. See Notes to Financial Statements. B-18 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series (the "Fund") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The investment objective of the Fund is high current income consistent with the preservation of principal and liquidity. The Fund invests primarily in money market instruments maturing in thirteen months or less whose ratings are within the two highest ratings categories by a nationally recognized statistical rating organization or, if not rated, are of comparable quality. The ability of the issuers of the securities held by the Fund to meet its obligations may be affected by economic developments in a specific industry or region. Note 1. Accounting The following is a summary Policies of significant accounting poli cies followed by the Fund in the preparation of its financial statements. Securities Valuations: Portfolio securities are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of any discount or premium. Securities Transactions and Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses on sales of investments are calculated on the identified cost basis. Interest income is recorded on the accrual basis. Federal Income Taxes: It is the intent of the Fund to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income to its shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions: The Fund declares all of its net investment income and net realized short-term capital gains/losses, if any, as dividends daily to its shareholders of record at the time of such declaration. Net investment income for dividend purposes includes interest accrued or discount earned less amortization of premium and the estimated expenses applicable to the dividend period. The Fund does not expect to realize long-term capital gains or losses. Note 2. Agreements The Fund has a management agreement with Prudential Mutual Fund Management, Inc. ("PMF"). Pursuant to this agreement, PMF has responsibility for all investment advisory services and supervises the subadviser's performance of such services. PMF has entered into a subadvisory agreement with The Prudential Investment Corporation ("PIC"); PIC furnishes investment advisory services in connection with the management of the Fund. PMF pays for the cost of the subadviser's services, the compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses. The management fee paid PMF is computed daily and payable monthly, at an annual rate of .20 of 1% of the average daily net assets of the Fund. The Fund has a distribution agreement with Prudential Mutual Fund Distributors, Inc. ("PMFD"), who acts as the distributor of the Fund's shares. To reimburse PMFD for its expenses incurred pursuant to a plan of distribution, the Fund pays PMFD a reimbursement which is accrued daily and payable monthly at an annual rate of .12 of 1% of the average daily net assets of the Fund. PMFD pays various broker-dealers or financial institutions, including Prudential Securities Incorporated ("PSI") and Pruco Securities Corporation, affiliated broker-dealers, for account servicing fees and other expenses incurred by such broker-dealers. PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential Insurance Company of America. Note 3. Other Prudential Mutual Fund Transactions Services, Inc. ("PMFS"), a with Affiliates wholly-owned subsidiary of PMF, serves as the Fund's transfer agent. During the year ended March 31, 1994, the Fund incurred fees of approximately $240,000 for the services of PMFS. As of March 31, 1994, approximately $20,000 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates. B-19 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Financial Highlights
Year Ended March 31, --------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: 1994 1993 1992 1991 1990 --------- -------- -------- -------- -------- Net asset value, beginning of year......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Net investment income and net realized gains............... .029 .033 .054 .076 .087 Dividends and distributions to shareholders................ (.029) (.033) (.054) (.076) (.087) --------- -------- -------- -------- -------- Net asset value, end of year............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- TOTAL RETURN#:............................................. 2.92% 3.40% 5.57% 8.00% 9.07% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000).............................. $ 385,023 $497,214 $443,172 $519,802 $417,354 Average net assets (000)................................... $ 445,867 $543,694 $540,380 $479,849 $421,540 Ratios to average net assets: Expenses, including distribution fee..................... .48% .44% .42% .46% .38% Expenses, excluding distribution fee..................... .36% .32% .30% .34% .26% Net investment income.................................... 2.87% 3.28% 5.32% 7.58% 8.60%
- --------------- # Total return includes reinvestment of dividends and distributions. See Notes to Financial Statements. B-20 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors of Prudential Institutional Liquidity Portfolio, Inc.-- Institutional Money Market Series We have audited the accompanying statement of assets and liabilities of Prudential Institutional Liquidity Portfolio, Inc.-- Institutional Money Market Series, including the portfolio of investments, as of March 31, 1994, the related statements of operations for the year then ended and of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned as of March 31, 1994 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series as of March 31, 1994, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche New York, New York May 5, 1994 B-21 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits. (a) Financial Statements: (1) Financial statements included in the Prospectus constituting Part A of this Registration Statement: Financial Highlights (2) Financial statements included in the Statement of Additional Information constituting Part B of this Registration Statement: Portfolio of Investments at March 31, 1994 Statement of Assets and Liabilities at March 31, 1994 Statement of Operations for the Year Ended March 31, 1994 Statement of Changes in Net Assets for the Years Ended March 31, 1993 and 1994 Notes to Financial Statements Financial Highlights Independent Auditors' Report (B) EXHIBITS: 1. (a) Amended Articles of Incorporation of the Registrant, incorporated by reference to Exhibit No. 1 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on November 6, 1987. (b) Amendment to Articles of Incorporation dated January 16, 1989, incorporated by reference to Exhibit No. 1(b) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 2. (a) Amended By-Laws of the Registrant, incorporated by reference to Exhibit No. 2 to Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988. (b) Amendment to By-Laws, incorporated by reference to Exhibit No. 2(b) to Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. 4. (a) Specimen certificates for shares of common stock, $.001 par value per share, of the Registrant, incorporated by reference to Exhibit No. 4 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988. (b) Instruments defining rights of holders of the securities being offered, incorporated by reference to Exhibit Nos. 1 and 2 above. 5. (a) Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc., incorporated by reference to Exhibit No. 5(a) to Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. (b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential Investment Corporation, incorporated by reference to Exhibit No. 5(b) to Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. C-1 (c) Form of Management Agreement between the Liquid Assets Series of the Registrant and Prudential Mutual Fund Management, Inc. incorporated by reference to Exhibit No. 5 to Post-Effective Amendment No. 6 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 29, 1992. 6. (a) Distribution Agreement among the Registrant, Prudential-Bache Securities Inc. and Prudential Mutual Fund Distributors, Inc., incorporated by reference to Exhibit No. 6 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Amended and Restated Distribution Agreement between the Registrant and Prudential Mutual Fund Distributors, Inc., as amended on July 1, 1993.* 8. (a) Custodian Contract between the Registrant and State Street Bank and Trust Company, incorporated by reference to Exhibit No. 8(a) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Subcustodian Agreement between State Street Bank and Trust Company and Security Pacific National Bank, incorporated by reference to Exhibit No. 8(b) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (c) Subcustodian Agreement for Repurchase Transactions between State Street Bank and Trust Company and Security Pacific National Bank, incorporated by reference to Exhibit No. 8(c) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 9. Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services, Inc. incorporated by reference to Exhibit No. 9 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 10. (a) Opinion of Counsel, incorporated by reference to Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on November 6, 1987. (b) Opinion of Counsel.* 11. Consent of Independent Auditors.* 13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 15. (a) Plan of Distribution pursuant to Rule 12b-1, incorporated by reference to Exhibit No. 15 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Distribution and Service Plan between the Registrant and Prudential Mutual Fund Distributors, Inc., as amended on July 1, 1993.* OTHER EXHIBITS Powers of Attorney for: Lawrence C. McQuade** Eugene C. Dorsey** Donald D. Lennox** Stanley F. Shirk** Robin B. Smith** - ------------------ * Filed herewith. ** Executed copies filed under Other Exhibits to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A filed on May 30, 1989 (File No. 33-17224). C-2 ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 26. NUMBER OF HOLDERS OF SECURITIES. As of May 13, 1994 there were 1236 record holders of shares of common stock, $.001 par value per share, of the Registrant. ITEM 27. INDEMNIFICATION. As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940 (the 1940 Act) and pursuant to Article VII of the Registrant's By-Laws (Exhibit 2(a) to the Registration Statement), officers, directors, employees and agents of the Registrant will not be liable to the Registrant, any stockholder, officer, director, employee, agent or other person for any action or failure to act, except for bad faith, willful misfeasance, gross negligence or reckless disregard of duties, and those individuals may be indemnified against liabilities in connection with the Registrant, subject to the same exceptions.Section 2-418 of Maryland General Corporation Law permits indemnification of directors who acted in good faith and reasonably believed that the conduct was in the best interests of the Registrant. As permitted by Section 17(i) of the 1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit 6 to the Registration Statement), the Distributor of the Registrant may be indemnified against liabilities which it may incur, except liabilities arising from bad faith, gross negligence, willful misfeasance or reckless disregard of duties. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (Securities Act) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1940 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1940 Act and will be governed by the final adjudication of such issue. The Registrant has purchased an insurance policy insuring its officers and directors against liabilities, and certain costs of defending claims against such officers and directors, to the extent such officers and directors are not found to have committed conduct constituting willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. The insurance policy also insures the Registrant against the cost of indemnification payments to officers and directors under certain circumstances. Section 9 of the Management Agreement (Exhibits 5(a) and 5(c) to the Registration Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the Registration Statement) limit the liability of Prudential Mutual Fund Management, Inc. (PMF) and The Prudential Investment Corporation (PIC), respectively, to liabilities arising from willful misfeasance, bad faith or gross negligence in the performance of their respective duties or from reckless disregard by them of their respective obligations and duties under the agreements. The Registrant hereby undertakes that it will apply the indemnification provisions of its By-Laws and the Distribution Agreement in a manner consistent with Release No. 11330 of the Securities and Exchange Commission under the 1940 Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remain in effect and are consistently applied. Item 28. Business and Other Connections of Investment Adviser See "How the Fund Is Managed--Manager" in the Prospectus constituting Part A of this Registration Statement and "Manager" in the Statement of Additional Information constituting Part B of this Registration Statement. C-3 The business and other connections of the officers of PMF are listed in Schedules A and D of Form ADV of PMF as currently on file with the Securities and Exchange Commission, the text of which is hereby incorporated by reference (File No. 801-31104, filed on March 30, 1994). The business and other connections of PMF's directors and principal executive officers are set forth below. Except as otherwise indicated, the address of each person is One Seaport Plaza, New York, NY 10292.
Name and Address Position with PMF Principal Occupations - ----------------- ------------------ ---------------------- Brendan D. Boyle Executive Vice President Executive Vice President and and Director of Marketing Director of Marketing, PMF John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance Two Gateway Center Company of America (Prudential); Newark, NJ 07102 Senior Vice President, PIC Susan C. Cote Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential Securities Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer Raritan Plaza One President, Chief and Director, PMF; Chairman, Chief Operating Edison, NJ 08847 Operating Officer Officer and Director, Prudential Mutual Fund and Director Services, Inc. Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential Securities Frank W. Giordano Executive Vice Executive Vice President, General Counsel and President, General Secretary, PMF; Senior Vice President, Prudential Counsel and Securities Secretary Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and Chief Financial and Administrative Officer, Treasurer and Director, PMF; Administrative Officer, Senior Vice President, Prudential Securities Treasurer and Director Eugene B. Heimberg Director Senior Vice President, Prudential; President and Chief Prudential Plaza Investment Officer, PIC Newark, NJ 07101 Lawrence C. McQuade Vice Chairman Vice Chairman, PMF Leland B. Paton Director Executive Vice President and Director, Prudential Securities; Director, Prudential Securities Group Inc. ("PSG") Richard A. Redeker President, Chief Executive President, Chief Executive Officer and Director, PMF; Officer and Director Executive Vice President, Director and Member of Operating Committee, Prudential Securities; Director, PSG
C-4
Name and Address Position with PMF Principal Occupations - ----------------- ------------------ ---------------------- S. Jane Rose Senior Vice President, Senior Vice President, Senior Counsel and Assistant Senior Counsel and Secretary, PMF; Senior Vice President and Senior Assistant Secretary Counsel, Prudential Securities Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG 213 Washington Street Newark, NJ 07102
The business and other connections of PIC's directors and executive officers are as set forth below. Except as otherwise indicated, the address of each person is Prudential Plaza, Newark, NJ 07101.
Name and Address Position with PIC Principal Occupations - ----------------- ------------------ ---------------------- Martin A. Berkowitz Senior Vice President and Vice President, Prudential; Senior Vice President Chief Financial and and Chief Financial and Compliance Officer, PIC Compliance Officer William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice Two Gateway Center President, PIC Newark, NJ 07102 John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Two Gateway Center Vice President, PIC Newark, NJ 07102 Eugene B. Heimberg President, Director and Senior Vice President, Prudential; President, Chief Investment Officer Director and Chief Investment Officer, PIC Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice President, PIC Four Gateway Center Newark, NJ 07102 William P. Link Senior Vice President Executive Vice President, Prudential; Four Gateway Center Senior Vice President, PIC Newark, NJ 07102 Robert E. Riley Executive Vice President Executive Vice President, Prudential; Executive Vice 800 Boylston Avenue President, PIC; Director, PSG Boston, MA 02199 James W. Stevens Executive Vice President Executive Vice President, Prudential; Executive Vice Four Gateway Center President, PIC; Director, PSG Newark, NJ 07102 Robert C. Winters Director Chairman of the Board and Chief Executive Officer, Prudential; Director, PIC; Chairman of the Board, PSG Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice President, PIC
ITEM 29. PRINCIPAL UNDERWRITERS (a) Prudential Mutual Fund Distributors, Inc. Prudential Mutual Fund Distributors, Inc. is distributor for Command Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential California Municipal Fund (California Money Market Series and Class A shares of C-5 California Income Series and Class A shares of the California Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential-Bache MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets Fund), Prudential Municipal Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series, New York Money Market Series and New Jersey Money Market Series), Prudential-Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money Fund), and for Class A shares of The BlackRock Government Income Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund), Prudential Adjustable Rate Securities Fund Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential FlexiFund, Prudential Global Fund, Inc., Prudential-Bache Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis Fund), Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a Prudential Global Natural Resources Fund), Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a Prudential Government Plus Fund), Prudential Government Securities Trust (Money Market Series and U.S. Treasury Money Market Series), Prudential Growth Fund, Inc., Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund), Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund), Prudential IncomeVertible[Registered-mark] Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential-Bache MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets), Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona Series, Florida Series, Georgia Series, Maryland Series, Massachusetts Series, Michigan Series, Minnesota Series, New Jersey Series, New York Series, North Carolina Series, Ohio Series and Pennsylvania Series), Prudential-Bache National Municipals Fund, Inc. (d/b/a Prudential National Municipals Fund), Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential-Bache Structured Maturity Fund, Inc. (d/b/a Prudential Structured Maturity Fund), Prudential U.S. Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a Prudential Utility Fund) and the Target Portfolio Trust. (b) Prudential Mutual Fund Distributors, Inc.
POSITIONS AND POSITIONS AND OFFICES WITH OFFICES WITH NAME(1) UNDERWRITER REGISTRANT - ------- ------------- ------------- Joanne Accurso-Soto ................... Vice President None Dennis Annarumma ...................... Vice President, Assistant Treasurer and None Assistant Comptroller Phyllis J. Berman ..................... Vice President None Fred A. Fiandaca ...................... President, Chief Executive Officer and None Raritan Plaza One Director Edison, NJ 08847 Stephen P. Fisher ..................... Vice President None Frank W. Giordano ..................... Executive Vice President, General Counsel, None Secretary and Director Robert F. Gunia ....................... Executive Vice President, Director, Treasurer Vice President and Comptroller Anita L. Whelan ....................... Vice President and Assistant Secretary None - ---------------- (1)The address of each person named is One Seaport Plaza, New York, NY 10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated person of the Registrant. C-6 ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts, The Prudential Investment Corporation, Three Gateway Center, 100 Mulberry Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New York, New York, and Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Three Gateway Center, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the remaining accounts, books and other documents required by such other pertinent provisions of Section 31(a) and the Rules promulgated thereunder will be kept by State Street Bank and Trust Company and Prudential Mutual Fund Services, Inc. ITEM 31. MANAGEMENT SERVICES Other than as set forth under the captions "How the Fund is Managed--Manager" and "How the Fund is Managed--Distributor" in the Prospectus and the captions "Manager" and "Distributor" in the Statement of Additional Information, constituting Parts A and B, respectively, of this Registration Statement, Registrant is not a party to any management-related service contract. ITEM 32. UNDERTAKINGS Not Applicable. C-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 26th day of May, 1994. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. /s/ Robert F. Gunia --------------------------------- (Robert F. Gunia, Vice President) Pursuant to the requirements of the Securities Act of 1933, this Post Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Susan C. Cote Treasurer and Principal Financial May 26, 1994 - ----------------------- and Accounting Officer Susan C. Cote /s/ Lawrence C. McQuade Director and President May 26, 1994 - ----------------------- Lawrence C. McQuade /s/ Eugene C. Dorsey Director May 26, 1994 - ----------------------- Eugene C. Dorsey /s/ Donald D. Lennox Director May 26, 1994 - ----------------------- Donald D. Lennox /s/ Richard A. Redeker Director May 26, 1994 - ----------------------- Richard A. Redeker /s/ Stanley E. Shirk Director May 26, 1994 - ----------------------- Stanley E. Shirk /s/ Robin B. Smith Director May 26, 1994 - ----------------------- Robin B. Smith
EXHIBIT INDEX Sequentially Numbered Exhibit No. Description Page - ---------- ----------- ------------ 1. (a) Amended Articles of Incorporation of the Registrant. Incorporated by reference to Exhibit No. 1 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on November 6, 1987. (b) Amendment to Articles of Incorporation dated January 16, 1989. Incorporated by reference to Exhibit No. 1(b) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 2. (a) Amended By-Laws of the Registrant. Incorporated by reference to Exhibit No. 2 to Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988. (b) Amendment to By-Laws. Incorporated by reference to Exhibit No. 2(b) to Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. 4. (a) Specimen certificates for shares of common stock, $.001 par value per share, of the Registrant. Incorporated by reference to Exhibit No. 4 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 20, 1988. (b) Instruments defining rights of holders of securities being offered, incorporated by reference to Exhibit Nos. 1 and 2 above. 5. (a) Management Agreement between the Registrant and Prudential Mutual Fund Management, Inc. Incorporated by reference to Exhibit No. 5(a) to Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. (b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc. and The Prudential Investment Corporation. Incorporated by reference to Exhibit No. 5(b) to Post-Effective AmendmentNo. 3 to the Registration Statement on Form N-1A (File No. 33-17224) filed on July 2, 1990. (c) Form of Management Agreement between the Liquid Assets Series of the Registrant and Prudential Mutual Fund Management, Inc. incorporated by reference to Exhibit No. 5 to Post-Effective Amendment No. 6 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 29, 1992. 6. (a) Distribution Agreement among the Registrant, Prudential-Bache Securities Inc. and Prudential Mutual Fund Distributors, Inc. Incorporated by reference to Exhibit No. 6 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Amended and Restated Distribution Agreement between the Registrant and Prudential Mutual Fund Distributors, Inc., as amended on July 1, 1993.* 8. (a) Custodian Contract between the Registrant and State Street Bank and Trust Company. Incorporated by reference to Exhibit No. 8(a) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Subcustodian Agreement between State Street Bank and Trust Company and Security Pacific National Bank. Incorporated by reference to Exhibit No. 8(b) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (c) Subcustodian Agreement for Repurchase Transactions between State Street Bank and Trust Company and Security Pacific National Bank. Incorporated by reference to Exhibit No. 8(c) to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 9. Transfer Agency and Service Agreement between the Registrant and Prudential Mutual Fund Services, Inc. Incorporated by reference to Exhibit No. 9 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. 10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on November 6, 1987. (b) Opinion of Counsel.* 11. Consent of Independent Auditors.* 13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989.
EXHIBIT INDEX Sequentially Numbered Exhibit No. Description Page - ---------- ----------- ------------ 15. (a) Plan of Distribution pursuant to Rule 12b-1. Incorporated by reference to Exhibit No. 15 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A (File No. 33-17224) filed on May 30, 1989. (b) Distribution and Service Plan between the Registrant and Prudential Mutual Fund Services, Inc., as amended on July 1, 1993.*
Other Exhibits Powers of Attorney for: Lawrence C. McQuade** Eugene C. Dorsey** Donald D. Lennox** Stanley F. Shirk** Robin B. Smith** --------------------- *Filed herewith. ** Executed copies filed under Other Exhibits to Post-Effective Amendment No. 2 to the Registration Statement on Form N-1A filed on May 30, 1989 (File No. 33-17224). EX-6.B 2 AMENDED AND RESTATED DISTRIBUTION AGREEMENT Exhibit 99.6b PRUDENTIAL-INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Amended and Restated Distribution Agreement Agreement dated as of November 20, 1987, as amended and restated on July 1, 1993, between Prudential-Bache Institutional Liquidity Portfolio, Inc., a Maryland Corporation (the Fund) and Prudential Mutual Fund Distributors, Inc., a Delaware Corporation (the Distributor). WITNESSETH WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the Investment Company Act), as a diversified, open-end, management investment company and it is in the interest of the Fund to offer its shares for sale continuously; WHEREAS, the Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, and is engaged in the business of selling shares of registered investment companies either directly or through other broker-dealers; WHEREAS, the Fund and the Distributor wish to enter into and agreement with each other, with respect to the continuous offering of the Fund's shares from and after the date hereof in order to promote the growth of the Fund and facilitate the distribution of its shares; and WHEREAS, the Fund has adopted a distribution and service plan pursuant to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by the Fund to the Distributor with respect to the distribution of the shares of the Fund and the maintenance at shareholder accounts. NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor The Fund hereby appoints the Distributor as the principal underwriter and distributor of the Fund to sell shares to the public and the Distributor hereby accepts such appointment and agrees to act hereunder. The Fund hereby agrees during the term of this Agreement to sell shares of the Fund to the Distributor on the terms and conditions set forth below. Section 2. Exclusive Nature of Duties The Distributor shall be the exclusive representative of the Fund to act as principal underwriter and distributor of the Fund's shares, except that: 2.1 The exclusive rights granted to the Distributor to purchase shares from the Fund shall not apply to shares of the Fund issued in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding shares of any such company by the Fund. 2.2 Such exclusive rights shall not apply to shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. 2.3 Such exclusive rights shall not apply to shares issued by the Fund pursuant to the reinstatement privilege afforded redeeming shareholders. 2.4 Such exclusive rights shall not apply to purchases made through the Fund's transfer and dividend disbursing agent in the manner set forth in the currently effective Prospectus of the Fund. The term "Prospectus" shall mean the Prospectus and Statement of Additional Information included as part of the Fund's Registration Statement, as such Prospectus and Statement of Additional Information may be amended or supplemented from time to time, and the term "Registration Statement" shall mean the Registration Statement filed by the Fund with the Securities and Exchange Commission and effective under the Securities Act of 1933, as amended (Securities Act), and the Investment Company Act, as such Registration Statement is amended from time to time. Section 3. Purchase of Shares from the Fund 3.1 The Distributor shall have the right to buy from the Fund the shares needed, but not more than the shares needed (except for clerical errors in transmission) to fill unconditional orders for shares placed with the Distributor by investors or registered and qualified securities dealers and other financial institutions (selected dealers). The price which the Distributor shall pay for the shares so purchased from the Fund shall be the net asset value, determined as set forth in the Prospectus. 3.2 The shares are to be resold by the Distributor or selected dealers, as described in Section 6.4 hereof, to investors at the offering price as set forth in the Prospectus. 3.3 The Fund shall have the right to suspend the sale of its shares at times when redemption is suspended pursuant to the conditions in Section 4.3 hereof or at such other times as may be determined by the Directors/Trustees. The Fund shall also have the right to suspend the sale of its shares if a banking moratorium shall have been declared by federal or New York authorities. 3.4 The Fund, or any agent of the Fund designated in writing by the Fund, shall be promptly advised of all purchase orders for shares received by the Distributor. Any order may be rejected by the Fund; provided, however, that the Fund will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of shares. The Fund (or its agent) will confirm orders 2 upon their receipt, will make appropriate book entries and upon receipt by the Fund (or its agent) of payment therefor, will deliver deposit receipts for such shares pursuant to the instructions of the Distributor. Payment shall be made to the Fund in New York Clearing House funds or federal funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Fund (or its agent). Section 4. Repurchase or Redemption of Shares by the Fund 4.1 Any of the outstanding shares may be tendered for redemption at any time, and the Fund agrees to repurchase or redeem the shares so tendered in accordance with its Articles of Incorporation as amended from time to time, and in accordance with the applicable provisions of the Prospectus. The price to be paid to redeem or repurchase the shares shall be equal to the net asset value determined as set forth in the Prospectus. All payments by the Fund hereunder shall be made in the manner set forth in Section 4.2 below. 4.2 The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor on or before the seventh calendar day subsequent to its having received the notice of redemption in proper form. The proceeds of any redemption of shares shall be paid by the Fund to or for the account of the redeeming shareholder, in each case in accordance with applicable provisions of the Prospectus. 4.3 Redemption of shares or payment may be suspended at times when the New York Stock Exchange is closed for other than customary weekends and holidays, when trading on said Exchange is restricted, when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits. Section 5. Duties of the Fund 5.1 Subject to the possible suspension of the sale of shares as provided herein, the Fund agrees to sell its shares so long as it has shares available. 5.2 The Fund shall furnish the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of shares, and this shall include one certified copy, upon request by the Distributor, of all financial statements prepared for the Fund by independent public accountants. The Fund shall make available to the Distributor such number of copies of its Prospectus and annual and interim reports as the Distributor 3 shall reasonably request. 5.3 The Fund shall take, from time to time, but subject to the necessary approval of the Directors/Trustees and the shareholders, all necessary action to fix the number of authorized shares and such steps as may be necessary to register the same under the Securities Act, to the end that there will be available for sale such number of shares as the Distributor reasonably may expect to sell. The Fund agrees to file from time to time such amendments, reports and other documents as may be necessary in order that there will be no untrue statement of a material fact in the Registration Statement, or necessary in order that there will be no omission to state a material fact in the Registration Statement which omission would make the statements therein misleading. 5.4 The Fund shall use its best efforts to qualify and maintain the qualification of any appropriate number of its shares for sales under the securities laws of such states as the Distributor and the Fund may approve; provided that the Fund shall not be required to amend its Articles of Incorporation or By-Laws to comply with the laws of any state, to maintain an office in any state, to change the terms of the offering of its shares in any state from the terms set forth in its Registration Statement, to qualify as a foreign corporation in any state or to consent to service of process in any state other than with respect to claims arising out of the offering of its shares. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. As provided in Section 8.1 hereof, the expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualifications. Section 6. Duties of the Distributor 6.1 The Distributor shall devote reasonable time and effort to effect sales of shares of the Fund, but shall not be obligated to sell any specific number of shares. Sales of the shares shall be on the terms described in the Prospectus. The Distributor may enter into like arrangements with other investment companies. The Distributor shall compensate the selected dealers as set forth in the Prospectus. 6.2 In selling the shares, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all federal and state laws relating to the sale of such securities. Neither the Distributor nor any selected dealer nor any other person is authorized by the Fund to give any information or to make any representations, other than those contained in the Registration Statement or Prospectus and any sales literature approved by appropriate officers of the Fund. 4 6.3 The Distributor shall adopt and follow procedures for the confirmation of sales to investors and selected dealers, the collection of amounts payable by investors and selected dealers on such sales and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the National Association of Securities Dealers, Inc. (NASD). 6.4 The Distributor shall have the right to enter into selected dealer agreements with registered and qualified securities dealers and other financial institutions of its choice for the sale of shares, provided that the Fund shall approve the forms of such agreements. Within the United States, the Distributor shall offer and sell shares only to such selected dealers as are members in good standing of the NASD. Shares sold to selected dealers shall be for resale by such dealers only at the offering price determined as set forth in the Prospectus. Section 7. Reimbursement of the Distributor under the Plan 7.1 The Fund shall reimburse the Distributor for costs incurred by it in performing its duties under the Distribution and Service Plan and this Agreement including amounts paid on a reimbursement basis to Prudential Securities Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec), affiliates of the Distributor, under the selected dealer agreements between the Distributor and Prudential Securities and Prusec, respectively, amounts paid to other securities dealers or financial institutions under selected dealer agreements between the Distributor and such dealers and institutions and amounts paid for personal service and/or the maintenance of shareholder accounts. Amounts reimbursable under the Plan shall be accrued daily and paid monthly or at such other intervals as the Directors/Trustees may determine but shall not be paid at a rate that exceeds .12 of 1% per annum of the assets of the shares of the Fund. Payment of the distribution and service fee shall be subject to the limitations of Article III, Section 26 of the NASD Rules of Fair Practice. 7.2 So long as the Plan or any amendment thereto is in effect, the Distributor shall inform the Directors/Trustees of the commissions and account servicing fees to be paid by the Distributor to account executives of the Distributor and to broker-dealers and financial institutions which have dealer agreements with the Distributor. So long as the Plan (or any amendment thereto) is in effect, at the request of the Directors/Trustees or any agent or representative of the Fund, the Distributor shall provide such additional information as may reasonably be requested concerning the activities of the Distributor hereunder and the costs incurred in performing such activities. 7.3 Costs of the Distributor subject to reimbursement hereunder are costs of performing distribution activities and may 5 include, among others: (a) Amounts paid to Prudential Securities in reimbursement of costs incurred by Prudential Securities in performing services under a selected dealer agreement between Prudential Securities and the Distributor for sale of shares of the Fund, including sales commissions and account servicing fees paid to, or on account of, account executives and indirect and overhead costs associated with the performance of distribution activities, including central office and branch expenses; (b) amounts paid to Prusec in reimbursement of costs incurred by Prusec in performing services under a selected dealer agreement between Prusec and the Distributor for sale of shares of the Fund, including sales commissions and account servicing fees paid to, or on account of, agents and indirect and overhead costs associated with distribution activities; (c) sales commissions and account servicing fees paid to, or on account of, broker-dealers and financial institutions (other than Prudential Securities and Prusec) which have entered into selected dealer agreements with the Distributor with respect to shares of the Fund; (d) amounts paid to, or on account of, account executives of Prudential Securities, Prusec, or other broker-dealers or financial institutions for personal services and/or the maintenance of shareholder accounts; and (e) advertising for the Fund in various forms through any available medium, including the cost of printing and mailing Fund Prospectuses, and periodic financial reports and sales literature to persons other than current shareholders of the Fund. Indirect and overhead costs referred to in clause (b) of the foregoing sentence include (i) lease expenses, (ii) salaries and benefits of personnel including operations and sales support personnel, (iii) utility expenses, (iv) communications expenses, (v) sales promotion expenses, (vi) expenses of postage, stationery and supplies and (vii) general overhead. Section 8. Allocation of Expenses 8.1 The Fund shall bear all costs and expenses of the continuous offering of its shares, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required Registration Statements and/or Prospectuses under the Investment Company Act or the Securities Act, and all 6 amendments and supplements thereto, and preparing and mailing annual and periodic reports and proxy materials to shareholders (including but not limited to the expense of setting in type any such Registration Statements, Prospectuses, annual or periodic reports or proxy materials). The Fund shall also bear the cost of expenses of qualification of the shares for sale, and, if necessary or advisable in connection therewith, of qualifying the Fund as a broker or dealer, in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and expense payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification pursuant to Section 5.4 hereof. As set forth in Section 7 above, the Fund shall also bear the expenses it assumes pursuant to the Plan with respect to the shares of the Fund, so long as the Plan is in effect. 8.2 If the Plan is terminated or discontinued, the costs previously incurred by the Distributor in performing the duties set forth in Section 6 hereof shall be borne by the Distributor and will not be subject to reimbursement by the Fund. Section 9. Indemnification 9.1 The Fund agrees to indemnify, defend and hold the Distributor, its officers and directors and any person who controls the Distributor within the meaning of Section 15 of the Securities Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers, directors or any such controlling person may incur under the Securities Act, or under common law or otherwise, arising out of or based upon any untrue statement of a material fact contained in the Registration Statement or Prospectus or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished in writing by the Distributor to the Fund for use in the Registration Statement or Prospectus; provided, however, that this indemnity agreement shall not inure to the benefit of any such officer, director, trustee or controlling person unless a court of competent jurisdiction shall determine in a final decision on the merits, that the person to be indemnified was not liable by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement (disabling conduct), or, in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the indemnified person was not liable by reason of disabling 7 conduct, by (a) a vote of a majority of a quorum of directors or trustees who are neither "interested persons" of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor parties to the proceeding, or (b) an independent legal counsel in a written opinion. The Fund's agreement to indemnify the Distributor, its officers and directors and any such controlling person as aforesaid is expressly conditioned upon the Fund's being promptly notified of any action brought against the Distributor, its officers or directors or any such controlling person, such notification to be given by letter or telegram addressed to the Fund at its principal business office. The Fund agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issue and sale of any shares. 9.2 The Distributor agrees to indemnify, defend and hold the Fund, its officers and Directors/Trustees and any person who controls the Fund, if any, within the meaning of Section 15 of the Securities Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending against such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its officers and Directors/Trustees or any such controlling person may incur under the Securities Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its Directors/Trustees or officers or such controlling person resulting from such claims or demands shall arise out of or be based upon any alleged untrue statement of a material fact contained in information furnished in writing by the Distributor to the Fund for use in the Registration Statement or Prospectus or shall arise out of or be based upon any alleged omission to state a material fact in connection with such information required to be stated in the Registration Statement or Prospectus or necessary to make such information not misleading. The Distributor's agreement to indemnify the Fund, its officers and Directors/Trustees and any such controlling person as aforesaid, is expressly conditioned upon the Distributor's being promptly notified of any action brought against the Fund, its officers and Directors/Trustees or any such controlling person, such notification being given to the Distributor at its principal business office. Section 10. Duration and Termination of this Agreement 10.1 This Agreement shall become effective as of the date first above written and shall remain in force for two years from the date hereof and thereafter, but only so long as such continuance is specifically approved at least annually by (a) the Directors/Trustees of the Fund, or by the vote of a majority of the outstanding voting securities of the shares of the Fund, and (b) by the vote of a majority of those Directors/Trustees who are not parties to this Agreement or interested persons of any such parties 8 and who have no direct or indirect financial interest in this Agreement or in the operation of the Fund's Plan or in any agreement related thereto (Rule 12b-1 Directors/Trustees), cast in person at a meeting called for the purpose of voting upon such approval. 10.2 This Agreement may be terminated at any time, without the payment of any penalty, by a majority of the Rule 12b-1 Directors/Trustees or by vote of a majority of the outstanding voting securities of the shares of the Fund, or by the Distributor, on sixty (60) days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. 10.3 The terms "affiliated person," "assignment," "interested person" and "vote of a majority of the outstanding voting securities", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act. Section 11. Amendments to this Agreement This Agreement may be amended by the parties only if such amendment is specifically approved by (a) the Directors/Trustees of the Fund, or by the vote of a majority of the outstanding voting securities of the shares of the Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors/Trustees cast in person at a meeting called for the purpose of voting on such amendment. Section 12. Governing Law The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year above written. Prudential Mutual Fund Distributors, Inc. /s/ ROBERT F. GUNIA By: ------------------------------- Name: Robert F. Gunia Title: Executive Vice President Prudential Institutional Liquidity Portfolio /s/ LAWRENCE C. MCQUADE By: -------------------------------- Name: Lawrence C. McQuade Title: President DSTAGR.PLP EX-10.B 3 OPINION OF COUNSEL Exhibit 99.10(b) Gardner, Carton & Douglas 321 N. Clark Street Chicago, Illinois 60610-4795 May 23, 1994 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Prudential Institutional Liquidity Portfolio, Inc. Shares of Common Stock, $.001 par value Ladies and Gentlemen: We have acted as counsel for Prudential Institutional Liquidity Portfolio, Inc., a Maryland corporation (the "Fund"), in connection with its filing of Post-Effective Amendment No. 8 to its Registration Statement on Form N-1A (File No. 33-17224) (the "Amendment"). In addition to updating the information contained therein, this Amendment registers 124,594,676 shares of Common Stock, $.001 par value of the Fund. We have examined all instruments, documents and records which, in our opinion, were necessary of examination for the purpose of rendering this opinion. Based upon such examination, we are of the opinion that the above-described shares of Common Stock will be, if and when issued by the Fund in the manner and upon the terms set forth in said Form N-1A, validly authorized and issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Fund's Registration Statement on Form N-1A, as it may be amended. Very truly yours, /s/ Gardner, Carton & Douglas PHD/HJM/sv EX-11 4 CONSENT OF INDEPENDENT AUDITORS Exhibit 99.11 CONSENT OF INDEPENDENT AUDITORS We consent to the use in Post-Effective Amendment No. 8 to Registration Statement No. 33-17224 of Prudential Institutional Liquidity Portfolio, Inc. of our report dated May 4, 1994, appearing in the Statement of Additional Information, which is a part of such Registration Statement, and to the references to us under the headings "Financial Highlights" in the Prospectus, which is a part of such Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants" in the Statement of Additional Information. /s/Deloitte & Touche Deloitte & Touche New York, New York May 25, 1994 EX-15.B 5 DISTRIBUTION AND SERVICE PLAN Exhibit 99.15(b) PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Distribution and Service Plan Introduction The Distribution and Service Plan (the Plan) set forth below which is designed to conform to the requirements of Rule 12b-1 under the Investment Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (NASD) has been adopted by Prudential Institutional Liquidity Portfolio, Inc. (the Fund) and by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the Distributor). The Fund has entered into a distribution agreement (the Distribution Agreement) pursuant to which the Fund will employ the Distributor to distribute shares issued by the Fund. Under the Plan, the Fund intends to reimburse the Distributor for costs incurred by the Distributor in distributing shares of the Series and to pay the Distributor a service fee for the maintenance of shareholder accounts. A majority of the Board of Directors or Trustees of the Fund, including a majority of those Directors or Trustees who are not "interested persons" of the Fund (as defined in the Investment Company Act) and who have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the Rule 12b-1 Directors or Trustees), have determined by votes cast in person at a meeting called for the purpose of voting on this Plan that there is a reasonable likelihood that adoption of this Plan will benefit the Fund and its shareholders. Expenditures under this Plan by the Fund for Distribution Activities (defined below) are primarily intended to result in the sale of shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act. The purpose of the Plan is to create incentives to the Distributor and/or other qualified broker-dealers and their account executives to provide distribution assistance to their customers who are investors in the Series, to defray the costs and expenses associated with the preparation, printing and distribution of prospectuses and sales literature and other promotional and distribution activities and to provide for the servicing and maintenance of shareholder accounts. The Plan The material aspects of the Plan are as follows: 1. Distribution Activities The Fund shall engage the Distributor to distribute shares of the Series and to service shareholder accounts using all of the facilities of the distribution networks of Prudential Securities Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec), including sales personnel and branch office and central support systems, and also using such other qualified broker-dealers and financial institutions as the Distributor may select. Services provided and activities undertaken to distribute shares of the Fund are referred to herein as "Distribution Activities." 2 2. Payment of Service Fee The Fund shall reimburse the Distributor for costs incurred by it in providing personal service and/or maintaining shareholder accounts at a rate not to exceed .12 of 1% per annum of the average daily net assets of the shares of the Fund (service fee). The Fund shall calculate and accrue daily amounts reimbursable by the shares of the Fund hereunder and shall pay such amounts monthly or at such other intervals as the Board of Directors or Trustees may determine. Costs of the Distributor subject to reimbursement hereunder include account servicing fees and indirect and overhead costs associated with providing personal service and/or maintaining shareholder accounts. 3. Payment for Distribution Activities The Fund shall reimburse the Distributor for costs incurred by it in performing Distribution Activities at a rate which, together with the service fee (described in Section 2 hereof), shall not exceed .12 of 1% per annum of the average daily net assets of the shares of the Fund. The Fund shall calculate and accrue daily amounts reimbursable by the shares of the Fund hereunder and shall pay such amounts monthly or at such other intervals as the Board of Directors or Trustees may determine. Costs of the Distributor subject to reimbursement hereunder are costs of performing Distribution Activities and may include, among others: (a) amounts paid to Prudential Securities in reimbursement of costs incurred by Prudential Securities in performing services under a selected dealer agreement between Prudential Securities and the Distributor for sale of shares of the Fund, including sales 3 commissions and account servicing fees paid to, or on account of, account executives and indirect and overhead costs associated with Distribution Activities, including central office and branch expenses; (b) amounts paid to Prusec in reimbursement of costs incurred by Prusec in performing services under a selected dealer agreement between Prusec and the Distributor for sale of shares of the Fund, including sales commissions and account servicing fees paid to, or on account of, agents and indirect and overhead costs associated with Distribution Activities; (c) advertising for the Fund in various forms through any available medium, including the cost of printing and mailing Fund prospectuses, statements of additional information and periodic financial reports and sales literature to persons other than current shareholders of the Fund; and (d) sales commissions (including account servicing fees) paid to, or on account of, broker-dealers and financial institutions (other than Prudential Securities and Prusec) which have entered into selected dealer agreements with the Distributor with respect to shares of the Fund. 4. Quarterly Reports; Additional Information An appropriate officer of the Fund will provide to the Board of Directors or Trustees of the Fund for review, at least quarterly, a written report specifying in reasonable detail the amounts expended for Distribution Activities (including payment of the service fee) and the purposes for which such expenditures were made in compliance with the requirements of Rule 12b-1. The Distributor will provide to the Board of Directors or Trustees of the Fund such additional information as the Board or Trustees shall from time to time reasonably request, including information about Distribution Activities undertaken or to be undertaken by 4 the Distributor. The Distributor will inform the Board of Directors or Trustees of the Fund of the commissions and account servicing fees to be paid by the Distributor to broker-dealers and financial institutions which have selected dealer agreements with the Distributor. 5. Effectiveness; Continuation The Plan shall not take effect until it has been approved by a vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Fund. If approved by a vote of a majority of the outstanding voting securities of the Fund, the Plan shall, unless earlier terminated in accordance with its terms, continue in full force and effect thereafter for so long as such continuance is specifically approved at least annually by a majority of the Board of Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for the purpose of voting on the continuation of the Plan. 6. Termination This Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Fund. 7. Amendments The Plan may not be amended to change the distribution expenses to be paid as provided for in Section 3 hereof so as to 5 increase materially the amounts payable under this Plan unless such amendment shall be approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Fund. All material amendments of the Plan, including the addition or deletion of categories of expenditures which are reimbursable hereunder, shall be approved by a majority of the Board of Directors or the Trustees of the Fund and a majority of the Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for the purpose of voting on the Plan. 8. Non-interested Directors or Trustees While the Plan is in effect, the selection and nomination of the Directors or Trustees who are not "interested persons" of the Fund (non-interested Directors or Trustees) shall be committed to the discretion of the non-interested Directors or Trustees. 9. Records The Fund shall preserve copies of the Plan and any related agreements and all reports made pursuant to Section 4 hereof, for a period of not less than six years from the date of effectiveness of the Plan, such agreements or reports, and for at least the first two years in an easily accessible place. Dated: November 20, 1987 as amended and restated on July 1, 1993 6 DISPLN.PLP -----END PRIVACY-ENHANCED MESSAGE-----