BENHAM CALIFORNIA
TAX-FREE AND
MUNICIPAL FUNDS
-----------------
Semiannual Report * February 29, 1996
[picture of the California
state flag]
Tax-Free Money Market Fund
Municipal Money Market Fund
Municipal High-Yield Fund
Tax-Free Insured Fund
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
CONTENTS
U.S. ECONOMIC REVIEW.............................................. 1
MUNICIPAL MARKET SUMMARY.......................................... 2
CALIFORNIA ECONOMIC &
CREDIT ANALYSIS................................................... 4
TAX-FREE MONEY MARKET FUND
Performance Information........................................... 5
Portfolio Information............................................. 6
Management Discussion & Performance Comparison.................... 7
Financial Information (Unaudited).................................30
MUNICIPAL MONEY MARKET FUND
Performance Information........................................... 9
Portfolio Information.............................................10
Management Discussion & Performance Comparison....................11
Financial Information (Unaudited).................................31
MUNICIPAL HIGH-YIELD FUND
Performance Information...........................................13
Performance Comparison & Breakdown................................14
Portfolio Information.............................................15
Management Discussion.............................................16
Financial Information (Unaudited).................................32
TAX-FREE INSURED FUND
Performance Information...........................................18
Performance Comparison & Breakdown................................19
Portfolio Information.............................................20
Management Discussion.............................................21
Financial Information (Unaudited).................................34
INVESTMENT FUNDAMENTALS...........................................23
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
Slow economic growth and low inflation characterized the U.S. economy in 1995,
creating similar expectations for 1996. The U.S. economy grew at a 2% annual
rate in 1995, the weakest yearly performance since the 1991 recession. U.S.
inflation was just 2.5% in 1995, the lowest annual rate since 1986.
[bar graph on left side of page. graph data described below]
The Federal Reserve's (the Fed's) success in slowing the economy and inhibiting
inflation by raising short-term interest rates from February 1994 to February
1995 eventually led to a new interest rate strategy. The Fed reduced the federal
funds rate target, from 6.00% to 5.75% in July 1995, then lowered it twice
more--to 5.50% in December 1995 and to 5.25% in January 1996. Slowing corporate
and government spending, declining auto sales and housing activity, and
poorer-than-expected holiday season retail sales seemed to indicate lower
interest rates in 1996 and a possible recession.
Federal budget battles, which led to two government shutdowns, furthered the
cause of economic weakness. The shutdowns also delayed key economic reports,
causing confusion in the financial markets during the first quarter of 1996.
Amid this confusion and slow growth/low inflation expectations, the February
payroll employment report, showing the strongest job creation in 12 years,
exploded like a time bomb (see the accompanying graph). It dashed hopes that the
Fed would cut interest rates at its policy meeting in March, triggering a bond
sell-off and higher interest rates.
The March payroll employment report was also unexpectedly strong. The strength
of the recent employment reports seems to indicate that the economy is picking
up momentum, with no immediate need for the Fed to reduce interest rates. Other
signs of a stronger economy include higher auto sales and factory orders, rising
consumer confidence and strong housing starts. But the economy still doesn't
feel particularly robust--layoffs are at historically high levels, wages are
stagnant, capital expenditures are slowing, and personal bankruptcies and loan
delinquencies are higher. Overall, we believe the evidence still suggests
moderate economic growth in 1996, with both growth and inflation around 3%.
[graph data]
U.S. Nonfarm Payroll Employment
(seasonally adjusted, in thousands)
Monthly Change Three-Month Moving Average
Jan-95 186 292
Feb-95 313 232
Mar-95 179 226
Apr-95 8 167
May-95 -62 42
Jun-95 299 82
Jul-95 28 88
Aug-95 263 197
Sep-95 94 128
Oct-95 66 141
Nov-95 214 125
Dec-95 145 142
Jan-96 -146 71
Feb-96 624 208
Mar-96 140 206
Source: Bloomberg Financial Markets
1
MARKET SUMMARY
MUNICIPAL SECURITIES
by Dave MacEwen, Vice President & Senior Municipal Portfolio Manager
MUNICIPAL MARKET OVERVIEW
Decelerating economic growth and low levels of inflation during the six months
ended February 29, 1996, provided a very favorable environment for U.S. bonds.
However, the rally in municipal bonds (munis) was dampened initially by flat tax
fears. Investors feared that the adoption of a flat tax would strip munis of
their tax-exempt advantage, and fearing the worst, many muni investors moved out
of long-term munis and into shorter-term securities to await future
developments.
The patience of these investors was rewarded by a change in the political
climate. The waning "Republican Revolution" in Washington and a lack of support
(especially on the part of Republican front-runner Bob Dole) for the flat tax
made it increasingly clear by late 1995 that this particular type of tax reform
was unlikely to become a reality.
In early 1996, demand for long-term munis increased significantly as many muni
bonds were called (see Callability on page 26). Over the past few years, low
interest rates have prompted high volumes of muni refundings, freeing billions
of dollars for reinvestment in munis.
[line graph on left side of page. graph data described below]
Seasonal factors also played a part--January is historically characterized by
low levels of muni issuance as municipalities gear up for the new fiscal year.
Overall, muni issuance remains sluggish--1996 issuance to date is running below
the average for 1995. This combination of low supply and strong demand helped
munis post gains during the six-month period as yields fell across all
maturities (see the accompanying graph).
[graph data]
The Shifting Municipal Yield Curve
years 2/29/96 8/31/95
1 3.35% 3.65%
2 3.65 3.85
3 3.85 4.01
3.97 4.16
5 4.09 4.31
4.2 4.435
7 4.31 4.56
4.41 4.66
4.51 4.76
10 4.61 4.86
4.708 4.98
4.806 5.1
4.904 5.22
5.002 5.34
15 5.1 5.46
5.138 5.514
5.176 5.568
5.214 5.622
5.252 5.676
20 5.29 5.73
5.3 5.754
5.31 5.778
5.32 5.802
5.33 5.826
25 5.34 5.85
5.346 5.854
5.352 5.858
5.358 5.862
5.364 5.866
30 5.37 5.87
Source: Bloomberg Financial Markets
2
MARKET SUMMARY
MUNICIPAL SECURITIES
(Continued from the previous page)
MUNICIPAL SECURITIES VS. TREASURY SECURITIES
Over the six-month period, munis in the 10- to 30-year maturity sector
outperformed Treasury securities with comparable maturities. This resulted from
a combination of fading flat tax fears, as wary investors moved back to
long-term munis, and a high volume of bond maturities and bond calls.
Conversely, as demand for long-term munis increased and investors moved away
from short-term securities, munis with maturities of five years or less
underperformed Treasuries of like maturity.
[bar graph on right side of page. graph data described below.]
The accompanying graph, showing muni yields as a percent of Treasury yields,
demonstrates the difference in relative performance at either end of the muni
yield curve over the six-month period.
The increasing percentage seen in the three-year maturity sector shows that muni
and Treasury yields moved closer together, indicating that short-term munis
underperformed Treasuries. The decreasing percentage in the 30-year sector shows
a widening of the spread between muni and Treasury yields, indicating that
long-term munis outperformed Treasuries.
[graph data]
Municipal Yields as a % of Treasury Yields
8/31/95 2/29/96
3-year note 67% 69%
30-year bond 88 83
Source: Bloomberg Financial Markets
3
CALIFORNIA CREDIT ANALYSIS
STATE ECONOMIC AND CREDIT REVIEW
by Steve Permut, Manager of Municipal Credit Analysis, and the Benham
Municipal Credit Analysis Team: Joe Crowley, Scott Lord and Bill McClintock
California's economic recovery, which began in the fourth quarter of 1993,
continued through the six months ended February 29, 1996. Strong employment
growth in the state (twice the national growth rate) lowered California's
unemployment rate to 7.6%, down from a 1993 recessionary high of more than 9%.
In fact, California's economy has replaced all of the jobs lost during the
recession (see the graph below), with significant growth in the high-wage
sectors of technology, tourism and entertainment.
[mountain graph on left side of page. graph data described below.]
California retail sales also continued to outperform the nation without the
housing- and construction-related expenditures that have fueled previous state
economic recoveries. This illustrates a fundamental change in California's
economic structure--a shift away from dependence on the large, cyclical
manufacturing and construction industries toward a diversified economic base of
smaller, more nimble companies.
Regionally, rebounding economic growth in southern California has been crucial
to the state's overall growth because the metropolitan areas of Los Angeles and
San Diego account for approximately two-thirds of California's economy. The
gradual rebound in the southern part of the state contrasts with the exceptional
growth in the San Francisco Bay Area and Sacramento. At the local level,
California counties continue to struggle because of their unique mix of
responsibilities and funding sources. Revenue problems remain severe--counties
are dependent on state and federal funding, which has been reduced in recent
years. Other local governments, such as cities and school districts, have
generally benefited from the state's recent economic strength, but regional
disparities point to a continued need for thorough case-by-case credit analysis.
California's revitalized economy has brought the state closer to solving its
budget problems. State revenue collections remain positive. However, if several
major expenditure assumptions in the current budget (and in the proposed 1996-97
budget) are not approved, any revenue gains will be more than eliminated.
Despite these concerns, our outlook for the state is more positive than it's
been for several years. We believe that the recent economic and fiscal
improvements will lead to an upgrade in the state's credit rating by the end of
1996.
[graph data]
California Employment
(non-farm, seasonally adjusted, 6-mo. moving average, in thousands)
1/31/91 12505.6
2/28/91 12487.2
3/31/91 12466.7
4/30/91 12445.7
5/31/91 12423.3
6/30/91 12398.5
7/31/91 12383.1
8/31/91 12371.7
9/30/91 12361.5
10/31/91 12349.8
11/30/91 12335.1
12/31/91 12318.5
1/31/92 12293.3
2/29/92 12262.8
3/31/92 12241.9
4/30/92 12223.2
5/31/92 12207.3
6/30/92 12192.3
7/31/92 12187.5
8/31/92 12181.4
9/30/92 12163.9
10/31/92 12146.9
11/30/92 12130.8
12/31/92 12113.9
1/31/93 12099.5
2/28/93 12088.3
3/31/93 12078
4/30/93 12063.6
5/31/93 12051.5
6/30/93 12046
7/31/93 12039.6
8/31/93 12037.3
9/30/93 12037.9
10/31/93 12039.3
11/30/93 12039.2
12/31/93 12044.1
1/31/94 12042.7
2/28/94 12047.8
3/31/94 12060.7
4/30/94 12075.4
5/31/94 12093.9
6/30/94 12108.5
7/31/94 12126.2
8/31/94 12142
9/30/94 12156.5
10/31/94 12170.5
11/30/94 12187.1
12/31/94 12208.9
1/31/95 12225.9
2/28/95 12252
3/31/95 12275
4/30/95 12303.1
5/31/95 12331.3
6/30/95 12355.1
7/31/95 12388.6
8/31/95 12414.9
9/30/95 12445.4
10/31/95 12472.2
11/30/95 12497.2
12/31/95 12521.2
1/31/96 12545.1
Source: U.S. Department of Labor, Bureau of Labor Statistics
4
TAX-FREE MONEY MARKET FUND
CURRENT YIELD*
As of February 29, 1996
7-DAY TAX-EQUIVALENT YIELDS
7-DAY 7-DAY ---------------------------------------------------
CURRENT EFFECTIVE 34.70% 37.42% 41.95% 42.40%
YIELD YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
2.98% 3.03% 4.56% 4.76% 5.13% 5.17%
The 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-DAY EFFECTIVE YIELD is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.
The 7-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 7-Day Current Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE ----------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
$1.00 3.37% 2.69% 2.80% 3.74%
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 30.
The Fund commenced operations on November 9, 1983.
* Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's yields and total returns will vary. The
U.S. government neither insures nor guarantees investments in the Fund. The
Fund is managed to maintain a stable $1.00 share price, but, as with all money
market funds, there is no assurance that the Fund will be able to do so.
5
TAX-FREE MONEY MARKET FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $427,320,472 $408,659,073
Number of Issues: 100 101
Average Maturity: 33 days 47 days
Average Yield: 3.71% 3.86%
For definitions of these terms, see page 24.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
SP1+ 66% SP1+ 62%
SP1 33% SP1 37%
D 1% D 1%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities. Some of the Fund's securities do not carry SP1+ or SP1
ratings, but they have received equivalent ratings from Moody's or other rating
services. For display purposes, we have converted the equivalent ratings to SP1+
or SP1. Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 26. For more information about the securities rated "D," see
page 8.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
2/29/96 8/31/95
VRDNs: 76% VRDNs: 78%
Municipal Notes: 13% Municipal Notes: 11%
Put Bonds: 5% Commercial Paper: 5%
Bonds less than 1 year: 4% Put Bonds: 4%
Commercial Paper: 2% Bonds lesst than 1 year: 2%
For definitions of these security types, see page 23.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
0-7 Days: 76% 0-7 Days: 79%
8-90 Days: 9% 8-90 Days: 7%
91-180 Days: 10% 181-397 Days: 14%
181-397 Days: 5%
The Fund generally maintains an average maturity between 30 and 60 days, with 45
days considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
6
TAX-FREE MONEY MARKET FUND
MANAGEMENT DISCUSSION
with Todd Pardula, Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 23-29).
Q: How did the Fund perform?
A: The Fund continues to perform above average compared to its peers. For
the one-year period ended February 29, 1996, the Fund's total return
was 3.37%, which exceeded the 3.25% average total return for the 50
funds in Lipper's "California Tax-Exempt Money Market Funds" category
over the same period (see the Lipper Performance Comparison below). For
the six months ended February 29, the Fund's total return was 1.63%.
Q: Why did the Fund's average maturity* shorten during the six months
ended February 29?
A: A scarcity of longer-term municipal money market securities led to the
Fund's shorter average maturity. (The Fund's neutral maturity is 45
days.) At the start of the six-month period, the Fund's average
maturity was 47 days, and we extended it out to 50-55 days during
November and December. We wanted to maintain a slightly long position
throughout the period because we wanted to lock in attractive yields in
anticipation of lower rates in 1996. However, there was a limited
supply of what I call "extendable paper" (securities with maturities of
8-13 months), and this shortage drove prices to prohibitively high
levels. As a result, the Fund's maturity trended lower as the Fund's
securities moved closer to their maturity dates. By the middle of
January, the Fund's average maturity had shortened to less than 40
days, and it ended the period in a range of 30-35 days.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on AVERAGE ANNUAL TOTAL
RETURNS for the periods ended 2/29/96 for the funds in Lipper's "California
Tax-Exempt Money Market Funds" category.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
The Fund: 3.37% 2.69% 2.80% 3.74%
Category Average: 3.25% 2.62% 2.83% 3.84%
The Fund`s Ranking: 14 out of 50 15 out of 45 15 out of 37 6 out of 6
Total returns are based on historical performance and do not guarantee future
results.
7
TAX-FREE MONEY MARKET FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: Does the Fund still own any Orange County securities?
A: Yes. The Fund still has a small holding (about 1% of the Fund) in
uninsured Orange County TRANs.* However, the county plans to issue up
to $800 million in bonds in May and use a portion of the proceeds to
pay off the TRANs at their June 30 maturity date.
Q: If the Orange County TRANs are on track to be paid off as scheduled,
why are they still rated "D" (for default)?
A: The rating agencies still consider the TRANs to be in default because
Orange County extended the TRANs' maturity date from 1995 to 1996.
However, we feel the "D" rating does not accurately represent the
securities' intrinsic value. Pricing services seem to agree with our
assessment because they have recently priced the Orange County TRANs
around 98.5 cents on the dollar, up from 91 cents a year ago.
Q: The Twentieth Century/Benham organization recently expanded its
municipal credit research capabilities. What changes have been made?
A: We've enhanced the credit management system for our California
municipal money market funds. The system is based on limiting the
funds' exposure to any one issuer, which will help protect the funds
from unexpected developments that may have an adverse effect on a
single issuer, sector or region. We've also expanded our credit
research staff and improved our analytical tools.
Q: Looking ahead, what is your management strategy for the next six
months?
A: As 1996 progresses, we expect to see stable short-term interest rates,
with a slight bias toward lower rates. If the economic outlook does not
change dramatically, we plan to lengthen the Fund's average maturity
back out to 50-55 days. Beginning in June, we should see a new infusion
of longer-term municipal money market securities, which should provide
us with an opportunity to extend the Fund's maturity. However, if
extendable paper does not become available at reasonable prices, then
the Fund's average maturity may remain around current levels.
8
MUNICIPAL MONEY MARKET FUND
CURRENT YIELD*
AS OF FEBRUARY 29, 1996
7-DAY TAX-EQUIVALENT YIELDS
7-DAY 7-DAY ---------------------------------------------------
CURRENT EFFECTIVE 34.70% 37.42% 41.95% 42.40%
YIELD YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
2.98% 3.03% 4.56% 4.76% 5.13% 5.17%
The 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-DAY EFFECTIVE YIELD is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.
The 7-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 7-Day Current Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes,
but a portion of the dividends will be subject to the federal alternative
minimum tax (AMT).
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE ----------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
----------------------------------------------
$1.00 3.47% 2.76% 3.07% 3.12%
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 31.
The Fund commenced operations on December 31, 1990.
* Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's yields and total returns will vary. The
U.S. government neither insures nor guarantees investments in the Fund. The
Fund is managed to maintain a stable $1.00 share price, but, as with all money
market funds, there is no assurance that the Fund will be able to do so.
9
MUNICIPAL MONEY MARKET FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $194,154,025 $188,048,764
Number of Issues: 72 65
Average Maturity: 32 days 49 days
Average Yield: 3.75% 4.03%
For definitions of these terms, see page 24.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
D 1% D 1%
SP2 1% SP1 37%
SP1 34% SP1+ 62%
SP1+ 64%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities. Some of the Fund's securities do not carry SP1+ or SP1
ratings, but they have received equivalent ratings from Moody's or other rating
services. For display purposes, we have converted the equivalent ratings to SP1+
or SP1. Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 26. For more information about the securities rated "D" and
"SP2," see page 12.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
2/29/96 8/31/95
Put Bonds: 3% Put Bonds: 2%
Bonds less than 1 Year: 3% Bonds less than 1 Year: 3%
Commercial Paper: 4% Commercial Paper: 10%
Municipal Notes: 15% Municipal Notes: 12%
VRDNs: 75% VRDNs: 73%
For definitions of these security types, see page 23.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
0-7 Days: 75% 0-7 Days: 73%
8-90 Days: 10% 8-90 Days: 11%
91-180 Days: 12% 91-180 Days: 3%
181-397 Days: 3% 181-397 Days: 13%
The Fund generally maintains an average maturity between 30 and 60 days, with 45
days considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
10
MUNICIPAL MONEY MARKET FUND
MANAGEMENT DISCUSSION
with Todd Pardula, Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 23-29).
Q: How did the Fund perform?
A: The Fund continues to perform above average compared to its peers. For
the one-year period ended February 29, 1996, the Fund's total return
was 3.47%, which exceeded the 3.25% average total return for the 50
funds in Lipper's "California Tax-Exempt Money Market Funds" category
over the same period (see the Lipper Performance Comparison below). For
the six months ended February 29, the Fund's total return was 1.69%.
Q: Why did the Fund's average maturity* shorten during the six months
ended February 29?
A: A scarcity of longer-term municipal money market securities led to the
Fund's shorter average maturity. (The Fund's neutral maturity is 45
days.) At the start of the six-month period, the Fund's average
maturity was 49 days, and we extended it out to 50-55 days during
October. We wanted to maintain a slightly long position throughout the
period because we wanted to lock in attractive yields in anticipation
of lower rates in 1996. However, there was a limited supply of what I
call "extendable paper" (securities with maturities of 8-13 months). In
particular, extendable AMT paper* was in short supply; the Fund tends
to invest more than half of its assets in AMT paper. With extendable
paper trading at prohibitively high prices, we allowed the Fund's
maturity to shorten as the Fund's securities moved closer to their
maturity dates. By the end of December, the Fund's average maturity had
shortened to less than 40 days, and it ended the period in a range of
30-35 days.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on AVERAGE ANNUAL TOTAL
RETURNS for the periods ended 2/29/96 for the funds in Lipper's "California
Tax-Exempt Money Market Funds" category.
1 YEAR 3 YEARS 5 YEARS
The Fund: 3.47% 2.76% 3.07%
Category Average: 3.25% 2.62% 2.83%
The Fund`s Ranking: 10 out of 50 11 out of 45 7 out of 37
Total returns are based on historical performance and do not guarantee future
results.
11
MUNICIPAL MONEY MARKET FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: Does the Fund still own any Orange County securities?
A: Yes. The Fund still has a small holding (about 1% of the Fund) in
uninsured Orange County TRANs.* However, the county plans to issue up
to $800 million in bonds in May and use a portion of the proceeds to
pay off the TRANs at their June 30 maturity date.
Q: If the Orange County TRANs are on track to be paid off as scheduled,
why are they still rated "D" (for default)?
A: The rating agencies still consider the TRANs to be in default because
Orange County extended the TRANs' maturity date from 1995 to 1996.
However, we feel the "D" rating does not accurately represent the
securities' intrinsic value. Pricing services seem to agree with our
assessment because they have recently priced the Orange County TRANs
around 98.5 cents on the dollar, up from 91 cents a year ago.
Q: The Fund also owns a small holding in securities that are rated "SP2."
Why are securities of that quality in the Fund's portfolio?
A: Standard & Poor's recently downgraded the banks that provide the letter
of credit for these issues. However, our internal credit analysis team
believes that the issuers of these securities are financially sound,
and the securities are very liquid because of their seven-day maturity.
Q: The Twentieth Century/Benham organization recently expanded its
municipal credit research capabilities. What changes have been made?
A: We've enhanced the credit management system for our California
municipal money market funds. The system is based on limiting the
funds' exposure to any one issuer, which will help protect the funds
from unexpected developments that may have an adverse effect on a
single issuer, sector or region. We've also expanded our credit
research staff and improved our analytical tools.
Q: Looking ahead, what is your management strategy for the next six
months?
A: As 1996 progresses, we expect to see stable short-term interest rates,
with a slight bias toward lower rates. If the economic outlook does not
change dramatically, we plan to lengthen the Fund's average maturity
back out to 50-55 days. Beginning in June, we should see a new infusion
of longer-term municipal money market securities, which should provide
us with an opportunity to extend the Fund's maturity. However, if
extendable AMT paper does not become available at reasonable prices,
then the Fund's average maturity may remain around current levels.
12
HIGH-YIELD FUND
CURRENT YIELD*
As of February 29, 1996
30-DAY TAX-EQUIVALENT YIELDS
30-DAY ---------------------------------------------------
SEC 34.70% 37.42% 41.95% 42.40%
YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
5.34% 8.18% 8.53% 9.20% 9.27%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
The 30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 30-Day SEC Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes,
but a portion of the dividends will be subject to the federal alternative
minimum tax (AMT).
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE -----------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
-----------------------------------------------
$9.04-$9.54 12.01% 6.69% 8.44% 6.44%
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 32.
The Fund commenced operations on December 30, 1986.
*Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
13
HIGH-YIELD FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/31/86 in the Fund and
in the Lehman Brothers, Inc. Long-Term Municipal Bond Index
[line graph]
Index Fund
12/31/86 $10,000 $10,000
1/31/87 10,336 10,171
2/28/87 10,365 10,228
3/31/87 10,212 10,259
4/30/87 9,639 9,010
5/31/87 9,533 8,821
6/30/87 9,229 9,060
7/31/87 9,315 9,117
8/31/87 9,356 9,134
9/30/87 8,974 8,658
10/31/87 8,973 8,474
11/30/87 9,260 8,724
12/31/87 9,381 8,891
1/31/88 9,755 9,206
2/29/88 9,870 9,319
3/31/88 9,729 9,217
4/30/88 9,806 9,282
5/31/88 9,816 9,322
6/30/88 10,007 9,436
7/31/88 10,074 9,506
8/31/88 10,114 9,607
9/30/88 10,343 9,758
10/31/88 10,579 9,903
11/30/88 10,465 9,898
12/31/88 10,647 9,998
1/31/89 10,898 10,159
2/28/89 10,745 10,181
3/31/89 10,754 10,178
4/30/89 11,069 10,309
5/31/89 11,326 10,512
6/30/89 11,498 10,625
7/31/89 11,650 10,740
8/31/89 11,473 10,650
9/30/89 11,438 10,663
10/31/89 11,589 10,746
11/30/89 11,835 10,924
12/31/89 11,923 10,963
1/31/90 11,802 10,924
2/28/90 11,935 11,075
3/31/90 11,948 11,078
4/30/90 11,802 10,939
5/31/90 12,135 11,251
6/30/90 12,254 11,365
7/31/90 12,471 11,576
8/31/90 12,174 11,264
9/30/90 12,155 11,219
10/31/90 12,412 11,329
11/30/90 12,727 11,527
12/31/90 12,783 11,582
1/31/91 12,954 11,772
2/28/91 13,045 11,819
3/31/91 13,077 11,852
4/30/91 13,279 12,049
5/31/91 13,435 12,186
6/30/91 13,410 12,179
7/31/91 13,617 12,350
8/31/91 13,813 12,474
9/30/91 14,013 12,644
10/31/91 14,160 12,745
11/30/91 14,177 12,742
12/31/91 14,515 12,847
1/31/92 14,506 12,833
2/29/92 14,529 12,942
3/31/92 14,566 13,030
4/30/92 14,705 13,128
5/31/92 14,920 13,284
6/30/92 15,208 13,490
7/31/92 15,766 13,903
8/31/92 15,554 13,736
9/30/92 15,623 13,820
10/31/92 15,362 13,544
11/30/92 15,795 13,875
12/31/92 16,000 14,025
1/31/93 16,151 14,125
2/28/93 16,902 14,593
3/31/93 16,698 14,504
4/30/93 16,927 14,704
5/31/93 17,067 14,851
6/30/93 17,388 15,119
7/30/93 17,405 15,129
8/31/93 17,851 15,467
9/30/93 18,083 15,670
10/31/93 18,117 15,759
11/30/93 17,898 15,630
12/31/93 18,360 15,874
1/31/94 18,576 16,084
2/28/94 17,961 15,773
3/31/94 16,889 15,153
4/29/94 17,019 15,096
5/31/94 17,218 15,297
6/30/94 17,012 15,271
7/29/94 17,449 15,584
8/31/94 17,485 15,602
9/30/94 17,080 15,422
10/31/94 16,555 15,191
11/30/94 16,118 14,803
12/30/94 16,691 15,023
1/31/95 17,425 15,444
2/28/95 18,134 15,821
3/31/95 18,352 16,102
4/28/95 18,343 16,107
5/31/95 19,124 16,592
6/30/95 18,772 16,423
7/31/95 18,868 16,490
8/31/95 19,134 16,708
9/30/95 19,283 16,826
10/31/95 19,750 17,083
11/30/95 20,259 17,464
12/31/95 20,575 17,771
1/31/96 20,664 17,789
2/29/96 20,412 17,721
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Lehman Brothers, Inc. Long-Term Municipal Bond Index, over the life of the Fund.
Although the investment characteristics of the Index are similar to those of the
Fund, the securities owned by the Fund and those composing the Index are likely
to be different, and securities that the Fund and the Index have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on AVERAGE ANNUAL TOTAL
RETURNS for the periods ended 2/29/96 for the funds in Lipper's "California
Municipal Debt Funds" category.
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND+
The Fund: 12.01% 6.69% 8.44% 6.44%
Category Average: 10.35% 5.30% 7.91% 7.12%
The Fund`s Ranking: 6 out of 93 2 out of 60 9 out of 45 27 out of 30
+ from December 31, 1986, to February 29, 1996
Total returns are based on historical performance and do not guarantee future
results.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended February 29, 1996
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.96% + 3.10% = 6.06%
14
HIGH-YIELD FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $124,390,827 $113,306,820
Number of Issues: 81 78
Average Maturity: 21.67 years 22.55 years
Average Coupon: 6.57% 6.70%
Average Duration: 7.00 years 6.70 years
For definitions of these terms, see page 24.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
AAA: 14% AAA: 5%
AA: 3% AA: 3%
A: 30% A: 38%
BBB: 24% BBB: 32%
Unrated: 29% Unrated: 22%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 26.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie charts]
2/29/96 8/31/95
Tax Allocation: 20% COPs: 28%
COPs: 18% Tax Allocation: 21%
Mello-Roos: 12% Mello-Roos: 12%
Electric: 12% 1915 Act: 8%
Hospital: 6% Hospital: 7%
1915 Act: 5% Electric: 6%
Other: 27% Other: 18%
For definitions of these security types, see page 23.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
1-5 Years: 3% less than 1 Year: 1%
10-20 Years: 35% 1-5 Years: 1%
20-30 Years: 61% 10-20 Years: 32%
less than 30 Years: 1% 20-30 Years: 64%
less than 30 Years: 2%
The Fund invests primarily in intermediate- and long-term California municipal
obligations. The Fund's weighted average portfolio maturity is typically ten or
more years.
The composition of the Fund's portfolio may change over time.
15
HIGH-YIELD FUND
MANAGEMENT DISCUSSION
with Steve Permut, Senior Portfolio Manager and
Manager of Municipal Credit Analysis
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 23-29).
Q: How did the Fund perform?
A: The Fund benefited from the favorable bond environment and performed
very well relative to its peers. For the one-year period ended February
29, 1996, the Fund's total return was 12.01%, compared to the 10.35%
average total return for its peers in Lipper's "California Municipal
Debt Funds" category. For the six months ended February 29, the Fund's
total return was 6.06%.
The Fund's longer-term performance has also been strong compared to its
peer group. For example, the Fund's five-year average annual return of
8.44% exceeded its peer group average return of 7.91%. (See the Lipper
Performance Comparison on page 14 for the Fund's one-year, three-year,
five-year and life-of-fund returns, as well as comparisons of these
returns to its peer group average.)
Q: The Fund tends to invest in lower-quality bonds in order to produce a
high level of tax-exempt income. Has the Fund been meeting this
objective?
A: Yes, the Fund continues to provide a substantial amount of tax-free
income. As of February 29, the Fund's 30-day SEC yield was 5.34%,
compared to the 4.48% average 30-day yield of its peer group.+
Q: How was the Fund positioned during the six months ended February 29?
A: We maintained a fairly neutral position for the Fund, extending its
duration* into the seven-year range. Most of the changes we made to the
Fund's portfolio over the past six months related to the Fund's
sensitivity to interest rate changes. In particular, we sold several
bonds trading at or near par (face value) and replaced them with
discount bonds,* which have greater interest rate sensitivity and
therefore would likely participate more fully in future market moves.
These transactions lowered the Fund's average coupon slightly (see the
Portfolio Statistics on page 15).
We also expanded the Fund's holdings of BBB-rated and unrated municipal
securities. These lower-quality securities typically have the highest
yields available, and they helped maintain the Fund's income level.
+ Although the Fund's yield may be significantly higher than the yields of other
fixed-income funds that purchase higher-rated securities, this higher yield is
generally based upon the greater credit risk of the securities in the Fund's
portfolio.
16
HIGH-YIELD FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: In addition to holding more lower-quality bonds, the Fund also owned
more high-rated (AAA) securities. Why?
A: We added more AAA-rated bonds as part of our strategy to lengthen the
Fund's duration. This structure also provided some balance to the
Fund's portfolio--the high-quality bonds, with their longer durations,
provided greater opportunity for price appreciation, while the
lower-rated munis offered higher yields and greater income.
Q: Benham recently improved its municipal credit research capabilities.
What changes have been made?
A: During the past year, we've expanded our municipal credit research
staff and enhanced our analytical tools. This has been particularly
beneficial for the Fund, which depends on in-depth credit analysis to
seek out hidden values among lower-rated and unrated securities. To
find these hidden values, our improved credit research team analyzes
detailed financial information, talks directly with municipal officials
and frequently travels around the state for on-site visits and tours.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We believe that there is a great deal of uncertainty in the current
interest rate environment, so we plan to maintain the Fund's neutral
position. We also intend to continue our search for acceptable
lower-quality, high-yielding bonds. Regionally, we expect to avoid
bonds issued by California's counties because of continuing fiscal
problems (see page 4).
17
INSURED FUND
CURRENT YIELD*
As of February 29, 1996
30-DAY TAX-EQUIVALENT YIELDS
30-DAY ---------------------------------------------------
SEC 34.70% 37.42% 41.95% 42.40%
YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
4.62% 7.08% 7.38% 7.96% 8.02%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
The 30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 30-Day SEC Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE -----------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
-----------------------------------------------
$9.84-$10.53 11.57% 5.78% 8.51% 7.02%
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 34.
The Fund commenced operations on December 30, 1986.
*Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
18
INSURED FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/31/86 in the Fund and
in the Lehman Brothers, Inc. Long-Term Municipal Bond Index
[line graph]
Index Fund
12/31/86 $10,000 $10,000
1/31/87 10,336 10,375
2/28/87 10,365 10,407
3/31/87 10,212 10,316
4/30/87 9,639 9,245
5/31/87 9,533 9,125
6/30/87 9,229 9,377
7/31/87 9,315 9,424
8/31/87 9,356 9,492
9/30/87 8,974 8,807
10/31/87 8,973 8,905
11/30/87 9,260 9,217
12/31/87 9,381 9,404
1/31/88 9,755 9,781
2/29/88 9,870 9,906
3/31/88 9,729 9,619
4/30/88 9,806 9,695
5/31/88 9,816 9,647
6/30/88 10,007 9,860
7/31/88 10,074 9,883
8/31/88 10,114 9,927
9/30/88 10,343 10,129
10/31/88 10,579 10,347
11/30/88 10,465 10,222
12/31/88 10,647 10,360
1/31/89 10,898 10,616
2/28/89 10,745 10,508
3/31/89 10,754 10,499
4/30/89 11,069 10,764
5/31/89 11,326 11,018
6/30/89 11,498 11,171
7/31/89 11,650 11,350
8/31/89 11,473 11,122
9/30/89 11,438 11,045
10/31/89 11,589 11,147
11/30/89 11,835 11,372
12/31/89 11,923 11,429
1/31/90 11,802 11,247
2/28/90 11,935 11,426
3/31/90 11,948 11,412
4/30/90 11,802 11,178
5/31/90 12,135 11,579
6/30/90 12,254 11,676
7/31/90 12,471 11,919
8/31/90 12,174 11,563
9/30/90 12,155 11,519
10/31/90 12,412 11,831
11/30/90 12,727 12,151
12/31/90 12,783 12,201
1/31/91 12,954 12,344
2/28/91 13,045 12,387
3/31/91 13,077 12,352
4/30/91 13,279 12,526
5/31/91 13,435 12,644
6/30/91 13,410 12,595
7/31/91 13,617 12,761
8/31/91 13,813 12,936
9/30/91 14,013 13,140
10/31/91 14,160 13,290
11/30/91 14,177 13,229
12/31/91 14,515 13,576
1/31/92 14,506 13,519
2/29/92 14,529 13,552
3/31/92 14,566 13,539
4/30/92 14,705 13,662
5/31/92 14,920 13,853
6/30/92 15,208 14,152
7/31/92 15,766 14,695
8/31/92 15,554 14,446
9/30/92 15,623 14,483
10/31/92 15,362 14,158
11/30/92 15,795 14,666
12/31/92 16,000 14,823
1/31/93 16,151 15,008
2/28/93 16,902 15,745
3/31/93 16,698 15,474
4/30/93 16,927 15,648
5/31/93 17,067 15,727
6/30/93 17,388 16,015
7/30/93 17,405 15,960
8/31/93 17,851 16,431
9/30/93 18,083 16,654
10/31/93 18,117 16,626
11/30/93 17,898 16,449
12/31/93 18,360 16,818
1/31/94 18,576 17,034
2/28/94 17,961 16,531
3/31/94 16,889 15,694
4/29/94 17,019 15,778
5/31/94 17,218 15,887
6/30/94 17,012 15,810
7/29/94 17,449 16,144
8/31/94 17,485 16,155
9/30/94 17,080 15,910
10/31/94 16,555 15,600
11/30/94 16,118 15,337
12/30/94 16,691 15,716
1/31/95 17,425 16,204
2/28/95 18,134 16,703
3/31/95 18,352 16,816
4/28/95 18,343 16,835
5/31/95 19,124 17,455
6/30/95 18,772 17,145
7/31/95 18,868 17,259
8/31/95 19,134 17,463
9/30/95 19,283 17,626
10/31/95 19,750 17,995
11/30/95 20,259 18,431
12/31/95 20,575 18,706
1/31/96 20,664 18,776
2/29/96 20,412 18,635
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Lehman Brothers, Inc. Long-Term Municipal Bond Index, over the life of the Fund.
Although the investment characteristics of the Index are similar to those of the
Fund, the securities owned by the Fund and those composing the Index are likely
to be different, and securities that the Fund and the Index have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on AVERAGE ANNUAL TOTAL
RETURNS for the periods ended 2/29/96 for the funds in Lipper's "California
Insured Municipal Debt Funds" category.
Z 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND+
The Fund: 11.57% 5.78% 8.51% 7.01%
Category Average : 10.57% 5.38% 8.24% 7.15%
The Fund`s Ranking: 2 out of 26 4 out of 13 2 out of 8 5 out of 7
+ from December 31, 1986, to February 29, 1996
Total returns are based on historical performance and do not guarantee future
results.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended February 29, 1996
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.62% + 4.09% = 6.71%
19
INSURED FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $185,315,439 $176,460,181
Number of Issues: 66 65
Average Maturity: 17.91 years 18.44 years
Average Coupon: 6.26% 6.39%
Average Duration: 8.20 years 8.40 years
For definitions of these terms, see page 24.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
AAA: 100% AAA: 100%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 26.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie charts]
2/29/96 8/31/95
COPs: 26% COPs: 20%
Water/Sewer: 16% Water/Sewer: 18%
Tax Allocation: 10% Tax Allocation: 11%
Hospital: 9% GO: 11%
Sales Tax: 9% Hospital: 10%
Electric: 9% Electric: 9%
Other: 21% Other: 21%
For definitions of these security types, see page 23.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
less than 1 Year: 2% 1-5 Years: 1%
1-5 Years: 3% 5-10 Years: 3%
5-10 Years: 2% 10-20 Years: 61%
10-20 Years: 58% 20-30 Years: 35%
20-30 Years: 35%
The Fund invests primarily in long-term California municipal obligations. The
Fund's weighted average portfolio maturity is typically ten or more years.
The composition of the Fund's portfolio may change over time.
20
INSURED FUND
MANAGEMENT DISCUSSION
with Dave MacEwen, Vice President and Senior Municipal Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 23-29).
Q: How did the Fund perform?
A: The Fund turned in a strong performance in comparison with its peers.
For the year ended February 29, 1996, the Fund ranked second out of 26
funds in Lipper's "California Insured Municipal Debt Funds" category
based on total return. The Fund's total return of 11.57% was 100 basis
points* higher than the 10.57% average total return for its Lipper
category (see the Lipper Performance Comparison on page 19). For the
six months ended February 29, the Fund's total return was 6.71%.
Q: Why did the Fund perform so well compared to its peers?
A: The Fund's holdings in long-term premium non-callable bonds,* which
experienced significant price appreciation during the period, certainly
benefited the Fund's performance. But the key factor was the changes
that we made in the Fund's positioning in the latter half of 1995.
Q: Why and how did you change the Fund's positioning?
A: We believed that the market had overreacted to the flat tax scare
(see page 2), and we thought that the muni yield curve* would
eventually flatten as the muni market recovered from declines caused by
flat tax fears. In the last half of 1995, we began to shift the Fund's
holdings from a bullet structure* toward a barbell structure.* This
barbell positioning helped the Fund outperform many of its peers as the
muni yield curve flattened in late 1995 and early 1996.
Q: The Fund has held a small position in derivatives over the past few
years. Are there currently derivatives in the Fund?
A: Yes. The Fund continues to hold two inverse floaters,* which constitute
about 2.4% of the Fund's portfolio. We use inverse floaters as a
management tool, in this case to balance the Fund's duration.* Inverse
floaters have higher yields and longer durations than typical long-term
bonds. In addition, as of February 29, the Fund held 20 futures
contracts on municipal bonds, which at the time of purchase were priced
more attractively than their underlying bonds (see FUTURES CONTRACTS in
the Notes to Financial Statements on page 41).
21
INSURED FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What are your plans for the Fund going forward?
A: Though the threat of a flat tax seems to have subsided, there is
considerable uncertainty in U.S. financial markets concerning the
strength of the economy (see page 1). Until we can get a clearer
picture of the strength and direction of the economy, we will probably
maintain a neutral stance, keeping the Fund's duration close to that of
its peer group average. We also continue to favor the barbell structure
because we believe that there is room for further flattening of the
muni yield curve, especially after the steepening that has recently
occurred.
22
INVESTMENT FUNDAMENTALS
DEFINITIONS
COMMON CALIFORNIA MUNICIPAL SECURITIES (MUNIS)
AMT Paper--instruments with income subject to the federal alternative minimum
tax.
Certificates of Participation (COPs)--securities issued to finance public
property improvements (such as city halls and police stations).
Development Bonds--securities such as Mello-Roos bonds and 1915 Act bonds that
are issued to finance real estate development projects.
General Obligation (GO) bonds--securities backed by the taxing power of the
issuer.
Guaranteed Investment Contracts (GICs)--securities backed by a guarantee from an
insurance company.
Municipal Commercial Paper (CP)--high-grade short-term securities backed by a
line of credit from a bank.
Municipal Notes--securities with maturities of two years or less.
Prerefunded Bonds--securities refinanced by the issuer because of their premium
coupons (higher-than-market interest rates). These bonds tend to have higher
credit ratings because they are backed by Treasury securities.
Put Bonds--securities that provide the right to sell to a specified buyer at a
specified time and price.
Revenue Bonds--securities backed by revenues from sales taxes or from a specific
project, system or facility (such as a hospital, electric utility or water
system).
Tax Allocation Bonds--securities issued to finance improvements in redevelopment
areas (such as urban neighborhoods).
Tax and Revenue Anticipation Notes (TRANs)--securities backed by the general tax
revenues of the issuer.
Variable-Rate Demand Notes (VRDNs)--securities that track market interest rates
and stabilize their market values using periodic (daily or weekly) interest rate
adjustments.
MUNICIPAL DERIVATIVES
Inverse Floaters--securities bearing interest rates that move inversely to
market interest rates. Unlike most bonds, their yields increase as interest
rates decline. However, if interest rates rise, they lose considerably more
value than a regular fixed-rate bond. Therefore, each Benham California Tax-Free
and Municipal Fund limits its investment in inverse floaters to a maximum of 10%
of net assets (except for the Money Market Funds, which cannot own inverse
floaters at all).
23
INVESTMENT FUNDAMENTALS
DEFINITIONS
(Continued from the previous page)
Tender Option Bonds--intermediate- or long-term fixed-rate securities with put
options attached (which give the holder the option to sell the bonds at face
value at a specified time). Tender option bonds purchased by the Funds are
typically structured with seven-day put features attached and pay interest at
rates that are reset weekly. Each Fund limits its investment in tender option
bonds to 15% of net assets. Tender option bonds are not leveraged and have risk
characteristics that are similar to VRDNs.
PORTFOLIO STATISTICS
Market Value--the market value of a fund's investments on a given date.
Number of Issues--the number of different securities issuances held by a fund on
a given date.
Average Maturity--a weighted average of all bond maturities in a fund's
portfolio (see also page 27).
Average Coupon--a weighted average of all coupons held in a fund's portfolio.
Average Yield--a weighted average of the yields to maturity of the securities in
a money market fund's portfolio.
Average Duration--a weighted average of all bond durations in a fund's portfolio
(see also page 27).
INVESTMENT TERMS
Basis Points--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%). Basis
points are used to clearly describe interest rate changes. For example, if a
news report indicates that interest rates rose 1%, does that mean 1% of the
previous rate or one percentage point? It is more accurate to state that
interest rates rose by 100 basis points.
Coupon--the stated interest rate on a security.
Discount Bonds--bonds with interest coupons that are lower than prevailing
interest rates (see also page 28).
Par Bonds--bonds that trade or are priced at their face value.
Premium Bonds-- bonds with interest coupons that are higher than prevailing
interest rates (see also page 28).
24
INVESTMENT FUNDAMENTALS
THE YIELD CURVE
One of the fundamental tenets of investing is the relationship between risks and
returns--the greater the risks, the greater the chances of earning higher
returns over time. The downside is the correspondingly higher potential for
short-term losses--an investment that generates a high return probably has a
greater likelihood of significant fluctuations in value or return, especially in
the short run.
Bonds are no exception. The riskiest bonds--those with the greatest exposure to
interest rate movements and price fluctuations--generally have the highest
yields and returns over time but can experience severe short-term losses. On the
other hand, bonds with less exposure to interest rate movements and less price
fluctuation generally have lower yields and returns but are more stable.
The yield curve is a graphic representation of the relationship between bond
risks and returns at a point in time. Yield curve graphs plot bond maturities
(which represent risk since longer maturities increase risk) along the
horizontal axis and rising yields (which represent return) on the vertical axis.
Therefore, the lower left corners of yield curve graphs have the lowest risks
and the lowest potential returns, while the upper right corners have the highest
risks and the highest potential returns.
Yield curves can have several different shapes, depending on interest rate
levels and the economic environment:
Normal (Upward Sloping) Yield Curve--a yield curve that shows a normal risk/
return relationship--short-term securities have lower yields than long-term
securities. Most normal yield curves start in the lower left corner of the graph
and rise to the upper right corner.
Steep Yield Curve--a normal yield curve that shows a large difference between
short-term yields and long-term yields. This typically occurs when the bond
market is responding to inflation fears (causing high long-term bond yields) and
the Fed hasn't raised short-term interest rates enough (or the economy hasn't
slowed down enough) to quell those fears.
Flat Yield Curve--a yield curve that shows short-term securities having almost
the same yields as long-term securities. This typically occurs after the Fed has
raised short-term interest rates several times (to fight inflation when the
economy is strong) or when the bond market expects the Fed to lower short-term
interest rates (in a weaker economic environment).
Inverted Yield Curve--a yield curve that shows short-term securities having
higher yields than long-term securities. This typically develops from a flat
yield curve if the Fed continues to raise short-term interest rates (when the
economy is strong) or if it fails to lower short-term rates when the market
expects it to do so (in a weaker economic environment).
25
INVESTMENT FUNDAMENTALS
MUNI RISK FACTORS
CREDIT QUALITY AND CREDIT RATINGS
Bond credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in bond investment
analysis. Credit ratings issued by independent rating and research companies
such as Standard & Poor's help quantify credit quality--the stronger the issuer,
the higher the credit rating. In turn, credit quality and ratings greatly
influence bond prices and yields--high ratings mean higher prices and less
current income (yield) as compensation for risk. But credit ratings are
subjective. They reflect the opinions of the rating agencies that issue them and
are not absolute standards of quality, as the Orange County bankruptcy in 1994
made painfully clear. In that case, highly rated munis issued by a wealthy
county still suffered defaults. Furthermore, in addition to the credit risk,
there is still market risk. High credit ratings do not guarantee good investment
performance. They do not reflect the price stability of a muni when economic or
market conditions change.
CALLABILITY
Many munis are callable, which means they can be redeemed by the issuer before
maturity. When interest rates fall, municipalities find it financially rewarding
to refinance the bonds they've issued because they can reduce their monthly
interest payments. The municipalities exercise their "call" options to refinance
the bonds. Calls are bad for muni investors--calls reduce the life of a
municipal portfolio and force the portfolio manager to reinvest in
lower-yielding munis. The durations of munis effectively shorten as rates fall.
Calls also boost supply and help drive down muni prices. Call options can only
be exercised on specific "call dates," which don't always coincide with periods
of low interest rates when refinancing is desirable. As a result, municipalities
will issue new bonds when interest rates are low and use the proceeds to buy
Treasuries, which offset the old bonds (now known as prerefunded bonds) on their
balance sheets until the bonds can be retired on the call date. When the call
date arrives, the Treasuries mature, and the prerefunded bonds are retired.
During this process, there is a period of time when both the newly issued bonds
and the prerefunded bonds remain outstanding. This situation doubles the
municipal bond supply, which can depress prices.
DURATION EXTENSION
Duration extension occurs when interest rates increase significantly, as they
did in 1994. Higher interest rates reduce calls, which is good for municipal
investors, but the lower level of calls causes the durations of munis to extend
longer, which is bad when rates are rising. Muni funds become more susceptible
to price declines at a time when greater price stability would be desirable. By
contrast, Treasury durations generally shorten slightly when interest rates
experience a large increase. Because of their higher coupons, premium bonds
experience less duration extension than par or discount bonds.
26
INVESTMENT FUNDAMENTALS
PORTFOLIO SENSITIVITY MEASUREMENTS
DURATION
Duration measures the price sensitivity of a bond or bond fund to changes in
interest rates. Specifically, duration represents the approximate percentage
change in the price of a bond or bond fund if interest rates move up or down by
100 basis points (defined on page 24). For example, as of February 29, 1996, the
California Tax-Free Short-Term Fund's duration was 2.8 years, while the
California Tax-Free Long-Term Fund's duration was 8.3 years. If interest rates
were to rise by 100 basis points, the Short-Term Fund's share price would be
expected to decline by 2.8%, while the Long-Term Fund's share price would
decline by 8.3%. Conversely, if interest rates were to fall by 100 basis points,
the Short-Term Fund's share price would be expected to increase by 2.8%, while
the Long-Term Fund's share price would increase by 8.3%.
As this example illustrates, the longer the duration, the more bond or bond fund
prices will move in response to interest rate changes. Therefore, portfolio
managers generally lengthen durations when interest rates fall (to maximize the
effects of bond price increases) and shorten duration when interest rates rise
(to minimize the effects of bond price declines), taking into account the
objectives of the portfolio.
Duration, measured in years, also approximates (but understates) the weighted
average life of a bond or bond portfolio. To calculate duration, the future
interest and principal payments are added together and weighted in proportion to
their time value (early payments are valued more than later payments because
early payments can be reinvested and compound additional returns).
AVERAGE MATURITY
Average maturity is another measurement of the interest rate sensitivity of a
bond portfolio. Average maturity measures the average amount of time that will
pass until a bond portfolio receives its principal payments from matured bonds.
The longer a portfolio's average maturity is, the more interest rate exposure
and interest rate sensitivity it has. For example, a portfolio with a ten-year
average maturity has much more potential exposure to interest rate changes than
a portfolio with a one-year average maturity.
Portfolio managers generally lengthen average maturities when interest rates
fall (to maximize exposure and capture as much price appreciation as possible)
and reduce average maturities when interest rates rise (to minimize exposure and
avoid as much price depreciation as possible), as long as this strategy is
compatible with the objectives of the portfolio. Reducing the average maturity
in a rising interest rate environment allows the portfolio manager to more
quickly reinvest matured assets in higher-yielding securities.
27
INVESTMENT FUNDAMENTALS
BOND PRICING
PREMIUM AND DISCOUNT BONDS
Municipal bonds are generally priced at a premium or at a discount. Premium
bonds are bonds that trade or are priced above par (face value), typically
because their interest coupons are higher than the prevailing market interest
rate. Discount bonds are bonds that trade or are priced below par, typically
because their interest coupons are lower than the prevailing market interest
rate.
A bond may be both a premium bond and a discount bond during its life, depending
on changing market conditions. As market rates rise and bond prices fall, the
price of a premium bond can fall below par, and the bond becomes a discount
bond. Conversely, as market rates fall and bond prices rise, the price of a
discount bond can rise above par, and the bond becomes a premium bond.
Premium munis tend to have more price stability than discount munis--premium
munis depreciate less when interest rates rise (they experience less duration
extension), but they appreciate less when interest rates fall (they experience
more calls). Discount munis behave more like long-term Treasury securities.
TAX TREATMENT OF DISCOUNT BONDS
In 1993, new rules were passed regarding the tax treatment of long-term gains on
discount munis. In the past, any gain earned from the market discount was
treated as a capital gain, which is taxed at a maximum rate of 28%. However, the
newer law requires that any gain attributable to the market discount must be
treated as taxable ordinary income, which is taxed at the same rate as an
individual's tax bracket (up to 39.6%). Small market discounts (according to a
formula based on the price of the bond and the maturity date) are not subject to
the new law.
This tax treatment has made discount bonds less attractive in the muni market
because most municipal investors prefer to avoid incurring taxable income.
Discount munis also tend to have relatively low prices to make up for the
expected tax liability. As a result, when the price of a muni falls to the point
where it is traded at a market discount, the combination of reduced desirability
and added tax liability tends to lead to further price declines.
28
INVESTMENT FUNDAMENTALS
PORTFOLIO STRUCTURES & TAXABLE DISTRIBUTIONS
BOND PORTFOLIO STRUCTURES
Barbell Structure--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to outperform a bullet structure when the yield curve is moving
from steep to flat (short-term rates are rising faster than long-term rates, or
long-term rates are falling faster than short-term rates). In a rising interest
rate environment, the short-term securities capture the higher yields with
little price depreciation. In a declining interest rate environment, the
short-term securities provide a relatively steady yield, while the long bonds
produce more price appreciation than intermediate-term securities.
Bullet Structure--a structure that clusters a portfolio's bond maturities around
a single maturity (usually an intermediate-term maturity). This structure tends
to outperform a barbell structure when the yield curve is moving from flat to
steep (long-term rates are rising faster than short-term rates, or short-term
rates are falling faster than long-term rates). In a rising interest rate
environment, intermediate-term securities experience less price depreciation
than long-term securities. In a declining interest rate environment,
intermediate-term securities provide significantly more price appreciation than
short-term securities.
Ladder Structure--a balanced structure that staggers bond maturities so they
occur at regular intervals. This structure tends to be effective when interest
rates are relatively stable, and it provides a regular schedule of maturing
securities.
TAXABLE DISTRIBUTIONS
It's important to remember for your tax planning that tax-free funds often
generate taxable year-end distributions. These distributions typically result
from short-term and long-term capital gains. The taxable distributions usually
happen under favorable circumstances (the capital gains reflect bond
appreciation), but such distributions understandably attract attention simply
because they are taxable instead of tax free.
Although we manage our California tax-free and municipal funds to earn
tax-exempt income, they may realize taxable capital gains as we pursue higher
total returns. By law, the funds must distribute these capital gains to
shareholders each year. Under current tax law, each fund must distribute net
short-term capital gains realized by the fund as taxable ordinary income. Each
fund distributes net long-term capital gains to shareholders as a taxable
capital gains distribution.
29
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment Operations
Net Investment Income....... .0162 .0328 .0207 .0209 .0298 .0420 .0510 .0559 .0464 .0383
Net Realized and Unrealized Losses
on Investments............ 0 (.0003) 0 0 0 0 0 0 (.0053) 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income From Investment
Operations............. .0162 .0325 .0207 .0209 .0298 .0420 .0510 .0559 .0411 .0383
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment
Income.................... (.0162) (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383)
Distributions from Net
Realized Capital Gains.... 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions....... (.0162) (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD........................ $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN*................. 1.63% 3.31% 2.09% 2.13% 3.00% 4.23% 5.23% 5.70% 4.24% 3.88%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars).. $433,365 414,099 371,074 338,731 321,307 361,007 463,130 490,700 328,532 318,095
Ratio of Expenses to Average
Daily Net Assets+.......... .52%** .52% .50% .51% .54% .56% .56% .59% .63% .67%
Ratio of Net Investment Income
to Average Daily Net Assets 3.27%** 3.28% 2.07% 2.09% 2.98% 4.20% 5.10% 5.59% 4.10% 3.83%
- -------------------
+ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
See the accompanying notes to financial statements.
</TABLE>
30
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31 (except as noted)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991+
-------- -------- -------- -------- -------- ---------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD............................. $ 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment Operations
Net Investment Income............................................ .0168 .0331 .0213 .0221 .0344 .0293
Net Realized and Unrealized Losses on Investments................ 0 (.0003) 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Income From Investment Operations........................ .0168 .0328 .0213 .0221 .0344 .0293
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income............................. (.0168) (.0328) (.0213) (.0221) (.0344) (.0293)
Distributions from Net Realized Capital Gains.................... 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Distributions............................................ (.0168) (.0328) (.0213) (.0221) (.0344) (.0293)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD................................... $ 1.00 1.00 1.00 1.00 1.00 1.00
====== ===== ===== ===== ===== =====
TOTAL RETURN*...................................................... 1.69% 3.35% 2.15% 2.25% 3.63% 3.04%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)..............$ 197,729 191,722 243,701 247,621 254,823 136,860
Ratio of Expenses to Average Daily Net Assets++.................... .56%** .53% .51% .46% .07% 0%
Ratio of Net Investment Income to Average Daily Net Assets......... 3.35%** 3.31% 2.13% 2.21% 3.44% 4.39%**
- -------------------
+ From December 31, 1990 (commencement of operations), through August 31, 1991.
++ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
31
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31 (except as noted)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL HIGH-YIELD FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD.................... $9.11 9.06 9.66 9.12 8.84 8.54 8.68 8.45 8.69 10.00
Income From Investment Operations
Net Investment Income........ .2780 .5612 .5629 .5703 .5809 .5879 .6266 .6611 .6527 .4509
Net Realized and Unrealized Gains
(Losses) on Investments.... .2698 .0497 (.4793) .5401 .2800 .3000 (.1400) .2300 (.2400) (1.3100)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income (Loss) From
Investment Operations... .5478 .6109 .0836 1.1104 .8609 .8879 .4866 .8911 .4127 (.8591)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment
Income..................... (.2778) (.5609) (.5627) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
Distributions from Net Realized
Capital Gains.............. 0 0 (.1208) 0 0 0 0 0 0 0
Distributions in Excess of Net
Realized Capital Gains..... 0 0 (.0001) 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions........ (.2778) (.5609) (.6836) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE AT END OF
PERIOD......................... $9.38 9.11 9.06 9.66 9.12 8.84 8.54 8.68 8.45 8.69
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN*.................. 6.06% 7.09% .87% 12.61% 10.11% 10.75% 5.77% 10.86% 5.17% (10.19)%
- ------------
</TABLE>
32
<TABLE>
<CAPTION>
Financial Highlights - Municipal High-Yield Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars).. $129,937 116,166 116,000 114,564 79,949 65,741 44,602 32,631 13,169 8,434
Ratio of Expenses to Average
Daily Net Assets++......... .52%** .51% .51% .55% .56% .50% .24% 0% 0% 0%
Ratio of Net Investment Income to
Average Daily Net Assets... 5.97%** 6.30% 6.02% 6.14% 6.54% 6.79% 7.23% 7.67% 7.85% 7.50%**
Portfolio Turnover Rate...... 26.75% 40.00% 42.55% 27.40% 32.51% 47.41% 103.74% 49.54% 142.86% 57.42%
- -------------------
+ From December 30, 1986 (commencement of operations) through August 31, 1987.
++ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
33
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31 (except as noted)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE INSURED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period $ 9.89 9.67 10.64 9.97 9.47 9.00 9.23 8.80 9.07 10.00
Income From Investment Operations
Net Investment Income .2688 .5320 .5267 .5470 .5705 .5733 .5889 .6026 .6246 .4370
Net Realized and Unrealized
Gains (Losses) on
Investments .3906 .2200 (.6922) .7588 .5000 .4700 (.2300) .4300 (.2700) (.9300)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income (Loss) From
Investment Operations .6594 .7520 (.1655) 1.3058 1.0705 1.0433 .3589 1.0326 .3546 (.4930)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income (.2694) (.5320) (.5263) (.5477) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
Distributions from Net Realized
Capital Gains 0 0 (.2082) (.0881) 0 0 0 0 0 0
Distributions in Excess of Net
Realized Capital Gains 0 0 (.0700) 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions (.2694) (.5320) (.8045) (.6358) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD $10.28 9.89 9.67 10.64 9.97 9.47 9.00 9.23 8.80 9.07
====== ==== ==== ===== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 6.71% 8.09% (1.68)% 13.74% 11.67% 11.87% 3.96% 12.04% 4.58% (8.51)%
- ------------
</TABLE>
34
<TABLE>
<CAPTION>
Financial Highlights - Tax-Free Insured Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987+
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets at End of Period
(in thousands of dollars) $190,473 178,913 189,439 223,440 145,965 94,951 59,870 42,569 29,531 12,748
Ratio of Expenses to Average
Daily Net Assets++ .51%** .50% .49% .52% .55% .59% .61% .66% 0% 0%
Ratio of Net Investment Income
to Average Daily Net Assets 5.26%** 5.54% 5.20% 5.37% 5.90% 6.18% 6.43% 6.62% 7.39% 7.11%**
Portfolio Turnover Rate 19.45% 40.45% 47.12% 60.94% 53.73% 37.59% 117.47% 73.02% 145.29% 21.04%
- -------------------
+ From December 30, 1986 (commencement of operations), through August 31, 1987.
++ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
35
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 1996
(Unaudited)
TAX-FREE MUNICIPAL MUNICIPAL TAX-FREE
MONEY MARKET MONEY MARKET HIGH-YIELD INSURED
FUND FUND FUND FUND
--------- --------- --------- ---------
ASSETS
<S> <C> <C> <C> <C>
Investment securities at value (cost of $427,320,472,
$194,154,025, $118,630,606 and $175,204,532,
respectively)......................................$ 427,320,472 194,154,025 124,390,827 185,315,439
Investment in affiliated money market fund (Note 2).. 0 0 0 2,000,000
Cash................................................. 3,211,207 2,544,149 3,050,908 1,216,925
Interest receivable.................................. 3,269,082 1,485,394 2,334,285 2,663,379
Receivable for fund shares sold...................... 3,561,389 358,086 548,053 9,001
Margin deposit for futures contracts................. 0 0 0 39,375
Receivable for securities sold....................... 0 0 0 5,207,860
Prepaid expenses and other assets.................... 7,970 7,064 3,978 5,029
------------ ----------- ----------- ----------
Total assets....................................... 437,370,120 198,548,718 130,328,051 196,457,008
------------ ----------- ----------- ----------
LIABILITIES
Payable for securities purchased..................... 2,105,445 0 0 5,597,884
Payable for fund shares redeemed..................... 1,698,405 727,401 170,129 77,947
Dividends payable.................................... 42,983 18,242 168,542 233,692
Fees payable to affiliates (Note 2).................. 152,670 74,188 47,793 68,840
Net unrealized depreciation on futures contracts (Note 1) 0 0 0 5,635
Accrued expenses and other liabilities............... 5,678 0 4,560 137
------------ ----------- ----------- ----------
Total liabilities.................................. 4,005,181 819,831 391,024 5,984,135
------------ ----------- ----------- ----------
NET ASSETS..............................................$ 433,364,939 197,728,887 129,937,027 190,472,873
============ =========== =========== ==========
Net assets consist of:
Capital paid in......................................$ 433,429,977 197,808,206 124,966,354 179,721,818
Undistributed accumulated net realized gain (loss)
on investments.................................... (1,010,978) (156,482) (793,422) 645,783
Undistributed net investment income.................. 945,940 77,163 3,874 0
Net unrealized appreciation on investments........... 0 0 5,760,221 10,105,272
------------ ----------- ----------- ----------
Net assets..............................................$ 433,364,939 197,728,887 129,937,027 190,472,873
============ =========== =========== ==========
Shares of beneficial interest outstanding
(unlimited number of shares authorized).............. 430,429,977 197,808,206 13,850,512 18,529,839
============ =========== =========== ==========
Net asset value, offering price and redemption price
per share............................................ $1.00 1.00 9.38 10.28
===== ==== ==== =====
- -------------------
See the accompanying notes to financial statements.
</TABLE>
36
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended February 29, 1996
(Unaudited)
TAX-FREE MUNICIPAL MUNICIPAL TAX-FREE
MONEY MARKET MONEY MARKET HIGH-YIELD INSURED
FUND FUND FUND FUND
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income ......................................... $7,905,450 3,764,241 4,072,839 5,375,293
----------- ----------- ----------- ----------
EXPENSES (NOTE 2)
Investment advisory fees ................................ 609,035 280,889 182,161 271,215
Administrative fees ..................................... 201,058 92,729 60,135 89,535
Transfer agency fees .................................... 114,576 72,961 33,581 45,501
Printing and postage .................................... 53,831 26,897 14,880 22,120
Custodian fees .......................................... 30,799 18,034 10,977 14,345
Auditing and legal fees ................................. 43,551 23,938 5,243 4,257
Registration and filing fees ............................ 1,714 1,509 6,046 1,279
Directors' fees and expenses ............................ 5,551 3,862 3,354 3,809
Other operating expenses ................................ 16,236 15,214 10,515 18,641
---------- ---------- ---------- ----------
Total expenses ........................................ 1,076,351 536,033 326,892 470,702
Custodian earnings credits (Note 5) ..................... (28,720) (17,554) (8,213) (11,367)
---------- ---------- ---------- ----------
Net expenses .......................................... 1,047,631 518,479 318,679 459,335
---------- ---------- ---------- ----------
Net investment income .............................. 6,857,819 3,245,762 3,754,160 4,915,958
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4)
Net realized gain (identified cost basis):
Proceeds from sales ..................................... 15,620,510 2,010,340 29,922,127 37,137,764
Cost of securities sold ................................. 15,611,681 2,004,454 28,841,730 35,261,202
---------- ---------- ---------- ----------
Net realized gain ..................................... 8,829 5,886 1,080,397 1,876,562
---------- ---------- ---------- ----------
Unrealized appreciation of investments:
Beginning of period ..................................... 0 0 3,081,946 4,894,797
End of period ........................................... 0 0 5,760,221 10,105,272
---------- ---------- ---------- ----------
Net unrealized appreciation for the period ............ 0 0 2,678,275 5,210,475
---------- ---------- ---------- ----------
Net realized and unrealized gain on investments ....... 8,829 5,886 3,758,672 7,087,037
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations ....... $6,866,648 3,251,648 7,512,832 12,002,995
========== ========== ========== ==========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
37
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF CHANGES IN
NET ASSETS For the Six Months Ended February 29, 1996, and Year Ended August 31, 1995
(Unaudited)
TAX-FREE MUNICIPAL MUNICIPAL TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND HIGH-YIELD FUND INSURED FUND
------------------ ------------------ ------------------ ------------------
FEB. 29, AUG. 31, FEB. 29, AUG. 31, FEB. 29, AUG. 31, FEB. 29, AUG. 31,
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income...$6,857,819 12,490,536 3,245,762 7,186,611 3,754,160 6,816,691 4,915,958 9,528,498
Net realized gain (loss)
on investments........ 8,829 (285,303) 5,886 (162,368) 1,080,397 (1,873,070) 1,876,562 232,451
Net change in unrealized
appreciation
on investments........ 0 0 0 0 2,678,275 1,850,452 5,210,475 3,002,263
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Change in net assets
derived from
investment
activities......... 6,866,648 12,205,233 3,251,648 7,024,243 7,512,832 6,794,073 12,002,995 12,763,212
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income...(6,787,253) (12,368,993) (3,235,503) (7,127,335) (3,754,378) (6,813,446) (4,926,892) (9,528,450)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions to
shareholders......(6,787,253) (12,368,993) (3,235,503) (7,127,335) (3,754,378) (6,813,446) (4,926,892) (9,528,450)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
38
<TABLE>
<CAPTION>
Statement of Changes in Net Assets(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE MUNICIPAL MUNICIPAL TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND HIGH-YIELD FUND INSURED FUND
------------------ ------------------ ------------------ ------------------
FEB. 29, AUG. 31, FEB. 29, AUG. 31, FEB. 29, AUG. 31, FEB. 29, AUG. 31,
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 3):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proceeds from sales
of shares...........195,467,763 466,211,495 124,657,402 310,209,174 30,940,580 58,165,774 29,915,511 51,954,200
Net asset value of dividends
reinvested............ 6,479,791 11,717,045 3,109,879 6,894,430 2,704,313 4,776,705 3,402,599 6,459,209
Cost of shares
redeemed............(182,761,215)(434,739,843)(121,776,879) (368,979,533) (23,632,188) (62,756,859) (28,833,903) (72,174,227)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Change in net assets
derived from capital
share transactions 19,186,339 43,188,697 5,990,402 (51,875,929) 10,012,705 185,620 4,484,207 (13,760,818)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets......19,265,734 43,024,937 6,006,547 (51,979,021) 13,771,159 166,247 11,560,310 (10,526,056)
NET ASSETS:
Beginning of period....414,099,205 371,074,268 191,722,340 243,701,361 116,165,868 115,999,621 178,912,563 189,438,619
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
End of period.........$433,364,939 414,099,205 197,728,887 191,722,340 129,937,027 116,165,868 190,472,873 178,912,563
=========== =========== =========== =========== =========== =========== =========== ===========
Undistributed net
investment income.....$ 945,940 975,117 77,163 66,904 3,874 4,091 0 3,829
=========== =========== =========== =========== =========== =========== =========== ===========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
39
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham California Tax-Free and Municipal Funds (BCTFMF) is registered under the
Investment Company Act of 1940 as an open-end management investment company.
Tax-Free Money Market Fund, Municipal Money Market Fund, Municipal High-Yield
Fund, and Tax-Free Insured Fund (collectively the "Funds") are four of the seven
Funds composing BCTFMF. With the exception of the Municipal Money Market Fund,
each Fund is a "diversified company" as defined in the Investment Company Act of
1940. Each Fund invests primarily in municipal debt securities that pay interest
exempt from federal and California income taxes. Significant accounting policies
followed by the Funds are summarized below.
VALUATION OF INVESTMENT SECURITIES--Securities held by the Tax-Free Money Market
Fund and Municipal Money Market Fund (collectively the "Money Market Funds") are
valued at amortized cost, which approximates current market value. Securities
held by the Municipal High-Yield and Tax-Free Insured Funds (collectively the
"Variable-Price Funds") are valued at current market value as provided by an
independent pricing service. When valuations are not readily available,
securities are valued at market value as determined in good faith by or under
the direction of the Board of Trustees. Securities transactions are recorded on
the date the order to buy or sell is executed. Realized gains and losses on
security transactions are determined on the basis of identified cost.
INCOME TAXES--Each Fund of BCTFMF intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. By doing so, each Fund
will not be subject to federal or state income or franchise taxes to the extent
that it distributes its net investment income and net realized capital gains to
shareholders. Accordingly, no provision for income taxes has been made.
Due to the timing of dividend distributions and the differences in accounting
for gains and losses for financial statement and federal income tax purposes,
the fiscal year in which amounts are distributed may differ from the year in
which the income and realized gains (losses) were recorded by each Fund. The
differences between capital gains distributed on a book versus tax basis are
shown as excess distributions of realized capital gains in the accompanying
Financial Highlights.
40
As of August 31, 1995, the Tax-Free Money Market Fund, Municipal Money Market
Fund, Municipal High-Yield Fund, and Tax-Free Insured Fund had capital loss
carryovers of $740,889, $3,865, $425,261, and $1,230,778, respectively. No
capital gains distributions will be made by each Fund until all of its loss
carryovers have been offset or expired. The capital loss carryovers expire
August 31, 1996, through August 31, 2003.
SHARE VALUATION--Each Fund's net asset value per share is computed each business
day by dividing the value of its total assets, less its liabilities, by the
total number of shares outstanding at the beginning of each business day. It is
BCTFMF's policy to maintain a constant net asset value of $1.00 per share for
the Money Market Funds, although there is no guarantee it will be able to do so.
The Variable-Price Funds' net asset values fluctuate daily in response to
changes in the market value of their investments.
INVESTMENT INCOME, PREMIUM, AND DISCOUNT--Interest income and expenses are
accrued daily. For each Fund, premium on securities purchased is amortized daily
on a straight-line basis over the shorter period of purchase date to call date
or purchase date to maturity date. Market discount is recognized as income upon
sale or maturity of the securities for the Variable-Price Funds. Original issue
discount for municipal securities is accrued daily using the effective interest
rate method for the Variable-Price Funds. Discount is accrued daily on a
straight-line basis through maturity for securities held by the Money Market
Funds.
DIVIDENDS AND OTHER DISTRIBUTIONS--The Money Market Funds' dividends are
declared and credited daily and distributed on the last business day of the
month. The Variable-Price Funds' dividends are declared daily, accrued
throughout the month, and distributed on the last business day of the month.
Each Variable-Price Fund distributes net capital gains, if any, once per year.
Shareholders may elect to receive distributions in cash or reinvest them in
additional shares.
FUTURES CONTRACTS--The Variable-Price Funds may use futures transactions to
maintain cash reserves while remaining fully invested, to facilitate trading, to
reduce transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Some futures contract strategies present a substantial risk of loss, due to both
the low margin deposits required and the high degree of leverage involved in
futures pricing. A relatively small movement in a futures contract may result in
immediate, substantial gains or losses to the contact holder. Gains from futures
transactions are subject to federal income tax when distributed to shareholders.
41
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund. The variation margin is equal to the daily change in the
contract value and is recorded as unrealized gains and losses. The Fund
recognizes a realized gain or loss when the contract is closed or expires.
As of February 29, 1996, the following Fund had futures contracts outstanding:
NUMBER OF NET UNREALIZED
FUND CONTRACTS TYPE EXPIRATION DATE VALUE DEPRECIATION
- ----------- --------- ---------------- --------------- --------- ------------
Tax-Free Municipal Bond
Insured Fund 20 Futures Contract March 31, 1996 $2,360,625 $5,635
Securities in market value of $3,537,840 have been segregated at the custodian
bank for these contracts.
(2) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc., merged into TCC on June 1, 1995. Each Fund pays Benham
Management Corporation (BMC) a monthly investment advisory fee based on its pro
rata share of the dollar amount derived from applying BCTFMF's average daily net
assets to the following annualized investment advisory fee schedule.
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion
BMC provides BCTFMF with all investment advice. TCC pays all compensation of
BCTFMF officers and trustees who are officers or directors of TCC or any of its
subsidiaries. In addition, promotion and distribution expenses are paid by BMC.
42
BCTFMF has an Administrative Services and Transfer Agency Agreement with Benham
Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under the
agreement, BFS provides substantially all administrative and transfer agency
services necessary to operate the Funds. Fees for these services are based on
transaction volume, number of accounts, and average net assets of all funds in
The Benham Group.
BCTFMF has an additional agreement with BMC pursuant to which BMC established a
contractual expense guarantee that limits each Fund's expenses (excluding
extraordinary expenses such as brokerage commissions and taxes) to .54% of
average daily net assets for the Tax-Free Money Market Fund, .58% of average
daily net assets for the Municipal Money Market Fund, and .62% of average daily
net assets for the Variable-Price Funds. The agreement provides that BMC may
recover amounts (representing expenses in excess of the Fund's expense guarantee
rate) absorbed during the preceding 11 months, if, and to the extent that, for
any given month, the Fund's expenses were less than the expense guarantee rate
in effect at that time. The expense guarantee rate is subject to renewal in June
1996.
The payables to affiliates as of February 29, 1996, based on the above
agreements were as follows:
TAX-FREE MUNICIPAL MUNICIPAL TAX-FREE
MONEY MARKET MONEY MARKET HIGH-YIELD INSURED
FUND FUND FUND FUND
----------- ---------- --------- -----------
Investment Advisor.......$ 97,714 45,330 29,863 44,191
Administrative Services.. 32,272 14,971 9,863 14,595
Transfer Agent........... 22,684 13,887 8,067 10,054
------- ------ ------ ------
$ 152,670 74,188 47,793 68,840
======= ====== ====== ======
BCTFMF has a distribution agreement with Benham Distributors, Inc. (BDI), which
is responsible for promoting sales of and distributing the Funds' shares. BMC
pays all costs incurred by BDI. BDI is a wholly owned subsidiary of TCC.
The Tax-Free Money Market and Municipal Money Market Funds own $5,050,000 and
$2,950,000, respectively, of tax revenue and anticipation notes issued by Orange
County, California, which filed for bankruptcy protection on December 6, 1994.
The market values of these securities on February 29, 1996, were $4,980,563 for
the Tax-Free Money Market Fund and $2,909,438 for the Municipal Money Market
Fund. TCC arranged for the issuance of irrevocable standby letters of credit by
State Street Bank and Trust Company in favor of the Tax-Free Money Market and
Municipal Money Market Funds. The terms of the letters of credit provide for the
payment of up to $2,520,000 to the Tax-Free Money Market Fund and $1,475,000 to
the Municipal Money Market
43
Fund should Orange County default in the payment of principal and/or interest on
such notes. Since the letters of credit only cover one half of the amount of
Orange County notes held, the Funds continue to be exposed to risk of principal
and/or interest on the Orange County notes. TCC has agreed to reimburse State
Street Bank for any payments made by the bank to the Funds under the letter of
credit. The value of the letter of credit is not considered material to either
of the Money Market Funds' financial statements.
Prior to the issuance of the above mentioned letters of credit, BMI agreed to
purchase the Orange County notes, to the extent necessary, should they cause the
Money Market Funds' net asset value to drop below the $1.00 share price. The net
asset value of the Money Market Funds did not drop below $1.00, thus BMI did not
purchase the Orange County notes.
(3) SHARE TRANSACTIONS
Share transactions for each of the Funds for the six months ended February 29,
1996, and the year ended August 31, 1995, were as follows:
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
Fund Fund
------------------- -------------------
Feb. 29, Aug. 31, Feb. 29, Aug. 31,
1996 1995 1996 1995
--------- --------- --------- ---------
Shares sold........... 195,467,763 466,211,495 124,657,402 310,209,174
Reinvestment of
dividends............ 6,479,791 11,717,045 3,109,879 6,894,430
----------- ----------- ----------- -----------
201,947,554 477,928,540 127,767,281 317,103,604
Less shares redeemed..(182,761,215)(434,739,843)(121,776,879)(368,979,533)
----------- ----------- ----------- -----------
Net increase
(decrease) in shares. 19,186,339 43,188,697 5,990,402 (51,875,929)
=========== =========== =========== ===========
MUNICIPAL TAX-FREE
HIGH-YIELD INSURED
Fund Fund
------------------- -------------------
Feb. 29, Aug. 31, Feb. 29, Aug. 31,
1996 1995 1996 1995
--------- --------- --------- ---------
Shares sold............ 3,325,621 6,551,021 2,926,165 5,419,808
Reinvestment of
dividends............. 289,365 537,231 332,334 673,481
----------- ----------- ----------- -----------
3,614,986 7,088,252 3,258,499 6,093,289
Less shares redeemed...(2,521,256) (7,132,653) (2,813,605) (7,600,045)
----------- ----------- ----------- -----------
Net increase
(decrease) in shares.. 1,093,730 (44,401) 444,894 (1,506,756)
=========== =========== =========== ===========
44
(4) INVESTMENT SECURITIES--PURCHASES, SALES AND/OR MATURITIES
Portfolio activity, excluding short-term securities, for the six months ended
February 29, 1996, was as follows:
MUNICIPAL TAX-FREE
HIGH-YIELD INSURED
Fund Fund
---------------- ----------------
Purchases............................ $ 37,248,266 30,897,213
=========== ==========
Sales proceeds....................... $ 29,922,127 37,137,764
=========== ==========
As of February 29, 1996, unrealized appreciation (depreciation) was as follows:
MUNICIPAL TAX-FREE
HIGH-YIELD INSURED
Fund Fund
---------------- ----------------
Appreciated securities............... $ 5,953,457 10,612,718
Depreciated securities............... (193,236) (501,811)
----------- ----------
Net unrealized appreciation.......... $ 5,760,221 10,110,907
=========== ==========
The cost of securities for financial reporting and federal income tax purposes
is the same.
(5) EXPENSE OFFSET ARRANGEMENTS
Each Fund's Statement of Operations reflects custodial earnings credits. These
amounts are used to offset the custody fees payable by the Funds to the
custodian bank. The credits are earned when the Fund maintains a balance of
uninvested cash at the custodian bank. Beginning with the six months ending
February 29, 1996, the ratio of expenses to average daily net assets shown in
the Financial Highlights are calculated as if these credits had not been earned.
45
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Money Market Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 4,500,000 Agoura Hills Multifamily Housing Revenue Bond Oakridge Apartments,
Guaranteed by Continental Casualty Co. 3.700% 03/06/96* $4,500,000 NR/A1
4,900,000 Anaheim Housing Authority Revenue, Heritage
Village Apartments Series 1992 A,
Letter of Credit-Barclay's Bank 3.000 03/07/96* 4,900,000 VMIG1/NR
7,000,000 Anaheim Refunding Project Series 1993 Certificate of Participation,
Letter of Credit-Industrial Bank of Japan 3.050 03/06/96 7,000,000 MIG1/NR
3,500,000 Anaheim Unified High School District Tax and Revenue Anticipation
Notes, Letter of Credit-Bank of America 5.000 09/05/96 3,515,540 MIG1/NR
155,000 Association of Bay Area Governments Lease Revenue Pooled Project,
Letter of Credit-National Westminster Bank 2.850 03/07/96* 155,000 VMIG1/NR
4,000,000 Auburn Unified School District Certificate of Participation Series 1993,
California, Letter of Credit-Bank of California 3.450 03/07/96* 4,000,000 VMIG1/A-1
4,200,000 Auburn Unified School District Certificate of Participation Series 1993,
California, Letter of Credit-Bank of California 3.450 03/07/96* 4,200,000 MIG1/A-1
7,800,000 Azusa Multifamily Housing Revenue Bond Pacific Glen Apartments,
Guaranteed by Continental Casualty Co. 3.600 03/07/96* 7,800,000 NR/A-1
4,000,000 Brea Redevelopment Agency Redevelopment Project
Area AB, Prerefunded at 102.50% of par 8.500 09/15/96 4,193,478 NR/AAA
15,000,000 California Health Facilities Financing Authority
Catholic Health Series D, Letter of Credit-Rabobank 3.000 03/07/96* 15,000,000 VMIG1/NR
1,500,000 California Health Facilities Financing Authority
Children's Hospital, Letter of Credit-Rabobank 2.950 03/07/96* 1,500,000 VMIG1/A-1+
3,400,000 California Health Facilities Financing Authority
Granada Hills, Letter of Credit-Banque Paribas 3.200 03/06/96* 3,400,000 VMIG1/NR
1,015,000 California Health Facilities Financing Authority
Loan Program Series A, Letter of Credit-Rabobank 3.000 03/07/96* 1,015,000 VMIG1/NR
</TABLE>
46
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$10,470,000 California Health Facilities Financing Authority Pooled Loan Series B,
FGIC Insured, Letter of Credit-General Electric Credit Corporation 3.000% 03/06/96*$10,470,000 VMIG1/A-1+
2,600,000 California Health Facilities Financing Authority Pooled Program,
Letter of Credit-Rabobank 3.000 03/06/96* 2,600,000 VMIG1/A-1+
6,000,000 California Health Scripps Memorial Hospital, Series
1985 B, Standby Bond Purchase Agreement-
Morgan Guaranty Trust, MBIA Insured 3.000 03/07/96* 6,000,000 VMIG1/A-1+
1,000,000 California Pollution Control Financing Authority
Chevron USA, Inc. 4.000 11/15/96 1,000,000 Aa2/AA
10,500,000 California Pollution Control Financing Authority
Chevron USA, Inc. 4.500 05/15/96 10,500,000 Aa2/AA
13,500,000 California Pollution Control Revenue Authority
North County Recovery Series 1992 B, Letter
of Credit-Union Bank of Switzerland 3.000 03/06/96* 13,500,000 VMIG1/A-1+
5,000,000 California Public Capital Improvement Financing Authority
Revenue Bonds Pool Project C, Letter of Credit-National
Westminster Bank 3.700 03/15/96 5,000,000 VMIG1/NR
10,525,000 California School Cash Reserve Program Series A, MBIA Insured 4.750 07/03/96 10,554,738 MIG1/SP1+
500,000 California State Revenue Anticipation Warrants, FGIC Insured 5.750 04/25/96 500,910 NR/AAA
15,875,000 California State Revenue Anticipation Warrants
Series C, Letter of Credit Supported 5.750 04/25/96 15,908,904 MIG1/SP1
7,000,000 California Statewide Communities Apartment Development Authority
Series A-1, Letter of Credit-Federal National Mortgage
Association Collateral Agreement 3.000 03/06/96* 7,000,000 NR/A-1+
7,000,000 California Statewide Communities Apartment Development Authority
Series A-2, Letter of Credit-Federal National Mortgage
Association Collateral Agreement 3.000 03/07/96* 7,000,000 NR/A-1+
3,000,000 California Statewide Communities Apartment Development Authority
Whispering Winds Apartments, Guaranteed by
Continental Casualty Co. 3.700 03/06/96* 3,000,000 NR/A-1
8,000,000 California Statewide Communities Covenant Retirement Community
Certificate of Participation, Letter of Credit-ABN-AMRO Bank 3.300 03/07/96* 8,000,000 NR/A-1+
2,445,000 Central Unified School District, Letter of Credit-Bank of California 3.700 03/06/96* 2,445,000 VMIG1/NR
</TABLE>
47
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,930,000 Contra Costa Public Financing Authority Revenue Refunding
Certificate of Participation, MBIA Insured 7.000% 06/01/96 $1,945,212 Aaa/AAA
5,000,000 Contra Costa Transportation Sales Tax Revenue, California,
Insurance and Liquidity provided by FGIC 3.100 03/06/96* 5,000,000 VMIG1/A-1+
2,700,000 Covina Redevelopment Agency Multifamily Housing Revenue Bond
Shadowhills Apartments, Guaranteed by Continental Casualty Co. 3.600 03/07/96* 2,700,000 NR/A-1
2,000,000 Foothill/Eastern Transportation Corridor Agency,
Letter of Credit-Credit Suisse 2.750 03/06/96* 2,000,000 NR/A-1+
6,500,000 Foothill/Eastern Transportation Corridor Agency,
Series B, Letter of Credit-Morgan Guaranty Trust 2.950 03/07/96* 6,500,000 NR/A-1+
4,650,000 Gardena Financing Agency Public Parking Project,
California, Letter of Credit-Industrial Bank of Japan 3.550 03/07/96* 4,650,000 VMIG1/NR
3,680,000 Glendale Industrial Development Revenue Reliance Development
Series 1984, Letter of Credit-Barclay's Bank 3.550 03/01/96* 3,680,000 NR/A-1+
4,900,000 Golden Empire School Financing Authority Kern High School District
Series 1995 A, Letter of Credit-Canadian Imperial Bank of Commerce 3.050 03/06/96* 4,900,000 NR/A-1+
12,100,000 Hayward Multifamily Housing Revenue Bond Shorewood Apartments,
Insurance and Liquidity provided by FGIC. 3.200 03/07/96* 12,100,000 VMIG1/AAA
2,000,000 Irvine Assessment District Number 89-10, Letter
of Credit-National Westminster Bank 3.150 03/01/96* 2,000,000 VMIG1/A-1+
2,705,000 Irvine Industrial Development Authority Shimano
Amer Corporation, Letter of Credit-Bank of Tokyo 3.600 03/06/96* 2,705,000 Aa3/NR
4,480,000 Irvine Public Facilities Infrastructure Authority Capital Improvement
Bond Series 1987, California, Letter of Credit-National
Westminster Bank 3.250 03/07/96* 4,480,000 VMIG1/NR
1,500,000 Irvine Ranch Water District, Letter of Credit-Bank of America 3.550 03/01/96* 1,500,000 VMIG1/A-1+
1,500,000 Irvine Ranch Water District, Letter of Credit-Sumitomo Bank Ltd. 3.750 03/01/96* 1,500,000 NR/A-1
3,600,000 Irvine Ranch Water District, Letter of Credit-Bank of America 3.550 03/01/96* 3,600,000 VMIG1/A-1+
3,600,000 Kern County Public Facility Project Series C,
Letter of Credit-Union Bank of Switzerland 2.950 03/06/96* 3,600,000 VMIG1/NR
2,100,000 Lemore Golf Course Project Series 1995 Certificate of Participation,
Letter of Credit-Bank of California 3.550 03/07/96* 2,100,000 NR/A-1
4,000,000 Livermore Reverse Osmosis Project Certificate of Participation,
Letter of Credit-National Westminster Bank 3.250 03/07/96* 4,000,000 VMIG1/A-1+
</TABLE>
48
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,000,000 Loma Linda Water Revenue, Letter of Credit-Bank of California 3.700% 03/06/96* $3,000,000 VMIG1/NR
5,000,000 Long Beach Multifamily Housing Revenue Bond
Channel Point Apartments, Letter of Credit-Bank of Tokyo 3.350 03/06/96* 5,000,000 VMIG1/NR
4,000,000 Los Angeles Community College District, Letter
of Credit-Commerzbank 4.500 07/31/96 4,008,812 NR/SP1+
6,500,000 Los Angeles County Metropolitan Union Station Bond Housing
Loans Project A, Letter of Credit-Societe Generale 2.950 03/07/96* 6,500,000 VMIG1/A-1+
5,050,000 Los Angeles County Tax and Revenue Anticipation Notes, Letter of
Credit-Bank of America, Credit Suisse, Morgan Guaranty Trust,
Swiss Bank, Union Bank of Switzerland, Westdeutsche Landesbank 4.500 07/01/96 5,060,325 MIG1/SP+
1,800,000 Los Angeles County Transportation Commission
Notes Sales Tax Series 1986 A 7.600 07/01/96 1,859,867 Aaa/NR
4,150,000 Los Angeles Multifamily Housing Revenue Bond Studio Colony
Series 1985 C, California, Letter of Credit-Industrial Bank of Japan 3.250 03/07/96* 4,150,000 VMIG1/NR
1,700,000 Los Angeles Waste Water Revenue Bond Series A, MBIA Insured 8.500 06/01/96 1,719,716 Aaa/AAA
1,500,000 Merced County SCAC Construction Lease Financing
Program Certificate of Participation Series A, FSA Insured 4.750 10/01/96 1,513,134 Aaa/AAA
1,000,000 Modesto Multifamily Housing Revenue Bond Shadowbrook
Apartments, Letter of Credit-Bank of America 3.250 06/01/96* 1,000,000 MIG1/NR
1,100,000 Oakland Health Facility Children's Hospital,
Connie Lee Insured 5.000 07/01/96 1,105,445 NR/AAA
12,000,000 Oceanside Multifamily Housing Revenue Refunding Bonds Lakeridge
Apartments Project, Guaranteed by Continental Casualty Co. 3.650 03/06/96* 12,000,000 NR/A-1
4,500,000 Orange County Apartment Development The Lake Project
Series 1991 A, California, Letter of Credit-Citibank 3.250 03/07/96* 4,500,000 NR/A-1+
4,200,000 Orange County Apartment Development Vintage Woods
Series 1984 E, California, Letter of Credit-Mitsubishi Bank 3.600 03/07/96* 4,200,000 VMIG1/NR
3,400,000 Orange County Multifamily Housing Revenue Bond Heritage Point
Apartments, Letter of Credit-Banque Paribas 3.350 03/06/96* 3,400,000 NR/A-1
5,000,000 Orange County Municipal Water District Series 1992 A,
Letter of Credit-Barclay's Bank 3.200 03/06/96* 5,000,000 VMIG1/A-1+
2,525,000 Orange County 1994-1995 Tax and Revenue Anticipation
Notes Series A, Letter of Credit-State Street Bank+ 5.450 06/30/96 2,525,000 SG/D
2,525,000 Orange County 1994-1995 Tax and Revenue Anticipation Notes Series A+ 5.450 06/30/96 2,525,000 SG/D
</TABLE>
49
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,000,000 Orange County Water Tax Exempt Commercial Paper,
Letter of Credit-Union Bank of Switzerland 3.250% 04/11/96 $3,000,000 P1/A-1+
3,000,000 Orange County Water Tax Exempt Commercial Paper,
Letter of Credit-Union Bank of Switzerland 3.250 05/10/96 3,000,000 P1/A-1+
900,000 Palm Springs Redevelopment Agency, Letter of Credit-Citibank 3.050 03/06/96* 900,000 NR/A-1+
6,100,000 Pico Rivera Redevelopment Agency Project Certificate of
Participation, Letter of Credit-Wachovia Bank of Georgia 3.150 03/05/96* 6,100,000 NR/A-1+
2,300,000 Redlands Water Treatment Facility Certificate of
Participation, FGIC Insured 4.500 11/01/96 2,309,100 VMIG1/A1+
6,140,000 Riverside County Multifamily Housing Revenue Bond Ambergate
Apartments, California, Letter of Credit-Bank of Tokyo 3.500 03/07/96* 6,140,000 VMIG1/NR
1,715,000 Rohnert Park Multifamily Housing Revenue Bond Crossbrook
Apartments, Federal National Mortgage Association
Collateral Agreement 3.150 03/06/96* 1,715,000 NR/A-1+
2,090,000 Sacramento County Laguna Community Facility District, FGIC Insured 4.500 12/01/96 2,102,056 Aaa/AAA
8,200,000 Sacramento County Multifamily Housing Revenue Bond River Oaks,
Letter of Credit-Dai-Ichi Kangyo Bank 3.450 03/07/96* 8,200,000 VMIG1/A-1
1,500,000 Sacramento County Multifamily Housing Revenue Bond
Series 1985 A, Letter of Credit-Dai-Ichi Kangyo Bank 3.450 03/07/96* 1,500,000 VMIG1/A-1
8,000,000 San Bernardino County Tax and Revenue Anticipation Notes Series 1995-96,
Letter of Credit-Bank of Nova Scotia, Banque National de Paris,
Toronto Dominion 4.500 07/05/96 8,013,924 MIG1/SP1
10,000,000 San Bernardino County Certificate of Participation, Standby Bond
Purchase Agreement-Merrill Lynch, MBIA Insured 3.500 03/07/96* 10,000,000 VMIG1/NR
12,450,000 San Bernardino Multifamily Housing Revenue
Bond Castle Park Apartments Series A,
California, Letter of Credit-Bank of Tokyo 3.650 03/06/96* 12,450,000 VMIG1/NR
1,370,000 San Diego County Country Hills, Letter of Credit-Federal National
Mortgage Association Collateral Agreement 3.050 03/06/96* 1,370,000 NR/A-1+
4,000,000 San Diego Multifamily Housing Revenue
Bond La Serena Project, Letter of Credit-Citibank 3.100 03/07/96* 4,000,000 NR/A-1+
1,000,000 San Diego County Regional Transportation
Commission Sales Tax Series A 5.800 04/01/96 1,001,575 Aaa/AAA
</TABLE>
50
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 4,565,000 San Diego Housing Authority Multifamily Housing Revenue Bond Market
Project Series 1985 G, California, Letter of Credit-Barclay's Bank 3.300% 03/06/96* $4,565,000 VMIG1/NR
5,000,000 San Diego Unified School District Tax and Revenue Anticipation Notes
Series A, Letter of Credit-Westdeutsche Landesbank 4.750 10/10/96 5,024,039 MIGI/NR
4,700,000 San Dimas Regional Development Agency Diversified
Shop Certificate of Participation, Letter of Credit
Morgan Guaranty Trust 3.000 03/07/96* 4,700,000 NR/A-1+
2,500,000 San Francisco Redevelopment Agency Fillmore Center Project #202,
Letter of Credit-Bank of Nova Scotia 3.100 03/06/96* 2,500,000 NR/A-1+
1,400,000 San Jose Financing Authority Hayes Mansion,
Letter of Credit-Sumitomo Bank Ltd. 3.550 03/06/96* 1,400,000 VMIG1/NR
3,900,000 San Leandro Multifamily Housing Revenue Bond Parkside,
Federal National Mortgage Association Collateral Agreement 3.050 03/06/96* 3,900,000 NR/A-1+
800,000 Santa Clara County Multifamily Housing Revenue
Bond Grove Garden, Letter of Credit-Citibank 3.100 03/06/96* 800,000 VMIG1/NR
3,100,000 Santa Clara Electric System Revenue Bond Series B,
California, Letter of Credit-National Westminster Bank 2.900 03/06/96* 3,100,000 VMIG1/NR
4,400,000 Santa Clara Electric System Revenue Bond Series C,
California, Letter of Credit-National Westminster Bank 2.900 03/06/96* 4,400,000 VMIG1/NR
4,200,000 Santa Clara Multifamily Housing Revenue Bond Foxchase Apartments,
California, Insurance and Liquidity provided by FGIC 3.200 03/07/96* 4,200,000 VMIG1/NR
5,000,000 Santa Paula Public Financing Authority Series 1996,
Letter of Credit-Bank of California, Sumitomo Bank 3.700 03/06/96* 5,000,000 NR/A-1
2,000,000 Simi Valley Multifamily Housing Revenue Bond Lincoln Wood Ranch
Apartments Series 1990, California, Letter of Credit-Sumitomo Bank Ltd.3.200 03/07/96* 2,000,000 NR/A-1
1,000,000 South Coast Air Quality Management District Revenue Refunding
Series 1992, California, AMBAC Insured 4.500 08/01/96 1,002,526 Aaa/AAA
525,000 South San Francisco Water Plant Certificate of Participation Series 1991,
Letter of Credit-National Westminster Bank 3.300 03/06/96* 525,000 VMIG1/A-1+
1,000,000 Southern California Public Power Agency
Project Series 1987 A, California, Prerefunded 6.875 07/01/96 1,029,873 NR/AAA
1,600,000 Triunfo Sanitation District Refunding, Letter of
Credit-Banque National de Paris 3.200 03/06/96* 1,600,000 NR/A-1
</TABLE>
51
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 825,000 Upland Community Redevelopment Agency Multifamily Housing
Revenue Bond Northwoods, Letter of Credit-Sanwa Bank 3.700% 03/06/96* $ 825,000 NR/A-1
1,510,000 University of California, Los Angeles, Medical
Center, MBIA Insured. 8.000 12/01/96 1,556,298 Aaa/AAA
4,705,000 Vallejo Community Development Vallejo Center
Project Series A, Letter of Credit-Bank of Tokyo 3.600 03/05/96* 4,705,000 NR/A-1
- ------------ ------------
$426,775,000 Total Investment Securities (cost $427,320,472) $ 427,320,472
============ ============
NR = Not Rated
SG = Speculative Grade
D = Default
- -------------------
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon
demand on the date indicated. For purposes of calculating the Fund's weighted average maturity, the length to maturity of
these investments is considered to be the greater of the period until the interest rate is adjusted or until the principal
can be recovered by demand.
+ This security has been downgraded by both Moody's and S&P, due to the bankruptcy filing of Orange County, California. The
Board of Trustees has determined that it is currently not in the best interest of the Fund to dispose of this security. This
security was originally due on July 19, 1995. Orange County revised the terms of this security to extend the maturity to
June 30, 1996, along with an increase in the security's interest rate. See Note 2 of the accompanying notes to financial
statements.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Housing............................. 33.3% Higher Education............... 2.1%
Certificate of Participation........ 15.4 Electric....................... 1.8
Tax and Revenue Allocation.......... 9.8 Prerefunded.................... 1.2
Hospital............................ 8.8 Tax Allocation Bond............ 1.2
Water............................... 6.3 Special Tax.................... .5
Pollution Control Revenue........... 5.9 Escrow to Maturity............. .2
Transportation...................... 5.1 -----
Industrial Development Revenue...... 4.4
General Obligation.................. 4.0 TOTAL....................... 100.0%
======
</TABLE>
52
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Municipal Money Market Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,000,000 Agoura Hills Multifamily Housing Revenue Bond Oakridge Apartments,
Guaranteed by Continental Casualty Co. 3.700% 03/06/96* $2,000,000 NR/A-1
1,300,000 Alameda County Industrial Development Authority
Ream Enterprises, Letter of Credit-Wells Fargo Bank 3.500 03/06/96* 1,300,000 NR/A-1
600,000 Anaheim Multifamily Housing Revenue Bond
Sage Park Apartments, Letter of Credit-Bank of America 3.250 03/07/96* 600,000 VMIG1/NR
1,210,000 Anaheim Refinancing Project Certificate of Participation, Prerefunded 7.500 05/01/96 1,241,106 Aaa/AAA
1,500,000 Anaheim Unified School District Tax and Revenue Anticipation
Notes, Letter of Credit-Bank of America 5.000 09/05/96 1,506,660 MIG1/NR
2,500,000 Association of Bay Area Governments Industrial Development Revenue
Reliance Tech, Letter of Credit-Sanwa Bank of California 3.800 03/07/96* 2,500,000 NR/A-2
2,300,000 Auburn Industrial Development Authority Coherent,
Inc. Project, Letter of Credit-Bank of Tokyo 3.600 03/06/96* 2,300,000 Aa3/NR
2,815,000 Azusa Multifamily Housing Revenue Bond Pacific
Glen Apartments, Guaranteed by Continental Casualty Co. 3.600 03/07/96* 2,815,000 NR/A-1
4,600,000 Big Bear Lake Industrial Development Revenue South West Gas
Series 1993 A, California, Letter of Credit-Union Bank of Switzerland 3.050 03/06/96* 4,600,000 P1/A-1+
2,500,000 California Housing Financing Authority Home
Mortgage Series 1995 E 3.500 02/01/97 2,500,000 VMIG1/A-1+
3,535,000 California Housing Financing Authority Mortgage Bonds
Series 1995 M (PT-68), Standby Bond Purchase
Agreement-Credit Suisse, MBIA Insured 3.350 08/01/26* 3,535,000 VMIG1/NR
4,500,000 California Pollution Control Financing Authority
Western Waste Industries, Letter of Credit-Mitsubishi Bank 3.250 03/07/96* 4,500,000 VMIG1/NR
1,000,000 California Pollution Control Revenue Burney Forest, Letter of
Credit-National Westminster Bank 3.450 03/01/96* 1,000,000 P1/NR
2,000,000 California Pollution Control Revenue CR&R, Inc.
Project, Letter of Credit-Wells Fargo Bank 3.200 03/06/96* 2,000,000 NR/NR
</TABLE>
53
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 5,000,000 California Pollution Control Revenue Colmac
Energy Series B, Letter of Credit-Swiss Bank 3.050% 03/06/96* $5,000,000 VMIG1/A-1+
4,000,000 California Pollution Control Revenue Colmac
Energy Solid Waste Series A, Letter of Credit-Swiss Bank 3.050 03/06/96* 4,000,000 NR/A-1+
2,000,000 California Pollution Control Revenue Contra
Costa Waste Series 1995 A, Letter of Credit-Bank of America 3.450 03/06/96* 2,000,000 NR/NR
1,300,000 California Pollution Control Revenue Delano
Project, Letter of Credit-ABN-AMRO Bank 3.250 03/01/96* 1,300,000 P1/NR
2,500,000 California Pollution Control Revenue PG&E Tax Exempt Commercial
Paper, Letter of Credit-Sanwa Bank of California 3.350 03/15/96 2,500,000 NR/A-1+
2,500,000 California Pollution Control Revenue PG&E Tax
Exempt Commercial Paper, Letter of Credit-Swiss Bank 3.350 03/27/96 2,500,000 NR/A-1+
5,000,000 California Pollution Control Revenue Sanger
Energy Project Series 1990 A, Letter of Credit-Credit Suisse 3.050 03/06/96* 5,000,000 Aa2/NR
2,500,000 California Pollution Control Revenue Sanifill, Inc. Project,
Letter of Credit-California State Teachers Retirement System 3.200 03/07/96* 2,500,000 NR/A-1+
3,100,000 California Pollution Control Revenue Stanislaus
Project, Letter of Credit-Swiss Bank 3.450 03/01/96* 3,100,000 VMIG1/A-1+
1,200,000 California Pollution Control Revenue Ultrapower
Rocklin, Letter of Credit-Bank of America 3.300 03/01/96* 1,200,000 P1/NR
2,300,000 California Public Capital Improvement Project
Series C Pooled, Letter of Credit-National Westminster Bank 3.700 03/15/96 2,300,000 VMIG1/NR
5,400,000 California School Cash Reserve Program Series A, MBIA Insured 4.750 07/03/96 5,415,110 MIG1/SP1+
8,150,000 California State Revenue Anticipation Warrants
Series C, Letter of Credit Supported 5.750 04/25/96 8,167,465 MIG1/SP1
2,000,000 California Statewide Communities Apartment Development Authority
Whispering Winds Apartments, Guaranteed by
Continental Casualty Co. 3.700 03/06/96* 2,000,000 NR/A-1
2,000,000 California Statewide Communities Industrial
Development Authority Delimex Project,
Letter of Credit-Bank of Tokyo 3.500 03/06/96* 2,000,000 NR/A-1
3,040,000 California Statewide Communities Industrial Development Authority
Fixed Image Labs, Letter of Credit-California State Teachers
Retirement System 3.400 03/06/96* 3,040,000 NR/A-1+
</TABLE>
54
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,000,000 California Statewide Communities Industrial Development Authority
Kum Project, Letter of Credit-Bank of Tokyo 3.500% 03/06/96* $2,000,000 NR/A-1
5,000,000 California Statewide Communities Industrial Development Authority
Nichirin Flex, California, Letter of Credit-Dai-Ichi Kangyo Bank 3.550 03/06/96* 5,000,000 P1/NR
3,000,000 California Statewide Communities Industrial Development Authority
Tri Valley Series 1995 F, Letter of Credit-ABN-AMRO Bank 3.150 03/06/96* 3,000,000 NR/A-1+
2,000,000 California Statewide Communities Multifamily Housing Revenue
Bond Canyon Creek Apartments Series C, Federal National
Mortgage Association Collateral Agreement 3.250 03/06/96* 2,000,000 NR/A-1+
4,000,000 Contra Costa County Housing Authority Del Norte
Apartments, Letter of Credit-Sumitomo Bank Ltd. 3.500 03/05/96* 4,000,000 NR/A-1
2,000,000 Fowler Industrial Development Authority Bee Sweet
Citrus, Letter of Credit-Bank of America 3.450 03/07/96* 2,000,000 VMIG1/NR
1,000,000 Glenn Industrial Development Authority
Land O' Lakes Project, Letter of Credit-Sanwa Bank of California 3.900 03/01/96* 1,000,000 NR/A-1
1,500,000 Irvine Ranch Water District, Letter of Credit-Industrial Bank of Japan 3.750 03/01/96* 1,500,000 VMIG1/A-1
2,600,000 Irvine Ranch Water District, Letter of Credit-Bank of America 3.550 03/01/96* 2,600,000 VMIG1/A-1+
1,000,000 Livermore Multifamily Housing Revenue Bond
Portola Meadows, Letter of Credit-Bank of America 3.350 03/07/96* 1,000,000 VMIG1/NR
2,000,000 Livermore Reverse Osmosis Project Certificate
of Participation, Letter of Credit-National Westminster Bank 3.250 03/07/96* 2,000,000 VMIG1/A-1+
2,000,000 Long Beach Harbor Tax-Exempt Commercial Paper 3.250 04/10/96 2,000,000 NR/A1+
3,000,000 Los Angeles Community College District Tax and
Revenue Anticipation Notes, Letter of Credit-Commerzbank 4.500 07/31/96 3,006,609 NR/SP1+
2,200,000 Los Angeles County Industrial Development
Authority Tulip Corporation Project Issue 1,
California, Letter of Credit-LaSalle National Bank 3.600 03/06/96* 2,200,000 A1/NR
2,900,000 Los Angeles County Multifamily Housing Revenue Bond Housing
Loans Project A, Letter of Credit-Federal Home Loan Bank 3.350 03/01/96* 2,900,000 NR/A-1+
4,950,000 Los Angeles County Multifamily Housing Revenue
Bond Oakwood Apartments, Letter of Credit-Sumitomo Bank Ltd. 3.500 03/05/96* 4,950,000 NR/A-1
1,050,000 Los Angeles Municipal Improvement Project
Series 1996 Certificate of Participation, AMBAC Insured 3.700 02/01/97 1,050,000 Aaa/AAA
</TABLE>
55
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,500,000 Los Angeles County Tax and Revenue Anticipation Notes, Letter of
Credit-Bank of America, Credit Suisse, Morgan Guaranty Trust,
Swiss Bank, Union Bank of Switzerland, Westdeutsche Landesbank 4.500% 07/01/96 $1,503,368 MIG1/SP1+
485,000 Los Angeles County Wastewater Revenue Series 1996 A, FGIC Insured 4.500 02/01/97* 490,305 Aaa/AAA
2,700,000 Modesto Multifamily Housing Revenue Bond Live Oak Apartments,
Federal National Mortgage Association Collateral Agreement 3.150 03/06/96* 2,700,000 NR/A-1+
2,000,000 Oceanside Multifamily Housing Revenue Refunding Bonds Lakeridge
Apartments Project, Guaranteed by Continental Casualty Co. 3.650 03/06/96* 2,000,000 NR/A-1
2,500,000 Ontario Industrial Development Authority, Winsford
Partners Series A, Letter of Credit-Bank of America 3.550 03/06/96* 2,500,000 Aa3/NR
1,600,000 Orange County Apartment Development Foothill
Oaks, Letter of Credit-Bank of America 3.450 03/07/96* 1,600,000 VMIG1/NR
1,475,000 Orange County 1994-1995 Tax and Revenue Anticipation Notes Series A+ 5.450 06/30/96 1,475,000 SG/D
1,475,000 Orange County 1994-1995 Tax and Revenue Anticipation
Notes Series A, Letter of Credit-State Street Bank+ 5.450 06/30/96 1,475,000 SG/D
2,000,000 Orange County Airport, FGIC Insured 7.000 07/01/96* 2,022,958 Aaa/AAA
2,600,000 Orange County Apartments Development Bea Brad
Apartments, Letter of Credit-Fuji Bank 4.050 03/06/96* 2,600,000 VMIG1/NR
5,000,000 Rancho Mirage Redevelopment Agency Farmers Market
Series 1986, California, Letter of Credit-Bank of America 3.350 03/07/96* 5,000,000 VMIG1/NR
1,100,000 Riverside County Industrial Development Authority
Rockwin Series II, Letter of Credit-Royal Canadian Bank 3.550 03/06/96* 1,100,000 Aa2/NR
9,500,000 Sacramento Multifamily Housing Revenue Bond Shadowwood
Apartments Series 1993 A, California, Letter of Credit-General
Electric Credit Corporation 3.350 03/06/96* 9,500,000 NR/A-1+
1,200,000 San Bernardino County Industrial Development Authority Aqua Service, Inc.,
California, Letter of Credit-California State Teachers
Retirement System 3.400 03/06/96* 1,200,000 NR/A-1+
1,500,000 San Bernardino County Industrial Development Authority McCain Citrus,
California, Letter of Credit-California State Teachers Retirement
System 3.400 03/06/96* 1,500,000 NR/A-1+
7,000,000 San Bernardino County Tax and Revenue Anticipation
Notes Series 1995-1996, Letter of Credit-Bank of Nova Scotia,
Banque National de Paris, Toronto Dominion 4.500 07/05/96* 7,012,103 MIG1/SP1
900,000 San Diego Industrial Development Revenue Kaiser
Aerospace, Letter of Credit-ABN-AMRO Bank 3.500 03/07/96* 900,000 P1/NR
</TABLE>
56
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL MONEY MARKET FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,750,000 San Francisco Redevelopment Agency Fillmore
Center Project, California, Letter of Credit-Bank of Nova Scotia 3.250% 03/06/96* $3,750,000 NR/A-1+
2,400,000 Santa Paula Public Financing Authority Series 1996,
Letter of Credit-Bank of California, Sumitomo Bank 3.700 03/06/96* 2,400,000 NR/A-1
2,000,000 Simi Valley Multifamily Housing Revenue Bond
Shadowridge Apartments, Letter of Credit-Citibank 3.250 03/06/96* 2,000,000 VMIG1/A-1+
1,715,000 South Coast Air Quality Management District Revenue Refunding
Series 1992, California, AMBAC Insured 4.500 08/01/96 1,718,341 Aaa/AAA
700,000 South San Francisco Multifamily Housing Revenue Bond
Magnolia Plaza, Letter of Credit-Wells Fargo Bank 3.300 03/06/96* 700,000 VMIG1/NR
8,380,000 Tri City Housing Financing Authority Mortgage
Backed Securities, FGIC Investment Agreement 4.100 03/01/96* 8,380,000 NR/A-1+
4,000,000 Vallejo Industrial Development Authority Meyer Cookware Industry
Series 1993 A, California, Letter of Credit-Mitsubishi Bank 3.600 03/06/96* 4,000,000 NR/A-1
- ------------ ------------
$194,030,000 Total Investment Securities (cost $194,154,025) $ 194,154,025
============ ============
NR = Not Rated
SG = Speculative Grade
D = Default
- -------------------
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon
demand on the date indicated. For purposes of calculating the Fund's weighted average maturity, the length to maturity of
these investments is considered to be the greater of the period until the interest rate is adjusted or until the principal
can be recovered by demand.
+ This security has been downgraded by both Moody's and S&P, due to the bankruptcy filing of Orange County, California. The
Board of Trustees has determined that it is currently not in the best interest of the Fund to dispose of this security. This
security was originally due on July 19, 1995. Orange County revised the terms of this security to extend the maturity to June 30,
1996, along with an increase in the security's interest rate. See Note 2 of the accompanying notes to financial statements.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Housing........................ 29.8% Certificate of Participation... 2.8%
Industrial Development Revenue. 26.2 Transportation................. 2.1
Pollution Control Revenue...... 16.5 Tax Allocation Bond............ 1.2
Tax and Revenue Allocation..... 11.0 Prerefunded.................... .6
General Obligation............. 5.1 -----
Water.......................... 4.7 TOTAL.......................... 100.0%
=====
</TABLE>
57
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Municipal High-Yield Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Albany Unified School District Series C,
Letter of Credit-CGY, California 5.000% 08/01/19 $ 924,040 Aaa/AAA
500,000 Association of Bay Area Governments for St. Helena
Certificate of Participation Series C, California 7.875 06/01/11 544,920 NR/BBB
1,540,000 Brisbane Certificate of Participation Series 1995, California 6.000 04/01/18 1,478,107 NR/BBB+
700,000 California Cities Financing Corporation Certificate
of Participation Series 1991 A 7.700 05/01/11 751,653 Baa/NR
500,000 California Department of Veteran's Affairs Home
Purchase Revenue Bonds Series 1988 A 8.300 08/01/19 522,445 Aa/A+
500,000 California Educational Facility Authority Lutheran University Series 1990 7.375 12/01/10 537,825 Baa1/NR
1,000,000 California Educational Facility Authority Mills College Series 1992 6.875 09/01/22 1,080,120 A/NR
5,350,000 California Educational Facility Authority St. Mary's College Series 1993 4.750 10/01/20 4,602,979 A/NR
4,000,000 California General Obligation Zero Coupon Series 1995 5.160* 10/01/04 2,332,240 NR/NR
2,015,000 California Health Facility Financing Authority
Pomona Valley Community Hospital Series A 7.000 01/01/17 2,058,242 NR/A-
4,000,000 California Health Facility Financing Authority for
Kaiser Series A, AMBAC Insured 6.070* 10/01/12 1,582,160 Aaa/AAA
175,000 California Housing Finance Agency Home
Mortgage Revenue Bonds Series 1988 B 8.600 08/01/19 184,928 Aa/AA-
790,000 California Housing Finance Agency Home
Mortgage Revenue Bonds Series 1989 B 8.000 08/01/29 839,217 Aa/AA-
520,000 California Housing Finance Agency Home
Mortgage Revenue Bonds Series 1990 C 7.600 08/01/30 550,093 Aa/AA-
3,500,000 California Housing Finance Agency Multi-Unit Mortgage
Revenue Bonds Series 1992 C 6.875 08/01/24 3,615,885 A1/A+
1,500,000 California Maritime Authority San Diego Airport
Series 1995, AMBAC Insured 5.000 11/01/20 1,375,620 Aaa/AAA
400,000 California Public Capital Improvement Financing
Authority Revenue Bonds Pool 1988 A 8.500 03/01/18 434,088 Baa/NR
</TABLE>
58
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL HIGH-YIELD FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 California Special District Series 1992 P, Shasta Dam Project, California 7.250% 03/01/12 $1,086,040 Baa/NR
2,000,000 California State Public Works Department of
Corrections, Capital Guaranty Insured 5.250 06/01/15 1,953,660 Aaa/AAA
195,000 Clayton Oakhurst Assessment District Series 1988 A, California 8.400 09/02/10 201,104 NR/NR
825,000 Clayton Oakhurst Assessment District Series 1989, California 8.000 09/02/14 853,966 NR/NR
4,500,000 Colton Public Financing Authority Electric System Series 1995, California 7.500 10/01/20 4,548,240 NR/NR
750,000 Contra Costa County Public Financing Authority
Tax Allocation Revenue Series 1992 A, California 7.100 08/01/22 808,733 NR/BBB
705,000 Corcoran Certificates of Participation, California 8.750 06/01/16 739,207 NR/NR
500,000 Cucamonga School District Certificates of
Participation Series 1990, California 7.600 12/01/15 532,660 Baa/NR
1,000,000 Davis Community Facilities District #91-2 Series 1992 B, California 7.800 09/01/22 1,078,710 NR/NR
1,000,000 El Dorado County Building Authority Series 1990, California 7.400 11/01/09 1,086,070 A/A-
350,000 Folsom Redevelopment Agency Tax Allocation
Series 1987 A, California 8.600 02/01/13 370,132 NR/NR
2,350,000 Fontana Community Facility District #2 Series 1988 B, California 8.500 09/01/17 2,505,241 NR/NR
2,000,000 Fontana Public Financing Authority Series 1993 A,
MBIA Insured, California 5.000 09/01/20 1,857,400 Aaa/AAA
1,000,000 Fontana Redevelopment Agency Juropa Hills
Project Bond Anticipation Note, California 8.000 01/01/98 1,031,540 NR/NR
2,500,000 Fontana Redevelopment Agency Juropa Hills
Project Series 1994 B, Junior Lien, California 7.700 01/01/09 2,687,125 NR/NR
1,040,000 Foothill-De Anza Community College Certificates
of Participation Series 1992, California 7.350 03/01/07 1,166,776 NR/A-
2,500,000 Foster City Redevelopment Agency Tax Allocation
Series 1995, California 6.750 09/01/20 2,625,550 NR/A-
2,020,000 Gardena Civic Center Certificate of Participation
Series 1994, California 6.300 08/01/23 2,034,443 Baa1/BBB+
1,185,000 Gateway Improvement Authority Marin City Series
1995 A, California 7.750 09/01/25 1,224,828 NR/NR
1,250,000 Hollister Redevelopment Agency Tax Allocation
Series 1989, California 7.550 10/01/13 1,344,650 NR/BBB+
2,000,000 Industry Redevelopment Agency Tax Allocation
Project No. 3, California 6.900 11/01/16 2,133,100 NR/A-
</TABLE>
59
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL HIGH-YIELD FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 985,000 Irvine Assessment District 1989-9, California 7.400% 09/02/17 $1,011,378 NR/NR
1,000,000 Lake Elsinore Unified School District Community
Facilities District 88-1 Series 1991, California 8.250 09/01/16 1,079,430 NR/NR
2,000,000 Long Beach Harbor Revenue, MBIA Insured, California 5.250 05/01/25 1,868,460 Aaa/AAA
120,000 Los Angeles County Housing Finance Authority Single Family Mortgage
Revenue Bond GNMA Program 87 Issue B, California 9.000 12/01/20 127,126 NR/AAA
1,000,000 Los Angeles County Transportation Commission Sales
Tax Revenue Series B, California 6.500 07/01/13 1,087,510 A1/AA-
2,500,000 Los Angeles County Wastewater Revenue Series
1993 D, FGIC Insured, California 4.700 11/01/19 2,223,225 Aaa/AAA
3,000,000 Los Angeles Department of Water and Power
Series 1994, MBIA Insured, California 4.750 08/15/14 2,755,770 Aaa/AAA
40,000 Los Angeles Home Mortgage Revenue Bonds Series 1985, California 9.000 06/15/18 41,101 NR/A
4,960,000 Northern California Power Agency Hydroelectric
Project No. 1 Series E, California 7.150 07/01/24 5,353,626 A/A-
2,000,000 Norwalk Community Facilities Financing Authority, Tax
Allocation Series 1995 B, California 7.400 09/15/25 2,035,000 NR/NR
2,000,000 Novato Community Facility District Number 1 for
Vintage Oaks Project, California 7.200 08/01/15 2,074,760 NR/NR
1,500,000 Orange Grove Irrigation District Certificates of
Participation Series 1992, California 7.000 02/01/15 1,569,615 NR/BBB
1,500,000 Otay Water District General Obligation Series 1992, California 6.700 09/01/22 1,541,520 NR/BBB
1,000,000 Pioneer Union Elementary School District
General Obligation Series 1990, California 7.500 08/01/14 1,069,420 NR/BBB+
880,000 Pittsburg Assessment District No. 90-1 Oak Hills, California 7.750 09/02/20 912,419 NR/NR
1,500,000 Pittsburg Assessment District No. 92-1 New York Landing, California 8.000 09/02/22 1,553,130 NR/NR
2,240,000 Pittsburgh Redevelopment Agency COS Meadows,
AMBAC Insured, California 5.000 08/01/17 2,093,280 Aaa/AAA
4,000,000 Pomona Public Financing Authority Southwest
Project Series 1993 L, California 5.700 02/01/13 3,846,640 Baa/BBB+
2,250,000 Rancho Mirage Joint Powers Financing Authority Certificates of
Participation Eisenhower Memorial Hospital, California 7.000 03/01/22 2,415,420 A/NR
1,000,000 Rancho Santa Margarita Community Facilities District
No. 87-5E Series A, California 7.300 08/15/18 1,034,970 NR/NR
</TABLE>
60
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL HIGH-YIELD FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Richmond Joint Powers Financing Authority Series 1995 A, California 5.250% 05/15/13 $ 940,530 NR/A
1,000,000 Rocklin Community Facilities District No. 3 Series
1990 Stanford Ranch, California 8.100 11/01/15 1,179,810 NR/NR
500,000 Roseville Community Facilities District No. 2 Northeast, California 8.250 09/01/21 535,835 NR/NR
2,000,000 Salinas Assessment District No. 94-1 Harden Ranch, California 6.875 09/02/11 2,053,860 NR/NR
1,000,000 San Diego Community Facilities District No. 1 Miramar
Ranch Series 1995 B, California 7.100 09/01/20 1,001,160 NR/NR
1,780,000 San Jose Finance Authority Certificate of Participation
Convention Center Project, California 6.300 09/01/09 1,873,414 A1/A+
1,500,000 Scotts Valley Redevelopment Agency Series 1993 A, California 6.500 08/01/18 1,542,960 NR/BBB
3,250,000 Sierra Sands Unified School District Certificate
of Participation Series 1993, California 5.750 02/01/23 3,037,418 Baa1/NR
3,000,000 South Orange County Public Financing Authority Special
Tax Bonds, Jr. Lien, Series B, California 7.250 09/01/13 3,073,980 NR/NR
1,615,000 South San Francisco Redevelopment Agency
Gateway Project Series 1993, California 7.600 09/01/18 1,711,835 NR/NR
480,000 Southern California Housing Finance Authority
Single Family Mortgage Revenue Bond
Series 1991 A Government National Mortgage Association 7.350 09/01/24 504,869 NR/AAA
500,000 Southern California Public Power Project Pooled Revenue Bonds 6.750 07/01/10 571,315 A/A
1,000,000 Standard Elementary School District Series 1991, California 7.375 06/01/11 1,075,730 NR/A-
1,770,000 Tehama County Certificate of Participation Series
1995 Social Services Building, California 7.000 10/01/20 1,927,778 NR/A
1,775,000 Torrance Hospital Revenue Series 1992, California 6.875 07/01/15 1,904,912 NR/A
1,000,000 Turlock Irrigation District Certificate of
Participation Series 1991, California 7.300 01/01/98 1,082,060 A1/A-
1,565,000 Twenty-Nine Palms Water District Certificates of
Participation Series 1992, California 7.100 08/01/22 1,655,707 NR/BBB
950,000 Vista Joint Powers Financing Authority Series 1990 A, California 7.500 01/01/16 1,005,328 Baa1/NR
2,000,000 West Contra Costa School District Certificate of
Participation Series 1994, California 7.125 01/01/24 2,133,920 Ba1/BBB+
1,800,000 Western Placer Waste Management Authority
Revenue Bond, California 6.750 07/01/14 1,885,032 Baa1/A-
</TABLE>
61
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - MUNICIPAL HIGH-YIELD FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,520,000 Windsor Redevelopment Agency Tax Allocation
Bonds Series 1994, California 6.875% 09/01/15 $1,623,147 NR/BBB
1,000,000 Yosemite Community College District Certificate
of Participation Series 1991, California 7.750 07/01/11 1,092,690 NR/BBB
- ------------ ------------
$126,140,000 Total Investment Securities (cost $118,630,606) $ 124,390,827**
============ ============
NR = Not Rated
- -------------------
* These securities are zero-coupon municipal bonds. The yield to maturity at current market value is shown instead of a stated
coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity.
**The High-Yield Fund had 7.2% invested in private activity municipal securities. The interest from these securities is treated
as a tax-preference item in calculating federal alternative minimum tax liability.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Tax Allocation................. 19.8% Housing........................ 5.1%
Certificates of Participation.. 18.3 Higher Education............... 5.0
Mello-Roos..................... 12.0 Water/Sewer.................... 4.8
Electric....................... 11.9 Other.......................... 11.3
Hospital....................... 6.4 -----
1915 Act....................... 5.4 TOTAL.......................... 100.0%
=====
</TABLE>
62
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Insured Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
MUNICIPAL SECURITIES--97.6%
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,500,000 Anaheim Refunding Project Series 1993 Certificate
of Participation, Letter of Credit-Industrial Bank of Japan 3.050% 03/06/96* $3,500,000 VMIG1/NR
1,000,000 Banning Certificate of Participation Water
System Improvement Bonds, California, AMBAC Insured 8.000 01/01/19 1,333,150 Aaa/AAA
1,000,000 Berkeley Certificate of Participation Series
1989, California, AMBAC Insured 7.500 06/01/19 1,085,600 Aaa/AAA
6,095,000 California Health Facilities Financing Authority
Mills Peninsula Health Series 1995 B, Connie Lee Insured 5.750 01/15/15 6,131,265 NR/AAA
2,500,000 California Health Facilities Financing Authority
Sutter Hospital Series A, AMBAC Insured 6.700 01/01/13 2,672,050 Aaa/AAA
1,250,000 California Health Facility Financing Authority
Adventist Hospital Series A, MBIA Insured 7.000 03/01/13 1,389,913 Aaa/AAA
1,585,000 California Public Capital Improvement Financing
Authority Revenue Bonds 1988 B, BIGI Insured 8.100 03/01/18 1,704,953 Aaa/AAA
4,000,000 California State Public Works Department of
Corrections State Prisons, AMBAC Insured 5.000 12/01/19 3,769,080 Aaa/AAA
6,000,000 California State Public Works Department of
Corrections, Capital Guaranty Insured 5.250 06/01/15 5,860,980 Aaa/AAA
1,000,000 California State University Housing System
Revenue Refunding, AMBAC Insured 7.000 11/01/15 1,117,530 Aaa/AAA
3,925,000 California Statewide Community Development
Authority Gemological Institute of America, Connie Lee Insured 6.750 05/01/10 4,499,502 NR/AAA
1,520,000 Castaic Lake Water Agency Corp. Certificate of Participation-Water
System Improvement Project Series A, MBIA Insured 7.000 08/01/12 1,800,014 Aaa/AAA
3,500,000 City of Los Angeles Community Development Agency
Bunker Hill, California, FSA Insured 6.500 12/01/14 3,839,920 Aaa/AAA
4,000,000 City of Los Angeles Community Development Agency
Bunker Hill Series H, California, FSA Insured 6.500 12/01/15 4,377,720 Aaa/AAA
4,525,000 City of Woodland Certificate of Participation, Waste
Water, California, AMBAC Insured 5.750 03/01/12 4,765,413 Aaa/AAA
1,000,000 Contra Costa Public Facility Authority Refunding
Certificate of Participation, California, BIGI Insured 7.800 06/01/07 1,114,320 Aaa/AAA
</TABLE>
63
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INSURED FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Contra Costa Water District Revenue, AMBAC Insured 6.250% 10/01/12 $1,109,200 Aaa/AAA
1,000,000 East Valley Water Treatment Plant Project
Certificate of Participation, AMBAC Insured 6.600 12/01/14 1,113,240 Aaa/AAA
1,010,000 Eastern Water District Water and Sewer Revenue
Certificate of Participation, FGIC Insured 5.250 07/01/23 953,329 Aaa/AAA
2,135,000 Encinitas Public Financing Water Revenue Series A, MBIA Insured 5.000 10/01/13 2,014,394 Aaa/AAA
5,750,000 Encino Joint Powers Financing Authority Waste
Water Revenue Series A, California, AMBAC Insured 6.875 08/01/11 6,274,285 Aaa/AAA
4,100,000 Foothill-De Anza Community College Certificate of
Participation, California, Connie Lee Insured 6.250 09/01/13 4,380,030 NR/AAA
1,240,000 Fresno Sewer Revenue, AMBAC Insured 4.750 09/01/21 1,123,514 Aaa/AAA
975,000 Fresno Sewer Revenue Series A-1, AMBAC Insured 6.250 09/01/14 1,086,452 Aaa/AAA
5,000,000 Glendale Hospital Adventist Health System, California, MBIA Insured 6.750 03/01/13 5,502,250 Aaa/AAA
4,830,000 Glendale Unified School District Certificate of
Participation, AMBAC Insured 6.500 03/01/12 5,319,327 Aaa/AAA
1,340,000 Kern High School District, California, MBIA Insured 6.250 08/01/13 1,504,820 Aaa/AAA
3,630,000 Kern High School District Series 1990 D, California,
MBIA Insured, Prerefunded at 102% of par 7.000 08/01/03 4,274,507 Aaa/AAA
790,000 Lake Elsinore Public Financing Authority Tax
Allocation Revenue Bonds Series C, California, FGIC Insured 6.625 02/01/17 856,581 Aaa/AAA
1,500,000 Lakewood, California, Redevelopment Agency Tax Allocation
Refinance-Redevelopment Project Series A, Capital Guaranty Insured 6.500 09/01/17 1,657,305 Aaa/AAA
1,900,000 Loma Linda Hospital Revenue Bonds University Medical Center Series B,
California, MBIA Insured, Prerefunded at 102% of par 7.000 12/01/00 2,169,705 Aaa/AAA
2,000,000 Los Angeles Community College Certificate of Participation, California,
Capital Guaranty Insured, Prerefunded at 102% of par 6.900 08/15/00 2,262,160 Aaa/AAA
1,845,000 Los Angeles Community Redevelopment
Agency Housing Revenue Series C, AMBAC Insured 7.000 01/01/14 1,999,685 Aaa/AAA
5,000,000 Los Angeles Convention and Exhibition Center, MBIA Insured 5.125 08/15/21 4,638,200 Aaa/AAA
1,000,000 Los Angeles County Transit Commission Sales Tax
Revenue Refunding Series B, AMBAC Insured 6.500 07/01/13 1,098,400 Aaa/AAA
4,960,000 Los Angeles County Transportation Authority Series B
Proposition C, AMBAC Insured 4.750 07/01/18 4,458,098 Aaa/AAA
5,000,000 Los Angeles Metropolitan Transit Sales Tax Series A, FGIC Insured 5.000 07/01/21 4,599,250 Aaa/AAA
1,100,000 Los Angeles Waste Water System Revenue Series C,
California, AMBAC Insured 7.000 06/01/11 1,203,631 Aaa/AAA
</TABLE>
64
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INSURED FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 5,000,000 Modesto, Stockton, Redding Public Power Agency San Juan
Project Series D, California, MBIA Insured 6.750% 07/01/20 $5,896,400 Aaa/AAA
1,200,000 National City Joint Power Lease Revenue, California, AMBAC Insured 6.750 10/01/17 1,337,820 Aaa/AAA
2,810,000 Oakland Redevelopment Agency Central District
Tax Allocation, AMBAC Insured 5.500 02/01/14 2,856,450 Aaa/AAA
1,925,000 Oakland Refunding Pension Financing Series 1988 A,
California, FGIC Insured 7.600 08/01/21 2,103,582 Aaa/AAA
2,000,000 Orange County Civic Center Expansion Certificate
of Participation, AMBAC Insured 6.700 08/01/18 2,170,840 Aaa/AAA
1,000,000 Pasadena Certificate of Participation, AMBAC Insured 5.000 02/01/16 937,020 Aaa/AAA
1,950,000 Ramona Municipal Water District Certificate
of Participation, AMBAC Insured 7.200 10/01/10 2,176,668 Aaa/AAA
580,000 Redondo Beach Redevelopment Agency Tax
Allocation, California, FGIC Insured 8.625 05/01/14 614,626 Aaa/AAA
2,505,000 Sacramento Redevelopment Agency Downtown
Project Series A, MBIA Insured 6.500 11/01/13 2,725,139 Aaa/AAA
3,000,000 Saddleback Community College District Certificate
of Participation Series 1989, California, BIGI Insured 7.000 08/01/19 3,284,310 Aaa/AAA
1,000,000 San Diego County Water Authority Revenue Certificate
of Participation, FGIC Insured 7.535 04/22/09 1,082,500 Aaa/AAA
2,000,000 San Diego Public Facility Financing Authority Sewer
Revenue Series 1995, FGIC Insured 5.000 05/15/25 1,853,920 Aaa/AAA
10,000,000 San Francisco Airport Refunding Issue #II, California, MBIA Insured 6.750 05/01/20 11,193,000 Aaa/AAA
5,250,000 San Francisco Bay Area Rapid Transit Sales Tax
Revenue, California, AMBAC Insured 6.750 07/01/09 5,750,168 Aaa/AAA
1,000,000 San Mateo County Sales Tax Revenue Series A, MBIA Insured 5.250 06/01/18 976,190 Aaa/AAA
2,000,000 San Mateo Joint Powers Financing Authority
Lease Revenue, MBIA Insured 6.500 07/01/15 2,265,740 Aaa/AAA
1,000,000 Santa Clara Electric System Revenue Bond
Series A, California, MBIA Insured 6.250 07/01/19 1,052,400 Aaa/AAA
2,000,000 Santa Margarita Improvement District Series 1994 B,
Dana Point, California, MBIA Insured 7.250 08/01/14 2,440,280 Aaa/AAA
2,500,000 South Coast Air Quality District Series 1992, California, AMBAC Insured 6.000 08/01/11 2,706,075 Aaa/AAA
4,000,000 Southern California Public Power Authority San Juan Series A, MBIA
Insured 5.000 01/01/20 3,688,480 Aaa/AAA
6,500,000 State of California General Obligation, MBIA Insured 6.000 10/01/10 7,142,330 Aaa/AAA
</TABLE>
65
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INSURED FUND
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 95,000 Thousand Oaks Residential Housing Refunding,
California, AMBAC Insured 7.900% 01/01/16 $ 98,641 Aaa/AAA
2,500,000 Ukiah Electric Revenue, California, MBIA Insured 6.250 06/01/18 2,747,250 Aaa/AAA
3,250,000 Vallejo Water Improvement Project Series B, California, FGIC Insured 6.500 11/01/14 3,598,530 Aaa/AAA
1,445,000 Walnut Valley USD General Obligation Series B,
California, AMBAC Insured 6.000 08/01/10 1,586,682 Aaa/AAA
- ------------ -----------
170,015,000 Total Municipal Securities 180,844,814
- ------------ -----------
MUNICIPAL DERIVATIVES--2.4%1
2,000,000 East Bay Municipal Water District, California,
AMBAC Insured (Yield Curve Notes), Inverse Floater 7.020 06/01/13 1,920,000 Aaa/AAA
2,750,000 Southern California Public Power Agency Palo Verde,
FGIC Insured, Inverse Floater 6.380 07/01/17 2,550,625 Aaa/AAA
- ------------ -----------
4,750,000 Total Municipal Derivatives 4,470,625
- ------------ -----------
$174,765,000 Total Investment Securities (cost $175,204,532) $ 185,315,439
============ ===========
NR = Not Rated
- -------------------
1 Inverse floaters bear interest rates that move inversely to market interest rates. Inverse floaters typically have durations
twice as long as long-term bonds, which may cause them to be twice as volatile as long-term bonds when market interest rates
change. The Insured Fund is limited to 10% of its net assets in inverse floaters.
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon
demand on the date indicated. For purposes of calculating the Fund's weighted average maturity, the length to maturity of
these investments is considered to be the greater of the period until the interest rate is adjusted or until the principal
can be recovered by demand.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Certificates of Participation.. 26.3% General Obligation.............. 6.0%
Water/Sewer.................... 16.4 Transportation.................. 5.9
Tax Allocation................. 10.2 Prerefunded..................... 4.5
Hospital....................... 9.3 Other........................... 3.8
Electric....................... 8.8 -----
Sales Tax...................... 8.8 TOTAL...........................100.0%
=====
</TABLE>
66
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67
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68
TRUSTEES
James M. Benham
Albert A. Eisenstat
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers, III
Jeanne D. Wohlers
OFFICERS
James M. Benham
Chairman of the Board
John T. Kataoka
President and Chief Executive Officer
Maryanne Roepke
Treasurer and Chief Financial Officer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus
Benham Distributors, Inc. 4/96 Q062
<PAGE>
BENHAM CALIFORNIA
TAX-FREE BOND FUNDS
-----------------
Semiannual Report * February 29, 1996
[picture of the California
state flag]
Tax-Free Short-Term Fund
Tax-Free Intermediate-Term Fund
Tax-Free Long-Term Fund
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
CONTENTS
U.S. ECONOMIC REVIEW............................................ 1
MUNICIPAL MARKET SUMMARY........................................ 2
CALIFORNIA ECONOMIC &
CREDIT ANALYSIS................................................. 4
TAX-FREE SHORT-TERM FUND
Performance Information......................................... 5
Performance Comparisons & Total Return Breakdown................ 6
Portfolio Information........................................... 7
Management Discussion........................................... 8
Financial Highlights............................................28
Financial Statements and Notes..................................31
Schedule of Investments.........................................39
TAX-FREE INTERMEDIATE-TERM FUND
Performance Information.........................................10
Performance Comparisons & Total Return Breakdown................11
Portfolio Information...........................................12
Management Discussion ..........................................13
Financial Highlights............................................29
Financial Statements and Notes..................................31
Schedule of Investments.........................................42
TAX-FREE LONG-TERM FUND
Performance Information.........................................15
Performance Comparisons & Total Return Breakdown................16
Portfolio Information...........................................17
Management Discussion ..........................................18
Financial Highlights............................................30
Financial Statements and Notes..................................31
Schedule of Investments.........................................50
INVESTMENT FUNDAMENTALS
Definitions.....................................................20
The Yield Curve.................................................22
Muni Risk Factors...............................................23
Portfolio Sensitivity Measures..................................24
Bond Pricing....................................................25
Portfolio Structures & Taxable Distributions....................26
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
Slow economic growth and low inflation characterized the U.S. economy in 1995,
creating similar expectations for 1996. The U.S. economy grew at a 2% annual
rate in 1995, the weakest yearly performance since the 1991 recession. U.S.
inflation was just 2.5% in 1995, the lowest annual rate since 1986.
[bar graph on left side of page. graph data described below.]
The Federal Reserve's (the Fed's) success in slowing the economy and inhibiting
inflation by raising short-term interest rates from February 1994 to February
1995 eventually led to a new interest rate strategy. The Fed reduced the federal
funds rate target, from 6.00% to 5.75% in July 1995, then lowered it twice
more--to 5.50% in December 1995 and to 5.25% in January 1996. Slowing corporate
and government spending, declining auto sales and housing activity, and
poorer-than-expected holiday season retail sales seemed to indicate lower
interest rates in 1996 and a possible recession.
Federal budget battles, which led to two government shutdowns, furthered the
cause of economic weakness. The shutdowns also delayed key economic reports,
causing confusion in the financial markets during the first quarter of 1996.
Amid this confusion and slow growth/low inflation expectations, the February
payroll employment report, showing the strongest job creation in 12 years,
exploded like a time bomb (see the accompanying graph). It dashed hopes that the
Fed would cut interest rates at its policy meeting in March, triggering a bond
sell-off and higher interest rates.
The March payroll employment report was also unexpectedly strong. The strength
of the recent employment reports seems to indicate that the economy is picking
up momentum, with no immediate need for the Fed to reduce interest rates. Other
signs of a stronger economy include higher auto sales and factory orders, rising
consumer confidence and strong housing starts. But the economy still doesn't
feel particularly robust--layoffs are at historically high levels, wages are
stagnant, capital expenditures are slowing, and personal bankruptcies and loan
delinquencies are higher. Overall, we believe the evidence still suggests
moderate economic growth in 1996, with both growth and inflation around 3%.
[graph data]
U.S. Nonfarm Payroll Employment
(seasonally adjusted, in thousands)
Monthly Change Three-Month Moving Average
Jan-95 186 292
Feb-95 313 232
Mar-95 179 226
Apr-95 8 167
May-95 -62 42
Jun-95 299 82
Jul-95 28 88
Aug-95 263 197
Sep-95 94 128
Oct-95 66 141
Nov-95 214 125
Dec-95 145 142
Jan-96 -146 71
Feb-96 624 208
Mar-96 140 206
Source: Bloomberg Financial Markets
1
MARKET SUMMARY
MUNICIPAL SECURITIES
by Dave MacEwen, Vice President & Senior Municipal Portfolio Manager
MUNICIPAL MARKET OVERVIEW
Decelerating economic growth and low levels of inflation during the six months
ended February 29, 1996, provided a very favorable environment for U.S. bonds.
However, the rally in municipal bonds (munis) was dampened initially by flat tax
fears. Investors feared that the adoption of a flat tax would strip munis of
their tax-exempt advantage, and fearing the worst, many muni investors moved out
of long-term munis and into shorter-term securities to await future
developments.
The patience of these investors was rewarded by a change in the political
climate. The waning "Republican Revolution" in Washington and a lack of support
(especially on the part of Republican front-runner Bob Dole) for the flat tax
made it increasingly clear by late 1995 that this particular type of tax reform
was unlikely to become a reality.
In early 1996, demand for long-term munis increased significantly as many muni
bonds were called (see Callability on page 23). Over the past few years, low
interest rates have prompted high volumes of muni refundings, freeing billions
of dollars for reinvestment in munis.
[line graph on left side of page. graph data described below.]
Seasonal factors also played a part--January is historically characterized by
low levels of muni issuance as municipalities gear up for the new fiscal year.
Overall, muni issuance remains sluggish--1996 issuance to date is running below
the average for 1995. This combination of low supply and strong demand helped
munis post gains during the six-month period as yields fell across all
maturities (see the accompanying graph).
[graph data]
The Shifting Municipal Yield Curve
years 2/29/96 8/31/95
1 3.35% 3.65%
2 3.65 3.85
3 3.85 4.01
3.97 4.16
5 4.09 4.31
4.2 4.435
7 4.31 4.56
4.41 4.66
4.51 4.76
10 4.61 4.86
4.708 4.98
4.806 5.1
4.904 5.22
5.002 5.34
15 5.1 5.46
5.138 5.514
5.176 5.568
5.214 5.622
5.252 5.676
20 5.29 5.73
5.3 5.754
5.31 5.778
5.32 5.802
5.33 5.826
25 5.34 5.85
5.346 5.854
5.352 5.858
5.358 5.862
5.364 5.866
30 5.37 5.87
Source: Bloomberg Financial Markets
2
MARKET SUMMARY
MUNICIPAL SECURITIES
(Continued from the previous page)
MUNICIPAL SECURITIES VS. TREASURY SECURITIES
Over the six-month period, munis in the 10- to 30-year maturity sector
outperformed Treasury securities with comparable maturities. This resulted from
a combination of fading flat tax fears, as wary investors moved back to
long-term munis, and a high volume of bond maturities and bond calls.
Conversely, as demand for long-term munis increased and investors moved away
from short-term securities, munis with maturities of five years or less
underperformed Treasuries of like maturity.
[bar graph on right side of page. graph data described below.]
The accompanying graph, showing muni yields as a percent of Treasury yields,
demonstrates the difference in relative performance at either end of the muni
yield curve over the six-month period.
The increasing percentage seen in the three-year maturity sector shows that muni
and Treasury yields moved closer together, indicating that short-term munis
underperformed Treasuries. The decreasing percentage in the 30-year sector shows
a widening of the spread between muni and Treasury yields, indicating that
long-term munis outperformed Treasuries.
[graph data]
Municipal Yields as a % of Treasury Yields
8/31/95 2/29/96
3-year note 67% 69%
30-year bond 88 83
Source: Bloomberg Financial Markets
3
CALIFORNIA CREDIT ANALYSIS
STATE ECONOMIC AND CREDIT REVIEW
by Steve Permut, Manager of Municipal Credit Analysis, and the Benham
Municipal Credit Analysis Team: Joe Crowley, Scott Lord and Bill McClintock
California's economic recovery, which began in the fourth quarter of 1993,
continued through the six months ended February 29, 1996. Strong employment
growth in the state (twice the national growth rate) lowered California's
unemployment rate to 7.6%, down from a 1993 recessionary high of more than 9%.
In fact, California's economy has replaced all of the jobs lost during the
recession (see the graph below), with significant growth in the high-wage
sectors of technology, tourism and entertainment.
[mountain graph on left side of page. graph data described below.]
California retail sales also continued to outperform the nation without the
housing- and construction-related expenditures that have fueled previous state
economic recoveries. This illustrates a fundamental change in California's
economic structure--a shift away from dependence on the large, cyclical
manufacturing and construction industries toward a diversified economic base of
smaller, more nimble companies.
Regionally, rebounding economic growth in southern California has been crucial
to the state's overall growth because the metropolitan areas of Los Angeles and
San Diego account for approximately two-thirds of California's economy. The
gradual rebound in the southern part of the state contrasts with the exceptional
growth in the San Francisco Bay Area and Sacramento. At the local level,
California counties continue to struggle because of their unique mix of
responsibilities and funding sources. Revenue problems remain severe--counties
are dependent on state and federal funding, which has been reduced in recent
years. Other local governments, such as cities and school districts, have
generally benefited from the state's recent economic strength, but regional
disparities point to a continued need for thorough case-by-case credit analysis.
California's revitalized economy has brought the state closer to solving its
budget problems. State revenue collections remain positive. However, if several
major expenditure assumptions in the current budget (and in the proposed 1996-97
budget) are not approved, any revenue gains will be more than eliminated.
Despite these concerns, our outlook for the state is more positive than it's
been for several years. We believe that the recent economic and fiscal
improvements will lead to an upgrade in the state's credit rating by the end of
1996.
[graph data]
California Employment
(non-farm, seasonally adjusted, 6-mo. moving average, in thousands)
1/31/91 12505.6
2/28/91 12487.2
3/31/91 12466.7
4/30/91 12445.7
5/31/91 12423.3
6/30/91 12398.5
7/31/91 12383.1
8/31/91 12371.7
9/30/91 12361.5
10/31/91 12349.8
11/30/91 12335.1
12/31/91 12318.5
1/31/92 12293.3
2/29/92 12262.8
3/31/92 12241.9
4/30/92 12223.2
5/31/92 12207.3
6/30/92 12192.3
7/31/92 12187.5
8/31/92 12181.4
9/30/92 12163.9
10/31/92 12146.9
11/30/92 12130.8
12/31/92 12113.9
1/31/93 12099.5
2/28/93 12088.3
3/31/93 12078
4/30/93 12063.6
5/31/93 12051.5
6/30/93 12046
7/31/93 12039.6
8/31/93 12037.3
9/30/93 12037.9
10/31/93 12039.3
11/30/93 12039.2
12/31/93 12044.1
1/31/94 12042.7
2/28/94 12047.8
3/31/94 12060.7
4/30/94 12075.4
5/31/94 12093.9
6/30/94 12108.5
7/31/94 12126.2
8/31/94 12142
9/30/94 12156.5
10/31/94 12170.5
11/30/94 12187.1
12/31/94 12208.9
1/31/95 12225.9
2/28/95 12252
3/31/95 12275
4/30/95 12303.1
5/31/95 12331.3
6/30/95 12355.1
7/31/95 12388.6
8/31/95 12414.9
9/30/95 12445.4
10/31/95 12472.2
11/30/95 12497.2
12/31/95 12521.2
1/31/96 12545.1
Source: U.S. Department of Labor, Bureau of Labor Statistics
4
SHORT-TERM FUND
CURRENT YIELD*
As of February 29, 1996
30-DAY TAX-EQUIVALENT YIELDS
30-DAY ---------------------------------------------------
SEC 34.70% 37.42% 41.95% 42.40%
YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
3.25% 4.98% 5.19% 5.60% 5.64%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 30-Day SEC Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE -----------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
-----------------------------------------------
$10.21-$10.38 6.82% 3.90% N/A 4.92%
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 28.
The Fund commenced operations on June 1, 1992.
*Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
5
SHORT-TERM FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 6/1/92 in the Fund and
in the Lehman Brothers, Inc. Three-Year Municipal Bond Index
[line graph]
Index Fund
5/31/92 $10,000 $10,000
6/30/92 10,122 10,074
7/31/92 10,319 10,249
8/31/92 10,273 10,222
9/30/92 10,357 10,277
10/31/92 10,317 10,251
11/30/92 10,389 10,347
12/31/92 10,451 10,413
1/31/93 10,530 10,497
2/28/93 10,695 10,673
3/31/93 10,663 10,616
4/30/93 10,725 10,679
5/31/93 10,754 10,699
6/30/93 10,823 10,754
7/30/93 10,838 10,733
8/31/93 10,897 10,850
9/30/93 10,945 10,913
10/31/93 10,967 10,923
11/30/93 10,953 10,925
12/31/93 11,068 11,029
1/31/94 11,158 11,095
2/28/94 11,054 10,986
3/31/94 10,920 10,881
4/29/94 10,984 10,903
5/31/94 11,036 10,929
6/30/94 11,039 10,942
7/29/94 11,131 11,029
8/31/94 11,171 11,057
9/30/94 11,143 11,037
10/31/94 11,116 11,008
11/30/94 11,096 10,946
12/30/94 11,144 10,962
1/31/95 11,237 11,059
2/28/95 11,356 11,206
3/31/95 11,458 11,290
4/28/95 11,497 11,337
5/31/95 11,673 11,468
6/30/95 11,701 11,518
7/31/95 11,825 11,581
8/31/95 11,917 11,646
9/30/95 11,950 11,683
10/31/95 12,008 11,749
11/30/95 12,085 11,835
12/31/95 12,135 11,874
1/31/96 12,230 11,977
2/29/96 12,233 11,970
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Lehman Brothers, Inc. Three-Year Municipal Bond Index, over the life of the
Fund. Although the investment characteristics of the Index are similar to those
of the Fund, the securities owned by the Fund and those composing the Index are
likely to be different, and securities that the Fund and the Index have in
common are likely to have different weightings in the respective portfolios.
Investors cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 2/29/96 for the funds in Lipper's "California
Short Municipal Debt Funds" category.
1 YEAR 3 YEARS LIFE OF FUND+
The Fund: 6.82% 3.90% 4.82%
Category Average: 7.00% 4.06% 5.18%
The Fund's Ranking: 9 out of 12 4 out of 5 2 out of 2
+ from June 30, 1992, through February 29, 1996
Total returns are based on historical performance and do not guarantee future
results.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended February 29, 1996
% FROM % FROM ASSET SIX-MONTH
INCOME + APPRECIATION = TOTAL RETURN
2.07% + 0.72% = 2.79%
6
SHORT-TERM FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $100,157,096 $105,636,293
Number of Issues: 52 48
Average Maturity: 3.22 years 2.49 years
Average Coupon: 5.75% 5.61%
Average Duration: 2.80 years 2.17 years
For definitions of these terms, see page 21.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
AAA 58.0% AAA 57.4%
AA 20.0% AA 20.4%
A 22.0% A 22.2%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 23.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie charts]
2/29/96 8/31/95
Prerefunded: 19.5% Prerefunded: 15.5%
COPs: 12.9% Hospital: 12.5%
Hospital: 11.3% GO: 10.4%
GO: 11.3% COPs: 9.6%
Water/Sewer: 11.0% Sales Tax: 8.9%
Sales Tax: 9.3% Transportation: 6.5%
Electric: 6.2% Water/Sewer: 6.3%
Other: 18.5% Other: 30.3%
For definitions of these security types, see page 20.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
less than 1 Year: 10.0% less than 1 Year: 15.4%
1-5 Years: 68.0% 1-5 Years: 78.3%
5-10 Years: 22.0% 5-10 Years: 6.3%
The Fund invests primarily in short-term California municipal obligations. The
Fund's weighted average portfolio maturity is typically one to five years, with
three years considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
7
SHORT-TERM FUND
MANAGEMENT DISCUSSION
with Joel Silva, Municipal Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 20-26).
Q: How did the Fund perform?
A: The Fund's 6.82% total return for the year ended February 29, 1996, was
slightly less than the 7.00% average total return for the funds in
Lipper's "California Short Municipal Debt Funds" category (see the
Lipper performance Comparison on page 6). For the six months ended
February 29, the Fund's total return was 2.79%.
Q: Why did the Fund slightly underperform its category average?
A: The Fund is managed to minimize price volatility while providing a
competitive yield. It is more conservatively styled than many of the
funds in its Lipper category, which includes funds with a relatively
broad range of investment policies and objectives. Therefore, though it
tends to outperform its category average in a declining market, it will
also tend to lag the average performance of its Lipper category during
muni market rallies.
It is important to note that although the Fund narrowly underperformed
its overall Lipper category average, it outperformed the benchmark that
we use to gauge its performance. This benchmark is a subset of the
funds in the Lipper "California Short Municipal Debt Funds" category
whose objectives and investment policies are more closely aligned with
those of the Fund. In addition, the Fund's yield over the period was
higher than the average yield of its peers.
Q: Were there any changes in the Fund's positioning over the six months
ended February 29?
A: We extended the Fund's average maturity* from 2.49 years to 3.22 years
during the period as we continued to shift the Fund's holdings from a
bullet structure* toward a barbell structure.* In particular, we
decreased the Fund's holdings in securities with maturities of one to
five years and increased its holdings in the five- to ten-year maturity
sector (see the Portfolio Composition By Maturity graphs on page 7).
This positioning enabled the Fund to pick up some extra yield, and it
also provided some price appreciation as the muni yield curve flattened
in late 1995 and early 1996.
8
SHORT-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: The Fund's holdings of prerefunded bonds* increased over the six-month
period. Why?
A: The performance of prerefunded bonds tends to track that of the
Treasury bonds that back them. When munis began to outperform
Treasuries in November, prices on prerefunded bonds became attractive
(cheaper) compared to other short-term munis, prompting us to increase
the Fund's holdings in those securities. In March, however, munis began
to underperform Treasuries, causing prerefunded bonds to become rich
(more expensive) compared to other short-term munis. If this trend
continues, we will likely sell some of the Fund's prerefunded bonds to
take advantage of this price appreciation.
Q: As of March 31, 1996, the Fund's name was changed to the "Benham
California Tax-Free Limited-Term Fund." Why the change?
A: According to Securities and Exchange Commission (SEC) guidelines, a
"short-term" fund cannot extend its average maturity beyond three
years. Though we have historically kept the Fund's average maturity
within this range, we wanted the flexibility to extend the Fund's
maturity up to five years to improve its performance when market
conditions are favorable.
Q: Will this result in any significant change in the way you manage the
Fund?
A: No. The Fund's objectives and our management strategy will remain
essentially the same.
Q: What are your plans for the Fund going forward?
A: Though the threat of a flat tax seems to have subsided, there is
considerable uncertainty in U.S. financial markets concerning the
strength of the economy (see page 1). Until we can get a clearer
picture of the strength and direction of the economy, we will probably
maintain a neutral stance, keeping the Fund's average maturity and
duration* close to those of its peer group average. We also continue to
favor the barbell structure because we believe that there is room for
further flattening of the muni yield curve, especially after the
steepening that has recently occurred. We will look to improve the
Fund's yield, probably by increasing its holdings in suitable A-rated
securities.
9
INTERMEDIATE-TERM FUND
CURRENT YIELD*
As of February 29, 1996
30-DAY TAX-EQUIVALENT YIELDS
30-DAY ---------------------------------------------------
SEC 34.70% 37.42% 41.95% 42.40%
YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
4.06% 6.22% 6.49% 6.99% 7.05%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 30-Day SEC Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE --------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
$11.06-$11.44 10.23% 5.13% 7.10% 6.68%
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 29.
The Fund commenced operations on November 9, 1983.
*Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
10
INTERMEDIATE-TERM FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 3/1/86 in the Fund and
in the Lehman Brothers, Inc. Five-Year Municipal General Obligation Index
[line graph]
Index Fund
2/28/86 $10,000 $10,000
3/31/86 10,026 10,027
4/30/86 10,090 10,091
5/31/86 9,952 9,989
6/30/86 10,054 10,122
7/31/86 10,049 10,139
8/31/86 10,293 10,426
9/30/86 10,425 10,493
10/31/86 10,603 10,705
11/30/86 10,733 10,792
12/31/86 10,699 10,748
1/31/87 10,907 10,981
2/28/87 11,006 11,049
3/31/87 10,943 10,962
4/30/87 10,619 10,465
5/31/87 10,618 10,484
6/30/87 10,843 10,653
7/31/87 10,968 10,801
8/31/87 10,989 10,794
9/30/87 10,620 10,430
10/31/87 10,776 10,540
11/30/87 10,905 10,722
12/31/87 11,025 10,831
1/31/88 11,297 11,099
2/29/88 11,411 11,199
3/31/88 11,367 11,138
4/30/88 11,471 11,224
5/31/88 11,333 11,142
6/30/88 11,415 11,197
7/31/88 11,467 11,240
8/31/88 11,434 11,215
9/30/88 11,545 11,339
10/31/88 11,645 11,455
11/30/88 11,584 11,378
12/31/88 11,616 11,471
1/31/89 11,782 11,602
2/28/89 11,657 11,498
3/31/89 11,583 11,445
4/30/89 11,782 11,641
5/31/89 11,996 11,812
6/30/89 12,128 11,930
7/31/89 12,304 12,086
8/31/89 12,256 12,031
9/30/89 12,262 12,018
10/31/89 12,273 12,118
11/30/89 12,429 12,287
12/31/89 12,530 12,382
1/31/90 12,536 12,401
2/28/90 12,630 12,484
3/31/90 12,591 12,448
4/30/90 12,550 12,391
5/31/90 12,779 12,617
6/30/90 12,873 12,715
7/31/90 13,026 12,870
8/31/90 12,981 12,772
9/30/90 13,009 12,807
10/31/90 13,200 13,030
11/30/90 13,390 13,220
12/31/90 13,440 13,248
1/31/91 13,638 13,455
2/28/91 13,762 13,552
3/31/91 13,730 13,509
4/30/91 13,902 13,671
5/31/91 13,972 13,751
6/30/91 13,970 13,720
7/31/91 14,109 13,845
8/31/91 14,291 14,016
9/30/91 14,467 14,204
10/31/91 14,577 14,285
11/30/91 14,623 14,295
12/31/91 14,951 14,623
1/31/92 14,980 14,624
2/29/92 14,990 14,590
3/31/92 14,940 14,551
4/30/92 15,071 14,658
5/31/92 15,206 14,819
6/30/92 15,425 15,043
7/31/92 15,830 15,544
8/31/92 15,711 15,303
9/30/92 15,810 15,441
10/31/92 15,759 15,280
11/30/92 15,949 15,520
12/31/92 16,060 15,660
1/31/93 16,233 15,898
2/28/93 16,657 16,436
3/31/93 16,468 16,176
4/30/93 16,574 16,300
5/31/93 16,632 16,347
6/30/93 16,857 16,610
7/30/93 16,869 16,558
8/31/93 17,098 16,898
9/30/93 17,221 17,143
10/31/93 17,247 17,162
11/30/93 17,197 17,023
12/31/93 17,433 17,334
1/31/94 17,596 17,524
2/28/94 17,267 17,096
3/31/94 16,882 16,644
4/29/94 17,053 16,710
5/31/94 17,148 16,830
6/30/94 17,109 16,774
7/29/94 17,295 17,027
8/31/94 17,378 17,086
9/30/94 17,248 16,934
10/31/94 17,152 16,737
11/30/94 17,042 16,506
12/30/94 17,192 16,688
1/31/95 17,357 17,004
2/28/95 17,608 17,328
3/31/95 17,888 17,564
4/28/95 17,937 17,632
5/31/95 18,330 18,021
6/30/95 18,344 17,930
7/31/95 18,601 18,120
8/31/95 18,789 18,297
9/30/95 18,845 18,435
10/31/95 18,924 18,631
11/30/95 19,085 18,823
12/31/95 19,190 18,945
1/31/96 19,419 19,162
2/29/96 19,353 19,100
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Lehman Brothers, Inc. Five-Year Municipal General Obligation Index, over the
past 10 years. Although the investment characteristics of the Index are similar
to those of the Fund, the securities owned by the Fund and those composing the
Index are likely to be different, and securities that the Fund and the Index
have in common are likely to have different weightings in the respective
portfolios. Investors cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 2/29/96 for the funds in Lipper's "California
Intermediate Municipal Debt Funds" category.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
The Fund: 10.23% 5.13% 7.10% 6.68%
Category Average: 9.14% 4.67% 5.90% 6.68%
The Fund`s Ranking: 5 out of 27 6 out of 11 2 out of 5 1 out of 1
Total returns are based on historical performance and do not guarantee future
results.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended February 29, 1996
% FROM % FROM ASSET SIX-MONTH
INCOME + APPRECIATION = TOTAL RETURN
2.41% + 1.98% = 4.39%
11
INTERMEDIATE-TERM FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $429,337,052 $412,450,277
Number of Issues: 146 132
Average Maturity: 8.11 years 7.43 years
Average Coupon: 5.96% 6.12%
Average Duration: 5.60 years 5.32 years
For definitions of these terms, see page 21.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
AAA 66.0% AAA 59.0%
AA 14.0% AA 16.6%
A 18.0% A 22.8%
BBB 2.0% BBB 1.6%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 23.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie charts]
2/29/96 8/31/95
COPs: 25.5% COPs: 22.3%
Water/Sewer: 20.5% Water/Sewer: 14.4%
Electric: 12.5% Electric: 14.4%
Sales Tax: 11.4% Sales Tax: 10.4%
GO: 7.4% Transportation: 7.5%
Hospital: 6.0% GO: 6.9%
Other: 16.7% Other: 24.1%
For definitions of these security types, see page 20.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
less than 1 Year: 3.0% less than 1 Year: 0.7%
1-5 Years: 12.0% 1-5 Years: 18.2%
5-10 Years: 55.0% 5-10 Years: 60.2%
10-20 Years: 30.0% 10-20 Years: 20.9%
The Fund invests primarily in intermediate-term California municipal
obligations. The Fund's weighted average portfolio maturity is typically five to
ten years, with seven years considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
12
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
with Dave MacEwen, Vice President & Senior Municipal Portfolio Manager, and
Colleen Denzler, Senior Municipal Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 20-26).
Q: How did the Fund perform?
A: The Fund turned in a strong performance in comparison with its peers.
For the year ended February 29, 1996, the Fund ranked fifth out of 27
funds in Lipper's "California Intermediate Municipal Debt Funds"
category based on total return. The Fund's total return of 10.23% was
109 basis points* higher than the 9.14% average total return for its
Lipper category (see the Lipper Performance Comparison on page 11). For
the six months ended February 29, the Fund's total return was 4.39%.
Q: Why did the Fund perform so well compared to its peers?
A: The key factor was the changes that we made in the Fund's positioning
in the latter half of 1995.
Q: Why and how did you change the Fund's positioning?
A: We believed that the market had overreacted to the flat tax scare
(see page 2), and we thought that the muni yield curve* would
eventually flatten as the muni market recovered from the declines
caused by flat tax fears. We extended the Fund's average maturity* from
7.43 years to 8.11 years during the period as we continued to shift the
Fund's holdings from a bullet structure* toward a barbell structure.*
In particular, we decreased the Fund's holdings in securities with
maturities between one and ten years and increased its holdings in
securities in the less-than-one-year and ten- to twenty-year sectors
(see the Portfolio Composition By Maturity graphs on page 12). This
barbell positioning helped the Fund outperform many of its peers as the
muni yield curve flattened in late 1995 and early 1996.
Q: You continued to increase the Fund's holdings in AAA-rated bonds. Why?
Isn't California's credit picture improving?
A: Yes, it is. But we increased the Fund's AAA holdings back in October
because yield spreads between insured and uninsured California munis
were so narrow--that is, insured bonds offered yields almost as high as
uninsured bonds--that it didn't make any sense not to buy the insured
securities. We managed to improve the Fund's credit quality while
giving up very little yield.
13
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What caused the narrowing of spreads between insured and uninsured
California munis?
A: Low levels of muni issuance have forced bond insurers to become very
competitive in both the primary and secondary muni markets. As a
result, premiums for bond insurance have fallen dramatically.
Q: What are your plans for the Fund going forward?
A: Though the threat of a flat tax seems to have subsided, there is
considerable uncertainty in U.S. financial markets concerning the
strength of the economy (see page 1). Until we can get a clearer
picture of the strength and direction of the economy, we will probably
maintain a neutral stance, keeping the Fund's average maturity and
duration* close to those of its peer group average. We also continue to
favor the barbell structure because we believe that there is room for
further flattening of the muni yield curve, especially after the
steepening that has recently occurred.
14
LONG-TERM FUND
CURRENT YIELD*
As of February 29, 1996
30-DAY TAX-EQUIVALENT YIELDS
30-DAY ---------------------------------------------------
SEC 34.70% 37.42% 41.95% 42.40%
YIELD TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
4.74% 7.26% 7.57% 8.17% 8.23%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined federal and California state income tax brackets would have
to earn before taxes to equal the Fund's tax-free 30-Day SEC Yield:
34.70% -- joint taxable income of $63,401 to $94,250
37.42% -- joint taxable income of $94,251 to $143,600
41.95% -- joint taxable income of $143,601 to $219,872
42.40% -- joint taxable income of $219,873 to $256,500
All income dividends distributed by the Fund during the six months ended
February 29, 1996, are exempt from federal and California state income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE --------------------------------------------
(9/1/95-2/29/96) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
$10.88-$11.65 12.26% 6.20% 8.54% 7.56%
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or 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 TOTAL 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 total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 30.
The Fund commenced operations on November 9, 1983.
*Yields and total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price, yields and total returns will
vary, so that shares, when redeemed, may be worth more or less than their
original cost.
15
LONG-TERM FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 3/1/86 in the Fund and
in the Lehman Brothers, Inc. Long-Term Municipal Bond Index
[line graph]
Index Fund
2/28/86 $10,000 $10,000
3/31/86 9,998 10,082
4/30/86 9,998 10,062
5/31/86 9,806 9,925
6/30/86 9,891 10,014
7/31/86 9,969 10,066
8/31/86 10,490 10,584
9/30/86 10,467 10,543
10/31/86 10,646 10,745
11/30/86 10,901 10,952
12/31/86 10,887 10,980
1/31/87 11,253 11,299
2/28/87 11,284 11,298
3/31/87 11,118 11,247
4/30/87 10,494 10,311
5/31/87 10,378 10,185
6/30/87 10,048 10,463
7/31/87 10,141 10,536
8/31/87 10,186 10,551
9/30/87 9,770 10,042
10/31/87 9,769 9,954
11/30/87 10,082 10,310
12/31/87 10,213 10,476
1/31/88 10,621 10,928
2/29/88 10,746 11,075
3/31/88 10,592 10,893
4/30/88 10,675 10,919
5/31/88 10,686 10,934
6/30/88 10,895 11,060
7/31/88 10,968 11,112
8/31/88 11,011 11,142
9/30/88 11,260 11,293
10/31/88 11,517 11,512
11/30/88 11,393 11,405
12/31/88 11,591 11,569
1/31/89 11,864 11,805
2/28/89 11,698 11,702
3/31/89 11,708 11,696
4/30/89 12,051 11,941
5/31/89 12,330 12,163
6/30/89 12,518 12,332
7/31/89 12,683 12,505
8/31/89 12,490 12,300
9/30/89 12,452 12,249
10/31/89 12,617 12,390
11/30/89 12,885 12,609
12/31/89 12,980 12,697
1/31/90 12,849 12,526
2/28/90 12,994 12,686
3/31/90 13,007 12,685
4/30/90 12,848 12,482
5/31/90 13,211 12,856
6/30/90 13,341 12,984
7/31/90 13,576 13,204
8/31/90 13,253 12,873
9/30/90 13,233 12,841
10/31/90 13,513 13,167
11/30/90 13,855 13,487
12/31/90 13,916 13,536
1/31/91 14,103 13,723
2/28/91 14,202 13,765
3/31/91 14,236 13,771
4/30/91 14,457 14,018
5/31/91 14,627 14,146
6/30/91 14,599 14,073
7/31/91 14,825 14,273
8/31/91 15,038 14,452
9/30/91 15,256 14,687
10/31/91 15,416 14,818
11/30/91 15,435 14,757
12/31/91 15,802 15,132
1/31/92 15,793 15,078
2/29/92 15,818 15,123
3/31/92 15,857 15,124
4/30/92 16,008 15,254
5/31/92 16,243 15,451
6/30/92 16,557 15,739
7/31/92 17,164 16,262
8/31/92 16,934 15,981
9/30/92 17,009 16,088
10/31/92 16,725 15,689
11/30/92 17,196 16,151
12/31/92 17,419 16,367
1/31/93 17,583 16,532
2/28/93 18,401 17,310
3/31/93 18,179 17,075
4/30/93 18,428 17,335
5/31/93 18,580 17,426
6/30/93 18,929 17,753
7/30/93 18,948 17,743
8/31/93 19,434 18,223
9/30/93 19,686 18,470
10/31/93 19,724 18,471
11/30/93 19,485 18,237
12/31/93 19,988 18,617
1/31/94 20,223 18,876
2/28/94 19,554 18,438
3/31/94 18,387 17,555
4/29/94 18,528 17,523
5/31/94 18,745 17,743
6/30/94 18,520 17,662
7/29/94 18,996 18,039
8/31/94 19,036 18,080
9/30/94 18,594 17,766
10/31/94 18,023 17,436
11/30/94 17,548 17,102
12/30/94 18,171 17,405
1/31/95 18,970 17,960
2/28/95 19,742 18,469
3/31/95 19,979 18,646
4/28/95 19,969 18,661
5/31/95 20,820 19,298
6/30/95 20,437 18,967
7/31/95 20,541 19,094
8/31/95 20,831 19,384
9/30/95 20,993 19,559
10/31/95 21,501 19,976
11/30/95 22,056 20,495
12/31/95 22,400 20,852
1/31/96 22,496 20,897
2/29/96 22,222 20,733
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Lehman Brothers, Inc. Long-Term Municipal Bond Index, over the past 10 years.
Although the investment characteristics of the Index are similar to those of the
Fund, the securities owned by the Fund and those composing the Index are likely
to be different, and securities that the Fund and the Index have in common are
likely to have different weightings in the respective portfolios. Investors
cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 2/29/96 for the funds in Lipper's "California
Municipal Debt Funds" category.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
The Fund: 12.26% 6.20% 8.54% 7.56%
Category Average: 10.35% 5.30% 7.91% 7.49%
The Fund`s Ranking: 4 out of 93 5 out of 60 7 out of 45 13 out of 22
Total returns are based on historical performance and do not guarantee future
results.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended February 29, 1996
% FROM % FROM ASSET SIX-MONTH
INCOME + APPRECIATION = TOTAL RETURN
2.70% + 4.26% = 6.96%
16
LONG-TERM FUND
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $288,641,618 $272,596,939
Number of Issues: 87 86
Average Maturity: 19.50 years 20.25 years
Average Coupon: 6.06% 6.04%
Average Duration: 8.30 years 8.29 years
For definitions of these terms, see page 21.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie charts]
2/29/96 8/31/95
AAA 47.0% AAA 41.6%
AA 15.0% AA 17.3%
A 38.0% A 41.1%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 23.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie charts]
2/29/96 8/31/95
COPs: 25.3% COPs: 21.2%
Hospital: 14.4% Hospital: 19.9%
Electric: 12.9% Water/Sewer: 11.1%
GICs: 8.4% Sales Tax: 9.1%
Tax Allocation: 6.6% GICs: 8.7%
Water/Sewer: 5.8% Electric: 8.0%
Other: 26.6% Other: 22.0%
For definitions of these security types, see page 20.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
less than 1 Year: 2.0% less than 1 Year: 0.9%
1-5 Years: 1.0% 1-5 Years: 0.8%
5-10 Years: 7.0% 5-10 Years: 3.2%
10-20 Years: 39.0% 10-20 Years: 37.7%
20-30 Years: 51.0% 20-30 Years: 57.4%
The Fund invests primarily in long-term California municipal obligations. The
Fund's weighted average portfolio maturity is typically ten or more years.
The composition of the Fund's portfolio may change over time.
17
LONG-TERM FUND
MANAGEMENT DISCUSSION
with Dave MacEwen, Vice President & Senior Municipal Portfolio Manager
NOTE: THE TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION (PAGES 20-26).
Q: How did the Fund perform?
A: The Fund turned in a strong performance in comparison with its peers.
For the year ended February 29, 1996, the Fund ranked fourth out of 93
funds in Lipper's "California Municipal Debt Funds" category based on
total return. The Fund's total return of 12.26% was nearly 200 basis
points* higher than the 10.35% average total return for its Lipper
category (see the Lipper Performance Comparison on page 16). For the
six months ended February 29, the Fund's total return was 6.96%.
Q: Why did the Fund perform so well compared to its peers?
A: The Fund's holdings in long-term premium non-callable bonds,* which
experienced significant price appreciation during the period, certainly
benefited the Fund's performance. But the key factor was the changes
that we made in the Fund's positioning in the latter half of 1995.
Q: Why and how did you change the Fund's positioning?
A: We believed that the market had overreacted to the flat tax scare
(see page 2), and we thought that the muni yield curve* would
eventually flatten as the muni market recovered from the declines
caused by flat tax fears. In the last half of 1995, we began to shift
the Fund's holdings from a bullet structure* toward a barbell
structure.* This barbell positioning helped the Fund outperform many of
its peers as the muni yield curve flattened in late 1995 and early
1996.
Q: You continued to increase the Fund's holdings in AAA-rated bonds. Why?
A: We increased the Fund's AAA holdings back in October because yield
spreads between insured and uninsured California munis were so
narrow--that is, insured bonds offered yields almost as high as
uninsured bonds--that it didn't make any sense not to buy the insured
paper. We managed to improve the Fund's credit quality while giving up
very little yield.
18
LONG-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What caused the narrowing of spreads between insured and uninsured
California munis?
A: Low levels of muni issuance have forced bond insurers to become very
competitive in both the primary and secondary muni markets. As a
result, premiums for bond insurance have fallen dramatically.
Q: The Fund has held a small position in derivatives over the past few
years. Are there currently derivatives in the Fund?
A: Yes. The Fund continues to hold one inverse floater,* which constitutes
about 1.3% of the Fund's portfolio. We use inverse floaters as a
management tool, in this case to balance the Fund's duration.* Inverse
floaters have higher yields and longer durations than typical long-term
bonds. In addition, as of February 29, the Fund held 10 futures
contracts on municipal bonds, which at the time of purchase were priced
more attractively than their underlying bonds (see FUTURES CONTRACTS on
page 35 of the Notes to Financial Statements).
Q: What are your plans for the Fund going forward?
A: Though the threat of a flat tax seems to have subsided, there is
considerable uncertainty in U.S. financial markets concerning the
strength of the economy (see page 1). Until we can get a clearer
picture of the strength and direction of the economy, we will probably
move the Fund toward a more neutral stance, shortening its duration to
more closely match that of its peer group average. We also continue to
favor the barbell structure because we believe that there is room for
further flattening of the muni yield curve, especially after the
steepening that has recently occurred.
19
INVESTMENT FUNDAMENTALS
DEFINITIONS
COMMON CALIFORNIA MUNICIPAL SECURITIES (MUNIS)
AMT Paper--instruments with income subject to the federal alternative minimum
tax.
Certificates of Participation (COPs)--securities issued to finance public
property improvements (such as city halls and police stations).
Development Bonds--securities such as Mello-Roos bonds and 1915 Act bonds that
are issued to finance real estate development projects.
General Obligation (GO) bonds--securities backed by the taxing power of the
issuer.
Guaranteed Investment Contracts (GICs)--securities backed by a guarantee from an
insurance company.
Municipal Commercial Paper (CP)--high-grade short-term securities backed by a
line of credit from a bank.
Municipal Notes--securities with maturities of two years or less.
Prerefunded Bonds--securities refinanced by the issuer because of their premium
coupons (higher-than-market interest rates). These bonds tend to have higher
credit ratings because they are backed by Treasury securities.
Put Bonds--securities that provide the right to sell to a specified buyer at a
specified time and price.
Revenue Bonds--securities backed by revenues from sales taxes or from a specific
project, system or facility (such as a hospital, electric utility or water
system).
Tax Allocation Bonds--securities issued to finance improvements in redevelopment
areas (such as urban neighborhoods).
Tax and Revenue Anticipation Notes (TRANs)--securities backed by the general tax
revenues of the issuer.
Variable-Rate Demand Notes (VRDNs)--securities that track market interest rates
and stabilize their market values using periodic (daily or weekly) interest rate
adjustments.
MUNICIPAL DERIVATIVES
Inverse Floaters--securities bearing interest rates that move inversely to
market interest rates. Unlike most bonds, their yields increase as interest
rates decline. However, if interest rates rise, they lose considerably more
value than a regular fixed-rate bond. Therefore, each Benham California Tax-Free
and Municipal Fund limits its investment in inverse floaters to a maximum of 10%
of net assets (except for the Money Market Funds, which cannot own inverse
floaters at all).
20
INVESTMENT FUNDAMENTALS
DEFINITIONS
(Continued from the previous page)
Tender Option Bonds--intermediate- or long-term fixed-rate securities with put
options attached (which give the holder the option to sell the bonds at face
value at a specified time). Tender option bonds purchased by the Funds are
typically structured with seven-day put features attached and pay interest at
rates that are reset weekly. Each Fund limits its investment in tender option
bonds to 15% of net assets. Tender option bonds are not leveraged and have risk
characteristics that are similar to VRDNs.
PORTFOLIO STATISTICS
Market Value--the market value of a fund's investments on a given date.
Number of Issues--the number of different securities issuances held by a fund on
a given date.
Average Maturity--a weighted average of all bond maturities in a fund's
portfolio (see also page 24).
Average Coupon--a weighted average of all coupons held in a fund's portfolio.
Average Yield--a weighted average of the yields to maturity of the securities in
a money market fund's portfolio.
Average Duration--a weighted average of all bond durations in a fund's portfolio
(see also page 24).
INVESTMENT TERMS
Basis Points--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%). Basis
points are used to avoid confusion about interest rate changes. For example, if
an economist says that interest rates rose 1%, does that mean 1% of the previous
rate, or one percentage point? Saying that interest rates rose by 100 basis
points is a more precise way of describing the change.
Coupon--the stated interest rate on a security.
Discount Bonds--bonds with interest coupons that are lower than prevailing
interest rates (see also page 25).
Par Bonds--bonds that trade or are priced at their face value.
Premium Bonds-- bonds with interest coupons that are higher than prevailing
interest rates (see also page 25).
21
INVESTMENT FUNDAMENTALS
THE YIELD CURVE
One of the fundamental tenets of investing is the relationship between risks and
returns--the greater the risks, the greater the chances of earning higher
returns over time. The downside is the correspondingly higher potential for
short-term losses--an investment that generates a high return probably has a
greater likelihood of significant fluctuations in value or return, especially in
the short run.
Bonds are no exception. The riskiest bonds--those with the greatest exposure to
interest rate movements and price fluctuations--generally have the highest
yields and returns over time but can experience severe short-term losses. On the
other hand, bonds with less exposure to interest rate movements and less price
fluctuation generally have lower yields and returns but are more stable.
The yield curve is a graphic representation of the relationship between bond
risks and returns at a point in time. Yield curve graphs plot lengthening bond
maturities (which represent risk because longer maturities increase risk) along
the horizontal axis and rising yields (which represent return) on the vertical
axis. Therefore, the lower left corner of yield curve graphs have the lowest
risks and the lowest potential returns, while the upper right corners have the
highest risks and the highest potential returns.
Yield curves can have several different shapes, depending on interest rate
levels and the economic environment:
Normal (Upward Sloping) Yield Curve--a yield curve that shows a normal risk/
return relationship--short-term securities have lower yields than long-term
securities. Most normal yield curves start in the lower left corner of the graph
and rise to the upper right corner.
Steep Yield Curve--a normal yield curve that shows a large difference between
short-term yields and long-term yields. This typically occurs when the bond
market is responding to inflation fears (causing high long-term bond yields) and
the Fed hasn't raised short-term interest rates enough (or the economy hasn't
slowed down enough) to quell those fears.
Flat Yield Curve--a yield curve that shows short-term securities having almost
the same yields as long-term securities. This typically occurs after the Fed has
raised short-term interest rates several times--to fight inflation and slow down
the economy--and long-term bond yields begin to fall.
Inverted Yield Curve--a yield curve that shows short-term securities having
higher yields than long-term securities. It's the next step after a flat yield
curve if the Fed continues to raise short-term interest rates and long-term
rates stay flat or fall.
22
INVESTMENT FUNDAMENTALS
MUNI RISK FACTORS
CREDIT QUALITY AND CREDIT RATINGS
Bond credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in bond investment
analysis. Credit ratings issued by independent rating and research companies
such as Standard & Poor's help quantify credit quality--the stronger the issuer,
the higher the credit rating. In turn, credit quality and ratings greatly
influence bond prices and yields--high ratings mean higher prices and less
current income (yield) as compensation for risk. But credit ratings are
subjective. They reflect the opinions of the rating agencies that issue them and
are not absolute standards of quality, as the Orange County bankruptcy in 1994
made painfully clear. In that case, highly rated munis issued by a wealthy
county still suffered defaults. Furthermore, in addition to the credit risk,
there is still market risk. High credit ratings do not guarantee good investment
performance. They do not reflect the price stability of a muni when economic or
market conditions change.
CALLABILITY
Many munis are callable, which means they can be redeemed by the issuer before
maturity. When interest rates fall, municipalities find it financially rewarding
to refinance the bonds they've issued because they can reduce their monthly
interest payments. The municipalities exercise their "call" options to refinance
the bonds. Although calls are good for the bond issuers, they're bad for
investors in munis--calls reduce the life of a municipal portfolio and force the
portfolio manager to reinvest in lower-yielding munis. The durations of munis
effectively shorten as rates fall.
Calls also boost supply and help drive down muni prices. Call options can only
be exercised on specific "call dates," which don't always coincide with periods
of low interest rates when refinancing is desirable. As a result, municipalities
will issue new bonds when interest rates are low and use the proceeds to buy
Treasuries, which offset the old bonds (now known as prerefunded bonds) on their
balance sheets until the bonds can be retired on the call date. When the call
date arrives, the Treasuries mature, and the prerefunded bonds are retired.
During this process, there is a period of time when both the newly issued bonds
and the prerefunded bonds remain outstanding. This situation doubles the
municipal bond supply, which can depress prices.
DURATION EXTENSION
Duration extension occurs when interest rates increase significantly, as they
did in 1994. Higher interest rates reduce calls, which is good for municipal
investors, but the lower level of calls causes the durations of munis to extend
longer, which is bad when rates are rising. Muni funds become more susceptible
to price declines at a time when greater price stability would be desirable. By
contrast, Treasury durations generally shorten slightly when interest rates
experience a large increase. Because of their higher coupons, premium bonds
experience less duration extension than par or discount bonds.
23
INVESTMENT FUNDAMENTALS
PORTFOLIO SENSITIVITY MEASUREMENTS
DURATION
Duration measures the price sensitivity of a bond or bond fund to changes in
interest rates. Specifically, duration represents the approximate percentage
change in the price of a bond or bond fund if interest rates move up or down by
100 basis points (defined on page 21). For example, as of February 29, 1996, the
California Tax-Free Short-Term Fund's duration was approximately three years,
while the California Tax-Free Long-Term Fund's duration was approximately eight
years. If interest rates were to rise by 100 basis points, the Short-Term Fund's
share price would be expected to decline by 3%, while the Long-Term Fund's share
price would decline by 8%. Conversely, if interest rates were to fall by 100
basis points, the Short-Term Fund's share price would be expected to increase by
3%, while the Long-Term Fund's share price would increase by 8%.
As this example illustrates, the longer the duration, the more bond or bond fund
prices will move in response to interest rate changes. Therefore, portfolio
managers generally lengthen durations when interest rates fall (to maximize the
effects of bond price increases) and shorten durations when interest rates rise
(to minimize the effects of bond price declines), taking into account the
objectives of the portfolio.
Duration, measured in years, also approximates (but understates) the weighted
average life of a bond or bond portfolio. To calculate duration, the future
interest and principal payments are added together and weighted in proportion to
their time value (early payments are valued more than later payments because
early payments can be reinvested and compound additional returns).
AVERAGE MATURITY
Average maturity is another measurement of the interest rate sensitivity of a
bond portfolio. Average maturity measures the average amount of time that will
pass until a bond portfolio receives its principal payments from matured bonds.
The longer a portfolio's average maturity is, the more interest rate exposure
and interest rate sensitivity it has. For example, a portfolio with a ten-year
average maturity has much more potential exposure to interest rate changes than
a portfolio with a one-year average maturity.
Portfolio managers generally lengthen average maturities when interest rates
fall (to maximize exposure and capture as much price appreciation as possible)
and reduce average maturities when interest rates rise (to minimize exposure and
avoid as much price depreciation as possible), as long as this strategy is
compatible with the objectives of the portfolio. Reducing the average maturity
in a rising interest rate environment allows the portfolio manager to more
quickly reinvest matured assets in higher-yielding securities.
24
INVESTMENT FUNDAMENTALS
BOND PRICING
PREMIUM AND DISCOUNT BONDS
Municipal bonds are generally priced at a premium or at a discount. Premium
bonds are bonds that trade or are priced above par (face value), typically
because their interest coupons are higher than the prevailing market interest
rate. Discount bonds are bonds that trade or are priced below par, typically
because their interest coupons are lower than the prevailing market interest
rate.
A bond may be both a premium bond and a discount bond during its life, depending
on changing market conditions. As market rates rise and bond prices fall, the
price of a premium bond can fall below par, and the bond becomes a discount
bond. Conversely, as market rates fall and bond prices rise, the price of a
discount bond can rise above par, and the bond becomes a premium bond.
Premium munis tend to have more price stability than discount munis--premium
munis depreciate less when interest rates rise (they experience less duration
extension), but they appreciate less when interest rates fall (they experience
more calls). Discount munis behave more like long-term Treasury securities.
TAX TREATMENT OF DISCOUNT BONDS
In 1993, new rules were passed regarding the tax treatment of long-term gains on
discount munis. In the past, any gain earned from the market discount was
treated as a capital gain, which is taxed at a maximum rate of 28%. However, the
newer law requires that any gain attributable to the market discount must be
treated as taxable ordinary income, which is taxed at the same rate as an
individual's tax bracket (up to 39.6%). Small market discounts (according to a
formula based on the price of the bond and the maturity date) are not subject to
the new law.
This tax treatment has made discount bonds less attractive in the muni market
because most municipal investors prefer to avoid incurring taxable income.
Discount munis also tend to have relatively low prices to make up for the
expected tax liability. As a result, when the price of a muni falls to the point
where it is traded at a market discount, the combination of reduced desirability
and added tax liability tends to lead to further price declines.
25
INVESTMENT FUNDAMENTALS
PORTFOLIO STRUCTURES & TAXABLE DISTRIBUTIONS
BOND PORTFOLIO STRUCTURES
Barbell Structure--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to outperform a bullet structure when the yield curve is moving
from steep to flat (short-term rates are rising faster than long-term rates, or
long-term rates are falling faster than short-term rates). In a rising interest
rate environment, the short-term securities capture the higher yields with
little price depreciation. In a declining interest rate environment, the
short-term securities provide a relatively steady yield, while the long bonds
produce more price appreciation than intermediate-term securities.
Bullet Structure--a structure that clusters a portfolio's bond maturities around
a single maturity (usually an intermediate-term maturity). This structure tends
to outperform a barbell structure when the yield curve is moving from flat to
steep (long-term rates are rising faster than short-term rates, or short-term
rates are falling faster than long-term rates). In a rising interest rate
environment, intermediate-term securities experience less price depreciation
than long-term securities. In a declining interest rate environment,
intermediate-term securities provide significantly more price appreciation than
short-term securities.
Ladder Structure--a balanced structure that staggers bond maturities so they
occur at regular intervals. This structure tends to be effective when interest
rates are relatively stable, and it provides a regular schedule of maturing
securities.
TAXABLE DISTRIBUTIONS
It's important to remember for your tax planning that tax-free funds often
generate taxable year-end distributions. These distributions typically result
from short-term and long-term capital gains. The taxable distributions usually
happen under favorable circumstances (the capital gains reflect bond
appreciation), but such distributions understandably attract attention simply
because they are taxable instead of tax free.
Although we manage our California tax-free and municipal funds to earn
tax-exempt income, they may realize taxable capital gains as we pursue higher
total returns. By law, the funds must distribute these capital gains to
shareholders each year. Under current tax law, each fund must distribute net
short-term capital gains realized by the fund as taxable ordinary income. Each
fund distributes net long-term capital gains to shareholders as a taxable
capital gains distribution.
26
[THIS PAGE INTENTIONALLY LEFT BLANK]
27
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31 (except as noted)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE SHORT-TERM FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992+
------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD.......................... $10.23 10.12 10.34 10.12 10.00
Income From Investment Operations
Net Investment Income......................................... .2129 .4148 .3766 .3840 .1012
Net Realized and Unrealized Gains (Losses) on Investments..... .0699 .1099 (.1832) .2227 .1200
-------- -------- -------- -------- --------
Total Income From Investment Operations...................... .2828 .5247 .1934 .6067 .2212
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income.......................... (.2128) (.4147) (.3761) (.3867) (.1012)
Distributions from Net Realized Capital Gains................. 0 0 0 0 0
Distributions in Excess of Net Realized Capital Gains......... 0 0 (.0373) 0 0
-------- -------- -------- -------- --------
Total Distributions.......................................... (.2128) (.4147) (.4134) (.3867) (.1012)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD................................ $10.30 10.23 10.12 10.34 10.12
======== ======== ======== ======== ========
TOTAL RETURN*................................................... 2.79% 5.33% 1.90% 6.15% 1.47%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)........... $ 98,895 104,723 120,627 114,019 52,171
Ratio of Expenses to Average Daily Net Assets++................. .51%** .51% .51% .36% 0%
Ratio of Net Investment Income to Average Daily Net Assets...... 4.14%** 4.10% 3.68% 3.76% 4.08%**
Portfolio Turnover Rate......................................... 38.00% 49.75% 65.66% 54.42% 19.37%
- -------------------
+ From June 1, 1992 (commencement of operations), through August 31, 1992.
++ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
28
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE-TERM FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD.................... $11.06 10.86 11.36 10.85 10.49 10.13 10.14 10.06 10.30 10.56
Income From Investment Operations
Net Investment Income........ .2717 .5414 .5354 .5582 .5853 .6038 .6184 .6305 .6294 .6241
Net Realized and Unrealized Gains
(Losses) on Investments.... .2097 .2000 (.4104) .5285 .3600 .3600 (.0100) .0800 (.2400) (.2600)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income From
Investment Operations... .4814 .7414 .1250 1.0867 .9453 .9638 .6084 .7105 .3894 .3641
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment
Income..................... (.2714) (.5414) (.5351) (.5592) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241)
Distributions from Net
Realized Capital Gains..... 0 0 (.0752) (.0175) 0 0 0 0 0 0
Distributions in Excess of Net
Realized Capital Gains..... 0 0 (.0147) 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions........ (.2714) (.5414) (.6250) (.5767) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $11.27 11.06 10.86 11.36 10.85 10.49 10.13 10.14 10.06 10.30
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN*.................. 4.39% 7.09% 1.11% 10.42% 9.18% 9.74% 6.16% 7.28% 3.90% 3.53%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars).... $438,404 417,550 448,293 444,460 304,988 241,496 191,217 167,444 157,300 166,966
Ratio of Expenses to
Average Daily Net Assets+.... .49%** .48% .48% .50% .52% .55% .58% .60% .64% .67%
Ratio of Net Investment Income
to Average Daily Net Assets.. 4.85%** 5.02% 4.82% 5.05% 5.50% 5.84% 6.08% 6.25% 6.19% 5.92%
Portfolio Turnover Rate........ 24.01% 25.44% 43.80% 26.76% 48.70% 28.58% 20.05% 39.89% 47.01% 51.94%
- -------------------
+ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
29
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended February 29, and the Years Ended August 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE LONG-TERM FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FEB. 29, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD..................... $10.94 10.88 12.02 11.44 11.00 10.45 10.67 10.36 10.54 11.42
Income From Investment Operations
Net Investment Income......... .3068 .6229 .6266 .6649 .6878 .6987 .7060 .7388 .7436 .7675
Net Realized and Unrealized Gains
(Losses) on Investments..... .4499 .1183 (.7101) .8460 .4400 .5500 (.2200) .3100 (.1800) (.8011)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income (Loss) From
Investment Operations.... .7567 .7412 (.0835) 1.5109 1.1278 1.2487 .4860 1.0488 .5636 (.0336)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment
Income...................... (.3067) (.6231) (.6261) (.6658) (.6878) (.6987) (.7060) (.7388) (.7436) (.7675)
Distributions from Net
Realized Capital Gains...... 0 (.0581) (.4304) (.2651) 0 0 0 0 0 (.0789)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions......... (.3067) (.6812) (1.0565) (.9309) (.6878) (.6987) (.7060) (.7388) (.7436) (.8464)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD....................... $11.39 10.94 10.88 12.02 11.44 11.00 10.45 10.67 10.36 10.54
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN*................... 6.96% 7.21% (.78)% 14.02% 10.58% 12.26% 4.66% 10.39% 5.61% (.31)%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars)....$293,729 276,085 277,477 338,075 275,880 247,244 197,394 179,737 143,191 179,523
Ratio of Expenses to
Average Daily Net Assets+..... .49%** .49% .48% .49% .52% .55% .57% .58% .63% .65%
Ratio of Net Investment Income
to Average Daily Net Assets... 5.43%** 5.84% 5.51% 5.76% 6.14% 6.48% 6.64% 6.98% 7.19% 6.87%
Portfolio Turnover Rate......... 25.27% 59.92% 61.93% 55.11% 71.59% 37.80% 74.11% 78.08% 34.52% 81.54%
- -------------------
+ The ratio for the six months ended February 29, 1996, includes expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
30
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
February 29, 1996
(Unaudited)
TAX-FREE TAX-FREE TAX-FREE
SHORT-TERM INTERMEDIATE- LONG-TERM
FUND TERM FUND FUND
--------- --------- ---------
ASSETS
<S> <C> <C> <C>
Investment securities at value (cost of $98,368,507, $408,722,713,
and $272,444,554, respectively).................................... $ 100,157,096 429,337,052 288,641,618
Cash................................................................. 187,082 1,647,756 2,365,514
Investment in affiliated money market fund (Note 2).................. 0 2,000,000 0
Interest receivable.................................................. 1,361,292 5,858,473 3,849,184
Receivable for fund shares sold...................................... 33,523 155,193 428,958
Margin deposit for futures contracts (Note 1)........................ 0 0 19,687
Prepaid expenses and other assets.................................... 2,895 30,403 7,155
------------ ----------- -----------
Total assets....................................................... 101,741,888 439,028,877 295,312,116
------------ ----------- -----------
LIABILITIES
Payable for securities purchased..................................... 2,654,218 0 0
Payable for fund shares redeemed..................................... 86,435 50,300 1,065,789
Dividends payable.................................................... 70,512 396,199 406,613
Fees payable to affiliates (Note 2).................................. 23,035 178,321 104,574
Net unrealized depreciation on futures contracts (Note 1)............ 0 0 2,817
Accrued expenses and other liabilities............................... 12,856 0 3,000
------------ ----------- -----------
Total liabilities.................................................. 2,847,056 624,820 1,582,793
------------ ----------- -----------
NET ASSETS.............................................................. $ 98,894,832 438,404,057 293,729,323
============ =========== ===========
Net assets consist of:
Capital paid in...................................................... $ 98,319,051 416,336,206 275,758,158
Undistributed accumulated net realized gain (loss) on investments.... (1,220,043) 1,443,425 1,770,344
Undistributed net investment income.................................. 7,235 10,087 6,574
Net unrealized appreciation on investments........................... 1,788,589 20,614,339 16,194,247
------------ ----------- -----------
Net assets.............................................................. $ 98,894,832 438,404,057 293,729,323
============ =========== ===========
Shares of beneficial interest outstanding (unlimited number of
shares authorized)................................................... 9,601,273 38,911,409 25,777,154
============ =========== ===========
Net asset value, offering price and redemption price per share.......... $10.30 11.27 11.39
======= ===== =====
- -------------------
See the accompanying notes to financial statements.
</TABLE>
31
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended February 29, 1996
(Unaudited)
TAX-FREE TAX-FREE TAX-FREE
SHORT-TERM INTERMEDIATE- LONG-TERM
FUND TERM FUND FUND
--------- --------- ---------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest income.......................................................... $ 2,353,662 11,370,386 8,499,273
---------- ---------- ----------
EXPENSES (NOTE 2)
Investment advisory fees................................................. 147,704 620,974 418,164
Administrative fees...................................................... 48,761 204,999 138,046
Transfer agency fees..................................................... 24,098 93,536 59,497
Printing and postage..................................................... 11,313 47,559 31,784
Custodian fees........................................................... 9,634 29,085 20,426
Auditing and legal fees.................................................. 2,511 9,546 6,413
Registration and filing fees............................................. 725 1,747 1,992
Directors' fees and expenses............................................. 3,187 5,589 4,563
Other operating expenses................................................. 8,283 29,529 17,357
---------- ---------- ----------
Total expenses......................................................... 256,216 1,042,564 698,242
Custodian earnings credits (Note 5)...................................... (7,388) (24,248) (16,257)
---------- ---------- ----------
Net expenses........................................................... 248,828 1,018,316 681,985
---------- ---------- ----------
Net investment income................................................ 2,104,834 10,352,070 7,817,288
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4)
Net realized loss (identified cost basis):
Proceeds from sales...................................................... 36,702,190 89,563,036 63,832,339
Cost of securities sold.................................................. 36,502,420 86,151,961 61,563,787
---------- ---------- ----------
Net realized loss...................................................... 199,770 3,411,075 2,268,552
---------- ---------- ----------
Unrealized appreciation of investments:
Beginning of period...................................................... 1,313,431 16,359,764 6,920,712
End of period............................................................ 1,788,589 20,614,339 16,198,940
---------- ---------- ----------
Net unrealized appreciation for the year............................... 475,158 4,254,575 9,278,228
---------- ---------- ----------
Net realized and unrealized gain on investments........................ 674,928 7,665,650 11,546,780
---------- ---------- ----------
Net increase in net assets resulting from operations........................ $ 2,779,762 18,017,720 19,364,068
========== ========== ==========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
32
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended February 29, 1996, and Year Ended August 31, 1995
(Unaudited)
Tax-Free Tax-Free Tax-Free
Short-Term Fund Intermediate-Term Fund Long-Term Fund
------------------ ---------------------- ------------------
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31,
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net investment income.......................... $ 2,104,834 4,472,979 10,352,070 20,853,807 7,817,288 15,676,786
Net realized gain (loss) on investments........ 199,770 (900,112) 3,411,075 (1,365,817) 2,268,552 (498,209)
Net change in unrealized appreciation
on investments............................... 475,158 1,720,049 4,254,575 7,497,113 9,278,228 3,178,301
----------- ---------- ----------- ---------- ---------- -----------
Change in net assets derived from investment
activities................................. 2,779,762 5,292,916 18,017,720 26,985,103 19,364,068 18,356,878
----------- ---------- ----------- ---------- ---------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.......................... (2,104,061) (4,472,853) (10,341,946) (20,852,276) (7,811,284) (15,680,810)
Net realized gain on investments............... 0 0 0 0 0 (1,423,246)
----------- ---------- ----------- ---------- ---------- -----------
Total distributions to shareholders.......... (2,104,061) (4,472,853) (10,341,946) (20,852,276) (7,811,284) (17,104,056)
----------- ---------- ----------- ---------- ---------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 3):
Proceeds from sales of shares.................. 11,844,371 50,256,918 44,505,370 83,210,172 41,419,529 69,814,068
Net asset value of dividends reinvested........ 1,673,083 3,659,833 7,972,836 15,963,090 5,297,351 11,600,463
Cost of shares redeemed........................ (20,021,585) (70,640,061) (39,300,067) (136,048,570) (40,625,386) (84,059,454)
----------- ---------- ----------- ---------- ---------- -----------
Change in net assets derived from capital
share transactions......................... (6,504,131) (16,723,310) 13,178,139 (36,875,308) 6,091,494 (2,644,923)
----------- ---------- ----------- ---------- ---------- -----------
Net increase (decrease) in net assets...... (5,828,430) (15,903,247) 20,853,913 (30,742,481) 17,644,278 (1,392,101)
NET ASSETS:
Beginning of period............................ 104,723,262 120,626,509 417,550,144 448,292,625 276,085,045 277,477,146
----------- ---------- ----------- ---------- ---------- -----------
End of period.................................. $ 98,894,832 104,723,262 438,404,057 417,550,144 293,729,323 276,085,045
=========== ========== =========== ========== ========== ===========
Undistributed net investment income.............. $ 7,235 6,462 10,087 (37) 6,574 570
=========== ========== =========== ========== ========== ===========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
33
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham California Tax-Free and Municipal Funds (BCTFMF) is registered under the
Investment Company Act of 1940 as an open-end management investment company.
Tax-Free Short-Term Fund, Tax-Free Intermediate-Term Fund, and Tax-Free
Long-Term Fund (collectively the "Funds") are three of the seven Funds composing
BCTFMF. Each Fund invests primarily in municipal debt securities that pay
interest exempt from federal and California income taxes. Significant accounting
policies followed by BCTFMF are summarized below.
VALUATION OF INVESTMENT SECURITIES--Securities held by the Funds are valued at
current market value as provided by an independent pricing service. When
valuations are not readily available, securities are valued at market value as
determined in good faith by or under the direction of the Board of Trustees.
Securities transactions are recorded on the date the order to buy or sell is
executed. Realized gains and losses on security transactions are determined on
the basis of identified cost.
INCOME TAXES--Each Fund of BCTFMF intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. By doing so, each Fund
will not be subject to federal or state income or franchise taxes to the extent
that it distributes its net investment income and net realized capital gains to
shareholders. Accordingly, no provision for income taxes has been made.
As of August 31, 1995, the Tax-Free Short-Term Fund, Tax-Free Intermediate-Term
Fund, and Tax-Free Long-Term Fund had capital loss carryovers of $608,877,
$1,686,723, and $498,209, respectively. No capital gain distributions will be
made by each fund until the loss carryovers have been offset or expired. The
capital loss carryovers will expire by August 31, 2003.
Due to the timing of dividend distributions and the differences in accounting
for gains and losses for financial statement and federal income tax purposes,
the fiscal year in which amounts are distributed may differ from the year in
which the income and realized gains (losses) were recorded by each Fund. The
differences between capital gains distributed on a book versus tax basis are
shown as excess distributions of realized capital gains in the accompanying
Financial Highlights.
34
SHARE VALUATION--Each Fund's net asset value per share is computed each business
day by dividing the value of its total assets, less its liabilities, by the
total number of shares outstanding at the beginning of each business day. The
Funds' net asset values fluctuate daily in response to changes in the market
value of their investments.
INVESTMENT INCOME, PREMIUM, AND DISCOUNT--Interest income and expenses are
accrued daily. Premium on securities purchased is amortized daily on a
straight-line basis over the shorter period of purchase date to call date or
purchase date to maturity date. The Funds recognize market discount, if any,
upon the sale or maturity of securities. Original issue discount for municipal
securities is accrued daily using the effective interest rate method.
DIVIDENDS AND OTHER DISTRIBUTIONS--The Funds' dividends are declared daily,
accrued throughout the month, and distributed on the last business day of the
month. Each Fund distributes net capital gains, if any, once per year.
Distributions are paid in cash or reinvested as additional shares.
FUTURES CONTRACTS--The Variable-Price Funds may use futures transactions to
maintain cash reserves while remaining fully invested, to facilitate trading, to
reduce transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Some futures contract strategies present a substantial risk of loss, due to both
the low margin deposits required and the high degree of leverage involved in
futures pricing. A relatively small movement in a futures contract may result in
immediate, substantial gains or losses to the contract holder. Gains from
futures transactions are subject to federal income tax when distributed to
shareholders.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund. The variation margin is equal to the daily change in the
contract value and is recorded as unrealized gains and losses. The Fund
recognizes a realized gain or loss when the contract is closed or expires.
As of February 29, 1996, the following Fund had futures contracts outstanding:
Number of Net Unrealized
Fund Contracts Type Expiration Date Value Depreciation
- --------- ------------ -------- --------------- ------- ---------------
Tax-Free
Long-Term Municipal Bond
Fund 10 Futures Contract March 31, 1996 $1,180,313 $2,817
35
Securities with market value of $2,158,082 have been segregated at the custodian
bank for these contracts.
(2) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc., merged into TCC on June 1, 1995. Each Fund pays Benham
Management Corporation (BMC) a monthly investment advisory fee based on its pro
rata share of the dollar amount derived from applying BCTFMF's average daily net
assets to the following annualized investment advisory fee schedule.
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion
BMC provides BCTFMF with all investment advice. TCC pays all compensation of
BCTFMF officers and trustees who are officers or directors of TCC or any of its
subsidiaries. In addition, promotion and distribution expenses are paid by BMC.
BCTFMF has an Administrative Services and Transfer Agency Agreement with Benham
Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under the
agreement, BFS provides substantially all administrative and transfer agency
services necessary to operate the Funds. Fees for these services are based on
transaction volume, number of accounts, and average net assets of all funds in
The Benham Group.
BCTFMF has an additional agreement with BMC pursuant to which BMC established a
contractual expense guarantee that limits each Fund's expenses (excluding
extraordinary expenses such as brokerage commissions and taxes) to .62% of
average daily net assets for the Funds. The agreement provides that BMC may
recover amounts (representing expenses in excess of the Fund's expense guarantee
rate) absorbed during the preceding 11 months, if, and to the extent that, for
any given month, the Fund's expenses were less than the expense
36
guarantee rate in effect at that time. The expense guarantee is subject to
renewal in June 1996.
The payables to affiliates as of February 29, 1996, based on the above
agreements were as follows:
Tax-Free Tax-Free Tax-Free
Short-Term Intermediate-Term Long-Term
Fund Fund Fund
---------- -------------- ---------
Investment Advisor........... $ 23,035 100,966 68,407
Administrative Services...... 7,608 33,347 22,593
Transfer Agent............... 5,248 44,008 13,574
------- ------- -------
$ 35,891 178,321 104,574
======= ======= =======
As of February 29, 1996, the Tax-Free Intermediate-Term Fund had invested cash
in the Benham California Tax-Free Money Market Fund (a Fund of BCTFMF). The
terms of this transaction were identical to those of non-related entities except
that, to avoid duplicate investment advisory fees, the Fund does not pay BMC
investment advisory fees for assets invested in shares of the Tax-Free Money
Market Fund.
BCTFMF has a distribution agreement with Benham Distributors, Inc. (BDI), which
is responsible for promoting sales of and distributing the Fund's shares. BMC
pays all costs incurred by BDI. BDI is a wholly owned subsidiary of TCC.
(3) SHARE TRANSACTIONS
Share transactions for each of the Funds for the six months ended February 29,
1996, and year ended August 31, 1995, were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free
Short-Term Intermediate-Term Long-Term
Fund Fund Fund
------------------ ---------------- ----------------
Feb. 29, Aug. 31, Feb. 29, Aug. 31, Feb. 29, Aug. 31,
1996 1995 1996 1995 1996 1995
-------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ..1,152,768 4,990,923 3,960,460 7,744,303 3,667,387 6,574,067
Reinvestment
of dividends.. 162,696 363,362 709,706 1,484,142 467,115 1,093,963
--------- --------- --------- --------- -------- ---------
1,315,464 5,354,285 4,670,166 9,228,445 4,134,502 7,668,030
Less shares
redeemed.... (1,948,017) (7,036,430) (3,502,248) (12,750,380) (3,595,866) (7,943,944)
--------- --------- --------- --------- -------- ---------
Net increase
(decrease)
in shares.... (632,553) (1,682,145) 1,167,918 (3,521,935) 538,636 (275,914)
========= ========= ========= ========= ======== =========
</TABLE>
37
(4) INVESTMENT SECURITIES -- PURCHASES, SALES AND/OR MATURITIES
Portfolio activity, excluding short-term securities, for the six-months ended
February 29, 1996, was as follows:
Tax-Free Tax-Free Tax-Free
Short-Term Intermediate-Term Long-Term
Fund Fund Fund
---------- -------------- ---------
Purchases................... $ 30,747,834 102,195,237 70,600,666
=========== ========== ==========
Sales proceeds.............. $ 36,702,190 89,563,036 63,832,339
=========== ========== ==========
As of February 29, 1996, unrealized appreciation (depreciation) was as follows:
Tax-Free Tax-Free Tax-Free
Short-Term Intermediate-Term Long-Term
Fund Fund Fund
---------- -------------- ---------
Appreciated securities...... $ 1,792,397 20,830,657 16,660,701
Depreciated securities...... (3,808) (216,318) (463,637)
----------- ---------- ----------
Net unrealized appreciation. $ 1,788,589 20,614,339 16,197,064
=========== ========== ==========
The cost of securities for financial reporting and federal income tax purposes
is the same.
(5) EXPENSE OFFSET ARRANGEMENTS
Each Fund's Statement of Operations reflects custodial earnings credits. These
amounts are used to offset the custody fees payable by the Funds to the
custodian bank. The credits are earned when the Fund maintains a balance of
uninvested cash at the custodian bank. Beginning with the six months ending
February 29, 1996, the ratios of expenses to average daily net assets shown in
the Financial Highlights are calculated as if these credits had not been earned.
38
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Short-Term Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,500,000 Anaheim Redevelopment Agency Local Government Financing Joint Power,
MBIA Insured 7.950% 09/01/98 $3,916,675 Aaa/AAA
1,775,000 Burbank Redevelopment Agency West Olive Tax Allocation Series 1994,
AMBAC Insured 6.000 12/01/97 1,846,266 Aaa/AAA
1,080,000 California Educational Facility Authority Project Series A 4.950 12/01/02 1,094,148 A/NR
1,140,000 California Educational Facility Authority University Project Series A 4.550 12/01/99 1,148,926 A/NR
1,450,000 California Health Facility Financing Authority Mills Hospital Revenue
Series B, Connie Lee Insured 5.500 01/15/00 1,510,407 NR/AAA
1,400,000 California Health Facility Financing Authority
St. Francis Memorial Hospital 5.000 11/01/98 1,430,436 A/NR
1,750,000 California Health Facility Financing Authority
St. Francis Memorial Hospital Series 1993 A 5.500 11/01/01 1,813,595 A/NR
1,745,000 California Health Facility Financing Authority
St. Joseph Hospital Certificate of Participation 5.500 07/01/97 1,787,246 Aa/AA
1,435,000 California State Public Works Department of Corrections 4.600 12/01/02 1,425,859 A/A-
1,600,000 California State Public Works Department of Justice Series A 5.500 05/01/00 1,664,464 A/A-
1,000,000 City of Los Angeles Convention Center Certificate of Participation Series
1989 A, Prerefunded at 101.5% of par 7.300 08/15/99 1,120,460 Aaa/AAA
1,380,000 City of Oakland Health Facility Authority Children's
Hospital Series 1988 A, Connie Lee Insured 5.000 07/01/97 1,405,958 NR/AAA
3,175,000 City of Whittier Health Revenue Presbyterian
Intercommunity Hospital, MBIA Insured 5.500 06/01/02 3,371,977 Aaa/AAA
1,700,000 Imperial Irrigation District Certificate of Participation 5.625 05/01/97 1,742,449 Aa/A+
1,000,000 Imperial Irrigation District Certificate of Participation Series 1993,
California 6.700 11/01/98 1,072,300 Aa/A+
1,500,000 Irvine Ranch Water District, Letter of Credit-Sanwa Bank of California 3.750 03/01/96* 1,500,000 NR/A1
1,140,000 Kern High School District, California, Series A, MBIA Insured 6.000 02/01/04 1,248,482 Aaa/AAA
2,250,000 Long Beach Redevelopment Agency Revenue Downtown Redevelopment
Series 1988 A, California, AMBAC Insured, Escrowed to Maturity 6.750 11/01/96 2,302,560 Aaa/AAA
</TABLE>
39
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE SHORT-TERM FUND (Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,000,000 Los Angeles Airport Revenue Bonds Series 1989 A, California,
Prerefunded at 102% of par 7.000% 05/01/97 $2,121,880 Aa/AA
1,000,000 Los Angeles Building Authority California Department
of General Services, Series A 4.900 05/01/03 1,011,390 A/A-
1,435,000 Los Angeles City General Obligation Series 1995 A, FGIC Insured 5.000 09/01/00 1,481,379 Aaa/AAA
1,000,000 Los Angeles County Metropolitan Transit Authority Sales Tax
Revenue Proposition C, AMBAC Insured 5.900 07/01/02 1,091,650 Aaa/AAA
1,500,000 Los Angeles Department of Water and Power
Electric Revenue, Crossover refunded at 102% of par 7.400 05/01/98 1,637,445 Aa/AA
3,605,000 Los Angeles Municipal Corporation, MBIA Insured 5.750 02/01/98 3,737,736 Aaa/AAA
1,000,000 Los Angeles Waste Water System Revenue 6.700 02/01/00 1,083,110 A1/A
2,000,000 Los Angeles Waste Water System Revenue, Prerefunded at 102% of par 6.800 08/01/98 2,178,900 Aaa/A
2,000,000 Merced CSAC Lease Financing Program Series
1992, California, FSA Insured 4.750 10/01/96 2,016,900 Aaa/AAA
1,000,000 Metropolitan Water District of Southern California Waterworks Revenue 6.375 07/01/02 1,110,770 Aa/AA
2,000,000 Metropolitan Water District of Southern California
Waterworks Revenue Series 1991 6.100 07/01/99 2,129,600 Aa/AA
1,950,000 Modesto Multifamily Housing Revenue Bond
Revenue Series 1992 A, Letter of Credit-Bank of America 5.000 03/01/96 1,950,293 Aa3/NR
1,865,000 Oakland-Alameda County Coliseum Lease Revenue,
Letter of Credit-Canadian Imperial Bank 4.400 02/01/00 1,872,274 Aa3/AA-
1,365,000 Ontario Redevelopment Project #1 Center City Cimarron Project,
MBIA Insured 5.700 08/01/01 1,459,567 Aaa/AAA
2,265,000 Orange County Municipal Water District Water Facility C Series B,
Letter of Credit-Barclay's Bank 4.500 07/01/96 2,269,938 Aa2/AA
1,500,000 Orange County Transportation Sales Tax, AMBAC Insured 5.500 02/15/01 1,573,470 Aaa/AAA
2,000,000 Rancho Water District Financing Authority,
Letter of Credit-Toronto Dominion 4.700 09/15/01 2,009,640 Aa2/AA
4,485,000 Sacramento Municipal Utility District Series D, California 4.600 11/15/98 4,552,096 A/A-
2,000,000 San Bernardino County Medical Center Poject Series A, MBIA Insured 5.200 08/01/04 2,089,320 Aaa/AAA
2,625,000 San Diego Regional Transportation Commission
Sales Tax Series 1994 A, FGIC Insured 5.000 04/01/99 2,700,075 Aaa/AAA
4,000,000 San Francisco Bay Area Rapid Transit, California, AMBAC Insured 4.600 07/01/97 4,013,640 Aaa/AAA
</TABLE>
40
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE SHORT-TERM FUND (Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,085,000 San Francisco City and County General Obligation, FGIC Insured 6.000% 06/15/98 $1,137,026 Aaa/AAA
2,930,000 San Francisco Port Commision Revenue Refunding 5.250 07/01/99 3,013,710 A/BBB+
1,000,000 San Mateo Transportation Sales Tax Series A, AMBAC Insured 6.500 06/01/98 1,075,000 Aaa/AAA
1,185,000 South Coast Air Quality Limited Tax General Obligation, AMBAC Insured 5.500 08/01/01 1,255,721 Aaa/AAA
2,135,000 Southern California Public Power Agency Pooled Transmission Authority
Joint Power Series 1989, Prerefunded at 102% of par 7.000 07/01/00 2,417,204 Aaa/AAA
1,000,000 Southern California Public Power Authority Electric
Revenue Bonds Series 1989 6.750 07/01/99 1,077,950 A/A
1,510,000 State of California General Obligation 6.500 11/01/97 1,578,977 A1/A
2,000,000 State of California General Obligation, AMBAC Insured 6.500 04/01/98 2,107,580 Aaa/AAA
2,325,000 State of California General Obligation, AMBAC Insured 6.100 02/01/02 2,523,950 Aaa/AAA
1,000,000 Turlock Irrigation District, MBIA Insured 5.000 01/01/03 1,034,750 Aaa/AAA
4,980,000 University of California Revenue Series A, California,
MBIA Insured, Prerefunded at 102% of par 7.000 09/01/97 5,331,787 Aaa/AAA
2,000,000 West Basin Water District Certificate of Participation Series 1991, AMBAC
Insured, Escrowed to Maturity 6.100 08/01/98 2,110,160 Aaa/AAA
- ------------ -----------
$95,765,000 Total Investment Securities (cost $98,368,507) $100,157,096
============ ===========
NR = Not Rated
- -------------------
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon demand
on the date indicated. For purposes of calculating the Fund's weighted average maturity, the length to maturity of
these instruments is considered to be the greater of the period until the interest rate is adjusted or until the principal can
be recovered by demand.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Prerefunded.................... 19.49% Electric........................ 6.19%
Certificates of Participation.. 12.87 Transportation.................. 5.13
General Obligation............. 11.31 Solid Waste..................... 3.70
Hospital....................... 11.29 Other........................... 9.64
Water/Sewer.................... 11.04 ------
Sales Tax...................... 9.34 TOTAL...........................100.00%
======
</TABLE>
41
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Intermediate-Term Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,800,000 Anaheim Police Facility Refinancing Project, AMBAC Insured 3.350% 03/06/96* $3,800,000 VMIG1/A-1
4,060,000 Burbank Redevelopment Agency West Olive Tax
Allocation Series 1994, AMBAC Insured 6.500 12/01/01 4,520,648 Aaa/AAA
4,795,000 California Department of Water Resources
Central Valley Project Series J-2 5.800 12/01/04 5,214,466 Aa/AA
1,505,000 California Department of Water Resources
Central Valley Project Series M 4.500 12/01/08 1,424,362 Aa/AA
2,145,000 California Educational Facility Authority University
of San Diego Series 1989, MBIA Insured 6.750 10/01/02 2,385,991 Aaa/AAA
3,695,000 California Health Facility Financing Authority
Catholic Healthcare Series A, MBIA Insured 5.000 07/01/07 3,693,153 Aaa/AAA
3,145,000 California Health Facility Financing Authority
Catholic Healthcare Series 1995, AMBAC Insured 6.000 07/01/04 3,457,141 Aaa/AAA
1,500,000 California Health Facility Financing Authority
Kaiser Permanente Series A 6.700 10/01/99 1,623,135 Aa3/AA
1,500,000 California Health Facility Financing Authority Pomona Valley
Hospital Medical Center Series A, MBIA Insured 6.750 01/01/07 1,632,120 Aaa/AAA
1,660,000 California Health Facility Financing Authority
St. Francis Memorial Hospital Series A 5.375 11/01/00 1,698,711 A/NR
1,280,000 California Health Facility Financing Authority
St. Francis Memorial Hospital Series A 5.250 11/01/99 1,305,139 A/NR
1,560,000 California Health Facility Financing Authority
St. Francis Memorial Hospital Series A 5.750 11/01/04 1,607,081 A/NR
1,745,000 California Health Facility Financing Authority
St. Francis Memorial Hospital Series A 5.625 11/01/02 1,805,098 A/NR
4,520,000 California Public Works Board Lease Revenue
Secretary of State, AMBAC Insured 6.200 12/01/05 5,062,174 Aaa/AAA
3,000,000 California Public Works Board University of
California Series A, Various Projects 6.150 11/01/09 3,164,250 A1/A-
</TABLE>
42
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,250,000 California Public Works Energy-Efficiency Pooled Project Series 1991 A 6.000% 09/01/99 $3,432,358 A/BBB+
4,325,000 California Public Works Series A 6.250 09/01/05 4,648,293 A/A-
1,000,000 California Public Works University of California
Project Series A, AMBAC Insured 5.900 12/01/03 1,093,800 Aaa/AAA
3,500,000 California State Public Works Department of
Corrections Series A, AMBAC Insured 5.250 12/01/05 3,661,525 Aaa/AAA
2,500,000 California State Department of Veteran's Affairs Series A 6.200 08/01/98 2,614,500 Aa/A+
3,000,000 California State Public Works California State University
Series 1992 A, Various Projects 5.700 10/01/99 3,140,220 A/A-
1,415,000 California State Public Works Lease Revenue Series A 5.200 06/01/07 1,410,118 A/A-
3,710,000 California State Public Works Prison Board (Franchise Tax Board)
Certificate of Participation 6.900 10/01/06 3,971,147 A/A-
2,000,000 California State Public Works University of California Regents Series A 5.080** 09/01/00 1,621,580 A1/A
3,100,000 California Statewide Association of Counties Oakland Convention
Center Lease Revenue, AMBAC Insured 6.125 10/01/06 3,369,359 Aaa/AAA
2,385,000 California Statewide Association of Counties
St. Joseph Health System Certificate of Participation 6.500 07/01/03 2,654,934 Aa/AA
1,000,000 Castaic Lake Water Agency Certificate of Participation Series A,
California, MBIA Insured 7.250 08/01/09 1,211,980 Aaa/AAA
2,945,000 Castaic Lake Water Agency Certificate of Participation
Series A, California, MBIA Insured 5.750 08/01/01 3,148,735 Aaa/AAA
2,075,000 Chabot Las Positas Community College District
Certificage of Participation, FSA Insured 5.500 12/01/10 2,161,258 Aaa/AAA
2,545,000 City and County of San Francisco General Obligation
Series A, FGIC Insured 5.300 06/15/07 2,613,002 Aaa/AAA
2,080,000 City of Los Angeles Equipment Acquisition Project
Certificate of Participation Series 1989 G 7.300 10/01/96 2,124,491 A/NR
1,045,000 City of Los Angeles General Obligation, FGIC Insured 5.600 09/01/07 1,093,916 Aaa/AAA
3,980,000 City of Whittier Health Revenue Presbyterian Intercommunity
Hospital, MBIA Insured 6.000 06/01/06 4,374,776 Aaa/AAA
1,465,000 City of Woodland Waste Water System Refunding Certificate of
Participation, AMBAC Insured 6.000 03/01/06 1,615,016 Aaa/AAA
2,500,000 Contra Costa County Public Facility Certificate of Participation, BIGI
Insured 7.450 06/01/00 2,790,125 Aaa/AAA
</TABLE>
43
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,065,000 Contra Costa County Water District Revenue Series A,
California, Prerefunded at 102% of par 7.000% 10/01/00 $1,208,231 NR/NR***
1,750,000 East Bay Municipal Utilities District Revenue Refunding, FGIC Insured 4.900 06/01/09 1,717,275 Aaa/AAA
2,255,000 East Bay Municipal Utilities District Revenue Refunding, FGIC Insured 4.800 06/01/08 2,214,884 Aaa/AAA
1,625,000 East Bay Municipal Utilities District Revenue Refunding, FGIC Insured 4.700 06/01/07 1,598,269 Aaa/AAA
5,000,000 East Bay Municipal Utilities District Revenue, MBIA Insured 5.000 06/01/06 5,094,100 Aaa/AAA
3,485,000 East Bay Municipal Utilities District Waste System Revenue 6.100 06/01/06 3,773,906 A1/AA-
2,570,000 East Bay Municipal Utilities District Waste Water System Revenue 6.000 06/01/05 2,785,288 A1/AA-
1,640,000 Fairfield Water Revenue Refunding Series 1996, AMBAC Insured 4.900 04/01/08 1,621,222 Aaa/AAA
3,325,000 Fairfield Water Revenue Refunding Series 1996, AMBAC Insured 4.800 04/01/07 3,292,481 Aaa/AAA
6,850,000 Imperial Irrigation District Certificate of Participation, MBIA Insured 6.500 11/01/07 7,837,907 Aaa/AAA
3,750,000 Irvine Assessment District No. 89-10 Variable Rate
Demand Note, Letter of Credit-National Westminster Bank 3.150 03/01/96* 3,750,000 VMIG1/A-1+
1,750,000 Loma Linda Hospital Revenue University Medical Center, AMBAC Insured 6.950 12/01/05 1,928,972 Aaa/AAA
2,500,000 Los Angeles Airport Revenue Bond Series A, California, FGIC Insured 6.000 05/15/05 2,749,350 Aaa/AAA
4,000,000 Los Angeles Capital Asset Lease Revenue, AMBAC Insured 5.875 12/01/05 4,378,840 Aaa/AAA
1,000,000 Los Angeles Convention Center Certificate of
Participation, California, AMBAC Insured 6.750 08/15/01 1,120,420 Aaa/AAA
4,000,000 Los Angeles County Correctional Facility Project
Certificate of Participation, MBIA Insured 6.000 09/01/99 4,258,560 Aaa/AAA
1,415,000 Los Angeles County Master Refund Project
Certificate of Participation Series 1991 6.400 05/01/00 1,462,728 Baa1/BBB+
1,000,000 Los Angeles County Metropolitan Transit
Authority Sales Tax Revenue, AMBAC Insured 5.900 07/01/06 1,102,910 Aaa/AAA
1,000,000 Los Angeles County Multiple Capital Facilities
Project #2 Certificate of Participation 6.900 03/01/01 1,056,070 Baa1/BBB+
1,000,000 Los Angeles County Public Properties, California, BIGI Insured 6.250 04/01/00 1,077,990 Aaa/AAA
1,500,000 Los Angeles County Public Properties Certificate of Participation 6.000 10/01/98 1,546,200 Baa1/BBB+
2,650,000 Los Angeles County Public Properties Certificate of Participation 6.150 04/01/99 2,715,535 Baa1/BBB+
2,000,000 Los Angeles County Transportation Commission
Certificate of Participation Series B 6.250 07/01/04 2,202,520 A1/NR
3,900,000 Los Angeles County Transportation Commission
Certificate of Participation Series B 6.000 07/01/01 4,156,542 A1/NR
</TABLE>
44
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 4,765,000 Los Angeles County Transportation Commission
Certificate of Participation Series B 6.200% 07/01/03 $5,154,825 A1/A+
4,000,000 Los Angeles County Transportation Commission
Sales Tax Revenue, FGIC Insured 5.875 07/01/02 4,333,360 Aaa/AAA
3,515,000 Los Angeles County Transportation Commission
Sales Tax Revenue Proposition C Series A 6.200 07/01/04 3,890,367 A1/A+
3,765,000 Los Angeles County Transportation Commission
Sales Tax Revenue Proposition C Series A 6.400 07/01/06 4,234,797 A1/A+
3,000,000 Los Angeles County Transportation Commission
Sales Tax Revenue Series 1992 A, MBIA Insured 5.700 07/01/01 3,197,520 Aaa/AAA
2,500,000 Los Angeles County Transportation Commission
Sales Tax Revenue Series A, Proposition A 6.400 07/01/02 2,747,700 A1/AA-
2,095,000 Los Angeles Department of Water and Power, FGIC Insured 4.750 08/15/09 2,019,224 Aaa/AAA
2,135,000 Los Angeles Department of Water and Power Electric Revenue 6.625 10/01/01 2,385,670 Aa/AA-
1,000,000 Los Angeles Department of Water and Power
Electric Revenue, FGIC Insured 6.300 04/15/06 1,092,030 Aaa/AAA
1,000,000 Los Angeles Department of Water and Power
Electric Revenue, MBIA Insured 5.700 01/15/05 1,072,970 Aaa/AAA
4,685,000 Los Angeles Municipal Improvement Corporation
Revenue, MBIA Insured 6.000 02/01/03 5,111,897 Aaa/AAA
2,000,000 Los Angeles Municipal Improvement Corporation
Revenue Lease Series 1989, California 7.200 09/01/96 2,037,380 Aa/AA
2,070,000 Los Angeles Municipal Improvement Corporation
Revenue Lease Series A 4.900 09/01/02 2,082,586 Aa/NR
2,000,000 Los Angeles Solid Waste Project Certificate
of Participation Series 1990 6.400 11/01/97 2,085,340 A1/AA
4,780,000 Los Angeles Waste Water System Revenue, AMBAC Insured 6.200 06/01/06 5,218,087 Aaa/AAA
2,045,000 Los Angeles Waste Water System Revenue, MBIA Insured 6.600 02/01/00 2,217,434 Aaa/AAA
1,000,000 Los Angeles Waste Water System Revenue Series B 6.800 06/01/02 1,100,130 A1/A
7,190,000 Metropolitan Water District of Southern California Water Revenue 6.500 07/01/04 8,077,174 Aa/AA
1,000,000 Metropolitan Water District of Southern California
Waterworks Revenue 6.625 07/01/06 1,129,310 Aa/AA
</TABLE>
45
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,715,000 Metropolitan Water District of Southern California
Waterworks Revenue Refunding, MBIA Insured 4.750% 07/01/09 $3,609,308 Aaa/AAA
3,260,000 Metropolitan Water District of Southern California
Waterworks Revenue Series A, MBIA Insured 5.600 07/01/10 3,371,818 Aaa/AAA
2,000,000 Northern California Power Agency Geothermal
Project R, AMBAC Insured 5.600 07/01/06 2,134,940 Aaa/AAA
10,000,000 Northern California Power Agency Geothermal
Project 3 Revenue, AMBAC Insured 5.500 07/01/05 10,586,800 Aaa/AAA
1,500,000 Northern California Power Agency Multi-Capital
Series A, MBIA Insured 6.300 08/01/06 1,649,085 Aaa/AAA
2,000,000 Northern California Power Agency Public Power
Revenue Series A, MBIA Insured 6.200 08/01/05 2,199,520 Aaa/AAA
1,000,000 Oakland Refunding Pension Financing Authority
Certificate of Participation Series 1988 A, FGIC Insured 7.200 08/01/00 1,087,300 Aaa/AAA
1,165,000 Ontario Redevelopment Financing Authority Local
Agency Series A, Capital Guaranty Insured 5.800 09/02/06 1,250,802 Aaa/AAA
3,000,000 Orange County Sales Tax Revenue, FGIC Insured 6.000 02/15/07 3,261,300 Aaa/AAA
1,645,000 Orange County Transportation Sales Tax 5.750 02/15/05 1,718,581 Aa/AA
7,500,000 Orange County Transportation Sales Tax
Revenue, AMBAC Insured 5.500 02/15/01 7,867,350 Aaa/AAA
1,250,000 Orange County Water District Certificate of
Participation Series 1990, Prerefunded at 102% of par 7.000 08/15/00 1,418,900 Aaa/AAA
1,900,000 Orange County Water District Certificate of
Participation Series A, AMBAC Insured 4.900 08/15/02 1,930,457 Aaa/AAA
1,000,000 Orange County West Valley Detention Center
Certificate of Participation, Prerefunded at 102% of par 7.625 06/01/99 1,124,170 NR/NR***
1,330,000 Oxnard Harbor District Revenue Refunding Series
1995, Capital Guaranty Insured 7.000 08/01/04 1,554,278 Aaa/AAA
350,000 Palomar/Pomerado Hospital District Revenue
Bond Series 1989 A, MBIA Insured 6.600 11/01/96 357,630 Aaa/AAA
750,000 Puerto Rico Commonwealth, MBIA Insured, Prerefunded at 101.5% of par 6.500 07/01/02 851,025 Aaa/AAA
200,000 Puerto Rico Public Education and Health Revenue Series G,
FGIC Insured, Prerefunded at 102% of par 7.600 07/01/97 214,604 Aaa/AAA
</TABLE>
46
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Ramona Municipal Water District Certificate of
Participation Refunding, AMBAC Insured 6.900% 10/01/01 $1,125,650 Aaa/AAA
1,010,000 Richmond Joint Powers Financing Authority Revenue Series A 5.300 05/15/06 989,659 NR/A
2,000,000 Richmond Redevelopment Agency Tax Allocation Harbor
Redevelopment, FSA Insured 7.000 07/01/09 2,269,240 Aaa/AAA
1,225,000 Riverside County Transportation Commission
Sales Tax Revenue, AMBAC Insured 5.600 06/01/05 1,311,154 Aaa/AAA
2,000,000 Riverside County Transportation Commission
Sales Tax Revenue Series A 6.625 06/01/01 2,253,520 A/A+
4,000,000 Riverside Transit Sales Tax Revenue Series A, AMBAC Insured 6.500 06/01/01 4,418,600 Aaa/AAA
5,710,000 Sacramento Municipal Utility District Revenue Series C, MBIA Insured 5.750 11/15/07 6,056,540 Aaa/AAA
1,700,000 Sacramento Municipal Utility District Electric Revenue
Refunding Series A, MBIA Insured 6.250 08/15/07 1,848,155 Aaa/AAA
9,000,000 Sacramento Municipal Utility District Electric Revenue
Series A, MBIA Insured 6.200 08/15/05 9,901,710 Aaa/AAA
6,825,000 Sacramento Municipal Utility District Series
1991 Z, FGIC Insured 6.000 07/01/02 7,440,615 Aaa/AAA
5,000,000 San Bernardino County Medical Center Project Series
A Certificate of Participation, MBIA Insured 5.750 08/01/07 5,374,950 Aaa/AAA
8,090,000 San Diego Public Facility Financing Authority Sewer
Revenue Series 1995, FGIC Insured 4.875 05/15/09 7,896,973 Aaa/AAA
3,800,000 San Diego County Water Authority Certificate of Participation Series A 6.000 05/01/02 4,074,322 Aa/AA
7,200,000 San Diego County Water Authority Certificate of Participation Series A 6.125 05/01/03 7,765,128 Aa/AA
1,000,000 San Diego Regional Transportation Series 1992, FGIC Insured 5.500 04/01/05 1,062,000 Aaa/AAA
3,505,000 San Diego Regional Transportation Series 1992, FGIC Insured 5.500 04/01/04 3,726,867 Aaa/AAA
4,000,000 San Diego Regional Transportation Commission Sales
Tax Revenue Series 1994 A, FGIC Insured 6.000 04/01/04 4,387,240 Aaa/AAA
2,410,000 San Francisco City and County Airport Commission
Series 2 Revenue, MBIA Insured 6.350 05/01/01 2,642,011 Aaa/AAA
1,000,000 San Francisco Bay Area Rapid Transit Revenue, FGIC Insured 5.350 07/01/07 1,033,710 Aaa/AAA
1,250,000 San Francisco Bay Area Rapid Transit Sales Tax Revenue, FGIC Insured 6.400 07/01/05 1,366,550 Aaa/AAA
2,100,000 San Francisco City & County Airport Commission
Revenue Refunding, MBIA Insured 6.350 05/01/03 2,341,857 Aaa/AAA
</TABLE>
47
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,405,000 San Francisco Port Commission Revenue Refunding 5.625% 07/01/02 $3,571,879 A/BBB+
2,000,000 San Jose Financing Authority Convention Center Revenue 6.300 09/01/09 2,104,960 A1/A+
3,950,000 San Jose Financing Authority Convention Center Revenue 6.000 09/01/05 4,133,083 A1/A+
4,580,000 San Jose Financing Authority Convention Center Revenue
Refunding Series 1993 6.100 09/01/06 4,794,344 A1/A+
3,875,000 San Jose Redevelopment Agency Tax Allocation
Series A, Escrowed to Maturity, MBIA Insured 6.000 08/01/02 4,225,222 Aaa/AAA
1,015,000 Santa Ana Police Administration Holding Certificate
of Participation Series A, MBIA Insured 5.500 07/01/07 1,052,190 Aaa/AAA
1,230,000 Santa Clara County Multi-Facilities Project Certificate
of Participation, AMBAC Insured 6.000 05/15/05 1,332,557 Aaa/AAA
2,000,000 Santa Clara County Multi-Facilities Project Certificate
of Participation, AMBAC Insured 6.125 05/15/04 2,198,280 Aaa/AAA
2,215,000 Santa Clara County Multi-Facilities Project Certificate
of Participation, AMBAC Insured 6.000 05/15/01 2,393,795 Aaa/AAA
1,785,000 South Sutter Hydroelectric Refunding Revenue, FGIC Insured 6.800 08/01/01 1,959,091 Aaa/AAA
3,000,000 Southern California Public Power Authority Revenue Series 1989 6.750 07/01/01 3,328,950 A/A
1,500,000 Southern California Public Power Agency Transmission
Authority Project Series 1988 A 7.000 07/01/00 1,621,320 Aa/AA-
3,090,000 Southern California Public Power Agency Transmission
Project Revenue Series 1992, Junior Lien, MBIA Insured 5.625 07/01/03 3,313,994 Aaa/AAA
2,000,000 Southern California Public Power Authority Revenue Series A 6.750 07/01/00 2,186,140 A/A
1,500,000 Southern California Rapid Transit District Certificate
of Participation, MBIA Insured 6.500 07/01/07 1,641,030 Aaa/AAA
4,065,000 Southern California Rapid Transit District Certificate
of Participation Series 1991, MBIA Insured 6.200 07/01/02 4,460,037 Aaa/AAA
5,000,000 Southern California Rapid Transit District Certificate
of Participation Workers Compensation, MBIA Insured 6.400 07/01/04 5,482,950 Aaa/AAA
2,000,000 Stanislaus County Refunding Certificate of Participation, MBIA Insured 5.500 05/01/06 2,107,380 Aaa/AAA
1,950,000 State of California General Obligation 6.750 02/01/06 2,242,286 A1/A
2,000,000 State of California General Obligation 7.000 08/01/05 2,344,340 A1/A
1,175,000 State of California General Obligation, AMBAC Insured 6.250 06/01/04 1,310,665 Aaa/AAA
1,855,000 State of California General Obligation, FGIC Insured 7.000 11/01/06 2,208,823 Aaa/AAA
</TABLE>
48
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE INTERMEDIATE-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,975,000 State of California General Obligation, MBIA Insured 5.500% 04/01/07 $2,097,075 Aaa/AAA
3,000,000 State of California General Obligation, MBIA Insured 6.000 09/01/03 3,292,950 Aaa/AAA
3,000,000 State of California General Obligation, AMBAC Insured 6.800 05/01/01 3,350,880 Aaa/AAA
10,000,000 State of California General Obligation, AMBAC Insured 6.500 03/01/02 11,122,800 Aaa/AAA
3,000,000 University of California Multipurpose Project
Revenue Series A, California, MBIA Insured 6.000 09/01/02 3,276,960 Aaa/AAA
1,650,000 Y/S School Facility Financing Authority Special Tax, MBIA Insured 5.750 09/01/07 1,726,149 Aaa/AAA
- ------------ ------------
$400,510,000 Total Investment Securities (cost $408,722,713) $ 429,337,052
============ ============
NR = Not Rated
- -------------------
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon
demand on the date indicated.For purposes of calculating the Fund's weighted average maturity, the length to maturity of
these instruments is considered to be the greater of the period until the interest rate is adjusted or until the principal can
be recovered by demand.
** These securities are zero-coupon municipal bonds. The yield to maturity at current market value is shown instead of a stated
coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity.
***Prerefunded with U.S. government securities, not re-rated.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Certificates of Participation.. 25.46% Transportation................. 3.62%
Water/Sewer.................... 20.52 Higher Education............... 3.44
Electric....................... 12.51 Prerefunded.................... 2.62
Sales Tax...................... 11.44 Other.......................... 6.87
General Obligation............. 7.43 ------
Hospital....................... 6.09 TOTAL.......................... 100.00%
======
</TABLE>
49
<TABLE>
<CAPTION>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Long-Term Fund
Schedule of Investment Securities
February 29, 1996
(Unaudited)
MUNICIPAL SECURITIES-98.7%
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,300,000 Alameda County Certificate of Participation
Capital Project Series 1989, California, MBIA Insured 6.420%**06/15/17 $ 670,933 Aaa/AAA
4,100,000 Anaheim Refunding Project Certificate of Participation,
Letter of Credit-Industrial Bank of Japan (VRDN) 3.050 03/06/96* 4,100,000 VMIG1/NR
2,700,000 Brea Public Financing Authority Revenue
Project Area AB Series 1991, MBIA Insured 7.000 08/01/15 3,017,439 Aaa/AAA
2,500,000 Brea Redevelopment Agency Tax Allocation Project A, MBIA Insured 5.500 08/01/17 2,458,200 Aaa/AAA
6,000,000 California Educational Facility Authority for
Santa Clara University, MBIA Insured 6.250 02/01/16 6,370,560 Aaa/AAA
1,300,000 California Educational Facility Authority for
Stanford University Series I 7.125 01/01/19 1,418,092 Aaa/AAA
2,000,000 California Educational Facility Authority for
University of Redlands 6.000 10/01/25 2,000,700 A/NR
2,500,000 California Health Facilities Financing Authority
Adventist Health System Series 1991 B, MBIA Insured 6.750 03/01/14 2,753,475 Aaa/AAA
2,775,000 California Health Facilities Financing Authority
Episcopal Homes Series 1985 A, State Insured 7.800 07/01/15 3,021,059 NR/A
1,730,000 California Health Facilities Financing Authority
Gould Medical Center Series A, State
Insured, Escrowed to Maturity 7.300 04/01/20 2,069,513 NR/A
5,165,000 California Health Facilities Financing Authority
St. Francis Memorial Hospital Series 1993 C 5.875 11/01/23 5,242,630 A/NR
3,000,000 California Health Facilities Financing Authority
Kaiser Permanente Series A 6.140** 10/01/09 1,403,310 Aa3/AA
6,420,000 California Health Facilities Financing Authority Kaiser Permanente 7.000 01/01/18 6,996,259 Aa3/AA
4,915,000 California Health Facilities Financing Authority
Kaiser Permanente Series A 6.500 12/01/20 5,280,283 Aa3/AA
</TABLE>
50
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE LONG-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 1,500,000 California Health Facilities Financing Authority H.M. Newhall
Memorial Hospital Series 1988 A, State Insured 8.000% 10/01/18 $1,651,845 NR/A
5,000,000 California Health Facilities Financing Authority
Mills Hospital Revenue Series B, Connie Lee Insured 5.750 01/15/15 5,029,750 NR/AAA
2,000,000 California Health Facilities Financing Authority
Revenue Series A, State Insured 6.750 03/01/20 2,127,540 NR/A
1,400,000 California Housing Finance Agency Multi-Unit 6.750 02/01/09 1,404,662 A1/A+
1,290,000 California Housing Finance Agency Multi-Unit Rental 6.875 02/01/22 1,295,443 A1/A+
1,150,000 California Housing Finance Authority Home Mortgage Series 1987 C 6.800 08/01/17 1,213,434 Aa/AA-
2,000,000 California Housing Finance Authority Home Mortgage Series 1987 A 8.200 08/01/17 2,104,160 Aa/AA-
5,125,000 California Housing Finance Authority Home Mortgage Series 1994 G 7.250 08/01/17 5,452,282 Aa/AA-
1,500,000 California Pollution Control Revenue for Southern
California Edison Series D 6.850 12/01/08 1,606,935 A2/A+
17,000,000 California State Public Works Department of
Corrections, Capital Guaranty Insured 5.250 06/01/15 16,606,110 Aaa/AAA
1,150,000 California State Public Works Department of
Corrections State Prisons Series A, AMBAC Insured 5.250 12/01/13 1,140,075 Aaa/AAA
2,500,000 California State Public Works Department of
Corrections State Prisons Series A, AMBAC Insured 5.000 12/01/19 2,355,675 Aaa/AAA
1,410,000 California State New Prison Construction Series 1984 B 10.000 08/01/03 1,881,462 A1/A
3,000,000 California State Public Works Lease Revenue Series A 5.750 09/01/21 2,927,520 A/A-
3,500,000 California State Public Works California State
University Series 1992 A, Various Projects 6.700 10/01/17 3,838,415 A/A-
1,000,000 California State Public Works University of California Project 6.625 12/01/19 1,096,640 A/A-
1,000,000 California State Public Works Prison Board
(Franchise Tax Board) Certificate of Participation 6.900 10/01/06 1,070,390 A/A-
4,500,000 California Statewide Community Development
Authority Certificates of Participation for
United Medical Center, State Insured 6.750 12/01/21 4,808,565 NR/A
4,000,000 California Statewide Community Development
Authority Sisters of Charity Leavenworth 5.000 12/01/23 3,609,080 Aa/NR
3,030,000 City of Alameda Sewer System Certificate of
Participation, AMBAC Insured 4.875 03/01/18 2,788,206 Aaa/AAA
</TABLE>
51
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE LONG-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,580,000 City of Concord Joint Power Financing Authority Concord Police
Facilities Project Lease Revenue Series 1993, California 5.250% 08/01/13 $2,470,556 A/NR
1,000,000 Coachella Valley Water District #71 6.750 10/01/12 1,076,190 A/NR
8,000,000 Compton Redevelopment Agency Tax Allocation
Series 1995 A, Capital Guaranty Insured 6.500 08/01/13 8,881,040 Aaa/AAA
2,510,000 Fontana Public Financing Authority Series 1993 A, MBIA Insured 5.000 09/01/20 2,331,037 Aaa/AAA
1,500,000 Fresno Sewer System Revenue Series 1995 A, MBIA Insured 4.750 09/01/26 1,333,515 Aaa/AAA
1,500,000 Irvine Ranch Water District, Letter of Credit-Sanwa
Bank of California (VRDN) 3.750 03/01/96* 1,500,000 NR/A1
5,000,000 Irvine Ranch Water District Joint Powers Agency
Local Pool Revenue, California, GIC 7.800 02/15/08 5,334,850 NR/A+
1,900,000 Irvine Ranch Water District Joint Powers Agency
Local Pool Revenue, California, GIC 7.875 02/15/23 2,015,919 NR/A+
1,815,000 Kern County High School District General
Obligation, MBIA Insured 7.150 08/01/14 2,221,832 Aaa/AAA
2,125,000 Laverne Regional Development Agency Certificate
of Participation Capital Improvement Bonds
Series 1988, California, BIGI Insured 7.450 11/01/18 2,328,618 Aaa/AAA
4,050,000 Los Angeles County Transportation Commission
Sales Tax Refunding Revenue Series
1989 A, California, MBIA Insured 5.630** 07/01/02 2,874,083 Aaa/AAA
3,000,000 Los Angeles County Transportation Commission
Sales Tax Revenue Series A 7.400 07/01/15 3,333,720 A1/AA-
5,000,000 Los Angeles Department of Water and Power
Electric Revenue, MBIA Insured 4.750 11/15/19 4,478,700 Aaa/AAA
6,000,000 Los Angeles Department of Water and Power
Electric Revenue, MBIA Insured 5.375 09/01/23 5,766,960 Aaa/AAA
1,000,000 Los Angeles Municipal Improvement Lease Revenue Library
Series A, California, Prerefunded at 102% of par 7.100 06/01/99 1,110,920 NR/A+
2,000,000 Los Angeles Metropolitan Transportation Sales Tax Series A, FGIC Insured 5.000 07/01/21 1,839,700 Aaa/AAA
1,000,000 Los Angeles Transportation Sales Tax Revenue, MBIA Insured 6.500 07/01/13 1,098,400 Aaa/AAA
2,420,000 Los Angeles Waste Water System Revenue Series C, California 6.900 06/01/09 2,634,557 A1/A
3,050,000 Los Angeles Waste Water System Revenue Series C, California 7.100 06/01/18 3,341,611 A1/A
</TABLE>
52
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE LONG-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 5,830,000 Modesto, Stockton, Redding Public Power Agency San Juan
Project Series D, MBIA Insured 6.750% 07/01/20 $6,875,202 Aaa/AAA
2,650,000 Metropolitan Water District of Southern California Water Revenue 6.625 07/01/01 2,992,672 Aa/AA
8,000,000 Metropolitan Water District of Southern California Water Revenue 5.750 08/10/18 8,276,560 Aa/AA
4,910,000 Northern California Power Agency Public Power
Hydroelectric Project #1 Series E 7.150 07/01/24 5,299,658 A/A-
3,000,000 Oakland Redevelopment Agency Tax
Allocation, California, AMBAC Insured 5.500 02/01/14 3,049,590 Aaa/AAA
4,750,000 Orange County Civic Center Expansion Certificate
of Participation, AMBAC Insured 6.700 08/01/18 5,155,745 Aaa/AAA
3,000,000 Orange County Water District Certificate of
Participation Series 1989, California, AMBAC Insured 6.500 08/15/11 3,249,240 Aaa/AAA
1,500,000 Orange County West Valley Detention Center
Certificate of Participation, Prerefunded at 102% of par 7.625 06/01/99 1,686,255 NR/NR***
5,750,000 Riverside County Transportation Authority Sales
Tax Revenue Series A, California, Prerefunded at 102% of par 6.500 06/01/01 6,445,348 Aaa/AAA
1,000,000 Sacramento Lease Revenue Series A, AMBAC Insured 5.375 11/01/14 999,920 Aaa/AAA
1,000,000 San Bernardino County Medical Center Series A
Certificate of Participation, MBIA Insured 5.500 08/01/22 977,480 Aaa/AAA
1,000,000 San Bernardino Valley Municipal Water
District, Prerefunded at 102% of par 6.750 07/01/00 1,118,930 A/A
3,500,000 San Diego Transportation Sales Tax Revenue
Series 1991 A, California, Escrowed to Maturity 5.470** 04/01/04 2,388,505 Aaa/AA-
1,000,000 San Francisco City and County Redevelopment
Hotel Tax, Capital Guaranty Insured 6.750 07/01/15 1,127,280 Aaa/AAA
5,000,000 San Jose Financing Authority Central Services Series D 5.250 10/15/23 4,600,700 A1/A+
5,500,000 San Jose Financing Authority Community Facilities Project 5.625 11/15/18 5,294,905 A1/A+
3,000,000 San Jose Convention Center 6.375 09/01/13 3,112,050 A1/A+
4,000,000 San Mateo County Joint Power Finance Authority
Lease Revenue-Cap Projects, MBIA Insured 6.000 07/01/19 4,307,600 Aaa/AAA
3,475,000 San Mateo Joint Power Finance Authority Lease
Revenue, California, MBIA Insured 6.500 07/01/16 3,959,380 Aaa/AAA
3,000,000 San Pablo Redevelopment Agency Merged Project, FGIC Insured 5.250 12/01/23 2,838,600 Aaa/AAA
</TABLE>
53
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE LONG-TERM FUND(Continued)
====================================================================================================================================
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 3,500,000 Santa Ana Financial Authority Lease Revenue
Police, MBIA Insured 6.250% 07/01/15 $3,869,635 Aaa/AAA
5,150,000 Santa Clara/San Mateo Counties Midpeninsula Open Space District 7.000 09/01/14 5,677,824 NR/A+
2,000,000 South Orange County Financial Authority Special Tax Revenue
Series A, California, MBIA Insured 7.000 09/01/11 2,376,420 Aaa/AAA
3,260,000 Southern California Multiple Projects Series 1989 6.000 07/01/18 3,266,454 A/A
3,000,000 Southern California Public Power Agency Palo
Verde Series 1989 A, AMBAC Insured 5.580** 07/01/04 2,001,930 Aaa/AAA
1,425,000 Southern California Public Power Agency Pooled
Transportation Authority Project Series 1989 7.000 07/01/09 1,538,359 A/A
3,730,000 Southern California Public Power Authority Revenue
Multipurpose Projects Series 1989 6.750 07/01/13 4,289,649 A/A
7,315,000 Southern California Public Power Authority Revenue
Multipurpose Projects Series 1989 6.750 07/01/12 8,398,937 A/A
1,000,000 Southern California Public Power Authority San Juan
Series A, MBIA Insured 5.000 01/01/20 922,120 Aaa/AAA
4,000,000 Southern California Public Power Authority
Transmission Series A, MBIA Insured 5.000 07/01/22 3,673,760 Aaa/AAA
5,000,000 State of California General Obligation 5.750 03/01/19 5,022,250 A1/A
3,000,000 State of California General Obligation, AMBAC Insured 6.125 10/01/11 3,315,810 Aaa/AAA
- ------------ -----------
279,155,000 Total Municipal Securities 284,891,618
- ------------ -----------
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54
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENT SECURITIES - TAX-FREE LONG-TERM FUND(Continued)
====================================================================================================================================
MUNICIPAL DERIVATIVES--1.3%1
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- --------------------------------------------------------------------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
$ 4,000,000 Northern California Transmission Agency Series 1993 A, California,
Inverse Floater, Residual Interest Bonds, MBIA Insured 6.770% 04/29/24 $3,750,000 Aaa/AAA
- ----------- -----------
4,000,000 Total Municipal Derivatives 3,750,000
- ----------- -----------
$283,155,000 Total Investment Securities (cost $272,444,554) $288,641,618
============ ===========
NR = Not Rated
- -------------------
* These variable interest rate securities have maturities greater than the indicated maturity dates but are redeemable upon demand
on the date indicated. For purposes of calculating the Fund's weighted average maturity, the length to maturity of these
instruments is considered to be the greater of the period until the interest rate is adjusted or until the principal can be
recovered by demand.
** These securities are zero-coupon municipal bonds. The yield to maturity at current market value is shown instead of a stated
coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity.
***Prerefunded with U.S. government securities, not re-rated.
1 Inverse floaters bear interest rates that move inversely to market interest rates. Inverse floaters typically have durations
twice as long as long-term bonds, which may cause them to be twice as volatile as long-term bonds when market interest rates
change. The Long-Term Fund is limited to 10% of its net assets in inverse floaters.
PORTFOLIO COMPOSITION BY MARKET SECTOR
Certificates of Participation.... 25.26% General Obligation............. 5.48%
Hospital......................... 14.35 Higher Education............... 4.65
Electric......................... 12.85 Prerefunded.................... 4.55
GIC.............................. 8.42 Other.......................... 12.02
Tax Allocation................... 6.63 ------
Water/Sewer...................... 5.79 TOTAL......................... 100.00%
======
</TABLE>
55
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56
TRUSTEES
James M. Benham
Albert A. Eisenstat
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers, III
Jeanne D. Wohlers
OFFICERS
James M. Benham
Chairman of the Board
John T. Kataoka
President and Chief Executive Officer
Maryanne Roepke
Treasurer and Chief Financial Officer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus
Benham Distributors, Inc. 4/96 Q080
