BENHAM U.S. TREASURY
AND AGENCY BOND FUNDS
Semiannual Report * September 30, 1995
[picture of the U.S.
Capitol building]
Short-Term Treasury and Agency Fund
Treasury Note Fund
Long-Term Treasury and Agency Fund
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
<PAGE>
CONTENTS
U.S. ECONOMIC REVIEW................................. 1
MARKET SUMMARY....................................... 2
SHORT-TERM TREASURY AND AGENCY FUND
Performance Information.............................. 4
Performance Comparison & Portfolio Information....... 5
Management Discussion & Portfolio Composition........ 6
Financial Highlights..................................21
Financial Statements and Notes........................24
Schedule of Investments...............................32
TREASURY NOTE FUND
Performance Information.............................. 8
Performance Comparison & Portfolio Information....... 9
Management Discussion & Portfolio Composition.........10
Financial Highlights..................................22
Financial Statements and Notes........................24
Schedule of Investments...............................33
LONG-TERM TREASURY AND AGENCY FUND
Performance Information...............................12
Performance Comparison & Portfolio Information........13
Management Discussion & Portfolio Composition.........14
Financial Highlights..................................23
Financial Statements and Notes........................24
Schedule of Investments...............................34
INVESTMENT FUNDAMENTALS
Definitions...........................................16
Portfolio Sensitivity Measures........................18
The Yield Curve.......................................19
Yield Spreads and Callability.........................20
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman of the Board M. Benham]
Lower-than-expected inflation during the 12 months ended September 30, 1995,
helped generate optimism in the U.S. financial markets. U.S. inflation, as
measured by the consumer price index, increased at an annual rate of just 2.5%
during the 12-month period. Corporate mergers, downsizing and global job
competition kept labor costs low, and technological advances made U.S. workers
more efficient, boosting U.S. productivity to a 10-year high.
[line graph data described below]
Slow economic growth also contributed significantly to the low inflation rate.
The Federal Reserve (the Fed) achieved its goal of slow economic growth and low
inflation, the so-called "soft landing." The Fed raised short-term interest
rates seven times from February 1994 to February 1995 (see the accompanying
graph) to slow the economy and prevent inflation. The higher interest rates
caused slowdowns in auto, home and retail sales in the first quarter of 1995.
Growth was even slower in the second quarter. U.S. employment suffered the
biggest monthly jobs decline in four years, and industrial production declined
for three consecutive months. As a result, real annual growth was just 1.3% in
the second quarter.
Economic weakness was so pronounced by the summer of 1995 that the Fed reduced
interest rates in early July. The Fed lowered the target for the federal funds
rate from 6.00% to 5.75%, its first rate cut since September 1992. Despite this
action, economic signals remained mixed through the third quarter. Signs of
strength appeared in the housing and manufacturing sectors, but consumer
confidence ebbed and retail sales lagged. As a result, the Fed left interest
rates unchanged in August and September.
Despite a strong preliminary economic growth estimate for the third quarter, the
jury is still out regarding the strength of the U.S. economy. Many analysts
project that the economy could experience its smallest fourth-quarter growth
rate since 1991. If tangible signs of economic weakness (such as low holiday
season sales figures) appear and Congress and President Clinton agree on a
meaningful budget deficit-reduction plan (one that would cut government spending
and therefore inhibit economic growth), the Fed may cut short-term interest
rates again before the end of the year.
[graph data]
Discount Rate Fed Funds Rate
Oct-91 5 5.21
Nov-91 4.5 4.81
Dec-91 3.5 4.43
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 5.97
1
<PAGE>
MARKET SUMMARY
TREASURY AND GOVT. AGENCY SECURITIES
by Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Treasury Market Overview
U.S. Treasury securities rallied as interest rates declined throughout the
six-month period ended September 30, 1995. The bond rally was due primarily to
changing economic and inflationary conditions (see page 1), which led to market
expectations of a more accommodative Fed monetary policy. Increased demand and a
strengthening dollar also had a positive impact on the Treasury market.
[line graph described below]
In the second quarter, the driving force behind the bond market rally was the
slowing U.S. economy. Economic growth was weak enough to spark speculation about
a possible recession. With inflation remaining subdued, Treasury securities
enjoyed significant price appreciation during the second quarter. In particular,
bonds rallied substantially in mid-June and again in early July as the market
anticipated an interest rate cut by the Fed at its July meeting. The prices of
intermediate-term Treasury securities peaked during the second quarter, with
their yields falling to their lowest levels so far this year. For example, the
five-year Treasury note yield bottomed at 5.74% during the first week of July.
After the Fed lowered short-term interest rates as expected in July, several
strong economic reports erased all thoughts of a recession and caused Treasury
yields to retrace some of their declines from earlier in the year. As the third
quarter wore on, mixed signals about the strength of the U.S. economy led to
some volatility in the Treasury market, but for the most part Treasury
securities resumed their rally. The prices of long-term Treasury securities
gained slightly during the third quarter, while short- and intermediate-term
Treasuries suffered slight price declines.
The Treasury market got a boost from increased demand during the period. A surge
in the U.S. dollar's value relative to major foreign currencies, particularly
the Japanese yen, reflected increased foreign purchases of U.S. dollars. Foreign
investors typically invest these dollars in short- and intermediate-term
Treasury securities.
[graph data]
3/31/95 9/30/95
1 6.482 5.674
2 6.778 5.851
3 6.886 5.914
4 6.9765 5.9645
5 7.067 6.015
6 7.1005 6.0545
7 7.134 6.094
8 7.1533 6.122
9 7.1727 6.15
10 7.192 6.178
11 7.2039 6.1943
12 7.2158 6.2106
13 7.2277 6.2269
14 7.2396 6.2432
15 7.2515 6.2595
16 7.2634 6.2758
17 7.2753 6.2921
18 7.2872 6.3084
19 7.2991 6.3247
20 7.311 6.341
21 7.3229 6.3573
22 7.3348 6.3736
23 7.3467 6.3899
24 7.3586 6.4062
25 7.3705 6.4225
26 7.3824 6.4388
27 7.3943 6.4551
28 7.4062 6.4714
29 7.4181 6.4877
30 7.43 6.504
2
<PAGE>
MARKET SUMMARY
TREASURY AND GOVT. AGENCY SECURITIES
(Continued from the previous page)
Demand for long-term Treasury securities came from portfolio managers investing
in mortgage-backed securities and corporate bonds. The steady decline in
interest rates led to concerns about increased refinancing activity by
homeowners and corporations looking for lower borrowing rates. Concerns about
mortgage prepayments and bond calls* caused the durations* of mortgage-backed
securities and corporate bonds to shorten, so portfolio managers purchased
long-term Treasury securities to offset the decline in their portfolios'
durations.
The drop in Treasury yields during the six-month period was consistent across
the maturity spectrum, and this caused the Treasury yield curve* to shift
downward (see the graph on page 2). The flatness of the yield curve suggests
that the Treasury market has priced in further interest rate cuts by the Fed. At
the beginning of 1995, the two-year Treasury note yield was 200 basis points*
higher than the three-month Treasury bill yield; as of September 30, the
difference was just 45 basis points.
Treasury Securities vs. Agency Securities
Yield spreads* between Treasury and government agency securities narrowed during
the six-month period. Yield spreads were relatively steady during the first half
of 1995, but volatility in the Treasury market led to yield spread fluctuations
in the third quarter.
Agency yields typically track the movements of Treasury yields, but agencies can
lag behind sudden rallies in the Treasury market. As a result, the Treasury
rally in mid-June caused spreads to widen somewhat, but the subsequent rise in
Treasury yields in July, as well as reduced Treasury volatility during the
remainder of the third quarter, led to narrower yield spreads.
[line graph described below]
[graph data]
Treasury Agency
1 5.69 5.951
2 5.867 6.031
3 5.931 6.126
4 5.98 6.226
5 6.029 6.245
6 6.062 6.303
7 6.094 6.36
8 6.126 6.41
9 6.158 6.46
10 6.19 6.51
11 6.206 6.531
12 6.222 6.552
13 6.238 6.574
14 6.254 6.595
15 6.27 6.616
16 6.286 6.637
17 6.302 6.658
18 6.318 6.68
19 6.334 6.701
20 6.35 6.722
21 6.366 6.743
22 6.382 6.764
23 6.398 6.786
24 6.414 6.807
25 6.43 6.828
26 6.446 6.849
27 6.462 6.87
28 6.477 6.892
29 6.493 6.913
30 6.509 6.934
3
<PAGE>
SHORT-TERM TREASURY & AGENCY FUND
PERFORMANCE INFORMATION
For Periods Ended September 30, 1995
Net Asset 30-Day Average Annual Total Returns
Value Range SEC ------------------------------------------------
(4/1/95-9/30/95) Yield 1 Year 3 Years 5 Years Life of Fund
------------------------------------------------
$9.74-$9.91 5.48% 7.40% 4.26% N/A 4.28%
The Fund commenced operations on September 8, 1992.
PLEASE NOTE: 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.
PERFORMANCE DEFINITIONS
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.
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.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 21.
Dividends: All income dividends distributed by the Fund during the six months
ended September 30, 1995, came from net income on direct investments in U.S.
Treasury and agency securities. Interest income from these securities is not
subject to state and local taxes in many states.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended September 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.84% + 1.41% = 4.25%
4
<PAGE>
SHORT-TERM TREASURY & AGENCY FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 9/30/92 in the Fund and
in the Lehman Brothers, Inc. 1- to 3-Year Government Securities Index
[line graph]
[graph data]
Index Fund
Sep-92 10000 10000
Oct-92 9943 9930
Nov-92 9928 9895
Dec-92 10021 9992
Jan-93 10126 10110
Feb-93 10206 10205
Mar-93 10238 10247
Apr-93 10300 10312
May-93 10275 10280
Jun-93 10352 10355
Jul-93 10374 10365
Aug-93 10460 10449
Sep-93 10494 10479
Oct-93 10517 10486
Nov-93 10519 10485
Dec-93 10561 10524
Jan-94 10626 10586
Feb-94 10561 10520
Mar-94 10508 10468
Apr-94 10468 10425
May-94 10482 10445
Jun-94 10509 10465
Jul-94 10603 10549
Aug-94 10638 10573
Sep-94 10614 10552
Oct-94 10638 10575
Nov-94 10593 10524
Dec-94 10614 10540
Jan-95 10758 10671
Feb-95 10904 10817
Mar-95 10965 10871
Apr-95 11063 10953
May-95 11252 11123
Jun-95 11313 11186
Jul-95 11358 11217
Aug-95 11426 11282
Sep-95 11482 11333
Past performance does not guarantee future results.
We have selected the Lehman Brothers, Inc. One- to Three-Year Government
Securities Index to serve as the comparative index for the Fund. Although the
investment characteristics of the Index are similar to those of the Fund, the
securities owned by the Fund and those composing the Index are likely to be
different, and securities that the Fund and the Index have in common are likely
to have different weightings in the respective portfolios. Investors cannot
invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "Short U.S.
Treasury Funds" category.
1 Year 3 Years
The Fund`s Total Return: 7.40% 4.26%
Category Average Total Return: 7.86% 4.37%
The Fund`s Ranking: 11 out of 17 5 out of 8
Total returns are based on historical performance and do not guarantee future
results.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $35,029,918 $45,380,628
Number of Issues: 7 9
Average Maturity: 1.84 years 1.74 years
Average Coupon: 6.15% 7.33%
Average Duration: 1.63 years 1.55 years
For definitions of these terms, see page 17.
5
<PAGE>
SHORT-TERM TREASURY & AGENCY FUND
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Q: How did the Fund perform?
A: Like most fixed-income funds, the Fund benefited from the 1995 bond
rally, but its performance lagged behind that of its peers. For the
one-year period ended September 30, 1995, the Fund's total return was
7.40%, compared to the 7.86% average total return for the 17 funds in
Lipper's "Short U.S. Treasury Funds" category over the same period. The
Fund's total return for the six-month period ended September 30 was
4.25%. (See page 4 for more total return information and page 5 for
more Lipper performance comparisons.)
The Fund underperformed the Lipper average over the past year because
it is more conservatively positioned than most of the funds in its peer
group. The Fund's average maturity* typically hovers around two years,
while many of its peers have average maturities of about three years.
As a result, the Fund tends to outperform the category average in a
declining market (such as in 1994), but the Fund's return tends to lag
behind that of its peers during market rallies (such as in 1995).
Q: How was the Fund positioned over the past six months?
A: We remained slightly defensive in the second quarter because of some
lingering uncertainty about economic and inflationary conditions. We
kept the Fund's duration* about 5% shorter than the duration of its
benchmark, the Lehman Brothers, Inc. One- to Three-Year Government
Securities Index. However, when it became clear that the economic
environment was changing, we shifted our strategy. We took advantage of
the brief market correction in July to extend the Fund's duration out
to a neutral position relative to its benchmark (about 1.6 years). We
maintained this neutral position through the end of the six-month
period.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
Treasury Notes: 66.3% Treasury Notes: 68.2%
Agency Notes: 33.7% Agency Notes: 31.8%
For definitions of these security types, see page 16. The composition of the
Fund's portfolio may change over time.
6
<PAGE>
SHORT-TERM TREASURY & AGENCY FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: Did the Fund's position in agency securities change much over the past
six months?
A: Not really. The Fund's agency holdings fluctuated between 30% and 40%
of the Fund's portfolio during the period. We're currently near the low
end of that range because of narrow yield spreads* between short-term
Treasury and agency securities, but the Fund's agency position was as
high as 40% in June when widening spreads made agency securities more
attractive. We reduced the Fund's agency holdings in August when
spreads began to narrow.
Q: Why is the Fund's entire agency position in Federal Home Loan Bank
(FHLB) securities?
A: There wasn't any specific strategy involved in purchasing only FHLB
securities. We simply believed that the Fund's FHLB holdings had
attractive total return characteristics. Supply was also a
factor--among government agencies that issue state tax-exempt
securities, FHLB has the most debt outstanding, and FHLB securities are
actively traded in the secondary market.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We plan to maintain the Fund's current neutral position. Economic
conditions continue to be favorable for bonds, but we believe that the
short-term Treasury market has already priced in the best possible
outcome in terms of economic growth, inflation and the federal budget.
Increased supply from upcoming Treasury auctions could also weigh
heavily on the short-term Treasury market. In this environment, we feel
that a somewhat defensive position is warranted for the Fund. However,
if the two-year Treasury note yield climbs back to the 5.75%-6.00%
level (from its current 5.50%), we will look to extend the Fund's
duration.
COMPOSITION OF AGENCY HOLDINGS
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
FHLB: 100% TVA: 40.7%
SLMA: 35.3%
FHLB: 24.0%
FHLB = Federal Home Loan Bank TVA = Tennessee Valley Authority
SLMA = Student Loan Marketing Association
7
<PAGE>
TREASURY NOTE FUND
PERFORMANCE INFORMATION
For Periods Ended September 30, 1995
Net Asset 30-Day Average Annual Total Returns
Value Range SEC ------------------------------------------------
(4/1/95-9/30/95) Yield 1 Year 3 Years 5 Years 10 Years
------------------------------------------------
$10.01-$10.33 5.66% 9.62% 4.86% 7.94% 8.38%
The Fund commenced operations on May 16, 1980.
PLEASE NOTE: 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.
PERFORMANCE DEFINITIONS
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.
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.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 22.
Dividends: All income dividends distributed by the Fund during the six months
ended September 30, 1995, came from net income on direct investments in U.S.
Treasury securities. Interest income from these securities is not subject to
state and local taxes in many states.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended September 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
2.89% + 3.03% = 5.92%
8
<PAGE>
TREASURY NOTE FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 10/1/85 in the Fund and
in the Merrill Lynch 1- to 10-Year Intermediate-Term U.S. Treasury Index
[line graph]
[graph data]
Index Fund
Sep-85 10000 10000
Dec-85 10578 10818
Mar-86 11211 11795
Jun-86 11393 11855
Sep-86 11690 12142
Dec-86 11974 12508
Mar-87 12097 12574
Jun-87 12023 12168
Sep-87 11853 11696
Dec-87 12409 12369
Mar-88 12799 12776
Jun-88 12918 12844
Sep-88 13120 12997
Dec-88 13195 13019
Mar-89 13335 13131
Jun-89 14220 14007
Sep-89 14381 14119
Dec-89 14857 14572
Mar-90 14838 14525
Jun-90 15296 14969
Sep-90 15589 15264
Dec-90 16269 15913
Mar-91 16610 16209
Jun-91 16895 16458
Sep-91 17692 17244
Dec-91 18544 18100
Mar-92 18351 17817
Jun-92 19055 18542
Sep-92 19905 19395
Dec-92 19831 19288
Mar-93 20581 20019
Jun-93 20984 20402
Sep-93 21440 20805
Dec-93 21458 20814
Mar-94 21064 20389
Jun-94 20958 20238
Sep-94 21114 20398
Dec-94 21093 20326
Mar-95 21973 21110
Jun-95 23010 22042
Sep-95 23370 22360
Past performance does not guarantee future results.
We have selected the Merrill Lynch One- to Ten-Year Intermediate-Term U.S.
Treasury Index to serve as the comparative index for the Fund. Although the
investment characteristics of the Index are similar to those of the Fund, the
securities owned by the Fund and those composing the Index are likely to be
different, and securities that the Fund and the Index have in common are likely
to have different weightings in the respective portfolios. Investors cannot
invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "Intermediate
U.S. Treasury Funds" category.
1 Year 3 Years 5 Years 10 Years
The Fund`s Total Return: 9.62% 4.86% 7.94% 8.38%
Category Average
Total Return: 10.54% 5.58% 8.33% 8.38%
The Fund`s Ranking: 12 out of 16 6 out of 6 4 out of 4 1 out of 1
Total returns are based on historical performance and do not guarantee future
results.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $304,340,348 $300,857,539
Number of Issues: 13 13
Average Maturity: 3.69 years 3.52 years
Average Coupon: 6.89% 7.02%
Average Duration: 3.02 years 2.72 years
For definitions of these terms, see page 17.
9
<PAGE>
TREASURY NOTE FUND
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Q: How did the Fund perform?
A: Like most fixed-income funds, the Fund benefited from the 1995 bond
rally, but its performance lagged behind that of its peers. For the
one-year period ended September 30, 1995, the Fund's total return was
9.62%, compared to the 10.54% average total return for the 16 funds in
Lipper's "Intermediate U.S. Treasury Funds" category over the same
period. The Fund's total return for the six-month period ended
September 30 was 5.92%. (See page 8 for more total return information
and page 9 for more Lipper performance comparisons.)
The Fund underperformed the Lipper average over the past year because
it is more conservatively positioned than most of the funds in its peer
group. The Fund's average maturity* typically hovers around four years,
while many of its peers have average maturities of 5-10 years. As a
result, the Fund tends to outperform the category average in a
declining market (such as in 1994), but the Fund's return tends to lag
behind that of its peers during market rallies (such as in 1995).
Q: How was the Fund positioned over the past six months?
A: We remained slightly defensive in the second quarter because of some
lingering uncertainty about economic and inflationary conditions. We
kept the Fund's duration* about 5% shorter than the duration of its
benchmark, the Merrill Lynch One- to Ten-Year Intermediate-Term U.S.
Treasury Index. However, when it became clear that the economic
environment was changing, we shifted our strategy. In June, we extended
the Fund's average maturity and duration out to a neutral position
relative to its benchmark. We achieved this neutral position by
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
1-3 Years: 47.2% 1-3 Years: 49.4%
3-5 Years: 33.8% 3-5 Years: 43.3%
5-7 Years: 6.3% 7-10 Years: 4.0%
7-10 Years: 7.8% 10-30 Years: 3.3%
10-30 Years: 4.9%
The Fund invests primarily in U.S. Treasury notes. The Fund's weighted average
portfolio maturity is typically one to ten years.
The composition of the Fund's portfolio may change over time.
10
<PAGE>
TREASURY NOTE FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
adding five- to seven-year Treasury notes to the Fund's portfolio. We
maintained the Fund's neutral position through the end of the six-month
period.
Q: In the last Fund report in March, you mentioned that you were
structuring the Fund's portfolio to take advantage of a flattening
Treasury yield curve.* Can you elaborate on this structure?
A: In May, we purchased a combination of one-year Treasury notes and
23-year STRIPS.* This barbell structure* was designed to maximize the
Fund's yield and price appreciation in a flattening yield curve
environment. The Fund's portfolio remained in this structure through
the end of September.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We plan to maintain the Fund's current neutral position. Economic
conditions continue to be favorable for bonds, but we believe that the
intermediate-term Treasury market has already priced in the best
possible outcome in terms of economic growth, inflation and the federal
budget. In this environment, we feel that the Fund's neutral position
is somewhat defensive. However, if the five-year Treasury note climbs
back to the 6.00%-6.40% level (from its current 5.70%), we will look to
extend the Fund's duration.
We have changed the Fund's structure since the end of the period. In
mid-October, we locked in the gains earned from our barbell strategy
and shifted the Fund's portfolio into a bullet structure* by purchasing
four-year Treasury notes. This benefited the Fund as the Treasury yield
curve steepened in late October. We expect the yield curve to steepen
further through the end of the year.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
Treasury Notes: 95.1% Treasury Notes: 96.7%
Treasury Bonds: 3.5% Treasury Bonds: 3.3%
STRIPS: 1.4%
For definitions of these security types, see page 16.
The composition of the Fund's portfolio may change over time.
11
<PAGE>
LONG-TERM TREASURY & AGENCY FUND
PERFORMANCE INFORMATION
For Periods Ended September 30, 1995
Net Asset 30-Day Average Annual Total Returns
Value Range SEC ------------------------------------------------
(4/1/95-9/30/95) Yield 1 Year 3 Years 5 Years Life of Fund
------------------------------------------------
$9.10-$9.98 6.21% 21.57% 8.89% N/A 8.32%
The Fund commenced operations on September 8, 1992.
PLEASE NOTE: 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.
PERFORMANCE DEFINITIONS
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.
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.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 23.
Dividends: All income dividends distributed by the Fund during the six months
ended September 30, 1995, came from net income on direct investments in U.S.
Treasury and agency securities. Interest income from these securities is not
subject to state and local taxes in many states.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended September 30, 1995
% From % From Asset Six-Month
Income + Appreciation = Total Return
3.12% + 9.77% = 12.89%
12
<PAGE>
LONG-TERM TREASURY & AGENCY FUND
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 9/30/92 in the Fund and
in the Lehman Brothers, Inc. Long-Term Government Securities Index
[line graph]
[graph data]
Index Fund
Sep-92 10000 10000
Oct-92 9790 9774
Nov-92 9835 9854
Dec-92 10108 10110
Jan-93 10396 10385
Feb-93 10749 10773
Mar-93 10775 10767
Apr-93 10855 10828
May-93 10891 10852
Jun-93 11354 11320
Jul-93 11544 11538
Aug-93 12020 12080
Sep-93 12059 12114
Oct-93 12148 12221
Nov-93 11834 11877
Dec-93 11870 11894
Jan-94 12154 12184
Feb-94 11656 11605
Mar-94 11143 11076
Apr-94 11010 10895
May-94 10934 10790
Jun-94 10827 10693
Jul-94 11198 11015
Aug-94 11111 10972
Sep-94 10760 10619
Oct-94 10720 10585
Nov-94 10788 10646
Dec-94 10953 10794
Jan-95 11237 11047
Feb-95 11558 11344
Mar-95 11659 11436
Apr-95 11865 11622
May-95 12780 12480
Jun-95 12929 12634
Jul-95 12720 12406
Aug-95 13005 12666
Sep-95 13247 12910
Past performance does not guarantee future results.
We have selected the Lehman Brothers, Inc. Long-Term Government Securities Index
to serve as the comparative index for the Fund. Although the investment
characteristics of the Index are similar to those of the Fund, the securities
owned by the Fund and those composing the Index are likely to be different, and
securities that the Fund and the Index have in common are likely to have
different weightings in the respective portfolios. Investors cannot invest
directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "General U.S.
Treasury Funds" category.
1 Year 3 Years
The Fund`s Total Return: 21.57% 8.89%
Category Average Total Return: 15.27% 6.89%
The Fund`s Ranking: 3 out of 14 2 out of 10
Total returns are based on historical performance and do not guarantee future
results.
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $76,119,300 $33,484,643
Number of Issues: 7 4
Average Maturity: 21.82 years 21.42 years
Average Coupon: 9.39% 9.92%
Average Duration: 10.55 years 9.55 years
For definitions of these terms, see page 17.
13
<PAGE>
LONG-TERM TREASURY & AGENCY FUND
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Q: How did the Fund perform?
A: Like most fixed-income funds, the Fund benefited from the 1995 bond
rally, and it was also one of the best performers in its peer group.
For the one-year period ended September 30, 1995, the Fund's total
return was 21.57%, compared to the 15.27% average total return for the
14 funds in Lipper's "General U.S. Treasury Funds" category over the
same period. The Fund's total return for the six-month period ended
September 30 was 12.89%. (See page 12 for more total return information
and page 13 for more Lipper performance comparisons.)
The Fund outperformed the Lipper average over the past year because its
average maturity* was longer than that of its peer group. The Fund
maintains an average maturity of 20 years or more, while most of its
peers have average maturities of around 15 years. As a result, the
Fund's return tends to lag behind the category average in a declining
market (such as in 1994), but the Fund typically outperforms its peers
during market rallies (such as in 1995).
Q: How was the Fund positioned over the past six months?
A: We remained slightly defensive in the second quarter because of some
lingering uncertainty about economic and inflationary conditions. We
kept the Fund's duration* about 5% shorter than the duration of its
benchmark, the Lehman Brothers, Inc. Long-Term Government Securities
Index. However, when it became clear that the economic environment was
changing, we shifted our strategy. We took advantage of the brief
market correction in July to extend the Fund's average maturity and
duration out to a neutral position relative to its benchmark. We
maintained this neutral position through the end of the six-month
period.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
10-20 Years: 31.5% 10-20 Years: 35.2%
20-25 Years: 58.3% 20-25 Years: 56.4%
25-30 Years: 10.2% 25-30 Years: 8.4%
The Fund invests exclusively in long-term U.S. Treasury and government agency
securities. The Fund's weighted average portfolio maturity is typically 20 to 30
years.
The composition of the Fund's portfolio may change over time.
14
<PAGE>
LONG-TERM TREASURY & AGENCY FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
To lengthen the Fund's average maturity and duration, we sold some of
the Fund's callable Treasury bonds maturing in 2013 and purchased
noncallable Treasury bonds maturing in 2020. We also took advantage of
heavy cash flows into the Fund--the Fund's assets more than doubled
during the six-month period--by investing the new money in 22- to
25-year Treasury bonds.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We plan to maintain the Fund's current neutral position. Economic
conditions continue to be favorable for bonds, but we believe that the
long-term Treasury market has already priced in the best possible
outcome in terms of economic growth, inflation and the federal budget.
In this environment, we feel that the Fund's neutral position is
somewhat defensive. However, if the 30-year Treasury bond yield climbs
back to the 6.75%-7.00% level (from its current 6.25%), we will look to
extend the Fund's average maturity and duration.
Q: For the past two years, the Fund has invested exclusively in Treasury
securities. Do you expect this to continue over the next six months?
A: We have avoided agency securities over the past couple of years because
the lack of issuance in the long-term maturity sector has kept yield
spreads* at historically low levels. However, in late October we
purchased a 30-year agency bond issued by the Tennessee Valley
Authority (TVA). The bond constitutes about 8% of the Fund's portfolio
and was purchased at a yield spread of 38 basis points over comparable
Treasury bonds. Yield spreads between 30-year agency and Treasury bonds
have typically ranged between 15 and 40 basis points, so we believe
that the TVA bond offered a reasonable yield advantage. It also
provides the potential for price appreciation if yield spreads narrow.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
Treasury Bonds: 100% Treasury Bonds: 100%
For definitions of these security types, see page 16.
The composition of the Fund's portfolio may change over time.
15
<PAGE>
INVESTMENT FUNDAMENTALS
DEFINITIONS
Security Types
Treasury Securities--debt securities issued by the U.S. Treasury and backed by
the direct "full faith and credit" pledge of the U.S. government. Treasury
securities include bills (maturing in one year or less), notes (maturing in two
to ten years) and bonds (maturing in more than ten years).
Government Agency Securities--debt securities issued by U.S. government agencies
(such as the Federal Farm Credit Bank, the Federal Home Loan Bank and the
Federal National Mortgage Association). Some agency securities are backed by the
full faith and credit of the U.S. government, while others are guaranteed only
by the issuing agency. Government agency securities include discount notes
(maturing in one year or less) and medium-term notes, debentures and bonds
(maturing in three months to 50 years).
STRIPS--zero-coupon bonds (zeros) issued by the U.S. Treasury and backed by the
direct "full faith and credit" pledge of the U.S. government. Unlike ordinary
Treasury securities, which pay interest periodically, zeros pay no interest.
Instead, these securities are issued at a deep discount and then redeemed for
their full face value at maturity. When held to maturity, the entire return of a
zero comes from the difference between its purchase price and its value at
maturity.
Structured Notes--a broad range of securities that fall under the general
definition of "derivatives." They are usually variations on traditional
securities, offering options such as floating rates (which are usually tied to
an underlying index, like the three-month Treasury bill rate or the federal
funds rate), call options (see page 20) or coupon "caps" and "floors" (maximum
and minimum interest rates on floating-rate securities). Structured notes run
the gamut from "safe" derivatives--conservative securities that closely resemble
traditional debt securities--to "risky" derivatives such as inverse floaters,
leveraged floaters and capped floaters.
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 by 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 of a security.
16
<PAGE>
INVESTMENT FUNDAMENTALS
DEFINITIONS
(Continued from the previous page)
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 18).
Average Coupon--a weighted average of all coupons held in a fund's portfolio.
Average Duration--a weighted average of all bond durations in a fund's portfolio
(see also page 18).
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 yield curves are 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 cash captures the higher short-term yields with little
price depreciation. In a declining interest rate environment, the cash provides
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 significantly less price
depreciation than long-term securities. In a declining interest rate
environment, intermediate-term securities produce 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.
17
<PAGE>
INVESTMENT FUNDAMENTALS
PORTFOLIO SENSITIVITY MEASURES
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 September 30,
1995, the Short-Term Treasury and Agency Fund's duration was 1.6 years, while
the Long-Term Treasury and Agency Fund's duration was 10.6 years. If interest
rates were to rise by 100 basis points, the Short-Term Fund's share price would
be expected to decline by 1.6%, while the Long-Term Fund's share price would
decline by 10.6%. Conversely, if interest rates were to fall by 100 basis
points, the Short-Term Fund's share price would be expected to increase by 1.6%,
while the Long-Term Fund's share price would increase by 10.6%.
As this example illustrates, the longer the duration, the more bond or bond fund
prices will move in response to interest rate changes. Therefore, portfolio
managers generally 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 is, the more interest rate exposure
and interest rate sensitivity it has. For example, a portfolio with a ten-year
average maturity has much more potential exposure to interest rate changes than
a portfolio with a one-year average maturity.
Portfolio managers generally lengthen average maturities when interest rates
fall (to maximize exposure and capture as much price appreciation as possible)
and reduce average maturities when interest rates rise (to minimize exposure and
avoid as much price depreciation as possible), as long as this strategy is
compatible with the objectives of the portfolio. Reducing the average maturity
in a rising interest rate environment allows the portfolio manager to more
quickly reinvest matured assets in higher-yielding securities.
18
<PAGE>
INVESTMENT FUNDAMENTALS
THE YIELD CURVE
One of the fundamental tenets of investing is the relationship between risks and
returns--the greater the risks, the greater the chances of earning higher
returns over time. The downside is the correspondingly higher potential for
short-term losses--an investment that generates a high return probably has a
greater likelihood of significant fluctuations in value or return, especially in
the short run.
Bonds are no exception. The riskiest bonds--those with the greatest exposure to
interest rate movements and price fluctuations--generally have the highest
yields and returns over time but can experience severe short-term losses. On the
other hand, bonds with less exposure to interest rate movements and less price
fluctuation generally have lower yields and returns but are more stable.
The yield curve is a graphic representation of the relationship between bond
risks and returns at a point in time. Yield curve graphs plot lengthening bond
maturities (which represent risk because longer maturities increase risk) along
the horizontal axis and rising yields (which represent return) on the vertical
axis. Therefore, the lower left corner of yield curve graphs have the lowest
risks and the lowest potential returns, while the upper right corners have the
highest risks and the highest potential returns.
Yield curves can have several different shapes, depending on interest rate
levels and the economic environment:
Normal (Upward Sloping) Yield Curve--a yield curve that shows a normal
risk/return relationship--short-term securities have lower yields than long-term
securities. Most normal yield curves start in the lower left corner of the graph
and rise to the upper right corner.
Steep Yield Curve--a normal yield curve that shows a large difference between
short-term yields and long-term yields. This typically occurs when the bond
market is responding to inflation fears (causing high long-term bond yields) and
the Fed hasn't raised short-term interest rates enough (or the economy hasn't
slowed down enough) to quell those fears.
Flat Yield Curve--a yield curve that shows short-term securities having almost
the same yields as long-term securities. This typically occurs after the Fed has
raised short-term interest rates several times (to fight inflation when the
economy is strong) or when the bond market expects the Fed to lower short-term
interest rates (in a weaker economic environment).
Inverted Yield Curve--a yield curve that shows short-term securities having
higher yields than long-term securities. This typically develops from a flat
yield curve if the Fed continues to raise short-term interest rates (when the
economy is strong) or if it fails to lower short-term rates when the market
expects it to do so (in a weaker economic environment).
19
<PAGE>
INVESTMENT FUNDAMENTALS
YIELD SPREADS AND CALLABILITY
Yield Spreads Between Government Agency and Treasury Securities
To determine whether or not to purchase government agency securities for the
Short-Term and Long-Term Treasury and Agency Funds, the Funds' portfolio manager
looks at the yield spreads between government agency securities and Treasury
securities. Yield spreads are the difference between the yields of Treasury and
agency securities with comparable maturities. Yield spreads are used to
determine the relative values of the different securities.
In general, agency securities have higher yields than Treasury securities with
comparable maturities because they have slightly more credit risk and are less
liquid than Treasury securities. When yield spreads are considered to be narrow
(i.e., agency securities yield little more than comparable Treasury securities),
the portfolio manager will tend to avoid agency securities because their yields
are not enough to compensate for the additional risk. Conversely, when yield
spreads are considered to be wide (i.e., agency securities yield substantially
more than comparable Treasury securities), the portfolio manager will tend to
buy agency securities because yields are high enough to compensate for the
additional risk. Wide yield spreads also enable the portfolio manager to enhance
the Funds' yields.
Callability of Treasury and Government Agency Securities
Some Treasury and government agency securities are callable, which means they
can be redeemed by the issuer before maturity. When interest rates fall, the
U.S. Treasury and government agencies find it financially rewarding to refinance
the bonds they've issued because they can reduce their monthly interest
payments. If a security is callable, the agency can exercise a "call" option at
a prearranged interval to refinance the security. Although calls are beneficial
for government agencies, they can be detrimental for investors--calls shorten
the life of a security and force the portfolio manager to reinvest in
lower-yielding securities. To compensate for the additional risks associated
with callability, yields for callable Treasury and agency securities are
generally higher than for noncallable Treasury and agency securities.
20
<PAGE>
<TABLE>
<CAPTION>
BENHAM SHORT-TERM TREASURY AND AGENCY FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and
the Years Ended March 31 (except as noted)
(Unaudited)
Sept. 30, Mar. 31, Mar. 31, Mar. 31,
1995 1995 1994 1993+
------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.......................................... $9.73 9.86 10.04 10.00
Income From Investment Operations
Net Investment Income......................................................... .28 .50 .36 .25
Net Realized and Unrealized Gains (Losses) on Investments..................... .13 (.13) (.14) .04
----- ----- ----- -----
Total Income From Investment Operations................................... .41 .37 .22 .29
----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income.......................................... (.28) (.50) (.36) (.25)
Distributions from Net Realized Capital Gains................................. .00 .00 (.03) .00
Distributions in Excess of Net Realized Capital Gains......................... .00 .00 (.01) .00
----- ----- ----- -----
Total Distributions....................................................... (.28) (.50) (.40) (.25)
----- ----- ----- -----
Net Asset Value at End of Period................................................ $ 9.86 9.73 9.86 10.04
===== ===== ===== =====
TOTAL RETURN*................................................................... 4.25% 3.85% 2.16% 2.79%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ------------------------------------
Net Assets at End of Period (in thousands)...................................... $ 35,645 56,090 24,929 14,889
Ratio of Expenses to Average Daily Net Assets................................... .68%** .67% .58% .00%
Ratio of Net Investment Income to Average Daily Net Assets...................... 5.62%** 5.22% 3.53% 4.50%**
Portfolio Turnover Rate......................................................... 140.57% 140.82% 261.61% 157.79%
- ------------------------
+ From September 8, 1992 (commencement of operations), through March 31, 1993.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
BENHAM TREASURY NOTE FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and the Years Ended March 31
(Unaudited)
Sept. 30, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
PER-SHARE DATA
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning
of Period..................... $9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91 11.97
Income From Investment Operations
Net Investment Income........ .30 .53 .48 .56 .69 .75 .77 .76 .75 .71
Net Realized and Unrealized Gains
(Losses) on Investments.... .29 (.19) (.27) .69 .29 .36 .24 (.49) (.60) (.08)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income From Investment
Operations................. .59 .34 .21 1.25 .98 1.11 1.01 .27 .15 .63
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income.......... (.30) (.53) (.48) (.56) (.69) (.75) (.77) (.75) (.92) (.89)
Distributions from Net
Realized Capital Gains..... .00 .00 (.06) (.48) .00 .00 .00 .00 (.03) (.80)
Distributions in Excess of
Net Realized Capital Gains. .00 .00 (.22) .00 .00 .00 .00 .00 .00 .00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions.......... (.30) (.53) (.76) (1.04) (.69) (.75) (.77) (.75) (.95) (1.69)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of
Period..................... $10.28 9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN+.................. 5.92% 3.54% 1.85% 12.36% 9.92% 11.59% 10.61% 2.78% 1.60% 6.60%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands)..............$309,414 305,353 351,369 391,538 302,865 158,630 96,978 71,625 54,172 43,271
Ratio of Expenses to
Average Daily Net Assets.... .53%* .53% .51% .53% .59% .73% .75% .75% .75% .93%
Ratio of Net Investment Income to
Average Daily Net Assets.... 5.78%* 5.35% 4.50% 5.18% 6.55% 7.49% 7.66% 7.67% 7.36% 6.26%
Portfolio Turnover Rate....... 85.96% 92.35% 212.91% 299.29% 148.75% 69.72% 216.84% 386.46% 465.35% 395.91%
- -----------------------
+ Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
* Annualized.
See the accompanying notes to financial statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
BENHAM LONG-TERM TREASURY AND AGENCY FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and
the Years Ended March 31 (except as noted)
(Unaudited)
Sept. 30, Mar. 31, Mar. 31, Mar. 31,
1995 1995 1994 1993+
------- ------- ------- -------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.......................................... $ 9.05 9.38 10.24 10.00
Income From Investment Operations
Net Investment Income......................................................... .31 .60 .63 .39
Net Realized and Unrealized Gains (Losses) on Investments..................... .85 (.33) (.27) .24
----- ----- ----- -----
Total Income From Investment Operations................................... 1.16 .27 .36 .63
----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income.......................................... (.31) (.60) (.63) (.39)
Distributions from Net Realized Capital Gains................................. .00 .00 (.45) .00
Distributions in Excess of Net Realized Capital Gains......................... .00 .00 (.14) .00
----- ----- ----- -----
Total Distributions....................................................... (.31) (.60) (1.22) (.39)
----- ----- ----- -----
Net Asset Value at End of Period................................................ $ 9.90 9.05 9.38 10.24
===== ===== ===== =====
TOTAL RETURN*................................................................... 12.89% 3.25% 2.87% 6.48%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands)...................................... $79,365 34,906 18,003 20,975
Ratio of Expenses to Average Daily Net Assets................................... .68%** .67% .57% .00%
Ratio of Net Investment Income to Average Daily Net Assets...................... 6.32%** 6.84% 5.89% 7.18%**
Portfolio Turnover Rate......................................................... 61.53% 146.81% 200.34% 56.97%
- -------------------------
+ From September 8, 1992 (commencement of operations), through March 31, 1993.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1995
(Unaudited)
Benham Benham
Short-Term Treasury Benham Treasury Long-Term Treasury
and Agency Fund Note Fund and Agency Fund
---------- -------- ----------
ASSETS
<S> <C> <C> <C>
Investment securities at value (cost of $34,804,084, $298,560,996,
and $72,032,331, respectively) (Note 4)............................. $ 35,029,918 304,340,348 76,119,300
Cash................................................................... 0 470,431 4,554,937
Interest receivable.................................................... 805,166 4,895,985 831,976
Receivable for fund shares sold........................................ 47,653 127,637 834,121
Prepaid expenses and other assets...................................... 11,361 15,371 11,369
----------- ----------- ----------
Total assets....................................................... 35,894,098 309,849,772 82,351,703
----------- ----------- ----------
LIABILITIES
Payable for securities purchased....................................... 0 0 2,887,188
Payable for fund shares redeemed....................................... 50,000 6,822 0
Dividends payable...................................................... 36,967 296,632 54,706
Payable to affiliates (Note 2)......................................... 18,167 131,774 22,094
Accrued expenses & other liabilities................................... 143,822 293 22,469
----------- ----------- ----------
Total liabilities.................................................. 248,956 435,521 2,986,457
----------- ----------- ----------
NET ASSETS................................................................ $ 35,645,142 309,414,251 79,365,246
=========== =========== ==========
Net assets consist of:
Capital paid in........................................................ $ 35,443,687 315,429,329 77,224,831
Net realized loss on investments....................................... (24,379) (11,793,367) (1,946,554)
Overdistributed net investment income.................................. 0 (1,063) 0
Net unrealized appreciation on investments (Note 4).................... 225,834 5,779,352 4,086,969
----------- ----------- ----------
Net assets............................................................. $ 35,645,142 309,414,251 79,365,246
=========== =========== ==========
Shares of beneficial interest outstanding (unlimited number of
shares authorized).................................................. 3,616,152 30,084,698 8,014,232
=========== =========== ==========
Net asset value, offering price and redemption price per share......... $ 9.86 10.28 9.90
===== ===== ====
- ----------------------
See the accompanying notes to financial statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1995
(Unaudited)
Benham Benham
Short-Term Treasury Benham Treasury Long-Term Treasury
and Agency Fund Note Fund and Agency Fund
---------- -------- ----------
<S> <C> <C> <C>
Investment Income
Interest Income........................................................$ 1,455,261 9,803,806 1,552,198
----------- ----------- ----------
Expenses (Note 2)
Investment advisory fees............................................... 64,417 434,319 61,091
Administrative fees.................................................... 22,420 151,121 21,251
Transfer agency fees................................................... 26,175 145,426 34,390
Printing and postage................................................... 4,330 33,203 4,089
Custodian fees......................................................... 8,739 23,769 8,435
Auditing and legal fees................................................ 1,271 6,230 1,118
Registration and filing fees........................................... 18,640 11,493 26,889
Directors' fees and expenses........................................... 3,070 4,373 3,024
Organization costs..................................................... 2,181 0 2,181
Other operating expenses............................................... 7,770 13,265 7,095
----------- ----------- ----------
Total expenses................................................... 159,013 823,199 169,563
Amount waived (Note 2).................................................... (2,964) 0 (20,126)
Custodial earnings credits (Note 5)....................................... (5,413) (16,598) (6,819)
----------- ----------- ----------
Net expenses........................................................... 150,636 806,601 142,618
----------- ----------- ----------
Net investment income............................................ 1,304,625 8,997,205 1,409,580
----------- ----------- ----------
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain:
Proceeds from sales.................................................... 69,954,084 232,280,219 28,271,872
Cost of securities sold................................................ 69,443,960 230,448,636 27,654,944
----------- ----------- ----------
Net realized gain................................................ 510,124 1,831,583 616,928
----------- ----------- ----------
Unrealized appreciation (depreciation) of investments:
Beginning of period.................................................... (86,663) (1,259,547) 683,971
End of period (Note 4)................................................. 225,834 5,779,352 4,086,969
----------- ----------- ----------
Net unrealized appreciation for the period....................... 312,497 7,038,899 3,402,998
----------- ----------- ----------
Net realized and unrealized gain on investments.................. 822,621 8,870,482 4,019,926
----------- ----------- ----------
Net increase in assets resulting from operations..........................$ 2,127,246 17,867,687 5,429,506
=========== =========== ==========
- -----------------------
See the accompanying notes to financial statements.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended September 30, 1995, and Year
Ended March 31, 1995
(Unaudited)
Benham Benham
Short-Term Treasury Benham Treasury Long-Term Treasury
and Agency Fund Note Fund and Agency Fund
------------------ ------------------ ------------------
September 30, March 31, September 30, March 31, September 30, March 31,
1995 1995 1995 1995 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From investment activities:
Net investment income.......................... $ 1,304,625 1,640,446 8,997,205 16,996,940 1,409,580 1,694,571
Net realized gain (loss) on investments........ 312,497 (489,491) 7,038,899 (9,511,397) 3,402,998 (2,211,504)
Net change in unrealized appreciation of
investments.................................. 510,124 252,606 1,831,583 2,734,208 616,928 1,667,570
----------- ----------- ----------- ------------ ----------- -----------
Change in net assets derived from investment
activities.................................. 2,127,246 1,403,561 17,867,687 10,219,751 5,429,506 1,150,637
----------- ----------- ----------- ------------ ----------- -----------
From distributions to shareholders:
Net investment income.......................... (1,304,625) (1,640,446) (8,999,579) (17,002,369) (1,409,580) (1,694,571)
----------- ----------- ----------- ------------ ----------- -----------
Total distributions to shareholders.......... (1,304,625) (1,640,446) (8,999,579) (17,002,369) (1,409,580) (1,694,571)
----------- ----------- ----------- ------------ ----------- -----------
From capital share transactions (Note 3):
Proceeds from sales of shares.................. 15,024,600 53,981,369 40,844,370 104,968,795 59,536,593 49,760,531
Net asset value of dividends reinvested........ 1,083,232 1,211,331 7,450,171 13,972,674 1,162,466 1,210,997
Cost of shares redeemed........................ (37,375,507) (23,794,262) (53,101,097) (158,175,579) (20,259,262) (33,525,316)
----------- ----------- ----------- ------------ ----------- -----------
Change in net assets derived from
capital share transactions............... (21,267,675) 31,398,438 (4,806,556) (39,234,110) 40,439,797 17,446,212
----------- ----------- ----------- ------------ ----------- -----------
Net increase (decrease) in net assets....... (20,445,054) 31,161,553 4,061,552 (46,016,728) 44,459,723 16,902,278
Net assets:
Beginning of period............................ 56,090,196 24,928,643 305,352,699 351,369,427 34,905,523 18,003,245
----------- ----------- ----------- ------------ ----------- -----------
End of period.................................. $35,645,142 56,090,196 309,414,251 305,352,699 79,365,246 34,905,523
=========== =========== =========== ============ =========== ===========
- ------------------------
See the accompanying notes to financial statements.
</TABLE>
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham Government Income Trust (BGIT) is registered under the Investment Company
Act of 1940 as an open-end management investment company. Benham Short-Term
Treasury and Agency Fund (Short-Term Fund), Benham Treasury Note Fund (Treasury
Note Fund), and Benham Long-Term Treasury and Agency Fund (Long-Term Fund) (the
Funds) are three of the six funds composing BGIT. Significant accounting
policies followed by the Funds are summarized below.
Valuation of Investment Securities--Securities held by the Funds are valued at
current market value as provided by an independent pricing service or broker
quotations. Securities for which market quotations are not readily available are
stated at fair value following procedures approved 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 intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By doing so, the Funds will not
be subject to federal income or California franchise taxes to the extent that
they distribute net investment income and net realized capital gains.
Accordingly, no provision has been made for federal or state taxes.
Due to the timing of dividend distributions and the differences in accounting
for gains and losses for financial statement and federal income tax purposes,
the fiscal year in which amounts are distributed may differ from the year in
which the income and realized gains (losses) were recorded by each Fund. The
differences between the income and capital gains distributed on a book versus
tax basis are shown as excess distributions of income and realized capital gains
in the accompanying Financial Highlights.
As of March 31, 1995, the Short-Term Fund, the Treasury Note Fund, and the
Long-Term Fund had capital loss carryovers of $408,754, $7,230,117, and
$2,563,482, respectively. If not fully offset against realized capital gains
within eight years of the fiscal year-end the capital loss was realized, the
capital loss carryover will expire. All capital loss carryovers will expire on
March 31, 2003. A fund will not make capital gain distributions until all of its
loss carryovers have been offset or have expired.
27
<PAGE>
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.
The Funds' net asset values fluctuate daily in response to changes in the market
value of their investments.
Dividends and Other Distributions--The Funds' dividends are declared daily,
accrued throughout the month, and distributed on the last business day of the
month. Net capital gains, if any, are declared and paid once a year. Dividends
are paid in cash or reinvested as additional shares.
Investment Income, Premium, and Discount--Interest income and expenses are
accrued daily. For notes and bonds, discounts are accrued to maturity on a
straight-line basis (except zero-coupon securities, which are amortized using
the effective interest rate method), and premiums are amortized using the
effective interest rate method.
Other Liabilities--As of September 30, 1995, other liabilities for the
Short-Term Fund on the accompanying Statements of Assets and Liabilities
included a bank overdraft of $135,093.
(2) INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc., merged into TCC on June 1, 1995. Each Fund pays Benham
Management Corporation (BMC) a monthly investment advisory fee based on its pro
rata share of the dollar amount derived from applying BGIT's average daily net
assets to the following annualized investment advisory fee rate 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 net assets over $6.5 billion
28
<PAGE>
BMC provides BGIT with all investment advice. Twentieth Century Services, Inc.
pays all compensation of BGIT officers and trustees who are officers or
directors of TCC or any of its subsidiaries. Promotion and distribution expenses
are paid by BMC.
BGIT has an Administrative Services and Transfer Agency Agreement with Benham
Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC. Under the
agreement, BFS provides substantially all administrative and transfer agency
services necessary to operate each Fund of BGIT. Fees for these services are
based on transaction volume, number of accounts and average net assets of all
funds in The Benham Group.
BGIT has an additional agreement with BMC pursuant to which BMC established a
contractual expense guarantee that limits each Fund's expenses (excluding
extraordinary expenses such as brokerage commissions and taxes and including
expense offset arrangements) to an annual rate of .65% (.66% prior to June 1,
1995) of average daily net assets. The agreement provides further that BMC may
recover amounts (representing expenses in excess of the Fund's expense guarantee
rate) absorbed during the preceding 11 months, if, and to the extent that, for
any given month, the Fund's expenses are less than the expense guarantee rate in
effect at that time. The expense guarantee rate is renewed annually in June.
The payables (receivables) to affiliates as of September 30, 1995, based on the
above agreements were as follows:
Benham Benham
Short-Term Benham Long-Term
Treasury and Treasury Note Treasury and
Agency Fund Fund Agency Fund
------------- ------------- -------------
Investment Advisor............... $ 4,488 71,090 (1,533)
Administrative Services.......... 2,798 24,663 4,846)
Transfer Agent................... 10,881 36,021 18,781)
------- ------- -------
$ 18,167 131,774 22,094)
======= ======= =======
As of September 30, 1995, the Funds had invested cash amounts in shares of
Capital Preservation Fund, Inc. (CPF), a money market fund advised by BMC, as
follows: $120,331 (Treasury Note Fund) and $3,119,327 (Long-Term Fund). The
terms of such transactions were identical to those with nonrelated entities
except that, to avoid duplicative investment advisory and administrative fees,
the Funds did not pay BMC investment advisory fees or BFS administrative fees
with respect to assets invested in shares of CPF.
29
<PAGE>
BGIT has a distribution agreement with Benham Distributors, Inc. (BDI), which is
responsible for promoting sales of and distributing the Funds' shares. BDI is
wholly owned subsidiary of TCC.
(3) SHARE TRANSACTIONS
Share transactions for the six months ended September 30, 1995, and the year
ended March 31, 1995, were as follows:
<TABLE>
<CAPTION>
Benham Benham Benham
Short-Term Treasury Treasury Note Long-Term Treasury
and Agency Fund Fund and Agency Fund
----------- ------------ -----------
Sept. 30, Mar. 31, Sept. 30, Mar. 31, Sept. 30, Mar. 31,
1995 1995 1995 1995 1995 1995
----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,525,980 5,562,659 3,995,570 10,553,490 6,133,551 5,597,129
Reinvestment
of dividends. 110,078 124,794 728,151 1,404,605 119,839 136,146
--------- --------- --------- ---------- --------- ---------
1,636,058 5,687,453 4,723,721 11,958,095 6,253,390 5,733,275
Less shares
redeemed.....(3,785,128)(2,449,358) (5,196,052)(15,910,373) (2,096,060)(3,796,301)
--------- --------- --------- ---------- --------- ---------
Net increase
(decrease) in
shares......(2,149,070) 3,238,095 (472,331) (3,952,278) 4,157,330 1,936,974
========= ========= ======= ========= ========= =========
</TABLE>
(4) INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term securities, for the six months
ended September 30, 1995, were as follows:
Benham Benham
Short-Term Benham Long-Term
Treasury and Treasury Note Treasury and
Agency Fund Fund Agency Fund
-------- -------- -------
Purchases........................... $58,780,753 226,892,546 66,886,603
========== ========== =========
Sales Proceeds...................... $69,954,084 232,280,219 28,271,872
========== ========== =========
At September 30, 1995, unrealized appreciation (depreciation) was as follows:
Benham Benham
Short-Term Benham Long-Term
Treasury and Treasury Note Treasury and
Agency Fund Fund Agency Fund
-------- -------- -------
Unrealized appreciation........... $ 234,659) 6,354,448) 4,092,986)
Unrealized depreciation........... (8,825) (575,096) (6,017)
---------- ---------- ---------
Net unrealized appreciation....... $ 225,834) 5,779,352) 4,086,969)
========== ========== =========
The cost of securities for financial reporting and federal income tax purposes
is the same.
30
<PAGE>
(5) EXPENSE OFFSET ARRANGEMENTS
Each Fund's Statement of Operations shows custodial earnings credits. This
amount represents credits received on cash balances maintained by the Funds at
the custodian bank. The Funds could have invested the excess cash balances in an
income-producing asset if they had not agreed to a reduction in fees under the
expense offset arrangement. Beginning with the six months ending September 30,
1995, the ratios of expenses to average daily net assets shown in the Financial
Highlights are calculated without the credits received under the expense offset
arrangement.
31
<PAGE>
<TABLE>
<CAPTION>
BENHAM SHORT-TERM TREASURY AND AGENCY FUND
SCHEDULE OF INVESTMENT SECURITIES
September 30, 1995
(Unaudited)
Yield to Face
Maturity Amount Value Percent
----- ------ ----- ----
<S> <C> <C> <C> <C>
U.S. Treasury Notes
7.500% due 01/31/97................................................................ 5.79% $ 5,000,000 5,107,805 14.57%
6.625% due 03/31/97................................................................ 5.79 9,000,000 9,106,875 26.00
6.875% due 03/31/97................................................................ 5.77 3,700,000 3,757,812 10.73
6.125% due 05/15/98................................................................ 5.89 5,220,000 5,249,363 14.99
---------- ---------- ------
Total U.S. Treasury Notes (cost $23,086,022)................................................. 22,920,000 23,221,855 66.29
---------- ---------- ------
U.S. Government Agency Notes
4.730% due 12/23/96, Federal Home Loan Bank, Callable 12/23/95..................... 5.87 5,000,000 4,932,780 14.08
5.250% due 04/29/98, Federal Home Loan Bank, Callable 04/29/96..................... 6.10 5,000,000 4,899,865 13.99
5.000% due 07/27/98, Federal Home Loan Bank, Callable 01/27/96..................... 5.47 2,000,000 1,975,418 5.64
---------- ---------- ------
Total U.S. Government Agency Notes (cost $11,718,062)........................................ 12,000,000 11,808,063 33.71
---------- ---------- ------
TOTAL INVESTMENT SECURITIES (cost $34,804,084*).............................................. $34,920,000 35,029,918 100.00%
========== ========== ======
- ----------------------
* Cost for financial reporting and federal income tax purposes is the same.
See the accompanying notes to financial statements
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
BENHAM TREASURY NOTE FUND
SCHEDULE OF INVESTMENT SECURITIES
September 30, 1995
(Unaudited)
Yield to Face
Maturity Amount Value Percent
----- ------ ----- ----
<S> <C> <C> <C> <C>
U.S. Treasury Notes
5.875% due 05/31/96................................................................ 5.62% $ 26,200,000 26,240,898 8.62%
6.125% due 07/31/96................................................................ 5.69 35,700,000 35,822,665 11.77
7.250% due 08/31/96................................................................ 5.75 14,800,000 14,994,250 4.93
4.375% due 11/15/96................................................................ 5.71 17,570,000 17,317,431 5.69
7.250% due 11/15/96................................................................ 5.70 13,300,000 13,520,261 4.44
6.500% due 08/15/97................................................................ 5.87 35,600,000 35,989,322 11.83
8.875% due 02/15/99................................................................ 5.96 22,000,000 23,931,864 7.86
6.750% due 05/31/99................................................................ 5.98 35,015,000 35,890,375 11.79
7.750% due 11/30/99................................................................ 6.00 40,500,000 43,069,158 14.15
6.375% due 08/15/02................................................................ 6.10 18,600,000 18,879,000 6.20
7.250% due 05/15/04................................................................ 6.22 22,250,000 23,765,781 7.81
----------- ---------- ------
Total U.S. Treasury Notes (cost $284,840,864)............................................... 281,535,000 289,421,005 95.09
----------- ---------- ------
U.S. Treasury Bond
12.00% due 8/15/13, Callable 8/15/08............................................... 6.49 7,150,000 10,552,943 3.47
----------- ---------- ------
Total U.S. Treasury Zero-Coupon Bonds (cost $3,987,000).................................... 7,150,000 10,552,943 3.47
----------- ---------- ------
U.S. Treasury Zero-Coupon Bonds
STRIPS due 02/15/18................................................................ 6.92 20,000,000 4,366,400 1.44
----------- ---------- ------
Total U.S. Treasury Zero-Coupon Bonds (cost $3,987,000).................................... 20,000,000 4,366,400 1.44
----------- ---------- ------
TOTAL INVESTMENT SECURITIES (cost $298,560,996*)............................................ $308,685,000 304,340,348 100.00%
=========== ========== ======
- ------------------------
* Cost for financial reporting and federal income tax purposes is the same.
See the accompanying notes to financial statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
BENHAM LONG-TERM TREASURY AND AGENCY FUND
SCHEDULE OF INVESTMENT SECURITIES
September 30, 1995
(Unaudited)
Yield to Face
Maturity Amount Value Percent
----- ------ ----- ----
<S> <C> <C> <C> <C>
U.S. Treasury Bonds
12.000% due 08/15/13, Callable 08/15/08............................................ 6.49% $ 7,300,000 10,774,333 14.15%
11.250% due 02/15/15............................................................... 6.57 8,500,000 12,824,375 16.85
8.750% due 05/15/17................................................................ 6.64 6,000,000 7,443,750 9.78
8.875% due 02/15/19................................................................ 6.65 5,500,000 6,942,023 9.12
8.125% due 08/15/19................................................................ 6.66 9,300,000 10,918,767 14.34
8.750% due 08/15/20................................................................ 6.66 15,800,000 19,789,500 26.00
7.125% due 02/15/23................................................................ 6.64 7,000,000 7,426,552 9.76
----------- ---------- ------
TOTAL INVESTMENT SECURITIES (cost $72,032,331*).............................................. $59,400,000 76,119,300 100.00%
=========== ========== ======
- --------------------------
* Cost for financial reporting and federal income tax purposes is the same.
See the accompanying notes to financial statements.
</TABLE>
34
<PAGE>
PROXY VOTING RESULTS
A special shareholder meeting was held on May 31, 1995, to vote on the following
proposals. All of the proposals received the required majority of votes and were
adopted.
Proposal I.--To consider and vote on approval or disapproval on new Investment
Advisory Agreements with the Trust on behalf of Benham Short-Term Treasury and
Agency Fund, Benham Treasury Note Fund, and Benham Long-Term Treasury and Agency
Fund with BMC to take effect upon the closing of the proposed merger of BMC's
parent company, Benham Management International, Inc., into TCC.
Proposals II, III, and IV are not applicable to shareholders of the Trust.
Proposal V.--To elect the Board of Trustees of the Trust.
Proposal VI.--To ratify the Board of Trustees' selection of KPMG Peat Marwick
LLP as independent auditors for the Trust's current fiscal year end.
Proposal VII.--To amend the Trust's Declaration of Trust to provide dollar-based
voting rights for shareholders of the Funds.
A summary of voting results is as follows:
<TABLE>
<CAPTION>
Benham Benham
Short-Term Benham Long-Term
Treasury and Treasury Treasury and
Agency Fund Note Fund Agency Fund
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proposal I. For 2,985,693 For 18,110,212 For 2,088,190
Against 238,268 Against 789,327 Against 72,707
Abstained 141,245 Abstained 790,716 Abstained 57,917
- -----------------------------------------------------------------------------------------------------
Proposal V.
James M. Benham For 3,083,110 For 18,595,442 For 2,111,495
Withheld* 282,098 Withheld* 1,094,814 Withheld* 107,320
Ronald J. Gilson For 3,080,410 For 18,570,525 For 2,111,169
Withheld* 284,798 Withheld* 1,119,731 Withheld* 107,646
Myron S. Scholes For 3,083,572 For 18,593,640 For 2,110,882
Withheld* 281,636 Withheld* 1,096,616 Withheld* 107,933
Kenneth E. Scott For 3,082,868 For 18,583,954 For 2,111,208
Withheld* 282,340 Withheld* 1,106,302 Withheld* 107,607
Ezra Solomon For 3,081,971 For 18,563,842 For 2,110,531
Withheld* 283,237 Withheld* 1,126,414 Withheld* 108,284
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Benham Benham
Short-Term Benham Long-Term
Treasury and Treasury Treasury and
Agency Fund Note Fund Agency Fund
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Isaac Stein For 3,083,103 For 18,591,808 For 2,107,869
Withheld* 282,105 Withheld* 1,098,448 Withheld* 110,946
James E. Stowers, III For 3,080,396 For 18,547,539 For 2,111,495
Withheld* 284,812 Withheld* 1,142,717 Withheld* 107,320
Jeanne D. Wohlers For 3,079,578 For 18,594,240 For 2,110,398
Withheld* 285,630 Withheld* 1,096,016 Withheld* 108,417
*Shares Withholding Authority to Vote
- -----------------------------------------------------------------------------------------------------
Proposal VI. For 3,133,596 For 18,646,564 For 2,109,174
Against 107,314 Against 293,064 Against 41,592
Abstained 124,297 Abstained 750,628 Abstained 68,048
- -----------------------------------------------------------------------------------------------------
Proposal VII. For 3,030,363 For 18,110,779 For 2,085,600
Against 158,769 Against 666,066 Against 72,503
Abstained 176,074 Abstained 913,411 Abstained 60,710
</TABLE>
36
<PAGE>
Trustees
James M. Benham
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
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus.
Benham Distributors, Inc. 11/95 Q066
