<PAGE>
AUGUST 15, 1995
DEAR SHAREHOLDER,
During the year ended June 30, 1995, the pace of U.S. economic growth was
perceived to have slowed in response to the Federal Reserve Board's repeated
increases in the benchmark Federal Funds rate, the rate banks charge each other
for overnight borrowing. The Federal Reserve Board raised the Federal Funds rate
to 6.0% after seven short-term interest rate hikes between February 1994 and
February 1995. On July 6, 1995, the Federal Reserve cut the benchmark Federal
Funds rate by 0.25% to 5.75%. This decrease, the first in nearly three years,
signals that the Federal Reserve Board believes that inflationary pressures have
eased enough to accommodate an adjustment in monetary conditions from
restrictive to neutral.
ECONOMIC OVERVIEW
News concerning the economy during the year ended June 30, 1995, was
dominated by debate over whether inflation was likely to become a threat,
discussions about the dismal performance of the dollar and details of efforts in
Washington to implement a plan to balance the budget. The U.S. bond and stock
markets rallied in the first half of 1995. Interest rates trended downward, as
the perception that the Federal Reserve would win its battle with inflation and
that the next policy action would be to lower short-term interest rates became
widespread. Strength in corporate earnings pushed stock prices higher.
Employment reports indicated a slowing economy, with consumer spending declining
significantly from 1994 and consumer credit reports showing high ratios of
installment debt to disposable income. Side effects of higher interest rates
lingered, however. Markets for new and existing homes were sluggish until the
close of the twelve-month period, despite historically attractive mortgage
rates. Although the U.S. economy appears to have been flat in the second
quarter, the second half of 1995 should show signs of further, albeit slower,
growth.
PORTFOLIO REVIEW
November 1994 marked the end of a difficult bear market period for fixed
income markets, as interest rates on government securities peaked and prices
bottomed. Although the Federal Reserve hiked short-term interest rates one more
time in February 1995, the first half of 1995 was marked by a general decline in
interest rates, culminating in a powerful bond market rally in the second
quarter of 1995. During the twelve-month period, the economic backdrop shifted
from the strong GDP growth rate in the fourth quarter of 1994, to mild growth in
the first quarter of 1995, and a more significant slowdown in the second
quarter. As economic growth slowed, the mood of the bond market changed from
gloom to euphoria, as investors no longer feared a continuing series of interest
rate hikes by the Federal Reserve and began looking forward to interest rate
cuts.
1
<PAGE>
The total return for Triple A and Government Series--1997, Inc. ('TAGS 97')
for the year ended June 30, 1995, based on net asset value was 8.98%, while the
total return for the same period based on its share price on the American Stock
Exchange on June 30, 1995 was 7.24%. As of June 30, 1995, TAGS 97 net asset
value per share was $9.63, while its share price on the American Stock Exchange
was $9.25.
The investment objective of TAGS 97 is to manage a portfolio of U.S.
government securities and AAA-rated and comparable debt obligations in order to
return to reinvesting shareholders $10.00 per share on its termination date. As
described in the prospectus, the termination date for TAGS 97 will be June 29,
1997.
The principal means of obtaining the investment objective of TAGS 97 is
through the management of the composition and average duration of the portfolio.
The duration of a fixed income security is the weighted average term to maturity
of the present value of its cash flows, including interest and repayment of
principal. We believe mortgage-backed securities, in general, best represent the
sector to meet the dividend and capital requirements of this portfolio. However,
in the case of mortgage-backed securities, duration management is complicated by
the risk of prepayments. These prepayment risks increase in a declining interest
rate environment, such as the one we are currently experiencing. Given the short
remaining maturity of TAGS 97, we have temporarily reduced the Fund's exposure
to mortgage-backed securities. However, we believe signs of interest rate
stability and declining volatility should return this sector to a more favorable
risk/reward ratio consistent with TAGS 97 conservative bias and short maturity.
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,
/s/ Frank P.L. Minard /s/ Nirmal Singh
FRANK P.L. MINARD NIRMAL SINGH
Chairman, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Triple A and Government Series--
1997, Inc.
2
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
PORTFOLIO OF INVESTMENTS JUNE 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ---------------------------------------------------------------------- -------------------- --------------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS-72.45%
$14,080 U.S. Treasury Bills........................................... 07/06/95 to 07/27/95 5.170 to 5.370%@ $14,048,743
15,200 U.S. Treasury Notes........................................... 02/15/98 to 04/03/00 6.125 to 7.250 15,556,984
-----------
Total U.S. Government Obligations (cost - $29,457,579)................ 29,605,727
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 25.07%
6,000 CBA Mortgage Corp. Series 1993-C1, Class A2................... 12/25/03 7.154* 6,112,500
4,000 FDIC REMIC Trust 1994-C1, Class 2A2........................... 09/25/25 7.850 4,132,500
-----------
Total Collateralized Mortgage Obligations (cost - $10,017,681)........ 10,245,000
-----------
REPURCHASE AGREEMENT -1.60%
655 Repurchase Agreement dated 06/30/95, with State Street Bank
Trust Co., collateralized by $670,000
U.S. Treasury Notes, 5.125% due 11/15/95; proceeds: $655,300
(cost - $655,000).............................................. 07/03/95 5.500 655,000
-----------
Total Investments (cost - $40,130,260) - 99.12%....................... 40,505,727
Other assets in excess of liabilities - 0.88%......................... 360,184
-----------
Net Assets - 100.00%.................................................. $40,865,911
-----------
-----------
</TABLE>
- ------------------
* Adjustable rate instrument.
@ Yield to maturity for discounted securities.
REMIC - Real Estate Mortgage Investment Conduit
See accompanying notes to financial statements
3
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost - $40,130,260)........ $ 40,505,727
Receivable from affiliate....................................... 116,668
Interest receivable............................................. 281,244
Deferred organizational expenses................................ 58,235
Other assets.................................................... 1,036
-------------
Total assets.................................................... 40,962,910
-------------
LIABILITIES
Accrued expenses and other liabilities.......................... 96,999
-------------
NET ASSETS
Capital stock - $0.001 par value; total authorized 100,000,000
shares;
4,245,649 shares issued and outstanding....................... 44,146,515
Undistributed net investment income............................. 548,968
Accumulated net realized losses from investment and futures
transactions.................................................. (4,205,039)
Net unrealized appreciation of investments...................... 375,467
-------------
Net assets applicable to shares outstanding..................... $ 40,865,911
-------------
-------------
Net asset value per share....................................... $9.63
-------------
-------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 3,078,155
-----------
EXPENSES:
Investment advisory and administration............................ 396,594
Legal and audit................................................... 57,371
Reports and notices to shareholders............................... 32,081
Amortization of organizational expenses........................... 28,799
Custody and accounting............................................ 25,681
Transfer agency fees.............................................. 18,903
Directors' fees................................................... 11,000
Other expenses.................................................... 5,480
-----------
575,909
Less: Fee waivers and reimbursements from adviser................. (575,909)
-----------
Net expenses...................................................... --
-----------
NET INVESTMENT INCOME............................................. 3,078,155
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from:
Investment transactions......................................... (287,562)
Futures transactions............................................ (459,206)
Net change in unrealized appreciation/depreciation from:
Investments..................................................... 719,680
Futures contracts............................................... 134,625
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES...... 107,537
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 3,185,692
-----------
-----------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................... $ 3,078,155 $ 2,545,371
Net realized losses from investment transactions.................... (287,562) (2,283,004)
Net realized losses from futures transactions....................... (459,206) --
Net change in unrealized appreciation/depreciation of investment
transactions...................................................... 719,680 (983,252)
Net change in unrealized appreciation/depreciation of futures
contracts......................................................... 134,625 (134,625)
------------ ------------
Net increase (decrease) in net assets resulting from operations..... 3,185,692 (855,510)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.......................................... (2,625,105) (2,663,129)
In excess of net investment income.................................. -- (151,770)
------------ ------------
Net decrease in net assets from dividends and distributions......... (2,625,105) (2,814,899)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from dividends reinvested.................................. 499,672 318,853
Payment from adviser................................................ 250,000 --
------------ ------------
Net increase in net assets derived from share transactions.......... 749,672 318,853
------------ ------------
Net increase (decrease) in net assets............................... 1,310,259 (3,351,556)
NET ASSETS:
Beginning of year................................................... 39,555,652 42,907,208
------------ ------------
End of year (including undistributed net investment income of
$575,786
and $122,736, respectively)....................................... $ 40,865,911 $ 39,555,652
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Triple A and Government Series - 1997, Inc. ('Series') was incorporated in
Maryland on May 1, 1992 as a closed-end diversified management investment
company. Prior to commencing its operations on July 1, 1992, the Series had no
activities other than organizational matters and the sale to Mitchell Hutchins
Asset Managment Inc. ('Mitchell Hutchins'), which is a wholly owned subsidiary
of PaineWebber Incorporated, of 100 shares of common stock for $100,000.
Organizational costs of $144,000 have been deferred and are being amortized on
the straight-line method over a period not to exceed 60 months from the date the
Series commenced investment operations. Costs associated with the distribution
of shares were paid by Mitchell Hutchins. The Series is scheduled to terminate
on or about June 29, 1997 (the 'Termination Date').
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 Institutional Investors Inc.
('MHII'), a wholly owned subsidiary of Mitchell Hutchins and sub-adviser of the
Series, 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 similar 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 Series' board of
directors. 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 board of directors determines that this does not represent
fair value. At June 30, 1995 there were no securities for which market
quotations were unavailable.
The ability of the issuers of the debt securities held by the Series to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
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.
Repurchase Agreements - The Series' 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 Series 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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Futures Contracts - Upon entering into a financial futures contract, the Series
is required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the 'initial margin.' Subsequent payments, known as 'variation margin,'
are made or received by the Series each day, depending on the daily fluctuations
in the value of the underlying financial futures contracts. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the financial futures contract is closed, at which
time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The Series is subject to a number of guidelines which reduce this risk by
seeking to ensure that financial futures contracts are used for hedging purposes
as well as to manage the average duration of the Series' portfolio and not for
leverage. However, imperfect correlations between futures contracts and the
portfolio securities being hedged, or market disruptions, do not normally permit
full control of these risks at all times.
Federal Tax Status - The Series intends to distribute all of its taxable net
investment 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 taxable net investment
income, capital gains and certain other amounts, if any, the Series intends not
to be subject to a federal excise tax. However, if the costs of making a
year-end distribution to avoid payment of an excise tax (including the cost of
the related reverse stock split) would exceed the amount of tax due, the Series
may elect to pay the tax in lieu of making such distribution.
At June 30, 1995, the Series had a net capital loss carryforward of $3,538,365.
This loss carryforward is available as a reduction, to the extent provided in
the regulations, of future net realized capital gains.
Dividends and Other Distributions - Dividends and distributions to shareholders
are recorded on the ex-dividend date. Dividends from net investment income are
declared and paid on a monthly basis. Dividends from net investment income and
distributions from realized gains have been determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These 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. Net capital gains, if
any, will be distributed annually, but the Series may make more frequent
distributions of such gains, if necessary, to avoid income or excise taxes. On
or about the Termination Date, the Series will liquidate its assets and will
declare and make a
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
termination distribution to its shareholders in an aggregate amount equal to the
net proceeds of such liquidation after payment of the Series' expenses and
liabilities.
Reverse stock splits of 0.9854 to 1, 0.9923 to 1 and 0.9873 to 1 were declared
on December 4, 1992, December 28, 1993 and December 14, 1994, effective December
30, 1992, December 28, 1993 and December 27, 1994, respectively, immediately
following the payment of the reinvestment dividend, as defined in the Series'
prospectus.
A stock split of 100 to 1 was declared on June 14, 1993 effective June 24, 1993,
in connection with the listing of the Series' shares on the American Stock
Exchange.
INVESTMENT ADVISER AND ADMINISTRATOR
The Series' board of directors and its shareholders have approved an Investment
Advisory and Administration Contract ('Advisory Contract') with Mitchell
Hutchins, under which Mitchell Hutchins serves as investment adviser and
administrator of the Series. In accordance with the Advisory Contract, Mitchell
Hutchins is entitled to receive compensation from the Series, computed weekly at
an annual rate of 1.00% of the Series' average weekly net assets. For the year
ended June 30, 1995, Mitchell Hutchins earned and waived $396,594 in investment
advisory and administration fees. Mitchell Hutchins also voluntarily reimbursed
the Series $179,315 for expenses incurred during the year.
Under a separate contract with Mitchell Hutchins, MHII serves as the Series'
sub-adviser ('Sub-Advisory Contract'). Under the Sub-Advisory Contract, Mitchell
Hutchins (not the Series) has agreed to pay MHII a fee, computed weekly and
payable monthly, at the annual rate of up to a maximum of 0.325% of the Series
average weekly net assets. For the year ended June 30, 1995, MHII voluntarily
waived all fees payable under the sub-advisory contract.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30, 1995
was substantially the same as the cost of securities for financial statement
purposes.
At June 30, 1995, the components of net unrealized appreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross appreciation (from investments having an excess of value over cost)..... $375,467
Gross depreciation (from investments having an excess of cost over value)..... --
--------
Net unrealized appreciation of investments.................................... $375,467
--------
--------
</TABLE>
For the year ended June 30, 1995, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $75,182,756 and
$77,356,722, respectively.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 4,245,649 shares outstanding at June 30, 1995, Mitchell Hutchins owned
10,000 shares. Shares authorized and outstanding reflect the impact of both the
reverse stock splits and the stock split. Transactions in shares of common stock
were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Shares sold............................................. -- --
Additional shares from dividends reinvested ............ 54,490 32,569
------------ -------------
54,490 32,569
Reduction of shares from reverse
stock split........................................... (54,541) (32,569)
------------ -------------
Net decrease in shares outstanding...................... (51) --
------------ -------------
------------ -------------
</TABLE>
Effective June 27, 1995, Mitchell Hutchins voluntarily contributed $250,000 in
order to increase the net asset value per share of the Series.
10
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
QUARTERLY RESULTS OF OPERATIONS-(UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED NET
AND UNREALIZED INCREASE
GAINS (LOSSES) (DECREASE)
FROM INVESTMENT IN NET ASSETS
NET INVESTMENT AND FUTURES RESULTING FROM
INCOME TRANSACTIONS OPERATIONS
-------------- ----------------- -------------------
TOTAL PER TOTAL PER TOTAL PER
QUARTER ENDED* (000's) SHARE (000's) SHARE (000's) SHARE
- ------------------------ ------- ----- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1995........... $ 733 $0.17 $ 327 $ 0.08 $ 1,060 $ 0.25
March 31, 1995.......... 809 0.19 721 0.17 1,530 0.36
December 31, 1994....... 811 0.19 (615) (0.14) 196 0.05
September 30, 1994...... 725 0.17 (325) (0.08) 400 0.09
------- ----- -------- ------- -------- ---------
Totals.................. $ 3,078 $0.72 $ 108 $ 0.03 $ 3,186 $ 0.75
------- ----- -------- ------- -------- ---------
------- ----- -------- ------- -------- ---------
June 30, 1994........... $ 535 $0.12 $ (734) $ (0.18) $ (199) $ (0.06)
March 31, 1994.......... 619 0.15 (1,418) (0.33) (799) (0.18)
December 31, 1993....... 696 0.17 (691) (0.17) 5 --
September 30, 1993...... 695 0.16 (558) (0.13) 137 0.03
------- ----- -------- ------- -------- ---------
Totals.................. $ 2,545 $0.60 $ (3,401) $ (0.81) $ (856) $ (0.21)
------- ----- -------- ------- -------- ---------
------- ----- -------- ------- -------- ---------
</TABLE>
- ------------
* Per share information reflects the impact of the reverse stock splits.
11
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
FINANCIAL HIGHLIGHTS 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING
FOR EACH OF THE YEARS IS PRESENTED BELOW:
Net asset value, beginning of period........................ $ 9.44 $ 10.31 $ 10.35
---------- ---------- ----------
Net investment income....................................... 0.72 0.60 0.62
Net realized and unrealized gains (losses) from investment
and futures transactions.................................. 0.03 (0.81) 0.09
---------- ---------- ----------
Net increase (decrease) in net asset value from
operations................................................ 0.75 (0.21) 0.71
---------- ---------- ----------
Less dividends and distributions:
Dividends from net investment income........................ (0.62) (0.62) (0.59)
Distributions from net realized gains....................... -- -- (0.16)
In excess of net investment income.......................... -- (0.04) --
---------- ---------- ----------
Total dividends and distributions........................... (0.62) (0.66) (0.75)
---------- ---------- ----------
Payment from adviser........................................ 0.06 -- --
---------- ---------- ----------
Net asset value, end of period.............................. $ 9.63 $ 9.44 $ 10.31
---------- ---------- ----------
---------- ---------- ----------
Per share market value, end of period....................... $ 9.25 $ 9.25 $ 10.25
---------- ---------- ----------
---------- ---------- ----------
Total investment return(1).................................. 7.24% (3.38)% 8.37%
Ratios and Supplemental data:
Net assets, end of period (000's)........................... $ 40,866 39,556 $ 42,907
Ratio of expenses to average net assets(2).................. 0.00% 0.00% 1.49%
Ratio of net investment income to average net assets(2)..... 7.76% 6.15% 6.22%
Portfolio turnover rate..................................... 223.49% 298.05% 93.23%
</TABLE>
- ------------------
NOTE: Per share information for the periods above including total investment
return, reflects the impact of the reverse stock splits and the stock
split. The reverse stock splits on December 27, 1994, December 28, 1993
and December 30, 1992 had the effect of increasing the net asset value
per share on July 1, 1992 by $0.12, $0.08 and $0.15, respectively.
(1) Total investment return is calculated assuming a purchase of one share of
common stock at market value on the first day of each period reported,
reinvestment of all dividends and capital gain distributions, and a sale
at market value on the last day of each period reported. Although the
Series does not offer dividend reinvestment for monthly dividends, total
investment return is calculated by assuming reinvestment of all dividends
and capital gain distributions in accordance with regulatory
requirements. Total investment return does not reflect brokerage
commissions.
(2) During each of the periods presented, Mitchell Hutchins reimbursed the
Series for all or a portion of its operating expenses and waived all or a
portion of its advisory and administration fees. If such waivers and
reimbursements had not been made, the ratios of expenses to average net
assets and net investment income to average net assets would have been
1.45% and 6.31%, 1.46% and 4.69% and 1.50% and 6.21%, respectively, for
the years ended June 30, 1995, 1994 and 1993.
12
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
REPORT OF ERNST & YOUNG LLP
The Board of Directors and Shareholders
Triple A and Government Series--1997, Inc.
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Triple A and Government Series--1997, Inc. as
of June 30, 1995, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. 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.
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 investments owned at June
30, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Triple
A and Government Series-- 1997, Inc. at June 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, New York
August 17, 1995
13
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, 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 Series' fiscal year end (June 30,
1995) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the distributions
paid during the fiscal year by the Series were derived from net investment
income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be
reported as taxable income. Some retirement trusts (e.g., corporate, Keogh and
403(b)(7) plans) may need this information for their annual information
reporting.
Because the Series' fiscal year is not the calendar year, another notification
will be sent in respect of calendar 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 Series.
14
<PAGE>
TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
GENERAL INFORMATION
THE SERIES
Triple A and Government Series--1997, Inc. ('Series') is a diversified,
closed-end management investment company whose shares trade on the American
Stock Exchange ('AMEX'). The investment objective of the Series is to manage a
portfolio of U.S. government securities and AAA-rated and comparable debt
obligations in order to return to reinvesting shareholders on the Series'
termination date $10.00 for each share that such reinvesting shareholders held
upon the effectiveness of the Series' 100 for 1 stock split on June 24, 1993,
while providing high monthly income in comparison to bank certificates of
deposit having maturities no longer than the term of the Series and in
comparison to money market funds. The Series has been rated AAAf by Standard &
Poor's Ratings Group. The termination date for the Series will be June 29, 1997.
The Series' investment adviser and administrator is Mitchell Hutchins Asset
Management Inc., a wholly owned subsidiary of PaineWebber Incorporated, which
has over $45 billion in assets under management as of July 31, 1995.
SHAREHOLDER INFORMATION
The AMEX ticker symbol for Triple A and Government Series--1997, Inc. is TGB.
Market information about the Series is published weekly in The Wall Street
Journal, The New York Times and Barron's, as well as other newspapers.
DISTRIBUTION POLICY
The Series will pay monthly cash dividends from its net investment income and
will distribute any capital gains realized by the Series, through Reinvestment
Dividends, which normally will be paid in additional Series Shares unless a
shareholder elects to receive cash. Cash dividends will be declared monthly
and will be paid on or about the last day of each month. Reinvestment
Dividends, if any, will be declared annually in December of each year. The
Series also may pay a second Reinvestment Dividend in any year if necessary to
avoid income or excise taxes. As described in the prospectus, the Series
intends to effect a reverse stock split in connection with any Reinvestment
Dividend, which will result in reinvesting shareholders continuing to hold the
same number of shares, and non-reinvesting shareholders holding fewer shares
(which may include odd lots and fractional shares). On or about the
termination date, the Series will liquidate its assets and will declare and
make a termination distribution to its shareholders in an aggregate amount
equal to the net proceeds of such liquidation after payment of the Series'
expenses and liabilities.
15
<PAGE>
- -----------------------------------------
BOARD OF DIRECTORS
E. Garrett Bewkes, Jr., Chairman
John R. Torell, III
William D. White
- -----------------------------------------
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
- -----------------------------------------
INVESTMENT ADVISER
AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
- -----------------------------------------
Notice is hereby given in accordance with
Section 23(c) of the Investment Company
Act of 1940 that from time to time the
Fund may purchase at market prices shares
of its common stock in the open market.
This report is sent to the shareholders
of the Fund for their information. It is
not a prospectus, circular or
representation intended for use in the
purchase or sale of shares of the Fund or
of any securities mentioned in the report.
Recycled
Paper
Triple A and Government
Series - 1997, Inc. ('TAGS 1997')
[LOGO]
Annual Report
June 30, 1995
