<PAGE>
(ICON)
Prudential
Institutional
Liquidity
Portfolio, Inc.
- -----------------------
Institutional Money
Market Series
SEMI
ANNUAL
REPORT
Sept. 30, 1999
(LOGO)
<PAGE>
A Message from the Series' President November 18, 1999
(PHOTO)
Dear Shareholder,
Prudential Institutional Liquidity Portfolio--Institutional Money Market
Series provided a competitive yield and a stable $1.00 net asset value during
the six-month reporting period that ended on September 30, 1999. On that date,
the seven-day current yield was 5.20% for Class A shares and 5.25% for Class I
shares. Both were above the 5.01% for the average comparable money market fund
tracked by IBC Financial Data.
The following report takes a closer look at developments in the money markets
during our reporting period, and explains how the Series was positioned
accordingly.
One integrated and expanded team
I would like to take this opportunity to tell you about some changes we've
made to our Fixed Income Group. Earlier in the year, we combined our fixed-
income areas into one integrated group that will manage money for Prudential's
investors and policyholders. This group now manages approximately $135 billion
in assets, making it one of the three largest fixed-income money managers in
the country. Our expanded depth, breadth, and scale also allow us to tap the
best talent and share investment ideas, proprietary research, and analytical
tools.
To utilize these resources effectively, we recently organized the group into
teams, each specializing in a different sector of the fixed-income market.
The one team that was already in place is the Money Markets Sector team, which
has been headed by Joseph Tully since 1995. This team will continue to be
responsible for the day-to-day management of the Prudential Institutional
Liquidity Portfolio--Institutional Money Market Series. Many of the investment
professionals who supported the management of the Series in the past,
including Manolita Brasil, will work together to share their knowledge and
strive to enhance performance.
Thank you for your continued confidence in Prudential mutual funds. I firmly
believe that the group's combined resources and our new team approach will
make us a powerhouse in the world of fixed-income investing across all sectors.
Sincerely,
John R. Strangfeld
President
Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money
Market Series
<PAGE>
Performance Review
(PHOTO) (PHOTO)
Joseph Tully, team leader of the Money Markets Sector team, and Manolita
Brasil, a team member.
Investment Goals and Style
Prudential Institutional Liquidity Portfolio, Inc.--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 United States
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 Series will achieve its investment
objective.
Sidelined during lull in money market yields
Shortly after our six-month reporting period began on April 1, 1999, the
federal government was scheduled to retire billions of dollars of U.S.
Treasury bills between mid-April and early May. Investors scurried about
during that time in search of alternative investments, which left money
market yields hovering at low levels. Fortunately, we anticipated this
development and had purchased money market securities of banks and
corporations earlier. We, therefore, did not have to reinvest significant
amounts of cash with yields at such unattractive levels.
This lull in money market yields was followed by a sharp rise. Many investors
were growing increasingly worried that brisk economic growth in the United
States, a recovering global economy, and rising oil prices would boost
inflation, which eats into the value of debt securities' fixed interest
payments. To compensate for this risk, they drove yields on fixed-income
securities higher, which caused their prices to fall.
Buying adjustable-rate securities helped the Series
During this sell-off, money market securities of banks and corporations
cheapened relative to comparable Treasury bills, which are considered among
the world's safest investments. We viewed this development as a buying
opportunity and purchased corporate money market securities with interest
rates that adjust periodically to the London Interbank Offered Rate or
Institutional money fund yields trended higher
(GRAPH)
<PAGE>
LIBOR. (LIBOR is a widely quoted interbank lending rate.) These securities
also provided some protection against further increases in money market
yields since their coupons would reset to higher levels as yields continued
to climb.
We also bought securities maturing in one year that pay fixed interest rates.
In hindsight, the Series would have derived greater benefit had we bought
fewer one-year securities at that time and purchased more of them later in
the year when yields climbed even higher.
The Fed acted to curb U.S. economic growth
Indeed, the rise in money market yields began to accelerate in mid-May 1999
after the Federal Reserve issued a statement indicating it was considering
increasing short-term interest rates in order to curb U.S. economic growth
and prevent mounting inflation. The Fed raised the Federal funds rate (the
rate U.S. banks charge each other for overnight loans) by a quarter of a
percentage point to 5.00% on June 30, 1999. That move was followed by a
second of the same magnitude on August 24, 1999, which left the key rate
at 5.25%. This time the Fed also hiked its discount rate (the rate it charges
member banks to borrow at the discount window) to 4.75% from 4.50%.
Series' WAM could have been shorter between Fed rate hikes
In retrospect, the Series would have been even better served had its weighted
average maturity (WAM) remained shorter than that of its competition during
the interlude between the two Fed rate hikes. The WAM takes into account the
maturity of each security held in a portfolio. It is the measurement tool that
determines a portfolio's sensitivity to fluctuations in interest rates.
Because the Series experienced a one-time bout of asset volatility in the
summer of 1999, it proved very challenging to shorten the Series' WAM.
However, having a shorter-than-average WAM would have given us quicker access
to cash to purchase any higher-yielding money market securities that became
available after the Fed tightened monetary policy again in late August 1999.
Year 2000 jitters created buying opportunities
As our six-month reporting period continued, we were able to buy additional
LIBOR-based, adjustable-rate securities of banks and corporations at very
attractive levels. These securities had cheapened even more relative to
other comparable securities. We believe this development reflected overblown
concerns about potential computer problems that may occur at the beginning of
the year 2000.
Performance at a Glance
<TABLE>
<CAPTION>
Fund Facts As of 9/30/99
7-Day Net Asset Weighted Avg. Net Assets
Current Yld. Value (NAV) Mat. (WAM) (Millions)
<S> <C> <C> <C> <C>
PILP Class A 5.20% $1.00 65 Days $ 366.3
PILP Class I 5.25% $1.00 65 Days $1,303.4
IBC Financial Data
Institutional-Only Universe
Avg. (1st & 2nd Tier)* 5.01% $1.00 53 Days N/A
</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-Only Universe Avg.
(1st & 2nd Tier) category as of September 28, 1999.
- -------------------------------------------------------------------------------
1
<PAGE>
Review Cont'd.
Looking Ahead
We are closely managing the Series' investment flows through the end of 1999.
This will enable us to maximize shareholder returns and provide for
shareholder liquidity needs in late December, when we believe trading
volume will be quite low.
As for U.S. monetary policy, the Fed increased the Federal funds rate by a
quarter of a percentage point to 5.50% on November 16, 1999. The discount
rate was raised to 5.00% from 4.75%. This short-term rate hike took back the
last quarter-point rate cut of three made in 1998 during the global financial
crisis.
The Fed noted that its latest rate increase, along with the two rate hikes in
the summer of 1999 and the general rise in yields on fixed-income securities
in 1999, should "markedly diminish" the risk of inflation going forward. We
believe the U.S. central bank will leave monetary policy unchanged for the
remainder of this calendar year.
Weighted average maturity compared to the average institutional fund
(GRAPH)
Additional Performance Tracking Tools
You can access comprehensive information about the performance of your
Prudential mutual funds 24 hours a day through our Web site and automated
phone service. At www.prudential.com/investing, you'll find the daily closing
values, changes from the previous day, and quarterly performance for all of
our retail mutual funds. Other available resources include daily, monthly,
and quarterly market commentary.
Daily fund values are also a toll-free call away from any touch-tone phone.
Call (800) 225-1852 and follow the voice prompts to obtain mutual fund closing
values and yields. You can even set up a personalized "watch list" to track
specific Prudential mutual funds.
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2
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of September 30, 1999 LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Bank Notes--15.2%
American Express Centurion Bank
$14,000 5.3525%, 10/8/99(b) $ 14,000,000
7,000 5.51%, 10/12/99(b) 7,000,000
Comerica Bank of Detroit
20,000 5.28%, 10/13/99(b) 19,991,009
FCC National Bank
25,000 5.12%, 2/23/00 24,996,652
17,000 5.14%, 3/22/00 16,997,294
First Union National Bank
60,000 5.2875%, 10/20/99(b) 60,000,000
30,000 5.4125%, 11/17/99(b) 30,000,000
Harris Trust & Savings of Chicago
40,101 5.05%, 2/14/00 40,096,680
Key Bank, N.A.
7,000 5.36%, 10/18/99(b) 7,004,096
13,000 5.4225%, 12/14/99(b) 12,994,608
3,000 5.435%, 12/24/99(b) 2,998,919
U.S. Bank, N.A.
17,000 5.29%, 10/20/99(b) 16,991,537
--------------
253,070,795
- ------------------------------------------------------------
Certificates Of Deposit - Domestic--1.4%
Chase Manhattan Bank
1,000 4.77%, 12/3/99 999,495
Morgan Guaranty Trust Co.
10,900 4.63%, 10/22/99 10,897,166
12,000 5.70%, 7/19/00 12,000,000
--------------
23,896,661
- ------------------------------------------------------------
Certificates Of Deposit - Eurodollar--0.3%
ING Bank, N.V.
5,000 4.94%, 10/14/99 5,000,015
--------------
5,000,015
- ------------------------------------------------------------
Certificates Of Deposit - Yankee--11.1%
Deutsche Bank
15,000 5.01%, 1/24/00 14,998,177
5,000 4.97%, 2/2/00 4,997,848
25,000 4.98%, 2/2/00 24,997,542
Deutsche Bank
$10,000 5.10%, 2/18/00 $ 9,998,706
25,000 5.62%, 6/26/00 24,990,773
Rabobank Nederland
27,000 5.66%, 7/13/00 26,991,707
Royal Bank of Canada
50,000 4.99%, 1/31/00 49,995,178
Toronto Dominion Bank
10,000 5.02%, 2/4/00 9,999,001
8,000 5.06%, 2/10/00 7,998,884
UBS, AG
10,000 5.29%, 5/19/00 9,996,349
--------------
184,964,165
- ------------------------------------------------------------
Commercial Paper--19.9%
Aegon Funding Corp.
25,000 5.17%, 11/18/99 24,827,667
16,000 5.75%, 3/29/00 15,540,000
Barton Capital Corp.
11,642 5.45%, 10/13/99 11,620,850
6,500 5.45%, 10/15/99 6,486,224
1,609 5.50%, 10/20/99 1,604,329
4,131 5.50%, 10/21/99 4,118,378
4,949 5.50%, 10/28/99 4,928,585
15,000 5.40%, 11/12/99 14,905,500
9,000 5.42%, 11/12/99 8,943,090
Countrywide Funding Corp.
16,000 5.40%, 10/27/99 15,937,600
2,000 5.41%, 10/29/99 1,991,584
Eastman Kodak Co.
11,400 5.05%, 10/7/99 11,390,405
Enterprise Funding Corp.
11,587 5.40%, 10/21/99 11,552,239
9,133 5.25%, 10/27/99 9,098,371
5,500 5.40%, 11/29/99 5,451,325
Falcon Asset Securitization Corp.
2,693 5.40%, 10/27/99 2,682,497
Old Line Funding Corp.
33,000 5.40%, 10/7/99 32,970,300
18,700 5.40%, 10/27/99 18,627,070
15,202 5.40%, 11/15/99 15,099,387
</TABLE>
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See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of September 30, 1999 LIQUIDITY PORTFOLIO, INC.
(Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Commercial Paper (cont'd.)
PNC Funding Corp.
$16,000 5.37%, 10/13/99 $ 15,971,360
9,900 5.40%, 11/30/99 9,810,900
Preferred Receivables Funding
Corp.
21,032 5.40%, 10/27/99 20,949,975
Sony Capital Corp.
4,710 5.70%, 10/7/99 4,705,526
Triple A One Funding Corp.
17,000 5.40%, 11/10/99 16,898,000
Vodafone Airtouch PLC
21,000 5.40%, 11/29/99 20,814,150
Windmill Funding Corp.
8,000 5.41%, 10/28/99 7,967,540
Wood Street Funding Corp.
17,852 5.45%, 10/29/99 17,776,327
--------------
332,669,179
- ------------------------------------------------------------
Loan Participations--3.1%
Alltel Corp.
26,000 5.68%, 10/1/99
(cost $26,000,000, date
purchased 9/30/99) 26,000,000
John Hancock Capital Corp.
13,000 5.39%, 10/14/99(b)/(c)
(cost $13,000,000, date
purchased 1/14/99) 13,000,000
Security Life of Denver
5,000 5.38%, 10/12/99(b)/(c)
(cost $5,000,000, date
purchased 4/12/99) 5,000,000
Travelers Insurance Co.
8,000 5.34%, 10/5/99(b)/(c)
(cost $8,000,000, date
purchased 7/6/99) 8,000,000
--------------
52,000,000
- ------------------------------------------------------------
Other Corporate Obligations--41.3%
Abbey National Treasury Services
PLC
50,000 5.23875%, 10/22/99(b) 49,976,139
25,000 5.65%, 7/24/00 24,988,070
Associates Corp. of North America
$50,000 5.309%, 10/29/99(b) $ 49,973,989
6,500 8.25%, 12/1/99(b) 6,533,214
2,170 5.25%, 3/30/00(b) 2,168,123
Bank One Corp.
17,000 5.52%, 11/22/99(b) 17,000,000
Bishops Gate Residental Mortgage
Trust
13,000 5.571%, 10/1/99(b) 13,000,000
Chase Manhattan Bank
50,000 5.2875%, 10/25/99(b) 49,979,182
Chrysler Financial Co. LLC
13,000 9.50%, 12/15/99(b) 13,114,620
32,000 6.375%, 1/28/00(b) 32,133,527
CIT Group Holdings, Inc.
8,750 5.875%, 12/9/99(b) 8,762,574
Citicorp
26,000 5.405%, 10/4/99(b) 26,000,000
Citigroup, Inc.
700 6.125%, 6/15/00(b) 702,864
Commercial Credit Co.
1,000 6.00%, 10/15/99(b) 1,002,906
Daimler Chrysler North America
Hldgs.
55,000 5.2555%, 10/6/99(b) 54,945,349
Ford Motor Credit Co.
48,000 5.435%, 11/18/99(b) 47,965,786
20,000 5.49875%, 12/30/99(b) 19,980,413
5,000 5.83%, 2/28/00(b) 5,014,725
General Electric Capital Corp.
51,000 5.39%, 11/12/99(b) 51,000,000
Goldman Sachs Group, L.P.
21,000 5.72625%, 1/18/00(b)/(c)
(cost $21,000,000, date
purchased 6/3/96) 21,000,000
International Lease Finance Corp.
12,055 5.75%, 12/15/99(b) 12,070,867
Norwest Corp.
1,000 6.75%, 11/12/99(b) 1,008,542
Restructured Asset Securities
33,000 5.455%, 10/6/99(b)/(c)
(cost $33,000,000, date
purchased 9/2/99) 33,000,000
37,000 5.48%, 10/12/99(b) 37,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL INSTITUTIONAL
Portfolio of Investments as of September 30, 1999 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.)
Short-Term Repackaged Asset Trust
$18,000 5.48125%, 10/18/99(b)/(c)
(cost $18,000,000, date
purchased 9/23/98) $ 18,000,000
Strategic Money Market Trust
6,000 5.3025%, 10/6/99(b) 6,000,000
24,974 5.57%, 12/15/99(b) 24,974,000
52,000 5.61%, 12/15/99(b) 52,000,000
U.S. Bancorp
10,000 5.43%, 10/18/99(b) 10,004,318
--------------
689,299,208
- ------------------------------------------------------------
Time Deposit - Eurodollar--4.1%
Credit Communal de Belgique
13,000 5.625%, 10/1/99
(cost $13,000,000, date
purchased 9/30/99) 13,000,000
National Bank of Canada
27,087 5.625%, 10/1/99
(cost $27,087,000, date
purchased 9/30/99) 27,087,000
Societe Generale
28,000 5.625%, 10/1/99
(cost $28,000,000, date
purchased 9/30/99) 28,000,000
--------------
68,087,000
- ------------------------------------------------------------
Total Investments--96.4%
(amortized cost $1,608,987,023(a)) 1,608,987,023
Other assets in excess of
liabilities--3.6% 60,764,725
--------------
Net Assets--100% $1,669,751,748
--------------
--------------
</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 $98,000,000. The
aggregate value ($98,000,000) is approximately 5.9% of net assets.
The industry classification of portfolio holdings and other assets
in excess of liabilities shown as a percentage of net assets as of
September 30, 1999 was as follows:
Commercial Banks................................... 50.3%
Asset Backed Securities............................ 14.5
Short-Term Business Credit......................... 7.9
Motor Vehicle Parts................................ 6.0
Personal Credit Institutions....................... 3.6
Insurance.......................................... 3.5
BHC................................................ 3.2
Phone Communications............................... 2.8
Securities Brokers & Dealers....................... 1.3
Mortgage Banks..................................... 1.1
Equipment Rental & Leasing......................... 0.7
Photographic Equipment............................. 0.7
Fire, Marine, Casualty Insurance................... 0.5
Phone Records...................................... 0.3
-----
96.4
Other assets in excess of liabilities.............. 3.6
-----
100.0%
-----
-----
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Statement of Assets and Liabilities (Unaudited)
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1999
<S> <C>
Investments, at amortized cost which approximates market value......................................... $1,608,987,023
Cash................................................................................................... 881
Receivable for Fund shares............................................................................. 91,430,226
Interest receivable.................................................................................... 14,298,892
Deferred expenses and other assets..................................................................... 25,877
------------------
Total assets........................................................................................ 1,714,742,899
------------------
Liabilities
Payable for fund shares repurchased.................................................................... 42,792,361
Dividends payable...................................................................................... 1,636,614
Accrued expenses and other liabilities................................................................. 409,652
Management fee payable................................................................................. 144,691
Distribution fee payable............................................................................... 7,833
------------------
Total liabilities................................................................................... 44,991,151
------------------
Net Assets............................................................................................. $1,669,751,748
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 1,669,752
Paid-in capital in excess of par.................................................................... 1,668,081,996
------------------
Net assets, September 30, 1999......................................................................... $1,669,751,748
------------------
------------------
Class A:
Net asset value, offering and redemption price per share
($366,318,727 / 366,318,727 shares of common stock issued and outstanding).......................... $1.00
------------------
------------------
Class I:
Net asset value, offering and redemption price per share
($1,303,433,021 / 1,303,433,021 shares of common stock issued and outstanding)...................... $1.00
------------------
------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
Net Investment Income September 30, 1999
<S> <C>
Income
Interest................................. $ 53,856,678
------------------
Expenses
Management fee........................... 2,100,153
Distribution fee--Class A................ 217,464
Registration fees........................ 131,000
Transfer agent's fees and expenses....... 129,000
Custodian's fees and expenses............ 84,000
Reports to shareholders.................. 28,000
Legal fees and expenses.................. 14,000
Audit fee and expenses................... 13,000
Insurance expenses....................... 8,000
Directors' fees.......................... 5,000
Miscellaneous............................ 2,783
------------------
Total expenses........................ 2,732,400
Less: Management fee waiver (Note 2)..... (525,038)
Expense subsidy (Note 4).............. (414,974)
Distribution fee waiver (Note 2)...... (126,854)
------------------
Net expenses 1,665,534
------------------
Net investment income....................... 52,191,144
------------------
Net Increase in Net Assets
Resulting from Operations................... $ 52,191,144
------------------
------------------
</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 1999 1999
<S> <C> <C>
Operations
Net investment income..... $ 52,191,144 $ 90,223,983
Net realized gain on
investment
transactions........... -- 33,231
--------------- ---------------
Net increase in net assets
resulting from
operations............. 52,191,144 90,257,214
--------------- ---------------
Dividends and distributions (Note 1)
Class A................ (8,961,393) (12,867,746)
Class I................ (43,229,751) (77,389,468)
--------------- ---------------
(52,191,144) (90,257,214)
--------------- ---------------
Fund share transactions (net
of conversions) (Note 5)
Net proceeds from shares
sold................... 9,660,128,411 14,846,339,434
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 45,283,902 78,273,080
Cost of shares
reacquired............. (10,147,056,489) (13,864,423,952)
--------------- ---------------
Net increase (decrease) in
net assets from Fund
share transactions..... (441,644,176) 1,060,188,562
--------------- ---------------
Total increase (decrease).... (441,644,176) 1,060,188,562
Net Assets
Beginning of period.......... 2,111,395,924 1,051,207,362
--------------- ---------------
End of period................ $ 1,669,751,748 $ 2,111,395,924
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements (Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential Institutional Liquidity Portfolio, Inc. (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'); 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 to 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 $525,038 ($.0003 per share) for the six
months ended September 30, 1999. The Series is not required to reimburse PIFM
for such waiver.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A and Class I
shares of the Fund. The Fund compensates 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. PIMS
have agreed to waive a portion (.07 of 1% of the Series' average daily net
assets) of the distribution fee, which amounted to $126,854 ($.0001 per share)
for the six months ended September 30, 1999. The Series is not required to
reimburse 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.
PIMS, PIFM and PIC are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').
The Fund has an uncommitted credit agreement (the 'Agreement') with an
unaffiliated lender. The maximum commitment under the Agreement is $100,000,000.
Interest on any such borrowings outstanding will be at market rates. The purpose
of the Agreement is to serve as an alternative
- --------------------------------------------------------------------------------
8
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Notes to Financial Statements (Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
source of funding for capital share redemptions. The Fund has not borrowed any
amounts pursuant to the Agreement during the six months ended September 30,
1999. The Fund does not pay a fee for the credit facility.
- ------------------------------------------------------------
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,
1999, the Series incurred fees of $120,000 for the services of PMFS. As of
September 30, 1999, $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 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,
1999, such reimbursement amounted to $414,974 ($.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.
As of September 30, 1999, Prudential owned 2,219,340 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, 1999:
Shares sold................................. 470,681,447
Shares issued in reinvestment of dividends
and distributions......................... 8,659,764
Shares reacquired........................... (423,023,399)
---------------
Net increase in shares outstanding before
conversion................................ 56,317,812
Shares reacquired upon conversion into Class
I......................................... (51,166,289)
---------------
Net increase in shares outstanding.......... 5,151,523
---------------
---------------
Year ended March 31, 1999:
Shares sold................................. 912,064,251
Shares issued in reinvestment of dividends
and distributions......................... 11,977,599
Shares reacquired........................... (588,928,339)
---------------
Net increase in shares outstanding before
conversion................................ 335,113,511
Shares reacquired upon conversion into Class
I......................................... (114,759,453)
---------------
Net increase in shares outstanding.......... 220,354,058
---------------
---------------
<CAPTION>
Class I
- --------------------------------------------
Six months ended September 30, 1999:
Shares sold................................. 9,189,446,964
Shares issued in reinvestment of dividends
and
distributions............................. 36,624,138
Shares reacquired........................... (9,724,033,090)
---------------
Net increase in shares outstanding before
conversion................................ (497,961,988)
Shares issued upon conversion from Class
A......................................... 51,166,289
---------------
Net increase in shares outstanding.......... (446,795,699)
---------------
---------------
Year ended March 31, 1999:
Shares sold................................. 13,934,275,183
Shares issued in reinvestment of dividends
and
distributions............................. 66,295,481
Shares reacquired........................... (13,275,495,613)
---------------
Net increase in shares outstanding before
conversion................................ 725,075,051
Shares issued upon conversion from Class
A......................................... 114,759,453
---------------
Net increase in shares outstanding.......... 839,834,504
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
9
<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, ------------------------------------------------------------
1999 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
<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..... .025(c) .053(c) .055(c) .050 .056 .046
Dividends and distributions to shareholders...... (.025) (.053) (.055) (.050) (.056) (.046)
------------- -------- -------- -------- -------- --------
Net asset value, end of period................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------- -------- -------- -------- -------- --------
------------- -------- -------- -------- -------- --------
TOTAL RETURN(a):................................. 2.50% 5.39% 5.63% 5.16% 5.72% 4.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 366,319 $361,167 $140,813 $478,045 $440,842 $476,229
Average net assets (000)......................... $ 362,441 $247,471 $217,881 $449,393 $519,946 $402,678
Ratios to average net assets:
Expenses, including distribution fee.......... .20%(b)/(c) .20%(c) .29%(c) .46% .43% .46%
Expenses, excluding distribution fee.......... .15%(b)/(d) .15%(d) .21%(d) .34% .31% .34%
Net investment income......................... 4.95%(b)/(c) 5.20%(c) 5.42%(c) 5.03% 5.56% 4.67%
</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) Annualized.
(c) Net of management and distribution fee waiver/expense subsidy.
(d) Net of management fee waiver/expense subsidy.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL INSTITUTIONAL
LIQUIDITY PORTFOLIO, INC.
Financial Highlights (Unaudited) INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I
-------------------------------------------
July 9,
Six Months 1997(b)
Ended Year Ended Through
September 30, March 31, March 31,
1999 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 1.000 $ 1.000 $ 1.000
Net investment income and net realized
gains(d)...................................... .025 .053 .041
Dividends and distributions to shareholders...... (.025) (.053) (.041)
------------- ---------- ----------
Net asset value, end of period................... $ 1.000 $ 1.000 $ 1.000
------------- ---------- ----------
------------- ---------- ----------
TOTAL RETURN(a):................................. 2.52% 5.45% 4.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $ 1,303,433 $1,750,229 $910,394
Average net assets (000)......................... $ 1,737,712 $1,470,082 $814,138
Ratios to average net assets(c)/(d):
Expenses...................................... .15% .15% .15%
Net investment income......................... 4.98% 5.26% 5.60%
</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 fee waiver/expense subsidy.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--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.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that
separate mortgage pools into different maturity classes, called tranches.
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 other securities. The
rate of return of these financial instruments 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
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
Leverage: The use of borrowed assets to enhance return. The expectation is
that the interest rate charged on borrowed funds 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 product) 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 purchase or 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; often used to describe the
difference between "bid" and "asked" prices of a security, or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government in the U.S.
market and denominated in U.S. dollars.
<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
Delayne Dedrick Gold
Robert F. Gunia
Robert E. LaBlanc
David R. Odenath, Jr.
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Robert C. Rosselot, Secretary
Stephen M. Ungerman, Assistant Treasurer
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
Prudential Investments is a unit of The Prudential Insurance Company of
America, 751 Broad Street, Newark, NJ 07102.
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, 1999, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
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New York, NY
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