[front cover] September 30, 1998
ANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
BENHAM GROUP
- ------------------------------------
TARGET MATURITIES TRUST: 2000
TARGET MATURITIES TRUST: 2005
TARGET MATURITIES TRUST: 2010
TARGET MATURITIES TRUST: 2015
TARGET MATURITIES TRUST: 2020
TARGET MATURITIES TRUST: 2025
[american century logo(reg.sm)]
American
Century
[inside front cover]
A Note from the Founder
- --------------------------------------------------------------------------------
On our 40th anniversary, I would personally like to express my profound
appreciation for the confidence you have shown in American Century. We are
grateful for the opportunity to manage your money, and we will do our utmost to
continue to meet your expectations and justify your confidence in us.
I founded American Century on the belief that if we can make you
successful, you, in turn, will make us successful. That is the principle that
will guide us in the future.
Sincerely,
/s/James E. Stowers
About our New Report Design
- --------------------------------------------------------------------------------
Why We Changed
We're trying hard to be reader-friendly. Our reports contain a lot of very good
information, from fund statistics and financials to Q&A's with fund managers. We
hope the new design will make the reports more interesting and understandable
while helping you keep abreast of your fund's strategy and performance.
What's New
The reports are designed to be attractive and easy to use whether you're reading
them in depth or just skimming.
New features include:
* Larger type size in many sections.
* Brief explanations of the financial statements.
* More prominent graphs and charts.
* Quotes in the margins to highlight report content.
THE BOTTOM LINE.
The new design actually costs slightly less than the old one. We reallocated
costs and eliminated a cover letter and the envelope that previously came with
your report enclosed. This not only saves money, but reduces the number of
mailing pieces you receive.
The new reports also use roughly the same amount of paper as the old ones.
Previously, paper was trimmed and thrown away to produce the smaller report
size.
We believe we've come up with a more interesting, informative and user-friendly
publication.
We hope you enjoy it.
[left margin]
Benham Group
Target Maturities Trust: 2000
(BTMTX)
Benham Group
Target Maturities Trust: 2005
(BTFIX)
Benham Group
Target Maturities Trust: 2010
(BTTNX)
Benham Group
Target Maturities Trust: 2015
(BTFTX)
Benham Group
Target Maturities Trust: 2020
(BTTTX)
Benham Group
Target Maturities Trust: 2025
(BTTRX)
[40 Years logo]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
Our Message to You
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/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the year ended September 30, 1998, interest rates fell worldwide as
investors reacted to worsening global economic and financial conditions. To help
stem the negative tide, the Federal Reserve (the U.S. central bank) cut its
bellwether federal funds rate for the first time in almost three years. Two
weeks later, it cut the rate again, providing a significant psychological boost
to investors as well as to the U.S. economy. But by the time the Fed acted in
September and October, falling interest rates, combined with increased demand
for the relative safety of U.S. Treasury securities, had already sparked an
exciting rally in the Treasury market, the biggest since the Fed last cut rates
in 1995.
Zero-coupon Treasury bonds, which comprise the Target funds and are among
the securities most sensitive to interest rate changes, flourished. Total
returns ranged from nearly 10% for the shortest-maturity zeros to over 40% for
30-year zeros. This was in sharp contrast to U.S. stock index returns, which
were generally below 10% and in many cases were negative for the period. Money
market securities continued to be a stable investment.
This volatile market environment illustrated the importance of a
diversified investment portfolio. As we saw in the summer and fall of 1998,
allocating your assets among stocks, bonds, and money market funds can help
weatherproof your portfolio against changes in the economic or investment
climate.
On the corporate front, we have a substantial effort underway to prepare
American Century's computer systems for the year 2000 (Y2K). Our team of
technology professionals is working to address Y2K-related issues. Through the
rest of 1998 and 1999, we will be extensively testing our systems, including
those involved with dividend payments, to verify the accuracy of dividend
calculations and distributions.
Finally, we hope you like the new design of this report. It's intended to
make the important information you need about your fund easier to find and read.
We appreciate your investment with American Century.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 4
TARGET: 2000
Performance Information ................................................ 6
Management Q&A ......................................................... 7
Schedule of Investments ................................................ 9
TARGET: 2005
Performance Information ................................................ 10
Management Q&A ......................................................... 11
Schedule of Investments ................................................ 13
TARGET: 2010
Performance Information ................................................ 14
Management Q&A ......................................................... 15
Schedule of Investments ................................................ 17
TARGET: 2015
Performance Information ................................................ 18
Management Q&A ......................................................... 19
Schedule of Investments ................................................ 21
TARGET: 2020
Performance Information ................................................ 22
Management Q&A ......................................................... 23
Schedule of Investments ................................................ 25
TARGET: 2025
Performance Information ................................................ 26
Management Q&A ......................................................... 27
Schedule of Investments ................................................ 29
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ............................................................ 30
Statements of Operations ............................................... 32
Statements of Changes
in Net Assets .......................................................... 34
Notes to Financial
Statements ............................................................. 36
Financial Highlights ................................................... 41
Report of Independent
Accountants ............................................................ 50
OTHER INFORMATION
Share Class and Retirement
Account Information .................................................... 51
Background Information
Investment Philosophy
and Policies ........................................................ 52
Comparative Indices ................................................. 52
Fund Benchmarks ..................................................... 52
Investment Team
Leaders ............................................................. 52
Glossary ............................................................... 53
www.americancentury.com 1
Report Highlights
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MARKET PERSPECTIVE
* Zero-coupon Treasury bonds posted extraordinary returns during the year
ended September 30, 1998.
* Interest rates fell dramatically for several reasons:
* Global economic problems led to lower expectations for U.S. economic
growth and inflation.
* Investors worldwide flocked to U.S. bonds as a safe haven from global
turmoil.
* A federal budget surplus reduced supply in the Treasury market.
* Strong demand for zeros maturing in 2-5 years caused their yields to fall
below the yields of one-year zeros.
* The yield difference between STRIPS and REFCORPs widened late in the period,
resulting in better performance for STRIPS.
* Going forward, we think it is unlikely that the declining interest rate
trend will continue.
TARGET: 2000
* The fund's healthy one-year return (see the table at left) reflected the
declining interest rate environment.
* We reduced Target: 2000's STRIPS position by one-third, replacing it with
REFCORPs and physical zeros.
* The physical zeros were converted to wirable (able to be traded
electronically) zeros called BECCs.
* The portfolio's weighted average maturity date lengthened slightly during
the fiscal year.
* Going forward, we will look to add more REFCORPs, which currently offer a
significant yield advantage over STRIPS.
TARGET: 2005
* The fund's healthy one-year return (see the table at left) reflected the
declining interest rate environment.
* Target: 2005's assets nearly doubled in the last year, and we invested most
of the new money in STRIPS.
* We also purchased some physical zeros, which we then converted to wirable
(able to be traded electronically) zeros called BECCs.
* The portfolio's weighted average maturity date lengthened in early 1998 but
ended the period little changed.
* Going forward, we will look to add more REFCORPs, which currently offer a
significant yield advantage over STRIPS.
TARGET: 2010
* The fund's one-year return of more than 25% (see the table at left)
reflected the declining interest rate environment.
* Target: 2010 attracted more than $100 million in new investments over the
last year, and we invested this money equally among STRIPS and REFCORPs.
* The portfolio's weighted average maturity date lengthened slightly during
the fiscal year.
* Going forward, we will look to add more REFCORPs, which currently offer a
significant yield advantage over STRIPS.
[left margin]
TARGET: 2000(1)
(BTMTX)
TOTAL RETURNS: AS OF 9/30/98
6 Months .................. 5.31%(2)
1 Year .................... 8.97%
NET ASSETS: $237.5 million
INCEPTION DATE: 3/25/85
TARGET: 2005(1)
(BTFIX)
TOTAL RETURNS: AS OF 9/30/98
6 Months .................. 11.95%(2)
1 Year .................... 18.87%
NET ASSETS: $534.0 million
INCEPTION DATE: 3/25/85
TARGET: 2010(1)
(BTTNX)
TOTAL RETURNS: AS OF 9/30/98
6 Months .................. 15.89%(2)
1 Year .................... 26.08%
NET ASSETS: $283.8 million
INCEPTION DATE: 3/25/85
(1) Investor Class.
(2) Not annualized.
See Total Returns on pages 6, 10, and 14. Investment terms are defined in the
Glossary on page 53.
2 1-800-345-2021
Report Highlights
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(Continued)
TARGET: 2015
* The fund's one-year return of more than 30% (see the table at right)
reflected the declining interest rate environment.
* We made few changes to Target: 2015's portfolio, retaining an equal balance
between STRIPS and REFCORPs.
* The portfolio's weighted average maturity date remained very close to the
maturity date of the benchmark.
* Going forward, we will look to add more REFCORPs, which currently offer a
significant yield advantage over STRIPS.
TARGET: 2020
* The fund's one-year return of more than 35% (see the table at right)
reflected the declining interest rate environment.
* Net withdrawals totaled more than $150 million in Target: 2020 during the
past year, so we sold a number of the fund's zeros to meet these
withdrawals.
* These sales, combined with the exceptional performance of zeros, will result
in an unusually large capital gains distribution in December 1998 (see pages
23-24 for more details).
* Despite the selling activity, the portfolio's weighted average maturity date
remained steady.
* Going forward, we will look to add more REFCORPs, which currently offer a
significant yield advantage over STRIPS.
* If cash outflows continue, we plan to sell STRIPS, further increasing the
percentage of REFCORPs in the portfolio.
TARGET: 2025
* The fund's one-year return of more than 40% (see the table at right)
reflected the declining interest rate environment.
* Target: 2025 attracted more than $200 million in new investments over the
last year, and we invested most of this money in STRIPS.
* We shortened the portfolio's weighted average maturity date during the
fiscal year because yields and returns are higher on shorter-term securities
in this part of the market.
* We continued to use securities lending as a way to enhance returns.
* Going forward, we will maintain a shorter maturity date and look to add more
REFCORPs, which currently offer a significant yield advantage over STRIPS.
[right margin]
TARGET: 2015(1)
(BTFTX)
TOTAL RETURNS: AS OF 9/30/98
6 Months ................. 15.79%(2)
1 Year ................... 30.07%
NET ASSETS: $170.1 million
INCEPTION DATE: 9/1/86
TARGET: 2020(1)
(BTTTX)
TOTAL RETURNS: AS OF 9/30/98
6 Months ................. 17.98%(2)
1 Year ................... 36.00%
NET ASSETS: $486.1 million
INCEPTION DATE: 12/29/89
TARGET: 2025(1)
(BTTRX)
TOTAL RETURNS: AS OF 9/30/98
6 Months ................. 22.09%(2)
1 Year ................... 42.21%
NET ASSETS: $356.1 million
INCEPTION DATE: 2/15/96
(1) Investor Class.
(2) Not annualized.
See Total Returns on pages 18, 22, and 26. Investment terms are defined in the
Glossary on page 53.
www.americancentury.com 3
Market Perspective from Randall W. Merk
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/photo of Randall W. Merk/
Randall W. Merk, director of fixed-income investing at American Century
EXTRAORDINARY RETURNS
Zero-coupon Treasury securities (zeros) posted remarkable gains during the
year ended September 30, 1998. A sharp decline in U.S. interest rates led to a
dramatic increase in zero-coupon bond prices.
Longer-term zeros, which are most sensitive to interest rate changes,
racked up the most impressive gains. Returns ranged from nearly 10% for
short-term zeros to more than 40% for long-term zeros (see the accompanying
table for specific returns).
FALLING INTEREST RATES
Interest rates fell substantially across the board, sending bond yields to
record lows--the yield on an ordinary 30-year Treasury bond reached an all-time
low of 4.97% at the end of September (it dipped as low as 4.71% in early
October). Among zeros, long-term yields fell about 120 basis points (a basis
point equals 0.01%), while short- and intermediate-term yields dropped 150-160
basis points (see the chart at left).
There were several reasons for the precipitous decline in rates:
* Global economic turmoil--a series of financial crises around the world
threatened to apply the brakes to global economic growth. Financial and
economic problems in Asia came to light in late 1997 and mushroomed in
1998. By mid-1998, the contagion had spread to Russia, which devalued its
currency and defaulted on government debt, as well as Latin America, where
Brazil tried to fend off its own currency devaluation.
These crises calmed fears that inflationary pressures were intensifying.
This was especially welcome in the U.S., where healthy economic growth,
robust consumer spending, and a 28-year low in unemployment had raised the
possibility of a short-term interest rate increase by the Federal Reserve.
By August, however, it was clear that the world's economic engine was
downshifting. The tranquilizing effect on inflation and the U.S. economy
was so pronounced that the Fed lowered short-term interest rates in
September--its first rate cut in three years.
* Flight to quality--the global economic problems wreaked havoc on stock and
bond markets worldwide. Investors grew concerned about the outlook for
corporate profits, while a number of foreign debt markets suffered
downgrades and defaults. The ensuing market volatility created greater
demand for the safety and liquidity of U.S. Treasury bonds.
In addition, many large, sophisticated investors--such as international
bond traders and hedge funds--were buying Treasurys to unwind short
positions. Many traders and hedge funds "shorted"
[left margin]
"A SHARP DECLINE IN U.S. INTEREST RATES LED TO A DRAMATIC INCREASE IN
ZERO-COUPON BOND PRICES."
[line chart - data below]
SHIFTING YIELD CURVE FOR TREASURY ZEROS
Years to Maturity 9/30/97 3/31/98 9/30/98
1 5.670% 5.600% 4.500%
2 5.840% 5.610% 4.340%
3 5.910% 5.670% 4.380%
4 5.990% 5.680% 4.360%
5 6.010% 5.750% 4.370%
6 6.095% 5.780% 4.445%
7 6.180% 5.810% 4.520%
8 6.230% 5.847% 4.604%
9 6.280% 5.883% 4.688%
10 6.330% 5.920% 4.772%
11 6.370% 5.952% 4.856%
12 6.410% 5.984% 4.940%
13 6.450% 6.016% 5.020%
14 6.490% 6.048% 5.100%
15 6.530% 6.080% 5.180%
16 6.548% 6.090% 5.260%
17 6.566% 6.100% 5.340%
18 6.584% 6.110% 5.358%
19 6.602% 6.120% 5.376%
20 6.620% 6.130% 5.394%
21 6.614% 6.126% 5.412%
22 6.608% 6.122% 5.430%
23 6.602% 6.118% 5.406%
24 6.596% 6.114% 5.382%
25 6.590% 6.110% 5.358%
26 6.556% 6.088% 5.334%
27 6.522% 6.066% 5.310%
28 6.488% 6.044% 5.280%
29 6.454% 6.022% 5.250%
30 6.420% 6.000% 5.220%
ZERO-COUPON TREASURY BOND RETURNS
(FOR THE YEAR ENDED 9/30/98)
Coupon STRIPS maturing 11/15/00 9.49%
Coupon STRIPS maturing 11/15/05 19.35%
Coupon STRIPS maturing 11/15/10 26.93%
Coupon STRIPS maturing 11/15/15 30.68%
Coupon STRIPS maturing 11/15/20 36.91%
Coupon STRIPS maturing 11/15/25 43.68%
Source: Bloomberg Financial Markets
4 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
(Continued)
Treasury securities--by borrowing Treasurys and selling them--and used the
proceeds to buy emerging-market bonds, which they expected to outperform
Treasurys. When the opposite happened, these investors were forced to sell
their emerging-market debt and buy back Treasurys to cut their losses.
* Reduced supply--the first federal budget surplus in 30 years reduced the
amount of new Treasury bond issuance. Quarterly auctions of three-year
Treasury notes were discontinued, five-year Treasury note auctions were cut
back from monthly to quarterly, and a 30-year bond auction was eliminated.
Increased issuance of inflation-adjusted bonds further limited the new
supply of Treasury notes and bonds.
YIELD CURVE GYRATIONS
In late 1997 and early 1998, the zero-coupon Treasury yield curve
flattened--long-term yields fell more sharply than short-term yields (see the
yield curve chart on page 4). Long-term yields dropped because U.S. inflation
remained extremely low, but robust economic growth and the possibility of a Fed
rate hike kept short-term yields relatively steady.
The situation reversed in mid-1998. The global turmoil lowered expectations
for both inflation and domestic economic growth. Instead of a Fed rate increase,
investors began to anticipate lower rates, and short-term yields dropped
significantly. As a result, we saw a classic steeper yield curve as economic
growth slowed over the last six months of the period.
By September, the zero yield curve became inverted at the short end (see
the chart). Under normal circumstances, the shorter a zero's maturity, the lower
its yield. At the end of the period, however, zeros maturing in 2-5 years were
yielding 12-15 basis points less than one-year zeros. The main reason for this
was the strong demand from flight-to-quality investors, who wanted not only the
stability and liquidity of the world's largest debt market, but also an
opportunity to earn some price gains as interest rates fell.
ZERO-COUPON YIELD SPREADS WIDENED
STRIPS, which are created by "stripping" Treasury notes and bonds into
their component parts, make up the vast majority of the zero-coupon Treasury
market. The yields of STRIPS are often compared to those of REFCORPs, which were
created by stripping bonds issued by the Resolution Funding Corporation.
The Resolution Funding Corporation is a government agency that issued bonds
between 1989 and 1992 to help the government liquidate the assets of failed
savings and loans. The principal portion of REFCORP bonds are secured by
Treasury STRIPS, and the interest payments are guaranteed by the Treasury. But
because REFCORPs are not direct obligations of the Treasury, they have
historically offered slightly higher yields than STRIPS as compensation for the
minimal amount of credit risk.
In the last few years, the yield difference--or spread--between STRIPS and
REFCORPs has narrowed, so REFCORPs have generally outperformed STRIPS. In the
past few months, however, yield spreads widened because of strong demand for
Treasury bonds (see the accompanying chart). As a result, STRIPS outperformed
REFCORPs over the past year.
[right margin]
[line chart - data below]
YIELD SPREAD BETWEEN REFCORPS AND
STRIPS MATURING IN 2020 (IN BASIS POINTS)
DATE SPREAD
9/30/97 13.0
10/10/97 13.2
10/17/97 13.4
10/24/97 13.2
10/31/97 13.8
11/7/97 13.7
11/14/97 13.1
11/21/97 13.1
11/28/97 13.1
12/5/97 13.5
12/12/97 13.1
12/19/97 13.2
12/26/97 13.0
1/2/98 13.2
1/9/98 13.2
1/16/98 13.0
1/23/98 13.1
1/30/98 13.4
2/6/98 13.2
2/13/98 13.0
2/20/98 13.1
2/27/98 13.2
3/6/98 13.1
3/13/98 13.0
3/20/98 13.1
3/27/98 12.9
4/3/98 13.5
4/10/98 13.3
4/17/98 13.2
4/24/98 13.0
5/1/98 13.2
5/8/98 12.9
5/15/98 13.4
5/22/98 13.1
5/29/98 13.0
6/5/98 13.0
6/12/98 13.3
6/19/98 13.3
6/26/98 12.8
7/3/98 13.0
7/10/98 13.0
7/17/98 12.9
7/24/98 13.1
7/31/98 13.4
8/7/98 13.4
8/14/98 13.5
8/21/98 14.3
8/28/98 15.6
9/4/98 15.8
9/11/98 15.7
9/18/98 15.2
9/30/98 15.6
Source: Salomon Brothers
"THE TRANQUILIZING EFFECT [OF GLOBAL TURMOIL] ON INFLATION AND THE U.S. ECONOMY
WAS SO PRONOUNCED THAT THE FED LOWERED SHORT-TERM INTEREST RATES IN
SEPTEMBER--ITS FIRST RATE CUT IN THREE YEARS."
www.americancentury.com 5
Target: 2000--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INVESTOR CLASS (INCEPTION 3/25/85) ADVISOR CLASS (INCEPTION 8/20/98)
TARGET 11/15/00 MERRILL LYNCH TARGET 11/15/00 MERRILL LYNCH
MATURITIES MATURITY LONG-TERM MATURITIES MATURITY LONG-TERM
TRUST: 2000 STRIPS ISSUE TREASURY INDEX TRUST: 2000 STRIPS ISSUE TREASURY INDEX
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 5.31% 5.51% 12.91% -- -- --
1 YEAR 8.97% 9.49% 21.97% -- -- --
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 6.85% 7.41% 12.21% -- -- --
5 YEARS 5.31% 5.74% 9.18% -- -- --
10 YEARS 9.98% 10.45% 11.80% -- -- --
LIFE OF FUND 12.31% 13.65%(2) 12.86%(2) 2.57% 2.58% 6.30%
(1) Returns for periods less than one year are not annualized.
(2) Since 3/31/85, the date nearest the class's inception for which data are
available.
See pages 51-53 for more information about share classes, returns, the
comparative index, and the fund's benchmark.
</TABLE>
[mountain chart - data below]
GROWTH OF $10,000 OVER 1O YEARS
Value on 9/30/98
Target: 2000 $25,892
11/15/00 STRIPS Issue $27,028
Merrill Lynch Long-Term Index $30,519
Target: 11/15/00 Merrill Lynch
2000 STRIPS Issue Long-Term Index
DATE VALUE VALUE VALUE
9/30/88 $10,000 $10,000 $10,000
9/30/89 $11,814 $11,831 $11,579
9/30/90 $11,903 $12,047 $11,876
9/30/91 $14,543 $14,812 $14,310
9/30/92 $17,163 $17,520 $16,349
9/30/93 $19,988 $20,449 $19,670
9/30/94 $18,481 $18,930 $17,581
9/30/95 $21,224 $21,815 $21,601
9/30/96 $22,077 $22,826 $22,110
9/30/97 $23,764 $24,686 $25,022
9/30/98 $25,892 $27,028 $30,519
$10,000 investment made 9/30/88
The chart at left shows the growth of a $10,000 investment in the fund over 10
years. The Merrill Lynch Long-Term Treasury Index and the fund's benchmark are
provided for comparison. The Target: 2000 portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the total returns of the index and the benchmark do not.
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2000
Actual Share Price (Historical) $93.78
Anticipated Value at Maturity
(Estimated Share Price) $101.78
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1985 $26.77 $100
$35.44 $100
$33.33 $98.69
$37.16 $97.43
$44.52 $96.21
1990 $47.33 $97.59
$57.11 $98.91
$61.947 $101.16
$71.526 $100.708
$66.598 $100.829
1995 $80.408 $100.992
$79.947 $101.102
$86.06 $101.13
$93.78 $101.78
2000
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Both charts are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). Past performance is no guarantee of future results. Investment
return and principal value will fluctuate, and redemption value may be more or
less than original cost.
6 1-800-345-2021
Target: 2000--Q&A
- --------------------------------------------------------------------------------
/photo of Dave Schroeder/
An interview with Dave Schroeder, a portfolio manager on the Target
Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2000 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio's Investor Class shares returned 8.97%, compared with the 9.49% return
of its benchmark, a STRIPS issue maturing on November 15, 2000. (See the Total
Returns table on the previous page for other fund performance comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PAST YEAR?
We made a few adjustments designed to increase the portfolio's anticipated
value at maturity (AVM), which grew by 65 cents during the fiscal year.
The best way to boost the AVM is to seek out higher yields. As such, we
significantly reduced our holdings of STRIPS from 62% to 40% of the portfolio.
In place of the STRIPS, we added about a 10% position in REFCORPs, which offer
higher yields than STRIPS.
We also purchased several physical zeros that were principal portions of
Treasury bonds. At the time we bought them, their yields were 20-25 basis points
(a basis point equals 0.01%) higher than STRIPS. A few months ago, we converted
these physical zeros into BECCs.
WHAT ARE BECCS?
BECC stands for Book Entry Callable Corpus, and the securities are derived
from a Treasury program that allows conversion of physical zeros into wirable
securities. Today, virtually all Treasury securities are wirable, meaning that
they can be traded electronically. But there are still a few zeros out there
that are traded in physical form--actual interest coupons or principal
certificates of Treasury bonds held by clearing banks.
Through the Treasury, however, it is possible to exchange a physical zero
for a wirable zero. Physical coupon zeros are converted into CUBES (Coupons
Under Book Entry Safekeeping), while physical principal zeros are converted into
BECCs.
We expect our BECCs to increase in value because they are now easier to
trade--they can be transferred over the Federal Reserve book-entry system, just
like STRIPS.
[right margin]
"THE BEST WAY TO BOOST THE AVM IS TO SEEK OUT HIGHER YIELDS. AS SUCH, WE
SIGNIFICANTLY REDUCED OUR HOLDINGS OF STRIPS FROM 62% TO 40% OF THE PORTFOLIO."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 52 31
ANTICIPATED GROWTH
RATE 3.81% 5.24%
WEIGHTED AVERAGE
MATURITY DATE 12/01/00 11/14/00
ANTICIPATED VALUE AT
MATURITY (AVM)* $101.78 $101.13
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59% 0.56%
* See graph on page 6.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 7
Target: 2000--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT OTHER CHANGES DID YOU MAKE TO THE TARGET: 2000 PORTFOLIO?
Recently, we've been selling zeros maturing in 2000 and buying zeros
maturing in 1999 and 2001. The reason is that unusually strong demand for
two-year Treasury notes--which mature in 2000--has driven yields down
dramatically, and this has carried over to the zero-coupon market.
As a result, we've been able to sell some of our zeros maturing in 2000 at
a profit and find better yields among one- and three-year zeros.
DID THIS TRADING ACTIVITY HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE
MATURITY (WAM) DATE?
The fund's WAM date extended from mid-November to December 2000 during the
past six months. Part of this was the BECCs, which have a late maturity date in
2001, and part of it was the recent addition of several other 2001-maturity
zeros.
Despite these trades, however, most of the zeros in the portfolio still
mature in 2000. We're required to keep 90% of fund assets in zeros that mature
between 1999 and 2001; we've kept 100% of the portfolio within this range.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that this trend will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2000 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2000. To achieve this, we will keep the fund's WAM
date in late 2000, close to the November 15 maturity date of its benchmark.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2000 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, and we now think that REFCORPs offer a
significant yield advantage over STRIPS. At the very least, we plan to hang on
to the REFCORPs already in the portfolio, using STRIPS to meet cash flow needs.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER THE
LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
STRIPS 40%
TRs 36%
REFCORPs 11%
BECCs 5%
Other 8%
As of March 31, 1998
STRIPS 53%
TRs 30%
PHYSICALs 5%
CUBES 5%
Other 7%
Security types are defined on page 53.
8 1-800-345-2021
Target: 2000--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES(1)
$ 18,144 TBR, 5.83%, 5/15/99 $ 17,630
71,250 CUBES, 8.76%, 8/15/99 68,490
75,000 ETR, 5.26%, 11/15/99 71,225
81,000 ETR, 5.63%, 11/15/99 76,923
12,000,000 STRIPS--PRINCIPAL, 4.88%,
11/15/99 11,414,151
153,000 STRIPS--COUPON, 5.40%,
11/15/99 145,538
2,836,700 TBR, 7.83%, 11/15/99 2,695,399
75,000 TR, 5.20%, 11/15/99 71,280
349,800 TR, 5.46%, 11/15/99 332,449
133,000 CATS, 5.22%, 2/15/00 125,096
88,125 CUBES, 8.60%, 2/15/00 82,877
4,100,000 STRIPS--COUPON, 4.63%,
2/15/00 3,860,479
10,100,000 STRIPS--PRINCIPAL, 5.64%,
2/15/00 9,502,941
306,945 TBR, 8.80%, 2/15/00 288,626
29,708,220 TR, 6.69%, 2/15/00 27,942,651
28,146 TR, 8.50%, 2/15/00 26,473
199,843 TR, 8.88%, 2/15/00 187,966
100,000 TR, 9.28%, 2/15/00 94,057
12,000,000 REFCORP STRIPS--COUPON,
5.54%, 4/15/00 11,210,252
645,525 TBR, 8.62%, 5/15/00 600,327
849,000 TBR, 8.72%, 5/15/00 789,555
5,000,000 CUBES, 5.50%, 8/15/00 4,603,238
13,633,000 STRIPS--COUPON, 5.71%,
8/15/00 12,571,898
4,667,000 STRIPS--PRINCIPAL, 7.80%,
8/15/00 4,303,752
894,045 TBR, 8.72%, 8/15/00 822,950
Principal Amount Value
- --------------------------------------------------------------------------------
$15,427,980 TR, 4.89%, 8/15/00 $14,267,701
10,442,000 REFCORP STRIPS--COUPON,
5.58%, 10/15/00 9,547,962
13,391,000 STRIPS--PRINCIPAL, 8.17%,
11/15/00 12,219,652
289,250 TBR, 5.63%, 11/15/00 263,401
29,600 TR, 8.49%, 11/15/00 26,966
843 TR, 9.43%, 11/15/00 768
75,000 CATS, 5.34%, 2/15/01 67,588
2,700,000 STRIPS--PRINCIPAL, 5.57%,
2/15/01 2,436,550
87,280 TBR, 5.63%, 2/15/01 78,618
4,657,000 TIGR, 5.52%, 2/15/01 4,195,775
3,933,650 TR, 5.52%, 2/15/01 3,544,888
2,052,928 TR, 5.87%, 2/15/01 1,850,037
4,435,750 TR, 6.92%, 2/15/01 3,997,366
10,000,000 TR, 7.80%, 2/15/01 9,011,702
3,200,000 REFCORP STRIPS--COUPON,
5.67%, 4/15/01 2,862,471
1,400,000 COUGAR, 5.63%, 5/15/01 1,245,799
1,496,250 CUBES, 6.21%, 5/15/01 1,331,448
44,000 TIGR, 5.39%, 5/15/01 39,204
21,150,000 TR, 7.06%, 5/15/01 18,849,457
14,235,000 STRIPS--PRINCIPAL, 7.44%,
8/15/01 12,565,745
7,060,020 TR, 5.38%, 8/15/01 6,223,382
3,215,000 REFCORP STRIPS--COUPON,
5.70%, 10/15/01 2,815,522
15,000,000 BECC, 5.99%, 11/15/01 13,076,079
30,100,000 STRIPS--PRINCIPAL, 4.79%,
11/15/01 26,315,599
---------------
TOTAL INVESTMENT SECURITIES--100.0% $238,739,903
===============
(Cost $230,516,406)
NOTES TO SCHEDULE OF INVESTMENTS
BECC = Book Entry Callable Corpus
CATS = Certificates of Accrual of Treasury Securities
COUGAR = Coupons on Underlying Government Securities
CUBES = Coupons Under Book Entry Safekeeping
ETR = Easy Growth Treasury Receipts
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TBR = Treasury Bond Receipts
TIGR = Treasury Investment Growth Receipts
TR = Treasury Receipts
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 9
Target: 2005 --Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INVESTOR CLASS (INCEPTION 3/25/85) ADVISOR CLASS (INCEPTION 8/3/98)
TARGET 11/15/05 MERRILL LYNCH TARGET 11/15/05 MERRILL LYNCH
MATURITIES MATURITY LONG-TERM MATURITIES MATURITY LONG-TERM
TRUST: 2005 STRIPS ISSUE TREASURY INDEX TRUST: 2005 STRIPS ISSUE TREASURY INDEX
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) 11.95% 12.23% 12.91% -- -- --
1 YEAR 18.87% 19.35% 21.97% -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS 10.65% 11.16% 12.21% -- -- --
5 YEARS 8.16% 8.30% 9.18% -- -- --
10 YEARS 12.72% 13.01% 11.80% -- -- --
LIFE OF FUND 14.79% 16.42%(2) 12.86%(2) 8.15% 8.35% 7.63%
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) Since 3/31/85, the date nearest the class's inception for which data are
available.
See pages 51-53 for more information about share classes, returns, the
comparative index, and the fund's benchmark.
[mountain chart - data below]
GROWTH OF $10,000 OVER 1O YEARS
Value on 9/30/98
Target: 2005 $33,126
11/15/05 STRIPS Issue $33,963
Merrill Lynch Long-Term Index $30,519
Target: 11/15/05 Merrill Lynch
2005 STRIPS Issue Long-Term Index
DATE VALUE VALUE VALUE
9/30/88 $10,000 $10,000 $10,000
9/30/89 $12,353 $12,320 $11,579
9/30/90 $11,977 $12,000 $11,876
9/30/91 $15,168 $15,306 $14,310
9/30/92 $17,780 $17,895 $16,349
9/30/93 $22,384 $22,795 $19,670
9/30/94 $19,530 $19,600 $17,581
9/30/95 $24,443 $24,727 $21,601
9/30/96 $24,971 $25,346 $22,110
9/30/97 $27,868 $28,458 $25,022
9/30/98 $33,126 $33,963 $30,519
$10,000 investment made 9/30/88
The chart at left shows the growth of a $10,000 investment in the fund over 10
years. The Merrill Lynch Long-Term Treasury Index and the fund's benchmark are
provided for comparison. The Target: 2005 portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the total returns of the index and the benchmark do not.
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2005
Actual Share Price (Historical) $76.72
Anticipated Value at Maturity
(Estimated Share Price) $101.53
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1985 $16.69 $98
$23.74 $97
$21.28 $94.59
$24.36 $93.66
$30.18 $93.14
1990 $31.26 $97.25
$37.97 $99.29
$41.597 $99.625
$50.575 $100.087
$46.066 $100.516
1995 $61.108 $100.34
$57.829 $100.707
$64.54 $100.85
$76.72 $101.53
2000
2005
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Both charts are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). Past performance is no guarantee of future results. Investment
return and principal value will fluctuate, and redemption value may be more or
less than original cost.
10 1-800-345-2021
Target: 2005 --Q&A
- --------------------------------------------------------------------------------
An interview with Dave Schroeder (pictured on page 7), a portfolio manager
on the Target Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2005 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio's Investor Class shares returned 18.87%, compared with the 19.35%
return of its benchmark, a STRIPS issue maturing on November 15, 2005. (See the
Total Returns table on the previous page for other fund performance
comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PAST YEAR?
One of the main challenges we faced was asset growth--Target: 2005's assets
nearly doubled in the last year. Some of that increase can be attributed to fund
performance, but most of it was new investments. We put a lot of the new money
to work in STRIPS because they're the most liquid (easiest to buy and sell)
zeros. As a result, the fund's STRIPS holdings grew from 41% to 52% of the
portfolio.
We also made a few adjustments designed to increase the portfolio's
anticipated value at maturity (AVM), which grew by 68 cents during the fiscal
year. The best way to boost the AVM is to seek out higher yields. As such, we
maintained a healthy position in REFCORPs, which offer higher yields than
STRIPS.
We also invested about 10% of the portfolio in physical zeros that were
principal portions of Treasury bonds. A dealer that was clearing out inventory
sold them to us at yields that were 20-25 basis points (a basis point equals
0.01%) higher than STRIPS. A few months ago, we converted these physical zeros
into BECCs.
WHAT ARE BECCS?
BECC stands for Book Entry Callable Corpus, and the securities are derived
from a Treasury program that converts physical zeros into wirable securities.
Today, virtually all Treasury securities are wirable, meaning that they can be
traded electronically. But there are still a few zeros out there that are traded
in physical form--actual interest coupons or principal certificates of Treasury
bonds held by clearing banks.
Through the Treasury, however, it is possible to exchange a physical zero
for a wirable zero. Physical coupon zeros are converted into CUBES (Coupons
Under Book Entry Safekeeping), while physical principal zeros are converted into
BECCs.
We expect our BECCs to increase in value because they are now easier to
trade--they can be transferred over the Federal Reserve book-entry system, just
like STRIPS.
DID THE FUND'S ASSET GROWTH HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE
MATURITY (WAM) DATE?
In the first half of the fiscal year, our investments caused the fund's WAM
date to extend from mid-November to December 2005. We bought several STRIPS
issues maturing in 2006 because they offered higher yields than 2005-maturity
STRIPS.
[right margin]
"ONE OF THE MAIN CHALLENGES WE FACED WAS ASSET GROWTH--TARGET: 2005'S ASSETS
NEARLY DOUBLED IN THE LAST YEAR."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 42 34
ANTICIPATED GROWTH
RATE 3.98% 5.57%
WEIGHTED AVERAGE
MATURITY DATE 11/08/05 11/16/05
ANTICIPATED VALUE AT
MATURITY (AVM)* $101.53 $100.85
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59% 0.57%
* See graph on page 10.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 11
Target: 2005 --Q&A
- --------------------------------------------------------------------------------
(Continued)
The portfolio's WAM date shortened back to early November 2005 during the
last six months. The main reason for this was our investment in BECCs; about 70%
of our BECCs mature in early 2005.
Despite these trades, however, most of the zeros in the portfolio still
mature in 2005. We're required to keep 90% of fund assets in zeros that mature
between 2004 and 2006; we've kept 100% of the portfolio within this range.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that this trend will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2005 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2005. To achieve this, we will keep the fund's WAM
date in late 2005, close to the November 15 maturity date of its benchmark.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2005 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, and we now think that REFCORPs offer a
significant yield advantage over STRIPS. At the very least, we plan to hang on
to the REFCORPs already in the portfolio, using STRIPS to meet cash flow needs.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER
THE LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
STRIPS 52%
REFCORPs 30%
BECCs 11%
TRs 4%
Other 3%
As of March 31, 1998
STRIPS 56%
REFCORPs 30%
CATS 6%
TRs 4%
Other 4%
Security types are defined on page 53.
12 1-800-345-2021
Target: 2005--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES(1)
$ 4,000,000 BECC, 5.64%, 5/15/04 $ 3,102,622
258,000 ETR, 5.70%, 5/15/04 199,680
693,750 CUBES, 6.56%, 11/15/04 526,720
87,000 ETR, 5.96%, 11/15/04 65,777
27,000 TIGR, 5.90%, 11/15/04 20,499
11,500,000 REFCORP STRIPS--COUPON,
5.95%, 1/15/05 8,650,375
3,200,000 BECC, 9.00%, 2/15/05 2,394,911
4,500,000 STRIPS--COUPON, 6.37%,
2/15/05 3,397,351
2,000,000 REFCORP STRIPS--COUPON,
5.84%, 4/15/05 1,484,615
49,000,000 BECC, 5.83%, 5/15/05 36,187,140
4,615,672 CUBES, 8.59%, 5/15/05 3,415,360
1,000,000 ETR, 6.67%, 5/15/05 736,604
28,374,000 STRIPS--COUPON, 6.80%,
5/15/05 21,145,376
74,059,000 STRIPS--PRINCIPAL, 5.84%,
5/15/05 55,209,440
428,750 TBR, 9.37%, 5/15/05 316,638
6,450,000 TR, 8.38%, 5/15/05 4,760,327
12,500,000 REFCORP STRIPS--COUPON,
6.76%, 7/15/05 9,164,677
8,000,000 STRIPS--COUPON, 5.50%,
8/15/05 5,890,145
72,500,000 STRIPS--PRINCIPAL, 6.41%,
8/15/05 53,379,435
45,270,000 REFCORP STRIPS--COUPON,
6.55%, 10/15/05 32,756,864
15,900,000 BECC, 7.04%, 11/15/05 11,444,764
Principal Amount Value
- --------------------------------------------------------------------------------
$ 170,000 CATS, 6.21%, 11/15/05 $ 122,792
491,519 CUBES, 8.86%, 11/15/05 354,533
200,000 LION, 5.73%, 11/15/05 143,260
6,500,000 STRIPS--COUPON, 5.60%,
11/15/05 4,724,503
2,247,000 TBR, 8.45%, 11/15/05 1,617,383
46,429,000 REFCORP STRIPS--COUPON,
7.45%, 1/15/06 33,129,271
168,056,000 STRIPS--COUPON, 6.04%,
2/15/06 120,486,283
19,415,340 TR, 8.23%, 2/15/06 13,819,714
66,800,000 REFCORP STRIPS--COUPON,
6.83%, 4/15/06 47,063,802
107,000 CATS, 6.05%, 5/15/06 75,261
6,032,000 CATS, 8.83%, 5/15/06 4,223,828
2,567,000 CATS, 8.84%, 5/15/06 1,797,508
566,500 CUBES, 6.53%, 5/15/06 397,868
4,718,000 STRIPS--COUPON, 7.66%,
5/15/06 3,340,838
410,000 TBR, 8.46%, 5/15/06 287,311
1,000,000 TR, 8.40%, 5/15/06 700,237
146,346 TR, 8.89%, 5/15/06 102,859
36,428,000 REFCORP STRIPS--COUPON,
5.69%, 7/15/06 25,359,513
4,100,000 STRIPS--COUPON, 5.93%,
8/15/06 2,869,443
1,299,780 TR, 8.86%, 8/15/06 902,697
10,030,000 BECC, 5.55%, 11/15/06 6,852,950
--------------
TOTAL INVESTMENT SECURITIES--100.0% $522,621,174
==============
(Cost $461,237,944)
NOTES TO SCHEDULE OF INVESTMENTS
BECC = Book Entry Callable Corpus
CATS = Certificates of Accrual of Treasury Securities
CUBES = Coupons Under Book Entry Safekeeping
ETR = Easy Growth Treasury Receipts
LION = Lehman Investment Opportunity Note
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
TBR = Treasury Bond Receipts
TIGR = Treasury Investment Growth Receipts
TR = Treasury Receipts
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 13
Target: 2010--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS (INCEPTION 3/25/85)
TARGET 11/15/10 MERRILL LYNCH
MATURITIES MATURITY LONG-TERM
TRUST: 2010 STRIPS ISSUE TREASURY INDEX
- --------------------------------------------------------------------------------
6 MONTHS(1) .......... 15.89% 16.53% 12.91%
1 YEAR ............... 26.08% 26.93% 21.97%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS .............. 13.71% 14.39% 12.21%
5 YEARS .............. 10.21% 10.89% 9.18%
10 YEARS ............. 14.46% 14.99% 11.80%
(1) Returns for periods less than one year are not annualized. See pages 52-53
for more information about returns, the comparative index, and the fund's
benchmark.
[mountain chart - data below]
GROWTH OF $10,000 OVER 1O YEARS
Value on 9/30/98
Target: 2010 $38,593
11/15/10 STRIPS Issue $40,411
Merrill Lynch Long-Term Index $30,519
Target: 11/15/10 Merrill Lynch
2010 STRIPS Issue Long-Term Index
DATE VALUE VALUE VALUE
9/30/88 $10,000 $10,000 $10,000
9/30/89 $12,821 $13,020 $11,579
9/30/90 $11,943 $12,226 $11,876
9/30/91 $15,616 $15,845 $14,310
9/30/92 $17,765 $17,901 $16,349
9/30/93 $23,736 $24,101 $19,670
9/30/94 $19,720 $19,957 $17,581
9/30/95 $26,239 $26,997 $21,601
9/30/96 $26,444 $27,382 $22,110
9/30/97 $30,609 $31,838 $25,022
9/30/98 $38,593 $40,411 $30,519
$10,000 investment made 9/30/88
The chart at left shows the growth of a $10,000 investment in the fund over 10
years. The Merrill Lynch Long-Term Treasury Index and the fund's benchmark are
provided for comparison. The Target: 2010 portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the total returns of the index and the benchmark do not.
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2010
Actual Share Price (Historical) $61.98
Anticipated Value at Maturity
(Estimated Share Price) $104.85
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1985 $11.43 $97
$17.65 $97
$14.96 $95.27
$17.31 $97.13
$22.16 $96.66
1990 $22.22 $97.52
$26.9 $98.97
$29.534 $100.179
$37.292 $100.874
$32.981 $101.78
1995 $46.864 $101.788
$42.474 $102.529
$49.16 $103.4
$61.98 $104.85
2000
2005
2010
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
14 1-800-345-2021
Target: 2010 --Q&A
- --------------------------------------------------------------------------------
An interview with Dave Schroeder (pictured on page 7), a portfolio manager
on the Target Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2010 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio returned 26.08%, compared with the 26.93% return of its benchmark, a
STRIPS issue maturing on November 15, 2010. (See the Total Returns table on the
previous page for other fund performance comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
EVEN AFTER EXPENSES, THE FUND'S RETURN STILL LAGGED THE PERFORMANCE OF THE
BENCHMARK. WHY?
The benchmark is a STRIPS issue, and STRIPS were the best performers among
zero-coupon Treasury securities. In contrast, the fund held as much as half of
its portfolio in non-STRIPS zeros, such as REFCORPs and ETRs (see the charts on
page 16).
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PAST YEAR?
One of the main challenges we faced was asset growth--Target: 2010's assets
increased by 125% in the last year. Some of that increase can be attributed to
fund performance, but most of it--more than $100 million--was new investments.
HOW DID YOU INVEST THIS CASH?
Early on, we put a lot of the new money to work in STRIPS because they're
the most liquid (easiest to buy and sell) zeros. As a result, the fund's STRIPS
holdings grew from 48% to 59% during the first half of the fiscal year.
But in the last six months, our purchases focused more on REFCORPs, which
generally offer higher yields than STRIPS. We were able to find a number of
REFCORPs with very attractive yields, including some bargains from dealers that
were liquidating their inventory.
By the end of the fiscal year, the Target: 2010 portfolio was fairly
balanced between STRIPS and REFCORPs (see the chart on page 16).
THE PORTFOLIO ALSO HAS A SMALL POSITION IN ETRS. WHAT'S THE ATTRACTION OF THESE
SECURITIES?
ETRs (Easy-growth Treasury Receipts) are receipt zeros that were issued by
Dean Witter in the early to mid-1980s. We bought these securities in 1991, when
they offered yields that were more than 30 basis points (a basis point equals
0.01%) higher than STRIPS with the same maturity date.
Most Treasury zeros can be used to recreate a whole Treasury bond, a
process known as reconstitution. ETRs cannot be used for reconstitution, so
they're not in high demand and they don't trade much. It's unlikely that we'd be
able to find other zeros that offer this kind of yield advantage, so we expect
to hold the ETRs until they mature in May 2009.
[right margin]
"TARGET: 2010'S ASSETS INCREASED BY 125% IN THE LAST YEAR. SOME OF THAT INCREASE
CAN BE ATTRIBUTED TO FUND PERFORMANCE, BUT MOST OF IT--MORE THAN $100
MILLION--WAS NEW INVESTMENTS."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 18 16
ANTICIPATED GROWTH
RATE 4.41% 5.80%
WEIGHTED AVERAGE
MATURITY DATE 10/16/10 10/03/10
ANTICIPATED VALUE AT
MATURITY (AVM)* $104.85 $103.40
EXPENSE RATIO 0.59% 0.62%
* See graph on page 14.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 15
Target: 2010 --Q&A
- --------------------------------------------------------------------------------
(Continued)
DID THE FUND'S ASSET GROWTH HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE
MATURITY (WAM) DATE?
The fund's WAM date extended from early to mid-October 2010 during the
fiscal year. Over the past few years, we've been gradually moving the WAM date
closer to the maturity date of Target: 2010's benchmark. It's now within a month
of the benchmark's November 15, 2010 maturity date.
We lengthened the WAM date by increasing our position in STRIPS maturing in
November 2010 and adding several REFCORPs maturing in 2011.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that this trend will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2010 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2010. To achieve this, we will continue to move the
fund's WAM date closer to the November 15 maturity date of its benchmark.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2010 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, and we now think that REFCORPs offer a
significant yield advantage over STRIPS. At the very least, we plan to hang on
to the REFCORPs already in the portfolio, using STRIPS to meet cash flow needs.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER THE
LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
STRIPS 51%
REFCORPs 43%
ETRs 6%
As of March 31, 1998
STRIPS 59%
REFCORPs 33%
ETRs 8%
Security types are defined on page 53.
16 1-800-345-2021
Target: 2010--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES (1)
$28,520,000 ETR, 7.11%, 5/15/09 $ 16,782,267
2,000,000 REFCORP STRIPS--COUPON,
7.98%, 10/15/09 1,159,537
11,500,000 STRIPS--PRINCIPAL, 7.18%,
11/15/09 6,668,610
8,772,000 REFCORP STRIPS--COUPON,
7.30%, 1/15/10 5,004,053
2,000,000 STRIPS--COUPON, 5.90%,
2/15/10 1,153,934
43,728,000 REFCORP STRIPS--COUPON,
6.85%, 4/15/10 24,594,965
34,587,000 STRIPS--COUPON, 5.71%,
5/15/10 19,682,226
15,000,000 REFCORP STRIPS--COUPON,
7.89%, 7/15/10 8,317,992
35,277,000 STRIPS--COUPON, 6.26%,
8/15/10 19,798,466
Principal Amount Value
- --------------------------------------------------------------------------------
$49,000,000 REFCORP STRIPS--COUPON,
6.32%, 10/15/10 $ 26,739,817
69,839,000 STRIPS--COUPON, 7.00%,
11/15/10 38,584,610
72,361,000 REFCORP STRIPS--COUPON,
5.67%, 1/15/11 38,878,364
40,360,000 STRIPS--COUPON, 7.91%,
2/15/11 21,960,501
18,850,000 REFCORP STRIPS--COUPON,
7.84%, 4/15/11 9,969,972
24,000,000 STRIPS--COUPON, 5.85%,
5/15/11 12,859,513
11,715,000 STRIPS--COUPON, 7.23%,
8/15/11 6,176,640
10,000,000 REFCORP STRIPS--COUPON,
5.46%, 10/15/11 5,120,541
34,000,000 STRIPS--COUPON, 6.43%,
11/15/11 17,648,195
---------------
TOTAL INVESTMENT SECURITIES--100.0% $281,100,203
===============
(Cost $235,163,514)
NOTES TO SCHEDULE OF INVESTMENTS
ETR = Easy Growth Treasury Receipts
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 17
Target: 2015 --Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS (INCEPTION 9/1/86)
TARGET 11/15/15 MERRILL LYNCH
MATURITIES MATURITY LONG-TERM
TRUST: 2015 STRIPS ISSUE TREASURY INDEX
- --------------------------------------------------------------------------------
6 MONTHS(1) .......... 15.79% 15.97% 12.91%
1 YEAR ............... 30.07% 30.68% 21.97%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS .............. 15.68% 16.26% 12.21%
5 YEARS .............. 11.42% 11.94% 9.18%
10 YEARS ............. 15.58% 16.04% 11.80%
(1) Returns for periods less than one year are not annualized.
See pages 52-53 for more information about returns, the comparative index, and
the fund's benchmark.
[mountain chart - data below]
GROWTH OF $10,000 OVER 1O YEARS
Value on 9/30/98
Target: 2015 $42,551
11/15/15 STRIPS Issue $44,246
Merrill Lynch Long-Term Index $30,519
Target: 11/15/15 Merrill Lynch
2015 STRIPS Issue Long-Term Index
DATE VALUE VALUE VALUE
9/30/88 $10,000 $10,000 $10,000
9/30/89 $13,328 $13,442 $11,579
9/30/90 $11,733 $11,808 $11,876
9/30/91 $15,735 $15,895 $14,310
9/30/92 $17,398 $17,569 $16,349
9/30/93 $24,778 $25,173 $19,670
9/30/94 $19,446 $19,741 $17,581
9/30/95 $27,475 $28,160 $21,601
9/30/96 $27,269 $28,144 $22,110
9/30/97 $32,712 $33,859 $25,022
9/30/98 $42,551 $44,246 $30,519
$10,000 investment made 9/30/88
The chart at left shows the growth of a $10,000 investment in the fund over 10
years. The Merrill Lynch Long-Term Treasury Index and the fund's benchmark are
provided for comparison. The Target: 2015 portfolio's total return includes
operating expenses (such as transaction costs and management fees) that reduce
returns, while the total returns of the index and the benchmark do not.
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2015
Actual Share Price (Historical) $49.87
Anticipated Value at Maturity
(Estimated Share Price) $112.63
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1986 $14.24 $101
$11.37 $102.86
$12.63 $102.75
$16.86 $101.77
1990 $16.29 $102.24
$19.95 $106.05
$21.502 $107.792
$28.064 $106.952
$24.11 $108.832
1995 $36.819 $109.462
$31.962 $110.109
$38.34 $110.52
$49.87 $112.63
2000
2005
2010
2015
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
18 1-800-345-2021
Target: 2015 --Q&A
- --------------------------------------------------------------------------------
An interview with Dave Schroeder (pictured on page 7), a portfolio manager
on the Target Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2015 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio returned 30.07%, compared with the 30.68% return of its benchmark, a
STRIPS issue maturing on November 15, 2015. (See the Total Returns table on the
previous page for other fund performance comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PAST YEAR?
We made very few changes to the Target: 2015 portfolio. We try to keep the
fund fully invested in zeros at all times, so most of the trades we made
involved cash flows into the fund.
During the first six months of the fiscal year, we saw about $25 million in
new investments come into the portfolio. We put a lot of this new money to work
in STRIPS because they're the most liquid (easiest to buy and sell) zeros. As a
result, the fund's STRIPS holdings grew from 50% to 56% during the first half of
the fiscal year.
In the last six months, we made a few adjustments designed to increase the
portfolio's anticipated value at maturity (AVM), which grew by $2.11 during the
fiscal year. The best way to boost the AVM is to seek out higher yields, so we
sold some of the fund's STRIPS and purchased REFCORPs, which offered an
attractive yield premium over STRIPS.
By the end of the fiscal year, the Target: 2015 portfolio was equally
balanced between STRIPS and REFCORPs (see the chart on page 20).
DID THESE TRADES HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE MATURITY
(WAM) DATE?
Not really (see the table at right). We try to keep the WAM date very close
to the November 15, 2015 maturity date of the portfolio's benchmark. For the
most part, the WAM date remained within a week of the benchmark's maturity date
throughout the fiscal year. This positioning allowed the fund to closely track
the performance of its benchmark.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that these spectacular returns will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
[right margin]
"WE MADE VERY FEW CHANGES TO THE TARGET: 2015 PORTFOLIO."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 12 11
ANTICIPATED GROWTH
RATE 4.81% 5.93%
WEIGHTED AVERAGE
MATURITY DATE 11/13/15 11/17/15
ANTICIPATED VALUE AT
MATURITY (AVM)* $112.63 $110.52
EXPENSE RATIO 0.59% 0.61%
* See graph on page 18.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 19
Target: 2015 --Q&A
- --------------------------------------------------------------------------------
(Continued)
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2015 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2015. To achieve this, we will keep the fund's WAM
date close to the November 15 maturity date of its benchmark.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2015 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, and we now think that REFCORPs offer a
significant yield advantage over STRIPS. At the very least, we plan to hang on
to the REFCORPs already in the portfolio, using STRIPS to meet cash flow needs.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER
THE LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
STRIPS 50%
REFCORPs 50%
As of March 31, 1998
STRIPS 56%
REFCORPs 44%
Security types are defined on page 53.
20 1-800-345-2021
Target: 2015--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES(1)
$ 4,350,000 STRIPS--COUPON, 9.22%,
2/15/15 $ 1,842,919
48,640,000 REFCORP STRIPS--COUPON,
7.84%, 4/15/15 19,908,543
42,408,000 STRIPS--COUPON, 8.91%,
5/15/15 17,675,150
43,644,000 REFCORP STRIPS--COUPON,
7.71%, 7/15/15 17,581,114
35,050,000 STRIPS--COUPON, 9.17%,
8/15/15 14,381,902
52,421,000 REFCORP STRIPS--COUPON,
8.21%, 10/15/15 20,798,007
Principal Amount Value
- --------------------------------------------------------------------------------
$59,808,000 STRIPS--COUPON, 8.01%,
11/15/15 $ 24,178,591
36,300,000 STRIPS--COUPON, 8.38%,
2/15/16 14,469,983
17,700,000 STRIPS--COUPON, 8.39%,
5/15/16 6,944,940
46,500,000 REFCORP STRIPS--COUPON,
7.67%, 7/15/16 17,621,633
25,500,000 REFCORP STRIPS--COUPON,
8.18%, 10/15/16 9,490,742
12,000,000 STRIPS--COUPON, 5.91%,
11/15/16 4,556,865
---------------
TOTAL INVESTMENT SECURITIES--100.0% $169,450,389
===============
(Cost $109,651,361)
NOTES TO SCHEDULE OF INVESTMENTS
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 21
Target: 2020--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
INVESTOR CLASS (INCEPTION 12/29/89)
TARGET MERRILL LYNCH
MATURITIES FUND LONG-TERM
TRUST: 2020 BENCHMARK(2) TREASURY INDEX
- --------------------------------------------------------------------------------
6 MONTHS(1) ............ 17.98% 18.52% 12.91%
1 YEAR ................. 36.00% 36.91% 21.97%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
3 YEARS ................ 18.02% 18.68% 12.21%
5 YEARS ................ 12.27% 12.64% 9.18%
LIFE OF FUND ........... 13.71% 13.29%(3) 11.13%(3)
(1) Returns for periods less than one year are not annualized.
(2) From December 1989 through April 1990, the fund's benchmark was an 8/15/19
STRIPS issue; from May 1990 through October 1991, it was an 11/15/19 STRIPS
issue; and from November 1991 to the present, it has been an 11/15/20
STRIPS issue.
(3) Since 12/31/89, the date nearest the fund's inception for which data are
available.
See pages 52-53 for more information about returns, the comparative index, and
the fund's benchmark.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/98
Target: 2020 $30,792
Fund Benchmark $29,781
Merrill Lynch Long-Term Index $25,172
Target: Fund Merrill Lynch
2020 Benchmark Long-Term Index
DATE VALUE VALUE VALUE
12/31/89 $10,000 $10,000 $10,000
3/31/90 $8,658 $8,407 $9,593
6/30/90 $9,258 $8,818 $10,006
9/30/90 $8,025 $7,976 $9,795
12/31/90 $9,550 $9,080 $10,646
3/31/91 $9,717 $9,257 $10,844
6/30/91 $9,208 $8,774 $10,900
9/30/91 $10,450 $10,012 $11,803
12/31/91 $11,208 $10,623 $12,608
3/31/92 $10,592 $9,970 $12,150
6/30/92 $10,842 $10,226 $12,653
9/30/92 $11,359 $10,690 $13,485
12/31/92 $12,143 $11,474 $13,609
3/31/93 $13,360 $12,631 $14,516
6/30/93 $14,693 $13,854 $15,293
9/30/93 $17,269 $16,421 $16,223
12/31/93 $16,469 $15,625 $15,955
3/31/94 $14,511 $13,672 $15,021
6/30/94 $13,378 $12,613 $14,587
9/30/94 $12,735 $11,974 $14,501
12/31/94 $13,561 $12,775 $14,768
3/31/95 $14,769 $13,925 $15,684
6/30/95 $17,935 $17,009 $17,402
9/30/95 $18,726 $17,816 $17,816
12/31/95 $21,876 $20,861 $19,298
3/31/96 $18,243 $17,378 $17,997
6/30/96 $18,135 $17,361 $17,969
9/30/96 $18,334 $17,558 $18,236
12/31/96 $20,034 $19,111 $19,107
3/31/97 $18,425 $17,620 $18,506
6/30/97 $20,268 $19,504 $19,520
9/30/97 $22,643 $21,752 $20,638
12/31/97 $25,768 $24,758 $21,961
3/31/98 $26,100 $25,127 $22,295
6/30/98 $28,342 $27,225 $23,320
9/30/98 $30,792 $29,781 $25,172
$10,000 investment made 12/31/89
The chart at left shows the growth of a $10,000 investment in the fund over the
life of the fund.* The Merrill Lynch Long-Term Treasury Index and the fund's
benchmark are provided for comparison. The Target: 2020 portfolio's total return
includes operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the index and the benchmark do not.
* From 12/31/89 (the date nearest the fund's inception for which index data are
available).
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2020
Actual Share Price (Historical) $36.95
Anticipated Value at Maturity
(Estimated Share Price) $106.96
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1990 $11.46 $92.6
$13.45 $97.77
$14.575 $102.184
$19.765 $101.274
$16.273 $102.175
1995 $26.245 $102.54
$22 $103.598
$27.17 $104.84
$36.95 $106.96
2000
2005
2010
2015
2020
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
22 1-800-345-2021
Target: 2020 --Q&A
- --------------------------------------------------------------------------------
An interview with Dave Schroeder (pictured on page 7), a portfolio manager
on the Target Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2020 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio returned 36.00%, compared with the 36.91% return of its benchmark, a
STRIPS issue maturing on November 15, 2020. (See the Total Returns table on the
previous page for other fund performance comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
EVEN AFTER EXPENSES, THE FUND'S RETURN STILL LAGGED THE PERFORMANCE OF THE
BENCHMARK. WHY?
The benchmark is a STRIPS issue, and STRIPS were the best performers among
zero-coupon Treasury securities. In contrast, the fund held more than half of
its portfolio in non-STRIPS zeros (see the chart on page 24).
WHAT CHANGES OCCURRED IN THE PORTFOLIO DURING THE PAST YEAR?
For the second straight fiscal year, the main challenge we faced was
selling fund securities to meet substantial cash outflows. Net withdrawals
totaled $150 million in Target: 2020 during the fiscal year. (Fund assets only
declined by about $70 million overall because of strong fund performance.)
Some of these withdrawals were by shareholders locking in their gains from
the last couple of years, while others looking for more interest rate
sensitivity shifted their investments into our Target: 2025 portfolio.
We keep the portfolio fully invested in zero-coupon bonds, which means we
have virtually no cash on hand. As a result, we had to sell some of the fund's
zeros to meet investor withdrawals. We sold REFCORPs early in the fiscal year
because they made up about two-thirds of the portfolio at the time, but we ended
up selling both STRIPS and REFCORPs later in the period.
Unfortunately, these sales came with tax consequences. Combined with the
exceptional returns of zero-coupon bonds, security sales are the reason why the
Target: 2020 fund will pay out an unusually large capital gains distribution in
1998.
CAN YOU ELABORATE ON THE SIZE OF THE CAPITAL GAINS DISTRIBUTION AND HOW IT CAME
ABOUT?
In December, Target: 2020 shareholders will receive an estimated taxable
capital gains distribution of approximately $4.75 per share*--equal to about 13%
of the fund's share price on September 30.
Gains earned by selling securities in the portfolio must be distributed to
fund shareholders each year. Ordinarily, we try to minimize taxable capital
gains by selling our highest-cost securities whenever possible. However, the
substantial appreciation of the fund's holdings--Target: 2020 returned 67% over
the past 18 months--left us no
* This amount is only an estimate and could change prior to the actual
distribution date.
[right margin]
"COMBINED WITH THE EXCEPTIONAL RETURNS OF ZERO-COUPON BONDS, SECURITY SALES ARE
THE REASON WHY THE TARGET: 2020 FUND WILL PAY OUT AN UNUSUALLY LARGE CAPITAL
GAINS DISTRIBUTION IN 1998."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 15 15
ANTICIPATED GROWTH
RATE 4.90% 5.98%
WEIGHTED AVERAGE
MATURITY DATE 9/05/20 9/01/20
ANTICIPATED VALUE AT
MATURITY (AVM)* $106.96 $104.84
EXPENSE RATIO 0.59% 0.53%
* See graph on page 22.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 23
Target: 2020 --Q&A
- --------------------------------------------------------------------------------
(Continued)
way to avoid booking sizable gains when we sold securities to meet recent
shareholder withdrawals.
The sheer amount of shareholder withdrawals also contributed to the large
upcoming distribution. Because some investors sold their shares, there are now
fewer fund shares outstanding. As a result, the total gains will be distributed
among a smaller number of shares, increasing the per-share amount.
DID THIS SELLING ACTIVITY HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE
MATURITY (WAM) DATE?
Not really (see the table on page 23). We sold securities with a variety of
maturities in order to keep the portfolio's WAM date fairly steady. The WAM date
is currently in early September 2020, compared with the mid-November 2020
maturity date of the fund's benchmark.
Over time, we'll gradually move the fund's WAM date closer to the
benchmark's maturity date.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that these spectacular returns will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2020 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2020. To achieve this, we will keep the fund's WAM
date in the latter part of 2020 and eventually move it closer to the November 15
maturity date of its benchmark.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2020 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, and we now think that REFCORPs offer a
significant yield advantage over STRIPS.
If cash outflows continue, we'll likely sell STRIPS because they are the
most liquid (easiest to buy and sell) zeros. This would also increase the
percentage of REFCORPs in the portfolio, which would be beneficial in the
current environment.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER THE
LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
REFCORPs 54%
STRIPS 46%
As of March 31, 1998
REFCORPs 55%
STRIPS 45%
Security types are defined on page 53.
24 1-800-345-2021
Target: 2020--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES(1)
$ 59,274,000 REFCORP STRIPS--COUPON,
8.44%, 1/15/20 $ 18,328,114
216,000,000 STRIPS--COUPON, 8.02%,
2/15/20 68,590,800
14,344,000 REFCORP STRIPS--COUPON,
8.28%, 4/15/20 4,374,633
63,500,000 STRIPS--COUPON, 8.39%,
5/15/20 19,895,820
45,656,000 REFCORP STRIPS--COUPON,
8.18%, 7/15/20 13,719,171
240,231,000 REFCORP STRIPS--PRINCIPAL,
8.41%, 7/15/20 72,187,013
138,135,000 STRIPS--COUPON, 7.85%,
8/15/20 42,657,469
8,678,000 REFCORP STRIPS--COUPON,
7.19%, 10/15/20 2,569,122
Principal Amount Value
- --------------------------------------------------------------------------------
$ 205,000,000 REFCORP STRIPS--PRINCIPAL,
7.50%, 10/15/20 $ 60,690,250
174,407,000 STRIPS--COUPON, 7.74%,
11/15/20 53,082,515
20,482,000 REFCORP STRIPS--COUPON,
8.41%, 1/15/21 6,006,551
294,945,000 REFCORP STRIPS--PRINCIPAL,
7.32%, 1/15/21 86,495,571
88,250,000 STRIPS--COUPON, 7.19%,
2/15/21 26,617,083
25,500,000 STRIPS--COUPON, 7.26%,
5/15/21 7,588,800
14,500,000 STRIPS--COUPON, 7.40%,
11/15/21 4,210,655
---------------
TOTAL INVESTMENT SECURITIES--100.0% $487,013,567
===============
(Cost $301,124,307)
NOTES TO SCHEDULE OF INVESTMENTS
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 25
Target: 2025 --Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INVESTOR CLASS (INCEPTION 2/15/96) ADVISOR CLASS (INCEPTION 6/1/98)
TARGET MERRILL LYNCH TARGET 11/15/25 MERRILL LYNCH
MATURITIES FUND LONG-TERM MATURITIES MATURITY LONG-TERM
TRUST: 2025 BENCHMARK(2) TREASURY INDEX TRUST: 2025 STRIPS ISSUE TREASURY INDEX
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 MONTHS(1) .......... 22.09% 22.19% 12.91% -- -- --
1 YEAR ............... 42.21% 43.68% 21.97% -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
LIFE OF FUND ......... 19.50% 16.97% 11.28% 16.02% 16.91% 10.03%
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) The fund's benchmark was an 8/15/25 STRIPS issue from inception through
January 1998, when the benchmark was changed to an 11/15/25 STRIPS issue.
See pages 51-53 for more information about share classes, returns, the
comparative index, and the fund's benchmark.
[mountain chart - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 9/30/98
Target: 2025 $15,955
Fund Benchmark $15,444
Merrill Lynch Long-Term Index $13,239
Target: Fund Merrill Lynch
2025 Benchmark Long-Term Index
DATE VALUE VALUE VALUE
2/15/96 $10,000 $10,000 $10,000
2/29/96 $9,542 $9,307 $9,650
3/31/96 $9,124 $8,965 $9,466
4/30/96 $8,756 $8,353 $9,308
5/31/96 $8,746 $8,403 $9,263
6/30/96 $8,983 $8,713 $9,451
7/31/96 $8,968 $8,644 $9,451
8/31/96 $8,529 $8,197 $9,336
9/30/96 $9,023 $8,695 $9,591
10/31/96 $9,799 $9,455 $9,965
11/30/96 $10,540 $10,104 $10,293
12/31/96 $9,890 $9,455 $10,049
1/31/97 $9,492 $9,047 $9,984
2/28/97 $9,427 $8,946 $9,970
3/31/97 $8,883 $8,449 $9,733
4/30/97 $9,392 $8,853 $9,970
5/31/97 $9,558 $9,002 $10,077
6/30/97 $9,966 $9,431 $10,267
7/31/97 $11,463 $10,864 $10,861
8/31/97 $10,561 $9,989 $10,558
9/30/97 $11,221 $10,572 $10,855
10/31/97 $12,016 $11,369 $11,212
11/30/97 $12,419 $11,834 $11,359
12/31/97 $12,867 $12,218 $11,551
1/31/98 $13,246 $12,615 $11,779
2/28/98 $13,009 $12,335 $11,697
3/31/98 $13,068 $12,431 $11,726
4/30/98 $13,008 $12,392 $11,760
5/31/98 $13,627 $12,894 $11,988
6/30/98 $14,393 $13,628 $12,265
7/31/98 $14,101 $13,406 $12,215
8/31/98 $15,360 $14,778 $12,771
9/30/98 $15,955 $15,444 $13,239
$10,000 investment made 12/15/96
The chart at left shows the growth of a $10,000 investment in the fund over the
life of the fund. The Merrill Lynch Long-Term Treasury Index and the fund's
benchmark are provided for comparison. The Target: 2025 portfolio's total return
includes operating expenses (such as transaction costs and management fees) that
reduce returns, while the total returns of the index do not.
[line chart - data below]
SHARE PRICE VS. ANTICIPATED VALUE AT MATURITY
TARGET: 2025
Actual Share Price (Historical) $31.67
Anticipated Value at Maturity
(Estimated Share Price) $112.23
Actual Share Price Anticipated Value at Maturity
(Historical) (Estimated Share Price)
1996 $17.91 $109.24
$22.27 $110.88
$31.67 $112.23
2000
2005
2010
2015
2020
2025
The top line in the graph represents the fund's Anticipated Value at Maturity
(AVM--defined on page 53), which fluctuates from day to day based on the fund's
expected maturity date. The bottom line represents the fund's historical share
price, which is managed to grow over time to reach the fund's AVM. While this
graph demonstrates the fund's expected long-term growth pattern, please keep in
mind that the fund may experience significant share-price volatility over the
short term. Even if fund shares are held to maturity, there is no guarantee that
the fund's share price will reach its AVM. There is also no guarantee that the
AVM will fluctuate as little in the future as it has in the past.
Both charts are based on Investor Class shares only; performance for other
classes will vary due to differences in fee structures (see the Total Returns
table above). Past performance is no guarantee of future results. Investment
return and principal value will fluctuate, and redemption value may be more or
less than original cost.
26 1-800-345-2021
Target: 2025 --Q&A
- --------------------------------------------------------------------------------
An interview with Dave Schroeder (pictured on page 7), a portfolio manager
on the Target Maturities Trust investment team.
HOW DID THE FUND PERFORM DURING THE PAST YEAR?
Target: 2025 performed very well, reflecting the declining interest rate
environment (see pages 4-5). For the fiscal year ended September 30, 1998, the
portfolio's Investor Class shares returned 42.21%, compared with the 43.68%
return of its benchmark.* (See the Total Returns table on the previous page for
other fund performance comparisons.)
It's important to note that the fund's return is reduced by management
expenses and transaction costs, while the benchmark's is not.
EVEN AFTER EXPENSES, THE FUND'S RETURN STILL LAGGED THE PERFORMANCE OF THE
BENCHMARK. WHY?
The benchmark is a STRIPS issue, and STRIPS were the best performers among
zero-coupon Treasury securities. For example, STRIPS maturing in November 2025
returned 43%, compared to the 41% return of REFCORPs maturing in October 2025.
The fund owned a healthy position in REFCORPs throughout the fiscal year.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PAST YEAR?
One of the main challenges we faced was asset growth--Target: 2025's net
assets increased from $74 million to $356 million in the last year. Some of that
increase can be attributed to fund performance, but most of it--more than $200
million--was new investments.
We put a lot of the new money to work in STRIPS because they're the most
liquid (easiest to buy and sell) zeros, and because STRIPS make up most of the
supply available in this maturity sector. As a result, the fund's STRIPS
holdings grew from 37% to 67% during the fiscal year.
DID THE FUND'S ASSET GROWTH HAVE ANY EFFECT ON THE PORTFOLIO'S WEIGHTED AVERAGE
MATURITY (WAM) DATE?
The fund's WAM date shortened from mid-July to late May 2025 during the
fiscal year. The reason we've kept the WAM date shorter than the November 2025
maturity date of the fund's benchmark is because yields and returns on zeros
maturing in 2024 and early 2025 are higher than those maturing in late 2025 and
2026. This is because the zero-coupon yield curve "peaks" around 2020, and
yields get lower for zeros that mature later than that (see the chart on page
4).
So, for now, the Target: 2025 portfolio earns a little extra yield and
return for having a WAM date in early 2025 rather than later in the target year.
Over time, the fund's WAM date will pass the "peak" portion of the yield curve;
at that point, we'll look to extend the fund's WAM date closer to the maturity
date of the benchmark.
* Originally, the fund's benchmark was a STRIPS issue maturing on August 15,
2025. However, beginning in January 1998, the fund's benchmark was changed to a
STRIPS issue maturing on November 15, 2025.
[right margin]
"TARGET: 2025'S NET ASSETS INCREASED FROM $74 MILLION TO $356 MILLION IN THE
LAST YEAR. SOME OF THAT INCREASE CAN BE ATTRIBUTED TO FUND PERFORMANCE, BUT MOST
OF IT--MORE THAN $200 MILLION--WAS NEW INVESTMENTS."
PORTFOLIO AT A GLANCE
9/30/98 9/30/97
NUMBER OF SECURITIES 20 14
ANTICIPATED GROWTH
RATE 4.80% 5.86%
WEIGHTED AVERAGE
MATURITY DATE 5/30/25 7/10/25
ANTICIPATED VALUE AT
MATURITY (AVM)* $112.23 $110.88
EXPENSE RATIO (FOR
INVESTOR CLASS) 0.59% 0.62%
* See graph on page 26.
Past performance is no guarantee of future results. Even if fund shares are held
to maturity, there is no guarantee that the fund's share price will reach its
AVM. There is also no guarantee that the AVM will fluctuate as little in the
future as it has in the past. For more information, please consult the
prospectus.
Investment terms are defined in the Glossary on page 53.
www.americancentury.com 27
Target: 2025 --Q&A
- --------------------------------------------------------------------------------
(Continued)
WERE THERE ANY OTHER WAYS YOU TRIED TO ENHANCE PERFORMANCE?
One strategy we've used to boost returns is securities lending. At the long
end of the maturity spectrum, the supply of zeros is somewhat limited, resulting
in a scarcity of certain issues. As one of the major investors in this area of
the market, the fund is an attractive source for dealers who need to borrow
securities to cover sales.
Although the lending market has been less active this year than in the past
couple of years, we've done a few lending deals in 1998, one of which is still
going. Fees from these loans have been a nice addition to the fund's bottom
line.
LOOKING AHEAD, WHAT'S YOUR OUTLOOK FOR U.S. INTEREST RATES?
Interest rates have come down dramatically in the past year, and that's
meant great returns for U.S. bond investors. But with rates at 30-year lows, we
think it's becoming more unlikely that these spectacular returns will continue.
Over the past few months, the decline in Treasury bond yields has been
driven more by demand from flight-to-quality investors than by domestic economic
conditions. Barring any new evidence of global financial problems, we expect
this demand to taper off going forward.
On the economic front, domestic growth would have to slow dramatically to
justify further bond yield declines. Even if that happens, more interest rate
cuts by the Federal Reserve (the Fed lowered short-term rates on October 15, the
second rate cut in less than a month) have already been priced into the market.
Inflation is another key factor. Although it has remained low, labor
markets are still fairly tight, and price increases resulting from rising wages
are still a possibility.
WHAT ARE YOUR PLANS FOR TARGET: 2025 OVER THE NEXT SIX MONTHS?
Our mandate is to provide a portfolio that matches the behavior of a
zero-coupon bond maturing in 2025. To achieve this, we will keep the fund's WAM
date within the target year. We're more likely to favor zeros maturing in 2024
and early 2025 because of their higher yields, so we would expect the fund's WAM
date to remain in the second quarter of 2025.
We'll also be looking for opportunities to add more REFCORPs to the Target:
2025 portfolio. The yield difference between REFCORPs and STRIPS increased quite
a bit over the last six months, especially in this part of the market, and we
now think that REFCORPs offer a significant yield advantage over STRIPS.
Unfortunately, there haven't been many REFCORPs available in this maturity
sector. At the very least, we plan to hang on to the REFCORPs already in the
portfolio, using STRIPS to meet any cash outflows.
[left margin]
"THE YIELD DIFFERENCE BETWEEN REFCORPS AND STRIPS INCREASED QUITE A BIT OVER THE
LAST SIX MONTHS, AND WE NOW THINK THAT REFCORPS OFFER A SIGNIFICANT YIELD
ADVANTAGE OVER STRIPS."
[pie chart - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
As of September 30, 1998
STRIPS 67%
REFCORPs 33%
As of March 31, 1998
STRIPS 57%
REFCORPs 43%
Security types are defined on page 53.
28 1-800-345-2021
Target: 2025--Schedule of Investments
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Principal Amount Value
- --------------------------------------------------------------------------------
ZERO-COUPON U.S. TREASURY SECURITIES(1)
$ 10,000,000 REFCORP STRIPS--COUPON,
6.19%, 1/15/24 $ 2,494,700
12,000,000 REFCORP STRIPS--COUPON,
6.50%, 4/15/24 2,957,400
3,926,000 REFCORP STRIPS--COUPON,
7.10%, 7/15/24 955,903
72,083,000 REFCORP STRIPS--COUPON,
6.83%, 10/15/24 17,338,124
68,000,000 STRIPS--COUPON, 5.99%,
11/15/24 16,977,560
17,500,000 STRIPS--PRINCIPAL, 7.26%,
11/15/24 4,384,975
41,645,000 REFCORP STRIPS--COUPON,
6.93%, 1/15/25 9,894,852
313,900,000 STRIPS--COUPON, 6.06%,
2/15/25 77,495,632
257,300,000 STRIPS--PRINCIPAL, 6.37%,
2/15/25 63,779,524
38,399,000 REFCORP STRIPS--COUPON,
6.68%, 4/15/25 9,011,094
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 STRIPS--COUPON, 5.58%,
5/15/25 $ 1,214,950
14,500,000 REFCORP STRIPS--COUPON,
6.55%, 7/15/25 3,360,955
56,000,000 STRIPS--COUPON, 5.87%,
8/15/25 13,498,800
245,600,000 STRIPS--PRINCIPAL, 5.72%,
8/15/25 59,459,760
95,167,000 REFCORP STRIPS--COUPON,
6.79%, 10/15/25 21,786,581
10,000,000 STRIPS--COUPON, 5.94%,
11/15/25 2,375,600
45,000,000 REFCORP STRIPS--COUPON,
6.81%, 1/15/26 10,169,100
53,000,000 REFCORP STRIPS--COUPON,
6.51%, 4/15/26 11,822,710
36,000,000 REFCORP STRIPS--COUPON,
7.29%, 7/15/26 7,927,200
81,249,000 REFCORP STRIPS--COUPON,
6.98%, 10/15/26 17,662,720
--------------
TOTAL INVESTMENT SECURITIES--100.0% $354,568,140
==============
(Cost $284,665,108)
NOTES TO SCHEDULE OF INVESTMENTS
REFCORP = Resolution Funding Corporation
STRIPS = Separate Trading of Registered Interest and Principal of Securities
(1) Rates indicated are the yield to maturity at purchase. These securities are
purchased at a substantial discount from their value at maturity.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 29
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 2000 2005 2010
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $230,516,406,
$461,237,944 and $235,163,514,
respectively) (Note 3) ........ $238,739,903 $522,621,174 $281,100,203
Cash ............................ 159,027 10,447,582 3,159,739
Investment in affiliated money
market fund (Note 2) .......... 425,457 2,120,357 2,654,878
Securities lending fee
receivable .................... -- -- --
------------ ------------ ------------
239,324,387 535,189,113 286,914,820
------------ ------------ ------------
LIABILITIES
Disbursements in excess of
demand deposit cash ........... 454,242 199,257 65,323
Payable for capital shares
redeemed ...................... 1,166,677 661,192 2,887,681
Accrued management fee
(Note 2) ...................... 113,532 238,970 130,268
Distribution and service fees
payable (Note 2) .............. 26 43 --
Payable for trustees' fees
and expenses .................. 700 937 734
Accrued expenses and
other liabilities ............. 712 2,604 2,470
------------ ------------ ------------
1,735,889 1,103,003 3,086,476
------------ ------------ ------------
Net Assets ...................... $237,588,498 $534,086,110 $283,828,344
============ ============ ============
NET ASSETS CONSIST OF:
Capital paid in ................. $216,542,478 $450,677,378 $227,800,198
Undistributed net investment
income ........................ 10,075,324 16,898,403 8,023,524
Accumulated undistributed
net realized gain on
investment transactions ....... 2,747,199 5,127,099 2,067,933
Net unrealized appreciation
on investments (Note 3) ....... 8,223,497 61,383,230 45,936,689
------------ ------------ ------------
$237,588,498 $534,086,110 $283,828,344
============ ============ ============
Investor Class
Net assets ...................... $237,524,926 $533,985,959 $283,828,344
Shares outstanding .............. 2,532,712 6,960,333 4,579,373
Net asset value per share ....... $ 93.78 $ 76.72 $ 61.98
Advisor Class
Net assets ...................... $ 63,572 $ 100,151 N/A
Shares outstanding .............. 678 1,306 N/A
Net asset value per share ....... $ 93.76 $ 76.69 N/A
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. For each class of shares, the net assets
divided by the total number of shares outstanding gives you the price of an
individual share, or the net asset value per share.
NET ASSETS are also broken out by capital (money invested by shareholders); net
investment income not yet paid to shareholders; net gains earned on investments
but not yet paid to shareholders or net losses on investments (known as realized
gains or losses); and finally, gains or losses on securities still owned by the
fund (known as unrealized appreciation or depreciation). This breakout tells you
the value of net assets that are performance-related, such as investment gains
or losses, and the value of net assets that are not related to performance, such
as shareholder investments and redemptions.
See Notes to Financial Statements
30 1-800-345-2021
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 2015 2020 2025
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $109,651,361,
$301,124,307 and $284,665,108,
respectively) (Note 3) ........... $169,450,389 $487,013,567 $354,568,140
Cash ............................... 162,363 1,834,933 2,655,622
Investment in affiliated money
market fund (Note 2) ............. 1,150,251 516,423 1,856,383
Securities lending fee receivable .. -- -- 14,607
------------ ------------ ------------
170,763,003 489,364,923 359,094,752
------------ ------------ ------------
LIABILITIES
Disbursements in excess of
demand deposit cash .............. 106,334 2,074,038 68,525
Payable for capital shares
redeemed ......................... 490,743 990,285 2,640,015
Accrued management fee
(Note 2) ......................... 81,673 243,146 168,986
Distribution and service fees
payable (Note 2) ................. -- -- 27
Payable for trustees' fees
and expenses ..................... 640 899 791
Accrued expenses and
other liabilities ................ 2,366 4,784 4,860
------------ ------------ ------------
681,756 3,313,152 2,883,204
------------ ------------ ------------
Net Assets ......................... $170,081,247 $486,051,771 $356,211,548
============ ============ ============
NET ASSETS CONSIST OF:
Capital paid in .................... $104,510,486 $228,403,297 $276,368,990
Undistributed net investment
income ........................... 5,500,951 19,544,059 8,762,384
Accumulated undistributed
net realized gain on
investment transactions .......... 270,782 52,215,155 1,177,142
Net unrealized appreciation
on investments (Note 3) .......... 59,799,028 185,889,260 69,903,032
------------ ------------ ------------
$170,081,247 $486,051,771 $356,211,548
============ ============ ============
Investor Class
Net assets ......................... $170,081,247 $486,051,771 $356,122,436
Shares outstanding ................. 3,410,207 13,152,689 11,245,819
Net asset value per share .......... $ 49.87 $ 36.95 $ 31.67
Advisor Class
Net assets ......................... N/A N/A $ 89,112
Shares outstanding ................. N/A N/A 2,816
Net asset value per share .......... N/A N/A $ 31.64
</TABLE>
See Notes to Financial Statements
www.americancentury.com 31
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 2000 2005 2010
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest .......................... $15,205,216 $23,436,080 $11,127,377
Income from securities lending .... -- -- --
----------- ----------- -----------
15,205,216 23,436,080 11,127,377
----------- ----------- -----------
Expenses (Note 2):
Management fees ................... 1,410,866 2,246,858 1,092,458
Distribution fees--Advisor Class .. 18 37 --
Service fees--Advisor Class ....... 18 37 --
Trustees' fees and expenses ....... 9,648 11,340 8,722
----------- ----------- -----------
1,420,550 2,258,272 1,101,180
----------- ----------- -----------
Net investment income ............. 13,784,666 21,177,808 10,026,197
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments .. 6,149,330 5,444,663 2,154,470
Change in net unrealized
appreciation on investments ..... 679,135 42,618,545 34,621,133
----------- ----------- -----------
Net realized and unrealized
gain on investments ............. 6,828,465 48,063,208 36,775,603
----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations ....... $20,613,131 $69,241,016 $46,801,800
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks out how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
32 1-800-345-2021
Statements of Operations
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 2015 2020 2025
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ............................. $ 7,985,961 $ 30,415,786 $ 1,622,041
Income from securities lending ....... -- 105,570 66,911
------------ ------------ ------------
7,985,961 30,521,356 11,688,952
------------ ------------ ------------
Expenses (Note 2):
Management fees ...................... 845,121 3,309,715 1,240,147
Distribution fees - Advisor Class .... -- -- 91
Service fees - Advisor Class ......... -- -- 91
Trustees' fees and expenses .......... 8,159 14,769 9,208
------------ ------------ ------------
853,280 3,324,484 1,249,537
------------ ------------ ------------
Net investment income ................ 7,132,681 27,196,872 10,439,415
------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ..... 298,681 55,277,618 1,681,458
Change in net unrealized
appreciation on investments ........ 29,541,335 86,449,383 60,753,235
------------ ------------ ------------
Net realized and unrealized
gain on investments .................. 29,840,016 141,727,001 62,434,693
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations .......... $ 36,972,697 $168,923,873 $ 72,874,108
============ ============ ============
</TABLE>
See Notes to Financial Statements
www.americancentury.com 33
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
2000 2005 2010
Increase (Decrease) in Net 1998 1997 1998 1997 1998 1997
Assets
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..............$ 13,784,666 $ 16,169,545 $ 21,177,808 $ 15,451,023 $ 10,026,197 $ 6,845,706
Net realized gain on investments ... 6,149,330 1,190,560 5,444,663 1,348,958 2,154,470 1,066,854
Change in net unrealized
appreciation (depreciation)
on investments ................... 679,135 2,108,565 42,618,545 11,653,361 34,621,133 9,112,041
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ........ 20,613,131 19,468,670 69,241,016 28,453,342 46,801,800 17,024,601
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Investor Class ................... (15,765,056) (17,081,069) (15,987,498) (14,549,884) (7,102,391) (6,941,406)
From net realized gains on
investment transactions:
Investor Class ................... -- -- (1,217,264) (1,764,760) (850,424) (2,886,953)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets from
distributions to shareholders .... (15,765,056) (17,081,069) (17,204,762) (16,314,644) (7,952,815) (9,828,359)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in net
assets from capital share
transactions ..................... (15,636,711) (21,767,055) 200,372,715 30,674,515 120,167,530 6,498,396
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets ....................... (10,788,636) (19,379,454) 252,408,969 42,813,213 159,016,515 13,694,638
NET ASSETS
Beginning of year .................. 248,377,134 267,756,588 281,677,141 238,863,928 124,811,829 111,117,191
------------- ------------- ------------- ------------- ------------- -------------
End of year ........................$ 237,588,498 $ 248,377,134 $ 534,086,110 $ 281,677,141 $ 283,828,344 $ 124,811,829
============= ============= ============= ============= ============= =============
Undistributed net investment
income ...........................$ 10,075,324 $ 12,055,714 $ 16,898,403 $ 11,708,093 $ 8,023,524 $ 5,099,718
============= ============= ============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
34 1-800-345-2021
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Increase (Decrease) in Net 2015 2020 2025
Assets 1998 1997 1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..............$ 7,132,681 $ 6,594,789 $ 27,196,872 $ 51,768,641 $ 10,439,415 $ 3,478,019
Net realized gain on investments ... 298,681 4,715,347 55,277,618 45,078,260 1,681,458 302,702
Change in net unrealized
appreciation (depreciation)
on investments ................... 29,541,335 10,243,018 86,449,383 85,510,156 60,753,235 9,831,539
------------- ------------- ------------- ------------- ------------- ------------
Net increase in net assets
resulting from operations ........ 36,972,697 21,553,154 168,923,873 182,357,057 72,874,108 13,612,260
------------- ------------- ------------- ------------- ------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Investor Class .................. (6,501,208) (6,897,189) (44,888,306) (54,220,221) (4,549,154) (1,603,280)
From net realized gains on
investment transactions:
Investor Class ................... (4,326,524) (1,134,946) (41,866,720) (831) (305,669) --
------------- ------------- ------------- ------------- ------------- ------------
Decrease in net assets from
distributions to shareholders .... (10,827,732) (8,032,135) (86,755,026) (54,221,052) (4,854,823) (1,603,280)
------------- ------------- ------------- ------------- ------------- ------------
CAPITAL SHARE
TRANSACTIONS (NOTE 4)
Net increase (decrease) in net
assets from capital share
transactions ..................... 29,036,713 (14,275,275) (149,668,103) (500,904,188) 214,370,948 26,151,733
------------- ------------- ------------- ------------- ------------- ------------
Net increase (decrease) in
net assets ....................... 55,181,678 (754,256) (67,499,256) (372,768,183) 282,390,233 38,160,713
NET ASSETS
Beginning of year .................. 114,899,569 115,653,825 553,551,027 926,319,210 73,821,315 35,660,602
------------- ------------- ------------- ------------- ------------- ------------
End of year ........................$ 170,081,247 $ 114,899,569 $ 486,051,771 $ 553,551,027 $ 356,211,548 $ 73,821,315
============= ============= ============= ============= ============= ============
Undistributed net investment
income ...........................$ 5,500,951 $ 4,945,063 $ 19,544,059 $ 37,235,493 $ 8,762,384 $ 2,872,123
============= ============= ============= ============= ============= ============
</TABLE>
See Notes to Financial Statements
www.americancentury.com 35
Notes to Financial Statements
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Target Maturities Trust (the Trust) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. The Trust is composed of the following series:
American Century - Benham Target Maturities Trust: 2000 (2000), American Century
- - Benham Target Maturities Trust: 2005 (2005), American Century - Benham Target
Maturities Trust: 2010 (2010), American Century - Benham Target Maturities
Trust: 2015 (2015), American Century - Benham Target Maturities Trust: 2020
(2020), and American Century - Benham Target Maturities Trust: 2025 (2025)(the
Funds). Each Fund seeks to provide the highest attainable investment return
consistent with the creditworthiness of U.S. Treasury securities and the
professional management of reinvestment and market risks. Each Fund invests
primarily in zero-coupon U.S. Treasury securities and will be liquidated shortly
after the conclusion of its target maturity year. The Funds are authorized to
issue two classes of shares: the Investor Class and the Advisor Class. The two
classes of shares differ principally in their respective shareholder servicing
and distribution expenses and arrangements. All shares of the Funds represent an
equal pro rata interest in the assets of the class to which such shares belong,
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except for class specific expenses and exclusive rights to
vote on matters affecting only individual classes. Sale of the Advisor Class for
2000, 2005, and 2025 commenced on August 20, 1998, August 3, 1998, and June 1,
1998, respectively. Sale of the Advisor Class for 2010, 2015, and 2020 had not
commenced as of the report date. The following significant accounting policies
are in accordance with generally accepted accounting principles.
SECURITY VALUATIONS--Securities are valued through a commercial pricing
service or at the mean of the most recent bid and asked prices. When valuations
are not readily available, securities are valued at fair value as determined in
accordance with procedures adopted by the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. 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 accretion of discounts and amortization of premiums.
INCOME TAX STATUS--It is the Funds' policy to distribute all net investment
income and net realized 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 income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income and
net realized gains are declared and paid annually in December.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
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 splits, a shareholder reinvesting dividends and
capital gain distributions will hold exactly the same number of shares owned
prior to the distributions and share adjustment. 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. These estimates and assumptions 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
increases and decreases in net assets from operations during the period. Actual
results could differ from these estimates.
ADDITIONAL INFORMATION--Funds Distributor, Inc. (FDI) is the Trust's
distributor. Certain officers of FDI are also officers of the Trust.
36 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides each Fund with investment
advisory and management services in exchange for a single, unified management
fee per class. Expenses excluded from this agreement are brokerage, taxes,
portfolio insurance, interest, fees and expenses of the Trustees who are not
considered "interested persons" as defined in the Investment Company Act of 1940
(including counsel fees) and extraordinary expenses. The annual rate at which
this fee is assessed is determined monthly in a two-step process: First, a fee
rate schedule is applied to the net assets of all of the funds in the Fund's
investment category which are managed by ACIM (the "Investment Category Fee").
The overall investment objective of each Fund determines its Investment
Category. The three investment categories are: the Money Market Fund Category,
the Bond Fund Category and the Equity Fund Category. The Funds are included in
the Bond Fund Category. Second, a separate fee rate schedule is applied to the
net assets of all of the funds managed by ACIM (the "Complex Fee"). The
Investment Category Fee and the Complex Fee are then added to determine the
unified management fee rate. The management fee is paid monthly by each Fund
based on each Fund's aggregate average daily net assets during the previous
month multiplied by the monthly management fee rate.
The annualized Investment Category Fee schedule for each Fund is as
follows:
0.3600% of the first $1 billion
0.3080% of the next $1 billion
0.2780% of the next $3 billion
0.2580% of the next $5 billion
0.2450% of the next $15 billion
0.2430% of the next $25 billion
0.2425% of the average daily net assets over $50 billion
The annualized Complex Fee schedule (Investor Class) is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
The Complex Fee schedule for the Advisor Class is lower by 0.2500% at each
graduated step. For example, if the Investor Class Complex Fee is 0.3100% for
the first $2.5 billion, the Advisor Class Complex Fee is 0.0600% (0.3100% minus
0.2500%) for the first $2.5 billion.
The Board of Trustees has adopted the Advisor Class Master Distribution and
Shareholder Services Plan (the Plan), pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The Plan provides that the Funds will pay ACIM an annual
distribution fee equal to 0.25% and service fee equal to 0.25%. The fees are
computed daily and paid monthly based on the Advisor Class's average daily
closing net assets during the previous month. The distribution fee provides
compensation for distribution expenses incurred by financial intermediaries in
connection with distributing shares of the Advisor Class including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the Funds. The service
fee provides compensation for shareholder and administrative services rendered
by ACIM, its affiliates or independent third party providers. Fees incurred
under the Plan for the period ending September 30, 1998 were $36, $74, and $182
for 2000, 2005, and 2025, respectively.
Certain officers and trustees of the Trust are also officers and/or
directors, and, as a group, controlling stockholders of American Century
Companies, Inc., the parent of the Trust's investment manager, ACIM, and the
Trust's transfer agent, American Century Services Corporation.
As of September 30, 1998, 2000, 2005, 2010, 2015, 2020, and 2025 had
invested $425,457, $2,120,357, $2,654,878, $1,150,251, $516,423, and $1,856,383,
respectively, in shares of Capital Preservation Fund (CPF). CPF is a money
market fund managed by ACIM. The terms of these transactions were identical to
those with non-related entities except that, to avoid duplicative management
fees, the Funds did not pay ACIM management fees with respect to assets invested
in CPF.
www.americancentury.com 37
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions in U.S. Treasury securities, excluding short-term
investments, were as follows:
<TABLE>
2000 2005 2010 2015 2020 2025
<S> <C> <C> <C> <C> <C> <C>
Purchases ............$198,352,259 $307,918,576 $173,344,006 $61,858,400 $ 98,950,814 $316,397,368
Proceeds from Sales ..$230,449,511 $133,490,909 $ 63,881,350 $44,885,880 $339,955,205 $109,485,440
On September 30, 1998, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
2000 2005 2010 2015 2020 2025
Appreciation ........$8,223,497 $60,999,324 $45,798,131 $59,774,809 $185,373,878 $69,264,642
Depreciation ........ -- -- -- -- -- --
-------------- -------------- -------------- ------------- -------------- -------------
Net .................$8,223,497 $60,999,324 $45,798,131 $59,774,809 $185,373,878 $69,264,642
============== ============== ============== ============= ============== =============
Federal Tax Cost ...$230,516,406 $461,621,850 $235,302,072 $109,675,580 $301,639,689 $285,303,498
============== ============== ============== ============= ============== =============
</TABLE>
38 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows (unlimited number of
shares authorized):
<TABLE>
<CAPTION>
2000 2005 2010
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Year ended
September 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Sold ...................... 644,385 $ 57,705,555 4,720,449 $ 331,282,758 4,025,597 $ 223,483,879
Issued in reinvestment
of distributions ........ 191,104 15,630,392 270,807 17,061,205 159,789 7,888,903
Redeemed .................. (996,398) (89,034,661) (2,122,395) (148,063,950) (1,984,180) (111,205,252)
Reverse share split ....... (192,640) -- (272,951) -- (160,955) --
---------- ------------- ---------- ------------- ---------- -------------
Net increase (decrease) ... (353,549) $ (15,698,714) 2,595,910 $ 200,280,013 2,040,251 $ 120,167,530
========== ============= ========== ============= ========== =============
Year ended
September 30, 1997
Sold ...................... 833,120 $ 68,953,917 1,988,109 $ 121,523,893 1,383,983 $ 63,762,772
Issued in reinvestment
of distributions ........ 217,238 16,712,103 282,750 15,992,574 233,038 9,617,856
Redeemed ..................(1,291,432) (107,433,075) (1,748,806) (106,841,952) (1,456,337) (66,882,232)
Reverse share split ....... (221,717) -- (288,036) -- (237,690) --
---------- ------------- ---------- ------------- ---------- -------------
Net increase (decrease) ... (462,791) $ (21,767,055) 234,017 $ 30,674,515 (77,006) $ 6,498,396
========== ============= ========== ============= ========== =============
ADVISOR CLASS
Period ended
September 30, 1998(1)
Sold ...................... 678 $ 62,003 1,571 $ 112,702
Redeemed .................. -- -- (265) (20,000)
---------- ------------- ---------- -------------
Net increase .............. 678 $ 62,003 1,306 $ 92,702
========== ============= ========== =============
</TABLE>
(1) August 20, 1998 (commencement of sale) through September 30, 1998 for 2000
and August 3, 1998 (commencement of sale) through September 30, 1998 for
2005.
www.americancentury.com 39
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS (CONTINUED)
Transactions in shares of the Funds were as follows (unlimited number of
shares authorized):
<TABLE>
<CAPTION>
2015 2020 2025
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
INVESTOR CLASS
Year ended
September 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Sold ..................... 2,651,059 $ 117,890,797 13,812,474 $ 442,006,671 24,090,981 $ 649,193,136
Issued in reinvestment
of distributions ....... 281,652 10,744,494 3,356,693 85,814,004 199,765 4,802,916
Redeemed ................. (2,235,577) (99,598,578) (21,005,162) (677,488,778) (16,157,277) (439,697,727)
Reverse share split ...... (283,586) -- (3,387,874) -- (201,848) --
---------- ------------- ----------- --------------- ----------- -------------
Net increase (decrease) .. 413,548 $ 29,036,713 (7,223,869) $ (149,668,103) 7,931,621 $ 214,298,325
---------- ------------- ----------- --------------- ----------- -------------
Year ended
September 30, 1997
Sold ..................... 1,812,323 $ 62,777,456 21,885,096 $ 528,512,319 7,508,353 $ 147,285,096
Issued in reinvestment
of distributions ....... 241,373 7,799,177 2,286,212 51,887,629 79,036 1,500,130
Redeemed ................. (2,427,375) (84,851,908) (43,514,345) (1,081,304,136) (6,180,587) (122,633,493)
Reverse share split ...... (248,086) -- (2,383,074) -- (84,260) --
---------- ------------- ----------- --------------- ----------- -------------
Net increase (decrease) .. (621,765) $ (14,275,275) (21,726,111) $ (500,904,188) 1,322,542 $ 26,151,733
========== ============= =========== =============== =========== =============
ADVISOR CLASS
Period ended
September 30, 1998(1)
Sold ..................... 20,572 $ 568,207
Redeemed ................. (17,756) (495,584)
----------- -------------
Net increase ............. 2,816 $ 72,623
=========== =============
</TABLE>
(1) June 1, 1998 (commencement of sale) through September 30, 1998 for 2025.
- --------------------------------------------------------------------------------
5. SECURITIES LENDING
At September 30, 1998, securities valued at $33,814,200 for 2025 were on
loan to brokers. Securities received as collateral, at this date, were valued at
$35,288,948. The Fund's risks in securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due.
40 1-800-345-2021
Target: 2000--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ... $ 86.05 $ 79.95 $ 76.86 $ 66.93 $ 72.40
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(1) ........... 5.13 5.10 4.75 4.37 3.99
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... 2.60 1.00 (1.66) 5.56 (9.46)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ... 7.73 6.10 3.09 9.93 (5.47)
----------- ----------- ----------- ----------- -----------
Distributions(2)
From Net Investment Income ......... (5.64) (5.20) (3.94) (3.42) (3.25)
From Net Realized Gains ............ -- -- -- -- (2.95)
In Excess of Net Realized Gains .... -- -- -- -- (1.20)
----------- ----------- ----------- ----------- -----------
Total Distributions ................ (5.64) (5.20) (3.94) (3.42) (7.40)
----------- ----------- ----------- ----------- -----------
Reverse Share Split .................. 5.64 5.20 3.94 3.42 7.40
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ......... $ 93.78 $ 86.05 $ 79.95 $ 76.86 $ 66.93
=========== =========== =========== =========== ===========
Total Return(3) .................... 8.97% 7.64% 4.01% 14.84% (7.54)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ................... 0.59% 0.56% 0.53% 0.63% 0.59%
Ratio of Net Investment Income to
Average Net Assets ................... 5.75% 6.14% 5.99% 6.13% 5.74%
Portfolio Turnover Rate .............. 82% 10% 29% 53% 89%
Net Assets, End of Year
(in thousands) ....................... $ 237,525 $ 248,377 $ 267,757 $ 294,736 $ 243,895
</TABLE>
(1) Computed using average shares outstanding throughout the year.
(2) For years ended prior to September 30, 1997, distributions were calculated
using average shares outstanding during the year. Distributions indicated
for those years will be different than the actual per-share distributions
to shareholders.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming
reinvestment of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 41
Target: 2000--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Advisor Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ............................ $ 91.41
--------
Income From Investment Operations
Net Investment Income(2) ...................................... 0.54
Net Realized and Unrealized
Gain on Investment Transactions ............................... 1.81
--------
Total From Investment Operations .............................. 2.35
--------
Net Asset Value, End of Period .................................. $ 93.76
--------
Total Return(3) ............................................... 2.57%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets .............................................. 0.84%(4)
Ratio of Net Investment Income to
Average Net Assets .............................................. 5.06%(4)
Portfolio Turnover Rate ......................................... 82%
Net Assets, End of Period
(in thousands) .................................................. $ 64
(1) August 20, 1998 (commencement of sale) through September 30, 1998.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return is not annualized.
(4) Annualized.
See Notes to Financial Statements
42 1-800-345-2021
Target: 2005--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ... $ 64.54 $ 57.83 $ 56.61 $ 45.22 $ 51.84
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(1) ........... 3.84 3.74 3.50 3.33 3.11
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... 8.34 2.97 (2.28) 8.06 (9.73)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ... 12.18 6.71 1.22 11.39 (6.62)
----------- ----------- ----------- ----------- -----------
Distributions(2)
From Net Investment Income ......... (3.61) (3.61) (2.06) (2.41) (2.70)
From Net Realized Gains ............ (0.27) (0.44) (0.58) (0.67) (8.47)
----------- ----------- ----------- ----------- -----------
Total Distributions ................ (3.88) (4.05) (2.64) (3.08) (11.17)
----------- ----------- ----------- ----------- -----------
Reverse Share Split .................. 3.88 4.05 2.64 3.08 11.17
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ......... $ 76.72 $ 64.54 $ 57.83 $ 56.61 $ 45.22
=========== =========== =========== =========== ===========
Total Return(3) .................... 18.87% 11.60% 2.15% 25.16% (12.75)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ................... 0.59% 0.57% 0.58% 0.71% 0.64%
Ratio of Net Investment Income to
Average Net Assets ................... 5.53% 6.15% 6.05% 6.58% 6.37%
Portfolio Turnover Rate .............. 35% 15% 31% 34% 68%
Net Assets, End of Year
(in thousands) ....................... $ 533,986 $ 281,677 $ 238,864 $ 183,452 $ 96,207
</TABLE>
(1) Computed using average shares outstanding throughout the year.
(2) For years ended prior to September 30, 1997, distributions were calculated
using average shares outstanding during the year. Distributions indicated
for those years will be different than the actual per-share distributions
to shareholders.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 43
Target: 2005--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Advisor Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period .................... $ 70.91
-------
Income From Investment Operations
Net Investment Income(2) .............................. 0.58
Net Realized and Unrealized Gain
on Investment Transactions ............................ 5.20
-------
Total From Investment Operations ...................... 5.78
-------
Net Asset Value, End of Period .......................... $ 76.69
=======
Total Return(3) ....................................... 8.15%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ...................................... 0.84%(4)
Ratio of Net Investment Income to
Average Net Assets ...................................... 4.87%(4)
Portfolio Turnover Rate ................................. 35%
Net Assets, End of Period
(in thousands) .......................................... $ 100
(1) August 3, 1998 (commencement of sale) through September 30, 1998.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return is not annualized.
(4) Annualized.
See Notes to Financial Statements
44 1-800-345-2021
Target: 2010--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .....$ 49.16 $ 42.47 $ 42.14 $ 31.67 $ 38.13
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(1) ............. 2.94 2.79 2.58 2.41 2.24
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ......................... 9.88 3.90 (2.25) 8.06 (8.70)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ..... 12.82 6.69 0.33 10.47 (6.46)
----------- ----------- ----------- ----------- -----------
Distributions(2)
From Net Investment Income ........... (2.46) (2.82) (1.57) (1.48) (1.46)
From Net Realized Gains .............. (0.29) (1.17) -- (0.48) (4.31)
----------- ----------- ----------- ----------- -----------
Total Distributions .................. (2.75) (3.99) (1.57) (1.96) (5.77)
----------- ----------- ----------- ----------- -----------
Reverse Share Split .................... 2.75 3.99 1.57 1.96 5.77
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ...........$ 61.98 $ 49.16 $ 42.47 $ 42.14 $ 31.67
=========== =========== =========== =========== ===========
Total Return(3) ...................... 26.08% 15.75% 0.78% 33.06% (16.92)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ..................... 0.59% 0.62% 0.67% 0.71% 0.68%
Ratio of Net Investment Income to
Average Net Assets ..................... 5.39% 6.15% 5.98% 6.56% 6.35%
Portfolio Turnover Rate ................ 34% 26% 24% 26% 35%
Net Assets, End of Year
(in thousands) .........................$ 283,828 $ 124,812 $ 111,117 $ 95,057 $ 46,312
</TABLE>
(1) Computed using average shares outstanding throughout the year.
(2) For years ended prior to September 30, 1997, distributions were calculated
using average shares outstanding during the year. Distributions indicated
for those years will be different than the actual per-share distributions
to shareholders.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 45
Target: 2015--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ..$ 38.34 $ 31.96 $ 32.20 $ 22.79 $ 29.04
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(1) .......... 2.17 2.00 1.85 1.71 1.57
Net Realized and Unrealized
Gain (Loss) on Investment T
ransactions ....................... 9.36 4.38 (2.09) 7.70 (7.82)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .. 11.53 6.38 (0.24) 9.41 (6.25)
----------- ----------- ----------- ----------- -----------
Distributions(2)
From Net Investment Income ........ (2.11) (2.05) (1.28) (0.87) (1.19)
From Net Realized Gains ........... (1.40) (0.34) (1.61) -- (7.08)
In Excess of Net Realized Gains ... -- -- -- -- (0.37)
----------- ----------- ----------- ----------- -----------
Total Distributions ............... (3.51) (2.39) (2.89) (0.87) (8.64)
----------- ----------- ----------- ----------- -----------
Reverse Share Split ................. 3.51 2.39 2.89 0.87 8.64
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ........$ 49.87 $ 38.34 $ 31.96 $ 32.20 $ 22.79
=========== =========== =========== =========== ===========
Total Return(3) ................... 30.07% 19.96% (0.74)% 41.29% (21.52)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets .................. 0.59% 0.61% 0.65% 0.71% 0.68%
Ratio of Net Investment Income to
Average Net Assets .................. 4.96% 5.79% 5.63% 6.40% 5.97%
Portfolio Turnover Rate ............. 31% 21% 17% 70% 65%
Net Assets, End of Year
(in thousands) ......................$ 170,081 $ 114,900 $ 115,654 $ 114,647 $ 66,073
</TABLE>
(1) Computed using average shares outstanding throughout the year.
(2) For years ended prior to September 30, 1997, distributions were calculated
using average shares outstanding during the year. Distributions indicated
for those years will be different than the actual per-share distributions
to shareholders.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
46 1-800-345-2021
Target: 2020--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED SEPTEMBER 30
Investor Class
1998 1997 1996 1995 1994
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ... $ 27.17 $ 22.00 $ 22.47 $ 15.28 $ 20.72
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income(1) ........... 1.53 1.51 1.41 1.19 1.13
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ....................... 8.25 3.66 (1.88) 6.00 (6.57)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ... 9.78 5.17 (0.47) 7.19 (5.44)
----------- ----------- ----------- ----------- -----------
Distributions(2)
From Net Investment Income ......... (2.35) (1.45) (0.40) (0.21) (0.28)
From Net Realized Gains ............ (2.19) -- (0.04) -- (1.31)
In Excess of Net Realized Gains .... -- -- -- -- (1.18)
----------- ----------- ----------- ----------- -----------
Total Distributions ................ (4.54) (1.45) (0.44) (0.21) (2.77)
----------- ----------- ----------- ----------- -----------
Reverse Share Split .................. 4.54 1.45 0.44 0.21 2.77
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year ......... $ 36.95 $ 27.17 $ 22.00 $ 22.47 $ 15.28
=========== =========== =========== =========== ===========
Total Return(3) .................... 36.00% 23.50% (2.09)% 47.05% (26.25)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ................... 0.59% 0.53% 0.61% 0.72% 0.70%
Ratio of Net Investment Income to
Average Net Assets ................... 4.83% 6.29% 6.25% 6.24% 6.28%
Portfolio Turnover Rate .............. 18% 14% 47% 78% 116%
Net Assets, End of Year
(in thousands) ....................... $ 486,052 $ 553,551 $ 926,319 $ 574,702 $ 58,535
</TABLE>
(1) Computed using average shares outstanding throughout the year.
(2) For years ended prior to September 30, 1997, distributions were calculated
using average shares outstanding during the year. Distributions indicated
for those years will be different than the actual per-share distributions
to shareholders.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 47
Target: 2025--Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR ENDED SEPTEMBER 30 (EXCEPT AS NOTED)
Investor Class
1998 1997 1996(1)
PER-SHARE DATA
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ...$ 22.27 $ 17.91 $ 19.85
----------- ----------- -----------
Income From Investment Operations
Net Investment Income(2) ............. 1.33 1.21 0.72
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ......................... 8.07 3.15 (2.66)
----------- ----------- -----------
Total From Investment Operations ..... 9.40 4.36 (1.94)
----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.70) (0.72) --
From Net Realized Gains .............. (0.05) -- --
----------- ----------- -----------
Total Distributions .................. (0.75) (0.72) --
----------- ----------- -----------
Reverse Share Split .................... 0.75 0.72 --
----------- ----------- -----------
Net Asset Value, End of Period .........$ 31.67 $ 22.27 $ 17.91
=========== =========== ===========
Total Return(3) ...................... 42.21% 24.34% (9.77)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ..................... 0.59% 0.62% 0.67%(4)
Ratio of Net Investment Income to
Average Net Assets ..................... 4.94% 6.14% 6.57%(4)
Portfolio Turnover Rate ................ 52% 58% 61%
Net Assets, End of Period
(in thousands) .........................$ 356,122 $ 73,821 $ 35,661
</TABLE>
(1) February 15, 1996 (inception) through September 30, 1996.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(4) Annualized.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--These statements itemize current period
activity and statistics and provide comparison data for the last five fiscal
years (or less, if the class is not five years old).
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
48 1-800-345-2021
Target: 2025--Financial Highlights
- --------------------------------------------------------------------------------
(Continued)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED
Advisor Class
1998(1)
PER-SHARE DATA
Net Asset Value, Beginning of Period ....................... $27.27
------
Income From Investment Operations
Net Investment Income(2) ................................. 0.41
Net Realized and Unrealized
Gain on Investment Transactions .......................... 3.96
------
Total From Investment Operations ......................... 4.37
------
Net Asset Value, End of Period ............................. $31.64
======
Total Return(3) .......................................... 16.02%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets ......................................... 0.84%(4)
Ratio of Net Investment Income to
Average Net Assets ......................................... 4.37%(4)
Portfolio Turnover Rate .................................... 52%
Net Assets, End of Period
(in thousands) ............................................. $ 89
(1) June 1, 1998 (commencement of sale) through September 30, 1998.
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total return is not annualized.
(4) Annualized.
See Notes to Financial Statements
www.americancentury.com 49
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
the American Century Target Maturities Trust
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations, changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the American Century - Benham Target
Maturities Trust: 2000 (2000), the American Century - Benham Target Maturities
Trust: 2005 (2005), the American Century - Benham Target Maturities Trust: 2010
(2010), the American Century - Benham Target Maturities Trust: 2015 (2015), the
American Century - Benham Target Maturities Trust 2020: (2020), and the American
Century - Benham Target Maturities Trust: 2025 (2025) (hereafter referred to as
the "Funds") at September 30, 1998, the results of each of their operations, the
changes in each of their net assets and the financial highlights for the year
then ended, in conformity with generally accepted accounting principles. The
statement of changes in net assets for the year ended September 30, 1997 and the
financial highlights for each of the four years in the period ended September
30, 1997 for 2000, 2005, 2010, 2020 and the two years in the period ended
September 30, 1997 for 2025 were audited by other auditors, whose report, dated
November 3, 1997, expressed an unqualified opinion on those statements. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
November 11, 1998
50 1-800-345-2021
Share Class and Retirement Account Information
- --------------------------------------------------------------------------------
SHARE CLASSES
American Century offers two classes of shares for the Target Maturities
Trust funds. One class is for investors who buy directly from American Century,
and the other is for investors who buy through financial intermediaries.
The original class of Target Maturities shares is called the Investor
Class. All shares issued and outstanding before September 2, 1997, have been
designated as Investor Class shares. Investor Class shares may also be purchased
after September 2, 1997. Investor Class shareholders do not pay any commissions
or other fees for purchase of fund shares directly from American Century.
Investors who buy Investor Class shares through a broker-dealer may be required
to pay the broker-dealer a transaction fee. The price and performance of the
Investor Class shares are listed in newspapers. No other class is currently
listed.
In addition, there is an Advisor Class, which is sold through banks,
broker-dealers, insurance companies, and financial advisors. Advisor Class
shares are subject to a 0.50% Rule 12b-1 service and distribution fee. Half of
that fee is available to pay for recordkeeping and administrative services, and
half is available to pay for distribution services provided by the financial
intermediary through which the Advisor Class shares are purchased. The total
expense ratio of the Advisor Class is 0.25% higher than the total expense ratio
of the Investor Class. The Advisor Class had not commenced as of September 30,
1998, for Target Maturities: 2010, 2015, or 2020.
Both classes of shares represent a pro rata interest in the funds and
generally have the same rights and preferences.
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
www.americancentury.com 51
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 38 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies
The six Target Maturities Trust funds, including Target: 2000, Target:
2005, Target: 2010, Target: 2015, Target: 2020, and Target: 2025, are
variable-priced bond funds that invest primarily in zero-coupon U.S. Treasury
securities and will be liquidated shortly after the conclusion of their target
maturity year. Although these funds offer a relatively predictable return if
held to maturity, they may be subject to dramatic price fluctuations that can
result in significant gains or losses if sold prior to maturity.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
The index is not an investment product available for purchase.
The Merrill Lynch Long-Term Treasury Index is an index of U.S. Treasury
securities with maturities greater than 10 years.
FUND BENCHMARKS
The benchmarks for the Target Maturities Trust funds are coupon STRIPS
issues maturing in the target year of each portfolio.
The benchmark for the Target: 2000 fund is the 11/15/00 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2000.
The benchmark for the Target: 2005 fund is the 11/15/05 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2005.
The benchmark for the Target: 2010 fund is the 11/15/10 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2010.
The benchmark for the Target: 2015 fund is the 11/15/15 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2015.
The benchmark for the Target: 2020 fund is the 11/15/20 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2020.
The benchmark for the Target: 2025 fund is the 11/15/25 STRIPS Issue-- a
zero-coupon Treasury bond that matures November 15, 2025.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
DAVE SCHROEDER
JEREMY FLETCHER
52 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
INVESTMENT TERMS
* Basis Point--one one-hundredth of a percentage point (or 0.01%). 100 basis
points equal one percentage point (or 1%).
* Coupon--the stated interest rate of a security.
* 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.
RETURNS
* Total Return figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* Average Annual Returns illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 41-49.
STATISTICAL TERMINOLOGY
* Number of Securities--the number of different securities held by a fund on a
given date.
* Anticipated Growth Rate (AGR)--an approximation of the annualized rate of
return that an investor may expect from his purchase date to the fund's WAM
date, assuming all dividends and capital gains distributions are reinvested. It
assumes that the AVM is reached on the WAM date.
* Weighted Average Maturity (WAM)--a measure of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* Weighted Average Maturity Date (WAM Date)--an average of the maturity dates of
a portfolio's securities, weighted by dollar amount. The WAM date is calculated
based on the WAM of the portfolio's investments on a given day.
* Anticipated Value at Maturity (AVM)--the expected redemption value of a
portfolio share on the portfolio's WAM date. (Even if fund shares are held to
maturity, there is no guarantee that the fund's share price will reach its AVM
or that the AGR will be realized.)
* Expense Ratio--the operating expenses of the fund, expressed as a percentage
of average net assets. (See Note 2 in the Notes to Financial Statements.)
TYPES OF SECURITIES
* Zero-Coupon Bonds (Zeros)--bonds that make no periodic interest payments.
Instead, they are sold 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.
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. Broker-dealers created receipt zeros by
purchasing Treasury bonds, depositing them in a custodian bank, and then selling
receipts representing ownership interest in the interest coupons or principal
portions of the bonds. The types of receipt zeros include:
TRs (TREASURY RECEIPTS)--generic receipt zeros.
CATS (CERTIFICATES OF ACCRUAL OF TREASURY SECURITIES)--issued by Salomon
Brothers, Inc.
ETRs (EASY-GROWTH TREASURY RECEIPTS)--issued by Dean Witter Reynolds, Inc.
* BECCs--principal zeros that have been converted from physical to wirable
(i.e., able to be traded electronically) bonds.
* CUBES--coupon zeros that have been converted from physical to wirable bonds.
www.americancentury.com 53
Notes
- --------------------------------------------------------------------------------
54 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 55
Notes
- --------------------------------------------------------------------------------
56 1-800-345-2021
[inside back cover]
American Century Funds
Benham Group(reg.sm)
TAXABLE BOND FUNDS
U.S. Treasury & Government
Short-Term Treasury
Short-Term Government
GNMA
Intermediate-Term Treasury
Long-Term Treasury
Inflation-Adjusted Treasury
Target Maturities Trust: 2000
Target Maturities Trust: 2005
Target Maturities Trust: 2010
Target Maturities Trust: 2015
Target Maturities Trust: 2020
Target Maturities Trust: 2025
Corporate & Diversified
Limited-Term Bond
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Premium Bond
High-Yield Bond
International
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TAX-FREE & MUNICIPAL BOND FUNDS
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California Limited-Term Tax-Free
California Long-Term Tax-Free
Florida Intermediate-Term Municipal
MONEY MARKET FUNDS
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Premium Capital Reserve
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Tax-Free & Municipal
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AMERICAN CENTURY[reg.sm] GROUP
Asset Allocation Funds
Strategic Allocation: Conservative
Strategic Allocation: Moderate
Strategic Allocation: Aggressive
Balanced Fund
Balanced
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Income and Growth
Equity Income
Value
Equity Growth
Specialty Funds
Utilities
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Small Cap Funds
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TWENTIETH CENTURY GROUP
Growth Funds
Select
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Aggressive Growth Funds
Vista
Giftrust
New Opportunities
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Emerging Markets
[right margin]
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American
Century
P.O. BOX 419200
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AMERICAN CENTURY TARGET MATURITIES TRUST
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
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Recycled
[back cover]
[40 Years]
Four Decades of Serving Investors
40 Years
American Century
1958-1998
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9811 (c)1998 American Century Services Corporation
SH-BKT-14210 Funds Distributor, Inc.
