BENHAM PRIME
MONEY MARKET FUND
--------------
Annual Report
February 29, 1996
[picture of a desktop with books, a lamp
mail, a pen, glasses]
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
CONTENTS
U.S. ECONOMIC REVIEW ............. 1
PERFORMANCE INFORMATION .......... 2
PORTFOLIO STATISTICS & COMPOSITION 3
MARKET SUMMARY ................... 5
MANAGEMENT DISCUSSION ............ 6
INVESTMENT FUNDAMENTALS
Money Market Instruments ......... 8
Risk Measurements & Management ... 10
Other Definitions ................ 12
FINANCIAL INFORMATION
Financial Highlights ............. 14
Financial Statements and Notes ... 15
Schedule of Investment Securities 21
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
Slow economic growth and low inflation characterized the U.S. economy in 1995,
creating similar expectations for 1996. The U.S. economy grew at a 2% annual
rate in 1995, the weakest yearly performance since the 1991 recession. U.S.
inflation was just 2.5% in 1995, the lowest annual rate since 1986.
[bar graph on left side of page. graph data described below]
The Federal Reserve's (the Fed's) success in slowing the economy and inhibiting
inflation by raising short-term interest rates from February 1994 to February
1995 eventually led to a new interest rate strategy. The Fed reduced the federal
funds rate target from 6.00% to 5.75% in July 1995, then lowered it twice
more--to 5.50% in December 1995 and to 5.25% in January 1996. Slowing corporate
and government spending, declining auto sales and housing activity, and
poorer-than-expected holiday season retail sales seemed to indicate lower
interest rates in 1996 and a possible recession.
Federal budget battles, which led to two government shutdowns, furthered the
cause of economic weakness. The shutdowns also delayed key economic reports,
causing confusion in the financial markets during the first quarter of 1996.
Amid this confusion and slow growth/low inflation expectations, the February
payroll employment report, showing the strongest job creation in 12 years,
exploded like a time bomb (see the graph above). It dashed hopes that the Fed
would cut interest rates at its policy meeting in March, triggering a bond
sell-off and higher interest rates.
The March payroll employment report was also unexpectedly strong. The strength
of the recent employment reports seems to indicate that the economy is picking
up momentum, with no immediate need for the Fed to reduce interest rates. Other
signs of a stronger economy include higher auto sales and factory orders, rising
consumer confidence and strong housing starts. But the economy still doesn't
feel particularly robust--layoffs are at historically high levels, wages are
stagnant, capital expenditures are slowing, and personal bankruptcies and loan
delinquencies are higher. Overall, we believe the evidence still suggests
moderate economic growth in 1996, with both growth and inflation around 3%.
[graph data]
U.S. Nonfarm Payroll Employment
(seasonally adjusted, in thousands)
Monthly Change Three-Month Moving Average
Jan-95 186 292
Feb-95 313 232
Mar-95 179 226
Apr-95 8 167
May-95 -62 42
Jun-95 299 82
Jul-95 28 88
Aug-95 263 197
Sep-95 94 128
Oct-95 66 141
Nov-95 214 125
Dec-95 145 142
Jan-96 -146 71
Feb-96 624 208
Mar-96 140 206
Source: Bloomberg Financial Markets
1
PERFORMANCE INFORMATION
YIELD AND TOTAL RETURN SUMMARY
For Periods Ended February 29, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET 7-DAY 7-DAY -----------------------------
VALUE CURRENT EFFECTIVE LIFE OF
(3/1/95-2/29/96) YIELD YIELD 1 YEAR 5 YEARS FUND
-----------------------------
$1.00 4.97% 5.09% 5.60% N/A 5.04%
The Fund commenced operations on November 17, 1993.
PLEASE NOTE: 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.
PERFORMANCE DEFINITIONS
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.
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 14.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 2/29/96 for the funds in Lipper's "Money Market
Funds" category.
1 YEAR LIFE OF FUND+
The Fund: 5.60% 5.07%
Category Average: 5.31% 4.49%
The Fund's Ranking: 43 out of 266 4 out of 228
+ from November 30, 1993, to February 29, 1996
Total returns are based on historical performance and do not guarantee future
results.
2
PORTFOLIO STATISTICS & COMPOSITION
KEY PORTFOLIO STATISTICS
2/29/96 8/31/95
Market Value: $1,276,353,495 $1,325,455,083
Number of Issues: 74 88
Average Maturity: 68 days 65 days
Average Yield: 5.36% 5.46%
For definitions of these terms, see page 12.
PORTFOLIO COMPOSITION BY COUNTRY
[pie charts]
2/29/96 8/31/95
U.S.: 53.9% U.S.: 46.4%
Germany: 15.2% Japan: 11.7%
Australia: 5.7% Canada: 8.2%
Canada: 5.6% Sweden: 6.4%
Japan: 2.0% Other European: 16.3%
Other European: 17.6% Other: 11.0%
See page 11 for a discussion of the Fund's country limits.
PORTFOLIO COMPOSITION BY INDUSTRY
[pie charts]
2/29/96 8/31/95
Banks: 50% Banks: 46%
U.S. Govt. Agency Securities: 15% U.S. Treasury & Govt. Agency Securities: 12%
Misc. Financial Services: 11% Corporate Leasing & Financing: 15%
Other: 24% Misc. Financial Services: 9%
Other: 18%
See page 11 for a discussion of the Fund's issuer and industry limits. The
composition of the Fund's portfolio may change over time.
3
PORTFOLIO COMPOSITION
COMPOSITION BY MATURITY
[pie charts]
2/29/96 8/31/95
1-30 Days: 53.5% 1-30 Days: 44.0%
31-60 Days: 12.7% 31-60 Days: 22.0%
61-90 Days: 11.6% 61-90 Days: 13.0%
91-120 Days: 2.2% 91-120 Days: 7.0%
121-397 Days: 20.0% 121-397 Days: 14.0%
The Fund buys only U.S. dollar-denominated obligations with remaining maturities
of 13 months (397 days) or less. The Fund also maintains a dollar-weighted
average portfolio maturity of 90 days or less, with 50-60 days considered a
"neutral" position.
COMPOSITION BY SECURITY TYPE
[pie charts]
2/29/96 8/31/95
Commercial Paper: 52.3% Commercial Paper: 58.0%
U.S. Govt. Agency Discount Notes: 14.9% Yankee CDs: 16.0%
Eurodollar CDs: 11.7% U.S. Govt. Agency Notes: 7.0%
Yankee CDs: 11.3% Floating-Rate Notes: 5.0%
Floating-Rate Notes: 5.7% Eurodollar CDs: 5.0%
Other: 4.1% Other: 9.0%
These security types are defined on pages 8 and 9.
COMPOSITION BY S&P CREDIT RATING
[pie charts]
2/29/96 8/31/95
A-1+: 66% A-1+: 64%
A-1: 17% A-1: 20%
A-2: 2% A-2: 5%
U.S. Govt. Agency Securities: 15% U.S. Govt. Agency Securities: 11%
The Fund restricts its investments to obligations considered "first-tier" by the
SEC or "high-quality" according to guidelines established by the Fund's Board of
Trustees. First-tier obligations have received the highest rating from at least
two credit rating agencies such as Moody's and Standard & Poor's (S&P). For
example, A-1 (which includes A-1+) is S&P's highest commercial paper credit
rating. The A-2 rated securities shown above are considered first-tier because
they received top ratings from two rating services other than S&P. The U.S.
government agency securities are nonrated obligations of government-sponsored
enterprises that we have determined to be of comparable quality to A-1 rated
obligations.
The composition of the Fund's portfolio may change over time.
4
MARKET SUMMARY
CORPORATE MONEY MARKET SECURITIES
by Amy O'Donnell, Portfolio Manager, and Bob Gahagan, Vice President
The weak economy, low inflation and declining interest rate expectations that
Jim Benham described on page 1 caused U.S. money market rates and yields to fall
during the Fund's fiscal year (see the graph below). From March 1995 to February
1996, money market rates fell from the 6% level to the 5% level, reversing some
of the rate gains that occurred in 1994 when inflation expectations and the Fed
pushed interest rates higher. The falling yields were balanced by the fact that
inflation, the great eroder of money market returns, never climbed higher than
3% during the period. That meant that "real" money market returns (reported
returns minus the inflation rate) stayed above 2%, a respectable real rate of
return for money market investments.
[line graph on left side of page. graph data described below]
The money market yield curve (the yield curve* for securities with maturities of
one year or less) "inverted" during the Fund's fiscal year. Expectations for
lower interest rates were so pronounced at times during the second half of 1995
and the first five weeks of 1996 that yields for one-month securities were
higher than for six- to 12-month securities. The yield curve inverted as demand
for six- to 12-month securities exceeded the demand for one-month issues as
investors tried to lock in higher yields. At the curve's steepest inversion, the
market was pricing in a Fed interest rate reduction of nearly 50 basis points.*
Interest rate expectations suddenly reversed in March 1996 upon the release of
the surprisingly strong February payroll employment report (see page 1). As a
result, the money market yield curve reverted to a "normal" slope with lower
yields at the short end and higher yields at the long end. Instead of a rate
reduction, the market began pricing in an interest rate increase of
approximately 25 basis points. We believe the market overreacted to the February
and March payroll employment reports--we don't think the level of economic
activity indicated by the reports is sustainable. While we think it's true that
the recent employment reports have ruled out near-term interest rate cuts by the
Fed, we don't believe there will be a sudden upsurge in inflation or that the
Fed is on the verge of raising interest rates. We think it's more likely that
the Fed will hold a steady interest rate course for a while to see which turn
the economy takes.
* defined on page 12
[graph data]
U.S. Money Market Rates
Weekly, 3/95-2/96
3-Mo. T-Bill Yield Fed Funds Rate
3/6/95 5.77% 5.88%
3/13/95 5.76 5.93
3/20/95 5.76 5.94
3/27/95 5.64 5.97
4/3/95 5.76 6.06
4/10/95 5.7 6.2
4/17/95 5.56 5.98
4/24/95 5.66 6.07
5/1/95 5.74 5.99
5/8/95 5.63 6.05
5/15/95 5.71 6
5/22/95 5.72 6.02
5/29/95 5.64 5.99
6/5/95 5.48 6.02
6/12/95 5.57 6.03
6/19/95 5.46 6.02
6/26/95 5.35 6
7/3/95 5.53 5.95
7/10/95 5.4 6.21
7/17/95 5.46 5.81
7/24/95 5.47 5.72
7/31/95 5.44 5.75
8/7/95 5.41 5.83
8/14/95 5.42 5.73
8/21/95 5.43 5.74
8/28/95 5.34 5.7
9/4/95 5.3 5.71
9/11/95 5.3 5.77
9/18/95 5.25 5.73
9/25/95 5.14 5.78
10/2/95 5.34 5.8
10/9/95 5.31 6
10/16/95 5.32 5.72
10/23/95 5.22 5.71
10/30/95 5.29 5.76
11/6/95 5.36 5.76
11/13/95 5.43 5.71
11/20/95 5.34 5.74
11/27/95 5.32 5.81
12/4/95 5.29 5.91
12/11/95 5.3 5.75
12/18/95 5.15 5.73
12/25/95 4.91 5.9
1/1/96 4.91 5.48
1/8/96 5.03 5.35
1/15/96 5.02 5.53
1/22/96 4.99 5.61
1/29/96 5.01 5.44
2/5/96 4.88 5.53
2/12/96 4.8 5.21
2/19/96 4.78 5.09
2/26/96 4.86 5.17
5
MANAGEMENT DISCUSSION
FUND PERFORMANCE AND STRATEGY
by Amy O`Donnell, Portfolio Manager
NOTE: WE SUGGEST THAT YOU REVIEW THE INVESTMENT FUNDAMENTALS, U.S. ECONOMIC
REVIEW, PERFORMANCE INFORMATION AND MARKET SUMMARY SECTIONS PRIOR TO READING
THIS DISCUSSION. TERMS MARKED WITH AN ASTERISK (*) ARE DEFINED IN THE INVESTMENT
FUNDAMENTALS SECTION BEGINNING ON PAGE 8.
Q: How did the Fund perform?
A: The Fund continued to meet its investment objective of seeking the
highest level of current income consistent with preservation of
capital. The Fund's 5.60% total return for the fiscal year ended
February 29, 1996, ranked it in the top 20% of its Lipper category. Its
5.07% average annual total return from November 30, 1993 (the day
closest to the Fund's inception for which there is Lipper data), to
February 29, 1996, ranked it in the top 2% of its Lipper category (see
page 2). The Fund's yield declined during the fiscal year, but so did
the yields of its peers and of U.S. money market instruments in general
(see page 5). Keep in mind that a portion of the Fund's expenses were
absorbed by Benham Management Corporation through May 1995 and that the
ranking listed would have been lower if the Fund's returns had been
reduced by those expenses.
Q: How did you respond to the economic and market conditions described on
pages 1 and 5? What investment strategies did you use from September
1995 through February 1996?
A: We responded to falling interest rates by extending the Fund's average
maturity* to lock in higher rates. Whereas "neutral" for the Fund is
typically 50 to 60 days, we extended out as far as 80 days by the end
of 1995. We responded to the inverted yield curve* by employing a
barbell portfolio structure* so the Fund would be in a better position
to maintain its yield as rates fell. We used one-year government agency
notes* to extend the Fund's average maturity and lock in current yields
before the Fed could cut rates. We counterbalanced the agency notes
with a heavy weighting of higher-yielding short-term securities to
maintain the Fund's yield.
The barbell is reflected in the 2/29/96 Composition By Maturity graph
on page 4, which shows how the portfolio was weighted primarily toward
short maturities, with some cash invested in the longest money market
maturities and relatively little in between.
Q: The Portfolio Composition By Country graphs on page 3 show that you
reduced the Fund's Japanese holdings significantly from August to
February and increased its German holdings. Why?
6
MANAGEMENT DISCUSSION
FUND PERFORMANCE AND STRATEGY
(Continued from the previous page)
A: The changes reflect the implementation of internal credit limits (see
page 11), which are based on economic, political and financial analyses
of the markets in which the Fund participates. As we have discussed in
previous reports, we have reduced the Fund's Japanese bank exposure
because of the financial difficulties experienced by Japanese banks
with large devalued real estate portfolios. In fact, we are no longer
buying any securities issued by Japanese banks. We are, however, buying
commercial paper* issued by Japanese industrial and multinational
corporations such as Hitachi, Mitsubishi, Sony and Toyota. We are also
buying securities issued by German banks, which represent much less
credit risk than Japanese bank securities but offer higher yields than
comparable U.S. securities.
Q: Have you made any significant investment or strategy changes since the
Fund's fiscal year-end on February 29?
A: I tend to be leery of extremes, so I didn't believe the economy was as
weak as it appeared in the fourth quarter of 1995. The 2/29/96 Key
Portfolio Statistics chart at the top of page 3 shows that we had
already begun to scale back the Fund's average maturity by February. We
have sold some of the agency notes to continue that process. As of
April, we had reined the average maturity back into neutral territory
(around 60 days). Furthermore, by selling the agency notes, we began
unwinding the barbell position. We plan to let the barbell continue to
unwind as holdings mature.
I was also rather skeptical about the economic strength suggested by
the February payroll employment report. As Jim Benham points out on
page 1, we're still seeing record layoffs, stagnant wages, reduced
business spending and financially strapped consumers. We'll continue
our neutral stance until we get a clearer picture of the direction of
the economy and the nature of future Fed policy. In the meantime, we'll
continue to work on minimizing credit risk in the portfolio.
Q: You've discussed the recent employment numbers and their impact. What
about the recent price spikes in commodities, such as gold, grains and
oil? Are you concerned about inflation?
A: We're keeping an eye on commodity prices, but the inflation indicator
we pay the most attention to is wages. Wages, which are the biggest
fixed cost in industries such as service and retail, remained stagnant
through March. Stronger job growth could boost wages, but we haven't
seen any signs yet that strong employment growth will be sustained.
Until we see a significant move in wage growth, we believe inflation
should remain subdued.
7
INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS
THE MONEY MARKET
The "money market" is a highly liquid, multi-trillion-dollar worldwide financial
market that matches supply from corporations, banks and governments that have
short-term cash or borrowing needs with demand from investors who want to buy
short-term, low-risk, interest-bearing instruments.
On the supply side, corporate, financial and fiscal entities sometimes have more
current obligations to meet than cash on hand, and they need to raise money.
They are therefore willing to sell short-term IOUs to investors in exchange for
cash. For example, corporations issue short-term securities called commercial
paper to raise cash to cover current expenses that are incurred before
anticipated revenues.
On the demand side, investors want a place to "park" their money in the short
term where it can earn interest, retain value and be readily available for other
opportunities or expense payments. Finance officers at corporations, banks,
government offices and securities firms saw how they could satisfy both sides by
issuing certain types of debt securities.
Most money market securities are issued at a discount and pay full value at
maturity (13 months or less). The difference between the purchase value and the
maturity value is the imputed interest.
MONEY MARKET SECURITIES
Bankers' Acceptances (BAs)--securities issued by banks to finance commercial
trade. BAs bear an importer's name and allow the importer to back its pledge to
pay for imported goods with a bank's pledge to cover the transaction if the
importer cannot do so.
Certificates of Deposit (CDs)/Eurodollar CDs/Yankee CDs--CDs represent a bank's
obligation to repay money deposited with it for a specified period of time.
Different types of CDs have different issuers. For example, Yankee CDs are
issued by U.S. branches of foreign banks, and Eurodollar CDs are issued in
London by Canadian, European and Japanese banks.
Commercial Paper (CP)--short-term debt issued by large corporations to raise
cash and to cover current expenses in anticipation of future revenues. The
maximum maturity for CP is 270 days, although most CP is issued in a one- to
50-day maturity range. CP rates generally track those of other widely traded
money market instruments such as Treasury bills and certificates of deposit, but
they are also influenced by the maturity date and the size and credit rating of
the issuer.
8
INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS
(Continued from the previous page)
Floating-Rate Notes (FRNs)--debt securities whose interest rates change when a
designated base rate changes. The base rate is often the federal funds rate, the
90-day Treasury bill rate or the London Interbank Offered Rate (LIBOR). FRNs are
considered derivatives because they "derive" their interest rates from their
designated base rates. However, FRNs are not "risky" derivatives--their behavior
is similar to that of their designated base rates. The SEC has recognized this
similarity and does not consider FRNs to be inappropriate investments for money
market funds.
FRNs are useful because they can save money for both issuers and investors.
Issuers can save money because issuing one set of FRNs allows them to borrow
short-term money without refiling each month with the SEC or incurring monthly
brokerage costs. Issuers share the savings with investors in the form of lower
prices, which they use to attract investors away from traditional securities.
Government Agency Discount Notes--short-term 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 discount notes
are backed by the full faith and credit of the U.S. government, while most are
guaranteed only by the issuing agency. These notes are issued at a discount and
achieve full value at maturity (typically one year or less).
Government Agency Notes--intermediate-term 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 notes are
backed by the full faith and credit of the U.S. government, while most are
guaranteed only by the issuing agency. These notes are issued with maturities
ranging from three months to 30 years. The Fund typically buys agency notes with
remaining terms of 365 days or less.
9
INVESTMENT FUNDAMENTALS
RISK MEASUREMENTS & MANAGEMENT
ADDRESSING AND MEASURING INTEREST RATE RISK
Average maturity measures the interest rate sensitivity and interest rate
exposure of a money market portfolio. It shows the average amount of time that
will pass until the securities in the portfolio mature. 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 90-day average maturity will
take much longer to reinvest its maturing securities than a portfolio with a
30-day average maturity. Portfolios with longer average maturities generally pay
higher yields to compensate for the greater interest rate exposure. To help
ensure the share price stability of money market funds, the SEC mandates that a
money market fund's average maturity cannot exceed 90 days.
Average maturity is also an important strategic tool. Reducing a fund's average
maturity as interest rates rise allows the portfolio manager to more quickly
reinvest matured assets in higher-yielding securities. Conversely, lengthening a
fund's average maturity as interest rates fall allows the portfolio manager to
"lock in" higher yields.
ADDRESSING AND MEASURING CREDIT RISK
Credit risk is the risk that an issuer of a debt security could default on its
obligations and fail to make timely payments of interest and principal. The
level of this risk depends on economic factors and the credit quality of the
issuer--its financial strength. Credit quality can be determined by analyzing
the issuer's financial statements and debt management history.
Credit ratings issued by independent rating and research companies such as
Standard & Poor's (S&P) help quantify credit quality--the stronger the issuer,
the higher the credit rating. In turn, credit quality and ratings greatly
influence the prices and yields of money market securities--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. Therefore,
we do not rely exclusively on outside credit rating agencies. We review and take
into consideration their ratings--it would be unwise not to--but we also perform
our own analysis.
10
INVESTMENT FUNDAMENTALS
RISK MEASUREMENTS & MANAGEMENT
(Continued from the previous page)
The Fund relies on credit analysis from a Twentieth Century/Benham credit
research team (CRT) and independent companies such as S&P. The CRT has the
resources to provide in-depth analysis on specific issues that the Fund holds or
is considering for purchase. Amy O'Donnell, the Fund's manager, also operates
within limits determined by the CRT to reduce the Fund's exposure to individual
credit risk factors, such as specific issuers, industries or countries. The
limits help protect the Fund from unexpected developments that might cause an
issuer (or issuers in an industry or country) to default.
Issuer limits are based on the CRT's estimate of each issuer's ability to repay.
The CRT starts by looking only at issuers in the two highest credit-rating
categories. Within this framework, the CRT analysts evaluate each issuer's
repayment capabilities and assign each to a group, ranked from 1 (best) to 5.
The Fund is permitted to own a significantly greater amount of securities issued
by Group 1 issuers than by issuers in other groups.
The CRT also ranks and limits country and industry sectors. For example, country
rankings and limits are determined by each country's financial strength,
economic health and political environment. Industry rankings and limits take
into account each industry's sensitivity to the ups and downs of the business
cycle, as well as the economic and regulatory environment.
11
INVESTMENT FUNDAMENTALS
OTHER DEFINITIONS
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%).
Coupon--the stated interest rate on a security.
Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Most "normal" yield curves start in the lower left corner of the graph and rise
to the upper right corner, indicating that yields rise as maturities lengthen.
This upward sloping yield curve illustrates a normal risk/return
relationship--more return (yield) for more risk (a longer maturity). Conversely,
a "flat" yield curve provides little or no extra return for taking on more risk.
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 maturities in a fund's portfolio
(see also page 10).
Average Yield--a weighted average of the yields to maturity of the securities in
a money market fund's portfolio.
PORTFOLIO STRUCTURES
Barbell Structure--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to outperform a bullet structure when the yield curve is moving
from steep to flat (short-term rates are rising faster than long-term rates, or
long-term rates are falling faster than short-term rates). In a rising interest
rate environment, the short-term securities capture the higher yields with
little price depreciation. In a declining interest rate environment, the
short-term securities provide a relatively steady yield, while the long bonds
provide more price appreciation than intermediate-term securities.
Bullet Structure--a structure that clusters a portfolio's 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 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.
12
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
Benham Investment Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investment securities, of Benham Prime Money Market Fund (a
series of Benham Investment Trust) as of February 29, 1996, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Benham
Prime Money Market Fund (a series of Benham Investment Trust) as of February 29,
1996, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
April 4, 1996
13
<TABLE>
<CAPTION>
BENHAM PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Years Ended February 29 and February 28
(except as noted)
1996 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.......................................................... .0560 .0493 .0095
------ ------ ------
Distributions
From Net Investment Income..................................................... (.0560) (.0493) (.0095)
------ ------ ------
NET ASSET VALUE AT END OF PERIOD.................................................. $ 1.00 1.00 1.00
====== ====== ======
TOTAL RETURN*..................................................................... 5.60% 4.93% .96%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands)........................................ $ 1,270,653 1,509,863 75,168
Ratio of Expenses to Average Daily Net Assets++................................... .48% .04% 0%
Ratio of Expenses to Average Daily Net Assets (Before Reimbursement)++............ .62% .71% 1.49%**
Ratio of Net Investment Income to Average Daily Net Assets........................ 5.43% 5.28% 3.35%**
Ratio of Net Investment Income to Average Daily Net Assets (Before Reimbursement). 5.29% 4.61% 1.86%**
- -------------------
+ Commencement of operations for Benham Prime Money Market Fund was November 17, 1993.
++ The ratios for the year ended February 29, 1996, include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
</TABLE>
14
<TABLE>
<CAPTION>
BENHAM PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
ASSETS
<S> <C>
Investment securities (cost $1,276,353,495) ................................................ $1,276,353,495
Cash ....................................................................................... 795,354
Interest receivable ........................................................................ 8,151,896
Receivable for fund shares sold ............................................................ 9,546,796
Prepaid expenses and other assets .......................................................... 17,163
--------------
Total assets ............................................................................. 1,294,864,704
--------------
LIABILITIES
Payable for securities purchased ........................................................... 14,983,841
Payable for fund shares redeemed ........................................................... 8,516,635
Fees payable to affiliates (Note 2) ........................................................ 511,940
Dividends payable .......................................................................... 197,602
Accrued expenses and other liabilities ..................................................... 1,283
--------------
Total liabilities ........................................................................ 24,211,301
--------------
NET ASSETS, equivalent to $1.00 per share on 1,270,653,403 outstanding
shares of beneficial interest (unlimited number of shares authorized) ...................... $1,270,653,403
==============
Net asset value, offering and redemption price per share ..................................... $ 1.00
==============
- -------------------
See the accompanying notes to financial statements.
</TABLE>
15
<TABLE>
<CAPTION>
BENHAM PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the Year Ended February 29, 1996
<S> <C> <C>
INVESTMENT INCOME.............................................................................. $80,611,046
----------
EXPENSES (NOTE 2)
Investment advisory fees .................................................................... $ 4,155,878
Transfer agency fees ........................................................................ 1,975,550
Administrative fees ......................................................................... 1,319,915
Printing and postage ........................................................................ 415,131
Custodian fees .............................................................................. 198,603
Auditing and legal fees ..................................................................... 50,635
Registration and filing fees ................................................................ 68,685
Directors' fees and expenses ................................................................ 52,344
Other operating expenses .................................................................... 189,340
------------
Total expenses .............................................................................................. 8,426,081
Amount reimbursed (Note 2) ...................................................................................... (1,839,833)
Custodian earnings credits (Note 3) ............................................................................. (152,959)
------------
Net expenses ................................................................................................ 6,433,289
------------
Net investment income ..................................................................................... $ 74,177,757
============
- -------------------
See the accompanying notes to financial statements.
</TABLE>
16
<TABLE>
<CAPTION>
BENHAM PRIME MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended February 29, 1996 and the Year Ended February 28, 1995
1996 1995
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income .......................................................... $ 74,177,757 43,226,232
--------------- ---------------
Change in net assets derived from investment activities ...................... 74,177,757 43,226,232
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .......................................................... (74,177,757) (43,226,232)
--------------- ---------------
Total distributions to shareholders .......................................... (74,177,757) (43,226,232)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .................................................. 2,375,209,952 3,138,547,388
Net asset value of dividends reinvested ........................................ 71,075,673 41,047,289
Cost of shares redeemed ........................................................ (2,685,494,938) (1,744,900,172)
--------------- ---------------
Change in net assets derived from capital share transactions ................. (239,209,313) 1,434,694,505
--------------- ---------------
Net increase (decrease) in net assets ...................................... (239,209,313) 1,434,694,505
NET ASSETS:
Beginning of year .............................................................. 1,509,862,716 75,168,211
--------------- ---------------
End of year .................................................................... $ 1,270,653,403 1,509,862,716
=============== ===============
- -------------------
See the accompanying notes to financial statements.
</TABLE>
17
BENHAM PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham Prime Money Market Fund (Fund) is an open-end management investment
company registered under the Investment Company Act of 1940. It is currently the
sole fund of Benham Investment Trust. The Fund seeks the highest level of
current income consistent with preservation of capital. The Fund buys high
quality (first-tier), U.S. dollar denominated money market instruments and other
short-term obligations of banks, governments, and corporations. Significant
accounting policies followed by the Fund are summarized below.
VALUATION OF INVESTMENT SECURITIES--Securities are valued at amortized cost,
which approximates current market value. Interest receivable is composed of
coupon interest, either purchased or accrued, on investment securities.
Securities transactions are recorded on the date the order to buy or sell is
executed. Realized gains and losses from security transactions are determined on
the basis of identified cost.
INCOME TAXES--The Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By complying with these
provisions, the Fund will not be subject to federal or state income or franchise
taxes to the extent that it distributes substantially all its net investment
income and net realized capital gains to shareholders. Accordingly, no provision
for income taxes has been made.
SHARE VALUATION--The Fund's net asset value per share is computed by dividing
the value of its total assets, less its liabilities, by the total number of
shares outstanding at the beginning of each business day. It is the Fund's
policy to maintain a constant net asset value of $1.00 per share, although there
is no guarantee it will be able to do so.
INVESTMENT INCOME, DIVIDENDS, AND OTHER DISTRIBUTIONS--Income and expenses are
accrued daily. Discounts and premiums on securities purchased are amortized on a
straight-line basis over the life of the securities. Dividends to the
shareholders are declared and credited daily. Shareholders may elect to receive
distributions in cash or to reinvest them in additional shares. Cash dividends
are distributed on the last business day of the month.
18
(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. The Fund pays BMC a
monthly investment advisory fee equal to the following annual percentages of the
Fund's average daily net assets.
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion
BMC provides the Fund with all investment advice. TCC 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 Fund 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 administrative and transfer agency services
necessary to operate the Fund. Fees for these services are based on transaction
volume, number of accounts and average net assets of all funds in The Benham
Group.
The Fund 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 .50% of the
Fund's average daily net assets through May 31, 1998. 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
.50% expense guarantee.
19
The payables to affiliates as of February 29, 1996, based on the above
agreements, were as follows:
Investment Advisor ....................................... $238,585
Administrative Services .................................. 98,359
Transfer Agent ........................................... 174,996
--------
$ 511,940
========
The Fund has a distribution agreement with Benham Distributors, Inc. (BDI),
which is responsible for promoting sales of and distributing the Fund's shares.
BMC pays all costs incurred by BDI. BDI is a wholly owned subsidiary of TCC.
(3) EXPENSE OFFSET ARRANGEMENTS
The Fund's Statement of Operations reflects custodial earnings credits. These
amounts are used to offset the custody fees payable by the Fund to the custodian
bank. The credits are earned when the Fund maintains a balance of uninvested
cash at the custodian bank. Beginning with the year ending February 29, 1996,
the ratio of expenses to average daily net assets shown in the Financial
Highlights is calculated as if these credits had not been earned.
20
<TABLE>
<CAPTION>
BENHAM PRIME MONEY MARKET FUND
SCHEDULE OF INVESTMENT SECURITIES
February 29, 1996
Rating
Rate1 Maturity Face Amount Value Moody's/S&P
------ -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- 52.3%
Abbey National North America Corporation 5.45% 04/25/96 $ 30,000,000 29,755,708 P1/A-1+
Air Products & Chemicals, Inc. 5.28% 03/13/96 16,000,000 15,972,267 P1/A-1
Ameritech Corporation 5.30% 04/04/96 22,000,000 21,891,956 P1/A-1+
Bank of Nova Scotia 5.28% 04/08/96 17,000,000 16,907,048 P1/A-1+
Banque Nationale de Paris (Canada) 5.75% 04/23/96 3,000,000 2,975,178 P1/A-1
BIL North America, Inc. 5.21% 05/21/96 10,000,000 9,885,700 P1/A-1+
BIL North America, Inc. 5.47% 03/19/96 17,000,000 16,954,270 P1/A-1+
Brown-Forman Corporation 5.30% 03/21/96 5,648,000 5,631,652 P1/A-1
Canadian Wheat Board 5.70% 03/28/96 45,000,000 44,811,000 P1/A-1+
Chubb Capital Corporation 5.29% 03/20/96 35,000,000 34,903,944 P1/A-1+
Commerzbank U.S. Finance, Inc. 5.30% 03/18/96 23,000,000 22,943,414 P1/A-1+
Daimler-Benz North America Corporation 5.44% 03/20/96 15,000,000 14,957,646 P1/A-1
Dun & Bradstreet Corporation 5.62% 04/16/96 25,000,000 24,824,306 P1/A-1+
Du Pont E.I. de Nemours and Company 5.69% 07/09/96 15,000,000 14,702,083 P1/A-1+
Gannett Co., Inc. 5.29% 03/21/96 40,000,000 39,884,445 P1/A-1
Generale Bank, Inc. 5.69% 03/15/96 10,000,000 9,978,222 P1/A-1
Heinz (H.J.) Co. 5.29% 03/22/96 11,000,000 10,966,633 P1/A-1
Hitachi America, Ltd. 5.72% 04/09/96 10,000,000 9,939,225 P1/A-1+
Hitachi Credit America Corporation 5.53% 03/27/96 15,000,000 14,941,175 P1/A-1+
J.P. Morgan & Co., Inc. 5.32% 03/05/96 5,000,000 4,997,089 P1/A-1+
Kingdom Of Sweden 5.64% 04/16/96 15,000,000 14,894,104 P1/A-1+
Merrill Lynch & Co., Inc. 5.73% 03/29/96 25,000,000 24,890,527 P1/A-1+
Metlife Funding, Inc. 5.29% 03/21/96 19,000,000 18,945,111 P1/A-1+
Mitsu & Co. (USA), Inc. 5.30% 03/08/96 15,000,000 14,984,775 P1/A-1
Mitsubishi International Corporation 5.70% 03/29/96 10,000,000 9,956,444 P1/A-1+
Morgan Stanley Group, Inc. 5.32% 03/12/96 19,000,000 18,969,579 P1/A-1+
National Australia Funding (Delaware) Inc. 5.53% 06/14/96 13,000,000 12,796,388 P1/A-1+
National Australia Funding (Delaware) Inc. 5.66% 03/11/96 35,000,000 34,945,847 P1/A-1+
</TABLE>
21
<TABLE>
<CAPTION>
Rating
Rate1 Maturity Face Amount Value Moody's/S&P
------ -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
National Rural Utilities Cooperative Finance Corporation 5.67% 03/15/96 $ 10,000,000 9,978,300 P1/A-1+
Pemex Capital, Inc. 5.53% 03/11/96 30,000,000 29,954,583 P1/A-1+
Pemex Capital, Inc. 5.53% 03/06/96 10,000,000 9,992,431 P1/A-1+
RTZ America Inc. 5.29% 03/19/96 27,000,000 26,929,732 P1/A-1+
Sony Capital Corporation 5.31% 03/27/96 5,000,000 4,981,150 P1/A-1
SPINTAB, AB 5.59% 03/22/96 25,000,000 24,919,792 P1/A-2/F14
SPINTAB, AB 5.59% 03/18/96 4,700,000 4,687,793 P1/A-2/F14
Statoil - Den Norske Stats Oljeselskap a.s. 5.29% 03/27/96 15,000,000 14,943,667 P1/A-1+
Toronto- Dominion Holding (U.S.A.), Inc. 5.35% 07/03/96 10,000,000 9,821,578 P1/A-1+
Toyota Motor Credit Corporation 5.44% 03/22/96 10,000,000 9,968,792 P1/A-1+
------------ ------------
Total Commercial Paper (cost $664,383,554) 667,348,000 664,383,554
------------ ------------
YANKEE CERTIFICATES OF DEPOSIT -- 11.3%
Australia & New Zealand Banking Group (N.Y.) 5.24% 07/08/96 25,000,000 25,001,313 P1/A-1
Bayerische Landesbank Girozentrale, (N.Y.) 5.25% 05/28/96 16,000,000 16,000,000 P1/A-1+
CommerzBank U.S. Finance, Inc. 6.18% 05/09/96 10,000,000 10,007,332 P1/A-1+
CommerzBank U.S. Finance, Inc. 6.03% 05/10/96 10,000,000 10,004,546 P1/A-1+
National Westminister Bankcorp Plc (N.Y.) 5.50% 03/12/96 7,000,000 7,000,136 P1/A-1+
Societe Generale 5.93% 08/16/96 10,000,000 10,000,000 P1/A-1+
Societe Generale 5.72% 07/18/96 15,000,000 15,000,000 P1/A-1+
Swiss Bank Corporation (N.Y.) 5.55% 05/10/96 25,000,000 25,000,000 P1/A-1+
Swiss Bank Corporation 5.55% 05/10/96 25,000,000 25,000,000 P1/A-1+
------------ ------------
Total Yankee Certificates of Deposit (cost $143,013,327) 143,000,000 143,013,327
------------ ------------
AGENCY DISCOUNT NOTES -- 14.9%
Federal Home Loan Bank 7.92% 01/17/97 10,000,000 10,251,563 MIG1/A-1+
Federal Home Loan Bank 4.81% 02/25/97 15,000,000 14,979,451 MIG1/A-1+
Federal Farm Credit Bank 6.07% 06/03/96 10,000,000 10,006,466 AAA/NR
Federal Farm Credit Bank 5.60% 07/01/96 20,000,000 19,988,329 P1/A-1+
Federal Home Loan Bank 5.71% 06/10/96 5,500,000 5,498,237 P1/A-1+
Federal Home Loan Bank 5.48% 07/18/96 20,895,000 20,873,570 MIG1/A-1+
Federal Home Loan Bank 4.12% 10/04/96 4,800,000 4,759,552 P1/A-1+
Federal Home Loan Mortgage Corporation 6.01% 05/13/96 30,000,000 30,013,759 AAA/A-1+
Federal Home Loan Mortgage Corporation 5.51% 07/19/96 7,800,000 7,791,683 P1/A-1+
</TABLE>
22
<TABLE>
<CAPTION>
Rating
Rate1 Maturity Face Amount Value Moody's/S&P
------ -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
AGENCY DISCOUNT NOTES (CONTINUED)
Federal National Mortgage Association 5.31% 12/11/96$ 25,000,000 25,066,548 MIG1/A-1+
Federal National Mortgage Association 7.88% 12/20/96 13,350,000 13,651,870 MIG1/A-1+
Federal National Mortgage Association 7.60% 01/10/97 25,720,000 26,284,072 MIG1/A-1+
------------ ------------
Total Agency Notes (cost $189,165,100) 188,065,000 189,165,100
------------ ------------
FLOATING RATE NOTES -- 5.7%
General Electric Capital Corporation, resets daily off of federal
funds rate + .21 with no caps, final maturity 10/25/96 6.18% 03/01/962 9,730,000 9,737,850 P1/A-1+
PNC Bank, N.A., resets monthly off the 1-month LIBOR with no caps,
final maturity 03/14/96 5.31% 03/14/962 10,000,000 10,000,050 P1/A-1
Student Loan Marketing Association, resets quarterly off the
1-month LIBOR + .01 with no caps, final maturity 10/04/96 5.90% 04/04/962 20,000,000 20,000,000 P1/A-1+
Wachovia Bank of North Carolina, N.A., resets monthly off of the
1 month LIBOR + .125 with no caps, final maturity 01/03/97 5.25% 04/08/962 18,000,000 17,985,784 P1/A-1+
Bayerische Landesbank Girozentrale, N.Y., resets monthly off of
the 1-month LIBOR - .15 with no caps, final maturity 03/03/97 5.16% 04/01/962 15,000,000 14,983,841 P1/A-1+
------------ ------------
Total Floating Rate Notes (cost $72,707,525) 72,730,000 72,707,525
------------ ------------
EURODOLLAR CERTIFICATES OF DEPOSIT -- 11.7%
Banque Nationale de Paris S.A. 5.75% 04/16/96 22,000,000 21,999,302 P1/A-1
Bayerische Vereinsbank 5.50% 03/18/96 22,000,000 22,000,206 P1/A-1+
Bayerische Vereinsbank 5.51% 03/11/96 35,000,000 35,000,241 P1/A-1+
Morgan Guaranty Trust Co., London 5.75% 09/09/96 20,000,000 20,001,008 P1/A-1+
Westdeutsche Landesbank Girozentrale 5.52% 03/01/96 30,000,000 30,000,000 P1/A-1+
Westdeutsche Landesbank Girozentrale 5.32% 05/01/96 20,000,000 20,000,668 P1/A-1+
------------ ------------
Total Eurodollar Certificates of Deposit (cost $149,001,425) 149,000,000 149,001,425
------------ ------------
BANK NOTES -- 4.1%
First Bank N.A., Minneapolis 5.24% 03/06/96 35,000,000 34,999,952 P1/A-1
PNC Bank 6.63% 03/29/96 5,000,000 5,002,588 P1/A-1
Wachovia Bank of North Carolina N.A 7.15% 11/07/96 12,830,000 12,966,267 P1/A-1+
------------ -------------
Total Bank Notes (cost $52,968,807) 52,830,000 52,968,807
------------ -------------
</TABLE>
23
<TABLE>
<CAPTION>
Rating
Rate1 Maturity Face Amount Value Moody's/S&P
------ -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE NOTES -- 0.4%
General Electric Capital Corporation 8.75% 11/26/96 $ 5,000,000 5,113,757 P1/A-1+
------------ -------------
Total Corporate Notes (cost $5,113,757) 5,000,000 5,113,757
------------ -------------
TOTAL INVESTMENT SECURITIES (COST $1,276,353,495)3-- 100.4% 1,277,973,000 1,276,353,495
------------ -------------
Liabilities less other assets-- (0.4%) (5,700,092)
-------------
Net assets-- 100% $1,270,653,403
=============
- -------------------
1 The rate for Commercial Paper and Agency Discount Notes is the yield to maturity as of February 29, 1996. The rate for all
other securities is the stated coupon rate.
2 These maturity dates represent the next interest rate reset date. This date is used to calculate the Fund's average days
to maturity.
3 Cost for financial reporting and federal income tax purposes is the same.
4 Rated by Fitch Information Services, Inc.
</TABLE>
DEFINITIONS
NR -- Not Rated
CAP -- A predetermined rate that a fixed-income security's coupon will never
exceed, regardless of where the coupon formula resets. A cap limits the
investor's coupon payments, regardless of how high interest rates rise. In
volatile interest rate environments, caps can cause and amplify price
instability for fixed-rate securities. Therefore, it has always been the policy
of the Fund to not purchase floating-rate notes with caps.
RESETS -- The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
LIBOR -- London Interbank Offered Rate on Eurodollar deposits traded between
banks. LIBOR is a "money market rate." LIBOR is the interest rate that most
banks and corporations track when determining the rate they'll pay to investors
on short-term debt.
EFFECTIVE FEDERAL FUNDS RATE -- The average rate at which the federal funds rate
traded in a given day. The federal funds rate is the rate that banks charge each
other for unsecured overnight loans, and is considered a "money market rate."
- -------------------
See the accompanying notes to financial statements.
24
TRUSTEES
James M. Benham
Albert A. Eisenstat
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers, III
Jeanne D. Wohlers
OFFICERS
James M. Benham
Chairman of the Board
John T. Kataoka
President and Chief Executive Officer
Maryanne Roepke
Treasurer and Chief Financial Officer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus.
Benham Distributors, Inc. 4/96 Q061
