(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
Institutional Money
Market Series
ANNUAL
REPORT
March 31, 1996
(LOGO)
<PAGE>
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Performance At A Glance.
The Prudential Institutional Liquidity Portfolio <DASH> Institutional Money
Market Series produced competitive returns during the past year. We held on to
higher yields longer by correctly anticipating falling short-term interest rates
throughout much of 1995. The Series also maintained its high credit quality and
enjoyed a stable $1 net asset value. On March 31, 1996, PILP's 7-day current
yield stood at 4.96% which was ahead of the 4.74% of the average money market
fund tracked by IBC/Donoghue.
<TABLE>
Fund Facts As of 3/31/96
<CAPTION>
7-Day Net Asset Weighted Total Net
Current Yld. Value Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C>
PILP Fund 4.96% $1.00 63 $441
IBC/Donoghue
Money Fund Avg 4.74 1.00 53 N/A
(All Taxable)*
</TABLE>
Note: Yields will fluctuate from time to time and past performance is not
indicative of future results. An investment in the Series is neither insured
nor guaranteed by the U.S. government and there can be no assurance that the
Series will be able to maintain a stable net asset value.
* This is the average 7-day current yield, NAV and WAM of 781 funds in the
International Business Communications/Donoghue all taxable money fund category
as of March 31, 1996.
Falling Rates / U.S. Treasury Yield Curve
(GRAPH)
Maturity in Years
How Investments Compared.
(As of 3/31/96)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual fund's
past performance should never be used to predict future results. The risks to
each of the investments listed above are different <DASH> we provide 12-month
total returns for several Lipper mutual fund categories to show you that
reaching for higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included historical
20-year average annual returns. The returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Market Funds attempt to preserve a constant share value; they
don't fluctuate much in price but, historically, their returns have been
generally among the lowest of the major investment categories.
* 19 years for General Muni Debt Funds.
<PAGE>
Robert L. Wofchuck, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Prudential Institutional Liquidity Portfolio <DASH> Institutional Money
Market Series seeks high current income consistent with the preservation of
principal and liquidity. The Series is a diversified portfolio of high quality,
U.S. dollar-denominated money market securities issued by the U.S. government
and its agencies, major corporations and commercial banks of the U.S. and
foreign countries. Maturities can range from one day to a maximum of 13 months.
We purchase only securities rated in one of the two highest ratings categories
by at least two major, independent rating agencies or, if not rated, deemed to
be of equivalent quality by our credit research staff.
Strategy Session.
Since our last report to you, short-term interest rates moved lower and economic
growth slowed.
The Federal Reserve cut short-term interest rates twice <DASH> in mid-December
to 5.50% from 5.75% or 25 basis points lower than last summer, and again on
January 31, 1996 by another 25 basis points to 5.25% (a basis point is 1/100th
of a percentage point).
The stimulus was needed. As the fourth quarter of 1995 ended, Gross Domestic
Product (GDP), the total value of goods produced by the country and a widely
used measure of overall economic health, had fallen sharply to 0.5%. There was
concern that the economy was slipping towards a recession.
Yields Behaved Differently.
As these events unfolded, expectations for a sharp drop in short-term rates
caused yields in the short-term bond markets to invert <DASH> three-month
rates were higher than one-year rates. Since we believed that the Federal
Reserve would not lower rates quickly, we focused the Series' investments in
higher yielding, shorter term securities and adjustable-rate securities. As a
result, the Series' weighted average maturity (WAM) at the end of 1995 was
less than the average taxable money fund as reported by IBC/Donoghue.
Predicting the economy's direction was difficult in the first quarter of 1996.
A major blizzard, the Boeing strike, and a partial federal government shutdown
distorted economic data. However, an exceptionally strong February employment
report completely evaporated expectations of further cuts in short-term
interest rates. In fact, the short-term yield curve reverted to a ``normal''
shape as long-term securities yielded more than short-term securities.
As this occurred, we gradually extended the Series' weighted average maturity
by purchasing high quality, fixed-rate securities with longer maturities and
higher yields.
A Word About
Quality.
As of March 31, 1996, all of the Series' investments were rated in the highest
category by at least two major, independent rating agencies, or, if unrated,
deemed to be of equivalent quality by our credit research staff. Investments
deemed to be of equivalent quality that were not rated were subject to
ratification by the Series' Board of Directors. Although there is never a
guarantee that the share price of Prudential Institutional Liquidity Portfolio
<DASH> Institutional Money Market Series will remain at $1, we emphasize a
conservative, quality-oriented investment approach.
<PAGE>
What Went Well.
At the end of 1995, conventional wisdom suggested more short-term rate cuts.
Since shorter term rates were high compared to longer term rates, we did not
have to extend maturity to earn higher returns and there wasn't much value in
purchasing longer fixed-rate securities. Instead, we increased our holdings of
high quality, adjustable rate securities with coupons that reset according to
daily, one month, or other periodic interest rates. These securities are linked
to various independent, short-term interest rate indices such as the federal
funds rate, London interbank offered rate (LIBOR) or Treasury bills, which
track general money market rates.
Our strategy was successful. As short-term rates shifted even higher, so did
the coupons on our adjustable rate holdings. These holdings combined with the
Series' shorter maturity proved beneficial as rates moved higher.
And Not So Well.
Prior to the strong February employment report, short-term money market rates
moved higher following an optimistic review of the economy by the Federal
Reserve. With the Series' maturity shorter than the competition and the
possibility that the Federal Reserve could still push rates lower in 1996, we
purchased longer term U.S. Treasury securities to move the Series' maturity
closer to the competition.
This move was premature. With the release of the strong February employment
report just weeks later, rates rose even higher. In retrospect, we should have
waited just a little longer to extend the Series' maturity.
Looking Ahead.
As the first quarter of 1996 ended, conflicting economic news sent mixed
signals on the state of the economy. Market expecta-tions for a prolonged
period of unchanged monetary policy have resulted in higher rates throughout
the short-term bond markets.
Going forward, we believe the Federal Reserve will be cautious in adjusting
monetary policy until the direction of the economy becomes clear. Although we
still like the yield opportunities offered by some adjustable rate securities,
we will continue to selectively purchase longer term, fixed rate securities now
that the short-term yield curve has returned to a ``normal'' shape.
- --------------------------------------------------------------------------------
1
<PAGE>
President's Letter May 1, 1996
(PICTURE)
Dear Shareholder:
Last year, stocks and bonds generally posted extraordinary returns. Investors
celebrated this performance by putting record amounts of new money into mutual
funds in the first few months of 1996. According to figures released by the
Investment Company Institute, a mutual fund industry trade group, new
investments in mutual funds reached an all-time monthly high of $33 billion in
January of 1996. An additional $47 billion was invested in February and March.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be ``buying last year's returns.'' Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and risks
associated with your investments.
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board
of Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency and reduce costs to your fund(s). The materials you'll receive
this summer will contain more complete information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created ``Money Management Group.'' This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- --------------------------------------------------------------------------------
2
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
Bank Notes--0.2%
Wachovia Bank of North Carolina
$1,000 4.625%, 6/14/96 $ 997,283
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--1.8%
Abbey National Treasury Services
Plc.
6,000 5.475%, 4/15/96 6,000,027
Bayerische Hypotheken-und
Wechsel-Bank
2,000 5.34%, 9/18/96 1,999,419
------------
7,999,446
- ------------------------------------------------------------
Certificates of Deposit-Yankee--12.9%
Banque Nationale de Paris
8,000 5.20%, 4/15/96 8,000,000
10,000 5.23%, 4/15/96 10,000,000
7,000 5.17%, 5/1/96 6,999,658
National Westminster Bank, Plc.
7,000 5.21%, 4/30/96 6,999,894
Societe Generale
19,000 5.25%, 4/5/96 19,000,000
6,000 5.23%, 5/6/96 6,000,000
------------
56,999,552
- ------------------------------------------------------------
Commercial Paper--49.0%
A. H. Robins Co., Inc.
1,140 5.19%, 4/12/96 1,138,192
American Brands, Inc.
2,000 5.15%, 5/10/96 1,988,842
American Honda Finance Corp.
1,000 5.40%, 4/8/96 998,950
1,000 5.38%, 4/9/96 998,804
4,000 5.22%, 4/29/96 3,983,760
1,000 5.20%, 5/10/96 994,367
1,000 5.25%, 5/10/96 994,312
1,632 5.35%, 5/30/96 1,617,690
Aristar, Inc.
$4,215 5.25%, 4/22/96 $ 4,202,092
1,670 5.55%, 5/10/96 1,659,959
Associates Corp. of North America
3,000 5.18%, 5/3/96 2,986,187
Avco Financial Services, Inc.
3,220 5.20%, 4/30/96 3,206,512
Bradford & Bingley Building Society
4,000 5.11%, 5/7/96 3,979,560
1,000 5.27%, 6/7/96 990,192
Caterpillar Financial Services Corp.
2,000 5.25%, 9/19/96 1,950,125
Cheltenham & Gloucester Plc.
2,000 5.16%, 5/10/96 1,988,820
CIT Group Holdings, Inc.
4,000 5.25%, 4/15/96 3,991,833
17,489 5.18%, 5/3/96 17,408,473
Corporate Asset Funding Co., Inc.
3,000 5.14%, 5/15/96 2,981,153
Countrywide Funding Corp.
8,000 5.30%, 4/22/96 7,975,267
10,000 5.30%, 4/26/96 9,963,194
Finova Capital Corp.
1,000 5.30%, 4/8/96 998,969
1,000 5.23%, 4/12/96 998,402
1,000 5.27%, 4/12/96 998,390
7,000 5.34%, 4/26/96 6,974,042
First Data Corp.
1,000 5.35%, 4/16/96 997,771
General Electric Capital Corp.
6,000 5.58%, 4/8/96 5,993,490
IBM Credit Corp.
15,280 5.20%, 4/26/96 15,224,822
8,000 5.26%, 5/21/96 7,941,555
ITT Industries, Inc.
4,700 5.28%, 4/4/96 4,697,932
4,200 5.50%, 5/2/96 4,180,108
Mitsubishi International Corp.
1,000 5.85%, 4/16/96 997,563
1,000 5.28%, 6/11/96 989,587
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Commercial Paper (cont'd.)
Mitsubishi International Corp.
(cont'd.)
$1,000 5.30%, 6/11/96 $ 989,547
2,000 5.30%, 6/14/96 1,978,211
Nynex Corp.
1,000 5.32%, 4/8/96 998,965
PepsiCo, Inc.
6,700 5.40%, 5/10/96 6,660,805
Preferred Receivables Funding Corp.
1,000 5.30%, 4/11/96 998,528
1,000 5.22%, 4/17/96 997,680
7,000 5.15%, 6/5/96 6,934,910
Sears Roebuck Acceptance Corp.
9,000 5.25%, 4/11/96 8,986,875
7,000 5.12%, 6/13/96 6,927,324
Smith Barney, Inc.
2,000 5.28%, 5/1/96 1,991,200
Sumitomo Corp. of America
10,000 5.37%, 4/22/96 9,968,675
5,253 5.24%, 4/23/96 5,236,179
US West Communications, Inc.
7,484 5.17%, 5/17/96 7,434,560
USL Capital Corp.
5,000 5.32%, 4/25/96 4,982,267
15,144 5.37%, 5/17/96 15,040,087
Weyerhaeuser Mortgage Co.
2,000 5.30%, 4/22/96 1,993,817
Whirlpool Financial Corp.
5,000 5.20%, 4/26/96 4,981,944
2,000 5.45%, 5/10/96 1,988,192
------------
216,080,681
- ------------------------------------------------------------
Medium-Term Obligations--4.2%
American General Finance Corp.
2,000 5.80%, 4/1/97 2,002,421
Associates Corp. of North America
2,000 4.75%, 8/1/96 1,994,529
Ford Motor Credit Corp.
1,200 8.875%, 8/1/96 1,211,305
General Electric Capital Corp.
$3,000 7.78%, 12/30/96 $ 3,048,677
General Electric Company
1,050 7.875%, 5/1/96 1,051,519
General Motors Acceptance Corp.
3,000 5.30%, 7/12/96 2,992,574
1,000 8.70%, 8/2/96 1,008,565
1,000 6.10%, 3/31/97 1,003,936
Grand Metropolitan Investment Corp.
1,000 8.125%, 8/15/96 1,009,073
International Lease Finance Corp.
2,000 4.75%, 7/15/96 1,997,053
Sears Roebuck Acceptance Corp.
1,000 8.98%, 7/11/96 1,008,906
------------
18,328,558
- ------------------------------------------------------------
U.S. Government & Agencies Obligations--5.8%
Federal National Mortgage
Association
5,000 5.8125%, 10/4/96 4,996,824
United States Treasury Notes
5,000 6.875%, 2/28/97 5,076,229
10,000 6.625%, 3/31/97 10,130,698
5,000 6.875%, 3/31/97 5,082,045
------------
25,285,796
- ------------------------------------------------------------
Adjustable Rate Instruments(b)--26.0%
American Express Centurion Bank
2,000 5.345%, 4/15/96 1,999,493
3,000 5.35281%, 4/19/96 2,999,438
Beneficial Corp.
16,000 5.22469%, 6/10/96 15,992,699
Federal National Mortgage
Association
10,000 5.535%, 4/1/96 10,000,000
General Electric Capital Corp.
1,000 5.40234%, 5/23/96 1,000,000
General Motors Acceptance Corp.
19,000 5.395%, 5/2/96 18,997,965
1,000 5.27%, 5/21/96 999,943
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of LIQUIDITY PORTFOLIO, INC.
March 31, 1996 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Adjustable Rate Instruments(b) (cont'd.)
Goldman Sachs Group, L.P.
$25,000 5.8125%, 5/24/96 $ 25,000,000
Lehman Brothers Holdings, Inc.
6,000 5.5094%, 4/1/96 6,000,000
Merrill Lynch & Co., Inc.
15,000 5.3125%, 4/2/96 14,997,806
Money Market Auto Loan Trust 1990-1
700 5.575%, 4/15/96 700,081
Morgan Stanley Group, Inc.
3,000 5.74219%, 4/15/96 3,000,000
5,000 5.692945%, 4/17/96 5,000,000
2,000 5.375%, 5/15/96 2,000,000
SMM Trust Notes 1995-Q
4,000 5.375%, 4/15/96 3,999,711
Student Loan Marketing Association
2,000 5.30%, 4/2/96 1,999,643
------------
114,686,779
- ------------------------------------------------------------
Total Investments--99.9%
(amortized cost $440,378,095(a)) 440,378,095
Other assets in excess of
liabilities--0.1% 463,630
------------
Net Assets--100% $440,841,725
------------
------------
</TABLE>
- ---------------
(a) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(b) The maturity date presented for these instruments is the next date on which
the rate of interest is adjusted.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of March 31, 1996 was as
follows:
<TABLE>
<S> <C>
Commercial Banks................................... 17.7%
Personal Credit Institutions....................... 15.4
Business Credit (Finance).......................... 13.7
Securities Brokers & Dealers....................... 13.2
Finance Lessors.................................... 5.3
Computer Rental & Leasing.......................... 4.8
Commodity Trading.................................. 4.6
U.S. Government Sovereign.......................... 4.6
Mortgage Banks..................................... 4.0
Federal Credit Agencies............................ 3.9
Asset Backed Securities............................ 3.7
Motor Vehicle Parts................................ 2.0
Telephone & Communications......................... 1.9
Household Appliances............................... 1.6
Beverages.......................................... 1.5
Equipment Rental & Lease........................... 0.5
Paper & Allied Products............................ 0.5
Tobacco............................................ 0.4
Electrical & Equipment............................. 0.2
Food & Kindred Products............................ 0.2
Pharmaceuticals.................................... 0.2
Other assets in excess of liabilities.............. 0.1
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
March 31, 1996
Investments, at
value........................................................................
.............. $440,378,095
Interest
receivable...................................................................
..................... 2,837,611
Other
assets.......................................................................
........................ 8,038
--------------
Total
assets.......................................................................
..................... 443,223,744
--------------
Liabilities
Dividends
payable......................................................................
.................... 2,030,909
Accrued expenses and other
liabilities.....................................................................
240,940
Management fee
payable......................................................................
............... 83,898
Distribution fee
payable......................................................................
............. 26,272
--------------
Total
liabilities..................................................................
..................... 2,382,019
--------------
Net
Assets.......................................................................
.......................... $440,841,725
--------------
--------------
Net assets were comprised of:
Common stock, at
par..........................................................................
.......... $ 440,842
Paid-in capital in excess of
par........................................................................
440,400,883
--------------
Net assets at March 31,
1996.........................................................................
...... $440,841,725
--------------
--------------
Net asset value, offering and redemption price per share
($440,841,725 / 440,841,725 shares of $.001 par value common stock issued and
outstanding).............. $1.00
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31, 1996
<S> <C>
Income
Interest and discount earned................ $ 31,099,350
--------------
Expenses
Management fee.............................. 1,039,892
Distribution fee............................ 623,935
Transfer agent's fees and expenses.......... 252,000
Custodian's fees and expenses............... 144,000
Registration fees........................... 54,000
Directors' fees............................. 40,000
Reports to shareholders..................... 38,000
Audit fee and expenses...................... 27,000
Legal fees and expenses..................... 20,000
Insurance expense........................... 15,000
Miscellaneous............................... 6,822
--------------
Total expenses........................... 2,260,649
--------------
Net investment income.......................... 28,838,701
Realized Gain on Investments
Net realized gain on investment transactions... 51,244
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 28,889,945
--------------
--------------
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended March 31,
<S> <C> <C>
in Net Assets 1996 1995
Operations
Net investment income..... $ 28,838,701 $ 18,800,412
Net realized gain on
investment
transactions........... 51,244 16,348
--------------- ---------------
Net increase in net assets
resulting from
operations............. 28,889,945 18,816,760
--------------- ---------------
Dividends and distributions
to shareholders........... (28,889,945) (18,816,760)
--------------- ---------------
Fund share transactions
Net proceeds from shares
subscribed............. 2,502,344,256 1,920,194,727
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 28,006,679 16,326,258
Cost of shares
reacquired............. (2,565,737,717) (1,845,315,406)
--------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions..... (35,386,782) 91,205,579
--------------- ---------------
Total increase (decrease).... (35,386,782) 91,205,579
Net Assets
Beginning of year............ 476,228,507 385,022,928
--------------- ---------------
End of year.................. $ 440,841,725 $ 476,228,507
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series (the ``Fund'') is registered under the Investment Company Act of 1940 as
an open-end, diversified management investment company. The investment objective
of the Fund is high current income consistent with the preservation of principal
and liquidity. The Fund invests primarily in money market instruments maturing
in thirteen months or less whose ratings are within the two highest ratings
categories by a nationally recognized statistical rating organization or, if not
rated, are of comparable quality. The ability of the issuers of the securities
held by the Fund to meet its obligations may be affected by economic
developments in a specific industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuations: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares all of its net investment income
and net realized short-term capital gains/losses, if any, as dividends daily to
its shareholders of record at the time of such declaration. Net investment
income for dividend purposes includes interest accrued or discount earned less
amortization of premium and the estimated expenses applicable to the dividend
period. The Fund does not expect to realize long-term capital gains or losses.
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .20 of 1% of the average daily net assets of the Fund.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund reimbursed PMFD and
PSI for distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .12 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During year ended March 31, 1996, the
Fund incurred fees of $240,000 for the services of PMFS. As of March 31, 1996,
$20,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
- --------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
- ------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1996
1995 1994 1993 1992
--------
-------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
Net asset value, beginning of year................................. $ 1.000
$ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains....................... .056
.046 .029 .033 .054
Dividends and distributions to shareholders........................ (.056)
(.046) (.029) (.033) (.054)
--------
-------- -------- -------- --------
Net asset value, end of year....................................... $ 1.000
$ 1.000 $ 1.000 $ 1.000 $ 1.000
--------
-------- -------- -------- --------
--------
-------- -------- -------- --------
TOTAL RETURN(a):................................................... 5.72%
4.69% 2.92% 3.40% 5.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $440,842
$476,229 $385,023 $497,214 $443,172
Average net assets (000)........................................... $519,946
$402,678 $445,867 $543,694 $540,380
Ratios to average net assets:
Expenses, including distribution fee............................ .43%
.46% .48% .44% .42%
Expenses, excluding distribution fee............................ .31%
.34% .36% .32% .30%
Net investment income........................................... 5.56%
4.67% 2.87% 3.28% 5.32%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each year reported and includes reinvestment
of dividends and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Independent Auditors' Report INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential Institutional Liquidity Portfolio, Inc.--
Institutional Money Market Series
We have audited the accompanying statement of assets and liabilities of
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series, including the portfolio of investments, as of March 31, 1996, the
related statements of operations for the year then ended and of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1996 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series as
of
March 31, 1996, the results of its operations, the changes in its net assets and
the financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
May 9, 1996
- --------------------------------------------------------------------------------
10
<PAGE>
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<PAGE>
[This page intentionally left blank]
<PAGE>
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
How many times have you read these letters <DASH> or other financial materials
<DASH> and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls <DASH> sometimes very
suddenly <DASH> in response to changes in some specific interest rate,
currency, stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instrument at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Put Option: An agreement to sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
Prudential Mutual Fund Management (LOGO)
Directors
Eugene C. Dorsey
Donald D. Lennox
Richard A. Redeker
Stanley E. Shirk
Robin B. Smith
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
321 North Clark Street
Quaker Tower
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
744350109 MF137E
