(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
Institutional Money
Market Series
ANNUAL
REPORT
March 31, 1997
(LOGO)
<PAGE>
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Performance At A Glance.
The Prudential Institutional Liquidity Portfolio -- Institutional Money Market
Series produced returns that were significantly ahead of the average money
market fund for the 12-month reporting period ending in March. PILP's 7-day
current yield stood at 5.13% on March 31, 1997, compared to 4.83% for the
average money fund tracked by IBC Financial Data.
<TABLE>
<CAPTION>
Fund Facts As of 3/31/97
7-Day Net Asset Weighted Total Net
Current Yld. Value Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C>
PILP Fund 5.13% $1.00 69 Days $478.0
IBC Financial Data
Money Fund Avg 4.83 1.00 53 Days N/A
(All Taxable)*
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee 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 829 funds in the
International Business Communications Financial Data all taxable money fund
category as of March 31, 1997.
How Investments Compared.
(As of 3/31/97)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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 return averages 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. Unlike bond funds, bonds, if held to maturity, generally
offer a fixed rate of return and fixed principal value.
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.
Money Fund Yields Fell Then Stabilized.
- -- PILP - Institutional Money Market Series
- -- IBC Financial Data Money Fund Avg. (All Taxable)
(GRAPH)
<PAGE>
Robert L. Wofchuck, Fund Manager
Portfolio
Manager's Report
(PHOTO)
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. We
typically purchase 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.
Lower Fees, Longer Hours For You!
On June 2, 1997, the Series lowered its fees and extended its hours for
deposits and withdrawals. The Series' new expense ratio is .20 of 1% per year,
which is significantly lower than the fee charged by the average institutional
money market fund tracked by IBC Financial Data. Deposits and withdrawals are
now being accepted through 4 p.m. New York time.
These actions, approved by the Series' Board, were taken to enhance your yield
and for your convenience. For more details please refer to the prospectus
supplement.
Strategy Session.
Waiting Out The Fed.
Our strategy throughout the 12-month reporting period was to seek high yields
while maintaining the investment flexibility to respond to changing market
conditions. During much of the year we kept our weighted average maturity (WAM)
longer than the average money market fund because we believed there was value
in longer term securities.
The nation's financial markets were fairly quiet from September 30 through
year-end, and interest rates fluctuated far less than they did earlier in
1996, as investors came to realize that the Federal Reserve would leave
interest rates unchanged for the remainder of the year. Of course, the Federal
Reserve seeks to promote moderate, non-inflationary growth by raising or
lowering the federal funds rate (what banks charge each other for overnight
loans). Correctly anticipating these moves is one way your Series seeks to
enhance return.
Early in 1997, signs of a strengthening economy were once again making it
likely that the Federal Reserve would increase short-term interest rates. In
response, we began to purchase shorter term securities of three months or
less. This move gave us more investment flexibility than before, although it
did not shorten the WAM substantially. If the Federal Reserve acted to
increase rates, we could now quickly reinvest in securities with higher
yields.
The Federal Reserve raised the federal funds rate on March 25, 1997, by one-
quarter of a percentage point to 5.50%. It was the first increase in two
years. The central bank explained it was "taken in light of persisting
strength in demand," which could increase "inflationary imbalances" and
undermine the country's six-year economic expansion. The action was widely
expected by investors.
<PAGE>
What Went Well.
We Kept Our Course.
We followed a conservative investment policy during the 12-month reporting
period ending in March. We were not swayed by the mood swings that gripped
the financial markets at the slightest hint of a Federal Reserve interest
rate hike. As the yield curve steepened during the year and the yield
difference between three-month and one-year securities increased, we saw value
in one-year securities and we bought them. We believed then (and now) that the
yields offered by these securities would be competitive even if the central
bank raised rates.
Of course, our thinking was based upon a modest increase in rates. Based upon
our research and knowledge of recent Federal Reserve history, we believed any
increase would follow a slow and deliberate pattern, similar to that followed
several years ago when the central bank was lowering interest rates. We were
right. On March 25, 1997, the central bank did increase the federal funds rate
by only 25 basis points (a basis point is 1/100th of a percentage point).
Barbelling.
Early in 1997, while we were still biased toward one-year securities, we
altered our strategy and focused on buying high-quality short-term (three
months or less) securities. Holding short-term securities and long-term
securities while avoiding those in between, is called "barbelling."
Barbelling allows the Fund to take advantage of high relative rates in the
one-year sector, while still maintaining investment flexibility should the
Federal Reserve tighten monetary policy.
And Not So Well.
We should have invested more in shorter term securities earlier in 1997. It
would have placed us in a better position to capture additional yield when
the Federal Reserve raised rates on March 25.
Looking Ahead.
The U.S. economy is definitely strengthening: First quarter Gross Domestic
Product (the total value of goods and services produced by the nation) came
in at a robust 5.6% -- the strongest in nine years; the unemployment rate in
April fell to 4.9% -- the lowest in 23 years; and inflation remained benign.
While this is great news for those looking for a job, it may also mean that
higher interest rates are on the way. The Federal Reserve seeks to promote
steady economic growth with low levels of inflation. We believe the economy's
growth, coupled with perceived inflationary pressures, will most likely lead
to additional interest rate increases in the months ahead. We also believe
these increases will be modest in nature. We have positioned the Series
accordingly.
Weighted Average Maturity Is Compared
To The Average Fund.
- -- PILP - Institutional Money Market Series
- -- IBC Financial Data All Taxable Money Fund Average
(GRAPH)
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter May 14, 1997
(PHOTO)
We're On Your Side
Dear Shareholder:
The past few months were mixed for most U.S. stock and bond investors. The
recent news was good: The Dow Jones Industrial Average set several record
highs in May and long-term interest rates were easing. The average stock and
bond mutual fund finished the four-month period ending in April in positive
territory. It was a different story only a few weeks earlier when the Dow
declined significantly from another record high set in mid-March, and long-
term interest rates were at the highest levels in six months.
The reasons behind these recent market swings have been widely publicized --
higher interest rates and inflationary pressures. And while we are watching
market developments closely, we are also very concerned about you and how
you're dealing with events. We realize that staying the course during times of
market uncertainty isn't easy. Here are some thoughts that may help:
- - Keep Your Expectations Realistic. The best investors know that financial
markets rise and fall -- and so too, will the value of their investments.
Over time, however, stocks have been shown to produce very attractive
returns that were well ahead of inflation.
- - Remember Your Time Horizon. If your investment goals are long term (several
years or more), your time horizon should also be long term. During this
period, it's not unusual for stocks and bonds to experience several periods
of market uncertainty.
- - We're On Your Side. Your Prudential Securities Financial Advisor or
Prudential Registered Representative can help you understand what's
happening in the financial markets. They can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and
long-term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- -------------------------------------------------------------------------------
2
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments LIQUIDITY PORTFOLIO, INC.
as of March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--11.1%
American Express Centurion Bank
$4,000 5.4075%, 4/9/97 (b) $ 4,000,000
1,000 5.4075%, 4/14/97 (b) 999,913
1,000 5.49734%, 4/22/97 (b) 999,928
Comerica Bank
2,000 5.3375%, 4/7/97 (b) 1,998,933
7,000 5.3325%, 4/11/97 (b) 6,995,901
FCC National Bank
3,000 5.77%, 4/15/97 2,999,934
First Bank National Association
4,000 5.3575%, 4/16/97 (b) 3,998,405
1,000 5.37266%, 4/16/97 (b) 999,609
4,000 5.585%, 4/16/97 (b) 4,000,000
First Union National Bank of North
Carolina
5,000 5.95%, 6/6/97 5,003,021
Morgan Guaranty Trust Co.
13,000 5.38281%, 5/14/97 (b) 12,994,106
NBD Bank, N.A.
2,000 6.50%, 5/27/97 2,003,036
PNC Bank, N.A.
6,000 5.3575%, 4/1/97 6,000,000
------------
52,992,786
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--0.8%
Canadian Imperial Bank of Commerce
1,000 5.45%, 4/1/97 1,000,000
CoreStates Bank, N.A.
1,000 5.38875%, 4/18/97 (b) 999,677
1,000 5.5325%, 4/23/97 (b) 1,000,000
First Union National Bank of North
Carolina
1,000 5.67%, 4/28/97 999,960
------------
3,999,637
Certificates Of Deposit - Eurodollar--3.2%
Abbey National Treasury Services PLC
$3,000 5.42%, 4/24/97 $ 3,000,043
Bank of Scotland
3,000 5.94%, 6/10/97 3,001,248
Bayerische Landesbank Girozentrale
3,000 5.50%, 6/9/97 3,000,416
Berliner Handels Und Frankfurt Bank
6,000 5.62%, 8/11/97 6,000,215
------------
15,001,922
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--12.1%
Banque Nationale de Paris
3,000 5.58%, 4/2/97 2,999,991
14,000 5.43%, 5/5/97 14,000,381
Chase Manhattan Bank
19,000 5.43%, 5/6/97 19,000,000
Deutsche Bank
2,000 5.69%, 10/28/97 1,999,654
Landesbank Hessen-Thuringen
Girozentrale
5,000 6.01%, 7/18/97 5,004,621
Royal Bank of Canada
2,000 5.725%, 10/17/97 1,999,584
Societe Generale
5,000 5.85%, 5/13/97 5,001,361
Swiss Bank Corp.
8,000 5.98%, 3/19/98 7,998,525
------------
58,004,117
- ------------------------------------------------------------
Commercial Paper--49.5%
ABN-AMRO North America Finance, Inc.
1,850 5.90%, 4/3/97 1,849,394
AC Acquisition Holding Co.
1,000 5.36%, 5/9/97 994,342
Aetna Services, Inc.
3,000 5.60%, 5/7/97 2,983,200
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments LIQUIDITY PORTFOLIO, INC.
as of March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
American Honda Finance Corp.
$1,000 5.38%, 4/8/97 $ 998,954
5,000 5.37%, 4/23/97 4,983,592
Aristar, Inc.
1,000 5.65%, 4/1/97 1,000,000
1,045 5.65%, 4/4/97 1,044,508
Asset Securitization Cooperative
Corp.
4,000 5.80%, 4/11/97 3,993,556
Barton Capital Corp.
15,000 5.55%, 4/30/97 14,932,937
3,000 5.75%, 5/6/97 2,983,229
2,867 5.34%, 5/9/97 2,850,840
Caterpillar Financial Services Corp.
5,000 5.38%, 4/28/97 4,979,825
1,000 5.35%, 5/16/97 993,313
2,000 5.35%, 6/16/97 1,977,411
Coca-Cola Enterprises, Inc.
6,000 5.33%, 5/7/97 5,968,020
Columbia/HCA Healthcare Corp.
8,000 5.39%, 4/4/97 7,996,407
CoreStates Financial Corp.
1,000 5.62625%, 4/24/97 (b) 1,000,000
Corporate Receivables Corp.
3,000 5.37%, 6/10/97 2,968,675
Countrywide Home Loans, Inc.
17,173 5.67%, 5/13/97 17,059,401
Creditanstalt Finance
1,000 5.40%, 4/4/97 999,550
CXC, Inc.
3,000 5.35%, 5/12/97 2,981,721
2,000 5.45%, 5/15/97 1,986,678
1,000 5.60%, 6/23/97 987,089
Delaware Funding Corp.
4,000 5.45%, 5/14/97 3,973,961
Eiger Capital Corp.
3,000 5.69%, 4/28/97 2,987,197
Enterprise Funding Corp.
6,000 5.33%, 5/7/97 5,968,020
Falcon Asset Securitization Corp.
4,000 5.75%, 4/30/97 3,981,472
Finova Capital Corp.
$2,000 5.50%, 5/19/97 $ 1,985,333
2,000 5.61%, 5/23/97 1,983,793
First Data Corp.
3,000 5.70%, 4/29/97 2,986,700
GTE Corp.
10,000 5.45%, 4/8/97 9,989,403
1,000 6.00%, 4/11/97 998,333
Halifax Building Society
2,000 5.69%, 4/29/97 1,991,149
Indosuez North America, Inc.
6,000 5.36%, 4/15/97 5,987,493
7,000 5.37%, 4/16/97 6,984,337
JES Developments, Inc.
1,000 6.00%, 4/4/97 999,500
Kredietbank Financial Corp.
20,000 5.38%, 6/2/97 19,814,689
MCI Communications Corp.
3,000 5.45%, 7/7/97 2,955,946
6,000 5.54%, 7/7/97 5,910,437
Mckenna Triangle National Corp.
3,000 5.30%, 4/14/97 2,994,258
Merrill Lynch & Co., Inc.
13,000 5.35%, 4/9/97 12,984,544
Mitsubishi International Corp.
5,000 5.36%, 4/3/97 4,998,511
1,000 5.75%, 4/24/97 996,326
National Bank of Canada
6,000 5.41%, 7/7/97 5,912,538
Nationwide Building Society
1,000 5.35%, 4/7/97 999,108
3,000 5.35%, 5/6/97 2,984,396
14,515 5.31%, 5/13/97 14,425,080
Preferred Receivables Funding Corp.
1,865 5.34%, 4/22/97 1,859,191
3,000 5.60%, 5/27/97 2,973,867
Special Purpose Accounts Receivables Corp.
2,000 5.85%, 4/18/97 1,994,475
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments LIQUIDITY PORTFOLIO, INC.
as of March 31, 1997 INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
Texas Instruments, Inc.
$1,630 5.30%, 4/14/97 $ 1,626,880
Triple A One Funding Corp.
1,326 5.41%, 4/9/97 1,324,406
WCP Funding, Inc.
6,536 5.35%, 4/21/97 6,516,574
------------
230,600,559
- ------------------------------------------------------------
Other Corporate Obligations--23.1%
American General Finance Corp.
2,000 5.80%, 4/1/97 2,000,000
2,109 7.70%, 11/15/97 2,133,519
Associates Corp. of North America
3,000 6.74%, 6/23/97 3,008,111
2,000 6.875%, 6/30/97 2,005,934
1,500 7.75%, 11/1/97 1,517,791
2,250 8.375%, 1/15/98 2,293,824
Avco Financial Services, Inc.
3,000 5.45609%, 5/15/97 (b) 2,999,729
BP America, Inc.
1,500 8.875%, 12/1/97 1,531,321
Capita Equipment Receivable Trust
1996-1, Al
4,713 5.60%, 10/15/97 4,713,477
Ford Motor Credit Corp.
3,500 6.80%, 8/15/97 3,513,946
1,000 8.70%, 8/15/97 1,010,793
2,500 9.375%, 12/15/97 2,560,523
General Electric Capital Corp.
1,030 6.043%, 6/6/97 1,030,771
General Motors Acceptance Corp.
23,000 5.5425%, 5/2/97 (b) 22,992,929
1,000 5.68906%, 6/2/97 1,000,220
1,000 7.00%, 7/7/97 1,003,315
Goldman Sachs Group, L.P.
$21,000 5.69531%, 8/22/97 (cost $21,000,000,
date purchased 6/3/96) (b)(c) $ 21,000,000
International Lease Finance Corp.
3,250 5.96875%, 4/16/97 (b) 3,256,854
Morgan Stanley Group, Inc.
3,000 5.6875%, 4/15/97 (b) 3,000,000
2,000 5.65625%, 5/15/97 (b) 2,000,000
Norwest Financial, Inc.
2,000 6.50%, 11/15/97 2,008,859
Short-Term Card Account Trust 1996-1
18,000 5.4575%, 4/15/97 (b) 18,000,000
Short-Term Repackaged Asset Trust
1996-A
6,000 5.4375%, 4/15/97 (cost $5,999,093,
date purchased 12/27/96) (b)(c) 5,999,093
SMM Trust Notes 1997-Q
5,000 5.4375%, 4/15/97 (b) 5,000,000
Transamerica Finance Corp.
1,000 6.90%, 12/1/97 1,007,242
------------
116,588,251
- ------------------------------------------------------------
Total Investments--99.8%
(amortized cost $477,187,272(a)) 477,187,272
Other assets in excess of
liabilities--0.2% 857,733
------------
Net Assets--100% $478,045,005
------------
------------
</TABLE>
- ---------------
(a) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(b) Variable rate instrument. The maturity date presented for these instruments
is the later of the next date on which the security can be redeemed at par
or the next date on which the rate of interest is adjusted.
(c) Private placement restricted as to resale and does not have a readily
available market; the aggregate cost of such securities is $26,999,093. The
aggregate value ($26,999,093) is approximately 5.6% of net assets.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Portfolio of Investments as of March 31, 1997
- ------------------------------------------------------------
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of March 31, 1997 was as
follows:
<TABLE>
<S> <C>
Commercial Banks................................... 38.5%
Asset Backed Securities............................ 20.3
Securities Brokers & Dealers....................... 11.1
Personal Credit Institutions....................... 5.4
Finance Lessors.................................... 5.2
Business Credit (Finance).......................... 4.4
Telephone & Communications......................... 4.2
Mortgage Banks..................................... 3.6
Hospitals.......................................... 1.7
Commodity Trading.................................. 1.3
Beverages.......................................... 1.2
Equipment Rental & Leasing......................... 0.7
Accident & Health Insurance........................ 0.6
Computer Rental & Leasing.......................... 0.6
Electronics & Computers............................ 0.3
Petroleum Refining................................. 0.3
Bank Holding Companies............................. 0.2
Pharmaceuticals.................................... 0.2
-----
99.8
Other assets in excess of liabilities.............. 0.2
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
Assets March 31, 1997
<S> <C>
Investments, at amortized cost which approximates market value............................................. $477,187,272
Cash....................................................................................................... 52,974
Interest receivable........................................................................................ 3,351,142
Other assets............................................................................................... 8,888
--------------
Total assets............................................................................................ 480,600,276
--------------
Liabilities
Dividends payable.......................................................................................... 2,217,871
Accrued expenses........................................................................................... 212,258
Management fee payable..................................................................................... 94,325
Distribution fee payable................................................................................... 30,817
--------------
Total liabilities....................................................................................... 2,555,271
--------------
Net Assets................................................................................................. $478,045,005
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 478,045
Paid-in capital in excess of par........................................................................ 477,566,960
--------------
Net assets, March 31, 1997................................................................................. $478,045,005
--------------
--------------
Net asset value, offering and redemption price per share
($478,045,005 / 478,045,005 shares of $.001 par value common stock issued and outstanding).............. $1.00
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31, 1997
<S> <C>
Income
Interest and discount earned................ $ 24,655,385
--------------
Expenses
Management fee.............................. 898,786
Distribution fee............................ 539,271
Transfer agent's fees and expenses.......... 250,000
Custodian's fees and expenses............... 134,000
Registration fees........................... 75,000
Reports to shareholders..................... 60,000
Legal fees and expenses..................... 38,000
Directors' fees............................. 33,000
Audit fees and expenses..................... 25,000
Insurance expenses.......................... 12,000
Miscellaneous............................... 3,624
--------------
Total expenses........................... 2,068,681
--------------
Net investment income.......................... 22,586,704
Realized Gain on Investments
Net realized gain on investment transactions... 11,251
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 22,597,955
--------------
--------------
</TABLE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended March 31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income..... $ 22,586,704 $ 28,838,701
Net realized gain on
investment
transactions........... 11,251 51,244
--------------- ---------------
Net increase in net assets
resulting from
operations............. 22,597,955 28,889,945
--------------- ---------------
Dividends and distributions
to shareholders (Note
1)........................ (22,597,955) (28,889,945)
--------------- ---------------
Fund share transactions
Proceeds from shares
subscribed............. 2,069,514,977 2,502,344,256
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 21,346,132 28,006,679
Cost of shares
reacquired............. (2,053,657,829) (2,565,737,717)
--------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions..... 37,203,280 (35,386,782)
--------------- ---------------
Total increase (decrease).... 37,203,280 (35,386,782)
Net Assets
Beginning of year............ 440,841,725 476,228,507
--------------- ---------------
End of year.................. $ 478,045,005 $ 440,841,725
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series (the 'Fund') is registered under the Investment Company Act of 1940 as an
open-end, diversified management investment company. The investment objective of
the Fund is high current income consistent with the preservation of principal
and liquidity. The Fund invests primarily in money market instruments maturing
in thirteen months or less whose ratings are within the two highest ratings
categories by a nationally recognized statistical rating organization or, if not
rated, are of comparable quality. The ability of the issuers of the securities
held by the Fund to meet their obligations may be affected by economic
developments in a specific industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuations: Portfolio securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund declares all of its net investment income
and net realized short-term capital gains/losses, if any, as dividends daily to
its shareholders of record at the time of such declaration. Net investment
income for dividend purposes includes interest accrued or discount earned less
amortization of premium and the estimated expenses applicable to the dividend
period. The Fund does not expect to realize long-term capital gains or losses.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .20 of 1% of the average daily net assets of the Fund.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), who acts as the distributor of the Fund's shares. The Fund reimbursed
PSI for distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .12 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended March 31, 1997, the
Fund incurred fees of $240,000 for the services of PMFS. As of March 31, 1997,
$20,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
- --------------------------------------------------------------------------------
-----
9
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights INSTITUTIONAL ONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized gains....................... .050 .056 .046 .029 .033
Dividends and distributions to shareholders........................ (.050) (.056) (.046) (.029) (.033)
-------- -------- -------- -------- --------
Net asset value, end of year....................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):................................................... 5.16% 5.72% 4.69% 2.92% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)...................................... $478,045 $440,842 $476,229 $385,023 $497,214
Average net assets (000)........................................... $449,393 $519,946 $402,678 $445,867 $543,694
Ratios to average net assets:
Expenses, including distribution fee............................ .46% .43% .46% .48% .44%
Expenses, excluding distribution fee............................ .34% .31% .34% .36% .32%
Net investment income........................................... 5.03% 5.56% 4.67% 2.87% 3.28%
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Report of Independent Accountants INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market
Series
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Institutional Liquidity
Portfolio, Inc.--Institutional Money Market Series (the 'Fund') at March 31,
1997, the results of its operations and the changes in its net assets and the
financial highlights for the year then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at March 31, 1997 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The accompanying Statement of Changes in Net Assets for the
year ended March 31, 1996, and Financial Highlights for each of the four years
in the period ended March 31, 1996 were audited by other independent
accountants, whose opinion dated May 9, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 28, 1997
- --------------------------------------------------------------------------------
-----
11
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Supplemental Proxy Information INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Institutional Liquidity
Portfolio, Inc.--Institutional Money Market Series (The 'Fund') was held on
Wednesday, October 30, 1996 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Stephen C. Eyre, Delayne
Dedrick Gold, Robert F. Gunia, Don G. Hoff, Robert E. LaBlanc, Mendel A.
Melzer, Richard A. Redeker, Robin B. Smith, Stephen Stoneburn and Nancy H.
Teeters.
(2) To approve changes to investment restrictions of the Fund as follows:
(a) To amend the Fund's restrictions regarding shares of other investment
companies.
(b) To amend the Fund's restrictions regarding unseasoned issuers.
(c) To amend the Fund's restrictions regarding restricted and illiquid
securities.
(d) To amend the Fund's restrictions regarding bank obligations.
(e) To eliminate the restriction regarding investment in securities owned by
directors or officers.
(3) To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the fiscal year ended March 31, 1997.
The results of the proxy solicitation on the above matters were as follows:
Director/Matter Votes for Votes against Abstentions
- --------------- ----------- ------------- -----------
(1) Edward D. Beach 219,877,294 -- 549,787
Stephen C. Eyre 219,877,294 -- 549,787
Delayne Dedrick Gold 219,877,294 -- 549,787
Robert F. Gunia 219,877,294 -- 549,787
Don G. Hoff 219,877,294 -- 549,787
Robert E. LaBlanc 219,877,294 -- 549,787
Mendel A. Melzer 219,877,294 -- 549,787
Richard A. Redeker 219,877,294 -- 549,787
Robin B. Smith 219,877,294 -- 549,787
Stephen Stoneburn 219,877,294 -- 549,787
Nancy H. Teeters 219,877,294 -- 549,787
(2) Amendment Restrictions:
a. regarding shares of
other investment
companies 157,381,791 5,546,234 284,494
b. regarding unseasone
issuers 157,417,22 5,682,550 112,747
c. regarding restricted
and illiquid
securities 158,173,882 4,925,890 112,747
d. regarding bank
obligations 149,941,590 13,158,182 112,747
e. Eliminate restriction
regarding investment
in securities owned by
directors/officers 157,411,159 5,688,613 112,747
(3) Deloitte &
Touche LLP 208,489,310 11,825,024 112,747
- --------------------------------------------------------------------------------
-----
12
<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>
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 Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Investments 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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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
