PaineWebber/
Kidder, Peabody
Government Money
Fund, Inc.
Annual Report
March 31, 1995
<PAGE>
May 15, 1995
Dear Shareholder,
During the year ended March 31, 1995, the United States economy exhibited steady
growth. In a series of monetary tightenings that began early in 1994, the
Federal Reserve Board raised the benchmark Federal Funds rate, the rate banks
charge each other for overnight borrowing, six times in 1994 for a total
increase of 2.5%. These increases were implemented to moderate economic
expansion and forestall inflation, and were followed by another 0.5% increase on
February 1, 1995, bringing the Federal Funds rate to 6.0%.
Productivity gains in the workplace and the increased competitiveness of United
States corporations in the global marketplace contributed to the low inflation
and steady growth which characterized the economy during the year ended March
31, 1995. Unemployment continued to decline, personal income exhibited an upward
trend and measures of consumer confidence continued to register positive
readings. However, side effects of higher interest rates, including a decline in
single family housing starts, crept into economic data during the latter half of
1994. As we move into the second quarter of 1995, the economy remains
healthy--although it is not yet clear what the full impact of higher interest
rates will be on economic growth.
At a special meeting of shareholders that took place on April 13, 1995,
shareholders approved the appointment of PaineWebber Incorporated
("PaineWebber") as investment adviser and administrator of PaineWebber/Kidder,
Peabody Government Money Fund, Inc. (the "Fund") and Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins") as the Fund's sub-adviser and
sub-administrator. Mitchell Hutchins, a wholly owned investment management
subsidiary of PaineWebber, provides investment advisory and portfolio management
services to individuals, pension and endowment funds, trusts and institutions.
As of March 31, 1995, Mitchell Hutchins was adviser or sub-adviser to 42
investment companies with 77 separate portfolios and aggregate assets of
approximately $27 billion.
Dennis L. McCauley and Susan P. Messina are jointly responsible for the
day-to-day management of the Fund. Mr. McCauley is a Managing Director and Chief
Investment Officer--Fixed Income of Mitchell Hutchins responsible for overseeing
all active fixed income investments, including domestic and global taxable and
tax exempt mutual funds. Mrs. Messina is a senior vice president of Mitchell
Hutchins responsible for overseeing taxable fixed income money market funds.
Portfolio Review
As of March 31, 1995, the Fund offered a seven-day annualized yield of 5.30% and
an effective 7-day annualized yield of 5.44%. The Fund maintained a weighted
average maturity of 25 days as of March 31, 1995. During the year ended March
31, 1995, the Federal Reserve's credit tightening policy caused
<PAGE>
interest rates on money market instruments to increase. For example, the Federal
Funds rate for short- term borrowing was approximately 3.50% on March 31, 1994;
as of March 31, 1995 it had increased to 6.0%.
During the period, the Fund's performance was enhanced by the Federal Funds rate
increases. Rising interest rates translated into higher yields for the
portfolio. Throughout the year, the Fund continuously reduced its weighted
average maturity. A shorter weighted average maturity benefits the Fund by
enabling it to have more cash available to invest as rates trend upward. Going
forward, the Fund will maintain a neutral weighted average maturity as
short-term rates find stability during uncertain economic times. Investment
decisions in the portfolio will be dominated by credit quality and liquidity.
Although we are interested in maintaining higher yields, we will not do so by
sacrificing the Fund's very strict emphasis on security, quality and liquidity.
We value you as a shareholder and as a client, and thank you for your continued
support. We welcome any comments or questions you may have.
Sincerely,
[Signature of Frank P.L. Minard]
FRANK P.L. MINARD
Chairman,
Mitchell Hutchins Asset Management Inc.
[Signature of Dennis L. McCauley]
DENNIS L. McCAULEY
Managing Director and Chief Investment
Officer--Fixed Income,
Mitchell Hutchins Asset Management Inc.
[Signature of Susan P. Messina]
SUSAN P. MESSINA
Senior Vice President,
Taxable Money Funds
Mitchell Hutchins Asset Management Inc.
2
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Statement of Net Assets
March 31, 1995
U.S. GOVERNMENT AGENCY OBLIGATIONS--96.98%
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- -----
<S> <C> <C> <C>
$36,700 Federal Farm Credit Bank 04/03/95 to 05/15/95 5.90 to 5.95% $ 36,580,687
59,000 Federal Home Loan Bank 04/03/95 to 05/09/95 5.88 to 5.95 58,843,962
77,700 Federal Home Loan Mortgage Corp. 04/04/95 to 07/03/95 5.90 to 6.07 77,235,222
67,000 Federal National Mortgage
Association 04/07/95 to 06/29/95 5.89 to 5.93 66,710,409
7,000 Student Loan Marketing Association 04/03/95 6.15 6,997,608
8,000 Tennessee Valley Authority 04/10/95 5.89 7,988,220
------------
Total U.S. Government Agency Obligations
(cost--$254,356,108) 254,356,108
------------
REPURCHASE AGREEMENT--3.22%
8,441 Repurchase agreement dated 03/31/95,
with Daiwa Securities (America) Inc.,
collateralized by $14,755,000 U.S.
Treasury Bonds, 12.00% due 08/15/13;
proceeds: $8,445,382
(cost--$8,441,000) 04/03/95 6.23 8,441,000
------------
Total Investments (cost--$262,797,108, which
approximates cost for federal income tax
purposes)--100.20% 262,797,108
Liabilities in excess of other assets--(0.20%) (528,109)
Net Assets (applicable to 262,269,951 shares; ------------
equivalent to $1.00 per share)--100.00% $262,268,999
============
Weighted average maturity (unaudited)--25 days
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Statement of Operations
For the Year Ended March 31, 1995
<TABLE>
<S> <C>
Investment Income:
Interest Income $14,501,297
-----------
Expenses:
Investment advisory and administration fees 1,514,040
Distribution fees 363,370
Transfer agency and service fees 98,340
Federal and state registration 53,914
Custody and accounting 49,440
Legal and audit 37,585
Directors' fees and expenses 23,760
Reports and notices to shareholders 17,281
Other expenses 18,355
-----------
2,176,085
-----------
Net investment income 12,325,212
Net realized losses from investment transactions (759,452)
-----------
Net increase in net assets resulting from operations $11,565,760
===========
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
From operations:
Net investment income $ 12,325,212 $ 9,188,749
Net realized losses from investment transactions (759,452) --
------------ ------------
Net increase in net assets resulting from operations 11,565,760 9,188,749
------------ ------------
Dividends to shareholders from:
Net investment income (12,325,212) (9,188,749)
Net decrease in net assets derived from capital stock
transactions (93,867,754) (5,139,798)
Contribution to capital from predecessor adviser 758,500 --
------------ ------------
Net decrease in net assets (93,868,706) (5,139,798)
Net Assets:
Beginning of period 356,137,705 361,277,503
------------ ------------
End of period $262,268,999 $356,137,705
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Notes to Financial Statements
Organization and Significant Accounting Policies
PaineWebber/Kidder, Peabody Government Money Fund, Inc. ("The Fund") was
organized under the laws of Maryland on February 2, 1983 and is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end, diversified management investment
company.
Valuation and Accounting for Investments--Investments are valued at
amortized cost which approximates market value. Securities not subject to
amortization are valued at current market value, or, when appropriate, at cost,
which approximates curent market value.
Investment transactions are recorded on trade date. Interest income,
adjusted for amortization of premiums and discounts on investments, is earned
from settlement date and recorded on an accrual basis. Premiums paid on
purchases of portfolio securities are amortized and discounts are accreted as
adjustments to interest income and the identified cost of securities. Realized
gains and losses from security transactions and principal paydowns on
asset-backed securities are calculated using the identified cost method.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
Repurchase Agreements--The Fund's 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 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.
Federal Tax Status--The 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 its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
Dividends--The Fund declares dividends on a daily basis from net investment
income. Such dividends are normally paid monthly. Net capital gains, if any,
will be declared and paid at least annually. To the extent that the Fund earns
net realized capital gains which can be offset by capital loss carryforwards, if
any, it is the policy of the Fund not to distribute such gains. At March 31,
1995, the Fund had a capital loss carryforward of $952 which expires in the year
2003.
5
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Notes to Financial Statements--(concluded)
Investment Adviser and Administrator
The Fund's investment adviser and administrator receives compensation from
the Fund for its services. Fees paid by the Fund for investment advisory and
administration services are accrued daily and paid monthly at the annual rate of
0.50% of the Fund's average daily net assets.
At a special meeting of shareholders that took place on April 13, 1995,
shareholders approved the appointment of PaineWebber Incorporated
("PaineWebber") as investment adviser and administrator of the Fund and Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") as the Fund's sub-adviser
and sub-administrator. The Fund pays the same fee for investment advisory and
administration services to PaineWebber as previously paid to Kidder Peabody
Asset Management, Inc. ("KPAM"), as described in the Fund's Prospectus.
PaineWebber (not the Fund) pays Mitchell Hutchins a fee for sub-advisory and
sub-administration services at the annual rate of 20% of the fee received by
PaineWebber from the Fund. PaineWebber and Mitchell Hutchins continue to manage
the Fund in accordance with the Fund's investment objective, policies and
restrictions as stated in the Prospectus. At March 31, 1995, the Fund owed
PaineWebber $117,526 in investment advisory and administration fees.
Investment advisory functions for the Fund were previously transferred from
KPAM to Mitchell Hutchins on an interim basis as a result of an asset purchase
transaction by and among Kidder, Peabody Group Inc., its parent, General
Electric Company, and Paine Webber Group Inc. That period commenced on January
30, 1995 and ended April 13, 1995.
In compliance with applicable state securities laws, PaineWebber, the
Fund's investment adviser, will reimburse the Fund if and to the extent that the
aggregate operating expenses in any fiscal year, exclusive of taxes, interest,
brokerage fees, distribution fees and extraordinary expenses, exceed limitations
imposed by various state regulations. Currently, the most restrictive limitation
is 2.5% on the first $30 million of average daily net assets, 2.0% of the next
$70 million and 1.5% of average daily net assets in excess of $100 million. For
the year ended March 31, 1995, no reimbursements were required pursuant to the
above limitation.
Distribution Plan
Since January 30, 1995, PaineWebber has been serving as the exclusive
distributor of the Fund's shares. For its services, which include payment of
sales commissions to registered representatives and various other promotional
and sales related expenses, PaineWebber receives from the Fund a distribution
fee accrued daily and paid monthly at the annual rate of 0.12% of the Fund's
average daily net assets. At March 31, 1995, $28,206 was payable to PaineWebber
for these services.
Other Liabilities
At March 31, 1995, the amount payable for dividends was $352,034.
6
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Capital Stock
There are 5 billion shares of $.01 par value common stock authorized.
Transactions in shares of common stock, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Shares sold 1,127,097,804 1,428,743,257
Shares repurchased (1,232,605,834) (1,442,866,320)
Dividends reinvested in additional Fund shares 11,640,276 8,983,265
------------- -------------
Net decrease in shares outstanding (93,867,754) (5,139,798)
============= =============
</TABLE>
Capital Contribution and Affiliated Transactions
KPAM purchased certain of the Fund's variable rate securities on July 6,
1994 for an aggregate purchase price of $15,573,977. The purchases were made at
prices equal to the securities' amortized cost plus accrued and unpaid interest.
Since the purchases by KPAM were made at prices above the securities' then
current fair values, the Fund recorded a capital contribution from KPAM in the
amount of $758,500 or $0.002 per share.
7
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Financial Highlights
Selected data for a share of capital stock outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Net investment income .04 .03 .03 .05 .07
Dividends from net investment income (.04) (.03) (.03) (.05) (.07)
----- ----- ----- ----- -----
Net asset value:
End of period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total investment return (1) 4.23% 2.54% 2.90% 4.78% 7.20%
===== ===== ===== ===== =====
Ratios/Supplemental Data:
Net assets, end of period (000's) $262,269 $356,138 $361,278 $511,065 $638,167
Ratio of expenses to average net
assets 0.72% 0.71% 0.71% 0.69% 0.69%
Ratio of net investment income to
average net assets 4.07% 2.51% 2.84% 4.69% 6.88%
</TABLE>
(1) Total investment return is calculated assuming a $1,000 investment on the
first day of each period reported, reinvestment of all dividends at net asset
value on the payable date, and a sale at net asset value on the last day of each
period reported.
8
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Report of Independent Auditors
The Board of Directors and Shareholders,
PaineWebber/Kidder, Peabody Government Money Fund, Inc.:
We have audited the accompanying statement of net assets of
PaineWebber/Kidder, Peabody Government Money Fund, Inc. as of March 31, 1995,
and the related statements of operations for the year then ended, and of changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
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. Our procedures included confirmation of securities owned at March
31, 1995 by correspondence with the custodian. 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, such financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
PaineWebber/Kidder, Peabody Government Money Fund, Inc. at March 31, 1995, the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
May 18, 1995
9
<PAGE>
PaineWebber/Kidder, Peabody Government Money Fund, Inc.
Tax Information
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (March 31,
1995) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that all distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. No portion of these distributions qualifies for the
dividends received deduction available to corporate shareholders.
Distributions received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income. Some retirement trusts (e.g., corporate,
Keogh and 403(b)(7) plans) may need this information for their annual
information reporting.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1995. The second
notification, which will reflect the amount 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 1996. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
10
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
DIRECTORS
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
OFFICERS
Frank P.L. Minard
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. Messina
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
This report is not to be used in connection with the offering of shares of
the Fund unless accompanied or preceded by an effective prospectus.
(Recycled Logo) Recycled Paper
