<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
March 15, 1999
Dear Shareholder,
We are pleased to present you with the annual report for the All-American Term
Trust Inc. (the "Trust") for the fiscal year ended January 31, 1999.
MARKET REVIEW
- --------------------------------------------------------------------------------
The Fund's fiscal year was a tumultuous period for the capital markets, a time
that will be remembered as a "flight to quality," when nervous investors fled
riskier markets for the safety of U.S. Treasury securities. The emerging market
contagion that began with the devaluation of the Thai baht in July 1997 spread
throughout Asia into Russia and Latin America. Russia and Pakistan defaulted on
some of their sovereign debt, the first sovereign bond defaults since World War
II. Yield spreads -- the difference in yield or income that securities must pay
above Treasurys to compensate for the additional risk -- widened across all
fixed income sectors. The "flight to quality" became a "flight to liquidity" as
investors swarmed to shorter maturity Treasurys. Some bond markets virtually
closed as a result.
Attempting to halt the spread of the contagion, the Federal Reserve cut the
short-term interest rate by 0.25% in September, October and November, lowering
it from 5.50% to 4.75%. Rate cuts by several European central banks in
preparation for the 1999 debut of the euro currency reinforced the Federal
Reserve action, and the markets began to stabilize by mid-October. Investors
returned in search of bargains, boosting the corporate and mortgage-backed
sectors. Investors stood on firmer ground by January 1999 -- with less leverage
and fewer risky investments than in August 1998 -- and thus weathered Brazil's
currency devaluation in January better than they had Russia's devaluation in
August. The yield on the 30-year U.S. Treasury bond rose about 0.25%, however,
as investors became worried that inflation would heat up again and cause U.S.
interest rates to rise.
OUTLOOK
- --------------------------------------------------------------------------------
We believe the Federal Reserve is likely to maintain a steady monetary policy
given strong U.S. economic growth and weak global growth. After three
consecutive years of 4% annual growth, we expect the U.S. economy to grow about
2.5% in 1999, with inflation remaining low and no recession on the immediate
horizon. Against this backdrop, we expect the yield of the 30-year Treasury bond
to range between 4.75% and 5.75%. We think the current environment will prove
favorable for mortgage-backed securities, and select issues and sectors of
corporate bonds. Thorough credit research and fundamental analysis will be the
keys to investment success over the next few years.
ALL-AMERICAN TERM TRUST INC.
TRUST 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,
Mitchell Hutchins
Asset Management, Inc.
Total Net Assets:
$190.5 million as of January 31, 1999
Dividend Payments:
Monthly
ALL-AMERICAN TERM TRUST INC.
Portfolio Composition*
(Pie Chart)
Corporates 67.4%
Mortgages 21.5%
Municipals 9.2%
Common Stock, Preferred Stock and Warrants 1.2%
Cash Equivalents 0.7%
*All weightings represent percentages of portfolio assets as of January 31,
1999. The portfolio is actively managed and all holdings are subject to change.
1
<PAGE>
ANNUAL REPORT
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE
For the fiscal year ended January 31, 1999, the Trust (NYSE: AAT) lost 1.42%
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 same period the Trust returned 0.31% 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 $13.90 on January 31, 1999, while its
share price on the New York Stock Exchange was $13.13. During the fiscal year
ended January 31, 1999, the Trust paid dividends from net investment income
totaling $0.99 per share, or approximately 8(cent) per share per month.
PORTFOLIO HIGHLIGHTS
We did not make any significant changes to the Trust's asset allocation since
the semiannual report to shareholders dated July 31, 1998. The Trust's holdings
within the high-grade and high-yield sectors remained largely unchanged as well.
When evaluating potential purchases for the Trust we take into account the
Trust's ever-shortening maturity. With market yields relatively low -- as they
have been for much of the past fiscal year -- bonds that meet the Trust's
maturity constraint tend to feature lower yields than its current holdings.
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. Of course, no assurance can be
given that this will be achieved. 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.
ALL-AMERICAN TERM TRUST INC.
Top Five Sectors*
FNMAs 11.6%
Munipals 9.2%
GNMAs 6.8%
Energy 6.0%
Media 5.7%
*All weightings represent percentages of portfolio assets as of January 31,
1999. The portfolio is actively managed and all holdings are subject to change.
2
<PAGE>
For a Quarterly Review on other funds in the PaineWebber Family of Funds,(1)
please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander /s/ Thomas J. Libassi
Margo Alexander Thomas J. Libassi
President and Chief Executive Officer Portfolio Manager
Mitchell Hutchins Asset Management Inc. All-American Term Trust Inc.
/s/ Dennis L. McCauley /s/ Julieanne M. Berry
Dennis L. McCauley Julieanna M. Berry
Chief Investment Officer -- Fixed Income Portfolio Manager
Mitchell Hutchins Asset Management Inc. All-American Term Trust Inc.
/s/ James F. Keegan
James F. Keegan
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 fiscal year ended January 31, 1999, and reflects our views
at the time of writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your Financial
Advisor regarding your personal investment program.
3
<PAGE>
All-American Term Trust Inc.
Portfolio of Investments January 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- --------------- --------------- ---------------
<S> <C> <C> <C>
Collateralized Mortgage Obligations--0.53%
$ 6,115 FNMA Trust 1993-41, Class H* (cost--$1,042,805) ... 03/25/23 7.000% $ 1,011,821
---------------
Federal Home Loan Mortgage Corporation Certificates--3.32%
6,159 FHLMC ARM (cost--$6,282,431) ...................... 03/01/24 7.364 6,316,122
---------------
Federal National Mortgage Association Certificates--14.13%
5,000 FNMA .............................................. 04/15/03 5.750 5,146,145
20,000 FNMA ARM .......................................... TBA 6.000 19,791,520
1,957 FNMA CMT ARM ...................................... 03/01/23 7.422 1,981,641
---------------
Total Federal National Mortgage Association Certificates
(cost--$27,226,457) ................................................. 26,919,306
---------------
Government National Mortgage Association Certificates--8.35%
15,644 GNMA II ARM (cost--$15,864,207) ................... 08/20/23 to 10/20/24 6.125 to 6.625 15,904,168
---------------
Corporate Bonds--77.07%
Automotive--0.49%
1,000 HDA Parts Systems Incorporated** .................. 08/01/05 12.000 930,000
---------------
Banking--3.22%
6,000 Providian National Bank ........................... 03/15/03 6.700 6,134,262
---------------
Broker/Dealer--1.06%
2,000 Goldman Sachs Group L.P. .......................... 02/01/03 6.250 2,014,560
---------------
Cable--4.59%
3,500 International CableTel Incorporated ............... 04/15/05 12.750+ 3,255,000
5,000 Telecommunications Incorporated ................... 01/15/03 8.250 5,496,980
---------------
8,751,980
---------------
Communications-Fixed--2.90%
2,110 GST USA Incorporated .............................. 12/15/05 13.875+ 1,445,350
4,000 Hyperion Telecommunications Incorporated .......... 04/15/03 13.000+ 3,040,000
1,000 PSI Net Incorporated .............................. 02/15/05 10.000 1,030,000
---------------
5,515,350
---------------
Consumer Manufacturing--0.98%
1,025 Apparel Ventures Incorporated ..................... 12/31/00 12.250 917,375
1,000 Decora Industries Incorporated .................... 05/01/05 11.000 945,000
---------------
1,862,375
---------------
Energy--7.30%
6,000 Enron Corporation ................................. 04/01/03 9.125 6,662,724
2,000 Northern Offshore ASA** ........................... 05/15/05 10.000 1,000,000
5,000 R & B Falcon Corporation .......................... 04/15/03 6.500 4,645,990
6,000 TransAmerican Energy Corporation .................. 06/15/02 13.000+ 1,605,000
---------------
13,913,714
---------------
Entertainment--1.06%
2,500 Discovery Zone Incorporated(a) .................... 08/01/02 13.500 375,000
588 Discovery Zone Incorporated**(a) .................. 05/01/02 13.500 470,400
2,000 Silver Cinemas Incorporated ....................... 04/15/05 10.500 1,180,000
---------------
2,025,400
---------------
</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)
Finance--3.21%
$ 4,000 General Motors Acceptance Corporation ............. 01/22/03 5.875% $ 4,037,896
2,000 Reliance Group Holdings Incorporated .............. 11/15/00 9.000 2,078,440
---------------
6,116,336
---------------
Food & Beverage--6.45%
2,375 Iowa Select Farms L.P.** .......................... 12/01/05 10.750 1,947,500
3,000 Mrs. Fields Original Cookies Incorporated ......... 12/01/04 10.125 2,880,000
6,000 Nabisco Incorporated .............................. 02/01/03(b) 6.125 5,911,194
1,500 Packaged Ice Incorporated ......................... 02/01/05 9.750 1,552,500
---------------
12,291,194
---------------
Freight, Air, Sea & Land--3.11%
5,500 Airborne Freight Corporation ...................... 12/15/02 8.875 5,928,010
---------------
General Industrial--3.83%
2,000 J.B. Poindexter & Company Incorporated ............ 05/15/04 12.500 1,960,000
5,000 Tenneco Incorporated .............................. 10/01/02 8.075 5,337,025
---------------
7,297,025
---------------
Healthcare--2.68%
5,000 Tenet Healthcare Corporation ...................... 01/15/03 7.875 5,112,500
---------------
Hotels, Lodging--2.16%
4,000 Hilton Hotels Corporation ......................... 07/15/02 7.700 4,112,940
---------------
Insurance--3.81%
7,000 Prudential Insurance Company of America ........... 04/15/03 6.875 7,262,962
---------------
Media--6.91%
4,000 InterAct Systems Incorporated ..................... 08/01/03 14.000+ 1,640,000
9,000 News America Holdings Incorporated ................ 02/01/03 8.625 9,986,004
2,000 Source Media Incorporated ......................... 11/01/04 12.000 1,540,000
---------------
13,166,004
---------------
Metals, Mining--0.80%
1,500 Easco Corporation ................................. 03/15/01 10.000 1,518,750
---------------
Packaging--2.24%
2,000 Grupo Industrial Durango S.A. ..................... 07/15/01 12.000 1,710,000
3,000 Vicap, S.A. de C.V. ............................... 05/15/02 10.250 2,550,000
---------------
4,260,000
---------------
Real Estate--0.52%
1,000 Hovnanian K Enterprises Incorporated .............. 04/15/02 11.250 995,000
---------------
Restaurants--1.71%
3,625 American Restaurant Group Incorporated ............ 02/15/03 11.500 3,262,500
---------------
Service--1.07%
2,000 Sullivan Graphics Incorporated .................... 08/01/05 12.750 2,030,000
---------------
Steel/Oil--3.30%
6,000 USX Corporation MTN ............................... 08/05/02 7.990 6,294,000
---------------
</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)
Technology--5.56%
$ 2,000 Ampex Corporation++ ............................... 03/15/03 12.000% $ 2,080,000
3,000 Comdisco Corporation MTN .......................... 01/28/02 9.500 3,263,688
5,000 Electronic Retailing Systems International ........ 02/01/04 13.250+ 1,750,000
3,500 Samsung Electronics America Incorporated** ........ 05/01/03 9.750 3,500,000
---------------
10,593,688
---------------
Tobacco--4.14%
6,500 Phillip Morris Companies Incorporated ............. 01/15/03 7.250 6,846,060
1,000 RJR Nabisco Incorporated .......................... 12/01/02 8.625 1,032,164
---------------
7,878,224
---------------
Transportation--0.43%
850 Eletson Holdings Incorporated ..................... 11/15/03 9.250 811,750
---------------
Transportation, Non-Air--1.10%
2,000 Stena AB .......................................... 12/15/05 10.500 2,085,000
---------------
Utilities--2.44%
2,000 Calpine Corporation ............................... 02/01/04 9.250 2,070,000
2,500 Niagara Mohawk Power Corporation .................. 10/01/02 7.250 2,574,050
---------------
4,644,050
---------------
Total Corporate Bonds (cost--$158,379,691) .......................... 146,807,574
---------------
Convertible Bonds--5.33%
Communications--0.20%
420 GST Telecommunciations Incorporated ............... 12/15/05 13.875+ 386,400
---------------
Gaming--1.05%
2,000 Argosy Gaming Corporation ......................... 06/01/01 12.000 2,010,000
---------------
Service--2.54%
4,500 Corporate Express Incorporated .................... 07/01/00 4.500 3,870,000
1,000 Waste Systems International Incorporated** ........ 05/13/05 7.000 962,500
---------------
4,832,500
---------------
Technology--1.54%
3,000 Softkey International Incorporated ................ 11/01/00 5.500 2,928,750
---------------
Total Convertible Bonds (cost--$10,164,107) ......................... 10,157,650
---------------
Zero Coupon Municipal Securities(1)--11.21%
650 Bolingbrook Illinois Park District ................ 01/01/03 5.475 557,551
995 Cook County Illinois High School District ......... 12/01/02 6.124 858,755
4,500 Houston Texas Independent School District ......... 08/15/02 5.200 to 5.250 3,940,650
7,000 Houston Texas Water & Sewer ....................... 12/01/02 5.050 6,057,450
1,000 Maricopa County Arizona School District ........... 01/01/02 5.300 898,660
3,895 NorthEast Independent School District Texas ....... 02/01/03 5.150 3,338,794
6,000 San Antonio Texas Electric & Gas .................. 02/01/03 5.150 to 5.900 5,143,200
650 William County Illinois Community School District . 12/15/02 6.024 560,098
---------------
Total Zero Coupon Municipal Securities (cost--$20,210,432) .......... 21,355,158
---------------
</TABLE>
6
<PAGE>
All-American Term Trust Inc.
<TABLE>
<CAPTION>
Number of
Shares Value
- --------- ---------------
<S> <C>
Common Stocks(a)--1.19%
Gaming--0.02%
30,000 Hollywood Casino Corporation ...................................................... $ 40,313
---------------
Retail--1.17%
261,250 Samuels Jewelers Incorporated++ ................................................... 2,220,625
---------------
Total Common Stocks (cost--$2,340,625) .............................................................. 2,260,938
---------------
Preferred Stock(a)--0.00%
Energy--0.00%
57,830 TCR Holdings (cost--$3,438) ...................................................... 3,470
---------------
Number of
Warrants
- -----------
Warrants(a)--0.23%
Consumer Manufacturing--0.00%
525 AVI Holdings Incorporated ......................................................... 2,622
---------------
Entertainment--0.00%
22,492 Discovery Zone Incorporated ....................................................... 225
---------------
Food & Beverage--0.08%
1,500 Packaged Ice Incorporated ......................................................... 150,000
---------------
General Industrial--0.01%
2,000 SabreLiner Corporation ............................................................ 30,000
---------------
Media--0.01%
4,000 InterAct Systems Incorporated ..................................................... 16,000
---------------
Technology--0.13%
68,000 Ampex Corporation ................................................................. 225,080
3,000 Electronic Retailing Systems International ........................................ 15,000
---------------
240, 080
---------------
Total Warrants (cost--$281,005) ..................................................................... 438,927
---------------
</TABLE>
7
<PAGE>
All-American Term Trust Inc.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- --------------- --------------- ---------------
<S> <C> <C> <C>
Repurchase Agreement--0.90%
$ 1,722 Repurchase Agreement dated 01/29/99 with
State Street Bank & Trust Company, collateralized
by $1,215,000 U.S. Treasury Bonds, 8.875% due
08/15/17 (value--$1,763,269);
proceeds: $1,722,674 (cost--$1,722,000) ............. 02/01/99 4.700% $ 1,722,000
---------------
Total Investments (cost--$243,517,198)--122.26% ......................... 232,897,134
Liabilities in excess of other assets--(22.26)% ......................... (42,399,505)
---------------
Net Assets--100.00% ..................................................... $ 190,497,629
===============
</TABLE>
- ----------
* Planned amortization class interest only security. This security entitles
the holder to receive interest payments from an underlying pool of
mortgages. The risk associated with this security is related to the speed
of principal paydowns outside a designated range. High prepayments would
result in a smaller amount of interest being received and cause the yield
to decrease. Low prepayments would result in a greater amount of interest
being received and cause the yield to increase.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
++ Illiquid security representing 2.26% of net assets.
(a) Non-income producing securities.
(b) Maturity date reflects mandatory put date.
(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, 1999.
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.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1999
<S> <C>
Assets:
Investments in securities, at value (cost--$243,517,198) ....... $232,897,134
Interest receivable ............................................ 3,430,822
Other assets ................................................... 2,372
------------
Total assets ................................................... 236,330,328
------------
Liabilities:
Payable for investments purchased .............................. 44,327,356
Payable to custodian ........................................... 1,096,510
Payable to investment adviser and administrator ................ 145,361
Accrued expenses and other liabilities ......................... 263,472
------------
Total liabilities .............................................. 45,832,699
------------
Net Assets:
Capital Stock--$0.001 par value; 100,000,000 shares authorized;
13,706,667 shares issued and outstanding .................... 205,571,205
Undistributed net investment income ............................ 6,669,223
Accumulated net realized losses from investment transactions ... (11,122,735)
Net unrealized depreciation on investments ..................... (10,620,064)
------------
Net assets applicable to shares outstanding $190,497,629
============
Net asset value per share ...................................... $13.90
======
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
January 31, 1999
----------------
<S> <C>
Investment income:
Interest ............................................................. $17,180,822
-----------
Expenses:
Investment advisory and administration ............................... 1,800,461
Custody and accounting ............................................... 122,235
Reports and notices to shareholders .................................. 117,004
Legal and audit ...................................................... 57,094
Transfer agency fees ................................................. 32,270
Directors' fees ...................................................... 10,500
Amortization of organizational expenses .............................. 3,654
Other expenses ....................................................... 35,953
-----------
2,179,171
-----------
Net investment income ................................................ 15,001,651
-----------
Realized and unrealized losses from investment activities:
Net realized loss from investment transactions ....................... (1,596,043)
Net change in unrealized appreciation/depreciation of investments .... (16,150,151)
-----------
Net realized and unrealized loss from investment activities .......... (17,746,194)
-----------
Net decrease in net assets resulting from operations ................. $(2,744,543)
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years
Ended January 31,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
From operations:
Net investment income ......................................................... $15,001,651 $15,760,268
Net realized gain (loss) from investments ..................................... (1,596,043) 3,046,710
Net change in unrealized appreciation/depreciation of investments ............. (16,150,151) 2,682,977
-------------- -------------
Net increase (decrease) in net assets resulting from operations ............... (2,744,543) 21,489,955
-------------- -------------
Dividends to shareholders from:
Net investment income ......................................................... (13,569,600) (13,980,800)
-------------- -------------
Net increase (decrease) in net assets ......................................... (16,314,143) 7,509,155
Net assets:
Beginning of year ............................................................. 206,811,772 199,302,617
-------------- -------------
End of year (including undistributed net investment income
of $6,669,223 and $4,850,592, respectively) ................................ $190,497,629 $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 Year
Ended
January 31, 1999
----------------
<S> <C>
Cash flows provided by operating activities:
Interest received ............................................. $ 13,205,363
Expenses paid ................................................. (1,098,808)
Purchase of short-term portfolio investments, net ............. (907,000)
Purchases of long-term portfolio investments .................. (917,572,443)
Sales of long-term portfolio investments ...................... 919,940,909
----------------
Net cash flows provided by operating activities ............... 13,568,021
----------------
Cash flows used for financing activities:
Dividends paid to shareholders ................................ (13,569,600)
----------------
Net decrease in cash .......................................... (1,579)
Cash at beginning of year ..................................... 1,579
----------------
Cash at end of year $ 0
================
Reconciliation of net decrease in net assets resulting from operations to net
cash flows provided by operating activities:
Net decrease in net assets resulting from operations .......... $(2,744,543)
Decrease in investments, at value ............................. 52,378,353
Decrease in receivable for investments sold ................... 3,883,326
Increase in interest receivable ............................... (358,052)
Amortization of deferred organizational expenses .............. 3,654
Decrease in other assets ...................................... 988
Decrease in payable for investments purchased ................. (40,671,426)
Decrease in payable to investment adviser and administrator ... (12,235)
Increase in payable to custodian .............................. 1,096,510
Decrease in accrued expenses and other liabilities ............ (8,554)
----------------
Total adjustments ............................................. 16,312,564
----------------
Net cash flows provided by operating activities $13,568,021
================
</TABLE>
See accompanying notes to financial statements
12
<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 will terminate on or about January 31, 2003. Organizational costs were
deferred and have been amortized on the straight line method over a period not
exceeding 60 months from the date the Trust commenced operations.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the Trust's 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
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, 1999 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1999, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ....... $ 5,353,215
Gross depreciation (investments having an excess of cost over value) ...... (15,973,279)
------------
Net unrealized depreciation of investments ................................. $(10,620,064)
============
</TABLE>
For the year ended January 31, 1999, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $876,901,017 and
$916,057,583, 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, 1999, Mitchell Hutchins
owned 8,587 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, 1999, the Trust had a net capital loss carryforward of
$10,895,746 which will expire by 2007 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, 1999, the Fund's undistributed net investment
income was increased by $386,580, accumulated net realized losses from
investment transactions were increased by $360,135 and capital stock was
decreased by $26,445.
14
<PAGE>
ALL-AMERICAN TERM TRUST INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
For the Years Ended January 31,
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......................... $ 15.09 $ 14.54 $ 14.37 $ 13.31 $ 15.30
----------- ----------- ----------- ----------- -----------
Net investment income ....................................... 1.09 1.15 1.10 1.19 1.24
Net realized and unrealized gains (losses) from investments (1.29) 0.42 0.13 0.99 (2.01)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from investment operations .......... (0.20) 1.57 1.23 2.18 (0.77)
----------- ----------- ----------- ----------- -----------
Dividends from net investment income ........................ (0.99) (1.02) (1.06) (1.12) (1.22)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ................................ $ 13.90 $ 15.09 $ 14.54 $ 14.37 $ 13.31
=========== =========== =========== =========== ===========
Per share market value, end of year $ 13.13 $ 14.06 $ 12.75 $ 13.25 $ 12.13
=========== =========== =========== =========== ===========
Total investment return (1) 0.31% 18.93% 4.59% 19.34% (7.13)%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of year (000's) ............................. $ 190,498 $ 206,812 $ 199,303 $ 196,997 $ 182,437
Expenses to average net assets .............................. 1.09% 1.10% 1.18% 1.05% 1.05%
Net investment income to average net assets ................. 7.50% 7.81% 7.70% 8.49% 8.95%
Portfolio turnover rate ..................................... 337% 398% 391% 415% 383%
</TABLE>
- ----------
(1) Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day of each year reported and a sale
at the current market price on the last day of each year 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.
15
<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, 1999, 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, 1999 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, 1999, 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.
Ernest Young LLP
New York, New York
March 17,
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
TAX INFORMATION (unaudited)
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, 1999) 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 $0.99 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 1999. 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 2000. Shareholders are advised to consult their
own tax advisers with respect to the tax consequences of their investment in the
Trust.
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 $60.3 billion in assets
under management as of February 28, 1999.
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.
The Trust's board of directors amended the Trust's bylaws to require that
the Trust receive notice of board nominations or proposals that any shareholder
wishes to be considered at an annual or special shareholder meeting. This notice
will give the Trust's management an opportunity to inform shareholders of and
respond to those nominations and proposals. The amendment will be effective for
meetings that occur after the Trust's 1999 annual meeting.
The amended bylaws require that the Trust receive notice of a nomination or
proposal for an annual meeting at least 120 days in advance of the anniversary
of the date that the Trust's proxy statement for the previous year's annual
meeting was first released to shareholders. For a special shareholder meeting,
the Trust must receive notice within seven days of the date on which notice of
the special meeting is first given to shareholders. In order to make a
nomination or proposal to be considered at the 2000 annual meeting of
shareholders, the Trust must receive notice of that nomination or proposal no
later than December 1, 1999.
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
17
<PAGE>
ALL-AMERICAN TERM TRUST INC.
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. In
addition, issuers of securities in which the Trust invests may be adversely
affected by year 2000 related problems. This could have an impact on the value
of the Trust's investments and share price.
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.
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 L. 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>
- ---------------------
ALL-AMERICAN
TERM TRUST INC.
ANNUAL REPORT
JANUARY 31, 1999
PaineWebber
(Copyright)1999 PaineWebber Incorporated
Member SIPC
