(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
- -------------------
Institutional Money
Market Series
SEMI
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Performance At A Glance.
Yields on money market securities declined sharply in the final weeks of the
six-month period that ended September 30, 1998. Investors pushed yields lower
in anticipation of a reduction in the federal funds rate, which is the rate
that banks charge each other to borrow money overnight. The Federal Reserve
lowered the key short-term rate in late September amid concern that depressed
global financial markets threatened the U.S. economic expansion. We enhanced
the returns of your Prudential Institutional Liquidity Portfolio --
Institutional Money Market Series by taking advantage of attractive buying
opportunities that occurred earlier in the period when yields were much higher.
Fund Facts As of 9/30/98
<TABLE>
<CAPTION>
7-Day Net Asset Weighted Avg. Net Assets
Current Yld. Value (NAV) Mat. (WAM) (Millions)
<S> <C> <C> <C> <C>
PILP Class A 5.44% $1.00 47 Days $ 218.5
PILP Class I 5.49% $1.00 47 Days $1,256.8
IBC Financial Data
Institutional Avg. 5.33% $1.00 48 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 not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although PILP seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in PILP.
* IBC Financial Data reports a seven-day current yield, NAV, and WAM on
Tuesdays. This is the data of all funds in the International Business
Communications (IBC) Financial Data Institutional Average (1st & 2nd Tier)
category as of September 29, 1998.
Money Fund Yields Through September
(GRAPH)
How Investments Compared.
(As of 9/30/98)
(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 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.
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.
<PAGE>
Manolita Brasil, 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. We
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 Series will achieve its investment goal.
New Manager.
Manolita Brasil began managing the Series last May. A 17-year veteran of
Prudential's money market desk, Ms. Brasil also manages the $1.6 billion P-B
International Money Fund and the $900 million Prudential Series Fund -- Money
Market Portfolio.
Strategy Session.
- -------------------------------------------------------------------------------
The Fed Shifts Course.
The past six months saw a major shift in U.S. monetary policy. The Federal
Reserve began the reporting period in April considering the need for higher
short-term interest rates. By late September, however, the U.S. central bank
had reversed course and actually lowered the federal funds rate by a quarter
percentage point to 5.25%. This was the first rate cut in more than two and a
half years.
Behind this change in monetary policy was concern that the continued global
financial crisis might derail the U.S. economic expansion. In the first three
months of the year, the economy had expanded so rapidly that it risked sparking
higher inflation. Thus the Federal Reserve stood ready in the spring to
increase the federal funds rate to cool off the economy and keep inflation in
check. However, economic growth slowed in the second quarter as financial
turmoil in Asia caused overseas demand for American-made goods to dwindle.
This trend, among other factors, led Fed policy makers to abandon their bias
toward higher short-term rates at their mid-August meeting.
August was a particularly challenging month for the financial markets. The
devaluation of the Russian ruble in August was quickly followed by the default
on some ruble-denominated Russian government bonds. Concerned that Russia's
woes were spreading to other emerging market economies, investors sold stocks
and riskier bonds and purchased "safe-haven" investments, including some money
market securities. This flight to quality intensified price movements for
certain types of securities, which in turn discouraged active participation by
the growing ranks of risk-averse investors. Amid these turbulent market
conditions, the federal funds rate was lowered on September 29 to encourage
lenders and investors to provide businesses with money. A second reduction
of the same magnitude left the key short-term rate at 5.00% shortly after the
reporting period ended.
<PAGE>
What Went Well.
- -------------------------------------------------
"Fire-Sale" Prices.
Good buying opportunities often occur in the money markets at the end of the
quarter when concurrent factors briefly push short-term interest rates higher.
The past two quarters were no exception. For example, some companies borrowed
cash at quarter end to make their balance sheets look healthier. Their demand
for cash temporarily drove up the cost of borrowing so that money market
securities provided very attractive yields. As yields climbed at the end of
March and June, we bought one-year securities at "fire-sale" prices. These
purchases lengthened the Series' weighted average maturity (WAM) until it was
significantly longer than that of the average comparable fund, as measured by
IBC Financial Data.
And Not So Well.
- -------------------------------------------------
We Hesitated.
The Federal Reserve's bias in favor of higher short-term rates and the
resilience of the U.S. economy made us reluctant to extend the Series' WAM by
purchasing longer-term money market securities. Why buy these securities if
rates were headed higher, or so we thought. Then in early September, Fed
Chairman Alan Greenspan hinted that a federal funds rate cut might be
necessary. As a result, investors began pushing interest rates lower. The
12-month London Interbank Offered Rate (LIBOR), a widely used base rate for
many one-year securities, fell from approximately 5.50% to below five percent
in late September. In hindsight, we should have locked in yields on longer-term
money market securities in July and August before yields began to tumble.
Employing this strategy would have boosted the Series' returns and positioned
its WAM more advantageously heading into the fourth quarter.
Looking Ahead.
- -------------------------------------------------
Given that yields on securities maturing in 12 months are still much lower
than yields on shorter-term securities, we are reluctant to extend the Series'
WAM by purchasing one-year securities, at least in the near term. Meanwhile,
as financial markets remain very volatile, we are carefully watching for
disparities in the pricing of money market securities that can be used to our
advantage. Overall, we plan to cautiously position the Series versus its
competition as 1998 draws to a close.
Weighted Average Maturity Compared
To The Average Institutional Fund.
(GRAPH)
1
<PAGE>
President's Letter November 9, 1998
(PHOTO)
- -------------------------------------------------------------------------------
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the financial markets
is decidedly mixed. After setting record highs earlier, stocks, as measured by
the Dow Jones Industrial Average, experienced a series of steep sell-offs in
late summer. The market rebounded in early fall, helped by two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report. Bonds appreciated
as investors fled troubled Asian and other emerging markets for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S. economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market environment can be
challenging. That's why it is important to manage your expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial markets will always
rise and fall -- that's what markets do. Although past performance may not be
indicative of future results, stocks and bonds have, over time, consistently
produced attractive returns that have kept ahead of inflation. In fact,
investors who remained focused on the long term and did not sell during the
recent market volatility were rewarded. Stock prices, as measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix of stock, bond,
and money market mutual funds can help lessen the effects of a market downturn
over time. In fact, a well-diversified portfolio may retain or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential professional will be glad
to review your current allocations. He or she will recommend adjustments based
upon your goals, market conditions, risk tolerance, and potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds. We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL INSTITUTIONAL
September 30, 1998 LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------
Bank Notes--5.1%
American Express Centurion Bank
$3,000 5.585%, 10/13/98(b) $ 2,999,965
Comerica Bank of Detroit
10,000 5.46203%, 10/19/98(b) 9,995,291
FCC National Bank
8,000 5.19%, 1/15/99 8,000,000
First National Bank Chicago,
Illinois
8,000 5.19%, 1/14/99 8,000,000
First Union National Bank
6,500 5.59%, 2/19/99 6,500,000
KeyBank, N.A.
3,000 5.6775%, 10/13/98(b) 3,000,478
5,000 5.62%, 10/29/98(b) 4,999,127
17,000 5.60%, 12/18/98(b) 16,995,466
U.S. Bank, N.A.
6,000 5.45203%, 10/21/98(b) 5,999,736
9,000 5.48203%, 10/21/98(b) 8,999,223
--------------
75,489,286
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--2.2%
First Tennessee Bank, N.A.
9,000 5.40%, 12/16/98 9,002,683
Royal Bank of Canada
23,000 5.62375%, 10/6/98(b) 22,986,783
--------------
31,989,466
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--0.4%
Bank of Scotland
6,000 5.34%, 12/29/98 6,000,146
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--14.0%
Barclays Bank PLC
18,000 5.50953%, 10/2/98(b) 17,990,490
15,000 5.56%, 2/25/99 14,996,523
Bayerische Landesbank Girozentrale
23,000 5.24%, 10/30/98(b) 22,986,288
15,000 5.34%, 12/23/98(b) 14,994,132
Bayerishe
Hypotheken-Und-Wechsel-Bank
$5,000 5.94%, 10/22/98 $ 4,999,835
Canadian Imperial Bank of Commerce
21,000 5.55%, 2/10/99 20,996,357
13,000 5.705%, 3/30/99 12,994,168
Credit Agricole Indosuez
10,000 5.90%, 10/19/98 9,999,765
4,000 5.95%, 10/21/98 3,999,895
Credit Communal De Belgique S.A.
3,000 5.37%, 11/16/98 3,000,000
Deutsche Bank
15,000 5.55%, 2/25/99 14,997,102
10,000 5.62%, 2/26/99 9,998,056
10,000 5.63%, 2/26/99 9,996,503
10,000 5.66%, 3/3/99 9,997,991
15,000 5.64%, 3/22/99 14,995,936
Swiss Bank Corp.
20,000 5.74%, 6/11/99 19,992,035
--------------
206,935,076
- ------------------------------------------------------------
Commercial Paper--41.0%
Aetna Services, Inc.
1,000 5.56%, 10/23/98 996,602
Aon Corp.
33,773 5.60%, 10/20/98 33,673,182
9,959 5.60%, 10/22/98 9,926,467
Barton Capital Corp.
4,000 5.58%, 10/20/98 3,988,220
BBL North America, Inc.
26,000 5.31%, 12/31/98 25,651,015
BCI Funding Corp.
3,000 5.25%, 10/30/98 2,987,313
Bradford & Bingley Building
Society
3,000 5.26%, 12/29/98 2,960,988
Centric Capital Corp.
9,600 5.32%, 10/20/98 9,573,045
CIT Group Holdings, Inc.
8,000 5.24%, 12/22/98 7,904,516
2,000 5.24%, 12/23/98 1,975,838
Coca-Cola Enterprises, Inc.
5,000 5.45%, 11/19/98 4,962,910
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL INSTITUTIONAL
September 30, 1998 LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------
Commercial Paper (cont'd.)
Commerzbank U.S. Finance, Inc.
$39,000 5.52%, 10/21/98 $ 38,880,400
Countrywide Home Loan, Inc.
3,000 5.60%, 10/19/98 2,991,600
8,000 5.33%, 11/20/98 7,940,778
3,000 5.32%, 11/27/98 2,974,730
Cregem North America, Inc.
20,000 5.40%, 10/9/98 19,976,000
Delaware Funding Corp.
1,000 5.60%, 10/15/98 997,822
Den Danske Corp.
19,000 5.28626%, 11/4/98 18,905,612
First Data Corp.
35,000 6.00%, 10/1/98 35,000,000
Fleet Funding Corporation
1,700 5.60%, 10/13/98 1,696,827
Ford Motor Credit Co.
3,000 5.40%, 10/9/98 2,996,400
1,000 5.55%, 10/16/98 997,688
19,000 5.3975%, 1/14/99 19,000,000
General Motors Corp.
22,000 5.54%, 10/16/98 21,949,217
Halliburton Corp.
10,000 5.54%, 10/22/98 9,967,683
Hertz Corp.
10,000 5.54%, 10/23/98 9,966,144
Johnson Controls, Inc.
8,000 5.60%, 10/29/98 7,965,156
Merrill Lynch & Co., Inc.
3,000 5.42%, 11/13/98 2,980,578
Mont Blanc Capital Corp.
10,000 5.60%, 10/21/98 9,968,889
Monte Rosa Capital Corp.
2,000 5.60%, 10/15/98 1,995,644
20,000 5.55%, 10/26/98 19,922,917
Norwest Financial, Inc.
7,000 5.25%, 12/18/98 6,920,375
Old Line Funding Corp.
10,000 5.60%, 10/15/98 9,978,222
15,197 5.57%, 10/28/98 15,133,515
Petrofina Del, Inc.
$20,000 5.22%, 12/3/98 $ 19,817,300
Safeco Corp.
27,000 5.54%, 11/13/98 26,821,335
42,038 5.50%, 11/20/98 41,716,876
Salomon Smith Barney Holdings,
Inc.
19,000 5.52%, 11/6/98 18,895,120
Sears Roebuck Acceptance Corp.
20,000 5.50%, 10/20/98 19,941,944
Thunder Bay Funding, Inc.
3,000 5.60%, 10/26/98 2,988,333
Triple A One Funding Corp.
26,855 5.55%, 10/14/98 26,801,178
Windmill Funding Corp.
39,000 5.85%, 10/1/98 39,000,000
12,248 5.35%, 10/29/98 12,197,035
Wood Street Funding Corp.
10,000 5.42%, 10/13/98 9,981,933
1,500 5.65%, 10/13/98 1,497,175
11,569 5.55%, 11/16/98 11,486,957
--------------
604,851,479
- ------------------------------------------------------------
Loan Participations--4.4%
Alltel Corp.
5.70%, 10/22/98
(cost $48,000,000, date purchased
48,000 9/22/97)(c) 48,000,000
Intel Corp.
6.375%, 10/1/98
(cost $16,000,000, date purchased
16,000 9/30/97) 16,000,000
--------------
64,000,000
- ------------------------------------------------------------
Other Corporate Obligations--29.6%
Abbey National Treasury Services
PLC
26,000 5.50%, 2/5/99 25,992,980
33,000 5.72%, 6/11/99 32,982,477
Associates Corp. of North America
30,000 5.45%, 10/23/98 29,984,001
Chase Manhattan Corp.
6,000 5.6875%, 10/15/98(b) 6,000,090
General Electric Capital Corp.
9,000 5.46875%, 12/9/98(b) 8,997,139
36,000 5.54375%, 12/9/98(b) 36,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL INSTITUTIONAL
September 30, 1998 LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------
Other Corporate Obligations (cont'd.)
General Motors Acceptance Corp.
$44,000 5.6675%, 11/2/98(b) $ 43,995,657
Goldman Sachs Group, L.P.
5.71484%, 10/21/98
(cost $21,000,000, date purchased
21,000 6/25/97)(b)(c) 21,000,000
IBM Credit Corp.
25,000 5.47%, 12/9/98(b) 24,991,578
International Lease Finance Corp.
3,000 5.825%, 12/2/98(b) 3,005,070
Lehman Brothers Holdings, Inc.
23,000 5.59375%, 10/1/98(b) 23,000,000
Liquid Asset Backed Securities
Trust Series 1997-7
8,977 5.58594%, 10/22/98(b) 8,977,336
Series 1998-1
8,750 5.52734%, 10/26/98(b) 8,750,423
Merrill Lynch & Co., Inc.
30,000 5.585%, 10/8/98(b) 29,999,944
Morgan Stanley, Dean Witter & Co.
3,000 5.8125%, 10/15/98(b) 3,000,000
2,000 5.8125%, 11/16/98(b) 2,000,000
Restructured Asset Securities
1998-MM-3-5
5.375%, 10/30/98
(cost $3,000,000, date purchased
3,000 4/3/98)(b)/(c) 3,000,000
Restructured Asset Securities
1998-MM-8-5
31,000 5.64234%, 10/2/98(b) 31,000,000
Short-Term Repackaged Asset Trust
1997-A
5.61184%, 10/15/98
(cost $13,000,000, date purchased
13,000 12/11/97)(b)(c) 13,000,000
Short-Term Repackaged Asset Trust
1998-E
5.59375%, 10/19/98
(cost $18,000,000, date purchased
$18,000 9/23/98)(b)/(c) $ 18,000,000
SMM Trust Notes 1997-X
34,000 5.625%, 10/13/98(b) 34,000,000
Strategic Money Market Trust
1997-A
10,000 5.50%, 12/16/98(b) 10,000,000
Strategic Money Market Trust
1998-B
19,000 5.625%, 10/5/98(b) 19,000,000
--------------
436,676,695
- ------------------------------------------------------------
Time Deposit - Eurodollar--3.6%
Societe Generale
52,958 6.00%, 10/1/98 52,958,000
- ------------------------------------------------------------
U. S. Government Agency Obligations--0.5%
Federal Home Loan Mortgage Corp.
3,000 5.25%, 12/3/98 2,972,438
Federal National Mortgage
Association
5,000 5.25%, 12/23/98 4,939,479
--------------
7,911,917
- ------------------------------------------------------------
Total Investments--100.8%
(amortized cost $1,486,812,065(a)) 1,486,812,065
Liabilities in excess of other
assets--(0.8%) (11,501,859)
--------------
Net Assets--100% $1,475,310,206
--------------
--------------
</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 $103,000,000. The
aggregate value ($103,000,000) is approximately 7.0% of net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Portfolio of Investments as of September 30, 1998
(Unaudited)
- ------------------------------------------------------------
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of September 30, 1998 was as
follows:
<TABLE>
<S> <C>
Commercial Banks................................... 42.6%
Asset Backed Securities............................ 14.1
Securities Brokers & Dealers....................... 6.8
Motor Vehicle Parts................................ 6.0
Fire, Marine, Casualty Insurance................... 4.6
Business Credit (Finance).......................... 3.7
Phone Communications............................... 3.3
Accident & Health Insurance........................ 3.1
Personal Credit Institutions....................... 2.5
Computer Rental & Leasing.......................... 2.4
Bank Holding Companies............................. 1.8
Office Machines.................................... 1.7
Department Stores.................................. 1.4
Pharmaceuticals.................................... 1.3
Electronic Computer Accessories.................... 1.1
Mortgage Banks..................................... .9
Heavy Construction................................. .7
Auto Rental & Leasing.............................. .7
Surety Insurance................................... .6
Federal Credit Agencies............................ .5
Regulating Controls................................ .5
Beverages.......................................... .3
Equipment Rental & Leasing......................... .2
-----
100.8
Liabilities in excess of other assets.............. (.8)
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
<PAGE>
PRUDENTIAL INSTITTUTIONAL
Statement of Assets and Liabilities LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1998
<S> <C>
Investments, at amortized cost which approximates market value......................................... $1,486,812,065
Cash................................................................................................... 12,527
Interest receivable.................................................................................... 9,105,423
Deferred expenses and other assets..................................................................... 18,503
------------------
Total assets........................................................................................ 1,495,948,518
------------------
Liabilities
Payable for investments purchased...................................................................... 18,905,612
Dividends payable...................................................................................... 1,465,472
Accrued expenses....................................................................................... 136,152
Management fee payable................................................................................. 126,456
Distribution fee payable............................................................................... 4,620
------------------
Total liabilities................................................................................... 20,638,312
------------------
Net Assets............................................................................................. $1,475,310,206
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 1,475,310
Paid-in capital in excess of par.................................................................... 1,473,834,896
------------------
Net assets, September 30, 1998......................................................................... $1,475,310,206
------------------
------------------
Class A:
Net asset value, offering and redemption price per share
($218,499,837 / 218,499,837 shares of common stock issued and outstanding).......................... $1.00
------------------
------------------
Class I:
Net asset value, offering and redemption price per share
($1,256,810,369 / 1,256,810,369 shares of common stock issued and outstanding)...................... $1.00
------------------
------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
Net Investment Income September 30, 1998
<S> <C>
Income
Interest................................. $ 39,689,807
------------------
Expenses
Management fee........................... 1,396,896
Distribution fee--Class A................ 113,859
Transfer agent's fees and expenses....... 130,000
Custodian's fees and expenses............ 57,000
Registration fees........................ 48,000
Reports to shareholders.................. 20,000
Legal fees and expenses.................. 20,000
Audit fee and expenses................... 13,000
Insurance expenses....................... 7,000
Directors' fees.......................... 6,000
Miscellaneous............................ 4,218
------------------
Total expenses........................ 1,815,973
Less: Expense subsidy (Note 4)........... (304,040)
Management fee waiver (Note 2)........ (349,224)
Distribution fee waiver (Note 2)...... (66,418)
------------------
Net expenses 1,096,291
------------------
Net investment income....................... 38,593,516
------------------
Net Increase in Net Assets
Resulting from Operations................... $ 38,593,516
------------------
------------------
</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 1998 1998
<S> <C> <C>
Operations
Net investment income..... $ 38,593,516 $ 45,040,087
Net realized gain on
investment
transactions........... -- 5,299
--------------- ---------------
Net increase in net assets
resulting from
operations............. 38,593,516 45,045,386
--------------- ---------------
Dividends and distributions
(Note 1)
Class A................ (5,201,249) (11,814,111)
Class I................ (33,392,267) (33,231,275)
--------------- ---------------
(38,593,516) (45,045,386)
--------------- ---------------
Fund share transactions (net
of conversions) (Note 5)
Net proceeds from shares
sold................... 5,554,834,882 8,138,663,244
Net asset value of shares
issued in reinvestment
of
dividends and
distributions.......... 34,538,714 41,968,951
Cost of shares
reacquired............. (5,165,270,752) (7,607,469,838)
--------------- ---------------
Net increase in net assets
from Fund share
transactions........... 424,102,844 573,162,357
--------------- ---------------
Total increase............... 424,102,844 573,162,357
Net Assets
Beginning of period.......... 1,051,207,362 478,045,005
--------------- ---------------
End of period................ $ 1,475,310,206 $ 1,051,207,362
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements (Unaudited) 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 13 months
or less whose ratings are within the 2 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 Valuation: 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: For federal income tax purposes, each Series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series 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 Series declares all of its net investment
income and net realized short-term capital gains or losses, if any, as dividends
daily to its shareholders of record at the time of such declaration. 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. PIFM has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $349,224 ($.0002 per share) for the six months
ended September 30, 1998. The Series is not required to reimburse PIFM for such
waiver.
The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A and Class I shares of the
Fund through May 31, 1998. Prudential Investment Management Services LLC
('PIMS') became the distributor of the Fund effective June 1, 1998 and is
serving the Fund under the same terms and conditions as under the arrangement
with PSI. The Fund compensated PSI and PIMS 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. PSI and
PIMS have agreed to waive a portion (.07 of 1% of the Series' average daily net
assets) of the distribution fee, which amounted to $66,418 ($.0003 per share)
for the six months ended September 30, 1998. The Series is not required to
reimburse PSI and PIMS for such waiver. The Class A distribution fee is accrued
daily and payable monthly. No distribution or service fees are paid to PIMS as
distributor of the Class I shares of the Fund.
PSI, PIMS, PIFM and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements (Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
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 six months ended September 30,
1998, the Series incurred fees of $120,000 for the services of PMFS. As of
September 30, 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
PIFM has 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 six months ended
September 30, 1998, such reimbursement amounted to $304,040 ($.0002 per share
for Class A and I shares; .04% 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.
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>
Six months ended September 30, 1998:
Shares sold.................................. 378,882,968
Shares issued in reinvestment of dividends
and distributions.......................... 4,815,075
Shares reacquired............................ (285,904,632)
--------------
Net increase in shares outstanding before
conversion................................. 97,793,411
Shares reacquired upon conversion into Class
I.......................................... (20,106,720)
--------------
Net increase in shares outstanding........... 77,686,691
--------------
--------------
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)
--------------
--------------
<CAPTION>
Class I
- ---------------------------------------------
<S> <C>
Six months ended September 30, 1998:
Shares sold.................................. 5,175,951,914
Shares issued in reinvestment of dividends
and distributions.......................... 29,723,639
Shares reacquired............................ (4,879,366,120)
--------------
Net increase in shares outstanding before
conversion................................. 326,309,433
Shares issued upon conversion from Class A... 20,106,720
--------------
Net increase in shares outstanding........... 346,416,153
--------------
--------------
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>
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights (Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
September 30, ------------------------------------------------------------
1998 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
<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................. .027(d) .055(d) .050 .056 .046 .029
Dividends and distributions to
shareholders................... (.027) (.055) (.050) (.056) (.046) (.029)
------------- -------- -------- -------- -------- --------
Net asset value, end of period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- -------- -------- -------- -------- --------
------------- -------- -------- -------- -------- --------
TOTAL RETURN(a):.................. 2.78% 5.63% 5.16% 5.72% 4.69% 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 218,500 $140,813 $478,045 $440,842 $476,229 $385,023
Average net assets (000).......... $ 189,247 $217,881 $449,393 $519,946 $402,678 $445,867
Ratios to average net assets:
Expenses, including
distribution fee............ .20%(c)/(d) .29%(d) .46% .43% .46% .48%
Expenses, excluding
distribution fee............ .15%(c)/(d) .21%(d) .34% .31% .34% .36%
Net investment income.......... 5.48%(c)/(d) 5.42%(d) 5.03% 5.56% 4.67% 2.87%
<CAPTION>
Class I
----------------------------
July 9,
Six Months 1997(b)
Ended Through
September 30, March 31,
1998 1998
-------------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 1.000 $ 1.000
Net investment income and net
realized gains................. .028(d) .041(d)
Dividends and distributions to
shareholders................... (.028) (.041)
-------------- ---------
Net asset value, end of period.... $ 1.000 $ 1.000
-------------- ---------
-------------- ---------
TOTAL RETURN(a):.................. 2.81% 4.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $1,256,810 $910,394
Average net assets (000).......... $1,203,832 $814,138
Ratios to average net assets:
Expenses, including
distribution fee............ .15%(c)/(e) .15(c)/(e)
Expenses, excluding
distribution fee............ .15%(c)/(e) .15(c)/(e)
Net investment income.......... 5.53%(c)/(e) 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>
Getting
The Most
From Your
Prudential
Mutual
Fund.
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
- -------------------------------------------------------------------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge -- sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
- -------------------------------------------------------------------------------
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just based
on the current investment fad.
- -------------------------------------------------------------------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Directors
Edward D. Beach
Stephen C. Eyre
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer, CFA
Robin B. Smith
Stephen Stoneburn
Brian M. Storms
Nancy H. Teeters
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Robert C. Rosselot, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers 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 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, 1998 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>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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