<PAGE>
LIQUID INSTITUTIONAL RESERVES ANNUAL REPORT
June 15, 1998
Dear Shareholder,
We are pleased to present you with the annual report for Liquid Institutional
Reserves (the "Funds") for the fiscal year ended April 30, 1998.
LIQUID INSTITUTIONAL RESERVES
FUND PROFILE
GOAL:
(ALL THREE FUNDS):
High current income to the extent consistent with capital preservation and
liquidity
PORTFOLIO MANAGER:
Susan P. Ryan,
Mitchell Hutchins Asset
Management Inc.
TOTAL NET ASSETS AT APRIL 30, 1998:
Money Market Fund
$1.608 billion
Government Securities Fund
$100.1 million
Treasury Securities Fund
$179.7 million
DIVIDEND PAYMENTS:
Monthly
GENERAL MARKET OVERVIEW
The Treasury market stayed in a "trading range" -- i.e., little movement
up or down -- from the spring of 1997 into early 1998. Interest rates also
stayed in a trading range through January as investors continued to favor the
stability of U.S. markets and began to discount the possibility that the
Federal Reserve would raise short-term interest rates. Treasurys weakened
slightly in February as volatility in overseas markets subsided and stable
domestic growth eliminated the need for Fed intervention. Short-term yields
fell modestly while longer-term yields ended the period mostly unchanged.
The Fed is trying to discern the net effect of the various forces at work
in the markets. The domestic economy is moderately strong, as evidenced by
stock prices, housing, employment, income growth and consumer confidence.
However, global influences, particularly Asia, could slow economic growth and
lower inflation.
PORTFOLIO REVIEW
PERFORMANCE--
The table below compares the Funds' annualized yields at April 30, 1998 to
their yields six months and one year ago.
ANNUALIZED YIELDS
<TABLE>
<CAPTION>
CURRENT 7-DAY AVERAGE YIELD EFFECTIVE 7-DAY AVERAGE YIELD WEIGHTED
--------------------------- ----------------------------- AVERAGE
AS OF AS OF AS OF AS OF AS OF AS OF MATURITY
4/30/98 10/31/97 4/30/97 4/30/98 10/31/97 4/30/97 4/30/98
------- -------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND: 52 days
INSTITUTIONAL SHARES 5.36% 5.37% 5.35% 5.50% 5.52% 5.49%
FINANCIAL INTERMEDIARY SHARES* 5.11% -- -- 5.23% -- --
GOVERNMENT SECURITIES FUND 5.24% 5.18% 5.19% 5.38% 5.31% 5.33% 44 days
TREASURY SECURITIES FUND 5.02% 5.11% 5.06% 5.15% 5.24% 5.18% 66 days
</TABLE>
* Issuance for Financial Intermediary Shares was January 14, 1998.
<PAGE>
ANNUAL REPORT
PORTFOLIO HIGHLIGHTS--
Net assets of the Money Market Fund, the Government Securities Fund and the
Treasury Securities Fund were $1.608 billion, $100.1 million and $179.7
million, respectively, at April 30, 1998. We have been maintaining the Funds'
weighted-average maturities slightly above the IBC Financial Data average for
similar money market funds.
OUTLOOK
We think 1998 will be a strong year for the U.S. bond markets. The ongoing
financial problems in Asia are slowing the U.S. economy slightly, and
inflation is likely to remain low. The Federal budget is now running a
surplus, which should reduce government borrowing and ease the upward
pressure on market interest rates. We believe rates will continue to fall in
1998.
We currently expect to maintain the Funds' weighted-average maturities
slightly above the IBC Financial Data average number of days. Slightly higher
weighted-average maturities may benefit the Funds in our current interest rate
environment.
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.
For a QUARTERLY REVIEW on Liquid Institutional Reserves or a FUND PROFILE for a
fund in the PaineWebber Family of Funds(1), please contact your investment
executive.
Sincerely,
/s/ MARGO ALEXANDER /s/ DENNIS L. MCCAULEY /s/ SUSAN P. RYAN
MARGO ALEXANDER DENNIS L. MCCAULEY SUSAN P. RYAN
President, Managing Director and Chief Senior Vice President,
Mitchell Hutchins Investment Officer-- Mitchell Hutchins
Asset Management Inc. Fixed Income, Mitchell Hutchins Asset Management Inc.
Asset Management Inc. Portfolio Manager,
Liquid Institutional
Reserves
This letter is intended to assist shareholders in understanding how the Funds
performed during the fiscal year ended April 30, 1998, and reflects our views
at the time we are writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
(1) Mutual Funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
2
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--5.91%
$ 30,000 Federal Farm Credit Bank............................ 07/01/98 5.460% $ 30,000,000
10,000 Federal Home Loan Bank.............................. 05/06/99 5.750 10,000,000
15,000 Federal Home Loan Bank*............................. 05/06/98 5.503 14,993,916
40,000 Student Loan Marketing Association*................. 05/05/98 5.353 to 5.553 39,990,497
--------------
Total U.S. Government Agency Obligations (cost--$94,984,413)......... 94,984,413
--------------
DOMESTIC BANK NOTES--9.90%
15,000 Bank of America National Trust and
Savings Association............................... 05/05/98 to 10/22/98 5.940 to 6.150 14,997,266
10,000 Bank One Wisconsin N.A.*............................ 05/05/98 5.410 9,996,255
15,000 Comerica Bank, N.A., Detroit*....................... 05/05/98 5.613 14,997,227
7,000 FCC National Bank................................... 01/07/99 5.700 6,998,616
20,000 FCC National Bank*.................................. 05/01/98 5.560 to 5.610 19,994,864
40,000 Fifth Third Bank of Northwestern Ohio, N.A.......... 05/20/98 to 05/21/98 5.530 to 5.550 39,999,979
15,000 Greenwood Trust Company............................. 05/27/98 5.530 15,000,000
15,000 KeyBank N.A.*....................................... 05/01/98 5.550 14,991,514
10,000 PNC Bank, N.A.*..................................... 05/01/98 5.600 9,997,315
12,250 Wachovia Bank of North Carolina..................... 10/08/98 5.810 12,250,851
--------------
Total Domestic Bank Notes (cost--$159,223,887)....................... 159,223,887
--------------
CERTIFICATES OF DEPOSIT--21.28%
DOMESTIC--5.29%
75,000 American Express Centurion Bank..................... 05/05/98 to 05/14/98 5.530 to 5.560 74,999,992
10,000 Bankers Trust Company............................... 05/26/98 to 08/28/98 5.970 to 6.190 9,999,467
--------------
84,999,459
--------------
EURO--2.61%
25,000 Cassa di Risparmio delle Province Lombarde SPA...... 05/07/98 5.560 25,000,079
12,000 Toronto-Dominion Bank............................... 07/20/98 5.510 11,999,653
5,000 Westdeutshe Landesbank Girozentrale................. 08/03/98 5.820 5,000,123
--------------
41,999,855
--------------
YANKEE--13.38%
4,000 Barclays Bank PLC................................... 06/25/98 5.940 3,999,655
15,000 Canadian Imperial Bank of Commerce.................. 04/01/99 5.740 14,992,552
27,000 Credit Agricole Indosuez............................ 09/30/98 to 03/18/99 5.650 to 5.830 26,998,805
20,000 Credit Suisse First Boston*......................... 05/05/98 5.593 20,000,000
15,000 Deutsche Bank AG.................................... 03/01/99 to 04/09/99 5.630 to 5.650 14,987,689
7,000 National Westminster Bank PLC....................... 07/30/98 5.790 6,999,835
5,000 Rabobank Nederland.................................. 07/13/98 5.400 4,999,095
5,000 Royal Bank of Canada................................ 10/01/98 5.800 4,998,997
15,000 Skandinaviska Enskilda Banken....................... 07/29/98 5.640 15,000,366
47,750 Societe Generale.................................... 05/06/98 to 03/23/99 5.580 to 6.200 47,738,154
25,000 Societe Generale*................................... 05/01/98 5.410 to 5.590 24,993,296
12,000 Svenska Handelsbanken............................... 05/20/98 to 04/30/99 5.560 to 5.820 11,995,986
17,500 Swiss Bank Corporation.............................. 07/17/98 to 12/18/98 5.850 to 5.880 17,499,234
--------------
215,203,664
--------------
Total Certificates of Deposit (cost--$342,202,978)................... 342,202,978
--------------
</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 [email protected]%
AGRICULTURE--0.62%
$ 10,000 Cargill Incorporated................................ 05/11/98 5.510% $ 9,984,694
--------------
ASSET-BACKED--10.76%
47,752 Atlantis One Funding Corporation.................... 05/06/98 to 06/12/98 5.530 to 5.550 47,604,908
7,635 Eiger Capital Corporation........................... 05/27/98 5.520 7,604,562
37,555 Enterprise Funding Corporation...................... 05/04/98 to 06/08/98 5.510 to 5.530 37,426,443
10,000 Falcon Asset Securitization Corporation............. 05/20/98 5.520 9,970,867
10,000 New Center Asset Trust.............................. 05/26/98 5.520 9,961,667
16,650 Preferred Receivables Funding Corporation........... 05/26/98 to 06/17/98 5.430 to 5.520 16,568,756
44,038 Triple-A One Funding Corporation.................... 05/06/98 to 05/18/98 5.530 to 5.550 43,942,981
--------------
173,080,184
--------------
AUTO & TRUCK--1.99%
7,035 General Motors Acceptance Corporation............... 05/18/98 5.520 7,016,662
25,000 PACCAR Financial Corporation........................ 05/01/98 5.520 25,000,000
--------------
32,016,662
--------------
BANKING--12.10%
10,000 Bankers Trust New York Corporation.................. 01/15/99 5.530 9,602,147
10,000 Banque et Caisse d'Epargne de L'Etat................ 05/05/98 5.520 9,993,867
13,000 BBL North America Incorporated...................... 05/20/98 5.455 12,962,573
35,000 BCI Funding Corporation............................. 06/23/98 to 07/13/98 5.500 to 5.510 34,640,061
25,000 BEX America Finance Incorporated.................... 06/08/98 5.520 24,854,333
61,000 Cregem North America Incorporated................... 05/04/98 to 07/02/98 5.450 to 5.500 60,779,627
20,000 Den norske Bank..................................... 05/19/98 to 07/20/98 5.460 to 5.500 19,850,478
15,000 Morgan (J.P.) & Company Incorporated................ 05/04/98 5.520 14,993,100
7,000 Nordbanken North America Incorporated............... 08/24/98 5.400 6,879,250
--------------
194,555,436
--------------
BROKER - DEALER--1.85%
20,000 Credit Suisse First Boston.......................... 05/20/98 5.460 19,942,366
10,000 Goldman Sachs Group L.P............................. 09/25/98 5.580 9,772,150
--------------
29,714,516
--------------
BUSINESS SERVICES--0.34%
5,500 Block Financial Corporation......................... 06/17/98 5.500 5,460,507
--------------
DRUGS & HEALTHCARE--0.93%
15,000 Glaxo Wellcome PLC.................................. 05/06/98 5.500 14,988,542
--------------
ELECTRONICS--1.99%
32,000 Motorola Credit Corporation......................... 05/01/98 5.500 32,000,000
--------------
FINANCE-CONDUIT--3.03%
23,843 MetLife Funding Incorporated........................ 05/12/98 to 05/13/98 5.500 23,800,098
25,000 Toronto-Dominion Holdings USA Incorporated.......... 05/06/98 5.500 24,980,903
--------------
48,781,001
--------------
FINANCE-DIVERSIFIED--3.11%
50,000 Associates Corporation of North America............. 05/01/98 5.560 50,000,000
--------------
</TABLE>
4
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
</TABLE>
COMMERCIAL PAPER@ (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
FINANCE-SUBSIDIARY--4.04%
$ 15,000 Deutsche Bank Financial Incorporated................ 05/08/98 5.530% $ 14,983,871
25,000 Dresdner U.S. Finance Incorporated.................. 05/04/98 5.510 24,988,521
25,000 National Australia Funding (Delaware)
Incorporated...................................... 05/08/98 5.500 24,973,264
--------------
64,945,656
--------------
FOOD, BEVERAGE & TOBACCO--0.93%
15,000 Diageo Capital PLC.................................. 05/04/98 5.540 14,993,075
--------------
INSURANCE--0.31%
5,000 American General Corporation........................ 05/13/98 5.450 4,990,917
--------------
INSURANCE-PROPERTY/CASUALTY--1.05%
16,850 John Hancock Capital Corporation.................... 05/07/98 to 05/08/98 5.500 16,833,355
--------------
MANUFACTURING-DIVERSIFIED--1.24%
20,000 BTR Dunlop Finance Incorporated..................... 05/13/98 5.510 19,963,267
--------------
MISCELLANEOUS--2.56%
41,500 Beta Finance Incorporated........................... 05/18/98 to 09/15/98 5.430 to 5.650 41,189,766
--------------
RETAIL-MERCHANDISE--3.41%
30,000 Penney (J.C.) Funding Corporation................... 05/20/98 to 05/27/98 5.510 29,896,687
25,000 Toys "R" Us Incorporated............................ 05/06/98 5.500 24,980,903
--------------
54,877,590
--------------
TELECOMMUNICATIONS--2.59%
41,575 Bell Atlantic Network Funding Corporation........... 05/04/98 5.510 41,555,910
--------------
UTILITY-ELECTRIC--0.93%
15,000 Southern Company.................................... 05/14/98 5.500 14,970,208
--------------
Total Commercial Paper (cost--$864,901,286).......................... 864,901,286
--------------
SHORT-TERM CORPORATE OBLIGATIONS--8.05%
BANKING--1.58%
11,000 Bank of Montreal.................................... 09/01/98 10.000 11,153,361
14,000 National Australia Bank Limited..................... 10/15/98 9.700 14,243,743
--------------
25,397,104
--------------
BROKER-DEALER--4.17%
18,000 Bear Stearns Companies Incorporated*................ 05/05/98 5.473 to 5.493 18,000,000
15,000 Credit Suisse First Boston*......................... 05/05/98 5.653 15,000,000
12,000 Merrill Lynch & Company Incorporated................ 05/01/98 to 10/09/98 5.960 to 9.000 12,005,528
17,000 Merrill Lynch & Company Incorporated*............... 05/05/98 5.520 to 5.630 17,000,000
5,000 Morgan Stanley, Dean Witter & Company*.............. 05/18/98 5.575 5,000,000
--------------
67,005,528
--------------
FINANCE-DIVERSIFIED--0.12%
2,000 Associates Corporation of North America............. 05/15/98 6.625 2,000,287
--------------
FINANCE-INDEPENDENT--0.31%
5,000 National Rural Utilities Cooperative Finance
Corporation....................................... 07/10/98 5.980 5,000,000
--------------
</TABLE>
5
<PAGE>
LIQUID INSTITUTIONAL RESERVES--MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- --------------
<C> <S> <C> <C> <C>
</TABLE>
SHORT-TERM CORPORATE OBLIGATIONS (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
MISCELLANEOUS--1.87%
$ 20,000 Beta Finance Incorporated........................... 08/17/98 to 01/15/99 5.770 to 5.920% $ 20,000,000
10,000 Beta Finance Incorporated*.......................... 05/05/98 5.753 10,000,000
--------------
30,000,000
--------------
Total Short-Term Corporate Obligations (cost--$129,402,919).......... 129,402,919
--------------
REPURCHASE AGREEMENT--1.64%
26,368 Repurchase agreement dated 04/30/98 with Citicorp
Securities, Incorporated, collateralized by
$26,865,000 U.S. Treasury Notes, 5.500% due
03/31/00 (value--$26,898,581); proceeds
$26,372,028 (cost--$26,368,000)................... 05/01/98 5.500 26,368,000
--------------
Total Investments (cost--$1,617,083,483, which approximates cost for
federal income tax purposes)--100.56%.............................. 1,617,083,483
(8,992,291)
--------------
Liabilities in excess of other assets--(0.56)%.......................
$1,608,091,192
--------------
--------------
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,
1998 and reset periodically.
Weighted Average Maturity--52 days
See accompanying notes to financial statements
6
<PAGE>
LIQUID INSTITUTIONAL RESERVES--GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--94.72%
$ 1,000 Federal Farm Credit Bank...... 04/01/99 5.550% $ 998,632
31,500 Federal Farm Credit Bank@..... 05/04/98 to 06/01/98 5.350 to 5.450 31,453,580
8,500 Federal Home Loan Bank........ 09/18/98 to 04/09/99 5.450 to 5.810 8,499,020
5,500 Federal Home Loan Bank*....... 05/06/98 5.393 to 5.508 5,496,590
10,000 Federal Home Loan Bank@....... 05/12/98 to 05/22/98 5.350 to 5.380 9,976,176
5,530 Federal Home Loan Mortgage
Corporation@................ 05/01/98 to 06/30/98 5.420 to 5.450 5,502,900
2,500 Federal National Mortgage
Association................. 06/23/98 to 02/02/99 5.400 to 5.710 2,499,348
1,000 Federal National Mortgage
Association*................ 05/01/98 5.448 999,922
23,000 Federal National Mortgage
Association@................ 05/11/98 to 06/05/98 5.325 to 5.440 22,938,749
1,000 Student Loan Marketing
Association................. 01/25/99 7.723 1,014,901
500 Student Loan Marketing
Association*................ 05/05/98 5.553 500,000
5,000 Tennessee Valley Authority@... 06/12/98 5.370 4,968,675
-------------
Total U.S. Government Agency Obligations
(cost--$94,848,493).......................... 94,848,493
-------------
Total Investments (cost--$94,848,493, which
approximates cost for federal income tax
purposes)--94.72%............................ 94,848,493
Other assets in excess of
liabilities--5.28%**.......................... 5,291,065
-------------
Net Assets--100.00%........................... $ 100,139,558
-------------
-------------
</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,
1998 and reset periodically.
** Includes a receivable of $5,681,428 from the sale of a $5,596,000 U.S.
Treasury Note, 5.125%, due December 31, 1998; sold on April 30,1998, settling
on May 1, 1998, yielding 5.39%.
Weighted Average Maturity--44 days
See accompanying notes to financial statements
7
<PAGE>
LIQUID INSTITUTIONAL RESERVES--TREASURY SECURITIES FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ------------- -------------------- ----------------- -------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--81.95%
$ 38,000 U.S. Treasury Bills@.......... 05/07/98 to 05/28/98 4.510 to 5.000% $ 37,879,112
109,200 U.S. Treasury Notes........... 05/15/98 to 03/31/99 4.750 to 7.125 109,396,401
-------------
Total U.S. Treasury Obligations (cost--
$147,275,513)................................ 147,275,513
-------------
Total Investments (cost-- $147,275,513 which
approximates cost for federal income tax
purposes)-- 81.95%........................... 147,275,513
Other assets in excess of
liabilities--18.05%*........................... 32,432,164
-------------
Net Assets--100.00%............................ $ 179,707,677
-------------
-------------
</TABLE>
- -----------------
@ Interest rates shown are the discount rates at date of purchase.
* Includes a receivable of $31,408,267 from the sale of a $30,936,000 U.S.
Treasury Note, 5.125%, due December 31, 1998; sold on April 30, 1998,
settling on May 1, 1998, yielding 5.39%.
Weighted Average Maturity--66 days
See accompanying notes to financial statements
8
<PAGE>
LIQUID INSTITUTIONAL RESERVES
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1998
<TABLE>
<CAPTION>
MONEY GOVERNMENT TREASURY
MARKET SECURITIES SECURITIES
FUND FUND FUND
-------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost--$1,617,083,483, $94,848,493 and
$147,275,513 respectively)............ $1,617,083,483 $ 94,848,493 $ 147,275,513
Interest receivable..................... 8,778,461 238,767 1,915,033
Receivable for investments sold......... -- 5,681,428 31,408,267
Other assets............................ 92,713 53,410 32,314
-------------- ------------- -------------
Total assets............................ 1,625,954,657 100,822,098 180,631,127
-------------- ------------- -------------
LIABILITIES
Payable for investments purchased....... 10,000,000 -- --
Dividends payable....................... 7,288,365 456,427 769,386
Payable to affiliates................... 275,323 8,090 26,569
Accrued expenses and other
liabilities........................... 299,777 218,023 127,495
-------------- ------------- -------------
Total liabilities....................... 17,863,465 682,540 923,450
-------------- ------------- -------------
NET ASSETS
Beneficial interest shares of $0.001 par
value outstanding (unlimited amount
authorized)........................... 1,608,136,258 100,140,470 179,703,768
Accumulated net realized gains (losses)
from investments...................... (45,066) (912) 3,909
-------------- ------------- -------------
Net assets.............................. $1,608,091,192 $ 100,139,558 $ 179,707,677
-------------- ------------- -------------
-------------- ------------- -------------
INSTITUTIONAL SHARES:
Net assets.............................. $1,591,788,964 $ 100,139,558 $ 179,707,677
-------------- ------------- -------------
Outstanding shares of beneficial
interest ($0.001 par value)........... 1,591,834,029 100,140,470 179,703,768
-------------- ------------- -------------
Net asset value, offering price and
redemption value per share............ $ 1.00 $ 1.00 $ 1.00
-------------- ------------- -------------
-------------- ------------- -------------
FINANCIAL INTERMEDIARY SHARES:
Net assets.............................. $ 16,302,228 -- --
-------------- ------------- -------------
Outstanding shares of beneficial
interest ($0.001 par value)........... 16,302,229 -- --
-------------- ------------- -------------
Net asset value, offering price and
redemption value per share............ $ 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, 1998
------------------------------------
MONEY GOVERNMENT TREASURY
MARKET SECURITIES SECURITIES
FUND FUND FUND
----------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................ $81,036,738 $4,755,864 $5,592,447
----------- ----------- ----------
EXPENSES:
Investment advisory and
administration........................ 3,572,192 215,911 259,380
Transfer agency and service............. 367,213 39,566 27,791
State and federal registration fees..... 252,229 86,500 55,362
Legal and audit......................... 153,175 65,053 53,363
Custody and accounting.................. 144,712 8,596 10,286
Reports and notices to shareholders..... 142,600 31,124 30,561
Services fees--Financial Intermediary
Shares................................ 10,975 -- --
Trustees' fees.......................... 10,500 10,500 10,500
Other expenses.......................... 155,327 54,053 40,595
----------- ----------- ----------
4,808,923 511,303 487,838
Less: Fee waivers and expense
reimbursements from adviser........... (719,529) (253,868) (180,262)
----------- ----------- ----------
Net expenses............................ 4,089,394 257,435 307,576
----------- ----------- ----------
Net investment income................... 76,947,344 4,498,429 5,284,871
NET REALIZED GAINS (LOSSES) FROM
INVESTMENT TRANSACTIONS............... (45,066) 13,353 26,128
----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $76,902,278 $4,511,782 $5,310,999
----------- ----------- ----------
----------- ----------- ----------
</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,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................................................ $ 76,947,344 $ 46,003,708
Net realized gains (losses) from investment transactions......................................... (45,066) 9,814
-------------- --------------
Net increase in net assets resulting from operations............................................. 76,902,278 46,013,522
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares...................................................... (76,722,313) (46,003,708)
Net investment income--Financial Intermediary Shares............................................. (225,031) --
Net realized gain from investment transactions--Institutional Shares............................. (2,697) --
-------------- --------------
Total dividends and distributions to shareholders................................................ (76,950,041) (46,003,708)
-------------- --------------
NET INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS................................. 361,339,871 824,910,772
-------------- --------------
Net increase in net assets....................................................................... 361,292,108 824,920,586
NET ASSETS:
Beginning of year................................................................................ 1,246,799,084 421,878,498
-------------- --------------
End of year...................................................................................... $1,608,091,192 $1,246,799,084
-------------- --------------
-------------- --------------
</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,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income....................................... $ 4,498,429 $ 4,135,255
Net realized gains (losses) from investment transactions.... 13,353 (10,497)
-------------- --------------
Net increase in net assets resulting from operations........ 4,511,782 4,124,758
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares................. (4,498,429) (4,140,330)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS FROM BENEFICIAL
INTEREST TRANSACTIONS..................................... (6,716,709) 63,088,916
-------------- --------------
Net increase (decrease) in net assets....................... (6,703,356) 63,073,344
NET ASSETS:
Beginning of year........................................... 106,842,914 43,769,570
-------------- --------------
End of year................................................. $100,139,558 $106,842,914
-------------- --------------
-------------- --------------
</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,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................ $ 5,284,871 $ 1,986,551
Net realized gains from investment transactions.................. 26,128 9,062
-------------- --------------
Net increase in net assets resulting from operations............. 5,310,999 1,995,613
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income--Institutional Shares...................... (5,284,871) (1,986,551)
-------------- --------------
NET INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST
TRANSACTIONS................................................... 113,788,825 46,259,585
-------------- --------------
Net increase in net assets....................................... 113,814,953 46,268,647
NET ASSETS:
Beginning of year................................................ 65,892,724 19,624,077
-------------- --------------
End of year...................................................... $179,707,677 $65,892,724
-------------- --------------
-------------- --------------
</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, 1998 the Government Securities Fund and the Treasury Securities Fund had no
finanical 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 Money Market 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 Money
Market Fund has 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 Money
Market Fund occasionally participates in joint repurchase agreement transactions
with other funds managed by Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), sub-adviser and sub-administrator of the Fund, a wholly owned asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), the adviser
and 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.
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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, 1998, PaineWebber and Mitchell Hutchins have
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, 1998, the Money Market Fund had a net capital loss carryforward
of $45,066. 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, 2006. To the extent these losses are used to offset future
capital gains, it is probable that the gains so offset will not be distributed.
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 FINANCIAL INTERMEDIARY SHARES**
------------------------------------- -------------------------------------
FOR THE YEARS ENDED APRIL 30, FOR THE YEARS ENDED APRIL 30,
------------------------------------- -------------------------------------
1998 1997 1998* 1997
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
MONEY MARKET FUND:
Shares sold............................. 8,202,616,006 8,398,406,989 20,004,794 --
Shares repurchased...................... (7,924,527,512) (7,616,174,223) (3,702,565) --
Dividends reinvested.................... 66,949,148 42,678,006 -- --
------------------ --------------- ------------------ ---------------
Net increase in shares outstanding...... 345,037,642 824,910,772 16,302,229 --
------------------ --------------- ------------------ ---------------
------------------ --------------- ------------------ ---------------
GOVERNMENT SECURITIES FUND:
Shares sold............................. 317,328,523 670,826,717
Shares repurchased...................... (328,113,692) (611,609,161)
Dividends reinvested.................... 4,068,460 3,871,360
------------------ ---------------
Net increase (decrease) in shares
outstanding........................... (6,716,709) 63,088,916
------------------ ---------------
------------------ ---------------
TREASURY SECURITIES FUND:
Shares sold............................. 435,482,281 439,537,681
Shares repurchased...................... (326,140,762) (395,078,231)
Dividends reinvested.................... 4,447,306 1,800,135
------------------ ---------------
Net increase in shares outstanding...... 113,788,825 46,259,585
------------------ ---------------
------------------ ---------------
</TABLE>
- ---------------
* Issuance of shares was January 14, 1998.
** For the years ended April 30, 1998 and April 30, 1997, there were no
transactions in Financial Intermediary Shares for the Government Securities
Fund and Treasury Securities Fund and for the year ended April 30, 1997 there
were no transactions in Financial Intermediary Shares for the Money Market
Fund.
15
<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 SHARES**
--------------------------------------
FOR THE
PERIOD
INSTITUTIONAL SHARES JANUARY
--------------------------------------------------------- 14, FOR THE PERIOD
1998+ FOR THE MARCH 17,
FOR THE YEARS ENDED APRIL 30, TO YEAR ENDED 1994+
--------------------------------------------------------- APRIL APRIL 30, TO
1998 1997 1996 1995++ 1994 30, 1998 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........... 0.054 0.052 0.055 0.048 0.030 0.015 0.027 0.004
Net realized losses from
investment transactions........ -- -- -- (0.008) -- -- -- --
----------- ---------- -------- -------- -------- -------- ---------- ------
Net increase from investment
operations..................... 0.054 0.052 0.055 0.040 0.030 0.015 0.027 0.004
----------- ---------- -------- -------- -------- -------- ---------- ------
Dividends from net investment
income......................... (0.054) (0.052) (0.055) (0.048) (0.030) (0.015) (0.027) (0.004)
Distributions from net realized
gains from investment
transactions................... (0.000) -- -- -- -- -- -- --
----------- ---------- -------- -------- -------- -------- ---------- ------
Total dividends and
distributions to
shareholders................... (0.054) (0.052) (0.055) (0.048) (0.030) (0.015) (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 $ 1.00
----------- ---------- -------- -------- -------- -------- ---------- ------
----------- ---------- -------- -------- -------- -------- ---------- ------
Total investment return (2)..... 5.52% 5.33% 5.61% 4.91% 3.03% 1.51% 3.10% 0.37%
----------- ---------- -------- -------- -------- -------- ---------- ------
----------- ---------- -------- -------- -------- -------- ---------- ------
Ratios/Supplemental Data:
Net assets, end of period
(000's)........................ $ 1,591,789 $1,246,799 $421,878 $220,844 $254,281 $16,302 -- $ 9,000
Expenses to average net assets
net of waivers/ reimbursements
from adviser................... 0.29% 0.25% 0.31% 0.35% 0.33% 0.54%* 0.60%* 0.58%*
Expenses to average net assets
before waivers/ reimbursements
from adviser................... 0.34% 0.30% 0.37% 0.37% 0.33% 0.59%* 0.62%* 0.58%*
Net investment income to average
net assets net of
waivers/reimbursements from
adviser........................ 5.38% 5.24% 5.47% 4.68% 2.96% 5.13%* 4.17%* 2.93%*
Net investment income to average
net assets before
waivers/reimbursements from
adviser........................ 5.33% 5.19% 5.41% 4.66% 2.96% 5.07%* 4.15%* 2.93%*
</TABLE>
- -------------
+ 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 period May 1, 1997 to January 13, 1998, 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.
16
<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
SHARES**
----------
INSTITUTIONAL SHARES FOR THE
------------------------------------------------- PERIOD
JULY 12,
FOR THE YEARS ENDED APRIL 30, 1994+ TO
------------------------------------------------- APRIL 30,
1998 1997 1996 1995++ 1994 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................... 0.052 0.051 0.053 0.048 0.029 0.032
Net realized gains (losses) from
investment transactions................ -- -- 0.001 (0.008) -- --
-------- -------- ------- ------- ------- ----------
Net increase from investment
operations............................. 0.052 0.051 0.054 0.040 0.029 0.032
-------- -------- ------- ------- ------- ----------
Dividends from net investment income.... (0.052) (0.051) (0.054) (0.047) (0.029) (0.032)
-------- -------- ------- ------- ------- ----------
Contribution to capital from predecessor
advisor (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)............. 5.32% 5.20% 5.50% 4.61% 2.97% 3.31%
-------- -------- ------- ------- ------- ----------
-------- -------- ------- ------- ------- ----------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $100,140 $106,843 $43,770 $54,903 $84,209 --
Expenses to average net assets net of
waivers/reimbursements from adviser.... 0.30% 0.30% 0.32% 0.35% 0.35% 0.60%*
Expenses to average net assets before
waivers/reimbursements from adviser.... 0.59% 0.53% 0.56% 0.47% 0.37% 0.72%*
Net investment income to average net
assets net of
waivers/reimbursements from adviser.... 5.21% 5.09% 5.52% 4.75% 2.95% 4.58%*
Net investment income to average net
assets before
waivers/reimbursements from adviser.... 4.91% 4.86% 5.28% 4.63% 2.93% 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 years ended April 30, 1998 and 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 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 -- 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,
-------------------------------------------------------------
1998 1997 1996 1995++ 1994
------------- --------- --------- --------- ---------
<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............................. 0.051 0.049 0.048 0.049 0.028
Net realized gains (losses) from investment
transactions..................................... -- -- 0.003 (0.002) --
------------- --------- --------- --------- ---------
Net increase from investment operations........... 0.051 0.049 0.051 0.047 0.028
------------- --------- --------- --------- ---------
Dividends from net investment income.............. (0.051) (0.049) (0.051) (0.047) (0.028)
------------- --------- --------- --------- ---------
Net asset value, end of year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Total investment return (1)....................... 5.23% 5.02% 5.23% 4.75% 2.87%
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Ratios/Supplemental Data:
Net assets, end of year (000's)................... $ 179,708 $ 65,893 $ 19,624 $ 23,762 $ 38,602
Expenses to average net assets net of
waivers/reimbursements from adviser.............. 0.30% 0.30% 0.32% 0.22% 0.18%
Expenses to average net assets before
waivers/reimbursements from adviser.............. 0.47% 0.72% 0.94% 0.84% 0.76%
Net investment income to average net assets net of
waivers/reimbursements from adviser.............. 5.09% 4.97% 5.71% 5.51% 3.66%
Net investment income to average net assets before
waivers/reimbursements from adviser.............. 4.92% 4.56% 5.09% 4.89% 3.08%
</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 each 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.
18
<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, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three 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 two 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, 1998, 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, 1998, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in period then
ended, and the financial highlights for each of the three years in the period
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
June 24, 1998
19
<PAGE>
LIQUID INSTITUTIONAL RESERVES
TAX INFORMATION
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,
1998) 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 Koeghs) need to 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 1998. 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 1999. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in each
respective Fund.
20
<PAGE>
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
OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
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
SUBADVISER AND SUBADMINISTRATOR
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 FUNDS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
PaineWebber offers a family of 26 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
- -- Financial Services Growth Fund
- -- Growth Fund
- -- Growth and Income Fund
- -- Mid Cap Fund
- -- Small Cap Fund
- -- S&P 500 Index 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
MITCHELL HUTCHINS PORTFOLIOS
- -- Aggressive Portfolio
- -- Moderate Portfolio
- -- Conservative Portfolio
PAINEWEBBER MONEY MARKET FUND
APRIL 30, 1998
ANNUAL REPORT
LIQUID
INSTITUTIONAL
RESERVES
[LOGO]
1998 PaineWebber Incorporated
Member SIPC
