<PAGE>
ALL-AMERICAN TERM
TRUST INC.
ANNUAL REPORT
JANUARY 31, 1996
<PAGE>
- --------------------------------------------------------------------------------
March 15, 1996
Dear Shareholder,
It is widely recognized that the Federal Reserve Board achieved its goal of a
'soft landing' for the economy in 1995. In an effort to slow the pace of
economic growth, the Federal Reserve Board raised short-term interest rates
seven times between February 1994 and February 1995. However, on July 6, 1995,
the Federal Reserve Board cut the benchmark Federal Funds rate by 0.25%. This
decrease, the first in nearly three years, signaled that the Federal Reserve
Board believed that inflationary pressures had eased enough to accommodate an
adjustment in monetary policy. Citing low inflation, the Federal Reserve Board
trimmed short-term interest rates by another 0.25% on December 19, 1995 and
January 31, 1996, bringing the Federal Funds rate down to 5.25%.
Although the pace of economic growth was lackluster during 1995, the climate was
favorable for investing. Stocks achieved record-breaking highs and bonds far
outperformed their historical averages. The stock market, as measured by the
Standard & Poor's 500 Index, advanced 37.5% in 1995. The Dow Jones Industrial
Average topped the 4,000 point level in March and the 5,000 point level in
November and posted its fourth best advance since World War II. The bond market
also rallied strongly during 1995, as a declining interest rate environment
prevailed for most of the year. Soaring bond prices gave fixed income investors
their third best year since the 1920s and caused intermediate-and long-term
interest rates to fall to their lowest levels in two years. Rates on long-term
U.S. Treasury bonds, for example, declined nearly two full percentage points.
Generally, as yields move lower, bond prices increase. Coming after 1994, when
the bond market had one of its worst years on record and the Standard & Poor's
500 Index gained just 1.3%, 1995 was a strongly positive investment environment
for most domestic investors.
PORTFOLIO REVIEW
The declining interest rate environment and corresponding bond market rally
during 1995 were beneficial to the performance of All-American Term Trust Inc.
(the 'Trust'). Corporate bonds were strong performers during most of the year,
as the rally in Treasuries spurred a rally in corporates, with investors chasing
corporates' higher yields. As a result, the Trust had a total return for the
year ended January 31, 1996 of 16.85% based on the Trust's net asset value and
19.34% based on the Trust's share price on the New York Stock Exchange. During
the year ended January 31, 1996, the Trust made distributions totalling $1.12
per share. As of January 31, 1996, the Trust's net asset value per share was
$14.37, while its share price on the New York Stock Exchange was $13.25.
The Trust seeks to provide a high level of current income consistent with the
preservation of capital. As described in the prospectus, the Trust will
terminate on or about January 31, 2003 and will liquidate all of its assets and
distribute the net proceeds to shareholders. While the portfolio is being
managed in an effort to return the initial offering price of $15.00 per share,
this is not guaranteed. The Trust maintains a diversified portfolio of
investment grade corporate bonds, mortgage-backed securities, high yield bonds
and AAA-rated zero coupon municipal bonds.
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<PAGE>
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On January 31, 1996, the investment grade portion of the portfolio was invested
in non-callable bonds in the industrial, bank and finance sectors. We continued
to believe these sectors offered the best relative value and improving credit
stories. The Trust's high yield component continued to be focused primarily in
single B securities in various industrial sectors. During the twelve month
period, the Trust remained fully invested with an average maturity of 8.7 years
as of January 31, 1996.
We expect that the combination of weak economic activity and continued low
inflation will lead to further easing by the Federal Reserve Board during 1996,
and we remain moderately bullish on the fixed income market. The Trust's
emphasis continues to be on security selection to minimize credit risk.
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/ Margo Alexander /s/ Julieanna M. Berry
MARGO ALEXANDER JULIEANNA M. BERRY
President, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. All-American Term Trust Inc.
/s/ Thomas J. Libassi
THOMAS J. LIBASSI
Portfolio Manager,
All-American Term Trust Inc.
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2
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Portfolio of Investments
January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- --------------- ------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -- 30.81%
$24,882 GNMA II ARM....................................... 10/20/24 6.500% $ 25,382,330
7,521 GNMA II ARM....................................... 08/20/23 7.250 7,709,117
27,000 GNMA II ARM TBA................................... TBA 6.500 27,607,500
------------
Total Government National Mortgage Association Certificates
(cost -- $60,536,301).................................... 60,698,947
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION CERTIFICATES -- 6.98%
13,294 FHLMC ARM (cost -- $13,692,487)................... 03/01/24 7.858 13,745,117
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION CERTIFICATES -- 3.14%
5,970 FNMA CMT ARM (cost -- $6,105,917)................. 03/01/23 7.848 6,193,729
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.14%
15,353 FNMA Trust 1993-G8, Class PT...................... 01/25/21 8.000^ 2,283,774
6,115 FNMA Trust 1993-41, Class H....................... 03/25/23 7.000^ 1,926,198
------------
Total Collateralized Mortgage Obligations
(cost -- $5,823,217)..................................... 4,209,972
------------
CORPORATE BONDS -- 85.52%
AEROSPACE -- 0.95%
2,000 SabreLiner Corp. Series A......................... 04/15/03 12.500 1,880,000
------------
BANKING -- 6.86%
4,000 BankAmerica Corp.................................. 10/15/02 7.500 4,320,620
3,000 Chemical Bank New York............................ 09/15/02 7.250 3,203,430
5,500 First Chicago Corp................................ 01/15/03 7.625 5,986,387
------------
13,510,437
------------
CABLE -- 11.10%
3,100# Australis Media Ltd............................... 05/15/03 14.000+ 2,309,500
2,000 International Cabletel Inc........................ 04/15/05 12.750+ 1,310,000
425 Mobile Telecommunications......................... 12/15/02 13.500 472,813
9,000 News America Holdings Inc......................... 02/01/03 8.625 10,138,788
7,000 Telecommunications Inc............................ 01/15/03 8.250 7,634,389
------------
21,865,490
------------
CHEMICALS -- 0.53%
1,000 Acetex Corp....................................... 10/01/03 9.750 1,037,500
------------
COMMUNICATIONS -- 8.32%
3,500 Comcast Cellular.................................. 03/05/00 7.264(2) 2,695,000
2,000 Communications & Power Industries Inc............. 08/01/05 12.000 2,065,000
2,500 Diamond Cable Communications...................... 12/15/05 11.750+ 1,525,000
2,000 Echostar Communications Corp...................... 06/01/04 12.875+ 1,490,000
320(1) GST Telecommunications Inc.**..................... 12/15/05 13.875+ 1,672,000
2,500 IXC Communications Inc.**......................... 10/01/05 13.000 2,625,000
900 MFS Communications Inc............................ 01/15/06 8.875+ 590,625
2,000 Paxson Communications............................. 10/01/02 11.625 2,100,000
2,000 People's Telecommunications Co.................... 07/15/02 12.250 1,630,000
------------
16,392,625
------------
</TABLE>
3
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- --------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
CONSUMER MANUFACTURING -- 3.21%
$1,950 American Safety Razor............................. 08/01/05 9.875% $ 2,008,500
500 Apparel Ventures Inc.............................. 12/31/00 12.250 392,500
2,000 Chattem Inc....................................... 06/15/04 12.750 1,935,000
2,000 Decorative Home Accents........................... 06/30/02 13.000 1,980,000
------------
6,316,000
------------
DIVERSIFIED-ENERGY -- 5.00%
4,000 Coastal Corp...................................... 09/15/02 8.125 4,380,120
5,000 Tenneco Inc....................................... 10/01/02 7.875 5,459,630
------------
9,839,750
------------
ENERGY -- 3.26%
1,500 Crown Central Petroleum........................... 02/01/05 10.875 1,582,500
2,000 Empire Gas Corp................................... 07/15/04 12.875+ 1,770,000
3,000 TransTexas Gas Corp............................... 06/15/02 11.500 3,075,000
------------
6,427,500
------------
FINANCE -- 11.79%
3,000 Comdisco Corp. MTN................................ 01/28/02 9.500 3,503,247
5,000 CS First Boston Inc. MTN.......................... 01/15/03 7.650 5,262,950
6,500 General Motors Acceptance Corp.................... 01/01/03 8.500 7,367,054
7,000 Salomon Inc. MTN.................................. 01/15/03 7.150 7,093,793
------------
23,227,044
------------
FINANCIAL SERVICES -- 0.96%
2,000 Imperial Credit Industries........................ 01/15/04 9.750 1,900,000
------------
FOOD & BEVERAGE -- 2.64%
2,500 American Rice Inc................................. 07/31/02 13.000 2,350,000
2,000 Flagstar Corp..................................... 12/01/02 10.875 1,805,000
1,000 RJR Nabisco Inc................................... 12/01/02 8.625 1,049,092
------------
5,204,092
------------
GAMING -- 4.28%
3,500 El Comandante Capital Corp........................ 12/15/03 11.750 3,097,500
2,000 Fitzgeralds Gaming Corp........................... 12/31/02 13.000 1,870,160
2,000 Harrah's Jazz..................................... 11/15/01 14.250(a) 540,000
2,617# Hemmeter Enterprises**............................ 12/15/00 12.000(a) 1,125,316
2,000 PRT Funding Inc................................... 04/15/04 11.625 1,540,000
505 Sam Houston Race Park Ltd......................... 09/01/01 11.000 264,986
------------
8,437,962
------------
</TABLE>
4
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- --------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
GENERAL INDUSTRIAL -- 6.35%
$3,250 Alpine Group...................................... 07/15/03 12.250% $ 3,185,000
2,250 Jordan Industries Inc............................. 08/01/05 11.750+ 1,428,750
2,000 Owens-Illinois Inc................................ 12/01/03 11.000 2,265,000
2,000 Poindexter JB Inc................................. 05/15/04 12.500 1,600,000
2,000 Sullivan Graphics Inc............................. 08/01/05 12.750 1,980,000
2,000 Walbro Corp.**.................................... 07/15/05 9.875 2,060,000
------------
12,518,750
------------
HEALTHCARE -- 1.39%
500 Dynacare Inc...................................... 01/15/06 10.750 512,500
2,000 Tenet Healthcare.................................. 09/01/02 9.625 2,235,000
------------
2,747,500
------------
HOTELS & LODGING -- 2.18%
4,000 Hilton Hotels Corp................................ 07/15/02 7.700 4,296,784
------------
LEISURE & ENTERTAINMENT -- 1.77%
3,000 Time Warner Entertainment Inc..................... 05/01/02 9.625 3,489,240
------------
MEDIA -- 1.98%
2,000 NeoData Services Inc.............................. 05/01/03 12.000+ 1,900,000
2,000 Pegasus Media..................................... 07/01/05 12.500 2,000,000
------------
3,900,000
------------
OIL & GAS -- 3.22%
6,000 USX Corp. MTN..................................... 08/05/02 7.990 6,337,500
------------
PACKAGING -- 2.97%
875 Grupo Industrial Durango S.A...................... 07/15/01 12.000 831,250
2,000 Indah Kiat International.......................... 06/15/02 11.875 2,060,000
1,000 Quno Corp......................................... 05/15/05 9.125 1,040,000
2,000 RePap Wisconsin................................... 02/01/02 9.250 1,925,000
------------
5,856,250
------------
RETAIL -- 3.30%
3,000 Big Five Holdings................................. 09/15/02 13.625 2,250,000
2,000 County Seat....................................... 10/01/02 12.000 1,510,000
500 Great American Cookie Inc......................... 01/15/01 10.875 400,000
1,000 Pantry Inc........................................ 11/15/00 12.000 982,500
2,000 Wickes Lumber Co.................................. 12/15/03 11.625 1,350,000
------------
6,492,500
------------
SUPERMARKETS & DRUGSTORES -- 2.79%
3,500 Di Giorgio Corp................................... 02/15/03 12.000 2,695,000
2,000 Duane Reade Holding Corp.......................... 09/15/02 12.000 1,930,000
1,000 FF Holdings....................................... 10/01/00 12.250 865,000
------------
5,490,000
------------
</TABLE>
5
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- --------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS (CONCLUDED)
Transport Non-Air--0.67%
$1,250 Stena AB.......................................... 12/15/05 10.500% $ 1,300,000
------------
Total Corporate Bonds (cost -- $166,360,499)................. 168,466,924
------------
ZERO COUPON MUNICIPAL SECURITIES(2) -- 9.12%
650 Bolingbrook Illinois Park District................ 01/01/03 5.476 467,565
995 Cook County Illinois High School District......... 12/01/02 6.124 723,395
4,500 Houston Texas Independent School District......... 08/15/02 5.200 to 5.250 3,327,480
7,000 Houston Texas Water & Sewer....................... 12/01/02 5.050 5,106,220
1,000 Maricopa County Arizona School District........... 01/01/02 5.300 763,200
3,895 NorthEast Independent School District Texas....... 02/01/03 5.150 2,800,271
6,000 San Antonio Texas Electric & Gas.................. 02/01/03 5.150 to 5.900 4,313,640
650 William County Illinois Community School
District........................................ 12/15/02 6.024 471,711
------------
Total Zero Coupon Municipal Securities (cost --
$17,286,648)............................................... 17,973,482
------------
<CAPTION>
Number of
Shares
- ---------
<S> <C>
COMMON STOCK -- 0.02%
GAMING -- 0.02%
149 SHRP Equity Inc. (cost--$35,015)................................................ 35,015
------------
<CAPTION>
Number of
Warrants
- ---------
<S> <C>
WARRANTS -- 0.19%
AEROSPACE -- 0.00%
2,000 SabreLiner Corp................................................................. 10,000
------------
CONSUMER MANUFACTURING -- 0.01%
2,000 Decorative Home Accents......................................................... 20,000
------------
ENERGY -- 0.09%
85,466 Transamerican Refining Corp..................................................... 170,932
------------
GAMING -- 0.06%
2,500 HDA Management Corp............................................................. 127,000
------------
MEDIA -- 0.03%
500 AVI Holdings Inc................................................................ 2,500
200 Pegasus Media................................................................... 50,000
------------
52,500
------------
RETAIL -- 0.00%
90 Cookies USA Inc................................................................. 1,125
------------
Total Warrants (cost -- $133,639).......................................................... 381,557
------------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Date Rate Value
- --------- -------- --------------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.00%
$1,972 Repurchase Agreement dated 01/31/96, with Citicorp
Securities Inc., collateralized by $1,910,000
Treasury Notes,
6.125% due 9/30/00; proceeds: $1,972,322
(cost -- $1,972,000)............................ 02/01/96 5.875% $ 1,972,000
------------
Total Investments (cost -- $271,945,723) -- 138.92%.......... 273,676,743
Liabilities in excess of other assets -- (38.92)%............ (76,679,499)
------------
Net Assets -- 100.00%........................................ $196,997,244
------------
------------
</TABLE>
- ------------
^ Planned amortization class interest only security. This security entitles
the holder to receive interest payments from an underlying pool of
mortgages. The risk associated with this security is related to the speed of
principal paydowns outside a designated range. High prepayments would result
in a smaller amount of interest being received and cause the yield to
decrease. Low prepayments would result in greater amount of interest being
received and cause the yield to increase.
# Security represents a unit which is comprised of the stated bond with
attached warrants.
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Non-income producing security.
(1) Represents 320 units. Each unit consists of eight senior discount notes and
one convertible senior subordinated discount note.
(2) Interest rates shown reflect yield to maturity at purchase date.
ARM--Adjustable Rate Mortgage
CMT--Constant Maturity Treasury Index
MTN--Medium Term Note
TBA--(To Be Announced) Securities are purchased on a forward commitment basis
with approximated (generally +/-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when specific mortgage pools are assigned.
See accompanying notes to financial statements
7
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Statement of Assets and Liabilities
January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost --
$271,945,723)............................................. $273,676,743
Receivable for investments sold............................. 6,602,041
Interest receivable......................................... 4,053,985
Deferred organizational expenses............................ 95,654
Other assets................................................ 12,853
------------
Total assets............................................. 284,441,276
------------
LIABILITIES
Payable for investments purchased........................... 87,169,991
Payable to investment adviser and administrator............. 149,817
Accrued expenses and other liabilities...................... 124,224
------------
Total liabilities........................................ 87,444,032
------------
NET ASSETS
Capital stock -- $0.001 par value; 100,000,000 shares
authorized;
13,706,667 shares issued and outstanding.................. 205,597,650
Undistributed net investment income......................... 2,342,316
Accumulated net realized losses from investment
transactions.............................................. (12,673,742)
Net unrealized appreciation of investments.................. 1,731,020
------------
Net assets applicable to shares outstanding................. $196,997,244
------------
------------
Net asset value per share................................... $14.37
------------
------------
</TABLE>
See accompanying notes to financial statements
8
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Statement of Operations
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................................... $18,369,993
-----------
EXPENSES:
Investment advisory and administration....................... 1,734,243
Custody and accounting....................................... 79,067
Reports and notices to shareholders.......................... 62,625
Legal and audit.............................................. 56,007
Amortization of organizational expenses...................... 46,000
Transfer agency fees......................................... 16,374
Directors' fees.............................................. 6,000
Other expenses............................................... 16,458
-----------
2,016,774
-----------
NET INVESTMENT INCOME........................................... 16,353,219
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
ACTIVITIES:
Net realized losses from investment transactions............. (3,832,205)
Net change in unrealized appreciation/depreciation of
investments................................................ 17,321,780
-----------
Net realized and unrealized gains from investment activities.... 13,489,575
-----------
Net increase in net assets resulting from operations............ $29,842,794
-----------
-----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
January 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 16,353,219 $ 17,056,119
Net realized losses from investment
transactions............................ (3,832,205) (7,819,054)
Net change in unrealized
appreciation/depreciation of
investments............................. 17,321,780 (19,811,269)
------------ ------------
Net increase (decrease) in net assets
resulting from operations............... 29,842,794 (10,574,204)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................ (15,282,934) (16,763,254)
------------ ------------
Net increase (decrease) in net assets..... 14,559,860 (27,337,458)
NET ASSETS:
Beginning of period....................... 182,437,384 209,774,842
------------ ------------
End of period (including undistributed net
investment income of $2,342,316 and
$1,272,031, respectively)............... $196,997,244 $182,437,384
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Statement of Cash Flows
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Interest received......................................... $ 17,746,985
Expenses paid............................................. (2,042,335)
Purchases of short-term portfolio investments, net........ (844,000)
Purchases of long-term portfolio investments.............. (1,118,271,930)
Sales of long-term portfolio investments.................. 1,118,694,214
---------------
Net cash provided by operating activities................. 15,282,934
---------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends and distributions paid to shareholders.......... (15,282,934)
---------------
NET CHANGE IN CASH.......................................... 0
Cash at beginning of period............................... 0
---------------
Cash at end of period..................................... $ 0
---------------
---------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations...... $ 29,842,794
---------------
Increase in investments, at value......................... (9,510,389)
Increase in receivable for investments sold............... (6,602,041)
Decrease in interest receivable........................... 17,249
Decrease in deferred organization expenses................ 46,000
Increase in other assets.................................. (6,696)
Increase in payable for investments purchased............. 1,560,882
Increase in payable to investment adviser and
administrator........................................... 11,608
Decrease in accrued expenses and other liabilities........ (76,473)
---------------
Total adjustments....................................... (14,559,860)
---------------
Net cash provided by operating activities.......... $ 15,282,934
---------------
---------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
All-American Term Trust Inc. (the 'Trust') was incorporated in Maryland on
November 19, 1992 as a closed-end diversified management investment company. The
Trust is anticipated to terminate on or about January 31, 2003. 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 Trust commenced
operations.
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.
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, Inc., 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 Trust's 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 Trust's Board
of Directors determines that this does not represent fair value.
Repurchase Agreements -- The Trust's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligations to repurchase, the Trust 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 Trust 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. The
Trust may enter into transactions in which the Trust sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date (the 'roll period'). During the roll period, the Trust
12
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
forgoes principal and interest paid on the securities. The Trust is compensated
by the interest earned on the cash proceeds on the initial sale and by fee
income or a lower repurchase price.
Federal Taxes -- The Trust may continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient amounts of its taxable income to shareholders.
Accordingly, no provision for federal income taxes is required. As part of a tax
planning strategy, the Trust may retain a portion of its taxable income and may
pay an excise tax.
Dividends and Other Distributions -- Dividends and distributions are
recorded on the ex-dividend date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These 'book/tax' differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. 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.
On or about January 31, 2003, the Trust 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
Trust's expenses and liabilities, including amounts owed on any outstanding
borrowings by the Trust.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Trust to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust has entered into an Investment Advisory and Administration
Contract ('Advisory Contract') with Mitchell Hutchins. The Advisory Contract
provides Mitchell Hutchins with an investment advisory and administration fee,
computed weekly and paid monthly, at an annual rate of 0.90% of the Trust's
average weekly net assets.
13
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at January
31, 1996 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1996, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of
value over cost)..................................... $ 8,300,864
Gross depreciation (investments having an excess of
cost over value)..................................... (6,569,844)
------------
Net unrealized appreciation of investments............. $ 1,731,020
------------
------------
</TABLE>
For the year ended January 31, 1996, total aggregate purchases and sales of
portfolio securities excluding short-term securities, were $1,119,885,309 and
$1,125,295,507, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value common stock authorized.
Of the 13,706,667 shares outstanding at January 31, 1996, Mitchell Hutchins
owned 6,667 shares.
FEDERAL TAX STATUS
At January 31, 1996, the Trust had a net capital loss carryforward of
$11,960,046 which expires as follows: $5,276,006 in 2003 and $6,684,040 in 2004.
The loss carryforward is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains. To the extent such losses are
used to offset future net realized capital gains, it is probable those gains
will not be distributed.
14
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
Quarterly Results of Operations (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED NET INCREASE
GAINS/(LOSSES) (DECREASE)
FROM IN NET ASSETS
NET INVESTMENT INVESTMENT RESULTING FROM
INCOME ACTIVITIES 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>
January 31, 1996.... $ 4,155 $0.30 $ (19) $ 0.00 $ 4,136 $ 0.30
October 31, 1995.... 4,203 0.31 3,476 0.25 7,679 0.56
July 31, 1995....... 3,929 0.28 3,108 0.23 7,037 0.51
April 30, 1995...... 4,066 0.30 6,925 0.51 10,991 0.81
------- ----- -------- ------ -------- ------
Total.......... $16,353 $1.19 $ 13,490 $ 0.99 $ 29,843 $ 2.18
------- ----- -------- ------ -------- ------
------- ----- -------- ------ -------- ------
January 31, 1995.... $ 4,089 $0.30 $ (1,707) $(0.13) $ 2,382 $ 0.17
October 31, 1994.... 4,284 0.31 (6,907) (0.50) (2,623) (0.19)
July 31, 1994....... 4,356 0.31 (2,454) (0.17) 1,902 0.14
April 30, 1994...... 4,327 0.32 (16,562) (1.21) (12,235) (0.89)
------- ----- -------- ------ -------- ------
Total.......... $17,056 $1.24 $(27,630) $(2.01) $(10,574) $(0.77)
------- ----- -------- ------ -------- ------
------- ----- -------- ------ -------- ------
</TABLE>
15
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding for each of the
periods represented below:
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 1, 1993
FOR THE YEARS ENDED (COMMENCEMENT
JANUARY 31, OF OPERATIONS)
-------------------- TO
1996 1995 JANUARY 31, 1994
-------- -------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................... $ 13.31 $ 15.30 $ 15.00
-------- -------- ----------------
Net investment income.............. 1.19 1.24 1.11
Net realized and unrealized gains
(losses) on investment
transactions..................... 0.99 (2.01) 0.27
-------- -------- ----------------
Net increase (decrease) in net
asset value resulting from
operations....................... 2.18 (0.77) 1.38
-------- -------- ----------------
Dividends from net investment
income........................... (1.12) (1.22) (1.06)
Distributions in excess of net
realized gains from investment
transactions..................... -- -- (0.02)
-------- -------- ----------------
Total dividends and
distributions.................... (1.12) (1.22) (1.08)
-------- -------- ----------------
Net asset value, end of period..... $ 14.37 $ 13.31 $ 15.30
-------- -------- ----------------
-------- -------- ----------------
Per share market value, end of
period........................... $ 13.25 $ 12.13 $ 14.38
-------- -------- ----------------
-------- -------- ----------------
Total investment return(1)......... 19.34% (7.13)% 3.04%
-------- -------- ----------------
-------- -------- ----------------
Ratios/Supplemental Data:
Net assets, end of period
(000's).......................... $196,997 $182,437 $209,775
Ratio of expenses to average net
assets........................... 1.05% 1.05% 1.04%*
Ratio of net investment income to
average net assets............... 8.49% 8.95% 8.02%*
Portfolio turnover rate............ 415% 383% 416%
</TABLE>
- ------------------
* Annualized
(1) Total investment return on market value is calculated assuming a purchase
at the current market price on the first day of each period reported and a
sale at the current market price on the last day of each period reported
and assuming reinvestment of dividends at prices obtained under the
Trust's Dividend Reinvestment Plan. Total investment return does not
reflect brokerage commissions and has not been annualized for periods of
less than one year.
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
All-American Term Trust Inc.
We have audited the accompanying statement of assets and liabilities of
All-American Term Trust Inc. (the 'Trust'), including the portfolio of
investments, as of January 31, 1996, and the related statements of operations
and cash flows for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust'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 securities owned at January
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
All-American Term Trust Inc. at January 31, 1996, the results of its operations
and its cash flows 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
March 8, 1996
17
<PAGE>
ALL-AMERICAN TERM TRUST 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 Trust's fiscal year end (January
31, 1996), as to the federal tax status of distributions received by
stockholders during such fiscal year. Accordingly, we are advising you that the
distributions paid during the period by the Trust were derived from net
investment income and are taxable as ordinary income. Additionally, 0.01% of the
distributions paid qualifies for the dividends 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 Trust's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1996. The second
notification, which reflects 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
Trust.
18
<PAGE>
ALL-AMERICAN TERM TRUST INC.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
THE TRUST
All American Term Trust Inc. (the 'Trust') is a diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange
('NYSE'). The Trust's investment objective is to provide a high level of current
income, consistent with the preservation of capital. The Trust will terminate on
or about January 31, 2003 and, in conjunction therewith, will liquidate all of
its assets and distribute the net proceeds to shareholders. The Trust will be
managed in an effort to return the initial offering price of $15.00 per share
and will normally be invested in a diversified portfolio of investment grade and
high-yield corporate bonds, mortgage-backed securities, triple-A rated zero
coupon municipal bonds. The Trust's investment adviser and administrator is
Mitchell Hutchins Asset Management Inc., a wholly owned subsidiary of
PaineWebber Incorporated ('PaineWebber'), which has over $45.5 billion in assets
under management as of February 29, 1996.
SHAREHOLDER INFORMATION
The NYSE ticker symbol for the Trust is AAT. Weekly comparative net asset
value and market price information about the Trust is published each Monday in
The Wall Street Journal and The New York Times and each Saturday in Barron's, as
well as other newspapers.
DISTRIBUTION POLICY
The Trust has established a Dividend Reinvestment Plan (the 'Plan') under
which shareholders whose shares are registered in their own names, or in the
name of PaineWebber or its nominee, will have all dividends and other
distributions on their shares automatically reinvested in additional shares,
unless such shareholders elect to receive cash. Shareholders who elect to hold
their shares in the name of another broker or nominee should contact such broker
or nominee to determine whether, or how, they may participate in the Plan.
Additional shares acquired under the Plan will be purchased in the open market,
on the NYSE or otherwise, at prices that may be higher or lower than the net
asset value per share at the time of the purchase. The Trust will not issue any
new shares in connection with its Plan.
19
<PAGE>
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<PAGE>
------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Richard Q. Armstrong
Richard R. Burt
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 Trust may purchase at
market prices shares of its common
stock in the open market.
This report is sent to the
shareholders of the Trust for their
information. It is not a prospectus,
circular or representation intended
for use in the purchase or sale of
shares of the Trust or of any
securities mentioned in the report.
(Copyright) 1996 PaineWebber
Incorporated
RECYCLED PAPER
