(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
Institutional Money
Market Series
SEMI
ANNUAL
REPORT
Sept. 30, 1996
(LOGO)
<PAGE>
Prudential Institutional Liquidity Portfolio,
Inc. Institutional Money Market Series
Performance At A Glance.
The Prudential Institutional Liquidity Portfolio --
Institutional Money Market
Series (PILP) produced competitive returns during the past
six months despite
swings in short-term interest rates. The Series maintained
its high credit
quality and $1 net asset value. On September 30, 1996,
PILP's 7-day current
yield was 5.02% which was ahead of the 4.81% for the average
money market fund
tracked by IBC Financial Data.
<TABLE>
Fund Facts
As of 9/30/96
<CAPTION>
7-Day Net Asset
Weighted Total Net
Current Yld. Value Avg.
Mat. Assets (mil.)
<S> <C> <C> <C>
<C>
PILP Fund 5.02% $1.00 53
$314
IBC Financial Data
Money Fund Avg 4.81 1.00 50
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
811 funds in the
International Business Communications Financial Data all
taxable money fund
category as of 9/30/96.
Money Fund Yields Fell And Then Stabilized.
(GRAPH)
Weekly 7-day current yields of Prudential Institutional
Liquidity Portfolio,
Inc. and the IBC Financial Data all taxable money fund
average. Past
performance is not indicative of future results.
How Investments Compared.
(As of 9/30/96)
(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
- -- 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. These 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.
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.
Robert L. Wofchuck, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Prudential Institutional Liquidity Portfolio --
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. There
can be no assurance that the Series' objective will be
achieved.
Strategy Session.
About-Face On Rates.
In our last report to you, our strategy centered upon
preserving high yields
as expectations for further Federal Reserve reductions of
short-term interest
rates continued. It was a conservative approach that did not
overreact to
swings in market opinion. Our thinking was, and remains, to
seek the highest
yields while maintaining our investment flexibility. We did
so during the last
six months by investing in longer term securities (as the
yield differential
between short-term and longer term securities widened),
while keeping a
sizeable position in adjustable rate securities so the
portfolio could respond
quickly to changing market conditions.
The six-month reporting period was an extremely volatile
time for short-term
interest rates. Market opinion ran in cycles, and fluctuated
in reaction to
reports that the U.S. economy was either improving (rates
rose) or weakening
(rates fell). This was a marked change from the beginning of
the year when
expectations were that the central bank would continue
reducing the Federal
Funds rate (what banks charge each other for overnight
loans), to jump-start
an anemic U.S. economy.
What happened?
The about-face came in March when the federal government
released its February
jobs report, which showed that employment growth was far
stronger than
forecast. It was good news (especially for those who found
work) but many
investors interpreted the data to mean that the economy was
improving too
rapidly and that the Federal Reserve would be forced to
raise interest rates
to head-off inflation. Short-term rates were bid up in
anticipation of tighter
Federal Reserve monetary policy, only to fall when the
Federal Funds rate
remained unchanged because new economic reports showed the
economy was slowing.
This cycle repeated itself several times during the
reporting period.
Gross Domestic Product, a measure of total goods and
services produced by the
economy, grew 4.7% in the second quarter, which resulted in
3.4% growth for
the first half of the year. However, slower growth in
consumer spending and
housing slowed third quarter growth to 2.2%. The slowdown
eased concerns, at
least for now, that rapid growth could lead to rising prices
forcing the
Federal Reserve to raise short-term interest rates.
A Word About Quality.
As of September 30, 1996, 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 Board of Directors. Although there is
never a guarantee
that the share price of Prudential Institutional Liquidity
Portfolio --
Institutional Money Market Series will remain at $1, we
emphasize a
conservative, quality-oriented investment approach.
<PAGE>
What Went Well.
Watching The "Big Picture."
Over the last six months we kept to our conservative
strategy and looked at
the "big picture." Yes, we thought the Federal Reserve might
raise interest
rates sometime this year. But not as much as most of the
market anticipated.
Market anticipation drove yields for longer term securities
up, widening the
difference in three-month and one-year securities. This
steepening of the
yield curve presented an attractive investment opportunity
and we took it.
The risk to this move was that the Federal Reserve could
have aggressively
raised interest rates. However, we believed that any
increase would probably
be modest in nature, and would still leave our longer term
holdings in a
competitive position. Our opinion was based upon our
knowledge of recent
Federal Reserve history, where actions were taken slowly and
deliberately. As
things turned out, it was the right move since short-term
interest rates
remained unchanged during the six-month reporting period
ended September 30,
1996.
Of course, we did not place all of our eggs in one basket.
We also maintained
a sizeable position, about 30% of total net assets as of
September 30, 1996,
in adjustable rate securities. These are investments whose
coupons reset
periodically, such as daily, weekly or monthly. Adjustable
rate securities
reflect current market rates, such as the Federal Funds Rate
or London
Interbank Offered Rate (LIBOR), and allowed the portfolio to
take advantage of
changing market conditions as they occurred.
And Not So Well.
Our choice of investing in longer term (nine to 13 months)
securities locked
in attractive yields for a longer time period. But it also
discouraged us from
participating in temporary yield increases that occurred
when market sentiment
turned negative following the release of various economic
reports. Because of
the extreme volatility involved in following that course,
we chose to stick
with our longer term strategy.
Looking Ahead.
The Federal Reserve seeks to promote steady economic growth
with low levels of
inflation. Second quarter growth was very strong, especially
in sectors which
may contribute to inflationary pressures, such as wages and
employment. Yet
inflation remains low (about 3% for the year) and economic
growth slowed
significantly in the third quarter. While wages are rising,
economic growth is
slowing and inflation is benign. The Federal Reserve seems
willing to tolerate
stable, short-term rates to encourage sustainable economic
growth. We are
positioning the Fund for stable short-term interest rates
into 1997.
Weighted Average Maturity Compared To The Average Fund.
(GRAPH)
- ------------------------------------------------------------
- -------------------
1
<PAGE>
President's Letter
November 1, 1996
(PHOTO)
Dear Shareholder:
Last year, U.S. 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 $66 billion
was invested in the
following three months, although this rapid inflow subsided
somewhat in late
spring.
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.
Changes at Prudential.
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 "Prudential Investments." 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>
Portfolio of Investments PRUDENTIAL
INSTITUTIONAL
as of September 30, 1996 LIQUIDITY
PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL
MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Asset Backed Securities--0.7%
NationsBank Auto Owner Trust 1996A
A-1
$2,141 5.776%, 8/15/97 $
2,140,771
- ------------------------------------------------------------
Bank Notes--1.9%
FCC National Bank
3,000 5.77%, 4/15/97
2,999,074
NBD Bank, N.A.
2,021 7.875%, 1/21/97
2,033,600
Wachovia Bank of North Carolina
1,000 4.625%, 12/13/96
998,084
--------
- ----
6,030,758
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--2.6%
Bank of Montreal
6,000 5.36%, 10/22/96
6,000,000
Bayerische Vereinsbank
2,000 5.41%, 10/2/96
2,000,000
--------
- ----
8,000,000
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--12.1%
Banque Nationale de Paris
8,000 5.35%, 10/15/96
8,000,000
Bayerische Vereinsbank
3,000 5.53%, 11/1/96
3,000,126
Commerzbank
2,000 5.47%, 11/5/96
2,000,000
National Australia Bank, Ltd.
4,000 5.75%, 10/2/96
4,000,004
Societe Generale
16,000 5.53%, 10/7/96
16,000,000
4,000 5.40%, 11/7/96
4,000,000
Swiss Bank Corp.
1,000 5.51%, 12/19/96
1,000,204
--------
- ----
38,000,334
Commercial Paper--42.2%
American Honda Finance Corp.
$10,000 5.43%, 10/7/96 $
9,990,950
Aristar, Inc.
6,650 5.43%, 10/3/96
6,647,994
Associates Corp. of North America
10,000 5.34%, 11/5/96
9,948,083
BAT Capital Corp.
10,505 5.32%, 10/7/96
10,495,686
1,000 5.35%, 11/4/96
994,947
Bradford & Bingley Building Society
2,000 5.34%, 11/5/96
1,989,617
Caterpillar Financial Services Corp.
1,000 5.35%, 10/10/96
998,663
Ciesco, L.P.
3,000 5.34%, 11/4/96
2,984,870
Dresser Industries, Inc.
1,000 5.32%, 10/3/96
999,704
Enterprise Funding Corp.
4,028 5.35%, 10/21/96
4,016,028
3,000 5.40%, 11/4/96
2,984,700
Finova Capital Corp.
3,000 5.46%, 10/3/96
2,999,090
2,000 5.40%, 10/7/96
1,998,200
2,000 5.40%, 10/8/96
1,997,900
1,000 5.40%, 10/15/96
997,900
1,000 5.43%, 11/15/96
993,213
First Data Corp.
3,000 5.40%, 11/26/96
2,974,800
Ford Motor Credit Corp.
7,600 5.28%, 10/8/96
7,592,197
3,527 5.33%, 10/22/96
3,516,034
4,000 5.32%, 10/31/96
3,982,267
1,621 5.31%, 11/7/96
1,612,153
1,631 5.37%, 11/15/96
1,620,052
General Electric Capital Corp.
12,200 5.30%, 11/7/96
12,133,544
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments PRUDENTIAL
INSTITUTIONAL
as of September 30, 1996 LIQUIDITY
PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL
MONEY MARKET SERIES
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
GTE Corp.
$2,220 5.45%, 10/7/96 $
2,217,983
IBM Credit Corp.
2,787 5.29%, 10/7/96
2,784,543
John Deere Capital Corp.
1,000 5.30%, 11/12/96
993,817
Mitsubishi International Corp.
2,074 5.35%, 10/2/96
2,073,692
3,387 5.50%, 10/10/96
3,382,343
NYNEX Corp.
2,000 5.39%, 10/9/96
1,997,604
11,000 5.39%, 10/18/96
10,972,002
Philip Morris Capital Corp.
2,689 5.34%, 11/1/96
2,676,635
2,000 5.30%, 11/7/96
1,989,106
Preferred Receivables Funding Corp.
2,450 5.29%, 10/24/96
2,441,720
1,000 5.35%, 11/4/96
994,947
1,000 5.35%, 11/25/96
991,826
Whirlpool Corp.
2,689 5.40%, 10/17/96
2,682,546
Whirlpool Financial Corp.
1,000 5.40%, 10/17/96
997,600
1,000 5.40%, 10/23/96
996,700
--------
- ----
132,661,656
- ------------------------------------------------------------
Loan Participations--0.3%
Engelhard Corp.
1,000 5.46%, 10/4/96
1,000,000
- ------------------------------------------------------------
Medium - Term Obligations--3.5%
American General Finance Corp.
2,000 5.80%, 4/1/97
2,001,207
Ford Motor Credit Corp.
$3,000 8.00%, 10/1/96 $
3,000,000
General Electric Capital Corp.
3,000 7.78%, 12/30/96
3,016,047
General Motors Acceptance Corp.
1,000 6.10%, 3/31/97
1,001,957
International Lease Finance Corp.
2,000 6.375%, 11/1/96
2,001,153
--------
- ----
11,020,364
- ------------------------------------------------------------
U. S. Government Agency & Instrumentality Obligations--6.4%
United States Treasury Notes
5,000 6.875%, 2/28/97
5,034,337
10,000 6.625%, 3/31/97
10,064,990
5,000 6.875%, 3/31/97
5,040,797
--------
- ----
20,140,124
- ------------------------------------------------------------
Variable Rate Instruments(b)--29.6%
American Express Centurion Bank
2,000 5.47391%, 10/15/96
1,999,784
3,000 5.41531%, 10/21/96
2,999,730
Beneficial Corp.
16,000 5.57625%, 12/10/96
15,996,594
Federal National Mortgage
Association
5,000 5.435%, 10/4/96
4,999,949
Ford Motor Credit Corp.
1,000 5.88281%, 11/4/96
1,000,209
General Motors Acceptance Corp.
19,000 5.69578%, 11/4/96
18,999,178
1,000 5.52%, 11/21/96
999,975
1,000 5.70078%, 12/3/96
1,000,865
Goldman Sachs Group, L. P.
21,000 5.80469%, 2/19/97
21,000,000
Merrill Lynch & Co., Inc.
15,000 5.4375%, 10/2/96
14,999,988
- ------------------------------------------------------------
- --------------------
- -----4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments PRUDENTIAL
INSTITUTIONAL
as of September 30, 1996 LIQUIDITY
PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL
MONEY MARKET SERIES
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Variable Rate Instruments(b) (cont'd.)
Morgan Stanley Group, Inc.
$3,000 5.6875%, 10/15/96 $
3,000,000
2,000 5.65625%, 11/15/96
2,000,000
SMM Trust Notes 1995-Q
4,000 5.50391%, 10/15/96
3,999,898
--------
- ----
92,996,170
- ------------------------------------------------------------
Total Investments--99.3%
(amortized cost $311,990,177(a))
311,990,177
Other assets in excess of
liabilities--0.7%
2,103,446
--------
- ----
Net Assets--100%
$314,093,623
--------
- ----
--------
- ----
- ---------------
(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
September 30, 1996 was as
follows:
</TABLE>
<TABLE>
<S> <C>
Personal Credit Institutions....................... 28.3%
Commercial Banks................................... 20.1
Securities Brokers & Dealers....................... 13.1
Business Credit (Finance).......................... 9.8
U.S. Government Sovereign.......................... 6.4
Finance Lessors.................................... 5.5
Telephone & Communications......................... 4.8
Tobacco............................................ 3.7
Commodity Trading.................................. 1.7
Federal Credit Agencies............................ 1.6
Household Appliances............................... 1.5
Computer Rental & Leasing.......................... 0.9
Asset Backed Securities............................ 0.7
Equipment Rental & Lease........................... 0.6
Industrial Machinery............................... 0.3
Refineries......................................... 0.3
Other assets in excess of liabilities.............. 0.7
-----
100.0%
-----
-----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Portfolio of Investments PRUDENTIAL
INSTITUTIONAL
Statement of Assets LIQUIDITY
PORTFOLIO, INC.
and Liabilities (Unaudited) INSTITUTIONAL
MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<S>
<C>
Assets
September 30, 1996
Investments, at
value.......................................................
........................... $311,990,177
Cash........................................................
...........................................
1,794,155
Interest
receivable..................................................
.................................. 1,975,544
Other
assets......................................................
..................................... 12,059
- ------------------
Total
assets......................................................
.................................. 315,771,935
- ------------------
Liabilities
Dividends
payable.....................................................
................................. 1,381,890
Accrued expenses and other
liabilities.................................................
................ 216,794
Management fee
payable.....................................................
............................ 61,617
Distribution fee
payable.....................................................
.......................... 18,011
- ------------------
Total
liabilities.................................................
.................................. 1,678,312
- ------------------
Net
Assets......................................................
....................................... $314,093,623
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
....................... $ 314,094
Paid-in capital in excess of
par.........................................................
........... 313,779,529
- ------------------
Net assets at September 30,
1996........................................................
............... $314,093,623
- ------------------
- ------------------
Net asset value, offering and redemption price per share
($314,093,623 / 314,093,623 shares of $.001 par value
common stock issued and outstanding)..........
$1.00
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
- -----6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six
Months
Ended
Net Investment Income September 30,
1996
Income
Interest and discount earned............. $
11,618,655
-------------
- -----
Expenses
Management fee...........................
426,554
Distribution fee.........................
255,933
Transfer agent's fees and expenses.......
124,000
Custodian's fees and expenses............
79,000
Registration fees........................
44,000
Directors' fees..........................
18,000
Reports to shareholders..................
18,000
Audit fee and expenses...................
14,000
Legal fees and expenses..................
12,000
Insurance expense........................
5,000
Miscellaneous............................
1,631
-------------
- -----
Total expenses........................
998,118
-------------
- -----
Net investment income.......................
10,620,537
Realized Gain on Investments
Net realized gain on investment
transactions.............................
6,592
-------------
- -----
Net Increase in Net Assets
Resulting from Operations................... $
10,627,129
-------------
- -----
-------------
- -----
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) September 30, March
31,
in Net Assets 1996 1996
<S> <C> <C>
Operations
Net investment income..... $ 10,620,537 $
28,838,701
Net realized gain on
investment
transactions........... 6,592
51,244
--------------- ----------
- -----
Net increase in net assets
resulting from
operations............. 10,627,129
28,889,945
--------------- ----------
- -----
Dividends and distributions
to shareholders........... (10,627,129)
(28,889,945)
--------------- ----------
- -----
Fund share transactions
Net proceeds from shares
subscribed............. 903,375,538
2,502,344,256
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 10,627,129
28,006,679
Cost of shares
reacquired............. (1,040,750,769)
(2,565,737,717)
--------------- ----------
- -----
Net decrease in net assets
from Fund share
transactions........... (126,748,102)
(35,386,782)
--------------- ----------
- -----
Total decrease............... (126,748,102)
(35,386,782)
Net Assets
Beginning of period.......... 440,841,725
476,228,507
--------------- ----------
- -----
End of period................ $ 314,093,623 $
440,841,725
--------------- ----------
- -----
--------------- ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL
INSTITUTIONAL
LIQUIDITY
PORTFOLIO, INC.
Notes to Financial Statements (Unaudited) 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, LLC
(``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
Securities Incorporated
(``PSI''), who acts as the distributor of the Fund's shares.
The Fund reimbursed
PSI for distributing and servicing the Fund's shares
pursuant to the plan of
distribution at an annual rate of .12 of 1% of the Fund's
average daily net
assets. The distribution fee is accrued daily and payable
monthly.
PSI, 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 six months
ended September 30,
1996, the Fund incurred fees of $120,000 for the services of
PMFS. As of
September 30, 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>
PRUDENTIAL
INSTITUTIONAL
LIQUIDITY
PORTFOLIO, INC.
Financial Highlights (Unaudited) INSTITUTIONAL
MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended March 31,
September 30, ----------------------------------
PER SHARE OPERATING PERFORMANCE:
1996 1996 1995 1994
- ------------- -------- -------- --------
<S>
<C> <C> <C> <C>
Net asset value, beginning of
period............................... $ 1.000 $
1.000 $ 1.000 $ 1.000
Net investment income and net realized
gains....................... .025 .056
.046 .029
Dividends and distributions to
shareholders........................ (.025)
(.056) (.046) (.029)
- ------------- -------- -------- --------
Net asset value, end of
period..................................... $ 1.000
$ 1.000 $ 1.000 $ 1.000
- ------------- -------- -------- --------
- ------------- -------- -------- --------
TOTAL
RETURN(a):..................................................
. 2.54% 5.72% 4.69% 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $ 314,094
$440,842 $476,229 $385,023
Average net assets
(000)........................................... $
425,389 $519,946 $402,678 $445,867
Ratios to average net assets:
Expenses, including distribution
fee............................ .47%(b)
.43% .46% .48%
Expenses, excluding distribution
fee............................ .35%(b)
.31% .34% .36%
Net investment
income...........................................
4.98%(b) 5.56% 4.67% 2.87%
<CAPTION>
PER SHARE OPERATING PERFORMANCE:
1993 1992
- -------- --------
<S>
<C> <C>
Net asset value, beginning of
period............................... $ 1.000 $ 1.000
Net investment income and net realized
gains....................... .033 .054
Dividends and distributions to
shareholders........................ (.033) (.054)
- -------- --------
Net asset value, end of
period..................................... $ 1.000 $
1.000
- -------- --------
- -------- --------
TOTAL
RETURN(a):..................................................
. 3.40% 5.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $497,214
$443,172
Average net assets
(000)........................................... $543,694
$540,380
Ratios to average net assets:
Expenses, including distribution
fee............................ .44% .42%
Expenses, excluding distribution
fee............................ .32% .30%
Net investment
income........................................... 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 period reported and
includes reinvestment
of dividends and distributions. Total returns for
periods of less than a
full year are not annualized.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
9 -----
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund.
How many times have you read these letters -- or other
financial materials --
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 up to 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 -
- - sometimes very
suddenly -- 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.
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>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http:\\www.prudential.com
Directors
Edward D. Beach
Stephen C. Eyre
Delayne D. Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Richard A. Redeker
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 LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Series' portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
The accompanying financial statements as of September 30,
1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
744350109 MF137E2
