(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
Institutional Money
Market Series
ANNUAL
REPORT
March 31, 1998
(LOGO)
<PAGE>
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Performance At A Glance.
With the U.S. economy surging ahead over the past
12 months, many investors
expected a federal funds rate increase to rein in
economic growth and head off
inflationary pressures. As it turned out, monetary
policy remained unchanged as
inflation fell to levels not seen since the early
1950s. The Prudential
Institutional Liquidity Portfolio -- Institutional
Money Market Series surpassed the return of
comparable money funds by moving quickly to lock
in higher yields during times when investor
expectations drove short-term yields higher.
Fund Facts As of
3/31/98
<TABLE>
<CAPTION>
7-Day Net Asset
Weighted Avg Net
Current Yld. Value
(NAV) Mat. (WAM) Assets (mil.)
<S> <C> <C>
<C> <C>
PILP Class A 5.52% $1.00
76 Days $140.8
PILP Class I 5.57 1.00
76 Days 910.4
IBC Financial Data
Institutional Avg. 5.30 1.00
51 Days N/A
(1st & 2nd Tier)*
</TABLE>
Note: Yields will fluctuate from time to time and
past performance is not
indicative of future results. An investment in
PILP is neither insured nor
guaranteed by the U.S. government and there can be
no assurance that PILP will
be able to maintain a stable $1 net asset value
per share.
*This is the average seven-day current yield, NAV
and WAM of all funds in the
International Business Communications Financial
Data's institutional money
fund category as of March 31, 1998.
How Investments Compared.
(As of 3/31/98)
(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 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.
U.S. Taxable Money 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.
(GRAPH)
<PAGE>
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 Portfolio holds 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 rating
categories by at least two
major, independent rating agencies, or if not
rated, deemed to be of equivalent
quality by our credit research staff. There can be
no assurance that the
Portfolio will achieve its investment goal.
Thanks
A Billion!
Last June, we reduced the Portfolio's fees and
extended our hours for
purchases and redemptions. Your response was
heartening as the Portfolio's
assets climbed to more than $1 billion by the
close of the reporting period.
Strategy Session.
- -------------------------------------------------
We Found Opportunity.
Over the 12 months ended March 31, the U.S. has
benefited from the best of both
worlds -- brisk economic growth coupled with low
inflation. Growth has been so
strong that many market participants believed from
time to time that U.S.
central bankers would raise the federal funds rate
(what banks charge each
other for overnight loans ) to cool off the
economy. But each time their fears
would subside as news of tame inflation kept
monetary policy unchanged. During
one of these episodes in the spring of '97, we
bought nine-month to one-year
securities. We were pleased with these purchases,
particularly when yields fell
during the summer.
Last fall saw another such episode occur. In early
October, a large gain in a
key inflation barometer prompted speculation that
a change in monetary policy
was imminent. This belief faded, however, when
financial turmoil embroiled
Asian markets and soon rattled global markets in
late October. Investors
correctly assumed the Federal Reserve would not
act while uncertain about the
impact of Asian difficulties on U.S. economic
growth.
Nervous investors sought refuge in the U.S.
markets for their relative safety
in the aftermath of the Asian crisis. Initially
this demand caused short-term
yields to fall. But in December, typical year-end
funding pressures resulted
in higher yields on some money market securities.
Of course, we moved quickly
to take advantage of this buying opportunity.
These purchases allowed us to
stay on the sidelines from January through mid-
February as yields came tumbling
down because of the belief that Asian problems
would slow the U.S. economy
enough to warrant a federal funds rate cut. In
late February however, Federal
Reserve Chairman Alan Greenspan hinted that
monetary policy would remain
unchanged, and short-term yields began to climb.
<PAGE>
What Went Well.
- -------------------------------------------------
Just In Time.
Anticipating a federal funds rate increase in
November, investors began to
drive money market yields higher in early October
until the one-year London
Interbank Offered Rate (LIBOR) reached 6.10%. We
locked in higher yields by
purchasing one-year securities that extended the
Portfolio's weighted average
maturity (WAM) to about 60 days, which was longer
than our competition.
We made this move just in time because money
market yields began to slide
several days later when news of severe economic
difficulties in Southeast Asia
jolted financial markets around the world. On
October 27, the Dow Jones
Industrial Average plunged a record 554 points.
Emerging market bonds, and to
a lesser extent U.S. corporate bonds, were also
hard hit. As some investors
fled to U.S. money market securities, the one-year
LIBOR fell to nearly 5.85%.
Yields also plummeted because investors realized a
federal funds rate increase
would not occur in November.
And Not So Well.
- -------------------------------------------------
The Rate Increase That Wasn't.
The Federal Reserve raised the federal funds rate
by a quarter percentage point
to 5.50% on March 25, 1997. Like many, we
expected a second rate increase over
the past 12 months to slow the economy and cut off
inflation. But that was not
to be. With inflation nearly dormant, U.S. central
bankers would have been
hard-pressed to justify a short-term rate rise.
Thus monetary policy remained
on hold, which meant we could have enhanced the
Portfolio's returns even more
by purchasing securities that kept the WAM longer
than our competition
throughout the year. Instead, we allowed the WAM
to shorten on several
occasions in anticipation of a federal funds rate
increase that never occurred.
Looking Ahead.
- -------------------------------------------------
While inflation in the U.S. remained in check,
continued robust economic growth
could reignite mounting inflationary pressures
later in the year. Based on
experience, we believe the Federal Reserve prefers
to act sooner rather than
later when it comes to inflation. The central bank
could raise the federal
funds rate this year. Accordingly, we are
targeting money market securities
with yields that factor in the risk of higher
short-term rates down the road.
Weighted Average Maturity Is Compared
To The Average Fund.
(GRAPH)
1
<PAGE>
President's Letter
May 15, 1998
- --------------------------------------------------
- -----------------------------
(PHOTO)
See You On the Net!
Dear Shareholder:
We are proud to be part of the worldwide web and
we invite you to visit our
two web sites, if you have not already done so.
Yes, we currently offer two
sites -- each with its own distinctive identity.
http://www.prudential.com
The Prudential web site features information on
personal investing, retirement
planning, commercial and residential real estate
opportunities, as well as
insurance products for life, health, home and
property.
You can look up performance data on your
Prudential mutual funds, learn about
proven investment strategies, or take one of our
many interactive quizzes that
will help guide you in determining long-term goals
- -- like how much to save
for your child's college education or for your
retirement.
http://www.prusec.com
The Prudential Securities Virtual Branch Office is
a full-service brokerage
web site specifically designed to provide
investors with the information they
need to make informed financial decisions. It was
rated the No. 1 full-service
brokerage web site of its type by Financial Net
News (February 1998), a
subsidiary of Institutional Investor magazine, and
was also rated among the
top corporate web sites by Fortune magazine
(Winter 1998).
What investors can find here are -- daily market
commentaries, stock quotes,
economic forecasts, product news, and current
market research, in addition to
interactive investing programs. Investors, through
their Prudential Securities
Financial Advisors, may also enroll in Prudential
Online(R) and have access to
their personal account information which includes
balances, security values,
transactions and account activities. They can also
easily E-mail their
Financial Advisor.
Both sites also contain professional opportunities
for people who are searching
for employment or considering a change of career
paths.
We plan to make further enhancements to our web
pages as the year progresses.
So please, the next time you are "web browsing" or
"surfing the net," pay us a
visit. Let us know what you think and what you'd
like to see added in the
future.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Portfolio of Investments as of
March 31, 1998
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
---------------------------------------------
- ---------------
Bank Notes--7.6%
American Express Centurion Bank
$3,000 5.6475%, 4/13/98(b)
$ 2,999,817
Bank of New York
2,000 5.94%, 6/30/98
2,000,172
Comerica Bank of Detroit
3,000 6.175%, 5/27/98
3,001,406
CoreStates Bank, N.A.
3,000 5.6275%, 4/9/98(b)
3,000,026
FCC National Bank
9,000 5.55188%, 4/2/98(b)
8,998,235
First Union National Bank
6,500 5.59%, 2/19/99
6,500,000
First USA Bank
3,000 5.7375%, 4/15/98(b)
3,000,207
KeyBank, N.A.
3,000 5.64625%, 4/13/98(b)
3,001,320
5,000 5.54%, 4/29/98(b)
4,997,795
17,000 5.52%, 6/18/98(b)
16,990,526
U.S. Bank, N.A.
4,000 5.6075%, 4/10/98(b)
3,999,962
6,000 5.5575%, 4/15/98(b)
5,997,321
9,000 5.5875%, 4/15/98(b)
8,997,002
Wachovia Bank, N.A.
6,000 6.14%, 6/1/98
6,000,000
- --------------
79,483,789
- --------------------------------------------------
- ----------
Certificates Of Deposit - Eurodollar--1.2%
Creditanstalt Bankverein
3,000 5.59%, 5/12/98
3,000,016
Westdeutsche Landesbank
Girozentrale
9,000 5.82%, 8/3/98
8,997,632
- --------------
11,997,648
- --------------------------------------------------
- ----------
Certificates Of Deposit - Yankee--18.9%
Bank Of Nova Scotia
7,000 5.50%, 5/26/98
6,998,400
Banque Nationale de Paris
5,000 5.52%, 5/5/98
4,999,450
Barclays Bank PLC
$15,000 5.56%, 2/25/99
$ 14,992,195
Bayerische Landesbank Girozentrale
15,000 5.5275%, 6/23/98(b)
14,987,924
Bayerishe
Hypotheken-Und-Wechsel-Bank
5,000 5.94%, 10/22/98
4,998,398
Canadian Imperial Bank of Commerce
21,000 5.55%, 2/10/99
20,991,306
13,000 5.705%, 3/30/99
12,988,239
Commerzbank
5,000 5.97%, 8/17/98
4,999,458
Credit Agricole Indosuez
5,000 5.87%, 8/10/98
4,999,142
10,000 5.90%, 10/19/98
9,997,368
4,000 5.95%, 10/21/98
3,998,937
Deutsche Bank
15,000 5.55%, 2/25/99
14,993,494
10,000 5.62%, 2/26/99
9,995,653
10,000 5.63%, 2/26/99
9,992,179
10,000 5.66%, 3/3/99
9,995,589
15,000 5.64%, 3/22/99
14,991,612
National Westminster Bank PLC
3,000 6.06%, 5/26/98
2,999,784
Royal Bank of Canada
5,000 5.91%, 6/17/98
4,999,395
Societe Generale
5,000 6.19%, 5/6/98
4,999,716
1,000 6.105%, 5/26/98
1,000,277
13,000 6.01%, 6/16/98
12,999,224
7,000 5.88%, 7/17/98
6,999,607
- --------------
198,917,347
- --------------------------------------------------
- ----------
Commercial Paper--35.3%
American Home Products Corp.
10,000 5.51%, 6/11/98
9,891,331
Aon Corp.
4,025 5.60%, 5/18/98
3,995,573
Barton Capital Corp.
1,500 5.65%, 4/14/98
1,496,940
6,000 5.57%, 4/24/98
5,978,648
2,702 5.64%, 4/24/98
2,692,264
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Portfolio of Investments as of
March 31, 1998
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
---------------------------------------------
- ---------------
Commercial Paper (cont'd.)
$3,430 5.61%, 4/30/98
$ 3,414,499
2,500 5.57%, 5/22/98
2,480,273
BBL North America, Inc.
4,500 5.55%, 5/19/98
4,466,700
Bradford & Bingley Building
Society
3,000 5.50%, 6/25/98
2,961,042
Carnival Corp.
10,000 5.60%, 4/21/98
9,968,889
4,500 5.70%, 4/21/98
4,485,750
Centric Capital Corp.
15,000 5.70%, 4/7/98
14,985,750
10,000 5.64%, 4/30/98
9,954,567
7,200 5.54%, 5/26/98
7,139,060
CIT Group Holdings, Inc.
11,000 5.52%, 6/2/98
10,895,427
Coca-Cola Enterprises, Inc.
5,000 5.63%, 5/4/98
4,974,196
Commerzbank U.S. Finance, Inc.
5,300 5.54%, 5/1/98
5,275,532
CoreStates Capital Corp.
5,000 5.63188%, 4/1/98(b)
5,000,000
Corporate Asset Funding Co., Inc.
2,800 5.60%, 5/11/98
2,782,578
Corporate Receivables Corp.
1,650 5.50%, 5/21/98
1,637,281
CXC, Inc.
3,000 5.55%, 5/12/98
2,981,037
10,000 5.54%, 6/25/98
9,869,194
Duke Capital Corp.
24,000 6.25%, 4/1/98
24,000,000
Eastman Kodak Co.
7,800 5.55%, 5/27/98
7,732,660
Enterprise Funding Corp.
1,071 5.59%, 4/24/98
1,067,175
Falcon Asset Securitization Corp.
1,483 5.73%, 4/9/98
1,481,112
5,020 5.58%, 4/27/98
4,999,769
First Chicago Financial Corp.
7,000 5.46%, 5/29/98
6,938,423
General Electric Capital Corp.
35,300 5.60%, 4/27/98
35,157,231
$4,000 5.54%, 4/30/98
$ 3,982,149
14,000 5.45%, 6/3/98
13,866,475
Household International, Inc.
5.80%, 4/13/98 (cost
$4,990,333,
5,000 date purchased 3/30/98)(c)
4,990,333
Kellogg Co.
1,500 5.60%, 4/24/98
1,494,633
Market Street Funding Corp.
2,000 5.60%, 4/21/98
1,993,778
5,000 5.54%, 6/10/98
4,946,139
Mont Blanc Capital Corp.
1,769 5.55%, 4/16/98
1,764,909
15,500 5.55%, 6/25/98
15,296,885
Nationwide Building Society
10,000 5.50%, 6/26/98
9,868,611
Newell Co.
5,000 5.65%, 4/27/98
4,979,597
Nordbanken North America, Inc.
3,000 5.55%, 5/28/98
2,973,638
Old Line Funding Corp.
10,000 5.60%, 4/27/98
9,959,556
Receivables Capital Corp.
3,319 5.66%, 4/8/98
3,315,347
Salomon Smith Barney Holdings,
Inc.
24,000 5.70%, 4/17/98
23,939,200
Special Purpose Accounts
Receivable Cooperative Corp.
4,000 5.55%, 5/21/98
3,969,167
5,000 5.55%, 6/25/98
4,934,479
2,000 5.56%, 6/25/98
1,973,744
Svenska Handelsbanken, Inc.
10,000 5.51%, 5/20/98
9,925,003
Unifunding, Inc.
16,000 5.50%, 6/16/98
15,814,222
Windmill Funding Corp.
5,000 5.62%, 4/30/98
4,977,364
1,100 5.56%, 5/8/98
1,093,714
Wood Street Funding Corp.
10,000 5.59%, 4/30/98
9,954,969
6,500 5.55%, 5/19/98
6,451,900
- --------------
371,168,713
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY
PORTFOLIO, INC.
Portfolio of Investments as of
March 31, 1998
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
---------------------------------------------
- ---------------
Loan Participations--2.2%
Countrywide Home Loans, Inc.
$11,000 5.75%, 4/20/98
(cost $11,000,000, date
purchased 3/27/98)(c)
$ 11,000,000
2,000 5.75%, 4/22/98
(cost $2,000,000, date
purchased 3/27/98)(c)
2,000,000
10,000 5.75%, 4/23/98
(cost $10,000,000, date
purchased 3/24/98)(c)
10,000,000
- --------------
23,000,000
- --------------------------------------------------
- ----------
Other Corporate Obligations--28.9%
Abbey National Treasury Services
PLC
26,000 5.50%, 2/5/99
25,982,865
Associates Corp. of North America
30,000 5.63%, 4/23/98(b)
29,969,649
Chase Manhattan Corp.
6,000 5.59375%, 4/15/98(b)
6,001,271
CIT Group Holdings, Inc.
1,150 6.20%, 4/15/98
1,150,010
General Motors Acceptance Corp.
44,000 5.63234%, 5/4/98(b)
43,989,249
Goldman Sachs Group, L. P.
6.03125%, 6/22/98
(cost $21,000,000, date
purchased
21,000 6/25/97)(b)/(c)
21,000,000
IBM Credit Corp.
25,000 5.65%, 6/9/98(b)
24,983,291
Liquid Asset Backed Securities
Trust 1997-7
11,741 5.68359%, 4/22/98(b)
11,741,432
Liquid Asset Backed Securities
Trust Series 1998-1
11,624 5.6875%, 4/27/98(b)
11,623,818
Merrill Lynch & Co., Inc.
30,000 5.6475%, 4/8/98(b)
29,998,472
Morgan Stanley, Dean Witter,
Discover & Co.
3,000 5.8125%, 4/15/98(b)
3,000,000
2,000 5.88281%, 5/15/98(b)
2,000,000
Restructured Asset Securities
1997-MM-8-5
$17,000 5.6775%, 4/28/98(b)
$ 17,000,000
Short-Term Repackaged Asset Trust
1997-A
5.7095%, 4/15/98
(cost $13,000,000, date
purchased
13,000 12/11/97)(b)/(c)
13,000,000
SMM Trust Notes 1997-X
34,000 5.6875%, 4/13/98(b)
34,000,000
Strategic Money Market Trust
1997-A
10,000 5.6875%, 6/23/98(b)
10,000,000
Strategic Money Market Trust
1998-1
19,000 5.6875%, 4/6/98(b)
19,000,000
- --------------
304,440,057
- --------------------------------------------------
- ----------
Time Deposit - Eurodollar--7.1%
Bank of Montreal
33,777 6.00%, 4/1/98
33,777,000
Republic National Bank of New York
15,000 6.125%, 4/1/98
15,000,000
Societe Generale
5,000 6.1875%, 4/1/98
5,000,000
Westdeutsche Landesbank
Girozentrale
20,900 5.875%, 4/1/98
20,900,000
- --------------
74,677,000
- --------------------------------------------------
- ----------
Total Investments--101.2%
(amortized cost $1,063,684,554(a))
1,063,684,554
Liabilities in excess of other
assets--(1.2%)
(12,477,192)
- --------------
Net Assets--100%
$1,051,207,362
- --------------
- --------------
</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 $61,990,333. The
aggregate value ($61,990,333) is approximately
5.9% 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, 1998
- --------------------------------------------------
- ----------
The industry classification of portfolio holdings
and other assets in excess of
liabilities shown as a percentage of net assets as
of March 31, 1998 was as
follows:
Commercial
Banks................................... 52.0%
Asset Backed
Securities............................ 14.9
Securities Brokers &
Dealers....................... 7.6
Finance
Lessors.................................... 6.6
Business Credit
(Finance).......................... 6.1
Personal Credit
Institutions....................... 3.3
Electrical
Services................................ 2.3
Mortgage
Banks..................................... 2.2
Bank Holding
Companies............................. 1.7
Water
Transportation...............................
1.4
Pharmaceuticals...................................
. .9
Photographic
Equipment............................. .7
Beverages.........................................
. .5
Furniture.........................................
. .5
Accident & Health
Insurance........................ .4
Grain Mill
Products................................ .1
- -----
101.2
Liabilities in excess of other
assets.............. (1.2)
- -----
100.0%
- -----
- -----
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
March 31, 1998
<S>
<C>
Investments, at amortized cost which approximates
market
value.............................................
$1,063,684,554
Interest
receivable........................................
................................................
6,080,801
Due From
Manager...........................................
................................................
58,657
Deferred expenses and other
assets............................................
............................. 9,115
- --------------
Total
assets............................................
................................................
1,069,833,127
- --------------
Liabilities
Payable for investments
purchased.........................................
.................................
15,957,808
Dividends
payable...........................................
...............................................
1,316,684
Bank
overdraft.........................................
..................................................
.. 1,021,132
Accrued
expenses..........................................
.................................................
327,037
Distribution fee
payable...........................................
........................................
3,104
- --------------
Total
liabilities.......................................
................................................
18,625,765
- --------------
Net
Assets............................................
..................................................
... $1,051,207,362
- --------------
- --------------
Net assets were comprised of:
Common stock, at
par...............................................
..................................... $
1,051,207
Paid-in capital in excess of
par...............................................
......................... 1,050,156,155
- --------------
Net assets, March 31,
1998..............................................
...................................
$1,051,207,362
- --------------
- --------------
Class A:
Net asset value, offering and redemption price per
share
($140,813,146 / 140,813,146 shares of common
stock issued and
outstanding)..............................
$1.00
- --------------
- --------------
Class I:
Net asset value, offering and redemption price per
share
($910,394,216 / 910,394,216 shares of 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, 1998
<S>
<C>
Income
Interest....................................
$ 46,561,077
- --------------
Expenses
Management fee..............................
1,622,396
Distribution fee--Class A...................
261,457
Registration fees...........................
269,000
Transfer agent's fees and expenses..........
253,000
Reports to shareholders.....................
118,000
Custodian's fees and expenses...............
91,000
Legal fees and expenses.....................
60,000
Audit fee and expenses......................
25,000
Insurance expenses..........................
12,000
Directors' fees.............................
12,000
Miscellaneous...............................
9,294
- --------------
Total expenses...........................
2,733,147
Less: Expense subsidy (Note 4)..............
(756,061)
Management fee waiver (Note 2)...........
(363,091)
Distribution fee waiver (Note 2).........
(93,005)
- --------------
Net expenses
1,520,990
- --------------
Net investment income..........................
45,040,087
- --------------
Realized Gain on Investments
Net realized gain on investment transactions...
5,299
- --------------
Net Increase in Net Assets
Resulting from Operations......................
$ 45,045,386
- --------------
- --------------
</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 1998
1997
<S> <C>
<C>
Operations
Net investment income..... $ 45,040,087
$ 22,586,704
Net realized gain on
investment
transactions........... 5,299
11,251
---------------
- ---------------
Net increase in net assets
resulting from
operations............. 45,045,386
22,597,955
---------------
- ---------------
Dividends and distributions
(Note 1)
Class A................ (11,814,111)
(22,597,955)
Class I................ (33,231,275)
- --
---------------
- ---------------
(45,045,386)
(22,597,955)
---------------
- ---------------
Fund share transactions (net
of conversions) (Note 5)
Net proceeds from shares
sold................... 8,138,663,244
2,069,514,977
Net asset value of shares
issued in reinvestment
of
dividends and
distributions.......... 41,968,951
21,346,132
Cost of shares
reacquired............. (7,607,469,838)
(2,053,657,829)
---------------
- ---------------
Net increase in net assets
from Fund share
transactions........... 573,162,357
37,203,280
---------------
- ---------------
Total increase............... 573,162,357
37,203,280
Net Assets
Beginning of year............ 478,045,005
440,841,725
---------------
- ---------------
End of year.................. $ 1,051,207,362
$ 478,045,005
---------------
- ---------------
---------------
- ---------------
</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.
(the 'Fund') is registered
under the Investment Company Act of 1940 as an
open-end, diversified management
investment company. The Fund consists of two
series--the Institutional Money
Market Series (the 'Series') and the Liquid Assets
Series. The Liquid Assets
Series has not yet begun operations. The
investment objective of the Series is
high current income consistent with the
preservation of principal and liquidity.
The Series invests primarily in money market
instruments maturing in 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
Series to meet their obligations may be affected
by economic developments in a
specific industry or region.
- --------------------------------------------------
- ----------
Note 1. Accounting Policies
The following is a summary of significant
accounting policies followed by the
Fund, and the Series, in the preparation of its
financial statements.
Securities 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.
Net investment income (other than distribution
fees) and unrealized and realized
gains or losses are allocated daily to each class
of shares based upon the
relative proportion of net assets of each class at
the beginning of the day.
Federal Income Taxes: 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. Payment of dividends is made monthly. The
Fund does not expect to
realize long-term capital gains or losses.
- --------------------------------------------------
- ----------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the
subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'), doing business as
Prudential Investments ('PI',
the Subadviser or the investment adviser), PI
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 Series. Effective June
1, 1997, PIFM has agreed to waive a portion (.05
of 1% of the Series' average
daily net assets) of its management fee, which
amounted to $363,091 ($.0003 per
share) for the year ended March 31, 1998. The
Series is not required to
reimburse PIFM for such waiver.
The Fund has a distribution agreement with
Prudential Securities Incorporated
('PSI'), which acts as the distributor of the
Class A and Class I shares of the
Fund. The Fund compensates PSI for distributing
and servicing the Fund's Class A
shares, pursuant to the plan of distribution at an
annual rate of .12 of 1% of
the Series' average daily net assets of the Class
A shares. Effective June 1,
1997, PSI has agreed to waive a portion (.07 of 1%
of the Series' average daily
net assets) of its distribution fee, which
amounted to $93,005 ($.0007 per
share) for the year ended March 31, 1998. The
Series is not required to
reimburse PSI for such waiver. The Class A
distribution fee is accrued daily and
payable monthly. No distribution or service fees
are paid to PSI as distributor
of the Class I shares of the Fund.
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, 1998, the
Series incurred fees of $240,000 for the services
of
- --------------------------------------------------
- ------------------------------
9
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ------------------------------
PMFS. As of March 31, 1998, $20,000 of such fees
were due to PMFS. Transfer
agent fees and expenses in the Statement of
Operations also include certain
out-of-pocket expenses paid to nonaffiliates.
- --------------------------------------------------
- ----------
Note 4. Expense Subsidy
Effective June 1, 1997, PIFM voluntarily agreed to
subsidize operating expenses
so that total Series operating expenses do not
exceed .20% and .15% of the
average daily net assets of the Class A and Class
I shares, respectively. For
the year ended March 31, 1998, such reimbursement
amounted to $756,061 ($0.0007
per share for Class A and I shares; .11% of
average net assets, annualized).
- --------------------------------------------------
- ----------
Note 5. Capital
The Series offers Class A and Class I shares.
Class A shareholders of the Series
who qualify to purchase Class I shares will have
their Class A shares exchanged
for Class I shares on a quarterly basis. Effective
July 9, 1997, the Series
commenced offering Class I shares.
There are 10 billion authorized shares of common
stock, $.001 par value per
share, divided into 5 billion authorized Class A
shares and 5 billion authorized
Class I shares.
Transactions in shares of common stock (at $1 per
share) were as follows:
<TABLE>
<CAPTION>
Shares
and
Dollar
Class A
Amount
- --------------------------------------------- --
- ------------
<S>
<C>
Year ended March 31, 1998:
Shares sold..................................
1,563,160,572
Shares issued in reinvestment of dividends
and distributions..........................
12,370,105
Shares reacquired............................
(1,279,737,241)
--
- ------------
Net increase in shares outstanding before
conversion.................................
295,793,436
Shares reacquired upon conversion into Class
I..........................................
(633,025,295)
--
- ------------
Net decrease in shares outstanding...........
(337,231,859)
--
- ------------
--
- ------------
Year ended March 31, 1997:
Shares sold..................................
2,069,514,977
Shares issued in reinvestment of dividends
and
distributions..............................
21,346,132
Shares reacquired............................
(2,053,657,829)
--
- ------------
Net increase in shares outstanding...........
37,203,280
--
- ------------
--
- ------------
<CAPTION>
Class I
- ---------------------------------------------
<S>
<C>
July 9, 1997(a) through March 31, 1998:
Shares sold..................................
6,575,502,672
Shares issued in reinvestment of dividends
and
distributions..............................
29,598,846
Shares reacquired............................
(6,327,732,597)
--
- ------------
Net increase in shares outstanding before
conversion.................................
277,368,921
Shares issued upon conversion from Class A...
633,025,295
--
- ------------
Net increase in shares outstanding...........
910,394,216
--
- ------------
--
- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class I shares.
- --------------------------------------------------
- ------------------------------
10
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class A Class I
- --------------------------------------------------
- ---------- --------------
July 9,
1997(b)
Year Ended March 31,
Through
- --------------------------------------------------
- ---------- March 31,
1998 1997 1996 1995
1994 1998
- -------- -------- -------- --------
- -------- --------------
<S>
<C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............
$ 1.000 $ 1.000 $ 1.000 $ 1.000
$ 1.000 $ 1.000
Net investment income and net realized gains.....
.055(d) .050 .056 .046
.029 .041(d)
Dividends and distributions to shareholders......
(.055) (.050) (.056) (.046)
(.029) (.041)
- -------- -------- -------- --------
- -------- -------
Net asset value, end of period...................
$ 1.000 $ 1.000 $ 1.000 $ 1.000
$ 1.000 $ 1.000
- -------- -------- -------- --------
- -------- -------
- -------- -------- -------- --------
- -------- -------
TOTAL RETURN(a):.................................
5.63% 5.16% 5.72% 4.69%
2.92% 4.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................
$140,813 $478,045 $440,842 $476,229
$385,023 $910,394
Average net assets (000).........................
$217,881 $449,393 $519,946 $402,678
$445,867 $814,138
Ratios to average net assets:
Expenses, including distribution fee..........
.29%(d) .46% .43% .46%
.48% .15%(c)/(e)
Expenses, excluding distribution fee..........
.21%(d) .34% .31% .34%
.36% .15%(c)/(e)
Net investment income.........................
5.42%(d) 5.03% 5.56% 4.67%
2.87% 5.60%(c)/(e)
</TABLE>
- ---------------
(a) Total return is calculated assuming a purchase
of shares on the first day
and a sale on the last day of each period
reported and includes reinvestment
of dividends and distributions. Total returns
for less than a full year are
not annualized.
(b) Commencement of offering of Class I shares.
(c) Annualized.
(d) Net of management and distribution fee
waiver/expense subsidy.
(e) Net of management fee waiver/expense subsidy.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 11
<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,
1998, the results of its operations for the year
then ended and the changes in
its net assets and the financial highlights for
each of the two years in the
period then ended, in conformity with generally
accepted accounting principles.
These financial statements and financial
highlights (hereafter referred to as
'financial statements') are the responsibility of
the Fund's management; our
responsibility is to express an opinion on these
financial statements based on
our audits. We conducted our audits of these
financial statements in accordance
with generally accepted auditing standards which
require that we plan and
perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An
audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements, assessing the accounting principles
used and significant estimates
made by management, and evaluating the overall
financial statement presentation.
We believe that our audits, which included
confirmation of securities at March
31, 1998 by correspondence with the custodian and
brokers and the application of
alternative auditing procedures where
confirmations from brokers were not
received, provide a reasonable basis for the
opinion expressed above. The
accompanying financial highlights for each of the
three 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 14, 1998
- --------------------------------------------------
- ------------------------------
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: 1/100th of 1%. For example, one half
of one percent 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 maximum 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 -- 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, CFA
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Robert C. Rosselot, Assistant 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 07102-3777
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 Accountants
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
744350604
