<PAGE>
LIQUID INSTITUTIONAL RESERVES SEMIANNUAL REPORT
December 16, 1996
Dear Shareholder,
We are pleased to present you with the semiannual report for Liquid
Institutional Reserves (LIR) for the six months ended October 31, 1996. We would
also like to take this opportunity to thank you for your support. Over the past
year, assets in the three LIR Funds have passed the $1 billion mark. We look
forward to a continuing relationship with you.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
Early in the year, government reports showing higher-than-expected economic
growth prompted a shift in market sentiment, which in turn caused a sharp drop
in bond prices and ensuing stock market volatility. Several factors helped move
stocks higher despite this volatility, including an overall positive environment
for corporate earnings and profit growth as well as strong cash flows into
equity mutual funds. Then, in July, a spate of disappointing earnings
announcements helped contribute to the first meaningful overall stock market
correction since 1994. This proved short-lived, however, and in August the
market retraced much of the ground it had lost. By mid-September and into
October, as investor confidence grew, money returning to the equity markets
propelled the Standard & Poor's 500, a commonly used measure of stock market
performance, to record highs (a circumstance which underscores the hazards of
market timing). The Federal Reserve Board (the "Fed") echoed investor confidence
when, as it did during its May and July 1996 meetings, it chose to keep key
interest rates unchanged at the September 1996 Federal Open Market Committee
meeting. The Fed's decision to do so suggested that officials continued to
discount the potential for an overheating economy or accelerating inflation.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
During the six-month period, the Fed maintained a Federal Funds rate of 5.25%,
an indication of the Fed's perception that the economic environment had assumed
a measure of stability. We anticipated this scenario and, as a result, kept the
Funds' average weighted maturities slightly longer than those of their peers
over the six-month period. As a result, the Funds had a minimum of cash to
invest at lower interest rates, a situation that ultimately proved beneficial to
performance.
As of October 31, 1996, the approximate net assets of the Money Market Fund,
the Government Securities Fund and the Treasury Securities Fund were $920
million, $91 million and $38 million, respectively. On October 31, 1996, the
Money Market Fund's weighted average maturity was 50 days, while the weighted
average maturities for the Government Securities Fund and the Treasury
Securities Fund were 41 days and 21 days, respectively.
1
<PAGE>
SEMIANNUAL REPORT ANNUALIZED YIELDS AS OF 10/31/96
CURRENT 7-DAY EFFECTIVE 7-DAY
AVERAGE YIELD AVERAGE YIELD
Money Market Fund 5.21% 5.35%
Government Securities Fund 5.05 5.17
Treasury Securities Fund 4.76 4.87
OUTLOOK
- --------------------------------------------------------------------------------
- - Going forward, we believe that the Fed will continue on its present course,
at least until the beginning of the new year, as inflation does not appear to be
a problem and the economy continues to grow at a comfortable rate. We are
particularly confident with respect to this scenario given the results of the
Presidential election. Had the results been other than what they were, it would
have been more likely that the Fed could have strayed from its steady path.
Given our belief that the current economic environment will persist, we plan
to maintain the Funds' current position. Investment decisions for the Funds will
continue to be dominated
by credit quality and liquidity. Although we are interested in maintaining
higher yields, we will not do so by sacrificing the Funds' emphasis on security,
quality and liquidity.
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,
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>
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
John R. Torell III
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Julian F. Sluyters
VICE PRESIDENT AND TREASURER
Dennis L. McCauley
VICE PRESIDENT
Susan P. Ryan
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.
THE FINANCIAL INFORMATION HEREIN IS TAKEN FROM THE RECORDS OF THE FUNDS WITHOUT
EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION THEREON.
THIS REPORT IS NOT TO BE USED IN CONNECTION WITH THE OFFERING OF SHARES OF THE
FUNDS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.74%
$ 3,000 Federal Farm Credit Bank*........................... 11/01/96 5.515% $ 2,999,577
11,200 Federal Home Loan Bank.............................. 03/25/97 to 11/07/97 5.800 to 7.650 11,208,449
5,000 Federal Home Loan Mortgage Corporation.............. 08/28/97 5.640 4,989,981
3,000 Federal National Mortgage Association............... 02/14/97 4.780 2,998,838
3,000 Student Loan Marketing Association.................. 07/03/97 to 08/01/97 6.070 to 6.100 3,000,000
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost--$25,196,845).... 25,196,845
------------
DOMESTIC BANK NOTES - 3.04%
3,000 Bank of Hawaii...................................... 01/03/97 5.500 3,000,000
7,000 F.C.C. National Bank................................ 11/01/96 to 04/17/97 5.640 to 5.650 6,999,469
10,000 LaSalle National Bank............................... 04/08/97 5.510 10,000,000
3,000 Morgan Guaranty Trust Company....................... 01/15/97 5.250 3,000,550
5,000 Wachovia Bank of North Carolina..................... 11/15/96 5.290 5,000,018
------------
TOTAL DOMESTIC BANK NOTES (cost--$28,000,037)................... 28,000,037
------------
CERTIFICATES OF DEPOSIT - 18.81%
DOMESTIC - 1.63%
10,000 Bank of America National Trust & Savings
Association....................................... 01/24/97 5.380 10,000,332
5,000 Morgan Guaranty Trust Company....................... 08/12/97 5.730 4,999,220
------------
14,999,552
------------
YANKEE - 17.18%
30,000 Bank of Tokyo-Mitsubishi Ltd........................ 11/07/96 to 01/08/97 5.540 to 5.600 30,000,963
15,000 Commerzbank AG...................................... 01/21/97 5.520 15,000,632
8,000 Den Danske Bank AG.................................. 11/27/96 5.270 8,000,000
13,000 Deutsche Bank AG.................................... 07/11/97 to 11/17/97 5.780 to 6.110 12,999,703
3,000 Dresdner Bank AG.................................... 02/26/97 5.010 2,999,152
35,000 Industrial Bank of Japan Ltd........................ 11/01/96 to 11/04/96 5.440 to 5.450 35,000,119
20,000 Sanwa Bank Ltd...................................... 11/12/96 to 11/18/96 5.360 to 5.397 20,000,028
19,000 Societe Generale.................................... 12/23/96 to 06/13/97 5.430 to 6.090 19,000,027
10,000 Sumitomo Bank Ltd................................... 11/14/96 5.370 10,000,091
5,000 Westpac Banking Corp................................ 03/19/97 5.610 4,999,712
------------
158,000,427
------------
TOTAL CERTIFICATES OF DEPOSIT (cost--$172,999,979).............. 172,999,979
------------
COMMERCIAL PAPER@ - 63.07%
ASSET-BACKED - 7.58%
20,550 Asset Securitization Cooperative Corp............... 11/19/96 to 01/09/97 5.240 to 5.390 20,452,418
29,907 Delaware Funding Corporation........................ 11/08/96 to 11/15/96 5.260 to 5.270 29,866,145
17,500 Eiger Capital Corporation........................... 11/21/96 to 11/22/96 5.250 to 5.260 17,447,458
2,000 New Center Asset Trust.............................. 01/29/97 5.420 1,973,201
------------
69,739,222
------------
AUTO & TRUCK - 1.01%
9,300 Toyota Motor Credit Corp............................ 11/19/96 5.230 9,275,681
------------
</TABLE>
3
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
</TABLE>
COMMERCIAL PAPER@ - (CONTINUED)
<TABLE>
<C> <S> <C> <C> <C>
BANKING - 10.68%
$10,000 Abbey National North America........................ 11/29/96 to 03/17/97 5.330 to 5.480% $ 9,875,761
5,000 ABN-AMRO North America Finance Inc.................. 03/10/97 5.400 4,903,250
20,000 BEX America Finance Inc............................. 11/01/96 to 11/22/96 5.310 to 5.330 19,953,538
25,000 Cregem North America Inc............................ 01/02/97 5.400 24,767,500
5,000 Morgan (J.P.) & Co., Inc............................ 01/16/97 5.370 4,943,317
10,000 Societe Generale North America, Inc................. 02/05/97 5.400 9,856,000
24,500 Westpac Capital Corp................................ 03/10/97 5.350 24,030,315
------------
98,329,681
------------
BROKER-DEALER - 9.22%
20,000 Goldman Sachs Group L.P............................. 11/04/96 to 11/13/96 5.250 to 5.400 19,978,000
5,000 Merrill Lynch & Co., Inc............................ 01/21/97 5.430 4,938,913
25,000 Morgan Stanley Group Inc............................ 11/01/96 to 01/15/97 5.330 to 5.600 24,857,658
35,000 Nomura Holding America Inc.......................... 11/01/96 5.600 35,000,000
------------
84,774,571
------------
CHEMICALS - 1.08%
10,000 dupont (E.I.) deNemours & Co........................ 12/20/96 5.310 9,927,725
------------
DRUGS, HEALTH CARE - 5.57%
5,000 Lilly (Eli) & Co.................................... 11/14/96 5.230 4,990,557
10,000 Pfizer Inc.......................................... 11/01/96 5.280 10,000,000
26,560 Sandoz Corporation.................................. 11/04/96 to 01/22/97 5.250 to 5.380 26,359,549
10,000 Zeneca Wilmington Inc............................... 12/17/96 5.350 9,931,639
------------
51,281,745
------------
ELECTRONICS - 1.60%
14,750 Panasonic Finance Inc............................... 11/07/96 to 12/20/96 5.240 14,676,094
------------
ENERGY - 3.23%
9,750 Exxon Imperial U.S. Inc............................. 11/21/96 5.230 9,721,671
20,000 Mobil Australia Finance Co.......................... 11/08/96 to 11/18/96 5.240 19,965,067
------------
29,686,738
------------
FINANCE-CONDUIT - 8.65%
10,000 ANZ (Delaware) Inc.................................. 12/27/96 5.340 9,916,933
10,000 Commerzbank U.S. Finance............................ 11/20/96 5.240 9,972,344
19,713 MetLife Funding Inc................................. 11/04/96 to 11/25/96 5.240 to 5.270 19,666,159
40,000 UBS Finance (Delaware) Incorporated................. 11/01/96 5.560 40,000,000
------------
79,555,436
------------
FINANCE-DIVERSIFIED - 1.30%
12,000 Associates Corp. of North America................... 11/04/96 to 11/08/96 5.250 to 5.290 11,991,810
------------
FINANCE-INDEPENDENT - 1.62%
15,000 National Rural Utilities Coop. Finance Corp......... 11/08/96 to 01/27/97 5.310 to 5.410 14,866,415
------------
FINANCE-SUBSIDIARY - 3.14%
27,000 Deutsche Bank Financial Inc......................... 11/08/96 to 11/21/96 5.250 26,959,166
2,000 National Australia Funding (Delaware) Inc........... 02/28/97 5.470 1,963,837
------------
28,923,003
------------
</TABLE>
4
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
</TABLE>
COMMERCIAL PAPER@ - (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
FOOD, BEVERAGE & TOBACCO - 1.13%
$ 5,400 Kellogg Co.......................................... 11/05/96 5.240% $ 5,396,856
5,000 Nestle Capital Corp................................. 11/05/96 5.240 4,997,089
------------
10,393,945
------------
GENERAL TRADE - 2.50%
23,000 Mitsubishi International Corp....................... 11/01/96 to 11/19/96 5.250 to 5.330 22,960,625
------------
INSURANCE - 1.08%
10,000 USAA Capital Corp................................... 11/18/96 5.390 9,974,547
------------
INSURANCE-PROPERTY, CASUALTY - 0.38%
3,475 John Hancock Capital Corp........................... 12/10/96 5.260 3,455,198
------------
METALS & MINING - 1.69%
10,700 RTZ America Inc..................................... 12/18/96 5.260 10,626,521
5,000 U.S. Borax Inc...................................... 12/19/96 5.470 4,963,533
------------
15,590,054
------------
MISCELLANEOUS - 1.61%
15,000 Beta Finance Inc.................................... 01/21/97 to 03/12/97 5.340 to 5.500 14,779,781
------------
TOTAL COMMERCIAL PAPER (cost--$580,182,271)..................... 580,182,271
------------
SHORT-TERM CORPORATE OBLIGATIONS - 11.82%
AUTO & TRUCK - 0.46%
3,210 Ford Motor Credit Corp*............................. 11/04/96 5.833 3,217,030
1,000 PACCAR Financial Corp............................... 04/10/97 5.060 997,888
------------
4,214,918
------------
BANKING - 1.94%
1,100 BankAmerica Corp.................................... 07/15/97 6.000 1,101,957
5,000 Comerica Bank Detroit*.............................. 11/05/96 5.480 4,999,942
5,000 F.C.C. National Bank*............................... 11/01/96 5.680 4,999,103
6,750 Wachovia Bank of North Carolina*.................... 11/01/96 5.297 6,748,697
------------
17,849,699
------------
BROKER-DEALER - 4.45%
4,000 Bear Stearns Companies, Inc......................... 01/24/97 to 07/03/97 5.160 to 5.970 4,000,000
5,000 Bear Stearns Companies, Inc*........................ 11/29/96 5.405 5,000,000
22,000 Merrill Lynch & Co., Inc*........................... 11/01/96 to 11/05/96 5.430 to 5.560 21,998,627
10,000 Morgan Stanley Group Inc*........................... 11/01/96 5.560 10,000,170
------------
40,998,797
------------
BUSINESS SERVICES - 0.76%
7,000 PHH Corp*........................................... 11/01/96 5.330 6,999,686
------------
FINANCE-CONSUMER - 1.20%
10,950 American General Finance Corp....................... 04/01/97 to 05/15/97 5.80 to 7.150 10,998,879
------------
</TABLE>
5
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
</TABLE>
SHORT-TERM CORPORATE OBLIGATIONS - (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
FINANCE-DIVERSIFIED - 0.94%
$ 3,600 Associates of North America Corp*................... 06/15/97 8.625% $ 3,662,254
5,000 CIT Group Holdings*................................. 11/01/96 5.350 4,997,758
------------
8,660,012
------------
MISCELLANEOUS - 1.63%
15,000 Beta Finance Inc.*.................................. 11/05/96 5.460 to 5.540 15,000,000
------------
POLLUTION CONTROL - 0.44%
4,000 WMX Technologies Inc................................ 03/22/97 7.125 4,017,084
------------
TOTAL SHORT TERM CORPORATE OBLIGATIONS (cost--$108,739,075)..... 108,739,075
------------
REPURCHASE AGREEMENTS - 2.14%
19,730 Repurchase Agreement dated 10/31/96, with Citicorp
Securities, Inc., collateralized by $20,500,000
U.S. Treasury Bills, 5.500%, due 03/06/97;
proceeds: $19,733,014 (cost--$19,730,000)......... 11/01/96 5.500 19,730,000
------------
TOTAL INVESTMENTS (cost--$934,848,207, which approximates cost
for
federal income tax purposes)--101.62%.........................
934,848,207
Liablilities in excess of other assets--(1.62)%................. (14,927,501)
------------
NET ASSETS--100%................................................ $919,920,706
------------
------------
</TABLE>
- ---------------
* Variable rate security--maturity date reflects earlier of reset date or
maturity date. The interest rates shown are the current rates as of October
31, 1996 and reset periodically.
@ Interest rates shown are discount rates at date of purchase.
Weighted average maturity--50 days
See accompanying notes to financial statements
6
<PAGE>
LIQUID INSTITUTIONAL RESERVES--GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 92.03%
$ 500 U.S. Treasury Notes................................. 02/28/97 6.875% $ 502,857
18,510 Federal Farm Credit Bank@........................... 11/06/96 to 01/02/97 5.140 to 5.400 18,496,422
3,000 Federal Farm Credit Bank*........................... 06/03/97 5.515 2,999,577
18,000 Federal Home Loan Bank@............................. 11/01/96 to 10/16/97 5.210 to 6.050 17,888,398
12,000 Federal Home Loan Mortgage Corp.@................... 11/01/96 to 04/30/97 5.170 to 5.450 11,936,177
5,750 Federal National Mortgage Association............... 12/26/96 to 01/23/97 5.070 to 5.300 5,749,021
1,700 Student Loan Marketing Association.................. 07/03/97 to 10/17/97 5.965 to 6.100 1,700,400
11,000 Student Loan Marketing Association*................. 11/14/96 to 03/13/97 5.250 to 5.510 11,005,445
13,480 Tennessee Valley Authority@......................... 11/14/96 to 11/26/96 5.150 to 5.170 13,437,739
------------
TOTAL U.S. GOVENMENT AND AGENCY OBLIGATIONS
(cost--$83,716,036)............................................. 83,716,036
------------
TOTAL INVESTMENTS (cost--$83,716,036 which approximates cost for
federal income tax purposes)--92.03%.......................... 83,716,036
Other assets in excess of liabilities--7.97%**.................. 7,252,278
------------
NET ASSETS--100%................................................ $ 90,968,314
------------
------------
</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 October
31, 1996 and reset periodically.
** Includes a receivable of $7,097,559 from the sale of $6,919,939 U.S. Treasury
Notes, 6.125%, due May 31, 1997; sold on October 31, 1996, settling on
November 1, 1996, yielding 5.407%.
Weighted Average Maturity--41 days
See accompanying notes to financial statements
7
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
- --------- -------------------- --------------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES - 62.28%
$23,500 U.S. Treasury Bills@................................ 11/07/96 to 09/18/97 4.790 to 5.475% $ 23,391,490
500 U.S. Treasury Notes................................. 02/28/97 6.875 502,834
------------
TOTAL U.S. GOVENMENT SECURITIES (cost--$23,894,324)............. 23,894,324
------------
TOTAL INVESTMENTS (cost--$23,894,324, which approximates cost
for
federal income tax purposes)--62.28%..........................
23,894,324
Other assets in excess of liabilities--37.72%*.................. 14,473,021
------------
NET ASSETS--100%................................................ $ 38,367,345
------------
------------
</TABLE>
- ---------------
@ Interest rates shown are the discount rates at date of purchase.
* Includes a receivable of $14,505,096 from the sale of a $14,142,099 U.S.
Treasury Note, 6.125%, due May 31, 1997; sold on October 31, 1996, settling
on November 1, 1996, yielding 5.407%.
Weighted average maturity--21 days
See accompanying notes to financial statements
8
<PAGE>
LIQUID INSTITUTIONAL RESERVES
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY GOVERNMENT TREASURY
MARKET SECURITIES SECURITIES
FUND FUND FUND
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value (cost--$934,848,207, $83,716,036 and
$23,894,324, respectively).................................................... $ 934,848,207 $83,716,036 $ 23,894,324
Cash............................................................................ 990 -- 215
Interest receivable............................................................. 3,476,783 315,797 5,887
Receivable for investments sold................................................. -- 7,097,559 14,505,096
Receivable from investment adviser.............................................. -- 4,676 7,778
Other assets.................................................................... 105,351 31,644 36,496
------------- ------------ ------------
Total assets.................................................................... 938,431,331 91,165,712 38,449,796
------------- ------------ ------------
LIABILITIES
Payable for investments purchased............................................... 16,462,798 -- --
Dividends payable............................................................... 1,899,027 195,533 76,523
Payable to affiliates........................................................... 144,190 -- --
Accrued expenses and other liablilties.......................................... 4,610 1,865 5,928
------------- ------------ ------------
Total liabilities............................................................... 18,510,625 197,398 82,451
------------- ------------ ------------
NET ASSETS
Beneficial interest shares of $0.001 par value outstanding (unlimited amount
authorized)................................................................... 919,919,763 90,959,285 38,375,846
Accumulated net realized gains (losses) from investments........................ 943 9,029 (8,501)
------------- ------------ ------------
Net assets...................................................................... $ 919,920,706 $90,968,314 $ 38,367,345
------------- ------------ ------------
------------- ------------ ------------
Outstanding shares of beneficial interest ($0.001 par value):
Institutional Shares............................................................ 919,919,763 90,959,285 38,375,846
------------- ------------ ------------
------------- ------------ ------------
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 FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY GOVERNMENT TREASURY
MARKET SECURITIES SECURITIES
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest........................................................................ $ 16,388,912 $1,687,197 $ 749,754
------------ ----------- -----------
EXPENSES:
Investment advisory and administration.......................................... 747,471 78,531 35,271
State and federal registration fees............................................. 53,181 14,592 23,399
Custody and accounting.......................................................... 29,865 13,185 19,461
Reports and notices to shareholders............................................. 21,799 6,339 6,997
Legal and audit................................................................. 10,524 7,752 6,843
Transfer agency and service fees................................................ 6,970 3,647 3,433
Trustees' fees.................................................................. 6,125 6,125 6,125
Other expenses.................................................................. 16,937 722 3,230
------------ ----------- -----------
892,872 130,893 104,759
Less: Fee waivers and expense reimbursements from adviser....................... (149,588) (36,814) (62,518)
------------ ----------- -----------
Net expenses.................................................................... 743,284 94,079 42,241
------------ ----------- -----------
Net investment income........................................................... 15,645,628 1,593,118 707,513
NET REALIZED GAINS FROM INVESTMENT TRANSACTIONS................................. 8,060 7,722 22,780
------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ 15,653,688 $1,600,840 $ 730,293
------------ ----------- -----------
------------ ----------- -----------
</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 SIX
MONTHS ENDED FOR THE
OCTOBER 31, 1996 YEAR ENDED
(UNAUDITED) APRIL 30, 1996
---------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................................... $ 15,645,628 $ 14,502,633
Net realized gains (losses) from investment transactions........................ 8,060 (110)
---------------- ---------------
Net increase in net assets resulting from operations............................ 15,653,688 14,502,523
---------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares..................................... (15,645,628) (14,509,640)
---------------- ---------------
NET INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS................ 498,034,148 201,041,615
---------------- ---------------
Net increase in net assets...................................................... 498,042,208 201,034,498
NET ASSETS:
Beginning of period............................................................. 421,878,498 220,844,000
---------------- ---------------
End of period................................................................... $ 919,920,706 $ 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 SIX
MONTHS ENDED FOR THE
OCTOBER 31, 1996 YEAR ENDED
(UNAUDITED) APRIL 30, 1996
---------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................................... $ 1,593,118 $ 2,626,268
Net realized gains from investment transactions................................. 7,722 50,911
---------------- --------------
Net increase in net assets resulting from operations............................ 1,600,840 2,677,179
---------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares..................................... (1,593,118) (2,675,931)
---------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS..... 47,191,022 (11,134,345)
---------------- --------------
Net increase (decrease) in net assets........................................... 47,198,744 (11,133,097)
NET ASSETS:
Beginning of period............................................................. 43,769,570 54,902,667
---------------- --------------
End of period................................................................... $ 90,968,314 $ 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 SIX
MONTHS ENDED FOR THE
OCTOBER 31, 1996 YEAR ENDED
(UNAUDITED) APRIL 30, 1996
---------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................................... $ 707,513 $ 1,115,176
Net realized gains from investment transactions................................. 22,780 35,745
---------------- --------------
Net increase in net assets resulting from operations............................ 730,293 1,150,921
---------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares..................................... (707,513) (1,183,400)
---------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS..... 18,720,488 (4,105,788)
---------------- --------------
Net increase (decrease) in net assets........................................... 18,743,268 (4,138,267)
NET ASSETS:
Beginning of period............................................................. 19,624,077 23,762,344
---------------- --------------
End of period................................................................... $ 38,367,345 $ 19,624,077
---------------- --------------
---------------- --------------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 and Financial
Intermediary. Each class represents interest in the same assets of
the 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 six months ended
October 31, 1996, 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 - 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 of default of the
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>
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 six months ended October 31, 1996, 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, 1996, the Money Market Fund and the Treasury
Securities Fund had net capital loss carryforwards of $7,030 and
$29,965, respectively. These loss carryforwards are available as a
reduction, to the extent provided in the regulations, of future net
realized capital gains, and will expire by April 30, 2004 for each
Fund. 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 SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1996 APRIL 30, 1996
---------------- ----------------
<S> <C> <C>
MONEY MARKET FUND:
Shares sold........................................................... 3,234,027,569 3,503,837,331
Shares repurchased.................................................... (2,749,946,428) (3,316,243,676)
Dividends reinvested.................................................. 13,953,007 13,447,960
---------------- ----------------
Net increase in shares outstanding.................................... 498,034,148 201,041,615
---------------- ----------------
---------------- ----------------
GOVERNMENT SECURITIES FUND:
Shares sold........................................................... 286,148,353 370,955,813
Shares repurchased.................................................... (240,382,463) (384,645,929)
Dividends reinvested.................................................. 1,425,132 2,555,771
---------------- ----------------
Net increase (decrease) in shares outstanding......................... 47,191,022 (11,134,345)
---------------- ----------------
---------------- ----------------
TREASURY SECURITIES FUND:
Shares sold........................................................... 215,529,852 376,474,093
Shares repurchased.................................................... (197,401,632) (381,685,003)
Dividends reinvested.................................................. 592,268 1,105,122
---------------- ----------------
Net increase (decrease) in shares outstanding......................... 18,720,488 (4,105,788)
---------------- ----------------
---------------- ----------------
</TABLE>
For the six months ended October 31, 1996 and for the year ended
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>
FINANCIAL INTERMEDIARY
INSTITUTIONAL SHARES SHARES**
----------------------------------------------------------------- ---------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEARS ENDED FOR THE PERIOD FOR THE MARCH 17,
OCTOBER 31, APRIL 30, JUNE 3, 1991+ YEAR ENDED 1994+
1996 ---------------------------------- TO APRIL 30, TO
(UNAUDITED) 1996 1995++ 1994 1993 APRIL 30, 1992 1995++ APRIL 30, 1994
------------ ------- ------- ------- ------- -------------- ---------- --------------
<S> <C> <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 $ 1.00
------------ ------- ------- ------- ------- -------------- ---------- ------
Net investment income.............. 0.026 0.055 0.048 0.030 0.031 0.044 0.027 0.004
Net realized losses from investment
transactions..................... -- -- (0.008) -- -- -- -- --
------------ ------- ------- ------- ------- -------------- ---------- ------
Net increase from investment
operations....................... 0.026 0.055 0.040 0.030 0.031 0.044 0.027 0.004
------------ ------- ------- ------- ------- -------------- ---------- ------
Dividends from net investment
income........................... (0.026) (0.055) (0.048) (0.030) (0.031) (0.044) (0.027) (0.004)
------------ ------- ------- ------- ------- -------------- ---------- ------
Contribution to capital from
predecessor adviser.............. -- -- 0.008 -- -- -- -- --
------------ ------- ------- ------- ------- -------------- ---------- ------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------- ------- ------- ------- -------------- ---------- ------
------------ ------- ------- ------- ------- -------------- ---------- ------
Total investment return (1)........ 2.64% 5.61% 4.91% 3.03% 3.16% 4.52% 3.10% 0.37%
------------ ------- ------- ------- ------- -------------- ---------- ------
------------ ------- ------- ------- ------- -------------- ---------- ------
Ratios/Supplemental Data:
Net assets, end of period (000's).. $ 919,921 $421,878 $220,844 $254,281 $385,618 $ 335,868 -- $ 9,000
Expenses to average net assets net
of waivers/reimbursement from
adviser.......................... 0.25%* 0.31% 0.35% 0.33% 0.34% 0.30%* 0.60%* 0.58%*
Expenses to average net assets
before waivers/reimbursement from
adviser.......................... 0.30%* 0.37% 0.37% 0.33% 0.36% 0.41%* 0.62%* 0.58%*
Net investment income to average
net assets net of waivers/
reimbursements from adviser...... 5.22%* 5.47% 4.68% 2.96% 3.13% 4.76%* 4.17%* 2.93%*
Net investment income to average
net assets before waivers/
reimbursements from adviser...... 5.17%* 5.41% 4.66% 2.96% 3.11% 4.65%* 4.15%* 2.93%*
</TABLE>
- -----------------
+ Commencement of issuance of shares.
++ Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the period ended October 31, 1996 and for the period December 24, 1994
to April 30, 1996 there were no outstanding Financial Intermediary Shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and other 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 returns for periods of less than one year have 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 SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEARS ENDED FOR THE PERIOD JULY 12, 1994+
OCTOBER 31, APRIL 30, JUNE 3, 1991+ TO
1996 ----------------------------------------- TO APRIL 30,
(UNAUDITED) 1996 1995++ 1994 1993 APRIL 30, 1992 1995++
------------- -------- -------- -------- -------- --------------- --------------
<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................ 0.026 0.053 0.048 0.029 0.031 0.044 0.032
Net realized gains (losses) from
investment transactions............ -- 0.001 (0.008) -- -- -- --
------------- -------- -------- -------- -------- --------------- ------
Net increase from investment
operations......................... 0.026 0.054 0.040 0.029 0.031 0.044 0.032
------------- -------- -------- -------- -------- --------------- ------
Dividends from net investment
income............................. (0.026) (0.054) (0.047) (0.029) (0.031) (0.044) (0.032)
------------- -------- -------- -------- -------- --------------- ------
Contribution to capital from
predecessor adviser................ -- -- 0.007 -- -- -- --
------------- -------- -------- -------- -------- --------------- ------
Net asset value, end of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- -------- -------- -------- -------- --------------- ------
------------- -------- -------- -------- -------- --------------- ------
Total investment return (1).......... 2.58% 5.50% 4.61% 2.97% 3.13% 4.46% 3.31%
------------- -------- -------- -------- -------- --------------- ------
------------- -------- -------- -------- -------- --------------- ------
Ratios/Supplemental Data:
Net assets, end of period (000's).... $90,968 $ 43,770 $ 54,903 $ 84,209 $102,611 $144,853 --
Expenses to average net assets net of
waivers/reimbursements from
adviser............................ 0.30%* 0.32% 0.35% 0.35% 0.34% 0.30%* 0.60%*
Expenses to average net assets before
waivers/reimbursements from
adviser............................ 0.42%* 0.56% 0.47% 0.37% 0.36% 0.41%* 0.72%*
Net investment income to average net
assets net of waivers/
reimbursements from adviser........ 5.07%* 5.52% 4.75% 2.95% 3.11% 4.63%* 4.58%*
Net investment income to average net
assets before waivers/
reimbursements from adviser........ 4.95%* 5.28% 4.63% 2.93% 3.09% 4.52%* 4.46%*
</TABLE>
- ---------------
+ Commencement of issuance of shares.
++ Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
** For the period ended October 31, 1996 and for the period March 22, 1995 to
April 30, 1996 there were no outstanding Financial Intermediary Shares.
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and other 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 have not been
annualized.
18
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
-----------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 6,
OCTOBER 31, APRIL 30, 1991+
1996 ---------------------------------- TO
(UNAUDITED) 1996 1995++ 1994 1993 APRIL 30, 1992
------------------ ------- ------- ------- ------- --------------
<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................ 0.025 0.048 0.049 0.028 0.029 0.016
Net realized gains (losses) from
investment transactions............ -- 0.003 (0.002) -- -- --
------- ------- ------- ------- ------- -------
Net increase from investment
operations......................... 0.025 0.051 0.047 0.028 0.029 0.016
------- ------- ------- ------- ------- -------
Dividends from net investment
income............................. (0.025) (0.051) (0.047) (0.028) (0.029) (0.016)
------- ------- ------- ------- ------- -------
Net asset value, end of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total investment return (1).......... 2.50% 5.23% 4.75% 2.87% 2.89% 1.62%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's).... $ 38,367 $19,624 $23,762 $38,602 $ 8,064 $15,003
Expenses to average net assets net of
waivers/ reimbursements from
adviser............................ 0.30%* 0.32% 0.22% 0.18% 0.33% 0.06%*
Expenses to average net assets before
waivers/ reimbursements from
adviser............................ 0.74%* 0.94% 0.84% 0.76% 1.10% 2.05%*
Net investment income to average net
assets net of
waivers/reimbursements from
adviser............................ 5.01%* 5.71% 5.51% 3.66% 3.65% 5.88%*
Net investment income to average net
assets before
waivers/reimbursements from
adviser............................ 4.57%* 5.09% 4.89% 3.08% 2.88% 3.89%*
</TABLE>
- ---------------
+ Commencement of issuance of shares.
++ Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins on January 30, 1995.
* Annualized
(1) Total investment return is calculated assuming a $1,000 investment in Fund
shares on the first day of each period reported, reinvestment of all
dividends and other 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 have not been
annualized.
19
<PAGE>
PaineWebber offers a family of 21 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
- - Emerging Markets Equity Fund
- - Global Equity Fund
- - Global Income Fund
PAINEWEBBER MONEY MARKET FUND
OCTOBER 31, 1996
SEMIANNUAL REPORT
LIQUID INSTITUTIONAL RESERVES
- -C-1996 PaineWebber Incorporated
Member SIPC
