<PAGE>
ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
September 15, 1998
Dear Shareholder,
We are pleased to present you with the semiannual report for the All-American
Term Trust Inc. (the "Trust") for the six-month period ended July 31, 1998.
GENERAL MARKET OVERVIEW
U.S. economic activity continued at a healthy pace from January through July,
as inflation remained low. High employment buoyed consumer confidence and,
coupled with low interest rates, continued to support the economy. The U.S.
stock market remained choppy, though, as round two of the Asian crisis took
hold and investors began to worry about its impact on corporate earnings.
U.S. Treasury prices rose during the six-month period, driven by "flight to
quality" demand and by investors moving out of stocks. The yen hit an
eight-year low against the U.S. dollar as Japan's economic weakness renewed
pressure on all of Asia. Instability in the Russian market further boosted the
appeal of U.S. Treasurys. Heavy demand drove down the yield of the 30-year
bond and lowered market interest rates.
With interest rates falling during the period, corporate issuance remained
high. The announced merger between AT&T and Tele-communications Inc (TCI)
reignited interest in cable/media companies, which became the best-performing
sector in June. The announced merger between Citicorp and Travelers led to
more speculation and to strong performance in the financial sector.
Note: Since July 31, 1998 (the end of the Fund's semiannual reporting period),
world financial markets have experienced significant volatility. The market
and Fund performance cited in this report do not take into account this
volatility nor its impact on the Fund; the next annual report, which will
cover the fiscal year ending January 31, 1999, will address this period.
PORTFOLIO REVIEW
Performance
For the six months ended July 31, 1998, the Trust (NYSE: AAT) returned 2.34%
based on the change in its net asset value (assuming, for illustration only,
that dividends were reinvested at the net asset value on the payable dates).
During the period the Trust returned 3.23% based on changes in its share price
on the New York Stock Exchange (assuming dividends were reinvested under the
Dividend Reinvestment Plan).
The Trust's net asset value per share was $14.93 on July 31, 1998, while its
share price on the New York Stock Exchange was $14.00. During the six-month
period ended July 31, 1998, the Trust paid dividends from net investment
income totaling $0.51 per share, or approximately 8.5(cent) per share per
month.
ALL-AMERICAN TERM TRUST INC.
FUND PROFILE
Goal:
High current income,
consistent with capital
preservation. The Trust
will terminate on or
about January 31, 2003
Portfolio Managers:
Julieanna M. Berry,
James F. Keegan,
Thomas J. Libassi
Mitchells Hutchins
Asset Management, Inc.
Total Net Assets:
$204.7 million as of
July 31, 1998
Dividend Payments:
Monthly
ALL-AMERICAN
TERM TRUST INC.
Top five sectors
July 31, 1998*
FNMAs 11.6%
Municipals 7.5%
GNMAs 7.1%
Broker/dealer 6.1%
Cable 5.4%
* Percentage of portfolio assets;
allocations subject to change.
<PAGE>
SEMIANNUAL REPORT
ALL-AMERICAN
TERM TRUST INC.
Portfolio composition
July 31, 1998*
Corporates 64.2%
Mortgages 21.9%
Municipals 7.5%
Treasurys 4.4%
Cash & cash
equivalents 1.6%
Common stock
and warrants 0.4%
Total 100.0%
* Percentage of portfolio assets;
allocations subject to change.
Portfolio Highlights
The Trust's high-grade holdings remain focused on the cable/media sector,
where recent mergers and acquisitions -- notably the pending merger between
AT&T and TCI -- have created substantial spread tightening. The Trust is also
heavily weighted in financial services. Its holdings there include Prudential
Insurance Company (1.7% of portfolio assets as of July 31, 1998) and
credit-card issuer Providian Bank (2.2%) as well as several broker-dealers.
Recent purchases for the Trust include Nabisco Company debt (2.2%), which has
been under pressure because of litigation issues surrounding its parent
company, RJR Reynolds. The cheap price for this debt presented an attractive
buying opportunity. We continue to manage the Trust's portfolio in an effort
to return $15.00 per share to investors on or about January 31, 2003.
To protect the Trust from prepayment risk we reduced its mortgage exposure by
about one-fourth, reallocating the funds to corporate bonds and Treasurys. We
also increased the Trust's holdings in the energy sector. During the period we
steered the Trust's overall credit quality toward the middle of the credit
spectrum. We slightly reduced its AAA and A holdings as well as its exposure
to nonrated, below B and B rated debt, and slightly increased the Trust's
holdings of BB and BBB debt.
OUTLOOK
Proactive credit research and security selection continue to drive our
investment process. We remain focused on the new issue calendar while
monitoring events around the world. Japan's failure to achieve real banking
reform and some type of permanent tax cut could drive the yen even lower and
further aggravate Asian problems. We believe this would keep U.S. rates low
and corporate issuance high. The Trust avoided the emerging markets during the
period, and will continue to avoid them until it becomes clear that market
reforms will be implemented and sustained.
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.
2
<PAGE>
For a quarterly Fund Profile on the All-American Term Trust Inc., or a fund in
the PaineWebber Family of Funds, please contact your investment executive.
Sincerely,
/s/ Margo Alexander /s/ Dennis L. McCauley
- -------------------------------------- ----------------------------------------
MARGO ALEXANDER DENNIS L. MCCAULEY
President Chief Investment Officer -- Fixed Income
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
/s/ Julieanna M. Berry /s/ James F. Keegan
- -------------------------------------- ----------------------------------------
JULIEANNA M. BERRY JAMES F. KEEGAN
Portfolio Manager Portfolio Manager
All-American Term Trust Inc. All-American Term Trust Inc.
/s/ Thomas J. Libassi
- --------------------------------------
THOMAS J. LIBASSI
Portfolio Manager
All-American Term Trust Inc.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
This letter is intended to assist shareholders in understanding how the Trust
performed during the six-month period ended July 31, 1998, 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.
PORTFOLIO OF INVESTMENTS JULY 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- ----------- ------------- -------------- -------------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation Certificates--3.69%
$ 7,278 FHLMC ARM (cost--$7,459,548)............................ 03/01/24 7.486% $ 7,552,775
----------
Federal National Mortgage Association Certificates--15.48%
29,000 FNMA ARM................................................. TBA 6.131 29,145,000
2,435 FNMA CMT ARM............................................. 03/01/23 7.424 2,533,210
----------
Total Federal National Mortgage Association Certificates
(cost--$31,635,128)............................................... 31,678,210
----------
Collateralized Mortgage Obligations--0.60%
6,115 FNMA Trust 1993-41, Class H* (cost--$1,212,265).......... 03/25/23 7.000 1,232,338
----------
Government National Mortgage Association Certificates--9.40%
18,883 GNMA II ARM (cost--$19,317,700).................... 08/20/23 to 10/20/24 7.000 19,228,673
----------
U.S. Government Obligations--5.85%
12,000 United States Treasury Notes (cost--$11,982,656)........ 06/30/00 5.375 11,977,500
----------
Corporate Bonds--79.41%
Banking--2.97%
6,000 Providian National Bank.................................. 03/15/03 6.700 6,074,076
----------
Broker/Dealer--8.17%
5,000 CS First Boston Incorporated MTN++....................... 01/15/03 7.650 5,287,500
4,000 Lehman Brothers Incorporated............................. 04/15/03 7.250 4,157,044
7,000 Salomon Incorporated MTN................................. 01/15/03 7.150 7,272,503
----------
16,717,047
----------
Cable--7.12%
3,500 Echostar DBS Corporation................................. 07/01/02 12.500 3,920,000
3,500 International CableTel Incorporated...................... 04/15/05 12.750+ 3,115,000
7,000 Telecommunications Incorporated......................... 01/15/03 8.250 7,542,626
----------
14,577,626
----------
Communications--2.87%
2,110 GST Telecommunications Incorporated...................... 12/15/05 13.875+ 1,751,300
4,000 Hyperion Telecommunications Incorporated................. 04/15/03 13.000+ 3,080,000
1,000 PSI Net Incorporated..................................... 02/15/05 10.000 1,050,000
----------
5,881,300
----------
Consumer Manufacturing--3.06%
1,025 Apparel Ventures Incorporated............................ 12/31/00 12.250 989,125
1,000 Decora Industries Incorporated**......................... 05/01/05 11.000 985,000
2,000 IHF Holdings Incorporated................................ 11/15/04 15.000+ 1,400,000
2,000 Revlon Worldwide......................................... 03/15/01 10.188(1) 1,585,000
6,000 Sunbeam Corporation**.................................... 03/25/03(b) 9.151+(2) 1,305,000
----------
6,264,125
----------
Energy--5.88%
2,500 Niagara Mohawk Power Corporation......................... 10/01/02 7.250 2,503,475
2,000 Northern Offshore ASA**.................................. 05/15/05 10.000 1,880,000
3,000 R & B Falcon Corporation................................. 04/15/03 6.500 2,971,998
6,000 Transamerican Energy Corporation......................... 06/15/02 13.000+ 4,680,000
----------
12,035,473
----------
</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)
Entertainment--2.36%
$ 2,500 Discovery Zone Incorporated++.......................... 08/01/02 13.500% $ 2,225,000
588# Discovery Zone Incorporated**.......................... 05/01/02 13.500 588,000
2,000 Silver Cinemas Incorporated**.......................... 04/15/05 10.500 2,020,000
-----------
4,833,000
-----------
Finance--1.02%
2,000 Reliance Group Holdings Incorporated................... 11/15/00 9.000 2,086,240
-----------
Food & Beverage--4.82%
2,375 Iowa Select Farms L.P.**............................... 12/01/05 10.750 2,392,813
6,000 Nabisco Incorporated................................... 02/01/03(c) 6.125 5,931,846
1,500 Packaged Ice Incorporated**............................ 02/01/05 9.750 1,545,000
-----------
9,869,659
-----------
Freight, Air, Sea & Land--2.93%
5,500 Airborne Freight Corporation........................... 12/15/02 8.875 6,005,780
-----------
General Industrial--3.57%
2,000 Poindexter J.B. Incorporated........................... 05/15/04 12.500 1,980,000
5,000 Tenneco Incorporated................................... 10/01/02 8.075 5,313,840
-----------
7,293,840
-----------
Healthcare--2.50%
5,000 Tenet Healthcare Corporation........................... 01/15/03 7.875 5,118,750
-----------
Hotels & Lodging--2.01%
4,000 Hilton Hotels Corporation.............................. 07/15/02 7.700 4,105,784
-----------
Insurance--2.25%
4,500 Prudential Insurance Company of America................ 04/15/03 6.875 4,601,353
-----------
Media--6.80%
9,000 News America Holdings Incorporated..................... 02/01/03 8.625 9,753,354
2,000 Source Media Incorporated.............................. 11/01/04 12.000 2,070,000
2,000 Sullivan Graphics Incorporated......................... 08/01/05 12.750 2,100,000
-----------
13,923,354
-----------
Metals & Mining--0.75%
1,500 Easco Corporation...................................... 03/15/01 10.000 1,545,000
-----------
Packaging--2.50%
2,000 Grupo Industrial Durango S.A........................... 07/15/01 12.000 2,100,000
3,000 Vicap, S.A. de C.V.**.................................. 05/15/02 10.250 3,022,500
-----------
5,122,500
-----------
Real Estate--0.51%
1,000 Hovnanian K Enterprises Incorporated................... 04/15/02 11.250 1,035,000
-----------
Restaurants--1.47%
3,000 American Restaurant Group Incorporated**............... 02/15/03 11.500 3,000,000
-----------
Retail--2.51%
2,750 Barry's Jewelers Incorporated.......................... 12/22/00 11.000(a) 1,650,000
500 Great American Cookie Incorporated..................... 01/15/01 10.875 520,000
3,000 Mrs. Fields Original Cookies Incorporated.............. 12/01/04 10.125 2,970,000
-----------
5,140,000
-----------
</TABLE>
5
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- ----------- ----------- ------------
<S> <C> <C> <C>
Corporate Bonds (concluded)
Steel/Oil--3.11%
$ 6,000 USX Corporation MTN.................................... 08/05/02 7.990% $ 6,373,200
-----------
Technology--4.37%
2,000 Ampex Corporation++.................................... 03/15/03 12.000 2,040,000
3,000 Comdisco Corporation MTN............................... 01/28/02 9.500 3,311,799
5,000 Electronic Retailing Systems International............. 02/01/04 13.250+ 2,200,000
1,500 Samsung Electronics America Incorporated**............. 05/01/03 9.750 1,398,750
-----------
8,950,549
-----------
Tobacco--3.78%
6,500 Phillip Morris Companies Incorporated.................. 01/15/03 7.250 6,716,983
1,000 RJR Nabisco Incorporated............................... 12/01/02 8.625 1,034,064
-----------
7,751,047
-----------
Transportation, Non-Air--1.07%
2,000 Stena AB............................................... 12/15/05 10.500 2,180,000
-----------
Utilities--1.01%
2,000 Calpine Corporation.................................... 02/01/04 9.250 2,065,000
-----------
Total Corporate Bonds (cost--$162,107,094)......................... 162,549,703
-----------
Convertible Bonds--5.94%
Communications--0.26%
420 GST Telecommunications Incorporated.................... 12/15/05 13.875+ 537,600
-----------
Gaming--0.97%
2,000 Argosy Gaming Corporation.............................. 06/01/01 12.000 1,990,000
-----------
General Industrial--2.55%
4,500 Corporate Express Incorporated......................... 07/01/00 4.500 4,162,500
1,000 Waste Systems International Incorporated**............. 05/13/05 7.000 1,050,000
-----------
5,212,500
-----------
Technology--2.16%
4,000 InterAct Systems Incorporated.......................... 08/01/03 14.000+ 1,600,000
3,000 Softkey International Incorporated..................... 11/01/00 5.500 2,820,000
-----------
4,420,000
-----------
Total Convertible Bonds (cost--$12,913,787)........................ 12,160,100
-----------
Zero Coupon Municipal Securities(1)--10.00%
650 Bolingbrook Illinois Park District..................... 01/01/03 5.475 535,171
995 Cook County Illinois High School District.............. 12/01/02 6.124 823,979
4,500 Houston Texas Independent School District.............. 08/15/02 5.200 to 5.250 3,777,570
7,000 Houston Texas Water & Sewer............................ 12/01/02 5.050 5,801,740
1,000 Maricopa County Arizona School District................ 01/01/02 5.300 862,980
3,895 NorthEast Independent School District Texas............ 02/01/03 5.150 3,197,990
6,000 San Antonio Texas Electric & Gas....................... 02/01/03 5.150 to 5.900 4,926,300
650 William County Illinois Community School District...... 12/15/02 6.024 537,368
-----------
Total Zero Coupon Municipal Securities (cost--$19,687,723)......... 20,463,098
-----------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------ -----------
<S> <C>
Common Stocks(a)--0.31%
Gaming--0.31%
43,875 Casino America Incorporated....................................................... $ 153,562
77,681 Colorado Gaming & Entertainment Company........................................... 436,956
30,000 Hollywood Casino Corporation...................................................... 48,750
----------
Total Common Stocks (cost--$646,248).......................................................... 639,268
----------
Number of
Warrants
- -----------
Warrants(a)--0.19%
Aerospace--0.01%
2,000 SabreLiner Corporation............................................................ 30,000
----------
Consumer Manufacturing--0.00%
500 AVI Holdings Incorporated......................................................... 2,500
----------
Entertainment--0.01%
2,500 Discovery Zone Incorporated....................................................... 25,000
----------
Food & Beverage--0.08%
1,500 Packaged Ice Incorporated......................................................... 165,000
----------
Gaming--0.03%
7,767 Casino America Incorporated....................................................... 7,767
2,500 HDA Management Corporation........................................................ 50,000
----------
57,767
----------
Retail--0.00%
90 Cookies USA Incorporated.......................................................... 0
----------
Technology--0.06%
68,000 Ampex Corporation................................................................. 76,500
3,000 Electronic Retailing Systems International........................................ 30,000
4,000 InterAct Systems Incorporated..................................................... 10,000
----------
116,500
----------
Total Warrants (cost--$319,412)............................................................... 396,767
----------
</TABLE>
7
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- ----------- -------- ---------------
<S> <C> <C> <C>
Repurchase Agreements--2.12%
$ 4,334 Repurchase Agreement dated 07/31/98 with Salomon
Brothers, collateralized by $3,729,000 U.S.
Treasury Bonds, 9.125% due 05/15/09 (value--
$4,422,967); proceeds: $4,336,015................ 08/03/98 5.580% $ 4,334,000
10 Repurchase Agreement dated 07/31/98 with State
Street Bank & Trust Company, collateralized by
$9,511 U.S. Treasury Bonds, 7.500% due 11/15/01
(value--$10,201); proceeds: $10,004.............. 08/03/98 5.000 10,000
------------
Total Repurchase Agreements (cost--$4,344,000).................... 4,344,000
------------
Total Investments (cost--$271,625,561)--132.99%................... 272,222,432
Liabilities in excess of other assets--(32.99)%................... (67,528,489)
------------
Net Assets--100.00%............................................... $204,693,943
------------
------------
</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 securities representing 4.67% of net assets.
(a) Non-income producing securities.
(b) Maturity date reflects earliest date bond can be put back to issuer.
(c) Maturity date reflects mandatory put date.
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
(1) Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
(2) Yield to put date on zero coupon bond.
ARM Adjustable Rate Mortgage, the interest rate shown is the current rate at
July 31, 1998.
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
8
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1998 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost--$271,625,561).................................. $272,222,432
Cash...................................................................................... 436
Interest receivable....................................................................... 3,471,050
Receivable for investments sold........................................................... 2,112,000
Other assets.............................................................................. 724
------------
Total assets.............................................................................. 277,806,642
------------
Liabilities:
Payable for investments purchased......................................................... 72,742,061
Payable to investment adviser and administrator........................................... 156,919
Accrued expenses and other liabilities.................................................... 213,719
------------
Total liabilities......................................................................... 73,112,699
------------
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....................................................... 5,384,479
Accumulated net realized losses from investment transactions.............................. (6,885,057)
Net unrealized appreciation of investments................................................ 596,871
------------
Net assets applicable to shares outstanding............................................... $204,693,943
------------
------------
Net asset value per share................................................................. $14.93
------------
------------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended
July 31, 1998
(unaudited)
------------
<S> <C>
Investment income:
Interest.................................................................................. $8,651,509
------------
Expenses:
Investment advisory and administration.................................................... 921,981
Custody and accounting.................................................................... 61,465
Reports and notices to shareholders....................................................... 61,144
Legal and audit........................................................................... 30,235
Transfer agency fees...................................................................... 18,255
Directors' fees........................................................................... 5,250
Amortization of organizational expenses................................................... 3,654
Other expenses............................................................................ 25,238
------------
1,127,222
------------
Net investment income..................................................................... 7,524,287
------------
Realized and unrealized gains (losses) from investment activities:
Net realized gain from investment transactions............................................ 2,281,500
Net change in unrealized appreciation/depreciation of investments......................... (4,933,216)
------------
Net realized and unrealized losses from investment activities............................. (2,651,716)
------------
Net increase in net assets resulting from operations...................................... $4,872,571
------------
------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
July 31, 1998 January 31,
(unaudited) 1998
------------- ------------
<S> <C> <C>
From operations:
Net investment income............................................................ $7,524,287 $15,760,268
Net realized gain from investments............................................... 2,281,500 3,046,710
Net change in unrealized appreciation/depreciation of investments................ (4,933,216) 2,682,977
----------- -----------
Net increase in net assets resulting from operations............................. 4,872,571 21,489,955
----------- -----------
Dividends to shareholders from:
Net investment income............................................................ (6,990,400) (13,980,800)
----------- -----------
Net increase (decrease) in net assets............................................ (2,117,829) 7,509,155
Net assets:
Beginning of period.............................................................. 206,811,772 199,302,617
----------- -----------
End of period (including undistributed net investment income
of $5,384,479 and $4,850,592, respectively)................................... $204,693,943 $206,811,772
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended
July 31, 1998
(unaudited)
--------------
<S> <C>
Cash flows provided by (used for) operating activities:
Interest received............................................................................ $ 6,434,557
Expenses pai................................................................................. (1,179,916)
Purchase of short-term portfolio investments, net............................................ (3,529,000)
Purchases of long-term portfolio investments................................................. (526,852,006)
Sales of long-term portfolio investments..................................................... 532,115,622
--------------
Net cash provided by operating activities.................................................... 6,989,257
--------------
Cash flows used for financing activities:
Dividends paid to shareholders............................................................... (6,990,400)
--------------
Net change in cash........................................................................... (1,143)
Cash at beginning of period.................................................................. 1,579
--------------
Cash at end of period........................................................................ $ 436
--------------
--------------
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......................................... $ 4,872,571
--------------
Decrease in investments, at value............................................................ 13,053,055
Decrease in receivable for investments sold.................................................. 1,771,326
Increase in interest receivable.............................................................. (398,280)
Amortization of deferred organizational expenses............................................. 3,654
Decrease in other assets..................................................................... 2,636
Decrease in payable for investments purchased................................................ (12,256,721)
Decrease in payable to investment adviser and administrator.................................. (677)
Decrease in accrued expenses and other liabilities........................................... (58,307)
--------------
Total adjustments............................................................................ 2,116,686
--------------
Net cash provided by operating activities.................................................... $ 6,989,257
--------------
--------------
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS(UNAUDITED)
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 will terminate on or about January 31, 2003. Organizational costs
have been deferred and have been 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 the fair value of the securities in the judgement of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), the investment adviser and
administrator and an asset management subsidiary of PaineWebber Incorporated.
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 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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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,
1998 was substantially the same as the cost of securities for financial
statement purposes.
At July 31, 1998, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross appreciation (investments having an excess of value over cost).......... $ 6,713,392
Gross depreciation (investments having an excess of cost over value)......... (6,116,521)
-------------
Net unrealized appreciation of investments.................................... $ 596,871
-------------
</TABLE>
For the six months ended July 31, 1998, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $514,595,285
and $530,344,296, 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, 1998, Mitchell Hutchins owned
8,285 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
will pay any applicable excise tax.
At January 31, 1998, the Trust had a net capital loss carryforward of
$9,048,961 which expires as follows: $2,364,920 in 2003 and $6,684,041 in 2004
or upon termination of the Trust, whichever occurs sooner. 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.
14
<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 Period
For the Six March 1, 1993
Months Ended (commencement
July 31, 1998 For the Years Ended January 31, of operations) to
(unaudited) 1998 1997 1996 1995 January 31, 1994
-------------- ------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 15.09 $ 14.54 $ 14.37 $ 13.31 $ 15.30 $ 15.00
----- ----- ----- ----- ----- -----
Net investment income...................... 0.55 1.15 1.10 1.19 1.24 1.11
----- ----- ----- ----- ----- -----
Net realized and unrealized gains (losses)
from investments............................ (0.20) 0.42 0.13 0.99 (2.01) 0.27
----- ----- ----- ----- ----- -----
Net increase (decrease) from investment
operations.................................. 0.35 1.57 1.23 2.18 (0.77) 1.38
----- ----- ----- ----- ----- -----
Dividends from net investment income........ (0.51) (1.02) (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) (1.02) (1.06) (1.12) (1.22) (1.08)
----- ----- ----- ----- ----- -----
Net asset value, end of period.............. $ 14.93 $ 15.09 $ 14.54 $ 14.37 $ 13.31 $ 15.30
------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- -------
Per share market value, end of period....... $ 14.00 $ 14.06 $ 12.75 $ 13.25 $ 12.13 $ 14.38
------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- -------
Total investment return (1)................. 3.23% 18.93 % 4.59 % 19.34 % (7.13)% 3.04 %
------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- -------
Ratios/Supplemental Data:
Net assets, end of period (000's)........... $204,694 $206,812 $199,303 $196,997 $182,437 $209,775
Expenses to average net assets.............. 1.10%* 1.10 % 1.18 % 1.05 % 1.05 % 1.04 %*
Net investment income to average
net assets................................ 7.34%* 7.81 % 7.70 % 8.49 % 8.95 % 8.02 %*
Portfolio turnover rate..................... 185% 398 % 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.
15
<PAGE>
ALL-AMERICAN TERM TRUST INC.
>>>
GENERAL INFORMATION (UNAUDITED)
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., an asset
management subsidiary of PaineWebber Incorporated ("PaineWebber"), which has
over $51.6 billion in assets under management as of August 31, 1998.
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.
An annual meeting of shareholders of the Trust was held on May 21, 1998.
At the meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes,
Jr., Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen,
Frederic V. Malek and Carl W. Schafer were elected to serve as directors until
the next annual meeting of shareholders, or until their successors are elected
and qualified; and Ernst & Young LLP was ratified as independent auditors for
the Trust for the fiscal year ended January 31, 1999.
Proposal 1
<TABLE>
<CAPTION>
Shares Shares Withhold
Voted For Authority
--------- ---------------
1. To vote for or against the election of:
<S> <C> <C>
Margo N. Alexander.............................. 12,837,554 124,849
Richard Q. Armstrong............................ 12,841,668 120,735
E. Garrett Bewkes, Jr........................... 12,883,639 128,764
Richard R. Burt................................. 12,840,566 121,837
Mary C. Farrell................................. 12,842,353 120,050
Meyer Feldberg.................................. 12,841,612 120,790
George W. Gowen................................. 12,883,801 128,601
Frederic V. Malek............................... 12,835,502 126,901
Carl W. Schafer................................. 12,842,385 120,018
</TABLE>
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
Proposal 2
<TABLE>
<CAPTION>
Shares Shares Shares Voted
Voted For Abstain Against
----------- ---------- -------------
<S> <C> <C> <C>
2. Ratification of the selection of Ernst & Young LLP as the Trust's
independent auditors for the fiscal year ending January 31, 1999 12,747,313 155,797 59,294
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" and "Shares Abstain" totals.)
YEAR 2000 RISKS
Like other funds and financial and business organizations around the world,
the Trust could be adversely affected if the computer systems used by its
investment adviser, other service providers and entities with computer systems
that are linked to Trust records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed
to address the Year 2000 Issue with respect to the computer system that it
uses, and to obtain satisfactory assurances that each of the Trust's other
major service providers is taking comparable steps. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on
the Trust.
DISTRIBUTION POLICY
The Trust's Board of Directors has established a Dividend Reinvestment Plan
(the "Plan") under which all common stockholders 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 of common stock, unless such common stockholders elect to
receive cash. Common stockholders 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. The ability of
such stockholders to participate in the Plan may change if their shares are
transferred into the name of another broker or nominee.
A stockholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and stockholders who
have previously terminated participation in the Plan may rejoin it at any
time. Changes in elections must be made in writing to the Trust's transfer
agent and should include the stockholder's name and address as they appear on
the share certificate or in the transfer agent's records. An election to
terminate participation in the Plan, until such election is changed, will be
deemed an election by a stockholder to take all subsequent distributions in
cash. An election will be effective only for distributions declared and having
a record date at least ten days after the date on which the election is
received.
17
<PAGE>
ALL-AMERICAN TERM TRUST INC.
Additional shares of common stock 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 of the common stock at the time of
the purchase. The number of shares of common stock purchased with each
dividend will be equal to the result obtained by dividing the amount of the
dividend payable to a particular stockholder by the average price per share
(including applicable brokerage commissions) that the transfer agent was able
to obtain in the open market. The Trust will not issue any new shares of
common stock in connection with the Plan. There is no charge to participants
for reinvesting dividends or other distributions. The transfer agent's fees
for handling the reinvestment of distributions will be paid by the Trust.
However, each participant pays a pro rata share of brokerage commissions
incurred with respect to the transfer agent's open market purchases of common
stock in connection with the reinvestment of distributions. The automatic
reinvestment of dividends and other distributions in shares of common stock
does not relieve participants of any income tax that may be payable on such
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent
to Plan participants at least 30 days before the record date for such
distribution. The Plan also may be amended or terminated by the transfer agent
by at least 30 days' written notice to all Plan participants. Additional
information regarding the Plan may be obtained from, and all correspondence
concerning the Plan should be directed to, the transfer agent at PNC Bank,
National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington, Delaware
19899.
18
<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 Mark Tincher
Vice President and Treasurer Vice President
Dennis B. McCauley
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 Trust 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 Trust without
examination by independent auditors who do not express an opinion thereon.
This report is sent to the shareholders of the Trust for their information. It
is not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Trust or of any securities mentioned in this
report.
<PAGE>
PaineWebber
(copyright)1998 PaineWebber Incorporated
Member SIPC
- ---------------------------
ALL-AMERICAN
TERM TRUST INC.
JULY 31, 1998
SEMIANNUAL REPORT
