<PAGE>
2002 TARGET TERM TRUST INC.
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------- ------------
<C> <S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 14.02%
$ 2,929 GNMA.................... 06/15/23 to 12/15/23 7.000% $ 2,793,159
159 GNMA.................... 09/15/18 9.000 167,518
5,467+ GNMA II ARM............. 6/20/25 6.500 5,527,196
6,000 GNMA TBA................ TBA 7.500 5,876,250
2,000 GNMA TBA................ TBA 9.000 2,113,124
------------
Total Government National Mortgage
Association Certificates
(cost - $16,604,607).............. 16,477,247
------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES - 1.67%
FHLMC TBA (cost -
2,000 $1,987,266)........... TBA 7.500 1,959,380
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES - 3.27%
1,004 FNMA.................... 03/01/26 6.500 930,883
2,000 FNMA TBA................ TBA 7.000 1,907,180
1,000 FNMA TBA................ TBA 7.500 1,000,000
------------
Total Federal National Mortgage
Association Certificates (cost -
$3,895,303)...................... 3,838,063
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS - 96.52%
FHLMC Series 174, Class
7,931+ Z...................... 08/15/21 10.000 8,664,967
FHLMC Series 1016, Class
4,999+ Z...................... 11/15/20 9.321 5,268,096
FHLMC Series 1586, Class
6,854+ Z...................... 09/15/08 5.000 6,202,767
FHLMC Series 1629, Class
2,448+ QC..................... 12/15/23 10.000* 1,768,122
FHLMC Series 1777-A,
6,000+ Class M................ 05/15/08 6.500 5,557,500
FNMA Series 1994-11,
1,814 Class B................ 06/25/18 4.625 1,635,655
FNMA REMIC, Trust 1988-
2,847+ 12, Class A............ 02/25/18 10.000 3,024,152
CMC Securities Corp.
6,565 1992-A, Class A12...... 10/25/22 7.400 6,398,840
CMC Securities Corp.
Series 1992-B, Class
6,084+ B11 ................... 11/25/23 7.375 5,810,220
CMC Securities Corp.
Series 1993-C, Class C3
6,101 ....................... 04/25/08 9.552 6,347,900
CMC Securities Corp.
Series 1993-E, Class
8,752 E10.................... 11/25/08 6.500 8,010,581
Collateralized Mortgage
Obligation Trust Series
6,104 64, Class Z............ 11/20/20 9.000 6,474,173
Countrywide Mortgage
Trust Series 1993-I,
4,130 Class ID............... 04/25/23 7.600 3,969,897
Countrywide Mortgage
Trust Series 1994-C,
7,190 Class A9............... 03/25/24 6.500 6,619,039
First Boston Mortgage
Securities Corp. Series
11,065+ 1993-1, Class 1A....... 04/25/06 7.400 10,867,543
Housing Securities Inc.
Series 1994-1, Class
6,308 A1..................... 03/25/09 6.500 5,629,475
Prudential Home Mortgage
Corp. Series 1992-42,
3,628 Class A2............... 01/25/08 6.250 3,612,017
3,824 Residential Funding
Mortgage Association
Series 1992-S32,
Class A16.............. 09/25/22 7.750 3,716,164
Resolution Trust Corp.
Series 1992-16 Class
4,394+ A4..................... 08/25/22 7.661 4,443,687
4,959 Salomon Brothers
Mortgage Securities
VII, Series 1994-6,
Class A1............... 05/25/24 7.015 4,897,024
3,044 Structured Asset
Securities Corp. Series
1993-C1, Class A1A..... 12/25/24 6.600 3,027,159
Structured Asset
Securities Corp. Series
1,627 1995-3, Class IA....... 10/25/24 7.000 1,498,799
------------
Total Collateralized Mortgage
Obligations
(cost - $113,430,990)............. 113,443,777
------------
ADJUSTABLE RATE COLLATERALIZED
MORTGAGE OBLIGATIONS - 16.09%
DLJ Mortgage Acceptance
Corp. Series 1996-Q5
4,750 Class A................ 06/25/26 5.938 4,750,000
Housing Securities Inc.
3,375 Series 1992-5, Class A. 06/25/22 7.597 3,421,902
Ryland Mortgage
Securities Corp. Series
1,981 1991-17, Class A1...... 10/25/21 7.002 1,983,689
Ryland Mortgage
Securities Corp. Series
2,824+ 1992-L9, Class A2...... 07/25/22 8.007 2,843,507
Ryland Mortgage
Securities Corp. Series
2,763 1992-L10, Class A...... 08/25/22 7.987 2,782,029
Saxon Mortgage
Securities Corp. Series
3,107 1993-1, Class A1....... 02/25/23 8.085 3,138,469
------------
Total Adjustable Rate
Collateralized Mortgage
Obligations
(cost - $18,801,193).............. 18,919,596
------------
</TABLE>
1
<PAGE>
2002 TARGET TERM TRUST INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------- ------------- ------------
<C> <S> <C> <C> <C>
STRIPPED COLLATERALIZED MORTGAGE
OBLIGATIONS - 9.44%
FNMA REMIC, Trust 1991-G-15,
$ 65 Class S***................... 06/25/21 736.345%(1)* $ 1,324,233
FNMA REMIC, Trust 1991-G-35,
3,000+ Class N**.................... 10/25/21 7.557++ 1,867,500
FNMA REMIC, Trust 1992-G-44,
20 Class GA***.................. 05/25/03 1,148.300(2) 715,000
FNMA REMIC, Trust 1993-101,
15,441 Class A***................... 06/25/08 7.000 1,746,847
FNMA REMIC, Series 151, Class
4,103+ 2***......................... 07/25/22 9.500 1,333,631
Structured Asset Securities
Corp. Series 1992-M1, Class
9 A3***........................ 11/25/02 8,910.561(3)* 3,495,273
Structured Asset Securities
Corp. Series 1992-M1,
9 Class A4***.................. 11/25/02 1,572.452(3)* 607,862
------------
Total Stripped Collateralized Mortgage
Obligations
(cost - $11,071,133).................... 11,090,346
------------
ASSET-BACKED SECURITIES - 3.11%
3,650 Discover Card Master Trust I
Series 1996-4, Class A
(cost $3,661,333)............ 10/16/13 5.805 3,661,406
------------
Total Investments (cost - $169,451,825)
144.12%................................. 169,389,815
Liabilities in excess of other assets -
(44.12%)............................... (51,854,526)
------------
Net Assets - 100.00%..................... $117,535,289
============
</TABLE>
- -------
ARM--Adjustable Rate Mortgage security--The interest rate shown is the current
rate as of May 31, 1996.
TBA--(To Be Assigned) Securities are purchased on a forward commitment basis
with an approximate (generally +/-2.5%) principal amount and generally stated
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.
+ Entire or partial principal amount pledged as collateral for reverse repur-
chase agreements (with Nomura Securities, maturing June 20, 1996) and/or
futures transactions
++ Estimated yield to maturity at May 31, 1996
(1) Annualized yield at date of purchase: 27.244%
(2) Annualized yield at date of purchase: 14.600%
(3) Annualized yield at date of purchase: 11.000%
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
IN APPRECIATION
CONTRACTS TO DELIVER EXCHANGE FOR EXPIRATION DATE (DEPRECIATION)
-------------------- ------------ ---------------- --------------
<C> <S> <C> <C> <C>
30 year United States
127 Treasury Bonds.............. $13,846,947 Jun 96 to Sep 96 $ 181,448
230 90 day Eurodollar........... 53,975,237 Jun 96 to Dec 97 81,162
---------
262,610
---------
<CAPTION>
CONTRACTS TO RECEIVE
--------------------
<C> <S> <C> <C> <C>
5 year United States
92 Treasury Notes.............. 9,816,753 Jun 96 (149,567)
10 year United States
240 Treasury Notes.............. 25,810,110 Jun 96 to Sep 96 (328,860)
---------
(478,427)
---------
$(215,817)
=========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost - $169,451,825)........ $169,389,815
Cash............................................................. 711,553
Receivable for investments sold.................................. 16,012,169
Interest receivable.............................................. 1,109,029
Deferred organizational expenses................................. 71,209
Other assets..................................................... 25,534
------------
Total assets..................................................... 187,319,309
------------
Liabilities
Payable for reverse repurchase agreements........................ 40,445,000
Payable for investments purchased................................ 28,857,389
Payable for fund shares repurchased.............................. 204,835
Payable for interest on reverse repurchase agreements............ 91,187
Payable to investment adviser and administrator.................. 70,664
Variation margin payable ........................................ 4,219
Accrued expenses and other liabilities........................... 110,726
------------
Total liabilities................................................ 69,784,020
------------
Net Assets
Capital stock - $0.001 par value; total authorized 200,000,000
shares;
8,368,467 shares issued and outstanding......................... 121,152,762
Undistributed net investment income.............................. 3,012,989
Accumulated net realized losses from investments and futures
transactions.................................................... (6,352,635)
Net unrealized depreciation of investments and futures
transactions.................................................... (277,827)
------------
Net assets applicable to shares outstanding...................... $117,535,289
============
Net asset value per share........................................ $14.05
============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
2002 TARGET TERM TRUST INC.
FOR THE SIX MONTHS ENDED
STATEMENT OF OPERATIONS MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest........................................................... $7,054,285
----------
Expenses:
Interest expense................................................... 1,105,961
Investment advisory and administration............................. 446,536
Reports and notices to shareholders................................ 46,466
Custody and accounting............................................. 45,796
Legal and audit.................................................... 39,188
Amortization of organizational expenses............................ 22,562
Transfer agency and service fees................................... 15,575
Directors' fees.................................................... 4,200
Other expenses..................................................... 33,827
----------
1,760,111
----------
Net investment income.............................................. 5,294,174
----------
Realized and unrealized gains (losses) from investment activities:
Net realized gains (losses) from:
Investment transactions........................................... 2,682,554
Futures transactions.............................................. (1,711,753)
Net change in unrealized appreciation/depreciation of:
Investments....................................................... (6,168,864)
Futures contracts................................................. (720,453)
----------
Net realized and unrealized losses from investment activities...... (5,918,516)
----------
Net decrease in net assets resulting from operations............... $ (624,342)
==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
2002 TARGET TERM TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 1996 NOVEMBER 30,
(UNAUDITED) 1995
------------ ------------
<S> <C> <C>
From operations:
Net investment income.............................. $ 5,294,174 $ 10,617,663
Net realized gains from investment transactions.... 2,682,554 2,112,723
Net realized losses from futures transactions...... (1,711,753) (4,480,477)
Net change in unrealized appreciation/depreciation
of investments ................................... (6,168,864) 16,269,717
Net change in unrealized appreciation/depreciation
of futures contracts.............................. (720,453) 504,636
------------ ------------
Net increase (decrease) in net assets resulting
from operations................................... (624,342) 25,024,262
------------ ------------
Dividends and distributions to shareholders from:
Net investment income.............................. (3,814,332) (9,465,902)
------------ ------------
Capital Stock Transactions:
Cost of fund shares repurchased.................... (14,780,132) (15,366,315)
------------ ------------
Net increase (decrease) in net assets.............. (19,218,806) 192,045
Net assets:
Beginning of period................................ 136,754,095 136,562,050
------------ ------------
End of period (including undistributed net
investment income of $3,012,989 and $1,533,147,
respectively)..................................... $117,535,289 $136,754,095
============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
2002 TARGET TERM TRUST INC.
FOR THE SIX MONTHS ENDED
STATEMENT OF CASH FLOWS MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Cash flows provided from operating activities:
Interest received.............................................. $ 8,797,710
Expenses paid.................................................. (1,755,718)
Sale of short-term portfolio investments, net.................. 1,024,000
Purchase of long-term portfolio investments.................... (118,542,011)
Sale of long-term portfolio investments........................ 137,453,406
Variation margin paid on futures contracts..................... (2,396,821)
-------------
Net cash provided from operating activities.................... 24,580,566
-------------
Cash flows used for financing activities:
Dividends and distributions paid to shareholders............... (3,814,332)
Capital stock repurchased...................................... (15,116,681)
Decrease in reverse repurchase agreements...................... (4,938,000)
-------------
Net cash used for financing activities......................... (23,869,013)
-------------
Net change in cash............................................. 711,553
Cash at beginning of period.................................... 0
-------------
Cash at end of period.......................................... $ 711,553
=============
Reconciliation of net decrease in net assets resulting from
operations to net cash provided from operating activities:
Net decrease in net assets resulting from operations........... $ (624,342)
-------------
Decrease in investments, at value.............................. 25,182,434
Increase in receivable for investments sold.................... (14,963,020)
Decrease in interest receivable................................ 1,518,067
Decrease in other assets....................................... 5,060
Increase in payable for investments purchased.................. 13,422,589
Increase in variation margin payable........................... 35,385
Amortization of organizational expenses........................ 22,562
Decrease in payable to investment advisor and administrator.... (8,823)
Increase in payable for interest on reverse repurchase
agreements.................................................... 10,585
Decrease in accrued expenses and other liabilities............. (19,931)
-------------
25,204,908
-------------
Net cash provided from operating activities ................... $ 24,580,566
=============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS-(unaudited)
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.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund 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 -- 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
7
<PAGE>
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 Trust primarily used financial futures contracts 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 six months ended May 31, 1996 was $36,244,157 at a weighted average
interest rate of 5.42%. The maximum amount of reverse repurchase agreements
outstanding at any month-end during the six months ended May 31, 1996 was
$57,000,000 as of December 31, 1995 which was 28.52% 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.
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.
8
<PAGE>
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, including mortgage- and
asset-backed securities, held by the Trust to meet their obligations may be
affected by economic developments, including those particular to a specific
issuer, 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 Asset Management Inc. ("Mitchell
Hutchins"). The Advisory 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.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1996
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1996, the components of net unrealized depreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross depreciation (from investments having an excess of cost over
value)........................................................... $(2,076,916)
Gross appreciation (from investments having an excess of value
over cost)....................................................... 2,014,906
-----------
Net unrealized depreciation of investments........................ $ (62,010)
===========
</TABLE>
9
<PAGE>
For the six months ended May 31, 1996, total aggregate purchases and sales of
portfolio securities excluding short-term securities, were $131,964,599 and
$152,416,426, respectively.
FEDERAL INCOME 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 a tax planning
strategy, the Trust intends to retain a portion of its taxable income and will
pay any applicable excise tax.
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 8,368,467 shares outstanding as of May 31, 1996, Mitchell Hutchins owned
6,667 shares.
For the six months ended May 31, 1996 the Fund repurchased 1,147,400 shares of
common stock at an average market price per share of $12.82 and a weighted
average discount from net asset value of 10.97% per share. At May 31, 1996
paid-in-capital is net the cost of $30,146,447 of capital stock reacquired.
For the period July 10, 1995 through November 30, 1995 the Fund repurchased
1,240,800 shares of common stock at an average market price per share of $12.32
and a weighted average discount from net asset value of 11.72% per share.
10
<PAGE>
2002 TARGET TERM TRUST INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING FOR EACH OF THE PERIODS
IS PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
FOR THE YEARS ENDED DECEMBER 31, 1992
SIX MONTHS ENDED NOVEMBER 30, (COMMENCEMENT OF
MAY 31, 1996 ------------------ OPERATIONS) TO
(UNAUDITED) 1995 1994 NOVEMBER 30, 1993
---------------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 14.37 $ 12.70 $ 14.68 $ 14.10
-------- -------- -------- --------
Net investment income... 0.63 1.02* 0.93 0.89
Net realized and
unrealized gains
(losses) from
investment
transactions............ (0.61) 1.36* (1.90) 0.68
-------- -------- -------- --------
Net increase (decrease)
in net asset value
resulting from
operations............. 0.02 2.38 (0.97) 1.57
-------- -------- -------- --------
Dividends from net
investment income...... (0.43) (0.90) (0.96) (0.84)
Distributions from
short-term capital
gains................... -- -- (0.05) (0.11)
-------- -------- -------- --------
Total dividends and
distributions to
shareholders............ (0.43) (0.90) (1.01) (0.95)
-------- -------- -------- --------
Net increase in net
asset value resulting
from repurchase of
common stock .......... 0.09 0.19 -- --
-------- -------- -------- --------
Offering costs charged
to capital............. -- -- -- (0.04)
-------- -------- -------- --------
Net asset value, end of
period................. $ 14.05 $ 14.37 $ 12.70 $ 14.68
======== ======== ======== ========
Per share market value,
end of period.......... $ 12.88 $ 12.50 $ 11.25 $ 14.00
======== ======== ======== ========
Total investment return
(1).................... 6.57% 19.85% (12.79)% 5.94%
======== ======== ======== ========
Ratios/Supplemental
Data:
Net assets, end of
period (000 omitted)... $117,535 $136,754 $136,562 $157,888
Expenses to average net
assets+................ 2.71%** 3.42% 2.72% 1.79%**
Net investment income to
average net assets..... 8.32%** 7.44% 6.82% 6.67%**
Portfolio turnover rate. 76% 103% 108% 355%
Asset coverage++........ $ 3,906 $ 4,013 $ 3,023 $ 3,110
- ---------------------
</TABLE>
* Calculated using average daily shares outstanding for the year
** Annualized
+ This ratio includes 1.73%, 2.50%, 1.82% and 0.91% related to interest expense
for the six months ended May 31, 1996 and for the years ended November 30,
1995 and 1994, and for the period December 31, 1992 to November 30, 1993
respectively, which represents a 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 and distributions
at prices obtained under the Fund's Dividend Reinvestment Plan. Investment
returns do not reflect brokerage commissions and have not been annualized
for periods of less than one year.
11
<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 June 30, 1996. 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.
A special meeting of shareholders of the Fund was held on April 11, 1996. At
the meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr.,
Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V.
Malek, Carl W. Schafer and John R. Torell III were elected to serve as
directors until the next annual meeting of shareholders, or until their
successors are elected and qualified.
1. To elect ten members of its Board of Directors:
<TABLE>
<CAPTION>
Shares Shares
Voted For Withhold Authority
--------- ------------------
<S> <C> <C>
Margo N. Alexander................................. 4,478,616 277,676
Richard Q. Armstrong............................... 4,479,387 276,905
E. Garrett Bewkes, Jr. ............................ 4,479,387 276,905
Richard Burt....................................... 4,479,387 276,905
Mary C. Farrell.................................... 4,478,717 277,575
Meyer Feldberg..................................... 4,479,322 276,970
George W. Gowen.................................... 4,478,587 277,705
Frederic V. Malek.................................. 4,471,859 284,433
Carl W. Schafer.................................... 4,478,522 277,770
John R. Torell III................................. 4,477,349 278,943
</TABLE>
2. Ratification of the selection of Ernst & Young LLP as the independent
auditors for its current fiscal year:
<TABLE>
<CAPTION>
Shares Voted Shares Shares
For Against Abstain
------------ ------- -------
<S> <C> <C> <C>
4,455,751 34,078 266,463
</TABLE>
12
<PAGE>
2002 TARGET TERM TRUST INC.
3. Approval of the proposed changes to the Fund's fundamental investment
restrictions and policies:
<TABLE>
<CAPTION>
Shares Voted Shares Shares
For Against Abstain
------------ ------- -------
<S> <C> <C> <C>
Modification of fundamental restriction on
portfolio diversification for diversified funds; 3,278,341 95,016 302,935
Modification of fundamental restriction on
concentration: 3,267,219 99,812 309,261
Modification of fundamental restriction on senior
securities and borrowing; 3,262,079 116,594 297,619
Modification of fundamental restriction on making
loans; 3,258,486 119,869 297,937
Modification of fundamental restriction on
underwriting securities: 3,263,599 105,514 307,179
Modification of fundamental restriction on real
estate investments: 3,243,490 134,473 298,329
Modification of fundamental restriction on
investing in commodities; 3,235,377 138,134 302,781
Elimination of fundamental restriction on margin
transactions: 3,206,479 158,562 311,251
Elimination of fundamental restriction on short
sales: 3,218,637 152,697 304,958
</TABLE>
- -------
(Broker non-votes and abstentions are included within the "Shares Abstain"
totals.)
DISTRIBUTION POLICY
The Trust has established a Dividend Reinvestment Plan (the "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 Plan. Additional
shares 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 at the time of the purchase. The Trust will not issue any new
shares in connection with the Plan.
13