<PAGE>
2002 TARGET TERM TRUST INC.
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 16.36%
$ 6,712+ GNMA.................... 08/15/16 to 09/15/18 9.000% $ 7,110,426
6,892 GNMA II ARM............. 06/20/25 6.500 7,012,875
7,000 GNMA TBA................ TBA 8.000 7,247,170
1,000 GNMA TBA................ TBA 7.000 1,002,810
------------
Total Government National Mortgage
Association Certificates
(cost - $22,193,586).............. 22,373,281
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES - 1.49%
FHLMC TBA (cost -
2,000 $2,022,500)........... TBA 7.500 2,037,500
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 0.74%
FNMA TBA (cost -
1,000 $1,008,438)........... TBA 7.000 1,010,310
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS - 89.68%
FHLMC Series 174, Class
7,546 Z...................... 08/15/21 10.000 8,470,462
FHLMC Series 1016, Class
4,773 Z...................... 11/15/20 9.321 5,136,486
FHLMC Series 1591, Class
3,718 F...................... 10/15/23 12.000* 4,526,195
FHLMC Series 1629, Class
2,448 QC..................... 12/15/23 10.000* 1,946,369
FNMA Series 1994, Class
1,893 B...................... 06/25/18 4.625 1,746,386
FNMA REMIC, Trust 1988-
5,321 2, Class Z............. 02/25/18 10.100 5,766,725
FNMA REMIC, Trust 1988-
3,226+ 12, Class A............ 02/25/18 10.000 3,436,022
FNMA REMIC, Trust 1993-
7,000 185, Class SG.......... 04/25/19 3.231@ 5,851,580
CMC Securities Corp.
Series 1992-A, Class
6,565+ A12.................... 10/25/22 7.400 6,618,373
CMC Securities Corp.
Series 1992-B, Class
6,084+ B11.................... 11/25/23 7.375 6,106,815
CMC Securities Corp.
Series 1993-C, Class
6,749+ C3..................... 04/25/08 9.552 6,976,287
Collateralized Mortgage
Obligation Trust Series
4,732 64, Class Z............ 11/20/20 9.000 5,174,454
Countrywide Mortgage
Trust Series 1993-10,
9,683+ Class A4............... 01/25/24 6.750 9,707,208
Countrywide Mortgage
Trust Series 1993-1,
4,276 Class 1D............... 04/25/23 7.600 4,281,429
Countrywide Mortgage
Trust Series 1994-C,
7,354+ Class A9............... 03/25/24 6.500 7,113,421
First Boston Mortgage
Securities Corp. Series
11,096 1993-1, Class 1A....... 04/25/06 7.400 11,456,214
GE Capital Mortgage
Services, Series 1993-
10,238+ 2F, Class F6........... 11/25/09 7.000 10,282,842
Prudential Home Mortgage
Corp. Series 1992-42,
4,530 Class A2............... 01/25/08 6.250 4,514,209
4,160 Residential Funding
Mortgage Association
Series 1992-S32,
Class A-16............. 09/25/22 7.750 4,191,624
5,304 Salomon Bothers Mortgage
Securities VII, Series
1994-6,
Class A1............... 05/25/24 7.015 5,332,222
3,999 Structured Asset
Securities Corp. Series
1993-C1, Class A1A..... 12/25/24 6.600 4,008,633
------------
Total Collateralized Mortgage
Obligations
(cost - $118,064,861)............. 122,643,956
------------
ADJUSTABLE RATE COLLATERALIZED
MORTGAGE OBLIGATIONS - 13.14%
Housing Securities Inc.
3,905 Series 1992-5, Class A. 06/25/22 7.798 3,973,228
Ryland Mortgage
Securities Corp. Series
2,453 1991-17, Class A1...... 10/25/21 7.150 2,457,791
Ryland Mortgage
Securities Corp. Series
3,866 1992-L9, Class A2...... 07/25/22 7.194 3,907,318
Ryland Mortgage
Securities Corp. Series
3,817 1992-L10, Class A...... 08/25/22 7.403 3,857,516
Saxon Mortgage
Securities Corp. Series
3,733 1993-1, Class A1....... 02/25/23 8.389 3,774,989
------------
Total Adjustable Rate
Collateralized Mortgage
Obligations
(cost - $17,774,226).............. 17,970,842
------------
STRIPPED COLLATERALIZED MORTGAGE
OBLIGATIONS - 10.96%
FHLMC Series 103, Class
4,312 A**.................... 12/15/20 7.690++ 2,975,462
FNMA REMIC, Trust 1991-
5 124, Class SQ***....... 09/25/21 6757.607(1)* 819,041
FNMA REMIC, Trust 1991-
75 G-15, Class S***....... 06/25/21 708.158(2)* 1,198,102
FNMA REMIC, Trust 1991-
3,000 G-35, Class N**........ 10/25/21 6.410++ 2,107,500
FNMA REMIC, Trust 1993-
18,385 101, Class A***........ 06/25/08 7.000 2,286,745
FNMA Series 151, Class
4,628 2***................... 07/25/22 9.500 1,180,236
</TABLE>
1
<PAGE>
2002 TARGET TERM TRUST INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY
(000) DATES INTEREST RATES VALUE
--------- -------------------- -------------- ------------
<C> <S> <C> <C> <C>
STRIPPED COLLATERALIZED MORTGAGE
OBLIGATIONS - (CONCLUDED)
$ 9 Structured Asset
Securities Corp. Series
1992-M1,
Class A3***............ 11/25/02 8910.944%(3)* $ 3,769,579
9 Structured Asset
Securities Corp. Series
1992-M1,
Class A4***............ 11/25/02 1572.519(3)* 653,906
------------
Total Stripped Collateralized
Mortgage Obligations
(cost - $14,850,169).............. 14,990,571
------------
ZERO COUPON MUNICIPAL SECURITIES -
9.16%
17,840 Metropolitan Pier &
Exposition Authority,
Illinois
(cost - $11,527,615)... 06/15/01 to 06/15/04 4.690 to 4.990+++ 12,521,789
------------
REPURCHASE AGREEMENT - 0.75%
1,024 Repurchase agreement
dated 11/30/95, with
Salomon Brothers,
collateralized by
$1,025,000 U.S.
Treasury Notes, 6.508%
due 04/30/97; proceeds:
$1,024,166 (cost -
$1,024,000) .......... 12/01/95 5.850 1,024,000
------------
Total Investments (cost -
$188,465,395) - 142.28%......... 194,572,249
Liabilities in excess of other
assets - (42.28).................. (57,818,154)
------------
Net Assets - 100.00%............... $136,754,095
============
</TABLE>
- -------
ARM--Adjustable Rate Mortgage Security. The interest rate shown is the current
rate as of November 30, 1995.
TBA--(To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate (generally +/-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be determined
upon settlement when the specific mortgage pools are assigned.
REMIC--Real Estate Mortgage Investment Conduit
* Floating Rate Security
** Principal Only Security--This security entitles the holder to receive
principal payments from an underlying pool of mortgages. High prepayments
return principal faster than expected and cause the yield to increase. Low
prepayments return principal more slowly than expected and cause the yield
to decrease.
*** 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. 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.
@ Interest rate varies inversely with the London Interbank Offer Rate (LI-
BOR).
+ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements (with Nomura Securities, maturing December 20, 1995)
and/or futures contracts.
++ Estimated yield to maturity at November 30, 1995.
+++ Yield to maturity.
(1) Annualized yield at date of purchase: 34.570%
(2) Annualized yield at date of purchase: 27.244%
(3) Annualized yield at date of purchase: 11.000%
See accompanying notes to financial statements
2
<PAGE>
2002 TARGET TERM TRUST INC.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF IN APPRECIATION
CONTRACTS CONTRACT TO DELIVER EXCHANGE FOR EXPIRATION DATES (DEPRECIATION)
--------- ------------------- ------------ ---------------- --------------
<C> <S> <C> <C> <C>
5 year United States
482 Treasury Note........... $52,584,804 Dec 95 to Mar 96 $ (245,477)
10 year United States
98 Treasury Note........... 10,997,523 Mar 96 113,227
30 year United States
98 Treasury Bond........... 11,563,258 Mar 96 (114,054)
286 90 day Eurodollar....... 67,081,858 Dec 95 to Sep 98 (514,491)
----------
$ (760,795)
==========
<CAPTION>
CONTRACT TO RECEIVE
-------------------
<C> <S> <C> <C> <C>
10 year United States
455 Treasury Note........... 50,249,101 Dec 95 1,265,431
----------
Total net unrealized
appreciation............ $ 504,636
==========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1995
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $188,465,395)........ $194,572,249
Receivable for investments sold.................................. 1,049,149
Interest receivable.............................................. 2,627,096
Variation margin receivable...................................... 31,166
Deferred organizational expenses................................. 93,771
Other assets..................................................... 30,594
------------
Total assets..................................................... 198,404,025
------------
Liabilities
Payable for reverse repurchase agreements........................ 45,383,000
Payable for investments purchased................................ 15,434,800
Payable for shares repurchased................................... 541,384
Payable for interest on reverse repurchase agreements............ 80,602
Payable to investment adviser and administrator.................. 79,487
Accrued expenses and other liabilities........................... 130,657
------------
Total liabilities................................................ 61,649,930
------------
Net Assets
Capital stock - $0.001 par value; total authorized 200,000,000
shares;
9,515,867 shares issued and outstanding......................... 135,932,894
Undistributed net investment income.............................. 1,533,147
Accumulated net realized losses from investment and futures
transactions.................................................... (7,323,436)
Net unrealized appreciation of investments and futures contracts. 6,611,490
------------
Net assets applicable to shares outstanding...................... $136,754,095
============
Net asset value per share........................................ $14.37
============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
Investment income:
Interest................. $15,499,231
-----------
Expenses:
Interest expense......... 3,558,551
Investment advisory and
administration.......... 998,135
Reports and notices to
shareholders............ 89,158
Custody and accounting... 78,652
Legal and audit.......... 61,473
Amortization of
organizational expenses. 45,000
Transfer agency and
service fees............ 24,336
Directors' fees.......... 6,000
Other expenses........... 20,263
-----------
4,881,568
-----------
Net investment income.... 10,617,663
-----------
Realized and unrealized
gains (losses) from
investment activities:
Net realized gains
(losses) from:
Investment
transactions........... 2,112,723
Futures transactions.... (4,480,477)
Net change in unrealized
appreciation/depreciation
of:
Investments............. 16,269,717
Futures contracts....... 504,636
-----------
Net realized and
unrealized gains from
investment activities... 14,406,599
-----------
Net increase in net
assets resulting from
operations.............. $25,024,262
===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 10,617,663 $ 10,040,857
Net realized gains (losses) from investment
transactions.............................. 2,112,723 (4,779,676)
Net realized losses from futures
transactions.............................. (4,480,477) --
Net change in unrealized
appreciation/depreciation of investments . 16,269,717 (15,703,581)
Net change in unrealized
appreciation/depreciation of futures
contracts................................. 504,636 --
---------------- ----------------
Net increase (decrease) in net assets
resulting from operations................. 25,024,262 (10,442,400)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income...................... (9,465,902) (10,303,811)
Capital gains.............................. -- (579,784)
---------------- ----------------
(9,465,902) (10,883,595)
---------------- ----------------
CAPITAL STOCK TRANSACTIONS:
Cost of shares repurchased................. (15,366,315) --
---------------- ----------------
Net increase (decrease) in net assets...... 192,045 (21,325,995)
NET ASSETS:
Beginning of period........................ 136,562,050 157,888,045
---------------- ----------------
End of period (including undistributed net
investment income of $1,533,147 and
$381,386, respectively)................... $ 136,754,095 $ 136,562,050
================ ================
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
Cash flows provided by operating activities:
Interest received............................................... $ 15,779,275
Expenses paid................................................... (4,819,745)
Sales of short-term portfolio investments, net.................. 8,356,000
Purchase of long-term portfolio investments..................... (206,804,688)
Sales of long-term portfolio investments........................ 237,919,998
Variation margin on futures..................................... (4,007,007)
------------
Net cash provided by operating activities....................... 46,423,833
------------
Cash flows used for financing activities:
Dividends and distributions paid to shareholders................ (9,465,902)
Capital stock repurchased....................................... (14,824,931)
Decrease in reverse repurchase agreements....................... (22,133,000)
------------
Net cash used for financing activities.......................... (46,423,833)
------------
Net change in cash.............................................. 0
Cash at beginning of period..................................... 0
------------
Cash at end of period........................................... $ 0
============
Reconciliation of net increase in net assets resulting from
operations to net cash provided by operating activities:
Net increase in net assets resulting from operations............ $ 25,024,262
------------
Decrease in investments, at value............................... 17,558,495
Decrease in receivable for investments sold..................... 918,573
Increase in interest receivable................................. (1,272,294)
Increase in variation margin receivable......................... (31,166)
Amortization of organizational expenses......................... 45,000
Increase in other assets........................................ (29,895)
Increase in payable for investments purchased................... 4,164,140
Decrease in payable for interest on reverse repurchase
agreements..................................................... (6,043)
Increase in payable to investment adviser and administrator..... 917
Increase in accrued expenses and other liabilities.............. 51,844
------------
Total adjustments............................................... 21,399,571
------------
Net cash provided by operating activities....................... $ 46,423,833
============
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
2002 Target Term Trust Inc. (the "Trust") was incorporated in Maryland on
October 16, 1992 and is registered with the Securities and Exchange Commission
as a closed-end diversified management investment company. The Trust is
expected to terminate on or about November 30, 2002. Organizational costs have
been deferred and are being amortized on the straight line method over a period
not to exceed 60 months from the date the Trust commenced operations.
Valuation of Investments -- Investments in mortgage-backed and U.S. Treasury
obligations are valued based on yield equivalents, a pricing matrix or other
sources, under valuation procedures established by the Trust's board of
directors. Other portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations furnished by a pricing
service or provided by dealers in such securities. Portfolio securities for
which accurate market quotations are not readily available are valued in
accordance with the Trust's valuation procedures. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost.
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.
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. Premiums are amortized and discounts are
accreted as adjustments to interest income and identified cost of investments.
Futures Contracts -- Upon entering into a financial futures contract, the Trust
is required to pledge to a broker an amount of cash and/or U.S. Government
securities equal to a certain percentage of the contract amount. This amount is
known as the "initial margin." Subsequent payments, known as "variation
margin," are made or received by the Trust each day, depending on the daily
fluctuations in the value of the underlying financial futures contracts. Such
variation margin is recorded for financial statement purposes on a daily basis
as unrealized gain or loss until the financial futures contract is closed, at
which time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The maximum
amount at risk from the purchase of a futures contract is the contract value.
The
8
<PAGE>
Trust is subject to a number of guidelines which reduce this risk by seeking to
ensure that financial futures contracts are used for hedging purposes as well
as to manage the average duration of the Trust's portfolio and not for
leverage. However, imperfect correlations between futures contracts and the
portfolio securities being hedged or, market disruptions, do not normally
permit full control of these risks at all times.
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 Trust's board of directors. 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 high grade 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 November 30, 1995 was $56,495,000 at a weighted average interest
rate of 6.16%. The maximum amount of reverse repurchase agreements outstanding
at any month-end during the year was $68,726,000 as of May 31, 1995 which was
29.67% of total assets.
Dollar Rolls -- The Trust may enter 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 of the initial sale and by fee
income or a lower repurchase price.
Federal Taxes -- 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 a tax planning strategy, the Trust intends to retain a portion of its
taxable income and may pay an excise tax.
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. Dividends and distributions which exceed net
investment income and net realized
9
<PAGE>
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital. On or about November 30, 2002, the Trust will
liquidate its assets and will declare and make a termination distribution to
its shareholders in an aggregate amount equal to the net proceeds of such
liquidation after payment of the Trust's expenses and liabilities, including
amounts 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.
INVESTMENT ADVISER AND ADMINISTRATOR
The Trust has entered into an Investment Advisory and Administration Contract
("Mitchell Hutchins Contract") with Mitchell Hutchins Asset Management Inc.
("Mitchell Hutchins"). The Mitchell Hutchins Contract provides Mitchell
Hutchins with an investment advisory fee and an administration fee, each
computed weekly and payable monthly, at an annual rate of 0.50% and 0.20%,
respectively, of the Trust's average weekly net assets.
Under a separate contract with Mitchell Hutchins ("Sub-Advisory Contract"),
Goldman Sachs Funds Management, L.P. serves as the Trust's sub-adviser. Under
the Sub-Advisory Contract, Mitchell Hutchins (not the Trust) will pay the Sub-
Adviser a fee, computed weekly and payable monthly, in an amount equal to one-
half of the investment advisory fee received by Mitchell Hutchins from the
Trust.
10
<PAGE>
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at November 30,
1995 was substantially the same as the cost of securities for financial
statement purposes.
At November 30, 1995, the components of net unrealized appreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (from investments having an excess of value over
cost)............................................................. $6,507,687
Gross depreciation (from investments having an excess of cost over
value)............................................................ (400,833)
----------
Net unrealized appreciation of investments......................... $6,106,854
==========
</TABLE>
For the year ended November 30, 1995, total aggregate purchases and sales of
portfolio securities excluding short-term securities, were $210,968,828 and
$237,001,424, respectively.
FEDERAL INCOME TAX STATUS
At November 30, 1995, the Trust had a net capital loss carryforward of
$6,818,800. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains, which will
expire between November 30, 2002 and November 30, 2003. To the extent that such
losses are used, as provided in the regulations, to offset future net realized
capital gains, it is probable these gains will not be distributed.
CAPITAL STOCK
There are 200,000,000 shares of $0.001 par value common stock authorized. Of
the 9,515,867 shares outstanding as of November 30, 1995, Mitchell Hutchins
owned 6,667 shares.
The Fund repurchased 1,240,800 shares of common stock during the period July
10, 1995 through November 30, 1995 at an average market price per share of
$12.32 and a weighted average discount from net asset value of 11.72% per
share. At November 30, 1995 paid-in-capital is net the cost of $15,366,315 of
capital stock reacquired.
11
<PAGE>
2002 TARGET TERM TRUST INC.
QUARTERLY RESULTS OF OPERATIONS--(UNAUDITED)
<TABLE>
<CAPTION>
NET REALIZED AND NET
UNREALIZED INCREASE
GAINS (LOSSES) (DECREASE)
FROM INVESTMENT IN NET ASSETS
NET INVESTMENT AND FUTURES RESULTING FROM
INCOME TRANSACTIONS OPERATIONS
----------------------------------- ----------------
TOTAL PER TOTAL PER TOTAL PER
(000) SHARE (000) SHARE (000) SHARE
QUARTER ENDED -------- ---------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1995*........ $ 2,660 $ 0.27 $ 2,803 $ 0.29 $ 5,463 $ 0.56
August 31, 1995*.......... 2,793 0.27 (277) (0.03) 2,516 0.24
May 31, 1995.............. 2,612 0.24 5,632 0.52 8,244 0.76
February 28, 1995......... 2,553 0.24 6,248 0.58 8,801 0.82
-------- ------ --------- ------- -------- ------
Totals.................... $ 10,618 $ 1.02 $ 14,406 $ 1.36 $ 25,024 $ 2.38
======== ====== ========= ======= ======== ======
November 30, 1994......... $ 2,672 $ 0.25 $ (7,122) $(0.66) $ (4,450) $(0.41)
August 31, 1994........... 2,523 0.23 (309) (0.02) 2,214 0.21
May 31, 1994.............. 2,440 0.23 (10,767) (1.01) (8,327) (0.78)
February 28, 1994......... 2,406 0.22 (2,285) (0.21) 121 0.01
-------- ------ --------- ------- -------- ------
Totals.................... $ 10,041 $ 0.93 $(20,483) $(1.90) $(10,442) $(0.97)
======== ====== ========= ======= ======== ======
</TABLE>
- ---------------
* Per share amounts have been calculated using the average daily shares
outstanding for each quarter to reflect the repurchase of shares.
12
<PAGE>
2002 TARGET TERM TRUST INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT
EACH PERIOD IS PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED DECEMBER 31, 1992
NOVEMBER 30, (COMMENCEMENT OF
-------------------- OPERATIONS) TO
1995 1994 NOVEMBER 30, 1993
--------- --------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.. $ 12.70 $ 14.68 $ 14.10
--------- --------- --------
Net investment income................. 1.02* 0.93 0.89
Net realized and unrealized gains
(losses) on
investment transactions............... 1.36* (1.90) 0.68
--------- --------- --------
Net increase (decrease) in net asset
value resulting from operations...... 2.38 (0.97) 1.57
--------- --------- --------
Dividends from net investment income.. (0.90) (0.96) (0.84)
Dividends from short-term capital
gains................................ -- (0.05) (0.11)
--------- --------- --------
Total dividends and distributions to
shareholders......................... (0.90) (1.01) (0.95)
--------- --------- --------
Net increase in net asset value
resulting from repurchase of common
stock................................. 0.19 -- --
--------- --------- --------
Offering costs charged to capital..... -- -- (0.04)
--------- --------- --------
Net asset value, end of period........ $ 14.37 $ 12.70 $ 14.68
========= ========= ========
Per share market value, end of period. $ 12.50 $ 11.25 $ 14.00
========= ========= ========
Total investment return (1)........... 19.85% (12.79%) 5.94%
========= ========= ========
Ratios/Supplemental Data:
Net assets, end of period (000's)..... $136,754 $136,562 $157,888
Ratio of expenses to average net
assets+.............................. 3.42% 2.72% 1.79%**
Ratio of net investment income to
average net assets................... 7.44% 6.82% 6.67%**
Portfolio turnover rate............... 103% 108% 355%
Asset coverage++...................... $ 4,013 $ 3,023 $ 3,110
- ---------------------
</TABLE>
* Calculated using average daily shares outstanding for the year.
** Annualized
+ These ratios include 2.50%, 1.82% and 0.91% related to interest expense for
the periods ended November 30, 1995, 1994 and 1993 respectively, which
represents the cost of leverage to the Trust.
++ Per $1,000 of reverse repurchase agreements outstanding.
(1) Total investment return is calculated assuming a purchase of one share 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 to common
stockholders at prices obtained under the Fund's Dividend Reinvestment
Plan. Returns do not reflect brokerage commissions and have not been
annualized for periods of less than one year.
13
<PAGE>
2002 TARGET TERM TRUST INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
2002 Target Term Trust Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of 2002 Target Term Trust Inc. (the "Trust") as
of November 30, 1995, 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 the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
November 30, 1995 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 2002
Target Term Trust Inc. at November 30, 1995, and the results of its operations
and its cash flows for the years then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
/S/ Ernst & Young LLP
New York, New York
January 22, 1996
14
<PAGE>
2002 TARGET TERM TRUST INC.
TAX INFORMATION
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Trust's fiscal year end (November
30, 1995), as to the federal tax status of distributions received by
stockholders during such fiscal year. Accordingly, we are advising you that all
the distributions paid during the period by the Trust were derived from net
investment income and are 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.
Because the Trust's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1995. 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 1996. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Trust.
15
<PAGE>
2002 TARGET TERM TRUST INC.
GENERAL INFORMATION
THE TRUST
2002 Target 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 manage a portfolio of high
quality fixed-income and adjustable-rate securities in order to return $15 per
share (the initial public offering price) to investors on or about November 30,
2002, while providing high monthly income. The Trust's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned
subsidiary of PaineWebber Incorporated, which has $44 billion in assets under
management as of December 31, 1995. Goldman Sachs Funds Management, L.P., is
sub-adviser to the Trust.
SHAREHOLDER INFORMATION
The Trust's NYSE trading symbol is "TTR". Weekly comparative net asset value
and market price information about the Trust is published each Monday in the
Wall Street Journal and the New York Times and each Saturday in Barron's, as
well as numerous other newspapers.
An annual meeting of shareholders of the Fund was held on March 16, 1995. At
the meeting, Richard Q. Armstrong, E. Garrett Bewkes, Jr., Richard R. Burt,
John R. Torell III and William D. White were elected as directors to serve
until the annual meeting of shareholders in 1996, or until their successors are
elected and qualified, and the selection of Ernst & Young LLP as the Fund's
independent auditors for the fiscal year ending November 30, 1995 was ratified.
The votes were as follows:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLD
VOTED FOR AUTHORITY
---------- ---------
<S> <C> <C>
Richard Q. Armstrong.................. 9,984,035 218,162
E. Garrett Bewkes, Jr. ............... 10,014,950 187,247
Richard R. Burt....................... 10,026,915 175,282
John R. Torell III.................... 10,024,691 177,506
William D. White...................... 10,005,022 197,175
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES
SHARES VOTED WITHHOLD
VOTED FOR AGAINST AUTHORITY
--------- ------- ---------
<S> <C> <C> <C>
Ratification of the selection
of Ernst & Young LLP......... 9,975,278 135,951 90,968
</TABLE>
Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.
16
<PAGE>
2002 TARGET TERM TRUST INC.
DISTRIBUTION POLICY
The Trust has established a Dividend Reinvestment Plan under which all
shareholders 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, unless such
shareholders elect to receive cash. Shareholders 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 Dividend Reinvestment
Plan. Additional shares acquired under the Dividend Reinvestment 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 at the time of the purchase.
The Trust will not issue any new shares in connection with its Dividend
Reinvestment Plan.
17
