|
|
|
|
|
|
|
|
| MITCHELL HUTCHINS/
| KIDDER, PEABODY
| ADJUSTABLE RATE
| GOVERNMENT FUND
ANNUAL REPORT
August 31, 1995
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Portfolio of Investments
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000'S) DATES RATES VALUE
- ---------- -------------------- -------------- -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION--25.76%
<C> <S> <C> <C> <C>
$ 6,516 FHLMC (ARM) (cost--$6,670,846)......... 06/01/17 to 09/01/24 7.046 to 8.000% $ 6,745,177
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES--44.56%
11,292 FNMA (ARM) (cost--$11,574,162)......... 09/01/15 to 01/01/31 6.890 to 7.795 11,670,822
-----------
Total Mortgage-Backed Securities
(cost--$18,245,008).............................. 18,415,999
-----------
TREASURY BILLS--9.81%
2,575 United States Treasury Bills
(cost--$2,567,212).................... 09/14/95 to 10/12/95 5.275 to 5.430 2,567,212
-----------
TREASURY NOTES--19.39%
5,000 United States Treasury Notes
(cost--$5,009,227).................... 02/28/97 6.875 5,078,125
-----------
Total Investments (cost--$25,821,447)--99.52%...... 26,061,336
Other assets in excess of liabilities--0.48%....... 126,672
-----------
Net Assets--100.00%................................ $26,188,008
-----------
-----------
</TABLE>
- ------------
ARM--Adjustable Rate Mortgage-Backed Securities.
See accompanying notes to financial statements
1
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at value (cost--$25,821,447)....................... $26,061,336
Interest receivable.......................................................... 430,354
Receivable from investments sold............................................. 169,197
Receivable from advisor...................................................... 51,727
Other assets................................................................. 122,650
-----------
Total assets.............................................................. 26,835,264
-----------
Liabilities
Due to custodian............................................................. 358,079
Payable for fund shares repurchased.......................................... 157,713
Dividends payable............................................................ 60,692
Accrued expenses and other liabilities....................................... 70,772
-----------
Total liabilities......................................................... 647,256
-----------
NET ASSETS
Beneficial interest--shares of $0.001 par value outstanding (unlimited amount
authorized)................................................................ 29,585,487
Undistributed net investment income.......................................... 425,641
Accumulated net realized capital losses from investment transactions......... (4,063,009)
Net realized appreciation of investments..................................... 239,889
-----------
Net assets................................................................ $26,188,008
-----------
-----------
CLASS A :
Net assets................................................................... $23,198,692
-----------
Shares outstanding........................................................... 2,001,937
-----------
Net asset value, and redemption value per share.............................. $11.59
-----------
-----------
Maximum offering price per share (net asset value plus sales charge of 2.25%
of offering price)......................................................... $11.86
-----------
-----------
CLASS B :
Net assets................................................................... $ 2,378,281
-----------
Shares outstanding........................................................... 205,243
-----------
Net asset value, offering price and redemption value per share............... $11.59
-----------
-----------
CLASS C:
Net assets................................................................... $ 611,035
-----------
Shares outstanding........................................................... 52,710
-----------
Net asset value, offering price and redemption value per share............... $11.59
-----------
-----------
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest...................................................................... $ 2,326,727
-----------
EXPENSES:
Investment advisory and administration........................................ 191,750
Service fees--Class A......................................................... 83,618
Service and distribution fees--Class B........................................ 33,772
Legal and audit............................................................... 57,265
Amortization of organization expenses......................................... 47,905
Custody and accounting........................................................ 37,299
Reports and notices to shareholders........................................... 34,872
Federal and state registration................................................ 29,844
Transfer agency and service fees.............................................. 26,030
Trustees' fees................................................................ 12,863
Other expenses................................................................ 9,733
-----------
Total expenses................................................................ 564,951
LESS: Fee waivers from adviser................................................... (153,292)
-----------
Net expenses.................................................................. 411,659
-----------
NET INVESTMENT INCOME............................................................ 1,915,068
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions.............................. (1,587,966)
Net change in unrealized appreciation/depreciation of investments............. 509,221
-----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES.................... (1,078,745)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 836,323
-----------
-----------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
FOR THE YEAR ENDED
AUGUST 31,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 1,915,068 $ 6,331,980
Net realized losses from investment transactions................ (1,587,966) (1,497,635)
Net change in unrealized appreciation/depreciation of
investments................................................... 509,221 (1,903,033)
------------- ------------
Net increase in net assets resulting from operations............ 836,323 2,931,312
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class A.................................. (1,668,346) (5,505,980)
Net investment income--Class B.................................. (199,312) (289,641)
Net investment income--Class C.................................. (47,410) (536,359)
In excess of net investment income--Class A..................... -- (214,243)
In excess of net investment income--Class B..................... -- (11,365)
In excess of net investment income--Class C..................... -- (28,556)
------------- ------------
Total dividends and distributions to shareholders............... (1,915,068) (6,586,144)
------------- ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from sale of shares................................ 1,444,529 123,641,670
Cost of shares repurchased...................................... (49,305,698) (278,899,289)
Proceeds from dividends reinvested.............................. 1,330,610 5,776,858
------------- ------------
Net decrease in net assets from beneficial interest
transactions.................................................. (46,530,559) (149,480,761)
------------- ------------
Total decrease in net assets.................................... (47,609,304) (153,135,593)
------------- ------------
NET ASSETS:
Beginning of year............................................... 73,797,312 226,932,905
------------- ------------
End of year..................................................... $ 26,188,008 $ 73,797,312
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund (formerly
Kidder, Peabody Adjustable Rate Government Fund) (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
investment company.
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated and investment
adviser and administrator of the Fund, the fair value of the securities. When
market quotations are not readily available, securities are valued based upon
appraisals derived from information concerning those securities or simlar
securities received from recognized dealers in those securities. All other
securities are valued at fair value as determined in good faith by or under the
direction of the Trust's board of trustees. The amortized cost method of
valuation, which approximates market value, is used to value debt obligations
with 60 days or less remaining to maturity, unless the Trust's board of trustees
determines that this does not represent fair value.
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 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. The Fund occasionally
participates in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins.
Investment Transactions and Investment Income--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. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and realized/unrealized
gains/losses are allocated proportionately to each class of shares based upon
the relative net asset value of outstanding shares (or the value of
dividend-eligible shares, as appropriate) of each class at the beginning of the
day (after adjusting for current capital share activity of the respective
classes). Class-specific expenses are charged directly to the applicable class
of shares.
Federal Tax Status--The Fund intends to distribute substantially all of its
taxable income and to comply with 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
5
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
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.
In accordance with U.S. Treasury regulations, the Fund has elected to defer
$2,025,342 of net realized capital losses arising after October 31, 1994. Such
losses are treated for tax purposes as arising on September 1, 1995.
At August 31, 1995, the Fund had a net capital loss carryforward of
$2,014,718 available as a reduction to the extent provided in the regulations,
of future net capital gains realized, and will expire between August 31, 2002
and August 31, 2003.
To reflect reclassifications arising from permanent "book/tax" differences
for the year ended August 31, 1995 undistributed net investment income (loss)
was increased by $679,805 and capital gains (losses) were decreased by
$679,805.
Dividends and Distributions to Shareholders--The Fund records dividends and
distributions to its shareholders on the ex-date. The amount of dividends and
distributions from net investment income and net realized capital gains 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 reclassifications. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's investment adviser and administrator receives compensation from
the Fund accrued daily and paid monthly at an annual rate of 0.50% of the Fund's
average daily net assets.
At a special meeting of shareholders held on April 13, 1995, shareholders
approved the appointment of Mitchell Hutchins as investment adviser and
administrator of the Fund. The Fund pays the same fee for investment advisory
and administration services to Mitchell Hutchins as previously paid to Kidder
Peabody Asset Management, Inc. ("KPAM"), as described in the Fund's prospectus.
Mitchell Hutchins continues to manage the Fund in accordance with the Fund's
investment objectives, policies and restrictions as stated in the Prospectus. At
August 31, 1995, the Fund owed fees to Mitchell Hutchins in the amount of $8,866
for 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, and Paine Webber Group Inc. That period commenced February 13, 1995
and ended April 13, 1995.
In compliance with applicable state securities laws, Mitchell Hutchins will
reimburse the Fund if and to the extent that the aggregate operating expenses in
any fiscal year, exclusive of taxes, interest,
6
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(continued)
- --------------------------------------------------------------------------------
brokerage fees, distribution fees and extraordinary expenses, exceed limitations
imposed by various state regulations. Currently, the most restrictive limitation
applicable to the Fund is 2.5% of the first $30 million of average daily net
assets, 2.0% of the next $70 million and 1.5% of any excess over $100 million.
For the year ended August 31, 1995, no reimbursements were required pursuant to
the above limitation. Mitchell Hutchins voluntarily reimbursed the Fund for a
portion of the expenses and waived a portion of its investment advisory fee.
DISTRIBUTION PLANS
Effective February 13, 1995, Mitchell Hutchins serves as the exclusive
distributor of the Fund's shares. Under separate plans of distribution, Class A
shares are sold subject to a front-end sales load and bear a service fee of
0.25% per annum of average class net assets and Class B shares are sold at net
asset value without a sales load and bear a distribution fee of 0.50% per annum
and a service fee of 0.25% per annum of average class net assets. The Fund pays
Mitchell Hutchins the service and distribution fees monthly. For these services
for the period ended February 13, 1995, Kidder, Peabody, the Fund's predecessor
distributor, earned $64,450 in fees. For these services for the period February
14, 1995 to August 31, 1995, Mitchell Hutchins earned $52,940 in fees. August
31, 1995 the Fund owed fees to Mitchell Hutchins in the amount of $7,724 for
distribution and service fees. Mitchell Hutchins also receives the proceeds of
any front-end sales loads with respect to the purchase of Class A shares.
Mitchell Hutchins has informed the Fund that, for the year ended August 31,
1995, it earned $12,124 in sales charges.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at August 31,
1995 was substantially the same as the cost of securities for financial
statement purposes.
At August 31, 1995, the components of the net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess of value over
cost).......................................................... $ 239,889
Gross depreciation (investments having an excess of cost over
value)......................................................... -0-
---------
Net unrealized appreciation of investments..................... $ 239,889
---------
---------
For the year ended August 31, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were as follows:
Purchases..................................................... $52,903,061
Sales......................................................... $89,523,412
7
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements--(concluded)
- --------------------------------------------------------------------------------
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 were as
follows:
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
--------------------------- ---------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
AUGUST 31, 1995:
Shares sold................. 51,413 $ 610,072 64,300 $ 746,521 7,543 $ 87,936
Dividends reinvested in
additional Fund shares.... 95,092 1,104,218 15,836 183,860 3,660 42,532
Shares repurchased.......... (3,593,213) (42,037,068) (530,079) (6,146,313) (96,472) (1,122,317)
----------- ------------- -------- ----------- ---------- ------------
Net decrease................ (3,446,708) $ (40,322,778) (449,943) $(5,215,932) (85,269) $ (991,849)
----------- ------------- -------- ----------- ---------- ------------
----------- ------------- -------- ----------- ---------- ------------
FOR THE YEAR ENDED
AUGUST 31, 1994:
Shares sold................. 6,973,355 $ 84,134,009 932,828 $11,232,555 2,346,864 $ 28,275,106
Dividends reinvested in
additional Fund shares.... 414,976 4,983,789 23,925 286,345 42,294 506,724
Shares repurchased.......... (19,973,497) (240,056,825) (789,229) (9,457,145) (2,467,668) (29,385,319)
----------- ------------- -------- ----------- ---------- ------------
Net increase (decrease)..... (12,585,166) $(150,939,027) 167,524 $ 2,061,755 (78,510) $ (603,489)
----------- ------------- -------- ----------- ---------- ------------
----------- ------------- -------- ----------- ---------- ------------
</TABLE>
8
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
------------------------------------ ------------------------------------ ----------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE NOVEMBER 10, FOR THE FOR THE MAY 10, FOR THE FOR THE
YEAR ENDED YEAR ENDED 1992+ TO YEAR ENDED YEAR ENDED 1993+ TO YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1995(1) 1994 1993 1995(1) 1994 1993 1995(1) 1994
---------- ---------- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $ 11.82 $ 12.11 $ 12.00 $11.82 $12.11 $12.07 $11.83 $12.11
---------- ---------- ------------ ----- ----- ----- ----- -----
Net investment
income............... 0.58** 0.44 0.42 0.52** 0.40 0.13 0.60** 0.30
Net realized and
unrealized gains
(losses) from
investment
transactions......... (0.22) (0.25) 0.11 (0.22) (0.27) 0.04 (0.22) (0.07)
---------- ---------- ------------ ----- ----- ----- ----- -----
Net Increase from
investment
operations............ 0.36 0.19 0.53 0.30 0.13 0.17 0.38 0.23
---------- ---------- ------------ ----- ----- ----- ----- -----
Dividends from net
investment income.... (0.59) (0.48) (0.42) (0.53) (0.42) (0.13) (0.62) (0.51)
---------- ---------- ------------ ----- ----- ----- ----- -----
Net asset value, end of
period................ $ 11.59 $ 11.82 $ 12.11 $11.59 $11.82 $12.11 $11.59 $11.83
---------- ---------- ------------ ----- ----- ----- ----- -----
---------- ---------- ------------ ----- ----- ----- ----- -----
Total investment
return(2)............. 2.97% 1.60% 4.45% 2.48% 1.09% 1.40% 3.13% 1.94%
---------- ---------- ------------ ----- ----- ----- ----- -----
---------- ---------- ------------ ----- ----- ----- ----- -----
Net assets, end of
period (000's
omitted)............. $ 23,199 $ 64,419 $218,405 $2,378 $7,746 $5,906 $ 611 $1,632
Ratio of expenses, net
of waivers from
adviser, to average
net assets........... 1.03% 0.88% 0.53%* 1.55% 1.38% 0.99%* 0.78% 0.63%
Ratio of expenses,
before waivers from
adviser, to average
net assets........... 1.44% 1.08% 0.92%* 1.95% 1.58% 1.35%* 1.18% 0.83%
Ratio of net investment
income to average net
assets............... 5.10% 3.88% 4.00%* 4.59% 3.38% 3.54%* 5.35% 4.13%
Portfolio turnover...... 167% 26% 14% 167% 26% 14% 167% 26%
<CAPTION>
FOR THE
PERIOD
MAY 10,
1993+ TO
AUGUST 31,
1993
------------
<S> <C>
Net asset value,
beginning of period... $12.07
-----
Net investment
income............... 0.16
Net realized and
unrealized gains
(losses) from
investment
transactions......... 0.04
-----
Net Increase from
investment
operations............ 0.20
-----
Dividends from net
investment income.... (0.16)
-----
Net asset value, end of
period................ $12.11
-----
-----
Total investment
return(2)............. 1.64%
-----
-----
Net assets, end of
period (000's
omitted)............. $2,622
Ratio of expenses, net
of waivers from
adviser, to average
net assets........... 0.29%*
Ratio of expenses,
before waivers from
adviser, to average
net assets........... 0.65%*
Ratio of net investment
income to average net
assets............... 4.24%*
Portfolio turnover...... 14%
</TABLE>
- ------------
+ Commencement of offering of shares
* Annualized
** Calculated using the average shares outstanding for the year.
(1) Investment advisory functions for the Fund were transferred from Kidder
Peabody Asset Management, Inc. to Mitchell Hutchins Asset Management Inc. on
February 13, 1995.
(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. The figures do not
include sales charges; results for Class A would be lower if sales charges
were included. Total returns for periods of less than one year have not been
annualized.
9
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
We have audited the accompanying statement of assets and liabilities of
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund, including the
portfolio of investments, as of August 31, 1995, and the related statements of
operations, changes in net assets, and financial highlights for the year 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
audit. The statement of changes in net assets and the financial highlights for
the period ended August 31, 1994 were audited by other auditors whose report
dated October 14, 1994 expressed an unqualified opinion on that statement and
financial highlights.
We have conducted our audit 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 August
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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund at
August 31, 1995, and the results of its operations, the changes in its net
assets, and the financial highlights for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
October 18, 1995
10
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
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 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.
11
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Shareholder Information
- --------------------------------------------------------------------------------
A special meeting of shareholders of Mitchell Hutchins/Kidder, Peabody
Adjustable Rate Government Fund ("Fund"), a series of Mitchell Hutchins/Kidder,
Peabody Investment Trust ("Trust"), was held on April 13, 1995. At the meeting,
David J. Beaubien, William W. Hewitt, Jr., Thomas R. Jordan, Frank P.L. Minard
and Carl W. Schafer were elected as trustees to serve without limit in time,
subject to resignation, retirement or removal. The selection of Deloitte &
Touche LLP as the Fund's independent accountants was ratified. The Trust was
composed of several series, each of which was a separate fund. Each series of
the Trust voted separately on all matters being considered by the series, except
for the election of trustees and ratification or rejection of the Trust's
independent accountants, as to which the shares of all series of the Trust voted
together as a single class.
The votes were as follows:
<TABLE><CAPTION>
ALL SHARES OF THE TRUST VOTING AS A SINGLE
CLASS
(VOTES OF THE FUND'S SHAREHOLDERS NOTED IN
PARENTHESIS)
--------------------------------------------
SHARES WITHHOLD
SHARES VOTED AUTHORITY
----------------------- -----------------
<S> <C> <C> <C> <C>
David J. Beaubien.......................... 20,990,961 (2,237,712) 773,340 (71,224)
William W. Hewitt, Jr. .................... 20,990,961 (2,237,712) 773,340 (71,224)
Thomas R. Jordan........................... 20,990,961 (2,237,712) 773,340 (71,224)
Frank P.L. Minard.......................... 20,990,961 (2,237,712) 773,340 (71,224)
Carl W. Schafer............................ 20,990,961 (2,237,712) 773,340 (71,224)
</TABLE>
<TABLE><CAPTION>
ALL SHARES OF THE TRUST VOTING AS A SINGLE CLASS
(VOTES OF THE FUND'S SHAREHOLDERS NOTED IN PARENTHESIS)
-------------------------------------------------------------------
SHARES VOTED SHARES WITHHOLD
SHARES VOTED FOR AGAINST AUTHORITY
----------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratification of the
selection of Deloitte
& Touche LLP......... 20,423,671 (1,774,379) 544,111 (417,361) 796,520 (117,197)
</TABLE>
On July 20, 1995, the Board of Trustees appointed Ernst & Young LLP as the
Fund's Independent auditors.
In addition the following agreements were approved for the Fund:
1) An interim investment advisory agreement with Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), the investment management subsidiary
of PaineWebber Incorporated ("PaineWebber"), containing substantially the
same terms, conditions and fees as its previous investment advisory
agreement with Kidder Peabody Asset Management, Inc. ("KPAM").
12
<PAGE>
Mitchell Hutchins/Kidder, Peabody Adjustable Rate Government Fund
- --------------------------------------------------------------------------------
Shareholder Information--(continued)
- --------------------------------------------------------------------------------
The votes were as follows:
ALL SHARES OF THE TRUST VOTING AS A SINGLE CLASS
---------------------------------------------------------------------
SHARES VOTED FOR SHARES VOTED AGAINST SHARES WITHHOLD AUTHORITY
---------------- -------------------- -------------------------
2,183,035 559 125,342
2) A new investment advisory and administration agreement with Mitchell
Hutchins containing the same fees and substantively similar material terms
and conditions as its previous investment advisory agreement with KPAM to
commence on the termination of the interim agreement.
The votes were as follows:
ALL SHARES OF THE TRUST VOTING AS A SINGLE CLASS
---------------------------------------------------------------------
SHARES VOTED FOR SHARES VOTED AGAINST SHARES WITHHOLD AUTHORITY
---------------- -------------------- -------------------------
2,182,742 853 125,342
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
13
<PAGE>
---------------------------------------
TRUSTEES
David J. Beaubien
William W. Hewitt, Jr.
Thomas R. Jordan
Frank P.L. Minard
Carl W. Schafer
---------------------------------------
OFFICERS
Margo N. Alexander
President
Dennis L. McCauley
Vice President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
---------------------------------------
INVESTMENT ADVISER,
ADMINISTRATOR
AND DISTRIBUTOR
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.
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.
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(C)1995 PaineWebber Incorporated
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