J A N U A R Y 3 1, 1 9 9 8
=====================================
ALL-AMERICAN
TERM TRUST INC.
A N N U A L R E P O R T
<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
March 23, 1998
Dear Shareholder,
We are pleased to present you with the annual report for All-American Term
Trust Inc. (the "Trust") for the fiscal year ended January 31, 1998.
GENERAL MARKET OVERVIEW
================================================================================
The bond market ended January on a positive note. The economic crisis in
[LOGO] Asia, combined with the U.S. stock market's first stall in two and a half
years, prompted investors to buy bonds and bond funds. Defying concerns
that rising employment would drive up wages, the economy continued to expand,
unemployment fell, wages rose only slightly and inflation registered an annual
rate of 1.57%. Short-term rates did not fall as much as long-term rates; the
result was a flattening yield curve, a possible signal of a slowing economy.
PORTFOLIO REVIEW
================================================================================
PERFORMANCE
[LOGO] For the year ended January 31, 1998, the All-American Term Trust Inc.
(symbol: AAT) returned 11.20% based on changes in its net asset value
and 18.93% based on changes in its share price on the New York Stock
Exchange. The Trust's Lipper peer group, the Corporate Debt BBB Average, gained
12.44% during the year on a net-asset basis.
At January 31, 1998 the Trust's net asset value per share was $15.09, while
its share price on the New York Stock Exchange was $14.06. During the year ended
January 31, 1998, the Trust made distributions totaling $1.02 per share.
The Trust will terminate on or about January 31, 2003, and therefore must
maintain a shorter duration than its Lipper peer group. The longer the duration
of a bond portfolio, the more it benefits from a market rally. The Trust's
shorter duration caused it to lag its peer group in the year-end bond rally.
PORTFOLIO POSITIONING
While Mitchell Hutchins manages the Trust in an effort to return the initial
offering price of $15.00 per share when the Trust terminates, 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.
Based on portfolio assets at January 31, 1998, the Trust's largest industry
weightings were cable/media (12.4%), banking/finance (8.8%), technology (4.6%),
consumer manufacturing (4.2%) and communications (3.9%).
- --------------------------------------
ALL-AMERICAN TERM
TRUST INC.
Sector breakdown as percent of
portfolio assets, January 31, 1998
[PIE LOGO]
Corporates
Cash Equivalents
Common Stock & Warrants
Municipals
ARMs/mortgages
63.15%
29.10%
7.06%
0.40%
0.29%
- ---------------------------------------
1
<PAGE>
ANNUAL REPORT
OUTLOOK
================================================================================
We think 1998 will be a good year for the U.S. bond markets. The economy is
slowing slightly due to Asia, and inflation is likely to fall below 1.5%. The
Federal budget is now running a surplus, which should reduce government
borrowing and ease the upward pressure on market interest rates.
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.
For a quarterly FUND PROFILE on All-American Term Trust Inc. or a fund in the
PaineWebber Family of Funds#1, please contact your investment executive.
Sincerely,
/s/ Margo N. Alexander /s/ Julieanna M. Berry
- ------------------------- -----------------------------
MARGO ALEXANDER JULIEANNA M. BERRY
President Portfolio Manager
Mitchell Hutchins Asset Management Inc. All-American Term Trust Inc.
/s/ James F. Keegan /s/ Thomas J. Libassi
- ----------------------- ---------------------------
JAMES F. KEEGAN THOMAS J. LIBASSI
Portfolio Manager Portfolio Manager
All-American Term Trust Inc. 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 fiscal year ended January 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.
- ------------------------------------------------
ALL-AMERICAN
TERM TRUST INC,
FUND PROFILE
[ARROW] GOAL:
High current income
consistent with capital
preservation
[ARROW] PORTFOLIO MANAGERS:
Julieanna M. Berry, James
F. Keegan and Thomas
J. Libassi, Mitchell Hutchins
Asset Management Inc.
[ARROW] TOTAL NET ASSETS:
$206.8 million as of
January 31, 1998
[ARROW] DIVIDEND PAYMENTS:
Monthly
[ARROW] The Trust will terminate on or
about January 31, 2003
- ------------------------------------------------
2
<PAGE>
ALL-AMERICAN TERM TRUST INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION
CERTIFICATES--4.47%
$ 8,790 FHLMC ARM (cost--$9,053,740) ................. 03/01/24 7.797% $ 9,243,253
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES--10.97%
19,000 FNMA ARM TBA 6.207 19,130,625
3,421 FNMA CMT ARM ................................. ... 03/01/23 7.575 3,566,871
-----------
Total Federal National Mortgage Association Certificates
(cost--$22,640,942) 22,697,496
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.67%
6,115 FNMA Trust 1993-41, Class H* (cost--$1,375,601) ... 03/25/23 7.000 1,383,499
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
CERTIFICATES--24.02%
21,952 GNMA II ARM ....................................... 08/20/23 to 10/20/24 6.875 to 7.000 22,513,534
27,000 GNMA II ARM TBA 5.500 27,168,750
-----------
Total Government National Mortgage Association Certificates
(cost--$49,503,422) 49,682,284
-----------
CORPORATE BONDS--82.85%
BANKING--1.37%
2,700 Bankers Trust New York Corporation ................ 01/15/02 7.500 2,834,914
-----------
BROKER/DEALER--8.15%
5,000 CS First Boston Incorporated MTN++ ................ 01/15/03 7.650 5,337,550
4,000 Lehman Brothers Incorporated ...................... 04/15/03 7.250 4,186,692
7,000 Salomon Incorporated MTN .......................... 01/15/03 7.150 7,319,788
-----------
16,844,030
-----------
CABLE--10.33%
4,000 Continental Cablevision Incorporated .............. 08/15/03 8.625 4,400,800
3,500 Echostar DBS Corporation .......................... 07/01/02 12.500 3,893,750
4,000 International CableTel Incorporated ............... 04/15/05 12.750+ 3,400,000
7,000 Telecommunications Incorporated ................... 01/15/03 8.250 7,575,281
2,380 United International Holdings Incorporated ........ 11/15/99 10.64(1) 2,094,400
-----------
21,364,231
-----------
COMMUNICATIONS--5.21%
4,500 360 Communications Company ........................ 03/01/03 7.125 4,622,580
2,110 GST USA Telecommunciations Incorporated ........... 12/15/05 13.875+ 1,751,300
4,000 Hyperion Telecommunications Incorporated .......... 04/15/03 13.000 3,060,000
1,250 People's Telecommunications Company ............... 07/15/02 12.250 1,331,250
-----------
10,765,130
-----------
</TABLE>
3
<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--5.84%
$1,545 Apparel Ventures Incorporated ............... 12/31/00 12.250% $ 1,552,725
2,000 Chattem Incorporated ........................ 06/15/04 12.750 2,270,000
8,000 CLN Holdings Incorporated ................... 05/15/01 12.869(1) 4,720,000
2,000 Revlon Consumer Products Corporation ........ 04/01/01 9.375 2,060,000
2,000 Revlon Worldwide ............................ 03/15/01 10.188(1) 1,470,000
-----------
12,072,725
-----------
ENERGY--3.24%
1,500 Crown Central Petroleum Corporation ......... 02/01/05 10.875 1,575,000
6,000 Transamerican Energy Corporation ............ 06/15/02 13.000+ 5,130,000
-----------
6,705,000
-----------
ENTERTAINMENT--1.23%
2,500 Discovery Zone Incorporated** ............... 08/01/02 13.500 2,550,000
-----------
FINANCE--2.62%
3,000 General Motors Acceptance Corporation ....... 01/01/03 8.500 3,305,511
2,000 Reliance Group Holdings Incorporated ........ 11/15/00 9.000 2,111,760
-----------
5,417,271
-----------
FOOD & BEVERAGE--3.04%
2,500 American Rice Incorporated .................. 07/31/02 13.000 2,375,000
2,375 Iowa Select Farms** ......................... 12/01/05 10.750 2,386,875
1,500 Packaged Ice Incorporated** ................. 02/01/05 9.750 1,530,000
-----------
6,291,875
-----------
FREIGHT, AIR, SEA, LAND--2.94%
5,500 Airborne Freight Corporation ................ 12/15/02 8.875 6,088,445
-----------
GENERAL INDUSTRIAL--3.90%
2,750 Poindexter J.B. Incorporated ................ 05/15/04 12.500 2,667,500
5,000 Tenneco Incorporated ........................ 10/01/02 8.075 5,399,750
-----------
8,067,250
-----------
HEALTHCARE--2.47%
5,000 Tenet Healthcare Corporation ................ 01/15/03 7.875 5,112,500
-----------
HOMEBUILDING--1.01%
2,000 Ryland Group Incorporated ................... 07/15/02 10.500 2,095,000
-----------
HOTELS & LODGING--1.99%
4,000 Hilton Hotels Corporation ................... 07/15/02 7.700 4,123,440
-----------
MEDIA--6.74%
9,000 News America Holdings Incorporated .......... 02/01/03 8.625 9,888,210
2,000 Source Media Incorporated** ................. 11/01/04 12.000 2,000,000
2,000 Sullivan Graphics Incorporated .............. 08/01/05 12.750 2,040,000
-----------
13,928,210
-----------
</TABLE>
4
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- -------- -------- --------
<S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
METALS & MINING--1.46%
$1,500 Easco Corporation ........................... 03/15/01 10.000% $ 1,537,500
1,400 Weirton Steel Corporation ................... 07/01/04 11.375 1,491,000
------------
3,028,500
------------
PACKAGING--2.52%
2,000 Grupo Industrial Durango S.A. ............... 07/15/01 12.000 2,145,000
3,000 Vicap, S.A. de C.V.** ....................... 05/15/02 10.250 3,075,000
------------
5,220,000
------------
REAL ESTATE--0.51%
1,000 Hovnanian K Enterprises Incorporated ........ 04/15/02 11.250 1,050,000
------------
RETAIL--3.69%
2,750 Barry's Jewelers, Incorporated .............. 12/22/00 11.000(a) 1,650,000
2,000 Chief Auto Parts Incorporated ............... 05/15/05 10.500 2,000,000
500 Great American Cookie Incorporated .......... 01/15/01 10.875 512,500
1,500 Hills Stores Company ........................ 07/01/03 12.500 1,185,000
2,250 Mrs. Fields Original** ...................... 12/01/04 10.125 2,283,750
------------
7,631,250
------------
STEEL/OIL--3.12%
6,000 USX Corporation MTN ......................... 08/05/02 7.990 6,436,800
------------
SUPERMARKETS & DRUGSTORES--0.66%
1,500 Penn Traffic Company ........................ 02/15/02 10.250 1,372,500
------------
TECHNOLOGY--4.96%
2,000 Ampex Corporation**++ ....................... 03/15/03 12.000 2,000,000
3,000 Comdisco Corporation MTN .................... 01/28/02 9.500 3,364,506
5,000 Electronic Retailing Systems International .. 02/01/04 13.250+ 3,300,000
4,000 InterAct Systems Incorporated ............... 08/01/03 14.000+ 1,600,000
------------
10,264,506
------------
TOBACCO--3.80%
6,500 Phillip Morris Companies Incorporated 01/15/03 7.250 6,779,805
1,000 RJR Nabisco Incorporated .................... 12/01/02 8.625 1,076,180
------------
7,855,985
------------
TRANSPORTATION NON-AIR--1.05%
2,000 Stena Shipping .............................. 12/15/05 10.500 2,180,000
------------
UTILITIES--1.00%
2,000 Calpine Corporation ......................... 02/01/04 9.250 2,050,000
------------
TOTAL CORPORATE BONDS (cost--$167,417,215) 171,349,562
------------
</TABLE>
5
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- --------- --------- --------
<S> <C> <C> <C>
CONVERTIBLE BONDS--4.26%
COMMUNICATIONS--0.17%
$ 420 GST Telecommunciations Incorporated ............. 12/15/05 13.875%+ $ 357,000
------------
GAMING--0.87%
2,000 Argosy Gaming Corporation ....................... 06/01/01 12.000 1,800,000
------------
GENERAL INDUSTRIAL--1.94%
4,500 Corporate Express Incorporated .................. 07/01/00 4.500 4,005,000
------------
TECHNOLOGY--1.28%
3,000 Softkey International Incorporated .............. 11/01/00 5.500 2,643,750
------------
TOTAL CONVERTIBLE BONDS (cost--$8,791,674) 8,805,750
------------
ZERO COUPON MUNICIPAL SECURITIES(1)--9.75%
650 Bolingbrook Illinois Park District .............. 01/01/03 5.475 527,508
995 Cook County Illinois High School District ....... 12/01/02 6.124 812,268
4,500 Houston Texas Independent School District ....... 08/15/02 5.200 to 5.250 3,719,250
7,000 Houston Texas Water & Sewer ..................... 12/01/02 5.050 5,714,450
1,000 Maricopa County Arizona School District ......... 01/01/02 5.300 849,990
3,895 NorthEast Independent School District Texas ..... 02/01/03 5.150 3,149,809
6,000 San Antonio Texas Electric & Gas ................ 02/01/03 5.150 to 5.900 4,852,080
650 William County Illinois Community
School District ................................. 12/15/02 6.024 529,763
-----------
TOTAL ZERO COUPON MUNICIPAL SECURITIES (cost--$19,182,144) 20,155,118
-----------
<CAPTION>
NUMBER OF
SHARES
--------
<S> <C> <C> <C>
Common Stock(a)--0.34%
Gaming--0.29%
43,875 Casino America Incorporated ........................................................... 117,914
77,681 Colorado Gaming & Entertainment Company ............................................... 436,956
30,000 Hollywood Casino Corporation .......................................................... 48,750
-----------
603,620
-----------
Media--0.05%
4,512 Pegasus Media & Communications Incorporated ........................................... 94,188
-----------
TOTAL COMMON STOCK (cost--$646,250) ............................................................... 697,808
-----------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
NUMBER OF
WARRANT VALUE
-------- --------
<S> <C>
WARRANTS(A)--0.22%
AEROSPACe--0.01%
2,000 SabreLiner Corporation ............................................................... $ 20,000
--------
CONSUMER MANUFACTURING--0.00%
500 AVI Holdings Incorporated ............................................................ 2,500
--------
FOOD & BEVERAGE--0.09%
1,500 Packaged Ice Incorporated** .......................................................... 180,000
--------
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 ............................................................. 450
--------
TECHNOLOGY--0.09%
68,000 Ampex Corporation .................................................................... 85,000
3,000 Electronic Retailing Systems International ........................................... 90,000
4,000 InterAct Systems Incorporated ........................................................ 10,000
--------
185,000
--------
TOTAL WARRANTS (cost--$319,412) .................................................................. 445,717
---------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATE RATE
-------- ------- -------
<S> <C> <C> <C>
Repurchase Agreement--0.39%
$815 Repurchase Agreement dated 01/30/98 with State Street Bank and
Trust Company, collateralized by $825,000 U.S. Treasury Notes,
6.250% due 06/30/98 (value--$831,926); proceeds:
$815,340 (cost--$815,000) .......................... 02/02/98 5.000% 815,000
------------
Total Investments (cost--$279,745,400)--137.94% ............... 285,275,487
Liabilities in excess of other assets--(37.94%) ............... (78,463,715)
------------
Net Assets--100.00% ........................................... $206,811,772
============
</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 2.57% of portfolio assets.
(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
January 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
7
<PAGE>
ALL-AMERCIAN TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1998
ASSETS:
Investments in securities, at value (cost--$279,745,400) ........$285,275,487
Cash ............................................................ 1,579
Receivable for investments sold ................................. 3,883,326
Interest receivable ............................................. 3,072,770
Deferred organizational expenses ................................ 3,654
Other assets .................................................... 3,360
------------
Total assets .................................................... 292,240,176
------------
LIABILITIES:
Payable for investments purchased ............................... 84,998,782
Payable to investment adviser and administrator ................. 157,596
Accrued expenses and other liabilities .......................... 272,026
------------
Total liabilities ............................................... 85,428,404
------------
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 ............................. 4,850,592
Accumulated net realized losses from investment transactions .... (9,166,557)
Net unrealized appreciation of investments ...................... 5,530,087
------------
Net assets applicable to shares outstanding .....................$206,811,772
============
Net asset value per share ....................................... $15.09
======
See accompanying notes to financial statements
8
<PAGE>
ALL-AMERCIAN TERM TRUST INC.
STATEMENT OF OPERATIONS
For the Year
Ended
January 31, 1998
----------------
Investment income:
Interest ...................................................... $17,982,886
-----------
Expenses:
Investment advisory and administration ........................ 1,814,829
Reports and notices to shareholders ........................... 125,907
Custody and accounting ........................................ 122,309
Legal and audit ............................................... 62,874
Amortization of organizational expenses ....................... 46,000
Transfer agency fees .......................................... 37,551
Directors' fees ............................................... 10,500
Other expenses ................................................ 2,648
-----------
2,222,618
-----------
NET INVESTMENT INCOME ......................................... 15,760,268
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gain from investment transactions ................ 3,046,710
Net change in unrealized appreciation/depreciation
of investments ............................................... 2,682,977
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT
ACTIVITIES ................................................... 5,729,687
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $21,489,955
===========
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERCIAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JANUARY 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................................ $ 15,760,268 $ 15,043,199
Net realized gain from investments ............................................... 3,046,710 675,151
Net change in unrealized appreciation/depreciation of investments ................ 2,682,977 1,116,090
------------ ------------
Net increase in net assets resulting from operations ............................. 21,489,955 16,834,440
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................................................ (13,980,800) (14,529,067)
------------ ------------
Net increase in net assets ....................................................... 7,509,155 2,305,373
NET ASSETS:
Beginning of year ................................................................ 199,302,617 196,997,244
------------ ------------
End of year (including undistributed net investment income
of $4,850,592 and $2,983,897, respectively) .................................... $206,811,772 $199,302,617
============ ============
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERCIAN TERM TRUST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year
Ended
January 31, 1998
----------------
<S> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Interest received ............................................................................. $ 15,517,055
Expenses paid ................................................................................. (2,132,276)
Sale of short-term portfolio investments, net ................................................. 2,014,000
Purchases of long-term portfolio investments .................................................. (1,117,208,786)
Sales of long-term portfolio investments ...................................................... 1,115,707,815
--------------
Net cash provided by operating activities ..................................................... 13,897,808
--------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends paid to shareholders ................................................................ (13,980,800)
--------------
NET CHANGE IN CASH ............................................................................ (82,992)
Cash at beginning of year ..................................................................... 84,571
--------------
Cash at end of year ........................................................................... $ 1,579
==============
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 .......................................... $ 21,489,955
--------------
Increase in investments, at value ............................................................. (5,134,486)
Increase in receivable for investments sold ................................................... (926,846)
Decrease in interest receivable ............................................................... 551,244
Amortization of deferred organizational expenses .............................................. 46,000
Decrease in other assets ...................................................................... 1,617
Decrease in payable for investments purchased ................................................. (2,172,401)
Increase in payable to investment adviser and administrator ................................... 6,115
Increase in accrued expenses and other liabilities ............................................ 36,610
--------------
Total adjustments ............................................................................. (7,592,147)
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................................... $ 13,897,808
==============
</TABLE>
See accompanying notes to financial statements
11
<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 the fair value of the securities in the judgment 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
12
<PAGE>
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. 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 January 31,
1998 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1998, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess of value
over cost) ....................................................... $8,984,072
Gross depreciation (investments having an excess of cost
over value) ...................................................... (3,453,985)
----------
Net unrealized appreciation of investments ........................ $5,530,087
==========
For the year ended January 31, 1998, total aggregate purchases and sales of
portfolio securities, excluding short-term
securities, were $1,115,056,954 and $1,116,634,662, 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, 1998, Mitchell Hutchins owned
8,038 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.
To reflect reclassifications arising from permanent "book/tax" differences
for the year ended January 31, 1998, the Fund's undistributed net investment
income was increased by $87,227 and accumulated net realized losses from
investment transactions was increased by $87,227.
13
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the Period
For the Years March 1, 1993
Ended January 31, (commencement
-------------------------------------- of operations) to
1998 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 ................................... 1.15 1.10 1.19 1.24 1.11
Net realized and unrealized gains (losses)
from investments ....................................... 0.42 0.13 0.99 (2.01) 0.27
------ ------ ------ ------ ------
Net increase (decrease) from investment operations ...... 1.57 1.23 2.18 (0.77) 1.38
------ ------ ------ ------ ------
Dividends from net investment income .................... (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 ....... (1.02) (1.06) (1.12) (1.22) (1.08)
------ ------ ------ ------ ------
Net asset value, end of period .......................... $15.09 $14.54 $14.37 $13.31 $15.30
====== ====== ====== ====== ======
Per share market value, end of period ................... $14.06 $12.75 $13.25 $12.13 $14.38
====== ====== ====== ====== ======
Total investment return(1) .............................. 18.93% 4.59% 19.34% (7.13)% 3.04%
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period (000's) .......................$206,812 $199,303 $196,997 $182,437 $209,775
Expenses to average net assets .......................... 1.10% 1.18% 1.05% 1.05% 1.04%*
Net investment income to average net assets ............. 7.81% 7.70% 8.49% 8.95% 8.02%*
Portfolio turnover rate ................................. 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 a period
of less than one year.
See accompanying notes to financial statements
14
<PAGE>
ALL-AMERICAN TERM TRUST INC.
REPORT OF 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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned at January 31, 1998 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, 1998, 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
----------------------------
ERNST & YOUNG LLP
New York, New York
March 18, 1998
15
<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, 1998) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that the Fund made
distributions during the fiscal year of $1.02 derived from net investment income
and taxable as ordinary income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh
and 403(b)(7) plans) may need this information for their annual information
reporting.
Since the Trust's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1998. 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 1999. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Trust.
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., an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), which has over $51.1 billion in assets
under management as of February 28, 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 15, 1997. 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, 1998.
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
PROPOSAL 1
Shares Shares
Voted Withhold
For Authority
---------- ----------
1. To vote for or against the election of:
Margo N. Alexander ........................... 12,421,190 53,160
Richard Q. Armstrong ......................... 12,422,523 51,827
E. Garrett Bewkes, Jr. ....................... 12,421,992 52,359
Richard R. Burt .............................. 12,422,522 51,828
Mary C. Farrell .............................. 12,421,189 53,161
Meyer Feldberg ............................... 12,422,523 51,827
George W. Gowen .............................. 12,422,373 51,977
Frederic V. Malek ............................ 12,422,523 51,827
Carl W. Schafer .............................. 12,421,517 52,833
PROPOSAL 2
Shares Shares
Voted Shares Voted
For Abstain Against
------ ------ ------
2. Ratification of the selection of
Ernst & Young LLP as the Trust's independent
auditors for the fiscal year ending
January 31, 1998. ............................. 12,428,127 24,437 21,787
(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 systems 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 Fund.
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.
17
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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.
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. Dividends from the Trust's
investment company taxable income (whether received in cash or reinvested in
additional Trust shares) are taxable to its stockholders as ordinary income to
the extent of the Trust's earnings and profits. Distributions of the Trust's net
capital gain (whether received in cash or reinvested in additional Trust
shares), when designated as such, are taxable to its stockholders as long-term
capital gain, regardless of how long they have held their Trust shares. A
participant in the Plan will be treated as having received a distribution in the
amount of the cash used to purchase shares of common stock on his behalf,
including a pro-rata portion of the brokerage commissions incurred by the
transfer agent.
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 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.
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
