BENHAM
ARIZONA MUNICIPAL
INTERMEDIATE-TERM
FUND
-------------------
Semiannual Report
November 30, 1995
[picture of the Arizona
state flag]
[company logo] 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
PERFORMANCE & COMPOSITION
Performance Information............................... 4
Performance Comparisons & Total Return Breakdown...... 5
Portfolio Information................................. 6
MANAGEMENT DISCUSSION................................. 7
INVESTMENT FUNDAMENTALS
Definitions........................................... 9
The Yield Curve....................................... 10
Muni Risk Factors..................................... 11
Portfolio Sensitivity Measurements.................... 12
Bond Pricing.......................................... 13
Portfolio Structures & Taxable Distributions.......... 14
FINANCIAL INFORMATION (UNAUDITED)
Financial Highlights.................................. 15
Financial Statements and Notes........................ 16
Schedule of Investments............................... 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
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
ARIZONA 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.
Our general outlook on Arizona's economy and the credit quality of its municipal
securities remains very positive. The state's strong economic performance
continued throughout 1995, though at a somewhat slower pace than in 1994.
Consumer confidence in the state is high, and consumer spending, the engine that
drives economic growth, is robust. Retail sales rose by 10.5% during the
1994-1995 fiscal year, and personal income tax withholdings in the state rose by
11.2%.
[bar graph in right margin. graph data described below]
Although Arizona's job growth slowed from 1994 levels (see the accompanying
graph), it remained strong, still ranking about third highest in the nation in
1995. In spite of rapid job growth, the state's unemployment rate is slightly
above the national average, reflecting continued high levels of migration into
the state. Employment growth is expected to slow in 1996 to an estimated 3.9%,
but this rate should still allow Arizona to outpace most other states.
Arizona's economy has moved toward service and trade-related jobs, which now
dominate the employment picture, accounting for about 52% of all jobs in the
state. The hub of the state's economy, Maricopa County, is home to 58% of
Arizona's population. Employment growth, taxable sales and construction activity
have been strongest in the Phoenix area but less vibrant in Tucson, the state's
second major population center. Though the general trend throughout the state
will be toward slower growth over the next year, Tucson's economy, which has
significantly lagged that of the Phoenix area, could help to put the brakes on
Arizona's growth in the coming months.
As a result of the state's economic strength, the general trend for Arizona
credit quality is upward. We have seen improvements in credit quality in Phoenix
and Maricopa County as a whole, and credit quality is stable in cities such as
Scottsdale, Mesa and Chandler.
We have maintained a high level of credit quality in the Benham Arizona
Intermediate-Term Fund since its inception. As of November 30, 1995, more than
90% of the securities in the Fund's portfolio were rated AAA or AA. For more
information about credit quality and credit ratings, see page 11.
[graph data]
Change in Arizona Non-Farm Employment
12/91 15,600
12/92 31,500
12/93 103,500
12/94 97,800
10/95 59,100
Source: U.S. Department of Labor, Bureau of Labor Statistics.
3
<PAGE>
PERFORMANCE & COMPOSITION
CURRENT YIELD*
As of November 30, 1995
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC ---------------------------------------------------
YIELD 31.02% 33.90% 34.59% 39.33%
TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
4.63% 6.71% 7.00% 7.08% 7.63%
YIELDS are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-DAY SEC YIELD represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. The SEC yield should be regarded as an estimate of the Fund's
rate of investment income, and it may not equal the Fund's actual income
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in the
following combined Arizona and federal income tax brackets would have to earn
before taxes to equal the Fund's tax-free 30-Day SEC Yield:
31.02% -- joint taxable income of $50,001 to $94,250
33.90% -- joint taxable income of $94,251 to $100,000
34.59% -- joint taxable income of $100,001 to $143,600
39.33% -- joint taxable income of $143,601 to $256,500
All income dividends distributed by the Fund during the six months ended
November 30, 1995, are exempt from Arizona and federal income taxes, but a
portion of the Fund's dividends may be subject to the federal alternative
minimum tax (AMT).
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 5 YEARS LIFE OF FUND
---------------------------------------
$10.30-$10.55 13.73% N/A 8.69%
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.
The Fund commenced operations on April 11, 1994.
* 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.
4
<PAGE>
PERFORMANCE & COMPOSITION
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 4/29/94 in the Fund and
in the Lehman Brothers, Inc. Five-Year General Obligation Bond Index
[graph data]
Index Fund
4/94 $10,000 $10,000
5/94 10,056 10,092
6/94 10,033 10,064
7/94 10,142 10,234
8/94 10,191 10,280
9/94 10,114 10,202
10/94 10,058 10,083
11/94 9,993 9,973
12/94 10,081 10,098
1/95 10,178 10,268
2/95 10,326 10,443
3/95 10,490 10,562
4/95 10,518 10,625
5/95 10,749 10,852
6/95 10,757 10,855
7/95 10,908 10,985
8/95 11,018 11,085
9/95 11,051 11,130
10/95 11,097 11,233
11/95 11,192 11,343
Past performance does not guarantee future results.
This graph compares the Fund's performance with an appropriate broad-based
market index over the life of the Fund. We have selected the Lehman Brothers,
Inc. Five-Year General Obligation 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.
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 "Other States
Intermediate Municipal Debt Funds" category.
1 YEAR LIFE OF FUND+
The Fund`s Total Return: 13.73% 8.27%
Category Average Total Return: 13.79% 7.30%
The Fund`s Ranking: 37 out of 65 3 out of 56
+ From April 30, 1994, to November 30, 1995.
Total returns are based on historical performance and do not guarantee future
results. Please keep in mind that the Fund's expenses were absorbed by Benham
Management Corporation (BMC) during this period and that the ranking listed
would have been lower if the Fund's returns had been reduced by those expenses.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended November 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.49% + 2.04% = 4.53%
5
<PAGE>
PERFORMANCE & COMPOSITION
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $22,508,857 $19,265,697
Number of Issues: 33 31
Average Maturity: 7.11 years 6.20 years
Average Coupon: 5.97% 6.25%
Average Duration: 5.34 years 4.97 years
For definitions of these terms, see page 9.
PORTFOLIO COMPOSITION BY RATING
[pie chart] [pie chart]
11/30/95 5/31/95
AAA: 59.9% AAA: 53.1%
AA: 30.9% AA: 30.8%
A: 4.7% A: 11.0%
BBB: 4.5% BBB: 5.1%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 11.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie chart] [pie chart]
11/30/95 5/31/95
GO: 34.6% GO: 27.7%
Electric: 17.0% Prerefunded: 22.3%
Prerefunded: 10.1% Transportation: 14.2%
Transportation: 10.0% Water/Sewer: 13.5%
Water/Sewer: 9.6% Electric: 8.2%
Other: 18.7% Other: 14.1%
For definitions of these security types, see page 9.
PORTFOLIO COMPOSITION BY MATURITY
[bar graph]
[graph data]
11/30/95 5/31/95
less than 1 Year 0.9% 0 %
1-3 Years 2.3 5.6
3-5 Years 16.8 5.6
5-7 Years 34.3 51
7-10 Years 33.2 35.8
greater than 10 Years 12.5 2
The Fund invests primarily in intermediate-term Arizona municipal obligations
with maturities of four or more years. 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.
6
<PAGE>
MANAGEMENT DISCUSSION
QUESTIONS AND ANSWERS
with Dave MacEwen, Vice President and 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 READING
THIS DISCUSSION. TERMS MARKED WTH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 9.
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 13.73%,
compared to the 13.79% average return of the 65 funds in its peer group
over the same period (see the Lipper Performance Comparison on page 5).
For the six months ended November 30, the Fund's total return was
4.53%. Please keep in mind that the Fund's expenses were absorbed by
Benham Management Corporation (BMC) during this period and that the
ranking listed would have been lower if the Fund's returns had been
reduced by those expenses.+
Q: Why did the Fund underperform its category average?
A: The Fund was positioned more conservatively than its peers in early
1995. 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: How was the Fund positioned over the past six months?
A: The Fund was still defensively positioned 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 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.
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).
7
<PAGE>
MANAGEMENT DISCUSSION
QUESTIONS AND ANSWERS
(Continued from the previous page)
Q: The Fund is holding more AAA-rated securities than it did six months
ago (see page 6). 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 caused 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 on 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.
+ Benham Management Corporation absorbed the Fund's expenses through December
31, 1995. Beginning January 1, 1996, the Fund will begin absorbing expenses at
a rate of an additional .10% of average daily net assets each month until the
Fund reaches its contractual expense cap of .69%.
8
<PAGE>
INVESTMENT FUNDAMENTALS
DEFINITIONS
COMMON MUNICIPAL SECURITIES (MUNIS)
AMT Paper--instruments with income subject to the federal alternative minimum
tax.
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 12).
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 12).
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 13).
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 13).
9
<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 gap 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).
10
<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.
11
<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 Arizona Municipal Intermediate-Term Fund's duration was approximately
five years. If interest rates were to rise by 100 basis points, the Fund's share
price would be expected to decline by 5%. Conversely, if interest rates were to
fall by 100 basis points, the Fund's share price would be expected to increase
by 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.
12
<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.
13
<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
provide 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 Arizona Municipal Intermediate-Term Fund to earn
tax-exempt income, it may realize taxable capital gains as we pursue higher
total returns. By law, the fund 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.
14
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Arizona Municipal Intermediate-Term Fund
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended November 30, 1995, and
the Years Ended May 31 (except as noted)
(Unaudited)
Nov. 30, May 31, May 31,
1995 1995 1994+
---------- --------- ---------
PER-SHARE DATA
- --------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD............................................... $ 10.35 10.13 10.00
Income from Investment Operations
Net Investment Income.............................................................. .2628 .5149 .0684
Net Realized and Unrealized Gains on Investments................................... .2000 .2200 .1300
--------- --------- ---------
Total Income From Investment Operations........................................... .4628 .7349 .1984
--------- --------- ---------
Less Distributions
Dividends from Net Investment Income............................................... (.2628) (.5149) (.0684)
Distributions from Net Realized Capital Gains...................................... 0 0 0
--------- --------- ---------
Total Distributions............................................................... (.2628) (.5149) (.0684)
--------- --------- ---------
NET ASSET VALUE AT END OF PERIOD..................................................... $ 10.55 10.35 10.13
======= ===== =====
TOTAL RETURN*........................................................................ 4.53% 7.52% 1.99%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)................................ $ 23,114 19,778 7,187
Ratio of Expenses to Average Daily Net Assets........................................ 0% 0% 0%
Ratio of Expenses to Average Daily Net Assets (Before Reimbursement)++............... .85%** 1.01% 2.33%**
Ratio of Net Investment Income to Average Daily Net Assets++......................... 4.98%** 5.16% 5.08%**
Ratio of Net Investment Income to Average Net Daily Assets (Before Reimbursement)++.. 4.12%** 4.15% 2.75%**
Portfolio Turnover Rate.............................................................. 22.80% 33.22% 18.14%
- -------------------
+ From April 11, 1994 (commencement of operations), through May 31, 1994.
++ The ratios for the six months ended November 30, 1995, include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividend and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Arizona Municipal Intermediate-Term Fund
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
(Unaudited)
<S> <C>
ASSETS
Invesment securities at value (cost $21,620,591) (Note 4)................................................ $22,508,857
Cash..................................................................................................... 128,324
Interest receivable...................................................................................... 492,877
Receivable for fund shares sold.......................................................................... 5,655
Receivable from affiliates (Note 2)...................................................................... 928
Prepaid expenses and other assets........................................................................ 4,297
----------
Total assets............................................................................................ 23,140,938
----------
LIABILITIES
Dividends payable........................................................................................ 22,703
Accrued expenses and other liabilities................................................................... 4,527
----------
Total liabilities....................................................................................... 27,230
----------
NET ASSETS $23,113,708
==========
Net assets consist of:
Capital paid in.......................................................................................... 22,212,701
Net undistributed realized gain on investments........................................................... 12,741
Net unrealized appreciation on investments (Note 4)...................................................... 888,266
----------
Net assets................................................................................................. $23,113,708
==========
Shares of beneficial interest outstanding (unlimited number of shares authorized).......................... 2,190,957
==========
Net asset value, offering price and redemption price per share............................................. $10.55
======
- -------------------
See the accompanying notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Arizona Municipal Intermediate-Term Fund
STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1995
(Unaudited)
<S> <C>
INVESTMENT INCOME
Interest income ..................................................................................... $532,724
---------
EXPENSES (NOTE 2)
Investment advisory fees ............................................................................ 47,900
Administrative fees ................................................................................. 10,312
Transfer agency fees ................................................................................ 10,008
Printing and postage ................................................................................ 8,038
Custodian fees ...................................................................................... 4,830
Auditing and legal fees ............................................................................. 3,086
Registration and filing fees ........................................................................ 2,909
Directors' fees and expenses ........................................................................ 1,036
Other operating expenses ............................................................................ 3,254
---------
Total expenses ...................................................................................... 91,373
Amount waived (Note 2) .............................................................................. (90,395)
Custodian earnings credits (Note 5) ................................................................. (978)
---------
Net expenses ........................................................................................ 0
---------
Net investment income ............................................................................... 532,724
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4)
Net realized gain
Proceeds from sales ................................................................................. 4,972,031
Cost of securities sold ............................................................................. 4,870,735
---------
Net realized gain ................................................................................... 101,296
---------
Unrealized appreciation of investments
Beginning of period ................................................................................. 582,959
End of period ....................................................................................... 888,266
---------
Net unrealized appreciation for the period .......................................................... 305,307
---------
Net realized and unrealized gain on investments ..................................................... 406,603
---------
Net increase in assets resulting from operations .................................................... $939,327
=========
- -------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Arizona Municipal Intermediate-Term Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended November 30, 1995, and Year
Ended May 31, 1995
(Unaudited)
November 30, May 31,
1995 1995
--------- ------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income ............................................................................. $532,724 714,639
Net realized gain (loss) on investments ........................................................... 101,296 (88,545)
Net change in unrealized appreciation of investments .............................................. 305,307 539,999
---------- ---------
Change in net assets derived from investment activities .......................................... 939,327 1,166,093
---------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ............................................................................. (532,724) (714,639)
---------- ---------
Total distributions to shareholders .............................................................. (532,724) (714,639)
---------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 3):
Proceeds from sales of shares ..................................................................... 4,719,248 30,665,555
Net asset value of dividends reinvested ........................................................... 408,486 533,368
Cost of shares redeemed ........................................................................... (2,198,848) (19,058,695)
---------- ---------
Change in net assets derived from capital share transactions ..................................... 2,928,886 12,140,228
---------- ---------
Net increase in net assets ....................................................................... 3,335,489 12,591,682
NET ASSETS:
Beginning of period ............................................................................... 19,778,219 7,186,537
---------- ---------
End of period .................................................................................... $23,113,708 19,778,219
========== =========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
18
<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 Arizona
Municipal Intermediate-Term Fund (the Fund) is one of the six funds composing
the Trust. Significant accounting policies followed by the Fund are summarized
below.
VALUATION OF INVESTMENT SECURITIES--Securities held by the Fund 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--The Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By doing so, the 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 and state taxes.
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--The 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 beginning of each business day.
The Fund's net asset value fluctuates daily in response to changes in the market
value of its 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. Market discount is recognized as income upon the sale or
maturity of the security. Original issue discount for municipal securities is
accrued daily using the effective interest rate method.
19
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS--The Fund's 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. The 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
BMC provides the Trust with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Trust officers and trustees who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.
The Trust has an Administrative Services and Transfer Agency Agreement with
Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under
the agreement, BFS provides substantially all administrative service and
transfer agency services necessary to operate the Fund. 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 .69% of
average daily net assets. The agreement provides further that BMC may recover
amounts
20
<PAGE>
(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. Additionally, BMC
voluntarily agreed to absorb all expenses of the Fund through December 31, 1995.
Beginning January 1, 1996, the Fund will absorb expenses at a rate of .10% of
average daily net assets each month until the Fund reaches the contractual
expense cap.
The payables (receivables) to (from) affiliates as of November 30, 1995, based
on the above agreements were as follows:
Investment Advisor............................................... $ (6,031)
Administrative Services.......................................... 1,797
Transfer Agent................................................... 3,306
--------
$ (928)
========
The Trust has a distribution agreement with Benham Distributors, Inc. (BDI),
which is responsible for promoting sales of and distributing the Trust's shares.
BDI is a wholly owned subsidiary of TCC.
(3) SHARE TRANSACTIONS
Share transactions for the Fund for the six months ended November 30, 1995, and
the year ended May 31, 1995, were as follows:
Nov. 30, May 31,
1995 1995
------- ------
Shares sold................................ 452,559 3,037,823
Reinvestment of dividends.................. 39,127 52,967
-------- ---------
491,686 3,090,790
Less shares redeemed....................... (210,813) (1,889,940)
-------- ---------
Net increase in shares..................... 280,873 1,200,850
========= =========
(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:
Purchases................................................... $ 7,808,588
===========
Sale proceeds............................................... $ 4,870,735
===========
21
<PAGE>
As of November 30, 1995, unrealized appreciation was as follows:
Appreciated securities...................................... $ 888,266
Depreciated securities...................................... 0
---------
Net unrealized appreciation................................. $ 888,266
=========
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.
22
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Arizona Municipal Intermediate-Term Fund
Schedule of Investment Securities
November 30, 1995
(Unaudited)
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------- ---------------------------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C>
$ 200,000 Arizona Health Facilities Pooled Loan Program, FGIC Insured 3.750% 12/01/95* $ 200,000 VMIG1/A-1
1,000,000 Arizona State Transportation Board, Highway Revenue Series A 5.250 07/01/09 1,009,330 Aa/AAA
500,000 Central Arizona Water Conservation District 6.000 11/01/00 536,280 A1/AA-
900,000 Coconino & Yavapai Counties Joint Unified School District No. 9
General Obligation, Series 1992 C, FGIC Insured 5.600 07/01/06 947,052 Aaa/AAA
400,000 Commonwealth of Puerto Rico Public Improvement, MBIA Insured,
Prerefunded at 101.5% of par 6.500 07/01/02 454,524 NR/AAA
545,000 Gilbert General Obligation Series 1994 C, MBIA Insured 6.000 07/01/02 593,554 Aaa/AAA
500,000 Guam Power Authority Revenue 1994, Series A 5.200 10/01/97 509,425 NR/BBB
500,000 Maricopa County Public Finance Corporation Certificates of
Participation 5.625 06/01/00 511,045 Baa/BBB
500,000 Maricopa County General Obligation, FGIC Insured 6.250 07/01/03 554,841 Aaa/AAA
500,000 Maricopa County Industrial Development Authority Hospital Facility
Revenue Samaritan Health Services, MBIA Insured 7.150 12/01/04 590,895 Aaa/AAA
500,000 Maricopa County Unified School District No. 4, General Obligation,
Series A, FGIC Insured 5.200 07/01/06 515,800 Aaa/AAA
500,000 Maricopa County Unified School District No. 4,
Series D, AMBAC-TCRS Insured 6.900 07/01/00 555,210 Aaa/AAA
1,000,000 Maricopa County Unified School District No. 41 General Obligation Series
1988 F, FGIC Insured, Prerefunded at 100% of par 6.200 07/01/02 1,103,710 Aaa/AAA
600,000 Maricopa County Unified School District No. 80, Chandler, FGIC Insured 5.900 07/01/01 646,428 Aaa/AAA
500,000 Maricopa County Unified School District No. 210 Phoenix, Series C 7.400 07/01/99 554,045 Aa/AA
500,000 Mesa General Obligation, AMBAC Insured 6.000 07/01/01 541,145 Aaa/AAA
1,000,000 Mesa Utility System Revenue, FGIC Insured 6.250 07/01/04 1,119,290 Aaa/AAA
300,000 Phoenix Airport Revenue, Series 1994 C, MBIA Insured 5.500 07/01/01 314,358 Aaa/AAA
635,000 Phoenix Civic Improvement Corporation Waste Water Lease Revenue,
Prerefunded at 102% of par 6.125 07/01/03 711,035 NR/AAA
500,000 Phoenix Civic Improvement Corporation Water Revenue Junior Lien 6.000 07/01/02 540,100 A1/AA-
1,300,000 Phoenix General Obligation 5.100 07/01/05 1,343,251 Aa1/AA+
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham Arizona Municipal Intermediate-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ---------- ----------------------------------------------------------------------- ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C>
$ 550,000 Phoenix General Obligation 6.000% 07/01/01 $ 596,965 Aa1/AA+
350,000 Phoenix Street and Highway Revenue 6.250 07/01/06 382,743 A1/AA
500,000 Phoenix Street and Highway Revenue 5.950 07/01/00 534,095 A1/AA
1,000,000 Pima County Sewer Refunding, FGIC Insured 6.200 07/01/00 1,081,520 Aaa/AAA
350,000 Pima County Unified School District No. 012, Sunnyside, General
Obligation, AMBAC Insured 5.300 07/01/04 366,568 Aaa/AAA
1,000,000 Puerto Rico Electric Power Authority Revenue Series W, MBIA Insured 6.000 07/01/03 1,095,120 Aaa/AAA
1,000,000 Salt River Project Series B 6.500 01/01/04 1,124,530 Aa/AA
500,000 Scottsdale Desert Ranch Improvement District, AMBAC Insured 5.600 01/01/01 528,805 Aaa/AAA
480,000 Scottsdale General Obligation 7.500 07/01/02 565,306 Aa1/AA+
1,000,000 Tucson Street and Highway 5.700 07/01/01 1,062,450 A1/A+
710,000 University of Arizona Revenue 6.000 06/01/01 767,687 A1/AA
500,000 Yavapai County Elementary School District No. 028, Camp Verde,
General Obligation, FGIC Insured 6.100 07/01/04 551,750 Aaa/AAA
- ----------- -----------
$20,820,000 Total investment securities (cost $21,620,591) $22,508,857
=========== ===========
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>
24
<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 Q110
