<PAGE>
LIQUID INSTITUTIONAL RESERVES ANNUAL REPORT
June 16, 1997
Dear Shareholder,
We are pleased to present you with the annual report for Liquid
Institutional Reserves for the year ended April 30, 1997.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
For over a year, the short-term U.S. Treasury market has been driven by
rising and falling inflationary expectations. The U.S. economy is still
running at a balance of approximately 3% annual growth, 5% unemployment (near
a post-World War II low) and 2.0% to 3.0% annual inflation (the moderate
range). The Federal Reserve raised short-term interest rates a quarter of a
percentage point in March but has otherwise not acted this year.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
The Funds' annualized yields are listed below. You'll note that these
numbers are roughly in line with last year's figures, and slightly higher
than six months ago. The average money market fund, as measured by Lipper
Analytical Services Inc., had a 4.94% 7-day yield, for the period ended April
30, 1997.
Our strategy in this kind of market was to maintain each Fund's weighted
average maturity longer than the average of that of our peers. This strategy
lets us make purchases when market prices are low, to obtain higher yields
without sacrificing credit quality or liquidity.
ANNUALIZED YIELDS AS OF 4/30/97
- -------------------------------------------------------------------------------
Current Effective Weighted Average
7-Day Yield 7-Day Yield Maturity
- -------------------------------------------------------------------------------
Money Market Fund 5.35% 5.49% 46 DAYS
Government Securities Fund 5.19 5.33 42 DAYS
Treasury Securities Fund 5.06 5.18 66 DAYS
- -------------------------------------------------------------------------------
1
<PAGE>
ANNUAL REPORT
OUTLOOK
- --------------------------------------------------------------------------------
We believe the recent release of non-inflationary economic data means the
Federal Reserve is unlikely to raise interest rates in the next three to six
months. In fact, several Fed officials have commented that the economy shows
signs of weakness approaching the second half of the year.
For the past year, the bond market has traded in a relatively narrow
range, with the long-term Treasury bond yielding between 6.75% and 7.25%. In
this kind of environment, we view a down market as an opportunity to buy
securities at low prices--and we generally expect to continue to maintain
weighted average maturities that are on average five to 10 days longer than
the competition, to help improve yields.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support and welcome any comments or questions you may have.
Sincerely,
/s/ Margo N. Alexander /s/ Dennis L. McCauley /s/ Susan P. Ryan
MARGO N. ALEXANDER DENNIS L. MCCAULEY SUSAN P. RYAN
President, Managing Director and Senior Vice President,
Mitchell Hutchins Asset Chief Investment Mitchell Hutchins Asset
Management Inc. Officer--Fixed Income, Management Inc.
Mitchell Hutchins Asset
Management Inc.
2
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--4.94%
$ 3,000 Federal Farm Credit Bank*..... 05/01/97 5.605% $ 2,999,935
25,000 Federal Home Loan Bank........ 12/17/97 to 03/19/98 5.625 to 5.880 25,000,000
5,000 Federal Home Loan Mortgage
Corporation................. 08/28/97 5.640 4,996,026
18,600 Student Loan Marketing
Association................. 06/30/97 to 01/23/98 5.750 to 5.870 18,602,558
10,000 Student Loan Marketing
Association*................ 05/06/97 5.540 to 5.560 10,000,000
-------------
61,598,519
Total U.S. Government Agency Obligations
(cost--$61,598,519)........................
-------------
DOMESTIC BANK NOTES--5.78%
42,100 Bank of America National Trust
and Savings Association..... 05/28/97 to 11/21/97 5.520 to 6.000 42,100,752
5,000 Comerica N.A. Bank Detroit*... 05/06/97 5.660 4,999,990
10,000 F.C.C. National Bank.......... 05/12/97 to 03/25/98 5.500 to 6.000 9,997,526
15,000 Wachovia Bank of North
Carolina.................... 05/09/97 5.550 14,999,989
-------------
72,098,257
Total Domestic Bank Notes
(cost--$72,098,257)........................
-------------
CERTIFICATES OF DEPOSIT--14.36%
DOMESTIC--3.61%
30,000 American Express Centurion
Bank........................ 05/07/97 to 05/23/97 5.540 to 5.580 30,000,017
10,000 Bankers Trust Company*........ 05/06/97 5.830 9,996,898
5,000 Morgan Guaranty Trust
Company..................... 08/12/97 5.730 4,999,717
-------------
44,996,632
-------------
YANKEE--10.75%
6,000 ABN Amro Bank N.V............. 12/04/97 5.500 5,993,262
57,000 Canadian Imperial Bank of
Commerce.................... 05/08/97 to 02/27/98 5.530 to 5.760 56,996,846
7,000 Creditanstalt-Bankverein...... 05/09/97 5.570 7,000,058
15,000 Deutsche Bank AG.............. 05/27/97 to 10/24/97 5.540 to 6.110 14,999,966
3,000 Rabobank Nederland............ 03/20/98 5.980 2,999,492
36,000 Societe Generale.............. 05/01/97 to 03/03/98 5.430 to 6.090 35,996,519
10,000 Svenska Handelsbanken......... 05/28/97 5.550 10,000,075
-------------
133,986,218
-------------
178,982,850
Total Certificates of Deposit
(cost--$178,982,850).......................
-------------
COMMERCIAL [email protected]%
ASSET-BACKED--11.10%
35,000 Asset Securitization
Cooperative Corporation..... 05/05/97 to 05/13/97 5.530 to 5.550 34,961,558
38,407 Delaware Funding
Corporation................. 05/07/97 to 05/15/97 5.510 to 5.560 38,356,381
23,100 Eiger Capital Corporation..... 05/12/97 5.510 to 5.530 23,061,084
30,141 Enterprise Funding
Corporation................. 05/06/97 to 05/21/97 5.360 to 5.500 30,095,709
11,980 Riverwoods Funding
Corporation................. 05/12/97 5.510 11,959,830
-------------
138,434,562
-------------
</TABLE>
3
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER@--(CONTINUED)
AUTO & TRUCK--0.64%
$ 8,000 PACCAR Financial
Corporation................. 05/09/97 5.500% $ 7,990,222
-------------
BANKING--8.86%
22,000 Abbey National North
America..................... 06/11/97 to 10/14/97 5.280 to 5.740 21,691,687
10,000 BBL North America
Incorporated................ 05/06/97 5.350 9,992,569
2,000 BEX America Finance
Incorporated................ 05/27/97 5.540 1,991,998
10,000 Cariplo Finance
Incorporated................ 05/19/97 5.530 9,972,350
7,000 Credito Italiano Delaware,
Incorporated................ 06/18/97 5.600 6,947,733
15,000 Cregem North America
Incorporated................ 05/27/97 to 06/17/97 5.330 to 5.370 14,926,452
7,000 Nordbanken North America
Incorporated................ 07/01/97 5.640 6,933,103
18,350 Societe Generale North America
Incorporated................ 05/16/97 5.510 18,307,871
19,780 Unifunding Incorporated....... 05/12/97 5.520 to 5.550 19,746,594
-------------
110,510,357
-------------
BROKER-DEALER--4.80%
15,000 Goldman Sachs Group L.P....... 05/05/97 5.530 14,990,783
10,000 Merrill Lynch & Co.,
Incorporated................ 05/19/97 5.520 9,972,400
35,000 Morgan Stanley Group
Incorporated................ 05/15/97 to 05/22/97 5.280 to 5.520 34,909,110
-------------
59,872,293
-------------
CHEMICALS--1.84%
23,000 Great Lakes Chemical
Corporation................. 05/21/97 to 05/27/97 5.510 22,911,229
-------------
CONSUMER PRODUCTS--4.01%
50,000 Gillette Company.............. 05/01/97 5.600 50,000,000
-------------
DRUGS & MEDICINE--4.32%
23,000 Novartis Finance
Corporation................. 05/02/97 to 05/08/97 5.470 to 5.500 22,982,742
18,000 Pfizer Incorporated........... 05/01/97 to 05/12/97 5.500 17,974,792
13,000 Zeneca Wilmington
Incorporated................ 05/22/97 5.500 12,958,292
-------------
53,915,826
-------------
FINANCE-CONDUIT--9.22%
37,000 ANZ (Delaware) Incorporated... 05/02/97 to 05/28/97 5.530 to 5.550 36,958,209
18,018 MetLife Funding
Incorporated................ 05/23/97 5.470 17,957,770
50,000 UBS Finance (Delaware)
Incorporated................ 05/01/97 5.600 50,000,000
10,000 Svenska Handelsbanken
Incorporated................ 05/27/97 5.340 9,961,433
-------------
114,877,412
-------------
</TABLE>
4
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER@--(CONCLUDED)
FINANCE-DIVERSIFIED--4.00%
$ 40,000 Associates Corporation of
North America............... 05/14/97 to 05/29/97 5.510 to 5.540% $ 39,874,028
10,000 Barclays US Funding
Corporation................. 05/16/97 5.500 9,977,083
-------------
49,851,111
-------------
FINANCE-SUBSIDIARY--4.00%
30,000 Credit Suisse Financial
Services Incorporated....... 05/07/97 to 05/13/97 5.530 to 5.550 29,963,067
10,000 Deutsche Bank Financial
Incorporated................ 05/08/97 5.470 9,989,364
10,000 Dresdner U.S. Finance
Incorporated................ 05/29/97 5.530 9,956,989
-------------
49,909,420
-------------
FOOD, BEVERAGE & TOBACCO--5.25%
15,000 American Brands
Incorporated................ 05/02/97 5.460 14,997,725
20,000 B.A.T. Capital Corporation.... 05/08/97 5.540 19,978,456
18,500 Campbell Soup Company......... 05/05/97 5.500 18,488,694
2,000 Nestle Capital Corporation.... 05/02/97 5.450 1,999,697
10,000 Sara Lee Corporation.......... 05/01/97 5.550 10,000,000
-------------
65,464,572
-------------
METALS & MINING--4.19%
47,300 RTZ America Incorporated...... 05/01/97 to 06/30/97 5.510 to 5.580 47,224,429
5,000 U.S. Borax Incorporated....... 06/10/97 5.350 4,970,278
-------------
52,194,707
-------------
MISCELLANEOUS--1.74%
22,000 Beta Finance Incorporated..... 05/19/97 to 10/10/97 5.290 to 5.700 21,629,123
-------------
PRINTING AND PUBLISHING--0.68%
8,500 Reed Elsevier (USA)
Incorporated................ 05/05/97 to 06/12/97 5.380 to 5.500 8,466,478
-------------
806,027,312
Total Commercial Paper
(cost--$806,027,312).......................
-------------
SHORT-TERM CORPORATE OBLIGATIONS--8.70%
AUTO & TRUCK--0.26%
3,210 Ford Motor Credit
Corporation*................ 05/05/97 5.763 3,213,563
-------------
BROKER-DEALER--3.93%
10,000 Bear Stearns Companies
Incorporated*............... 05/07/97 to 05/30/97 5.668 to 5.718 10,000,000
2,000 Bear Stearns Companies
Incorporated................ 07/03/97 5.970 2,000,000
27,000 Merrill Lynch & Co.,
Incorporated*............... 05/01/97 to 05/12/97 5.680 to 5.880 26,998,549
10,000 Merrill Lynch & Co.,
Incorporated................ 03/16/98 5.655 9,999,167
-------------
48,997,716
-------------
</TABLE>
5
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
SHORT-TERM CORPORATE OBLIGATIONS--(CONCLUDED)
FINANCE-CONSUMER--0.56%
$ 6,950 American General Finance
Corporation................. 05/15/97 7.150% $ 6,953,271
-------------
FINANCE-DIVERSIFIED--1.55%
14,200 Associates Corporation of
North America............... 06/15/97 to 03/15/98 7.300 to 8.625 14,366,469
5,000 CIT Group Holdings
Incorporated*............... 05/01/97 5.600 5,000,000
-------------
19,366,469
-------------
MISCELLANEOUS--2.40%
15,000 Beta Finance Incorporated*.... 05/06/97 5.860 to 5.880 15,000,000
15,000 Beta Finance Incorporated..... 12/10/97 to 01/28/98 5.550 to 5.820 15,000,000
-------------
30,000,000
-------------
108,531,019
Total Short-Term Corporate Obligations
(cost--$108,531,019).......................
-------------
REPURCHASE AGREEMENTS--1.39%
15,002 Repurchase agreement dated
04/30/97 with Citicorp
Securities, Incorporated,
collateralized by
$15,695,000 U.S. Treasury
Notes, 5.750%, due 10/31/00;
proceeds: $15,004,250....... 05/01/97 5.400 15,002,000
2,363 Repurchase agreement dated
04/30/97 with Citicorp
Securities, Incorporated,
collateralized by $2,440,000
U.S. Treasury Notes, 6.250%,
due 04/30/01; proceeds:
$2,363,354.................. 05/01/97 5.400 2,363,000
-------------
17,365,000
Total Repurchase Agreements
(cost--$17,365,000)........................
-------------
1,244,602,957
Total Investments (cost--$1,244,602,957
which approximates cost for federal income
tax purposes)--99.82%......................
2,196,127
Other assets in excess of
liabilities--0.18%.........................
-------------
$1,246,799,084
Net Assets--100.00%........................
-------------
-------------
</TABLE>
- -----------------
@ Interest rates shown are the discount rates at date of purchase.
* Variable rate security--maturity date reflects earlier of reset date or
maturity date. The interest rates shown are the current rates as of April 30,
1997 and reset periodically.
Weighted average maturity--46 days
See accompanying notes to financial statements
6
<PAGE>
LIQUID INSTITUTIONAL RESERVES--GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--85.35%
$ 1,000 U.S. Treasury Notes........... 04/30/98 5.875% $ 997,926
18,000 Federal Farm Credit Bank@..... 05/06/97 to 02/27/98 5.210 to 5.400 17,869,235
3,000 Federal Farm Credit Bank*..... 05/01/97 5.605 2,999,935
21,785 Federal Home Loan Bank@....... 05/01/97 to 12/22/97 5.210 to 5.340 21,709,828
5,700 Federal Home Loan Bank........ 06/20/97 to 03/19/98 5.420 to 6.000 5,699,634
5,000 Federal Home Loan Mortgage
Corp.@...................... 05/22/97 to 07/11/97 5.350 to 5.500 4,968,943
5,000 Federal National Mortgage
Association@................ 05/02/97 5.170 4,999,282
17,000 Student Loan Marketing
Association@................ 05/01/97 to 05/06/97 5.190 to 5.280 16,998,557
5,000 Student Loan Marketing
Association*................ 05/06/97 5.710 5,002,657
1,950 Student Loan Marketing
Association................. 09/12/97 to 03/20/98 5.630 to 5.965 1,950,170
8,000 Tennessee Valley Authority@... 05/06/97 to 05/12/97 5.200 to 5.220 7,991,608
-------------
91,187,775
Total U.S. Government and Agency
Obligations--(cost--$91,187,775)...........
-------------
91,187,775
Total Investments (cost--$91,187,775 which
approximates cost for federal income tax
purposes)--85.35%..........................
15,655,139
Other assets in excess of
liabilities--14.65%**......................
-------------
$ 106,842,914
Net Assets--100.00%........................
-------------
-------------
</TABLE>
- -----------------
@ Interest rates shown are the discount rates at date of purchase.
* Variable rate securities--maturity date reflects earlier of reset date or
maturity date. The interest rates shown are the current rates as of April 30,
1997 and reset periodically.
** Includes a receivable of $15,708,666 from the sale of $15,623,000 U.S.
Treasury Note, 5.750%, due September 30 1997; sold on April 30, 1997,
settling on May 1, 1997, yielding 5.551%.
Weighted average maturity--42 days
See accompanying notes to financial statements
7
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- --------- -------------------- ---------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--60.32%
$ 36,000 U.S. Treasury Bills@.......... 05/22/97 to 04/02/98 5.000 to 5.640% $ 35,744,445
4,000 U.S. Treasury Notes........... 06/30/97 to 04/30/98 5.625 to 6.125 3,999,492
-------------
39,743,937
Total U.S. Government Securities
(cost--$39,743,937)........................
-------------
39,743,937
Total Investments (cost--$39,743,937 which
approximates cost for federal income tax
purposes)--60.32%..........................
26,148,787
Other assets in excess of
liabilities--39.68%*.......................
-------------
$ 65,892,724
Net Assets--100.00%........................
-------------
-------------
</TABLE>
- -----------------
@ Interest rates shown are the discount rates at date of purchase.
* Includes a receivable of $26,270,263 from the sale of a $26,127,000 U.S.
Treasury Note, 5.750%, due September 30, 1997; sold on April 30, 1997,
settling on May 1, 1997, yielding 5.551%.
Weighted average maturity--66 days
See accompanying notes to financial statements
8
<PAGE>
LIQUID INSTITUTIONAL RESERVES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1997
<TABLE>
<CAPTION>
TREASURY
GOVERNMENT SECURITIES
MONEY MARKET FUND SECURITIES FUND FUND
-------------------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at
value (cost --
$1,244,602,957, $91,187,775
and $39,743,937
respectively)............... $1,244,602,957 $91,187,775 $39,743,937
Interest receivable........... 5,024,141 161,395 40,437
Receivable for investments
sold........................ -- 15,708,666 26,270,263
Receivable from investment
adviser..................... -- 19,124 9,536
Other assets.................. 138,788 71,075 33,947
-------------------- ---------------- -------------
Total assets.................. 1,249,765,886 107,148,035 66,098,120
-------------------- ---------------- -------------
LIABILITIES
Dividends payable............. 2,653,627 200,275 123,179
Payable to affiliates......... 211,330 -- --
Accrued expenses and other
liablilties................. 101,845 104,846 82,217
-------------------- ---------------- -------------
Total liabilities............. 2,966,802 305,121 205,396
-------------------- ---------------- -------------
NET ASSETS
Beneficial interest shares of
$0.001 par value outstanding
(unlimited amount
authorized)................. 1,246,796,387 106,857,179 65,914,943
Accumulated net realized gains
(losses) from investments... 2,697 (14,265) (22,219)
-------------------- ---------------- -------------
Net assets.................... $1,246,799,084 $106,842,914 $65,892,724
-------------------- ---------------- -------------
-------------------- ---------------- -------------
Outstanding shares of
beneficial interest ($0.001
par value):
Institutional Shares.......... 1,246,796,387 106,857,179 65,914,943
-------------------- ---------------- -------------
-------------------- ---------------- -------------
Net asset value, offering
price and redemption value
per share................... $1.00 $1.00 $1.00
-------------------- ---------------- -------------
-------------------- ---------------- -------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
LIQUID INSTITUTIONAL RESERVES
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30, 1997
-------------------------------------------------------
TREASURY
GOVERNMENT SECURITIES
MONEY MARKET FUND SECURITIES FUND FUND
-------------------- ---------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest...................... $48,218,726 $4,378,869 $2,106,270
----------- ---------------- -------------
EXPENSES:
Investment advisory and
administration.............. 2,196,654 203,152 99,845
State and federal registration
fees........................ 156,478 71,467 64,802
Custody and accounting........ 88,529 43,126 34,999
Legal and audit............... 77,535 34,793 33,662
Reports and notices to
shareholders................ 43,263 19,577 17,090
Transfer agency and service
fees........................ 15,563 11,070 11,043
Trustees' fees................ 12,250 12,250 12,250
Other expenses................ 63,761 33,322 13,234
----------- ---------------- -------------
2,654,033 428,757 286,925
Less: Fee waivers and expense
reimbursements from
adviser..................... (439,015) (185,143 ) (167,206)
----------- ---------------- -------------
Net expenses.................. 2,215,018 243,614 119,719
----------- ---------------- -------------
Net investment income......... 46,003,708 4,135,255 1,986,551
NET REALIZED GAINS (LOSSES)
FROM INVESTMENT
TRANSACTIONS................ 9,814 (10,497 ) 9,062
----------- ---------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $46,013,522 $4,124,758 $1,995,613
----------- ---------------- -------------
----------- ---------------- -------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
APRIL 30,
-----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................ $ 46,003,708 $ 14,502,633
Net realized gains (losses) from investment
transactions............................... 9,814 (110)
-------------- ------------
Net increase in net assets resulting from
operations................................. 46,013,522 14,502,523
-------------- ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional
Shares..................................... (46,003,708) (14,509,640)
-------------- ------------
NET INCREASE IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS...................... 824,910,772 201,041,615
-------------- ------------
Net increase in net assets................... 824,920,586 201,034,498
NET ASSETS:
Beginning of year............................ 421,878,498 220,844,000
-------------- ------------
End of year.................................. $1,246,799,084 $421,878,498
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
LIQUID INSTITUTIONAL RESERVES--GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
APRIL 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.......................... $ 4,135,255 $ 2,626,268
Net realized gains (losses) from investment
transactions................................. (10,497) 50,911
------------ ------------
Net increase in net assets resulting from
operations................................... 4,124,758 2,677,179
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares.... (4,140,330) (2,675,931)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS............. 63,088,916 (11,134,345)
------------ ------------
Net increase (decrease) in net assets.......... 63,073,344 (11,133,097)
NET ASSETS:
Beginning of year.............................. 43,769,570 54,902,667
------------ ------------
End of year.................................... $106,842,914 $ 43,769,570
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
APRIL 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................ $ 1,986,551 $ 1,115,176
Net realized gains from investment
transactions................................... 9,062 35,745
----------- -----------
Net increase in net assets resulting from
operations..................................... 1,995,613 1,150,921
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares...... (1,986,551) (1,183,400)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
BENEFICIAL INTEREST TRANSACTIONS............... 46,259,585 (4,105,788)
----------- -----------
Net increase (decrease) in net assets............ 46,268,647 (4,138,267)
NET ASSETS:
Beginning of year................................ 19,624,077 23,762,344
----------- -----------
End of year...................................... $65,892,724 $19,624,077
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Liquid Institutional Reserves (the "Trust") is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The Trust currently
offers three no-load series: the Money Market Fund, the Government Securities
Fund and the Treasury Securities Fund (collectively, the "Funds").
The Funds offer two classes of shares, Institutional shares and Financial
Intermediary shares. Each class represents interests in the same assets of a
Fund, and both classes have equal voting privileges, except that beneficial
owners of Financial Intermediary shares receive certain services directly from
financial intermediaries, bear certain service fees and enjoy exclusive voting
rights on matters relating to these services and fees. For the year ended April
30, 1997, there were no Financial Intermediary shares outstanding.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. Following is a summary of
significant accounting policies:
VALUATION AND ACCOUNTING FOR INVESTMENTS AND INVESTMENT INCOME--Investments
are valued at amortized cost which approximates market value. Investment
transactions are recorded on the trade date. Realized gains and losses from
investment transactions are calculated using the identified cost method.
Interest income is recorded on an accrual basis. Premiums are amortized and
discounts are accreted as adjustments to interest income and the identified cost
of investments.
REPURCHASE AGREEMENTS--The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event that a
counterparty defaults on its obligation to repurchase, the Funds have the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Funds occasionally
participate in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber") and sub-adviser and
sub-administrator of the Funds.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. These "book/ tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Funds to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust has an Investment Advisory and Administration Contract ("Advisory
Contract") with PaineWebber under which PaineWebber serves as investment adviser
and administrator of the Funds. In accordance with the Advisory Contract,
PaineWebber receives compensation from the Funds, computed daily and paid
monthly, at an annual rate of 0.25% of each Fund's average daily net assets.
Mitchell Hutchins serves as sub-adviser and sub-administrator of the Trust
pursuant to a Sub-Advisory and Sub-Administration Contract ("Sub-Advisory
Contract") between PaineWebber and Mitchell Hutchins. In accordance with the
Sub-Advisory Contract, PaineWebber (not the Funds) pays Mitchell Hutchins a fee,
computed daily and paid monthly, at an annual rate of 50% of the fee paid by
each Fund to PaineWebber under the Advisory Contract.
For the year ended April 30, 1997, PaineWebber has voluntarily undertaken to
waive 0.05% of these advisory fees and reimburse a portion of expenses to
maintain each Fund's total annual operating expenses at a level not exceeding
0.30% and 0.55% of the Funds' average daily net assets for Institutional shares
and Financial Intermediary shares, respectively.
FEDERAL TAX STATUS
Each Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of their net investment income, capital gains and certain other amounts, if
any, the Funds intend not to be subject to a federal excise tax.
At April 30, 1997, the Treasury Securities Fund had a net capital loss
carryforward of $8,501. The loss carryforward is available as a reduction, to
the extent provided in the regulations, of future net realized capital gains,
and will expire by April 30, 2004. To the extent these losses are used to offset
future capital gains, it is probable that the gains so offset will not be
distributed.
15
<PAGE>
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial interest
authorized. Transactions in shares of beneficial interest, at $1.00 per share,
were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
------------------------------
FOR THE YEARS ENDED APRIL 30,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
MONEY MARKET FUND:
Shares sold....................................................................................... 8,398,406,989 3,503,837,331
Shares repurchased................................................................................ (7,616,174,223) (3,316,243,676)
Dividends reinvested.............................................................................. 42,678,006 13,447,960
-------------- --------------
Net increase in shares outstanding................................................................ 824,910,772 201,041,615
-------------- --------------
-------------- --------------
GOVERNMENT SECURITIES FUND:
Shares sold....................................................................................... 670,826,717 370,955,813
Shares repurchased................................................................................ (611,609,161) (384,645,929)
Dividends reinvested.............................................................................. 3,871,360 2,555,771
-------------- --------------
Net increase (decrease) in shares outstanding..................................................... 63,088,916 (11,134,345)
-------------- --------------
-------------- --------------
TREASURY SECURITIES FUND:
Shares sold....................................................................................... 439,537,681 376,474,093
Shares repurchased................................................................................ (395,078,231) (381,685,003)
Dividends reinvested.............................................................................. 1,800,135 1,105,122
-------------- --------------
Net increase (decrease) in shares outstanding..................................................... 46,259,585 (4,105,788)
-------------- --------------
-------------- --------------
</TABLE>
For the years ended April 30, 1997 and April 30, 1996, there were no
transactions in Financial Intermediary Shares.
16
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES FINANCIAL INTERMEDIARY SHARES**
-------------------------------------------------- --------------------------------
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 17,
APRIL 30, FOR THE YEAR 1994+
-------------------------------------------------- ENDED APRIL 30, TO
1997 1996 1995++ 1994 1993 1995++ APRIL 30, 1994
---------- -------- -------- -------- -------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- ------ ------
Net investment income.............. 0.052 0.055 0.048 0.030 0.031 0.027 0.004
Net realized losses from investment
transactions..................... -- -- (0.008) -- -- -- --
---------- -------- -------- -------- -------- ------ ------
Net increase from investment
operations....................... 0.052 0.055 0.040 0.030 0.031 0.027 0.004
---------- -------- -------- -------- -------- ------ ------
Dividends from net investment
income........................... (0.052) (0.055) (0.048) (0.030) (0.031) (0.027) (0.004)
---------- -------- -------- -------- -------- ------ ------
Contribution to capital from
predecessor adviser (1).......... -- -- 0.008 -- -- -- --
---------- -------- -------- -------- -------- ------ ------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- ------ ------
---------- -------- -------- -------- -------- ------ ------
Total investment return (2)........ 5.33% 5.61% 4.91% 3.03% 3.16% 3.10% 0.37%
---------- -------- -------- -------- -------- ------ ------
---------- -------- -------- -------- -------- ------ ------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $1,246,799 $421,878 $220,844 $254,281 $385,618 -- $ 9,000
Expenses to average net assets net
of waivers/ reimbursement from
adviser.......................... 0.25% 0.31% 0.35% 0.33% 0.34% 0.60%* 0.58%*
Expenses to average net assets
before waivers/ reimbursement
from adviser..................... 0.30% 0.37% 0.37% 0.33% 0.36% 0.62%* 0.58%*
Net investment income to average
net assets net of
waivers/reimbursements from
adviser.......................... 5.24% 5.47% 4.68% 2.96% 3.13% 4.17%* 2.93%*
Net investment income to average
net assets before
waivers/reimbursements from
adviser.......................... 5.19% 5.41% 4.66% 2.96% 3.11% 4.15%* 2.93%*
</TABLE>
- -----------------
+ Commencement of issuance of shares.
++ Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the years ended April 30, 1996 and 1997 and for the period December 24,
1994 to April 30, 1995 there were no outstanding Financial Intermediary
Shares.
(1) Kidder Peabody Asset Management, Inc., the Fund's predecessor investment
adviser and administrator, purchased certain of the Fund's variable rate
securities on July 6, 1994 at prices equal to the securities' amortized
cost plus accrued and unpaid interest. Since the purchases were made at
prices above the securities' current fair value, the Fund recorded a
contribution to capital.
(2) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. Total investment
return for periods of less than one year has not been annualized.
17
<PAGE>
LIQUID INSTITUTIONAL RESERVES--GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
FINANCIAL
INTERMEDIARY
INSTITUTIONAL SHARES SHARES**
------------------------------------------------- --------------
FOR THE PERIOD
FOR THE YEARS ENDED JULY 12, 1994+
APRIL 30, TO
------------------------------------------------- APRIL 30,
1997 1996 1995++ 1994 1993 1995++
------------ ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- ------- ------
Net investment income.............. 0.051 0.053 0.048 0.029 0.031 0.032
Net realized gains (losses) from
investment transactions.......... -- 0.001 (0.008) -- -- --
------------ ------- ------- ------- ------- ------
Net increase from investment
operations....................... 0.051 0.054 0.040 0.029 0.031 0.032
------------ ------- ------- ------- ------- ------
Dividends from net investment
income........................... (0.051) (0.054) (0.047) (0.029) (0.031) (0.032)
------------ ------- ------- ------- ------- ------
Contribution to capital from
predecessor adviser (1).......... -- -- 0.007 -- -- --
------------ ------- ------- ------- ------- ------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- ------- ------
------------ ------- ------- ------- ------- ------
Total investment return (2)........ 5.20% 5.50% 4.61% 2.97% 3.13% 3.31%
------------ ------- ------- ------- ------- ------
------------ ------- ------- ------- ------- ------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $ 106,843 $43,770 $54,903 $84,209 $102,611 --
Expenses to average net assets net
of waivers/reimbursements from
adviser.......................... 0.30% 0.32% 0.35% 0.35% 0.34% 0.60%*
Expenses to average net assets
before waivers/reimbursements
from adviser..................... 0.53% 0.56% 0.47% 0.37% 0.36% 0.72%*
Net investment income to average
net assets net of waivers/
reimbursements from adviser...... 5.09% 5.52% 4.75% 2.95% 3.11% 4.58%*
Net investment income to average
net assets before waivers/
reimbursements from adviser...... 4.86% 5.28% 4.63% 2.93% 3.09% 4.46%*
</TABLE>
- -----------------
+ Commencement of issuance of shares.
++ Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the year ended April 30, 1997 and for the period March 22, 1995 to April
30, 1996 there were no outstanding Financial Intermediary Shares.
(1) Kidder Peabody Asset Management, Inc., the Fund's predecessor investment
adviser and administrator, purchased certain of the Fund's variable rate
securities on July 6, 1994 at prices equal to the securiteis' amortized
cost plus accrued and unpaid interest. Since the purchases were made at
prices above the securities' current fair value, the Fund recorded a
contribution to capital.
(2) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each period reported. Total investment
return for periods of less than one year has not been annualized.
18
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
year is presented below:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
-------------------------------------------------
FOR THE YEARS ENDED
APRIL 30,
-------------------------------------------------
1997 1996 1995++ 1994 1993
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- -------
Net investment income.............. 0.049 0.048 0.049 0.028 0.029
Net realized gains (losses) from
investment transactions.......... -- 0.003 (0.002) -- --
------------ ------- ------- ------- -------
Net increase from investment
operations....................... 0.049 0.051 0.047 0.028 0.029
------------ ------- ------- ------- -------
Dividends from net investment
income........................... (0.049) (0.051) (0.047) (0.028) (0.029)
------------ ------- ------- ------- -------
Net asset value, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- -------
------------ ------- ------- ------- -------
Total investment return (1)........ 5.02% 5.23% 4.75% 2.87% 2.89%
------------ ------- ------- ------- -------
------------ ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $ 65,893 $19,624 $23,762 $38,602 $ 8,064
Expenses to average net assets net
of waivers/reimbursements from
adviser.......................... 0.30% 0.32% 0.22% 0.18% 0.33%
Expenses to average net assets
before waivers/reimbursements
from adviser..................... 0.72% 0.94% 0.84% 0.76% 1.10%
Net investment income to average
net assets net of
waivers/reimbursements from
adviser.......................... 4.97% 5.71% 5.51% 3.66% 3.65%
Net investment income to average
net assets before
waivers/reimbursements from
adviser.......................... 4.56% 5.09% 4.89% 3.08% 2.88%
</TABLE>
- -----------------
++ Sub-advisory functions for the Fund were transferred from Kidder Peabody
Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of the year reported, reinvestment of all dividends and
distributions at net asset value on the payable dates, and a sale at net
asset value on the last day of each year reported.
19
<PAGE>
LIQUID INSTITUTIONAL RESERVES
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
Liquid Institutional Reserves
We have audited the accompanying statement of assets and liabilities of Liquid
Institutional Reserves (comprising, respectively, the Money Market Fund,
Government Securities Fund and Treasury Securities Fund), including the
portfolios of investments as of April 30, 1997, and the related statement of
operations for the year then ended, and the statement of changes in net assets
and the financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the three years in the period ended April 30, 1995 were
audited by other auditors whose report dated June 9, 1995, expressed an
unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at April 30, 1997 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above and audited by us present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Liquid Institutional
Reserves at April 30, 1997, the results of their operations for the year then
ended, the changes in their net assets and the financial highlights for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles.
[ERNST & YOUNG SIGNATURE]
New York, New York
June 13, 1997
20
<PAGE>
LIQUID INSTITUTIONAL RESERVES
TAX INFORMATION--(UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of each Fund's fiscal year end (April 30,
1997) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all dividends
paid by the Money Market Fund, the Government Securities Fund and the Treasury
Securities Fund during the fiscal year were derived from net investment income.
These amounts are taxable as ordinary income, none of which qualifies for the
dividend received deduction available to corporate shareholders.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Because each Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1997. The second notification, which
will reflect the amounts to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 1998. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each
respective Fund.
21
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN
Meyer Feldberg
Margo N. Alexander
George W. Gowen
Richard Q. Armstrong
Frederic V. Malek
Richard R. Burt
Carl W. Schafer
OFFICERS
Margo N. Alexander Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Victoria E. Schonfeld Dennis L. McCauley
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Susan P. Ryan
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
INVESTMENT ADVISER,
ADMINISTRATOR AND DISTRIBUTOR
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
SUB-ADVISER AND SUB-ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION FOR ANY OF THE FUNDS LISTED
ON THE BACK COVER CAN BE OBTAINED FROM A PAINEWEBBER INVESTMENT EXECUTIVE OR
CORRESPONDENT FIRM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF
THE FUND UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
- -----
PaineWebber offers a family of 22 funds which encompass a diversified range
of investment goals.
BOND FUNDS
- - High Income Fund
- - Investment Grade Income Fund
- - Low Duration U.S. Government Income Fund
- - Strategic Income Fund
- - U.S. Government Income Fund
TAX-FREE BOND FUNDS
- - California Tax-Free Income Fund
- - Municipal High Income Fund
- - National Tax-Free Income Fund
- - New York Tax-Free Income Fund
STOCK FUNDS
- - Capital Appreciation Fund
- - Financial Services Growth Fund
- - Growth Fund
- - Growth and Income Fund
- - Small Cap Fund
- - Utility Income Fund
ASSET ALLOCATION FUNDS
- - Balanced Fund
- - Tactical Allocation Fund
GLOBAL FUNDS
- - Asia Pacific Growth Fund
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
PAINEWEBBER MONEY MARKET FUND
APRIL 30, 1997
ANNUAL REPORT
LIQUID
INSTITUTIONAL
RESERVES
PAINEWEBBER
- -Copyright-1997 PaineWebber Incorporated
Member SIPC
