<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
March 15, 2000
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, 2000.
MARKET REVIEW
- --------------------------------------------------------------------------------
Slightly more than a year ago, the world seemed on the brink of a precipice. It
all began in August 1998 with a Russian devaluation and ensuing default, which
exposed the excessive leverage in the system (hedge funds and dealers). A global
margin call caused the capital markets to seize up and a massive
"flight-to-quality" into U.S. Treasurys occurred. Investors braced for a global
recession or depression marked by rampant deflation. In January of 1999, fears
of deflation turned to fears of inflation as evidence mounted that the global
economy was not collapsing but actually rebounding. With the resumption of
global growth and the continuation of one of the longest U.S. expansions on
record, interest rates began to rise, creating difficult conditions for the bond
markets.
Faced with an extremely tight labor market and accelerating global growth, the
Federal Reserve (the Fed) raised the Federal Funds rate three times during 1999,
by 25 basis points each time (bps; a basis point equals one one-hundredth of one
percent). These increases reversed the 75 bps of emergency easings engineered in
late 1998 to stave off the global financial crisis. The 30-year Treasury bond's
yield increased from 5.18% on January 31, 1999 to 6.49% on January 31, 2000, one
of its worst performances ever. At the same time, short-term rates rose
significantly, with 90-day T-bills moving from a yield equivalent of 4.51% at
the beginning of the fiscal year, to a yield of 5.69% at its close.
In January 2000, the U.S. Treasury announced a larger than expected $30 billion
repurchase of Treasury securities over the calendar year, focused primarily on
longer maturity debt. Demand for long-term Treasurys surged briefly, causing
widespread losses among investors who had used Treasury securities to hedge
their trading positions. Spreads in the high-grade (e.g., mortgage backed and
corporate) bond markets widened, resulting in price declines for those markets.
(The spread is the difference in yield or income securities must pay to
compensate for their greater risk relative to U.S. Treasurys.)
ALL-AMERICAN TERM TRUST INC.
PROFILE
Investment Objective:
High current income, consistent
with capital preservation. The
Trust will terminate on or about
January 31, 2003
Portfolio Managers:
Julieanna M. Berry and
James F. Keegan,
Mitchell Hutchins
Asset Management Inc.
Commencement:
March 1, 1993
NYSE Symbol:
AAT
Dividend Payments:
Monthly
1
<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE AND HIGHLIGHTS
Average Annual Returns, Periods Ended 1/31/00(1)
<TABLE>
<CAPTION>
Since Inception
6 Mos.(2) 1 Yr. 5 Yrs. 3/1/93
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Return(3) 0.84% -0.04% 6.89% 5.44%
Market Price Return(4) -0.66% -2.99% 7.67% 4.71%
- -----------------------------------------------------------------------------------------------
Share Price, Dividend and Yield 1/31/00
- -----------------------------------------------------------------------------------------------
Net Asset Value $13.02
Market Price $11.88
12-Mo. Dividend $0.87
Market Yield(5) 6.06%
IPO Yield(6) 4.80%
- -----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Portfolio Characteristics* 1/31/00 7/31/99
- -----------------------------------------------------------------------------------------------
Weighted Average Maturity 5.00 yrs 5.76 yrs
Weighted Average Duration 3.22 yrs 3.31 yrs
Net Assets ($mm) $178.5 $182.6
Leverage 28.43% 30.21%
- -----------------------------------------------------------------------------------------------
</TABLE>
The Trust benefited from its shorter duration (a measure of a bond portfolio's
sensitivity to interest-rate changes) in a rising rate environment, as well as
the general tightening that occurred in the corporate market. In the finance
sector, current holdings include Lehman Brothers (2.4%) and Goldman Sachs
(0.8%).* A recent addition is Finova Capital Corp. (1.6%), a commercial-finance
company that caters to the small-to-midsize business group. In the cable/media
sector, the Trust continues to find value in News America Holdings (3.7%), a
leading international media company. In the energy sector, the Trust increased
its exposure to Enron Corp. through its investment in Osprey Trust (1.6%).
Duration is constrained at about three years, since the Trust will terminate on
or about January 31, 2003.
(1) Returns do not reflect any commissions and are not representative of the
performance of an individual investment. The Trust's share price and
investment return will vary so that an investor's shares may be worth more
or less than their original cost. Past performance is no guarantee of
future results.
(2) NAV and market price returns for periods of less than one year are not
annualized.
(3) NAV return assumes, for illustration only, that dividends were reinvested
at the net asset value on the payable dates.
(4) Market price return assumes dividends were reinvested under the Dividend
Reinvestment Plan.
(5) Market yield is calculated by multiplying the January distribution by 12
and dividing by the Trust's closing price on January 31, 2000.
(6) IPO yield is calculated by multiplying the January distribution by 12 and
dividing by the initial public offering price.
* Weightings represent percentages of portfolio assets as of January 31,
2000, unless indicated otherwise. The Trust's portfolio is actively managed
and its composition will vary over time.
Portfolio Composition*
1/31/00
Corporates 57.1%
ARMs/Mortgages 28.4%
Municipals 8.7%
Treasurys/Agencies 2.0%
Cash & Cash Equivalents 3.8%
7/31/99
Corporates 58.6%
ARMs/Mortgages 30.2%
Municipals 8.2%
Treasurys/Agencies 1.9%
Cash & Cash Equivalents 1.1%
2
<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
MANAGEMENT CHANGE
Effective February 2000, James F. Keegan and Julieanna Berry are responsible for
the day-to-day management of the Trust's portfolio. Mr. Keegan is a senior vice
president of Mitchell Hutchins. Prior to joining Mitchell Hutchins in March
1996, Mr. Keegan was a director with Merrion Group, L.P. Ms. Berry is a first
vice president of Mitchell Hutchins, where she has been employed as a portfolio
manager since 1989.
Credit Quality* 1/31/00 7/31/99
- ---------------------------------------------------------------------------
AAA 43.0% 41.4%
AA 0.8 2.0
A 11.6 9.8
BBB 22.2 21.7
BB 7.4 8.3
B 9.5 11.9
Non-Rated 5.2 4.6
Below B 0.3 0.3
- ----------------------------------------------------------------------------
Total 100.0 100.0
OUTLOOK
- --------------------------------------------------------------------------------
With Y2K apparently a non-event, we think the Fed will focus initially on its
near-term chore of mopping up the flood of liquidity it provided to the banking
system ahead of the year-end changeover. Beyond that, however, is the more
enduring question of how much growth the economy can enjoy without re-igniting
inflation. Interest rates appear headed higher, with unemployment at 30-year
lows, consumer confidence near record highs, equity markets ebullient and
economic expansion underway around much of the globe.
At its most recent Open Market Committee meeting in March the Fed again raised
rates by 25 bps. We expect an active Fed and rising rates across the yield curve
in the first half of 2000. We look for moderating economic growth in the second
half of the year, and believe interest rates will recede in response to slowing
growth and the absence of real inflationary pressure. In this environment, we
believe the spread sectors--mortgages, agencies and investment-grade corporate
bonds--will perform well.
* Weightings represent percentages of portfolio assets as of January 31,
2000, unless indicated otherwise. The Trust's portfolio is actively managed
and its composition will vary over time.
Top Five Sectors*
1/31/00
Finance/Banking 13.9%
Municipals 8.6%
Energy 7.6%
Cable/Media 6.8%
Diversified Industrials 4.3%
Top Five Sectors*
7/31/99
Finance/Banking 10.1%
Municipals 8.2%
Energy 7.0%
Cable/Media 6.9%
Diversified Industrials 6.0%
3
<PAGE>
ALL-AMERICAN TERM TRUST INC. ANNUAL REPORT
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 Review on All-American
Term Trust Inc. or a fund in the PaineWebber Family of Funds,7 please contact
your Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive Officer
Mitchell Hutchins Asset Management Inc.
/s/ Dennis L. McCauley
DENNIS L. MCCAULEY
Chief Investment Officer-- Fixed Income
Mitchell Hutchins Asset Management Inc.
/s/ James F. Keegan
JAMES F. KEEGAN
Portfolio Manager
All-American Term Trust Inc.
/s/ Brian M. Storms
BRIAN M. STORMS
President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc.
/s/ Julieanna M. Berry
JULIEANNA M. BERRY
Portfolio Manager
All-American Term Trust Inc.
(7) 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, 2000, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
4
<PAGE>
ALL-AMERICAN TERM TRUST INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 2000
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- ----------
<S> <C> <C> <C>
Collateralized Mortgage Obligations--0.38%
$ 6,115 FNMA Trust 1993-41, Class H* (cost--$683,654) ........ 03/25/23 7.000% $ 672,478
-----------
Federal Home Loan Mortgage Corporation Certificates--8.17%
14,361 FHLMC ARM (3) (cost--$14,840,969) ................... 02/01/22 6.914 14,587,346
-----------
Federal National Mortgage Association Certificates--15.70%
8,243 FNMA ARM ............................................. 11/01/23 7.304 8,481,600
20,000 FNMA COFI ARM ........................................ TBA 6.023 19,543,750
-----------
Total Federal National Mortgage Association Certificates
(cost--$28,026,258) ............................................ 28,025,350
-----------
Government National Mortgage Association Certificates--15.45%
27,382 GNMA II ARM (cost--$27,676,089) ..................... 05/20/23 to 08/20/24 6.375 to 6.750 27,572,641
-----------
U. S. Government Agency Obligations--2.69%
5,000 FNMA (3) (cost--$5,110,530) ......................... 04/15/03 5.750 4,803,390
-----------
Corporate Bonds--73.39%
Automotive--0.51%
1,000 HDA Parts Systems Incorporated ....................... 08/01/05 12.000 905,000
-----------
Banking--5.92%
3,000 Capital One Bank ..................................... 02/15/03 6.375 2,878,824
2,000 PNC Funding Corporation .............................. 03/01/03 6.875 1,955,324
6,000 Providian National Bank .............................. 03/15/03 6.700 5,727,540
-----------
10,561,688
-----------
Broker/Dealer--4.32%
2,000 Goldman Sachs Group Incorporated ..................... 02/01/03 6.250 1,920,446
6,000 Lehman Brothers Holdings Incorporated ................ 04/01/03 to 04/15/03 6.250 to 7.250 5,785,832
-----------
7,706,278
-----------
Cable--4.24%
2,000 Adelphia Communications Corporation .................. 10/01/02 9.250 1,995,000
3,500 International CableTel Incorporated .................. 04/15/05 12.750+ 3,535,000
2,000 Telecommunications Incorporated ..................... 01/15/03 8.250 2,038,130
-----------
7,568,130
-----------
Communications-Fixed--3.43%
2,110 GST USA Incorporated ................................. 12/15/05 13.875+ 1,645,800
5,000 Hyperion Telecommunications Incorporated ............. 04/15/03 13.000+ 4,475,000
-----------
6,120,800
-----------
Consumer Manufacturing--0.48%
1,000 Decora Industries Incorporated ....................... 05/01/05 11.000 860,000
-----------
Energy--5.78%
3,000 Enron Corporation .................................... 04/01/03 9.125 3,109,965
2,000 Northern Offshore ASA ................................ 05/15/05 10.000 1,180,000
1,715 Orion Refining Corporation** ......................... 11/15/04 10.000 1,543,809
5,000 R & B Falcon Corporation ............................. 04/15/03 6.500 4,475,000
-----------
10,308,774
-----------
</TABLE>
5
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- ----------
<S> <C> <C> <C>
Corporate Bonds (continued)
Finance--7.55%
$ 4,000 Finova Capital Corporation MTN ....................... 02/18/03 6.110% $3,841,068
4,000 General Motors Acceptance Corporation ................ 01/22/03 5.875 3,814,928
4,000 Osprey Trust Incorporated ............................ 01/15/03 8.310 3,974,664
2,000 Reliance Group Holdings Incorporated ................. 11/15/00 9.000 1,850,000
-----------
13,480,660
-----------
Food & Beverage--6.23%
3,375 Iowa Select Farms L.P.** ............................. 12/01/05 10.750 1,687,500
3,000 Mrs. Fields Original Cookies Incorporated ............ 12/01/04 10.125 2,400,000
6,000 Nabisco Incorporated ................................. 02/01/03(b) 6.125 5,689,770
1,500 Packaged Ice Incorporated ............................ 02/01/05 9.750 1,335,000
-----------
11,112,270
-----------
Freight, Air, Sea & Land--3.08%
5,500 Airborne Freight Corporation ......................... 12/15/02 8.875 5,497,580
-----------
General Industrial--1.06%
2,000 J.B. Poindexter & Company Incorporated .............. 05/15/04 12.500 1,890,000
-----------
Healthcare--3.24%
6,000 Tenet Healthcare Corporation ......................... 01/15/03 7.875 5,790,000
-----------
Hotels, Lodging--2.20%
4,000 Hilton Hotels Corporation ............................ 07/15/02 7.700 3,924,932
-----------
Insurance--3.82%
7,000 Prudential Insurance Company of America .............. 04/15/03 6.875 6,812,085
-----------
Media--5.76%
2,000 InterAct Systems Incorporated** ...................... 08/01/03 14.000 1,100,000
9,000 News America Holdings Incorporated ................... 02/01/03 8.625 9,184,752
-----------
10,284,752
-----------
Packaging--1.12%
2,000 Grupo Industrial Durango S.A. ........................ 07/15/01 12.000 2,005,000
-----------
Restaurants--1.62%
3,625 American Restaurant Group Incorporated ............... 02/15/03 11.500 2,890,938
-----------
Service--1.81%
1,000 Browning Ferris Industries Incorporated .............. 01/15/03 6.100 890,000
1,000 Premier Graphics Incorporated ........................ 12/01/05 11.500 450,000
2,000 Waste Systems International Incorporated # ........... 01/15/06 11.500 1,890,000
-----------
3,230,000
-----------
Steel/Oil--3.35%
6,000 USX Corporation MTN .................................. 08/05/02 7.990 5,978,400
-----------
Technology--2.85%
2,000 Ampex Corporation++ .................................. 03/15/03 12.000 2,010,000
3,000 Comdisco Corporation MTN ............................. 01/28/02 9.500 3,074,742
-----------
5,084,742
-----------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- ----------
<S> <C> <C> <C>
Corporate Bonds (concluded)
Tobacco--3.55%
$ 6,500 Philip Morris Companies Incorporated ................. 01/15/03 7.250% $6,342,518
-----------
Transportation--0.42%
850 Eletson Holdings Incorporated ........................ 11/15/03 9.250 739,500
-----------
Utilities--1.05%
1,890 Niagara Mohawk Power Corporation ..................... 10/01/02 7.250 1,872,022
-----------
Total Corporate Bonds (cost--$139,767,090) ....................... 130,966,069
-----------
Convertible Bonds--3.03%
Communications--0.22%
420 GST Telecommunciations Incorporated .................. 12/15/05 13.875+ 399,000
-----------
Energy--0.83%
2,000 Key Energy Services Incorporated ..................... 09/15/04 5.000 1,480,000
-----------
Service--0.36%
797 Waste Systems International Incorporated ............. 05/13/05 7.000 645,663
-----------
Technology--1.62%
3,000 Softkey International Incorporated ................... 11/01/00 5.500 2,883,750
-----------
Total Convertible Bonds (cost--$5,478,513) ....................... 5,408,413
-----------
Zero Coupon Municipal Securities(1)--12.01%
650 Bolingbrook Illinois Park District ................... 01/01/03 5.475 560,567
995 Cook County Illinois High School District ............ 12/01/02 6.124 863,640
4,500 Houston Texas Independent School District ............ 08/15/02 5.200 to 5.250 3,964,493
7,000 Houston Texas Water & Sewer .......................... 12/01/02 5.050 6,080,900
1,000 Maricopa County Arizona School District .............. 01/01/02 5.300 910,200
3,895 NorthEast Independent School District Texas .......... 02/01/03 5.150 3,342,962
6,000 San Antonio Texas Electric & Gas ..................... 02/01/03 5.150 to 5.900 5,151,870
650 William County Illinois Community School District .... 12/15/02 6.024 563,881
-----------
Total Zero Coupon Municipal Securities (cost--$21,295,335) ....... 21,438,513
-----------
</TABLE>
7
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Number of
Shares Value
------ -----
<S> <C>
Common Stocks(a)--1.47%
Food & Beverage--0.04%
15,356 Packaged Ice Incorporated ..................................................................... $ 71,022
-----------
Gaming--0.07%
30,000 Hollywood Casino Corporation .................................................................. 127,500
-----------
Retail--1.14%
261,250 Samuels Jewelers Incorporated++(2) ............................................................ 2,024,687
-----------
Service--0.10%
43,575 Waste Systems International Incorporated ...................................................... 179,747
-----------
Technology--0.12%
68,000 Ampex Corporation ............................................................................. 221,000
-----------
Total Common Stocks (cost-- $2,831,188) ................................................................... 2,623,956
-----------
Preferred Stocks(a)--0.59%
Energy--0.03%
62,298 Orion Refining Corporation .................................................................... 42,550
-----------
Media--0.56%
4,000 InterAct Systems Incorporated** ............................................................... 1,000,000
-----------
Total Preferred Stocks (cost--$1,670,156) ................................................................. 1,042,550
-----------
Number of
Warrants
---------
Warrants(a)--0.08%
General Industrial--0.01%
2,000 SabreLiner Corporation ........................................................................ 20,000
-----------
Media--0.06%
4,000 InterAct Electronic Marketing Incorporated .................................................... 40
4,000 InterAct Systems Incorporated ................................................................. 100,000
-----------
100,040
-----------
Service--0.01%
30,000 Waste Systems International Incorporated** .................................................... 22,500
-----------
Technology--0.00%
3,000 Electronic Retailing Systems International .................................................... 3,000
-----------
Total Warrants (cost--$143,976) ........................................................................... 145,540
-----------
</TABLE>
8
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
--------- -------- -------- ---------
<S> <C> <C> <C>
Short-Term U.S. Government Agency Obligations--1.40%
$ 2,500 Federal Home Loan Bank Discount Notes (cost--$2,491,597) 02/23/00 5.500%@ $2,491,597
-------------
Repurchase Agreement--3.24%
5,785 Repurchase Agreement dated 01/31/00 with Dresdner Bank
collateralized by $5,786,000 U.S. Treasury Notes,
6.500% due 08/15/05 (value--$5,901,489); proceeds: $5,785,913
(cost--$5,785,000) 02/01/00 5.680 5,785,000
-------------
Total Investments (cost--$255,800,355)--137.60% 245,562,843
Liabilities in excess of other assets--(37.60)% (67,098,896)
-------------
Net Assets--100.00% $ 178,463,947
=============
</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 2.26% of net assets
@ Yield to maturity for discounted securities.
(a) Non-income producing securities.
(b) Maturity date reflects mandatory put date.
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
(1) Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
(2) Security is being fair valued by a management committee under the direction
of the board of directors.
(3) Security, or a portion thereof, was pledged as collateral for the reverse
repurchase agreement.
ARM Adjustable rate mortgage, the interest rate shown is the current rate at
January 31, 2000.
COFI Cost-of-Funds Index.
MTN Medium Term Note.
TBA (To Be Assigned) Securities are purchased on a forward commitment basis
with approximate principal amount (generally +/-1.0%) and generally stated
maturity date. The actual principal amount and maturity date will be
determined upon settlement when specific mortgage pools are assigned.
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost--$255,800,355) ...................................... $245,562,843
Cash .......................................................................................... 40,048
Interest receivable ........................................................................... 3,449,073
Other assets .................................................................................. 1,458
------------
Total assets .................................................................................. 249,053,422
------------
Liabilities:
Payable for investments purchased ............................................................. 55,889,816
Payable for reverse repurchase agreements ..................................................... 14,304,000
Payable to investment adviser and administrator ............................................... 136,884
Accrued expenses and other liabilities ........................................................ 258,775
------------
Total liabilities ............................................................................. 70,589,475
------------
Net Assets:
Capital Stock--$0.001 par value; 100,000,000 shares authorized;
13,706,667 shares issued and outstanding ................................................... 205,513,337
Undistributed net investment income ........................................................... 8,419,372
Accumulated net realized losses from investment transactions .................................. (25,231,250)
Net unrealized depreciation on investments .................................................... (10,237,512)
------------
Net assets applicable to shares outstanding ................................................... $178,463,947
============
Net asset value per share ..................................................................... $13.02
======
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
January 31, 2000
----------------
<S> <C>
Investment income:
Interest ..................................................................................... $16,222,347
-----------
Expenses:
Investment advisory and administration ....................................................... 1,650,611
Interest expense ............................................................................. 660,500
Custody and accounting ....................................................................... 107,040
Reports and notices to shareholders .......................................................... 75,491
Legal and audit .............................................................................. 63,783
Transfer agency fees ......................................................................... 12,476
Directors' fees .............................................................................. 10,500
Other expenses ............................................................................... 83,224
-----------
2,663,625
-----------
Net investment income ........................................................................ 13,558,722
-----------
Realized and unrealized gains (losses) from investment activities:
Net realized loss from investment transactions ............................................... (14,050,156)
Net change in unrealized appreciation/depreciation of investments ............................ 382,552
-----------
Net realized and unrealized loss from investment activities .................................. (13,667,604)
-----------
Net decrease in net assets resulting from operations ......................................... $(108,882)
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years
Ended January 31,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
From operations:
Net investment income ............................................................ $13,558,722 $15,001,651
Net realized loss from investments ............................................... (14,050,156) (1,596,043)
Net change in unrealized appreciation/depreciation of investments ................ 382,552 (16,150,151)
----------- -----------
Net decrease in net assets resulting from operations ............................. (108,882) (2,744,543)
----------- -----------
Dividends to shareholders from:
Net investment income ............................................................ (11,924,800) (13,569,600)
----------- -----------
Net decrease in net assets ....................................................... (12,033,682) (16,314,143)
Net assets:
Beginning of year ................................................................ 190,497,629 206,811,772
----------- -----------
End of year (including undistributed net investment income
of $8,419,372 and $6,669,223, respectively) ................................... $178,463,947 $190,497,629
============ ============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year
Ended
January 31, 2000
----------------
<S> <C>
Cash flows used in operating activities:
Interest received ........................................................................... $ 13,689,351
Operating expenses paid ..................................................................... (3,125,602)
Interest paid ............................................................................... (646,792)
Purchase of short-term portfolio investments, net ........................................... (6,554,597)
Purchases of long-term portfolio investments ................................................ (804,681,416)
Sales of long-term portfolio investments .................................................... 798,979,904
-------------
Net cash flows used in operating activities ................................................. (2,339,152)
-------------
Cash flows provided by financing activities:
Dividends paid to shareholders .............................................................. (11,924,800)
Increase in reverse repurchase agreements ................................................... 14,304,000
-------------
Net cash flows provided by financing activities ............................................. 2,379,200
-------------
Net increase in cash ........................................................................ 40,048
Cash at beginning of year ................................................................... --
-------------
Cash at end of year ......................................................................... $ 40,048
=============
Reconciliation of net decrease in net assets resulting from operations to net
cash flows used in operating activities:
Net decrease in net assets resulting from operations ........................................ $ (108,882)
-------------
Increase in investments, at value ........................................................... (12,665,709)
Increase in interest receivable ............................................................. (18,251)
Decrease in other assets .................................................................... 914
Increase in payable for investments purchased ............................................... 11,562,460
Decrease in payable to custodian ............................................................ (1,096,510)
Decrease in payable to investment adviser and administrator ................................. (8,477)
Decrease in accrued expenses and other liabilities .......................................... (4,697)
-------------
Total adjustments ........................................................................... (2,230,270)
-------------
Net cash flows used in operating activities ................................................. $(2,339,152)
=============
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
All-American Term Trust Inc. (the "Trust") was incorporated in Maryland on
November 19, 1992 as a closed-end diversified management investment company. The
Trust will terminate on or about January 31, 2003.
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--The Trust calculates its net asset value based on
the current market value for its portfolio securities. The Trust normally
obtains market values for its securities from independent pricing sources.
Independent pricing sources may use reported last sale prices, current market
quotations or valuations from computerized "matrix" systems that derive values
based on comparable securities. Securities traded in the over-the-counter
("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally
are valued at the last sale price on Nasdaq prior to valuation. Other OTC
securities are valued at the last bid price available prior to valuation.
Securities which are listed on U.S. and foreign stock exchanges normally are
valued at the last sale price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser
and administrator of the Trust. If a market value is not available from an
independent pricing source for a particular security, that security is valued at
fair value as determined in good faith by or under the direction of the Trust's
board of directors (the "board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the board
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.
Reverse Repurchase Agreements--The Trust enters into reverse repurchase
agreements with qualified, third party broker-dealers as determined by, and
under the direction of, the board. Interest on the value of reverse repurchase
agreements issued and outstanding is based upon competitive market rates at the
time of issuance. At the time the Trust enters into a reverse repurchase
agreement, it establishes and maintains a segregated account with the Trust's
custodian containing liquid securities having a value not less than the
repurchase price, including accrued interest, of the reverse repurchase
agreement.
The average monthly balance of reverse repurchase agreements outstanding
during the year ended January 31, 2000 was $15,878,600 at a weighted average
interest rate of 5.31%.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 liquidating distribution to its shareholders
in an aggregate amount equal to the net proceeds of such liquidation after
payment of the Trust's expenses and liabilities, including amounts owed on any
outstanding borrowings by the Trust.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Trust to meet
their obligations may be affected by economic developments, including those
particular to a specific industry or region. 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,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 2000, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value over cost) ......... $ 695,891
Gross depreciation (investments having an excess of cost over value) ........ (10,933,403)
------------
Net unrealized depreciation of investments ................................... $(10,237,512)
============
</TABLE>
For the year ended January 31, 2000, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $816,243,876 and
$798,979,904, 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, 2000, Mitchell Hutchins owned
9,263 shares.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, 2000, the Trust had a net capital loss carryforward of
$21,227,537 which will expire by 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. In accordance with U.S. Treasury Regulations, the Trust has elected
to defer $3,674,556 of realized capital losses arising after October 31, 1999.
Such losses are treated for tax purposes as arising on February 1, 2000.
To reflect reclassifications arising from permanent "book/tax" differences
for the year ended January 31, 2000, the Fund's undistributed net investment
income was increased by $116,227, accumulated net realized losses from
investment transactions were increased by $58,359 and capital stock was
decreased by $57,868.
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 13.90 $ 15.09 $ 14.54 $ 14.37 $ 13.31
--------- -------- --------- ----------- ---------
Net investment income ..................................... 0.99 1.09 1.15 1.10 1.19
Net realized and unrealized gains (losses) from investments (1.00) (1.29) 0.42 0.13 0.99
--------- -------- --------- ----------- ---------
Net increase (decrease) from investment operations ........ (0.01) (0.20) 1.57 1.23 2.18
--------- -------- --------- ----------- ---------
Dividends from net investment income ...................... (0.87) (0.99) (1.02) (1.06) (1.12)
--------- -------- --------- ----------- ---------
Net asset value, end of year .............................. $ 13.02 $ 13.90 $ 15.09 $ 14.54 $ 14.37
========= ======== ========= =========== =========
Per share market value, end of year ....................... $ 11.88 $ 13.13 $ 14.06 $ 12.75 $ 13.25
========= ======== ========= =========== =========
Total investment return (1) ............................... (2.99)% 0.31% 18.93% 4.59% 19.34%
========= ======== ========= =========== =========
Ratios/Supplemental Data:
Net assets, end of year (000's) ........................... $ 178,464 $190,498 $ 206,812 $ 199,303 $ 196,997
--------- -------- --------- ----------- ---------
Expenses to average net assets ............................ 1.45%+ 1.09% 1.10% 1.18% 1.05%
Net investment income to average net assets ............... 7.39% 7.50% 7.81% 7.70% 8.49%
Portfolio turnover rate ................................... 320% 337% 398% 391% 415%
Asset coverage++ .......................................... $ 3,553 -- -- -- --
</TABLE>
- ----------
+ Ratio includes 0.36% related to interest expense for the year ended January
31, 2000 which represents the cost of leverage to the Trust.
++ Per $1,000 of reverse repurchase agreements and dollar roll transactions
outstanding.
(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.
17
<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, 2000, 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 auditing standards generally
accepted in the United States. 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 investments owned as of January 31, 2000 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, 2000, 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 accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
March 14, 2000
18
<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, 2000) 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 $0.87 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 2000. 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 2001. 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 $69.5 billion in assets
under management as of February 29, 2000.
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 numerous other publications.
At a meeting held on December 17, 1999, The Trust's board of directors
adopted several amendments to the Trust's bylaws. The bylaws were amended to
specify that, under normal circumstances, a Trustee or officer of the Trust will
serve as Chairman of stockholder meetings. The Chairman has the power to decide
the order of business at stockholding meetings and is able to adopt and enforce
procedures that govern action by meeting participants. The amendments clarify
that the Chairman has the power to adjourn stockholder meetings. The amendments
also increase the percentage of outstanding shares necessary for stockholders to
call a special stockholders meeting from 25% to a majority of the shares that
would be entitled to vote at the meeting.
19
<PAGE>
ALL-AMERICAN TERM TRUST INC.
GENERAL INFORMATION (unaudited)(concluded)
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.
20
<PAGE>
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<PAGE>
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<PAGE>
- -------------------------------------------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman George W. Gowen
Margo N. Alexander Frederic V. Malek
Richard Q. Armstrong Carl W. Schafer
Richard R. Burt Brian M. Storms
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Dennis L. McCauley
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
INVESTMENT ADVISER
AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
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>
Annual Report
- ---------------------------------
ALL-AMERICAN
TERM TRUST INC.
JANUARY 31, 2000
PAINEWEBBER
(C)2000 PaineWebber Incorporated
All rights reserved
Member SIPC
