BENHAM TARGET
MATURITIES TRUST
Annual Report
September 30, 1995
[picture of bullseye
range]
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
<PAGE>
CONTENTS
U.S. ECONOMIC REVIEW................................. 1
MARKET SUMMARY....................................... 2
1995 PORTFOLIO
Performance Information & Portfolio Statistics....... 4
Performance Comparison & Portfolio Composition....... 5
Management Discussion................................ 6
Financial Highlights..................................34
Schedule of Investments...............................55
2000 PORTFOLIO
Performance Information & Portfolio Statistics....... 8
Performance Comparison & Portfolio Composition....... 9
Management Discussion.................................10
Financial Highlights..................................36
Schedule of Investments...............................56
2005 PORTFOLIO
Performance Information & Portfolio Statistics........12
Performance Comparison & Portfolio Composition........13
Management Discussion.................................14
Financial Highlights..................................38
Schedule of Investments...............................57
2010 PORTFOLIO
Performance Information & Portfolio Statistics........16
Performance Comparison & Portfolio Composition........17
Management Discussion.................................18
Financial Highlights..................................40
Schedule of Investments...............................58
2015 PORTFOLIO
Performance Information & Portfolio Statistics........20
Performance Comparison & Portfolio Composition........21
Management Discussion.................................22
Financial Highlights..................................42
Schedule of Investments...............................59
2020 PORTFOLIO
Performance Information & Portfolio Statistics........24
Performance Comparison & Portfolio Composition........25
Management Discussion.................................26
Financial Highlights..................................44
Schedule of Investments...............................60
INVESTMENT FUNDAMENTALS...............................28
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman of the Board M. Benham]
Lower-than-expected inflation during the 12 months ended September 30, 1995,
helped generate optimism in the U.S. financial markets. U.S. inflation, as
measured by the consumer price index, increased at an annual rate of just 2.5%
during the 12-month period. Corporate mergers, downsizing and global job
competition kept labor costs low, and technological advances made U.S. workers
more efficient, boosting U.S. productivity to a 10-year high.
[graph data described below]
Slow economic growth also contributed significantly to the low inflation rate.
The Federal Reserve (the Fed) achieved its goal of slow economic growth and low
inflation, the so-called "soft landing." The Fed raised short-term interest
rates seven times from February 1994 to February 1995 (see the accompanying
graph) to slow the economy and prevent inflation. The higher interest rates
caused slowdowns in auto, home and retail sales in the first quarter of 1995.
Growth was even slower in the second quarter. U.S. employment suffered the
biggest monthly jobs decline in four years, and industrial production declined
for three consecutive months. As a result, real annual growth was just 1.3% in
the second quarter.
Economic weakness was so pronounced by the summer of 1995 that the Fed reduced
interest rates in early July. The Fed lowered the target for the federal funds
rate from 6.00% to 5.75%, its first rate cut since September 1992. Despite this
action, economic signals remained mixed through the third quarter. Signs of
strength appeared in the housing and manufacturing sectors, but consumer
confidence ebbed and retail sales lagged. As a result, the Fed left interest
rates unchanged in August and September.
Despite a strong preliminary economic growth estimate for the third quarter, the
jury is still out regarding the strength of the U.S. economy. Many analysts
project that the economy could experience its smallest fourth-quarter growth
rate since 1991. If tangible signs of economic weakness (such as low holiday
season sales figures) appear and Congress and President Clinton agree on a
meaningful budget deficit-reduction plan (one that would cut government spending
and therefore inhibit economic growth), the Fed may cut short-term interest
rates again before the end of the year.
[graph data]
Discount Rate Fed Funds Rate
Oct-91 5 5.21
Nov-91 4.5 4.81
Dec-91 3.5 4.43
Jan-92 3.5 4.03
Feb-92 3.5 4.06
Mar-92 3.5 3.98
Apr-92 3.5 3.73
May-92 3.5 3.82
Jun-92 3.5 3.76
Jul-92 3 3.25
Aug-92 3 3.3
Sep-92 3 3.22
Oct-92 3 3.1
Nov-92 3 3.09
Dec-92 3 2.92
Jan-93 3 3.02
Feb-93 3 3.03
Mar-93 3 3.07
Apr-93 3 2.96
May-93 3 3
Jun-93 3 3.04
Jul-93 3 3.06
Aug-93 3 3.03
Sep-93 3 3.09
Oct-93 3 2.99
Nov-93 3 3.02
Dec-93 3 2.96
Jan-94 3 3.05
Feb-94 3 3.25
Mar-94 3 3.34
Apr-94 3 3.56
May-94 3.5 4.01
Jun-94 3.5 4.25
Jul-94 3.5 4.26
Aug-94 4 4.47
Sep-94 4 4.73
Oct-94 4 4.76
Nov-94 4.75 5.29
Dec-94 4.75 5.45
Jan-95 4.75 5.53
Feb-95 5.25 5.92
Mar-95 5.25 5.98
Apr-95 5.25 6.05
May-95 5.25 6.01
Jun-95 5.25 5.98
Jul-95 5.25 5.77
Aug-95 5.25 5.75
Sep-95 5.25 5.8
Oct-95 5.25 5.97
1
<PAGE>
MARKET SUMMARY
ZERO-COUPON BONDS
by Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals and U.S. Economic
Review sections before you read this section. The words and investment terms
marked with an asterisk (*) are defined in the Investment Fundamentals section
beginning on page 28.
Performance Perspective
What a difference a year (and falling interest rates) can make! In last year's
annual report, the Target Portfolios had total returns for the fiscal year ended
September 30, 1994, ranging from 1.01% for the 1995 Portfolio to -28.29% for the
2020 Portfolio. Inflation fears, strong economic growth and five (out of an
eventual seven) short-term interest rate increases by the Fed caused interest
rates in general to rise and bond prices to slump in 1994.
The situation has reversed in 1995. The Fed's interest rate increases have
slowed the economy and brought inflation under control, leading to falling
interest rates and rising U.S. bond prices (see page 1). Long maturity zeros*
have benefited most from the U.S. bond market rally, posting total returns of
30% and higher for the fiscal year ended September 30, 1995. These bonds have
even surpassed the strong performance of U.S. stocks. For the fiscal year ended
September 30, 1995, the three longest-term Portfolios (2010, 2015 and 2020) had
total returns that exceeded the 29.74% total return for the Standard & Poor's
500 (S&P 500) stock index. Even 2005, an intermediate-term Portfolio, came close
to matching the the performance of the S&P 500, with a total return of 25.16%.
Yields [graph data described below]
The yield curve* graph shown on this page tells much of the yield and
performance story for zeros during the fiscal year ended September 30, 1995. The
large gap between the solid black line (representing zero yields as of September
30, 1994) and the solid red line (representing zero yields as of September 30,
1995) shows how far zero yields fell during the fiscal year. Falling yields, in
turn, corresponded to rising zero prices and higher share prices for the
Portfolios.
[graph data]
9/30/94 3/31/95 9/30/95
"1" 5.665 6.445 5.54
"2" 6.385 6.71 5.815
"3" 6.785 6.95 5.92
"4" 7.01 7.0125 5.9725
"5" 7.235 7.075 6.025
"6" 7.375 7.14 6.1075
"7" 7.515 7.205 6.19
"8" 7.62 7.22 6.25167
"9" 7.725 7.33833 6.31333
"10" 7.83 7.405 6.375
"11" 7.8725 7.4405 6.423
"12" 7.915 7.476 6.471
"13" 7.9575 7.5115 6.519
"14" 8 7.547 6.567
"15" 8.0425 7.5825 6.615
"16" 8.085 7.618 6.663
"17" 8.1275 7.6535 6.711
"18" 8.17 7.689 6.759
"19" 8.2125 7.7245 6.807
"20" 8.255 7.76 6.855
"21" 8.244 7.762 6.864
"22" 8.233 7.764 6.873
"23" 8.222 7.766 6.882
"24" 8.211 7.768 6.891
"25" 8.2 7.77 6.9
"26" 8.068 7.654 6.778
"27" 7.936 7.538 6.656
"28" 7.804 7.422 6.534
"29" 7.672 7.306 6.412
"30" 7.54 7.19 6.29
2
<PAGE>
MARKET SUMMARY
ZERO-COUPON BONDS
(Continued from the previous page)
The graph also shows how the zero yield curve flattened as yields for
longer-maturity zeros fell further than yields for short maturity zeros. Yields
were stable at the short end of the zero yield curve because market expectations
for short-term interest rate levels in September 1995 were much the same as they
were a year earlier.
Supply and Demand
One of the biggest supply and demand stories for zeros over the past two years
has been the increased reconstitution* of receipt zeros.* Between 1982 and 1985,
dealers stripped* approximately $36 billion of ordinary Treasury bonds
(Treasuries). They created receipt zeros by placing the underlying Treasuries
with a custodian and selling receipts entitling the receipt holders to single
interest and principal payments in the future. Until 1985, the only Treasury
zeros were receipt and physical zeros.
In 1985, the U.S. Treasury initiated the STRIPS* program. The superior liquidity
and settlement characteristics of STRIPS effectively ended the receipt zero
creation programs, but a pool of existing receipt zeros remained in the market.
This pool of receipt zeros traded at higher yields than STRIPS because they were
more difficult to reconstitute. The custodial agreements signed by the dealers
stipulated that receipt coupons had to be matched with receipt principal to form
whole bonds; receipt zeros could not be combined with STRIPS to effect
reconstitution.
That changed in late 1993, when the dealers amended their custodial agreements
to allow reconstitution of receipt zeros using STRIPS. That, in turn, made it
easier for investors to profit when whole Treasuries could be sold for more than
their separate stripped parts. Investors could buy receipt zeros at favorable
prices and reconstitute them into whole bonds that were worth more to the
market. The custodial amendments also allowed coupon receipt zero holders to
exchange with the custodian for the same maturity coupon STRIPS.
Opportunities to profit from price differences between receipt zeros and
underlying Treasuries have caused yield spreads* to tighten and have further
reduced the finite supply of receipt zeros. Net reconstitution in 1995 of
Treasuries with maturities of 20 years and longer has also reduced the supply
(and increased the price) of short-maturity coupon STRIPS. These coupon STRIPS
are matched with principal receipt zeros to reconstitute long-term Treasuries.
3
<PAGE>
1995 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ----------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------
$94.92-$100.51 5.77% 4.11% 8.49% 10.40%
The Portfolio commenced operations on March 25, 1985.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 34.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $64,420,933 $88,046,007
AGR: 5.03% 5.69%
WAM Date: 12/25/95 12/25/95
AVM: $101.62 $101.59
STRIPS Yield: 5.62% 6.48%
Non-STRIPS Yield: 5.56% 6.13%
These statistics are defined on page 30. Their value typically changes over
time.
4
<PAGE>
<TABLE>
<CAPTION>
1995 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 10/1/85 in the Portfolio, the Merrill Lynch Long-Term U.S. Treasury Index
and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($31,834) Benchmark ($28,475) Portfolio ($26,883)
<S> <C> <C> <C>
Sep-85 10000 10000 10000
Oct-85 10379 10421 10286
Nov-85 10808 10808 10776
Dec-85 11403 11545 11506
Jan-86 11418 11571 11514
Feb-86 12593 12729 12649
Mar-86 13712 13804 13551
Apr-86 13599 13968 13629
May-86 12852 13128 12965
Jun-86 13651 14068 13701
Jul-86 13599 13983 13752
Aug-86 14185 14786 14520
Sep-86 13632 14202 13781
Oct-86 13887 14370 14100
Nov-86 14160 14859 14458
Dec-86 14138 14894 14541
Jan-87 14373 15215 14761
Feb-87 14596 15299 14887
Mar-87 14184 15029 14595
Apr-87 13590 14207 13835
May-87 13468 13854 13706
Jun-87 13625 14253 13827
Jul-87 13368 13939 13615
Aug-87 13148 13726 13401
Sep-87 12563 13046 12834
Oct-87 13486 13781 13506
Nov-87 13492 14036 13730
Dec-87 13761 14261 13975
Jan-88 14593 15065 14655
Feb-88 14773 15306 14923
Mar-88 14314 14925 14569
Apr-88 14084 14715 14422
May-88 13836 14515 14134
Jun-88 14420 15086 14676
Jul-88 14147 14865 14502
Aug-88 14201 14833 14489
Sep-88 14737 15368 14976
Oct-88 15171 15746 15351
Nov-88 14839 15408 15032
Dec-88 15028 15400 15075
Jan-89 15332 15735 15281
Feb-89 15024 15411 14992
Mar-89 15184 15572 15142
Apr-89 15540 15910 15501
May-89 16158 16492 15996
Jun-89 17074 17166 16641
Jul-89 17464 17697 17144
Aug-89 16999 17248 16716
Sep-89 17064 17299 16756
Oct-89 17749 17865 17248
Nov-89 17893 18042 17414
Dec-89 17868 18082 17385
Jan-90 17259 17711 17053
Feb-90 17184 17689 17069
Mar-90 17140 17678 17088
Apr-90 16700 17470 16847
May-90 17480 18032 17345
Jun-90 17878 18323 17636
Jul-90 18061 18665 17960
Aug-90 17281 18394 17708
Sep-90 17502 18551 17896
Oct-90 17891 18949 18236
Nov-90 18634 19463 18683
Dec-90 19022 19795 18985
Jan-91 19237 19960 19175
Feb-91 19313 20049 19271
Mar-91 19376 20108 19309
Apr-91 19631 20421 19571
May-91 19630 20454 19665
Jun-91 19476 20435 19627
Jul-91 19761 20697 19839
Aug-91 20451 21219 20398
Sep-91 21089 21683 20808
Oct-91 21157 22031 21134
Nov-91 21259 22393 21447
Dec-91 22528 23029 22052
Jan-92 21797 22710 21752
Feb-92 21951 22760 21766
Mar-92 21709 22581 21592
Apr-92 21717 22899 21878
May-92 22289 23271 22253
Jun-92 22608 23703 22667
Jul-92 23532 24186 23160
Aug-92 23731 24529 23460
Sep-92 24094 24953 23837
Oct-92 23615 24580 23470
Nov-92 23688 24452 23318
Dec-92 24317 24820 23666
Jan-93 25037 25234 24083
Feb-93 25867 25593 24434
Mar-93 25937 25710 24517
Apr-93 26126 25888 24717
May-93 26223 25762 24597
Jun-93 27325 26026 24830
Jul-93 27747 26049 24865
Aug-93 28860 26340 25138
Sep-93 28988 26410 25196
Oct-93 29167 26451 25239
Nov-93 28423 26449 25215
Dec-93 28508 26561 25309
Jan-94 29200 26728 25461
Feb-94 27981 26563 25279
Mar-94 26838 26455 25172
Apr-94 26427 26364 25063
May-94 26299 26426 25100
Jun-94 26063 26519 25172
Jul-94 26887 26711 25360
Aug-94 26720 26822 25437
Sep-94 25910 26826 25432
Oct-94 25795 26927 25494
Nov-94 25932 26898 25451
Dec-94 26388 26981 25502
Jan-95 27062 27244 25756
Feb-95 27822 27461 25967
Mar-95 28024 27591 26090
Apr-95 28518 27742 26238
May-95 30723 27940 26422
Jun-95 31094 28080 26556
Jul-95 30609 28208 26668
Aug-95 31269 28355 26789
Sep-95 31834 28475 26883
Past performance does not guarantee future results.
</TABLE>
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark, a November 15,
1995 maturity coupon STRIPS issue, to be the Portfolio's supplementary index.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
T-Bills: 38% STRIPS: 66%
STRIPS: 35% T-Bills: 18%
T-Notes: 13% T-Notes: 7%
TRs: 6% CUBES: 5%
CUBES: 5% Other: 4%
Other: 3%
For definitions of these security types, see pages 29 and 30. The composition of
the Portfolio typically changes over time.
5
<PAGE>
1995 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 5.77% (see page 4 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. In relative
terms, the Portfolio's total return for the period was 38 basis points*
lower than the 6.15% total return for the Portfolio's benchmark, a
November 15, 1995 maturity coupon STRIPS* issue. (See page 5 for the
historical comparative performance of the Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: The Portfolio's operating expenses (such as transaction costs and
management fees) reduced its return relative to the benchmark. Before
expenses, the Portfolio's total return for the fiscal year was higher
than the benchmark's return. This outperformance before expenses is
likely due to the Portfolio's longer average maturity (a 12/25/95 WAM
date* as of 9/30/95, compared to the benchmark's 11/15/95 maturity
date), which made the Portfolio more sensitive to falling interest
rates than the benchmark.
Q: How did you position the Portfolio during the last six months?
A: We continued to move the Portfolio into a very "liquid" position, which
means that it held securities that are relatively easy to sell in the
market. As shown in the graphs at the bottom of page 5, by September 30
the Portfolio was invested primarily in highly liquid Treasury bills,
Treasury notes and STRIPS. This should help the Portfolio meet
shareholder redemption requests in the weeks ahead.
6
<PAGE>
1995 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: When will you liquidate the Portfolio?
A: We plan to liquidate the Portfolio on or about January 25, 1996.
We have notified shareholders by letter and asked for instructions
regarding the liquidation proceeds. Shareholders have the option of
receiving a check or exchanging their shares free of charge into
another Portfolio or another Benham fund.
Q: Do you know what the Portfolio's share price will be at liquidation?
A: No, but we can estimate what the Portfolio's share price will be on
December 31, 1995. As of September 30, our estimate was $101.62.
Q: What's your management strategy until liquidation?
A: We plan to continue to increase the Portfolio's liquidity so we can
meet redemption requests from shareholders. We expect nearly all of the
Portfolio's assets to remain invested in STRIPS and short-term Treasury
securities. As the Portfolio's securities mature, we will look to
reinvest the proceeds in STRIPS or Treasury bills, depending on
relative values and the Portfolio's liquidity needs.
7
<PAGE>
2000 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ----------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------
$65.71-$77.19 14.84% 7.33% 12.26% 13.60%
The Portfolio commenced operations on March 25, 1985.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 36.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $294,898,365 $283,008,191
AGR: 5.37% 6.45%
WAM Date: 11/27/00 11/29/00
AVM: $100.99 $100.93
STRIPS Yield: 6.07% 7.13%
Non-STRIPS Yield: 6.14% 7.18%
These statistics are defined on page 30. Their value typically changes over
time.
8
<PAGE>
<TABLE>
<CAPTION>
2000 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 10/1/85 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($31,834) Benchmark ($38,447) Portfolio ($35,798)
<S> <C> <C> <C>
Sep-85 10000 10000 10000
Oct-85 10379 10549 10480
Nov-85 10808 11487 11290
Dec-85 11403 12617 12469
Jan-86 11418 12366 12213
Feb-86 12593 14644 14430
Mar-86 13712 16505 15776
Apr-86 13599 16290 15855
May-86 12852 14921 14583
Jun-86 13651 16104 15515
Jul-86 13599 15908 15343
Aug-86 14185 17144 16647
Sep-86 13632 15891 15240
Oct-86 13887 16266 15892
Nov-86 14160 16928 16460
Dec-86 14138 16984 16507
Jan-87 14373 17302 16749
Feb-87 14596 17616 17089
Mar-87 14184 17371 16759
Apr-87 13590 16175 15566
May-87 13468 15750 15366
Jun-87 13625 15955 15426
Jul-87 13368 15435 14886
Aug-87 13148 14940 14378
Sep-87 12563 14144 13578
Oct-87 13486 15596 14929
Nov-87 13492 15506 14966
Dec-87 13761 15980 15524
Jan-88 14593 17323 16558
Feb-88 14773 17686 16912
Mar-88 14314 16851 16190
Apr-88 14084 16450 15860
May-88 13836 16251 15468
Jun-88 14420 17170 16362
Jul-88 14147 16655 15985
Aug-88 14201 16795 16036
Sep-88 14737 17624 16870
Oct-88 15171 18320 17513
Nov-88 14839 17869 17075
Dec-88 15028 17940 17308
Jan-89 15332 18662 17750
Feb-89 15024 18005 17149
Mar-89 15184 18205 17387
Apr-89 15540 18762 17960
May-89 16158 19588 18668
Jun-89 17074 20924 19935
Jul-89 17464 21390 20447
Aug-89 16999 20782 19846
Sep-89 17064 20851 19930
Oct-89 17749 21774 20698
Nov-89 17893 21962 20871
Dec-89 17868 21939 20736
Jan-90 17259 20983 19823
Feb-90 17184 20903 19809
Mar-90 17140 20880 19832
Apr-90 16700 20242 19194
May-90 17480 21272 20102
Jun-90 17878 21783 20591
Jul-90 18061 22053 20806
Aug-90 17281 21048 19869
Sep-90 17502 21233 20079
Oct-90 17891 21967 20643
Nov-90 18634 22896 21555
Dec-90 19022 23432 22045
Jan-91 19237 23683 22212
Feb-91 19313 23587 22296
Mar-91 19376 23763 22399
Apr-91 19631 24220 22720
May-91 19630 24078 22687
Jun-91 19476 23926 22534
Jul-91 19761 24322 22869
Aug-91 20451 25213 23786
Sep-91 21089 26106 24532
Oct-91 21157 26183 24746
Nov-91 21259 26685 25044
Dec-91 22528 28350 26600
Jan-92 21797 27170 25510
Feb-92 21951 27325 25673
Mar-92 21709 26894 25319
Apr-92 21717 27064 25309
May-92 22289 27655 26003
Jun-92 22608 28382 26688
Jul-92 23532 29653 27880
Aug-92 23731 30086 28220
Sep-92 24094 30878 28952
Oct-92 23615 30067 28234
Nov-92 23688 29919 28085
Dec-92 24317 30722 28854
Jan-93 25037 31713 29753
Feb-93 25867 32862 30829
Mar-93 25937 33065 30968
Apr-93 26126 33399 31276
May-93 26223 33284 31178
Jun-93 27325 34563 32380
Jul-93 27747 34698 32496
Aug-93 28860 35735 33470
Sep-93 28988 36040 33716
Oct-93 29167 36003 33735
Nov-93 28423 35382 33134
Dec-93 28508 35574 33316
Jan-94 29200 36302 33977
Feb-94 27981 35063 32799
Mar-94 26838 33842 31672
Apr-94 26427 33378 31257
May-94 26299 33432 31281
Jun-94 26063 33262 31099
Jul-94 26887 33962 31732
Aug-94 26720 34069 31835
Sep-94 25910 33363 31173
Oct-94 25795 33201 30992
Nov-94 25932 32987 30782
Dec-94 26388 33234 31020
Jan-95 27062 34023 31695
Feb-95 27822 35153 32696
Mar-95 28024 35283 32827
Apr-95 28518 35855 33372
May-95 30723 37714 35077
Jun-95 31094 38028 35389
Jul-95 30609 37847 35170
Aug-95 31269 38226 35514
Sep-95 31834 38447 35798
Past performance does not guarantee future results.
</TABLE>
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark, a November 15,
2000 maturity coupon STRIPS issue, to be the Portfolio's supplementary index.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
STRIPS: 67% STRIPS: 68%
TRs: 28% TRs: 26%
Other: 5% Other: 6%
For definitions of these security types, see page 29. The composition of the
Portfolio typically changes over time.
9
<PAGE>
2000 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 14.84% (see page 8 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. In relative
terms, the Portfolio's total return for the period was 40 basis points*
lower than the 15.24% total return for the Portfolio's benchmark, a
November 15, 2000 maturity coupon STRIPS* issue. (See page 9 for the
historical comparative performance of the Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: The Portfolio's operating expenses (such as transaction costs and
management fees) reduced its return relative to the benchmark. Before
expenses, the Portfolio's total return for the fiscal year was higher
than the benchmark's return. This outperformance before expenses is
likely due to the Portfolio's slightly longer average maturity (a
11/27/00 WAM date* as of 9/30/95, compared to the benchmark's 11/15/00
maturity date), which made the Portfolio more sensitive to falling
interest rates than the benchmark.
Q: How did you position the Portfolio during the last six months?
A: The similarity of the two Portfolio composition graphs at the bottom of
page 9 pretty much tells the story. We didn't do much active management
in the Portfolio from March to October of this year. We were
comfortable with the Portfolio's positioning, so we stood pat while
declining interest rates had a positive impact on the Portfolio's
performance.
10
<PAGE>
2000 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
The few changes we did make to the Portfolio resulted from cash flow
activity. The Portfolio experienced approximately $19 million in net
cash outflows from redemptions during August and September. To meet the
redemptions, we sold coupon STRIPS, which are yielding less in this
maturity sector than principal STRIPS. The supply of coupon STRIPS
remains low because of limited stripping* activity, making these issues
expensive relative to principal STRIPS.
Q: What is your management strategy for the next six months?
A: We will continue to monitor the relative values of coupon STRIPS and
principal STRIPS, shifting the Portfolio's holdings toward the most
attractively priced sector. We also plan to sell more of the
Portfolio's TRs* (28% of the Portfolio as of September 30) and replace
them with STRIPS, which provide more liquidity. We will look for
opportunities to add more liquidity to the Portfolio without
sacrificing yield.
11
<PAGE>
2005 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ----------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years 10 Years
----------------------------------------------------
$44.01-$56.78 25.16% 11.19% 15.33% 16.04%
The Portfolio commenced operations on March 25, 1985.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 38.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $182,221,648 $123,682,551
AGR: 5.75% 6.81%
WAM Date: 11/08/05 11/06/05
AVM: $100.32 $100.36
STRIPS Yield: 6.39% 7.42%
Non-STRIPS Yield: 6.55% 7.57%
These statistics are defined on page 30. Their value typically changes over
time.
12
<PAGE>
<TABLE>
<CAPTION>
2005 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 10/1/85 in the Portfolio, the Merrill Lynch Long-Term U.S. Treasury Index
and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($31,834) Benchmark ($46,352) Portfolio ($44,265)
<S> <C> <C> <C>
Sep-85 10000 10000 10000
Oct-85 10379 11098 10798
Nov-85 10808 11845 11689
Dec-85 11403 12889 13049
Jan-86 11418 12752 12830
Feb-86 12593 16105 15864
Mar-86 13712 18509 17952
Apr-86 13599 18112 17748
May-86 12852 16240 16122
Jun-86 13651 17819 17451
Jul-86 13599 17517 17139
Aug-86 14185 19231 18913
Sep-86 13632 17408 16904
Oct-86 13887 18021 17764
Nov-86 14160 18808 18515
Dec-86 14138 18844 18562
Jan-87 14373 19246 18890
Feb-87 14596 19331 19078
Mar-87 14184 18784 18421
Apr-87 13590 17273 16982
May-87 13468 16879 16583
Jun-87 13625 17222 16615
Jul-87 13368 16379 15856
Aug-87 13148 15614 15153
Sep-87 12563 14434 14019
Oct-87 13486 16471 15951
Nov-87 13492 16291 15943
Dec-87 13761 17020 16638
Jan-88 14593 18988 18234
Feb-88 14773 19159 18555
Mar-88 14314 17858 17241
Apr-88 14084 17162 16812
May-88 13836 16847 16240
Jun-88 14420 18356 17773
Jul-88 14147 17448 16952
Aug-88 14201 17596 17054
Sep-88 14737 18746 18109
Oct-88 15171 19804 19134
Nov-88 14839 19153 18477
Dec-88 15028 19641 19048
Jan-89 15332 20407 19619
Feb-89 15024 19738 18923
Mar-89 15184 20079 19220
Apr-89 15540 20669 19845
May-89 16158 21842 20838
Jun-89 17074 23643 22731
Jul-89 17464 23916 23067
Aug-89 16999 23016 22308
Sep-89 17064 23096 22371
Oct-89 17749 24552 23638
Nov-89 17893 24827 23896
Dec-89 17868 24604 23599
Jan-90 17259 22940 22027
Feb-90 17184 22779 21831
Mar-90 17140 22633 21792
Apr-90 16700 21515 20854
May-90 17480 23242 22293
Jun-90 17878 24030 22981
Jul-90 18061 24101 23059
Aug-90 17281 22212 21417
Sep-90 17502 22496 21691
Oct-90 17891 23241 22293
Nov-90 18634 24933 23857
Dec-90 19022 25582 24443
Jan-91 19237 25872 24607
Feb-91 19313 25671 24732
Mar-91 19376 25805 24771
Apr-91 19631 26177 25170
May-91 19630 25963 24998
Jun-91 19476 25702 24678
Jul-91 19761 26294 25116
Aug-91 20451 27395 26359
Sep-91 21089 28693 27469
Oct-91 21157 28537 27430
Nov-91 21259 28757 27579
Dec-91 22528 31082 29690
Jan-92 21797 29741 28407
Feb-92 21951 29881 28556
Mar-92 21709 29233 28048
Apr-92 21717 28971 27821
May-92 22289 30040 28861
Jun-92 22608 30523 29369
Jul-92 23532 32300 31097
Aug-92 23731 32631 31387
Sep-92 24094 33545 32200
Oct-92 23615 32458 31207
Nov-92 23688 32587 31308
Dec-92 24317 33916 32528
Jan-93 25037 35097 33592
Feb-93 25867 36885 35351
Mar-93 25937 36932 35281
Apr-93 26126 37411 35765
May-93 26223 37561 35797
Jun-93 27325 39885 38009
Jul-93 27747 40429 38526
Aug-93 28860 42123 40128
Sep-93 28988 42731 40535
Oct-93 29167 42857 40731
Nov-93 28423 41223 39229
Dec-93 28508 41564 39542
Jan-94 29200 42924 40910
Feb-94 27981 40560 38596
Mar-94 26838 38149 36657
Apr-94 26427 37563 36289
May-94 26299 37390 36086
Jun-94 26063 37026 35726
Jul-94 26887 38256 36844
Aug-94 26720 38220 36758
Sep-94 25910 36742 35367
Oct-94 25795 36537 35093
Nov-94 25932 36776 35359
Dec-94 26388 37503 36023
Jan-95 27062 38512 36930
Feb-95 27822 39936 38283
Mar-95 28024 40288 38604
Apr-95 28518 41158 39417
May-95 30723 44803 42865
Jun-95 31094 45380 43413
Jul-95 30609 44591 42599
Aug-95 31269 45532 43491
Sep-95 31834 46352 44265
</TABLE>
Past performance does not guarantee future results.
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark, a November 15,
2005 maturity coupon STRIPS issue, to be the Portfolio's supplementary index.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
STRIPS: 48% STRIPS: 33%
REFCORPs: 21% REFCORPs: 17%
CATS: 11% TIGRs: 15%
TRs: 9% CATS: 14%
TIGRs: 5% TRs: 13%
Other: 6% Other: 8%
For definitions of these security types, see page 29. The composition of the
Portfolio typically changes over time.
13
<PAGE>
2005 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 25.16% (see page 12 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. Furthermore,
in a year of strong performance in the U.S. stock market, the
Portfolio's fiscal year total return nearly matched the 29.74% total
return of the S&P 500 stock index over the same period.
In relative zero-coupon bond terms, the Portfolio's total return for
the period was 100 basis points* lower than the 26.16% total return for
the Portfolio's benchmark, a November 15, 2005 maturity coupon STRIPS*
issue. (See page 13 for the historical comparative performance of the
Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: We attribute most of the underperformance to the Portfolio's operating
expenses (such as transaction costs and management fees), which reduced
the Portfolio's return. The remaining underperformance was due to the
Portfolio's slightly shorter average maturity (a 11/08/05 WAM date* as
of 9/30/95, compared to the benchmark's 11/15/05 maturity date), which
made the Portfolio less sensitive to falling interest rates than the
benchmark.
14
<PAGE>
2005 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: How did you position the Portfolio during the last six months?
A: Our biggest challenge was a favorable one--keeping up with the
Portfolio's asset growth. Between March and October this year, the
Portfolio grew by nearly 50%. In August and September alone, the
Portfolio received approximately $33 million in net purchases. We
focused on putting that money to work and staying fully invested. We
also concentrated on using the new money to add liquidity to the
Portfolio without giving up yield. We accomplished this by buying
mostly STRIPS and REFCORPs,* the most liquid zeros.
We also increased the Portfolio's liquidity by continuing to sell its
principal TIGRs* and buying REFCORPs. Reconstitution* demand for the
TIGRs made 1995 an opportune time to sell them. Our push for greater
liquidity in the Portfolio is reflected in the Portfolio composition
graphs at the bottom of page 13. They show the increases in the
Portfolio's STRIPS and REFCORPs and the reductions in TIGRs, CATS* and
TRs.*
Q: What is your management strategy for the next six months?
A: We plan to continue looking for opportunities to increase the
Portfolio's liquidity without sacrificing yield. To do this, we plan to
trim the Portfolio's remaining receipt zeros,* taking advantage of
reconstitution demand. We will also continue to monitor the relative
values of coupon STRIPS and principal STRIPS, shifting the Portfolio's
holdings toward the most attractively priced sector.
15
<PAGE>
2010 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ---------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years 10 Years
---------------------------------------------------
$30.56-$42.30 33.06% 13.88% 17.05% 17.43%
The Portfolio commenced operations on March 25, 1985.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 40.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $94,630,578 $66,044,141
AGR: 6.04% 7.03%
WAM Date: 06/15/10 07/19/10
AVM: $101.02 $101.94
STRIPS Yield: 6.71% 7.68%
Non-STRIPS Yield: 6.85% 7.83%
These statistics are defined on page 30. Their value typically changes over
time.
16
<PAGE>
<TABLE>
<CAPTION>
2010 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 10/1/85 in the Portfolio, the Merrill Lynch Long-Term U.S. Treasury Index
and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($31,834) Benchmark ($50,334) Portfolio ($49,868)
<S> <C> <C> <C>
Sep-85 10000 10000 10000
Oct-85 10379 11056 10757
Nov-85 10808 12211 11763
Dec-85 11403 12840 13526
Jan-86 11418 12642 13420
Feb-86 12593 16319 17336
Mar-86 13712 19626 20271
Apr-86 13599 19522 20106
May-86 12852 17472 18141
Jun-86 13651 19099 19620
Jul-86 13599 18397 18970
Aug-86 14185 20370 21029
Sep-86 13632 18523 18745
Oct-86 13887 19177 19893
Nov-86 14160 19883 20697
Dec-86 14138 19664 20887
Jan-87 14373 20023 20981
Feb-87 14596 20425 21502
Mar-87 14184 19745 20603
Apr-87 13590 17917 18603
May-87 13468 17364 17940
Jun-87 13625 17499 17952
Jul-87 13368 16380 16958
Aug-87 13148 15617 16200
Sep-87 12563 13880 14260
Oct-87 13486 16247 16804
Nov-87 13492 16268 16921
Dec-87 13761 17054 17703
Jan-88 14593 19451 19703
Feb-88 14773 19764 20271
Mar-88 14314 18059 18282
Apr-88 14084 17123 17655
May-88 13836 16537 16840
Jun-88 14420 18347 18579
Jul-88 14147 17151 17561
Aug-88 14201 17259 17609
Sep-88 14737 18648 19005
Oct-88 15171 19975 20200
Nov-88 14839 19210 19407
Dec-88 15028 19802 20484
Jan-89 15332 20893 21076
Feb-89 15024 19760 19928
Mar-89 15184 20200 20401
Apr-89 15540 20977 21111
May-89 16158 22580 22733
Jun-89 17074 25193 25218
Jul-89 17464 25362 25514
Aug-89 16999 24068 24330
Sep-89 17064 24274 24366
Oct-89 17749 26030 26046
Nov-89 17893 26304 26413
Dec-89 17868 26205 26224
Jan-90 17259 23743 23904
Feb-90 17184 23520 23561
Mar-90 17140 23359 23372
Apr-90 16700 21921 22165
May-90 17480 24361 24058
Jun-90 17878 25402 25005
Jul-90 18061 25388 24851
Aug-90 17281 22285 22366
Sep-90 17502 22787 22697
Oct-90 17891 23460 23455
Nov-90 18634 25606 25608
Dec-90 19022 26285 26295
Jan-91 19237 26470 26709
Feb-91 19313 26189 26685
Mar-91 19376 26364 26721
Apr-91 19631 26859 27076
May-91 19630 26549 26946
Jun-91 19476 26034 26330
Jul-91 19761 26578 26780
Aug-91 20451 28129 28389
Sep-91 21089 29548 29679
Oct-91 21157 29317 29442
Nov-91 21259 28973 29206
Dec-91 22528 31663 31833
Jan-92 21797 30245 30401
Feb-92 21951 30432 30614
Mar-92 21709 29835 30034
Apr-92 21717 29349 29573
May-92 22289 30663 30898
Jun-92 22608 30772 31064
Jul-92 23532 32662 32993
Aug-92 23731 32764 33135
Sep-92 24094 33381 33762
Oct-92 23615 32561 32945
Nov-92 23688 33066 33371
Dec-92 24317 34631 34945
Jan-93 25037 35688 36034
Feb-93 25867 37781 38081
Mar-93 25937 37707 37927
Apr-93 26126 37934 38294
May-93 26223 38275 38590
Jun-93 27325 41201 41477
Jul-93 27747 42701 42957
Aug-93 28860 44853 45099
Sep-93 28988 44943 45110
Oct-93 29167 45624 45690
Nov-93 28423 43821 43927
Dec-93 28508 44035 44128
Jan-94 29200 45860 45951
Feb-94 27981 42649 42755
Mar-94 26838 40010 40128
Apr-94 26427 39169 39454
May-94 26299 38533 38756
Jun-94 26063 37961 38164
Jul-94 26887 39849 40010
Aug-94 26720 39286 39395
Sep-94 25910 37215 37478
Oct-94 25795 37011 37170
Nov-94 25932 37719 37844
Dec-94 26388 38937 39028
Jan-95 27062 40202 40199
Feb-95 27822 41526 41513
Mar-95 28024 41983 41915
Apr-95 28518 43024 42898
May-95 30723 47975 47702
Jun-95 31094 48893 48566
Jul-95 30609 47632 47312
Aug-95 31269 49051 48661
Sep-95 31834 50334 49868
Past performance does not guarantee future results.
</TABLE>
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark to be the
Portfolio's supplementary index. From October 1985 through November 1985, the
benchmark was a November 15, 2009 maturity coupon STRIPS issue; from December
1985 to the present, the benchmark has been a November 15, 2010 maturity coupon
STRIPS issue.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
STRIPS: 60% STRIPS: 51%
REFCORPs: 28% REFCORPs: 35%
ETRs: 12% ETRs: 14%
For definitions of these security types, see page 29. The composition of the
Portfolio typically changes over time.
17
<PAGE>
2010 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 33.06% (see page 16 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. Furthermore,
in a year of strong performance in the U.S. stock market, the
Portfolio's fiscal year total return exceeded the 29.74% total return
of the S&P 500 stock index over the same period.
In relative zero-coupon bond terms, the Portfolio's total return for
the period was 219 basis points* lower than the 35.25% total return for
the Portfolio's benchmark, a November 15, 2010 maturity coupon STRIPS*
issue. (See page 17 for the historical comparative performance of the
Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: We attribute most of the underperformance to the Portfolio's
significantly shorter average maturity (a 6/15/10 WAM date* as of
9/30/95, compared to the benchmark's 11/15/10 maturity date), which
made the Portfolio much less sensitive to falling interest rates than
the benchmark.
The WAM date was shorter in part because we purchased principal STRIPS
maturing in November 2009, a year shorter than the Portfolio's
benchmark. These principal STRIPS offered yields that were 10-15 basis
points more than coupon STRIPS with the same maturity. Going forward,
we expect the November 2009 principal STRIPS to experience more price
appreciation than other STRIPS with similar maturities, and this should
lead to improved Portfolio performance relative to its benchmark.
The remaining underperformance was due to the Portfolio's operating
expenses (such as transaction costs and management fees), which reduced
the Portfolio's return.
18
<PAGE>
2010 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: How did you position the Portfolio during the last six months?
A: Our biggest challenge was a favorable one--keeping up with the
Portfolio's asset growth. Between March and October this year, the
Portfolio grew by over 40%. In August and September alone, the
Portfolio received approximately $14 million in net purchases. We
focused on putting that money to work and staying fully invested. We
also concentrated on using the new money to add liquidity to the
Portfolio without giving up yield. We accomplished this by buying
mostly STRIPS, the most liquid zeros. Our push for greater liquidity in
the Portfolio is reflected in the Portfolio composition graphs at the
bottom of page 17, which show the increase in STRIPS holdings from
March to September.
Q: What is your management strategy for the next six months?
A: We plan to maintain the Portfolio's current basic composition, with the
majority of the Portfolio invested in the most liquid zeros. We plan to
continue to add STRIPS to the Portfolio when we receive cash inflows
from shareholders.
We also expect to continue to hold the Portfolio's principal ETRs,*
which were purchased when their yield was 30 basis points higher than
STRIPS of comparable maturity. We think that the ETRs have the
potential for future price appreciation compared to STRIPS if they
become reconstitutable with coupon STRIPS or if their underlying
Treasury bond appreciates in value relative to other maturity sectors.
We will also continue to monitor the relative values of coupon STRIPS
and principal STRIPS, shifting the Portfolio's holdings toward the most
attractively priced sector. Currently, all of the Portfolio's STRIPS
are coupon STRIPS. With coupon STRIPS and principal STRIPS currently
trading at similar prices, we prefer to own coupon STRIPS.
19
<PAGE>
2015 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ---------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years Life of Fund
---------------------------------------------------
$21.78-$32.20 41.29% 16.45% 18.55% 10.90%
The Portfolio commenced operations on September 1, 1986.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 42.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $114,297,012 $114,470,607
AGR: 6.21% 7.09%
WAM Date: 10/18/15 10/07/15
AVM: $109.62 $109.27
STRIPS Yield: 6.86% 7.77%
Non-STRIPS Yield: 7.02% 7.92%
These statistics are defined on page 30. Their value typically changes over
time.
20
<PAGE>
<TABLE>
<CAPTION>
2015 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 9/1/86 in the Portfolio, the Merrill Lynch Long-Term U.S. Treasury Index
and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($23,352) Benchmark ($25,696) Portfolio ($24,694)
<S> <C> <C> <C>
Sep-86 10000 10000 10000
Oct-86 10187 10469 10729
Nov-86 10387 10859 10905
Dec-86 10371 10635 10920
Jan-87 10543 11003 11066
Feb-87 10707 11316 11442
Mar-87 10405 10810 10782
Apr-87 9969 9696 9824
May-87 9880 9215 9187
Jun-87 9995 9359 8980
Jul-87 9806 8618 8512
Aug-87 9645 8028 7991
Sep-87 9216 7224 6925
Oct-87 9893 8103 8160
Nov-87 9897 8165 8275
Dec-87 10095 8701 8720
Jan-88 10705 9852 10009
Feb-88 10837 10353 10293
Mar-88 10500 9229 9135
Apr-88 10331 8769 8582
May-88 10150 8167 8160
Jun-88 10578 9066 8934
Jul-88 10378 8289 8305
Aug-88 10418 8271 8198
Sep-88 10811 9125 8988
Oct-88 11129 9885 9717
Nov-88 10886 9236 9080
Dec-88 11024 9670 9686
Jan-89 11247 10283 10008
Feb-89 11021 9709 9548
Mar-89 11138 9957 9816
Apr-89 11399 10229 10016
May-89 11853 11096 10928
Jun-89 12525 12778 12508
Jul-89 12811 12993 12700
Aug-89 12470 12250 12017
Sep-89 12517 12266 11979
Oct-89 13020 13349 12830
Nov-89 13125 13468 13129
Dec-89 13107 13251 12930
Jan-90 12660 12026 11664
Feb-90 12606 11720 11503
Mar-90 12573 11485 11243
Apr-90 12250 10567 10338
May-90 12822 11765 11557
Jun-90 13115 12315 12010
Jul-90 13249 12314 12017
Aug-90 12676 10625 10422
Sep-90 12838 10775 10545
Oct-90 13124 11313 10967
Nov-90 13669 12419 12117
Dec-90 13954 12748 12493
Jan-91 14112 13054 12746
Feb-91 14167 13012 12638
Mar-91 14213 13005 12654
Apr-91 14401 13318 12868
May-91 14400 12947 12684
Jun-91 14287 12610 12301
Jul-91 14496 12977 12577
Aug-91 15002 13783 13497
Sep-91 15470 14504 14141
Oct-91 15520 14270 13919
Nov-91 15595 13906 13628
Dec-91 16526 15637 15299
Jan-92 15989 14731 14433
Feb-92 16103 14924 14609
Mar-92 15925 14625 14333
Apr-92 15931 14362 14042
May-92 16350 15088 14732
Jun-92 16584 14958 14632
Jul-92 17262 16216 15829
Aug-92 17408 16035 15660
Sep-92 17675 16032 15637
Oct-92 17323 15575 15207
Nov-92 17376 16209 15829
Dec-92 17838 16903 16488
Jan-93 18366 17500 17056
Feb-93 18975 18511 18022
Mar-93 19026 18353 17861
Apr-93 19165 18506 18014
May-93 19236 18897 18398
Jun-93 20045 20252 19701
Jul-93 20354 21313 20714
Aug-93 21170 23166 22462
Sep-93 21264 22970 22271
Oct-93 21395 23389 22669
Nov-93 20850 22308 21657
Dec-93 20912 22225 21519
Jan-94 21420 23146 22393
Feb-94 20526 21438 20737
Mar-94 19688 20007 19410
Apr-94 19386 19529 18927
May-94 19292 18961 18367
Jun-94 19119 18579 18007
Jul-94 19723 19901 19257
Aug-94 19601 19217 18605
Sep-94 19007 18013 17477
Oct-94 18923 17955 17416
Nov-94 19023 18425 17869
Dec-94 19357 19095 18490
Jan-95 19851 19872 19195
Feb-95 20409 20373 19717
Mar-95 20557 20752 20062
Apr-95 20920 21207 20438
May-95 22537 24346 23413
Jun-95 22809 24653 23728
Jul-95 22454 23821 22915
Aug-95 22938 24942 23973
Sep-95 23352 25696 24694
</TABLE>
Past performance does not guarantee future results.
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark, a November 15,
2015 maturity coupon STRIPS issue, to be the Portfolio's supplementary index.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
STRIPS: 57% STRIPS: 59%
REFCORPs: 43% REFCORPs: 41%
For definitions of these security types, see page 29. The composition of the
Portfolio typically changes over time.
21
<PAGE>
2015 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 41.29% (see page 20 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. Furthermore,
in a year of strong performance in the U.S. stock market, the
Portfolio's fiscal year total return exceeded the 29.74% total return
of the S&P 500 stock index over the same period.
In relative zero-coupon bond terms, the Portfolio's total return for
the period was 136 basis points* lower than the 42.65% total return for
the Portfolio's benchmark, a November 15, 2015 maturity coupon STRIPS*
issue. (See page 21 for the historical comparative performance of the
Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: We attribute most of the underperformance to the Portfolio's operating
expenses (such as transaction costs and management fees), which reduced
the Portfolio's return. The remaining underperformance was due to the
Portfolio's shorter average maturity (a 10/18/15 WAM date* as of
9/30/95, compared to the benchmark's 11/15/15 maturity date), which
made the Portfolio less sensitive to falling interest rates than the
benchmark.
22
<PAGE>
2015 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: How did you position the Portfolio during the last six months?
A: The Portfolio holds STRIPS and REFCORPs,* which are the only types of
zeros available in this maturity sector. When the STRIPS program was
created in 1985, dealers stopped issuing receipt zeros,* so the
effective maturities of existing receipt zeros do not extend beyond
2009.
The similarity of the two Portfolio composition graphs at the bottom of
page 21 pretty much tells the story. We didn't do much active
management in the Portfolio from March to October of this year. We were
comfortable with the Portfolio's positioning, so we stood pat while
declining interest rates had a positive impact on the Portfolio's
performance.
Q: What is your management strategy for the next six months?
A: We plan to maintain the Portfolio's current basic composition, with
about 60% of the Portfolio invested in STRIPS and the remaining 40% in
REFCORPs.
We will also continue to monitor the relative values of coupon zeros*
and principal zeros,* shifting the Portfolio's holdings toward the most
attractively priced sector. Currently, all of the Portfolio's zeros are
coupon zeros. With coupon and principal zeros currently trading at
similar prices in this maturity sector, we prefer to own coupon zeros.
The relative values of coupon and principal zeros in the Portfolio's
maturity sector are based on several factors, including: (1) the value
of the underlying Treasury bonds maturing in 2014-2016 compared to
other maturity sectors; (2) the level of stripping* or reconstitution*
activity in the Treasury market; and (3) investor and dealer activity
in the Portfolio's maturity sector. We focus on each of these factors
when tracking the relative values of principal and coupon zeros.
23
<PAGE>
2020 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Average Annual Total Returns
Net Asset Value Range ---------------------------------------------------
(10/1/94-9/30/95) 1 Year 3 Years 5 Years Life of Fund
---------------------------------------------------
$14.38-$22.47 47.05% 18.13% 18.47% 11.52%
The Portfolio commenced operations on December 29, 1989.
PLEASE NOTE: Total returns are based on historical Portfolio performance and do
not guarantee future results. The Portfolio's share price and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Portfolio's share price movements over
the stated period and can be used to gauge the stability of the Portfolio's
share price.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Portfolio and assume that all of the
Portfolio's distributions are reinvested.
Average Annual Total Returns illustrate the annually compounded returns that
would have produced the Portfolio's cumulative total returns if the Portfolio's
performance had been constant over the entire period. Average annual total
returns smooth out variations in a fund's return; they are not the same as
year-by-year results. For fiscal year-by-year total returns, please refer to the
Portfolio's "Financial Highlights" on page 44.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $569,757,799 $178,373,074
AGR: 6.20% 7.07%
WAM Date: 08/11/20 06/03/20
AVM: $102.31 $101.87
STRIPS Yield: 6.90% 7.77%
Non-STRIPS Yield: 7.03% 7.90%
These statistics are defined on page 30. Their value typically changes over
time.
24
<PAGE>
<TABLE>
<CAPTION>
2020 PORTFOLIO
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/29/89 in the Portfolio, the Merrill Lynch Long-Term U.S. Treasury Index
and the Portfolio`s Benchmark
[line graph]
[graph data]
Index ($17,816) Benchmark ($16,686) Portfolio ($18,725)
<S> <C> <C> <C>
Dec-89 10000 10000 10000
Jan-90 9659 9063 9083
Feb-90 9617 8518 8767
Mar-90 9593 8407 8658
Apr-90 9346 7781 7967
May-90 9783 8351 8917
Jun-90 10006 8818 9258
Jul-90 10108 9237 9308
Aug-90 9671 7837 7950
Sep-90 9795 7976 8025
Oct-90 10013 8356 8458
Nov-90 10429 8845 9275
Dec-90 10646 9080 9550
Jan-91 10766 9373 9800
Feb-91 10809 9275 9850
Mar-91 10844 9257 9717
Apr-91 10987 9399 9808
May-91 10986 9133 9633
Jun-91 10900 8774 9208
Jul-91 11059 9058 9458
Aug-91 11446 9601 10117
Sep-91 11803 10012 10450
Oct-91 11841 9551 10117
Nov-91 11898 8671 9792
Dec-91 12608 9950 11208
Jan-92 12199 9371 10558
Feb-92 12285 9454 10742
Mar-92 12150 9338 10592
Apr-92 12154 9196 10408
May-92 12474 9642 10942
Jun-92 12653 9578 10842
Jul-92 13170 10406 11708
Aug-92 13281 10194 11533
Sep-92 13485 10012 11358
Oct-92 13217 9652 10925
Nov-92 13257 10172 11508
Dec-92 13609 10747 12142
Jan-93 14013 11225 12675
Feb-93 14477 11910 13383
Mar-93 14516 11831 13358
Apr-93 14622 11808 13300
May-93 14676 12130 13708
Jun-93 15293 12976 14692
Jul-93 15529 14015 15775
Aug-93 16152 15623 17542
Sep-93 16223 15380 17267
Oct-93 16324 15706 17583
Nov-93 15907 14857 16625
Dec-93 15955 14635 16467
Jan-94 16342 15224 17100
Feb-94 15660 14034 15800
Mar-94 15021 12806 14508
Apr-94 14790 12508 14142
May-94 14719 12133 13750
Jun-94 14587 11813 13375
Jul-94 15048 12760 14417
Aug-94 14954 12168 13767
Sep-94 14501 11215 12733
Oct-94 14437 11082 12608
Nov-94 14513 11437 12992
Dec-94 14768 11965 13558
Jan-95 15146 12552 14175
Feb-95 15571 12878 14533
Mar-95 15684 13042 14767
Apr-95 15961 13346 15075
May-95 17195 15648 17642
Jun-95 17402 15931 17933
Jul-95 17131 15242 17117
Aug-95 17500 16021 18008
Sep-95 17816 16686 18725
</TABLE>
Past performance does not guarantee future results.
The Index: The SEC requires each variable-price mutual fund to provide a line
graph comparing fund performance with an appropriate broad-based market index
over 10 years (or the life of the fund). We have selected the Merrill Lynch
Long-Term U.S. Treasury Index as the Index for the Portfolio.
Supplementary Index/Portfolio Benchmark: Although the investment characteristics
of the Index are similar to those of the Portfolio, the securities owned by the
Portfolio and those composing the Index are different. For that reason, the SEC
encourages the use of narrower, supplementary indexes that more closely resemble
the funds with which they are compared. Because the Index does not include
zero-coupon bonds, we have selected the Portfolio's benchmark to be the
Portfolio's supplementary index. From December 1989 through April 1990, the
benchmark was an August 15, 2019 maturity coupon STRIPS issue; from May 1990
through October 1991, it was a November 15, 2019 maturity coupon STRIPS issue;
and from November 1991 to the present, it has been a November 15, 2020 maturity
coupon STRIPS issue.
PLEASE NOTE: The line representing the Portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the lines representing the total returns of the Index and the
Portfolio's benchmark do not. Investors cannot invest directly in the Index.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
STRIPS: 80% STRIPS: 69%
REFCORPs: 20% REFCORPs: 31%
For definitions of these security types, see page 29. The composition of the
Portfolio typically changes over time.
25
<PAGE>
2020 PORTFOLIO
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: We suggest that you review the Investment Fundamentals, U.S. Economic
Review, Market Summary and Portfolio Performance and Composition sections before
you read this discussion. Terms marked with an asterisk (*) are defined in the
Investment Fundamentals section beginning on page 28.
Q: How did the Portfolio perform during the fiscal year ended September
30, 1995?
A: The Portfolio's total return for the period was 47.05% (see page 24 for
more total return information). In absolute terms, this was the
Portfolio's best fiscal year total return since 1993, reflecting the
favorable U.S. bond market conditions described on page 2. Furthermore,
in a year of strong performance in the U.S. stock market, the
Portfolio's fiscal year total return exceeded the 29.74% total return
of the S&P 500 stock index over the same period.
In relative zero-coupon bond terms, the Portfolio's total return for
the period was 174 basis points* lower than the 48.79% total return for
the Portfolio's benchmark, a November 15, 2020 maturity coupon STRIPS*
issue. (See page 25 for the historical comparative performance of the
Portfolio and its benchmark.)
Q: Why did the Portfolio underperform its benchmark?
A: We attribute most of the underperformance to the Portfolio's operating
expenses (such as transaction costs and management fees), which reduced
the Portfolio's return. The remaining underperformance was due to the
Portfolio's shorter average maturity (a 8/11/20 WAM date* as of
9/30/95, compared to the benchmark's 11/15/20 maturity date), which
made the Portfolio less sensitive to falling interest rates than the
benchmark.
Q: How did you position the Portfolio during the last six months?
A: The Portfolio holds STRIPS and REFCORPs,* which are the only types of
zeros available in this maturity sector. When the STRIPS program was
created in 1985, dealers stopped issuing receipt zeros,* so the
effective maturities of existing receipt zeros do not extend beyond
2009.
26
<PAGE>
2020 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Our biggest challenge during the period was a favorable one--keeping up
with the Portfolio's asset growth. Between March and October this year,
the Portfolio tripled in size because of strong performance and cash
inflows from investors who heeded the "buy" recommendations of
newsletter writers and other investment advisors. In August and
September alone, the Portfolio received approximately $333 million in
net purchases. We focused on putting that money to work and staying
fully invested. It's been difficult for the Portfolio to track its
benchmark because the supply of STRIPS maturing in late 2020 has been
low. We extended the Portfolio's WAM date from June 2020 to August 2020
during the period, but that still left us short of the benchmark's
November 2020 maturity date.
We invested most of the new money in STRIPS rather than REFCORPs.
Because of tight supply conditions, REFCORPs provided little yield
advantage over STRIPS, so we concentrated our investments in STRIPS.
The Portfolio composition graphs on page 25 illustrate the increase in
the Portfolio's STRIPS holdings over the past six months.
Q: What is your management strategy for the next six months?
A: We plan to maintain the Portfolio's current basic composition, with the
majority of the Portfolio invested in STRIPS. We intend to continue
adding STRIPS to the Portfolio when we receive cash inflows from
shareholders. We also plan to continue our efforts to extend the
Portfolio's WAM date so it can better track the maturity date of the
benchmark.
We will also continue to monitor the relative values of coupon zeros*
and principal zeros,* shifting the Portfolio's holdings toward the most
attractively priced sector. Currently, most of the Portfolio's zeros
are coupon zeros. With coupon and principal zeros currently trading at
similar prices in this maturity sector, we prefer to own coupon zeros.
The relative values of coupon and principal zeros in the Portfolio's
maturity sector are based on several factors, including: (1) the value
of the underlying Treasury bonds maturing in 2019-2021 compared to
other maturity sectors; (2) the level of stripping* or reconstitution*
activity in the Treasury market; and (3) investor and dealer activity
in the Portfolio's maturity sector. We focus on each of these factors
when tracking the relative values of principal and coupon zeros.
27
<PAGE>
INVESTMENT FUNDAMENTALS
ZERO-COUPON BONDS
Q: What is the general investment strategy of the Target Portfolios?
A: The Portfolios pursue the highest attainable return consistent with the
creditworthiness of U.S. Treasury and government securities and the
professional management of reinvestment and market risks. To attempt to
minimize these risks, each Portfolio is managed so that its weighted
average maturity (WAM, defined on page 30) falls within the target
maturity year, and at least 90% of the securities held by each
Portfolio mature within 12 months of the target year. The Portfolios
invest primarily in U.S. Treasury zero-coupon bonds.
Q: What are zero-coupon bonds (zeros)?
A: Unlike ordinary bonds, which pay interest periodically, zeros pay no
interest. Instead, these securities are issued at a deep discount and
then redeemed for their full face value at maturity. When held to
maturity, a zero's entire return comes from the difference between its
purchase price and its value at maturity.
Q: How are zeros created?
A: An ordinary U.S. Treasury bond consists of several components-- a
series of coupons, which represent interest payments at predetermined
intervals, and the ultimate principal repayment at maturity. A zero is
created by stripping an ordinary Treasury bond into its separate
components and then selling each coupon and principal payment as an
individual bond. Accordingly, the zero-coupon bond market consists of
principal zeros (which represent the principal payments of stripped
bonds) and coupon zeros (which represent the interest payments of
stripped bonds).
Q: How are zeros used?
A: Demand for zeros comes primarily from: (1) bond investors, who use
zeros to add interest rate sensitivity to their portfolios or to meet
future cash flow needs without reinvestment risk; (2) mortgage-backed
securities investors, who use zeros to offset accelerated mortgage
prepayments; (3) municipalities, who use zeros to refinance
high-yielding bonds; and (4) issuers of Brady bonds (bonds used for
foreign debt restructuring, named after former U.S. Treasury Secretary
Nicholas Brady), who use zeros as collateral to fund future principal
and interest payments.
28
<PAGE>
INVESTMENT FUNDAMENTALS
ZERO-COUPON BONDS
(Continued from the previous page)
Types of Zeros
STRIPS (Separate Trading of Registered Interest and Principal of
Securities)--the U.S. Treasury Department program that allows broker-dealers to
"strip" Treasury securities into their component parts. The securities created
by this "stripping" activity are also known as STRIPS. STRIPS are direct
obligations of the U.S. government and are the most liquid (easily bought and
sold) Treasury zeros.
REFCORPs (Resolution Funding Corporation zeros)--zeros created from bonds issued
by the Resolution Funding Corporation, a U.S. government agency. The principal
portions of these bonds are secured by Treasury zeros, and the interest portions
are guaranteed by the U.S. Treasury. REFCORPs are also relatively liquid.
Receipt Zeros--zeros created and issued by broker-dealers before the STRIPS
program was implemented. Broker-dealers created receipt zeros by purchasing
Treasury bonds, depositing them in a custodian bank, and then selling receipts
representing ownership interests in the coupons or principal portions of the
bonds. The custodial accounts that hold the underlying Treasury bonds are kept
separate from the bank's assets. The types of receipt zeros include:
TRs (Treasury Receipts)--generic receipt zeros.
CATS (Certificates of Accrual of Treasury Securities)--issued by Salomon
Brothers, Inc.
TIGRs (Treasury Investment Growth Receipts)--issued by Merrill Lynch Pierce
Fenner & Smith.
ETRs (Easy-growth Treasury Receipts)--issued by Dean Witter Reynolds, Inc.
COUGARs (Coupon Government Accrual Receipts)--issued by A.G. Becker Paribas
(now defunct).
GATORs (Government and Agency Term Obligations)--issued by Moseley
Hallgarten Easterbrook & Weeden, Inc. (now defunct).
TBRs (Treasury Bond Receipts)--issued by E.F. Hutton & Co. (now defunct).
CUBES (Coupons Under Book Entry Safekeeping)--a Treasury program that allowed
conversion of Treasury bond interest coupons into zero-coupon securities. CUBES
is also the name of the securities created by this conversion.
29
<PAGE>
INVESTMENT FUNDAMENTALS
ZERO-COUPON BONDS
(Continued from the previous page)
Other Securities Held by the Portfolios
Treasury bills (T-bills)--short-term debt securities issued by the U.S. Treasury
and backed by the direct "full faith and credit" pledge of the U.S. government.
T-bills are issued with maturities ranging from three months to one year.
Treasury notes (T-notes)--intermediate-term debt securities issued by the U.S.
Treasury and backed by the direct "full faith and credit" pledge of the U.S.
government. T-notes are issued with maturities ranging from two to 30 years.
Key Portfolio Statistics
Market Value--the market value of a Portfolio's investments on a given date.
WAM (Weighted Average Maturity)--the average amount of time that will pass until
a Portfolio matures, weighted by the market value of the securities in the
Portfolio.
WAM Date (Weighted Average Maturity Date)--an average of the maturity dates of a
Portfolio's securities, weighted by the market value of each security. The WAM
date is calculated based on the WAM of the Portfolio's investments on a given
day.
AVM (Anticipated Value at Maturity)--the calculated redemption value of a
Portfolio share on the Portfolio's WAM date. The Portfolios are managed to have
an AVM of approximately $100.
AGR (Anticipated Growth Rate)--the annualized rate of return that an investor
"locks in" after investing in a Portfolio on a specific day. The AGR is
calculated based on the Portfolio's WAM date, AVM and share price on that day.
STRIPS Yield--the yield to maturity of the STRIPS held in a Target Portfolio as
of a specific date. It is used as a comparative value tool, specifically as a
basis of comparison against non-STRIPS yields.
Non-STRIPS Yield--the yield to maturity of the non-STRIPS zeros (such as
REFCORPs, receipt zeros and CUBES) held in a Target Portfolio as of a specific
date. Comparing STRIPS yields to non-STRIPS yields helps determine the yield
spread between the two types of securities (see page 31).
30
<PAGE>
INVESTMENT FUNDAMENTALS
ZERO-COUPON BONDS
(Continued from the previous page)
Investment Terms
Basis Points--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%). Basis
points are used to clearly describe interest rate changes. For example, if a
news report indicates that interest rates rose by 1%, does that mean 1% of the
previous rate or one percentage point? It is more accurate to state that
interest rates rose by 100 basis points.
Reconstitution--in the same way that broker-dealers can "strip" a Treasury bond
into its principal and coupon pieces to create zeros, dealers can accumulate the
stripped principal and coupon pieces and "reconstitute" them into a whole
Treasury bond.
Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Most "normal" yield curves start in the lower left corner of the graph and rise
to the upper right corner, indicating that yields rise as maturities lengthen.
This upward sloping yield curve illustrates a normal risk/return
relationship--more return (yield) for more risk (a longer maturity). Conversely,
a "flat" yield curve provides little or no extra return for taking on more risk.
This typically occurs after the Fed has raised short-term interest rates several
times (to fight inflation when the economy is strong) or when the bond market
expects the Fed to lower short-term interest rates (in a weaker economic
environment).
Yield Spread--the difference between the yields of STRIPS and non-STRIPS with
comparable maturities. It is used by the portfolio manager as a measure of
relative value to determine whether or not to purchase non-STRIPS zeros for the
Target Portfolios. In general, non-STRIPS have higher yields than STRIPS with
comparable maturities because they are less liquid (not as easy to buy and sell)
than STRIPS. When yield spreads are considered to be narrow (i.e., non-STRIPS
yield little more than comparable STRIPS), the portfolio manager will tend to
avoid non-STRIPS because their yields are not enough to compensate for the
reduced liquidity. Conversely, when yield spreads are considered to be wide
(i.e., non-STRIPS yield substantially more than comparable STRIPS), the
portfolio manager will tend to buy non-STRIPS because yields are high enough to
compensate for the reduced liquidity.
31
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
Benham Target Maturities Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investment securities, of 1995 Portfolio, 2000 Portfolio, 2005
Portfolio, 2010 Portfolio, 2015 Portfolio and 2020 Portfolio constituting Benham
Target Maturities Trust (the Trust) as of September 30, 1995, and the related
statements of operations for the year then ended, the statements 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 presented herein. 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 as of
September 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 the financial highlights referred
to above present fairly, in all material respects, the financial position of
1995 Portfolio, 2000 Portfolio, 2005 Portfolio, 2010 Portfolio, 2015 Portfolio
and 2020 Portfolio constituting Benham Target Maturities Trust as of September
30, 1995, the results of their operations, the changes in their net assets and
the financial highlights for the periods indicated above, in conformity with
generally accepted accounting principles.
/S/KPMG Peat Marwick LLP
San Francisco, California
November 3, 1995
33
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
1995 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period...................... $95.03 94.16 89.07 77.75 66.87 62.61 56.33 52.22 54.33 42.99
Income (Losses) From
Investment Operations
Net Investment Income.......... 5.40 4.22 4.75 5.28 5.32 5.02 3.56 4.43 3.99 3.69
Net Realized and Unrealized
Gains (Losses) on Investments. .08 (3.35) .34 6.04 5.56 (.76) 2.72 (.32) (6.10) 7.65
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations..... 5.48 .87 5.09 11.32 10.88 4.26 6.28 4.11 (2.11) 11.34
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income............. (4.08) (4.03) (4.65) (4.50) (2.98) (3.32) .00 (3.92) (8.99) (.83)
Distributions from Net
Realized Capital Gains........ .00 (3.76) (5.05) (1.51) .00 (.21) .00 .00 (.49) (.83)
Distributions in Excess of Net
Realized Capital Gains........ .00 (1.21) .00 .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions........... (4.08) (9.00) (9.70) (6.01) (2.98) (3.53) .00 (3.92) (9.48) (1.66)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split............ 4.08 9.00 9.70 6.01 2.98 3.53 .00 3.92 9.48 1.66
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period.$100.51 95.03 94.16 89.07 77.75 66.87 62.61 56.33 52.22 54.33
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*.................... 5.77% .93% 5.70% 14.56% 16.27% 6.80% 11.15% 7.87% (3.89)% 26.38%
- ------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars)......$63,568 83,372 86,697 94,535 92,391 58,350 39,169 15,603 7,019 5,104
Ratio of Expenses to Average
Daily Net Assets............... .67% .61% .59% .62% .65% .70% .70%** .70% .70% .70%
Ratio of Net Investment Income
to Average Daily Net Assets.... 5.54% 4.47% 5.22% 6.39% 7.35% 7.74% 7.95%** 8.09% 7.70% 7.29%
Portfolio Turnover Rate.......... 32.26% 177.33% 133.80% 139.84% 109.73% 120.73% 95.42% 108.49% 86.19% 89.11%
- ------------------------
+ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2000 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period...................... $ 66.93 72.40 62.16 52.67 43.11 42.79 37.16 33.33 35.44 26.77
Income (Losses) From
Investment Operations
Net Investment Income.......... 4.37 3.99 3.94 3.90 3.69 3.40 2.36 2.94 2.68 2.40
Net Realized and Unrealized
Gains (Losses) on Investments. 5.56 (9.46) 6.30 5.59 5.87 (3.08) 3.27 .89 (4.79) 6.27
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations..... 9.93 (5.47) 10.24 9.49 9.56 .32 5.63 3.83 (2.11) 8.67
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income............. (3.42) (3.25) (2.34) (2.22) (2.09) (2.35) .00 (2.23) (4.72) (.64)
Distributions from Net
Realized Capital Gains........ .00 (2.95) (1.83) (.16) .00 (.10) .00 .00 .00 (2.81)
Distributions in Excess of Net
Realized Capital Gains........ .00 (1.20) .00 .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions........... (3.42) (7.40) (4.17) (2.38) (2.09) (2.45) .00 (2.23) (4.72) (3.45)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split............ 3.42 7.40 4.17 2.38 2.09 2.45 .00 2.23 4.72 3.45
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period.$ 76.86 66.93 72.40 62.16 52.67 43.11 42.79 37.16 33.33 35.44
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*.................... 14.84% (7.54)% 16.46% 18.02% 22.18% .75% 15.15% 11.49% (5.95)% 32.39%
- ------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars)......$294,736 243,895 291,418 190,063 89,655 53,216 34,820 14,073 6,285 5,077
Ratio of Expenses to
Average Daily Net Assets....... .63% .59% .60% .66% .66% .70% .70%** .70% .70% .70%
Ratio of Net Investment Income
to Average Daily Net Assets.... 6.13% 5.74% 5.94% 6.90% 7.67% 7.84% 7.81%** 8.33% 8.08% 7.34%
Portfolio Turnover Rate.......... 52.64% 89.35% 76.59% 92.59% 67.39% 78.76% 49.14% 162.54% 72.70% 39.40%
- ----------------------------
+ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2005 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period...................... $ 45.22 51.84 41.18 35.13 27.74 28.61 24.36 21.28 23.74 16.69
Income (Losses) From
Investment Operations
Net Investment Income.......... 3.33 3.11 2.90 2.69 2.47 2.27 1.54 1.90 1.77 1.59
Net Realized and Unrealized
Gains (Losses) on Investments. 8.06 (9.73) 7.76 3.36 4.92 (3.14) 2.71 1.18 (4.23) 5.46
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations..... 11.39 (6.62) 10.66 6.05 7.39 (.87) 4.25 3.08 (2.46) 7.05
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income............. (2.41) (2.70) (2.51) (1.75) (.86) (1.60) .00 (1.53) (3.52) (.35)
Distributions from Net
Realized Capital Gains........ (.67) (8.47) (1.01) (.37) .00 (.07) .00 .00 (.13) (2.18)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions........... (3.08) (11.17) (3.52) (2.12) (.86) (1.67) .00 (1.53) (3.65) (2.53)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split.............. 3.08 11.17 3.52 2.12 .86 1.67 .00 1.53 3.65 2.53
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period. $ 56.61 45.22 51.84 41.18 35.13 27.74 28.61 24.36 21.28 23.74
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*.................... 25.16% (12.75)% 25.89% 17.22% 26.64% (3.04)% 17.45% 14.48% (10.36)% 42.24%
- ------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars)......$183,452 96,207 149,890 168,697 161,388 46,303 24,955 8,948 3,680 2,907
Ratio of Expenses to Average
Daily Net Assets............... .71% .64% .62% .63% .70% .70% .70%** .70% .70% .70%
Ratio of Net Investment Income
to Average Daily Net Assets.... 6.58% 6.37% 6.44% 7.27% 7.80% 7.93% 7.66%** 8.44% 8.31% 7.25%
Portfolio Turnover Rate.......... 34.23% 68.11% 49.89% 64.38% 85.38% 186.02% 71.98% 27.25% 68.11% 50.47%
- ---------------------
+ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2010 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period......................$ 31.67 38.13 28.53 25.08 19.18 20.59 17.31 14.96 17.65 11.43
Income (Losses) From
Investment Operations
Net Investment Income.......... 2.41 2.24 2.05 1.88 1.72 1.61 1.08 1.29 1.23 1.09
Net Realized and Unrealized
Gains (Losses) on Investments. 8.06 (8.70) 7.55 1.57 4.18 (3.02) 2.20 1.06 (3.92) 5.13
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations..... 10.47 (6.46) 9.60 3.45 5.90 (1.41) 3.28 2.35 (2.69) 6.22
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income............. (1.48) (1.46) (1.58) (1.14) (1.05) (1.50) .00 (.42) (.90) (.16)
Distributions from Net
Realized Capital Gains........ (.48) (4.31) (1.14) .00 .00 (.09) .00 .00 .00 (1.36)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions....... (1.96) (5.77) (2.72) (1.14) (1.05) (1.59) .00 (.42) (.90) (1.52)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split.............. 1.96 5.77 2.72 1.14 1.05 1.59 .00 .42 .90 1.52
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period$ 42.14 31.67 38.13 28.53 25.08 19.18 20.59 17.31 14.96 17.65
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*.................... 33.06% (16.92)% 33.61% 13.76% 30.76% (6.85)% 18.95% 15.71% (15.24)% 54.42%
- ------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989+ 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars.......$95,057 46,312 70,551 55,565 47,661 37,222 42,439 9,617 9,297 4,884
Ratio of Expenses to Average
Daily Net Assets............... .71% .68% .66% .70% .70% .70% .70%** .70% .70% .70%
Ratio of Net Investment Income
to Average Daily Net Assets.... 6.56% 6.35% 6.32% 7.20% 7.73% 7.82% 7.34%** 8.11% 8.13% 6.71%
Portfolio Turnover Rate.......... 26.00% 35.35% 131.50% 95.25% 130.91% 191.16% 88.43% 258.70% 83.59% 91.01%
- -----------------------
+ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2015 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990 1989++ 1988 1987 1986+
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA+++
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period..................... $ 22.79 29.04 20.39 18.44 13.75 15.62 12.63 11.37 14.24 12.58
Income (Losses) From
Investment Operations
Net Investment Income......... 1.71 1.57 1.46 1.33 1.26 1.18 .79 .94 .90 .26
Net Realized and Unrealized
Gains (Losses) on Investments 7.70 (7.82) 7.19 .62 3.43 (3.05) 2.20 .32 (3.77) 1.40
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations.... 9.41 (6.25) 8.65 1.95 4.69 (1.87) 2.99 1.26 (2.87) 1.66
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income............ (.87) (1.19) (1.45) (1.23) (.97) (.50) .00 (.55) (.22) .00
Distributions from Net
Realized Capital Gains....... .00 (7.08) (.34) .00 .00 (.01) .00 .00 .00 .00
Distributions in Excess of Net
Realized Capital Gains....... .00 (.37) .00 .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions.......... (.87) (8.64) (1.79) (1.23) (.97) (.51) .00 (.55) (.22) .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split............. .87 8.64 1.79 1.23 .97 .51 .00 .55 .22 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period$ 32.20 22.79 29.04 20.39 18.44 13.75 15.62 12.63 11.37 14.24
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*................... 41.29% (21.52)% 42.42% 10.57% 34.11% (11.97)% 23.67% 11.08% (20.15)% 13.20%
- ------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989++ 1988 1987 1986+
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars).....$114,647 66,073 89,023 131,106 222,118 295,577 233,792 11,790 2,006 528
Ratio of Expenses to Average
Daily Net Assets.............. .71% .68% .63% .62% .61% .70% .70%** .70% .70% .70%**
Ratio of Net Investment Income
to Average Daily Net Assets... 6.40% 5.97% 6.28% 7.04% 7.79% 7.74% 7.02%** 7.97% 7.99% 6.06%**
Portfolio Turnover Rate......... 69.97% 64.90% 138.34% 103.25% 39.91% 81.27% 48.31% 188.24% 508.59% 21.59%
- -----------------------
+ From September 1, 1986 (commencement of operations), through December 31, 1986.
++ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
+++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2020 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1995 1994 1993 1992 1991 1990+
---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period............................... $ 15.28 20.72 13.63 12.54 9.63 12.00
Income (Losses) From Investment Operations
Net Investment Income.............................................. 1.19 1.13 1.00 .92 .85 .60
Net Realized and Unrealized Gains (Losses) on Investments.......... 6.00 (6.57) 6.09 .17 2.06 (2.97)
----- ----- ----- ----- ----- -----
Total Income (Losses) From Investment Operations.................. 7.19 (5.44) 7.09 1.09 2.91 (2.37)
----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income............................... (.21) (0.28) (.53) (.63) (.21) .00
Distributions from Net Realized Capital Gains...................... .00 (1.31) (.72) (.08) .00 .00
Distributions in Excess of Net Realized Capital Gains.............. .00 (1.18) .00 .00 .00 .00
----- ----- ----- ----- ----- -----
Total Distributions............................................... (.21) (2.77) (1.25) (.71) (.21) .00
----- ----- ----- ----- ----- -----
Reverse Share Split................................................ .21 2.77 1.25 .71 .21 .00
----- ----- ----- ----- ----- -----
Net Asset Value at End of Period..................................... $ 22.47 15.28 20.72 13.63 12.54 9.63
===== ===== ===== ===== ===== =====
TOTAL RETURN*........................................................ 47.05% (26.25)% 52.02% 8.69% 30.22% (19.75)%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)................ $574,702 58,535 56,125 41,793 88,332 53,198
Ratio of Expenses to Average Daily Net Assets....................... .72% .70% .70% .66% .67% .70%**
Ratio of Net Investment Income to Average Daily Net Assets........... 6.24% 6.28% 6.10% 7.19% 7.50% 7.79%**
Portfolio Turnover Rate.............................................. 78.08% 116.46% 178.52% 144.05% 151.44% 188.60%
- -----------------------
+ From December 29, 1989 (commencement of operations), through September 30, 1990.
++Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1995
1995 2000 2005 2010 2015 2020
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities at value (cost of $64,301,320,
$282,651,207, $162,328,984, $82,057,445, $85,156,324
and $502,555,395, respectively) (Note 4).... $64,420,933 294,898,365 182,221,648 94,630,578 114,297,012 569,757,799
Cash............................................ 204,077 27,250 0 32,206 21,782 5,037,291
Investments in affiliated money market
fund (Note 2)............................... 0 19,292 445,893 247,502 293,915 345,022
Interest receivable............................. 148,922 0 0 0 0 0
Receivable for fund shares sold................. 0 229,938 1,023,210 221,633 146,152 4,995,974
Prepaid expenses and other assets............... 1,510 2,971 2,763 876 2,538 1,178
----------- ----------- ----------- ----------- ----------- -----------
Total assets.................................. 64,775,442 295,177,816 183,693,514 95,132,795 114,761,399 580,137,264
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable for fund shares redeemed................ 1,169,193 291,317 18,432 19,280 50,618 328,836
Payable for securities purchased................ 0 0 0 0 0 4,754,700
Payable to affiliates (Note 2).................. 37,804 141,794 76,171 45,397 59,025 203,484
Accrued expenses & other liabilities............ 200 8,725 146,836 11,500 4,345 148,725
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities............................. 1,207,197 441,836 241,439 76,177 113,988 5,435,745
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS........................................ $63,568,245 294,735,980 183,452,075 95,056,618 114,647,411 574,701,519
=========== =========== =========== =========== =========== ===========
Net assets consist of:
Capital paid in................................. 61,223,037 274,897,729 154,988,482 79,691,334 74,222,569 496,734,293
Net undistributed realized gain (loss)
on investments............................... (1,149,734) (5,659,242) 2,132,519 (692,795) 5,942,266 592,964
Undistributed net investment income............. 3,375,329 13,250,335 6,438,410 3,484,946 5,341,888 10,171,858
Net unrealized appreciation on investments...... 119,613 12,247,158 19,892,664 12,573,133 29,140,688 67,202,404
----------- ----------- ----------- ----------- ----------- -----------
Net assets...................................... $63,568,245 294,735,980 183,452,075 95,056,618 114,647,411 574,701,519
=========== =========== =========== =========== =========== ===========
Shares of beneficial interest outstanding
(unlimited number of shares authorized)..... 632,484 3,834,562 3,240,460 2,255,560 3,559,926 25,574,964
=========== =========== =========== =========== =========== ===========
Net asset value, offering price and
redemption price per share.................. $100.51 76.86 56.61 42.14 32.20 22.47
======= ===== ===== ===== ===== =====
- --------------------------
See the accompanying notes to financial statements.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1995
1995 2000 2005 2010 2015 2020
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Interest Income................................ $ 5,051,227 19,024,682 9,099,995 4,859,800 7,919,101 13,395,421
----------- ----------- ----------- ----------- ----------- -----------
Expenses (Note 2):
Investment advisory fees....................... 284,896 984,031 435,406 232,626 388,306 665,955
Administrative fees............................ 79,620 274,835 121,534 64,928 108,475 185,592
Transfer agency fees........................... 91,301 285,145 183,211 130,450 202,013 350,332
Printing and postage........................... 25,255 86,395 40,934 23,823 41,017 66,868
Custodian fees................................. 18,562 46,453 24,140 16,631 23,664 32,415
Telephone...................................... 7,703 12,279 5,932 5,014 21,645 37,383
Auditing and legal fees........................ 8,716 24,077 11,269 6,861 10,395 13,601
Registration and filing fees................... 18,436 41,401 64,477 41,173 37,356 243,200
Directors' fees and expenses................... 4,474 6,610 4,850 4,243 4,784 5,288
Other operating expenses....................... 3,309 13,837 7,091 4,892 5,941 6,176
----------- ----------- ----------- ----------- ----------- -----------
Total expenses............................... 542,272 1,775,063 898,844 530,641 843,596 1,606,810
Amount recouped (waived) (Note 2)................ 1,536 0 (15,078) (57,258) (51,419) (243,519)
Custodial earnings credits (Note 6).............. (7,990) (28,704) (12,955) (8,130) (15,564) (31,381)
----------- ----------- ----------- ----------- ----------- -----------
Net expenses................................... 535,818 1,746,359 870,811 465,253 776,613 1,331,910
----------- ----------- ----------- ----------- ----------- -----------
Net investment income........................ 4,515,409 17,278,323 8,229,184 4,394,547 7,142,488 12,063,511
----------- ----------- ----------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain (loss)
Proceeds from sales............................ 155,344,209 146,798,869 45,296,430 16,663,755 83,672,886 163,962,768
Cost of securities sold........................ 155,453,550 147,783,476 43,163,911 17,356,550 76,790,666 159,959,349
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss)..................... (109,341) (984,607) 2,132,519 (692,795) 6,882,220 4,003,419
----------- ----------- ----------- ----------- ----------- -----------
Unrealized appreciation (depreciation) of investments:
Beginning of year.............................. (82,162) (11,255,113) 1,509,520 (3,348,217) 2,359,409 (4,644,419)
End of year.................................... 119,613 12,247,158 19,892,664 12,573,133 29,140,688 67,202,404
----------- ----------- ----------- ----------- ----------- -----------
Net change in unrealized appreciation for the year 201,775 23,502,271 18,383,144 15,921,350 26,781,279 71,846,823
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain on investments 92,434 22,517,664 20,515,663 15,228,555 33,663,499 75,850,242
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting from operations$4,607,843 39,795,987 28,744,847 19,623,102 40,805,987 87,913,753
=========== =========== =========== =========== =========== ===========
- ---------------------------
See the accompanying notes to financial statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
1995 Portfolio 2000 Portfolio 2005 Portfolio
------------------ ------------------ ------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From investment activities:
Net investment income.......................... $ 4,515,409 3,615,957 17,278,323 15,464,967 8,229,184 7,334,819
Net change in unrealized appreciation
(depreciation) of investments................ 201,775 (2,952,109) 23,502,271 (36,604,556) 18,383,144 (31,039,612)
Net realized gain (loss) on investments........ (109,341) 150,230 (984,607) (174,601) 2,132,519 8,135,804
----------- ----------- ----------- ----------- ---------- ----------
Change in net assets derived from investment
activities................................... 4,607,843 814,078 39,795,987 (21,314,190) 28,744,847 (15,568,989)
---------- ----------- ----------- ----------- ---------- ----------
From distributions to shareholders:
Net investment income.......................... (3,413,439) (3,459,547) (13,492,533) (12,623,639) (5,945,697) (6,366,401)
Net realized gain on investments.............. 0 (3,222,416) 0 (11,431,947) (1,662,910) (19,992,007)
In excess of realized gains on investments..... 0 (1,040,393) 0 (4,674,634) 0 0
----------- ----------- ----------- ----------- ---------- ----------
Total distributions to shareholders.......... (3,413,439) (7,722,356) (13,492,533) (28,730,220) (7,608,607) (26,358,408)
----------- ----------- ----------- ----------- ---------- ----------
From capital share transactions (Note 3):
Proceeds from sale of shares................... 27,428,575 24,365,920 121,453,561 76,183,247 105,349,198 30,654,983
Net asset value of dividends reinvested........ 3,232,402 7,591,343 13,316,579 28,340,182 7,448,375 25,877,157
Cost of shares redeemed........................ (51,658,743) (28,251,082) (110,232,771) (101,420,736) (46,688,274) (67,369,495)
Net equalization credits (debits) (Note 5)..... 0 (123,666) 0 (581,042) 0 (918,636)
----------- ----------- ----------- ----------- ---------- ----------
Change in net assets derived from
capital share transactions............... (20,997,766) 3,582,515 24,537,369 2,521,651 66,109,299 (11,755,991)
----------- ----------- ----------- ----------- ---------- ----------
Net increase (decrease) in net assets.... (19,803,362) (3,325,763) 50,840,823 (47,522,759) 87,245,539 (53,683,388)
Net assets:
Beginning of year.............................. 83,371,607 86,697,370 243,895,157 291,417,916 96,206,536 149,889,924
----------- ----------- ----------- ----------- ---------- ----------
End of year.................................... $63,568,245 83,371,607 294,735,980 243,895,157 183,452,075 96,206,536
=========== =========== =========== =========== ========== ==========
- ----------------------------
See the accompanying notes to financial statements.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
2010 Portfolio 2015 Portfolio 2020 Portfolio
------------------ ------------------ ------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From investment activities:
Net investment income.......................... $ 4,394,547 3,513,342 7,142,488 4,018,385 12,063,511 3,257,922
Net change in unrealized appreciation
(depreciation) of investments................ 15,921,350 (15,199,790) 26,781,279 (18,797,075) 71,846,823 (15,908,273)
Net realized gain (loss) on investments........ (692,795) 1,704,236 6,882,220 (777,299) 4,003,419 (2,101,875)
----------- ----------- ----------- ----------- ---------- ----------
Change in net assets derived from
investment activities........................ 19,623,102 (9,982,212) 40,805,987 (15,555,989) 87,913,753 (14,752,226)
----------- ----------- ----------- ----------- ---------- ----------
From distributions to shareholders:
Net investment income.......................... (2,702,956) (2,286,410) (3,641,185) (3,037,942) (2,135,107) (812,490)
Net realized gain on investments.............. (883,926) (6,758,781) 0 (18,085,410) 0 (3,775,690)
In excess of realized gains on investments..... 0 0 0 (939,954) 0 (3,410,455)
----------- ----------- ----------- ----------- ---------- ----------
Total distributions to shareholders.......... (3,586,882) (9,045,191) (3,641,185) (22,063,306) (2,135,107) (7,998,635)
----------- ----------- ----------- ----------- ---------- ----------
From capital share transactions (Note 3):
Proceeds from sale of shares................... 69,841,156 27,619,060 124,552,148 59,934,718 765,545,539 157,654,193
Net asset value of dividends reinvested........ 3,479,335 8,908,275 3,457,901 21,594,931 2,018,337 7,781,002
Cost of shares redeemed........................ (40,612,245) (41,414,204) (116,600,252) (66,815,699)(337,176,432) (140,514,070)
Net equalization credits (debits) (Note 5)..... 0 (324,599) 0 (45,090) 0 240,233
----------- ----------- ----------- ----------- ---------- ----------
Change in net assets derived from
capital share transactions............... 32,708,246 (5,211,468) 11,409,797 14,668,860 430,387,444 25,161,358
----------- ----------- ----------- ----------- ---------- ----------
Net increase (decrease) in net assets.... 48,744,466 (24,238,871) 48,574,599 (22,950,435) 516,166,090 2,410,497
Net assets:
Beginning of year.............................. 46,312,152 70,551,023 66,072,812 89,023,247 58,535,429 56,124,932
----------- ----------- ----------- ----------- ---------- ----------
End of year.................................... $ 95,056,618 46,312,152 114,647,411 66,072,812 574,701,519 58,535,429
=========== =========== =========== =========== ========== ==========
- ------------------------------
See the accompanying notes to financial statements.
</TABLE>
48
<PAGE>
BENHAM TARGET MATURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham Target Maturities Trust (the Trust) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Each Portfolio invests primarily in zero-coupon U.S. securities and will be
liquidated shortly after the conclusion of its target maturity year. Consistent
with that policy, the 1995 Portfolio will be closed in early 1996. Currently,
there are six series of the Trust, as follows: 1995 Portfolio, 2000 Portfolio,
2005 Portfolio, 2010 Portfolio, 2015 Portfolio, and 2020 Portfolio. Significant
accounting policies followed by the Trust are summarized below.
Valuation of Investment Securities--Portfolio securities are valued at market as
provided by an independent pricing service and from broker quotations.
Securities for which market quotations are not readily available are stated at
fair value following procedures approved by the Board of Trustees. Security
transactions are recorded on the date the order to buy or sell is executed.
Realized gains and losses from security transactions are determined on the basis
of identified cost.
Income Taxes--Each Portfolio of the Trust intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. By complying
with these provisions, each Portfolio will not be subject to federal income or
California franchise taxes to the extent that it distributes its net investment
income and net realized capital gains to shareholders. Accordingly, no provision
has been made for federal or state taxes.
As of September 30, 1995, the 1995 Portfolio, 2000 Portfolio, and 2010 Portfolio
had capital loss carryovers of $1,083,654, $4,837,224, and $36,315,
respectively. No capital gain distributions will be made by each Portfolio until
the loss carryovers have been offset or expired. The capital loss carryovers
will expire on September 30, 2003 or, if earlier, upon liquidation of the
Portfolio.
Due to the timing of dividend distributions and the differences in accounting
for gains and losses for financial statement and federal income tax purposes,
the fiscal year in which amounts are distributed may differ from the year in
which the income and realized gains (losses) were recorded by each Portfolio.
The differences between capital gains distributed on a book versus tax basis are
shown as excess distributions of realized capital gains in the accompanying
Financial Highlights and Statements of Changes in Net Assets.
49
<PAGE>
On the Statements of Assets and Liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made for
equalization to decrease undistributed net investment income and increase
capital by $1,244,392 (1995 Portfolio), $2,840,375 (2000 Portfolio), $1,226,608
(2005 Portfolio), $911,269 (2010 Portfolio), $2,107,249 (2015 Portfolio), and
$4,293,198 (2020 Portfolio).
Share Valuation--Each Portfolio's net asset value per share is computed by
dividing the value of the Portfolio's total assets, less its liabilities, by the
total number of shares outstanding at the beginning of each business day. The
Portfolios' net asset values fluctuate daily in response to changes in the
market value of their investments.
Investment Income, Premium, and Discount--Interest income and expenses are
accrued daily. Discounts on zero-coupon securities are accrued daily using the
effective interest rate method. Premium or discount on coupon-bearing Treasury
securities are amortized using the effective interest rate method.
Dividends and Other Distributions--Annual dividends based on distributable net
investment income, determined on a calendar year basis, are paid on the
ex-dividend date. Distributable net investment income is the undistributed net
investment income adjusted for net short-term gains, and equalization charges
relating to redemptions of shares during the period. In addition, net realized
long-term capital gains are distributed annually. The next dividend will be
declared and paid in December 1995.
Reverse Share Splits--The trustees may authorize reverse share splits
immediately after and of a size that exactly offsets the per share amount of the
annual dividend and capital gain distribution (if any). After taking into
account the reverse share split, a shareholder reinvesting dividends and capital
gain distributions will hold exactly the same number of shares owned prior to
the distributions and reverse share split. A shareholder electing to receive
dividends in cash will own fewer shares.
(2) INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc. (BMI), merged into TCC on June 1, 1995. Each Portfolio pays
BMC a monthly investment advisory fee based on its pro rata share of the dollar
amount derived from applying BTMT's average daily net assets to the following
fee schedule.
50
<PAGE>
.35% of the first $750 million
.25% of the next $750 million
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion
BMC provides the Trust with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Trust officers and trustees who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.
The Trust has an Administrative Services and Transfer Agency Agreement with
Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under
the agreement, BFS provides substantially all administrative and transfer agency
services necessary to operate the Trust. Fees for these services are based on
transaction volume, number of accounts, and average net assets of all funds in
The Benham Group.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits each Portfolio's expenses (excluding
extraordinary expenses such as brokerage commissions and taxes and including
expense offset arrangements) to .70% of each Portfolio's average daily net
assets. The agreement provides that BMC may recover amounts (representing
expenses in excess of the Portfolio's expense guarantee rate) absorbed during
the preceding 11 months if, and to the extent that, for any given month, the
Portfolio's expenses were less than the .70% limit. The expense guarantee rate
is subject to renewal in June 1996.
The payables to affiliates as of September 30, 1995, based on the above
agreements were as follows:
1995 2000 2005
Portfolio Portfolio Portfolio
--------- --------- --------
Investment Advisor..................... $ 20,361 85,226 34,406
Administrative Services................ 5,634 23,581 13,810
Transfer Agent......................... 11,809 32,987 27,955
-------- ------- -------
$ 37,804 141,794 76,171
======== ======= =======
2010 2015 2020
Portfolio Portfolio Portfolio
--------- --------- --------
Investment Advisor..................... $ 15,395 30,623 56,373
Administrative Services................ 7,231 8,866 36,401
Transfer Agent......................... 22,771 19,536 110,710
-------- ------- -------
$ 45,397 59,025 203,484
======== ======= =======
51
<PAGE>
As of September 30, 1995, several Portfolios had invested cash amounts in shares
of Capital Preservation Fund, Inc. (CPF), a money market fund advised by BMC,
totalling $19,292 (2000 Portfolio), $445,893 (2005 Portfolio), $247,502 (2010
Portfolio), $293,915 (2015 Portfolio), and $345,022 (2020 Portfoio). The terms
of such transactions were identical to those with non-related entities except
that, to avoid duplicative investment advisory fees, the Portfolios do not pay
BMC investment advisory fees with respect to assets invested in shares of CPF.
The Trust has a distribution agreement with Benham Distributors, Inc. (BDI),
which is responsible for promoting sales of and distributing the Trust's shares.
BDI is a wholly owned subsidiary of TCC.
(3) SHARE TRANSACTIONS
Transactions for each of the Portfolios for the years ended September 30, 1995,
and 1994, were as follows:
1995 2000 2005
Portfolio Portfolio Portfolio
------------------ ---------------- ----------------
1995 1994 1995 1994 1995 1994
-------- --------- ------- ------- ------- -------
Shares sold... 283,425 263,383 1,710,037 1,114,636 2,027,040 644,935
Reinvestment of
dividends... 35,505 88,860 211,374 442,173 175,507 645,537
--------- ---------- -------- -------- -------- --------
318,930 352,243 1,921,411 1,556,809 2,202,547 1,290,472
Less shares
redeemed.... (526,372) (305,439)(1,516,891)(1,490,179) (910,391)(1,399,588)
Reverse share
split....... (37,416) (90,248) (214,028) (447,648) (178,997) (654,793)
--------- ---------- -------- -------- -------- --------
Net increase
(decrease) in
shares...... (244,858) (43,444) 190,492 (381,018) 1,113,159 (763,909)
========= ========== ======== ======== ======== ========
2010 2015 2020
Portfolio Portfolio Portfolio
------------------ ---------------- ----------------
1995 1994 1995 1994 1995 1994
-------- --------- ------- ------- ------- -------
Shares sold...1,894,844 806,962 4,976,479 2,408,197 40,032,262 8,985,953
Reinvestment of
dividends... 113,861 281,196 148,497 1,072,560 126,631 472,224
--------- ---------- -------- -------- --------- --------
2,008,705 1,088,158 5,124,976 3,480,757 40,158,893 9,458,177
Less shares
redeemed...(1,098,272)(1,191,355)(4,307,665)(2,558,058)(18,280,426)(7,854,498)
Reverse share
split....... (117,148) (284,876) (156,322)(1,089,058) (133,904) (482,381)
--------- ---------- -------- -------- --------- --------
Net increase
(decrease) in
shares...... 793,285 (388,073) 660,989 (166,359) 21,744,563 1,121,298
========= ========== ======== ======== ========= ========
52
<PAGE>
(4) INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term securities, for the year ended
September 30, 1995, were as follows:
<TABLE>
<CAPTION>
1995 2000 2005 2010 2015 2020
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Purchases.. $136,788,285 175,805,281 111,234,186 50,559,035 99,202,582 598,270,689
========== ========== ========= ========= ========= ==========
Sales
proceeds. $155,453,550 147,783,476 43,163,911 17,356,550 76,790,666 159,959,349
========== ========== ========= ========= ========= ==========
</TABLE>
As of September 30, 1995, unrealized appreciation (depreciation) was as follows:
<TABLE>
<CAPTION>
1995 2000 2005 2010 2015 2020
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Appreciated
securities.$ 134,151 13,308,635 19,921,727 12,880,525 29,141,088 67,455,764
Depreciated
securities. (14,538) (1,061,477) (29,063) (307,392) (400) (253,360)
-------- ---------- --------- --------- --------- ---------
Net unrealized
appreciation
(depreciation)$ 119,613 12,247,158 19,892,664 12,573,133 29,140,688 67,202,404
======== ========== ========= ========= ========= =========
</TABLE>
The cost of securities for financial reporting and federal income tax purposes
is the same.
During the year ended September 30, 1995, the Trust paid no brokerage
commissions. Each Portfolio invests principally in zero-coupon U.S. Treasury
securities and may also invest in U.S. Treasury bills and coupon-bearing U.S.
Treasury notes and bonds, all of which are guaranteed by the direct "full faith
and credit" pledge of the U.S. government, and Resolution Funding Corporation
(REFCORP) zero-coupon bonds, whose principal is secured by zero-coupon U.S.
Treasury securities and whose interest payments are guaranteed by the U.S.
Treasury.
Zero-coupon U.S. Treasury securities held by the Portfolios include:
Certificates of Accrual of Treasury Securities (CATS), Treasury Bond Receipts
(TBRs), Treasury Receipts (TRs), Treasury Investment Growth Receipts (TIGRs),
Coupon Government Accrual Receipts (COUGARs), Treasury Obligation Certificates
(TOCs), Coupons Under Book Entry Safekeeping (CUBES), U.S. Treasury Bearer Bond
Coupons and Corpus (PHYSICALs), Government and Agency Term Obligations (GATORs),
Callable Easy Growth Treasury Receipts (CETRs), and Separate Trading of
Registered Interest and Principal of Securities (STRIPS). CATS, TBRs, TRs,
TIGRs, COUGARs, GATORs, TOCs and CETRs are instruments offered by broker-dealers
who separate (strip) the principal portions (corpus) from the coupon portions of
U.S. Treasury bonds and notes
53
<PAGE>
and sell them separately in the form of receipts or certificates representing
undivided interests in these instruments. PHYSICALs are stripped U.S. Treasury
bearer bonds that are traded in physical form. STRIPS describes the program by
which the U.S. Treasury Department has facilitated the stripping of Treasury
notes and bonds by permitting the separated corpus and coupons to be transferred
directly through the Federal Reserve Bank's book entry system.
(5) RECLASSIFICATIONS
The Trust has followed the practice known as "equalization" under which a
portion of the proceeds from sales and costs of repurchases of Portfolio shares,
equivalent on a per-share basis to the amount of net undistributed investment
income on the date of the transaction, was credited or charged against an
equalization account. The Fund discontinued this practice for financial
reporting purposes for the year ending September 30, 1995. As a result, the
following net equalization credits (debits) were reclassified to capital:
1995 2000 2005 2010 2015 2020
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------
$ (830,487) (48,526) 1,423,103 657,050 724,195 6,042,633
======= ====== ======= ======= ======= =======
(6) EXPENSE OFFSET ARRANGEMENTS
Each Portfolio's Statement of Operations shows custodial earnings credits. This
amount represents credits received on cash balances maintained by the Portfolio
at the custodian bank. The Portfolios could have invested the excess cash
balances in an income-producing asset if they had not agreed to a reduction in
fees under the expense offset arrangement. Beginning with the year ending
September 30, 1995, the ratios of expenses to average daily net assets shown in
the Financial Highlights are calculated without the credits received under the
expense offset arrangement.
54
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--1995 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Yield to Maturity Face Value
U.S. Treasury Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
CUBES..................................................................... 5.59% 11/15/95 $ 3,000,000 2,980,110 4.63%
TR........................................................................ 5.57 11/15/95 2,950,709 2,932,975 4.55
U.S. Treasury Note 5.125% coupon.......................................... 5.54 11/15/95 5,000,000 4,996,875 7.76
U.S. Treasury Bill........................................................ 5.09 11/16/95 16,100,000 15,993,096 24.83
U.S. Treasury Bill........................................................ 5.12 11/24/95 8,650,000 8,582,357 13.32
U.S. Treasury Note 4.250% coupon.......................................... 5.57 11/30/95 3,650,000 3,642,007 5.65
STRIPS-PRINCIPAL.......................................................... 5.63 02/15/96 23,071,000 22,601,274 35.08
TR........................................................................ 5.71 02/15/96 861,075 843,793 1.31
COUGAR.................................................................... 5.85 05/15/96 1,442,000 1,392,309 2.16
PHYSICAL COUPON........................................................... 5.88 05/15/96 472,500 456,137 .71
----------- ---------- ------
Total Investment Securities (cost $64,301,320).............................................. $ 65,197,284 64,420,933 100.00%
=========== ========== ======
- --------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--2000 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
STRIPS--COUPON ........................................................... 5.99% 05/15/99 $ 1,000,000 807,790 .27%
CUBES .................................................................... 6.08 08/15/99 71,250 56,511 .02
STRIPS--COUPON ........................................................... 5.99 11/15/99 153,000 119,976 .04
TBR ...................................................................... 6.16 11/15/99 2,836,700 2,210,810 .75
TR ....................................................................... 6.07 11/15/99 349,800 273,603 .09
CUBES .................................................................... 6.12 02/15/00 88,125 67,718 .02
STRIPS--PRINCIPAL ........................................................ 6.02 02/15/00 14,069,000 10,856,907 3.68
TBR....................................................................... 6.19 02/15/00 306,945 235,322 .08
TR ....................................................................... 6.10 02/15/00 30,036,209 23,115,265 7.84
TBR ...................................................................... 6.17 05/15/00 1,494,525 1,129,472 .38
STRIPS--PRINCIPAL ........................................................ 6.05 08/15/00 69,567,000 52,054,203 17.65
TBR ...................................................................... 6.20 08/15/00 894,045 664,696 .23
COUGAR ................................................................... 6.20 11/15/00 3,932,000 2,879,089 .98
CUBES .................................................................... 6.16 11/15/00 410,625 301,062 .10
STRIPS--PRINCIPAL ........................................................ 6.07 11/15/00 93,497,000 68,857,736 23.35
TIGR ..................................................................... 6.14 11/15/00 3,754,000 2,756,938 .94
TR ....................................................................... 6.14 11/15/00 28,951,636 21,262,081 7.21
STRIPS--PRINCIPAL ........................................................ 6.08 02/15/01 12,684,000 9,195,646 3.12
STRIPS--COUPON ........................................................... 6.05 02/15/01 19,625,000 14,253,834 4.83
TIGR ..................................................................... 6.13 02/15/01 4,657,000 3,370,550 1.14
TR ....................................................................... 6.13 02/15/01 20,422,327 14,780,864 5.01
COUGAR ................................................................... 6.20 05/15/01 1,400,000 994,028 .34
PHYSICAL COUPON .......................................................... 6.23 05/15/01 1,496,250 1,060,647 .36
STRIPS--COUPON ........................................................... 6.06 05/15/01 21,407,000 15,305,791 5.19
TR ....................................................................... 6.14 05/15/01 24,350,000 17,345,479 5.88
STRIPS--PRINCIPAL ........................................................ 6.12 08/15/01 20,450,000 14,359,785 4.87
TR ....................................................................... 6.16 08/15/01 7,060,020 4,948,086 1.68
STRIPS--PRINCIPAL ........................................................ 6.12 11/15/01 8,500,000 5,877,665 1.99
STRIPS--COUPON ........................................................... 6.12 02/15/02 8,449,000 5,756,811 1.96
----------- ---------- -----
Total Investment Securities (cost $282,651,207)............................................. $401,912,457 294,898,365 100.00%
=========== ========== =====
- --------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--2005 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
PHYSICAL COUPON........................................................... 6.51% 11/15/04 $ 693,750 387,230 .22%
U.S. Treasury Corpus, Maturity 02/15/10, Callable 02/15/05................ 6.57 02/15/05 3,200,000 1,747,456 .96
STRIPS--COUPON............................................................ 6.35 02/15/05 16,500,000 9,185,715 5.04
TR, Maturity 05/15/10, Callable 05/15/05.................................. 6.56 05/15/05 5,150,000 2,771,112 1.52
CUBES..................................................................... 6.47 05/15/05 4,615,672 2,502,756 1.37
ETR....................................................................... 6.55 05/15/05 1,000,000 538,580 .30
STRIPS--PRINCIPAL......................................................... 6.39 05/15/05 9,559,000 5,221,986 2.87
STRIPS--COUPON............................................................ 6.37 05/15/05 29,644,000 16,224,458 8.90
TBR....................................................................... 6.54 05/15/05 428,750 231,131 .13
TIGR...................................................................... 6.45 05/15/05 15,940,000 8,665,303 4.76
TR........................................................................ 6.45 05/15/05 5,509,606 2,995,132 1.64
STRIPS--PRINCIPAL......................................................... 6.38 08/15/05 16,800,000 9,043,272 4.96
STRIPS--COUPON............................................................ 6.38 08/15/05 16,500,000 8,881,785 4.87
U.S. Treasury Corpus, Maturity 11/15/10, Callable 11/15/05................ 6.61 11/15/05 8,900,000 4,614,294 2.53
CUBES..................................................................... 6.49 11/15/05 430,250 225,546 .12
STRIPS--COUPON............................................................ 6.39 11/15/05 20,600,000 10,905,434 5.98
TBR....................................................................... 6.56 11/15/05 2,147,000 1,118,587 .61
REFCORP STRIPS--COUPON.................................................... 6.55 01/15/06 46,429,000 23,927,649 13.13
STRIPS--COUPON............................................................ 6.42 02/15/06 50,056,000 26,007,596 14.27
TR........................................................................ 6.50 02/15/06 19,415,340 10,013,850 5.50
REFCORP STRIPS--COUPON.................................................... 6.56 04/15/06 25,300,000 12,816,980 7.03
CATS, Maturity 05/15/11, Callable 05/15/06................................ 6.61 05/15/06 38,699,000 19,412,579 10.65
TR, Maturity 05/15/11, Callable 05/15/06.................................. 6.62 05/15/06 1,000,000 501,110 .28
CUBES..................................................................... 6.53 05/15/06 566,500 286,315 .16
STRIPS--COUPON............................................................ 6.43 05/15/06 4,618,000 2,358,135 1.29
TBR....................................................................... 6.60 05/15/06 410,000 205,877 .11
TR........................................................................ 6.51 05/15/06 146,346 74,170 .04
REFCORP STRIPS--COUPON.................................................... 6.58 07/15/06 1,428,000 710,359 .39
TR........................................................................ 6.53 08/15/06 1,299,780 647,251 .37
------------ ---------- ------
Total Investment Securities (cost $162,328,984)............................................. $346,985,994 182,221,648 100.00%
============ ========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--2010 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
ETR, Maturity 05/15/14, Callable 05/15/09................................. 6.86% 05/15/09 $ 28,385,000 11,335,834 11.98%
REFCORP STRIPS--COUPON.................................................... 6.77 10/15/09 4,000,000 1,571,160 1.66
STRIPS--PRINCIPAL, Maturity 11/15/14, Callable 11/15/09................... 6.77 11/15/09 33,500,000 13,094,145 13.84
REFCORP STRIPS--COUPON.................................................... 6.80 01/15/10 5,772,000 2,220,546 2.35
STRIPS--COUPON............................................................ 6.66 02/15/10 4,500,000 1,756,530 1.86
REFCORP STRIPS--COUPON.................................................... 6.81 04/15/10 8,749,000 3,305,372 3.49
STRIPS--COUPON............................................................ 6.67 05/15/10 18,087,000 6,930,757 7.32
REFCORP STRIPS--COUPON.................................................... 6.84 07/15/10 15,000,000 5,549,100 5.86
STRIPS--COUPON............................................................ 6.69 08/15/10 25,777,000 9,696,019 10.25
REFCORP STRIPS--COUPON.................................................... 6.84 10/15/10 20,114,000 7,316,870 7.73
STRIPS--COUPON............................................................ 6.70 11/15/10 38,000,000 14,029,600 14.83
STRIPS--COUPON............................................................ 6.71 02/15/11 26,860,000 9,747,494 10.30
REFCORP STRIPS--COUPON.................................................... 6.86 04/15/11 18,850,000 6,610,506 6.99
STRIPS--COUPON............................................................ 6.74 08/15/11 3,215,000 1,123,675 1.19
STRIPS--COUPON............................................................ 6.75 11/15/11 1,000,000 342,970 .35
------------ ---------- ------
Total Investment Securities (cost $82,057,445).............................................. $251,809,000 94,630,578 100.00%
============ ========== ======
- -------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--2015 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
STRIPS--COUPON............................................................ 6.85% 02/15/15 $ 33,350,000 9,055,859 7.92%
REFCORP STRIPS--COUPON.................................................... 7.01 04/15/15 35,440,000 9,224,323 8.07
STRIPS--COUPON............................................................ 6.86 05/15/15 46,408,000 12,367,732 10.82
REFCORP STRIPS--COUPON.................................................... 7.01 07/15/15 29,644,000 7,584,121 6.64
STRIPS--COUPON............................................................ 6.86 08/15/15 49,550,000 12,984,578 11.36
REFCORP STRIPS--COUPON.................................................... 7.01 10/15/15 44,921,000 11,296,284 9.88
STRIPS--COUPON............................................................ 6.86 11/15/15 64,808,000 16,682,875 14.60
STRIPS--COUPON............................................................ 6.86 02/15/16 36,300,000 9,187,893 8.04
REFCORP STRIPS--COUPON.................................................... 7.02 04/15/16 44,788,000 10,859,746 9.50
STRIPS--COUPON............................................................ 6.87 05/15/16 17,700,000 4,400,751 3.85
REFCORP STRIPS--COUPON.................................................... 7.02 07/15/16 25,000,000 5,958,250 5.21
REFCORP STRIPS--COUPON.................................................... 7.01 10/15/16 20,000,000 4,694,600 4.11
------------ ---------- ------
Total Investment Securities (cost $85,156,324).............................................. $447,909,000 114,297,012 100.00%
============ ========== ======
- --------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST--2020 PORTFOLIO
Schedule of Investment Securities
September 30, 1995
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) Maturity* Date Amount (Note 1) Percent
- -------------------------------------------------------------------------- ----- ----- ------- ----- ----
<S> <C> <C> <C> <C> <C>
STRIPS--COUPON............................................................ 6.90% 11/15/19 $ 4,000,000 778,880 .14%
REFCORP STRIPS--COUPON.................................................... 7.04 01/15/20 57,823,000 10,773,581 1.89
STRIPS--COUPON............................................................ 6.90 02/15/20 595,000,000 113,912,750 19.99
REFCORP STRIPS--COUPON.................................................... 7.04 04/15/20 56,344,000 10,317,713 1.81
STRIPS--COUPON............................................................ 6.90 05/15/20 591,500,000 111,338,045 19.54
REFCORP STRIPS--PRINCIPAL................................................. 7.01 07/15/20 253,000,000 45,863,840 8.05
REFCORP STRIPS--COUPON.................................................... 7.04 07/15/20 43,535,000 7,835,865 1.38
STRIPS--COUPON............................................................ 6.90 08/15/20 177,000,000 32,755,620 5.75
REFCORP STRIPS--PRINCIPAL................................................. 7.01 10/15/20 85,000,000 15,145,300 2.66
REFCORP STRIPS--COUPON.................................................... 7.05 10/15/20 125,165,000 22,087,868 3.88
STRIPS--COUPON............................................................ 6.90 11/15/20 580,707,000 105,787,394 18.57
REFCORP STRIPS--COUPON.................................................... 7.04 01/15/21 20,205,000 3,513,043 .62
STRIPS--COUPON............................................................ 6.90 02/15/21 266,000,000 47,643,260 8.36
STRIPS--COUPON............................................................ 6.89 05/15/21 238,000,000 42,004,640 7.36
------------ ---------- ------
Total Investment Securities (cost $502,555,395)............................................. $3,093,279,000 569,757,799 100.00%
============ ========== ======
- -------------------------
* The yield to maturity is based on current market values as of September 30, 1995.
See the accompanying notes to financial statements.
</TABLE>
60
<PAGE>
PROXY VOTING RESULTS
A special shareholder meeting was held on May 31, 1995, to vote on the following
proposals. All of the proposals received the required majority of votes and were
adopted.
Proposal I.--To consider and vote on approval or disapproval of new Investment
Advisory Agreements with BTMT on behalf of each Portfolio with BMC to take
effect upon the closing of the proposed merger of BMC's parent company, BMI,
into TCC.
Proposals II, II, and IV are not applicable to shareholders of BTMT.
Proposal V.--To elect the Board of Trustees of BTMT.
Proposal VI.--To ratify the Board of Trustees' selection of KPMG Peat Marwick
LLP as independent auditors for BTMT's current fiscal year end.
Proposal VII.--To amend BTMT's Articles of Incorporation to provide dollar-based
voting rights for shareholders of the Portfolios.
A summary of voting results is as follows:
<TABLE>
<CAPTION>
1995 Portfolio 2000 Portfolio 2005 Portfolio
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proposal I. For 500,215 For 2,189,192 For 1,332,120
Against 24,452 Against 74,176 Against 52,009
Abstained 23,010 Abstained 97,820 Abstained 66,160
- -----------------------------------------------------------------------------------------------------
Proposal V.
James M. Benham For 517,958 For 2,228,993 For 1,354,139
Withheld* 29,749 Withheld* 132,195 Withheld* 96,150
Ronald J. Gilson For 516,122 For 2,225,127 For 1,353,277
Withheld* 31,555 Withheld* 136,061 Withheld* 97,012
Myron S. Scholes For 517,724 For 2,228,493 For 1,354,297
Withheld* 29,953 Withheld* 132,695 Withheld* 95,992
Kenneth E. Scott For 517,731 For 2,225,111 For 1,353,116
Withheld* 29,946 Withheld* 136,077 Withheld* 97,173
Ezra Solomon For 516,708 For 2,222,372 For 1,351,970
Withheld* 30,969 Withheld* 138,816 Withheld* 98,319
Isaac Stein For 517,672 For 2,228,144 For 1,353,628
Withheld* 30,005 Withheld* 133,044 Withheld* 96,661
James E. Stowers, III For 516,426 For 2,225,214 For 1,353,359
Withheld* 31,251 Withheld* 135,874 Withheld* 96,930
Jeanne D. Wohlers For 517,910 For 2,228,402 For 1,354,247
Withheld* 29,767 Withheld* 132,786 Withheld* 96,042
*Shares Withholding Authority to Vote
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
1995 Portfolio 2000 Portfolio 2005 Portfolio
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proposal VI. For 505,023 For 2,174,944 For 1,295,359
Against 11,731 Against 140,804 Against 40,255
Abstained 30,922 Abstained 45,440 Abstained 114,675
- -----------------------------------------------------------------------------------------------------
Proposal VII. For 500,525 For 2,159,673 For 1,315,106
Against 23,539 Against 80,279 Against 60,859
Abstained 23,613 Abstained 121,235 Abstained 74,324
2010 Portfolio 2015 Portfolio 2020 Portfolio
- -----------------------------------------------------------------------------------------------------
Proposal I. For 973,335 For 2,253,338 For 5,300,232
Against 35,253 Against 70,819 Against 192,337
Abstained 54,897 Abstained 112,898 Abstained 247,227
- -----------------------------------------------------------------------------------------------------
Proposal V.
James M. Benham For 999,477 For 2,279,720 For 5,355,488
Withheld* 64,008 Withheld* 157,335 Withheld* 384,309
Ronald J. Gilson For 998,247 For 2,277,842 For 5,352,776
Withheld* 65,238 Withheld* 159,213 Withheld* 387,021
Myron S. Scholes For 999,215 For 2,278,983 For 5,355,027
Withheld* 64,270 Withheld* 158,072 Withheld* 384,770
Kenneth E. Scott For 998,531 For 2,276,221 For 5,351,957
Withheld* 64,954 Withheld* 160,834 Withheld* 387,840
Ezra Solomon For 996,468 For 2,272,275 For 5,343,417
Withheld* 67,017 Withheld* 164,780 Withheld* 396,380
Isaac Stein For 998,875 For 2,279,686 For 5,355,142
Withheld* 64,610 Withheld* 157,369 Withheld* 384,655
James E. Stowers, III For 997,977 For 2,277,945 For 5,352,190
Withheld* 65,508 Withheld* 159,110 Withheld* 387,607
Jeanne D. Wohlers For 999,060 For 2,278,446 For 5,353,334
Withheld* 64,425 Withheld* 158,609 Withheld* 386,463
*Shares Withholding Authority to Vote
- -----------------------------------------------------------------------------------------------------
Proposal VI. For 968,583 For 2,236,731 For 5,339,944
Against 21,878 Against 53,814 Against 137,013
Abstained 73,024 Abstained 146,510 Abstained 262,838
- -----------------------------------------------------------------------------------------------------
Proposal VII. For 970,626 For 2,211,939 For 5,241,388
Against 32,685 Against 79,377 Against 215,796
Abstained 60,174 Abstained 145,739 Abstained 282,612
</TABLE>
62
<PAGE>
Trustees
James M. Benham
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers, III
Jeanne D. Wohlers
Officers
James M. Benham
Chairman of the Board
John T. Kataoka
President and Chief Executive Officer
Bruce R. Fitzpatrick
Vice President
Maryanne Roepke
Treasurer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus.
Benham Distributors, Inc. 11/95 Q068
