BENHAM NATIONAL
TAX-FREE FUNDS
Semiannual Report November 30, 1995
[picture of the American flag]
Money Market Fund
Intermediate-Term Fund
Long-Term Fund
The Benham Group
Part of the Twentieth Century Family of Mutual Funds
<PAGE>
CONTENTS
U.S. ECONOMIC REVIEW.................................. 1
MUNICIPAL MARKET SUMMARY.............................. 2
MUNICIPAL CREDIT ANALYSIS............................. 3
MONEY MARKET FUND
Performance Information............................... 4
Portfolio Information................................. 5
Management Discussion & Performance Comparison........ 6
Financial Highlights...................................25
Financial Statements and Notes.........................28
Schedule of Investments................................35
INTERMEDIATE-TERM FUND
Performance Information............................... 8
Performance Comparisons & Total Return Breakdown...... 9
Portfolio Information..................................10
Management Discussion..................................11
Financial Highlights...................................26
Financial Statements and Notes.........................28
Schedule of Investments................................41
LONG-TERM FUND
Performance Information................................13
Performance Comparisons & Total Return Breakdown.......14
Portfolio Information..................................15
Management Discussion..................................16
Financial Highlights...................................27
Financial Statements and Notes.........................28
Schedule of Investments................................45
INVESTMENT FUNDAMENTALS
Definitions............................................18
The Yield Curve........................................19
Muni Risk Factors......................................20
Portfolio Sensitivity Measurements.....................21
Bond Pricing...........................................22
Portfolio Structures & Taxable Distributions...........23
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James M.
Chairman, Benham Funds Benham]
Slowing economic growth, lower-than-expected inflation and robust financial
market performance characterized the U.S. economy in 1995. The Federal Reserve
(the Fed) surprised analysts and encouraged investors by achieving its goal of
slow economic growth and low inflation in the U.S., the so-called "soft
landing." The Fed raised short-term interest rates seven times from February
1994 to February 1995 (see the graph below) to slow the economy and inhibit
inflation.
[line graph in left margin. graph data described below]
The Fed's success in slowing the economy forced it to change its interest rate
strategy to an accommodative approach at mid-year. Evidence of economic weakness
was so pronounced by the summer of 1995 that the Fed reduced one of its
short-term interest rate benchmarks, the federal funds rate target, from 6.00%
to 5.75% in July. It was the Fed's first interest rate cut since September 1992.
By the end of the year, slowing corporate and government spending, declining
auto sales and housing activity, and poorer-than-expected holiday season retail
sales helped persuade the Fed to reduce the federal funds rate target again to
5.50%. Two government shutdowns during the fourth quarter, the result of
unsuccessful federal budget negotiations between President Clinton and Congress,
slowed the economy further and created confusion by delaying the release of key
economic reports.
While the federal budget battle and the government shutdowns captured most of
the headlines, investors, economists and the Fed focused on the decelerating
economy and low inflation. For the 12 months ended November 30, 1995, U.S.
inflation, as measured by the consumer price index, increased at an annual rate
of just 2.5%. With inflation expected to remain under 3% in 1996 and economic
growth projected to be about 2%, the Fed may cut interest rates further in 1996
to avoid triggering a recession.
[graph data]
Short-Term U.S. Interest Rates 1992-1995
Discount Rate Fed Funds Rate
Jan-92 3.5% 4.03%
Feb-92 3.5 4.06
Mar-92 3.5 3.98
Apr-92 3.5 3.73
May-92 3.5 3.82
Jun-92 3.5 3.76
Jul-92 3 3.25
Aug-92 3 3.3
Sep-92 3 3.22
Oct-92 3 3.1
Nov-92 3 3.09
Dec-92 3 2.92
Jan-93 3 3.02
Feb-93 3 3.03
Mar-93 3 3.07
Apr-93 3 2.96
May-93 3 3
Jun-93 3 3.04
Jul-93 3 3.06
Aug-93 3 3.03
Sep-93 3 3.09
Oct-93 3 2.99
Nov-93 3 3.02
Dec-93 3 2.96
Jan-94 3 3.05
Feb-94 3 3.25
Mar-94 3 3.34
Apr-94 3 3.56
May-94 3.5 4.01
Jun-94 3.5 4.25
Jul-94 3.5 4.26
Aug-94 4 4.47
Sep-94 4 4.73
Oct-94 4 4.76
Nov-94 4.75 5.29
Dec-94 4.75 5.45
Jan-95 4.75 5.53
Feb-95 5.25 5.92
Mar-95 5.25 5.98
Apr-95 5.25 6.05
May-95 5.25 6.01
Jun-95 5.25 5.98
Jul-95 5.25 5.77
Aug-95 5.25 5.75
Sep-95 5.25 5.8
Oct-95 5.25 5.76
Nov-95 5.25 5.8
Dec-95 5.25 5.6
Source: Federal Reserve Bank of New York
1
<PAGE>
MARKET SUMMARY
MUNICIPAL SECURITIES
by Dave MacEwen, Vice President & Senior Municipal Portfolio Manager
NOTE: WE SUGGEST THAT YOU REVIEW THE INVESTMENT FUNDAMENTALS AND U.S. ECONOMIC
REVIEW SECTIONS BEFORE YOU READ THIS SECTION. TERMS MARKED WITH AN ASTERISK (*)
ARE DEFINED IN THE INVESTMENT FUNDAMENTALS SECTION.
During the six months ended November 30, 1995, U.S. bond investors reaped the
benefits from the "soft landing" scenario (see page 1). U.S. bond market
performance continued its reversal from 1994, when U.S. bonds suffered their
biggest declines in 70 years. Overall in 1995, U.S. bonds posted their best
returns in a decade.
The municipal bond (muni) market also performed well, but muni returns lagged
behind returns in the Treasury market. Muni returns, especially at the long end
of the muni yield curve,* were restrained by tax reform rhetoric. Of particular
concern were "flat tax" proposals that would replace current tax brackets with a
single flat rate and make all investment income tax-free, reducing the value of
the tax exemption munis enjoy. An increase in muni yields as investors responded
to flat tax fears caused munis to trade cheaply compared to Treasuries.
Long-term muni bond yields as a percentage of Treasury bond yields hovered
around 90%, compared with an average of 83% over the past five years.
[line graph in left margin. graph data described below]
The muni yield curve steepened early in the six-month period because of flat tax
fears, but the curve began to flatten in August (see the accompanying graph) as
those fears appeared to recede. Despite this flattening, the municipal yield
curve remained steeper than the Treasury yield curve. Flat tax fears abated as
investors realized that radical tax reform probably has little chance of
passing. Its simplicity is appealing, but the logistical complexities of
shifting from the current tax structure are daunting. We believe tax reform
could ultimately occur, but it is likely to be far less ambitious than the flat
tax plans that have been proposed.
As flat tax fears subsided, the muni market benefited as investors focused on
low inflation, slow economic growth, the possibility of further interest rate
cuts by the Fed, a balanced budget agreement, low muni issuance, and the
relative cheapness of munis compared with Treasuries. Those factors are likely
to continue to influence the muni market in the first half of 1996.
[graph data]
Shifting Municipal Yield Curves
Years to
Maturity 5/31/95 8/31/95 11/30/95
1 3.96% 3.65% 3.58%
2 4.13 3.85 3.78
3 4.28 4.01 3.93
4.38 4.16 4.05
5 4.48 4.31 4.15
4.58 4.435 4.25
7 4.68 4.56 4.35
4.78 4.66 4.45
4.88 4.76 4.55
10 4.98 4.86 4.65
5.064 4.98 4.748
5.148 5.1 4.846
5.232 5.22 4.944
5.316 5.34 5.042
15 5.4 5.46 5.14
5.43 5.514 5.174
5.46 5.568 5.208
5.49 5.622 5.242
5.52 5.676 5.276
20 5.55 5.73 5.31
5.566 5.754 5.326
5.582 5.778 5.342
5.598 5.802 5.358
5.614 5.826 5.374
25 5.63 5.85 5.39
5.634 5.854 5.394
5.638 5.858 5.398
5.642 5.862 5.402
5.646 5.866 5.406
30 5.65 5.87 5.41
Source: Bloomberg Financial Markets
2
<PAGE>
MUNICIPAL CREDIT ANALYSIS
NATIONAL 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.
Though U.S. economic growth has slowed from the robust levels seen in 1994,
slow, steady growth throughout 1995 provided a healthy backdrop for most
municipal credit quality. Credit trends continued upward, most notably from
September to November, when credit upgrades significantly outnumbered
downgrades. Steady tax revenues lent support to the quality of general
obligation and other tax-supported issues, but health care and hospital issues
struggled due to cost-containment pressures and the rise of various forms of
managed care.
[bar chart in right margin. graph data described below]
Job growth in 1995 reflected the general economic slowdown (see
the accompanying graph). However, economic vitality and the credit quality of
municipal issues varied from region to region across the country. The
economically robust Rocky Mountain states continued to lead the nation in credit
quality, closely followed by the southwestern and southeastern states. The
quality of California issues benefited from the state's reviving economy. States
in the Northeast, whose economies remain sluggish, continued to lag the rest of
the nation.
In spite of our generally positive outlook on municipal credit quality trends,
we see some clouds on the horizon. Uncertainty about the federal budget and its
potential impact on state and local governments remains a long-term concern.
Proposed cuts in Medicaid, Medicare and welfare and the potential downloading of
health care and other social services from federal to state and local levels
could provide a serious challenge. It is likely that states such as California
and New York, which have traditionally been the most generous in subsidizing
services for the poor and elderly, would be the hardest hit by such changes.
Potential tax reforms, such as changes in the deductibility of state and local
taxes and a cut in the capital gains tax, could also have a significant impact
on state and local economies over the long term.
We maintained a high level of credit quality in the Funds' portfolios. As of
November 30, 1995, approximately 80% of the securities held in the
Intermediate-Term Fund and about 90% of the securities held in the Long-Term
Fund were rated AAA or AA. The Money Market Fund's portfolio held only
securities with S&P's highest short-term ratings (or equivalent ratings from
other rating services). For more information about credit quality and credit
ratings, see page 20.
[graph data]
Change in U.S. Employment (non-farm, in millions)
12/91 -0.86
12/92 1.15
12/93 2.82
12/94 3.53
11/95 1.75
Source: U.S. Department of Labor, Bureau of Labor Statistics
3
<PAGE>
MONEY MARKET FUND
CURRENT YIELD*
As of November 30, 1995
7-DAY 7-DAY 7-DAY TAX-EQUIVALENT YIELDS
CURRENT EFFECTIVE ---------------------------------------------------
YIELD YIELD 28% 31% 36% 39.6%
TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
3.17% 3.22% 4.40% 4.59% 4.95% 5.25%
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 federal income tax brackets would have to earn before taxes to equal
the Fund's tax-free 7-Day Current Yield:
28% -- joint taxable income of $39,001 to $94,250
31% -- joint taxable income of $94,251 to $143,600
36% -- joint taxable income of $143,601 to $256,500
39.6% -- joint taxable income of $256,501 or more
All income dividends distributed by the Fund during the six months ended
November 30, 1995, are exempt from federal income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended November 30, 1995
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE --------------------------------------------
(6/1/95-11/30/95) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
$1.00 3.36% 2.50% 2.90% 3.98%
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 25.
The Fund commenced operations on July 31, 1984.
*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.
4
<PAGE>
MONEY MARKET FUND
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $93,159,029 $91,395,617
Number of Issues: 61 63
Average Maturity: 47 days 36 days
Average Yield: 4.05% 4.16%
For definitions of these terms, see page 18.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie chart] [pie chart]
11/30/95 5/31/95
SP1+: 67% SP1+: 60%
SP1: 33% SP1: 40%
"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 20.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie chart] [pie chart]
11/30/95 5/31/95
VRDNs: 70% VRDNs: 62%
Commercial Paper: 11% Commercial Paper: 24%
Bonds less than 1 Year: 10% Bonds less than 1 Year: 14%
Municipal Notes: 9%
For definitions of these security types, see page 18.
PORTFOLIO COMPOSITION BY MATURITY
[pie chart] [pie chart]
11/30/95 5/31/95
1-7 Days: 70% 1-7 Days: 62%
8-90 Days: 12% 8-90 Days: 25%
91-180 Days: 4% 91-180 Days: 11%
181-397 Days: 14% 181-397 Days: 2%
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.
5
<PAGE>
MONEY MARKET FUND
MANAGEMENT DISCUSSION
A question and answer session with Bryan Karcher, Associate Portfolio Manager.
Bryan is part of the team of Portfolio Managers that assists Senior Municipal
Portfolio Manager Dave MacEwen in the day-to-day operations of Benham Municipal
Trust.
NOTE: WE SUGGEST THAT YOU REVIEW THE INVESTMENT FUNDAMENTALS, U.S. ECONOMIC
REVIEW, MUNICIPAL CREDIT ANALYSIS AND MARKET SUMMARY SECTIONS BEFORE YOU READ
THIS DISCUSSION. TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 18.
Q: How did the Fund perform?
A: The Fund continued to perform above average compared to its peers in
1995. For the one-year period ended November 30, 1995, the Fund's total
return was 3.36%. This return exceeded the 3.32% average return of the
122 funds in its peer group over the same period (see the Lipper
Performance Comparison below). For the six months ended November 30,
the Fund's total return was 1.63%.
Q: How did municipal money market rates change over the past six months?
A: Money market rates fell as the Fed lowered short-term interest rates in
July and December (see page 1). The Fund's seven-day effective yield
declined from 3.75% to 3.22% during the six-month period, reflecting
the two interest rate cuts. The good news was the reason for lower
rates--low levels of inflation. This enhanced the Fund's return on an
inflation-adjusted basis.
Q: How was the Fund positioned over the past six months?
A: In June, we positioned the Fund for the "technical" period that
typically occurs at mid-year. Many municipal money market issues mature
in June and July, and the huge amount of reinvestment activity drives
yields down. This year's low issuance of municipal notes* also helped
(continued on the next page)
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 11/30/95 for the funds in Lipper's "Tax-Exempt
Money Market Funds" category.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
The Fund`s Total Return: 3.36% 2.50% 2.90% 3.98%
Category Average
Total Return: 3.32% 2.49% 2.90% 3.91%
The Fund`s Ranking: 47 out of 122 46 out of 105 40 out of 86 14 out of 52
Total returns are based on historical performance and do not guarantee future results.
</TABLE>
6
<PAGE>
MONEY MARKET FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
push yields lower. We kept the Fund's average maturity* relatively
short, hovering around 35 days, until yields recovered in September and
October. At that point, we extended the Fund's average maturity out to
about 55 days. We lengthened the Fund's maturity to lock in prevailing
yields because we anticipated further Fed interest rate cuts before the
end of the year.
As we expected, low muni note issuance during the fourth quarter made
it hard to maintain the Fund's longer average maturity. Because of
limited note issuance in November, we invested cash from investors,
coupon payments and maturing securities in one-day and seven-day
VRDNs.* These very short-term securities pulled the Fund's average
maturity back toward a neutral 45 days by the end of November.
Q: Benham has recently expanded its municipal credit research
capabilities. What changes have been made?
A: We have enhanced the credit management system for all of our municipal
money market funds. The system is based on limiting the funds' exposure
to any one sector or geographic area, which will help protect the funds
from unexpected developments that have an adverse effect on a single
issuer, sector or region. We're also expanding our credit research
staff and improving our analytical tools.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: With the possibility of further short-term interest rate cuts by the
Fed, we plan to extend the Fund's average maturity to lock in the
current rates. However, we may wait until late January to extend for
two reasons--low supply and strong demand.
We expect very little new municipal note issuance in January. As a
result, the supply of longer-term municipal money market securities
should remain limited until February, and this will keep yields low.
On the demand side, there is the "January effect." Many corporations
sell munis and buy Treasuries in December to make their portfolios look
more attractive at year-end, and they typically buy these munis back in
January. In addition, January brings a huge amount of coupon payments,
most of which are reinvested in the muni market. These factors
typically cause muni money market yields to fall in the first few weeks
of the year. However, yields have historically rebounded by the end of
January, and we will look to extend the Fund's average maturity at that
time.
7
<PAGE>
INTERMEDIATE-TERM FUND
CURRENT YIELD*
As of November 30, 1995
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC ---------------------------------------------------
YIELD 28% 31% 36% 39.6%
TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
4.00% ---------------------------------------------------
5.56% 5.80% 6.25% 6.62%
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 federal income tax brackets would have to earn before taxes to equal
the Fund's tax-free 30-Day SEC Yield:
28% -- joint taxable income of $39,001 to $94,250
31% -- joint taxable income of $94,251 to $143,600
36% -- joint taxable income of $143,601 to $256,500
39.6% -- joint taxable income of $256,501 or more
All income dividends distributed by the Fund during the six months ended
November 30, 1995, are exempt from federal income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended November 30, 1995
NET ASSET VALUE RANGE AVERAGE ANNUAL TOTAL RETURNS
(6/1/95-11/30/95) --------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
$10.65-$10.91 13.40% 6.26% 7.34% 7.54%
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 26.
The Fund commenced operations on July 31, 1984.
* 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.
8
<PAGE>
INTERMEDIATE-TERM FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/1/85 in the Fund and
in the Lehman Brothers, Inc. Five-Year Municipal General Obligation Index
[line graph]
[graph data]
Index Fund
11/30/85 $10,000 $10,000
12/31/85 9,848 10,088
1/31/86 10,299 10,410
2/28/86 10,589 10,585
3/31/86 10,617 10,693
4/30/86 10,685 10,774
5/31/86 10,538 10,660
6/30/86 10,646 10,830
7/31/86 10,640 10,837
8/31/86 10,899 11,155
9/30/86 11,039 11,218
10/31/86 11,227 11,464
11/30/86 11,365 11,583
12/31/86 11,329 11,525
1/31/87 11,549 11,795
2/28/87 11,654 11,871
3/31/87 11,588 11,798
4/30/87 11,244 11,268
5/31/87 11,244 11,303
6/30/87 11,481 11,539
7/31/87 11,614 11,752
8/31/87 11,636 11,732
9/30/87 11,245 11,303
10/31/87 11,411 11,411
11/30/87 11,548 11,639
12/31/87 11,675 11,785
1/31/88 11,962 12,142
2/29/88 12,083 12,244
3/31/88 12,037 12,152
4/30/88 12,147 12,247
5/31/88 12,000 12,180
6/30/88 12,088 12,242
7/31/88 12,143 12,305
8/31/88 12,107 12,302
9/30/88 12,225 12,429
10/31/88 12,331 12,571
11/30/88 12,266 12,487
12/31/88 12,300 12,566
1/31/89 12,476 12,712
2/28/89 12,344 12,593
3/31/89 12,265 12,532
4/30/89 12,476 12,748
5/31/89 12,702 12,964
6/30/89 12,842 13,069
7/31/89 13,029 13,256
8/31/89 12,978 13,180
9/30/89 12,985 13,165
10/31/89 12,996 13,276
11/30/89 13,161 13,489
12/31/89 13,268 13,608
1/31/90 13,275 13,642
2/28/90 13,374 13,705
3/31/90 13,332 13,652
4/30/90 13,289 13,586
5/31/90 13,532 13,865
6/30/90 13,631 13,988
7/31/90 13,793 14,173
8/31/90 13,746 13,981
9/30/90 13,775 14,020
10/31/90 13,978 14,295
11/30/90 14,179 14,523
12/31/90 14,232 14,540
1/31/91 14,441 14,799
2/28/91 14,572 14,909
3/31/91 14,538 14,890
4/30/91 14,721 15,071
5/31/91 14,795 15,173
6/30/91 14,793 15,136
7/31/91 14,941 15,259
8/31/91 15,133 15,464
9/30/91 15,319 15,702
10/31/91 15,436 15,819
11/30/91 15,484 15,841
12/31/91 15,832 16,233
1/31/92 15,863 16,243
2/29/92 15,873 16,185
3/31/92 15,820 16,121
4/30/92 15,959 16,253
5/31/92 16,102 16,429
6/30/92 16,334 16,706
7/31/92 16,762 17,234
8/31/92 16,636 16,972
9/30/92 16,741 17,139
10/31/92 16,687 16,969
11/30/92 16,888 17,247
12/31/92 17,006 17,400
1/31/93 17,190 17,661
2/28/93 17,638 18,249
3/31/93 17,438 17,916
4/30/93 17,550 18,084
5/31/93 17,612 18,115
6/30/93 17,850 18,408
7/31/93 17,862 18,344
8/31/93 18,105 18,735
9/30/93 18,236 18,974
10/31/93 18,263 19,010
11/30/93 18,210 18,850
12/31/93 18,460 19,170
1/31/94 18,633 19,398
2/28/94 18,285 18,911
3/31/94 17,877 18,446
4/29/94 18,057 18,517
5/31/94 18,159 18,646
6/30/94 18,117 18,594
7/29/94 18,314 18,839
8/31/94 18,402 18,901
9/30/94 18,264 18,708
10/31/94 18,162 18,499
11/30/94 18,046 18,250
12/30/94 18,204 18,499
1/31/95 18,379 18,798
2/28/95 18,646 19,160
3/31/95 18,942 19,332
4/28/95 18,993 19,423
5/31/95 19,409 19,839
6/30/95 19,425 19,842
7/31/95 19,697 20,051
8/31/95 19,896 20,206
9/30/95 19,955 20,283
10/31/95 20,039 20,483
11/30/95 20,209 20,695
Past performance does not guarantee future results.
This graph compares the Fund's performance with an appropriate broad-based
market index over 10 years. We have selected the Lehman Brothers, Inc. Five-Year
Municipal General Obligation Index to serve as the comparative index for 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 11/30/95 for the funds in Lipper's "Intermediate
Municipal Debt Funds" category.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
The Fund`s Total Return: 13.40% 6.26% 7.34% 7.54%
Category Average
Total Return: 13.79% 6.48% 7.33% 7.65%
The Fund`s Ranking: 75 out of 121 27 out of 50 14 out of 32 6 out of 12
Total returns are based on historical performance and do not guarantee future results.
</TABLE>
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended November 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.35% + 1.96% = 4.31%
9
<PAGE>
INTERMEDIATE-TERM FUND
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $63,190,196 $64,657,993
Number of Issues: 53 58
Average Maturity: 7.30 years 6.30 years
Average Coupon: 6.02% 6.19%
Average Duration: 5.45 years 4.95 years
For definitions of these terms, see page 18.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie chart] [pie chart]
11/30/95 5/31/95
AAA: 61.3% AAA: 51.1%
AA: 18.2% AA: 28.5%
A: 20.5% A: 20.4%
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 20.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie chart] [pie chart]
11/30/95 5/31/95
GO: 21.2% GO: 20.7%
Electric: 19.4% Electric: 20.2%
Hospital: 17.9% Hospital: 17.2%
Prerefunded: 8.5% Prerefunded: 12.3%
COPs: 8.4% Education: 10.8%
Other: 24.6% Other: 18.8%
For definitions of these security types, see page 18.
PORTFOLIO COMPOSITION BY MATURITY DATE
[pie chart] [pie chart]
11/30/95 5/31/95
1995-99: 18.8% 1995-99: 26.7%
2000-02: 33.2% 2000-02: 42.9%
2003-05: 26.8% 2003-05: 23.8%
2006-08: 12.2% 2006-08: 6.6%
2009-11: 7.7%
2012-14: 1.3%
The Fund invests primarily in intermediate-term 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.
10
<PAGE>
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
A question and answer session with Joel Silva, Municipal Portfolio Manager. Joel
is part of the team of Portfolio Managers that assists Senior Municipal
Portfolio Manager Dave MacEwen in the day-to-day operations of Benham Municipal
Trust.
NOTE: WE SUGGEST THAT YOU REVIEW THE INVESTMENT FUNDAMENTALS, U.S. ECONOMIC
REVIEW, MUNICIPAL CREDIT ANALYSIS AND MARKET SUMMARY SECTIONS BEFORE YOU READ
THIS DISCUSSION. TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 18.
Q: How did the Fund perform?
A: The 1995 bond rally enabled the Fund to post strong returns, although
it narrowly underperformed its peer group average. For the one-year
period ended November 30, 1995, the Fund's total return was 13.40%,
compared to the 13.79% average return of the 121 funds in its peer
group over the same period (see the Lipper Performance Comparison on
page 9). For the six months ended November 30, the Fund's total return
was 4.31%.
Q: Why did the Fund underperform its category average?
A: The Fund was positioned more conservatively than its peers in early
1995, when the muni market began its rally. The Fund's duration* and
average maturity* were shorter than those of many of its competitors,
so it experienced less price appreciation as interest rates fell at the
beginning of the year.
Q: Did the Fund remain conservatively positioned during the past six
months?
A: No. We began to extend the Fund's average maturity and duration in June
and July, but the Fund was still slightly short compared to its peer
group. The Fund's portfolio was configured in a bullet structure* to
take advantage of the steepening muni yield curve* (see the graph on
page 2).
By August, the yield curve had steepened to the point where we thought
the market had overreacted to flat tax fears. As a result, we continued
to extend the Fund's average maturity and duration aggressively. We
sold a portion of the Fund's shorter-term munis, which had appreciated
in value, and shifted these assets into munis with maturities of 10 or
more years. These longer-term securities had lagged the performance of
shorter-term munis and were trading at relatively attractive prices. By
the end of the six-month period, the Fund's duration was slightly
longer than that of its peer group.
11
<PAGE>
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
We also shifted the Fund's portfolio from a bullet structure to more of
a barbell structure* in anticipation of a flatter yield curve. This
paid off as the muni yield curve flattened between August and November
(see the graph on page 2).
Q: Were there any particular geographic areas that looked attractive?
A: We added some California munis to the Fund's portfolio during the
six-month period. The economic outlook in California has improved, and
the backlash from the Orange County bankruptcy caused many California
munis to trade at relatively inexpensive prices. While specifically
avoiding any munis related to Orange County, we were able to find a
number of bargains in California while maintaining a high level of
credit quality.
Q: Speaking of credit quality, the Fund is holding more AAA-rated
securities than it did six months ago (see page 10). Why?
A: As the market rallied over the past six months, investors searching for
higher yields increased their demand for lower-rated munis. This caused
the yield advantage of lower-rated munis to diminish. In addition, the
lack of muni issuance in 1995 led bond insurers to lower their premiums
to capture more business. As a result, we were able to increase the
Fund's credit quality while sacrificing very little yield.
Q: Looking ahead, what is the outlook for munis in the first half of 1996?
A: We believe that bonds, particularly munis, could perform well in 1996.
Bonds in general should benefit from a continuation of slow economic
growth and low inflation. Munis have two additional factors in their
favor--low issuance levels and reduced fears about the flat tax.
We expect new municipal issuance in 1996 to remain as low as it was in
1995. This will likely lead to higher muni prices and declining muni
yields. We also expect the flat tax issue to fade into the background
behind the budget negotiations and other tax reform proposals in 1996.
If this occurs, muni yields should fall relative to Treasury yields as
the spread between them widens toward historical levels.
Q: With this outlook in mind, what are your plans for the Fund over the
next six months?
A: We plan to keep the Fund's duration slightly long relative to its peer
group. In addition, we intend to maintain the Fund's barbell structure
in anticipation of further flattening of the muni yield curve. We will
also look to increase the Fund's credit quality when we can do so
without giving up much yield.
12
<PAGE>
LONG-TERM FUND
CURRENT YIELD*
As of November 30, 1995
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC ---------------------------------------------------
YIELD 28% 31% 36% 39.6%
TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
4.63% 6.43% 6.71% 7.23% 7.67%
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 federal income tax brackets would have to earn before taxes to equal
the Fund's tax-free 30-Day SEC Yield:
28% -- joint taxable income of $39,001 to $94,250
31% -- joint taxable income of $94,251 to $143,600
36% -- joint taxable income of $143,601 to $256,500
39.6% -- joint taxable income of $256,501 or more
All income dividends distributed by the Fund during the six months ended
November 30, 1995, are exempt from federal income taxes.
NAV AND AVERAGE ANNUAL TOTAL RETURNS*
For Periods Ended November 30, 1995
NET ASSET VALUE RANGE AVERAGE ANNUAL TOTAL RETURNS
(6/1/95-11/30/95) --------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
$11.18-$11.80 18.66% 8.08% 9.06% 8.53%
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 27.
The Fund commenced operations on July 31, 1984.
*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
<PAGE>
LONG-TERM FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/1/85 in the Fund and
in the Lehman Brothers, Inc. Long-Term Municipal Bond Index
[line graph]
[graph data]
Index Fund
11/30/85 $10,000 $10,000
12/31/85 10,187 10,263
1/31/86 10,834 10,756
2/28/86 11,322 11,195
3/31/86 11,319 11,281
4/30/86 11,319 11,209
5/31/86 11,103 11,069
6/30/86 11,198 11,143
7/31/86 11,287 11,242
8/31/86 11,877 11,743
9/30/86 11,850 11,740
10/31/86 12,053 11,978
11/30/86 12,342 12,253
12/31/86 12,326 12,187
1/31/87 12,740 12,541
2/28/87 12,775 12,626
3/31/87 12,587 12,506
4/30/87 11,881 11,477
5/31/87 11,750 11,333
6/30/87 11,376 11,536
7/31/87 11,481 11,639
8/31/87 11,532 11,636
9/30/87 11,061 11,036
10/31/87 11,060 10,926
11/30/87 11,414 11,185
12/31/87 11,563 11,365
1/31/88 12,024 11,869
2/29/88 12,166 11,996
3/31/88 11,992 11,750
4/30/88 12,086 11,838
5/31/88 12,099 11,823
6/30/88 12,335 12,015
7/31/88 12,417 12,095
8/31/88 12,466 12,129
9/30/88 12,749 12,325
10/31/88 13,039 12,573
11/30/88 12,899 12,450
12/31/88 13,123 12,641
1/31/89 13,432 12,860
2/28/89 13,244 12,718
3/31/89 13,255 12,713
4/30/89 13,644 13,009
5/31/89 13,960 13,308
6/30/89 14,172 13,478
7/31/89 14,360 13,675
8/31/89 14,141 13,460
9/30/89 14,098 13,308
10/31/89 14,285 13,482
11/30/89 14,588 13,766
12/31/89 14,696 13,858
1/31/90 14,547 13,688
2/28/90 14,711 13,857
3/31/90 14,726 13,843
4/30/90 14,546 13,577
5/31/90 14,957 14,080
6/30/90 15,104 14,193
7/31/90 15,371 14,508
8/31/90 15,005 14,040
9/30/90 14,982 14,008
10/31/90 15,299 14,359
11/30/90 15,686 14,690
12/31/90 15,756 14,781
1/31/91 15,967 15,000
2/28/91 16,079 15,018
3/31/91 16,118 15,038
4/30/91 16,367 15,262
5/31/91 16,560 15,415
6/30/91 16,529 15,321
7/31/91 16,785 15,534
8/31/91 17,026 15,740
9/30/91 17,273 16,009
10/31/91 17,453 16,190
11/30/91 17,475 16,180
12/31/91 17,891 16,691
1/31/92 17,880 16,610
2/29/92 17,908 16,642
3/31/92 17,953 16,579
4/30/92 18,124 16,733
5/31/92 18,390 17,020
6/30/92 18,745 17,392
7/31/92 19,433 18,141
8/31/92 19,172 17,782
9/30/92 19,257 17,815
10/31/92 18,935 17,437
11/30/92 19,468 17,950
12/31/92 19,721 18,228
1/31/93 19,907 18,451
2/28/93 20,833 19,426
3/31/93 20,582 19,051
4/30/93 20,863 19,396
5/31/93 21,036 19,507
6/30/93 21,431 19,863
7/31/93 21,453 19,784
8/31/93 22,002 20,370
9/30/93 22,288 20,670
10/31/93 22,330 20,653
11/30/93 22,060 20,396
12/31/93 22,629 20,827
1/31/94 22,896 21,069
2/28/94 22,139 20,424
3/31/94 20,817 19,560
4/29/94 20,977 19,575
5/31/94 21,223 19,808
6/30/94 20,968 19,684
7/29/94 21,507 20,107
8/31/94 21,552 20,096
9/30/94 21,052 19,792
10/31/94 20,406 19,402
11/30/94 19,867 19,100
12/30/94 20,572 19,546
1/31/95 21,477 20,085
2/28/95 22,352 20,633
3/31/95 22,620 20,806
4/28/95 22,608 20,786
5/31/95 23,572 21,450
6/30/95 23,138 21,189
7/31/95 23,256 21,345
8/31/95 23,584 21,557
9/30/95 23,768 21,725
10/31/95 24,343 22,148
11/30/95 24,971 22,664
Past performance does not guarantee future results.
This graph compares the Fund's performance with an appropriate broad-based
market index over 10 years. We have selected the Lehman Brothers, Inc. Long-Term
Municipal Bond Index to serve as the comparative index for 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 11/30/95 for the funds in Lipper's "General
Municipal Debt Funds" category.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
The Fund`s Total Return: 18.66% 8.08% 9.06% 8.53%
Category Average
Total Return: 18.38% 7.21% 8.32% 8.75%
The Fund`s Ranking: 93 out of 220 13 out of 120 14 out of 98 36 out of 55
Total returns are based on historical performance and do not guarantee future results.
</TABLE>
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended November 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.60% + 3.06% = 5.66%
14
<PAGE>
LONG-TERM FUND
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $53,046,914 $46,634,123
Number of Issues: 38 34
Average Maturity: 18.70 years 17.10 years
Average Coupon: 6.14% 6.81%
Average Duration: 8.86 years 7.02 years
For definitions of these terms, see page 18.
PORTFOLIO COMPOSITION BY CREDIT RATING
[pie chart] [pie chart]
11/30/95 5/31/95
AAA: 52.7% AAA: 45.2%
AA: 36.9% AA: 35.1%
A: 10.4% A: 19.7%
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 20.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie chart] [pie chart]
11/30/95 5/31/95
Electric: 18.2% Hospital: 16.8%
Water/Sewer: 13.9% Electric: 16.2%
Hospital: 11.9% Water/Sewer: 15.3%
Housing: 10.5% Prerefunded: 14.6%
Prerefunded: 9.5% Housing: 10.0%
Other: 36.0% Other: 27.1%
For definitions of these security types, see page 18.
PORTFOLIO COMPOSITION BY MATURITY DATE
[pie chart] [pie chart]
11/30/95 5/31/95
2000-02: 9.5% 1995-99: 3.6%
2006-11: 14.5% 2000-02: 10.8%
2012-17: 51.4% 2006-11: 18.1%
2018-23: 19.1% 2012-17: 52.6%
2024-29: 5.5% 2018-23: 14.9%
The Fund invests primarily in long-term 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
<PAGE>
LONG-TERM FUND
MANAGEMENT DISCUSSION
with Dave MacEwen, Vice President & Senior Municipal Portfolio Manager
NOTE: WE SUGGEST THAT YOU REVIEW THE INVESTMENT FUNDAMENTALS, U.S. ECONOMIC
REVIEW, MUNICIPAL CREDIT ANALYSIS AND MARKET SUMMARY SECTIONS BEFORE YOU READ
THIS DISCUSSION. TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 18.
Q: How did the Fund perform?
A: The 1995 bond rally enabled the Fund to post strong returns, and it
continued to perform well compared to its peer group average. For the
one-year period ended November 30, 1995, the Fund's total return was
18.66%. This return exceeded the 18.38% average return of the 220 funds
in its peer group over the same period (see the Lipper Performance
Comparison on page 14). For the six months ended November 30, the
Fund's total return was 5.66%.
Q: Why did the Fund outperform its category average?
A: The Fund was positioned more aggressively than its peers over the past
six months. The Fund's duration* was longer than those of many of its
competitors, so it experienced more price appreciation as interest
rates fell.
Q: Can you elaborate on the Fund's positioning over the past six months?
A: The Fund was still somewhat defensive in June and July because of flat
tax fears and expectations of a steepening muni yield curve* (see page
2). By August, however, flat tax fears began to subside, so we extended
the Fund's average maturity* and duration aggressively. We sold a
portion of the Fund's shorter-term munis, which had appreciated in
value, and shifted these assets into munis with maturities of 20 or
more years. These longer-term securities had declined in value and were
trading at relatively attractive prices. By the end of the six-month
period, the Fund's duration was about 10% longer than that of its peer
group.
As we extended the Fund's average maturity and duration, we also
shifted the Fund's portfolio from a bullet structure* to more of a
barbell structure* in anticipation of a flatter yield curve. This paid
off as the muni yield curve flattened between August and November (see
the graph on page 2).
16
<PAGE>
LONG-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: Were there any particular sectors that looked attractive?
A: We sold many of the Fund's callable premium bonds* and purchased
noncallable discount bonds.* With interest rates falling, the durations
of callable premium munis shortened because they are more likely to be
called* prior to maturity. The noncallable discount munis lack this
call feature, so their durations remained steady, providing more price
appreciation as interest rates fell.
Q: The Fund is holding more AAA-rated securities than it did six months
ago (see page 15). Why?
A: As the market rallied over the past six months, investors searching for
higher yields increased their demand for lower-rated munis. This caused
the yield advantage of lower-rated munis to diminish. In addition, the
lack of muni issuance in 1995 led bond insurers to lower their premiums
to capture more business. As a result, we were able to increase the
Fund's credit quality while sacrificing very little yield.
Q: Looking ahead, what is the outlook for munis in the first half of 1996?
A: We believe that bonds, particularly munis, could perform well in 1996.
Bonds in general should benefit from a continuation of slow economic
growth and low inflation. Munis have two additional factors in their
favor--low issuance levels and reduced fears about the flat tax.
We expect new municipal issuance in 1996 to remain as low as it was in
1995. This will likely lead to higher muni prices and declining muni
yields. We also expect the flat tax issue to fade into the background
behind the budget negotiations and other tax reform proposals in 1996.
If this occurs, muni yields should fall relative to Treasury yields as
the spread between them widens toward historical levels.
Q: With this outlook in mind, what are your plans for the Fund over the
next six months?
A: We plan to keep the Fund's duration slightly long relative to its peer
group. In addition, we intend to maintain the Fund's barbell structure
in anticipation of further flattening of the muni yield curve. We will
also look to increase the Fund's credit quality when we can do so
without giving up much yield.
17
<PAGE>
INVESTMENT FUNDAMENTALS
DEFINITIONS
COMMON 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).
General Obligation (GO) bonds--securities backed by the taxing power of the
issuer.
Municipal Commercial Paper (CP)--high-grade short-term instruments 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.
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).
Variable-Rate Demand Notes (VRDNs)--securities that track market interest rates
and stabilize their market values using periodic (daily or weekly) interest rate
adjustments.
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 21).
Average Coupon--a weighted average of all coupons held in a fund's portfolio
(see also below).
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 21).
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 bond.
Discount Bonds--bonds whose coupons are lower than prevailing interest rates
(see also page 22).
Par Bonds--bonds that trade or are priced at their face value.
Premium Bonds--bonds whose coupons are higher than prevailing interest rates
(see also page 22).
18
<PAGE>
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).
19
<PAGE>
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 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 muni
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.
20
<PAGE>
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 (a basis point equals 0.01%). For example, as of November 30,
1995, the Intermediate-Term Fund's duration was approximately 5.5 years. If
interest rates were to rise by 100 basis points, the Fund's share price would be
expected to decline by 5.5%. Conversely, if interest rates were to fall by 100
basis points, the Fund's share price would be expected to increase by 5.5%.
The longer the duration, the more bond or bond fund prices will move in response
to interest rate changes. Therefore, portfolio managers generally want durations
to be as long as possible when interest rates fall (to maximize bond price
increases) and as short as possible when interest rates rise (to minimize bond
price declines), taking into account the objectives of the portfolio.
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, 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.
21
<PAGE>
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.
22
<PAGE>
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 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.
23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended November 30, 1995, and the Years Ended May 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Benham National Tax-Free Money Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NOV. 30, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
- --------------
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..... .0163 .0295 .0191 .0210 .0340 .0499 .0556 .0568 .0484 .0431
Net Realized and Unrealized
Losses on Investments... 0 0 0 0 0 0 0 0 (.0074) 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income From
Investment Operations. .0163 .0295 .0191 .0210 .0340 .0499 .0556 .0568 .0410 .0431
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income...... (.0163) (.0295) (.0191) (.0210) (.0340) (.0499) (.0556) (.0568) (.0410) (.0431)
Distributions from Net
Realized Capital Gains.. 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions..... (.0163) (.0295) (.0191) (.0210) (.0340) (.0499) (.0556) (.0568) (.0410) (.0431)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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% 2.95% 1.92% 2.12% 3.48% 5.13% 5.68% 5.80% 4.19% 4.37%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars).$ 94,846 92,034 109,818 109,875 111,112 111,224 92,975 93,897 70,976 80,081
Ratio of Expenses to
Average Daily Net Assets.. .66%* .66% .67% .68% .57% .50% .50% .50% .31% .25%
Ratio of Net Investment Income
to Average Daily Net Assets 3.20%* 2.88% 1.89% 2.10% 3.40% 4.99% 5.56% 5.68% 4.10% 4.31%
- -------------------
+ Total return figures assume reinvestment of dividend distributions and are not annualized.
* These ratios are annualized and include expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended November 30, 1995, and the Years Ended May 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Benham National Tax-Free Intermediate-Term Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NOV. 30, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING
OF PERIOD.................. $10.71 10.60 10.90 10.48 10.33 10.03 9.97 9.98 9.87 9.91
Income from Investment Operations
Net Investment Income...... .2564 .5039 .5106 .5189 .5639 .6062 .6132 .6312 .6331 .6412
Net Realized and Unrealized Gains
(Losses) on Investments.. .2000 .1467 (.1856) .5278 .2721 .3103 .0600 (.0100) .1100 (.0400)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income (Losses) From
Investment Operations.. .4564 .6506 .3250 1.0467 .8360 .9165 .6732 .6212 .7431 .6012
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income........ (.2564) (.5039) (.5106) (.5189) (.5639) (.6062) (.6132) (.6312) (.6331) (.6412)
Distributions from Net Realized
Capital Gains............ 0 (.0367) (.1144) (.1078) (.1221) (.0103) 0 0 0 0
-------- --------- ------- -------- -------- -------- -------- -------- -------- --------
Total Distributions...... (.2564) (.5406) (.6250) (.6267) (.6860) (.6165) (.6132) (.6312) (.6331) (.6412)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD....................... $ 10.91 10.71 10.60 10.90 10.48 10.33 10.03 9.97 9.98 9.87
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN+................ 4.31% 6.40% 2.93% 10.26% 8.28% 9.43% 6.95% 6.44% 7.75% 6.03%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars).$ 64,518 64,904 70,925 67,550 44,315 34,196 24,628 21,337 20,121 19,548
Ratio of Expenses to
Average Daily Net Assets.. .70%* .66% .67% .72% .65% .50% .50% .50% .50% .50%
Ratio of Net Investment Income
to Average Daily Net Assets 4.68%* 4.82% 4.61% 4.81% 5.38% 5.97% 6.12% 6.36% 6.34% 6.27%
Portfolio Turnover Rate..... 19.01% 47.48% 46.11% 36.31% 84.96% 54.98% 142.06% 49.07% 54.31% 26.31%
- -------------------
+ Total return figures assume reinvestment of dividend and capital gain distributions and are not annualized.
* These ratios are annualized and include expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended November 30, 1995, and the Years Ended May 31
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Benham National Tax-Free Long-Term Fund
- ------------------------------------------------------------------------------------------------------------------------------------
NOV. 30, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING
OF PERIOD.................. $ 11.47 11.26 11.92 11.26 11.05 10.87 11.02 10.51 10.79 11.37
Income From Investment Operations
Net Investment Income...... .3063 .6213 .6221 .6280 .6685 .7166 .7187 .7655 .7731 .8389
Net Realized and Unrealized Gains
(Losses) on Investments.. .3300 .2651 (.4154) .9243 .4333 .2610 (.1000) .5100 (.2800) (.5800)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income (Losses) From
Investment Operations.. .6363 .8864 .2067 1.5523 1.1018 .9776 .6187 1.2755 .4931 .2589
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income........ (.3063) (.6213) (.6221) (.6280) (.6685) (.7166) (.7187) (.7655) (.7731) (.8389)
Distributions from Net Realized
Capital Gains............ 0 (.0551) (.2446) (.2643) (.2233) (.0810) (.0500) 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions...... (.3063) (.6764) (.8667) (.8923) (.8918) (.7976) (.7687) (.7655) (.7731) (.8389)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF
PERIOD....................... $ 11.80 11.47 11.26 11.92 11.26 11.05 10.87 11.02 10.51 10.79
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN+................ 5.66% 8.29% 1.54% 14.61% 10.42% 9.48% 5.80% 12.56% 4.32% 2.39%
- -------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars).$ 54,338 47,314 57,330 54,241 42,146 35,137 43,682 33,406 25,217 23,982
Ratio of Expenses to
Average Daily Net Assets.. .70%* .66% .67% .72% .65% .50% .50% .50% .50% .50%
Ratio of Net Investment Income
to Average Daily Net Assets 5.59%* 5.59% 5.16% 5.40% 6.00% 6.57% 6.58% 7.14% 7.27% 7.11%
Portfolio Turnover Rate..... 15.60% 34.09% 39.37% 105.14% 148.26% 150.07% 214.76% 69.49% 76.11% 102.45%
- -------------------
+ Total return figures assume reinvestment of dividend and capital gain distributions and are not annualized.
* These ratios are annualized and include expenses paid through expense offset arrangements.
See the accompanying notes to financial statements.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1995
(Unaudited)
BENHAM NATIONAL BENHAM NATIONAL BENHAM NATIONAL
TAX-FREE TAX-FREE TAX-FREE
MONEY MARKET INTERMEDIATE-TERM LONG-TERM
FUND FUND FUND
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investment securities at value (cost of $93,159,029,
$60,088,104, and $48,674,412, respectively) (Note 4).......................$93,159,029 63,190,196 53,046,914
Cash......................................................................... 785,509 282,419 1,198,937
Interest receivable.......................................................... 597,503 1,134,858 963,118
Receivable for fund shares sold.............................................. 361,797 26,667 239,659
Prepaid expenses and other assets............................................ 2,767 1,650 2,716
----------- ----------- ----------
Total assets............................................................... 94,906,605 64,635,790 55,451,344
----------- ----------- ----------
LIABILITIES
Payable for securities purchased............................................. 0 0 1,022,094
Payable for fund shares redeemed............................................. 500 18,215 5,540
Dividends payable............................................................ 11,631 60,658 55,891
Fees payable to affiliates (Note 2).......................................... 48,375 35,385 29,530
Accrued expenses and other liabilities....................................... 0 3,276 0
----------- ----------- ----------
Total liabilities.......................................................... 60,506 117,534 1,113,055
----------- ----------- ----------
NET ASSETS......................................................................$94,846,099 64,518,256 54,338,289
=========== =========== ==========
Net assets consist of:
Capital paid in.............................................................. 94,846,099 61,735,118 50,718,786
Net realized loss on investments............................................. (242,901) (318,954) (752,999)
Undistributed net investment income.......................................... 242,901 0 0
Net unrealized appreciation on investments (Note 4).......................... 0 3,102,092 4,372,502
----------- ----------- ----------
Net assets......................................................................$94,846,099 64,518,256 54,338,289
=========== =========== ==========
Shares of beneficial interest outstanding (unlimited number of
shares authorized).............................................................. 94,846,099 5,913,876 4,604,101
=========== =========== ==========
Net asset value, offering price and redemption price per share.................. $1.00 10.91 11.80
====== ====== =====
- -------------------
See the accompanying notes to financial statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
STATEMENTS OF OPERATIONS
For the Six Months Ended November 30, 1995
(Unaudited)
BENHAM NATIONAL BENHAM NATIONAL BENHAM NATIONAL
TAX-FREE TAX-FREE TAX-FREE
MONEY MARKET INTERMEDIATE-TERM LONG-TERM
FUND FUND FUND
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income.............................................................. $1,812,451 1,736,415 1,539,730
---------- ---------- ---------
EXPENSES (NOTE 2)
Investment advisory fees..................................................... 211,439 144,265 109,540
Administrative fees.......................................................... 45,519 31,057 23,582
Transfer agency fees......................................................... 33,155 23,036 20,226
Printing and postage......................................................... 10,992 7,014 5,421
Custodian fees............................................................... 12,551 6,838 6,964
Auditing and legal fees...................................................... 12,807 8,858 6,646
Registration and filing fees................................................. 12,348 12,066 11,812
Directors' fees and expenses................................................. 1,384 1,242 1,159
Other operating expenses..................................................... 10,237 4,691 3,734
---------- ---------- ---------
Total expenses............................................................. 350,432 239,067 189,084
Amount waived (Note 2).......................................................... (42,711) (13,030) (18,440)
Custodian earnings credits (Note 5)............................................. (7,127) (4,919) (2,705)
---------- ---------- ---------
Net expenses................................................................. 300,594 221,118 167,939
---------- ---------- ---------
Net investment income...................................................... 1,511,857 1,515,297 1,371,791
---------- ---------- ---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4)
Net realized gain:
Proceeds from sales.......................................................... 0 14,841,162 7,924,600
Cost of securities sold...................................................... 0 14,376,433 7,514,536
---------- ---------- ---------
Net realized gain.......................................................... 0 464,729 410,064
---------- ---------- ---------
Unrealized appreciation of investments:
Beginning of period.......................................................... 0 2,391,634 3,261,804
End of period................................................................ 0 3,102,092 4,372,502
---------- ---------- ---------
Net unrealized appreciation for the period................................. 0 710,458 1,110,698
---------- ---------- ---------
Net realized and unrealized gain on investments............................ 0 1,175,187 1,520,762
---------- ---------- ---------
Net increase in assets resulting from operations................................ $1,511,857 2,690,484 2,892,553
========== ========== =========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended November 30, 1995, and Year Ended May 31, 1995
(Unaudited)
Benham Benham Benham
National Tax-Free National Tax-Free National Tax-Free
Money Market Fund Intermediate-Term Fund Long-Term Fund
------------------ ------------------ ------------------
Nov. 30, May 31, Nov. 30, May 31, Nov. 30, May 31,
1995 1995 1995 1995 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income........................... $1,511,857 2,867,825 1,515,297 3,200,704 1,371,791 2,803,820
Net realized gain (loss) on investments......... 0 0 464,729 (784,150) 410,064 (1,163,064)
Net change in unrealized appreciation
(depreciation) of investments................. 0 0 710,458 1,520,540 1,110,698 2,008,820
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets derived from investment
activities.................................. 1,511,857 2,867,825 2,690,484 3,937,094 2,892,553 3,649,576
----------- ----------- ----------- ----------- ----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income........................... (1,511,857) (2,867,825) (1,515,297) (3,200,704) (1,371,791) (2,803,820)
Net realized gain on investments................ 0 0 0 (227,528) 0 (244,076)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders........... (1,511,857) (2,867,825) (1,515,297) (3,428,232) (1,371,791) (3,047,896)
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 3):
Proceeds from sales of shares................... 42,801,450 85,655,933 6,865,971 16,491,110 22,818,928 46,320,152
Net asset value of dividends reinvested......... 1,449,130 2,711,200 1,154,058 2,600,390 958,124 2,233,888
Cost of shares redeemed......................... (41,438,579) (106,151,286) (9,580,501) (25,621,380) (18,273,670) (59,171,786)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets derived from
capital share transactions.................. 2,812,001 (17,784,153) (1,560,472) (6,529,880) 5,503,382 (10,617,746)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets......... 2,812,001 (17,784,153) (385,285) (6,021,018) 7,024,144 (10,016,066)
NET ASSETS:
Beginning of period............................. 92,034,098 109,818,251 64,903,541 70,924,559 47,314,145 57,330,211
----------- ----------- ----------- ----------- ----------- -----------
End of period................................... $94,846,099 92,034,098 64,518,256 64,903,541 54,338,289 47,314,145
=========== =========== =========== =========== =========== ===========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
30
<PAGE>
BENHAM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham Municipal Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end management investment company. Benham National
Tax-Free Money Market Fund, Benham National Tax-Free Intermediate-Term Fund, and
Benham National Tax-Free Long-Term Fund are three of the six funds composing the
Trust. Significant accounting policies followed by the Funds are summarized
below.
VALUATION OF INVESTMENT SECURITIES--Securities held by the Money Market Fund are
valued at amortized cost, which approximates current market value. Securities
held by the Intermediate-Term and Long-Term Funds (collectively the
"Variable-Price Funds") are valued at current market value as determined by an
independent pricing service. When valuations are not readily available,
securities are valued at fair value as determined in good faith by the Board of
Trustees. Securities transactions are recorded on the date the order to buy or
sell is executed. Realized gains and losses on securities transactions are
determined on the basis of identified cost.
INCOME TAXES--Each Fund of the Trust 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 California 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
for federal or state taxes. As of May 31, 1995, the Money Market Fund,
Intermediate-Term Fund, and Long-Term Fund had capital loss carryovers of
$242,901, $382,614, and $330,926, respectively. No future capital gain
distributions will be made by each Fund until the loss carryover has been offset
or has expired. The capital loss carryovers for the Money Market Fund and
respective Variable-Price Funds expire May 31, 1996, and May 31, 2003,
respectively.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial statement and tax purposes.
SHARE VALUATION--Each Fund's net asset value per share is computed each business
day by dividing the value of the Fund's total assets, less its liabilities, by
the total number of shares outstanding at the
31
<PAGE>
beginning of each business day. It is the Trust's policy to maintain a constant
net asset value of $1.00 per share for the Money Market Fund, 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. Premium on securities purchased is amortized daily using the
effective interest rate method over the shorter period of purchase date to call
date or maturity date for the Variable-Price Funds. Market discount is
recognized as income upon the sale or maturity of the security 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. Premium and discount are accrued daily on a straight-line basis through
maturity or call date for securities held by the Money Market Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS--With respect to the Money Market Fund,
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. Net realized long-term capital gains, if any, are distributed annually.
Distributions are paid in cash or reinvested as additional shares.
(2) INVESTMENT ADVISORY FEE 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 BMC a
monthly investment advisory fee based on its pro rata share of the dollar amount
derived from applying the Trust's average daily net assets to the following
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
32
<PAGE>
BMC provides the Trust with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Fund officers and trustees who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.
The Trust has an Administrative Services and Transfer Agency Agreement with
Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under
the agreement, BFS provides substantially all administrative service and
transfer agency services necessary to operate each of the Funds. Fees for these
services are based on transaction volume, number of accounts and the average net
assets of all funds in The Benham Group.
The Trust has an additional agreement with BMC pursuant to which BMC established
a contractual expense guarantee that limits Fund expenses (excluding
extraordinary expenses such as brokerage commissions and taxes) to .64% for the
Money Market Fund and .69% for the Variable-Price Funds of average daily net
assets. The agreement provides further 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 are less than the expense guarantee rate in effect at that
time. The expense guarantee rate is renewed annually in June.
The payables to affiliates as of November 30, 1995, based on the above
agreements were as follows:
National Tax-Free National Tax-Free National Tax-Free
Money Market Intermediate-Term Long-Term
Fund Fund Fund
-------------- ------------ ------------
Investment Advisor $ 31,868 23,600 19,592
Administrative Services 7,371 5,067 4,177
Transfer Agent 9,136 6,718 5,761
------- ------- -------
$ 48,375 35,385 29,530
======= ======= =======
The Trust has a distribution agreement with Benham Distributors, Inc. (BDI),
which is responsible for promoting sales of and distributing the Trust's shares.
BDI is a wholly owned subsidiary of TCC.
33
<PAGE>
(3) SHARE TRANSACTIONS
Share transactions for each of the Funds for the six months ended November 30,
1995, and the year ended May 31, 1995, were as follows:
<TABLE>
<CAPTION>
National Tax-Free National Tax-Free National Tax-Free
Money Market Intermediate-Term Long-Term
Fund Fund Fund
---------------------------- ---------------------------- -------------------------------
Nov. 30, May 31, Nov. 30, May 31, Nov. 30, May 31,
1995 1995 1995 1995 1995 1995
-------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...... 42,801,450 85,655,933 636,745 1,583,041 1,994,819 4,226,181
Reinvestment
of dividends..... 1,449,130 2,711,200 106,996 249,260 83,579 202,482
---------- ---------- -------- -------- -------- --------
44,250,580 88,367,133 743,741 1,832,301 2,078,398 4,428,663
Less shares
redeemed.........(41,438,579) (106,151,286) (889,517) (2,465,987) (1,598,267) (5,395,725)
---------- ---------- -------- -------- -------- --------
Net increase
(decrease) in
shares........... 2,812,001 (17,784,153) (145,776) (633,686) 480,131 (967,062)
========== ========== ======== ======== ======== ========
</TABLE>
(4) INVESTMENT SECURITIES--PURCHASES, SALES AND/OR MATURITIES
Portfolio activity, excluding short-term securities, for the six months ended
November 30, 1995, was as follows:
National Tax-Free National Tax-Free
Intermediate-Term Long-Term
Fund Fund
---------------- ----------------
Purchases........................... $12,198,178 12,816,630
=========== ==========
Sales proceeds...................... $14,841,162 7,924,600
=========== ==========
As of November 30, 1995, unrealized appreciation (depreciation) was as follows:
National Tax-Free National Tax-Free
Intermediate-Term Long-Term
Fund Fund
---------------- ----------------
Appreciated securities.............. $ 3,126,590 4,430,282
Depreciated securities.............. (24,498) (57,780)
---------- ---------
Net unrealized appreciation $ 3,102,092 4,372,502
========== =========
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
November 30, 1995, the ratios of expenses to average daily net assets shown in
the Financial Highlights are calculated as if these credits had not been earned.
34
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Money Market Fund
Schedule of Investment Securities
November 30, 1995
(Unaudited)
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ --------- --------------------------------------------------- ------ -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alaska-1.87% $ 1,740,000 Alaska Industrial Development Agency Export Authority
Anchorage Fueling Project, Letter of Credit-Industrial
Bank of Japan 4.150% 12/06/95* $1,740,000 VMIG1/NR
Arizona-1.84% 1,200,000 Arizona Health Facility Pooled Loan, FGIC Insured 3.750 12/06/95* 1,200,000 VMIG1/A-1
500,000 Arizona State University Revenue, Prerefunded
at 102% of par 7.000 07/01/96 518,494 Aaa/AA
California-5.61% 1,000,000 California Revenue Anticipation Warrants Series C,
Letter of Credit-Bank of America, Various Providers 5.750 04/25/96 1,003,873 MIG1/SP1
1,000,000 California Student Loan Program Series A,
Letter of Credit-Dresdner Bank, AG 3.700 12/07/95* 1,000,000 VMIG1/NR
1,200,000 Covina Redevelopment Agency Multi-Family Housing
Revenue Bond, Shadowhills Apartments,
Letter of Credit-Continental Casualty Co. 4.200 12/07/95* 1,200,000 NR/A-1
1,000,000 Los Angeles County Tax and Revenue Anticipation Notes,
Letter of Credit-Bank Of America, Various Providers 4.500 07/01/96 1,003,921 MIG1/SP1+
1,000,000 Modesto High School District General Obligation,
MBIA Insured 7.000 08/01/96 1,021,191 Aaa/AAA
Colorado-5.90% 3,500,000 Denver Multi-Family Housing Revenue Bond, Cottonwood
Creek Project, Letter of Credit-General Electric
Credit Corporation. 3.850 12/05/95* 3,500,000 NR/A-1
1,000,000 Englewood Multi-Family Housing Revenue Bond,
The Marks Project, Series 1985 A,
Letter of Credit-Citibank 3.650 12/05/95* 1,000,000 NR/A-1+
1,000,000 Regional Transportation District Colorado Special
Passenger Fare Revenue Bonds, Letter of Credit-
Banque National de Paris 3.800 12/06/95* 1,000,000 NR/A-1
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ --------- --------------------------------------------------- ------ -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
District of
Columbia-6.44% $ 2,000,000 District of Columbia Abraham Laura Lisner Project,
Letter of Credit-Nations Bank 3.750% 12/06/95* $2,000,000 VMIG1/NR
1,000,000 District of Columbia American University, Revenue Bonds,
Letter of Credit-National Westminster Bank 3.650 12/06/95* 1,000,000 VMIG1/NR
3,000,000 District of Columbia Women's Hospital Revenue,
Series A, Letter of Credit-Mitsubishi Bank 3.900 12/06/95* 3,000,000 VMIG1/NR
Florida-13.64% 1,700,000 Broward County Multi-Family Housing Revenue Bond,
Palmaire-Oxford Housing, Series 1990,
Surety Bond-Continental Casualty Co. 3.950 12/06/95* 1,700,000 NR/A-1
1,000,000 Dade County Health Facility Miami Children's Hospital,
Series 1995, AMBAC Insured 3.650 12/06/95* 1,000,000 NR/A-1+
1,000,000 Florida Housing Finance Agency, Beville-Oxford,
Series 1990 B, Surety Bond-Continental Casualty Co. 3.950 12/06/95* 1,000,000 NR/A-1
2,500,000 Florida Housing Finance Agency, Country Club
Apartments, Letter of Credit-
Banker's Trust Company 4.350 12/01/95* 2,500,000 VMIG1/NR
2,000,000 Florida Housing Finance Agency, South Pointe Project,
Letter of Credit-Chemical Bank 3.750 12/06/95* 2,000,000 NR/A-1
1,000,000 Florida Housing Finance Agency, Village Place Project,
Letter of Credit-Chemical Bank 3.750 12/06/95* 1,000,000 NR/A-1
1,000,000 Hillsborough County Industrial Development Authority
Pollution Control Revenue,
Tampa Electric Company 3.700 12/01/95* 1,000,000 VMIG1/A-1+
500,000 Orange County, Florida, Sales Tax, Series D,
Prerefunded at 102% of par 7.400 01/01/96 511,188 Aaa/NR
1,000,000 University Athletic Association, Florida Capital
Improvement Revenue, University of Florida Stadium
Project, Letter of Credit-Sun Bank 3.750 12/01/95* 1,000,000 VMIG1/NR
1,000,000 West Orange Memorial Hospital, Letter of Credit-
Rabo Bank 3.800 01/11/96 1,000,000 VMIG1/NR
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- --------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Georgia-10.20% $1,000,000 Burke County Oglethorpe Power Series A,
Letter of Credit-Credit Suisse 3.750% 01/11/96 $1,000,000 P1/A-1+
1,800,000 Cobb County Multi-Family Housing Revenue Bond,
Pitco Fry Association,
Letter of Credit-Societe Generale 3.650 12/06/95* 1,800,000 VMIG1/NR
2,000,000 Cobb County Multi-Family Housing Revenue Bond,
Post Mill Project, Collateral Agreement-
Federal National Mortgage Association 3.650 12/06/95* 2,000,000 NR/A-1+
3,700,000 Gwinnett County Industrial Development
Agency for United Stationers Series
1990 A, Letter of Credit-PNC 3.850 12/07/95* 3,700,000 Aa3/NR
1,000,000 Peachtree Development Authority, Letter of
Credit-Bank of Tokyo 3.800 12/01/95* 1,000,000 Aa3/NR
Hawaii-1.40% 1,300,000 Hawaii Housing Finance and Development, Affordable
Housing, Letter of Credit-Barclay's Bank 3.750 12/06/95* 1,300,000 VMIG1/NR
Illinois-2.82% 1,625,000 Bartlett Square Multi-Family Housing Revenue Bond,
Letter of Credit-Lasalle National Bank 3.700 12/07/95* 1,625,000 NR/A-1+
1,000,000 Illinois Development Finance Authority, St. Ignatious
College, Letter of Credit-Northern Trust Corp. 3.800 12/06/95* 1,000,000 NR/A-1+
Indiana-4.84% 1,000,000 Ball State University Revenue, Student Fees,
FGIC Insured 4.700 07/01/96 1,004,507 Aaa/AAA
1,000,000 Huntington Economic Development Authority Revenue
Refunding, Allied Signal, Series 1993 3.850 12/06/95* 1,000,000 NR/A-1
1,500,000 Jasper County Pollution Control Revenue,
Northern Public Service, Series A,
Letter of Credit-Barclays Bank 3.800 02/23/96 1,500,000 P1/A-1+
1,000,000 Jasper County Pollution Control Revenue,
Northern Public Service, Series C,
Letter of Credit-Barclay's Bank 3.800 02/23/96 1,000,000 P1/A-1+
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Kansas-2.15% $ 2,000,000 Burlington Pollution Control Revenue, Series 1985 A,
Letter of Credit-Toronto Dominion Bank 3.600% 12/15/95 $2,000,000 P1/A-1+
Louisiana-.97% 900,000 Louisiana Public Facility Authority, Variable-Rate
Demand Note, Greenbrier Hospital,
Letter of Credit-Societe Generale 3.700 12/06/95* 900,000 Aa1/NR
Maine-2.16% 2,000,000 Maine General Obligation Tax Anticipation Notes 4.500 06/28/96 2,008,302 MIG1/SP1+
Massachusetts-2.15% 2,000,000 Massachusetts Bay Transit Authority,
Letter of Credit-State Street Bank 3.750 03/01/96 2,000,000 VMIG1/A-1+
Maryland-3.54% 3,300,000 Baltimore Industrial Development Authority Capital
Acquisition, Letter of Credit-Dai-Ichi Kangyo Bank 3.900 12/06/95* 3,300,000 VMIG1/A-1
Missouri-3.76% 1,500,000 Kansas City Industrial Development Authority,
Willow Creek Apartments, Collateral Agreement-
Federal National Mortgage Association 3.700 12/06/95* 1,500,000 NR/A-1+
2,000,000 St. Charles County Industrial Development
Revenue for Sun River Village Apartments
Project, Letter of Credit-Bank of America 3.700 12/07/95* 2,000,000 VMIG1/NR
Nevada-2.03% 1,110,000 Clark County General Obligation
Limited Revenue, FGIC Insured 7.700 06/01/96 1,131,559 Aaa/AAA
750,000 Clark County General Obligation, AMBAC Insured 5.400 11/01/96 760,016 Aaa/AAA
New Mexico-1.07% 1,000,000 Albuquerque Gross Receipts, Letter of Credit-
Canadian Imperial Bank of Commerce 3.700 12/06/95* 1,000,000 VMIG1/A-1+
Ohio-3.22% 3,000,000 Ohio Air Quality Development Authority Pollution
Control Revenue Series 1988 B, FGIC Insured 3.550 12/15/95 3,000,000 VMIG1/A-1+
Oregon-3.41% 1,175,000 Marion County Solid Waste and Electric Revenue,
Ogden Martin Systems, Inc. Project,
AMBAC Insured 4.250 10/01/96 1,178,307 Aaa/AAA
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- --------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Oregon (cont.) $ 1,000,000 Port of Portland Variable-Rate Demand Note Industrial
Revenue for Ryerson,
Letter of Credit-CoAmerica Bank 3.700% 12/05/95* $1,000,000 P1/NR
1,000,000 Portland Multi-Family Housing Revenue Bond,
South Park Block, Series 88A, Letter of Credit-
Harris Trust Savings Bank 3.700 12/05/95* 1,000,000 NR/A-1+
Pennsylvania-3.22% 1,000,000 Delaware County Industrial Development Authority
Philadelphia Electric Pollution Control Revenue,
FGIC Insured 3.550 12/15/95 1,000,000 VMIG1/A-1+
2,000,000 Philadelphia Hospital Authority for Charter Hospital,
Letter of Credit-Banker's Trust Company 3.900 12/06/95* 2,000,000 Aa3/NR
South Carolina-.54% 500,000 York County Pollution Control Revenue Saluda River,
Series 1984 E-2, Letter of Credit-
National Rural Utility Commission 3.800 02/15/96 500,000 MIG1/A-1+
South Dakota-1.08% 1,000,000 South Dakota School District Cash Flow Financial
Project Certificates of Participation
Promissory Notes 4.750 07/30/96 1,005,403 NR/SP1+
Tennessee-2.15% 2,000,000 Chattanooga Industrial Development Agency Market
Street Ltd. Project, Letter of Credit-Credit Suisse 3.625 12/06/95* 2,000,000 NR/A-1+
Texas-12.92% 1,000,000 San Antonio Sewer Revenue, Prerefunded
at 102% of par 7.000 05/01/96 1,032,620 Aaa/AAA
3,000,000 Tarrant County Housing Finance Agency Multi-Family
Housing Revenue Bond, Letter
of Credit-Societe Generale 3.650 12/06/95* 3,000,000 VMIG1/NR
2,500,000 Texas Higher Education Authority Floating Rate
Series B, FGIC Insured 3.600 12/06/95* 2,500,000 VMIG1/A-1+
3,000,000 Texas Tax and Revenue Anticipation Notes 4.750 08/30/96 3,014,648 MIG1/SP1+
2,500,000 Waller County Industrial Development Agency
Tubular Steel Project, Letter of Credit-
Wachovia Bank of Georgia 3.800 12/06/95* 2,500,000 P1/NR
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Washington-1.07% $ 1,000,000 Seattle Water System Revenue, Letter of Credit-
Bayerische Landesbank 3.600% 12/06/95* $ 1,000,000 VMIG1/A-1+
---------- ----------
$93,000,000 Total investment securities (cost $93,159,029) $93,159,029
========== ==========
NR = Not Rated
- -------------------
* These variable interest rate securities have maturities greater than one year but are redeemable upon demand. 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.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Intermediate-Term Fund
Schedule of Investment Securities
November 30, 1995
(Unaudited)
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama-1.69% $ 1,000,000 Alabama Municipal Electric Authority,
Series A, MBIA Insured 6.100% 09/01/99 $1,067,220 Aaa/AAA
Alaska-0.85% 500,000 Anchorage General Obligation, MBIA Insured 5.000 02/01/98 535,870 Aaa/AAA
California-12.94% 1,250,000 California Health Facility Authority Sisters of Providence
Revenue Refunding, MBIA Insured 6.200 10/01/03 1,378,087 Aaa/AAA
1,100,000 California State Public Works Board 6.150 11/01/09 1,156,672 A1/A-
1,000,000 Los Angeles County Transportation Common
Sales Tax Revenue 6.400 07/01/06 1,131,980 Aaa/AAA
1,060,000 Ontario Redevelopment Financing Authority Local
Agency Series A, Capital Guaranty Insured 5.900 09/02/07 1,131,667 Aaa/AAA
1,100,000 Sacramento Regional Transportation Certificate
of Participation Series A 6.200 03/01/00 1,176,384 A1/NR
1,000,000 San Bernardino County, MBIA Insured 5.750 08/01/06 1,077,310 Aaa/AAA
1,080,000 Y S School Facilities Financing Authority
California Special Tax Revenue, MBIA Insured 5.650 09/01/06 1,123,254 Aaa/AAA
Florida-2.99% 700,000 Broward County School District General Obligation 6.750 02/15/00 765,142 A1/AA-
1,000,000 Florida Turnpike Revenue, Series A, FGIC Insured,
Prerefunded at 101% of par 6.350 07/01/02 1,124,010 Aaa/AAA
Georgia-5.21% 1,000,000 Atlanta Downtown Development Authority
Refunding Underground Project 5.550 10/01/02 1,061,440 Aa/AA
2,000,000 Fulton County Water and Sewer Revenue,
FGIC Insured 6.250 01/01/09 2,232,780 Aaa/AAA
Hawaii-1.76% 1,000,000 Hawaii General Obligation, Series A,
FGIC Insured, Escrowed to Maturity 7.000 06/01/00 1,112,920 Aaa/AAA
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Intermediate-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE/COMMONWEALTH FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Illinois-6.18% $ 2,000,000 City of Chicago Emergency Telephone
System, FGIC Insured 5.250% 01/01/04 $2,055,600 Aaa/AAA
700,000 City of Chicago Metropolitan Water Reclamation
District, Prerefunded at 102% of par 7.250 01/01/99 763,910 Aaa/AAA
1,000,000 Illinois Educational Facility Authority
Loyola University, Series A 6.300 07/01/98 1,052,410 A1/A+
30,000 Metropolitan Pier and Exposition Authority McCormick
Place Project, Escrowed to Maturity 5.200 06/15/99 31,057 A/AAA
Indiana-2.29% 500,000 Indiana University Student Fee Bonds, Series F 7.100 08/01/97 525,400 Aa/AA-
1,000,000 South Montgomery School Building Improvement
Corporation, AMBAC Insured 5.820** 01/01/98 923,340 Aaa/AAA
Massachusetts-3.28% 1,000,000 Massachusetts State General Obligation, FGIC Insured 5.125 11/01/04 1,031,000 Aaa/AAA
1,000,000 Massachusetts State General Obligation, MBIA Insured 5.400 11/01/07 1,043,320 Aaa/AAA
Michigan-2.40% 1,500,000 Detroit Water Supply System, MBIA Insured 5.300 07/01/09 1,516,605 Aaa/AAA
Nebraska-3.20% 2,000,000 Nebraska Public Power District, Series B 4.900 01/01/04 2,021,880 A1/A+
New Jersey-1.71% 1,000,000 New Jersey Transportation Trust Fund
Authority, Series A 6.000 06/15/01 1,079,430 Aa/A+
New York-1.76% 1,000,000 New York State Authority, Highway and Bridge,
MBIA Insured 6.250 04/01/04 1,111,270 Aaa/AAA
North Carolina-3.44%2,000,000 North Carolina Eastern Municipal Power
Agency, Series 1993, FSA Insured 6.000 01/01/06 2,170,860 Aaa/AAA
Ohio-6.83% 1,000,000 Ohio State Building Authority Correctional
Facility, Series A 6.250 10/01/00 1,084,030 A1/A+
1,000,000 Ohio State Public Facilities Authority Mental
Health Facility 5.675 12/01/98 1,042,960 A1/A+
2,000,000 Ohio State Water Development Authority
Waste Water, MBIA Insured 6.000 12/01/05 2,189,720 Aaa/AAA
Oklahoma-4.55% 2,500,000 Oklahoma Industrial Authority Health System Revenue
Refunding Series 1995 C, AMBAC Insured 7.000 08/15/04 2,874,025 Aaa/AAA
Pennsylvania-1.29% 845,000 Philadelphia Water and Wastewater, FGIC Insured 5.000 06/15/12 814,124 Aaa/AAA
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Intermediate-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE/COMMONWEALTH FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------------ ---------- --------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
South Carolina-1.70%$1,000,000 South Carolina State Public Authority
Revenue, AMBAC Insured 6.250% 01/01/00 $1,072,510 Aaa/AAA
Texas-16.37% 115,000 Austin General Obligation, Series C 6.750 09/01/00 127,141 Aa/AA
885,000 Austin General Obligation, Series C 6.750 09/01/01 975,438 Aa/AA
1,500,000 Harris County Health Facility Memorial
Hospital, Systems Project 6.600 06/01/99 1,592,160 A/A-
1,500,000 Harris County Health Facility Memorial
Hospital, Systems Project 6.800 06/01/01 1,629,015 A/A-
1,000,000 Houston Independent School District General Obligation,
Guaranteed by Texas Permanent School Fund 8.375 08/15/98 1,109,680 Aaa/AAA
500,000 North Texas Higher Education Student Loan,
AMBAC Insured 6.875 04/01/02 533,855 Aaa/AAA
2,000,000 Texas Municipal Power Agency, MBIA Insured 5.750 09/01/02 2,144,640 Aaa/AAA
1,000,000 Texas Public Financing Agency General
Obligation Revenue Series 1995 6.500 10/01/03 1,129,010 Aa/AA
1,000,000 Texas Turnpike Authority Series 1990 A, AMBAC Insured,
Prerefunded at 102% of par 7.000 01/01/99 1,101,780 Aaa/AAA
Utah-1.72% 1,000,000 Utah State MFC University, Utah Hospital, Series 1991 6.600 05/15/00 1,089,430 NR/AA-
Virginia-1.68% 1,000,000 Virginia State Public Building Authority, Series A 5.700 08/01/00 1,061,850 Aa/AA
Washington-12.68% 1,000,000 Pierce County School District #3, Series B 5.800 12/01/99 1,056,130 A1/A+
1,000,000 Pierce County School District #320 5.750 12/01/02 1,062,650 A/NR
2,000,000 Snohomish County Public Utility District,
Series 1993, FGIC Insured 5.625 01/01/05 2,094,760 Aaa/AAA
1,000,000 Snohomish County School District #15 6.125 12/01/03 1,074,320 A1/AA-
500,000 Washington Public Power Supply, Series C,
FGIC Insured 7.000 07/01/01 558,235 Aaa/AAA
1,000,000 Washington Public Power Supply System
Project #1, Series B, FGIC Insured 7.100 07/01/01 1,119,730 Aaa/AAA
1,000,000 Washington State General Obligation Motor
Vehicles Fuel Tax 5.500 09/01/00 1,052,110 Aa/AA
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Intermediate-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE/COMMONWEALTH FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Wisconsin-3.48% $ 1,060,000 Wisconsin State Health Facility for Wausau
Hospital, Series B, AMBAC Insured 6.300% 08/15/00 $ 1,147,535 Aaa/AAA
1,000,000 Wisconsin State Transportation Authority, Series A 5.800 07/01/99 1,052,540 A1/AA-
---------- ----------
$58,925,000 Total investment securities (cost $60,088,104) $63,190,196
========== ==========
NR= Not Rated
- -------------------
** This security is a zero-coupon municipal bond. 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.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Long-Term Fund
Schedule of Investment Securities
November 30, 1995
(Unaudited)
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
California-10.21% $ 1,200,000 California Public Works Lease Revenue , Series A 5.750% 09/01/21 $1,180,092 A/A-
2,000,000 Los Angeles County Metropolitan Transportation
Authority Sales Tax Revenue,
Series A, AMBAC Insured 5.000 07/01/25 1,883,780 Aaa/AAA
1,545,000 San Jose Redevelopment Agency Merged Area Tax
Allocation, MBIA Insured 4.750 08/01/22 1,398,766 Aaa/AAA
1,000,000 University of California Housing Systems
Revenue, Series A, MBIA Insured 5.000 11/01/14 952,340 Aaa/AAA
Florida-13.88% 920,000 Broward County Resource Recovery
Facility, Series 1984, South Project 7.950 12/01/08 1,042,351 A/A-
3,000,000 Florida State Board Public Education General
Obligation, Series C 5.500 06/01/21 2,973,600 Aa/AA
1,200,000 Florida State Municipal Power Agency Revenue,
AMBAC Insured 4.500 10/01/27 1,032,540 Aaa/AAA
1,000,000 Orlando Water and Electric Authority
Revenue Bond, Series D 6.750 10/01/17 1,197,140 Aa/AA-
1,000,000 St. Petersburg Health Authority for Allegheny
Health, MBIA Insured 7.000 12/01/15 1,119,420 Aaa/AAA
Georgia-2.14% 1,000,000 Georgia Municipal Electric Authority, MBIA Insured 6.500 01/01/12 1,132,830 Aaa/AAA
Illinois-16.10% 1,000,000 Cook County General Obligation, MBIA Insured,
Prerefunded at 102% of par 7.000 11/01/00 1,138,580 Aaa/AAA
1,500,000 Illinois Development Finance Authority Pollution Control
Revenue Central Illinois Public Service, Series B 7.600 03/01/14 1,670,670 Aa2/AA
1,840,000 Illinois Health Facilities Authority Revenue Refunding
Evangelical Hospital, Series C 6.750 04/15/12 1,954,503 A1/AA-
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Long-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Illinois (cont.) $ 1,500,000 Illinois Dedicated Tax Revenue for Civic
Center Project, AMBAC Insured 6.250% 12/15/20 $1,677,210 Aaa/AAA
2,000,000 Springfield Water Revenue Bond 6.500 03/01/15 2,099,780 Aa/AA
Indiana-4.40% 1,000,000 Indiana Municipal Power Agency, Series A,
AMBAC Insured, Prerefunded at 102% of par 7.100 01/01/00 1,123,870 Aaa/AAA
1,000,000 Indiana Transportation Financing Authority
Highway Revenue, Series A 7.250 06/01/15 1,212,090 A1/A+
Massachusetts-7.38% 1,000,000 Massachusetts Health and Education Authority,
Series F, AMBAC Insured 6.250 07/01/12 1,109,190 Aaa/AAA
1,000,000 Massachusetts Housing Finance Agency, Series 1993 A 6.375 04/01/21 1,015,700 A1/A+
1,690,000 Massachusetts Housing Finance Agency, Series
1992 H FNMA 6.750 11/15/12 1,793,039 Aaa/AAA
Michigan-1.88% 1,000,000 Michigan Environmental Protection Program General
Obligation 5.400 11/01/19 996,620 Aa/AA
Pennsylvania-1.78% 1,000,000 Pennsylvania Intergovernmental Co-op Authority
Special tax Revenue, Series A, MBIA Insured 5.000 06/15/22 939,220 Aaa/AAA
Rhode Island-4.38% 1,100,000 Rhode Island Clean Water Safe Drinking,
AMBAC Insured 6.700 01/01/15 1,213,861 Aaa/AAA
1,000,000 Rhode Island Depositors' Economic Protection
Corporation Special Obligation Revenue,
Series A, MBIA Insured 6.250 08/01/16 1,106,980 Aaa/AAA
South Carolina-4.31%1,000,000 Columbia Water and Sewer Revenue Bonds,
Prerefunded at 102% of par 7.100 02/01/01 1,143,520 Aaa/AA
1,000,000 Piedmont Municipal Power Agency
Refunding, Series 1991 A, FGIC Insured 6.500 01/01/16 1,142,470 Aaa/AAA
Texas-8.56% 1,875,000 Brownsville Utility System Revenue, AMBAC Insured 5.250 09/01/15 1,857,788 Aaa/AAA
600,000 Lower Colorado River Authority Revenue
Refunding, Escrowed to Maturity 5.250 01/01/15 598,536 Aaa/AA
2,000,000 San Antonio Electric and Gas Series B,
FGIC Insured 5.300** 02/01/09 1,004,260 Aaa/AAA
1,000,000 Tarrant County Health Facility, MBIA Insured 6.000 05/15/11 1,082,580 Aaa/AAA
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham National Tax-Free Long-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE RATING
STATE FACE VALUE ISSUE COUPON MATURITY (NOTE 1) MOODY'S/S&P
- ------------ ---------- -------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Utah-2.35% $ 1,000,000 Salt Lake City Hospital Revenue Refunding,
Intermountain Health Corporation,
Series A, Escrowed to Maturity 8.125% 05/15/15 $1,250,040 NR/AAA
Virginia-5.50% 1,000,000 Hampton Industrial Development Authority
Revenue Sentara General Hospital, Series A 6.500 11/01/12 1,058,890 A/NR
1,750,000 Virginia State Housing Development Authority,
Series F, Single Family Mortgage 7.100 01/01/17 1,860,267 Aa1/AA+
Washington-12.90% 1,405,000 Port of Seattle Revenue Bonds, Series A,
Prerefunded at 102% of par 7.500 12/01/00 1,630,236 NR/AA-
1,625,000 Seattle Metropolitan Sewer Revenue, Series T 6.875 01/01/13 1,751,847 A1/AA-
1,000,000 Washington State General Obligation, Series A 6.750 02/01/15 1,171,120 Aa/AA
2,000,000 Washington Public Power Supply System,
Series 1990 C, FGIC Insured 7.750 07/01/08 2,289,720 Aaa/AAA
Wisconsin-4.23% 1,900,000 Wisconsin State Clean Water Revenue 6.875 06/01/11 2,241,468 Aa/AA
---------- ----------
$50,650,000 Total investment securities (cost $48,674,412) $53,046,914
========== ==========
NR = Not Rated
- -------------------
** This security is a zero-coupon municipal bond. 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.
</TABLE>
47
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
48
<PAGE>
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
Bruce R. Fitzpatrick
Vice President
Maryanne Roepke
Treasurer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
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. 1/96 Q064
