BENHAM FLORIDA
MUNICIPAL FUNDS
Semiannual Report November 30, 1995
[picture of the Florida
state flag]
Money Market Fund
Intermediate-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..................................19
Financial Statements and Notes........................23
Schedule of Investments...............................29
INTERMEDIATE-TERM FUND
Performance Information.............................. 8
Performance Comparison & Total Return Breakdown...... 9
Portfolio Information.................................10
Management Discussion ................................11
Financial Highlights..................................19
Financial Statements and Notes........................23
Schedule of Investments...............................32
INVESTMENT FUNDAMENTALS
Definitions...........................................13
The Yield Curve.......................................14
Muni Risk Factors.....................................15
Portfolio Sensitivity Measurements....................16
Bond Pricing..........................................17
Portfolio Structures & Taxable Distributions..........18
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. 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 of page. 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 of page. 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
FLORIDA 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.
Florida's economy, though slowing from robust 1994 growth levels, performed well
throughout 1995. Though Florida led the Southeast in terms of job growth in
1995, jobs were created at a slower pace than in 1994, reflecting slower
economic growth (see the graph below). The state remained a major tourist
destination, drawing an estimated 42 million visitors in 1995. Tourism fueled
service, trade and construction industries, which together accounted for over
64% of jobs in the state.
With a rapidly growing population of more than 13 million, Florida is now the
fourth most populous state. Continued immigration boosted sales tax revenues,
the state's primary revenue source. Tax revenues are estimated to have increased
by a strong 7.4% in 1995.
[bar graph in right margin of page. graph data described below]
Despite the current strength of Florida's economy, our expectation of stable
credit quality for the state is somewhat guarded. Defense cutbacks could cast a
shadow on the state's economic growth. Rapid population growth may spur a
corresponding need for increased spending for schools, public transportation and
energy needs. In the past few years, however, Floridians have shown a growing
reluctance to approve public funding measures. For example, in 1994 voters
approved a constitutional amendment that imposed growth limits on taxes, fees
and licenses.
The credit quality of Florida state municipal obligations remains stable.
Government at both state and local levels has proven its ability to keep its
finances in order. However, despite the state's sound financial position,
demographic and political pressures and anti-tax sentiment have prevented any
significant improvements in credit quality.
We have maintained a high level of credit quality in the Benham Florida
Municipal Funds' portfolios since their inception. As of November 30, 1995, 100%
of the securities held in the Intermediate-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 15.
[graph data]
Change in Florida Non-Farm Employment
"12/91" -78,300
"12/92" 157,400
"12/93" 224,400
"12/94" 233,200
"10/95" 192,500
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%
3.84% 3.92% TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
5.33% 5.57% 6.00% 6.36%
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. NOTE: These yields do not take into
account Florida's intangible property tax.
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, 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 AVERAGE ANNUAL TOTAL RETURNS
(6/1/95-11/30/95) --------------------------------------------
1 Year 5 Years Life of Fund
--------------------------------------------
$1.00 4.07% N/A 3.72%
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 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
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MONEY MARKET FUND
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $67,867,476 $46,076,285
Number of Issues: 42 47
Average Maturity: 45 days 42 days
Average Yield: 4.31% 4.68%
For definitions of these terms, see page 13.
PORTFOLIO COMPOSITION BY RATING
[pie chart ] [pie chart]
11/30/95 5/31/95
SP1+: 71% SP1+: 64%
SP1: 29% SP1: 36%
"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 15.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie chart] [pie chart]
11/30/95 5/31/95
VRDNs: 63% VRDNs: 56%
Bonds Less than 1 Year: 21% Commercial Paper: 24%
Commercial Paper: 16% Bonds Less than 1 Year: 20%
For definitions of these security types, see page 13.
PORTFOLIO COMPOSITION BY MATURITY
[bar graph]
11/30/95 5/31/95
1-7 Days 62.6% 58.8%
8-90 Days 21.4 16.9
91-180 Days 4.5 23.2
181-397 Days 11.5 1.1
The Fund's dollar-weighted average portfolio maturity will not exceed 90 days.
The Fund generally maintains an average maturity between 30 and 90 days, with 50
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.
Q: How did the Fund perform?
A: The Fund continued to be a top performer, ranking #1 out of 153
state-specific money market funds in IBC/Donoghue, Inc.'s Money Fund
Report each month for the six-month period ended November 30, 1995
(based on monthly yields reported by the Money Fund Report). The Fund's
six-month total return was 1.96%. For the one-year period ended
November 30, 1995, the Fund's total return was 4.07%.
Shareholders continued to benefit from the fact that the Fund's
operating expenses were absorbed and its management fees waived by
Benham Management Corporation (BMC). The absence of these fees helped
the Fund achieve its #1 Money Fund Report ranking, but the fund's yield
would have remained competitive even if BMC had not reimbursed all
expenses. For example, subtracting 65 basis points* (the Fund's expense
cap) for fees and expenses from the Fund's October 1995 monthly yield
of 3.86% (reported in the November 17, 1995 issue of the Money Fund
Report) would have resulted in an adjusted yield of 3.21%, the same as
the October average yield reported for "Tax-Free State-Specific Funds"
in the November Money Fund Report.
Q: Will BMC continue to absorb the Fund's expenses?
A: Yes. BMC plans to continue to absorb the Fund's expenses, probably
throughout 1996. Eventually, the Fund will begin absorbing expenses at
a rate of 10 additional basis points each month until it reaches its
contractual expense cap of 65 basis points.
Q: How was the Fund positioned during the six-month period?
A: Most of our strategy over the six-month period was aimed at positioning
the Fund to prepare for a period of low Florida muni issuance and heavy
cash inflows into the Fund at year's end. After short-term muni yields
increased in August from relatively low yield levels in June and July,
we aggressively extended the Fund's average maturity* between August
and early October. By mid-October, the Fund's average maturity was
around 64 days. Ideally, we would have maintained the Fund's long
average maturity by purchasing Florida notes (with maturities of around
one year) in order to lock in
6
<PAGE>
MONEY MARKET FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
higher yields should short-term rates continue to fall. But, as we
expected, issuance of Florida notes was very light. As new assets came
into the Fund in October and November and securities in the Fund
matured, the scarcity of Florida notes led to increasing purchases of
daily and weekly variable-rate demand notes (VRDNs*). As a result, the
Fund's average maturity began to recede, falling to 45 days at the end
of November.
Q: You mentioned that you expected heavy cash inflows at year's end. Did
this occur?
A: Yes. The Fund's net assets nearly doubled in December. In general,
municipal money market funds experience heavier-than-normal redemptions
at year's end, when corporations tend to withdraw funds for tax
payments and consumers for Christmas shopping. But Florida money market
funds have typically experienced significant asset growth in December,
when Florida residents tend to invest to reduce their exposure to
Florida's intangibles tax.
Q: Did this sudden growth spurt have any impact on the Fund's structure?
A: The most noticeable result was a continuing decrease in the Fund's
average maturity, which fell to 23 days by the end of December. In
addition to the fact that very few Florida notes are issued in November
and December, we wanted to hold securities with a high level of
liquidity, to meet redemptions we felt were likely to occur in January.
These factors led us to invest most of the year-end cash inflows in
daily or weekly VRDNs--highly liquid short-term securities which pull
down the Fund's average maturity.
Q: What investment strategy do you intend to follow during the next six
months?
A: We plan to extend the Fund's average maturity by increasing the Fund's
holdings in Florida notes. We consider it likely that the Fed will cut
short-term interest rates further in 1996 (as discussed on page 1), and
we want to "lock in" higher yields before short-term interest rates
fall. But we will probably wait to make significant purchases until
Florida muni issuance starts to pick up after January, which will
likely bring muni note prices down and create better buying
opportunities.
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%
4.51% TAX BRACKET TAX BRACKET TAX BRACKET TAX BRACKET
---------------------------------------------------
6.26% 6.54% 7.05% 7.47%
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 federal income tax brackets would have to earn before taxes to equal
the Fund's tax-free 30-Day SEC Yield. NOTE: These yields do not take into
account Florida's intangible property tax.
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, 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
---------------------------------------------
$10.23-$10.47 14.39% N/A 8.29%
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.
8
<PAGE>
INTERMEDIATE-TERM FUND
\
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
[line graph]
Index Fund
4/94 $10,000 $10,000
5/94 10,056 10,093
6/94 10,033 10,054
7/94 10,142 10,195
8/94 10,191 10,252
9/94 10,114 10,173
10/94 10,058 10,045
11/94 9,993 9,876
12/94 10,081 10,032
1/95 10,178 10,212
2/95 10,326 10,471
3/95 10,490 10,539
4/95 10,518 10,592
5/95 10,749 10,830
6/95 10,757 10,811
7/95 10,908 10,930
8/95 11,018 11,021
9/95 11,051 11,069
10/95 11,097 11,195
11/95 11,192 11,297
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 "Florida
Intermediate Municipal Funds" category.
1 YEAR LIFE OF FUND+
The Fund`s Total Return: 14.39% 8.00%
Category Average Total Return: 13.99% 7.63%
The Fund`s Ranking: 14 out of 26 8 out of 22
+ 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
2.56% + 1.75% = 4.31%
9
<PAGE>
INTERMEDIATE-TERM FUND
KEY PORTFOLIO STATISTICS
11/30/95 5/31/95
Market Value: $10,415,530 $9,383,372
Number of Issues: 25 23
Average Maturity: 7.71 years 7.00 years
Average Coupon: 6.03% 4.81%
Average Duration: 5.31 years 4.88 years
For definitions of these terms, see page 13.
PORTFOLIO COMPOSITION BY RATING
[pie chart] [pie chart]
11/30/95 5/31/95
AAA: 70.0% AAA: 72.4%
AA: 30.0% AA: 27.6%
Credit ratings reflect the financial strength of the debt issuer and the
likelihood of repayment. For more information about credit quality and credit
ratings, see page 15.
PORTFOLIO COMPOSITION BY MARKET SECTOR
[pie chart] [pie chart]
11/30/95 5/31/95
Water/Sewer: 19.7% Prerefunded: 27.5%
Prerefunded: 15.3% Water/Sewer: 21.7%
GO: 13.8% Electric: 10.4%
Electric: 9.6% Special Tax: 9.8%
Special Tax: 8.9% Housing: 9.3%
Other: 32.7% GOs: 9.3%
Other: 12.0%
For definitions of these security types, see page 13.
PORTFOLIO COMPOSITION BY MATURITY
[bar graph]
11/30/95 5/31/95
1-3 Years 3.3% 5.7%
3-5 Years 13.8 9
5-7 Years 29.3 38.8
7-10 Years 32 31.6
Greater than 10 Years 21.6 14.9
The Fund invests primarily in intermediate-term Florida 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.
10
<PAGE>
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
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 WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 13.
Q: How did the Fund perform?
A: The 1995 bond rally enabled the Fund to post strong returns, and its
positioning helped the Fund outperform its peer group average. For the
one-year period ended November 30, 1995, the Fund's total return was
14.39%, 40 basis points* higher than the 13.99% average return of the
26 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%. 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 outperform its category average?
A: There were some changes in the Fund's positioning, and we were able to
make some attractive purchases in August, when long-term muni prices
were low. As long-term muni prices rallied at the end of August, these
securities appreciated significantly in value.
Q: How was the Fund positioned during 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
short-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).
11
<PAGE>
INTERMEDIATE-TERM FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
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%.
12
<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 16).
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 16).
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 17).
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 17).
13
<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).
14
<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.
15
<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 Florida 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.
16
<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.
17
<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 Florida 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.
18
<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 (except as noted)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
BENHAM FLORIDA MONEY MARKET FUND
- ---------------------------------------------------------------------------------------------------------------------------
Nov. 30, May 31, May 31,
1995 1995 1994+
------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period.......................................... $ 1.00 1.00 1.00
Income from Investment Operations
Net Investment Income......................................................... .0196 .0371 .0040
Net Realized and Unrealized Gains on Investments.............................. 0 0 0
-------- -------- --------
Total Income From Investment Operations...................................... .0196 .0371 .0040
-------- -------- --------
Less Distributions
Dividends from Net Investment Income.......................................... (.0196) (.0371) (.0040)
Distributions from Net Realized Capital Gains................................. 0 0 0
-------- -------- --------
Total Distributions.......................................................... (.0196) (.0371) (.0040)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD................................................ $ 1.00 1.00 1.00
===== ===== =====
TOTAL RETURN*................................................................... 1.96% 3.71% .40%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)........................... $ 68,790 45,147 5,565
Ratio of Expenses to Average Daily Net Assets................................... 0% 0% 0%
Ratio of Expenses to Average Daily Net Assets
(Before Reimbursement)++....................................................... .73%** .88% 1.58%**
Ratio of Net Income to Average Daily Net Assets++............................... 3.84%** 3.93% 2.99%**
Ratio of Net Income to Average Daily Net Assets
(Before Reimbursement)++....................................................... 3.12%** 3.05% 1.41%**
- -------------------
+ 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 distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
19
<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 (except as noted)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
BENHAM FLORIDA INTERMEDIATE-TERM FUND
- ---------------------------------------------------------------------------------------------------------------------------
Nov. 30, May 31, May 31,
1995 1995 1994+
------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C>
Net Asset Value at Beginning of Period.......................................... $10.30 10.11 10.00
Income from Investment Operations
Net Investment Income......................................................... .2681 .5203 .0684
Net Realized and Unrealized Gains on Investments.............................. .1700 .1900 .1100
-------- -------- --------
Total Income From Investment Operations...................................... .4381 .7103 .1784
-------- -------- --------
Less Distributions
Dividends from Net Investment Income.......................................... (.2681) (.5203) (.0684)
Distributions from Net Realized Capital Gains................................. 0 0 0
-------- -------- --------
Total Distributions.......................................................... (.2681) (.5203) (.0684)
-------- -------- --------
NET ASSET VALUE AT END OF PERIOD................................................ $ 10.47 10.30 10.11
======= ====== ======
TOTAL RETURN*................................................................... 4.31% 7.31% 1.79%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)........................... $ 10,531 9,532 5,892
Ratio of Expenses to Average Daily Net Assets................................... 0% 0% 0%
Ratio of Expenses to Average Daily Net Assets
(Before Reimbursement)++....................................................... 1.06%** 1.09% 1.92%**
Ratio of Net Income to Average Daily Net Assets++............................... 5.17%** 5.23% 5.02%**
Ratio of Net Income to Average Daily Net Assets
(Before Reimbursement)++....................................................... 4.11%** 4.14% 3.10%**
Portfolio Turnover Rate......................................................... 20.92% 36.63% 5.71%
- -------------------
+ 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>
20
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1995
(Unaudited)
Benham Florida Benham Florida
Municipal Municipal
Money Market Fund Intermediate-Term Fund
---------------- ---------------
<S> <C> <C>
ASSETS
Investment securities at value (cost of $67,867,476 and $9,989,455,
respectively) (Note 4)..................................................... $67,867,476 10,415,530
Cash.......................................................................... 459,814 0
Interest receivable........................................................... 467,436 153,770
Receivable for fund shares sold............................................... 350,000 4,000
Receivable from affiliates (Note 2)........................................... 2,229 877
Prepaid expenses and other assets............................................. 5,406 4,836
---------- ----------
Total assets................................................................ 69,152,361 10,579,013
---------- ----------
LIABILITIES
Payable for securities purchased.............................................. 315,691 0
Payable for fund shares redeemed.............................................. 30,000 0
Dividends payable............................................................. 4,456 14,038
Accrued expenses and other liabilities........................................ 12,377 33,563
---------- ----------
Total liabilities........................................................... 362,524 47,601
---------- ----------
NET ASSETS...................................................................... $68,789,837 10,531,412
========== ==========
Net assets consist of:
Capital paid in............................................................... $68,789,837 10,055,561
Net undistributed realized gain on investments................................ 0 49,776
Net unrealized appreciation on investments.................................... 0 426,075
---------- ----------
Net assets...................................................................... $68,789,837 10,531,412
========== ==========
Shares of beneficial interest outstanding (unlimited number of
shares authorized)............................................................ 68,789,837 1,005,540
========== ==========
Net asset value, offering price and redemption price per share.................. $1.00 10.47
===== =====
- -------------------
See the accompanying notes to financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
STATEMENTS OF OPERATIONS
For the Six Months Ended November 30, 1995
(Unaudited)
Benham Florida Benham Florida
Municipal Municipal
Money Market Fund Intermediate-Term Fund
---------------- ---------------
<S> <C> <C>
INVESTMENT INCOME
Interest income............................................................... $1,146,379 256,626
--------- ---------
EXPENSES (NOTE 2)
Investment advisory fees...................................................... 133,976 25,867
Administrative fees........................................................... 28,844 5,569
Transfer agency fees.......................................................... 13,081 5,582
Printing and postage.......................................................... 9,859 2,800
Custodian fees................................................................ 9,052 3,999
Auditing and legal fees....................................................... 7,517 2,086
Registration and filing fees.................................................. 9,464 2,382
Directors' fees and expenses.................................................. 1,192 984
Other operating expenses...................................................... 3,805 3,106
--------- ---------
Total expenses.............................................................. 216,790 52,375
Amount recouped (waived) (Note 2)............................................... (214,182) (51,917)
Custodian earnings credits (Note 5)............................................. (2,608) (458)
--------- ---------
Net expenses.................................................................. 0 0
--------- ---------
Net investment income....................................................... 1,146,379 256,626
--------- ---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4)
Net realized gain:
Proceeds from sales........................................................... 0 2,126,977
Cost of securities sold....................................................... 0 2,099,837
--------- ---------
Net realized gain........................................................... 0 27,140
--------- ---------
Unrealized appreciation of investments
Beginning of period........................................................... 0 284,481
End of period................................................................. 0 426,075
--------- ---------
Net unrealized appreciation for the period.................................. 0 141,594
--------- ---------
Net realized and unrealized gain on investments............................. 0 168,734
--------- ---------
Net increase in assets resulting from operations................................ $1,146,379 425,360
========= =========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
22
<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 Florida Benham Florida
Municipal Municipal
Money Market Fund Intermediate-Term Fund
---------------- ---------------
Nov. 30, May 31, Nov. 30, May 31,
1995 1995 1995 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income......................................................... $1,146,379 895,550 256,626 339,183
Net realized gain on investments.............................................. 0 0 27,140 22,636
Net change in unrealized appreciation of investments.......................... 0 0 141,594 246,083
---------- ---------- ---------- ----------
Change in net assets derived from investment activities...................... 1,146,379 895,550 425,360 607,902
---------- ---------- ---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income......................................................... (1,146,379) (895,550) (256,626) (339,183)
Net realized gain on investments.............................................. 0 0 0 (1,502)
---------- ---------- ---------- ----------
Total distributions to shareholders.......................................... (1,146,379) (895,550) (256,626) (340,685)
---------- ---------- ---------- ----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 3):
Proceeds from sales of shares................................................. 57,563,792 83,301,805 2,325,325 17,938,226
Net asset value of dividends reinvested....................................... 1,132,260 868,437 169,623 249,153
Cost of shares redeemed....................................................... (35,053,038) (44,588,140) (1,663,929)(14,815,000)
---------- ---------- ---------- ----------
Change in net assets derived from capital share transactions................. 23,643,014 39,582,102 831,019 3,372,379
---------- ---------- ---------- ----------
Net increase in net assets................................................... 23,643,014 39,582,102 999,753 3,639,596
NET ASSETS:
Beginning of period........................................................... 45,146,823 5,564,721 9,531,659 5,892,063
---------- ---------- ---------- ----------
End of period................................................................. 68,789,837 45,146,823 10,531,412 9,531,659
========== ========== ========== ==========
- -------------------
See the accompanying notes to financial statements.
</TABLE>
23
<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 Florida
Municipal Money Market Fund and Benham Florida Municipal Intermediate-Term Fund
(the Funds) are two 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 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--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.
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 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 Intermediate-Term Fund's net asset value fluctuates daily in response to
changes in the market value of its investments.
24
<PAGE>
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 of the security for the Intermediate-Term Fund. Market
discount is recognized upon the sale or maturity of the security for the
Intermediate-Term Fund. Original issue discount for municipal securities is
accrued daily using the effective interest rate method for the Intermediate-Term
Fund. Premium and discount are accrued daily on a straight-line basis through
maturity 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 Intermediate-Term 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. 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
25
<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 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 .65% for the
Money Market Fund and .69% for the Intermediate-Term Fund 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. Additionally, BMC
voluntarily agreed to absorb all expenses of the Funds until further notice.
Beginning January 1, 1996, the Intermediate-Term 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:
BENHAM FLORIDA BENHAM FLORIDA
MUNICIPAL MUNICIPAL
MONEY MARKET INTERMEDIATE-TERM
FUND FUND
------------------ -------------------
Investment Advisor.................. $ (12,675) (3,510)
Administrative Services............. 5,329 785
Transfer Agent...................... 5,117 1,848
--------- ---------
$ (2,229) (877)
========= =========
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.
26
<PAGE>
(3) SHARE TRANSACTIONS
Share transactions for the Funds for the six months ended November 30, 1995, and
the year ended May 31, 1995, were as follows:
BENHAM FLORIDA BENHAM FLORIDA
MUNICIPAL MUNICIPAL
MONEY MARKET INTERMEDIATE-TERM
FUND FUND
--------------- -------------
Nov. 30, May 31, Nov. 30, May 31,
1995 1995 1995 1995
------ ------ ------ -----
Shares sold.................... 57,563,792 83,301,805 224,427 1,808,828
Reinvestment of dividends...... 1,132,260 868,437 16,369 24,888
---------- ---------- --------- ---------
58,696,052 84,170,242 240,796 1,833,716
Less shares redeemed........... (35,053,038)(44,588,140) (160,573) (1,491,047)
---------- ---------- --------- ---------
Net increase in shares......... 23,643,014 39,582,102 80,223 342,669
========== ========== ========== =========
(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:
BENHAM FLORIDA
MUNICIPAL
INTERMEDIATE-TERM
FUND
-------------
Purchases................................................ $2,990,400
==========
Sales proceeds........................................... $2,099,837
==========
As of November 30, 1995, unrealized appreciation was as follows:
BENHAM FLORIDA
MUNICIPAL
INTERMEDIATE-TERM
FUND
-------------
Appreciated securities................................... $ 426,075
Depreciated securities................................... 0
----------
Net unrealized appreciation.............................. $ 426,075
==========
The cost of securities for financial reporting and federal income tax purposes
is the same.
27
<PAGE>
(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.
28
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Florida Municipal Money Market 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>
$1,000,000 Broward County Housing Authority Multi-Family Housing Revenue Bond,
Parkview Partnership Limited, Letter of Credit-Fuji Bank 4.000% 12/07/95* $1,000,000 VMIG1/NR
2,475,000 Broward County Housing Finance Agency Multi-Family Housing Revenue Bond,
Palmaire Housing, Surety Bond-Continental Casualty Co. 3.950 12/06/95* 2,475,000 NR/A-1
1,400,000 Broward County Multi-Family Housing Revenue Bond, Welleby Apartments,
Letter of Credit-Bank of America 3.750 12/06/95* 1,400,000 VMIG1/NR
3,300,000 Dade County Aviation Authority, Series A, Letter of Credit-Fuji Bank 4.000 12/06/95* 3,300,000 VMIG1/A-1
2,000,000 Dade County Health Facility, Miami Children's Hospital, Series 1995,
AMBAC Insured 3.650 12/06/95* 2,000,000 NR/A-1+
750,000 Dade County Industrial Development Authority, DNS Mfg, Letter of Credit-
Barnett Bank South Florida 3.900 12/06/95* 750,000 VMIG1/A-1
1,795,000 Dade County Industrial Development Authority IVAX Labs Series 1988,
Letter of Credit-Bank of Tokyo 4.000 12/06/95* 1,795,000 VMIG1/NR
1,000,000 Dade County Industrial Development Authority, Stephen M. Greene,
Series 1989 B, Letter of Credit-Sun Bank 3.800 12/06/95* 1,000,000 VMIG1/NR
2,000,000 Dade County School District, MBIA Insured 6.875 08/01/96 2,039,903 Aaa/AAA
2,300,000 Dade County Special Obligation Capital Asset
Acquisition, Letter of Credit-Sanwa Bank 3.850 12/06/95* 2,300,000 VMIG1/A-1+
4,650,000 Florida Housing Finance Agency, Ashley Lake Park, Project II,
Series 1989 A, Letter of Credit-Barclays Bank 3.750 12/06/95* 4,650,000 VMIG1/NR
1,800,000 Florida Housing Finance Agency, Beville-Oxford, Series 1990 B,
Surety Bond-Continental Casualty Co. 3.950 12/06/95* 1,800,000 NR/A-1
1,900,000 Florida Housing Finance Agency, Country Club Apartments, Letter of Credit-
Banker's Trust Company 4.350 12/01/95* 1,900,000 VMIG1/NR
1,000,000 Florida Housing Finance Agency, King's Colony, Series D, Letter of Credit-
Banker's Trust Company 3.775 12/07/95* 1,000,000 VMIG1/NR
1,800,000 Florida Housing Finance Agency, Multi-Family Housing Revenue Bond,
Series EEE, Carlton Arms Project, Letter of Credit-Kredietbank NV 4.000 12/06/95* 1,800,000 NR/A-1
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham Florida Municipal Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------------------------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,000,000 Florida Housing Finance Agency, Oaks at Mill Creek
Project, Letter of Credit-Chemical Bank 3.750% 12/06/95* $1,000,000 NR/A-1
1,000,000 Florida Housing Finance Agency, Parrot's Landing Project,
Collateral Agreement-Federal National Mortgage Association 3.600 12/06/95* 1,000,000 NR/A-1+
1,000,000 Florida Housing Finance Agency, Sun Pointe Cove Apartments Project,
Collateral Agreement-Federal National Mortgage Association 3.600 12/06/95* 1,000,000 NR/A-1+
650,000 Florida Housing Finance Agency, South Pointe Project,
Letter of Credit-Chemical Bank 3.750 12/06/95* 650,000 NR/A-1
2,000,000 Florida Housing Finance Agency, Village Place Project,
Letter of Credit-Chemical Bank 3.750 12/06/95* 2,000,000 NR/A-1
500,000 Florida State Board of Education, Capital Outlay,
Prerefunded at 102% of par 7.125 06/01/96 517,638 Aaa/AA
1,500,000 Florida State Board, Finance Department General
Services Revenue, Environmental Preservation, AMBAC Insured 5.000 07/01/96 1,510,261 Aaa/AAA
1,000,000 Gulf Breeze Local Government Loan Program,
Letter of Credit-Credit Local de France 3.600 12/07/95* 1,000,000 VMIG1/A-1
3,000,000 Hillsborough County Aviation Authority, Letter
of Credit-National Westminster Bank 3.700 12/15/95 3,000,000 P1/A-1+
3,000,000 Hillsborough County Capital Improvement Program
Revenue, Prerefunded at 102% of par 8.300 02/01/96 3,082,025 NR/AAA
1,000,000 Homestead Special Insurance Assessment, MBIA Insured 4.200 03/01/96 1,001,213 Aaa/AAA
1,500,000 Indian River Hospital District, Series 1985,
Letter of Credit-Kredietbank NV 3.700 12/06/95* 1,500,000 VMIG1/A-1+
3,500,000 Indian River Hospital District, Series 1990,
Letter of Credit-Kredietbank NV 3.700 12/15/95 3,500,000 VMIG1/A-1+
1,320,000 Jacksonville Electric Authority, Revenue Series 2 1987A-1 6.600 10/01/96 1,350,252 Aa1/AA
1,450,000 Jacksonville Electric Authority Series D3, Letter of Credit-Credit Suisse 3.850 01/26/96 1,450,000 P1/A-1+
1,000,000 Lee County, Florida, Housing Finance Agency, Forestwood Apartments Project,
Collateral Agreement-Federal National Mortgage Association 3.600 12/06/95* 1,000,000 NR/A-1+
2,000,000 Naples Hospital Revenue, Naples Community Hospital,
Letter of Credit-Mellon Bank 3.900 12/07/95* 2,000,000 NR/A-1
200,000 Ocean Highway and Port Authority Series 1990, Letter of Credit-ABN
AMRO Bank 3.800 12/06/95* 200,000 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
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham Florida Municipal Money Market Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------------------------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Orange County, Florida, School District Tax Anticipation Notes 4.500% 10/16/96 $1,005,893 NR/SP1+
1,000,000 Orlando and Orange County, Florida, Expressway, Prerefunded at 102% of par 7.250 07/01/96 1,039,103 Aaa/AAA
1,450,000 Pinellas County Health Facility Pooled Loan, Letter of Credit-Chemical Bank3.800 12/01/95* 1,450,000 NR/A-1
2,000,000 Putnam County Development Authority Pollution Control Revenue,
Seminole Electric, H-3, Standby Purchase Agreement-
National Rural Utility Commission 3.750 03/15/96 2,000,000 MIG1/A-1+
2,575,000 Putnam County Development Authority, Seminole Electric, Series 1984,
Standby Purchase Agreement-National Rural Utility Commission 3.650 12/06/95* 2,575,000 NR/A-1+
315,000 Tallahassee Airport Refunding, AMBAC Insured 3.950 10/01/96 315,000 Aaa/AAA
2,000,000 West Orange Health Facility Authority, Letter of Credit-Rabo Bank 3.800 01/24/96 2,000,000 VMIG1/NR
1,000,000 West Orange Hospital A-2, Letter of Credit-Rabo Bank 3.800 01/11/96 1,000,000 VMIG1/NR
---------- ----------
$67,630,000 Total investment securities (cost $67,867,476) $67,867,476
========== ==========
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>
31
<PAGE>
<TABLE>
<CAPTION>
BENHAM MUNICIPAL TRUST
Benham Florida 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>
$ 300,000 Boca Raton Water and Sewer Revenue 6.400% 10/01/02 $321,324 Aa/AA-
150,000 Broward County Educational Facility Authority, Nova Southeastern
University, Connie Lee Insured 5.400 04/01/02 157,025 NR/AAA
300,000 Broward County School District General Obligation 6.750 02/15/00 327,918 A1/AA-
500,000 Duval County School District, AMBAC Insured 6.250 08/01/05 550,500 Aaa/AAA
500,000 East County Water Control District, Series 1994, Asset Guarantee Insured 5.375 11/01/01 520,385 NR/AA
260,000 Enterprise Community Development Authority Osceola County
Water and Sewer Revenue, MBIA Insured 5.400 05/01/04 273,910 Aaa/AAA
500,000 Escambia County Housing Finance Authority Single Family Mortgage Revenue
Bond, Federal National Mortgage Association,
Government National Mortgage Association 6.000 04/01/02 521,045 Aaa/NR
350,000 Florida Housing Finance Agency Multi-Family Housing Revenue Bond,
Letter of Credit-Connecticut General Life Guaranty Agreement 5.350 12/01/05 357,270 NR/AA
450,000 Florida Housing Finance Agency Multi-Family Housing Revenue Bond
Williamsburg Village Apartments Project Series E, AMBAC Insured 5.600 12/01/07 457,475 Aaa/AAA
500,000 Florida State Board of Education Capital Outlay, Series C,
Prerefunded at 102% of par 5.400 06/01/08 514,745 Aa/AA
305,000 Florida State Department of General Services,
Prerefunded at 102% of par 7.750 09/01/98 340,401 Aaa/AAA
400,000 Florida Turnpike Revenue, Series A, FGIC
Insured, Prerefunded at 101% of par 6.350 07/01/02 449,604 Aaa/AAA
400,000 Hillsborough County Port District Special Revenue, FSA Insured 6.500 06/01/04 448,796 Aaa/AAA
295,000 Homestead Hurricane Andrew Claims Assistance Program, MBIA Insured 5.000 03/01/01 303,968 Aaa/AAA
400,000 Indian Trace Community Development Authority District
Water Management Series 1995 A, MBIA Insured 5.250 05/01/03 415,536 Aaa/AAA
500,000 Jacksonville Electric Authority, Special Obligation, St. John's River Power
Project Series 6-C 6.500 10/01/01 553,755 Aa1/AA
400,000 Jacksonville Excise Tax Revenue, FGIC Insured 6.700 10/01/06 445,076 Aaa/AAA
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham Florida Municipal Intermediate-Term Fund (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Rating
Face Value Issue Coupon Maturity (Note 1) Moody's/S&P
- ----------------------------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 500,000 Jacksonville Sales Tax Revenue River City Renaissance Project, FGIC
Insured 6.000% 10/01/03 $ 549,895 Aaa/AAA
500,000 Orlando Utility Commission Water and Electric Revenue 5.700 10/01/04 539,720 Aa1/AA
500,000 Palm Beach County Criminal Justice Facility, FGIC Insured,
Prerefunded at 102% of par 7.200 06/01/00 570,360 Aaa/AAA
200,000 Reedy Creek Improvement District Utility Revenue, Series 1991,
MBIA Insured, Prerefunded at 101% of par 6.250 10/01/01 222,034 Aaa/AAA
400,000 St. Cloud Utility Revenue Refunding, MBIA Insured 6.400 08/01/06 443,100 Aaa/AAA
400,000 South Miami Health Facility Authority Hospital Revenue Baptist Health
System Obligation Group, MBIA Insured 5.150 10/01/08 402,263 Aaa/AAA
175,000 Tampa Palms Community Development Special
Assessment Refunding, MBIA Insured 4.900 05/01/99 178,915 Aaa/AAA
500,000 Volusia County School District General
Obligation Refunding, FGIC Insured 6.200 08/01/03 550,510 Aaa/AAA
- ---------- ----------
$9,685,000 Total investment securities (cost $9,989,455) $10,415,530
========== ==========
NR = Not Rated
</TABLE>
33
<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.
