-----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, VYfQypfS6heeY1gJ/5QYbuK/kxONfoF/OGWctJBI+QWiTy2/DQa70MCQnaOTULfc bxyBsDUzHXCgeHOvd3VeIg== /in/edgar/work/20000608/0000898733-00-000432/0000898733-00-000432.txt : 20000919 0000898733-00-000432.hdr.sgml : 20000919 ACCESSION NUMBER: 0000898733-00-000432 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO INC CENTRAL INDEX KEY: 0000822337 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 133454426 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05336 FILM NUMBER: 651268 BUSINESS ADDRESS: STREET 1: 100 MULBERRY ST GWC 3 STREET 2: 9TH FL CITY: NEWARK STATE: NJ ZIP: 07102 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 0001.txt PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC. ANNUAL REPORT MARCH 31, 2000 Prudential Institutional Liquidity Portfolio, Inc./ Institutional Money Market Series Fund Type Money market Objective High current income consistent with the preservation of principal and liquidity (GRAPHIC) (LOGO) Build on the Rock INVESTMENT GOALS AND STYLE 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 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. Institutional Money Fund Yields (GRAPH) www.prudential.com (800) 521-7466 Performance At a Glance Fund Facts As of 3/31/00 7-Day Net Asset Weighted Avg. Net Assets Current Yld. Value (NAV) Mat. (WAM) (Millions) PILP Class A 5.96% $1.00 49 Days $371.9 PILP Class I 6.01% $1.00 49 Days $1,601.6 iMoneyNet, Inc. Non-Gov't Institutional Only (1st & 2nd Tier) Avg.* 5.65% $1.00 47 Days N/A 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. *_iMoneyNet, Inc. reports a seven-day current yield, NAV, and WAM on Tuesdays. This is the data of all funds in iMoneyNet, Inc. Non-Gov't Institutional Only (1st & 2nd Tier) Average category as of March 28, 2000, the closest date to the end of our reporting period. Weighted Average Maturity Compared To The Average Institutional Fund (GRAPH) 1 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Message From the Fund's President May 16, 2000 DEAR SHAREHOLDER, The Federal Reserve increased a key short-term interest rate five times during the year that ended on March 31, 2000, to slow U.S. economic growth and fend off higher inflation. These changes in monetary policy, among other factors, drove yields on money market securities sharply higher. Prudential's Money Markets Sector Team identified and took advantage of good investment opportunities that emerged as money market yields climbed. The team employed credit research, interest-rate analysis, and relative value analysis that enabled the Prudential Institutional Liquidity Portfolio/Institutional Money Market Series (the Series) to maintain a $1 net asset value per share and to provide a better-than-average yield throughout its fiscal year. On March 31, 2000, the seven-day current yield was 5.96% on the Series' Class A shares and 6.01% on its Class I shares. Both were above the 5.65% yield on the average money market fund tracked by iMoneyNet, Inc. The following report takes a closer look at developments in the money markets during our fiscal year, and explains how the Series was positioned accordingly. Thank you for your continued confidence in Prudential mutual funds. Sincerely, John R. Strangfeld, President Prudential Institutional Liquidity Portfolio, Inc./ Institutional Money Market Series 2 www.prudential.com (800) 521-7466 Investment Adviser's Report DEAR SHAREHOLDER, Repeated changes in U.S. monetary policy and overblown fears about potential computer problems at the beginning of 2000 (Y2K) drove yields on money market securities sharply higher during our fiscal year that ended on March 31, 2000. We welcomed this trend. It enabled us to take advantage of attractive buying opportunities that enhanced the Series' yields. Yields on money market securities climbed in the spring of 1999 as investors waited for the Federal Reserve to boost short-term interest rates to prevent a rapidly expanding U.S. economy from igniting higher inflation. Although inflation remained relatively tame, the Fed still worried that wages and prices would rise because of a tight job market in the United States, a recovering global economy, and higher oil prices. ADJUSTABLE-RATE SECURITIES WERE A GOOD BUY As money market yields rose, the money market securities of banks and corporations cheapened relative to comparable U.S. Treasury bills. We bought one-year corporate securities that paid fixed interest rates, as well as securities whose coupons adjusted periodically based on a London Interbank Offered Rate or LIBOR. (LIBOR is a widely quoted money market benchmark.) These adjustable-rate securities provided some protection against further increases in money market yields since their coupons would reset to higher levels as yields continued to climb. In addition, the adjustable-rate securities outperformed the fixed-rate securities. FED ENGINEERED BACK-TO-BACK RATE HIKES The Fed finally took steps to curb U.S. economic growth on June 30, 1999. It 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%. That was quickly followed by another move on August 24, 1999, when the key rate was increased to 5.25%. This time the U.S. central bank also hiked the rate it charges member banks to borrow from the Federal Reserve system, known as the discount rate, to 4.75% from 4.50%. 3 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Investment Adviser's Report As a general rule, when interest rates are rising, a portfolio with a shorter weighted average maturity (WAM) tends to perform better than a portfolio with a longer WAM. 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. Having a shorter-than-average WAM would have given us better access to cash to buy any higher-yielding money market securities that became available after the Fed acted in late August 1999. However, a one-time large redemption from the Series in August 1999 temporarily made its WAM longer than it would have been otherwise. SERIES BENEFITED FROM Y2K BARGAINS In the summer of 1999, tighter monetary policy was only one of the concerns affecting money markets. Corporate treasurers, among others, worried that computers might malfunction or shut down as their internal dates switched from 1999 to 2000. Their concern led some banks and corporations to rush to complete their year- end borrowing early. Accordingly, they began to issue a large amount of LIBOR-based, adjustable-rate securities that provided unusually wide yield spreads in order to appeal to investors. These securities rose to roughly 40% of the Series' total investments in late 1999, up from a normal exposure of approximately 25%. Meanwhile, the U.S. central bank had engineered another quarter-point rate hike on November 16, 1999, that raised the federal funds rate to 5.50% and the discount rate to 5.00%. There had been talk that the Fed might refrain from tightening monetary policy out of concern that potential Y2K computer problems might hurt the economy. But the changeover from 1999 to 2000 went smoothly, and yield spreads on adjustable-rate securities narrowed to historical norms. The Series' performance benefited from this trend because of its overweight exposure to these securities. We also enhanced the Series' yields by taking advantage of Y2K bargains that emerged in early December 1999. 4 www.prudential.com (800) 521-7466 TIGHTENING CREATED BUYING OPPORTUNITIES We slightly lengthened the Series' WAM in late January 2000 by purchasing securities maturing in two to three months. Yields on these securities had risen sharply (and their prices fell) because some investors expected Fed policy makers to increase short-term interest rates by half of a percentage point at their next meeting in early February. We believed the Fed hike would only be a quarter-point increase. Therefore, we expected prices of our two- and three-month securities to move higher (and their yields lower) after the next change in monetary policy since investors had priced into the securities a more aggressive move by the Fed. On February 2, 2000, the Fed announced a quarter-point increase that raised the federal funds rate to 5.75% and the discount rate to 5.25%. Following this move, we allowed the Series WAM to shorten in anticipation of a fifth change in monetary policy that resulted in a rate increase on March 21, 2000. This left the federal funds rate at 6.00% and the discount rate at 5.50%. LOOKING AHEAD--WE EXPECT MORE SHORT-TERM RATE HIKES The U.S. economy grew at an annual pace of more than 5.0% in the first three months of 2000, powered primarily by the largest increase in consumer spending in 17 years. While this is slower than the 7.3% annual pace of the final quarter of 1999, the longest economic expansion in the history of the United States remains very strong. Moreover, labor costs rose for U.S. businesses at the fastest pace in more than 10 years in the first quarter of 2000. There is also evidence that these cost pressures are being passed along to consumers in the form of higher prices. This combination of brisk economic growth and rising inflation led the Fed in May to raise the federal funds rate and its discount rate by half of a percentage point to 6.50% and 6.00%, respectively. Unless there is significant moderation in economic activity, the Fed has hinted that more interest-rate increases will be forthcoming. Prudential Money Markets Sector Team 5 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- Bank Notes 8.5% American Express Centurion Bank $ 7,000 5.19%, 7/10/00(b) $ 7,000,000 Bank One Corp. 17,000 5.52%, 8/21/00(b) 17,000,000 Comerica Bank of Detroit 20,000 4.80%, 6/13/00(b) 19,997,436 20,000 5.815%, 2/2/01 19,991,780 CoreStates Bank, N.A. 5,500 5.625%, 2/12/01 5,455,661 First Union (National Bank) Corp. 60,000 5.2875%, 7/21/00(b) 60,000,000 Key Bank N.A. 13,000 5.035%, 6/14/00(b) 12,998,447 3,000 5.10875%, 6/26/00(b) 2,999,654 7,000 5.05%, 7/17/00(b) 7,001,511 National City Bank of Cleveland 15,000 6.73%, 2/9/01 14,993,880 -------------- 167,438,369 - ------------------------------------------------------------------------------------- Certificates Of Deposit - Domestic 0.6% Morgan Guaranty Trust Co. 12,000 5.70%, 7/19/00 12,000,000 - ------------------------------------------------------------------------------------- Certificates Of Deposit - Eurodollar 2.5% Bank Austria 49,000 5.93%, 4/7/00 48,999,996 - ------------------------------------------------------------------------------------- Certificates Of Deposit - Yankee 12.8% Bank of Nova Scotia 15,000 6.65%, 2/1/01 14,994,032 Canadian Imperial Bank of Commerce 17,100 6.12%, 5/22/00 17,100,479 30,000 6.00%, 5/25/00 30,000,000 Credit Communal De Belgique S.A. 1,269 5.97%, 9/21/00 1,265,444 Deutsche Bank 7,100 5.25%, 5/18/00 7,089,113 25,000 5.62%, 6/26/00 24,997,050
See Notes to Financial Statements 7 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000 Cont'd.
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- National Westminster Bank PLC $ 50,000 6.10%, 11/27/00 $ 49,931,831 Nordeutscheinndesbank Giro 11,000 5.35%, 5/24/00 10,985,477 Rabobank Nederland 27,000 5.66%, 7/13/00 26,997,013 UBS, AG 10,000 5.29%, 5/19/00 9,999,241 Westpac Banking Corp. 35,000 6.52%, 1/29/01 34,986,198 -------------- 228,345,878 - ------------------------------------------------------------------------------------- Commercial Paper 44.9% Aon Corp. 10,000 6.10%, 4/24/00 9,961,028 BankAmerica Corp. 50,000 6.06%, 8/3/00 48,956,333 Barton Capital Corp. 7,217 6.10%, 5/12/00 7,166,862 Black Forest Funding Corp. 9,974 6.20%, 4/10/00 9,958,540 Centric Capital Corp. 12,720 6.10%, 5/22/00 12,610,078 CIT Group Holdings, Inc. 15,000 6.09%, 5/16/00 14,885,813 16,000 6.10%, 6/20/00 15,783,111 Countrywide Home Loan, Inc. 75,000 6.45%, 4/3/00 74,973,125 Den Norske Bank 21,741 5.95%, 5/16/00 21,579,301 Dexia CLF Finance Co. 5,000 5.86%, 4/14/00 4,989,420 Duke Capital Corp. 25,000 6.40%, 4/3/00 24,991,111 Enterprise Funding Corp. 4,000 6.10%, 5/5/00 3,976,956
8 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000 Cont'd.
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- Forrestal Funding Master Trust $ 10,000 5.96%, 5/10/00 $ 9,935,433 35,506 6.10%, 5/22/00 35,199,169 General Electric Capital Corp. 55,000 6.07%, 5/18/00 54,564,140 General Motors Acceptance Corp. 63,000 6.06%, 5/15/00 62,533,380 GTE Corp. 16,000 6.10%, 4/25/00 15,934,933 15,000 6.10%, 4/26/00 14,936,458 21,300 6.12%, 5/1/00 21,191,370 Homeside Lending, Inc. 12,000 6.08%, 5/8/00 11,925,013 Household International Inc. 16,000 6.11%, 4/26/00(c) (cost $15,932,111, date purchased 3/22/00) 15,932,111 Invensys PLC 100,000 6.50%, 4/3/00 99,963,889 Market Street Funding Corp. 16,000 6.10%, 5/8/00 15,899,689 Morgan (J.P.) & Co., Inc. 25,000 6.25%, 4/10/00 24,960,938 Norwest Corp. 1,000 6.75%, 5/12/00 1,001,563 Norwest Financial, Inc. 10,000 6.06%, 5/22/00 9,914,150 PNC Funding Corp. 14,000 6.03%, 4/14/00 13,969,515 5,000 6.14%, 5/23/00 4,955,656 Santander Finance, Inc. 29,000 5.94%, 5/24/00 28,746,395 Sweetwater Capital 3,107 6.05%, 4/13/00 3,100,734 2,999 6.05%, 4/14/00 2,992,448 13,497 6.10%, 4/24/00 13,444,399 3,479 6.05%, 4/25/00 3,464,968 3,898 6.10%, 5/17/00 3,867,617
See Notes to Financial Statements 9 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000 Cont'd.
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- Target Corp. $ 19,410 6.50%, 4/3/00 $ 19,402,991 Textron Financial Corp. 6,000 5.95%, 4/24/00 5,977,192 Wells Fargo & Co. 95,000 6.05%, 5/15/00 94,297,528 Westpac Capital Corp. 12,500 5.90%, 4/7/00 12,487,708 Wood Street Funding Corp. 15,000 6.10%, 5/24/00 14,865,292 -------------- 865,296,357 - ------------------------------------------------------------------------------------- Other Corporate Obligations 27.2% Abbey National Treasury Services PLC 50,000 5.23875%, 7/24/00 49,990,841 25,000 5.65%, 7/24/00 24,995,421 Associates Corporation North America 50,000 5.0965%, 6/29/00(b) 49,991,489 Centex Home Mortgage LLC 7,000 6.60875%, 10/20/00(b)/(c) (cost $7,000,000, date purchased 12/8/99) 7,000,000 Chase Manhattan Corp. 50,000 4.8275%, 5/25/00(b) 49,995,257 Citicorp 26,000 5.21%, 8/2/00(b) 26,000,000 Citigroup, Inc. 700 6.125%, 6/15/00(b) 700,833 Commercial Credit Co. 1,000 6.00%, 4/15/00 1,000,207 Conseco Finance Vehicle Trust 12,603 6.62125%, 1/5/01(b)/(c) (cost $12,602,722, date purchased 12/16/99) 12,602,722
10 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000 Cont'd.
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- Daimler Chrysler North America Holdings $ 55,000 5.06175%, 7/6/00(b) $ 54,981,195 Ford Motor Credit Co. 48,000 5.435%, 8/18/00(b) 47,985,231 20,000 5.49875%, 10/2/00(b) 19,990,180 General Electric Capital Corp. 51,000 4.95%, 5/12/00(b) 51,000,000 Goldman Sachs Group, L.P. 20,000 6.02%, 4/26/00 20,000,000 Goldman Sachs Group, L.P. 21,000 5.69531%, 5/15/00(b)/(c) (cost $21,000,000, date purchased 6/3/96) 21,000,000 Morgan (J.P.) & Co., Inc. 24,000 5.99375%, 3/16/01(b) 24,000,000 Restructured Asset Securities 33,000 5.455%, 9/6/00(b)/(c) (cost $33,000,000, date purchased 9/2/99) 33,000,000 Security Life Of Denver 5,000 5.07%, 4/12/00(b)/(c) (cost $5,000,000, date purchased 4/12/99) 5,000,000 Strategic Money Market Trust 6,000 4.9825%, 4/5/00(b) 6,000,000 Short-Term Repackaged Asset Trust 1998-E 18,000 6.17125%, 8/18/00(b)/(c) (cost $18,000,000, date purchased 9/23/98) 18,000,000 Travelers Insurance Co. 8,000 5.34%, 7/6/00(b)/(c) (cost $8,000,000, date purchased 7/6/99) 8,000,000 25,000 6.16%, 2/23/01(b)/(c) (cost $25,000,000, date purchased 2/24/00) 25,000,000 United States Bancorp 10,000 5.05%, 8/16/00(b) 10,001,849 United States Bank, N.A. 17,000 4.91%, 6/21/00(b) 16,997,404 -------------- 583,232,629
See Notes to Financial Statements 11 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Portfolio of Investments as of March 31, 2000 Cont'd.
Principal Amount (000) Description Value (Note 1) - ---------------------------------------------------------------------------------------- Repurchase Agreement(d) 3.0% $ 59,253 Goldman, Sachs & Co., 6.2%, dated 3/31/00, due 4/3/00, in the amount of $59,283,614 (cost $59,253,000, value of collateral including accrued interest-$60,438,618) $ 59,253,000 Total Investments 99.5% (amortized cost $1,964,566,229(a)) 1,964,566,229 Other assets in excess of liabilities 0.5% 8,930,597 -------------- Net Assets 100% $1,973,496,826 -------------- --------------
- -------------------------------------------------------------------------------- (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 latter 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 $145,534,833. The aggregate value ($145,534,833) is approximately 7.4% of net assets. (d) Repurchase Agreement collateralized by U.S. Treasury or Federal agency obligations. The industry classification of portfolio holdings and other assets in excess of liabilities shown as a percentage of net assets as of March 31, 2000 was as follows: Commercial Banks 48.9% Motor Vehicle Parts 10.7 Bank Holding Companies-Domestic 9.1 Short-Term Business Credit 7.9 Asset Backed Securities 7.7 Personal Credit Institutions 4.4 Life Insurance 3.7 Phone Communications 3.0 Securities Brokers & Dealers 2.4 Mortgage Banks 0.7 Accident & Health Insurance 0.6 Aircrafts & Parts 0.3 Fire, Marine, Casualty Insurance 0.1 ----- 99.5 ----- Other assets in excess of liabilities 0.5 ----- 100% ----- -----
12 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Statement of Assets and Liabilities
March 31, 2000 - ---------------------------------------------------------------------------------------- ASSETS Investments, at amortized cost which approximates market value $1,964,566,229 Cash 112 Interest receivable 12,170,858 Deferred expenses and other assets 17,396 ---------------- Total assets 1,976,754,595 ---------------- LIABILITIES Dividends payable 2,729,373 Accrued expenses 302,775 Management fee payable 216,980 Distribution fee payable 8,641 ---------------- Total liabilities 3,257,769 ---------------- NET ASSETS $1,973,496,826 ---------------- ---------------- Net assets were comprised of: Common stock, at par $ 1,973,497 Paid-in capital in excess of par 1,971,523,329 ---------------- Net assets, March 31, 2000 $1,973,496,826 ---------------- ---------------- Class A: Net asset value, offering and redemption price per share ($371,866,196 / 371,866,196 shares of $.001 par value common stock issued and outstanding) $1.00 ---------------- ---------------- Class I: Net asset value, offering and redemption price per share ($1,601,630,630 / 1,601,630,630 shares of $.001 par value common stock issued and outstanding) $1.00 ---------------- ----------------
See Notes to Financial Statements 13 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Statement of Operations
Year Ended March 31, 2000 - --------------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest $ 109,695,442 ----------------- Expenses Management fee 4,020,175 Distribution fee--Class A 439,353 Transfer agent's fees and expenses 245,000 Custodian's fees and expenses 168,000 Registration fees 135,000 Reports to shareholders 30,000 Audit fee and expenses 25,000 Insurance expenses 23,000 Legal fees and expenses 20,000 Directors' fees and expenses 9,000 Miscellaneous 8,959 ----------------- Total expenses 5,123,487 Less: Expense subsidy (Note 4) (664,150) Management fee waiver (Note 2) (1,005,044) Distribution fee waiver (Note 2) (256,289) ----------------- Net expenses 3,198,004 ----------------- Net investment income 106,497,438 ----------------- Net realized loss on investment transactions (2,643) ----------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 106,494,795 ----------------- -----------------
14 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Statement of Changes in Net Assets
Year Ended March 31, ------------------------------------ 2000 1999 - --------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ 106,497,438 $ 90,223,983 Net realized gain (loss) on investment transactions (2,643) 33,231 ---------------- ---------------- Net increase in net assets resulting from operations 106,494,795 90,257,214 ---------------- ---------------- Dividends and distributions (Note 1) Class A (19,311,167) (12,867,746) Class I (87,183,628) (77,389,468) ---------------- ---------------- (106,494,795) (90,257,214) ---------------- ---------------- Fund share transactions Net proceeds from shares subscribed 16,932,830,624 14,846,339,434 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 90,454,251 78,273,080 Cost of shares reacquired (17,161,183,973) (13,864,423,952) ---------------- ---------------- Net increase (decrease) in net assets from Fund share transactions (137,899,098) 1,060,188,562 ---------------- ---------------- Total increase (decrease) (137,899,098) 1,060,188,562 NET ASSETS Beginning of year 2,111,395,924 1,051,207,362 ---------------- ---------------- End of year $ 1,973,496,826 $ 2,111,395,924 ---------------- ---------------- ---------------- ----------------
See Notes to Financial Statements 15 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Notes to Financial Statements 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 commenced 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. Repurchase Agreements: In connection with transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, as the case may be under triparty repurchase agreements, takes possession of the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase agreement exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. 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. 16 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Notes to Financial Statements Cont'd. 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 $1,005,044 ($.0005 per share) for the year ended March 31, 2000. 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 has agreed to waive a portion (.07 of 1% of the Series' average daily net assets) of the distribution fee, which amounted to $256,289 ($.0001 per share) for the year ended March 31, 2000. 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 17 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Notes to Financial Statements Cont'd. $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 source of funding for capital share redemptions. The Fund has not borrowed any amounts pursuant to the Agreement during the year ended March 31, 2000. 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 year ended March 31, 2000, the Series incurred fees of $240,000 for the services of PMFS. As of March 31, 2000, $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 contractually agreed to subsidize operating expenses so that total Series operating expenses exclusive of distribution fees do not exceed .15% of the average daily net assets of the Class A and Class I shares. For the year ended March 31, 2000, such reimbursement amounted to $664,150 ($.0003 per share for Class A and I shares; .03% of average net assets). 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 March 31, 2000, Prudential owned 2,387,637 Class I shares. 18 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Notes to Financial Statements Cont'd. Transactions in shares of common stock (at $1 per share) were as follows:
Shares and Class A Dollar Amount - ------------------------------------------------------------------- ---------------- Year ended March 31, 2000: Shares sold 895,312,228 Shares issued in reinvestment of dividends and distributions 18,549,671 Shares reacquired (804,323,779) ---------------- Net increase in shares outstanding before conversion 109,538,120 Shares reacquired upon conversion into Class I (98,839,128) ---------------- Net increase in shares outstanding 10,698,992 ---------------- ---------------- 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 ---------------- ---------------- Class I - ------------------------------------------------------------------- Year ended March 31, 2000: Shares sold 16,037,518,396 Shares issued in reinvestment of dividends and distributions 71,904,580 Shares reacquired (16,356,860,194) ---------------- Net decrease in shares outstanding before conversion (247,437,218) Shares issued upon conversion from Class A 98,839,128 ---------------- Net decrease in shares outstanding (148,598,090) ---------------- ---------------- 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 ---------------- ----------------
19 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Financial Highlights
Class A -------------------- Year Ended March 31, 2000 - --------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 1.000 -------------- Net investment income and net realized gains (losses) .053(b) Dividends and distributions to shareholders (.053) -------------- Net asset value, end of year $ 1.000 -------------- -------------- TOTAL RETURN(a): 5.38% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000) $371,866 Average net assets (000) $366,127 Ratios to average net assets: Expenses, including distribution fee .20%(b) Expenses, excluding distribution fee .15%(c) Net investment income 5.27%(b)
- --------------- (a) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. (b) Net of management and distribution fee waiver/expense subsidy. (c) Net of management fee waiver/expense subsidy. 20 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Financial Highlights Cont'd.
Class A - ----------------------------------------------------- Year Ended March 31, - ----------------------------------------------------- 1999 1998 1997 1996 - ----------------------------------------------------- $ 1.000 $ 1.000 $ 1.000 $ 1.000 - -------- -------- -------- -------- .053(b) .055(b) .050 .056 (.053) (.055) (.050) (.056) - -------- -------- -------- -------- $ 1.000 $ 1.000 $ 1.000 $ 1.000 - -------- -------- -------- -------- - -------- -------- -------- -------- 5.39% 5.63% 5.16% 5.72% $361,167 $140,813 $478,045 $440,842 $247,471 $217,881 $449,393 $519,946 .20%(b) .29%(b) .46% .43% .15%(c) .21%(c) .34% .31% 5.20%(b) 5.42%(b) 5.03% 5.56%
See Notes to Financial Statements 21 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Financial Highlights Cont'd.
Class I ------------------------------------------ July 9, Year Ended March 31, 1997(b) ------------------------ Through 2000 1999 March 31, 1998 - ---------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 ---------- ---------- -------------- Net investment income and net realized gains (losses) .053(d) .053(d) .041(d) Dividends and distributions to shareholders (.053) (.053) (.041) ---------- ---------- -------------- Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 ---------- ---------- -------------- ---------- ---------- -------------- TOTAL RETURN(a): 5.43% 5.45% 4.15% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $1,601,631 $1,750,229 $910,394 Average net assets (000) $1,643,961 $1,470,082 $814,138 Ratios to average net assets: Expenses, including distribution fee .15%(d) .15%(d) .15%(c /(d) Expenses, excluding distribution fee .15%(d) .15%(d) .15%(c /(d) Net investment income 5.30%(d) 5.26%(d) 5.60%(c /(d)
- --------------- (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. 22 See Notes to Financial Statements Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Report of Independent Accountants To the Shareholders and Board of Directors of Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prudential Institutional Liquidity Portfolio, Inc.--Institutional Money Market Series (the 'Fund') at March 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2000 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. The accompanying financial highlights for the year ended March 31, 1996 were audited by other independent accountants, whose opinion dated May 9, 1996 was unqualified. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York May 19, 2000 See Notes to Financial Statements 23 Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Mutual Fund Family Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Prudential Emerging Growth Fund, Inc. Prudential Equity Fund, Inc. Prudential Equity Income Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Jennison Growth & Income Fund Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Small-Cap Quantum Fund, Inc. Prudential Small Company Value Fund, Inc. Prudential Stock Index Fund Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential 20/20 Focus Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Asset Allocation/Balanced Funds Prudential Balanced Fund Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund GLOBAL FUNDS Global Stock Funds Prudential Developing Markets Fund Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Europe Growth Fund, Inc. Prudential Global Genesis Fund, Inc. Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund _Prudential Jennison International Growth Fund Global Utility Fund, Inc. Target Funds International Equity Fund Global Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond Fund, Inc. www.prudential.com (800) 521-7466 BOND FUNDS Taxable Bond Funds Prudential Diversified Bond Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Short-Intermediate Term Series Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Structured Maturity Fund, Inc. Income Portfolio Target Funds Total Return Bond Fund Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Income Series Insured Series Prudential Municipal Series Fund Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund, Inc. MONEY MARKET FUNDS Taxable Money Market Funds Cash Accumulation Trust Liquid Assets Fund National Money Market Fund Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund, Inc. Money Market Series Prudential MoneyMart Assets, Inc. Tax-Free Money Market Funds Prudential Tax-Free Money Fund, Inc. Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series Command Funds Command Money Fund Command Government Fund Command Tax-Free Fund Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series 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. www.prudential.com (800) 521-7466 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 on the U.S. market and denominated in U.S. dollars. Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Getting the Most From Your Prudential Mutual Fund When you invest through Prudential Mutual Funds, you receive financial advice from a Prudential Securities Financial Advisor or 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. Risk can be difficult to gauge--some_times 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 available mutual funds to find the ones that fit your 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 should remind you that you're investing for the long haul. For More Information Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Visit Prudential's web site at: http://www.prudential.com Directors 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 David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer Robert C. Rosselot, Secretary Stephen M. Ungerman, Assistant Treasurer William V. Healey, Assistant Secretary Manager Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Adviser The Prudential Investment Corporation Prudential Plaza Newark, NJ 07102-3777 Distributor Prudential 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 194 Wood Avenue South Iselin, NJ 08830 Independent Accountants PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Sullivan & Cromwell 125 Broad Street New York, NY 10004 Cusip Numbers Class A 744350109 Class I 744350604 MF 181E (LOGO) Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----