BENHAM
CAPITAL MANAGER
FUND
Semiannual Report
May 31, 1996
[picture of pie slices representing
investments in the fund]
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
<PAGE>
CONTENTS
ECONOMIC REVIEW....................................... 1
PERFORMANCE INFORMATION
Total Returns and Performance Comparison.............. 2
Performance Review.................................... 3
ASSET ALLOCATION
Fund Asset Mix........................................ 4
Strategy Review....................................... 5
PORTFOLIO SNAPSHOT
U.S. Stocks, Foreign Stocks &
Natural Resources-Linked Investments............... 6
U.S. Bonds, Foreign Bonds & Money Market Securities... 7
INVESTMENT MARKET SUMMARIES........................... 8
MANAGEMENT DISCUSSION.................................11
INVESTMENT FUNDAMENTALS
Asset Allocation Basics...............................13
Stock Terms and Management Approach...................14
Fixed-Income Security Types...........................15
Fixed-Income Sensitivity Measures.....................16
Foreign Investments...................................17
FINANCIAL INFORMATION (UNAUDITED)
Financial Highlights..................................19
Financial Statements and Notes........................20
Schedule of Investments...............................28
<PAGE>
ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
During the first half of 1996, the global economy began to shake itself out of
the lethargy that developed in 1995. In the U.S., a series of short-term
interest rate cuts by the Federal Reserve sparked renewed economic growth, led
by the strongest employment increase in more than eight years. After a prolonged
recession that featured deflation and a major banking crisis, the Japanese
economy surged in the first quarter of 1996 (see the graph below). Although this
level of economic growth is clearly unsustainable, there are signs of a
widespread recovery in Japan--consumer spending has rebounded, demand for
imported goods has strengthened, and a broad assortment of industries have
experienced improved business conditions.
[mountain graph on left side of page. graph data described below]
Europe remained among the weakest regions for economic growth. Germany
experienced two consecutive quarters of negative economic growth, which would
meet the conditions for a recession in the U.S. The rest of the continent
produced slightly positive growth, but Europe as a whole continues to be plagued
by high levels of unemployment and sizable government deficits. The exception is
the United Kingdom, which is in the late stages of an extended economic
recovery.
Global inflation continued to be a non-issue. Despite rebounding economic
growth, Japan is still in a deflationary environment (falling prices). The
inflation rate has increased slightly in the U.S., but it continues to be
relatively benign. However, as economic growth in each of these countries
expands, both the Federal Reserve and the Bank of Japan will be monitoring
inflation closely.
Global economic growth should continue to rebound during the remainder of 1996.
Interest rate cuts and a weaker currency are expected to enable Germany to begin
recovery later this year and into 1997. The rest of Europe is likely to follow
Germany's lead, although the development of European monetary union will be a
drag on economic growth for the next couple of years. Japan appears to be on
track for a long-awaited economic recovery, while the U.S. has returned to a
moderate level of economic growth. Even Mexico, whose economy was battered by a
currency devaluation in late 1994 and rampant inflation in 1995, may achieve
positive economic growth this year.
[graph data]
Economic Growth (GDP)
Year-Over-Year % Change
Japan Germany U.S.
3/31/93 -0.4% -2.1% 2.46%
6/30/93 -0.02 -1.46 2.24
9/30/93 0.66 -0.61 2.07
12/31/93 0.17 -0.63 2.16
3/31/94 0.2 2.38 2.81
6/30/94 0.58 2.95 3.59
9/30/94 1.01 2.84 3.9
12/31/94 0.39 3.71 3.52
3/31/95 0.12 2.79 3.03
6/30/95 0.31 2.6 1.94
9/30/95 0.25 2.05 1.94
12/31/95 2.25 1.01 1.27
3/31/96 5.7 0.42 1.7
6/30/96 2.41 -0.12 2.36
9/30/96e 2.54 0.25 2.06
12/31/96e 2.43 1.1 2.28
3/31/97e 3.16 1.76 1.99
6/30/97e 3.46 2.24 1.55
9/30/97e 3.7 2.57 1.47
12/31/97e 3.78 2.56 1.61
Source: DRI/McGraw-Hill
1
PERFORMANCE INFORMATION
NAV AND AVERAGE ANNUAL TOTAL RETURNS
For Periods Ended May 31, 1996
AVERAGE ANNUAL TOTAL RETURNS
NET ASSET VALUE RANGE ----------------------------------------------
(12/1/95-5/31/96) 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
----------------------------------------------
$11.46-$12.07 13.04% N/A N/A 17.61%
The Fund commenced operations on December 1, 1994.
NET ASSET VALUE (NAV) RANGE indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
TOTAL RETURN figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. AVERAGE ANNUAL TOTAL RETURNS illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 19.
PLEASE NOTE: Total returns are based on historical Fund performance and do not
guarantee future results. The Fund's share price and total returns will vary, so
that shares, when redeemed, may be worth more or less than their original cost.
SEC PERFORMANCE COMPARISON
Comparative Performance of $10,000 Invested on 12/1/94 in the Fund,
in the S&P 500, in the Lehman Brothers Aggregate Bond Index and
in the Three-Month U.S. Treasury Bill
[mountain graph]
[graph data]
S&P 500 Bond Index 3-Month T-Bill Fund
11/94 $10,000 $10,000 $10,000 $10,000
12/94 10,148.3 10,069 10,045 10,163.7
1/95 10,411.5 10,268.4 10,092.2 10,264
2/95 10,817.2 10,512.8 10,136.6 10,504.8
3/95 11,136.4 10,576.9 10,187.3 10,745.7
4/95 11,464.4 10,725 10,237.2 10,937.6
5/95 11,922.6 11,140 10,288.4 11,281
6/95 12,199.5 11,221.3 10,337.8 11,361.9
7/95 12,604.1 11,196.6 10,388.4 11,545.2
8/95 12,635.7 11,332.1 10,438.3 11,535
9/95 13,169 11,442 10,485.3 11,738.8
10/95 13,121.9 11,590.8 10,533.6 11,697.7
11/95 13,698 11,764.7 10,580.3 12,005.6
12/95 13,961.8 11,929.4 10,628.6 12,176.9
1/96 14,437.1 12,008.1 10,676.4 12,440.2
2/96 14,570.9 11,799.2 10,720.1 12,514
3/96 14,711.2 11,716.6 10,765.7 12,539.3
4/96 14,928.1 11,651 10,809.9 12,677.5
5/96 15,313.1 11,627.6 10,856.3 12,752
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Standard & Poor's 500 Stock Index (S&P 500), over the life of the Fund. Because
the S&P 500 is made up exclusively of U.S. stocks and the Fund holds securities
other than U.S. stocks, we have also included the Lehman Brothers Aggregate Bond
Index and the Three-Month U.S. Treasury Bill. The securities owned by the Fund
and those composing the indexes are likely to be different, and any securities
that the Fund and the indexes have in common are likely to have different
weightings in the respective portfolios. Investors cannot invest directly in the
indexes.
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 total return lines of the indexes do not.
2
PERFORMANCE INFORMATION
PERFORMANCE REVIEW
For the six-month period ended May 31, 1996, the Fund produced a total return of
6.22%. This performance reflects the Fund's balance between stocks, which
performed well during the period, and bonds, which suffered declines (see the
chart below). The Fund's return was enhanced by the strong performance of gold
and other mining stocks, which produced returns of nearly 25% during the
six-month period. Although these securities represent just 3% of the Fund's
assets, they contributed nearly one-sixth of the Fund's return during the
period.
The Fund's total return of 13.04% for the one-year period ended May 31 trailed
the 18.39% average total return for its peer group (the "Flexible Funds"
category tracked by Lipper Analytical Services, an independent mutual fund
ranking service). Based on this performance, the Fund was ranked 149 out of the
176 funds in this category.
As we stated in our last Fund report, the Fund's conservative positioning tends
to result in lagging returns compared to its peer group when stocks are the
top-performing sector. In addition, some funds in the "Flexible Funds" group are
more flexible than others--they are permitted to concentrate their portfolios in
a single type of asset, and they can shift in and out of different assets on a
regular basis.
Such funds had the ability to avoid bonds during the recent market downturn.
Investment Market Returns
Total Returns for the Six-Month Period Ended May 31, 1996
U.S. STOCKS: Standard & Poor's 500 Stock Index................ 11.79%
U.S. BONDS: Salomon Brothers Broad
Investment Grade Bond Index ..................... -1.18%
MONEY MARKET
SECURITIES: Three-Month U.S. Treasury Bill................... 2.61%
FOREIGN STOCKS: Morgan Stanley Europe Australia
Far East (EAFE) Index............................ 7.29%
FOREIGN BONDS: J.P. Morgan Foreign Government Bond Index........ -0.53%
GOLD STOCKS: Philadelphia Gold and Silver Index............... 23.40%
Sources: Bloomberg Financial Markets; Salomon Brothers, Inc.; J.P. Morgan
Investment Management Inc.
See pages 8-10 for a more detailed discussion of these markets.
3
ASSET ALLOCATION
FUND ASSET MIX
As of May 31, 1996
[pie chart]
U.S. Stocks: 32.0%
Foreign Stocks: 7.4%
Natural Resources-Linked Investments: 3.0%
Money Market Securities: 14.2%
Foreign Bonds: 5.6%
U.S. Bonds: 37.8%
COMPARISON TO NEUTRAL ASSET MIX
FUND AS OF FUND AS OF "NEUTRAL"
ASSET 5/31/96 11/30/95 ASSET MIX*
- ----- ----------- ---------- ----------
U.S. Stocks 32.0% 37.7% 35.0%
Foreign Stocks 7.4% 6.8% 6.0%
U.S. Bonds 37.8% 33.1% 35.0%
Foreign Bonds 5.6% 5.9% 6.0%
Money Market Securities 14.2% 13.5% 15.0%
Natural Resources-
Linked Investments 3.0% 3.0% 3.0%
------- ------- ------
TOTALS 100.0% 100.0% 100.0%
* see page 13 for more details about the Fund's neutral asset mix
The Fund's asset mix may change over time.
4
ASSET ALLOCATION
STRATEGY REVIEW
by Jeff Tyler, Senior Vice President and Portfolio Manager
At the beginning of the six-month period ended May 31, 1996, the Fund was
overweighted in U.S. and foreign stocks, underweighted in U.S. bonds, and
neutral in foreign bonds and cash (see the 11/30/95 asset mix on page 4). We
maintained this asset allocation structure for most of the period, and it proved
to be favorable--stocks (both domestic and foreign) were the top performers
during the period, while U.S. bonds suffered losses.
By April, however, the dramatic rise in U.S. bond yields began to make domestic
bonds look attractive, while the U.S. stock market appeared to be overpriced
after 16 months of strong gains. As a result, we took profits by selling some of
the Fund's domestic stocks, and we shifted the proceeds into the U.S. bond
market. By the end of the period, the Fund's domestic holdings had reversed--the
Fund was overweighted in U.S. bonds and underweighted in U.S. stocks (see the
5/31/96 asset mix on page 4).
We also made some changes to the Fund`s natural resources-linked investments.
Although the Fund's neutral 3% weighting remained the same throughout the
period, our stock selection turned more aggressive. We focused the Fund's
natural resources holdings on the stocks of exploration companies, which tend to
be more volatile than typical mining stocks. These stocks surged during the
period, enhancing the Fund's overall return.
We also continued to hedge a portion of the Fund's foreign investments (see page
17 for a description of currency hedging). We hedged the Fund's two largest
currency positions--the Japanese yen and the German mark. This strategy enhanced
the performance of the Fund's Japanese and German holdings as the U.S. dollar
strengthened against both currencies. By April, we decided to discontinue our
hedging strategy--the dollar had risen by nearly 7% against the mark and more
than 25% against the yen since we began hedging these currencies in June 1995.
NOTE: THE MARKET SUMMARIES SECTION ON PAGES 8-10 PROVIDES A REVIEW OF THE
PERFORMANCES OF THE VARIOUS INVESTMENT MARKETS MENTIONED ABOVE. IN
ADDITION, THE MANAGEMENT DISCUSSION SECTION ON PAGES 11-12 ADDRESSES
THE FUND'S ASSET ALLOCATION STRATEGY FOR THE SECOND HALF OF 1996.
5
PORTFOLIO SNAPSHOT
U.S. STOCKS--32.0%
As of May 31, 1996
Number of Companies: 153
Dividend Yield:* 2.00%
Price/Earnings Ratio:* 15.9
TOP FIVE STOCKS
COMPANY % OF FUND'S U.S. STOCKS % OF FUND
- --------- ---------------------- ----------
Bristol Myers Squibb 2.9% 0.9%
Exxon Corporation 2.9% 0.9%
Johnson & Johnson 2.4% 0.8%
Philip Morris Companies, Inc. 2.1% 0.7%
IBM Corporation 1.9% 0.6%
FOREIGN STOCKS--7.4%
As of May 31, 1996
Number of Companies: 49 [pie chart]
Dividend Yield:* 2.18% Europe: 42.5%
Price/Earnings Ratio:* 26.3 Asia/Pacific: 57.5%
TOP FIVE STOCKS
% OF FUND'S
COMPANY COUNTRY FOREIGN STOCKS % OF FUND
- --------- -------- -------------- ----------
Royal Dutch Petroleum Netherlands 5.3% 0.4%
Nestle SA Switzerland 4.7% 0.3%
Tokyo Electric Power Japan 3.8% 0.3%
Toyota Motor Corporation Japan 3.8% 0.3%
Hang Seng Bank Hong Kong 3.1% 0.2%
NATURAL RESOURCES-LINKED INVESTMENTS--3.0%
As of May 31, 1996
[pie charts]
Number of Companies: 12
Canada: 61.1% Gold Mining Stocks: 51.8%
U.S.: 30.8% Other Mining Stocks: 48.2%
South Africa: 4.7%
Ghana: 3.4%
* defined on page 14
The composition of the Fund's holdings may change over time.
6
PORTFOLIO SNAPSHOT
U.S. BONDS--37.8%
As of May 31, 1996
Number of Issues: 34
Average Maturity:+ 7.06 years
Average Duration:+ 4.70 years
[pie chart]
U.S. Treasury Notes: 45.4%
Mortgage-Backed Securities: 27.2%
Corporate Securities: 16.4%
U.S. Treasury Bonds: 6.2%
U.S. Govt. Agency Securities: 4.8%
These security types are defined on page 15.
FOREIGN BONDS--5.6%
As of May 31, 1996
Number of Issues: 16
Average Maturity:+ 5.65 years
Average Duration:+ 4.57 years
[pie chart]
Europe: 73.4%
Asia/Pacific: 22.9%
Americas (excluding U.S.): 3.7%
MONEY MARKET SECURITIES--14.2%
As of May 31, 1996
Number of Issues: 12
Average Maturity:+ 51 days
[pie chart]
Commercial Paper: 74.9%
Repurchase Agreements: 12.8%
Certificates of Deposit: 12.3%
These security types are defined on page 15.
+ defined on page 16
The composition of the Fund's holdings may change over time.
7
MARKET SUMMARIES
INVESTMENT MARKETS REVIEW
by Jeff Tyler, Senior Vice President and Portfolio Manager
U.S. STOCKS
U.S. stocks continued to rise steadily during the six-month period ended May 31,
1996. The gains in the domestic stock market resulted largely from record cash
flows into stock mutual funds. Through the first five months of 1996, investors
poured $124 billion into stock funds, just $5 billion short of the total for the
entire year in 1995. Corporate earnings growth, which helped domestic stock
indexes produce returns of more than 30% in 1995, slowed considerably during the
period.
[mountain graph on left side of page. graph data described below]
In 1995, cost-cutting efforts and steady earnings growth enabled
large-capitalization stocks to outperform small-capitalization stocks. Small-cap
stocks continued to lag behind in the first quarter of 1996 as money managers
found it easier to deploy incoming cash in large-cap issues. However, small-cap
stocks surged in April and May on the heels of a rebound in technology stocks,
while larger multinational firms suffered lower profits as the U.S. dollar
strengthened against most foreign currencies.
This shift enabled small-cap stocks to outperform large-cap stocks during the
six-month period. The Russell 2000 Index, a broad index of small-cap stocks,
posted a total return of 18.12% for the six months ended May 31, 1996, while the
S&P 500 Index, a broad index of large-cap stocks, returned 11.79% over the same
period (see the graph above).
Among specific industries, the technology sector was one of the better
performers, led by computer software and network companies. Evidence of stronger
U.S. economic growth also provided a boost to cyclical stocks, which tend to
perform well in an improving economic climate.
Lagging industry sectors included financial stocks, which were hampered by
rising interest rates.
U.S. BONDS
Resurgent U.S. economic growth (see page 1) had an adverse effect on the
domestic bond market during the six months ended May 31. Reports of healthier
economic growth in early 1996 sparked fears of inflation, and these concerns
sent the U.S. bond market into a tailspin. After a slight rally in December and
January, bond prices plunged and yields rose between February and May.
[graph data]
U.S. STOCKS:
$1 Invested in the S&P 500
and Russell 2000 Indexes
12/1/95-5/31/96
Russell 2000 Index S&P 500 Index
11/95 $1 $1
12/95 1.02638 1.01926
1/96 1.02527 1.05396
2/96 1.05723 1.06373
3/96 1.07874 1.07397
4/96 1.13642 1.0898
5/96 1.18121 1.11791
Source: Ibbotson Associates
8
MARKET SUMMARIES
INVESTMENT MARKETS REVIEW
(Continued from the previous page)
The accompanying yield curve graph illustrates the recent bond market decline.
Between November 30, 1995, and January 31, 1996, continued economic weakness and
a short-term interest rate cut by the Fed resulted in lower interest rates and
higher bond prices. However, yields surged across the board between February and
May, especially among longer-maturity bonds--after bottoming around 6% in
January, the 30-year Treasury bond yield soared above 7% in May.
[mountain graph on right side of page. graph data described below.]
As a result, 30-year Treasury bonds suffered the biggest price declines,
producing a total return of -8.39% during the six months ended May 31.
Shorter-term bonds fared a little better--for example, two-year Treasury notes
provided a modest return of 1.14% during the six-month period.
Among specific bond types, mortgage-backed securities were the best-performing
fixed-income sector during the period. Slowing refinancing activity in the
mortgage market restrained price declines, and the higher yields of
mortgage-backed securities provided additional interest income compared to
Treasury securities. Corporate bonds benefited from improvements in credit
quality, while Treasury securities lagged behind all other fixed-income sectors.
MONEY MARKET SECURITIES
U.S. money market yields declined slightly during the six-month period. Yields
began the period around 5.50% but fell to 5.25% when the Fed cut short-term
interest rates in January. Money market yields dropped to nearly 5.00% as the
market priced in expectations that the Fed would continue to lower short-term
rates. However, when reports of stronger economic growth were released, these
expectations disappeared, and money market yields rose back to 5.25% by the end
of the period.
FOREIGN STOCKS
Like the U.S. stock market, most foreign equity markets experienced gains during
the six months ended May 31. Stock markets in many developed countries, such as
Europe and Japan, posted double-digit returns. Emerging markets, such as those
in the Philippines, Venezuela and Taiwan, fared even better, surging past more
mature stock markets early in the year.
[graph data]
U.S. BONDS:
The Shifting Treasury Yield Curve
Years to maturity 11/30/95 1/31/96 5/31/96
"1" 5.364% 4.903% 5.755%
"2" 5.374 4.941 6.261
"3" 5.421 5.065 6.425
5.4775 5.152 6.533
"5" 5.534 5.239 6.641
5.578 5.3095 6.684
"7" 5.622 5.38 6.727
5.666 5.4477 6.7693
5.71 5.5153 6.8117
"10" 5.754 5.583 6.854
5.7734 5.6059 6.861
5.7927 5.6288 6.868
5.8121 5.6517 6.875
5.8314 5.6746 6.882
"15" 5.8508 5.6975 6.889
5.8701 5.7204 6.896
5.8895 5.7433 6.903
5.9088 5.7662 6.91
5.9282 5.7891 6.917
"20" 5.9475 5.812 6.924
5.9669 5.8349 6.931
5.9862 5.8578 6.938
6.0056 5.8807 6.945
6.0249 5.9036 6.952
"25" 6.0443 5.9265 6.959
6.0636 5.9494 6.966
6.083 5.9723 6.973
6.1023 5.9952 6.98
6.1217 6.0181 6.987
"30" 6.141 6.041 6.994
Source: Bloomberg Financial Markets
9
MARKET SUMMARIES
INVESTMENT MARKETS REVIEW
(Continued from the previous page)
However, these foreign stock returns were strong only when valued in local
currencies; when translated into U.S. dollars, foreign stock returns lagged
behind the returns of domestic stocks. The dollar's steady increase in value,
including a 6% rise against the German mark and a 7% increase against the
Japanese yen (see the graph below), restrained foreign stock returns for U.S.
investors. For example, the Morgan Stanley EAFE Index, a widely followed index
of international stocks, produced a return of 11.20% in local currencies during
the six-month period. But in U.S. dollars, the EAFE Index posted a return of
7.29%.
[mountain graph on left side of page. graph data described below]
FOREIGN BONDS
For the six months ended May 31, foreign bond returns were fairly flat. Stagnant
economic growth, especially in Europe and Japan, caused many foreign governments
to cut short-term interest rates in 1995, but these rate cuts are only now
beginning to bring about improved economic conditions. In this environment, most
foreign bond markets held relatively steady, outperforming the slumping U.S.
bond market.
As with foreign stocks, the strengthening dollar reduced foreign bond returns
for U.S. investors. The J.P. Morgan Foreign Government Bond Index, a broad index
of foreign bonds, posted a return of 0.48% in local currencies during the
six-month period, but this return was reduced to -0.53% in U.S. dollars.
Nonetheless, this performance was superior to U.S. bond market returns.
The exceptions to the flat bond market returns were the "high-yielding"
countries in western Europe (Italy, Spain, Sweden). Because of their weaker
economies and currencies, these countries have historically offered higher
yields on their bonds to entice investors. But as European monetary union moves
closer to becoming a reality, European bond yields are converging. Consequently,
the bond markets in these countries have rallied as their yields fall toward
levels comparable with the rest of Europe.
[graph data]
U.S. Dollar Priced in
Yen and Deutschemarks
12/95-5/96
Yen/$(Left Scale) DM/$ (Right Scale)
12/1/95 101.56 12/1/95 1.4487
12/8/95 101.4 12/8/95 1.4465
12/15/95 101.92 12/15/95 1.4418
12/22/95 102.34 12/22/95 1.443
12/29/95 102.95 12/29/95 1.4315
1/5/96 105.05 1/5/96 1.4455
1/12/96 105.22 1/12/96 1.443
1/19/96 105.5 1/19/96 1.4774
1/26/96 106.6 1/26/96 1.4867
2/2/96 106.62 2/2/96 1.4892
2/9/96 106.77 2/9/96 1.4763
2/16/96 105.76 2/16/96 1.468
2/23/96 105.16 2/23/96 1.4568
3/1/96 105.59 3/1/96 1.4789
3/8/96 105.63 3/8/96 1.4799
3/15/96 105.73 3/15/96 1.4727
3/22/96 106.765 3/22/96 1.4789
3/29/96 106.47 3/29/96 1.476
4/5/96 106.975 4/5/96 1.4802
4/12/96 108.5 4/12/96 1.5019
4/19/96 106.81 4/19/96 1.5015
4/26/96 106.725 4/26/96 1.5313
5/3/96 104.37 5/3/96 1.5279
5/10/96 104.745 5/10/96 1.5188
5/17/96 106.575 5/17/96 1.595
5/24/96 106.975 5/24/96 1.5415
5/31/96 108.45 5/31/96 1.5345
Source: Bloomberg Financial Markets
10
MANAGEMENT DISCUSSION
QUESTIONS AND ANSWERS
with Jeff Tyler, Senior Vice President and Portfolio Manager
Q: What is your asset allocation strategy for the remainder of 1996?
A: Right now, the Fund is positioned fairly conservatively, with a roughly
neutral weighting in U.S. stocks and an overweighting in domestic
bonds. Over the next few months, we may look to reduce the Fund's
domestic stock holdings. We would likely shift these assets into
foreign stocks, adding to an already overweighted position.
Q: You appear to have a negative outlook on U.S. stocks. Do you believe
the stock market has reached its peak?
A: By most fundamental measures, the U.S. stock market is overpriced--it
has been driven up beyond fundamental value levels by heavy inflows of
cash. With corporate earnings growth decelerating and bond yields at
relatively high levels, this dependence on cash flows puts the stock
market in an increasingly vulnerable position. In addition, from a
historical perspective, declining earnings and rising interest rates
have been a bad combination for U.S. stocks. We don't profess to be
market timers predicting the end of a stock market rally--we simply
believe that there are better opportunities elsewhere, and the Fund's
asset allocation structure reflects this belief.
Q: It seems that one of these "better opportunities" is the U.S. bond
market, which has been battered so far in 1996. What's your outlook for
domestic bonds?
A: Bonds have taken a beating this year, but we think the worst is over.
With the 30-year Treasury bond yield now hovering around 7%, U.S. bond
yields are fairly attractive at their current levels. There is still
some risk that interest rates could rise further, especially if wage
pressures lead to increased inflation. However, we believe that the
potential downside in the U.S. bond market is much lower than in the
U.S. stock market. In addition, current economic conditions--moderate
growth and low inflation--provide a favorable environment for bonds. We
believe that U.S. bonds will outperform U.S. stocks during the next six
months.
Q: You also mentioned that you plan to continue adding to the Fund's
overweighted foreign stock position. Why?
A: We have been singing the praises of foreign equities for over a year,
and they have produced solid returns during that period. However, their
performance has lagged compared to the stellar returns of their U.S.
counterparts. As a result, they remain attractively priced relative to
the domestic stock market. We still see plenty of good investment
11
MANAGEMENT DISCUSSION
QUESTIONS AND ANSWERS
(Continued from the previous page)
opportunities among international stocks. Positive factors include the
recent signs of economic recovery in many countries, which should lead
to improved corporate earnings growth.
Among specific countries, we particularly like Japan, which currently
makes up nearly half of the Fund's foreign stock holdings. Booming
economic growth boosted the Japanese stock market by more than 13%
during the first half of 1996, and we expect more of the same for the
second half of the year. Other Asian markets should also benefit from
the improving Japanese economy.
Q: With regard to the Fund's foreign investments, you discontinued your
currency hedging strategy in April. Do you plan to revive this strategy
later in the year?
A: For the most part, we plan to avoid hedging any foreign currencies for
the remainder of this year (see page 17 for a description of currency
hedging). Over the past nine months, the dollar has strengthened to the
point where we believe that it is fairly valued in relation to other
currencies. As a result, we see more value in providing currency
diversification than in hedging against a stronger dollar.
However, we may consider hedging a portion of the Fund's German
investments later this year. Germany's tight monetary policy and the
effects of leading the move toward European monetary union could weigh
heavily on both its economy and its currency. We see some potential
benefits to a currency hedge in this situation.
Q: In the Asset Allocation Strategy Review (see page 5), you mentioned a
more aggressive approach in the Fund's natural resources-linked
investments. Do you plan to maintain this approach going forward?
A: No. In fact, we sold many of the Fund's more volatile mining stocks in
April and May, locking in some profits. The Fund's natural resources
stocks are now more representative of the broader mining industry. This
proved to be a beneficial move because stock prices in this sector
plummeted in June--many gold stocks suffered 15-20% declines, while
some exploration companies plunged as much as 50-75%. We anticipate
maintaining a more conservative stance within this portion of the Fund
going forward.
12
INVESTMENT FUNDAMENTALS
ASSET ALLOCATION BASICS
DIVERSIFICATION
One of the most important components of any investment strategy is
diversification--distributing your financial assets among investments that
respond differently to market events. Diversification enables you to pursue
multiple investment goals while helping to balance risk and return. Over the
long term, a diversified portfolio has the potential to produce competitive
returns with less risk than a portfolio concentrated in one or two types of
investments.
The Fund was created to provide a convenient and conservative way to diversify
an investment portfolio. Investors who do not have the time or inclination to
build a diversified portfolio on their own can use the Fund as a "one-stop"
diversification source. Investors who do have the time and inclination can use
the Fund as a base investment in constructing their own diversified portfolios.
THE FUND'S "NEUTRAL" ASSET MIX
The Fund has a conservative "neutral" asset mix (see the graph below) that
represents its general diversification strategy over the long term. The Fund's
assets are distributed primarily among three core investments--U.S. stocks, U.S.
bonds and money market securities--which make up 85% of the Fund's neutral
portfolio. The remaining assets are invested in "diversifiers"--foreign stocks,
foreign bonds and natural resources stocks--to hedge against inflation and
declines in the U.S. dollar.
Based on this neutral portfolio, we have the flexibility to gradually adjust the
Fund's holdings as market and economic conditions change. The key word here is
gradually--we do not make frequent or drastic changes to the Fund's portfolio.
This gradual approach enables us to respond to changing market conditions while
keeping Fund transactions to a minimum.
Key decisions relating to the Fund's asset allocation strategy are made by an
asset allocation committee, whose members include Jim Benham, Randy Merk and
several senior executives and Benham fund managers. This committee meets each
month to review the Fund manager's recommended asset allocation structure.
[pie chart on right side of page]
U.S. Stocks: 35%
(operating range: 25-45%)
U.S. Bonds: 35%
(operating range: 25-45%)
Money Market
Securities: 15%
(operating range: 10-25%)
Foreign Stocks
and Bonds: 12%
(operating range: 5-25%)
Natural Resources-
Linked Investments: 3%
(operating range: 0-10%)
13
INVESTMENT FUNDAMENTALS
STOCK TERMS AND MANAGEMENT APPROACH
STOCK DEFINITIONS
Dividend Yield--a percentage return calculated by dividing a company's annual
cash dividend by the current market value of the company's stock.
Price/Earnings (P/E) Ratio--a stock value measurement calculated by dividing a
company's stock price by its earnings per share, with the result expressed as a
multiple instead of as a percentage. (Earnings per share is calculated by
dividing the after-tax earnings of a corporation by its outstanding shares.)
STOCK MANAGEMENT APPROACH
We select U.S. and foreign stocks for the Fund using the active quantitative
approach employed by the Benham equity funds. Starting with a benchmark index
(see below for the domestic and foreign stock indexes used by the Fund), we
construct a stock portfolio that seeks to provide the highest expected return
with the least amount of deviation from the benchmark index.
We review various stocks and give each a "score" based on its expected
performance. Our evaluation assesses past and future earnings growth as well as
relative price. After we've given each stock a score, we employ a process called
portfolio optimization--a computer program modifies each stock's score based on
risk and diversification factors and then creates an "optimal" portfolio of
stocks. Each stock in this portfolio then undergoes a rigorous quality check by
our stock analysts before it is purchased by the Fund.
STOCK INDEXES
The following stock indexes are used as benchmarks in the U.S. and foreign stock
portions of the Fund's portfolio:
U.S. STOCKS: Standard & Poor's 500 Index (S&P 500)--consists of the 500 largest
companies traded on the New York Stock Exchange. Although the S&P 500 represents
less than 10% of all U.S. stocks, these 500 companies make up approximately 80%
of the total market capitalization of the U.S. stock market. The S&P 500 is
considered to be a broad measure of overall U.S. stock market performance and is
commonly used as a benchmark for the performance of individual U.S. stocks and
domestic stock mutual funds.
FOREIGN STOCKS: Morgan Stanley Europe Australia Far East (EAFE) Index--consists
of 1,600 stocks in 20 countries. The EAFE Index is concentrated in the stock
markets of developed countries; it does not include most emerging markets. The
EAFE Index is considered to be a broad measure of international stock
performance, and it is calculated in both local currencies and in U.S. dollars.
FOR MORE INFORMATION ABOUT THE FUND'S FOREIGN HOLDINGS, SEE PAGE 17.
14
INVESTMENT FUNDAMENTALS
FIXED-INCOME SECURITY TYPES
The following list of fixed-income security types includes both bonds and money
market securities.
CERTIFICATES OF DEPOSIT (CDS)--CDs represent a bank's obligation to repay money
deposited with it for a specified period of time. The Fund typically invests in
short-term CDs.
CORPORATE SECURITIES--debt securities or instruments issued by companies and
corporations. Short-term corporate securities or instruments (e.g., commercial
paper, banker's acceptances) are typically issued to raise cash and cover
current expenses in anticipation of future revenues; long-term corporate
securities (e.g., corporate bonds) are typically issued to finance capital
expenditures such as new plant construction or equipment purchases. The Fund may
purchase corporate bonds from both domestic and foreign companies.
FOREIGN GOVERNMENT SECURITIES--debt securities issued or guaranteed by foreign
governments or their political subdivisions. Some of these securities are direct
obligations of the issuing government; others are backed by some form of
government sponsorship. (See page 17 for more details relating to foreign
securities.)
MORTGAGE-BACKED SECURITIES--debt securities that represent ownership in pools of
mortgage loans. Most mortgage-backed securities are structured as
"pass-throughs"--the monthly payments of principal and interest on the mortgages
in the pool are collected by the bank that securitized the mortgages and are
"passed through" to investors. While the payments of principal and interest are
considered secure (many are backed by government agency guarantees), the cash
flow is less certain than in other fixed-income investments. Mortgages that are
paid off early reduce future interest payments from the pool.
REPURCHASE AGREEMENTS (REPOS)--short-term agreements in which the Fund buys a
security at one price and simultaneously agrees to sell it back to the seller at
a slightly higher price on a specified date (usually within seven days). The
Fund typically invests in repos backed by U.S. Treasury securities.
U.S. GOVERNMENT AGENCY SECURITIES--debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
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).
U.S. 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).
15
INVESTMENT FUNDAMENTALS
FIXED-INCOME SENSITIVITY MEASURES
DURATION
Duration measures the price sensitivity of a bond or bond portfolio to changes
in interest rates. Specifically, duration represents the approximate percentage
change in the price of a bond or bond portfolio if interest rates move up or
down by 100 basis points (a basis point equals 0.01%). For example, suppose a
short-term bond's duration is two years, while a long-term bond's duration is
eight years. If interest rates were to rise by 100 basis points, the price of
the short-term bond would be expected to decline by 2%, while the long-term
bond's price would decline by 8%. Conversely, if interest rates were to fall by
100 basis points, the price of the short-term bond would be expected to increase
by 2%, while the long-term bond's price would increase by 8%.
As this example illustrates, the longer the duration, the more bond or bond
portfolio prices 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 the effects of bond price increases) and as short as possible
when interest rates rise (to minimize the effects of 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 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 ten-year average maturity
has much more potential exposure to interest rate changes than a portfolio with
a one-year average maturity.
Portfolio managers generally lengthen average maturities when interest rates
fall (to maximize exposure and capture as much price appreciation as possible)
and reduce average maturities when interest rates rise (to minimize exposure and
avoid as much price depreciation as possible), as long as this strategy is
compatible with the objectives of the portfolio. Reducing the average maturity
in a rising interest rate environment allows the portfolio manager to more
quickly reinvest matured assets in higher-yielding securities.
16
INVESTMENT FUNDAMENTALS
FOREIGN INVESTMENTS
CURRENCY FLUCTUATIONS
The total returns of the Fund's foreign holdings are affected by currency
fluctuations--the movement of foreign currency values in relation to the U.S.
dollar. Currency exchange rates come into play when income, gains and losses
from foreign securities are converted into U.S.
dollars.
Changing currency values may have a greater effect on the total returns of the
Fund's foreign holdings than changing interest rates and security prices. A
stronger U.S. dollar typically reduces the Fund's returns from its foreign
holdings (gains earned in foreign currencies translate into fewer dollars),
while a weaker dollar enhances the Fund's returns from its foreign holdings
(gains earned in foreign currencies translate into more dollars).
CURRENCY HEDGES
Currency hedging is an investment strategy designed to reduce or eliminate the
effects of currency fluctuations on foreign stock and bond returns. Because a
weaker U.S. dollar enhances returns from foreign holdings, currency hedging is
typically used to offset currency losses when the dollar is strengthening.
Hedging can also be used to simply create a "pure play" on foreign securities.
For the Fund, currency hedges typically involve forward currency contracts that
allow the Fund to lock in a specific exchange rate. Although the Fund is
permitted to hedge as much as 100% of its foreign holdings, it generally will
not do so--one of the main purposes of the Fund's foreign assets is to diversify
a portion of the Fund's portfolio out of U.S. dollar-denominated investments.
THE FUND'S EXPOSURE TO FOREIGN CURRENCIES
As of May 31, 1996, the Fund owned securities denominated in 18 different
foreign currencies. The Fund's ten largest currency positions (as of May 31,
1996) are listed below.
COUNTRY % OF FUND
Japan (yen) ........................................... 4.1%
Germany (deutschemark) ................................ 2.2%
Canada (dollar) ....................................... 1.4%
United Kingdom (pound) ................................ 1.1%
France (franc) ........................................ 0.8%
Netherlands (guilder) ................................. 0.8%
Italy (lira) .......................................... 0.5%
Switzerland (franc) ................................... 0.5%
Hong Kong (dollar) .................................... 0.5%
Spain (peseta) ........................................ 0.5%
17
[THIS PAGE INTENTIONALLY LEFT BLANK]
18
<TABLE>
<CAPTION>
BENHAM CAPITAL MANAGER FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Indicated Periods
SIX MONTHS ENDED
MAY 31, 1996 YEAR ENDED
(UNAUDITED) NOV. 30, 1995++
---------------- ---------------
PER SHARE DATA
- --------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD........................................................... $ 11.70 10.00
Income from Investment Operations
Net Investment Income.......................................................................... .20 .36
Net Realized and Unrealized Gains on Investments and Foreign Currency Transactions............. .51 1.62
------- -------
Total Income from Investment Operations....................................................... .71 1.98
------- -------
Less Distributions
Dividends from Net Investment Income........................................................... (.24) (.28)
Distributions from Net Realized Gains on Investment Transactions............................... (.18) 0
------- -------
Total Distributions........................................................................... (.42) (.28)
------- -------
NET ASSET VALUE AT END OF PERIOD................................................................. $ 11.99 11.70
======= =======
TOTAL RETURN*.................................................................................... 6.22% 20.12%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)............................................ $ 80,490 51,157
Ratio of Expenses to Average Daily Net Assets+................................................... 1.01%** 1.01%
Ratio of Net Investment Income to Average Daily Net Assets+...................................... 3.44%** 3.70%
Portfolio Turnover Rate.......................................................................... 47.71% 100%
- -------------------
* The total return figures assume reinvestment of dividend and capital gain distributions and are not annualized.
**Annualized.
+ The ratios include expenses paid through expense offset arrangements.
++Inception date December 1, 1994.
</TABLE>
See the accompanying notes to financial statements.
19
<TABLE>
<CAPTION>
BENHAM CAPITAL MANAGER FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(Unaudited)
ASSETS
<S> <C>
Investment securities at value (cost $78,467,151) (Notes 1 and 4)..................................... $82,538,751
Foreign currency holdings, at value (cost $41,921).................................................... 42,107
Interest receivable................................................................................... 661,371
Dividends receivable.................................................................................. 89,015
Receivable for securities sold........................................................................ 1,143,240
Receivable for variation on futures contracts (Note 1)................................................ 159,295
Receivable for fund shares sold....................................................................... 18,025
Prepaid expenses...................................................................................... 74,547
----------
Total assets....................................................................................... 84,726,351
----------
LIABILITIES
Payable for securities purchased...................................................................... 3,885,040
Payable for fund shares redeemed...................................................................... 232,014
Accrued expenses and other liabilities (Note 2)....................................................... 73,093
Payable to affiliates (Note 2)........................................................................ 45,874
----------
Total liabilities................................................................................... 4,236,021
----------
NET ASSETS.............................................................................................. $80,490,330
==========
Net assets consist of:
Capital paid in ...................................................................................... $74,289,549
Undistributed net investment income................................................................... 265,040
Accumulated undistributed net realized gain from investments and foreign currency transactions........ 1,780,278
Net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies........................................ 4,155,463
----------
Net assets.............................................................................................. $80,490,330
==========
Net asset value, offering price and redemption price per share based on 6,715,895 shares of
beneficial interest outstanding (unlimited number of shares authorized).............................. $11.99
=====
- -------------------
</TABLE>
See the accompanying notes to financial statements.
20
<TABLE>
<CAPTION>
BENHAM CAPITAL MANAGER FUND
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 1996
(Unaudited)
INVESTMENT INCOME
<S> <C>
Dividends (net of foreign taxes withheld of $12,657)......................................... $ 306,187
Interest..................................................................................... 1,137,814
---------
Total income............................................................................... 1,444,001
---------
EXPENSES (NOTE 2)
Investment advisory fees..................................................................... 216,403
Administrative fees.......................................................................... 40,538
Transfer agency fees......................................................................... 38,874
Printing and postage......................................................................... 25,856
Custodian fees............................................................................... 26,101
Auditing and legal fees...................................................................... 19,003
Registration and filing fees................................................................. 6,741
Directors' fees and expenses................................................................. 11,540
Organizational expenses...................................................................... 8,299
Telephone expenses........................................................................... 5,006
Other operating expenses..................................................................... 853
---------
Total expenses............................................................................. 399,214
Amount waived (Note 2)......................................................................... (71,926)
Custodian earnings credits (Note 5)............................................................ (608)
---------
Net expenses................................................................................. 326,680
---------
Net investment income...................................................................... 1,117,321
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTES 1 AND 4) Net realized gain on:
Investments.................................................................................. 1,466,809
Foreign currency transactions................................................................ 146,141 1,612,950
---------
Net unrealized appreciation (depreciation) for the period on:
Investments.................................................................................. 1,090,266
Foreign currency transactions................................................................ (85,231) 1,005,035
--------- ---------
Net realized and unrealized gain on investments and foreign currency transactions............ 2,617,985
---------
Net increase in net assets resulting from operations........................................... $3,735,306
=========
- -------------------
</TABLE>
See the accompanying notes to financial statements.
21
<TABLE>
<CAPTION>
BENHAM CAPITAL MANAGER FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended May 31, 1996 (Unaudited), and Year Ended November 30, 1995
MAY 31, NOV. 30,
1996 1995
------------ ------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income.......................................................................... $ 1,117,321 1,172,478
Net realized gain on investments and foreign currency transactions............................. 1,612,950 1,002,805
Net unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies.......................................................................... 1,005,035 3,150,428
---------- ----------
Change in net assets derived from investment activities...................................... 3,735,306 5,325,711
---------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.......................................................................... (1,196,616) (846,212)
Net realized gains on investment transactions.................................................. (817,408) 0
---------- ----------
Total distributions to shareholders.......................................................... (2,014,024) (846,212)
---------- ----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 3):
Proceeds from sale of shares................................................................... 38,988,103 62,385,736
Net asset value of dividends reinvested........................................................ 1,939,256 801,795
Cost of shares redeemed........................................................................ (13,314,841) (16,610,500)
---------- ----------
Change in net assets derived from capital share transactions................................. 27,612,518 46,577,031
---------- ----------
Net increase in net assets................................................................... 29,333,800 51,056,530
NET ASSETS:
Beginning of period............................................................................ 51,156,530 100,000
---------- ----------
End of period (including undistributed net investment income of $265,040 and
$326,266, respectively)..................................................................... $80,490,330 51,156,530
========== ==========
- -------------------
</TABLE>
See the accompanying notes to financial statements.
22
BENHAM CAPITAL MANAGER FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
Benham Capital Manager Fund (the Fund) is an open-end, diversified management
investment company, registered under the Investment Company Act of 1940. It is
currently the sole Fund of Benham Manager Funds. The Fund seeks to maximize
total return (capital appreciation plus dividend income) consistent with prudent
investment risk. The Fund seeks to achieve these objectives by allocating its
assets among U.S. equity securities, U.S. fixed-income securities, money market
instruments, foreign equity and fixed-income securities, and securities with
substantial gold-related assets and natural-resource-linked investments.
Significant accounting policies followed by the Fund are summarized below.
VALUATION OF INVESTMENT SECURITIES--Investment securities, both foreign and
domestic, are valued at market as provided by an independent pricing service.
The pricing service values equity securities at the closing price on their
primary exchange and fixed- income securities at the closing price in the
principal market where they are traded. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the board of directors. Short-term securities are
valued at amortized cost, which approximates market value. Security 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 income or California
franchise taxes to the extent that it distributes substantially all of its net
investment income and net realized capital gains to shareholders.
Net realized gain (loss) on investments and foreign currency transactions differ
for financial statement and tax purposes primarily because of Internal Revenue
Code section 988, foreign exchange gain (loss) reclassifications to ordinary
income. The character of distributions made during the year from net investment
income or net realized gains for financial statement purposes may, therefore,
differ from their ultimate characterizations for federal income purposes.
23
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 the Fund.
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. Net asset values
fluctuate daily in response to changes in the market value of investments and
foreign currency translations.
INVESTMENT INCOME AND SHAREHOLDER DISTRIBUTIONS--Dividend income from investment
securities is recorded on the ex-dividend date. Interest income, including
amortization on a yield-to-maturity basis of bond discounts and premiums, and
Fund expenses are accrued daily. The Fund distributes dividends, if any,
quarterly. The Fund distributes net realized gains, if any, once per year.
Distributions may be paid in cash or reinvested as additional shares.
FOREIGN CURRENCY TRANSLATIONS--The functional currency of the Fund is the U.S.
dollar. Foreign-currency-denominated assets and liabilities are translated into
U.S. dollars at current exchange rates each day the Fund is open for business.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at prevailing exchange rates on the dates these transactions occur.
The Fund does not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.
Net realized gains on foreign currency transactions represent exchange gains or
losses from sales of portfolio securities, sales of foreign currencies, and the
difference between asset and liability amounts initially stated in foreign
currencies and the U.S. dollar value of the amounts actually received or paid.
Net unrealized currency gains and losses from valuing
foreign-currency-denominated assets and liabilities at period-end exchange rates
are reflected as a component of net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities in foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--A forward contract is a commitment
to purchase or sell a foreign currency at a future date at a negotiated forward
rate. In connection with purchases and sales of Fund securities denominated in a
foreign currency, the Fund may enter into forward foreign currency exchange
contracts. Additionally, the
24
Fund may enter into contracts in order to hedge its exposure to changes in
foreign currency exchange rates on its foreign portfolio holdings. These hedging
strategies, while reducing exchange rate risk, will also reduce the potential
for share price appreciation in the event the hedged currency increases in
value. Certain risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms prescribed. Contracts
are recorded at market value, which fluctuates with changes in currency exchange
rates. When the contracts are closed, realized gains and losses arising from the
difference between the original contracts and the closing of such contracts are
included in net realized gain (loss) on foreign currency transactions. Since the
economics of entering into offsetting contracts with the same settlement date
effectively closes a portion of the existing open contracts, purchase and sale
contracts with the same counterparty are presented net in the financial
statements. No contracts are outstanding as of May 31, 1996. The Fund does not
enter into forward contracts or maintain a net exposure to forward contracts
when the value of the contract would obligate the Fund to deliver an amount of a
currency in excess of the value of its securities or other assets denominated in
that currency.
FUTURES CONTRACTS--The Fund may buy and sell stock index futures contracts in
order to manage the Fund's exposure to changes in market conditions. One of the
risks of entering into futures contracts may include the possibility that the
change in value of the contract may not correlate with the changes in value of
the underlying securities. Upon entering into a futures contract, the Fund is
required to deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent payments
(variation margin) are made or received in cash by the Fund. The variation
margin is equal to the daily change in the contract value and is recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss when
the contract is closed or expires.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
ORGANIZATION COSTS--Costs incurred by the Fund in connection with the
organization, initial registration, and public offering of shares are being
amortized on a straight-line basis over a five-year period ending November 1999.
25
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc., merged into TCC on June 1, 1995. The Fund pays BMC a
monthly investment advisory fee equal to the following annual percentages of the
Fund's average daily net assets.
0.65% of the first $100 million
0.60% of the next $100 million
0.55% of the next $100 million
0.50% of the next $100 million
0.45% of the next $100 million
0.37% of the next $1 billion
0.34% of the next $1 billion
0.31% of the next $1 billion
0.30% of the next $1 billion
0.29% of the next $1 billion
0.28% of the next $1 billion
0.27% of the net assets over $6.5 billion
BMC provides the Fund with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Trust officers and trustees who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.
The 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 service and transfer agency functions
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 and including
expense offset arrangements) to 1.00% of the Fund's 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.
26
The payables to affiliates as of May 31, 1996, based on the above agreements
were as follows:
Investment Advisor ...................................... $31,361
Administrative Services ................................. 6,543
Transfer Agent .......................................... 7,970
-------
$45,874
========
The Fund has a distribution agreement with Benham Distributors, Inc. (BDI),
which is responsible for promoting sales of and distributing the Fund's shares.
BDI is a wholly owned subsidiary of TCC.
(3) SHARE TRANSACTIONS
Share transactions for the six months ended May 31, 1996:
Shares sold ............................................ 3,287,187
Reinvestment of dividends .............................. 167,635
----------
3,454,822
Less shares redeemed ................................... (1,112,989)
----------
Net increase in shares ................................. 2,341,833
==========
(4) INVESTMENT SECURITIES--PURCHASES, SALES AND/OR
MATURITIES
Investment transactions, excluding short-term securities, for the six months
ended May 31, 1996, were as follows:
U.S. Treasury and Agency Other Debt
Common Stock Securities Obligations
--------------- ------------------------ ------------
Purchases $19,697,349 24,194,928 5,660,546
=========== ========== =========
Sales Proceeds $12,867,351 10,697,279 2,922,561
=========== ========== =========
As of May 31, 1996, unrealized appreciation (depreciation) on investment
securities based on the aggregate cost of investments for tax purposes
($78,531,298) was as follows:
Appreciated securities ................................. $ 5,019,994
Depreciated securities ................................. (1,012,541)
-----------
Net unrealized appreciation ............................ $ 4,007,453
===========
(5) EXPENSE OFFSET ARRANGEMENTS
The Fund's Statement of Operations reflects custodian earnings credits. This
amount is 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 ended November 30, 1995, the
ratios of expenses to average daily net assets shown in the Financial Highlights
are calculated as if these credits had not been earned.
27
BENHAM CAPITAL MANAGER FUND
Schedule of Investment Securities
May 31, 1996
(Unaudited)
SHARES VALUE
------- -----------
COMMON STOCKS
AEROSPACE & DEFENSE -- 1.2%
1,700 General Dynamics Corp. $ 104,763
6,500 Litton Industries, Inc.* 301,438
1,800 Lockheed Martin Corp. 150,975
900 McDonnell Douglas Corp. 90,900
3,000 Rockwell International Corp. 175,125
1,400 United Technologies Corp. 153,124
----------
976,325
----------
AIRLINES -- 0.7%
4,100 AMR Corporation 386,938
1,900 Delta Airlines, Inc. 157,462
----------
544,400
----------
AUTOMOBILES & AUTO PARTS -- 0.8%
3,300 Chrysler Corp. 219,863
5,200 Ford Motor Co. 189,800
1,100 General Motors Corp. 60,638
10,000 Toyota Motor Corp. ORD 228,438
----------
698,739
----------
BANKING -- 3.1%
25,100 Australia & New Zealand Banking
Group Ltd. ORD 115,451
4,800 Banc One Corp. 177,600
2,100 Banco Bilbao Vizcaya, S.A. ORD 79,605
5,800 BankAmerica Corp. 436,450
3,400 Citicorp 285,600
7,000 City National Corp. 107,625
2,000 Credit Commercial de France ORD 96,530
6,000 Development Bank of Singapore ORD 71,165
7,100 First Bank System, Inc. 428,663
1,900 First Union Corp. 116,138
18,000 Hang Seng Bank ORD 187,871
3,600 NationsBank Corp. 292,050
9,000 Sanwa Bank ORD 173,132
----------
2,567,880
----------
CHEMICALS & RESINS -- 1.6%
19,000 Asahi Chemical Industries ORD 137,766
550 Bayer AG ORD 184,236
4,700 Dow Chemical Co. 393,038
3,000 du Pont (E.I.) de Nemours & Co. 239,250
500 Imperial Chemical Industries Plc ADR 26,563
2,800 Morton International, Inc. 106,400
2,200 Rohm & Haas Co. 149,050
3,600 Terra Industries, Inc. 48,600
----------
1,284,903
----------
COMMUNICATIONS SERVICES -- 2.2%
2,933 360 Communications Co. 67,826
5,300 Ameritech Corp. 299,450
2,000 Bell Atlantic Corp. 124,750
5,000 BellSouth Corp. 203,125
5,000 GTE Corp. 213,750
2,500 NYNEX Corp. 115,313
500 SBC Communications, Inc. 24,688
11,800 Sprint Corp. 500,025
9,000 Telecom Corporation of New Zealand
Ltd. ORD 36,536
28
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
SHARES VALUE
------- -----------
COMMUNICATIONS SERVICES (CONTINUED)
37,000 Telecom Italia Mobile SpA ORD $ 79,052
6,000 Telefonica de Espana ORD 107,994
15,000 Vodafone Group ORD 59,452
----------
1,831,961
----------
COMPUTER SOFTWARE -- 0.4%
3,000 Microsoft Corp.* 356,250
----------
COMPUTER SYSTEMS -- 1.9%
1,500 Cabletron Systems, Inc.* 109,125
5,600 Compaq Computer Corp.* 272,300
1,200 Digital Equipment Corp.* 62,550
6,000 Gateway 2000, Inc.* 227,250
2,400 Hewlett-Packard Co. 256,200
4,800 International Business Machines Corp. 512,400
2,000 Sun Microsystems, Inc.* 125,250
----------
1,565,075
----------
CONSTRUCTION AND PROPERTY DEVELOPMENT-- 0.7%
5,000 Centex Corp. 150,625
3,000 Harsco Corp. 194,625
18,000 Hutchison Whampoa Ltd. ORD 115,631
500 Pulte Corporation 14,000
20,000 Singapore Technologies Industrial Corp. ORD 55,398
1,000 Webb (Del) Corp. 17,749
----------
548,028
----------
CONSUMER PRODUCTS -- 0.4%
5,000 Canon, Inc. ORD 98,035
3,800 Leggett & Platt, Inc. 107,825
1,000 Miller (Herman), Inc. 30,875
22,000 Sanyo Electric Company ORD 130,830
700 Snap-On, Inc. 33,687
----------
401,252
----------
DIVERSIFIED COMPANIES -- 0.1%
66,000 First Pacific Company Ltd. ORD 90,853
----------
ELECTRICAL & ELECTRONIC COMPONENTS -- 2.9%
4,100 Avnet, Inc. 211,150
1,680 Bell Industries, Inc. 36,960
1,000 Boston Scientific Corp. 42,875
10,000 Dainippon Screen Manufacturing
Co., Ltd. ORD 93,410
3,000 Fanuc ORD 117,087
2,500 Fluke Corp. 97,188
5,900 General Electric Co. 488,225
1,200 Harris Corp. 77,550
1,700 Johnson Controls, Inc. 118,575
4,000 KLA Instruments Corp.* 108,000
1,100 Novellus Systems, Inc.* 53,900
14,000 Oki Electronic Industry Co. ORD 96,980
2,500 Park Electrochemical Corp. 60,313
4,500 Pentair, Inc. 120,375
2,700 SCI Systems, Inc. 121,500
5,100 Varian Associates, Inc. 290,700
5,000 Wylie Electronics 212,499
----------
2,347,287
----------
ENERGY (PRODUCTION & MARKETING) -- 3.3%
6,200 Amoco Corp. 449,500
9,000 Exxon Corp. 762,750
4,300 Mobil Corp. 485,363
4,100 Pan Energy Corp. 131,713
4,100 Phillips Petroleum Co. 170,150
1,200 Royal Dutch Petroleum Company ADR 179,925
2,100 Royal Dutch Petroleum Company ORD 319,033
1,400 Texaco Inc. 117,250
1,300 Total SA ORD 94,166
----------
2,709,850
----------
29
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
SHARES VALUE
------- -----------
FINANCIAL SERVICES -- 3.8%
4,200 American Express Credit Corp. $ 192,150
6,950 Bear Stearns Companies, Inc. 167,669
5,512 Chase Manhattan Corp. 385,840
1,800 Countrywide Credit Industries, Inc. 40,950
3,600 Dean Witter Discover & Co. 213,300
1,000 Edwards (A.G.), Inc. 25,625
1,500 Golden West Financial Corp. 82,313
2,000 Green Tree Financial Corp. 65,500
6,200 Lehman Brothers Holdings, Inc. 151,900
25,000 Marubeni Corporation ORD 136,185
1,600 Merrill Lynch & Company, Inc. 103,600
1,800 Morgan (J.P.) & Company, Inc. 156,375
4,400 Morgan Stanley Group, Inc. 217,800
7,000 Nomura Securities Co., Ltd. ORD 132,069
5,300 Paine Webber Group, Inc. 115,938
3,300 ReliaStar Financial Corp. 141,488
6,100 Salomon, Inc. 255,438
8,400 Travelers Group, Inc. 348,600
6,100 Washington Mutual, Inc. 174,992
----------
3,107,732
----------
FOOD & BEVERAGE -- 1.2%
1,200 Conagra, Inc. 51,150
17,000 Guinness Brewery ORD 122,762
250 Nestle SA ORD 282,282
12,600 Pepsico, Inc. 418,950
2,800 Sara Lee Corp. 93,450
----------
968,594
----------
GOLD AND NATURAL-RESOURCE-LINKED INVESTMENTS -- 3.0%
4,000 Ashanti Goldfields 84,500
10,000 Barrick Gold Corporation 315,000
50,000 Dayton Mining Corp. ORD* 363,470
8,000 Diamond Fields Resources, Inc. ORD 233,790
8,000 Driefontein Consolidated, Ltd. ORD 117,701
8,000 Echo Bay Mines Ltd. 108,000
5,900 Freeport McMoran Copper & Gold 191,750
5,100 Newmont Mining Corporation 307,275
5,000 Placer Dome, Inc. 148,125
11,000 Santa Fe Pacific Gold Company 167,750
50,000 South Pacific Resources Corp. ORD* 357,991
13,000 TVX Gold, Inc. 117,000
----------
2,512,352
----------
HEALTHCARE -- 0.1%
2,600 Foundation Health Corp.* 103,350
----------
INDUSTRIAL EQUIPMENT & MACHINERY -- 2.3%
4,000 Applied Materials, Inc.* 149,000
3,100 Cascade Corp. 45,725
2,000 Case Corp. 100,250
1,600 Caterpillar, Inc. 105,000
2,200 CDI Corp.* 74,800
4,900 Deere & Co. 203,963
7,300 Dover Corp. 346,750
3,000 Durion Company, Inc. 84,750
4,900 Global Industrial Technologies, Inc.* 90,650
4,500 Kaydon Corp. 193,500
300 MAN AG ORD 77,635
200 Mannesmann AG ORD 69,530
19,000 Mitsubishi Heavy Industries ORD 163,246
2,000 SMC Corp. ORD 158,150
30,000 Tan Chong Motor Holdings Bhd ORD 44,471
5,000 United Engineers Ltd. ORD 34,857
----------
1,942,277
----------
30
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
SHARES VALUE
------- -----------
INSURANCE -- 2.1%
9,500 Allstate Corp. $ 401,375
1,200 American Bankers Insurance Group, Inc. 46,500
700 American International Group, Inc. 65,975
2,300 Axa SA ORD 130,671
500 CNA Financial Group, Inc.* 50,000
1,400 Equitable of Iowa Companies 51,625
1,000 Fremont General Corp. 23,875
2,900 General Re Corp. 423,400
2,400 Loews Corp. 191,400
3,800 NAC Re Corp. 123,500
2,800 Safeco Corp. 94,325
2,100 Transatlantic Holdings, Inc. 134,925
2,200 USF&G Corp. 35,200
----------
1,772,771
----------
LEISURE -- 0.02%
400 Marriott International, Inc. 19,000
----------
METALS & MINING -- 0.4%
1,100 Cleveland-Cliffs, Inc. 44,138
41,000 Nippon Steel Company ORD 139,163
25,000 NKK Corp. ORD 73,064
300 Phelps Dodge Corp. 20,550
1,000 Texas Industries, Inc. 62,624
----------
339,539
----------
PAPER & FOREST PRODUCTS -- 0.04%
1,500 Zurn Industries, Inc. 30,563
----------
PHARMACEUTICALS -- 3.6%
3,000 Astra AB ORD 137,399
9,000 Bristol Myers Squibb 768,375
8,000 Glaxo Wellcome Plc ORD 104,309
5,000 Hoya Corp. ORD 160,462
6,600 Johnson & Johnson 642,675
5,900 Merck & Company, Inc. 381,288
2,100 OrNda HealthCorp 52,763
2,900 Pfizer, Inc. 205,175
3,000 Pharmacia & Upjohn, Inc. 122,625
150 Sandoz AG ORD 156,396
1,500 Sanofi SA ORD 115,662
2,500 Schering-Plough Corp. 146,563
----------
2,993,692
----------
PUBLISHING -- 0.3%
2,500 Gibson Greetings, Inc.* 35,938
11,400 News Corporation Ltd. ORD 63,997
400 Washington Post Company 125,100
----------
225,035
----------
RETAIL -- 2.6%
15,000 Boots Company ORD 141,944
2,800 CompUSA, Inc. 122,500
11,000 Eckerd Corp.* 250,250
3,000 Ito-Yokado Co., Ltd. ORD 170,081
4,300 Longs Drug Stores, Inc. 184,363
5,000 Marui Co., Ltd. ORD 102,659
1,000 Mercantile Stores Company, Inc. 64,500
3,700 Ross Stores, Inc. 145,225
12,000 Safeway, Inc.* 405,000
7,300 Sears Roebuck & Company 371,388
3,000 Shimamura Co., Ltd. ORD 130,960
1,100 Waban, Inc.* 29,423
----------
2,118,293
----------
TOBACCO -- 0.7%
5,700 Philip Morris Companies, Inc. 566,438
----------
TRANSPORTATION -- 0.2%
1,800 CSX Corp. 89,100
3,000 Kysor Industrial Corp. 79,125
----------
168,225
----------
31
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
SHARES VALUE
------- -----------
UTILITIES (ELECTRIC) -- 1.8%
8,600 Consolidated Edison $ 239,725
3,900 FPL Group, Inc. 166,725
4,100 General Public Utilities Corp. 137,350
6,000 Iberdrola S.A. ORD 61,010
2,400 Illinova Corp. 63,000
3,000 NIPSCO Industries, Inc. 111,750
5,300 Portland General Corp. 156,350
9,000 Tokyo Electric Power ORD 230,566
4,000 Unicom Corp. 110,500
1,000 United Illuminating Co. 36,875
3,000 VEBA AG ORD 157,340
----------
1,471,191
----------
UTILITIES (NATURAL GAS) -- 0.9%
1,000 Coastal Corp. 41,000
2,700 Columbia Gas System, Inc. 131,963
1,000 Eastern Enterprises 34,125
1,600 Indiana Energy, Inc. 38,000
2,700 NICOR, Inc. 74,925
3,000 Oneok, Inc. 81,750
6,400 Pacific Enterprises 168,800
1,000 People's Energy Corp. 32,125
5,000 Washington Gas Light Co. 103,750
----------
706,438
----------
TOTAL COMMON STOCKS-- 42.4% 34,968,293
----------
(Cost $30,444,609)
PRINCIPAL AMOUNT VALUE
- ------------------- -----------
FIXED-INCOME SECURITIES
U.S. TREASURY SECURITIES
$1,550,000 United States Treasury Notes, 6.875%,
3/31/97 $ 1,563,811
2,000,000 United States Treasury Notes, 5.50%,
11/15/98 1,960,940
5,000,000 United States Treasury Notes, 7.75%,
11/30/99 5,186,700
2,800,000 United States Treasury Notes, 5.50%,
12/31/00 2,677,948
2,850,000 United States Treasury Notes, 6.50%,
5/15/05 2,780,973
500,000 United States Treasury Bonds, 12.00%,
8/15/13 697,970
1,050,000 United States Treasury Bonds, 8.75%,
5/15/17 1,226,368
----------
TOTAL U.S. TREASURY SECURITIES-- 19.5% 16,094,710
----------
(Cost $16,220,960)
U.S. GOVERNMENT AGENCIES
1,000,000 FNMA, 8.20%, 12/23/96 1,014,063
500,000 FNMA, 6.45%, 6/10/03 476,015
----------
TOTAL U.S. GOVERNMENT AGENCIES--1.8% 1,490,078
----------
(Cost $1,487,939)
MORTGAGE-BACKED SECURITIES
54,357 FNMA Pool #343829, 6.50%, 4/1/11 52,165
990,000 FNMA Pool #341477, 6.50%, 5/1/11 950,083
303,000 FNMA Pool #346400, 6.50%, 5/1/11 290,880
632,644 FNMA Pool #346779, 6.50%, 5/1/11 607,136
456,512 GNMA Pool #351417, 7.00%, 1/15/24 436,302
509,379 GNMA Pool #389229, 7.50%, 4/15/24 498,076
32
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------ -----------
MORTGAGE-BACKED SECURITIES (CONTINUED)
$ 275,509 GNMA Pool #366786, 7.00%, 5/15/24 $ 262,163
273,450 GNMA Pool #361446, 8.00%, 7/15/24 273,962
449,439 GNMA Pool #377238, 8.50%, 7/20/24 456,459
347,278 GNMA Pool #355903, 8.00%, 9/15/24 347,928
856,537 GNMA Pool #9297, 8.25%, 7/20/25 859,079
496,470 GNMA Pool #412177, 7.00%, 9/15/25 472,421
305,771 GNMA Pool #425081, 7.50%, 2/15/26 298,985
489,497 GNMA Pool #428397, 6.50%, 3/15/26 451,865
2,250,000 GNMA TBA, 8.00%, 1/15/99 2,254,206
----------
TOTAL MORTGAGE-BACKED SECURITIES-- 10.3% 8,511,710
----------
(Cost $8,597,296)
CORPORATE BONDS
300,000 Citizens Utilities Company, 7.60%, 6/1/06 304,803
600,000 Ford Motor Credit Co., 6.25%, 11/8/00 582,930
400,000 Hanson Overseas BV, 6.75%, 9/15/05 380,848
500,000 Japanese Financial Corp. for Municipal
Enterprises, 7.375%, 4/27/05 509,560
500,000 Korea Development Bank, 6.25%, 5/1/00 486,010
500,000 Lockheed Martin Corp., 7.25%, 5/15/06 493,733
500,000 Merrill Lynch & Co. Inc., 8.00%, 2/1/02 516,855
1,000,000 Midland Bank Plc, 6.95%, 3/15/11 929,130
500,000 News America Holdings, 9.125%, 10/15/99 531,220
400,000 Southern California Edison Company,
8.25%, 2/1/00 414,340
----------
TOTAL CORPORATE BONDS-- 6.2% 5,149,429
----------
(Cost $5,296,652)
FOREIGN CORPORATE BONDS -- 0.8%
70,000,000 (Y) Deutsche Bank Finance NV, 4.125%,
11/15/99 (Cost $699,089) 691,624
----------
SOVEREIGN GOVERNMENTS & AGENCIES
1,000,000 DM Bayerische Landesbank Giro, 6.75%,
8/3/05 $ 664,451
250,000 C$ Government of Canada, 6.50%, 6/1/04 170,515
500,000 Frf Government of France, 6.75%, 10/25/03 100,213
700,000 Frf Government of France, 7.00%, 11/12/99 143,813
500,000 NLG Government of Netherlands,
8.25%, 2/15/02 330,402
300,000 NZ$ Government of New Zealand,
10.00%, 7/15/97 205,419
15,000,000 Esp Government of Spain, 10.50%, 10/30/03 126,100
4,000,000 Bfr Kingdom of Belgium, 9.00%, 6/27/01 147,362
1,000,000 Dkr Kingdom of Denmark, 8.00%, 5/15/03 180,116
1,000,000 SEK Kingdom of Sweden, 13.00%, 6/15/01 180,928
200,000 AU$ Queensland Treasury Corporation
Global Note, 8.00%, 7/14/99 157,714
400,000,000 Lit Republic of Italy, 9.50%, 12/1/97 261,720
150,000,000 Lit Republic of Italy, 9.50%, 12/1/99 99,660
1,000,000 DM Treuhandanstalt, 6.50%, 4/23/03 673,563
300,000(pound)United Kingdom Treasury, 8.00%,
6/10/03 468,007
----------
TOTAL SOVEREIGN GOVERNMENTS & AGENCIES-- 4.8% 3,909,983
----------
(Cost $3,937,257)
TOTAL FIXED-INCOME SECURITIES-- 43.4% 35,847,534
----------
(Cost $36,239,193)
COMMERCIAL PAPER & OTHER SHORT-TERM INSTRUMENTS
450,000 American Express Credit Corp.,
5.34%, 6/3/96 449,867
300,000 Ameritech Capital Funding Corp,
5.15%, 6/21/96 299,110
1,000,000 BT Securities Inc., 5.36%, 7/22/96 992,408
500,000 Dow Jones & Co. Inc., 5.27%, 6/17/96 498,829
1,200,000 Dun & Bradstreet Corp., 5.33%, 7/30/96 1,189,478
1,500,000 Ford Motor Credit Corp., 5.31%, 6/19/96 1,496,033
2,210,000 General Re, 5.31%, 6/5/96 2,208,703
300,000 Hitachi Credit America Corp.,
5.35%, 6/5/96 299,812
33
SCHEDULE OF INVESTMENT SECURITIES - Benham Capital Manager Fund(Continued)
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------ -----------
COMMERCIAL PAPER & OTHER SHORT-TERM
INSTRUMENTS (CONTINUED)
$ 600,000 Hitachi Credit America Corp.,
5.33%, 7/30/96 $ 594,818
1,500,000 Morgan Guaranty Euro Certificate of
Deposit, 4.95%, 2/7/97 1,439,865
750,000 Southland Corp., 5.36%, 6/19/96 748,001
----------
TOTAL COMMERCIAL PAPER &
OTHER SHORT-TERM INVESTMENTS--12.4% 10,216,924
----------
(Cost $10,277,349)
TEMPORARY CASH INVESTMENTS -- 1.8%
Repurchase Agreement (Sanwa Bank), 5.30%, due 6/3/96,
collateralized by $1,514,000 par value U.S. Treasury
Notes, 6.00%, due 8/31/97 (Delivery Value
$1,506,665) (Cost $1,506,000) 1,506,000
----------
TOTAL INVESTMENT SECURITIES-- 100.00% $82,538,751
==========
(Cost $78,467,151)
FUTURES CONTRACTS
Expiration Face Amount Unrealized
Purchased Date at Value Gain
----------- ------------- --------- ------------
5 S&P 500
Stock Index
Futures June 1996 $1,665,295 $84,650
========= =======
- -------------------
*Non-income producing
ADR = American Depositary Receipts
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
ORD = Foreign Ordinary Shares
FOREIGN CURRENCY SYMBOLS
-------------------------
AU$ Australian Dollar Lit Italian Lira
Bfr Belgian Franc NLG Netherlands Guilder
C$ Canadian Dollar NZ$ New Zealand Dollar
Dkr Danish Krone SEK Swedish Krona
DM Deutschemark (pound) British Pound
Esp Spanish Peseta (Y) Japanese Yen
Frf French Franc
34
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35
(THIS PAGE INTENTIONALLY LEFT BLANK)
36
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
Bruce R. Fitzpatrick
Vice President
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. 7/96 Q110
