2002 Target Term Trust Inc. -- Quarterly Commentary.

NEW YORK--(BUSINESS WIRE)--Nov. 22, 1999--

2002 Target Term Trust Inc. (NYSE: TTR) is a closed-end management investment company investing in high quality fixed-income and adjustable-rate securities.

Commentary

Performance in the fixed income market was mixed in the third quarter of 1999. Spreads (the difference in yield or income that securities must pay to compensate for additional risk) widened slightly across most non-Treasury sectors in July and August, mainly due to expectations of a heavy issuance calendar as well as wider swap spreads. However, the market showed signs of recovery near quarter-end as supply fears subsided and investor confidence improved.

The 30-year bond yield spiked to 6.28% as consumer spending hit an all-time high and U.S. economic growth continued. In mid-August, when signs of a Federal Reserve interest rate increase became clear; the 30-year bond yield sank to a quarterly low of 5.86%. Nonetheless, the modest 0.25% tightening did little to slow the growth of the U.S. economy, and the 30-year Treasury sold off again to close the quarter at 6.05%. Over the quarter, Treasury yields rose about 0.08% across all maturities.

Investment-grade sectors--agencies, asset-backed securities, corporates and mortgages--ended the quarter on a favorable note, regaining some of the ground lost earlier in July and August. The Trust underperformed its Treasury benchmark due to spread widening in the mortgage- and asset-backed sectors.

Portfolio Positioning

The Trust continues to target a duration equal to the Treasury benchmark.1 The Trust's long-term, strategic positions in the pass-through, collateralized mortgage obligation (CMO), adjustable-rate mortgage (ARM) and asset-backed (ABS) sectors remained fairly stable during the quarter.

We expect the Trust's allocations across the MBS and ABS sectors will continue to benefit from narrowing swap spreads, which recently have been highly correlated with credit spreads.

Outlook

Our outlook remains somewhat guarded, especially as we approach year-end. While it appears that the Federal Reserve Board may not increase short-term interest rates at the mid-November meeting, the ultimate decision will rely heavily on preliminary third-quarter economic growth and employment data. We continue to expect that uncertainty regarding Y2K may add to existing investor skittishness and lead to spread widening going forward.

We will continue to manage the Trust's portfolio opportunistically--reallocating assets only if and when our relative value analysis clearly dictates it is prudent.

This commentary reflects our views at the time of its writing. These views may change in response to changing circumstances.