ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
September 15, 1997
Dear Shareholder,
We are pleased to present you with the semiannual report for All-American
Term Trust Inc. (the "Trust") for the six months ended July 31, 1997.
GENERAL MARKET OVERVIEW
- --------------------------------------------------------------------------------
As a result of the Federal Reserve's ("the Fed") decision to raise short-term
interest rates to 5.5% in March 1997, virtually every bond sector posted
negative returns for the three month period ending March 31, 1997. The high
yield sector was the exception, as gains in the first two months of the period
more than offset the softness following the Fed move.
Then, on April 28th, the report of the Employment Cost Index
(ECI)--considered to be the most comprehensive wage-inflation indicator, and
critical to Federal Reserve policy--indicated a very positive inflation picture.
This information, plus positive news on an agreed upon framework by President
Clinton and the Republicans to balance the budget by 2002, and an atypical
paydown in federal debt, turned market sentiment extremely bullish. Bonds
entered a prolonged rally that sent the yield on the long bond from 7.1% on
March 31, 1997 to 6.8% by June 30, 1997.
July continued to be a harbinger of good news for fixed income investors as
additional favorable inflation data prompted the yield on the long bond to drop
even further, to 6.5%--the lowest level of the year. All bond sectors
experienced positive returns; again, however, the high yield sector outperformed
others as investors' willingness to accept higher credit risk produced higher
returns.
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE
All-American Term Trust Inc. (Symbol: AAT) had a total return for the six
months ended July 31, 1997 of 5.83% based on the Trust's net asset value and
10.05% based on the Trust's share price on the New York Stock Exchange. During
the six months ended July 31, 1997, the Trust made distributions totalling $0.51
per share. As of July 31, 1997, the Trust's net asset value per share was
$14.86, while its share price on the New York Stock Exchange was $13.50. Over
the same period, the Trust underperformed the 7.12% return of its Lipper
Corporate Debt BBB peer group.
- --------------------------------------------------------------------------------
ALL-AMERICAN TERM TRUST INC.
Composition (as a % of portfolio assets as of July 31, 1997)
[The following table represents a pie chart in the printed report]
Corporates .........61.97%
Cash Equivalents ....0.74%
Municipals ..........6.83%
ARMs/Mortgages .....30.46%
1
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FUND PROFILE
Goal:
High level of current income, consistent with the preservation of capital.
The Trust will terminate on or about January 31, 2003.
Portfolio Managers:
James F. Keegan, Julieanna Berry, Thomas J. Libassi, MH Asset
Management Inc.
Total Net Assets:
$203.7 million as of July 31, 1997
Dividend Payments:
Monthly
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
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/high
risk and AAA-rated zero coupon municipal bonds.
Throughout the semiannual period, while we did engage in some security
swapping, we made no significant changes with regard to our industry focus in
the portfolio. We continued to favor the cable (11.23% of net assets as of July
31, 1997), media (11.29%) and finance (12.63%) sectors, as we believe these
sectors represent the most favorable risk/reward profiles in the current
economic environment. Short cable, media paper, in particular, did very well.
One of the more attractive companies within this marketplace, Telecommunications
Inc. (3.61%), especially impacted Trust performance. The company made
significant changes to deleverage and strengthen its balance sheet, while also
improving its cash flow.
A WORD ABOUT DURATION
A shorter duration portfolio and a rallying bond market conspired to result
in the Trust's underperformance relative to its Lipper Corporate Debt BBB peer
group. Because the Trust is due to terminate on or about January 31, 2003, we
need to maintain a shorter duration portfolio than the Lipper peer group. The
Trust's average duration is currently four years--two years shorter than that of
the average duration of its peers. Typically, a rallying bond market--as was
experienced during the semiannual period covered by this report--is relatively
less favorable to the performance of a shorter duration portfolio. Conversely,
our duration constraint and a rising interest rate environment was a significant
factor in the Trust's outperformance of its peers in 1996.
2
<PAGE>
ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
OUTLOOK
- --------------------------------------------------------------------------------
As we enter the last few months of 1997 we believe that economic growth will
continue at above-trend levels and that inflation will remain benign. Although
bond market participants have, over the period, acquired a greater confidence in
the Fed's management of monetary policy, more critically abetting the market's
run-up has been a widening perception that the Greenspan Fed is likely to be
pragmatic--and not driven strictly by classical resource utilization-based
economic thought that currently argues for aggressive monetary tightening.
However, we believe that the Fed does, at this time, maintain a bias toward
tightening, and that the potential exists for such a move before year end.
More specifically, the corporate market continues to grind tighter as
technicals remain firm. Healthy corporate profits, as well as significant
investable cash, bode well for further spread tightening. In short, we believe a
bullish backdrop currently exists for corporate bonds.
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,
/S/Margo N. Alexander /S/Dennis McCauley
- --------------------- ------------------
MARGO N. ALEXANDER DENNIS MCCAULEY
President, Managing Director and Chief
Mitchell Hutchins Asset Management Inc. Investment Officer-Fixed Income
Mitchell Hutchins Asset Management Inc.
This letter is intended to assist shareholders in understanding how the Trust
performed during the semiannual period ended July 31, 1997 and reflects our
views at the time we are writing this report. Of course, these views may change
in response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
3
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS JULY 31, 1997 (Unaudited)
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- --------- --------- ---------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation
Certificates--5.05%
$ 9,803 FHLMC ARM (cost--$10,121,726) ......... 03/01/24 7.866% $10,282,596
----------
Federal National Mortgage Association
Certificates--11.26%
19,000 FNMA ARM .............................. TBA 6.089 18,893,125
3,930 FNMA CMT ARM .......................... 03/01/23 7.575 4,050,292
----------
Total Federal National Mortgage Association
Certificates
(cost--$22,885,560) ............................. 22,943,417
----------
Collateralized Mortgage Obligations--0.75%
6,115 FNMA Trust 1993-41, Class H
(cost--$1,526,986) .............................. 03/25/23 7.000* 1,528,489
---------
Government National Mortgage Association
Certificates--25.66%
27,000 GNMA II ARM ........................... TBA 6.000 27,261,562
24,370 GNMA II ARM ........................... 08/20/23 to 10/20/24 6.875 to 7.125 25,025,215
----------
Total Government National Mortgage Association
Certificates
(cost--$52,012,472) ............................. 52,286,777
----------
Corporate Bonds--83.42%
Aerospace--1.02%
2,000 SabreLiner Corporation Series A ....... 04/15/03 12.500 2,080,000
----------
Banking--1.38%
2,700 Bankers Trust New York Corporation .... 01/15/02 7.500 2,810,233
----------
Cable--11.23%
4,000 Continental Cablevision Incorporated .. 08/15/03 8.625 4,396,800
3,500 Echostar DBS Corporation** ............ 07/01/02 12.500 3,552,500
4,000 International CableTel Incorporated ... 04/15/05 12.750 3,120,000
2,500 Multicanal S.A.** ..................... 02/01/02 9.250 2,584,375
7,000 Telecommunications Incorporated ....... 01/15/03 8.250 7,354,823
2,380 United International Holdings Incorporated 11/15/99 14.000 1,880,200
----------
22,888,698
----------
Communications--3.59%
4,500 360 Communications Company ............ 03/01/03 7.125 4,590,675
2,110 GST USA Telecommunications Incorporated 12/15/05 13.875 1,413,700
1,250 People's Telecommunications Company ... 07/15/02 12.250 1,300,000
----------
7,304,375
----------
</TABLE>
4
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- ------- ------- --------
<S> <C> <C> <C>
Corporate Bonds--(continued)
Consumer Manufacturing--3.63%
$ 500 Apparel Ventures Incorporated ............. 12/31/00 12.250% $ 440,000
2,000 Chattem Incorporated ...................... 06/15/04 12.750 2,240,000
8,000 Coleman Escrow Corporation** .............. 05/15/01 12.875(1) 4,720,000
----------
7,400,000
----------
Energy--4.14%
2,000 Cliffs Drilling Company ................... 05/15/03 10.250 2,180,000
1,500 Crown Central Petroleum Corporation ....... 02/01/05 10.875 1,582,500
6,000 Transamerican Energy Corporation** ........ 06/15/02 13.000 4,680,000
----------
8,442,500
----------
Entertainment--1.67%
750 Cobb Theatres ............................. 03/01/03 10.625 828,750
2,500 Discovery Zone Incorporated ** ............ 08/01/02 13.500 2,575,000
----------
3,403,750
----------
Finance--12.63%
5,000 CS First Boston Incorporated MTN++ .......... 01/15/03 7.650 5,234,350
6,500 General Motors Acceptance Corporation ....... 01/01/03 8.500 7,126,587
4,000 Lehman Brothers Incorporated ................ 04/15/03 7.250 4,110,656
2,000 Reliance Group Holdings Incorporated ........ 11/15/00 9.000 2,070,000
7,000 Salomon Incorporated MTN .................... 01/15/03 7.150 7,187,096
----------
25,728,689
----------
Food & Beverage--1.28%
2,500 American Rice Incorporated .................. 07/31/02 13.000 2,612,500
----------
Freight, Air, Sea, Land--2.97%
5,500 Airborne Freight Corporation ................ 12/15/02 8.875 6,048,515
----------
Gaming--1.30%
2,500 Casino America Incorporated ................. 08/01/03 12.500 2,650,000
----------
General Industrial--4.68%
2,000 Poindexter J.B. Incorporated ................ 05/15/04 12.500 2,095,000
2,000 Revlon Consumer Products Corporation ........ 04/01/01 9.375 2,065,000
5,000 Tenneco Incorporated ........................ 10/01/02 8.075 5,363,900
----------
9,523,900
----------
Homebuilding--1.03%
2,000 Ryland Group Incorporated ................... 07/15/02 10.500 2,100,000
----------
Hotels & Lodging--2.04%
4,000 Hilton Hotels Corporation ................... 07/15/02 7.700 4,152,536
----------
</TABLE>
5
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- ------- ------- --------
<S> <C> <C> <C>
Corporate Bonds--(continued)
Media--11.26%
$3,000 All American Communications Incorporated 10/15/01 10.875% $ 3,213,750
3,000 Comdisco Corporation MTN .................. 01/28/02 9.500 3,363,558
9,000 News America Holdings Incorporated ........ 02/01/03 8.625 9,900,369
2,000 Paxson Communications Corporation ......... 10/01/02 11.625 2,185,000
2,000 Pegasus Communications Corporation ........ 07/01/05 12.500 2,220,000
2,000 Sullivan Graphics Incorporated ............ 08/01/05 12.750 2,065,000
----------
22,947,677
----------
Metals & Mining--2.56%
2,000 Altos Hornos de Mexico S.A. de C.V.** 04/30/02 11.375 2,145,000
1,500 Easco Corporation ......................... 03/15/01 10.000 1,541,250
1,400 Weirton Steel Corporation ................. 07/01/04 11.375 1,519,000
----------
5,205,250
----------
Packaging--2.61%
2,000 Grupo Industrial Durango S.A. ............. 07/15/01 12.000 2,195,000
3,000 Vicap, S.A. de C.V.** ..................... 05/15/02 10.250 3,127,500
----------
5,322,500
----------
Real Estate--0.51%
1,000 Hovnanian K Enterprises Incorporated ...... 04/15/02 11.250 1,040,000
----------
Retail--2.29%
2,750 Barry's Jewelers, Incorporated ............ 12/22/00 11.000(a) 1,526,250
2,500 Big Five Holdings ......................... 09/15/02 13.625 2,637,500
500 Great American Cookie Incorporated ........ 01/15/01 10.875 505,000
----------
4,668,750
----------
Steel/Oil--3.13%
6,000 USX Corporation MTN ....................... 08/05/02 7.990 6,370,980
----------
Supermarkets & Drugstores--2.75%
1,000 Farm Fresh Holdings ....................... 10/01/00 12.250 842,500
1,500 Hills Stores Company New .................. 07/01/03 12.500 1,215,000
2,000 Pantry Incorporated ....................... 11/15/00 12.000 2,060,000
1,500 Pueblo Xtra International Incorporated** .. 08/01/03 9.500 1,481,250
----------
5,598,750
----------
Technology--1.61%
3,000 Electronic Retailing Systems International 02/01/04 13.250 1,920,000
3,000 InterAct Systems Incorporated ............. 08/01/03 14.000 1,350,000
----------
3,270,000
----------
Tobacco--2.03%
3,000 Phillip Morris Companies Incorporated ..... 01/15/03 7.250 3,089,109
1,000 RJR Nabisco Incorporated .................. 12/01/02 8.625 1,049,907
----------
4,139,016
----------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- ------- ------- --------
<S> <C> <C> <C>
Corporate Bonds--(concluded)
Transportation Non-Air--1.07%
$2,000 Stena Shipping ............................ 12/15/05 10.500% $ 2,190,000
----------
Utilities--1.01%
2,000 Calpine Corporation ....................... 02/01/04 9.250 2,060,000
----------
TOTAL CORPORATE BONDS (cost--$165,244,311) ............ 169,958,619
----------
Convertible Bonds--3.02%
Communications--0.15%
420 GST Telecommunications Incorporated ....... 12/15/05 13.875 310,800
----------
General Industrial--1.33%
3,000 Corporate Express Incorporated ............ 07/01/00 4.500 2,707,500
----------
Retail--0.67%
1,500 Michaels Stores Incorporated .............. 01/15/03 6.750 1,365,000
----------
Technology--0.87%
2,000 Softkey International Incorporated ........ 11/01/00 5.500 1,765,000
----------
TOTAL CONVERTIBLE BONDS (cost--$5,906,499) ............ 6,148,300
----------
Zero Coupon Municipal Securities(1)--9.57%
650 Bolingbrook Illinois Park District ........ 01/01/03 5.475 508,346
995 Cook County Illinois High School District . 12/01/02 6.124 784,776
4,500 Houston Texas Independent School District . 08/15/02 5.200 to 5.250 3,606,705
7,000 Houston Texas Water & Sewer ............... 12/01/02 5.050 5,538,400
1,000 Maricopa County Arizona School District ... 01/01/02 5.300 825,480
3,895 NorthEast Independent School District Texas 02/01/03 5.150 3,044,449
6,000 San Antonio Texas Electric & Gas .......... 02/01/03 5.150 to 5.900 4,689,780
650 William County Illinois Community School
District ................................. 12/15/02 6.024 513,129
----------
TOTAL ZERO COUPON MUNICIPAL SECURITIES
(cost--$18,687,292) .................................. 19,511,065
----------
</TABLE>
7
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Number of
Shares Value
-------- -------
<S> <C>
Common Stock(a)--0.35%
Gaming--0.32%
43,875 Casino America Incorporated ........................................ $ 98,719
77,681 Colorado Gaming & Entertainment Company ............................ 466,086
30,000 Hollywood Casino Corporation ....................................... 88,125
-------
652,930
-------
Media--0.03%
4,512 Pegasus Media & Communications Incorporated ........................ 59,784
-------
TOTAL COMMON STOCK (cost--$646,250) ............................................ 712,714
-------
Number of
Warrants
--------
Warrants(a)--0.13%
Aerospace--0.01%
2,000 SabreLiner Corporation ............................................. 20,000
-------
Consumer Manufacturing--0.00%
500 AVI Holdings Incorporated .......................................... 2,500
-------
Gaming--0.06%
7,767 Casino America Incorporated ........................................ 13,981
2,500 HDA Management Corporation ......................................... 98,150
-------
112,131
-------
Retail--0.00%
90 Cookies USA Incorporated ........................................... 900
-------
Technology--0.06%
3,000 Electronic Retailing Systems International ......................... 120,000
3,000 InterAct Systems Incorporated ...................................... 7,500
-------
127,500
-------
TOTAL WARRANTS (cost--$182,383) ................................................ 263,031
-------
</TABLE>
8
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Date Rate Value
-------- ------- ------- --------
<S> <C> <C> <C>
Repurchase Agreement--1.03%
$2,106 Repurchase Agreement dated 07/31/97,
with State Street Bank & Trust Company,
collateralized by $1,950,000 U.S. Treasury
Bonds, 7.875% due 11/15/07; proceeds:
$2,106,333
(cost--$2,106,000) ............................. 08/01/97 5.700% $ 2,106,000
------------
Total Investments (cost--$279,319,479)--140.24% ............. 285,741,008
Liabilities in excess of other assets--(40.24)% ............. (81,994,460)
------------
Net Assets--100.00% ......................................... $203,746,548
============
</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 a greater amount of interest
being received and cause the yield to increase.
** 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.
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
++ Illiquid security representing 1.83% of total investments.
(a) Non-income producing securities.
(1) Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
ARM --Adjustable Rate Mortgage, the interest rate shown is the current rate at
July 31, 1997.
CMT --Constant Maturity Treasury index
MTN --Medium Term Note
TBA --(To Be Assigned) Securities are purchased on a forward commitment basis
with approximate (generally +/-1.0%) principal amount and generally
stated 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
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (cost--$279,319,479) ....................... $285,741,008
Cash ........................................................................... 783
Interest receivable ............................................................ 3,573,212
Deferred organizational expenses ............................................... 26,654
Other assets ................................................................... 1,375
-----------
Total assets ................................................................... 289,343,032
-----------
LIABILITIES:
Payables for investments purchased ............................................. 85,203,377
Payable to investment adviser and administrator ................................ 154,131
Accrued expenses and other liabilities ......................................... 238,976
-----------
Total liabilities .............................................................. 85,596,484
-----------
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 ............................................ 3,811,896
Accumulated net realized losses from investment transactions ................... (12,084,527)
Net unrealized appreciation of investments ..................................... 6,421,529
-----------
Net assets applicable to shares outstanding .................................... $203,746,548
===========
Net asset value per share ...................................................... $14.86
=====
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months
Ended
July 31, 1997
(unaudited)
---------
<S> <C>
INVESTMENT INCOME:
Interest .................................................................... $ 8,934,635
-----------
EXPENSES:
Investment advisory and administration ...................................... 888,207
Reports and notices to shareholders ......................................... 79,093
Custody and accounting ...................................................... 59,887
Legal and audit ............................................................. 39,145
Amortization of organizational expenses ..................................... 23,000
Transfer agency fees ........................................................ 18,743
Directors' fees ............................................................. 6,025
Other expenses .............................................................. 2,136
-----------
1,116,236
-----------
NET INVESTMENT INCOME ....................................................... 7,818,399
----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions ............................. 41,513
Net change in unrealized appreciation/depreciation of investments ........... 3,574,419
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES ................ 3,615,932
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $11,434,331
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months
Ended For the Year
July 31, 1997 Ended
(unaudited) January 31, 1997
------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income .......................................................... $ 7,818,399 $ 15,043,199
Net realized gains from investments ............................................ 41,513 675,151
Net change in unrealized appreciation/depreciation of investments .............. 3,574,419 1,116,090
------------ ------------
Net increase in net assets resulting from operations ........................... 11,434,331 16,834,440
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income .......................................................... (6,990,400) (14,529,067)
------------ ------------
Net increase in net assets ..................................................... 4,443,931 2,305,373
NET ASSETS:
Beginning of period ............................................................ 199,302,617 196,997,244
------------ ------------
End of period (including undistributed net investment income
of $3,811,896 and $2,983,897 respectively) ................................... $203,746,548 $199,302,617
============ ============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended
July 31, 1997
(unaudited)
------------
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Interest received .............................................................. $ 7,732,347
Expenses paid .................................................................. (1,083,424)
Sale of short-term portfolio investments, net .................................. 1,117,860
Purchases of long-term portfolio investments ................................... (561,874,637)
Sales of long-term portfolio investments ....................................... 561,014,466
-----------
Net cash provided by operating activities ...................................... 6,906,612
-----------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends paid to shareholders ................................................. (6,990,400)
-----------
NET CHANGE IN CASH ............................................................. (83,788)
Cash at beginning of period .................................................... 84,571
-----------
Cash at end of period .......................................................... $ 783
===========
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 ........................... $11,434,331
-----------
Increase in investments, at value .............................................. (5,600,007)
Decrease in receivable for investments sold .................................... 2,956,480
Decrease in interest receivable ................................................ 50,802
Amortization of deferred organizational expenses ............................... 23,000
Decrease in other assets ....................................................... 3,602
Decrease in payable for investments purchased .................................. (1,967,806)
Increase in payable to investment adviser and administrator .................... 2,650
Increase in accrued expenses and other liabilities ............................. 3,560
-----------
Total adjustments .............................................................. (4,527,719)
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... $ 6,906,612
===========
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
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 Trust 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 Asset Management Inc. ("Mitchell
Hutchins"), the investment adviser and a wholly-owned subsidiary of PaineWebber
Incorporated, 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 a management committee 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 obligation 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.
DOLLAR ROLLS--The Trust enters 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
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.
DIVIDENDS AND 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. 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
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. 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 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.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31,
1997 was substantially the same as the cost of securities for financial
statement purposes.
At July 31, 1997, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an
excess of value over cost) ................................. $9,087,203
Gross depreciation (investments having an
excess of cost over value) ................................. (2,665,674)
----------
Net unrealized appreciation of investments ....................... $6,421,529
==========
For the six months ended July 31, 1997, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $559,927,400
and $558,452,847, 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 July 31, 1997, Mitchell Hutchins owned
7,698 shares.
FEDERAL TAX STATUS
It is the Trust's intention to 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. Therefore,
no Federal income tax provision is required. As part of the Trust's investment
objective to return $15.00 per share to investors on or about January 31, 2003,
the Trust may retain a portion of its taxable income and would pay any
applicable excise and federal income tax.
At January 31, 1997, the Trust had a net capital loss carryforward of
$11,059,831 which expires as follows: $4,375,790 in 2003 and $6,684,041 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, as provided in the regulations, to offset future net realized
capital gains, it is probable those gains will not be distributed.
15
<PAGE>
ALL-AMERICAN TERM TRUST INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the For the Period
Six Months For the Years March 1, 1993
Ended Ended January 31, (commencement
July 31, 1997 ------------------------ of operations) to
(unaudited) 1997 1996 1995 January 31, 1994
----------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $14.54 $14.37 $13.31 $15.30 $15.00
------ ------ ------ ------ ------
Net investment income ................................ 0.57 1.10 1.19 1.24 1.11
Net realized and unrealized gains (losses)
from investments ................................... 0.26 0.13 0.99 (2.01) 0.27
------ ------ ------ ------ ------
Net increase (decrease) investment from operations ... 0.83 1.23 2.18 (0.77) 1.38
------ ------ ------ ------ ------
Dividends from net investment income ................. (0.51) (1.06) (1.12) (1.22) (1.06)
Distributions in excess of net realized gains from
investment transactions ............................ -- -- -- -- (0.02)
------ ------ ------ ------ ------
Total dividends and distributions to shareholders .... (0.51) (1.06) (1.12) (1.22) (1.08)
------ ------ ------ ------ ------
Net asset value, end of period ....................... $14.86 $14.54 $14.37 $13.31 $15.30
====== ====== ====== ====== ======
Per share market value, end of period ................ $13.50 $12.75 $13.25 $12.13 $14.38
====== ====== ====== ====== ======
Total investment return(1) ........................... 10.05% 4.59% 19.34% (7.13)% 3.04%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ....................$203,747 $199,303 $196,997 $182,437 $209,775
Expenses to average net assets ....................... 1.13%* 1.18% 1.05% 1.05% 1.04%*
Net investment income to average net assets .......... 7.92%* 7.70% 8.49% 8.95% 8.02%*
Portfolio turnover rate .............................. 200% 391% 415% 383% 416%
- --------
</TABLE>
* Annualized
(1) Total investment return is calculated assuming a purchase of common stock
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 and distributions 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.
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 and 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 $47 billion in assets
under management as of August 31, 1997.
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, each Sunday in THE NEW YORK TIMES and weekly 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.
See accompanying notes to financial statements
17
<PAGE>
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<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander Thomas J. Libassi
PRESIDENT VICE PRESIDENT
Victoria E. Schonfeld James F. Keegan
VICE PRESIDENT VICE PRESIDENT
Dianne E. O'Donnell Julieanna Berry
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert Dennis McCauley
VICE PRESIDENT AND TREASURER VICE PRESIDENT
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 SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES. THE FINANCIAL INFORMATION
INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND WITHOUT EXAMINATION BY
INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION THEREON. THIS REPORT IS SENT
TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS,
CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE PURCHASE OR SALE OF
SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.
<PAGE>
PaineWebber
(c) 1997 PaineWebber Incorporated
Member SPIC
=============
JULY 31, 1997
=============
ALL-AMERICAN
TERM TRUST INC.
SEMIANNUAL REPORT
