<PAGE>
BOARD OF DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
John R. Torell III
William D. White
PRINCIPAL OFFICERS
Margo N. Alexander PAINEWEBBER
President
Victoria E. Schonfeld
Vice President TRIPLE A AND
Dianne E. O'Donnell
Vice President and Secretary GOVERNMENT
Julian F. Sluyters
Vice President and Treasurer SERIES--1997, INC.
INVESTMENT ADVISOR AND ADMINISTRATOR ('TAGS 1997')
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas ANNUAL REPORT
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.
(Copyright)1996 PaineWebber Incorporated JUNE 30, 1996
Member SIPC
<PAGE>
August 15, 1996
ANNUAL REPORT--
AUGUST 15, 1996
DEAR SHAREHOLDER,
We are pleased to present you with the Annual Report for Triple A & Government
Series-- 1997, Inc. ('TAGS '97') for the year ended June 30, 1996. Moderate
economic growth, low inflation and strong corporate earnings growth helped
propel the stock market to record-breaking levels during 1995. The bond market
also rallied during 1995, providing investors with their third-best year since
the 1920s.
By the end of 1995, most investors were convinced that the Federal Reserve Board
had achieved a 'soft landing' for the economy, which led to a general consensus
that the Fed would act again to cut short-term interest rates. Sentiment changed
in early March, however, in response to government reports showing
higher-than-expected economic growth: there was a sharp drop in bond prices
which caused volatility in the stock market.
After exceptional performance during most of 1995, the first half of the year
was difficult for fixed income investors. Accelerating economic growth,
reflected in strong employment, retail sales and investment spending numbers, as
well as a surprisingly robust housing sector, combined to change market
expectations from the Fed easing to the Fed tightening. The 30-year U.S.
Treasury bond, a benchmark of bond market performance, was yielding 5.95% on
December 29, 1995 and 6.87% on June 28, 1996. When bond yields increase, bond
prices decrease. Meanwhile, the Federal Reserve's Open Market Committee decided
to keep monetary policy unchanged at the March, May and July 1996 meetings. The
Fed's decision to hold rates steady suggested that officials did not foresee a
recession or accelerating inflation.
PORTFOLIO REVIEW
The total return for TAGS '97 for the year ended June 30, 1996, based on net
asset value was 6.15%, while the total return for the same period based on its
share price on the American Stock Exchange was 10.21%. As of June 30, 1996, TAGS
'97's net asset value per share was $9.71, while its share price on the American
Stock Exchange was $9.50. During the twelve-month period, the Fund made
distributions totalling $0.68 per share.
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
shareholders $10.00 per share on its termination date. As described in the
prospectus, the termination date for TAGS '97 will be on or about June 29, 1997.
While the portfolio is being managed in an effort to return the initial offering
price of $10.00 per share, this is not guaranteed.
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
<PAGE>
flows, including interest and repayment of principal. During the first half of
1996, the economy continued to gain momentum, with sustained above-trend growth
in domestic demand and heady growth in non-farm payrolls. The bond market's
reaction caused yields to back-up substantially.
We believe the Fed will probably raise short-term interest rates sometime this
year. The secular backdrop that aided last year's bond market rally, however,
remains in place -- pointing to good value in the bond market at these levels.
In our opinion, the inflation outlook is benign, limiting the ability of
corporations to pass through price increases and the labor force is more
focussed on job security than wage gains in a downsizing environment. Going
forward, our view is that although the economy will continue to expand, the
second quarter's 4% plus growth rate will slow.
2
<PAGE>
PORTFOLIO REVIEW
In approximately one year, TAGS '97 will terminate. Consequently, our portfolio
strategy is to conservatively enhance yield via investments in securities with
maturity structures similar to the portfolio's termination date.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support, and welcome
any comments or questions you may have.
Sincerely,
MARGO ALEXANDER NIRMAL SINGH
President, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Triple A and Government Series--1997,
Inc.
3
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- ------------------------------------------------------------------ -------------- -------------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS-43.56%
$18,000 U.S. Treasury Notes (cost - $17,943,750).................. 09/30/97 5.750% $17,960,616
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES-2.52%
1,030 FHLMC (cost - $1,043,964)................................. 02/01/97 7.500 1,039,784
-----------
AGENCY BACKED SECURITIES-8.77%
3,400 Federal Home Loan Mortgage Discount Notes................. 07/15/96 5.270+ 3,393,032
225 Federal National Mortgage Association Discount Notes...... 07/24/96 5.170+ 224,257
-----------
Total Agency Backed Securities (cost - $3,617,289)................ 3,617,289
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS-31.70%
6,000 CBA Mortgage Corp. Series 1993-C1, Class A2............... 12/25/03 7.154* 6,091,875
5,298 FHLMC Series 1659, Class PB............................... 11/15/00 5.000 5,277,544
1,713 FNMA REMIC, Trust 1993-214, Class B....................... 12/25/00 4.750 1,702,416
-----------
Total Collateralized Mortgage Obligations
(cost - $12,964,232)............................................ 13,071,835
-----------
ASSET BACKED SECURITIES-9.63%
4,000 Standard Credit Card Master Trust, Series 1994-1, Class A
(cost - $3,972,987)........................................ 03/07/99 4.650 3,970,276
-----------
REPURCHASE AGREEMENT-2.62%
1,079 Repurchase Agreement dated 06/28/96, with State Street
Bank and Trust Company, collateralized by $1,080,000 U.S.
Treasury Notes, 6.000% due 08/31/97; proceeds: $1,079,427
(cost - $1,079,000)........................................ 07/01/96 4.750 1,079,000
-----------
Total Investments (cost - $40,621,222)-98.80%..................... 40,738,800
Other assets in excess of liabilities - 1.20%..................... 496,620
-----------
Net Assets - 100.00%.............................................. $41,235,420
-----------
-----------
</TABLE>
- ------------------
* Adjustable rate instrument--interest rate noted is current rate at June 30,
1996.
+ Yield to maturity for discounted securities
REMIC - Real Estate Mortgage Investment Conduit
See accompanying notes to financial statements
4
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost - $40,621,222)......... $ 40,738,800
Interest receivable.............................................. 406,055
Receivable from investment adviser............................... 118,418
Deferred organizational expenses................................. 29,372
Other assets..................................................... 6,576
-------------
Total assets..................................................... 41,299,221
-------------
LIABILITIES
Accrued expenses and other liabilities........................... 63,801
-------------
NET ASSETS
Capital Stock - $0.001 par value; total authorized shares -
100,000,000; 4,245,202 shares issued and outstanding........... 45,085,129
Undistributed net investment income.............................. 210,331
Accumulated net realized losses from investment and futures
transactions................................................... (4,177,618)
Net unrealized appreciation of investments....................... 117,578
-------------
Net assets applicable to shares outstanding...................... $ 41,235,420
-------------
-------------
Net asset value per share........................................ $9.71
-------------
-------------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $2,531,414
-----------
EXPENSES:
Investment advisory and administration............................. 412,672
Legal and audit.................................................... 60,947
Reports and notices to shareholders................................ 30,003
Amortization of organizational expenses............................ 28,863
Custody and accounting............................................. 24,820
Transfer agency fees............................................... 11,149
Directors' fees.................................................... 11,000
Other expenses..................................................... 10,332
-----------
589,786
Less: Fee waivers and reimbursements from adviser.................. (589,786)
-----------
Net expenses....................................................... --
-----------
NET INVESTMENT INCOME.............................................. 2,531,414
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions.................... 24,770
Net change in unrealized appreciation/depreciation of
investments...................................................... (257,889)
-----------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES...... (233,119)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $2,298,295
-----------
-----------
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................................... $ 2,531,414 $ 3,078,155
Net realized gains (losses) from investment transactions........................ 24,770 (287,562)
Net realized losses from futures transactions................................... -- (459,206)
Net change in unrealized appreciation/depreciation
of investments................................................................ (257,889) 719,680
Net change in unrealized appreciation/depreciation
of futures contracts.......................................................... -- 134,625
----------- -----------
Net increase in net assets resulting from operations............................ 2,298,295 3,185,692
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income........................................................... (2,867,400) (2,625,105)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from dividends reinvested.............................................. 738,614 499,672
Contribution to capital from adviser............................................ 200,000 250,000
----------- -----------
Net increase in net assets derived from capital transactions.................... 938,614 749,672
----------- -----------
Net increase in net assets...................................................... 369,509 1,310,259
----------- -----------
NET ASSETS:
Beginning of year............................................................... 40,865,911 39,555,652
----------- -----------
End of year (including undistributed net investment income of $210,331 and
$548,968, respectively)........................................................ $41,235,420 $40,865,911
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
7
<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. Organizational costs 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. The Series is scheduled to terminate on
or about June 29, 1997 (the 'Termination Date').
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. The following is a summary of
significant accounting policies:
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 Asset Management Inc.
('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, generally is used to
value short-term debt instruments with sixty days or less remaining to maturity,
unless the board of directors determines that this does not represent fair
value.
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.
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 as adjustments to interest
income and the identified cost of investments.
8
<PAGE>
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.
The Series primarily used financial futures contracts 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. There were no outstanding financial
futures contracts at June 30, 1996.
Dividends and Distributions - Dividends and distributions to shareholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from 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
reclassification. 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.
CONCENTRATION OF RISK
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. Mortgage and asset-backed
securities may decrease in value as a result of increases in interest rates and
may benefit less than other fixed income securities from declining interest
rates because of the risk of prepayments.
INVESTMENT ADVISER AND ADMINISTRATOR
The Series' board of directors has 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,
1996, Mitchell Hutchins earned and waived $412,672 in
9
<PAGE>
investment advisory and administration fees. Mitchell Hutchins also voluntarily
reimbursed the Series $177,114 for expenses incurred during the fiscal year
ended June 30, 1996.
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, 1996, 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, 1996
was substantially the same as the cost of securities for financial statement
purposes.
At June 30, 1996, 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)...... $134,640
Gross depreciation (from investments having an excess of cost over value)...... (17,062)
--------
Net unrealized appreciation of investments..................................... $117,578
--------
--------
</TABLE>
For the year ended June 30, 1996, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $59,941,586 and
$38,722,554, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value capital stock authorized. Of
the 4,245,202 shares outstanding at June 30, 1996, Mitchell Hutchins owned
10,000 shares. Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
-------------------------
1996 1995
------------------- -------------------
<S> <C> <C>
Additional shares from dividends reinvested........ 76,859 54,490
Reduction of shares from reverse stock split....... (77,306) (54,541)
-------- --------
Net decrease in shares outstanding................. (447) (51)
-------- --------
-------- --------
</TABLE>
Mitchell Hutchins voluntarily contributed $200,000 and $250,000 on September 26,
1995 and June 27, 1995, respectively, in order to increase the net asset value
per share of the Series.
Reverse stock splits of 0.9854 to 1, 0.9923 to 1, 0.9873 to 1 and 0.9821 to 1
were declared on December 4, 1992, December 28, 1993, December 14, 1994 and
10
<PAGE>
December 15, 1995, effective December 30, 1992, December 28, 1993, December 27,
1994 and December 26, 1995, 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. Shares authorized and outstanding reflect the impact of both the
reverse stock splits and the stock split.
FEDERAL TAX STATUS
The Series intends to distribute substantially 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, 1996, the Series had a capital loss carryforward of $4,152,434. This
loss carryforward is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains. To the extent that such
losses are used, as provided in the regulations, to offset future net realized
capital gains, these gains will not be distributed.
In accordance with U.S. Treasury Regulations, the Fund has elected to defer
realized short-term capital losses of $25,184 arising after October 31, 1995.
Such losses have been treated for tax purposes as arising on July 1, 1996.
11
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each year is presented
below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
-----------------------------------------
1996 1995 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 9.81 $ 9.62 $ 10.49 $ 10.53
------- ------- ------- -------
Net investment income.................................. 0.60 0.72 0.60 0.62
Net realized and unrealized gains (losses)
from investment and futures transactions............. (0.07) 0.03 (0.81) 0.09
------- ------- ------- -------
Net increase (decrease) from investment operations..... 0.53 0.75 (0.21) 0.71
------- ------- ------- -------
Dividends from net investment income................... (0.68) (0.62) (0.62) (0.59)
Distributions from net realized gains.................. -- -- -- (0.16)
Distributions in excess of net investment income....... -- -- (0.04) --
------- ------- ------- -------
Total dividends and distributions to shareholders...... (0.68) (0.62) (0.66) (0.75)
------- ------- ------- -------
Contribution to capital from adviser................... 0.05 0.06 -- --
------- ------- ------- -------
Net asset value, end of year........................... $ 9.71 $ 9.81 $ 9.62 $ 10.49
------- ------- ------- -------
------- ------- ------- -------
Per share market value, end of year.................... $ 9.50 $ 9.25 $ 9.25 $ 10.25
------- ------- ------- -------
------- ------- ------- -------
Total investment return(1)............................. 10.21% 7.24% (3.38)% 8.37%
------- ------- ------- -------
------- ------- ------- -------
Ratios and supplemental data:
Net assets, end of period (000's)...................... $41,235 $40,866 $39,556 $42,907
Expenses to average net assets, net of waivers and
reimbursements from adviser.......................... 0.00% 0.00% 0.00% 1.49%
Expenses to average net assets, before waivers and
reimbursements from adviser.......................... 1.43% 1.45% 1.46% 1.50%
Net investment income to average net assets............ 6.13% 7.76% 6.15% 6.22%
Portfolio turnover rate................................ 137% 223% 298% 93%
</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 26, 1995, 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 $0.18, $0.12, $0.08 and
$0.15, respectively.
(1) Total investment return is calculated assuming a purchase of one share of
stock at market value on the first day of each period reported,
reinvestment of all dividends and other 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, the
Securities and Exchange Commission mandates that total investment return
be calculated by assuming reinvestment of all dividends and other
distributions. Total investment return does not reflect brokerage
commissions.
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 statement of assets and liabilities, including
the portfolio of investments, of Triple A and Government Series--1997, Inc. as
of June 30, 1996, 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 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, 1996 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, 1996, 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.
ERNST & YOUNG LLP
New York, New York
August 12, 1996
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,
1996) 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. 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 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 year 1996. 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 1997. 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 shareholders on the Series' termination date
$10.00 for each share that such 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, a division of The McGraw-Hill
Companies, Inc. 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 $43 billion in assets under management as of July 31, 1996.
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.
A Special Meeting of Shareholders was held on April 11, 1996, at which the
following proposals were approved for the Series:
PROPOSAL 1
To vote for or against the election of Directors:
<TABLE>
<CAPTION>
SHARES FOR
SHARES AS A % OF SHARES WITHHOLD
VOTED FOR TOTAL SHARES VOTED AUTHORITY
--------- ------------------ ------------------
<S> <C> <C> <C>
Margo N. Alexander..................... 2,265,493 94.45% 133,040
Richard Q. Armstrong................... 2,265,493 94.45% 133,040
E. Garrett Bewkes, Jr.................. 2,265,493 94.45% 133,040
Richard Burt........................... 2,265,493 94.45% 133,040
Mary C. Farrell........................ 2,265,493 94.45% 133,040
Meyer Feldberg......................... 2,265,493 94.45% 133,040
George W. Gowen........................ 2,265,493 94.45% 133,040
Frederic V. Malek...................... 2,265,493 94.45% 133,040
Carl W. Schafer........................ 2,265,493 94.45% 133,040
John R. Torell III..................... 2,265,493 94.45% 133,040
</TABLE>
15
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
PROPOSAL 2
To vote for or against the following changes to the Fund's fundamental
investment restrictions and policies:
<TABLE>
<CAPTION>
SHARES FOR
AS A % OF SHARES
SHARES TOTAL SHARES VOTED SHARES
VOTED FOR VOTED AGAINST ABSTAIN
--------- ------------ ------- -------
<S> <C> <C> <C> <C>
Modification of fundamental restriction on
portfolio diversification:...................... 1,769,493 73.77% 5,600 123,440
Modification of fundamental restriction on
concentration:.................................. 1,749,466 72.94% 5,900 143,167
Modification of fundamental restriction on senior
securities and borrowing:....................... 1,763,001 73.50% 5,600 129,932
Modification of fundamental restriction on making
loans:.......................................... 1,760,866 73.41% 11,200 126,467
Modification of fundamental restriction on
underwriting securities:........................ 1,759,001 73.34% 7,600 131,932
Modification of fundamental restriction on real
estate investments:............................. 1,758,666 73.32% 14,400 125,467
Modification of fundamental restriction on
investing in commodities:....................... 1,759,693 73.37% 16,900 121,940
Elimination of fundamental restriction on margin
transactions:................................... 1,767,666 73.70% 3,400 127,467
Elimination of fundamental restriction on short
sales:.......................................... 1,759,566 73.36% 10,400 128,567
Elimination of fundamental restriction on
investments in oil, gas and mineral leases and
programs:....................................... 1,763,601 73.53% 5,500 129,432
Elimination of fundamental restriction on
investments in other investment companies:...... 1,758,056 73.30% 10,510 129,967
</TABLE>
- ------------------
(Broker non-votes and abstentions are included within the 'Shares Withhold
Authority' and 'Shares Abstain' totals.)
16
<PAGE>
TRIPLE A AND GOVERNMENT SERIES -- 1997, INC.
DISTRIBUTION POLICY
The Series will pay monthly cash dividends from its net investment income and
will distribute any capital gains realized or excess net investment income,
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.
17
