-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SgkSQYUWDaqM7LOndvHH8e774K2HqqL+cHkoo2roKuVmPrNwFHz90MaHOZnPijn2 maY6C9OajkELx6DEl4eWbg== 0000822337-96-000007.txt : 19961211 0000822337-96-000007.hdr.sgml : 19961211 ACCESSION NUMBER: 0000822337-96-000007 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO INC CENTRAL INDEX KEY: 0000822337 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133454426 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05336 FILM NUMBER: 96678226 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122141225 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 N-30D 1 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. (ICON) Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series SEMI ANNUAL REPORT Sept. 30, 1996 (LOGO) Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Performance At A Glance. The Prudential Institutional Liquidity Portfolio -- Institutional Money Market Series (PILP) produced competitive returns during the past six months despite swings in short-term interest rates. The Series maintained its high credit quality and $1 net asset value. On September 30, 1996, PILP's 7-day current yield was 5.02% which was ahead of the 4.81% for the average money market fund tracked by IBC Financial Data. Fund Facts As of 9/30/96
7-Day Net Asset Weighted Total Net Current Yld. Value Avg. Mat. Assets (mil.) PILP Fund 5.02% $1.00 53 $314 IBC Financial Data Money Fund Avg 4.81 1.00 50 N/A (All Taxable)*
Note: Yields will fluctuate from time to time and past performance is not indicative of future results. An investment in the Series is neither insured nor guaranteed by the U.S. government and there can be no assurance that the Series will be able to maintain a stable net asset value. * This is the average 7-day current yield, NAV and WAM of 811 funds in the International Business Communications Financial Data all taxable money fund category as of 9/30/96. Money Fund Yields Fell And Then Stabilized. (GRAPH) Weekly 7-day current yields of Prudential Institutional Liquidity Portfolio, Inc. and the IBC Financial Data all taxable money fund average. Past performance is not indicative of future results. How Investments Compared. (As of 9/30/96) (GRAPH) Source: Lipper Analytical Services. Financial markets change, so a mutual fund's past performance should never be used to predict future results. The risks to each of the investments listed above are different - -- we provide 12-month total returns for several Lipper mutual fund categories to show you that reaching for higher yields means tolerating more risk. The greater the risk, the larger the potential reward or loss. In addition, we've included historical 20-year average annual returns. These returns assume the reinvestment of dividends. U.S. Growth Funds will fluctuate a great deal. Investors have received higher historical total returns from stocks than from most other investments. Smaller capitalization stocks offer greater potential for long-term growth but may be more volatile than larger capitalization stocks. General Bond Funds provide more income than stock funds, which can help smooth out their total returns year by year. But their prices still fluctuate (sometimes significantly) and their returns have been historically lower than those of stock funds. General Municipal Debt Funds invest in bonds issued by state governments, state agencies and/or municipalities. This investment provides income that is usually exempt from federal and state income taxes. Money Market Funds attempt to preserve a constant share value; they don't fluctuate much in price but, historically, their returns have been generally among the lowest of the major investment categories. Robert L. Wofchuck, Fund Manager (PHOTO) Portfolio Manager's Report The Prudential Institutional Liquidity Portfolio -- Institutional Money Market Series seeks high current income consistent with the preservation of principal and liquidity. The Series is a diversified portfolio of high quality, U.S. dollar-denominated money market securities issued by the U.S. government and its agencies, major corporations and commercial banks of the U.S. and foreign countries. Maturities can range from one day to a maximum of 13 months. There can be no assurance that the Series' objective will be achieved. Strategy Session. About-Face On Rates. In our last report to you, our strategy centered upon preserving high yields as expectations for further Federal Reserve reductions of short-term interest rates continued. It was a conservative approach that did not overreact to swings in market opinion. Our thinking was, and remains, to seek the highest yields while maintaining our investment flexibility. We did so during the last six months by investing in longer term securities (as the yield differential between short-term and longer term securities widened), while keeping a sizeable position in adjustable rate securities so the portfolio could respond quickly to changing market conditions. The six-month reporting period was an extremely volatile time for short-term interest rates. Market opinion ran in cycles, and fluctuated in reaction to reports that the U.S. economy was either improving (rates rose) or weakening (rates fell). This was a marked change from the beginning of the year when expectations were that the central bank would continue reducing the Federal Funds rate (what banks charge each other for overnight loans), to jump-start an anemic U.S. economy. What happened? The about-face came in March when the federal government released its February jobs report, which showed that employment growth was far stronger than forecast. It was good news (especially for those who found work) but many investors interpreted the data to mean that the economy was improving too rapidly and that the Federal Reserve would be forced to raise interest rates to head-off inflation. Short-term rates were bid up in anticipation of tighter Federal Reserve monetary policy, only to fall when the Federal Funds rate remained unchanged because new economic reports showed the economy was slowing. This cycle repeated itself several times during the reporting period. Gross Domestic Product, a measure of total goods and services produced by the economy, grew 4.7% in the second quarter, which resulted in 3.4% growth for the first half of the year. However, slower growth in consumer spending and housing slowed third quarter growth to 2.2%. The slowdown eased concerns, at least for now, that rapid growth could lead to rising prices forcing the Federal Reserve to raise short-term interest rates. A Word About Quality. As of September 30, 1996, the Series' investments were rated in the highest category by at least two major, independent rating agencies, or, if unrated, deemed to be of equivalent quality by our credit research staff. Investments deemed to be of equivalent quality that were not rated were subject to ratification by the Board of Directors. Although there is never a guarantee that the share price of Prudential Institutional Liquidity Portfolio -- Institutional Money Market Series will remain at $1, we emphasize a conservative, quality-oriented investment approach. What Went Well. Watching The "Big Picture." Over the last six months we kept to our conservative strategy and looked at the "big picture." Yes, we thought the Federal Reserve might raise interest rates sometime this year. But not as much as most of the market anticipated. Market anticipation drove yields for longer term securities up, widening the difference in three-month and one-year securities. This steepening of the yield curve presented an attractive investment opportunity and we took it. The risk to this move was that the Federal Reserve could have aggressively raised interest rates. However, we believed that any increase would probably be modest in nature, and would still leave our longer term holdings in a competitive position. Our opinion was based upon our knowledge of recent Federal Reserve history, where actions were taken slowly and deliberately. As things turned out, it was the right move since short-term interest rates remained unchanged during the six-month reporting period ended September 30, 1996. Of course, we did not place all of our eggs in one basket. We also maintained a sizeable position, about 30% of total net assets as of September 30, 1996, in adjustable rate securities. These are investments whose coupons reset periodically, such as daily, weekly or monthly. Adjustable rate securities reflect current market rates, such as the Federal Funds Rate or London Interbank Offered Rate (LIBOR), and allowed the portfolio to take advantage of changing market conditions as they occurred. And Not So Well. Our choice of investing in longer term (nine to 13 months) securities locked in attractive yields for a longer time period. But it also discouraged us from participating in temporary yield increases that occurred when market sentiment turned negative following the release of various economic reports. Because of the extreme volatility involved in following that course, we chose to stick with our longer term strategy. Looking Ahead. The Federal Reserve seeks to promote steady economic growth with low levels of inflation. Second quarter growth was very strong, especially in sectors which may contribute to inflationary pressures, such as wages and employment. Yet inflation remains low (about 3% for the year) and economic growth slowed significantly in the third quarter. While wages are rising, economic growth is slowing and inflation is benign. The Federal Reserve seems willing to tolerate stable, short-term rates to encourage sustainable economic growth. We are positioning the Fund for stable short-term interest rates into 1997. Weighted Average Maturity Compared To The Average Fund. (GRAPH) - ------------------------------------------------------------ - ------------------- 1 President's Letter November 1, 1996 (PHOTO) Dear Shareholder: Last year, U.S. stocks and bonds generally posted extraordinary returns. Investors celebrated this performance by putting record amounts of new money into mutual funds in the first few months of 1996. According to figures released by the Investment Company Institute, a mutual fund industry trade group, new investments in mutual funds reached an all-time monthly high of $33 billion in January of 1996. An additional $66 billion was invested in the following three months, although this rapid inflow subsided somewhat in late spring. While we are pleased that mutual funds are attracting new investors, we're concerned that some of them may be "buying last year's returns." Few expect 1995's virtual non-stop returns from the stock and bond markets. In fact, 1996's markets have been volatile so far (stock and bond prices go down just as they go up). There's no better time than now to be talking with your Financial Advisor or Registered Representative. She or he can help you determine reasonable expectations about both the potential performance and risks associated with your investments. Changes at Prudential. There have been some important changes recently at Prudential that were made with you in mind. Prudential Mutual Funds has moved under the umbrella of Prudential's newly created "Prudential Investments." This group manages and administers nearly $190 billion in client assets and provides mutual funds, annuities, defined benefit and defined contribution plans to our individual and institutional investors. We plan to improve the range and quality of investment products and services that we can provide you by better leveraging Prudential's strengths. There will, however, be no change in the service you receive from your Financial Advisor, Registered Representative or our Customer Service unit. We're excited about our future and hope that you are, too. Thank you for your continued support and confidence in Prudential Mutual Funds. Sincerely, Richard A. Redeker President - ------------------------------------------------------------ - ------------------- 2 Portfolio of Investments PRUDENTIAL INSTITUTIONAL as of September 30, 1996 LIQUIDITY PORTFOLIO, INC. (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------
Principal Amount (000) Description Value (Note 1) - ------------------------------------------------------------ Asset Backed Securities--0.7% NationsBank Auto Owner Trust 1996A A-1 $2,141 5.776%, 8/15/97 $ 2,140,771 - ------------------------------------------------------------ Bank Notes--1.9% FCC National Bank 3,000 5.77%, 4/15/97 2,999,074 NBD Bank, N.A. 2,021 7.875%, 1/21/97 2,033,600 Wachovia Bank of North Carolina 1,000 4.625%, 12/13/96 998,084 -------- - ---- 6,030,758 - ------------------------------------------------------------ Certificates Of Deposit - Eurodollar--2.6% Bank of Montreal 6,000 5.36%, 10/22/96 6,000,000 Bayerische Vereinsbank 2,000 5.41%, 10/2/96 2,000,000 -------- - ---- 8,000,000 - ------------------------------------------------------------ Certificates Of Deposit - Yankee--12.1% Banque Nationale de Paris 8,000 5.35%, 10/15/96 8,000,000 Bayerische Vereinsbank 3,000 5.53%, 11/1/96 3,000,126 Commerzbank 2,000 5.47%, 11/5/96 2,000,000 National Australia Bank, Ltd. 4,000 5.75%, 10/2/96 4,000,004 Societe Generale 16,000 5.53%, 10/7/96 16,000,000 4,000 5.40%, 11/7/96 4,000,000 Swiss Bank Corp. 1,000 5.51%, 12/19/96 1,000,204 -------- - ---- 38,000,334 Commercial Paper--42.2% American Honda Finance Corp. $10,000 5.43%, 10/7/96 $ 9,990,950 Aristar, Inc. 6,650 5.43%, 10/3/96 6,647,994 Associates Corp. of North America 10,000 5.34%, 11/5/96 9,948,083 BAT Capital Corp. 10,505 5.32%, 10/7/96 10,495,686 1,000 5.35%, 11/4/96 994,947 Bradford & Bingley Building Society 2,000 5.34%, 11/5/96 1,989,617 Caterpillar Financial Services Corp. 1,000 5.35%, 10/10/96 998,663 Ciesco, L.P. 3,000 5.34%, 11/4/96 2,984,870 Dresser Industries, Inc. 1,000 5.32%, 10/3/96 999,704 Enterprise Funding Corp. 4,028 5.35%, 10/21/96 4,016,028 3,000 5.40%, 11/4/96 2,984,700 Finova Capital Corp. 3,000 5.46%, 10/3/96 2,999,090 2,000 5.40%, 10/7/96 1,998,200 2,000 5.40%, 10/8/96 1,997,900 1,000 5.40%, 10/15/96 997,900 1,000 5.43%, 11/15/96 993,213 First Data Corp. 3,000 5.40%, 11/26/96 2,974,800 Ford Motor Credit Corp. 7,600 5.28%, 10/8/96 7,592,197 3,527 5.33%, 10/22/96 3,516,034 4,000 5.32%, 10/31/96 3,982,267 1,621 5.31%, 11/7/96 1,612,153 1,631 5.37%, 11/15/96 1,620,052 General Electric Capital Corp. 12,200 5.30%, 11/7/96 12,133,544 - ------------------------------------------------------------ - -------------------- See Notes to Financial Statements. 3 ----- Portfolio of Investments PRUDENTIAL INSTITUTIONAL as of September 30, 1996 LIQUIDITY PORTFOLIO, INC. (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------
Principal Amount (000) Description Value (Note 1) - ------------------------------------------------------------ Commercial Paper (cont'd.) GTE Corp. $2,220 5.45%, 10/7/96 $ 2,217,983 IBM Credit Corp. 2,787 5.29%, 10/7/96 2,784,543 John Deere Capital Corp. 1,000 5.30%, 11/12/96 993,817 Mitsubishi International Corp. 2,074 5.35%, 10/2/96 2,073,692 3,387 5.50%, 10/10/96 3,382,343 NYNEX Corp. 2,000 5.39%, 10/9/96 1,997,604 11,000 5.39%, 10/18/96 10,972,002 Philip Morris Capital Corp. 2,689 5.34%, 11/1/96 2,676,635 2,000 5.30%, 11/7/96 1,989,106 Preferred Receivables Funding Corp. 2,450 5.29%, 10/24/96 2,441,720 1,000 5.35%, 11/4/96 994,947 1,000 5.35%, 11/25/96 991,826 Whirlpool Corp. 2,689 5.40%, 10/17/96 2,682,546 Whirlpool Financial Corp. 1,000 5.40%, 10/17/96 997,600 1,000 5.40%, 10/23/96 996,700 -------- - ---- 132,661,656 - ------------------------------------------------------------ Loan Participations--0.3% Engelhard Corp. 1,000 5.46%, 10/4/96 1,000,000 - ------------------------------------------------------------ Medium - Term Obligations--3.5% American General Finance Corp. 2,000 5.80%, 4/1/97 2,001,207 Ford Motor Credit Corp. $3,000 8.00%, 10/1/96 $ 3,000,000 General Electric Capital Corp. 3,000 7.78%, 12/30/96 3,016,047 General Motors Acceptance Corp. 1,000 6.10%, 3/31/97 1,001,957 International Lease Finance Corp. 2,000 6.375%, 11/1/96 2,001,153 -------- - ---- 11,020,364 - ------------------------------------------------------------ U. S. Government Agency & Instrumentality Obligations--6.4% United States Treasury Notes 5,000 6.875%, 2/28/97 5,034,337 10,000 6.625%, 3/31/97 10,064,990 5,000 6.875%, 3/31/97 5,040,797 -------- - ---- 20,140,124 - ------------------------------------------------------------ Variable Rate Instruments(b)--29.6% American Express Centurion Bank 2,000 5.47391%, 10/15/96 1,999,784 3,000 5.41531%, 10/21/96 2,999,730 Beneficial Corp. 16,000 5.57625%, 12/10/96 15,996,594 Federal National Mortgage Association 5,000 5.435%, 10/4/96 4,999,949 Ford Motor Credit Corp. 1,000 5.88281%, 11/4/96 1,000,209 General Motors Acceptance Corp. 19,000 5.69578%, 11/4/96 18,999,178 1,000 5.52%, 11/21/96 999,975 1,000 5.70078%, 12/3/96 1,000,865 Goldman Sachs Group, L. P. 21,000 5.80469%, 2/19/97 21,000,000 Merrill Lynch & Co., Inc. 15,000 5.4375%, 10/2/96 14,999,988 - ------------------------------------------------------------ - -------------------- - -----4 See Notes to Financial Statements. Portfolio of Investments PRUDENTIAL INSTITUTIONAL as of September 30, 1996 LIQUIDITY PORTFOLIO, INC. (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------
Principal Amount (000) Description Value (Note 1) - ------------------------------------------------------------ Variable Rate Instruments(b) (cont'd.) Morgan Stanley Group, Inc. $3,000 5.6875%, 10/15/96 $ 3,000,000 2,000 5.65625%, 11/15/96 2,000,000 SMM Trust Notes 1995-Q 4,000 5.50391%, 10/15/96 3,999,898 -------- - ---- 92,996,170 - ------------------------------------------------------------ Total Investments--99.3% (amortized cost $311,990,177(a)) 311,990,177 Other assets in excess of liabilities--0.7% 2,103,446 -------- - ---- Net Assets--100% $314,093,623 -------- - ---- -------- - ---- - --------------- (a) The cost of securities for federal income tax purposes is substantially the same as for financial reporting purposes. (b) The maturity date presented for these instruments is the next date on which the rate of interest is adjusted. The industry classification of portfolio holdings and other assets in excess of liabilities shown as a percentage of net assets as of September 30, 1996 was as follows:
Personal Credit Institutions....................... 28.3% Commercial Banks................................... 20.1 Securities Brokers & Dealers....................... 13.1 Business Credit (Finance).......................... 9.8 U.S. Government Sovereign.......................... 6.4 Finance Lessors.................................... 5.5 Telephone & Communications......................... 4.8 Tobacco............................................ 3.7 Commodity Trading.................................. 1.7 Federal Credit Agencies............................ 1.6 Household Appliances............................... 1.5 Computer Rental & Leasing.......................... 0.9 Asset Backed Securities............................ 0.7 Equipment Rental & Lease........................... 0.6 Industrial Machinery............................... 0.3 Refineries......................................... 0.3 Other assets in excess of liabilities.............. 0.7 ----- 100.0% ----- -----
- ------------------------------------------------------------ - -------------------- See Notes to Financial Statements. 5 ----- Portfolio of Investments PRUDENTIAL INSTITUTIONAL Statement of Assets LIQUIDITY PORTFOLIO, INC. and Liabilities (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------ - -------------------- Assets September 30, 1996 Investments, at value....................................................... ........................... $311,990,177 Cash........................................................ ........................................... 1,794,155 Interest receivable.................................................. .................................. 1,975,544 Other assets...................................................... ..................................... 12,059 - ------------------ Total assets...................................................... .................................. 315,771,935 - ------------------ Liabilities Dividends payable..................................................... ................................. 1,381,890 Accrued expenses and other liabilities................................................. ................ 216,794 Management fee payable..................................................... ............................ 61,617 Distribution fee payable..................................................... .......................... 18,011 - ------------------ Total liabilities................................................. .................................. 1,678,312 - ------------------ Net Assets...................................................... ....................................... $314,093,623 - ------------------ - ------------------ Net assets were comprised of: Common stock, at par......................................................... ....................... $ 314,094 Paid-in capital in excess of par......................................................... ........... 313,779,529 - ------------------ Net assets at September 30, 1996........................................................ ............... $314,093,623 - ------------------ - ------------------ Net asset value, offering and redemption price per share ($314,093,623 / 314,093,623 shares of $.001 par value common stock issued and outstanding).......... $1.00 - ------------------ - ------------------
- ------------------------------------------------------------ - -------------------- - -----6 See Notes to Financial Statements. PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended Net Investment Income September 30, 1996 Income Interest and discount earned............. $ 11,618,655 ------------- - ----- Expenses Management fee........................... 426,554 Distribution fee......................... 255,933 Transfer agent's fees and expenses....... 124,000 Custodian's fees and expenses............ 79,000 Registration fees........................ 44,000 Directors' fees.......................... 18,000 Reports to shareholders.................. 18,000 Audit fee and expenses................... 14,000 Legal fees and expenses.................. 12,000 Insurance expense........................ 5,000 Miscellaneous............................ 1,631 ------------- - ----- Total expenses........................ 998,118 ------------- - ----- Net investment income....................... 10,620,537 Realized Gain on Investments Net realized gain on investment transactions............................. 6,592 ------------- - ----- Net Increase in Net Assets Resulting from Operations................... $ 10,627,129 ------------- - ----- ------------- - -----
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. INSTITUTIONAL MONEY MARKET SERIES Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
Six Months Ended Year Ended Increase (Decrease) September 30, March 31, in Net Assets 1996 1996 Operations Net investment income..... $ 10,620,537 $ 28,838,701 Net realized gain on investment transactions........... 6,592 51,244 --------------- ---------- - ----- Net increase in net assets resulting from operations............. 10,627,129 28,889,945 --------------- ---------- - ----- Dividends and distributions to shareholders........... (10,627,129) (28,889,945) --------------- ---------- - ----- Fund share transactions Net proceeds from shares subscribed............. 903,375,538 2,502,344,256 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions.......... 10,627,129 28,006,679 Cost of shares reacquired............. (1,040,750,769) (2,565,737,717) --------------- ---------- - ----- Net decrease in net assets from Fund share transactions........... (126,748,102) (35,386,782) --------------- ---------- - ----- Total decrease............... (126,748,102) (35,386,782) Net Assets Beginning of period.......... 440,841,725 476,228,507 --------------- ---------- - ----- End of period................ $ 314,093,623 $ 440,841,725 --------------- ---------- - ----- --------------- ---------- - -----
- ------------------------------------------------------------ - -------------------- See Notes to Financial Statements. 7 ----- PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Notes to Financial Statements (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------ - -------------------- Prudential Institutional Liquidity Portfolio, Inc.-- Institutional Money Market Series (the ``Fund'') is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The investment objective of the Fund is high current income consistent with the preservation of principal and liquidity. The Fund invests primarily in money market instruments maturing in thirteen months or less whose ratings are within the two highest ratings categories by a nationally recognized statistical rating organization or, if not rated, are of comparable quality. The ability of the issuers of the securities held by the Fund to meet its obligations may be affected by economic developments in a specific industry or region. - ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Securities Valuations: Portfolio securities are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of any discount or premium. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses on sales of investments are calculated on the identified cost basis. Interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Federal Income Taxes: It is the intent of the Fund to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income to its shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions: The Fund declares all of its net investment income and net realized short-term capital gains/losses, if any, as dividends daily to its shareholders of record at the time of such declaration. Net investment income for dividend purposes includes interest accrued or discount earned less amortization of premium and the estimated expenses applicable to the dividend period. The Fund does not expect to realize long-term capital gains or losses. Note 2. Agreements The Fund has a management agreement with Prudential Mutual Fund Management, LLC (``PMF''). Pursuant to this agreement, PMF has responsibility for all investment advisory services and supervises the subadviser's performance of such services. PMF has entered into a subadvisory agreement with The Prudential Investment Corporation (``PIC''); PIC furnishes investment advisory services in connection with the management of the Fund. PMF pays for the cost of the subadviser's services, the compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses. The management fee paid PMF is computed daily and payable monthly, at an annual rate of .20 of 1% of the average daily net assets of the Fund. The Fund has a distribution agreement with Prudential Securities Incorporated (``PSI''), who acts as the distributor of the Fund's shares. The Fund reimbursed PSI for distributing and servicing the Fund's shares pursuant to the plan of distribution at an annual rate of .12 of 1% of the Fund's average daily net assets. The distribution fee is accrued daily and payable monthly. PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential Insurance Company of America. - ------------------------------------------------------------ Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly- owned subsidiary of PMF, serves as the Fund's transfer agent. During six months ended September 30, 1996, the Fund incurred fees of $120,000 for the services of PMFS. As of September 30, 1996, $20,000 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates. - ------------------------------------------------------------ - -------------------- - -----8 PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. Financial Highlights (Unaudited) INSTITUTIONAL MONEY MARKET SERIES - ------------------------------------------------------------ - --------------------
Six Months Ended Year Ended March 31, September 30, ---------------------------------- PER SHARE OPERATING PERFORMANCE: 1996 1996 1995 1994 - ------------- -------- -------- -------- Net asset value, beginning of period............................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 Net investment income and net realized gains....................... .025 .056 .046 .029 Dividends and distributions to shareholders........................ (.025) (.056) (.046) (.029) - ------------- -------- -------- -------- Net asset value, end of period..................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 - ------------- -------- -------- -------- - ------------- -------- -------- -------- TOTAL RETURN(a):.................................................. . 2.54% 5.72% 4.69% 2.92% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $ 314,094 $440,842 $476,229 $385,023 Average net assets (000)........................................... $ 425,389 $519,946 $402,678 $445,867 Ratios to average net assets: Expenses, including distribution fee............................ .47%(b) .43% .46% .48% Expenses, excluding distribution fee............................ .35%(b) .31% .34% .36% Net investment income........................................... 4.98%(b) 5.56% 4.67% 2.87% PER SHARE OPERATING PERFORMANCE: 1993 1992 - -------- -------- Net asset value, beginning of period............................... $ 1.000 $ 1.000 Net investment income and net realized gains....................... .033 .054 Dividends and distributions to shareholders........................ (.033) (.054) - -------- -------- Net asset value, end of period..................................... $ 1.000 $ 1.000 - -------- -------- - -------- -------- TOTAL RETURN(a):.................................................. . 3.40% 5.57% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $497,214 $443,172 Average net assets (000)........................................... $543,694 $540,380 Ratios to average net assets: Expenses, including distribution fee............................ .44% .42% Expenses, excluding distribution fee............................ .32% .30% Net investment income........................................... 3.28% 5.32%
- --------------- (a) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized. (b) Annualized. - ------------------------------------------------------------ - -------------------- See Notes to Financial Statements. 9 ----- Getting The Most From Your Prudential Mutual Fund. How many times have you read these letters -- or other financial materials -- and stumbled across a word that you don't understand? Many shareholders have run into the same problem. We'd like to help. So we'll use this space from time to time to explain some of the words you might have read, but not understood. And if you have a favorite word that no one can explain to your satisfaction, please write to us. Basis Point: One 1/100th of 1%. For example, one half of one percentage point is 50 basis points. Call Option: A contract giving the holder a right to buy stocks or bonds at a predetermined price (called the strike price) before a predetermined expiration date. A buyer of a call option generally expects to benefit from a rise in the price of the stock or bond. Capital Gain/Capital Loss: The difference between the cost of a capital asset (for example, a stock, bond or mutual fund share) and its selling price. Under current law the federal income tax rate for individuals on a long-term capital gain is up to 28%. Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities sliced in maturity ranges that bear differing interest rates. These instruments are sensitive to changes in interest rates and homeowner refinancing activity. They are subject to prepayment and maturity extension risk. Derivatives: Securities that derive their value from another security. The rate of return of these financial products rises and falls - - - sometimes very suddenly -- in response to changes in some specific interest rate, currency, stock or other variable. Discount Rate: The interest rate charged by the Federal Reserve on loans to banks and other depository institutions. Federal Funds Rate: The interest rate charged by one bank to another on overnight loans. Futures Contract: An agreement to deliver a specific amount of a commodity or financial instrument at a set price at a stipulated time in the future. Leverage: The use of borrowed assets to enhance return on equity. The expectation is that the interest rate charged will be lower than the return on the investment. While leverage can increase profits, it can also magnify losses. Liquidity: The ease with which a financial instrument (or mutual fund) can be bought or sold (converted into cash) in the financial markets. Price/Earnings Ratio: The price of a share of stock divided by the earnings per share for a 12-month period. Option: An agreement to sell something, such as shares of stock, by a certain time for a specified price. An option need not be exercised. Spread: The difference between two values; most often used to describe the difference between prices bid and asked for a security. Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company or government in the U.S. market. [This page intentionally left blank] [This page intentionally left blank] Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 http:\\www.prudential.com Directors Edward D. Beach Stephen C. Eyre Delayne D. Gold Robert F. Gunia Don G. Hoff Robert E. LaBlanc Mendel A. Melzer Robin B. Smith Stephen Stoneburn Nancy H. Teeters Richard A. Redeker Officers Richard A. Redeker, President Robert F. Gunia, Vice President Eugene S. Stark, Treasurer Stephen M. Ungerman, Assistant Treasurer S. Jane Rose, Secretary Marguerite E. H. Morrison, Assistant Secretary Manager Prudential Mutual Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Adviser The Prudential Investment Corporation Prudential Plaza Newark, NJ 07101 Distributor Prudential Securities Incorporated One Seaport Plaza New York, NY 10292 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent Prudential Mutual Fund Services, Inc. P.O. Box 15005 New Brunswick, NJ 08906 Independent Auditors Deloitte & Touche LLP Two World Financial Center New York, NY 10281 Legal Counsel Gardner, Carton & Douglas Quaker Tower 321 North Clark Street Chicago, IL 60610-4795 The views expressed in this report and information about the Series' portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of September 30, 1996 were not audited and, accordingly, no opinion is expressed on them. This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 BULK RATE U.S. POSTAGE PAID Permit 6807 New York, NY 744350109 MF137E2 -----END PRIVACY-ENHANCED MESSAGE-----