<PAGE>
ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
September 15, 2000
Dear Shareholder,
We are pleased to present you with the semiannual report for All-American Term
Trust Inc. (the "Trust") for the six-month period ended July 31, 2000.
MARKET REVIEW
--------------------------------------------------------------------------------
Relative stability seems to have settled on the markets, as promising news
recently tempered what was a volatile previous six months. Inflation-adjusted
gross domestic product (GDP) shot up 5.2% in the first quarter of 2000,
following an 8.3% increase the previous quarter, prompting the Federal Reserve
(the "Fed") to once again raise rates in May, this time by one-half percentage
point. This rate increase, however, may have put the final brakes on
inflationary pressures, as signs of moderation have emerged. Productivity rose
5.7% for the 12 months ended June 30, 2000. In response, the Fed left interest
rates unchanged at its August 22 Federal Open Market Committee meeting, although
it warned that any new inflationary pressures would be met by interest rate
increases later on.
As the stock market stumbled during the first half of 2000, bonds began to look
more attractive to investors. The Lehman Brothers Government/Corporate Bond
Index recorded a 5.31% total return for the six-month period ended July 31,
2000. One trouble spot was the increase in high-yield bond defaults during the
period. High-grade spreads widened in response to the Treasury curve inversion
earlier this year when the Treasury announced a $30 billion debt repurchase
program for 2000. Late in the period, spread sectors such as corporate bonds and
mortgage securities recovered slightly as investors became more comfortable with
credit risk. (The spread is the difference in yield or income over Treasurys
that fixed income securities must pay to compensate investors for their greater
risk.)
--------------------------------------------------------------------------------
ALL-AMERICAN TERM TRUST INC.
Investment Objective:
High level of 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. SEMIANNUAL REPORT
PORTFOLIO REVIEW
--------------------------------------------------------------------------------
PERFORMANCE
Average Annual Returns, Periods Ended 7/31/00
Since Inception
6 Mos. 1 Yr. 5 Yrs. 3/1/93
--------------------------------------------------------------------------------
Net Asset Value Return -2.00% -1.18% 4.58% 4.78%
Market Price Return 0.92 0.27 6.46 4.52
--------------------------------------------------------------------------------
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. NAV and
market price returns for periods of less than one year are cumulative. NAV
return assumes, for illustration only, that dividends were reinvested at the net
asset value on the payable dates. Market price return assumes dividends were
reinvested under the Dividend Reinvestment Plan.
Share Price, Dividend and Yield 7/31/00
--------------------------------------------------------------------------------
Net Asset Value $12.40
Market Price $11.63
Annualized Dividend $ 0.72
Market Yield 6.19%
NAV Yield 5.81%
IPO Yield 4.80%
--------------------------------------------------------------------------------
Market yield is calculated by multiplying the current month's distribution by 12
and dividing by the month-end market price. NAV yield is calculated by
multiplying the current month's distribution by 12 and dividing by the month-end
net asset value. IPO yield is calculated by multiplying the current month's
distribution by 12 and dividing by the initial public offering price. Prices and
yields will vary. The Trust is actively managed and its portfolio composition
will vary over time.
PORTFOLIO HIGHLIGHTS
Some of the largest high-yield spreads in years, relative to U.S. Treasurys, had
a negative impact on the Trust's six-month performance. Because the Trust will
terminate on or about January 31, 2003, its weighted average duration (a measure
of a bond fund's sensitivity to interest rates) is constrained. During the
period, the Trust's duration fell 26% to 2.38 years.
The Trust has been increasing its allocation in high-grade instruments in
anticipation of its termination date. Average credit quality has increased as a
result.
During the period, we increased the Trust's positions in the finance/banking and
energy sectors. The Trust's banking holdings focused on BBB-rated credit card
companies such as Providian National and Capital One Bank.
2
<PAGE>
ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
PORTFOLIO STATISTICS
Portfolio Characteristics* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Weighted Average Maturity 4.16 yrs 5.00 yrs
Weighted Average Duration 2.38 yrs 3.22 yrs
Net Assets ($mm) $162.4 $178.5
Leverage (as a % of total assets) 28.38% 28.43%
--------------------------------------------------------------------------------
Portfolio Composition* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Corporates 76.3% 78.6%
ARMs/Mortgages 41.2 39.7
Municipals 13.6 12.0
Treasurys/Agencies 4.2 4.1
Liabilities in Excess of Other Assets -35.3 -34.4
--------------------------------------------------------------------------------
Total 100.0 100.0
Top Five Sectors* 7/31/00 1/31/00
--------------------------------------------------------------------------------
Finance/Banking 13.9% Finance/Banking 13.5%
Municipals 13.6 Municipals 12.0
Cable/Media 8.3 Cable/Media 10.6
Energy 8.0 Energy 6.6
Broker/Dealer 4.8 Diversified Industrials 5.9
--------------------------------------------------------------------------------
Total 48.6 Total 48.6
Credit Quality* 7/31/00 1/31/00
--------------------------------------------------------------------------------
AAA 63.7% 60.0%
AA 1.3 1.1
A 15.3 16.2
BBB 44.6 31.0
BB 9.1 10.3
B 2.4 13.3
Below B 0.4 0.4
Non-Rated & Liabilities in Excess of Other Assets -36.8 -32.3
--------------------------------------------------------------------------------
Total 100.0 100.0
* Weightings represent percentages of net assets as of the dates indicated.
The Trust is actively managed and its composition will vary over time.
3
<PAGE>
ALL-AMERICAN TERM TRUST INC. SEMIANNUAL REPORT
OUTLOOK
--------------------------------------------------------------------------------
Based on the Federal Reserve's recent inaction regarding interest rates, as well
as signs that the economy will settle back into a rhythm of slowing, steadier
growth, we believe that the soft landing most investors and economists were
hoping for will indeed occur. Valuations look more attractive than at any time
in recent months. We believe this combination bodes well for greater stability
in the bond markets.
We expect the corporate and mortgage sectors to outperform and intend to
continue our focus on increasing the Trust's position in high-grade securities.
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,(1) please contact
your Financial Advisor.
Sincerely,
/s/ Margo Alexander
MARGO ALEXANDER
Chairman and Chief Executive Officer
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.
(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 carefullly before investing.
This letter is intended to assist shareholders in understanding how the Trust
performed during the six-month period ended July 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 JULY 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- -------- -------- -----
<S> <C> <C> <C>
Collateralized Mortgage Obligation--0.31%
$ 4,991 FNMA Trust 1993-41, Class H* (cost--$516,511) ................... 03/25/23 7.000% $ 497,003
-----------
Federal Home Loan Mortgage Corporation Certificates--8.53%
13,523 FHLMC ARM(3) (cost--$13,974,964) ............................... 02/01/22 7.391 13,843,660
-----------
Federal National Mortgage Association Certificates--16.76% ..................
7,494 FNMA ARM ........................................................ 11/01/23 7.795 7,684,906
20,000 FNMA COFI ARM ................................................... TBA 6.252 19,531,250
-----------
Total Federal National Mortgage Association Certificates (cost--$27,127,910). 27,216,156
-----------
Government National Mortgage Association Certificates--15.57%
25,139 GNMA II ARM (cost--$25,193,548) ................................ 05/20/23 to 08/20/24 6.375 to 6.750 25,281,423
-----------
U. S. Government Agency Obligation--2.99%
5,000 FNMA(3) (cost--$5,094,481) ...................................... 04/15/03 5.750 4,855,890
-----------
Corporate Bonds--73.42%
Aerospace / Defense--1.90%
3,000 Martin Marietta Corporation ..................................... 03/01/03 9.000 3,085,308
-----------
Banking--6.58%
3,000 Capital One Bank ................................................ 02/15/03 6.375 2,886,717
2,000 PNC Funding Corporation ......................................... 03/01/03 6.875 1,971,108
6,000 Providian National Bank ......................................... 03/15/03 6.700 5,818,926
-----------
10,676,751
-----------
Broker / Dealer--4.79%
2,000 Goldman Sachs Group Incorporated ................................ 02/01/03 6.250 1,942,566
6,000 Lehman Brothers Holdings Incorporated ........................... 04/01/03 to 04/15/03 6.250 to 7.250 5,839,780
-----------
7,782,346
-----------
Cable--3.69%
4,000 Adelphia Communications Corporation ............................. 10/01/02 9.250 3,945,000
2,000 Telecommunications Incorporated ................................. 01/15/03 8.250 2,050,868
-----------
5,995,868
-----------
Communications / Satellite--0.99%
1,700 Panamsat Corporation ............................................ 01/15/03 6.000 1,616,516
-----------
Energy--8.04%
3,000 Enron Corporation ............................................... 04/01/03 9.125 3,116,370
4,500 K N Energy Incorporated ......................................... 03/01/03 6.450 4,381,807
1,800 Orion Refining Corporation**++ .................................. 11/15/04 10.000 900,079
5,000 R & B Falcon Corporation ........................................ 04/15/03 6.500 4,650,000
-----------
13,048,256
-----------
Finance--7.36%
4,000 Finova Capital Corporation MTN .................................. 02/18/03 6.110 3,457,108
4,000 General Motors Acceptance Corporation ........................... 01/22/03 5.875 3,866,000
4,000 Osprey Trust Incorporated ....................................... 01/15/03 8.310 4,027,064
2,000 Reliance Group Holdings Incorporated ............................ 11/15/00 9.000 600,000
-----------
11,950,172
-----------
Food & Beverage--3.49%
6,000 Nabisco Incorporated ............................................ 02/01/03(b) 6.125 5,671,044
-----------
</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)
Food / Retail--1.52%
$2,500 Fred Meyer Incorporated ......................................... 03/01/03 7.150% $ 2,462,647
------------
Healthcare--3.63%
6,000 Tenet Healthcare Corporation .................................... 01/15/03 7.875 5,887,500
------------
Hotels, Lodging--2.45%
4,000 Hilton Hotels Corporation ....................................... 07/15/02 7.700 3,977,844
------------
Industrial / Vehicle Parts--3.11%
5,000 Goodyear Tire & Rubber Company .................................. 03/15/03 8.125 5,048,455
------------
Insurance--4.23%
7,000 Prudential Insurance Company of America ......................... 04/15/03 6.875 6,861,995
------------
Media--4.61%
7,300 News America Holdings Incorporated .............................. 02/01/03 8.625 7,485,413
------------
Packaging--1.26%
2,000 Grupo Industrial Durango S.A. ................................... 07/15/01 12.000 2,045,000
------------
Service--1.41%
2,670 Browning Ferris Industries Incorporated ......................... 01/15/03 6.100 2,256,150
1,000 Premier Graphics Incorporated ................................... 12/01/05 11.500 30,000
------------
2,286,150
------------
Steel / Oil--3.74%
6,000 USX Corporation MTN ............................................. 08/05/02 7.990 6,075,000
------------
Technology--2.16%
3,000 Comdisco Corporation MTN ........................................ 01/28/02 9.500 3,015,561
2,140 InterAct Systems Incorporated**++ ............................... 08/01/03 14.000 492,200
------------
3,507,761
------------
Tobacco--3.90%
6,500 Philip Morris Companies Incorporated ............................ 01/15/03 7.250 6,335,869
------------
Transportation-Air Freight--3.41%
5,500 Airborne Freight Corporation .................................... 12/15/02 8.875 5,537,235
------------
Utilities--1.15%
1,890 Niagara Mohawk Power Corporation ................................ 10/01/02 7.250 1,872,401
------------
Total Corporate Bonds (cost--$126,578,937) .................................. 119,209,531
------------
Convertible Bond--1.80%
Technology--1.80%
3,000 Softkey International Incorporated (cost--$2,962,205) ........... 11/01/00 5.500 2,925,000
------------
</TABLE>
6
<PAGE>
ALL-AMERICAN TERM TRUST INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
-------- -------- -------- -----
<S> <C> <C> <C>
Zero Coupon Municipal Securities (1)--13.64%
$ 650 Bolingbrook Illinois Park District .............................. 01/01/03 5.475% $ 579,878
995 Cook County Illinois High School District ....................... 12/01/02 6.124 892,177
4,500 Houston Texas Independent School District ....................... 08/15/02 5.200 to 5.250 4,091,232
7,000 Houston Texas Water & Sewer ..................................... 12/01/02 5.050 6,276,620
1,000 Maricopa County Arizona School District ......................... 01/01/02 5.300 937,600
3,895 NorthEast Independent School District Texas ..................... 02/01/03 5.150 3,458,604
6,000 San Antonio Texas Electric & Gas ................................ 02/01/03 5.150 to 5.900 5,329,710
650 William County Illinois Community School District ............... 12/15/02 6.024 582,309
-----------
Total Zero Coupon Municipal Securities (cost--$21,707,551) .................. 22,148,130
-----------
<CAPTION>
Number of
Shares
---------
<S> <C>
Common Stocks (a)--0.64%
Food & Beverage--0.03%
15,356 Packaged Ice Incorporated .............................................................................. 57,585
-----------
Retail--0.58%
261,250 Samuels Jewelers Incorporated++(2) ..................................................................... 940,500
-----------
Service--0.03%
24,965 Waste Systems International Incorporated ............................................................... 43,689
-----------
Total Common Stocks (cost--$2,471,540) ............................................................................. 1,041,774
-----------
Preferred Stocks (a)--0.41%
Energy--0.03%
991 Orion Refining Corporation++ ........................................................................... 42,536
-----------
Service--0.14%
804 Waste Systems International Incorporated**++ ........................................................... 221,100
-----------
Technology--0.24%
4,000 InterAct Systems Incorporated**++ ...................................................................... 400,000
-----------
Total Preferred Stocks (cost--$2,474,245) .......................................................................... 663,636
-----------
<CAPTION>
Number of
Warrants
---------
<S> <C>
Warrants (a)--0.02%
General Industrial--0.01%
2,000 SabreLiner Corporation ................................................................................. 18,000
-----------
Technology--0.01%
3,000 Electronic Retailing Systems International ............................................................. 30
4,000 InterAct Electronic Marketing Incorporated++ ........................................................... 40
4,000 InterAct Systems Incorporated++ ........................................................................ 20,000
-----------
20,070
-----------
Total Warrants (cost--$143,976) .................................................................................... 38,070
-----------
</TABLE>
7
<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--1.23%
$ 2,000 Federal Home Loan Bank Discount Notes (cost--$1,993,965) .......... 08/18/00 6.390%@ $ 1,993,965
------------
Repurchase Agreement--3.55%
5,764 Repurchase Agreement dated 07/31/00 with Dresdner Bank
collateralized by $5,887,000 U.S. Treasury Notes, 4.625% due
11/30/00 (value--$5,899,951); proceeds: $5,765,047
(cost--$5,764,000) .............................................. 08/01/00 6.540 5,764,000
------------
Total Investments (cost--$236,003,833)--138.87% ................................ 225,478,238
Liabilities in excess of other assets--(38.87)% ................................ (63,116,870)
------------
Net Assets--100.00% ............................................................ $162,361,368
============
</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.
++ Illiquid securities representing 1.86% of net assets.
@ Yield to maturity for discounted securities.
(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.
(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
July 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.
8
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2000 (unaudited)
Assets:
Investments in securities, at value (cost--$236,003,833) ...... $ 225,478,238
Cash .......................................................... 646
Interest receivable ........................................... 2,896,108
Other assets .................................................. 1,458
-------------
Total assets .................................................. 228,376,450
-------------
Liabilities:
Payable for investments purchased ............................. 52,470,707
Payable for reverse repurchase agreements ..................... 13,085,000
Payable to investment adviser and administrator ............... 124,388
Payable for shares of capital stock repurchased ............... 84,582
Payable for interest on reverse repurchase agreements ......... 11,904
Accrued expenses and other liabilities ........................ 238,501
-------------
Total liabilities ............................................. 66,015,082
-------------
Net Assets:
Capital Stock--$0.001 par value; 100,000,000 shares authorized;
13,098,067 shares issued and outstanding ................... 198,471,425
Undistributed net investment income ........................... 9,239,283
Accumulated net realized loss from investment transactions .... (34,823,745)
Net unrealized depreciation on investments .................... (10,525,595)
-------------
Net assets applicable to shares outstanding ................... $ 162,361,368
=============
Net asset value per share ..................................... $12.40
======
See accompanying notes to financial statements
9
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
July 31, 2000
(unaudited)
-------------
Investment income:
Interest ........................................................ $ 7,088,400
-----------
Expenses:
Investment advisory and administration .......................... 764,456
Interest expense ................................................ 427,821
Custody and accounting .......................................... 50,964
Reports and notices to shareholders ............................. 36,392
Legal and audit ................................................. 31,712
Transfer agency fees ............................................ 5,749
Directors' fees ................................................. 5,250
Other expenses .................................................. 76,809
-----------
1,399,153
-----------
Net investment income ........................................... 5,689,247
-----------
Realized and unrealized losses from investment activities:
Net realized loss from investment transactions .................. (9,592,495)
Net change in unrealized appreciation/depreciation of investments (288,083)
-----------
Net realized and unrealized loss from investment activities ..... (9,880,578)
-----------
Net decrease in net assets resulting from operations ............ $(4,191,331)
===========
See accompanying notes to financial statements
10
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
July 31, 2000 January 31,
(unaudited) 2000
------------- ------------
<S> <C> <C>
From operations:
Net investment income ........................................... $ 5,689,247 $ 13,558,722
Net realized loss from investments .............................. (9,592,495) (14,050,156)
Net change in unrealized appreciation/depreciation of investments (288,083) 382,552
------------ ------------
Net decrease in net assets resulting from operations ............ (4,191,331) (108,882)
------------ ------------
Dividends to shareholders from:
Net investment income ........................................... (4,869,336) (11,924,800)
------------ ------------
Capital stock transactions:
Cost of shares repurchased ...................................... (7,041,912) --
------------ ------------
Net decrease in net assets ...................................... (16,102,579) (12,033,682)
Net assets:
Beginning of period ............................................. 178,463,947 190,497,629
------------ ------------
End of period (including undistributed net investment income
of $9,239,283 and $8,419,372, respectively) .................. $162,361,368 $178,463,947
============ ============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
ALL-AMERICAN TERM TRUST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended
July 31, 2000
(unaudited)
-------------
<S> <C>
Cash flows provided from operating activities:
Interest received ........................................................... $ 6,926,078
Operating expenses paid ..................................................... (990,394)
Interest paid ............................................................... (429,625)
Sale of short-term portfolio investments, net ............................... 573,821
Purchases of long-term portfolio investments ................................ (343,231,511)
Sales of long-term portfolio investments .................................... 350,157,895
-------------
Net cash flows provided from operating activities ........................... 13,006,264
-------------
Cash flows used for financing activities:
Dividends paid to shareholders .............................................. (4,869,336)
Capital stock repurchased ................................................... (6,957,330)
Decrease in reverse repurchase agreements ................................... (1,219,000)
-------------
Net cash flows used for financing activities ................................ (13,045,666)
-------------
Net decrease in cash ........................................................ (39,402)
Cash at beginning of period ................................................. 40,048
-------------
Cash at end of period ....................................................... $ 646
=============
Reconciliation of net decrease in net assets resulting from operations to net
cash flows provided from operating activities:
Net decrease in net assets resulting from operations ........................ $ (4,191,331)
-------------
Decrease in investments, at value ........................................... 20,084,605
Decrease in interest receivable ............................................. 552,965
Decrease in payable for investments purchased ............................... (3,419,109)
Decrease in payable to investment adviser and administrator ................. (12,496)
Decrease in accrued expenses and other liabilities .......................... (8,370)
-------------
Total adjustments ........................................................... 17,197,595
-------------
Net cash flows provided from operating activities ........................... $ 13,006,264
=============
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
All-American Term Trust Inc. (the "Trust") was incorporated in Maryland on
November 19, 1992 as a closed-end diversified management investment company. The
Trust will terminate on or about January 31, 2003.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States 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"), a wholly-owned
subsidiary of Paine Webber Group Inc. ("PW Group"), 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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
The average monthly balance of reverse repurchase agreements outstanding
during the six months ended July 31, 2000 was $13,678,333 at a weighted average
interest rate of 6.19%.
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.
On July 12, 2000, PW Group and UBS AG ("UBS") announced that they had
entered into an agreement and plan of merger under which PW Group will merge
into a wholly owned subsidiary of UBS. If all required approvals are obtained
and the required conditions are satisfied, PW Group and UBS expect to complete
the transaction in the fourth quarter of 2000. UBS, with headquarters in Zurich,
Switzerland, is an internationally diversified organization with operations in
many areas of the financial services industry.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31,
2000 was substantially the same as the cost of securities for financial
statement purposes.
At July 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)......... $ 946,497
Gross depreciation (investments having an excess of cost over value)........ (11,472,092)
------------
Net unrealized depreciation of investments................................... $(10,525,595)
============
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
For the six months ended July 31, 2000, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were
$339,952,402 and $349,319,911, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value common stock authorized.
Of the 13,098,067 shares outstanding at July 31, 2000, Mitchell Hutchins owned
9,501 shares.
For the period May 23, 2000 (commencement of repurchase program) through
July 31, 2000, the Trust repurchased 608,600 shares of its common stock at an
average market price per share of $11.52 and a weighted average discount from
net asset value of 6.56% per share. At July 31, 2000, paid-in-capital was
reduced by the cost of $7,041,912 of capital stock repurchased.
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.
15
<PAGE>
ALL-AMERICAN TERM TRUST INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Years Ended January 31,
July 31, 2000 -------------------------------------------------------
(unaudited) 2000 1999 1998 1997 1996
------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 13.02 $ 13.90 $ 15.09 $ 14.54 $ 14.37 $ 13.31
-------- -------- -------- -------- -------- --------
Net investment income ..................................... 0.43 0.99 1.09 1.15 1.10 1.19
Net realized and unrealized gains (losses) from investments (0.72) (1.00) (1.29) 0.42 0.13 0.99
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations ........ (0.29) (0.01) (0.20) 1.57 1.23 2.18
-------- -------- -------- -------- -------- --------
Dividends from net investment income ...................... (0.36) (0.87) (0.99) (1.02) (1.06) (1.12)
-------- -------- -------- -------- -------- --------
Net increase in net asset value resulting from
repurchase of common stock ............................. 0.03 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period ............................ $ 12.40 $ 13.02 $ 13.90 $ 15.09 $ 14.54 $ 14.37
======== ======== ======== ======== ======== ========
Per share market value, end of period ..................... $ 11.63 $ 11.88 $ 13.13 $ 14.06 $ 12.75 $ 13.25
======== ======== ======== ======== ======== ========
Total investment return (1) ............................... 0.92% (2.99)% 0.31% 18.93% 4.59% $ 19.34%
======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's) ......................... $162,361 $178,464 $190,498 $206,812 $199,303 $196,997
Expenses to average net assets ............................ 1.65%*+ 1.45%+ 1.09% 1.10% 1.18% 1.05%
Net investment income to average net assets ............... 6.70%* 7.39% 7.50% 7.81% 7.70% 8.49%
Portfolio turnover rate** ................................. 149% 320% 337% 398% 391% 415%
Asset coverage++ .......................................... $ 3,476 $ 3,553 -- -- -- --
</TABLE>
----------
* Annualized
** These ratios include dollar roll transactions. If such transactions were
excluded from purchases and sales, the portolio turnover rates would be
51% for the six months ended July 31, 2000 and 27%, 70%, 129%, 50% and 45%
for the fiscal years ended January 31, 2000, 1999, 1998, 1997 and 1996,
respectively.
+ These ratios include 0.50% and 0.36% related to interest expense for the
six months ended July 31, 2000 and for the year ended January 31, 2000,
respectively, which represent 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 period reported and a
sale at the current market price on the last day of each period reported,
and assuming reinvestment of dividends and distributions at prices
obtained under the Trust's Dividend Reinvestment Plan. Total investment
return does not reflect brokerage commissions and has not been annualized
for a period of less than one year.
16
<PAGE>
ALL-AMERICAN TERM TRUST INC.
GENERAL INFORMATION (unaudited)
THE TRUST
All-American Term Trust Inc. (the "Trust") is a diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange
("NYSE"). The Trust's investment objective is to provide a high level of current
income, consistent with the preservation of capital. The Trust will terminate on
or about January 31, 2003 and, in conjunction therewith, will liquidate all of
its assets and distribute the net proceeds to shareholders. The Trust will be
managed in an effort to return the initial offering price of $15.00 per share
and will normally be invested in a diversified portfolio of investment grade and
high-yield corporate bonds, mortgage-backed securities and triple-A rated zero
coupon municipal bonds. The Trust's investment adviser and administrator is
Mitchell Hutchins Asset Management Inc., an asset management subsidiary of
PaineWebber Incorporated ("PaineWebber"), which has over $74.4 billion in assets
under management as of August 31, 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.
An annual meeting of shareholders of the Trust was held on May 18, 2000.
At the meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes,
Jr., Richard R. Burt, Mary C. Farrell (resigned as Director effective September
8, 2000), Meyer Feldberg, George W. Gowen, Frederic V. Malek, Carl W. Schafer
and Brian M. Storms were elected to serve as directors until the next annual
meeting of shareholders, or until their successors are elected and qualified;
and Ernst & Young LLP was ratified as independent accountants for the Trust for
the fiscal year ending January 31, 2001.
Proposal 1
ALL SHARES VOTING AS A SINGLE CLASS:
Share Shares
Voted Withhold
For Authority
---------- -----------
To vote for or against the election of:
Margo N. Alexander ........................... 13,071,364 248,579
Richard Q. Armstrong ......................... 13,076,155 243,788
E. Garrett Bewkes, Jr......................... 13,064,986 254,957
Richard R. Burt .............................. 13,090,185 229,758
Mary C. Farrell .............................. 13,058,786 261,157
Meyer Feldberg ............................... 13,090,579 229,364
George W. Gowen .............................. 13,064,782 255,161
Frederic V. Malek ............................ 13,086,690 233,253
Carl W. Schafer .............................. 13,072,411 247,532
Brian M. Storms .............................. 13,093,021 226,922
17
<PAGE>
ALL-AMERICAN TERM TRUST INC.
Proposal 2
Shares Shares Shares
Voted Voted Withhold
For Against Authority
-------- --------- -----------
To vote for or against the ratification
of the selection of Ernst & Young as the
Trust's independent accountants for the
fiscal year ending January 31, 2001. 13,068,201 158,348 93,394
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals)
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, N.A., c/o PFPC Inc., P.O. Box
8950, Wilmington, Delaware 19899.
18
<PAGE>
================================================================================
DIRECTORS
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander
President
Amy Doberman
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Paul H. Schubert
Vice President and Treasurer
Dennis L. McCauley
Vice President
James F. Keegan
Vice President
Julieanna Berry
Vice President
Mark Tincher
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.
The financial information included herein is taken from the records of the Trust
without examination by independent accountants who do not express an opinion
thereon.
This report is sent to the shareholders of the Trust for their information. It
is not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Trust or of any securities mentioned in this
report.
<PAGE>
PaineWebber
(C)2000 PaineWebber Incorporated
All Rights Reserved
Member SIPC
Semiannual Report
---------------
ALL-AMERICAN
TERM TRUST INC.
JULY 31, 2000
