BENHAM TARGET
MATURITIES TRUST
Annual Report
September 30, 1995
[picture of target
range]
Twentieth Century Mutual Funds
and The Benham Group
[front cover]
CONTENTS
U.S. ECONOMIC REVIEW................................. 1
MARKET SUMMARY....................................... 2
2000 PORTFOLIO
Performance Information & Portfolio Statistics....... 4
Performance Comparison & Portfolio Composition....... 5
Management Discussion................................ 6
Financial Highlights..................................34
Schedule of Investments...............................54
2005 PORTFOLIO
Performance Information & Portfolio Statistics....... 8
Performance Comparison & Portfolio Composition....... 9
Management Discussion.................................10
Financial Highlights..................................36
Schedule of Investments...............................56
2010 PORTFOLIO
Performance Information & Portfolio Statistics........12
Performance Comparison & Portfolio Composition........13
Management Discussion.................................14
Financial Highlights..................................38
Schedule of Investments...............................58
2015 PORTFOLIO
Performance Information & Portfolio Statistics........16
Performance Comparison & Portfolio Composition........17
Management Discussion.................................18
Financial Highlights..................................40
Schedule of Investments...............................59
2020 PORTFOLIO
Performance Information & Portfolio Statistics........20
Performance Comparison & Portfolio Composition........21
Management Discussion.................................22
Financial Highlights..................................42
Schedule of Investments...............................60
2025 PORTFOLIO
Performance Information & Portfolio Statistics........24
Performance Comparison & Portfolio Composition........25
Management Discussion.................................26
Financial Highlights..................................43
Schedule of Investments...............................61
INVESTMENT FUNDAMENTALS...............................28
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
The U.S. economy grew at a healthy pace for the first three quarters of 1996,
confounding market analysts who predicted a significant slowdown. During 1995,
economic weakness prompted the Federal Reserve (the Fed) to make a series of
short-term interest rate cuts, culminating in a quarter-of-a-percent cut in
January 1996. This expansionary monetary policy helped speed the pace of U.S.
economic growth from an anemic 0.3% annual rate in the fourth quarter of 1995 to
2.0% in the first quarter of 1996. Growth expanded further to an impressive 4.7%
in the second quarter of the year (see the graph below).
Stronger-than-expected corporate earnings fueled increased corporate expansion
and job growth. Nearly two million new jobs were created in the first nine
months of the year, sending the U.S. unemployment rate to a six-year low.
Healthy employment numbers and a strong performance by U.S. stocks led to fears
of inflationary pressure and expectations of an interest rate hike by the Fed.
As a result, U.S. bonds overall gave a lackluster performance.
[bar graph - data described below]
But the expected surge in inflation failed to materialize. For the first nine
months of the year, inflation, as measured by the consumer price index (CPI),
grew at an annualized rate of 3.2%, compared to the 2.5% inflation rate for all
of 1995 (the lowest annual rate since 1986). Because of this apparent lack of
inflationary pressure, the Fed held interest rates steady through September.
But the economic picture remains uncertain. The economy grew at a 2.2% annual
rate in the third quarter, and recent economic data seem to suggest that the
economy may be slowing. Market participants are no longer sure that the Fed will
raise interest rates this year, and some even contend that the Fed's next move
may be toward lower rates. On the other hand, signs of wage inflation have
surfaced in recent employment reports. In spite of higher interest rates for
most of this year, the housing market has remained robust, and consumer
confidence is high, indicating that the U.S. consumer may still have some
spending power. Given the present state of economic uncertainty, it is likely
that shifting expectations of Fed interest rate policy may have more of an
impact on U.S. financial markets in the coming months than any actual move by
the Fed.
[graph data]
GDP (Annualized)
vs. Inflation (Consumer Price Index)
July 1994 - September 1996
GDP CPI
Jan-94 2.52%
Feb-94 2.51
Mar-94 2.50% 2.51
Apr-94 2.36
May-94 2.29
Jun-94 4.90 2.56
Jul-94 2.70
Aug-94 2.90
Sep-94 3.50 3.03
Oct-94 2.68
Nov-94 2.60
Dec-94 3.00 2.60
Jan-95 2.87
Feb-95 2.79
Mar-95 0.40 2.86
Apr-95 2.98
May-95 3.12
Jun-95 0.70 3.04
Jul-95 2.83
Aug-95 2.62
Sep-95 3.80 2.54
Oct-95 2.74
Nov-95 2.67
Dec-95 0.30 2.67
Jan-96 2.72
Feb-96 2.72
Mar-96 2.00 2.84
Apr-96 2.90
May-96 2.96
Jun-96 4.70 2.75
Jul-96 2.95
Aug-96 2.88
Sep-96 2.20 3.00
Source: Bloomberg Financial Markets
1
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. Investment terms marked with an
asterisk (*) are defined in the Investment Fundamentals section (pages 28-31).
Performance Perspective
The 12-month period ended September 30, 1996, illustrates the short-term
volatility of zero coupon bonds* in a changing interest rate environment. The
Treasury market rallied in response to weak economic conditions from October
1995 to January 1996, when the Federal Reserve lowered the federal funds rate
target to 5.25%--its third easing since July 1995. However, Treasury bond prices
fell and yields rose in February 1996, when a series of stronger-than-expected
reports on the U.S. economy caused a turnaround in expectations for inflation
and interest rates. Tight labor markets, coupled with strong first-half economic
growth, drove bond yields sharply higher, with 30-year Treasury bond yields
rising from 6% at the end of January to more than 7% by mid-June. Hedge fund
selling of Treasury holdings in February and the U.S. Treasury Department's
announcement of more frequent 10-year note and 30-year bond auctions also
weighed on the market. Long-term Treasury zero yields peaked at 7.5% in June,
though central bank buying of Treasurys helped stabilize the market in the third
quarter.
Movements in the Treasury market were mirrored by the zero-coupon bond market.
Zero yields followed Treasury yields higher, tracking movements in like-maturity
Treasurys fairly closely. Rising yields mean lower prices and total returns on
zero-coupon securities. An analysis of the Target Portfolios' annual return
figures illustrates the dramatic turnaround in market expectations for interest
rates. For example, the Portfolios' returns from October 1, 1995, to January 1,
1996--the first three months of the fiscal year--ranged from 4.62% for the 2000
Portfolio to 16.82% for the 2020 Portfolio. For the fiscal year ended September
30, 1996, however, the best-performing Target Portfolio was the Target 2000
Portfolio, with a return of 4.01%. Its shorter maturity limited the Portfolio's
exposure to rising interest rates during the first and second quarters of 1996.
On the other hand, the Target 2020 Portfolio returned -2.09% for the fiscal
year, while the Target 2025 Portfolio, with a weighted average maturity* of
almost 30 years, has posted a total return of -9.77% since its inception in
February 1996.
Yields
The yield curve* graph on page 3 illustrates the movements in the zero-coupon
bond market during the period. The zero curve is derived from the Treasury curve
but exaggerates the fluctuations in Treasury yields. When Treasury rates fall,
zero rates typically fall faster than Treasury rates; similarly, when Treasury
rates rise, zero rates tend to increase faster than Treasury rates. The graph
shows
2
MARKET SUMMARY
ZERO-COUPON BONDS
(Continued from the previous page)
the rising zero-coupon bond yield curve; the distance between the black and red
lines reflects the changing expectations for inflation and economic growth that
began in February 1996.
Supply and Demand
Stripping activity (the creation of zeros by separating Treasury bonds into
their component principal and coupon parts) has increased in 1996. Bond dealers
"strip" a Treasury bond into its principal and coupon components when the value
of the bond's stripped coupon and principal portions separately is greater than
the price of the whole bond (see page 28). "Reconstitution" of zeros occurs when
the price of a whole Treasury bond is more than its component parts. Dealers
match up principal STRIPS* or principal receipt zeros* with coupon STRIPS or
coupon receipt zeros to recreate or reconstitute a coupon Treasury bond. Net
stripping of Treasury bonds is a good measure of demand for zeros and of the
profitability of stripping bonds. Net reconstituting of bonds is indicative of
weak demand for zeros and of the profitability of reconstituting bonds. By
maturity, $12.2 billion in notes and bonds maturing in 1996-2016 have been net
stripped this year; $7 billion in bonds maturing in 2017-2023 were net
reconstituted; and $6.8 billion in bonds maturing in 2024 and 2025 were net
stripped.
[line graph - data described below]
Going forward, the most important supply and demand considerations for Treasury
zeros may be (1) the increase in demand from investors purchasing zeros to add
duration* to their portfolios, and (2) the increase in supply from zeros
currently held as collateral for Brady bonds. (Named after former U.S. Treasury
Secretary Nicholas Brady, Brady bonds are U.S. dollar-denominated debt
securities issued primarily by Latin American countries and collateralized by
U.S. Treasury zeros.) Brady bond issuers have built up their dollar reserves,
and they may now be in a position to repurchase Bradys and issue debt at lower
yields, saving on borrowing costs. But doing so would mean selling the
collateral zeros bought to defease the principal value of the Bradys. Brazil,
for example, holds an estimated $17-18 billion in STRIPS as Brady collateral.
Estimates of the total value of STRIPS held by Brady issuers reach as high as
$30 billion. This potential increase in supply could have an impact on the slope
of the yield curve and could lead to a net reconstitution of Treasury bonds
maturing in 2021-2023.
[graph data]
The Shifting Yield Curve
for Treasury Zeros
9/30/95 9/30/96
1 5.76% 5.84%
2 5.92 6.16
3 5.99 6.34
4 6.02 6.41
5 6.05 6.48
6 6.12 6.58
7 6.19 6.67
8 6.28 6.75
9 6.36 6.83
10 6.45 6.91
11 6.49 6.95
12 6.54 6.98
13 6.58 7.02
14 6.63 7.05
15 6.67 7.09
16 6.71 7.13
17 6.76 7.16
18 6.80 7.20
19 6.85 7.23
20 6.89 7.27
21 6.88 7.23
22 6.86 7.18
23 6.85 7.14
24 6.83 7.10
25 6.82 7.06
26 6.80 7.01
27 6.79 6.97
28 6.77 6.93
29 6.76 6.88
30 6.74 6.84
Source: Bloomberg Financial Markets
3
2000 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1996
Net Asset Value Range Average Annual Total Returns
- --------------------------------------------------------------------------------
(10/1/95-9/30/96) 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$76.94-$81.74 4.01% 3.37% 8.71% 9.35%
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
9/30/96 3/31/96
Market Value: $267,868,915 $277,532,580
AGR: 5.75% 5.43%
WAM Date: 11/23/00 11/20/00
AVM: $101.10 $100.95
These statistics are defined on page 30.
4
2000 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 10/1/86 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
Index Benchmark Portfolio
Sep-86 $10000 $10000 $10000
Oct-86 10187 10236 10428
Nov-86 10387 10652 10801
Dec-86 10371 10687 10831
Jan-87 10543 10888 10990
Feb-87 10707 11085 11213
Mar-87 10405 10931 10996
Apr-87 9969 10179 10214
May-87 9880 9911 10083
Jun-87 9995 10040 10122
Jul-87 9806 9713 9768
Aug-87 9645 9401 9435
Sep-87 9216 8901 8909
Oct-87 9893 9814 9795
Nov-87 9897 9758 9820
Dec-87 10095 10056 10186
Jan-88 10705 10901 10865
Feb-88 10837 11129 11097
Mar-88 10500 10604 10623
Apr-88 10331 10352 10406
May-88 10150 10227 10150
Jun-88 10578 10805 10737
Jul-88 10378 10480 10489
Aug-88 10418 10569 10523
Sep-88 10811 11090 11070
Oct-88 11129 11528 11491
Nov-88 10886 11245 11204
Dec-88 11024 11289 11357
Jan-89 11247 11744 11647
Feb-89 11021 11330 11253
Mar-89 11138 11456 11409
Apr-89 11399 11806 11785
May-89 11853 12326 12249
Jun-89 12525 13167 13081
Jul-89 12811 13460 13417
Aug-89 12470 13078 13023
Sep-89 12517 13121 13078
Oct-89 13020 13702 13582
Nov-89 13125 13820 13695
Dec-89 13107 13806 13606
Jan-90 12660 13204 13007
Feb-90 12606 13154 12998
Mar-90 12573 13139 13013
Apr-90 12250 12737 12595
May-90 12822 13386 13191
Jun-90 13115 13708 13512
Jul-90 13249 13877 13652
Aug-90 12676 13245 13038
Sep-90 12838 13361 13175
Oct-90 13124 13823 13545
Nov-90 13669 14408 14144
Dec-90 13954 14745 14465
Jan-91 14112 14903 14575
Feb-91 14167 14843 14630
Mar-91 14213 14953 14697
Apr-91 14401 15241 14908
May-91 14400 15152 14887
Jun-91 14287 15056 14786
Jul-91 14496 15305 15006
Aug-91 15002 15866 15608
Sep-91 15470 16428 16097
Oct-91 15520 16476 16238
Nov-91 15595 16792 16433
Dec-91 16526 17840 17454
Jan-92 15989 17097 16739
Feb-92 16103 17195 16846
Mar-92 15925 16924 16614
Apr-92 15931 17031 16608
May-92 16350 17402 17063
Jun-92 16584 17860 17512
Jul-92 17262 18660 18295
Aug-92 17408 18933 18518
Sep-92 17675 19431 18998
Oct-92 17323 18921 18527
Nov-92 17376 18827 18429
Dec-92 17838 19333 18933
Jan-93 18366 19956 19523
Feb-93 18975 20679 20229
Mar-93 19026 20807 20321
Apr-93 19165 21017 20523
May-93 19236 20945 20458
Jun-93 20045 21750 21247
Jul-93 20354 21834 21323
Aug-93 21170 22487 21962
Sep-93 21264 22679 22124
Oct-93 21395 22656 22136
Nov-93 20850 22265 21742
Dec-93 20912 22386 21861
Jan-94 21420 22844 22295
Feb-94 20526 22064 21522
Mar-94 19688 21296 20782
Apr-94 19386 21004 20510
May-94 19292 21038 20526
Jun-94 19119 20931 20406
Jul-94 19723 21371 20822
Aug-94 19601 21439 20889
Sep-94 19007 20994 20455
Oct-94 18923 20892 20336
Nov-94 19023 20758 20199
Dec-94 19357 20913 20355
Jan-95 19851 21410 20798
Feb-95 20409 22121 21455
Mar-95 20557 22203 21540
Apr-95 20920 22563 21898
May-95 22537 23733 23017
Jun-95 22809 23930 23221
Jul-95 22454 23816 23078
Aug-95 22938 24055 23304
Sep-95 23352 24193 23490
Oct-95 24039 24638 23854
Nov-95 24628 25078 24270
Dec-95 25294 25379 24575
Jan-96 25280 25674 24814
Feb-96 24047 25189 24355
Mar-96 23589 24901 24059
Apr-96 23195 24654 23836
May-96 23084 24563 23729
Jun-96 23552 24875 24025
Jul-96 23552 24946 24080
Aug-96 23265 24915 24056
Sep-96 23902 25315 24436
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the past 10
years.
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]
9/30/96 3/31/96
STRIPS: 68% STRIPS: 69%
TRs: 24% TRs: 23%
Other: 8% Other: 8%
For definitions of these security types, see page 29.
5
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 (pages 28-31).
Q: How did the Portfolio perform during the fiscal year ended September
30, 1996?
A: The Portfolio posted a total return of 4.01% for the one-year period.
Because of its shorter weighted average maturity (WAM*), the 2000
Portfolio suffered less price depreciation than the other Target
Portfolios as interest rates rose during the first and second quarters
of 1996 (see page 2).
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio's benchmark, a November 15, 2000 maturity coupon STRIPS*
issue, returned 4.64% for the one-year period. The Portfolio
underperformed its benchmark because the Portfolio's return was reduced
by operating expenses (such as transaction costs and management fees),
while the benchmark's was not. Before expenses, the Portfolio
underperformed its benchmark by only 2 basis points.*
Q: How did you position the Portfolio during the last six months?
A: We kept the Portfolio's WAM date close to the benchmark's November 15,
2000 maturity date, which allowed the Portfolio to track the
performance of the benchmark closely. We have been working to keep the
Portfolio's turnover and transaction costs down by using the inflows
and outflows of cash as opportunities to buy or sell securities,
adjusting the Portfolio's average maturity at the same time.
The Portfolio experienced some cash outflows during the period, which
we used as opportunities to sell some coupon STRIPS. Coupon STRIPS have
been more expensive than like-maturity principal STRIPS, so we've been
taking profits by selling these securities. As a result, the
Portfolio's AVM* rose slightly from March to September (see the Key
Portfolio Statistics on page 4).
6
2000 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
We added value to the Portfolio by taking advantage of a Treasury
program that allowed us to convert the Portfolio's 2% holding of
Treasury bond interest coupons (PHYSICALs*) into zero-coupon securities
called CUBES.* Because the market price of CUBES exceeded that of the
PHYSICALs, the conversion boosted the Portfolio's share price.
Q: What is your strategy going forward?
A: We will continue to look for opportunities to improve the Portfolio's
liquidity by replacing TRs* with STRIPS when we can do so without
sacrificing yield. We will also continue to keep the Portfolio's
maturity close to that of its benchmark to track as closely as possible
the benchmark's return and help reach the Portfolio's AVM. Although
there are no assurances the Portfolio will reach its AVM, we manage the
Portfolio in an effort to reach or exceed its anticipated value at
maturity.
7
2005 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1996
Net Asset Value Range Average Annual Total Returns
- --------------------------------------------------------------------------------
(10/1/95-9/30/96) 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$54.92-$61.43 2.15% 3.71% 10.48% 10.34%
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
9/30/96 3/31/96
Market Value: $238,552,314 $233,943,365
AGR: 6.17% 5.94%
WAM Date: 11/18/05 11/22/05
AVM: $100.71 $100.66
These statistics are defined on page 30.
8
2005 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 10/1/86 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
Index Benchmark Portfolio
Sep-86 $10000 $10000 $10000
Oct-86 10187 10352 10509
Nov-86 10387 10804 10953
Dec-86 10371 10824 10981
Jan-87 10543 11056 11175
Feb-87 10707 11104 11286
Mar-87 10405 10790 10897
Apr-87 9969 9922 10046
May-87 9880 9696 9810
Jun-87 9995 9893 9829
Jul-87 9806 9408 9380
Aug-87 9645 8969 8964
Sep-87 9216 8291 8293
Oct-87 9893 9461 9436
Nov-87 9897 9358 9431
Dec-87 10095 9777 9843
Jan-88 10705 10907 10786
Feb-88 10837 11006 10976
Mar-88 10500 10259 10199
Apr-88 10331 9859 9944
May-88 10150 9678 9607
Jun-88 10578 10544 10513
Jul-88 10378 10023 10028
Aug-88 10418 10108 10088
Sep-88 10811 10768 10712
Oct-88 11129 11376 11318
Nov-88 10886 11002 10930
Dec-88 11024 11282 11267
Jan-89 11247 11723 11605
Feb-89 11021 11338 11193
Mar-89 11138 11534 11369
Apr-89 11399 11873 11739
May-89 11853 12547 12327
Jun-89 12525 13581 13446
Jul-89 12811 13738 13645
Aug-89 12470 13221 13196
Sep-89 12517 13267 13233
Oct-89 13020 14104 13982
Nov-89 13125 14261 14135
Dec-89 13107 14134 13959
Jan-90 12660 13178 13030
Feb-90 12606 13085 12914
Mar-90 12573 13001 12891
Apr-90 12250 12359 12336
May-90 12822 13351 13187
Jun-90 13115 13804 13594
Jul-90 13249 13845 13640
Aug-90 12676 12759 12669
Sep-90 12838 12922 12831
Oct-90 13124 13350 13187
Nov-90 13669 14322 14112
Dec-90 13954 14695 14459
Jan-91 14112 14862 14556
Feb-91 14167 14746 14630
Mar-91 14213 14824 14653
Apr-91 14401 15037 14889
May-91 14400 14914 14787
Jun-91 14287 14764 14598
Jul-91 14496 15104 14857
Aug-91 15002 15736 15592
Sep-91 15470 16482 16249
Oct-91 15520 16393 16226
Nov-91 15595 16519 16314
Dec-91 16526 17855 17562
Jan-92 15989 17084 16804
Feb-92 16103 17165 16892
Mar-92 15925 16792 16591
Apr-92 15931 16642 16457
May-92 16350 17256 17072
Jun-92 16584 17534 17373
Jul-92 17262 18554 18395
Aug-92 17408 18744 18566
Sep-92 17675 19270 19047
Oct-92 17323 18645 18460
Nov-92 17376 18719 18520
Dec-92 17838 19482 19241
Jan-93 18366 20161 19870
Feb-93 18975 21188 20911
Mar-93 19026 21215 20870
Apr-93 19165 21490 21156
May-93 19236 21576 21175
Jun-93 20045 22911 22484
Jul-93 20354 23224 22789
Aug-93 21170 24197 23737
Sep-93 21264 24546 23978
Oct-93 21395 24619 24093
Nov-93 20850 23680 23205
Dec-93 20912 23876 23390
Jan-94 21420 24657 24200
Feb-94 20526 23299 22831
Mar-94 19688 21914 21684
Apr-94 19386 21578 21466
May-94 19292 21478 21346
Jun-94 19119 21269 21133
Jul-94 19723 21976 21795
Aug-94 19601 21955 21744
Sep-94 19007 21106 20920
Oct-94 18923 20988 20759
Nov-94 19023 21125 20916
Dec-94 19357 21543 21309
Jan-95 19851 22123 21846
Feb-95 20409 22940 22646
Mar-95 20557 23143 22835
Apr-95 20920 23643 23316
May-95 22537 25736 25356
Jun-95 22809 26068 25680
Jul-95 22454 25615 25199
Aug-95 22938 26155 25726
Sep-95 23352 26626 26184
Oct-95 24039 27313 26832
Nov-95 24628 28108 27599
Dec-95 25294 28800 28265
Jan-96 25280 28865 28302
Feb-96 24047 27504 26975
Mar-96 23589 27022 26475
Apr-96 23195 26439 25939
May-96 23084 26253 25745
Jun-96 23552 26802 26244
Jul-96 23552 26820 26281
Aug-96 23265 26564 26036
Sep-96 23902 27293 26749
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the past 10
years.
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]
9/30/96 3/31/96
STRIPS: 47% STRIPS: 49%
REFCORPs: 33% REFCORPs: 31%
CATS: 8% CATS: 9%
TRs: 6% TRs: 6%
Other: 6% Other: 5%
For definitions of these security types, see page 29.
9
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 (pages 28-31).
Q: How did the Portfolio perform during the fiscal year ended September
30, 1996?
A: The Portfolio's total return for the one-year period was 2.15%,
reflecting the unfavorable bond market conditions that prevailed during
the first and second quarters of 1996 (see page 2).
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio underperformed its benchmark, a November 15, 2005
maturity coupon STRIPS* issue, which returned 2.50% for the one-year
period. However, the Portfolio's return was reduced by operating
expenses (such as transaction costs and management fees), while the
benchmark's was not. Before expenses, the Portfolio's total return
exceeded that of its benchmark by 30 basis points.* The Portfolio's
receipt zeros* appreciated in price relative to STRIPS because receipt
zeros are attractive to dealers interested in reconstituting Treasury
bonds.
Q: How did you position the Portfolio during the last six months?
A: We kept the Portfolio's WAM date* in November 2005, close to the
November 15, 2005 maturity date of its benchmark. By selling some of
the Portfolio's TRs,* CATS* and principal TIGRs* and investing the
proceeds in higher-yielding REFCORPs,* we boosted the Portfolio's
anticipated value at maturity (AVM*) between March and September (see
the Key Portfolio Statistics on page 8).
We continue to work to keep the Portfolio's transaction costs down by
keeping turnover low. We have reduced Portfolio turnover by using the
inflows and outflows of cash that typically occur as opportunities to
buy or sell securities, adjusting the Portfolio's average maturity at
the same time.
10
2005 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What is your strategy going forward?
A: We will continue to keep the Portfolio's WAM date close to the
benchmark's November 15, 2005 maturity date. We will look for
opportunities to add liquidity to the Portfolio when we can do so
without giving up yield. We will also attempt to add yield by swapping
some of our receipt zeros (such as the Portfolio's TRs and callable
CATS, both of which can be combined with STRIPS to reconstitute
Treasurys) for REFCORPs. We will likely continue to use STRIPS to meet
our cash flow needs.
11
2010 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1996
Net Asset Value Range Average Annual Total Returns
- --------------------------------------------------------------------------------
(10/1/95-9/30/96) 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$39.79-$46.93 0.78% 3.67% 11.11% 10.37%
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
9/30/96 3/31/96
Market Value: $111,031,380 $114,244,637
AGR: 6.44% 6.25%
WAM Date: 8/29/10 8/23/10
AVM: $102.53 $102.32
These statistics are defined on page 30.
12
2010 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 10/1/86 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
Index Benchmark Portfolio
Sep-86 $10000 $10000 $10000
Oct-86 10187 10353 10612
Nov-86 10387 10735 11042
Dec-86 10371 10616 11143
Jan-87 10543 10810 11193
Feb-87 10707 11027 11471
Mar-87 10405 10660 10991
Apr-87 9969 9673 9924
May-87 9880 9375 9571
Jun-87 9995 9447 9577
Jul-87 9806 8843 9047
Aug-87 9645 8432 8643
Sep-87 9216 7493 7607
Oct-87 9893 8772 8965
Nov-87 9897 8783 9028
Dec-87 10095 9207 9444
Jan-88 10705 10501 10511
Feb-88 10837 10670 10814
Mar-88 10500 9750 9754
Apr-88 10331 9244 9419
May-88 10150 8928 8984
Jun-88 10578 9905 9912
Jul-88 10378 9259 9369
Aug-88 10418 9318 9394
Sep-88 10811 10067 10139
Oct-88 11129 10784 10777
Nov-88 10886 10371 10354
Dec-88 11024 10691 10928
Jan-89 11247 11280 11244
Feb-89 11021 10668 10631
Mar-89 11138 10906 10884
Apr-89 11399 11325 11263
May-89 11853 12190 12128
Jun-89 12525 13601 13453
Jul-89 12811 13693 13611
Aug-89 12470 12994 12980
Sep-89 12517 13105 12999
Oct-89 13020 14053 13895
Nov-89 13125 14201 14091
Dec-89 13107 14147 13990
Jan-90 12660 12818 12753
Feb-90 12606 12698 12569
Mar-90 12573 12611 12468
Apr-90 12250 11835 11824
May-90 12822 13152 12835
Jun-90 13115 13714 13340
Jul-90 13249 13707 13258
Aug-90 12676 12031 11932
Sep-90 12838 12302 12109
Oct-90 13124 12665 12513
Nov-90 13669 13824 13662
Dec-90 13954 14191 14028
Jan-91 14112 14291 14249
Feb-91 14167 14139 14236
Mar-91 14213 14233 14255
Apr-91 14401 14500 14444
May-91 14400 14333 14375
Jun-91 14287 14055 14047
Jul-91 14496 14349 14287
Aug-91 15002 15186 15145
Sep-91 15470 15952 15833
Oct-91 15520 15828 15707
Nov-91 15595 15642 15581
Dec-91 16526 17094 16982
Jan-92 15989 16329 16218
Feb-92 16103 16429 16332
Mar-92 15925 16107 16023
Apr-92 15931 15845 15777
May-92 16350 16554 16484
Jun-92 16584 16613 16572
Jul-92 17262 17633 17601
Aug-92 17408 17689 17677
Sep-92 17675 18021 18011
Oct-92 17323 17579 17576
Nov-92 17376 17851 17803
Dec-92 17838 18696 18643
Jan-93 18366 19267 19223
Feb-93 18975 20397 20316
Mar-93 19026 20357 20234
Apr-93 19165 20480 20429
May-93 19236 20664 20587
Jun-93 20045 22244 22128
Jul-93 20354 23053 22917
Aug-93 21170 24215 24059
Sep-93 21264 24264 24066
Oct-93 21395 24632 24375
Nov-93 20850 23658 23434
Dec-93 20912 23774 23542
Jan-94 21420 24759 24514
Feb-94 20526 23025 22809
Mar-94 19688 21601 21408
Apr-94 19386 21147 21048
May-94 19292 20803 20676
Jun-94 19119 20494 20360
Jul-94 19723 21514 21345
Aug-94 19601 21210 21016
Sep-94 19007 20092 19994
Oct-94 18923 19982 19830
Nov-94 19023 20364 20189
Dec-94 19357 21021 20821
Jan-95 19851 21704 21446
Feb-95 20409 22419 22146
Mar-95 20557 22666 22361
Apr-95 20920 23228 22885
May-95 22537 25901 25448
Jun-95 22809 26396 25909
Jul-95 22454 25715 25240
Aug-95 22938 26482 25960
Sep-95 23352 27174 26604
Oct-95 24039 28304 27626
Nov-95 24628 29268 28586
Dec-95 25294 30339 29583
Jan-96 25280 30133 29419
Feb-96 24047 27995 27330
Mar-96 23589 27298 26635
Apr-96 23195 26439 25846
May-96 23084 26302 25644
Jun-96 23552 27115 26395
Jul-96 23552 27098 26408
Aug-96 23265 26553 25890
Sep-96 23902 27567 26812
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the past 10
years.
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,
2010 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]
9/30/96 3/31/96
STRIPS: 57% STRIPS: 59%
REFCORPs: 33% REFCORPs: 31%
ETRs: 10% ETRs: 10%
For definitions of these security types, see page 29.
13
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 (pages 28-31).
Q: How did the Portfolio perform during the fiscal year ended September
30, 1996?
A: The Portfolio's total return for the one-year period was 0.78%,
reflecting the unfavorable bond market conditions that prevailed during
the first and second quarters of 1996 (see page 2).
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio underperformed its benchmark, a November 15, 2010
maturity coupon STRIPS* issue, which returned 1.44% for the one-year
period. However, the Portfolio's return was reduced by operating
expenses (such as transaction costs and management fees), while the
benchmark's was not. Before expenses, the Portfolio's total return
exceeded that of its benchmark by 2 basis points.*
Q: How did you position the Portfolio during the last six months?
A: We extended the Portfolio's WAM date* to August 29, 2010, bringing it
closer to the November 15, 2010 maturity date of its benchmark. We
lengthened the Portfolio's maturity by using incoming cash to purchase
2011-maturity REFCORPs,* which offset the shorter-maturity 2009
principal STRIPS held in the Portfolio. We originally purchased the
November 2009 principal STRIPS because they offered higher yields than
like-maturity coupon STRIPS, and we believe that they will outperform
similar-maturity STRIPS going forward. The Portfolio's anticipated
value at maturity (AVM*) rose from March to September because of the
Portfolio's longer maturity (see the Key Portfolio Statistics on page
12).
We have worked over the past year to bring the Portfolio's WAM date
closer to that of its benchmark while keeping the Portfolio's
transaction costs down. We have reduced Portfolio turnover by using the
inflows and outflows of cash that typically occur as opportunities to
buy or sell securities, adjusting the Portfolio's average maturity at
the same time.
14
2010 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What is your strategy going forward?
A: As we mentioned in our previous report, we will continue to move the
Portfolio's WAM date closer to the maturity date of its benchmark. We
plan to maintain the Portfolio's current asset allocation, keeping the
majority of the Portfolio's assets invested in STRIPS and REFCORPs, the
most liquid zeros. We plan to buy higher-yielding REFCORPs when they
become available, ideally keeping 30-35% of the Portfolio's assets in
REFCORPs. As always, we will continue to monitor the relative values of
coupon STRIPS and principal STRIPS, shifting the Portfolio's assets
toward the more attractively priced sector. Currently, the majority of
the Portfolio's STRIPS are coupon STRIPS.
We also expect to continue to hold the Portfolio's principal ETRs* (see
the Portfolio composition graphs at the bottom of page 13), which were
purchased in 1993 when their yield was 30 basis points* higher than
coupon STRIPS of comparable maturity. This yield spread has narrowed,
resulting in some price appreciation; nevertheless, ETRs still offer a
yield of 23 basis points over like-maturity STRIPS. The custody bank
for ETRs has not yet changed the custody agreement to allow ETRs to be
reconstituted with STRIPS. Should this change occur, we would expect
our principal ETRs to appreciate in value relative to STRIPS.
15
2015 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1996
Net Asset Value Range Average Annual Total Returns
- --------------------------------------------------------------------------------
(10/1/95-9/30/96) 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$29.61-$36.87 -0.74% 3.25% 11.63% 9.38%
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 40.
KEY PORTFOLIO STATISTICS
9/30/96 3/31/96
Market Value: $115,287,808 $119,050,024
AGR: 6.58% 6.44%
WAM Date: 11/12/15 10/27/15
AVM: $110.11 $109.72
These statistics are defined on page 30.
16
2015 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 10/1/86 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
Index Benchmark Portfolio
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 8719
Jan-88 10705 9852 10008
Feb-88 10837 10353 10291
Mar-88 10500 9229 9133
Apr-88 10331 8769 8581
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 9716
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 10015
May-89 11853 11096 10928
Jun-89 12525 12778 12508
Jul-89 12811 12993 12699
Aug-89 12470 12250 12017
Sep-89 12517 12266 11979
Oct-89 13020 13349 12830
Nov-89 13125 13468 13129
Dec-89 13107 13251 12929
Jan-90 12660 12026 11664
Feb-90 12606 11720 11503
Mar-90 12573 11485 11242
Apr-90 12250 10567 10337
May-90 12822 11765 11557
Jun-90 13115 12315 12009
Jul-90 13249 12314 12017
Aug-90 12676 10625 10422
Sep-90 12838 10775 10544
Oct-90 13124 11313 10966
Nov-90 13669 12419 12117
Dec-90 13954 12748 12492
Jan-91 14112 13054 12745
Feb-91 14167 13012 12638
Mar-91 14213 13005 12653
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 13627
Dec-91 16526 15637 15299
Jan-92 15989 14731 14433
Feb-92 16103 14924 14609
Mar-92 15925 14625 14333
Apr-92 15931 14362 14041
May-92 16350 15088 14732
Jun-92 16584 14958 14632
Jul-92 17262 16216 15828
Aug-92 17408 16035 15660
Sep-92 17675 16032 15637
Oct-92 17323 15575 15207
Nov-92 17376 16209 15828
Dec-92 17838 16903 16488
Jan-93 18366 17500 17055
Feb-93 18975 18511 18021
Mar-93 19026 18353 17860
Apr-93 19165 18506 18014
May-93 19236 18897 18397
Jun-93 20045 20252 19701
Jul-93 20354 21313 20713
Aug-93 21170 23166 22462
Sep-93 21264 22970 22270
Oct-93 21395 23389 22669
Nov-93 20850 22308 21656
Dec-93 20912 22225 21518
Jan-94 21420 23146 22393
Feb-94 20526 21438 20736
Mar-94 19688 20007 19410
Apr-94 19386 19529 18926
May-94 19292 18961 18367
Jun-94 19119 18579 18006
Jul-94 19723 19901 19256
Aug-94 19601 19217 18604
Sep-94 19007 18013 17477
Oct-94 18923 17955 17416
Nov-94 19023 18425 17868
Dec-94 19357 19095 18489
Jan-95 19851 19872 19195
Feb-95 20409 20373 19716
Mar-95 20557 20752 20061
Apr-95 20920 21207 20437
May-95 22537 24346 23413
Jun-95 22809 24653 23727
Jul-95 22454 23821 22914
Aug-95 22938 24942 23972
Sep-95 23352 25696 24693
Oct-95 24039 27132 26012
Nov-95 24628 28107 26994
Dec-95 25294 29416 28236
Jan-96 25280 29073 27906
Feb-96 24047 26432 25314
Mar-96 23589 25409 24333
Apr-96 23195 24602 23581
May-96 23084 24567 23528
Jun-96 23552 25405 24264
Jul-96 23552 25331 24271
Aug-96 23265 24507 23459
Sep-96 23902 25681 24510
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the past 10
years.
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]
9/30/96 3/31/96
STRIPS: 56% STRIPS: 57%
REFCORPs: 44% REFCORPs: 43%
For definitions of these security types, see page 29.
17
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 (pages 28-31).
Q: How did the Portfolio perform during the fiscal year ended September
30, 1996?
A: The Portfolio's total return for the one-year period was -0.74%,
reflecting the unfavorable bond market conditions that prevailed during
the first and second quarters of 1996 (see page 2).
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio underperformed its benchmark, a November 15, 2015
maturity coupon STRIPS* issue, which returned -0.06% for the one-year
period. However, the Portfolio's return was reduced by operating
expenses (such as transaction costs and management fees), while the
benchmark's was not. Before expenses, the Portfolio's total return was
only 2 basis points* short of its benchmark, reflecting the fact that
the Portfolio's WAM date* is virtually the same as that of its
benchmark.
Q: How did you position the Portfolio during the last six months?
A: We extended the Portfolio's WAM date from October 27, 2015, to November
12, 2015, bringing it closer to the November 15, 2015 maturity date of
its benchmark. This shift improved the Portfolio's ability to track the
performance of the benchmark. The longer maturity also increased the
Portfolio's anticipated value at maturity (AVM*) (see the Key Portfolio
Statistics on page 16). We have also been working to keep the
Portfolio's transaction costs down. We have reduced Portfolio turnover
by using the inflows and outflows of cash that typically occur as
opportunities to buy or sell securities, adjusting the Portfolio's
average maturity at the same time.
The Portfolio did not require much active management during the period.
This is reflected in the Portfolio composition graphs at the bottom of
page 17, which show that the Portfolio's asset allocation was virtually
unchanged. The Portfolio continues to hold STRIPS and REFCORPs,* the
only types of zeros available in this maturity sector.
18
2015 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What is your strategy going forward?
A: We plan to maintain the Portfolio's current WAM date and asset
allocation, with roughly 55% of its assets invested in STRIPS and the
remaining 45% in REFCORPs.
As always, we will continue to monitor the relative values of coupon
STRIPS and principal STRIPS, shifting the Portfolio's assets toward the
more attractively priced sector. Currently, all of the Portfolio's
zeros are coupon zeros. With coupon zeros yielding more than principal
zeros 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 2014-16 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.
19
2020 PORTFOLIO
PERFORMANCE SUMMARY
For Periods Ended September 30, 1996
Net Asset Value Range Average Annual Total Returns
- --------------------------------------------------------------------------------
(10/1/95-9/30/96) 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------
$20.18-$26.29 -2.09% 2.02% 11.90% 9.39%
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 42.
KEY PORTFOLIO STATISTICS
9/30/96 3/31/96
Market Value: $924,523,598 $763,199,156
AGR: 6.59% 6.46%
WAM Date: 8/21/20 8/26/20
AVM: $103.60 $103.20
These statistics are defined on page 30.
20
2020 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
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
Index Benchmark Portfolio
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 9257 9792
Dec-91 12608 10623 11208
Jan-92 12199 10005 10558
Feb-92 12285 10094 10742
Mar-92 12150 9970 10592
Apr-92 12154 9818 10408
May-92 12474 10295 10942
Jun-92 12653 10226 10842
Jul-92 13170 11110 11708
Aug-92 13281 10884 11533
Sep-92 13485 10690 11358
Oct-92 13217 10305 10925
Nov-92 13257 10861 11508
Dec-92 13609 11474 12142
Jan-93 14013 11985 12675
Feb-93 14477 12716 13383
Mar-93 14516 12631 13358
Apr-93 14622 12608 13300
May-93 14676 12951 13708
Jun-93 15293 13854 14692
Jul-93 15529 14963 15775
Aug-93 16152 16680 17542
Sep-93 16223 16421 17267
Oct-93 16324 16769 17583
Nov-93 15907 15862 16625
Dec-93 15955 15625 16467
Jan-94 16342 16254 17100
Feb-94 15660 14984 15800
Mar-94 15021 13672 14508
Apr-94 14790 13354 14142
May-94 14719 12955 13750
Jun-94 14587 12613 13375
Jul-94 15048 13623 14417
Aug-94 14954 12992 13767
Sep-94 14501 11974 12733
Oct-94 14437 11832 12608
Nov-94 14513 12212 12992
Dec-94 14768 12775 13558
Jan-95 15146 13401 14175
Feb-95 15571 13750 14533
Mar-95 15684 13925 14767
Apr-95 15961 14250 15075
May-95 17195 16707 17642
Jun-95 17402 17009 17933
Jul-95 17131 16274 17117
Aug-95 17500 17105 18008
Sep-95 17816 17816 18725
Oct-95 18340 18972 19917
Nov-95 18790 19659 20667
Dec-95 19298 20861 21875
Jan-96 19288 20480 21492
Feb-96 18347 18155 19067
Mar-96 17997 17378 18242
Apr-96 17697 16761 17583
May-96 17612 16824 17608
Jun-96 17969 17361 18133
Jul-96 17969 17391 18150
Aug-96 17750 16655 17450
Sep-96 18236 17558 18333
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the life of
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]
9/30/96 3/31/96
STRIPS: 61% STRIPS: 72%
REFCORPs: 39% REFCORPs: 28%
For definitions of these security types, see page 29.
21
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 (pages 28-31).
Q: How did the Portfolio perform during the fiscal year ended September
30, 1996?
A: The Portfolio's total return for the one-year period was -2.09%,
reflecting the unfavorable bond market conditions that prevailed during
the first and second quarters of 1996 (see page 2).
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio underperformed its benchmark, a November 15, 2020
maturity coupon STRIPS* issue, which returned -1.45% for the one-year
period. However, the Portfolio's return was reduced by operating
expenses (such as transaction costs and management fees), while the
benchmark's was not. Before expenses, the Portfolio underperformed the
benchmark by just a single basis point.*
Q: How did you position the Portfolio during the last six months?
A: The Portfolio experienced heavy asset growth over the last six months
and nearly doubled in size during the fiscal year. The most readily
available zeros for this Portfolio mature in early 2020, while zeros
maturing in 2021 are scarce, so the large cash inflow had the effect of
shortening the Portfolio's WAM date* from August 26, 2020, to August
21, 2020.
The Portfolio continued to hold STRIPS and REFCORPs,* the only types of
zeros available in this maturity sector. The Portfolio composition
graphs at the bottom of page 21 show a significant decrease in the
percentage of STRIPS and a corresponding increase in REFCORPs held in
the Portfolio over the period. We used much of the new cash to buy
higher-yielding REFCORPs, boosting the Portfolio's anticipated value of
maturity (AVM*) (see the Key Portfolio Statistics at the bottom of page
20).
22
2020 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
We also sold some of the Portfolio's coupon STRIPS and replaced them
with principal STRIPS during the period. Because the Portfolio owns a
significant percentage of the outstanding supply of 2020 coupon STRIPS,
they have become more scarce and consequently more expensive. This has
made the price of principal STRIPS more attractive by comparison.
We also enhanced the Portfolio's performance by making securities loans
during the last six months. Becaue of its size, the Portfolio is a
large player in its maturity sector, sometimes holding as much as
30-40% of the available securities in the marketplace. As a result, the
Portfolio is an attractive source for dealers who need to borrow
securities to cover sales. Fees from securities loans have been a
successful way to boost the Portfolio's returns.
Q: What is your strategy going forward?
A: We will continue to try to shift the Portfolio's WAM date closer to its
benchmark's maturity date, which should improve the Portfolio's ability
to track the performance of the benchmark. We plan to maintain the
Portfolio's current asset mix, with the majority of its assets invested
in STRIPS and the remainder in REFCORPs. We will look for opportunities
to shift more of the Portfolio's assets from coupon STRIPS into
principal STRIPS as long as coupon STRIPS prices remain relatively
high. In an effort to enhance returns, we will continue to lend the
Portfolio's securities to creditworthy dealers when we have an
opportunity to do so.
23
2025 PORTFOLIO
PERFORMANCE SUMMARY
For the Period Ended September 30, 1996
Net Asset Value Range Cumulative Total Return
(2/15/96-9/30/96) Since Inception
$16.51-$19.85 -9.77%
The Portfolio commenced operations on February 15, 1996.
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. A Cumulative Total Return illustrates
the Fund's performance over a stated period of time.
KEY PORTFOLIO STATISTICS
9/30/96 3/31/96
Market Value: $33,762,629 $16,713,447
AGR: 6.43% 6.29%
WAM Date: 4/29/25 6/16/25
AVM: $109.24 $110.70
These statistics are defined on page 30.
24
2025 PORTFOLIO
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 2/15/96 in the Portfolio, the
Merrill Lynch Long-Term U.S. Treasury Index and the Portfolio`s Benchmark
Index Benchmark Portfolio
Jan-96 $10000 $10000 $10000
Feb-96 9576 9307 9542
Mar-96 9393 8965 9123
Apr-96 9236 8354 8756
May-96 9192 8403 8746
Jun-96 9378 8713 8982
Jul-96 9378 8644 8967
Aug-96 9264 8197 8529
Sep-96 9518 8695 9023
Past performance does not guarantee future results.
The Index: This graph compares the Portfolio's performance with a broad-based
market index, the Merrill Lynch Long-Term U.S. Treasury Index, over the life of
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, an August 15,
2025 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]
9/30/96 3/31/96
REFCORPs: 64% REFCORPs: 76%
STRIPS: 36% STRIPS: 24%
For definitions of these security types, see page 29.
25
2025 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 (pages 28-31).
Q: How did the Portfolio perform from its inception to September 30, 1996?
A: At the time of the Portfolio's inception, interest rates were trending
upward, driven by forces discussed on page 2. The extreme sensitivity
of long-term zero-coupon bonds to changes in interest rates was clearly
reflected in the portfolio's -9.77% total return for the period from
February 15 to September 30, 1996.
Q: How did the Portfolio perform relative to its benchmark?
A: The Portfolio's return compares favorably with the -13.05% total return
of its benchmark, an August 15, 2025 maturity coupon STRIPS* issue,
from February 15 to September 30, 1996. The Portfolio outperformed its
benchmark because its April 24, 2025 WAM date* was shorter than the
August 15, 2025 maturity date of its benchmark, making the Portfolio
less vulnerable to rising interest rates. More significantly, we did a
good job of investing the Portfolio's initial cash flows in February
and March.
Q: Why is such a significant portion of the Portfolio's assets in
REFCORPs?
A: The yield spread* between REFCORPs* and STRIPS in the 2025 maturity
sector is wider than it is in the 2020 maturity sector--that is, you
gain more additional yield from a 2025 REFCORP over a like-maturity
STRIPS than you gain from a 2020 REFCORP over a like-maturity STRIPS.
Therefore, we used incoming assets to purchase REFCORPs because they
offered more yield and were more readily
26
2025 PORTFOLIO
MANAGEMENT DISCUSSION
(Continued from the previous page)
available than STRIPS in this maturity sector. There has been almost no
stripping activity in Treasury bonds maturing in August 2025 and
February 2026. The shape of the STRIPS curve means that 2025 and 2026
zeros have lower returns relative to STRIPS in 2020 and REFCORPs in
2025.
Q: Why the big difference in yield spreads between the two maturity
sectors?
A: If you look at the Treasury zero yield curves on page 3, you can see
that there is typically an inversion at the long end of the curve--that
is, yields move lower after you reach the 20-year maturity sector of
the curve. This inversion mirrors the shape of the Treasury coupon
curve and is caused by strong demand for the 30-year Treasury coupon
bond. The yield curves for STRIPS and REFCORPs also mirror this
inversion, but it is much sharper at the long end of the STRIPS curve
than it is at the long end of the REFCORP curve. That means that you
lose less yield as you move farther out on the REFCORP curve than you
do on the STRIPS curve.
Because the current shape of the Treasury coupon yield curve makes
returns lower on 2025 and 2026 maturity zeros, there is more stripping
activity in 2030 REFCORP bonds. Stripping a 2030 REFCORP coupon bond
produces a series of zero-coupon REFCORP bonds that mature from 1996 to
2030. The availability of 2025 maturity zero-coupon REFCORPs was a key
factor in positioning the Portfolio's WAM date in the middle of 2025.
Q: What is your strategy going forward?
A: As we indicated in the Portfolio's debut report, supply at the extreme
long end of the zero-coupon curve is not consistent; nevertheless, we
will work to keep the Porftolio fully invested. We will continue to
concentrate the bulk of the Portfolio's assets in REFCORPs, investing
the remainder in STRIPS.
27
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 or zero-coupon
bonds collateralized by U.S. Treasury securities.
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: What is "stripping?"
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
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 in 1985. The effective maturities of existing receipt
zeros do not extend beyond 2009. 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.
PHYSICALs (U.S. Treasury Bearer Bond Coupons and Corpus)--stripped coupons and
corpus from U.S. Treasury bearer bonds that are traded in physical form.
29
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 10 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.
Duration
Duration measures the price sensitivity of a bond or bond fund to changes in
interest rates. Specifically, duration represents the approximate percentage
change in the price of a bond or bond fund if interest rates move up or down by
100 basis points (a basis point equals 0.01%).
The longer the duration, the more bond or bond fund prices will move in response
to interest rate changes. Therefore, portfolio managers generally want durations
to be as long as possible when interest rates fall (to maximize bond price
increases) and as short as possible when interest rates rise (to minimize bond
price declines), taking into account the objectives of the portfolio.
30
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
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
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 2000 Portfolio, 2005 Portfolio, 2010
Portfolio, 2015 Portfolio, 2020 Portfolio, and 2025 Portfolio constituting
Benham Target Maturities Trust (the Trust) as of September 30, 1996, 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, 1996, 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
2000 Portfolio, 2005 Portfolio, 2010 Portfolio, 2015 Portfolio, 2020 Portfolio,
and 2025 Portfolio constituting Benham Target Maturities Trust as of September
30, 1996, 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
KPMG Peat Marwick LLP
Kansas City, Missouri
November 1, 1996
33
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2000 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period ..................... $ 76.86 66.93 72.40 62.16 52.67 43.11 42.79 37.16 33.33 35.44
Income (Losses) From Investment
Operations
Net Investment Income ......... 4.75 4.37 3.99 3.94 3.90 3.69 3.40 2.36 2.94 2.68
Net Realized and Unrealized
Gains (Losses) on
Investments .................. (1.66) 5.56 (9.46) 6.30 5.59 5.87 (3.08) 3.27 .89 (4.79)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations ...... 3.09 9.93 (5.47) 10.24 9.49 9.56 .32 5.63 3.83 (2.11)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income ............ (3.94) (3.42) (3.25) (2.34) (2.22) (2.09) (2.35) .00 (2.23) (4.72)
Distributions from Net
Realized Capital Gains ....... .00 .00 (2.95) (1.83) (.16) .00 (.10) .00 .00 .00
Distributions in Excess of Net
Realized Capital Gains ....... .00 .00 (1.20) .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions .......... (3.94) (3.42) (7.40) (4.17) (2.38) (2.09) (2.45) .00 (2.23) (4.72)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split ........... 3.94 3.42 7.40 4.17 2.38 2.09 2.45 .00 2.23 4.72
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End
of Period ..................... $ 79.95 76.86 66.93 72.40 62.16 52.67 43.11 42.79 37.16 33.33
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* ................... 4.01% 14.84% (7.54)% 16.46% 18.02% 22.18% .75% 15.15% 11.49% (5.95)%
- -------------
</TABLE>
34
<TABLE>
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
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) $267,757 294,736 243,895 291,418 190,063 89,655 53,216 34,820 14,073 6,285
Ratio of Expenses to
Average Daily Net Assets*** .53% .63% .59% .60% .66% .66% .70% .70%** .70% .70%
Ratio of Net Investment
Income to Average
Daily Net Assets*** ....... 5.99% 6.13% 5.74% 5.94% 6.90% 7.67% 7.84% 7.81%** 8.33% 8.08%
Portfolio Turnover Rate ..... 29.24% 52.64% 89.35% 76.59% 92.59% 67.39% 78.76% 49.14% 162.54% 72.70%
- ------------------------
+ In 1989, the fiscal year-end for Benham Target Maturities Trust was changed from December 31 to September 30.
++ Per-share data in this table are calculated using the average shares outstanding during the year. Dividends and distributions
shown in the table will be different than the actual per-share distributions to shareholders.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
*** The ratio for the year ended September 30, 1996, includes expenses paid through expense offset arrangements. See the
accompanying notes to financial statements.
</TABLE>
35
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2005 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period ......................$ 56.61 45.22 51.84 41.18 35.13 27.74 28.61 24.36 21.28 23.74
Income (Losses) From Investment
Operations
Net Investment Income .......... 3.50 3.33 3.11 2.90 2.69 2.47 2.27 1.54 1.90 1.77
Net Realized and Unrealized
Gains (Losses) on Investments . (2.28) 8.06 (9.73) 7.76 3.36 4.92 (3.14) 2.71 1.18 (4.23)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations ....... 1.22 11.39 (6.62) 10.66 6.05 7.39 (.87) 4.25 3.08 (2.46)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income ............. (2.06) (2.41) (2.70) (2.51) (1.75) (.86) (1.60) .00 (1.53) (3.52)
Distributions from Net
Realized Capital Gains ........ (.58) (.67) (8.47) (1.01) (.37) .00 (.07) .00 .00 (.13)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions ........... (2.64) (3.08) (11.17) (3.52) (2.12) (.86) (1.67) .00 (1.53) (3.65)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split .............. 2.64 3.08 11.17 3.52 2.12 .86 1.67 .00 1.53 3.65
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End
of Period ......................$ 57.83 56.61 45.22 51.84 41.18 35.13 27.74 28.61 24.36 21.28
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* .................... 2.15% 25.16% (12.75)% 25.89% 17.22% 26.64% (3.04)% 17.45% 14.48% (10.36)%
- -------------
36
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars) $ 238,864 183,452 96,207 149,890 168,697 161,388 46,303 24,955 8,948 3,680
Ratio of Expenses to Average
Daily Net Assets*** ............ .58% .71% .64% .62% .63% .70% .70% .70%** .70% .70%
Ratio of Net Investment
Income to Average
Daily Net Assets*** ............ 6.05% 6.58% 6.37% 6.44% 7.27% 7.80% 7.93% 7.66%** 8.44% 8.31%
Portfolio Turnover Rate .......... 31.36% 34.23% 68.11% 49.89% 64.38% 85.38% 186.02% 71.98% 27.25% 68.11%
- ------------------------
+ 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.
*** The ratio for the year ended September 30, 1996, includes expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
37
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2010 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period ..................... $ 42.14 31.67 38.13 28.53 25.08 19.18 20.59 17.31 14.96 17.65
Income (Losses) From Investment
Operations
Net Investment Income ......... 2.58 2.41 2.24 2.05 1.88 1.72 1.61 1.08 1.29 1.23
Net Realized and Unrealized
Gains (Losses) on
Investments .................. (2.25) 8.06 (8.70) 7.55 1.57 4.18 (3.02) 2.20 1.06 (3.92)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations ...... .33 10.47 (6.46) 9.60 3.45 5.90 (1.41) 3.28 2.35 (2.69)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income ............ (1.57) (1.48) (1.46) (1.58) (1.14) (1.05) (1.50) .00 (.42) (.90)
Distributions from Net
Realized Capital Gains ....... .00 (.48) (4.31) (1.14) .00 .00 (.09) .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions ........ (1.57) (1.96) (5.77) (2.72) (1.14) (1.05) (1.59) .00 (.42) (.90)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split ............. 1.57 1.96 5.77 2.72 1.14 1.05 1.59 .00 .42 .90
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End
of Period ..................... $ 42.47 42.14 31.67 38.13 28.53 25.08 19.18 20.59 17.31 14.96
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* ................... .78% 33.06% (16.92)% 33.61% 13.76% 30.76% (6.85)% 18.95% 15.71% (15.24)%
- ------------
38
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- -------------------------------------
Net Assets at End of Period (in
thousands of dollars) $111,117 95,057 46,312 70,551 5,565 47,661 37,222 42,439 9,617 9,297
Ratio of Expenses to Average
Daily Net Assets*** ........... .67% .71% .68% .66% .70% .70% .70% .70%** .70% .70%
Ratio of Net Investment
Income to Average
Daily Net Assets*** ........... 5.98% 6.56% 6.35% 6.32% 7.20% 7.73% 7.82% 7.34%** 8.11% 8.13%
Portfolio Turnover Rate ......... 24.42% 26.00% 35.35% 131.50% 95.25% 130.91% 191.16% 88.43% 258.70% 83.59%
- ------------------------
+ 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.
*** The ratio for the year ended September 30, 1996, includes expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
39
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2015 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period ..................... $ 32.20 22.79 29.04 20.39 18.44 13.75 15.62 12.63 11.37 14.24
Income (Losses) From Investment
Operations
Net Investment Income ......... 1.85 1.71 1.57 1.46 1.33 1.26 1.18 .79 .94 .90
Net Realized and Unrealized
Gains (Losses) on
Investments .................. (2.09) 7.70 (7.82) 7.19 .62 3.43 (3.05) 2.20 .32 (3.77)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From
Investment Operations ...... (.24) 9.41 (6.25) 8.65 1.95 4.69 (1.87) 2.99 1.26 (2.87)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income ............ (1.28) (.87) (1.19) (1.45) (1.23) (.97) (.50) .00 (.55) (.22)
Distributions from Net
Realized Capital Gains ....... (1.61) .00 (7.08) (.34) .00 .00 (.01) .00 .00 .00
Distributions in Excess of Net
Realized Capital Gains ....... .00 .00 (.37) .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions .......... (2.89) (.87) (8.64) (1.79) (1.23) (.97) (.51) .00 (.55) (.22)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Reverse Share Split ............. 2.89 .87 8.64 1.79 1.23 .97 .51 .00 .55 .22
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End
of Period ..................... $ 31.96 32.20 22.79 29.04 20.39 18.44 13.75 15.62 12.63 11.37
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* ................... (.74)% 41.29% (21.52)% 42.42% 10.57% 34.11% (11.97)% 23.67% 11.08% (20.15)%
- -------------
40
1996 1995 1994 1993 1992 1991 1990 1989+ 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in
thousands of dollars) $ 115,654 114,647 66,073 89,023 131,106 222,118 295,577 233,792 11,790 2,006
Ratio of Expenses to Average
Daily Net Assets*** ........... .65% .71% .68% .63% .62% .61% .70% .70%** .70% .70%
Ratio of Net Investment
Income to Average
Daily Net Assets*** ........... 5.63% 6.40% 5.97% 6.28% 7.04% 7.79% 7.74% 7.02%** 7.97% 7.99%
Portfolio Turnover Rate ......... 17.24% 69.97% 64.90% 138.34% 103.25% 39.91% 81.27% 48.31% 188.24% 508.59%
- ------------------------
+ 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.
*** The ratio for the year ended September 30, 1996, includes expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
41
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
2020 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended September 30 (except as noted)
1996 1995 1994 1993 1992 1991 1990+
---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA++
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period .......................$ 22.47 15.28 20.72 13.63 12.54 9.63 12.00
Income (Losses) From Investment Operations
Net Investment Income ...................................... 1.41 1.19 1.13 1.00 .92 .85 .60
Net Realized and Unrealized Gains (Losses) on Investments .. (1.88) 6.00 (6.57) 6.09 .17 2.06 (2.97)
----- ----- ----- ----- ----- ----- -----
Total Income (Losses) From Investment Operations .......... (.47) 7.19 (5.44) 7.09 1.09 2.91 (2.37)
----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income ....................... (.40) (.21) (0.28) (.53) (.63) (.21) 0
Distributions from Net Realized Capital Gains (.04) 0 (1.31) (.72) (.08) 0 0
Distributions in Excess of Net Realized Capital Gains ...... 0 0 (1.18) 0 0 0 0
----- ----- ----- ----- ----- ----- -----
Total Distributions ....................................... (.44) (.21) (2.77) (1.25) (.71) (.21) 0
----- ----- ----- ----- ----- ----- -----
Reverse Share Split ........................................ .44 .21 2.77 1.25 .71 .21 0
----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period .............................$ 22.00 22.47 15.28 20.72 13.63 12.54 9.63
===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* ................................................ (2.09)% 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) ........$ 926,319 574,702 58,535 56,125 41,793 88,332 53,198
Ratio of Expenses to Average Daily Net Assets*** ............ .61% .72% .70% .70% .66% .67% .70%**
Ratio of Net Investment Income to Average Daily Net Assets*** 6.25% 6.24% 6.28% 6.10% 7.19% 7.50% 7.79%**
Portfolio Turnover Rate ...................................... 47.05% 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.
*** The ratio for the year ended September 30, 1996, includes expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
42
BENHAM TARGET MATURITIES TRUST
2025 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a Share Outstanding From February 15, 1996 (commencement of operations),
through September 30, 1996
1996
----
PER-SHARE DATA+
- ---------------
Net Asset Value at Beginning of Period ............................$ 19.85
Income (Losses) From Investment Operations
Net Investment Income ........................................... .72
Net Realized and Unrealized Gains (Losses) on Investments ....... (2.66)
-----
Total Income (Losses) From Investment Operations ............... (1.94)
-----
Less Distributions
Dividends from Net Investment Income ............................ .00
-----
Reverse Share Split ............................................. .00
-----
Net Asset Value at End of Period ..................................$ 17.91
=====
TOTAL RETURN* ..................................................... (9.77)%
- -------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars) .............$ 35,661
Ratio of Expenses to Average Daily Net Assets** .................. .67%++
Ratio of Net Investment Income to Average Daily Net Assets** ...... 6.57%++
Portfolio Turnover Rate ........................................... 60.80%
- ------------------------
+ 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.
++ Annualized.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** The ratio includes expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
43
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
2000 2005 2010 2015 2020 2025
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------- -------- -------- -------- -------- --------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment securities at value (cost $262,433,118,
$231,440,990, $108,827,865, $95,273,133, $910,593,877
and $34,444,371, respectively) ......................$ 267,868,915 238,552,314 111,031,380 115,287,808 924,523,598 33,762,629
Cash ................................................ 275,176 753,522 292,741 601,693 5,617,910 2,156,213
Collateral for securities loaned (Note 6) ........... 0 0 0 0 17,312,500 681,250
Prepaid expenses and other assets ................... 1,697 1,243 566 597 4,571 20,160
------------- ----------- ----------- ----------- ------------ -----------
Total assets ...................................... 268,145,788 239,307,079 111,324,687 115,890,098 947,458,579 36,620,252
------------- ----------- ----------- ----------- ------------ -----------
LIABILITIES
Payable for fund shares redeemed .................... 72,207 123,130 69,717 70,467 1,016,753 187,045
Disbursements in excess of demand deposit cash ...... 192,905 187,884 76,045 104,235 684,337 63,446
Payable for securities purchased .................... 0 0 0 0 1,617,930 0
Payable for securities loaned (Note 6) .............. 0 0 0 0 17,312,500 681,250
Fees payable to affiliates (Note 2) ................. 121,722 110,739 54,812 57,286 392,400 16,589
Accrued expenses and other liabilities .............. 2,366 21,398 6,922 4,285 115,449 11,320
------------- ----------- ----------- ----------- ------------ -----------
Total liabilities ................................. 389,200 443,151 207,496 236,273 21,139,369 959,650
------------- ----------- ----------- ----------- ------------ -----------
NET ASSETS ............................................$ 267,756,588 238,863,928 111,117,191 115,653,825 926,319,210 35,660,602
============= =========== =========== =========== ============ ===========
Net assets consist of:
Capital paid in ..................................... 253,946,244 219,630,148 101,134,272 89,749,048 878,975,588 35,846,309
Accumulated undistributed net realized gain
(loss) from securities transactions ................. (4,592,691) 1,315,502 2,583,986 642,639 (6,273,172) (501,349)
Undistributed net investment income ................. 12,967,238 10,806,954 5,195,418 5,247,463 39,687,073 997,384
Net unrealized appreciation (depreciation) on
investments ....................................... 5,435,797 7,111,324 2,203,515 20,014,675 13,929,721 (681,742)
------------- ----------- ----------- ----------- ------------ -----------
Net assets ........................................$ 267,756,588 238,863,928 111,117,191 115,653,825 926,319,210 35,660,602
============= =========== =========== =========== ============ ===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized) ...................... 3,349,052 4,130,406 2,616,128 3,618,424 42,102,669 1,991,656
============= =========== =========== =========== ============ ===========
Net asset value, offering price and redemption price
per share .........................................$ 79.95 57.83 42.47 31.96 22.00 17.91
============= =========== =========== =========== ============ ===========
- ------------------------
See the accompanying notes to financial statements.
</TABLE>
44
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1996
2000 2005 2010 2015 2020 2025
Portfolio Portfolio Portfolio Portfolio Portfolio* Portfolio*
-------- -------- -------- -------- -------- --------
Investment Income
<S> <C> <C> <C> <C> <C> <C>
Interest income ................................. $18,747,463 15,071,147 7,461,154 7,736,777 52,918,004 1,089,809
Income from securities lending .................. 0 0 0 0 893,543 5,846
----------- ----------- ----------- ----------- ----------- -----------
Total income .................................. 18,747,463 15,071,147 7,461,154 7,736,777 53,811,547 1,095,655
----------- ----------- ----------- ----------- ----------- -----------
Expenses (Note 2):
Investment advisory fees ...................... 815,109 655,073 322,085 351,766 2,273,795 43,405
Transfer agency fees .......................... 267,353 266,687 178,493 178,562 858,442 32,597
Administrative fees ........................... 274,837 217,047 106,951 117,664 744,692 14,090
Printing and postage .......................... 58,889 46,293 23,878 26,463 160,424 3,032
Custodian fees ................................ 44,007 34,229 21,505 21,744 106,002 5,322
Telephone ..................................... 11,331 8,232 6,958 11,099 90,546 8,599
Auditing and legal fees ....................... 16,285 13,334 8,338 8,855 36,209 1,582
Registration and filing fees .................. 24,511 46,356 22,922 22,596 221,884 18,372
Directors' fees and expenses .................. 9,832 8,900 7,448 7,624 15,301 114
Other operating expenses ...................... 12,199 9,024 5,711 6,227 14,461 3,787
----------- ----------- ----------- ----------- ----------- -----------
Total expenses .............................. 1,534,353 1,305,175 704,289 752,600 4,521,756 130,900
Amount recouped (waived) (Note 2) ............... 0 16,979 46,717 50,080 251,449 (29,985)
Custodian earnings credits (Note 5) ............. (21,795) (20,138) (10,840) (12,059) (80,969) (2,644)
----------- ----------- ----------- ----------- ----------- -----------
Net expenses .................................. 1,512,558 1,302,016 740,166 790,621 4,692,236 98,271
----------- ----------- ----------- ----------- ----------- -----------
Net investment income ....................... 17,234,905 13,769,131 6,720,988 6,946,156 49,119,311 997,384
----------- ----------- ----------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain (loss) on investments ......... 1,066,551 1,459,753 3,276,781 718,224 (5,541,503) (501,349)
Change in net unrealized depreciation on
investments ................................... (6,811,361) (12,781,340) (10,369,618) (9,126,013) (53,272,683) (681,742)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized loss on investments (5,744,810) (11,321,587) (7,092,837) (8,407,789) (58,814,186) (1,183,091)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ................... $11,490,095 2,447,544 (371,849) (1,461,633) (9,694,875) (185,707)
=========== =========== =========== =========== =========== ===========
- ------------------------
* For the period from February 15, 1996 (commencement of operations), through September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
45
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1996 and 1995
2000 Portfolio 2005 Portfolio 2010 Portfolio
------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
From investment activities:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........................ $ 17,234,905 17,278,323 13,769,131 8,229,184 6,720,988 4,394,547
Net change in unrealized appreciation
(depreciation) of investments .............. (6,811,361) 23,502,271 (12,781,340) 18,383,144 (10,369,618) 15,921,350
Net realized gain (loss) on investments ...... 1,066,551 (984,607) 1,459,753 2,132,519 3,276,781 (692,795)
------------- ------------ ------------ ------------ ------------ -----------
Change in net assets derived from
investment activities ...................... 11,490,095 39,795,987 2,447,544 28,744,847 (371,849) 19,623,102
------------- ------------ ------------ ------------ ------------ -----------
From distribution to shareholders:
Net investment income ........................ (14,295,441) (13,492,533) (8,101,012) (5,945,697) (4,075,907) (2,702,956)
Net realized gains on investments ............ 0 0 (2,276,770) (1,662,910) 0 (883,926)
------------- ------------ ------------ ------------ ------------ -----------
Total distributions to shareholders .......... (14,295,441) (13,492,533) (10,377,782) (7,608,607) (4,075,907) (3,586,882)
------------- ------------ ------------ ------------ ------------ -----------
From capital share transactions (Note 3):
Proceeds from sale of shares ................. 119,660,626 121,453,561 148,911,501 105,349,198 70,823,974 69,841,156
Net asset value of dividends reinvested ...... 13,909,269 13,316,579 10,138,688 7,448,375 3,967,590 3,479,335
Cost of shares redeemed ...................... (157,743,941) (110,232,771) (95,708,098) (46,688,274) (54,283,235) (40,612,245)
------------- ------------ ------------ ------------ ------------ -----------
Change in net assets derived from
capital share transactions ................. (24,174,046) 24,537,369 63,342,091 66,109,299 20,508,329 32,708,246
------------- ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in net assets ...... (26,979,392) 50,840,823 55,411,853 87,245,539 16,060,573 48,744,466
Net assets:
Beginning of year ............................ 294,735,980 243,895,157 183,452,075 96,206,536 95,056,618 46,312,152
------------- ------------ ------------ ------------ ------------ -----------
End of year .................................. $ 267,756,588 294,735,980 238,863,928 183,452,075 111,117,191 95,056,618
============= ============ ============ ============ ============ ===========
Undistributed net investment income .......... $ 12,967,238 13,250,335 10,806,954 6,438,410 5,195,418 3,484,946
============= ============ ============ ============ ============ ===========
- ------------------------
* For the period from February 15, 1996 (commencement of operations), through September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
46
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1996 and 1995
2015 Portfolio 2020 Portfolio 2025 Portfolio
------------------ ------------------ --------------
1996 1995 1996 1995 1996*
-------- -------- -------- -------- --------------
From investment activities:
<S> <C> <C> <C> <C> <C>
Net investment income .......................... $ 6,946,156 7,142,488 49,119,311 12,063,511 997,384
Net change in unrealized appreciation
(depreciation) of investments ................ (9,126,013) 26,781,279 (53,272,683) 71,846,823 (681,742)
Net realized gain (loss) on investments ........ 718,224 6,882,220 (5,541,503) 4,003,419 (501,349)
------------- ------------ -------------- ------------ -----------
Change in net assets derived from
investment activities ........................ (1,461,633) 40,805,987 (9,694,875) 87,913,753 (185,707)
------------- ------------ -------------- ------------ -----------
From distribution to shareholders:
Net investment income .......................... (4,803,254) (3,641,185) (13,777,349) (2,135,107) 0
Net realized gains on investments .............. (6,017,851) 0 (1,324,633) 0 0
------------- ------------ -------------- ------------ -----------
Total distributions to shareholders ............ (10,821,105) (3,641,185) (15,101,982) (2,135,107) 0
------------- ------------ -------------- ------------ -----------
From capital share transactions (Note 3):
Proceeds from sale of shares ................... 77,986,100 124,552,148 1,028,945,392 765,545,539 67,610,593
Net asset value of dividends reinvested ........ 10,455,098 3,457,901 14,532,555 2,018,337 0
Cost of shares redeemed ........................ (75,152,046) (116,600,252) (667,063,399) (337,176,432) (31,764,284)
------------- ------------ -------------- ------------ -----------
Change in net assets derived from
capital share transactions ................... 13,289,152 11,409,797 376,414,548 430,387,444 35,846,309
------------- ------------ -------------- ------------ -----------
Net increase (decrease) in net assets ........ 1,006,414 48,574,599 351,617,691 516,166,090 35,660,602
Net assets:
Beginning of year .............................. 114,647,411 66,072,812 574,701,519 58,535,429 0
------------- ------------ -------------- ------------ -----------
End of year .................................... $ 115,653,825 114,647,411 926,319,210 574,701,519 35,660,602
============= ============ ============== ============ ===========
Undistributed net investment income ............ $ 5,247,463 5,341,888 39,687,073 10,171,858 997,384
============= ============ ============== ============ ===========
- ------------------------
* For the period from February 15, 1996 (commencement of operations), through September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
47
BENHAM TARGET MATURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(1) ORGANIZATION AND SUMMARY OF 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. Currently,
there are six series of the Trust, as follows: 2000 Portfolio, 2005 Portfolio,
2010 Portfolio, 2015 Portfolio, 2020 Portfolio, and 2025 Portfolio (the
Portfolios). The following significant accounting policies are in accordance
with accounting policies generally accepted in the investment company industry.
Security Valuations--Securities are valued at current market value as provided
by an independent commercial pricing service. When valuations are not readily
available, securities are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
Investment Income--Interest income is recorded on the accrual basis and includes
amortization of premiums and discounts. Premiums or discounts on securities are
amortized daily using the effective interest rate method.
Income Tax Status--It is the policy of the Portfolios to distribute all net
investment income and net realized capital gains to shareholders and to
otherwise qualify as a regulated investment company under the provisions of the
Internal Revenue Code. Accordingly, no provision has been made for federal or
state taxes.
Distributions to Shareholders--Annual dividends based on distributable net
investment income are paid in December. Net realized gains in excess of
available capital loss carryovers for the Portfolios will be distributed each
December.
As of September 30, 1996, the accumulated net realized capital loss carryovers
of $4,531,626 for 2000 Portfolio (expiring upon liquidation of the Portfolio)
may be used to offset future taxable gains.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate
48
characterization for federal income tax purposes due to differences in the
recognition of income and expense items for financial reporting and tax
purposes. On the Statements of Assets and Liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made, for tax
basis equalization on redemptions, to decrease undistributed net investment
income and increase capital by $3,222,561 (2000 Portfolio), $1,299,575 (2005
Portfolio), $934,609 (2010 Portfolio), $2,237,327 (2015 Portfolio), and
$5,826,747 (2020 Portfolio).
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.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). Each Portfolio pays BMC a monthly investment
advisory fee based on its pro rata share of the dollar amount derived from
applying the Trust's average daily net assets to the following fee schedule.
.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. (TCS) 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.
49
The Trust has an Administrative Services and Transfer Agency Agreement with TCS,
a wholly owned subsidiary of TCC. Under the agreement, TCS 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.
This agreement was formerly with Benham Financial Services, Inc.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits each Portfolio's expenses (excluding
expenses such as brokerage commissions, taxes, interest, custodian earning
credits, and extraordinary expenses) to .62% (.70% prior to June 1, 1996) 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 expense
guarantee rate in effect at that time. The expense guarantee rate is subject to
renewal in June 1997.
The payables to affiliates as of September 30, 1996, based on the above
agreements were as follows:
2000 2005 2010
Portfolio Portfolio Portfolio
--------- --------- --------
Investment Advisor .................... $64,264 56,635 25,837
Administrative Services ............... 20,924 18,439 8,567
Transfer Agent ........................ 36,534 35,665 20,408
-------- ------- -------
$121,722 110,739 54,812
======== ======= =======
2015 2020 2025
Portfolio Portfolio Portfolio
--------- --------- --------
Investment Advisor .................... $ 27,326 214,649 4,710
Administrative Services ............... 8,897 69,886 2,561
Transfer Agent ........................ 21,063 107,865 9,318
-------- ------- -------
$57,286 392,400 16,589
======== ======= =======
The Trust has a distribution agreement with Twentieth Century Securities, Inc.,
which is responsible for promoting sales of and distributing the Trust's shares.
Twentieth Century Securities, Inc. is a wholly owned subsidiary of TCC. This
agreement was formerly with Benham Distributors, Inc.
50
(3) SHARE TRANSACTIONS
Transactions for each of the Portfolios for the years ended September 30, 1996,
and 1995, were as follows:
2000 2005 2010
Portfolio Portfolio Portfolio
------------------ ---------------- ----------------
1996 1995 1996 1995 1996 1995
-------- --------- ------- ------- ------- -------
Shares sold ....1,519,287 1,710,037 2,554,065 2,027,040 1,630,076 1,894,844
Reinvestment of
dividends .... 183,642 211,374 177,478 175,507 89,942 113,861
--------- ---------- -------- -------- -------- --------
1,702,929 1,921,411 2,731,543 2,202,547 1,720,018 2,008,705
Less shares
redeemed ....(1,999,924)(1,516,891)(1,660,147) (910,391)(1,267,142)(1,098,272)
Reverse share
split ....... (188,515) (214,028) (181,450) (178,997) (92,308) ( 117,148)
--------- ---------- -------- -------- -------- --------
Net increase
(decrease) in
shares ...... (485,510) 190,492 889,946 1,113,159 360,568 793,285
========= ========== ======== ======== ======== ========
2015 2020 2025
Portfolio Portfolio Portfolio
------------------ ---------------- --------
1996 1995 1996 1995 1996*
-------- --------- ------- ------- -------
Shares sold ..... 2,345,915 4,976,479 45,297,616 40,032,262 3,762,927
Reinvestment of
dividends ..... 318,306 148,497 585,620 126,631 0
---------- ----------- ----------- ----------- ----------
2,664,221 5,124,976 45,883,236 40,158,893 3,762,927
Less shares
redeemed ...... (2,277,097) (4,307,665) (28,747,471) (18,280,426) (1,771,271)
Reverse share
split ......... (328,626) (156,322) (608,060) (133,904) 0
---------- ----------- ----------- ----------- ----------
Net increase
(decrease) in
shares ........ 58,498 660,989 16,527,705 21,744,563 1,991,656
========== =========== =========== =========== ==========
*For the period from February 15, 1996 (commencement of operations), through
September 30, 1996.
(4) INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term securities, for the year ended
September 30, 1996, were as follows:
<TABLE>
<CAPTION>
2000 2005 2010 2015 2020 2025
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio*
-------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Purchases $ 83,264,243 $123,087,289 $43,201,661 $22,765,360 $728,255,785 $48,873,174
============= ============ =========== =========== ============ ===========
Sales
proceeds $123,263,533$ 70,476,708 $27,153,718 $21,090,285 $367,329,767 $14,994,055
============= ============ =========== =========== ============ ===========
</TABLE>
*For the period from February 15, 1996 (commencement of operations), through
September 30, 1996.
51
On September 30, 1996, the composition of unrealized appreciation (depreciation)
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
Federal
Appreciation Depreciation Net Tax Cost
------------- ------------- ------------- -------------
2000 Portfolio $ 6,236,485 $ (861,755) $ 5,374,730 $ 262,494,185
2005 Portfolio 10,135,314 (3,388,125) 6,747,189 231,805,125
2010 Portfolio 4,896,431 (2,777,203) 2,119,228 108,912,152
2015 Portfolio 19,773,880 0 19,773,880 95,513,928
2020 Portfolio 28,274,109 (18,231,570) 10,042,539 914,481,059
2025 Portfolio 358,195 (1,424,469) (1,066,274) 34,828,903
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
(TBR), Treasury Receipts (TR), Treasury Investment Growth Receipts (TIGR),
Coupon Government Accrual Receipts (COUGAR), Treasury Obligation Certificates
(TOC), Coupons Under Book Entry Safekeeping (CUBES), U.S. Treasury Bearer Bond
Coupons and Corpus (PHYSICAL), Government and Agency Term Obligations (GATOR),
Easy Growth Treasury Receipts (ETRS), and Separate Trading of Registered
Interest and Principal of Securities (STRIPS). CATS, TBRs, TRs, TIGRs, COUGARs,
GATORs, TOCs and ETRs are instruments offered by broker-dealers who separate
(strip) the principal portions (corpus) from the coupon portions of U.S.
Treasury bonds and notes 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.
52
(5) EXPENSE OFFSET ARRANGEMENTS
Each Portfolio's Statement of Operations reflects custodian earnings credits.
These amounts are used to offset the custody fees payable by the Portfolios to
the custodian bank. The credits are earned when the Portfolio maintains a
balance of uninvested cash at the custodian bank. Beginning with the year ending
September 30, 1996, the ratios of expenses to average daily net assets shown in
the Financial Highlights are calculated as if these credits had not been earned.
(6) SECURITIES LENDING
At September 30, 1996, securities valued at $18,203,000 (2020 Portfolio) and
$711,500 (2025 Portfolio) were on loan to brokers. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
53
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2000 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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>
CUBES .................................................................... 6.38% 08/15/99 $ 71,250 59,489 .02%
ETR ...................................................................... 6.50 11/15/99 75,000 61,431 .02
STRIPS-- COUPON .......................................................... 6.34 11/15/99 153,000 125,928 .05
TR ....................................................................... 6.42 11/15/99 424,800 348,790 .13
TBR ...................................................................... 6.50 11/15/99 2,836,700 2,323,484 .87
TR ....................................................................... 6.44 02/15/00 30,036,209 24,255,740 9.06
CUBES .................................................................... 6.45 02/15/00 88,125 71,142 .03
CATS ..................................................................... 6.44 02/15/00 133,000 107,404 .04
TBR ...................................................................... 6.52 02/15/00 306,945 247,226 .09
STRIPS-- PRINCIPAL ....................................................... 6.38 02/15/00 13,069,000 10,574,520 3.95
CATS ..................................................................... 6.46 05/15/00 149,000 118,370 .04
TBR ...................................................................... 6.54 05/15/00 1,494,525 1,183,977 .44
PHYSICAL-- COUPON ........................................................ 6.55 05/15/00 5,850,000 4,632,791 1.73
TBR ...................................................................... 6.56 08/15/00 894,045 696,452 .26
STRIPS-- PRINCIPAL ....................................................... 6.43 08/15/00 49,667,000 38,871,878 14.51
TR ....................................................................... 6.50 11/15/00 1,053,462 809,449 .30
CUBES .................................................................... 6.51 11/15/00 410,625 315,385 .12
COUGAR ................................................................... 6.53 11/15/00 1,197,000 918,638 .34
TR ....................................................................... 6.50 11/15/00 1,199,424 921,601 .34
COUGAR ................................................................... 6.53 11/15/00 2,735,000 2,098,976 .78
TIGR ..................................................................... 6.50 11/15/00 3,754,000 2,884,461 1.08
STRIPS-- PRINCIPAL ....................................................... 6.45 11/15/00 79,691,000 61,354,101 22.91
CATS ..................................................................... 6.52 02/15/01 75,000 56,666 .02
TR ....................................................................... 6.52 02/15/01 20,422,388 15,430,091 5.76
TIGR ..................................................................... 6.52 02/15/01 4,657,000 3,518,596 1.32
STRIPS-- PRINCIPAL ....................................................... 6.46 02/15/01 65,184,000 49,364,495 18.43
TIGR ..................................................................... 6.54 05/15/01 44,000 32,686 .01
COUGAR ................................................................... 6.57 05/15/01 1,400,000 1,038,618 .39
PHYSICAL COUPON .......................................................... 6.63 05/15/01 1,496,250 1,107,045 .41
54
Schedule of Investment Securities--2000 Portfolio (Continued)
====================================================================================================================================
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) (continued) Maturity* Date Amount (Note 1) Percent
- ------------------------------------------ ----- ----- ------- ----- ----
TR ....................................................................... 6.54% 05/15/01 $ 24,350,000 18,088,885 6.75%
TR ....................................................................... 6.55 08/15/01 7,060,020 5,157,345 1.93
STRIPS-- PRINCIPAL ....................................................... 6.50 08/15/01 20,450,000 14,974,105 5.59
STRIPS-- PRINCIPAL ....................................................... 6.52 11/15/01 8,500,000 6,119,150 2.28
------------ ----------- ------
Total Investment Securities (cost $262,433,118) ............................................. $348,927,768 267,868,915 100.00%
============ =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
55
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2005 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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>
TIGR ..................................................................... 6.86% 11/15/04 $ 27,000 15,617 .01%
ETR ...................................................................... 6.94 11/15/04 87,000 50,008 .02
PHYSICAL-- COUPON ........................................................ 6.95 11/15/04 693,750 398,455 .17
REFCORP STRIPS-- COUPON .................................................. 6.88 01/15/05 11,500,000 6,564,775 2.75
U.S. Treasury Corpus, Maturity 02/15/10, Callable 02/15/05 ............... 7.00 02/15/05 3,200,000 1,798,784 .75
STRIPS-- COUPON .......................................................... 6.78 02/15/05 15,000,000 8,583,300 3.60
TBR ...................................................................... 6.96 05/15/05 428,750 237,690 .10
ETR ...................................................................... 6.97 05/15/05 1,000,000 553,920 .23
CUBES .................................................................... 6.89 05/15/05 4,615,672 2,573,791 1.08
TR, Maturity 05/15/10, Callable 05/15/05 ................................. 6.97 05/15/05 6,450,000 3,572,784 1.50
STRIPS-- PRINCIPAL ....................................................... 6.82 05/15/05 28,559,000 16,018,458 6.71
STRIPS-- COUPON .......................................................... 6.80 05/15/05 38,144,000 21,430,062 8.98
REFCORP STRIPS-- COUPON .................................................. 6.91 07/15/05 12,500,000 6,880,750 2.88
STRIPS-- COUPON .......................................................... 6.81 08/15/05 9,000,000 4,968,360 2.08
STRIPS-- PRINCIPAL ....................................................... 6.81 08/15/05 54,300,000 29,975,772 12.57
CATS ..................................................................... 6.90 11/15/05 170,000 91,559 .04
CUBES .................................................................... 6.91 11/15/05 491,519 264,486 .11
TBR ...................................................................... 6.98 11/15/05 2,247,000 1,201,673 .50
U.S. Treasury Corpus, Maturity 11/15/10, Callable 11/15/05 ............... 7.04 11/15/05 10,900,000 5,798,473 2.43
STRIPS-- COUPON .......................................................... 6.82 11/15/05 15,830,000 8,586,034 3.60
REFCORP STRIPS-- COUPON .................................................. 6.93 01/15/06 46,429,000 24,659,370 10.35
TR ....................................................................... 6.94 02/15/06 19,415,340 10,248,193 4.30
STRIPS-- COUPON .......................................................... 6.85 02/15/06 24,556,000 13,067,967 5.48
REFCORP STRIPS-- COUPON .................................................. 6.94 04/15/06 56,800,000 29,630,856 12.42
CATS ..................................................................... 6.94 05/15/06 107,000 55,499 .02
TR ....................................................................... 6.95 05/15/06 146,346 75,837 .03
TBR ...................................................................... 7.02 05/15/06 410,000 211,084 .09
CUBES .................................................................... 6.95 05/15/06 566,500 293,560 .12
56
Schedule of Investment Securities--2005 Portfolio (Continued)
====================================================================================================================================
Zero-Coupon U.S. Treasury Yield to Maturity Face Value
Securities (Note 4) (continued) Maturity* Date Amount (Note 1) Percent
- ------------------------------------------ ----- ----- ------- ----- ----
TR, Maturity 05/15/11, Callable 05/15/06 ................................. 7.03% 05/15/06 $ 1,000,000 514,360 .22%
CATS, Maturity 05/15/11, Callable 05/15/06 ............................... 7.03 05/15/06 38,699,000 19,905,218 8.34
STRIPS-- COUPON .......................................................... 6.86 05/15/06 4,718,000 2,465,438 1.03
RECORP STRIPS-- COUPON ................................................... 6.95 07/15/06 11,428,000 5,855,364 2.45
TR ....................................................................... 6.97 08/15/06 1,299,780 661,198 .28
STRIPS-- COUPON .......................................................... 6.88 08/15/06 2,000,000 1,026,160 .43
REFCORP STRIPS-- COUPON .................................................. 6.98 10/15/06 8,100,000 4,067,982 1.71
STRIPS-- COUPON .......................................................... 6.89 11/15/06 12,400,000 6,249,477 2.62
------------ ----------- ------
Total Investment Securities (cost $231,440,990) ............................................ $443,218,657 238,552,314 100.00%
============ =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
57
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2010 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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 ................................ 7.25% 05/15/09 $ 28,520,000 11,607,925 10.45%
REFCORP STRIPS-- COUPON .................................................. 7.17 10/15/09 2,000,000 798,260 .72
STRIPS-- PRINCIPAL, Maturity 11/15/14, Callable 11/15/09 ................. 7.15 11/15/09 33,500,000 13,325,630 12.00
REFCORP STRIPS-- COUPON .................................................. 7.18 01/15/10 5,772,000 2,260,662 2.04
REFCORP STRIPS-- COUPON .................................................. 7.20 04/15/10 30,728,000 11,793,714 10.62
STRIPS-- COUPON .......................................................... 7.07 05/15/10 587,000 227,821 .21
REFCORP STRIPS-- COUPON .................................................. 7.22 07/15/10 15,000,000 5,641,200 5.08
STRIPS-- COUPON .......................................................... 7.08 08/15/10 9,777,000 3,724,255 3.35
REFCORP STRIPS-- COUPON .................................................. 7.23 10/15/10 5,000,000 1,844,850 1.66
STRIPS-- COUPON .......................................................... 7.09 11/15/10 51,000,000 19,065,840 17.18
REFCORP STRIPS-- COUPON .................................................. 7.25 01/15/11 20,500,000 7,410,340 6.67
STRIPS-- COUPON .......................................................... 7.10 02/15/11 29,860,000 10,954,738 9.87
REFCORP STRIPS-- COUPON .................................................. 7.26 04/15/11 18,850,000 6,684,210 6.02
STRIPS-- COUPON .......................................................... 7.11 05/15/11 10,000,000 3,600,200 3.24
STRIPS-- COUPON .......................................................... 7.12 08/15/11 8,715,000 3,078,835 2.77
STRIPS-- COUPON .......................................................... 7.13 11/15/11 26,000,000 9,012,900 8.12
------------ ----------- ------
Total Investment Securities (cost $108,827,865) ............................................ $295,809,000 111,031,380 100.00%
============ =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
58
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2015 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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 .......................................................... 7.24% 02/15/15 $ 6,350,000 1,720,660 1.49%
REFCORP STRIPS-- COUPON .................................................. 7.37 04/15/15 35,440,000 9,264,016 8.04
STRIPS-- COUPON .......................................................... 7.24 05/15/15 39,408,000 10,490,409 9.10
REFCORP STRIPS-- COUPON .................................................. 7.37 07/15/15 29,644,000 7,610,208 6.60
STRIPS-- COUPON .......................................................... 7.24 08/15/15 50,550,000 13,207,199 11.46
REFCORP STRIPS-- COUPON .................................................. 7.37 10/15/15 48,421,000 12,207,418 10.59
STRIPS-- COUPON .......................................................... 7.24 11/15/15 97,808,000 25,104,379 21.78
STRIPS-- COUPON .......................................................... 7.25 02/15/16 36,300,000 9,144,333 7.93
REFCORP STRIPS-- COUPON .................................................. 7.39 04/15/16 44,788,000 10,849,445 9.41
STRIPS-- COUPON .......................................................... 7.25 05/15/16 17,700,000 4,380,041 3.80
REFCORP STRIPS-- COUPON .................................................. 7.39 07/15/16 25,000,000 5,947,250 5.16
REFCORP STRIPS-- COUPON .................................................. 7.40 10/15/16 23,000,000 5,362,450 4.64
------------ ----------- ------
Total Investment Securities (cost $95,273,133) ............................................... $454,409,000 115,287,808 100.00%
============ =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
See the accompanying notes to financial statements.
</TABLE>
59
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2020 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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>
REFCORP STRIPS-- PRINCIPAL ............................................... 7.40% 10/15/19 $ 62,000,000 11,624,380 1.26%
REFCORP STRIPS-- COUPON .................................................. 7.43 01/15/20 77,823,000 14,232,270 1.54
STRIPS-- COUPON .......................................................... 7.27 02/15/20 680,000,000 128,132,400 13.86
REFCORP STRIPS-- COUPON .................................................. 7.42 04/15/20 43,344,000 7,801,053 .84
STRIPS-- PRINCIPAL ....................................................... 7.27 05/15/20 60,000,000 11,106,000 1.20
STRIPS-- COUPON .......................................................... 7.27 05/15/20 831,700,000 154,122,327 16.67
REFCORP STRIPS-- COUPON .................................................. 7.42 07/15/20 112,400,000 19,864,452 2.15
REFCORP STRIPS-- PRINCIPAL ............................................... 7.40 07/15/20 593,000,000 105,287,150 11.39
STRIPS-- COUPON .......................................................... 7.27 08/15/20 227,135,000 41,345,384** 4.47
STRIPS-- PRINICPAL ....................................................... 7.28 08/15/20 313,000,000 56,843,930 6.15
REFCORP STRIPS-- COUPON .................................................. 7.41 10/15/20 139,165,000 24,206,360 2.62
REFCORP STRIPS-- PRINCIPAL ............................................... 7.40 10/15/20 600,000,000 104,610,000 11.32
STRIPS-- COUPON .......................................................... 7.26 11/15/20 206,707,000 37,004,687 4.00
REFCORP STRIPS-- COUPON .................................................. 7.41 01/15/21 42,505,000 7,260,279 .79
REFCORP STRIPS-- PRINCIPAL ............................................... 7.40 01/15/21 370,195,000 63,455,125 6.86
STRIPS-- COUPON .......................................................... 7.26 02/15/21 352,000,000 61,976,640 6.70
STRIPS-- COUPON .......................................................... 7.26 05/15/21 374,500,000 64,694,875 7.00
STRIPS-- COUPON .......................................................... 7.25 08/15/21 50,000,000 8,515,500 .92
STRIPS-- COUPON .......................................................... 7.22 11/15/21 14,500,000 2,440,786 .26
------------- ----------- ------
Total Investment Securities (cost $910,593,877) ............................................ $5,149,974,000 924,523,598 100.00%
============= =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
** Included in this amount are securities loaned for a value of $18,203,000. See Note 6.
See the accompanying notes to financial statements.
</TABLE>
60
<TABLE>
<CAPTION>
BENHAM TARGET MATURITIES TRUST -- 2025 PORTFOLIO
Schedule of Investment Securities
September 30, 1996
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>
REFCORP STRIPS-- COUPON .................................................. 7.24% 10/15/24 $ 11,300,000 1,538,382 4.56%
STRIPS-- COUPON .......................................................... 7.06 11/15/24 13,000,000 1,849,900** 5.48
STRIPS-- PRINCIPAL ....................................................... 7.10 11/15/24 40,500,000 5,693,085 16.86
REFCORP STRIPS-- COUPON .................................................. 7.23 01/15/25 24,500,000 3,285,695 9.73
STRIPS-- PRINCIPAL ....................................................... 7.06 02/15/25 9,000,000 1,256,940 3.72
STRIPS-- COUPON .......................................................... 7.05 02/15/25 33,900,000 4,754,136 14.08
REFCORP STRIPS-- COUPON .................................................. 7.22 04/15/25 19,759,000 2,610,361 7.73
REFCORP STRIPS-- COUPON .................................................. 7.22 07/15/25 8,500,000 1,103,215 3.27
REFCORP STRIPS-- COUPON .................................................. 7.20 10/15/25 76,425,000 9,799,215 29.02
REFCORP STRIPS-- COUPON .................................................. 7.19 01/15/26 6,000,000 757,980 2.25
REFCORP STRIPS-- COUPON .................................................. 7.18 04/15/26 6,000,000 746,820 2.21
REFCORP STRIPS-- COUPON .................................................. 7.18 07/15/26 3,000,000 366,900 1.09
------------ ----------- ------
Total Investment Securities (cost $34,444,371) ............................................. $251,884,000 33,762,629 100.00%
============ =========== ======
- ------------------------
* The yield to maturity is based on current market values as of September 30, 1996.
** Included in this amount are securities loaned for a value of $711,500. See Note 6.
See the accompanying notes to financial statements.
</TABLE>
61
TRUSTEES
James M. Benham
Albert A. Eisenstat
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
Maryanne Roepke
Treasurer and Chief Financial Officer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- ------------------------------
P.O. Box 419200 * Kansas City, Missouri 64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Internet: http://www.twentieth-century.com
For more information on risks, management fees and
expenses, call 1-800-345-2021 for a free prospectus. Read the
prospectus carefully before investing or sending money.
(C) 1996 Twentieth Century Services, Inc.
Twentieth Century Securities, Inc. BN-BKT-6135 11/96
[back cover]
