SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__
File No. 2-82734:
Pre-Effective Amendment No._____ ____
Post-Effective Amendment No._22_ _X__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__
File No. 811-3706:
Amendment No._26_
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
(Exact Name of Registrant as Specified in Charter)
1665 Charleston Road, Mountain View, CA 94043
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 415-965-8300
Douglas A. Paul
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: First Offered 8/1/84
It is proposed that this filing become effective:
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date), pursuant to paragraph (b) of Rule 485 _____ 60 days
after filing pursuant to paragraph (a) of Rule 485 _____ on (date)
pursuant to paragraph (a)(1) of Rule 485 _____ 75 days after filing
pursuant to paragraph (a)(2) of Rule 485 _____ on (date) pursuant to
paragraph (a)(2) of Rule 485
Registrant continues its election to register an indefinite number of shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant intends to file a Rule
24f-2 Notice within 60 days after its fiscal year ending August 30, 1995.
<PAGE>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 22
1940 Act Amendment No. 26
FORM N-1A
CROSS-REFERENCE SHEET
Part A: Prospectus
Item Prospectus Caption
1 Cover Page
2 (a) Summary of Fund Expenses
(b),(c) Not Applicable
3 (a) Financial Highlights
(b) Not Applicable
(c),(d) Performance
4 (a)(i) Cover Page, Investment Policies, About the Trust
(a)(ii),(b) Investment Objectives, Investment Policies, Municipal
Securities, Investment Practices,
(c) Suitability
5 (a) About the Trust
(b) - (f) The Benham Group, Advisory and Service Fees
(g) Not Applicable
5A Performance
6 (a) About the Trust
(b)-(d) Not Applicable
(e) How to Invest
(f),(g) Distributions and Taxes
7 (a) Distribution of Shares
(b) Share Price
(c) Not Applicable
(d) How to Buy Shares
(e),(f) Not Applicable
8 (a) How to Redeem Your Investment, How to Redeem Shares
(b) Broker-Dealer Transactions
(c),(d) How to Redeem Your Investment
9 Not Applicable
<PAGE>
CROSS-REFERENCE SHEET
(continued)
Part B: Statement of Additional Information
Item Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 About the Trust
13 (a) Investment Policies and Techniques
(b) Investment Restrictions
(c) Investment Policies and Techniques, Investment Restrictions
(d) Not Applicable
14 (a-(b) Trustees and Officers
(c) Not Applicable
15 (a) Not Applicable
(b) Additional Purchase and Redemption Information
(c) Trustees and Officers
16 (a),(b) Investment Advisory Services
(c)-(d) Administrative and Transfer Agent Services
(e)-(g) Not Applicable
(h) About the Trust
(i) Administrative and Transfer Agent Services
17 (a) Portfolio Transactions
(b) Not Applicable
(c) Portfolio Transactions
(d),(e) Not Applicable
18 (a) About the Trust
(b) Not Applicable
19 (a) Additional Purchase and Redemption Information
(b) Valuation of Portfolio Securities
(c) Not Applicable
20 Taxes
21 (a) Additional Purchase and Redemption Information
(b),(c) Not Applicable
22 Performance
23 Financial Statements to be incorporated by reference to Registrant's
Annual Reports.
<PAGE>
BENHAM CALIFORNIA
TAX-FREE AND
MUNICIPAL FUNDS
[illustration of the
California state flag]
Tax-Free Money Market Fund
Municipal Money Market Fund
Tax-Free Short-Term Fund
Tax-Free Intermediate-Term Fund
Tax-Free Long-Term Fund
Municipal High-Yield Fund
Tax-Free Insured Fund
Prospectus * October 27, 1995
<PAGE>
[The Benham Group
1665 Charleston Rd.
Mountain View
California 94043
Fund
Information
1-800-331-8331
1-415-965-4274
Investor
Services
1-800-321-8321
1-415-965-4222
TDD Service
1-800-624-6338
1-415-965-4764
Benham Group
Representatives
are available
by telephone
weekdays from
5 a.m. to 5 p.m.
Pacific Time. (caption on left margin of page)]
BENHAM CALIFORNIA
TAX-FREE AND
MUNICIPAL FUNDS
Prospectus o October 27, 1995
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS ("BCTFMF" or the "Trust") is a
no-load, open-end management investment company that consists of seven series:
California Tax-Free Money Market Fund
California Municipal Money Market Fund
California Tax-Free Short-Term Fund
California Tax-Free Intermediate-Term Fund
California Tax-Free Long-Term Fund
California Municipal High-Yield Fund
California Tax-Free Insured Fund
Each Fund invests primarily in municipal debt securities that pay interest
exempt from federal and California income taxes.
Tax-Free Money Market Fund and Municipal Money Market Fund (collectively, the
"Money Market Funds") each seek to maintain a stable $1.00 share price. The
other Funds' share prices vary from day to day. These Funds are referred to
collectively as the "Variable-Price Funds."
Investments in either of the Money Market Funds listed above or in any other
Benham Fund are neither insured nor guaranteed by the U.S. government. There is
no assurance that either of these Funds will be able to maintain a $1.00 share
price.
Mutual Fund shares are not insured by the FDIC, the Federal Reserve Board, or
any other agency.
AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
Tax-Free Insured Fund invests primarily in municipal bonds covered by insurance
guaranteeing the timely payment of interest and repayment of principal. This
insurance is provided by private insurers. The Fund's shares are not insured.
Municipal Money Market Fund and Municipal High-Yield Fund are intended for
investors who do not expect to pay alternative minimum taxes. See pages 39 and
40 for details.
Municipal High-Yield Fund invests in lower-quality bonds, also known as "junk
bonds." See pages 20 and 21 for a discussion of risks associated with these
bonds.
Please read this prospectus carefully and retain it for future reference. It is
designed to help you decide whether the Funds' goals match your own. A Statement
of Additional Information for the Trust (also dated October 27, 1995) has been
filed with the Securities and Exchange Commission (SEC) and is incorporated
herein by reference. For a free copy, call or write The Benham Group.
SUMMARY OF FUND EXPENSES
The tables below illustrate the fees and expenses an investor in the Funds would
incur directly or indirectly. The figures shown for each Fund are based on
historical expenses. There were no adjustments to the expense limitation
agreement in effect as of October 27, 1995.
================================================================================
A. SHAREHOLDER TRANSACTION EXPENSES
For All Funds Described in This Prospectus
- --------------------------------------------------------------------------------
Sales load imposed on purchases......................... None
Sales load imposed on reinvested dividends.............. None
Deferred sales load..................................... None
Redemption fee.......................................... None
Exchange fee............................................ None
[Please read this Prospectus carefully and retain it for future reference. It is
designed to help you decide if the Funds' goals match your own. (caption on
right margin of page)]
3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================
B. ANNUAL FUND OPERATING EXPENSES*
As a Percentage of Average Daily Net Assets
- -----------------------------------------------------------------------------------
INVESTMENT 12b-1 OTHER TOTAL FUND
ADVISORY FEE EXPENSES OPERATING
FEE EXPENSES
<S> <C> <C> <C> <C>
Tax-Free Money Market Fund .29 None .23 .52%
Municipal Money Market Fund .29 None .24 .53%
Tax-Free Short-Term Fund .29 None .22 .51%
Tax-Free Intermediate-Term Fund .29 None .19 .48%
Tax-Free Long-Term Fund .29 None .20 .49%
Municipal High-Yield Fund .29 None .22 .51%
Tax-Free Insured Fund .29 None .21 .50%
* Benham Management Corporation (BMC) has agreed to limit each Funds' total
operating expenses to specified percentages of each Fund's average daily net
assets as illustrated on page 5. These expense limits are effective until May
31, 1996. The agreement provides that BMC may recover amounts absorbed on
behalf of the Fund during the preceding 11 months if, and to the extent that,
for any given month, Fund expenses were less than the expense limit in effect
at that time. The expense limitation is subject to annual renewal in June.
</TABLE>
Each Fund pays BMC investment advisory fees equal to an annualized percentage of
Fund average daily net assets. Other expenses include administrative and
transfer agent fees paid to Benham Financial Services, Inc. (BFS).
4
<PAGE>
================================================================================
C. EXAMPLE OF EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates the expenses a shareholder would pay on a $1,000
investment in each of the Funds over periods of one, three, five, and ten years.
These figures are based on the expenses shown in Table B and assume (i) a 5%
annual return and (ii) full redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Tax-Free Money Market Fund 5 17 29 65
Municipal Money Market Fund 5 17 30 66
Tax-Free Short-Term Fund 5 16 29 64
Tax-Free Intermediate-Term Fund 5 15 27 60
Tax-Free Long-Term Fund 5 16 27 62
Municipal High-Yield Fund 5 16 29 64
Tax-Free Insured Fund 5 16 28 63
We include this table to help you understand the various costs and expenses that
you, as a shareholder, will bear either directly or indirectly. This example
should not be considered a representation of past or future expenses or
performance; actual expenses may be greater or less than those shown, and the
Fund may not realize the 5% hypothetical rate of return required by the SEC for
this example.
FINANCIAL HIGHLIGHTS
The information presented on the following pages has been audited by KPMG Peat
Marwick LLP, independent auditors. Their unqualified reports on the financial
statements and financial highlights are included in the Funds' Annual Reports,
which are part of the Funds' Statement of Additional Information.
5
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
Years ended August 31
- ------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From
Investment Operations
Net Investment Income .0328 .0207 .0209 .0298 .0420 .0510 .0559 .0464 .0383 .0424
Net Realized and
Unrealized Gains (Losses)
on Investments (.0003) 0 0 0 0 0 0 (.0053) 0 0
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Income From
Investment Operations .0325 .0207 .0209 .0298 .0420 .0510 .0559 .0411 .0383 .0424
Less Distributions
Dividends from Net
Investment Income (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383) (.0424)
Distributions from Net
Realized Capital Gains 0 0 0 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- ----- ----- ----
Total Distributions (.0325) (.0207) (.0209) (.0298) (.0420) (.0510) (.0559) (.0411) (.0383) (.0424)
Net Asset Value at
End of Period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 3.31% 2.09 2.13 3.00 4.23 5.23 5.70 4.24 3.88 4.39
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions
of dollars) $ 414.1 371.1 338.7 321.3 361.0 463.1 490.7 328.5 318.1 161.5
Ratio of Expenses to
Average Daily
Net Assets .52% .50 .51 .54 .56 .56 .59 .63 .67 .74
Ratio of Net Investment
Income to Average
Daily Net Assets 3.28% 2.07 2.09 2.98 4.20 5.10 5.59 4.10 3.83 4.24
- -----------------
* Total return figures assume reinvestment of dividends and capital gain
distributions.
</TABLE>
6
<PAGE>
================================================================================
BENHAM CALIFORNIA MUNICIPAL MONEY MARKET FUND
YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
1995 1994 1993 1992 1991+
PER-SHARE DATA
- --------------
Net Asset Value at
Beginning of Period $1.00 1.00 1.00 1.00 1.00
Income From
Investment Operations
Net Investment Income .0331 .0213 .0221 .0344 .0293
Net Realized and
Unrealized Gains (Losses)
on Investments (.0003) 0 0 0 0
----- ----- ----- ----- -----
Total Income From
Investment Operations .0328 .0213 .0221 .0344 .0293
Less Distributions
Dividends from
Net Investment Income (.0328) (.0213) (.0221) (.0344) (.0293)
Distributions from Net
Realized Capital Gains 0 0 0 0 0
----- ----- ----- ----- -----
Total Distributions (.0328) (.0213) (.0221) (.0344) (.0293)
Net Asset Value at
End of Period $ 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== =====
TOTAL RETURN* 3.35% 2.15 2.25 3.63 3.04
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in thousands
of dollars) $ 191,722 243,701 247,621 254,823 136,860
Ratio of Expenses to
Average Daily Net Assets .53% .51 .46 .07 0
Ratio of Net Investment
Income to Average
Daily Net Assets 3.31% 2.13 2.21 3.44 4.39**
- -------------
+ From December 31, 1990 (commencement of operations) through August 31, 1991.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
7
<PAGE>
================================================================================
BENHAM CALIFORNIA TAX-FREE SHORT-TERM FUND
Years ended August 31 (except as noted)
- --------------------------------------------------------------------------------
1995 1994 1993 1992+
PER-SHARE DATA
- --------------
Net Asset Value at
Beginning of Period $ 10.12 10.34 10.12 10.00
Income From
Investment Operations
Net Investment Income .4148 .3766 .3840 .1012
Net Realized and
Unrealized Gains (Losses)
on Investments .1099 (.1832) .2227 .1200
----- ----- ----- -----
Total Income From
Investment Operations .5247 .1934 .6067 .2212
Less Distributions
Dividends from Net
Investment Income (.4147) (.3761) (.3867) (.1012)
Distributions from Net
Realized Capital Gains 0 0 0 0
Distributions in Excess
of Net Realized Capital Gains 0 (.0373) 0 0
----- ----- ----- -----
Total Distributions (.4147) (.4134) (.3867) (.1012)
Net Asset Value at
End of Period $ 10.23 10.12 10.34 10.12
===== ===== ===== =====
TOTAL RETURN* 5.33% 1.90 6.15 1.47
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in thousands
of dollars) $ 104,723 120,627 114,019 52,171
Ratio of Expenses to
Average Daily
Net Assets .51% .51 .36 0
Ratio of Net Investment
Income to Average
Daily Net Assets 4.10% 3.68 3.76 4.08**
Portfolio Turnover Rate 49.75% 65.66 54.42 19.37
- ---------------
+ From June 1, 1992 (commencement of operations), through August 31, 1992.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
8
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
BENHAM CALIFORNIA TAX-FREE INTERMEDIATE-TERM FUND
Years ended August 31
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
PER-SHARE DATA
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.86 11.36 10.85 10.49 10.13 10.14 10.06 10.30 10.56 9.86
Income From
Investment Operations
Net Investment Income .5414 .5354 .5582 .5853 .6038 .6184 .6305 .6294 .6241 .6890
Net Realized and
Unrealized Gains (Losses)
on Investments .2000 (.4104) .5285 .3600 .3600 (.0100) .0800 (.2400) (.2600) .7000
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income From
Investment Operations .7414 .1250 1.0867 .9453 .9638 .6084 .7105 .3894 .3641 1.3890
Less Distributions
Dividends from Net
Investment Income (.5414) (.5351) (.5592) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241) (.6890)
Distributions from Net
Realized Capital Gains 0 (.0752) (.0175) 0 0 0 0 0 0 0
Distributions in Excess
of Net Realized
Capital Gains 0 (.0147) 0 0 0 0 0 0 0 0
Total Distributions (.5414) (.6250) (.5767) (.5853) (.6038) (.6184) (.6305) (.6294) (.6241) (.6890)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at
End of Period $11.06 10.86 11.36 10.85 10.49 10.13 10.14 10.06 10.30 10.56
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 7.09% 1.11 10.42 9.18 9.74 6.16 7.28 3.90 3.53 14.52
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions
of dollars) $ 417.6 448.3 444.5 305.0 241.5 191.2 167.4 157.3 167.0 124.9
Ratio of Expenses to
Average Daily
Net Assets .48% .48 .50 .52 .55 .58 .60 .64 .67 .74
Ratio of Net Investment
Income to Average
Daily Net Assets 5.02% 4.82 5.05 5.50 5.84 6.08 6.25 6.19 5.92 6.71
Portfolio
Turnover Rate 25.44% 43.80 26.76 48.70 28.58 20.05 39.89 47.01 51.94 23.32
- -----------------
* Total return figures assume reinvestment of dividends and capital gain
distributions.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
BENHAM CALIFORNIA TAX-FREE LONG-TERM FUND
Years ended August 31
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
PER-SHARE DATA
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.88 12.02 11.44 11.00 10.45 10.67 10.36 10.54 11.42 10.15
Income From
Investment Operations
Net Investment Income .6229 .6266 .6649 .6878 .6987 .7060 .7388 .7436 .7675 .8308
Net Realized and
Unrealized Gains (Losses)
on Investments .1183 (.7101) .8460 .4400 .5500 (.2200) .3100 (.1800) (.8011) 1.2700
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income (Loss) From
Investment Operations .7412 (.0835) 1.5109 1.1278 1.2487 .4860 1.0488 .5636 (.0336) 2.1008
Less Distributions
Dividends from Net
Investment Income (.6231) (.6261) (.6658) (.6878) (.6987) (.7060) (.7388) (.7436) (.7675) (.8308)
Distributions from Net
Realized Capital Gains (.0581) (.4304) (.2651) 0 0 0 0 0 (.0789) 0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions (.6812)(1.0565) (.9309) (.6878) (.6987) (.7060) (.7388) (.7436) (.8464) (.8308)
Net Asset Value at
End of Period $10.94 10.88 12.02 11.44 11.00 10.45 10.67 10.36 10.54 11.42
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 7.21% (.78) 14.02 10.58 12.26 4.66 10.39 5.61 (.31) 21.53
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions
of dollars) $276.1 277.5 338.1 275.9 247.2 197.4 179.7 143.2 179.5 196.7
Ratio of Expenses to
Average Daily
Net Assets .49% .48 .49 .52 .55 .57 .58 .63 .65 .74
Ratio of Net Investment
Income to Average
Daily Net Assets 5.84% 5.51 5.76 6.14 6.48 6.64 6.98 7.19 6.87 7.70
Portfolio
Turnover Rate 59.92% 61.93 55.11 71.59 37.80 74.11 78.08 34.52 81.54 47.50
- ---------------
* Total return figures assume reinvestment of dividends and capital gain
distributions.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
BENHAM CALIFORNIA MUNICIPAL HIGH-YIELD FUND
Years ended August 31 (except as noted)
- -------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987+
PER-SHARE DATA
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 9.06 9.66 9.12 8.84 8.54 8.68 8.45 8.69 10.00
Income From
Investment Operations
Net Investment Income .5612 .5629 .5703 .5809 .5879 .6266 .6611 .6527 .4509
Net Realized and
Unrealized Gains (Losses)
on Investments .0497 (.4793) .5401 .2800 .3000 (.1400) .2300 (.2400) (1.3100)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total Income (Loss)
From Investment
Operations .6109 .0836 1.1104 .8609 .8879 .4866 .8911 .4127 (.8591)
Less Distributions
Dividends from Net
Investment Income (.5609) (.5627) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
Distributions from Net
Realized Capital Gains 0 (.1208) 0 0 0 0 0 0 0
Distributions in Excess
of Net Realized
Capital Gains 0 (.0001) 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- ----- ------
Total Distributions (.5609) (.6836) (.5704) (.5809) (.5879) (.6266) (.6611) (.6527) (.4509)
Net Asset Value at
End of Period $ 9.11 9.06 9.66 9.12 8.84 8.54 8.68 8.45 8.69
===== ===== ===== ===== ===== ===== ===== ===== ======
TOTAL RETURN* 7.09% .87 12.61 10.11 10.75 5.77 10.86 5.17 (10.19)
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions
of dollars) $ 116.2 116.0 114.6 80.0 65.7 44.6 32.6 13.2 8.4
Ratio of Expenses to
Average Daily
Net Assets .51% .51 .55 .56 .50 .24 0 0 0
Ratio of Net Investment
Income to Average
Daily Net Assets 6.30% 6.02 6.14 6.54 6.79 7.23 7.67 7.85 7.50**
Portfolio
Turnover Rate 40.00% 42.55 27.40 32.51 47.41 103.74 49.54 142.86 57.42
- ---------------------
+ From December 30, 1986 (commencement of operations) through August 31, 1987.
* Total return figures assume reinvestment of dividends and capital gain distributions and
are not annualized.
** Annualized.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
BENHAM CALIFORNIA TAX-FREE INSURED FUND
Years ended August 31 (except as noted)
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987+
PER-SHARE DATA
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 9.67 10.64 9.97 9.47 9.00 9.23 8.80 9.07 10.00
Income From
Investment Operations
Net Investment Income .5320 .5267 .5470 .5705 .5733 .5889 .6026 .6246 .4370
Net Realized and
Unrealized Gains (Losses)
on Investments .2200 (.6922) .7588 .5000 .4700 (.2300) .4300 (.2700) (.9300)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total Income (Loss) From
Investment Operations .7520 (.1655) 1.3058 1.0705 1.0433 .3589 1.0326 .3546 (.4930)
Less Distributions
Dividends from Net
Investment Income (.5320) (.5263) (.5477) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
Distributions from Net
Realized Capital Gains 0 (.2082) (.0881) 0 0 0 0 0 0
Distributions in Excess
of Net Realized
Capital Gains 0 (.0700) 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- ----- ------
Total Distributions (.5320) (.8045) (.6358) (.5705) (.5733) (.5889) (.6026) (.6246) (.4370)
Net Asset Value at
End of Period $ 9.89 9.67 10.64 9.97 9.47 9.00 9.23 8.80 9.07
===== ===== ===== ===== ===== ===== ===== ===== ======
TOTAL RETURN* 8.09% (1.68) 13.74 11.67 11.87 3.96 12.04 4.58 (8.51)
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions
of dollars) $ 178.9 189.4 223.4 146.0 95.0 60.0 42.6 29.5 12.7
Ratio of Expenses to
Average Daily
Net Assets .50% .49 .52 .55 .59 .61 .66 0 0
Ratio of Net Investment
Income to Average
Daily Net Assets 5.54% 5.20 5.37 5.90 6.18 6.43 6.62 7.39 7.11**
Portfolio
Turnover Rate 40.45% 47.12 60.94 53.73 37.59 117.47 73.02 145.29 21.04
- -------------------
+ From December 30, 1986 (commencement of operations) through August 31, 1987.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
</TABLE>
12
<PAGE>
HOW THE FUNDS WORK
The following pages contain a discussion of each Fund's investment objective and
policies. See "About the Funds' Investments" beginning on page 22 for a more
detailed discussion of the types of securities the Funds may buy and the risks
associated with them.
INVESTMENT OBJECTIVES
The investment objective of Tax-Free Money Market Fund, Municipal Money Market
Fund, Tax-Free Short-Term Fund, Tax-Free Intermediate-Term Fund, and Tax-Free
Long-Term Fund is to obtain as high a level of interest income exempt from
federal and California income taxes as is consistent with prudent investment
management and conservation of shareholders' capital.
Municipal High-Yield Fund seeks to provide as high a level of current income
exempt from federal and California income taxes as is consistent with its
investment policies, which permit investment in lower-rated and unrated
municipal securities.
Tax-Free Insured Fund seeks to provide as high a level of current income exempt
from federal and California income taxes as is consistent with safety of
principal through investment in insured California municipal securities.
The Funds' investment objectives are fundamental and may not be changed without
shareholder approval. Unless otherwise noted, the other policies described in
this Prospectus are not fundamental and may be changed by the board of trustees
without shareholder vote. There is no guarantee that the Funds will achieve
their investment objectives.
INVESTMENT POLICIES
With the exception of the Municipal Money Market Fund, each Fund is a
"diversified company" as defined in the Investment Company Act of 1940. This
means that, with respect to 75% of its total assets, each Fund will not invest
more than 5% of its total assets in the securities of a single issuer. The
Municipal Money Market Fund is non-diversified and is not limited by this
restriction.
To meet federal tax requirements for qualification as a regulated investment
company, each Fund must limit its
[The Funds are designed for investors seeking income exempt from federal and
California income taxes. (caption on right margin of page)]
13
<PAGE>
[Each Fund intends to remain fully invested in municipal obligations. (caption
on left margin of page)]
investments so that at the close of each quarter of its taxable year (i) no more
than 25% of its total assets are invested in the securities of a single issuer
(other than the U.S. government or a regulated investment company), and (ii)
with respect to at least 50% of its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer.
Each Fund intends to remain fully invested in municipal obligations. As a
fundamental policy, each Fund will invest at least 80% of its net assets in
California municipal obligations. The remaining 20% of net assets may be
invested in (i) municipal obligations issued in other states, (ii) municipal
obligations issued by territories or possessions of the U.S., such as Puerto
Rico, and (iii) U.S. government obligations. For temporary defensive purposes,
each Fund may invest more than 20% of its net assets in these obligations. For
liquidity purposes, each Variable-Price Fund may invest up to 5% of its total
assets in shares of the Money Market Funds.
The Fund will invest at least 80% of its net assets in obligations with interest
exempt from the regular federal income tax, including the alternative minimum
tax.
Fund-specific investment policies are set forth in the following paragraphs.
Quality and Maturity Criteria For The
Money Market Funds:
BMC follows regulatory guidelines on quality and maturity for the Money Market
Funds' investments, which are designed to help maintain a stable $1.00 share
price. In particular, each Fund
(1) Buys only U.S. dollar-denominated obligations with remaining maturities of
13 months or less (and variable- and floating-rate obligations with demand
features that effectively shorten their maturities to 13 months or less);
(2) Maintains a dollar-weighted average maturity of 60 days or less; and
(3) Restricts its investments to high-quality obligations determined by BMC,
pursuant to guidelines established by the board of trustees, to present
minimal credit risks.
14
<PAGE>
To be considered high-quality, an obligation must be
(1) A U.S. government obligation; or
(2) Rated (or issued by an issuer rated with respect to a class of comparable
short-term debt obligations) in one of the two highest rating categories for
short-term obligations by at least two rating agencies (or one if only one
has rated the obligation); or
(3) An unrated obligation judged by BMC, pursuant to guidelines established by
the board of trustees, to be of quality comparable to the securities listed
above.
While it adheres to the same quality and maturity criteria as Tax-Free Money
Market Fund, Municipal Money Market Fund may purchase private activity municipal
securities. The interest from these securities is treated as a tax-preference
item in calculating federal alternative minimum tax (AMT) liability. In the
past, private activity securities have provided somewhat higher yields than
comparable municipal securities whose interest is not a tax-preference item.
Under normal circumstances, BMC expects to invest between 50% and 80% of
Municipal Money Market Fund's total assets in private activity securities.
Therefore, the Fund is designed for investors who do not expect to pay
alternative minimum taxes. See pages 39 and 40 for more information.
Variable-Price Funds
Tax-Free Short-Term Fund, Tax-Free Intermediate-Term Fund, and Tax-Free
Long-Term Fund have identical policies governing the quality of securities in
which they may invest. The Funds differ in their maturity criteria as follows:
Tax-Free Short-Term Fund invests primarily in short-term California municipal
obligations with maturities ranging from less than one year to five years.
Weighted average portfolio maturity: one to five years.
Tax-Free Intermediate-Term Fund invests primarily in intermediate-term
California municipal obligations with maturities of four or more years. Weighted
average portfolio maturity: five to ten years.
15
<PAGE>
Tax-Free Long-Term Fund invests primarily in long-term California municipal
obligations with maturities of seven or more years. Weighted average portfolio
maturity: ten or more years.
In terms of quality, each of these three Funds restricts its investments to
(1) Municipal bonds rated, when acquired, within the three highest categories
designated by a rating agency;
(2) Municipal notes (including variable-rate demand obligations) and tax-exempt
commercial paper rated, when acquired, within the two highest categories
designated by a rating agency; and
(3) Unrated obligations judged by BMC, under the direction of the board of
trustees, to be of quality comparable to the securities listed above.
Like Tax-Free Long-Term Fund, Municipal High-Yield Fund invests primarily in
long- and intermediate-term California municipal obligations and maintains a
weighted average portfolio maturity of ten or more years. Although Municipal
High-Yield Fund typically invests a significant portion of its assets in
investment-grade bonds, BMC does not adhere to specific rating criteria in
selecting investments for this Fund. The Fund invests in securities rated or
judged by BMC to be of below investment-grade quality (e.g., bonds rated BB/Ba
or lower, which are sometimes referred to as "junk bonds") or unrated bonds.
Under normal conditions, the Fund must invest 65% of its assets in below
investment grade securities.
Many issuers of medium- and lower-quality bonds choose not to have their
obligations rated, and a large portion of Municipal High-Yield Fund's portfolio
may consist of obligations that, when acquired, were not rated. While there is
no limit on the percentage of assets the Fund may invest in unrated securities,
BMC will not select investments for the Fund that, at the time of purchase (i)
are not paying interest, (ii) are rated C (lowest grade) by Moody's Investors
Service, Inc. (Moody's) or C or D by Standard & Poor's Corporation (S&P), or
(iii) are considered by BMC, under the direction of the trustees, to be of a
quality as low as obligations rated C or D by
16
<PAGE>
Moody's or S&P. See the Appendix on page 47 for a summary of bond ratings and a
breakdown of ratings assigned to securities held by the Fund during fiscal 1995.
Municipal High-Yield Fund may invest in investment-grade municipal obligations
if BMC considers it appropriate to do so. Investments of this nature may be made
due to market considerations (e.g., a limited supply of medium- and lower-grade
municipal obligations) or to increase liquidity of the Fund. Investing in
high-grade obligations may lower the Fund's return.
Municipal High-Yield Fund may purchase private activity municipal securities.
The interest from these securities is treated as a tax-preference item in
calculating federal alternative minimum tax (AMT) liability. Under normal
circumstances, the advisor expects to invest between 10% and 30% of the Fund's
total assets in private activity securities. Therefore, the Fund is better
suited for investors who do not expect alternative minimum tax liability. See
pages 39 and 40 for more information.
Tax-Free Insured Fund invests primarily in long-term municipal obligations
covered by insurance guaranteeing the timely payment of interest and repayment
of principal. The Fund maintains a weighted average portfolio maturity of ten or
more years.
Under normal conditions, at least 65% of the Fund's total assets are invested in
insured municipal obligations. Securities held by the Fund may be (i) insured
under a new-issue insurance policy obtained by the issuer of the security, (ii)
insured under a secondary market insurance policy purchased by the Fund or a
previous bondholder, (iii) insured under a "while-in-portfolio" insurance policy
purchased by the Fund, (iv) secured by an escrow or trust account holding U.S.
government securities, or (v) rated AAA by a rating agency based upon the
issuer's credit quality.
Tax-Free Insured Fund may also invest in short-term securities carrying one of
the two highest ratings designated by a rating agency. For more information
about the Fund's insurance feature, see page 21.
17
<PAGE>
[The Fund's yields and share prices are affected by political and economic
developments within the State of California. (caption on left margin of page)]
Each Fund has fundamental investment restrictions that cannot be changed without
shareholder approval. For lists of these restrictions, please see the Statement
of Additional Information.
INVESTMENT CONSIDERATIONS
Benham's California tax-free and municipal funds are designed for individuals in
upper tax brackets seeking income free from federal and California personal
income taxes. By themselves, they do not constitute balanced investment plans.
When choosing between the Funds, you should consider relative yield potential
together with potential changes in share price, because these two factors
determine each Fund's total return to investors.
The Money Market Funds may be appropriate for investors who would like to (i)
earn income at tax-exempt money market rates while preserving their investment
or (ii) use a money market fund as part of a long-term, balanced investment
portfolio consisting of money market instruments, bonds, and stocks.
The Variable-Price Funds are quite distinct from one another; these Funds offer
a range of potential for income and total return based on their respective
quality and maturity criteria. Risk factors you should consider before making an
investment in one or more of the Funds are described in the following
paragraphs.
Interest Rate Risk: One feature the Funds have in common is their susceptibility
to changing interest rates. For the Money Market Funds, changing interest rates
affect the level of income the Funds generate for shareholders. For the
Variable-Price Funds, changing interest rates affect not only the level of
income the Funds generate for shareholders, but their share prices as well. In
general, when interest rates rise, the Variable-Price Funds' share prices
decline; when interest rates decline, the Variable-Price Funds' share prices
rise.
This pattern is due to the time value of money. A bond's worth in large part is
determined in part by the present value of its future cash flows. Since
long-term bonds are repaid further in the future, changing interest rates, in
general, have a greater effect on the present value of a long-term bond than a
short-term bond.
18
<PAGE>
Credit Risk: In selecting investments for each Fund, BMC carefully considers the
creditworthiness of parties to be relied upon for the timely payment of interest
and repayment of principal. In many cases, these parties include not only the
issuer of the obligation, but a bank or other financial intermediary who offers
a letter of credit or another form of guarantee on the obligation.
Liquidity Risk: Securities ratings reflect the opinions of the rating agencies
that issue them and are not absolute standards of quality. Due to the cost of
obtaining credit ratings, some issuers forego them. BMC may buy unrated bonds
for the Funds if these securities are judged to be of a quality consistent with
the Funds' investment policies. Similarly, on behalf of the Variable-Price
Funds, BMC may purchase securities whose ratings are not consistent with the
Funds' rating criteria, but which BMC judges to present credit risks consistent
with the Funds' investment policies. With the exception of Municipal High-Yield
Fund (which may invest without limitation in unrated securities), each Fund may
invest up to 10% of its net assets in unrated securities. Unrated securities may
be less liquid than rated securities.
Concentration Risk: Each Fund may invest 25% or more of its total assets in
obligations generating income from similar types of projects (in particular,
projects in health care, electric, water/sewer, education, and transportation).
Political or economic developments affecting a single issuer or industry or
similar types of projects may have a significant effect on Fund performance.
Call Risk: Many municipal obligations are issued with a call date (a date on
which the issuer has reserved the right to redeem the obligation prior to
maturity). An obligation may be called for redemption before BMC would otherwise
choose to eliminate it from a Fund's portfolio. A call may also reduce an
obligation's yield to maturity.
California Obligations
Because the Funds invest primarily in California municipal securities, each
Fund's yield and share price are affected by political and economic developments
within the State of California.
19
<PAGE>
[In its pursuit of high current yields, Municipal High-Yield Fund may invest in
lower-rated bonds and unrated bonds of comparably low quality. These Bonds are
considered to be speculative. (caption on left margin of page)]
California municipal budgets have been severely strained in recent years.
"Proposition 13" and similar California constitutional, statutory, and
legislative initiatives have restricted the ability of California taxing
entities to increase real property taxes and other tax revenues.
State and local revenues are also adversely affected by the recent recession,
the worst in the state since the 1930's. California has experienced a net loss
of approximately 750,000 jobs since 1990, but net job growth has occured since
early 1994. The state government's response to these events has resulted in
reductions in the amount of or rate of growth in aid to counties, cities, and
school districts. These reductions may, in turn, affect these entities' ability
to make scheduled payments of interest and principal on outstanding debt
obligations.
For further information about the risks associated with investing in California
obligations, please see the Statement of Additional Information.
Special Considerations Regarding Municipal
High-Yield Fund
Municipal High-Yield Fund is designed for long-term investors who can accept the
risks associated with seeking a high level of current income from long- or
intermediate-term, medium- or lower-quality California municipal bonds.
Medium- to lower-rated and unrated municipal bonds frequently are traded in
markets with a limited number of participants. These conditions may limit the
availability of bonds eligible for purchase by the Fund and the availability of
ready buyers for bonds BMC wants to sell on behalf of the Fund. Adverse
publicity and changing investor perceptions, whether or not they are based on
fundamental analysis, may affect the value and liquidity of lower-quality bonds,
especially in a thinly traded market.
Lower-quality and unrated bonds may be more sensitive to adverse economic
changes in specific localities or among specific types of projects and generally
are regarded as speculative. There is no guarantee that interest payments or
principal repayments will be made when due. A delay in debt service payment or
other
20
<PAGE>
deterioration in credit quality could negatively affect the Fund's
performance.
However, under the direction of the trustees, BMC attempts to reduce the risks
of investing in medium- and lower-rated and unrated municipal obligations
through active portfolio management, diversification, thorough credit analysis,
and attention to developments and trends in the economy and the financial
markets. More than the other Funds described in this Prospectus, Municipal
High-Yield Fund relies on BMC's credit analysis to achieve its investment
objective.
Tax-Free Insured Fund: Insurance Feature
Insurance attached to securities held in Tax-Free Insured Fund's portfolio
provides for the timely payment of interest and repayment of principal on those
securities; however, this insurance does not guarantee the market value of the
securities or the value of the Fund's shares.
A bond issuer may purchase new-issue insurance to enhance the credit quality of
a security. By paying a premium and meeting the insurer's underwriting
standards, the bond issuer obtains a credit rating for its bonds comparable to
the rating assigned to the insurer's claims-paying ability.
A bondholder may purchase a secondary market insurance policy for a particular
bond after it is issued. The Fund expects to limit its purchases of securities
insured under new-issue or secondary market insurance policies to those insured
by companies whose claims-paying ability is rated AAA by a rating agency at the
time of purchase. New-issue and secondary market insurance policies cannot be
canceled; they continue in force as long as the bonds are outstanding.
The Fund has a standing arrangement with AMBAC Indemnity Corporation (AMBAC) to
obtain "when-in-portfolio" insurance on eligible securities that (i) are not
otherwise insured by new-issue or secondary market insurance and (ii) require
insurance coverage pursuant to the Fund's investment policies. If this
when-in-portfolio insurance were used, it would continue in force only as long
as the insured security were held in the Fund's portfolio. AMBAC's claims-paying
ability has been rated AAA by S&P and Aaa by Moody's.
21
<PAGE>
[Municipal securities may be backed by the full taxing power of a municipality,
the revenues from a specific project, or the credit of a private organization.
(caption on left margin of page)]
ABOUT THE FUNDS' INVESTMENTS
Municipal Securities
Municipal securities are issued to raise money for a variety of public purposes,
including general financing for state and local governments as well as financing
for specific projects and public facilities. Municipal securities may be backed
by the full taxing power of a municipality, the revenues from a specific
project, or the credit of a private organization. The following pages provide a
brief description of some of the securities the Funds may buy. However, the
Funds are not limited by this discussion and may buy other types of securities
and enter into other types of transactions that meet the Funds' respective
quality, maturity, and liquidity requirements.
Municipal notes typically have maturities of 13 months and are used to provide
short-term capital or to meet cash flow needs.
General obligation bonds are backed by the taxing power of the issuer. Revenue
bonds are backed by the revenues derived from a specific project, system, or
facility. Industrial development bonds are a type of revenue bond backed by the
credit of a private issuer.
Variable- and floating-rate demand obligations have interest rate adjustment
formulas designed to stabilize their market values. These obligations typically
have original maturities of 13 months but carry demand features permitting the
holders to demand repayment of principal at any time or at specified intervals.
With respect to the Money Market Funds, such intervals may not exceed 13 months.
Municipal lease obligations are issued by state and local governments to acquire
land, construct facilities, and purchase equipment. These obligations typically
are not fully backed by the issuing municipality's ability to assess taxes to
meet its debt obligations. If the state or local government does not make
appropriations for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and loss to investors.
Prior to purchasing a municipal lease obligation (or a participation interest in
such an obligation) and on a regular basis thereafter, BMC evaluates the credit
quality
22
<PAGE>
and liquidity of the obligation by considering factors such as the
necessity of the project; the issuer's credit quality, future borrowing plans,
and sources of revenue pledged for lease repayment; general economic conditions
in the region where the security is issued; and liquidity indicators, such as
dealer activity.
Zero-coupon municipal securities do not make regular interest payments. Instead,
they are sold at a deep discount from their face value. Calculations of the
Funds' daily dividends take into account as income a portion of the difference
between these securities' purchase prices and their face values. Because
zero-coupon securities do not pay current income, their prices can be very
volatile when interest rates change.
Municipal Derivatives
The Funds may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement whose value is
based on, or "derived" from, a traditional security, asset, or market index.
Some derivatives are in many respects like any other investment, although they
may be more volatile or less liquid than more traditional debt securities.
There is a range of risks associated with different types of derivatives and
their various uses. The Funds may use derivatives to enhance return when BMC
believes the investment will assist the Funds in achieving their investment
objectives. The Funds will not use derivatives for leverage or other speculative
purposes.
Municipal derivatives the Funds may use and some of their associated risks are
described below (Tender Option Bonds and Inverse Floaters). In addition, the
Variable-Price Funds may invest in futures and options as described on page 25.
Tender option bonds (TOBs) are created by coupling an intermediate- or long-term
fixed-rate tax-exempt bond with a tender agreement that gives the holder the
option to tender the bond at face value. Tender option bonds purchased by the
Funds typically are structured with seven-day put features attached and pay
interest at rates that are reset weekly. The Funds may use tender option bonds
as an alternative to purchasing out-of-state paper when high-quality short-term
California securities are scarce.
23
<PAGE>
A sponsor may terminate a tender option agreement if, for example, the issuer of
the underlying bond defaults on interest payments, or the underlying bond is
downgraded or becomes taxable. In such cases, a Fund might then own a bond that
does not meet the Fund's quality or maturity criteria and whose value does not
equal the Fund's valuation of the tender option bond.
BMC monitors the credit quality of bonds underlying the Funds' tender option
bond holdings and will sell or put back a tender option bond if the rating on
the underlying bond falls below the second-highest rating designated by a rating
agency. In addition, each Fund limits its investments in tender option bonds to
15% of net assets.
Inverse floaters bear interest rates that move inversely to market interest
rates. As market interest rates rise, the interest rate on an inverse floater
goes down, and vice versa. Generally, the interest rate on the inverse floater
is computed as the difference between an above-market fixed rate of interest and
a floating rate determined by reference to a market-based or bond-specific
interest rate.
Since inverse floaters typically have durations twice as long as long-term
bonds, they may be twice as volatile as long-term bonds when market interest
rates change. In addition, the market for inverse floaters is relatively new,
and there is no guarantee that BMC will find a ready buyer for inverse floaters.
The Variable-Price Funds may use inverse floaters to manage duration and
generate higher tax-exempt yields than are offered by other instruments. Each
Variable-Price Fund may invest up to 10% of its net assets in inverse floaters;
the Money Market Funds will not invest in inverse floaters.
INVESTMENT PRACTICES
When-Issued and Forward-Commitment Agreements
When-issued securities and forward-commitment agreements fix a security's price
and yield for future payment and delivery. A segregated account will be
established, however the Fund receives no income prior to delivery. The market
value of a security may change during this period, or a party to the agreement
may fail to pay for the security. Either of these situations could affect the
market value of a Fund's assets.
24
<PAGE>
Cash Management (Variable-Price Funds)
For cash management purposes, each of the Variable-Price Funds may invest up to
5% of its assets in any Benham money market fund, provided that the investment
is consistent with the Funds' policies and restrictions.
Futures and Options Contracts (Variable-Price Funds)
The Variable-Price Funds may use futures and options transactions to maintain
cash reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Some futures contract strategies present a substantial risk of loss, due to both
the low margin deposits required and the high degree of leverage involved in
futures pricing. A relatively small movement in a futures contract may result in
immediate, substantial gains or losses to the contract holder. Gains from
futures and options transactions are subject to federal income tax when
distributed to shareholders.
Restricted and Illiquid Securities
A portion of each Fund's assets may be invested in obligations that are subject
to restrictions on resale (restricted securities). Certain restricted securities
may be deemed liquid pursuant to guidelines established by the board of
trustees. No more than 10% of each Fund's net assets may be invested in illiquid
securities.
Other Investment Management Techniques
BMC may buy other types of securities or employ other portfolio management
techniques on behalf of the Funds. When SEC guidelines require it to do so, a
Fund will set aside cash or appropriate liquid assets in a segregated account to
cover its portfolio obligations. See the Statements of Additional Information
for a more detailed discussion of those investments and some of the risks
associated with them.
PERFORMANCE
Mutual fund performance is commonly measured as yield or total return, which is
based on historical fund performance and may be quoted in advertising and sales
25
<PAGE>
[Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Fund's semiannual
and annual reports to shareholders. (caption on left margin of page)]
literature. Past performance is no guarantee of future results.
For each of the Money Market Funds, yields are calculated based on the income
generated by an investment in the Fund over a seven-day period, expressed as an
annual percentage rate. The Funds' effective yields are calculated similarly,
although they will be slightly higher than the Funds' yields because they assume
that income earned from the Funds' investments is reinvested.
For each of the Variable-Price Funds, yields are a way of showing the rate of
income a Fund earns on its investments as a percentage of its share price. To
calculate yield, a Fund takes the interest it earned from its portfolio of
investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on its share price at the end of the 30-day
period.
The Variable-Price Funds' yields are calculated according to methods that are
standardized for all stock and bond funds. Because these yield calculation
methods differ from the methods used for other accounting purposes, a
Variable-Price Fund's yield may not equal its distribution rate, the income paid
to a shareholder's account, or the income reported in the Fund's financial
statements.
Each Fund may quote state tax-equivalent yields, which show the state taxable
yields an investor would have to earn before taxes to equal the Fund's state
tax-free yields. You can calculate your state tax-equivalent yield for any state
tax-free fund using the following equation:
Fund's State Tax-Free Yield Your State
--------------------------- = Tax-Equivalent
100% - Your State Tax Rate Yield
For example, if your state tax rate were 11% and a fund's state tax-free yield
were 5%, your calculation would be as follows:
.05 A state tax-free yield
------- = .056 = 5.6% of 5% is equal to
1 - .11 a state taxable yield
of 5.6%.
26
<PAGE>
In this example, your return would be higher from a state tax-free investment
yielding 5% if taxable yields (on investments with comparable quality and
maturity characteristics) were less than 5.6%. If only a portion of a Fund's
income were state tax exempt, only that portion would be adjusted in the
calculation.
Total return represents the Fund's changes over a specified time period,
assuming reinvestment of dividends and capital gains, if any. Cumulative total
return illustrates the Fund's actual performance over a stated period of time.
Average annual total return is a hypothetical rate of return that illustrates
the annually compounded return that would have produced the same cumulative
total return if the Fund's performance had been constant over an entire period.
Average annual total returns smooth out variations in the Fund's performance;
they are not the same as year-by-year results.
Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Fund's semiannual
and annual reports to shareholders. These reports are routinely delivered to the
Fund's shareholders. For a free copy, call one of the Fund Information numbers
on page 29.
SHARE PRICE
The price of your shares is their net asset value next determined after receipt
of your instruction to purchase, convert or redeem. Net asset value is
determined by calculating the total value of a Fund's assets, deducting total
liabilities and dividing the result by the number of shares outstanding. Net
asset value is determined on each day that the New York Stock Exchange is open.
Investments and requests to redeem shares will receive the share price next
determined after receipt by Benham of the investment or redemption request. For
example, investments and requests to redeem shares received by Benham before the
close of business on the New York Stock Exchange are effective on, and will
receive the price determined, that day as of the close of the Exchange.
Redemption requests received thereafter are effective on, and receive the price
determined as of the close of the Exchange on, the next day the Exchange is
open.
27
<PAGE>
Investments are considered received only when your check or wired funds are
received by Benham. Wired funds are considered received on the day they are
deposited in Benham's bank account if they are deposited before the close of
business on the Exchange, usually 1:00 p.m. Pacific Time.
Investments by telephone pursuant to your prior authorization to Benham to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by Benham on any business day
by mail at its office prior to the close of business on the Exchange, usually
1:00 p.m. Pacific Time, will receive that day's price. Investments and
instructions received after that time, will receive the price determined on the
next business day.
Securities held by the Money Market Funds are valued on the basis of amortized
cost. This method involves initially valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium paid at the time of purchase, rather than determining the security's
market value from day to day.
Most securities held by the Variable-Price Funds are priced at their market
value if market quotations are readily available. If market quotations are not
readily available, securities are priced at fair value under the direction of
the Funds' board of trustees.
28
<PAGE>
HOW TO INVEST
To open an account, you must complete and sign an application. If an application
is not enclosed with this Prospectus, you may request one by calling one of the
Fund Information numbers listed below. If you prefer, we will fill out your
application over the telephone and mail it to you for your signature.
Your investment will be credited to your account at the next NAV calculated
after The Benham Group or an authorized subtransfer agent receives and accepts
your order. Payment of redemption proceeds may be delayed until we have your
completed application on file and your investment matures (i.e., clears). See
pages 35 and 36 for details.
Benham Group Representatives are available at the telephone numbers listed below
weekdays from 5:00 a.m. to 5:00 p.m. Pacific Time. For your protection, Benham
records all telephone conversations with its telephone representatives.
Fund Information: for information about any Benham fund or other investment
product, call 1-800-331-8331 or 1-415-965-4274.
Investor Services: to open an account or make transactions in an existing
account, call 1-800-321-8321 or 1-415-965-4222.
Benham shareholders may make transactions and obtain prices, yields, and total
return information for all Benham funds with TeleServ, our 24-hour automated
telephone information service. Dial 1-800-321-8321 and press 1.
29
<PAGE>
HOW TO BUY SHARES
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
By Check Minimum initial investment: $1,000
Minimum additional investment: $100
Make your investment check payable to The Benham Group. Mail
the check with your completed application to
The Benham Group
P.O. Box 7730
San Francisco, California 94120-9853
For additional investments, enclose an investment slip
preprinted with the account number to which your investment
should be credited. If the payee information provided on the
check does not agree with the information preprinted on the
investment slip, we will follow the instructions preprinted on
the slip.
If you do not have a preprinted investment slip, send your
check with separate written instructions indicating the fund
name and the account number. If the payee information provided
on the check does not agree with the written instructions, we
will follow the written instructions.
You may also invest your check in person at a Benham Investor
Center. One is located at 1665 Charleston Road in Mountain
View, California; the other is located at 2000 South Colorado
Boulevard, Suite 1000, in Denver, Colorado.
We will not accept cash investments or third-party checks. We
will, however, accept properly endorsed second-party checks
made payable to the investor(s) to whose account the investment
is to be credited.
We will also accept checks drawn on foreign banks or foreign
branches of domestic banks and checks that are not drawn in
U.S. dollars (U.S. $100 minimum). The cost of collecting
payment on such checks will be passed on to the investor. These
costs may be substantial, and settlement may involve
considerable delays.
Investors will be charged $5 for every investment check
returned unpaid.
30
<PAGE>
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
By Bank Wire Minimum initial investment: $25,000
Minimum additional investment: $100
If you wish to open an account by bank wire, please call our
Investor Services Department for more information and an
account number. Bank wire investments should be addressed as
follows:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Routing Number 011000028
Beneficiary = Benham California Tax-Free and Municipal Funds:
[Name of Fund]
AC [State Street Fund Account Number (see below)]
FBO [Your Name, Your Benham Fund Account Number]
Benham Fund Names and State Street Fund
Account Numbers:
Tax-Free Money Market Fund 0505 922 5
Municipal Money Market Fund 0505 923 3
Tax-Free Short-Term Fund 0505 886 2
Tax-Free Intermediate-Term Fund 0505 920 9
Tax-Free Long-Term Fund 0505 930 8
Municipal High-Yield Fund 0505 918 3
Tax-Free Insured Fund 0505 919 1
- --------------------------------------------------------------------------------
By Exchange Minimum initial investment: $1,000
Minimum additional investment: $100
You may exchange your shares for shares of any other Benham
fund registered for sale in your state if you have received the
fund's prospectus. Exchanges may be made by telephone (for
identically registered accounts only), by written request, or
in person. Certain restrictions apply; please see pages 32 and
33 for details. You may open a new account by exchange,
provided that you meet the minimum initial investment
requirement.
- --------------------------------------------------------------------------------
Automatic Minimum: $25
Investment
Services These services are offered with respect to additional
investments only. See details on page 34
31
<PAGE>
[The free exchange privilege is a convenient way to buy shares in other Benham
funds if your investment goals change. (caption on left margin of page)]
Processing Your Purchase
Shares will be purchased at the next NAV calculated after your investment is
received and accepted by The Benham Group or an authorized subtransfer agent.
Investments received and accepted before the close of business of the NYSE,
normally 1:00 p.m. Pacific Time, will be included in your account balance the
same day. After the close of business of the NYSE, usually 1:00 p.m. Pacific
Time, they will be credited the following business day. The Funds reserve the
right to refuse any investment.
Telephone Transactions
Shareholders may order certain transactions (e.g., exchanges, wires, some types
of redemptions) by telephone. This privilege is granted to Benham fund
shareholders automatically; you need not specifically request this service, and
you may not specifically decline it.
The Benham Group will not be liable for losses resulting from unauthorized or
fraudulent instructions if it follows procedures designed to verify the caller's
identity. BMC will request personal identification, record telephone calls, and
send confirmation statements for every telephone transaction to the
shareholder's record address. The Funds reserve the right to revise or terminate
telephone transaction privileges at any time.
Confirmation and Quarterly Statements
All transactions are summarized on quarterly account statements. In addition,
for every transaction that you request, a confirmation statement will be mailed
to your record address. Please review these statements carefully. If you believe
we have processed the transaction you requested incorrectly, please notify us as
soon as possible. If you fail to notify us of an error with reasonable
promptness, i.e., within 30 days of the date of your confirmation statement, we
will deem you to have ratified the transaction.
SHAREHOLDER SERVICES
Exchange Privilege
You may exchange your shares for shares of equivalent value in any other Benham
fund registered for sale in your state. An exchange out of a variable-price fund
may generate a taxable gain or loss. An exchange request will
32
<PAGE>
be processed the same day if it is received before the funds' NAVs are
calculated one hour prior to the close of the NYSE, usually 12:00 p.m. Pacific
Time for Benham Target Maturities Trust; and at the close of the NYSE, usually
1:00 p.m. Pacific Time for all other Benham funds.
The Benham Group discourages trading in response to short-term market
fluctuations. Such activity may encumber BMC's ability to invest the funds'
assets in accordance with their respective investment objectives and policies
and may be disadvantageous to other shareholders. More than six exchanges per
calendar year out of a variable-price fund may be deemed an abuse of the
exchange privilege. For purposes of determining the number of exchanges made,
accounts under common ownership or control will be aggregated.
Currently, there are no restrictions on exchanges out of the Money Market Funds.
However, each Benham fund reserves the right to modify or revoke the exchange
privilege of any shareholder or to limit or reject any exchange. Although each
fund will attempt to give shareholders prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time.
Open Order Service
The Benham Group's Open Order Service allows you to designate a price at which
to buy or sell shares of a variable-price fund by exchange from a money market
fund. To place a "buy" order, you designate a purchase price that is equal to or
lower than the current NAV. To place a "sell" order, designate a sales price
that is equal to or higher than the current NAV. If the designated price is met
within 90 calendar days, we will automatically execute your order. If you are
buying shares of a variable-price fund, we will exchange money from your money
market account to purchase them. If you are selling shares of a variable-price
fund, we will transfer the proceeds of that sale to your money market account.
If you do not have a money market account, we will open one for you when we
execute your Open Order.
If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so that the distribution does not
inadvertently trigger an Open Order transaction on your behalf. If you
[Benham Open Orders allow investors to utilize a "buy low, sell high" investment
strategy. (caption on right margin of page)]
33
<PAGE>
close or reregister the account from which shares are to be redeemed, your Open
Order will be canceled. Because of their time-sensitive nature, Open Order
transactions may be made by telephone or in person. These transactions are
subject to the exchange limitations described in each fund's prospectus, except
that all orders and cancellations received before 12:00 p.m. Pacific Time are
effective the same day. After 12:00 p.m. Pacific Time, they are effective the
following business day.
Automatic Investment Services (AIS)
Treasury Direct allows you to deposit interest and principal payments from
Treasury securities directly into a Benham fund account.
Payroll Direct allows you to deposit any amount of your paycheck directly into a
Benham fund account.
Government Direct allows you to deposit your entire U.S. government payment
directly into a Benham fund account.
Bank Direct allows you to deposit a fixed amount from your bank account directly
into a Benham fund account on the 1st and/or the 15th of each month (or the next
business day).
Directed Dividends allow you to invest all or part of your dividend earnings
from one Benham fund account in one or more other Benham fund accounts. You may
choose to receive a portion of your dividends in cash and to invest the
remainder in another Benham fund account.
Systematic Exchanges allow you to exchange from one Benham fund account to
another Benham fund account on the 1st and/or the 15th of each month (or the
next business day).
For more information about any of these services, please call our Investor
Services Department at 1-800-321-8321 or 1-415-965-4222.
Broker-Dealer Transactions
The Benham Group charges no sales commissions, or "loads" of any kind. However,
investors may purchase and sell shares through registered broker-dealers, who
may charge fees for their services.
34
<PAGE>
The Benham Group will accept orders for the purchase of shares from authorized
broker-dealers who agree in writing to pay in full for such shares in
immediately available funds no later than 1:00 p.m. Pacific Time the following
business day.
TDD Service for the Hearing Impaired
TDD users may contact The Benham Group at 1-800-624-6338 or 1-415-965-4764.
California residents may wish to contact us through the California Relay Service
(CRS) at 1-800-735-2929.
Your transaction requests via CRS will be handled on a recorded line. The Benham
Group cannot accept responsibility for instructions miscommunicated by CRS.
Emergency Services
The Benham Group has established an alternate operations site from which we can
access customer accounts and the mainframe computers used by the Benham funds in
the event of an emergency. Telephone lines and terminals are currently in place.
If our regular service is interrupted, the following numbers will automatically
connect you to this site.
From within the U.S., including Alaska and Hawaii: 1-800-321-8321.
From all foreign countries, call collect: 1-303-759-9337 or 1-510-820-1409. The
operator will request your Benham fund account number before accepting the call.
HOW TO REDEEM YOUR INVESTMENT
When you place an order to redeem shares, your shares will be redeemed at the
next NAV calculated after The Benham Group or an authorized subtransfer agent
has received your redemption request in good order. The Funds' NAVs are usually
calculated at the close of business of the NYSE, usually 1:00 p.m. Pacific Time.
See page 27 for details.
Barring extraordinary circumstances prescribed by law, redemption proceeds are
mailed within seven calendar days. However, The Benham Group reserves the right
to withhold the proceeds until the investment has matured (i.e., your payment
has cleared); see maturity periods on the next page.
35
<PAGE>
---------------------------------------------------------------------------
Drawn from a Maturity Period
Type of Investment California Bank? (in business days)
---------------------------------------------------------------------------
Checks, cashiers' checks,
and bank money orders Yes 5 days
---------------------------------------------------------------------------
Same as above No 8 days
---------------------------------------------------------------------------
U.S. Treasury checks,
Traveler's checks,
U.S. Postal money orders,
Benham checks, bank wires,
and AIS Deposits* N/A 1 day
---------------------------------------------------------------------------
* Does not include bank direct deposits, which take 8 business days
to mature.
---------------------------------------------------------------------------
If you hold shares in certificate form, redemption requests must be accompanied
by properly endorsed certificates.
If you want to keep your account open, please maintain a balance of shares worth
at least $1,000. If your account balance falls to less than $1,000 due to
redemption, your account may be closed, but not without at least 30 days' notice
and an opportunity to increase your account balance to the $1,000 minimum. Your
shares will be redeemed at the NAV calculated on the day your account is closed.
Proceeds will be mailed to the record address. This policy applies to Benham's
Individual Retirement Accounts (IRAs), excluding SEP-IRAs, except that
shareholders will receive at least 60 days' written notice and an opportunity to
increase their account balance before their accounts are closed.
Uncashed Checks
We may reinvest at the Fund's current NAV any distribution or redemption check
that remains uncashed for six months. Until we receive instructions to the
contrary, subsequent distributions will be reinvested in the original account.
Uncashed redemption checks may be reinvested in an identically registered
account.
36
<PAGE>
HOW TO REDEEM SHARES
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
By Telephone The Benham Group will accept telephone redemption
requests for any amount if the proceeds are to be sent to your
predesignated bank account. Redemptions of $25,000 or less
payable to the registered account owner(s) may also be ordered
by telephone. All other redemption requests must be made in
writing.
- --------------------------------------------------------------------------------
In Writing Send a letter of instruction to
The Benham Group
Investor Services Department
1665 Charleston Road
Mountain View, California 94043
Your letter of instruction should specify
* Your name
* Your account number
* The name of the Fund from which you wish to redeem shares
* The dollar amount or number of shares you wish to redeem
For your protection, written redemption requests must be
accompanied by signature guarantees under the following
circumstances
* Redemption proceeds go to a party other than the
registered account owner(s)
* Redemption proceeds go to an account other than your
predesignated bank account
* Redemption proceeds go to the registered account owner(s),
but the amount exceeds $25,000
If you have instructed The Benham Group to require more than
one signature on written redemption requests, each of the
required number of signers must have his or her signature
guaranteed on the redemption requests. Signature guarantees
may be provided by banks, savings and loan associations,
savings banks, credit unions, stock brokerage firms, or a
Benham Investor Center.
37
<PAGE>
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
In Writing Shareholders must appear in person with identification to
(continued) obtain a signature guarantee. Notary public certifications are
not accepted in lieu of signature guarantees.
BFS may require written consent of all account owners prior to
acting on the written instructions of any account owner.
- --------------------------------------------------------------------------------
By Check Investors automatically receive a free book of checks
upon opening an account in the Money Market Fund. Checks may
be drawn to the order of any payee in any amount of $100 or
more. There is no charge for additional checks, and there are
no per-check fees.
Each check must bear the signatures of those authorized to act
on the account. Check redemptions will be charged against your
account as of the date the check is received by First
Interstate Bank of California, the collecting bank.
The check-writing option may be terminated or modified by the
board of trustees. Checks may not be used to close an account.
- --------------------------------------------------------------------------------
By Bank Wire If you included bank wire information on your account
application or made subsequent arrangements to accommodate
bank wire redemptions, you may wire funds to your bank by
calling 1-800-321-8321 or 1-415-965-4222. The minimum amount
for a bank wire redemption is $1,000. Allow at least two
business days for redemption proceeds to be credited to your
bank account.
- --------------------------------------------------------------------------------
By Exchange See details on pages 32 and 33.
- --------------------------------------------------------------------------------
Automatic Directed Payments. You may arrange for periodic redemp-
Redemption tions from your Benham fund account to your bank
Services account or to another designated payee.
Systematic Exchanges. You may arrange for periodic exchange
redemptions from one Benham fund account to another Benham
fund account.
38
<PAGE>
DISTRIBUTIONS AND TAXES
Dividends and Capital Gain Distributions
Money Market Fund dividends are declared and credited (i.e., available for
redemption) daily and distributed on the last business day of the month.
Variable-Price Fund dividends are declared daily, accrued throughout the month,
and distributed on the last business day of the month.
All Funds. Net capital gains, if any, are declared and paid once a year in
December.
Distribution Options. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares (see "Directed
Dividends" on page 34 for further information). Please indicate your choice on
your account application or contact our Investor Services Department. See page
36 for a description of our policy regarding uncashed distribution checks.
Taxes
Each Fund intends to qualify annually and elect to be treated as a regulated
invesment company under Subchapter M of the Internal Revenue Code of 1986
(Code), as amended, by distributing all, or substantially all, of its investment
company taxable income, net tax exempt income and net realized capital gains to
shareholders each year.
Interest earned by a Fund from California municipal and other tax-exempt
obligations generally is exempt from the regular federal income tax. Each Fund
intends to invest a sufficient portion of its assets in state and municipal
obligations so that it will qualify to pay "exempt-interest dividends" to
shareholders. Such exempt-interest dividends are generally excludable from a
shareholder's gross income for federal tax purposes. If a Fund earned federally
taxable income from any of its investments, the income would be distributed to
shareholders as a taxable dividend.
Municipal Money Market Fund and Municipal High-Yield Fund may each invest in
municipal obligations (private activity bonds) whose interest is treated as a
tax-preference item for purposes of the federal alternative
[Each January you will be informed of the tax status of dividends and capital
gain distributions for the previous year. (caption on right margin of page)]
39
<PAGE>
minimum tax (AMT). In fiscal 1994, 57% of Municipal Money Market Funds and 7% of
Municipal High-Yield Fund's dividends were tax preference items for purposes of
the AMT. In addition, corporate shareholders may be required to include
dividends and distributions by the Funds in an adjustment to alternative minimum
taxable income for purposes of the AMT and the environmental tax imposed under
Code sections 55 and 59A, respectively.
Exempt-interest dividends of a Fund, although exempt from regular federal income
tax, are includable in the tax base for determining the extent to which social
security or railroad retirement benefits will be subject to federal income tax.
Distributions from net short-term capital gains and all or a portion of gains
realized upon the disposition of market discount bonds are federally taxable as
ordinary income. Long-term capital gain distributions designated as capital gain
dividends are federally taxable as long-term capital gains, regardless of how
long you have held your shares. Distributions generally are subject to the same
tax treatment, whether they are received in cash or in additional shares.
Distributions declared to shareholders of record in October, November, or
December and paid in January of the following year are treated as if paid on
December 31.
If a Fund qualifies to pay exempt-interest dividends, its income dividends will
be exempt from California personal income tax to the extent that the Fund's
dividends are derived from interest on California state tax-free obligations.
Distributions derived from obligations other than California state tax-free
obligations, as well as distributions from short- or long-term capital gains and
any other taxable income or gains, are subject to California personal income
tax. The Funds' dividends are not exempt from California state franchise or
corporate income taxes. Shareholders who are domiciled outside of California may
be subject to income, personal property, intangibles, or other taxes in their
respective states.
You may realize a taxable gain or loss when you redeem (sell) or exchange shares
of a variable-price fund. For most types of accounts, proceeds from your
redemption transactions will be reported to the IRS annually.
40
<PAGE>
However, because the tax treatment depends on your purchase price and your
personal tax situation, you should keep your regular account statements to use
in determining your taxes.
If you hold Fund shares for six months or less, the deduction of any loss
realized upon redemption is disallowed to the extent that you received
"exempt-interest dividends" on those shares. All shareholders are required to
report the receipt of dividends and distributions, including exempt-interest
dividends, on their federal income tax returns.
Shareholders should be aware that redeeming shares of a Fund after tax-exempt
interest income has been accrued by a Fund but before that income has been
distributed as a dividend may be disadvantageous. Any gain on such redemption
will be taxable, even though the gain may be attributable in part to the accrued
tax-exempt interest that might have qualified as an exempt-interest dividend if
distributed as a dividend rather than as redemption proceeds.
Buying a Dividend. The timing of your investment could have undesirable tax
consequences. If you open a new account or buy more shares for your current
account just before the day a dividend or distribution is reflected in your
Fund's share price, you will receive a portion of your investment back as a
taxable dividend or distribution.
Deductions for interest expense incurred (or deemed to be incurred) to acquire
or carry shares of a Fund may be subject to limitations that reduce or eliminate
the deductions.
Opinions relating to the validity of municipal securities and the exemptions of
interest thereon from federal income tax are rendered by bond counsel to the
issuers. The Funds, BMC, and the Funds' counsel rely on the opinion of bond
counsel, and do not undertake any independent investigation of proceedings
relating to the issuance of state or municipal securities. The Funds may invest
in various instruments that are not traditional state and local obligations and
that are believed to generate interest excludable from taxable income under Code
Section 103, including, but not limited to,
[The Benham Group serves more than 350,000 investors. (caption on right margin
of page)]
41
<PAGE>
[Benham Management Corporation provides investment advice and portfolio
management services to the funds. (caption on left margin of page)]
municipal lease obligations and inverse floaters. Although the Funds may invest
in these instruments, they cannot guarantee the tax-exempt status of the income
earned thereon or from any other investment.
Backup Withholding. The Funds are required by federal law to withhold 31% of
reportable dividends and capital gain distributions (as well as redemptions from
Variable-Price Funds) payable to shareholders who have not complied with IRS
regulations. These regulations require you to certify on your account
application or on IRS Form W-9 that your social security or taxpayer
identification number (TIN) is correct and that you are not subject to backup
withholding from previous underreporting to the IRS, or that you are exempt from
backup withholding.
The Benham Group may refuse to sell shares to investors who have not complied
with this requirement, either before or at the time of purchase. Until we
receive your certified TIN, we may redeem your shares in the Funds at any time.
MANAGEMENT INFORMATION
About the Trust
Benham California Tax-Free and Municipal Funds is a registered open-end
management investment company that was organized as a Massachusetts business
trust on February 18, 1983. Currently, there are seven series of the Trust.
Additional series may be created from time to time.
A board of trustees oversees the Funds' activities and is responsible for
protecting shareholders' interests. The majority of the trustees are not
otherwise affiliated with Benham. The Trust is neither required nor expected to
hold annual meetings, although special meetings may be called for purposes such
as electing or removing trustees or amending a Fund's advisory agreement or
investment policies. The number of votes you are entitled to is based upon the
dollar value of your investment. Each Fund votes separately on matters that
pertain to it exclusively. Voting rights are not cumulative.
The Benham Group
Benham Management Corporation (BMC) is investment advisor to the funds in The
Benham Group, which currently constitute more than $11 billion in assets. BMC,
incorporated in California in 1971, became a wholly
42
<PAGE>
owned subsidiary of Twentieth Century Companies, Inc. (TCC), a Delaware
corporation, on June 1, 1995, upon the merger of Benham Management
International, Inc., BMC's former parent, into TCC. TCC is a holding company
that owns the operating companies that provide the investment management,
transfer agency, shareholder service, and other services for the Twentieth
Century family of funds, which now includes the Benham Group. The combined
company offers 62 mutual funds and has combined assets in excess of $42 billion.
Benham Management Corporation (BMC) supervises and manages the investment
portfolios of The Benham Group and directs the purchase and sale of its
investment securities. BMC utilizes teams of portfolio managers, assistant
portfolio managers, and analysts to manage the assets of the funds. The teams
meet regularly to review portfolio holdings and to discuss purchase and sale
activity. The teams adjust holdings in the funds' portfolios deemed appropriate
in pursuit of the funds' investment objectives. Individual portfolio managers
may also adjust portfolio holdings of the funds as necessary between team
meetings.
The portfolio manager members of the teams managing the funds described in this
prospectus and their work experience for the last five years as follows:
G. David MacEwen is a Vice President for Benham Management Corporation. He
establishes investment strategies and supervises investment analyses for 12 of
Benham's municipal funds. He directly manages six of the municipal bond funds
and oversees the management of four municipal money market funds and two
municipal bond funds.
Before joining Benham in 1991, Mr. MacEwen was a Vice President of Portfolio
Management for Provident Institutional Management Corporation, and prior to
that, was a Trust Investment officer for Bank of Delaware.
His professional memberships and activities include the Association of
Investment Management and Research (AIMR) and the Securities Analysts of San
Francisco. Mr. MacEwen has an MBA in finance from the University of Delaware and
a BA in economics from Boston University.
[Benham Financial Services, Inc. provides administrative and transfer agent
services fo the Funds. (caption on right margin of page)]
43
<PAGE>
Todd Pardula is a municipal portfolio manager for Benham Management Corporation.
He is directly responsible for the management of Benham California Tax-Free
Money Market and Benham California Municipal Money Market funds.
Before he was promoted to Portfolio Manager, Mr. Pardula, who joined Benham in
1990, was an Associate Municipal Credit Analyst for two years. Prior to that, he
was a Customer Service Representative in the Investor Services Department.
Before joining Benham, Mr. Pardula was a registered representative with Pacific
Annuity Company.
Mr. Pardula is a Chartered Financial Analyst and a member of the Security
Analysts of San Francisco and the California Society of Municipal Analysts. He
has a BS degree in Finance from Santa Clara University.
Joel Silva is a Municipal Portfolio Manager for Benham Management Corporation.
He is directly responsible for the management of Benham National Tax-Free
Intermediate-Term and Benham California Tax-Free Short-Term portfolios.
Mr. Silva joined Benham in 1989. Before being promoted to Portfolio Manager, he
was a municipal bond trader. Prior to that, he worked as a Customer Service
Representative in the Investor Services Department.
He is a Registered Representative and has a BSdegree from California Polytechnic
University and an MBA from California State University in Hayward.
Steven M. Permut is a Senior Portfolio Manager and Manager of Municipal Research
for Benham Management Corporation. Mr. Permut manages Benham California
Municipal High-Yield Fund. Prior to joining Benham in 1987, he was a municipal
analyst with Moody's Investors Service from 1982-1986. Mr. Permut is currently
Secretary-Treasurer of the California Society of Municipal Analysts and a member
of the National Federation of Municipal Analysts. He has a bachelor's degree in
Business and Geography from State University of New York, Oneonta.
Benham Management Corporation (BMC) has adopted a Code of Ethics (the "Code"),
which restricts personal investing practices. Among other provisions, the Code
44
<PAGE>
requires that employees with access to information about the purchase and sale
of securities in the funds' portfolios obtain preclearance before executing
personal trades. With respect to portfolio managers and other investment
personnel, the Code prohibits acquisition of securities in an initial public
offering, as well as profits derived from the purchase and sale of the same
security within 60 calendar days. These provisions are designed to ensure that
the interests of fund shareholders come before the interests of the people who
manage the funds.
Advisory and Service Fees
For investment advice and portfolio management services, each Fund pays BMC a
monthly investment advisory fee equal to its pro rata share of the dollar amount
derived from applying the Trust's average daily net assets to an investment
advisory fee schedule.
The investment advisory fee rate cannot exceed .50% of average daily net assets,
and it drops to a marginal rate of .19% of average daily net assets as Trust
assets increase.
The following table illustrates investment advisory fees paid by the Funds for
the fiscal year ended August 31, 1995. For each Fund, the figures shown
represent investment advisory fees as a percentage of the Fund's average daily
net assets and as a dollar amount per $1000 of the Fund's average daily net
assets.
Investment Advisory Fees
Tax-Free Money Market Fund .29% $2.90
Municipal Money Market Fund .29 2.90
Tax-Free Short-Term Fund .29 2.90
Tax-Free Intermediate-Term Fund .29 2.90
Tax-Free Long-Term Fund .29 2.90
Municipal High-Yield Fund .29 2.90
Tax-Free Insured Fund .29 2.90
To avoid duplicative investment advisory fees, the variable-price funds do not
pay BMC investment advisory fees with respect to assets invested in shares of
the Benham money market funds.
BFS, a wholly owned subsidiary of TCC, is the Trust's agent for transfer and
administrative services. For administrative services, each Fund pays BFS a
monthly fee equal to its pro rata share of the dollar amount
45
<PAGE>
derived from applying the average daily net assets of all of the funds in The
Benham Group. The administrative fee rate ranges from .11% to .08% of average
daily net assets, dropping as Benham Group assets increase. For transfer agent
services, each Fund pays BFS monthly fees for each shareholder account
maintained and for each shareholder transaction executed during that month.
Each Fund pays certain operating expenses directly, including but not limited
to: custodian, audit, and legal fees; fees of the independent trustees; costs of
printing and mailing prospectuses, statements of additional information, proxy
statements, notices, and reports to shareholders; insurance expenses; and costs
of registering the Fund's shares for sale under federal and state securities
laws. See the Statement of Additional Information for a more detailed discussion
of independent trustee compensation.
Expense Limitation Agreement
All Funds: An expense limitation agreement between BMC and the Funds is
described on page 4.
The following table illustrates each Fund's total operating expenses for the
fiscal year ended August 31, 1995, as a percentage of the Fund's average daily
net assets and as a dollar amount per $1000 of the Fund's average daily net
assets.
Total Operating Expenses
Tax-Free Money Market Fund .23% $2.30
Municipal Money Market Fund .24 2.40
Tax-Free Short-Term Fund .22 2.20
Tax-Free Intermediate-Term Fund .19 1.90
Tax-Free Long-Term Fund .20 2.00
Municipal High-Yield Fund .22 2.20
Tax-Free Insured Fund .21 2.10
Distribution of Shares
Benham Distributors, Inc. (BDI) and BMC distribute and market Benham products
and services. BMC pays all expenses for promoting sales of and distributing the
Funds' shares. The Funds do not pay commissions to, or receive compensation
from, broker-dealers.
BDI is a wholly owned subsidiary of TCC.
46
<PAGE>
APPENDIX
================================================================================
SUMMARY OF BOND RATINGS *
- --------------------------------------------------------------------------------
Investment Grade Moody's S&P Fitch
Highest quality Aaa AAA AAA
High quality Aa AA AA
Upper medium grade A A A
Medium grade Baa BBB BBB
Lower Quality
Moderately speculative Ba BB BB
Speculative B B B
Highly speculative Caa CCC CCC
Poor quality Ca CC CC
Lowest quality, no interest C C C
In default, in arrears _ D D
*Please refer to the Statement of Additional Information for a more complete
discussion of the ratings assigned by Moody's, S&P, and Fitch.
================================================================================
QUALITY OF PORTFOLIO SECURITIES HELD BY THE VARIABLE-PRICE FUNDS
- --------------------------------------------------------------------------------
The table below provides a summary of ratings assigned to obligations held by
each of the Variable-Price Funds. These figures are dollar-weighted averages of
month-end holdings during fiscal 1995, presented as a percentage of total
investments. For obligations with different ratings assigned by different rating
agencies, the highest rating assigned is the one relied upon to create this
table. The percentages are historical and are not necessarily indicative of
current or future portfolio holdings, which may vary in quality.
Aaa/AAA Aa/AA A Baa/BBB NR
Tax-Free Short-Term 53% 24% 23% - -
Tax-Free Intermediate-Term 54 22 24 - -
Tax-Free Long-Term 29 23 48 - -
Municipal High-Yield 6 4 32 31 27
Tax-Free Insured 100 - - - -
47
<PAGE>
Investment Advisor
BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043
Distributor
BENHAM DISTRIBUTORS, INC.
1665 Charleston Road
Mountain View, California 94043
Custodian
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02101
Transfer Agent
BENHAM FINANCIAL SERVICES, INC.
1665 Charleston Road
Mountain View, California 94043
Independent Auditors
KPMG PEAT MARWICK LLP
3 Embarcadero Center
San Francisco, California 94111
Trustees
James M. Benham
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers III
Jeanne D. Wohlers
48
<PAGE>
NOTES:
49
<PAGE>
The Benham Group of Investment Companies
Capital Preservation Fund
Capital Preservation Fund II
Benham Government Agency Fund
Benham Prime Money Market Fund
Benham Short-Term Treasury and Agency Fund
Benham Treasury Note Fund
Benham Long-Term Treasury and Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham GNMA Income Fund
Benham Target Maturities Trust
Benham California Tax-Free and Municipal Funds*
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund**
Benham Florida Municipal Intermediate-Term Fund**
Benham Arizona Municipal Intermediate-Term Fund***
Benham Gold Equities Index Fund
Benham Income & Growth Fund
Benham Equity Growth Fund
Benham Utilities Income Fund
Benham Global Natural Resources Index Fund
Benham European Government Bond Fund
Benham Capital Manager Fund
* Available only to residents of California, Arizona, Colorado, Hawaii,
Nevada, New Mexico, Oregon, Texas, Utah, and Washington.
** Available only to residents of Florida, California, Georgia, Illinois,
Michigan, New Jersey, New York, and Pennsylvania.
*** Available only to residents of Arizona, California, Colorado, Nevada,
Oregon, Washington, and Texas.
50
<PAGE>
51
<PAGE>
CONTENTS
Summary of Fund Expenses....................................3
Financial Highlights........................................5
Investment Objectives......................................13
Investment Policies........................................13
Investment Considerations..................................18
Municipal Securities.......................................22
Investment Practices.......................................24
Performance................................................25
Share Price................................................27
How to Invest..............................................29
Shareholder Services.......................................32
Exchange Privilege......................................32
Open Order Service......................................33
Automatic Investment Services...........................34
Broker-Dealer Transactions..............................34
TDD Service.............................................35
Emergency Services......................................35
How to Redeem Your Investment..............................35
Distributions and Taxes....................................39
Dividends and Capital Gain Distributions................39
Taxes...................................................39
Management Information.....................................42
About the Trust.........................................42
The Benham Group........................................42
Advisory and Service Fees...............................45
Expense Limitation Agreement............................46
Distribution of Shares..................................46
Appendix...................................................47
52
<PAGE>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
California Tax-Free Money Market Fund
California Municipal Money Market Fund
California Tax-Free Short-Term Fund
California Tax-Free Intermediate-Term Fund
California Tax-Free Long-Term Fund
California Municipal High-Yield Fund
California Tax-Free Insured Fund
The Benham Group(R)
1665 Charleston Road
Mountain View, California 94043
Investor Services: 1-800-321-8321 or 1-415-965-4222
Fund Information: 1-800-331-8331 or 1-415-965-4274
STATEMENT OF ADDITIONAL INFORMATION
October 27, 1995
This Statement is not a prospectus, but should be read in conjunction with the
Trust's current Prospectus dated October 27, 1995. The Trust's Annual Reports
for the fiscal year ended August 31, 1995 are incorporated herein by reference.
To obtain a copy of the Prospectus or the Annual Reports, call or write The
Benham Group.
TABLE OF CONTENTS
Page
Investment Policies and Techniques 2
Special Considerations Regarding California Municipal Securities 11
Investment Restrictions 18
Portfolio Transactions 21
Valuation of Portfolio Securities 22
Performance 23
Taxes 26
About the Trust 29
Trustees and Officers 30
Investment Advisory Services 33
Administrative and Transfer Agent Services 34
Direct Fund Expenses 35
Expense Limitation Agreements 35
Other Information 36
Note: Throughout this document, Tax-Free Money Market Fund and Municipal Money
Market Fund are referred to collectively as the Money Market Funds. Likewise,
Tax-Free Short-Term Fund, Tax-Free Intermediate-Term Fund, Tax-Free Long-Term
Fund, Municipal High-Yield Fund, and Tax-Free Insured Fund are referred to
collectively as the Variable-Price Funds.
1
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of the securities and
investment practices identified in the Prospectus. Unless otherwise noted, the
policies described in this Statement of Additional Information are not
fundamental and may be changed by the board of trustees.
Municipal Notes
Municipal notes are issued by state and local governments or government entities
to provide short-term capital or to meet cash flow needs.
Tax Anticipation Notes (TANs) are issued in anticipation of seasonal tax
revenues, such as ad valorem property, income, sales, use, and business taxes,
and are payable from these future taxes. Tax anticipation notes usually are
general obligations of the issuer. General obligations are secured by the
issuer's pledge of its full faith and credit (i.e., taxing power) for the
payment of principal and interest.
Revenue Anticipation Notes (RANs) are issued with the expectation that receipt
of future revenues, such as federal revenue sharing or state aid payments, will
be used to repay the notes. Typically, these notes also constitute general
obligations of the issuer.
Bond Anticipation Notes (BANs) are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds provide
the money for repayment of the notes.
Tax-Exempt Commercial Paper is an obligation with a stated maturity of 365 days
or less issued to finance seasonal cash flow needs or to provide short-term
financing in anticipation of longer-term financing.
Revenue Anticipation Warrants, or reimbursement warrants, are issued to meet the
cash flow needs of the State of California at the end of a fiscal year and in
the early weeks of the following fiscal year. These warrants are payable from
unapplied money in the State's General Fund, including the proceeds of revenue
anticipation notes issued following enactment of a State budget or the proceeds
of refunding warrants issued by the State.
Municipal Bonds
Municipal bonds, which generally have maturities of more than one year when
issued, are designed to meet longer-term capital needs. These securities have
two principal classifications: general obligation bonds and revenue bonds.
General Obligation (GO) Bonds are issued by states, counties, cities, towns, and
regional districts to fund a variety of public projects, including construction
of and improvements to schools, highways, and water and sewer systems. General
obligation bonds are backed by the issuer's full faith and credit based on its
ability to levy taxes for the timely payment of interest and repayment of
principal, although such levies may be constitutionally or statutorily limited
as to rate or amount.
Revenue Bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems,
2
<PAGE>
highways, bridges, tunnels, air and sea port facilities, schools, and hospitals.
Many revenue bond issuers provide additional security in the form of a
debt-service reserve fund that may be used to make payments of interest and
repayments of principal on the issuer's obligations. Some revenue bond
financings are further protected by a state's assurance (without obligation)
that it will make up deficiencies in the debt-service reserve fund.
Industrial Development Bonds (IDBs), a type of revenue bond, are issued by or on
behalf of public authorities to finance privately operated facilities. These
bonds are used to finance business, manufacturing, housing, athletic, and
pollution control projects, as well as public facilities such as mass transit
systems, air and sea port facilities, and parking garages. Payment of interest
and repayment of principal on an IDB depends solely on the ability of the
facility's user to meet financial obligations, and on the pledge, if any, of the
real or personal property financed. The interest earned on IDBs may be subject
to the federal alternative minimum tax.
Variable- and Floating-Rate Demand Obligations
The Funds may buy variable- and floating-rate demand obligations (VRDOs and
FRDOs). These obligations carry rights that permit holders to demand payment of
the unpaid principal plus accrued interest, from the issuers or from financial
intermediaries. Floating-rate securities have interest rates that change
whenever there is a change in a designated base rate; variable-rate instruments
provide for a specified, periodic adjustment in the interest rate, which
typically is based on an index. These rate formulas are designed to result in a
market value for the VRDO or FRDO that approximates par value.
Obligations with Term Puts Attached
Each Fund may invest in fixed-rate bonds subject to third party puts and in
participation interests in such bonds held by a bank in trust or otherwise.
These bonds and participation interests have tender options or demand features
that permit the Funds to tender (or put) their bonds to an institution at
periodic intervals and to receive the principal amount thereof.
Benham Management Corporation (BMC), the Funds' investment advisor, expects that
the Funds will pay more for securities with puts attached than for securities
without these liquidity features. BMC may buy securities with puts attached to
keep a Fund fully invested in municipal securities while maintaining sufficient
portfolio liquidity to meet redemption requests or to facilitate management of
the Funds' investments. To ensure that the interest on municipal securities
subject to puts is tax-exempt to the Funds, BMC limits the Funds' use of puts in
accordance with applicable interpretations and rulings of the Internal Revenue
Service.
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the Funds' weighted
average maturities. When the Fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.
There is a risk that the seller of a put will not be able to repurchase the
underlying obligation when (or if) a Fund attempts to exercise the put. To
minimize such risks, the Funds will purchase obligations with puts attached only
from sellers deemed creditworthy by BMC.
3
<PAGE>
Tender Option Bonds
Tender option bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
the Money Market Funds. However, any of the Funds may purchase these
instruments.
TOBs are created by municipal bond dealers who purchase long-term tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
guarantor's short-term rating and the underlying bond's long-term rating.
There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, BMC
monitors the credit quality of bonds underlying the Funds' TOB holdings and
intends to sell or put back any TOB if the rating on its underlying bond falls
below the second-highest rating category designated by a rating agency.
BMC also takes steps to minimize the risk that the Fund may realize taxable
income as a result of holding TOBs. These steps may include consideration of (i)
legal opinions relating to the tax-exempt status of the underlying municipal
bonds, (ii) legal opinions relating to the tax ownership of the underlying
bonds, and (iii) other elements of the structure that could result in taxable
income or other adverse tax consequences.
After purchase, BMC monitors factors related to the tax-exempt status of the
Fund's TOB holdings in order to minimize the risk of generating taxable income.
When-Issued and Forward-Commitment Agreements
The Funds may engage in municipal securities transactions on a when-issued or
forward-commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward-commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if doing so is deemed advisable
as a matter of investment strategy.
In purchasing securities on a when-issued or forward-commitment basis, the Fund
will maintain until the settlement date a segregated account consisting of cash,
cash equivalents, or high-quality liquid securities in an amount sufficient to
meet the purchase price. When the time comes to pay for when-issued securities,
the Fund will meet its obligations with available cash, through the sale of
securities, or, although it would not normally expect to do so, by selling the
when-issued securities themselves (which may have a market value greater or less
than the Fund's payment obligation). Selling securities to meet when-issued or
forward-commitment obligations may generate capital gains or losses.
The Funds may sell a security and at the same time make a commitment to purchase
the same security at a future date and specified price. Conversely, the Funds
may purchase a security and at the same time make a commitment to sell the same
security at a future date and specified price.
4
<PAGE>
These types of transactions are executed simultaneously in what are known as
"dollar-roll" or "cash-and-carry" transactions. For example, a broker-dealer may
seek to purchase a particular security that the Funds own. The Funds will sell
that security to the broker-dealer and simultaneously enter into a
forward-commitment agreement to buy it back at a future date. This type of
transaction generates income for the Funds if the dealer is willing to execute
the transaction at a favorable price in order to acquire a specific security. In
purchasing "dollar rolls" or "cash-and-carry" transactions, the Fund will
maintain until the settlement date a segregated account consisting of cash, cash
equivalents, or high-quality liquid securities in an amount sufficient to meet
the purchase price.
As an operating policy, each Fund will not commit more than 50% of its total
assets to when-issued or forward-commitment agreements. If fluctuations in the
value of securities held cause more than 50% of a Fund's total assets to be
committed under when-issued or forward-commitment agreements, BMC need not sell
such agreements, but it will be restricted from entering into further agreements
on behalf of the Fund until the percentage of assets committed to such
agreements is below 50% of total assets.
Municipal Lease Obligations
Each Fund may invest in municipal lease obligations. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the Funds will
not hold such obligations directly as a lessor of the property but will purchase
a participation interest in a municipal lease obligation from a bank or other
third party.
Municipal leases frequently carry risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many leases and contracts include nonappropriation clauses, which provide that
the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis. Municipal
lease obligations also may be subject to abatement risk. For example,
construction delays or destruction of a facility as a result of an uninsurable
disaster that prevents occupancy could result in all or a portion of a lease
payment not being made.
California and its municipalities are the largest issuers of municipal lease
obligations in the United States.
Inverse Floaters (Variable-Price Funds)
The Variable-Price Funds may hold inverse floaters. An inverse floater is a type
of derivative that bears an interest rate that moves inversely to market
interest rates. As market interest rates rise, the interest rate on inverse
floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced
5
<PAGE>
by an amount determined by reference to a market-based or bond-specific floating
interest rate (as well as by any fees associated with administering the inverse
floater program).
Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. Floaters and inverse floaters may be
brought to market by a broker-dealer who purchases fixed-rate bonds and places
them in a trust or by an issuer seeking to reduce interest expenses by using a
floater/inverse floater structure in lieu of fixed-rate bonds.
In the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following manner:
(i) Floater holders receive interest based on rates set at a Dutch Auction,
which is typically held every 28 to 35 days. Current and prospective
floater holders bid the minimum interest rate that they are willing to
accept on the floaters, and the interest rate is set just high enough to
ensure that all of the floaters are sold.
(ii) Inverse floater holders receive all of the interest that remains on the
underlying bonds after floater interest and auction fees are paid.
Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater holders subject to a Dutch Auction procedure generally do not have the
right to "put back" their interests to the issuer or to a third party. If a
Dutch Auction fails, the floater holder may be required to hold its position
until the underlying bond matures, during which time interest on the floater is
capped at a predetermined rate.
The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds. The interest rates on inverse floaters may be significantly
reduced, even to zero, if interest rates rise.
Lower-Quality Bonds (Municipal High-Yield Fund)
As indicated in the Prospectus, an investment in the Municipal High-Yield Fund
carries greater risk than an investment in the other Funds because the Fund may
invest without limitation in lower-rated bonds and unrated bonds judged by BMC
to be of comparable quality (collectively, "lower-quality bonds").
6
<PAGE>
While the market values of higher-quality bonds tend to correspond to market
interest rate changes, the market values of lower-quality bonds tend to reflect
the financial condition of their issuers.
Projects financed through the issuance of lower-quality bonds are often highly
leveraged. The issuer's ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer's inability to meet projected revenue forecasts, or a lack of needed
additional financing.
Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds frequently have call or buy-back features
that permit the issuer to call or repurchase the bond from the holder. Premature
disposition of a lower-quality bond due to a call or buy-back feature,
deterioration of the issuer's creditworthiness, or a default may make it
difficult for BMC to manage the flow of income to the Fund, which may have
negative tax implications for shareholders.
The market for lower-quality bonds tends to be concentrated among a smaller
number of dealers than the market for higher-quality bonds. This market is
dominated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder BMC's ability to dispose of particular bonds when it
determines that it is in the best interest of the Fund to do so. Reduced
liquidity may also hinder BMC's ability to obtain market quotations for purposes
of valuing the Fund's portfolio and determining its net asset value.
BMC continually monitors securities to determine their relative liquidity.
The Fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted lower-quality bond.
Short-Term Securities (Variable-Price Funds)
Under certain circumstances, the Tax-Free Long-Term Fund, Municipal High-Yield
Fund, and Tax-Free Insured Fund may invest in short-term municipal or U.S.
government securities, including money market instruments (short-term
securities). Except as otherwise required for temporary defensive purposes, BMC
does not expect these Funds' investments in short-term securities to exceed 35%
of total assets. If a Fund invests in U.S. government securities, a portion of
dividends paid to shareholders will be taxable at the federal level, and may be
taxable at the state level, as ordinary income. However, BMC intends to minimize
such investments and, when suitable short-term municipal securities are
unavailable, may allow the Funds to hold cash to avoid generating taxable
dividends.
Pursuant to an exemptive order from the Securities and Exchange Commission, each
Variable-Price Fund may invest up to 5% of its total assets in shares of the
Money Market Funds to facilitate cash management provided that the investment is
consistent with the Funds' investment policies and restrictions. To avoid
generating dividend income subject to the federal alternative minimum tax (AMT),
the Variable-Price Funds (excluding Municipal High-Yield Fund) will limit their
Money Market Fund investments to Tax-Free Money Market Fund. Municipal
High-Yield Fund, which ordinarily invests in AMT securities, may invest up to 5%
of its total assets in shares of either of the Money Market Funds.
7
<PAGE>
Concentration of Assets in Obligations Issued to Finance Similar Projects or
Facilities
From time to time, a significant portion of a Fund's assets may be invested in
municipal obligations related to the extent that economic, business, or
political developments affecting one of these obligations could affect the other
obligations in a similar manner. For example, if a Fund invested a significant
portion of its assets in utility bonds and a state or federal government agency
or legislative body promulgated or enacted new environmental protection
requirements for utility providers, projects financed by utility bonds could
suffer as a class. Additional financing might be required to comply with the new
environmental requirements, and outstanding debt might be downgraded in the
interim. Among other factors that could negatively affect bonds issued to
finance similar types of projects are state and federal legislation regarding
financing for municipal projects, pending court decisions relating to the
validity or means of financing municipal projects, material or manpower
shortages, and declining demand for projects or facilities financed by the
municipal bonds.
Futures and Options (Variable-Price Funds)
Each Variable-Price Fund may enter into futures contracts, options, or options
on futures contracts. Some futures and options strategies, such as selling
futures, buying puts, and writing calls, hedge a Fund's investments against
price fluctuations. Other strategies, such as buying futures, writing puts, and
buying calls, tend to increase market exposure.
The Funds do not use futures and options transactions for speculative purposes.
Although other techniques may be used to control a Fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a Fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
Futures contracts provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency. The Funds may engage in
futures and options transactions based on securities indexes such as the Bond
Buyer Index of Municipal Bonds that are consistent with the Funds' investment
objectives. The Fund may also engage in futures and options transactions based
on specific securities such as U.S. Treasury bonds or notes.
Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index. Although other types of futures contracts by their
terms call for actual delivery or acceptance of the underlying securities, in
most cases the contracts are closed out before the settlement date. A futures
position may be closed by taking an opposite position in an identical contract
(i.e., buying a contract that has previously been sold or selling a contract
that has previously been bought).
To initiate and maintain open positions in a futures contract, a Fund would be
required to make a good faith margin deposit in cash or government securities
with a futures broker or custodian. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimum initial
8
<PAGE>
margin requirements are established by the futures exchanges and may be revised.
In addition, brokers may establish deposit requirements that are higher than the
exchange minimums.
Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional "variation" margin. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker for as long as the contract remains open and do not
constitute margin transactions for purposes of the Funds' investment
restrictions.
Risks Related to Futures and Options Transactions. Futures and options prices
can be volatile, and trading in these markets involves certain risks. If BMC
applies a hedge at an inappropriate time or judges interest rate trends
incorrectly, futures and options strategies may lower a Fund's return.
A Fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when BMC considers it appropriate or desirable to do so. In the
event of adverse price movements, a Fund would be required to continue making
daily cash payments to maintain its required margin. If the Fund had
insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when BMC would not otherwise elect to do so. In
addition, a Fund may be required to deliver or take delivery of instruments
underlying futures contracts it holds. BMC will seek to minimize these risks by
limiting the contracts entered into on behalf of the Funds to those traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
A Fund could suffer losses if the prices of its futures and options positions
were poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a Fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a Fund loses money on a futures contract at the same time
that it experiences a decline in the value of its "hedged" portfolio securities.
A Fund could also lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond the limit. However, the daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses. In addition, the daily limit may prevent liquidation
of unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options on Futures. By purchasing an option on a futures contract, a Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a
9
<PAGE>
fixed strike price. A Fund can terminate its position in a put option by
allowing it to expire or by exercising the option. If the option is exercised,
the Fund completes the sale of the underlying security at the strike price.
Purchasing an option on a futures contract does not require a Fund to make
margin payments unless the option is exercised.
Although they do not currently intend to do so, the Funds may write (or sell)
call options that obligate it to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the Funds would give up some
ability to participate in a price increase on the underlying security. If a Fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.
Restrictions on the Use of Futures Contracts and Options. Each Variable-Price
Fund may enter into futures contracts, options, or options on futures contracts,
provided that such obligations represent no more than 20% of the Fund's net
assets. Under the Commodity Exchange Act, a Fund may enter into futures and
options transactions (i) for hedging purposes without regard to the percentage
of assets committed to initial margin and option premiums, or (ii) for other
than hedging purposes, provided that assets committed to initial margin and
option premiums do not exceed 5% of the Fund's net assets. To the extent
required by law, each Fund will set aside cash and appropriate liquid assets in
a segregated account to cover its obligations related to futures contracts and
options.
The Funds intend to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Funds' investments in
such instruments.
Municipal Bond Insurers (Tax-Free Insured Fund)
Securities held by Tax-Free Insured Fund may be (i) insured under a new-issue
insurance policy obtained by the issuer of the security, (ii) insured under a
secondary market insurance policy purchased by the Fund or a previous bond
holder, or (iii) insured under a "when-in-portfolio" policy held by the Fund.
The following paragraphs provide some background on the bond insurance
organizations most frequently relied upon for municipal bond insurance in the
U.S.
AMBAC Indemnity Corporation (AMBAC Indemnity) is a Wisconsin-domiciled stock
insurance corporation with admitted assets of approximately $2.1 billion
(unaudited) and statutory capital of approximately $1.2 billion (unaudited) as
of December 31, 1994. Statutory capital consists of AMBAC Indemnity's
policyholders' surplus and statutory contingency reserve. AMBAC Indemnity is a
wholly owned subsidiary of AMBAC Inc., a publicly-held company. Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) have
rated AMBAC Indemnity's claims-paying ability Aaa and AAA, respectively.
Financial Guaranty Insurance Company (FGIC) is a wholly owned subsidiary of FGIC
Corporation, a Delaware corporation with admitted assets of $2.1 billion and a
statutory capital base of $1.1 billion as of December 31, 1994. Statutory
capital consists of total capital and surplus as well as contingency reserve.
FGIC's claims-paying ability was rated Aaa/AAA/AAA by Moody's, S&P, and Fitch,
respectively.
Municipal Bond Investors Assurance Corporation (MBIA) is a monoline insurance
company organized as a New York corporation. As of December 31, 1994, MBIA
(consolidated) had admitted
10
<PAGE>
assets of $3.4 billion (unaudited), total liabilities of $1.6 billion
(unaudited), and total capital and surplus of $1.7 billion (unaudited). All bond
issues insured by MBIA are rated "Aaa" by Moody's and all short-term loans
insured by MBIA "MIG-1." All bond issues insured by MBIA are rated "AAA" by S&P.
SPECIAL CONSIDERATIONS REGARDING CALIFORNIA MUNICIPAL SECURITIES
As briefly discussed in the Prospectus, the Funds are susceptible to political,
economic, and regulatory events that affect issuers of California municipal
obligations. These include possible adverse affects of California constitutional
amendments, legislative measures, voter initiatives, and other matters described
below.
The following information about risk factors is provided in view of the Funds'
policies of concentrating their assets in California municipal securities. This
information is based on recent official statements relating to securities
offerings of California issuers, although it does not constitute a complete
description of the risk associated with investing in securities of these
issuers. While BMC has not independently verified the information contained in
the official statements, it has no reason to believe the information is
inaccurate.
Economic Overview
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of over 30 million as of 1990, representing
approximately 12% of the U.S. population, grew by 27% in the 1980s. Total
personal income, an estimated $703 billion in 1994, accounted for approximately
12% of personal income nationwide. In 1994, total employment increased 260,000
from 1993 levels of 13.8 million. Jobs are concentrated in the service, trade,
and manufacturing sectors.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in the
aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing but slowing job losses in the aerospace industry and restructuring of
the finance and utility sectors. Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
Constitutional Limitations on Taxes
Many California issuers rely on ad valorem property taxes as a source of
revenue. The taxing powers of California local governments and districts are
limited by Article XIIIA of the California Constitution, enacted by voters in
1978 and commonly known as "Proposition 13." Article XIIIA limits to 1% of full
cash value the rate of ad valorem taxes on real property and restricts the
11
<PAGE>
reassessment of property to 2% per year, except where new construction or
changes of ownership have occurred (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness. The U.S. Supreme Court has upheld
Proposition 13 against claims that it has unlawfully resulted in widely varying
tax liability on similarly situated properties.
Article XIIIA also requires voters of any governmental unit to give two-thirds
approval to levy any "special tax." Subsequent court decisions, however, have
allowed non-voter approved "general taxes" so long as they are not dedicated to
a specific use. In response to these decisions, voters adopted an initiative in
1986 that imposed new limits on the ability of local government entities to
raise or levy general taxes without voter approval. Based upon a 1991
intermediate appellate court decision, it was believed that significant parts of
this initiative, known as "Proposition 62", were unconstitutional. On September
28, 1995, the California Supreme Court rendered a decision in the case of Santa
Clara County Local Transportation Authority v. Guardino which rejected the prior
decision and upheld Proposition 62, while striking down a 1/2 cent sales tax for
transportation purposes which was approved by a majority, but less than 2/3,
vote. Proposition 62 does not apply to charter cities, but other local
governments may be constrained in raising any taxes without voter approval.
Constitutional Limitations on Appropriations
The State and its local governments are subject to an annual appropriations
limit imposed by Article XIIIB of the California Constitution. This article was
enacted by voters in 1979 and was significantly amended by Propositions 98 and
111 in 1988 and 1990, respectively. Article XIIIB prohibits the State and
subject local governments from spending "appropriations subject to limitation"
in excess of an appropriations limit. The appropriations limit is adjusted
annually to reflect population changes and changes in the cost of living as well
as transfers of responsibility between government units. "Appropriations subject
to limitation" are authorizations to spend "proceeds of taxes" consisting of tax
revenues and certain other charges and fees to the extent that such proceeds
exceed the cost of providing the product or service.
However, proceeds of taxes exclude most State subventions to local governments.
"Excess revenues" under Article XIIIB are measured over a two-year cycle. Local
governments must return any excess revenues to taxpayers through tax rate
reductions. The State must refund 50% of any excess and pay the other 50% to
schools and community colleges. With the application of more liberal annual
adjustment factors since 1988 and depressed revenues since 1990 due to the
recession, few governments are currently operating near their spending limits,
but this condition may change over time. Local governments may, by voter
approval, exceed their spending limits for a limited time.
Because of the complex nature of Articles XIIIA and XIIIB, the ambiguities and
possible inconsistencies in their terms, and the impossibility of predicting
future appropriations, population changes, changes in the cost of living, or the
probability of continuing legal challenges, it is difficult to measure the full
impact of these Articles on the California municipal market or on the ability of
California issuers to pay debt service on their obligations.
Obligations of the State of California
As of October 1, 1995, the State had approximately $18.4 billion of general
obligation bonds outstanding, and approximately $3.3 billion remained authorized
but unissued. Of the State's outstanding general obligation debt, 22% is
presently self-liquidating (i.e., program revenues are
12
<PAGE>
expected to be sufficient to reimburse the General Fund for debt service
payments). In fiscal 1994-95, debt service on general obligation bonds and
lease-purchase debt was approximately 5.25% of General Fund revenues.
The State's principal sources of General Fund revenues for fiscal 1993-94 were
the California personal income tax (44% of total revenues), the sales tax (35%),
bank and corporation taxes (12%), and the gross premium tax on insurance (3%).
Historically, the State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt, and short-term obligations when due.
General. Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with the
largest programs supported by the General Fund (education, health, welfare and
corrections) growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. These structural concerns will be
exacerbated in coming years by the expected need to substantially increase
capital and operating funds for corrections as a result of a "Three Strikes" law
enacted in 1994.
Recent Budgets. As a result of these factors, among others, from the late 1980's
until 1992-93, the State had a period of nearly chronic budget imbalance, with
expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the Special
Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each year thereafter,
each budget required multibillion dollar actions to bring projected revenues and
expenditures into balance and to close large "budget gaps" which were
identified. The Legislature and Governor eventually agreed on a number of
different steps to produce Budget Acts in the years 1991-92 to 1994-95,
including:
o significant cuts in health and welfare program expenditures;
o transfers of program responsibilities and funding from the State to local
governments, coupled with some reduction in mandates on local government;
o transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing State funding for schools;
o reduction in growth of support for higher education programs, coupled with
increases in student fees;
o revenue increases (particularly in the 1991-92 Fiscal Year budget), most of
which were for a short duration;
o increased reliance on aid from the federal government to offset the costs of
incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal
aid than the State Administration has requested); and
o various one-time adjustments and accounting changes.
13
<PAGE>
Despite these budget actions, the effects of the recession led to large,
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and the
turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94 and
1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995.
A consequence of the accumulated budget deficits in the early 1990's, together
with other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual budget,
was to significantly reduce the State's cash resources available to pay its
ongoing obligations. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the
State to carry out its normal annual cash flow borrowing to replenish its cash
reserves, the State Controller was forced to issue registered warrants ("IOUs")
to pay a variety of obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds were used to
make constitutionally-mandated payments, such as debt service on bonds and
warrants. Between July 1 and September 4, 1992 the State Controller issued a
total of approximately $3.8 billion of registered warrants. After that date, all
remaining outstanding registered warrants (about $2.9 billion) were called for
redemption from proceeds of the issuance of 1992 Interim Notes after the budget
was adopted.
The State's cash condition became so serious in late spring of 1992 that the
State Controller was required to issue revenue anticipation warrants maturing in
the following fiscal year in order to pay the State's continuing obligations.
The State was forced to rely increasingly on external debt markets to meet its
cash needs, as a succession of notes and warrants (both forms of short-term cash
flow financing) were issued in the period from June 1992 to July 1994, often
needed to pay previously-maturing notes or warrants. These borrowings were used
also in part to spread out the repayment of the accumulated budget deficit over
the end of a fiscal year.
The State issued $7.0 billion of short-term debt in July 1994 to meet its cash
flow needs and to finance the deferral of part of the accumulated budget deficit
to the 1995-96 fiscal year. In order to assure repayment of $4 billion of this
borrowing which matures on April 25, 1996, the State enacted legislation (the
"Trigger Law") which can lead to automatic, across-the-board cuts in General
Fund expenditures in either the 1994-95 or 1995-96 fiscal years if cash flow
projections made at certain times during those years show deterioration from the
projections made in July 1994 when the borrowings were made. On November 15,
1994, the State Controller as part of the Trigger Law reported that the cash
position of the General Fund on June 30, 1995 would be about $580 million better
than earlier projected, so no automatic budget adjustments were required in
1994-95. The Controller's report showed that loss of federal funds was offset by
higher revenues, lower expenditures, and certain other increases in cash
resources.
Current Budget. For the first time in four years, the State entered the 1995-96
fiscal year with strengthening revenues based on an improving economy. The major
feature of the Governor's proposed Budget, a 15% phased tax cut, was rejected by
the Legislature.
14
<PAGE>
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projects General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures are budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance projects that, after repaying the last of the carryover
budget deficit, there will be a positive balance of less than $30 million in the
budget reserve, the Special Fund for Economic Uncertainties, at June 30, 1996,
providing no margin for adverse results during the year.
The Department of Finance projects cash flow borrowings in the 1995-96 Fiscal
Year will be the smallest in many years, comprising about $2 billion of notes to
be issued in April, 1996, and maturing by June 30, 1996. With full payment of $4
billion of revenue anticipation warrants on April 25, 1996, the Department sees
no further need for borrowing over the end of the fiscal year. The Department
projects that available internal cash resources to pay State obligations will be
almost $2 billion at June 30, 1996. This "cushion" will be re-examined by the
State Controller on October 15, 1995, in the last step under the "Trigger Law"
process. If the Controller believes the available internal cash resources on
June 30, 1996 will, in fact, be zero or less, her report would start a process
which could lead to automatic budget cuts starting in December, 1995.
The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cuts in health and welfare expenditures (some of which are
subject to approvals or waivers by the federal government); assumed receipt of
an additional $473 million of federal aid for illegal immigrant costs; and an
increase in per-pupil funding for public schools and community colleges, the
first such significant increase in four years.
In July 1994, all three of the rating agencies that rate the State's long-term
debt lowered their ratings of the State's general obligation bonds. Moody's
Investors Service, Inc. lowered its rating from "Aa" to "A1," Standard & Poor's
Ratings Group lowered its rating from "A+" to "A" and termed the bond outlook as
"stable," and Fitch Investors Service, Inc. lowered its rating from "AA" to "A."
The credit quality of obligations issued by local California issuers is not
directly related to the quality of obligations issued by the State, and the
State has no obligation to make payments on local debt obligations in the event
of default. As described below, the State's fiscal problems have placed
considerable pressure on local governments.
Finally, the State is involved in certain legal proceedings that, if decided
against the State, may require the State to make significant future expenditures
or substantially impair revenues.
Obligations of Other Issuers
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13 in 1978. Subsequently, the California
legislature enacted measures to provide for the redistribution of the State's
General Fund surplus to local agencies, the reallocation of certain State
revenues to local agencies, and the assumption of certain government functions
by the State to assist the State's municipalities. However, in response to the
fiscal crisis at the State level, the Legislature in 1992-93 and 1993-94
effectively reversed the post-Proposition 13 "bailout" aid and directed over $3
billion of city, county, and special district property taxes to school
districts, which enabled the State to reduce its aid to schools by the same
amount. Part of this shortfall is to be covered by a 0.5% sales tax allocated to
local government public safety purposes. The 0.5% sales tax increase was imposed
by Proposition 172, which was approved by a majority of voters at the statewide
election on November 2, 1993.
15
<PAGE>
Even with these cuts and property tax shifts, over 70% of the State General Fund
expenditures are for local government assistance. To the extent that the State
is constrained by its Article XIIIB appropriations limit, its obligation to
conform to Proposition 98, or other fiscal considerations, the absolute level or
rate of growth of State assistance to local governments may be reduced. Any such
reductions in State aid could compound the serious fiscal constraints already
experienced by many local governments, particularly counties.
Orange County Bankruptcy
On December 6, 1994, Orange County, California (the "County") together with the
pooled investment funds (the "Pools") filed for protection under Chapter 9 of
the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in its investments caused a liquidity crisis for the
Pools and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Pools. The County estimated
the Pools' loss at about $1.69 billion, or 23% of its initial deposits of around
$7.5 billion. Many of the entities which kept moneys in the Pools, including the
County, faced cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. Moody's and Standard and Poor's
have suspended, reduced to below investment grade levels, or placed on "Credit
Watch" various securities of the County and the entities participating in the
Pools.
On May 2, 1995, the Bankruptcy Court approved a settlement agreement covering
claims of the other participating entities against the County and the Pools.
Most participants have received in cash 80% (90% for school districts) of their
Pools' investment; the balance is to be paid in the future. The County succeeded
in deferring, by consent, until June 30, 1996, the repayment of $800 million of
short-term obligations due in July and August, 1995; these notes are, however,
considered to be in default by Moody's and S&P. On June 27, 1995, County voters
turned down a proposal for temporary 0.5% increase in local sales tax, making
the County's fiscal recovery much harder.
A new financial plan has been implemented based largely on transfer of moneys to
the County from other local government entities, and further expenditure cuts.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities.
California assessment and special tax bonds may be adversely affected by a
general decline in real estate values or a further slowdown in real estate sales
activity. In many cases, such bonds are secured by land that is undeveloped at
the time of issuance but is expected to be developed within a few years. In the
event of continued reductions or slowdowns, development may not occur or may be
delayed, thereby increasing the risk of default on the bonds. Because the
special assessments or taxes securing these bonds are not the personal liability
of the owners of the property assessed, the lien on the property is the only
security for the bonds. Moreover, in most cases, the issuer of these bonds is
not required to make payments on the bonds in the event of delinquency in the
payment of assessments or taxes, except from amounts, if any, in a reserve fund
established for the bonds.
Certain California long-term lease obligations, though typically payable from a
municipality's general fund, are subject to "abatement" in the event the
facility being leased is unavailable for beneficial use and occupancy by the
municipality during the term of the lease. Abatement is not a default, and there
may be no remedies available to the holders of the certificates in the event
abatement occurs and available reserves and insurance are inadequate. For
example, several years
16
<PAGE>
ago the Richmond Unified School District entered into a lease transaction in
which certain existing properties of the District were sold and leased back in
order to obtain funds to cover operating deficits. Following a fiscal crisis in
which the District's finances were taken over by a State receiver, the District
failed to make rental payments on this lease, resulting in a lawsuit by the
trustee for the certificate of participation holders in which the State was
named a defendant (on the grounds that it controlled the District's finances).
One of the defenses raised in answer to this lawsuit was the invalidity of the
original lease transaction. The trial court ruled in favor of the trustee.
Although a settlement of this case is now expected, any ultimate judgment
against the trustee may have adverse implications for lease transactions of a
similar nature issued by other California municipalities.
The repayment of industrial development bonds secured by real property may be
affected by California laws limiting foreclosure rights of creditors. Securities
backed by health care and hospital revenues may be affected by changes in State
regulations governing cost reimbursements to health care providers under
Medi-Cal (the State's Medicaid program), including the policy of awarding
exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB and have only resumed such ratings on a selective
basis.
In addition, Proposition 87, approved by California voters in 1988, requires
that any increase in project area property tax revenues produced by an increase
in the property tax rate go directly to the taxing entity on whose behalf the
taxes are levied to repay that entity's general obligation indebtedness. As a
result, although redevelopment agencies (typical issuers of tax allocation
bonds) continue to receive additional taxes collected on increases in the
assessed value of the taxable property in the project area, they no longer
receive that portion of any increase attributable to an increase in the property
tax rate.
The effect of these various constitutional and statutory changes upon the
ability of California municipal issuers to pay interest and principal on their
obligations remains unclear. Other measures affecting the taxing or spending
authority of California or its political subdivisions may be approved or enacted
in the future. Legislation may be introduced that would modify existing taxes or
other revenue-generating measures, or that would further limit or,
alternatively, increase the ability of state and local governments to impose new
taxes or increase existing taxes. It is not possible to determine the effect of
such legislation on the ability of state or local government entities to pay the
interest on, or repay the principal of, California municipal obligations.
Most of California is within an active geologic region subject to major seismic
activity. California municipal obligations held by the Funds could be affected
by interruptions of revenues due to damaged facilities, income tax deductions
for casualty losses, or property tax assessment reductions. Compensatory
financial assistance could be constrained by the inability of (i) an issuer to
have obtained earthquake insurance coverage at reasonable rates, (ii) an insurer
to perform on its contracts of insurance in the event of widespread losses, or
(iii) the federal or state governments to appropriate sufficient funds within
their respective budget limitations.
17
<PAGE>
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below. Except for those designated
as operating policies, the restrictions are fundamental and may not be changed
without approval of "a majority of the outstanding voting securities" of the
Fund, as defined in the Investment Company Act of 1940.
Each Money Market Fund May Not
(1) Borrow money in excess of 33 % of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at
least 300 per centum for all such borrowings. To secure any such
borrowing, each Money Market Fund may not mortgage, pledge, or hypothecate
in excess of 33 % of the value of its total assets. Each Money Market Fund
will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding.
(2) Act as an underwriter of securities issued by others, except to the extent
that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer, and
the later disposition of such securities in accordance with the Fund's
investment policies and techniques, may be deemed to be an underwriting.
(3) Purchase, sell, or invest in real estate, commodities, commodity
contracts, foreign exchange, or interests in oil, gas, or other mineral
exploration or development programs, provided that this limitation will
not prohibit the purchase of municipal securities and other debt
securities secured by real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads, except that it may purchase and hold securities
with rights to put securities to the seller (standby commitments) in
accordance with its investment techniques.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor, who each own beneficially more
18
<PAGE>
than 0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities. However, such restrictions
will not apply to holdings of issuers of industrial development bonds.
(12) Acquire securities for the purpose of exercising control over management
of the issuer.
(13) As an operating policy, purchase any security if, as a result, more than
5% of the value of the Fund's total assets would be invested in the
securities of issuers that at the time of purchase had been in operation
for less than three years, except obligations issued or guaranteed by the
U.S. government or its agencies and municipal securities (for this
purpose, the period of operation of any issuer will include the period of
operation of any predecessor or unconditional guarantor of such issuer),
provided, however, that for the purpose of this limitation, industrial
development bonds issued by non-governmental users will not be deemed
municipal securities.
(14) Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activities in the same industry. However, this
limitation does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or to municipal
securities of any type.
Each Variable-Price Fund May Not
(1) Borrow money in excess of 33 % of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at
least 300% for all such borrowings. To secure any such borrowing, each
Variable-Price Fund may not mortgage, pledge, or hypothecate in excess of
33 % of the value of its total assets. (The deposit of assets in escrow in
connection with the writing of covered put and call options and collateral
arrangements with respect to initial or variation margin deposits for
futures contracts will not be deemed to be a pledge of the Fund's assets.)
Each Variable-Price Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(2) Act as an underwriter of securities issued by others, except to the extent
that the purchase of municipal securities, or other permitted investments,
directly from the issuer thereof or from an underwriter for an issuer, and
the later disposition of such securities in accordance with the Fund's
investment policies and techniques, may be deemed to be an underwriting.
(3) Purchase, sell, or invest in real estate, commodities, commodity
contracts, foreign exchange, or interests in oil, gas, or other mineral
exploration or development programs, provided that this limitation will
not prohibit the purchase of municipal securities and other debt
securities secured by real estate or interests therein and will not
prohibit the Fund from purchasing, selling, or entering into options on
securities or indexes of securities, futures contracts, options on futures
contracts, or any other interest rate hedging instrument, subject to the
Fund's compliance with applicable provisions of the federal securities or
commodities laws.
(4) Engage in any short-selling operations, except that the Fund may purchase,
sell, or enter into short positions in options on securities or indexes of
securities, futures contracts, options on futures contracts, and any other
interest rate hedging instrument as may be permitted under the federal
securities or commodities laws.
19
<PAGE>
(5) Make loans to others, except in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any company, including warrants or bonds
with warrants attached, or any preferred stocks, convertible bonds, or
convertible debentures.
(7) Engage in margin transactions, except that it may purchase, sell, or enter
into positions in options on securities or indexes of securities, futures
contracts, options on futures contracts, and other interest rate hedging
instruments, and may make margin deposits in connection therewith, and may
purchase and hold securities with rights to put securities to the seller
(standby commitments) in accordance with its investment policies.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that transactions in options,
futures, options on futures, and other interest rate hedging instruments,
notes evidencing temporary borrowings, or the purchase of securities on a
when-issued or delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except
that the Fund may, for temporary purposes, purchase shares of a money
market mutual fund, subject to such restrictions as may be imposed by (i)
the Investment Company Act of 1940 and rules thereunder, or (ii) any State
in which shares of the Fund are registered, and may acquire shares of any
investment company in connection with a merger, consolidation,
acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor, who each beneficially own more than 0.5% of the
outstanding securities of such issuer, together beneficially own more than
5% of such securities. However, such restrictions will not apply to
holdings of the issuers of industrial development bonds.
(12) Acquire securities for the purpose of exercising control over management
of the issuer.
(13) As an operating policy, purchase any security if, as a result, more than
5% of the value of the Fund's total assets would be invested in the
securities of issuers that at the time of purchase had been in operation
for less than three years, except obligations issued or guaranteed by the
U.S. government or its agencies and municipal securities (for this
purpose, the period of operation of any issuer will include the period of
operation of any predecessor or unconditional guarantor of such issuer),
provided, however, that for the purpose of this limitation, industrial
development bonds issued by non-governmental users will not be deemed
municipal securities.
(14) Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having
their principal business activities in the same industry. However, this
limitation does not apply to securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities or to municipal
securities of any type.
20
<PAGE>
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation
resulting from a change in the Fund`s net assets will not be considered in
determining whether it has complied with its investment restrictions.
For purposes of the Funds' investment restrictions, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an IDB, if the bond were
backed only by the assets and revenues of a non-governmental user, the
non-governmental user would be deemed the sole issuer. If, in either case, the
creating government or some other entity were to guarantee the security, the
guarantee would be considered a separate security and treated as an issue of the
guaranteeing entity.
PORTFOLIO TRANSACTIONS
Each Fund's assets are invested by BMC in a manner consistent with the Fund's
investment objectives, policies, and restrictions and with any instructions the
board of trustees may issue from time to time. Within this framework, BMC is
responsible for making all determinations as to the purchase and sale of
portfolio securities and for taking all steps necessary to implement securities
transactions on behalf of the Funds. In placing orders for the purchase and sale
of portfolio securities, BMC will use its best possible price and execution and
will otherwise place orders with broker-dealers subject to and in accordance
with any instructions the board of trustees may issue from time to time. BMC
will select broker-dealers to execute portfolio transactions on behalf of the
Funds solely on the basis of best price and execution.
Under normal conditions, the Variable-Price Funds' annual portfolio turnover
rates are not expected to exceed 100%. Because a higher turnover rate increases
transaction costs and may increase taxable capital gains, BMC carefully weighs
the potential benefits of short-term investing against these considerations.
The Variable-Price Funds' portfolio turnover rates for the fiscal years ended
August 31, 1995 and 1994, are indicated in the following table.
Portfolio Turnover Rates
Fiscal Year Fiscal Year
Fund 1995 1994
Tax-Free Short-Term Fund 49.75% 65.66%
Tax-Free Intermediate-Term Fund 25.44 43.80
Tax-Free Long-Term Fund 59.92 61.93
Municipal High-Yield Fund 40.00 42.55
Tax-Free Insured Fund 40.45 47.12
Investment decisions are made for each Fund independently from those made for
other funds advised by BMC. From time to time, however, two or more funds
advised by BMC may hold the same security. When two or more funds are
simultaneously engaged in purchasing or selling a security, the prices and
amounts are allocated in a manner believed by BMC to be equitable to each
21
<PAGE>
of the funds involved. In some instances, simultaneous transactions could have a
detrimental effect on the price or value of a security as far as the
participating funds are concerned. In other instances, however, the ability to
participate in volume transactions will produce better prices and executions for
the funds.
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share (NAV) is determined by Benham Financial
Services, Inc. (BFS) at 1:00 p.m. Pacific Time each day the New York Stock
Exchange (NYSE) is open for business. The NYSE designated the following holiday
closings for 1995: New Year's Day (observed), Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although BFS
expects the same holiday schedule to be observed in the future, the NYSE may
modify its holiday schedule at any time.
BMC typically completes its trading on behalf of each Fund in various markets
before the NYSE closes for the day. Each Fund's share price is calculated by
adding the value of all portfolio securities and other assets, deducting
liabilities, and dividing the result by the number of shares outstanding.
Expenses and interest earned on portfolio securities are accrued daily.
Money Market Funds. Securities held by the Money Market Funds are valued at
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium paid at the time of purchase. Although this method provides certainty in
valuation, it generally disregards the effect of fluctuating interest rates on
an instrument's market value. Consequently, the instrument's amortized cost
value may be higher or lower than its market value, and this discrepancy may be
reflected in the Funds' yields. During periods of declining interest rates, for
example, the daily yield on Fund shares computed as described above may be
higher than that of a fund with identical investments priced at market value.
The converse would apply in a period of rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule 2a-7
under the Investment Company Act of 1940. Under the Rule, a fund holding itself
out as a money market fund must adhere to certain quality and maturity criteria.
In particular, such a fund must limit is investments to U.S. dollar-denominated
instruments determined by its directors or trustees to present minimal credit
risks and that are (i) high-grade obligations rated in accordance with
applicable rules in one of the two highest rating categories for short-term
obligations by at least two rating agencies (or by one if only one has rated the
obligation) or (ii) unrated obligations judged by the advisor, under the
direction of the fund's directors or trustees, to be of comparable quality.
Further, pursuant to Rule 2a-7, a money market fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and purchase
instruments with remaining maturities of 397 days or less.
The trustees have established procedures designed to stabilize the Money Market
Funds' NAV at $1.00 per share, to the extent reasonably possible. These
procedures require the Trust's chief financial officer to notify the trustees
immediately if, at any time, the Funds' weighted average maturity exceeds 90
days, or its NAV, as determined by using available market quotations, deviates
from its amortized cost per share by .25% or more. If such deviation exceeds
.40%, a meeting of the board of trustees' audit committee will be called to
consider what actions, if any, should be taken. If such deviation exceeds .50%,
the Trust's chief financial officer is instructed to adjust daily dividend
distributions immediately to the extent necessary to reduce the deviation to
.50% or lower and to call a meeting of the board of trustees to consider further
action.
22
<PAGE>
The Board of Trustees monitors the levels of illiquid securities, however if the
levels are exceeded, they will take action to rectify these levels.
Actions the board may consider under these circumstances include (i) selling
portfolio securities prior to maturity, (ii) withholding dividends or
distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
Variable-Price Funds. Securities held by the Variable-Price Funds normally are
priced by an independent pricing service, provided that such prices are believed
by BMC to reflect the fair market value of portfolio securities.
Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services generally take into account institutional
trading activity, trading in similar groups of securities, and any developments
related to specific securities. The methods used by the pricing service and the
valuations so established are reviewed by BMC under the general supervision of
the board of trustees. There are a number of pricing services available, and
BMC, on the basis of ongoing evaluation of these services, may use other pricing
services or discontinue the use of any pricing service in whole or in part.
Securities not priced by a pricing service are valued at the mean between the
most recently quoted bid and ask prices provided by broker-dealers. The
municipal bond market is typically a "dealer market"; that is, dealers buy and
sell bonds for their own accounts rather than for customers. As a result, the
spread, or difference between bid and asked prices, for certain municipal bonds
may differ substantially among dealers.
Securities maturing within 60 days of the valuation date may be valued at cost,
plus or minus any amortized discount or premium, unless the trustees determine
that this would not result in fair valuation of a given security. Other assets
and securities for which quotations are not readily available are valued in good
faith at their fair value using methods approved by the board of trustees.
PERFORMANCE
The Funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.
For the Money Market Funds, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying by 365/7 with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return) + 1)365/7] - 1
23
<PAGE>
The Money Market Funds' yields and effective yields for the seven-day period
ended August 31, 1995, were as follows:
Money Market Fund 7-Day Yield Effective Yield
Tax-Free Money Market Fund 3.20 3.25
Municipal Money Market Fund 3.29 3.34
For the Variable-Price Funds, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
Fund's net investment income by its share price on the last day of the period
according to the following formula:
YIELD = 2 [(a - b + 1)6 - 1]
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
The Variable-Price Funds' yields for the 30-day period ended August 31, 1995,
were as follows:
Variable-Price Fund 30-Day Yield
Tax-Free Short-Term Fund 3.94
Tax-Free Intermediate-Term Fund4.74
Tax-Free Long-Term Fund 5.67
Municipal High-Yield Fund 6.44
Tax-Free Insured Fund 5.47
Total returns quoted in advertising and sales literature reflect all aspects of
a Fund's return, including the effect of reinvesting dividends and capital gain
distributions and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a Fund over a stated period
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative return of 100% over
ten years would produce an average annual return of 7.18%, which is the steady
annual rate that would equal 100% growth on a compounded basis in ten years.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Funds' performance is
not constant over time but changes from year-to-year and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
The Funds' average annual total returns for the one-year, five-year, and
ten-year or life-of-fund periods ended August 31, 1995, are indicated in the
table on the next page.
24
<PAGE>
Average Annual Total Returns
Fund One-Year Five-Year Ten-Year Life-of-Fund*
Tax-Free Money Market Fund 3.31 2.95 3.81 3.97
Municipal Money Market Fund 3.35 - - 3.09
Tax-Free Short-Term Fund 5.33 - - 4.80
Tax-Free Intermediate-Term Fund 7.09 7.45 7.23 7.10
Tax-Free Long-Term Fund 7.21 8.53 8.33 8.52
Municipal High-Yield Fund 7.09 8.20 - 6.10
Tax-Free Insured Fund 8.09 8.59 - 6.64
* Municipal High-Yield Fund and Tax-Free Insured Fund commenced operations on
December 30, 1986. Municipal Money Market Fund commenced operations on December
31, 1990. Tax-Free Short-Term Fund commenced operations on June 1, 1992.
In addition to average annual total returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
The Funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike Benham funds,
are sold with a sales charge or deferred sales charge. Sources of economic data
that may be considered in making such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major, nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock market
performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The Fund may also utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.
The Fund's shares are sold without a sales charge (load). No-load funds offer an
advantage to investors when compared to load funds with comparable investment
objectives and strategies. If an investor pays $10,000 to buy shares of a load
fund with an 8.5% sales charge, $850 of that $10,000 is
25
<PAGE>
paid as a commission to a salesperson, leaving only $9,150 to put to work for
the investor. Over time, the difference between paying a sales load and not
paying one can have a significant effect on an investor's total return. The
Mutual Fund Education Alliance provides a comparison of $10,000 invested in each
of two mutual funds, one with an 8.5% sales load and one without a sales load.
Assuming a compounded annual growth rate of 10% for both investments, the
no-load fund investment is worth $25,937 after ten years, and the load fund
investment is worth only $23,732.
The Benham Group has distinguished itself as an innovative provider of low-cost,
true no-load mutual funds. Among other innovations, The Benham Group established
the first no-load fund that invests primarily in zero-coupon U.S. Treasury
securities, the first no-load double tax-free California short-term bond fund,
the first no-load adjustable rate government securities fund, and the first
no-load utilities fund designed to pay monthly dividends.
TAXES
Federal Income Tax
Each Fund intends to qualify annually as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the Code). By so qualifying, a Fund
will be exempt from federal and California income taxes to the extent that it
distributes substantially all of its net investment income and net realized
capital gains to shareholders. The tax rules applicable to regulated investment
companies include, among others, a requirement that gains from the sale of
securities held less than three months constitute less than 30% of a Fund's
gross income for each taxable year.
Certain of the bonds purchased by the Funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Original issue discount, although no cash is actually received by a
Fund until the maturity of the bond, is treated for federal income tax purposes
as income earned by a Fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a Fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the Fund.
In addition, some of the bonds may be purchased by a Fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a Fund elects to include market discount in
income in tax years to which it is attributable). Generally, market discount
accrues on a daily basis for each day the bond is held by a Fund on a straight
line basis over the time remaining to the bond's maturity. In the case of any
debt security having a fixed maturity date of not more than one year from date
of issue, the gain realized on disposition generally will be treated as
short-term capital gain. In general, gain realized on disposition of a security
held less than one year is treated as short-term capital gain.
It is intended that each Fund's assets will be sufficiently invested in
municipal securities so that each Fund will be eligible to pay "exempt-interest
dividends" (as defined in the Code) to shareholders. A Fund's dividends payable
from net tax-exempt interest earned from municipal securities will
26
<PAGE>
qualify to be designated as exempt-interest dividends if, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of the Fund's
total assets consists of municipal securities. Exempt-interest dividends
distributed to shareholders are not included in shareholders' gross income for
regular federal income tax purposes. The percentage of income that is tax-exempt
is applied uniformly to all distributions made during each calendar year. This
percentage may differ from the actual percentage of tax-exempt income received
during any particular month.
Distributions of net investment income received by a Fund from investment in
debt securities other than municipal securities, of ordinary income realized
upon the disposition of tax-exempt market discount bonds, and any net realized
short-term capital gains distributed by the Fund will be taxable to shareholders
as ordinary income. Because the Funds' investment income is derived from
interest rather than dividends, no portion of such distributions is eligible for
the dividends-received deduction available to corporations.
Under the Code, any distribution of a Fund's net realized long-term capital
gains designated by the Fund as a capital gain dividend is taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. If a capital gain dividend is paid with respect to any shares of a
Fund sold at a loss after being held for six months or less, the loss will be
treated as a long-term capital loss for tax purposes. The Code also provides
that if a shareholder holds shares of a Fund for six months or less, the
deduction of any loss on the sale or exchange of those shares is disallowed to
the extent that the shareholder received exempt-interest dividends with respect
to those shares.
As of August 31, 1995, the Funds' had the following capital loss carryovers:
Tax-Free Money Market Fund $740,889 scheduled to expire on August 31, 1996, and
Municipal Money Market Fund $3,865, Tax-Free Short-Term Fund $608,877, Tax-Free
Intermediate-Term Fund $1,686,723, Tax-Free Long-Term Fund $498,209, Municipal
High-Yield Fund $425,261, and Tax-Free Insured Fund $1,230,778 scheduled to
expire on August 31, 2003. When a Fund has a capital loss carryover, it does not
make capital gain distributions until the loss has been offset or expired.
Interest on certain types of industrial development bonds (small issues and
obligations issued to finance certain exempt facilities that may be leased to or
used by persons other than the issuer) is not exempt from federal income tax
when received by "substantial users" or persons related to substantial users as
defined in the Code. The term "substantial user" includes any "non-exempt
person" who regularly uses in trade or business part of a facility financed from
the proceeds of industrial development bonds. The Funds may invest periodically
in industrial development bonds and, therefore, may not be appropriate
investments for entities that are substantial users of facilities financed by
industrial development bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he or his immediate family (spouse, brothers, sisters,
ancestors and lineal descendants) owns directly or indirectly in aggregate more
than 50% in the equity value of the substantial user.
From time to time, proposals have been introduced in Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
municipal securities, and similar proposals may be introduced in the future. If
such a proposal were enacted, the availability of municipal securities for
investment by the Funds and the Funds' NAVs would be adversely affected. Under
these circumstances, the trustees would re-evaluate the Funds' investment
objectives and policies and would consider either changes in the structure of
the Trust or its dissolution.
27
<PAGE>
Alternative Minimum Tax
While the interest on bonds issued to finance essential state and local
government operations is generally exempt from regular federal income tax,
interest on certain "private activity" bonds issued after August 7, 1986, while
exempt from regular federal income tax, constitutes a tax-preference item for
taxpayers in determining alternative minimum tax liability under the Code and
income tax provisions of several states.
Municipal Money Market Fund and Municipal High-Yield Fund may each invest in
private activity bonds. The interest on private activity bonds could subject a
shareholder to, or increase liability under, the federal alternative minimum
tax, depending on the shareholder's tax situation. The interest on California
private activity securities is not subject to the California alternative minimum
tax when it is earned (either directly or through investment in a mutual fund)
by a California taxpayer. However, if either Fund were to invest in private
activity securities of non-California issuers (due to a limited supply of
appropriate California municipal obligations, for example), the interest on
those securities would be included in California alternative minimum taxable
income.
All distributions derived from interest exempt from regular federal income tax
may subject corporate shareholders to, or increase their liability under, the
alternative minimum tax because these distributions are included in the
corporation's "adjusted current earnings."
In addition, a deductible "environmental tax" of 0.12% is imposed on a
corporation's modified alternative minimum taxable income in excess of $2
million. The environmental tax will be imposed even if the corporation is not
required to pay an alternative minimum tax. To the extent that exempt-interest
dividends paid by a Fund are included in alternative minimum taxable income,
corporate shareholders may be subject to the environmental tax.
The Trust will inform Municipal Money Market Fund and Municipal High-Yield Fund
shareholders annually of the amount of distributions derived from interest
payments on private activity bonds.
State and Local Taxes
California law concerning the payment of exempt-interest dividends is similar to
federal law. Assuming each Fund qualifies to pay exempt-interest dividends under
federal and California law, and to the extent that dividends are derived from
interest on tax-exempt bonds of California state or local governments, such
dividends will also be exempt from California personal income tax. The Trust
will inform shareholders annually as to the amount of distributions from each
Fund that constitute exempt-interest dividends and dividends exempt from
California personal income tax. The Funds' dividends are not exempt from
California state franchise or corporate income taxes.
The Funds' dividends may not qualify for exemption under income or other tax
laws of state or local taxing authorities outside California. Shareholders
should consult their tax advisors or state or local tax authorities about the
status of distributions from the Funds in this regard.
The information above is only a summary of some of the tax considerations
affecting the Funds and their shareholders; no attempt has been made to discuss
individual tax consequences. A prospective investor should consult his or her
tax advisor or state or local tax authorities to determine whether the Funds are
suitable investments based on his or her tax situation.
28
<PAGE>
ABOUT THE TRUST
Benham California Tax-Free and Municipal Funds (the Trust) is a registered
open-end management investment company that was organized as a Massachusetts
business trust on February 18, 1983. (The Trust was formerly known as "Benham
California Tax-Free Trust"). Currently, there are seven series of the Trust, as
follows: Tax-Free Money Market Fund, Municipal Money Market Fund, Tax-Free
Short-Term Fund, Tax-Free Intermediate-Term Fund, Tax-Free Long-Term Fund,
Municipal High-Yield Fund, and Tax-Free Insured Fund. The board of trustees may
create additional series from time to time.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest without par value, which may
be issued in series (funds). Shares issued are fully paid and nonassessable and
have no preemptive, conversion, or similar rights.
Shares of each series have equal voting rights, although each series votes
separately on matters affecting that series exclusively. Voting rights are not
cumulative; investors holding more than 50% of the Trust's (i.e., all series')
outstanding shares may elect a board of trustees. The Trust has instituted
dollar-based voting, meaning that the number of votes you are entitled to is
based upon the dollar value of their investment. The election of trustees is
determined by the votes received from all Trust shareholders without regard to
whether a majority of shareholders of any one series voted in favor of a
particular nominee or all nominees as a group. Each shareholder has rights to
dividends and distributions declared by a Fund and in the net assets of such
Fund upon its liquidation or dissolution proportionate to his or her share
ownership interest in the Fund.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees, and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust itself is unable to meet its obligations.
Custodian Bank: State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, is custodian of the Trust's assets. Services
provided by the custodian bank include (i) settling portfolio purchases and
sales, (ii) reporting failed trades, (iii) identifying and collecting portfolio
income, and (iv) providing safekeeping of securities. The custodian takes no
part in determining the Fund's investment policies or in determining which
securities are sold or purchased by the Fund.
Independent Auditors: KPMG Peat Marwick LLP, 3 Embarcadero Center, San
Francisco, California 94111, serve as the Funds' independent auditor. KPMG
audits the annual report and provides tax and other services as auditors.
29
<PAGE>
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a board of trustees, including five
independent trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act of 1940) by virtue of, among other considerations, their affiliation
with either the Trust; the Trust's investment advisor, Benham Management
Corporation (BMC); the Trust's agent for transfer and administrative services,
Benham Financial Services, Inc. (BFS); the Trust's distribution agent, Benham
Distributors, Inc. (BDI); the parent corporation, Twentieth Century Companies,
Inc. (TCC) or TCC's subsidiaries; or other funds advised by BMC. Each trustee
listed below serves as a trustee or director of other funds in The Benham Group.
Unless otherwise noted, dates in parentheses indicate the dates the trustee or
officer began his or her service in a particular capacity. The trustees' and
officers' address is 1665 Charleston Road, Mountain View, California 94043 and
4500 Main Street, Kansas City, Missouri 64111.
*JAMES M. BENHAM, chairman of the board of trustees (1983). Mr. Benham is also
chairman of the boards of BFS (1985), BMC (1971), and BDI (1988); president of
BMC (1971), and BDI (1988); and a member of the board of governors of the
Investment Company Institute (1988). Mr. Benham has been in the securities
business since 1963, and he frequently comments through the media on economic
conditions, investment strategies, and the securities markets.
RONALD J. GILSON, independent trustee (1995). Mr. Gilson is Charles J. Meyers
Professor of Law and Business at Stanford Law School (1979) and the Mark and Eva
Stern Professor of Law and Business at Columbia University School of Law (1992);
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent trustee (1983). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983) and a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent trustee (1983). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a director of
RCM Capital Funds, Inc. (June 1994).
30
<PAGE>
EZRA SOLOMON, independent trustee (1983). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a director of
Encyclopedia Britannica.
ISAAC STEIN, independent trustee (1992). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III, trustee (1995). Mr. Stowers is president and director,
Twentieth Century Investors, Inc., TCI Portfolios, Inc., Twentieth Century World
Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century
Capital Portfolios, Inc., Twentieth Century Institutional Portfolios, Inc.,
Twentieth Century Companies, Inc., Investors Research Corporation and Twentieth
Century Services, Inc.
JEANNE D. WOHLERS, independent trustee (1985). Ms. Wohlers is a private investor
and an independent director and partner of Windy Hill Productions, LP.
Previously, she served as vice president and chief financial officer of Sybase,
Inc. (software company, 1988 to 1992).
*BRUCE R. FITZPATRICK, vice president (1985).
*JOHN T. KATAOKA, president and chief executive officer (1984).
*DOUGLAS A. PAUL, secretary (1988), vice president (1990), and general counsel
(1990).
*ANN N. McCOID, controller (1987).
*MARYANNE ROEPKE, chief financial officer for The Benham Group of Funds (1995).
The table on the next page summarizes the compensation that the trustees of the
Funds received for the Funds' fiscal year ended August 31, 1995, as well as the
compensation received for serving as a director or trustee of all other Benham
funds.
31
<PAGE>
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED
August 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Name of Aggregate Pension or Estimated Total
Trustee Compensation Retirement Benefits Annual Benefits Compensation
From Accrued As Part of Upon Retirement From Fund and
The Fund Fund Expenses Fund Complex
Paid to Trustees
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $0 Not Applicable Not Applicable $0
- ---------------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $1649 (Money Market) Not Applicable Not Applicable $64,375
1324 (MuniMM)
1091 (Short-Term)
1730 (Inter.-Term))
1413 (Long-Term)
1077 (High-Yield)
1216 (Insured)
- ---------------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $1669 (Money Market) Not Applicable Not Applicable $64,626
1427 (MuniMM)
1017 (Short-Term)
1745 (Inter.-Term))
1582 (Long-Term)
1386 (High-Yield)
1408 (Insured)
- ---------------------------------------------------------------------------------------------------------------------------
Ezra Solomon $1948 (Money Market) Not Applicable Not Applicable $66,794
1437 (MuniMM)
1123 (Short-Term)
2042 (Inter.-Term))
1615 (Long-Term)
1247 (High-Yield)
1370 (Insured)
- ---------------------------------------------------------------------------------------------------------------------------
Isaac Stein $1787 (Money Market) Not Applicable Not Applicable $65,626
1349 (MuniMM)
1079 (Short-Term)
1883 (Inter.-Term))
1637 (Long-Term)
1149 (High-Yield)
1306 (Insured)
- ---------------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $1836 (Money Market) Not Applicable Not Applicable $66,876
1428 (MuniMM)
1142 (Short-Term)
1927 (Inter.-Term))
1542 (Long-Term)
1130 (High-Yield)
1298 (Insured)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested trustees receive no compensation for their services as such.
As of August 31, 1995, the Trust's officers and trustees, as a group, owned
less than 1% of each Fund's total shares outstanding.
32
<PAGE>
INVESTMENT ADVISORY SERVICES
Each Fund has an investment advisory agreement with Benham Management
Corporation (BMC) dated May 31, 1995, that was approved by shareholders on that
date.
BMC is a California corporation and a wholly owned subsidiary of Twentieth
Century Companies (TCC), a Delaware corporation. BMC, as well as BFS and BDI,
became wholly owned subsidiaries of TCC on June 1, 1995, upon the merger of
Benham Management International (BMI), the former parent of BFS and BDI, into
TCC. BMC has served as investment advisor to the Fund since the Fund's
inception. TCC is a holding company that owns all of the stock of the operating
companies that provide the investment management, transfer agency, shareholder
service, and other services for the Twentieth Century funds. James E. Stowers,
Jr., controls TCC by virtue of his ownership of a majority of its common stock.
BMC has been a registered investment advisor since 1971 and is investment
advisor to other funds in The Benham Group.
Each Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two year period,
it is approved at least annually by vote of a majority of the Fund's
shareholders or by vote of a majority of the Trust's trustees, including a
majority of those trustees who are neither parties to the agreement nor
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
Each Fund's agreement is terminable on sixty days' written notice, either by the
Fund or by BMC, to the other party, and terminates automatically in the event of
its assignment.
Pursuant to the investment advisory agreement, BMC provides the Fund with
investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. BMC determines what
securities will be purchased and sold by the Fund and assist the Trust's
officers in carrying out decisions made by the board of trustees.
For these services, each Fund pays BMC a monthly investment advisory fee based
on its prorata share of the dollar amount derived from offering a percentage of
the Fund's average daily net assets to the following investment advisory fee
schedule:
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of net assets over $6.5 billion
Investment advisory fees paid by each Fund to BMC for the fiscal periods ended
August 31, 1995, 1994, and 1993, are indicated in the following table. Fee
amounts are net of reimbursements as described on the next page.
33
<PAGE>
Investment Advisory Fees
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
Tax-Free Money Market Fund 1,118,609 1,077,091 971,085
Municipal Money Market Fund 638,989 717,967 641,024
Tax-Free Short-Term Fund 320,571 351,908 93,724
Tax-Free Intermediate-Term Fund 1,219,371 1,329,806 1,063,698
Tax-Free Long-Term Fund 788,383 883,146 896,034
Municipal High-Yield Fund 317,026 325,337 278,723
Tax-Free Insured Fund 505,500 601,906 516,661
ADMINISTRATIVE AND TRANSFER AGENT SERVICES
BFS, a wholly owned subsidiary of TCC, is the Trust's agent for transfer and
administrative services. For administrative services, each Fund pays BFS a
monthly fee based on its pro rata share of the dollar amount derived from
applying the average daily net assets of all of the funds in The Benham Group to
the following administrative fee schedule:
Group Assets Administrative Fee Rate
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
For transfer agent services, each Fund pays BFS monthly fees of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by each Fund to BFS for the
fiscal years ended August 31, 1995, 1994, and 1993, are indicated in the
following table. Fee amounts are net of expense limitations as described below.
Administrative Fees
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
Tax-Free Money Market Fund 372,776 367,012 299,721
Municipal Money Market Fund 213,037 244,617 244,111
Tax-Free Short-Term Fund 106,880 119,911 79,630
Tax-Free Intermediate-Term Fund 406,453 453,129 330,077
Tax-Free Long-Term Fund 262,741 300,842 277,267
Municipal High-Yield Fund 105,659 110,808 86,440
Tax-Free Insured Fund 168,491 205,042 160,502
34
<PAGE>
Transfer Agent Fees
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
Tax-Free Money Market Fund 245,317 254,089 246,329
Municipal Money Market Fund 157,812 183,077 197,083
Tax-Free Short-Term Fund 60,682 64,485 49,061
Tax-Free Intermediate-Term Fund 195,808 198,370 161,303
Tax-Free Long-Term Fund 125,758 127,791 131,512
Municipal High-Yield Fund 66,032 64,349 58,189
Tax-Free Insured Fund 95,075 105,575 94,213
DIRECT FUND EXPENSES
Each Fund pays certain operating expenses that are not assumed by BMC or BFS.
These include fees and expenses of the independent trustees; custodian, audit,
tax preparation, and pricing fees; fees of outside counsel and counsel employed
directly by the Trust; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions (if any); trade association
dues; costs of fidelity and liability insurance policies covering the Fund;
costs for incoming WATS lines maintained to receive and handle shareholder
inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENTS
BMC may recover amounts absorbed on behalf of the Fund during the preceding 11
months if, and to the extent that, for any given month, the Fund's expenses were
less than the expense limit in effect at that time. BMC has agreed under
contract to limit the Tax-Free Money Market Fund expenses to .54% Municipal
Money Market Fund expenses to .58% and the Variable-Priced Funds expenses to
.62% of the Fund's average daily net assets during the year ending May 31, 1996.
Each Fund's contractual expense limitation is subject to annual renewal. The
expense limits for the year ended August 31, 1995 are as follows: Tax-Free Money
Market Fund .54%, Municipal Money Market Fund .58%, Tax-Free Short-Term Fund
,62%, Tax-Free Intermediate-Term Fund .62%, Tax-Free Long-Term Fund .62%,
Municipal High-Yield Fund .62%, and Tax-Free Insured Fund .62% of average daily
net assets.
Net reimbursements for the fiscal years ended August 31, 1995, 1994 and 1993,
are indicated in the table on the next page.
35
<PAGE>
Net Reimbursements (Recoupments) by BMC and BFS
Fiscal Fiscal Fiscal
Fund 1995 1994 1993
Tax-Free Money Market Fund 0 0 0
Municipal Money Market Fund 0 0 152,087
Tax-Free Short-Term Fund 0 (11,338) 161,581
Tax-Free Intermediate-Term Fund 0 0 0
Tax-Free Long-Term Fund 0 0 0
Municipal High-Yield Fund 0 0 (18,372)
Tax-Free Insured Fund 0 0 0
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
While the Funds are designed for California investors, they are also offered for
sale to investors in certain other western states.
The Funds' shares are continuously offered at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
The Benham Group may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a series' tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a series' best interest.
The Benham Group charges neither fees nor commissions on the purchase and sale
of Benham fund shares. However, BFS may charge fees for special services
requested by a shareholder or necessitated by acts or omissions of a
shareholder. For example, BFS may charge a fee for processing dishonored
investment checks or stop-payment requests. BFS charges $10 per hour for account
research requested by investors. This charge will be assessed, for example, when
a shareholder request requires more than one hour of research on historical
account records. The fees charged are based on the estimated costs of performing
shareholder-requested services and are not intended to increase income to BFS.
OTHER INFORMATION
The Fund's investment advisor has been continuously registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940
since December 14, 1971. The Trust has filed a registration statement under the
Securities Act of 1933 and the Investment Company Act of 1940 with respect to
the shares offered. Such registrations do not imply approval or supervision of
the Trust or the advisor by the Securities and Exchange Commission.
For further information, please refer to the registration statement and exhibits
on file with the Securities and Exchange Commission in Washington, D.C. These
documents are available upon payment of a reproduction fee. Statements in the
Prospectus and in this Statement of Additional Information concerning the
contents of contracts or other documents, copies of which are filed as exhibits
to the registration statement, are qualified by reference to such contracts or
documents.
36
<PAGE>
Municipal Securities Ratings
Securities rating descriptions provided under this heading are excerpted from
publications of Moody's Investors Service, Inc. and Standard & Poor's
Corporation.
Description of Moody's Investors Service, Inc.'s municipal bond ratings:
Aaa: Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin, and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together
with the Aaa group, they compose what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present that make long-term
risks appear somewhat larger than in Aaa securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times in the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated "B" generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be limited.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default, or
there may be elements of danger present with respect to principal or interest.
Ca: Bonds rated "Ca" represent obligations that are speculative to a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated "C" are the lowest-rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's may apply the numerical modifier "1" for municipally-backed bonds
and modifiers "1," "2," and "3" for corporate-backed municipal bonds. The
modifier "1" indicates that the security
37
<PAGE>
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
Description of Moody's Investors Service, Inc.'s ratings of notes and
variable-rate demand obligations:
Moody's ratings for state and municipal short-term obligations are designated
Moody's Investment Grade or MIG. Such ratings recognize the differences between
short-term credit and long-term risk. Short-term ratings on issues with demand
features (variable-rate demand obligations) are differentiated by the use of the
VMIG symbol to reflect such characteristics as payment upon periodic demand
rather than on fixed maturity dates and payments relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is strong protection
present through established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This denotes high quality. Margins of protection are ample,
although not as large as in the preceding group.
Description of Moody's Investors Service, Inc.'s tax-exempt commercial paper
ratings:
Moody's commercial paper ratings are opinions of the ability of issuers to
punctually repay those promissory obligations that have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the Funds may invest.
Prime - 1: Issuers rated "Prime - 1" (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
Prime - 2: Issuers rated "Prime - 2" (or supporting institutions) have a strong
ability for repayment of senior short-term promissory obligations.
Description of Standard & Poor's Corporation's ratings for municipal bonds:
Investment grade
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
38
<PAGE>
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt assigned an
actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt assigned an actual or implied "BB" or "BB-" rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, "CCC" debt is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt assigned an actual or implied "B" or
"B-" rating.
CC: The rating "CC" typically is applied to debt subordinated to senior debt
assigned an actual or implied "CCC" debt rating.
C: The "C" rating is typically applied to debt subordinated to senior debt
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation in which a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The "CI" rating is reserved for income bonds for which no interest is being
paid.
D: Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Standard & Poor's Corporation's ratings for investment-grade
municipal notes and short-term demand obligations:
39
<PAGE>
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Description of Standard & Poor's Corporation's ratings for demand obligations
and tax-exempt commercial paper:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The two rating categories for securities in which the Funds may invest
are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
Description of Fitch Investors Service, Inc.'s ratings for municipal bonds:
Investment grade
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal that is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
40
<PAGE>
Speculative
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin or
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD/DD/D: Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. "DDD" represents
the highest potential for recovery on these bonds, and "D" represents the lowest
potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD," "DD," or "D" categories.
Description of Fitch Investors Service, Inc.'s ratings for investment-grade
municipal notes and short-term demand obligations:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
41
<PAGE>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
1933 Act Post-Effective Amendment No. 22
1940 Act Amendment No. 26
PART C Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements. Audited financial statements for each series of
the Trust for the fiscal year ended August 31, 1995, are incorporated
herein by reference to Registrant's Annual Reports dated August 31,
1995. The Annual Reports were filed electronically on October 27,
1995.
(b) Exhibits.
(1)a) Declaration of Trust dated February 18, 1983, is
incorporated herein by reference to Exhibit 1 to Pre-Effective
Amendment No. 2.
b) Amendment to Declaration of Trust dated October 31, 1990,
is incorporated herein by reference to Exhibit 1 to
Post-Effective Amendment No. 13.
c) Amended and restated Declaration of Trust dated March 5,
1992, is incorporated herein by reference to Exhibit 1 to
Post-Effective Amendment No. 16.
d) Amended Declaration of Trust dated May 31, 1995, is filed
herein as Exhibit-99.B1.
(2)a) Bylaws dated March 13, 1985, are incorporated herein by
reference to Exhibit 2 to Pre-Effective Amendment No. 2.
b) Amendment to Bylaws dated October 23, 1984, is incorporated
herein by reference to Exhibit 2 to Post-Effective Amendment
No. 3.
c) Amended and restated Bylaws dated February 13, 1992, are
incorporated herein by reference to Exhibit 2 to
Post-Effective Amendment No. 16.
(3) Not applicable.
(4)Specimen copy of Tax-Free Short-Term Fund's share certificate
is incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 16.
(5)a) Investment Advisory Agreement between Benham California
Tax-Free and Municipal Funds: Tax-Free Short-Term Fund, Benham
California Tax-Free and Municipal Funds: Tax-Free Money Market
Fund, Benham California Tax-Free and Municipal Funds:
Municipal Money Market Fund, Benham California Tax-Free and
Municipal Funds: Tax-Free Intermediate-Term Fund, Benham
California Tax-Free and Municipal Funds: Tax-Free Long-Term
Fund, Benham California Tax-Free and Municipal Funds:
Municipal High-Yield Fund, Benham California Tax-Free and
Municipal Funds: Tax-Free Insured Fund and BMC, dated June 1,
1995, is filed herein as Exhibit-99.B5.
(6)Distribution Agreement between Benham California Tax-Free and
Municipal Funds and Benham Distributors, Inc., dated April 20,
1994, is filed herein as Exhibit-99.B6.
(7) Not applicable.
(8)1993 Omnibus Custodian Agreement between the Benham Group of
Funds (including Benham California Tax-Free and Municipal
Funds) and State Street Bank and Trust Company, dated August
10, 1993, is incorporated herein by reference to Exhibit 8 to
Post-Effective Amendment No. 20.
(9)a) Administrative Services and Transfer Agency Agreement
between Benham California Tax-Free and Municipal Funds and
Benham Financial Services, Inc., dated June 1, 1994, is filed
herein as Exhibit-99.B9.
(10)Not applicable.
(11)(a) Consent of KPMG Peat Marwick, LLP, independent auditors,
is filed herein as Exhibit-99.B11.
(b) Written representation pursuant to Rule 485(e) under the
Securities Exchange Act of 1933 is filed herin as Exhibit
-99.B10.
<PAGE>
(12)Not applicable.
(13)Not applicable.
(14)Not applicable.
(15)Not applicable.
(16)Schedule for computation of each performance quotation
provided in response to Item 22 is filed herein as Exhibit-99
.B16.
Item 25. Persons Controlled by or Under Control with Registrant.
Not applicable
Item 26. Number of Holders of Securities.
As of August 31, 1995, each Series of the Registrant had the
following number of record shareholders.
Municipal Money Market Fund 4,301
Tax-Free Money Market Fund 7,232
Tax-Free Short-Term Fund 1,941
Tax-Free Intermediate-Term Fund 7,396
Tax-Free Long-Term Fund 5,049
Municipal High-Yield Fund 2,417
Tax-Free Insured Fund 3,756
Item 27. Indemnification.
Registrant hereby incorporates by reference as though it were
set forth fully herein Article XI of Registrant's amended and restated
Declaration of Trust, dated March 5, 1992, appearing as Exhibit 1 to
Post-Effective Amendment No. 16.
<PAGE>
Item 28. Business and Other Connections of Investment Advisor.
The Fund's investment advisor, Benham Management Corporation,
is also investment advisor to Capital Preservation Fund, Inc., Capital
Preservation Fund II, Inc., Benham National Tax-Free Trust, Benham Target
Maturities Trust, Benham Government Income Trust, Benham Equity Funds, Benham
International Funds, Benham Investment Trust, and Benham Manager Funds.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Benham Distributors,
Inc., is also distribution agent for Capital Preservation Fund, Inc., Capital
Preservation Fund II, Inc., Benham National Tax-Free Trust, Benham Target
Maturities Trust, Benham Government Income Trust, Benham Equity Funds, Benham
International Funds, Benham Investment Trust, and Benham Manager Funds.
Item 30. Location of Accounts and Records.
The Registrant, its investment advisor, Benham Management
Corporation, and its agent for transfer and administrative services, Benham
Financial Services, Inc., maintain physical possession of each account, book, or
other document, and shareholder records as required by Section 31(a) of the 1940
Act and rules thereunder at the Trust's principal office located at 1665
Charleston Road, Mountain View, CA 94043. The computer and database for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to submit the Investment
Advisory Agreement with respect to Tax-Free
Short-Term Fund to shareholders of that Fund for
their approval pursuant to Section 15(a) of the
Investment Company Act of 1940, at a meeting to be
held within sixteen months of the Fund's commencement
of operations.
(b) Registrant undertakes to furnish each person to whom
a Prospectus is delivered with a copy of the
Registrant's latest report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 22/Amendment No. 26 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and the State of
California, on the 25th day of October, 1995.
Benham California Tax-Free and Municipal Funds
By: /s/Douglas A. Paul
Douglas A. Paul
Vice President, Secretary, and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 22/Amendment No. 26 has been signed below by the following persons
in the capacities and on the dates indicated.
/s/James M. Benham Chairman of the Board of
James M. Benham* Trustees
/s/James E. Stowers III Trustee
James E. Stowers III*
/s/Ronald J. Gilson Trustee
Ronald J. Gilson*
/s/Myron S. Scholes Trustee
Myron S. Scholes*
/s/Kenneth E. Scott Trustee
Kenneth E. Scott*
/s/Ezra Solomon Trustee
Ezra Solomon
/s/Isaac Stein Trustee
Isaac Stein*
/s/Jeanne D. Wohlers Trustee
Jeanne D. Wohlers*
/s/Maryanne Roepke Chief Financial Officer/
Maryanne Roepke* Treasurer
*By: /s/Douglas A. Paul
Douglas A. Paul
Attorney in Fact (Pursuant to a power of attorney dated August 21, 1995)
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
EX-99.B1 Amended Declaration of Trust dated May 31, 1995.
EX-99.B5 Investment Advisory Agreement between Benham
California Tax-Free and Municipal Funds and
Benham Management Corporation, dated June 1,
1995.
EX-99.B6 Distribution Agreement between Benham California
Tax-Free and Municipal Funds and Benham Distributors,
Inc., dated April 20, 1994.
EX-99.B9 Administrative Services and Transfer Agency Agreement
between Benham California Tax-Free and Municipal
Funds and Benham Financial Services, Inc., dated
June 1, 1994.
Ex-99.B10 Written representation pursuant to Rule 485(e) under
the Securities Exchange Act of 1933.
EX-99.B11 Consent of KPMG Peat Marwick, LLP, independent
auditors.
EX-99.B16 Schedule for computation of each performance quotation
provided in response to Item 22.
EX-99.B17 Power of Attorney dated August 22, 1995.
EX-27.1 FDS, Tax-Free Money Market Fund
EX-27.2 FDS, Municipal Money Market Fund
EX-27.3 FDS, Tax-Free Intermediate-Term Fund
EX-27.4 FDS, Tax-Free Long-Term Fund
EX-27.5 FDS, Municipal High-Yield Fund
EX-27.6 FDS, Tax-Free Insured Fund
EX-27.7 FDS, Tax-Free Short-Term Fund
TABLE OF CONTENTS
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
DECLARATION OF TRUST
Approved February 18, 1983
Amended March 5, 1992
Amended May 31, 1995
Article I Name and Definitions
1. Names
2. Definitions
(a) Affiliated Person
(b) Trust
(c) Accumulated Net Income
(d) Shareholder
(e) Trustees
(f) Shares
(g) Series
(h) Declaration of Trust
(i) Bylaws
(j) 1940 Act
(k) Commission
(l) Business Day
Article II Purpose of Trust
Article III Beneficial Interest
1. Shares of Beneficial Interest
2. Ownership of Shares
3. Investment in the Trust
4. No Pre-emptive Rights
5. Provisions Relating to Series of Shares
a. Assets Belonging to Each Series
b. Liabilities Belonging to Each Series
c. Series, Shares, Dividends and Liquidation
d. Voting by Series
Article IV The Trustees
1. Management of the Trust
2. Election of Trustees
3. Term of Office of Trustees
4. Termination of Service and Appointment of Trustees
5. Temporary Absence of Trustee
6. Number of Trustees
7. Effect of Death, Resignation etc. of a Trustee
8. Ownership of Assets of the Trust
Article V Powers of the Trustees
1. Powers
2. Trustees, Officers, Employees, and Agents as Shareholders
3. Parties to Contract
Article VI Trustees' Expenses and Compensation
1. Trustee Reimbursement
2. Trustee Compensation
Article VII Investment Advisor, Administrative Services, Principal
Underwriter and Transfer Agent
1. Investment Advisor
2. Administrative Services
3. Principal Underwriter
4. Transfer Agent
Article VIII Shareholders' Voting Powers and Meetings
1. Voting Powers
2. Meetings
3. Quorum and Required Vote
4. Proxies
5. Additional Provisions
Article IX Custodians
1. Appointment of Custodian and Duties
2. Central Certificate System
3. Special Custodians
4. Special Depositories
Article X Distributions and Redemptions
1. Distributions
2. Redemptions and Repurchases
3. Determination of Accumulated Net Income
4. Net Asset Value of Shares
5. Suspension of the Right of Redemption
6. Trust's Right to Redeem Shares
Article XI Limitation of Liability and Indemnification
1. Limitation of Personal Liability and Indemnification of
Shareholders
2. Limitation of Personal Liability of Trustees, Officers,
Employees or Agents of the Trust
3. Express Exculpatory Clauses and Instruments
4. Mandatory Indemnification
Article XII Miscellaneous
1. Trust is not a Partnership
2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety
3. Establishment of Record Dates
4. Termination of Trust
5. Offices of the Trust, Filing of Copies, Reference, Headings
6. Applicable Law
7. Amendments
8. Conflicts with Law or Regulations
9. Use of the Name "Benham"
<PAGE>
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
DECLARATION OF TRUST
DECLARATION OF TRUST made this 18th day of February, 1983 by Paul K.
Robertson and Dent N. Hand, Jr. (the "Trustees").
WHEREAS, the Trustees desire to establish a trust fund for the
investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Names. This Trust shall be known as "Benham California
Tax-Free and Municipal Funds." Each Series or Class of Shares of the Trust
established by the Trustees pursuant to Article III, Section 1 shall have such
name as the Trustees may designate. Should the Trustees determine that the use
of the name of the Trust or any Series or Class is not advisable, they may
select another name they deem proper and the Trust shall conduct business under
such other name. Any name change shall be effective upon execution by a majority
of the then Trustees of an instrument setting forth the new names. Any such
instrument shall have the status of an amendment to this Declaration of Trust.
Section 2. Definitions. Wherever used herein, unless
otherwise required by the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Interested Person,"
"Majority Shareholder Vote" (67% or 50% requirement of the third sentence of
Section 2(a) (42) of the 1940 Act, whichever may be applicable) and "Principal
Underwriter" shall have the meanings given them in the Investment Company Act of
1940, as amended from time to time;
(b) The "Trust" refers to Benham California Tax-Free and Municipal
Funds ;
(c) "Accumulated Net Income" means the accumulated net income of
the Trust determined in the manner provided or authorized in Article X, Section
3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" refers to the individual trustees in their capacity
as trustees hereunder of the Trust and their successor or successors for the
time being in office as such Trustees;
(f) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares;
(g) "Series" means Series and Classes of Shares of beneficial
interest in the Trust as may be created pursuant to Article III, Section 1;
(h) "Declaration of Trust" means this Declaration of Trust as
amended or restated from time to time;
(i) "Bylaws" means the Bylaws of the Trust as amended from time to
time;
(j) The "1940 Act" refers to the Investment Company Act of 1940,
as amended from time to time; and
(k) The "Commission" refers to the Commission described in the
1940 Act and to any succeeding governmental authority.
(l) A "business day" means a day when the New York Stock Exchange is
open for trading and the Trustees have not determined that the Trust shall be
closed for business in observance of a holiday observed generally by banks in
New York City or California.
ARTICLE II
PURPOSE OF TRUST
This Trust is organized to operate as an investment company registered
under the 1940 Act for the purpose of investing and reinvesting its assets in
securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interest in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole shares and/or fractions. Shares may be
represented by certificates or by suitable entries in the books of the Trust.
From time to time as they deem appropriate, the Trustees may create
Series and/or Classes of Shares. References in this Declaration of Trust to
Shares of the Trust shall apply to each such Series of Shares and (to the extent
not inconsistent with the rights and restrictions of a Class) to each such Class
of Shares, except to the extent modified by the Trustees under the provisions of
this Section.
Any Series of Shares created hereunder shall represent the beneficial
interest in the assets (and related liabilities) allocated by the Trustees to
such Series of Shares and acquired by the Trust only after creation of the
respective Series of Shares and only on the account of such Series. Upon
creation of any Series of Shares, the Trustees shall in the Bylaws or in an
instrument executed by a majority of the Trustees, designate it appropriately
and determine the investment policies with respect to the assets allocated to
such Series of Shares, preferences, redemption rights, dividend rights,
conversion rights, liquidation rights, voting rights and such other rights and
restrictions as the Trustees deem appropriate, to the extent not inconsistent
with the provisions of this Declaration of Trust.
The Trustees may divide the Shares or any Series of Shares into more
than one Class. Upon creation of any additional Class of Shares, the Trustees
shall in the Bylaws or in an instrument executed by a majority of the Trustees,
designate it appropriately and determine its preferences, redemption rights,
dividend rights, conversion rights, liquidation rights, voting rights and such
other rights and restrictions as the Trustees deem appropriate.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or of a transfer agent. The Trustees may make
such rules as they consider appropriate for the transfer of shares and similar
matters. The record books of the Trust or of any transfer agent, as the case may
be, shall be conclusive as to who are the holders of Shares and as to the number
of Shares held from time to time by each.
Section 3. Investment in the Trust. The Trustees may accept investments
in the Trust from such persons and on such terms as they may from time to time
authorize and may cease offering Shares to the public at any time. After the
date of the initial contribution of capital to the Trust, the number of Shares
determined by the Trustees to represent the initial contribution shall be
considered as outstanding and the amount received by the Trustees on account of
the contribution shall be treated as an asset of the Trust. Subsequent to such
initial contribution of capital, Shares (including Shares which may have been
redeemed or repurchased by the Trust) may be issued or sold at a price which
will net the Trust, before paying any taxes in connection with such issue or
sale, not less than the net asset value (as defined in Article X, Section 4)
thereof; provided, however, that the Trustees may in their discretion impose a
sales charge upon investments in the Trust.
Section 4. No Pre-emptive Rights. Shareholders shall have no
pre-emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees.
Section 5. Provisions Relating to Series of Shares. Whenever no Shares
of a Series are outstanding, then the Trustees may abolish such Series (or any
Class of Shares of a Series for which there are no outstanding Shares). Whenever
more than one Series of Shares is outstanding, the following provisions shall
apply:
(a) Assets Belonging to Each Series. All consideration received by the
Trust for the issue or sale of Shares of a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings and proceeds thereof, shall irrevocably belong to that Series for all
purposes, subject only to the rights of creditors, and shall be so recorded upon
the books of the Trust. In the event there are assets, income, earnings and
proceeds thereof which are not readily identifiable as belonging to a particular
Series, then the Trustees shall allocate such items to the various Series then
existing, in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. The amount of each such item allocated to a particular
Series by the Trustees shall then belong to that Series, and each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes.
(b) Liabilities Belonging to Each Series. The assets belonging to each
particular Series shall be charged with the liabilities, expenses, costs and
reserves of the Trust attributable to that Series; any general liabilities,
expenses, costs and reserves of the Trust which are not readily identifiable as
attributable to a particular Series shall be allocated by the Trustees to the
various Series then existing in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholder of all Series for all purposes.
(c) Series, Shares, Dividends and Liquidation. Each Share of each
respective Class of a Series shall have the same rights and pro rata beneficial
interest in the assets and liabilities of the Series as any other such Share.
Any dividends paid on the Shares of any Series shall only be payable from and to
the extent of the assets (net of liabilities) belonging to that Series. In the
event of liquidation of a Series, only the assets (less provision for
liabilities) of that Series shall be distributed to the holders of the Shares of
that Series.
(d) Voting by Series. Except as provided in this section or as limited
by the rights and restrictions of any Class, each Share of the Trust shall vote
with and in the same manner as any other Share on matters submitted to a vote of
the Shareholders, without differentiation among votes from the separate Series;
provided, however, that (i) as to any matter with respect to which a separate
vote of any Series is required by the 1940 Act such requirements as to a
separate vote by the Series shall apply in lieu of the voting described above
herein; (ii) in the event that the separate vote requirements referred to in (i)
above apply with respect to one or more Series, then, subject to (iii) below,
the Shares of all other Series shall vote without differentiation among their
votes; and (iv) as to any matter which does not affect the interest of a
particular Series, only the holders of Shares of the one or more affected Series
shall be entitled to vote.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all powers necessary
and desirable to carry out that responsibility.
Section 2. Election of Trustees. The "Organizing Trustees" are the
individuals who executed this Declaration of Trust. They shall hold office until
the initial Shareholders' election of Trustees and until their successors are
elected and qualified. After the Trust's initial sale of Shares but before the
Trust offers its Shares publicly, the Organizing Trustees shall call a meeting
of the Shareholders to elect the Trustees to serve for such regular terms as may
be provided below and in the Bylaws of the Trust. In the event of the death,
resignation, incapacity or other event which prevents both Organizing Trustees
from carrying out their duties, Benham Management Corporation shall be empowered
to appoint replacement Organizing Trustees.
Section 3. Term of Office of Trustees. The Trustees shall hold office
during the lifetime of this Trust or until the expiration of the term of office
for which each was elected if a specific term was established when a Trustee was
elected; except (a) that any Trustee may resign his trust by written instrument
signed by him and delivered to the other Trustees, which shall take effect upon
such delivery or upon such later date as is specified therein; (b) that any
Trustee may be removed at any time by written instrument signed by at least
two-thirds of the number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become mentally or physically incapacitated may
be retired by written instrument signed by a majority of the other Trustees,
specifying the date of his retirement, except that Trustees who are not
"interested persons" or employees of the Benham Capital Management Group of
companies shall retire at the end of the calendar year in which they shall have
reached the age of seventy-five (75) years; and (d) a Trustee may be removed at
any special meeting of Shareholders of the Trust by a vote of two-thirds of the
outstanding Shares.
Section 4. Termination of Service and Appointment of Trustees. In case
of the death, resignation, retirement, removal or mental or physical incapacity
of any of the Trustees, or in case a vacancy shall, by reason of an increase in
number, or for any other reason, exist, the remaining Trustees shall fill such
vacancy by appointing for the remaining term of the predecessor Trustee such
other person as they in their discretion shall see fit. Such appointment shall
be effected by the signing of a written instrument by a majority of the Trustees
in office. Within six months of such appointment, the Trustees shall cause
notice of such appointment to be mailed to each Shareholder at his address as
recorded on the books of the Trust. An appointment of a Trustee may be made by
the Trustees then in office and notice thereof mailed to retirement, resignation
or increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted this Trust, the Trust estate shall vest
in the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he shall be deemed a Trustee hereunder. Any
appointment authorized by this Section 4 is subject to the provisions of Section
16(a) of the 1940 Act.
Section 5. Temporary Absence of Trustee. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two of the Trustees personally exercise their power hereunder, except as herein
otherwise expressly provided.
Section 6. Number of Trustees. Until the first Shareholders' meeting at
which Trustees are elected, the Trust may operate with one or more Trustees.
Thereafter, the number of Trustees serving hereunder shall be determined by the
Trustees themselves, but shall not be less than three (3) nor more than fifteen
(15). After the first Shareholders' meeting at which Trustees are elected and so
long as the Trust is registered under the 1940 Act, the Trust shall comply with
the provisions of Section 10(a) of the 1940 Act. In addition, the Trustees may
require in the Bylaws or by resolution that the Trustees shall have a majority
of individuals who are not Interested Persons of the Trust or its investment
advisor.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is absent from his state of domicile, or
is physically or mentally incapacitated, the other Trustees shall have all
powers hereunder and an instrument signed by a majority of the other Trustees
certifying such vacancy, absence or incapacity, shall be conclusive, provided,
however that no vacancy which reduces the number of Trustees below three (3)
shall remain unfilled for a period longer than six calendar months.
Section 7. Effect of Death, Resignation, etc. of a Trustee. The death,
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Section 8. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the Trust.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not be bound or limited by present or future laws or customs in
regard to investment by Trustees or fiduciaries, but shall have full authority
and power to make any and all investments which they, in their uncontrolled
discretion, shall deem proper to accomplish the purpose of this Trust. Without
limiting the foregoing, the Trustees shall have the following specific powers
and authority, subject to any applicable limitation in this Declaration of Trust
or in the Bylaws of the Trust.
(a) To buy, and invest funds of the Trust, in securities including, but
not limited to, common stocks, preferred stocks, bonds, debentures, warrants and
rights to purchase securities, options, certificates of beneficial interest,
money market instruments, notes or other evidences of indebtedness issued by
corporations, trusts, associations, or banking institutions, domestic or
foreign, or issued or guaranteed by the United States of America or any agency
or instrumentality thereof, by the government of any foreign country, by any
State, district, territory, or possession of the United States (including, for
example, the District of Columbia, Puerto Rico, and Guam) or by any political
subdivision or agency or instrumentality of any State, district, territory,
possession, or foreign country, or in "when-issued" or "delayed delivery"
contracts for any such securities, or in any repurchase agreement (agreements
under which the seller agrees at the time of sale to repurchase the security at
an agreed time and price); or retain Trust assets in cash, and from time to time
change the investments constituting the assets of the Trust;
(b) To adopt Bylaws not inconsistent with the Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders;
(c) To elect and remove such officers and appoint and terminate
such agents as they consider appropriate;
(d) To appoint or otherwise engage one or more banks or trust companies
or member firms of any national securities exchange registered under the
Securities Exchange Act of 1934 as custodian of any assets of the Trust, subject
to any conditions set forth in this Declaration of Trust or in the Bylaws.
(e) To appoint or otherwise engage custodial agents, transfer agents,
dividend disbursing agents, Shareholder servicing agents, investment advisors,
sub-investment advisors, principal underwriters, administrative service agents
and such other agents as the Trustees may from time to time appoint or otherwise
engage;
(f) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter provided for
or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a
Committee or Committees composed of Trustees, including without limitation, an
Executive Committee, or to any officers or employees of the Trust and to any
agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XII, Section 4 (b) hereof;
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either in
its own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts business trust companies or investment companies;
(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or concern, and to pay calls or subscriptions
with respect to any security held in the Trust;
(n) To engage in and to prosecute, compound, compromise, abandon or
adjust, by arbitration, or otherwise, any actions, suits, proceedings, disputes,
claims, demands and things relating to the Trust, and out of the assets of the
Trust to pay or to satisfy, any debts, claims or expenses incurred in connection
therewith, including those of litigation, upon any evidence that the Trustees
may deem sufficient (such powers shall include without limitation any actions,
suits, proceedings, disputes, claims, demands and things relating to the Trust
wherein any of the Trustees may be named individually and the subject matter of
which arises by reason of business for or on behalf of the Trust;
(o) To make distributions of income and of capital gains to
Shareholder in the manner hereinafter provided for;
(p) To borrow money and enter into reverse repurchase agreements
(agreements in which the Trust sells assets while concurrently agreeing to
repurchase such assets at a later date at a specific price) if such borrowings
are made temporarily for extraordinary or emergency purposes or to permit
redemptions of Shares without selling portfolio securities. Any borrowings
hereunder may be made with or without collateral security and the Trustees may,
in their discretion, pledge, mortgage, charge, hypothecate or otherwise encumber
the gross assets of the Trust as security for any loans or reverse repurchase
agreements, subject to the limitations provided herein'
(q) To lend portfolio securities of the Trust pursuant to policies
established by the Trustees;
(r) To invest in securities having legal or contractual restrictions
on their resale or for which no readily available market exists;
(s) From time to time to issue and sell the Shares of the Trust either
for cash or for property whenever and in such amounts as the Trustees may deem
desirable, but subject to the limitations set forth in Section 3 of Article III;
(t) To purchase and pay for entirely out of Trust property, insurance
of any kind, including without limitation, insurance on behalf of any person who
is or was a trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a trustee, director, officer, agent or
employee of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such;
(u) To provide for compensation of any form or kind deemed appropriate
by the Trustees for any or all of the Trustees, officers, employees, and agents
of the Trust. Such power includes the power to pay pensions for faithful
service, as deemed appropriate by the Trustees, and to adopt, establish and
carry out pension, profitsharing, share bonus, share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees, and agents of the Trust; and
(v) To provide for by whatever means necessary the services, supplies,
equipment, furnishings, buildings, employees and other things or individuals the
Trustees deem necessary or desirable for the operation and existence of the
Trust.
No one dealing with the Trustees shall be under obligation to make any
inquiry concerning the authority of the Trustees.
Section 2. Trustees, Officers, Employees, and Agents as Shareholders.
Any trustee, officer, employee, or other agent of the Trust may acquire, own and
dispose of Shares of the Trust to the same extent as if he were not a trustee,
officer, employee, or agent; and the Trustees may issue and sell or cause to be
issued or sold Shares of the Trust to and buy such Shares from any such person
or any firm or company in which he is an interested person subject only to the
general limitations herein contained as to the sale and purchase of such Shares;
and all subject to any restrictions which may be contained in the Bylaws.
Section 3. Parties to Contract. The Trustees may enter into any
contract of the character described in Section 1, 2, 3 or 4 of Article VII, or
in Article IX hereof, or of any other character not prohibited by the 1940 Act
with any corporation, firm, trust or association, although one or more of the
Shareholders, Trustees, officers, employees or agents of the Trust or their
affiliates may be an officer, director, trustee, shareholder or interested
person of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, in the absence of actual fraud. The same person (including
a firm, corporation, trust or association) may be the other party to contracts
entered into pursuant to Sections 1, 2, 3 and 4 of Article VII or Article IX or
any other capacity deemed legal under the 1940 Act and any individual may be
financially interested or otherwise an interested person of parties to any or
all of the contracts mentioned in this Section.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall be reimbursed from
the Trust estate for all of their expenses and disbursements not otherwise
reimbursed, including, without limitation, expenses of organizing the Trust and
continuing its existence; fees and expenses of trustees and officers of the
Trust; fees for investment advisory services, administrative services and
principal underwriting services provided for in Article VII, Sections 1, 2, and
3; fees and expenses of preparing and printing its Registration Statements under
the Securities Act of 1933 and the Investment Company Act of 1940 and any
amendments thereto; expenses of registering and qualifying the Trust and its
shares under Federal, state, district, and territorial laws and regulations;
expenses of preparing, printing and distributing prospectuses and any amendments
thereof sent to Shareholders, underwriters, broker-dealers and to investors who
may be considering the purchase of shares; expenses of registering, licensing or
other authorization of the Trust as a broker-dealer and of its officers as
agents and salesmen under Federal, state district, and territorial laws and
regulations; interest expense, taxes, fees and commissions of every kind;
expenses of issue (including cost of share certificates), repurchase and
redemption of Shares, including expenses attributable to a program of periodic
issue; charges and expenses of custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents, and registrars; printing and mailing
costs; auditing, accounting, and legal expenses; reports to Shareholders,
governmental officers, and commissions; expenses of meetings of Shareholders and
proxy solicitations therefor; insurance expenses; association membership dues
and nonrecurring items as may arise, including all losses and liabilities by
them incurred in administering the Trust; including expenses incurred in
connection with litigation, proceedings and claims and the obligations of the
Trust under Article XI, hereof to indemnify its Trustees, officers, employees,
Shareholders, and agents, and for the payment of such expenses, disbursements,
losses, and liabilities, the Trustees shall have a lien on the Trust estate
prior to any rights or interests of the Shareholders thereto. This section shall
not preclude the Trust from directly paying any of the aforementioned fees and
expenses.
Section 2. Trustee Compensation. The Trustees shall be entitled to
compensation from the Trust for their services as Trustees, to be determined
from time to time by vote of the Trustees. The Trustees shall also determine the
compensation of all officers, consultants and agents whom they may elect or
appoint. The Trust may pay any trustee or any corporation, firm, trust, or
association of which a trustee is an Interested Person for services rendered to
the Trust in any capacity not prohibited by the 1940 Act, and such payments
shall not be deemed compensation for Services as a Trustee under the first
sentence of this Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISOR, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
Section 1. Investment Advisor. Subject to a Majority Shareholder Vote,
the Trustees may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall undertake to
furnish the Trust investment advisory services upon such terms and conditions
and for such compensation as the Trustees may in their discretion determine.
Subject to a Majority Shareholder Vote, the investment advisor may enter into a
sub-investment advisory contract to receive investment advice, statistical and
factual information from the sub-investment advisor upon such terms and
conditions and for such compensation as the Trustees may in their discretion
agree to.
Notwithstanding any provisions of this Declaration of Trust, the
Trustees may authorize the investment advisor or sub-investment advisor or any
person furnishing administrative personnel and services as set forth in Article
VII, Section 2 (subject to such general or specific instructions as the Trustees
may from time to time adopt) to effect purchases, sales or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
trustee, officer or agent to effect such purchase, sales or exchanges pursuant
to recommendations of the investment advisor (and all without further action by
the Trustees). Any such purchases, sales, and exchanges shall be deemed to have
been authorized by the Trustees. The Trustees may also authorize the investment
advisor to determine what firms shall be employed to effect transactions in
securities for the account of the Trust and to determine what firms shall
participate in any such transactions or shall share in commissions or fees
charged in connection with such transactions.
Section 2. Administrative Services. The Trustees may in their
discretion from time to time contract for administrative personnel and services
whereby the other party shall agree to provide the Trustees administrative
personnel and services to operate the Trust on a daily basis, on such terms and
conditions as the Trustees may in their discretion determine. Such services may
be provided by one or more entities.
Section 3. Principal Underwriter. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive contract or contracts
providing for the sale of the Shares of the Trust to net the Trust not less than
the amount provided in Article III, Section 3 hereof, whereby the Trust may
either agree to sell the Shares to the other party to the contract or appoint
such other party its sales agent for such shares. In either case, the contract
shall be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article VII; and such
contracts may also provide for the repurchase or sales of Shares of the Trust by
such other party as principal or as agent of the Trust and may provide that the
other party may maintain a market for shares of the Trust.
Section 4. Transfer Agent. The Trustees may in their discretion from
time to time enter into transfer agency and shareholder services contracts
whereby the other party shall undertake to furnish the Trustees transfer agency
and shareholder services. The contracts shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust.
Such services may be provided by one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote (i)
for the election of Trustees as provided in Article IV, Section 2; (ii) for the
removal of Trustees as provided in Article IV, Section 3 (d); (iii) with respect
to any investment advisor or sub-investment advisor as provided in Article VII,
Section 1; (iv) with respect to the amendment of this Declaration of Trust as
provided in Article XII, Section 7, (v) to the same extent as the Shareholders
of a California corporation as to whether or not a court action, proceeding or
claim should be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders; and (vi) with respect to such
additional matters relating to the Trust or any regulation of the Trust by the
Commission or any State, or as the Trustees may consider desirable. A
Shareholder of each Series shall be entitled to one vote for each dollar of net
asset value per Share of such Series, on any matter on which such Shareholder is
entitled to vote and each fractional dollar amount shall be entitled to a
proportionate fractional vote. All references in this Declaration of Trust or
the Bylaws to a vote of, or the holders of, a percentage of Shares shall mean a
vote of or the holders of that percentage of total votes representing dollars of
net asset value of a Series or of the Trust, as the case may be. There shall be
no cumulative voting in the election of Trustees. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required to permitted by law, this Declaration of Trust or any Bylaws of the
Trust to be taken by Shareholders.
Section 2. Meetings. Shareholder meetings shall be held as specified in
Section 2 of Article IV and in the Bylaws at the principal office of the Trust
or at such other place as the Trustees may designate. Special meetings of the
Shareholders may be called by the Trustees or by officers of the Trust given
such authority in the Bylaws and shall be called by the Trustees at a place
designated by them upon the written request of Shareholders owning at least
one-tenth of the outstanding Shares entitled to vote. Shareholders shall be
entitled to at least ten days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of any business at any meeting
of Shareholders there must be present, in person or by proxy, holders of
one-fourth of the total number of Shares of the Trust then outstanding and
entitled to vote at such meeting. If a quorum, as above defined, shall not be
present for the purpose of any vote that may properly come before the meeting,
the Shareholders present in person or by proxy and entitled to vote at such
meeting on such matter holding a majority of the Shares present entitled to vote
on such matter may by vote adjourn the meeting from time to time. Such adjourned
meetings may be held at the same place as the original meeting or at the Trust's
offices, without further notice other than an announcement given at the original
meeting or its adjournments, until a quorum, as above defined, entitled to vote
on such matter shall be present, whereupon any such matter may be voted upon at
the meeting as though held when originally convened. Subject to any applicable
requirement of law or of this Declaration of Trust or the Bylaws, a plurality of
the votes cast shall elect a Trustee and all other matters shall be decided by a
majority of the votes cast.
Section 4. Proxies. Any vote by a Shareholder of the Trust may be made
in person or by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Trustees or their designate
prior to the time the vote is taken. Pursuant to a resolution of a majority of
the Trustees, proxies may be solicited in the name of one or more Trustees or
one or more officers of the Trust. Only Shareholders of record shall be entitled
to vote. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger.
Section 5. Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE IX
CUSTODIANS
Section 1. Appointment of Custodian and Duties. The Trustees shall
appoint or otherwise engage a bank, trust company, or other entity meeting the
qualifications for custodians for portfolio securities of investment companies
contained in the 1940 Act, as its Custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in the Bylaws of the Trust:
(a) To receive and hold securities owned by the Trust including
any of its Series and deliver the same upon written order;
(b) To receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct;
(c) To disburse such funds upon orders or vouchers;
(d) To keep, if authorized to do so by the Trustees, the books
and accounts of the Trust and furnish clerical and accounting
services; and
(e) To compute, if authorized to do so by the Trustees, the
Accumulated Net Income of the Trust and the net asset value of
the Shares in accordance with the provisions hereof;
all upon such basis of compensation as may be agreed upon between the Trustees
and the Custodian. If so directed by a Majority Shareholder Vote, the Custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the Custodian to employ one or more
subcustodians from time to time to perform such of the acts and services of the
Custodian and upon such terms and conditions, as may be agreed upon between the
Custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
Section 2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Custodian at the direction of the Trustees.
Section 3. Special Custodians. The Trustees may appoint or otherwise
engage any institution which would be permitted to act as a sub-custodian
hereunder to act as a Special Custodian of the Trust. Any Special Custodian
which is a member firm of a national securities exchange shall have custody only
of securities owned by the Trust and shall not hold any of its cash. Special
Custodians shall be appointed pursuant to a written agreement approved and
thereafter at least annually ratified by the Trustees, and any such written
agreement shall meet such requirements as may be specified by law or by the
regulations of the Commission. Any such written agreement with a member firm of
a national securities exchange shall also require that the special Custodian
shall deliver to the Custodian its receipt, evidencing that it holds the
specific securities in question on behalf of the Trust in its safekeeping,
before any payment can be made for such securities by the Trust. Special
Custodians shall be used by the Trust only for purposes of safekeeping
designated types of securities for periods of limited duration in cases where,
in the opinion of the Trustees, officers of the Trust, its investment advisor or
other authorized agent, such safekeeping services would be more appropriate or
convenient to the Trust than the safekeeping of such securities with the
Custodian.
Section 4. Special Depositories. The Trustees may by resolution appoint
as Special Depositories any commercial banks insured by the Federal Deposit
Insurance Corporation having aggregate capital, surplus and undivided profits
(as shown in their respective last published reports) of at least two million
dollars ($2,000,000). The Trust may maintain with a Special Depository only
demand deposit accounts and shall not permit the aggregate balances in such
accounts to exceed the amount of any fidelity bond covering any officer of the
Trust authorized by the Trustees to have signature authority over such demand
deposit accounts.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends, and
the amount of such dividends and the payment of them shall be wholly in the
discretion of the Trustees.
(b) The Trustees may, on each day Accumulated Net Income of the Trust
(as defined in Section 3 of this Article X) is determined, declare such
Accumulated Net Income as a dividend to Shareholders of record at such time as
the Trustees shall designate, payable in additional full and fractional Shares
or in cash. The Trustees may, if they deem it advisable, declare a negative
dividend (or reverse split) and deduct such amount from the previously
accumulated dividends of each Shareholder or from such Shareholder's interest in
the Trust.
(c) The Trustees may distribute in respect of any fiscal year as
ordinary dividends and as capital gains distribution, respectively, amounts
sufficient to enable the Trust as a regulated investment company to avoid any
liability for federal income taxes in respect of that year.
(d) The decision of the Trustees as to what, in accordance with good
accounting practice, is income and what is principal shall be final. Except as
specifically provided herein, the decision of the Trustees as to what expenses
and charges of the Trust shall be charged against principal and what against
income shall be final. Any income not distributed in any year may be permitted
to accumulate and as long as not distributed may be invested from time to time
in the same manner as the principal funds of the Trust.
(e) The Trustees shall have power, to the fullest extent permitted by
law, at any time, or from time to time, to declare and cause to be paid
dividends, which at the election of the Trustees may be accrued, automatically
reinvested in additional Shares (or fractions thereof) of the Trust or paid in
cash or additional Shares, all upon such terms and conditions as the Trustees
may prescribe.
(f) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a dividend consisting of Shares
of the Trust.
<PAGE>
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of the Trust at any time desires
or authorizes the disposition of Shares recorded in his name, he or his
authorized agent may deposit a written request (or such other form of request as
the Trustees may from time to time authorize) requesting that the Trust purchase
his Shares, together with such other instruments or authorization to effect the
transfer as the Trustees may from time to time require, at the office of the
Trust, and the Trust shall purchase his said Shares, but only at the net asset
value of such Shares (as defined in Section 4 of this Article X) determined by
or on behalf of the Trustees next after said request is received.
Payment for such Shares shall be made by the Trust to the Shareholder
of record at a time determined by the Trustees within seven (7) days after the
date upon which the request (and, if required, such other instruments or
authorizations of transfer) is deposited, subject to the right of the Trustees
to postpone the date of payment pursuant to Section 5 of this Article X. If the
redemption is postponed beyond the date on which it would normally occur by
reason of a declaration by the Trustees suspending the right of redemption
pursuant to Section 3 of this Article X, the right of the Shareholder to have
his Shares purchased by the Trust shall be similarly suspended, and he may
withdraw his request (or such other instruments or authorizations of transfer)
from deposit if he so elects; or, if he does not so elect, the purchase price
shall be the net asset value of his Shares, determined next after termination of
such suspension and payment therefore shall be made within seven (7) days
thereafter.
(b) The Trust may purchase Shares of the Trust by agreement with the
owner thereof 1) at a price not exceeding the net asset value per share
determined next after the purchase agreement or contract of purchase is made or
(2) at a price not exceeding the net asset value per Share determined at some
later time.
(c) Shares purchased by the Trust either pursuant to paragraph (a) or
paragraph (b) of this Section 2 shall be deemed treasury Shares and may be
resold by the Trust.
(d) If the Trustees determine that economic conditions would make it
seriously detrimental to the best interests of the remaining Shareholders of the
Trust to make payment wholly or partly in cash, the Trust may pay the redemption
price in whole or in part by a distribution in kind of securities from the
portfolio of the Series of the Trust from which a Shareholder is redeeming in
lieu of cash in conformity with applicable rules of the Commission, taking such
securities at the same value employed in determining net asset value, and
selecting the securities in such manner as the Trustees may deem fair and
equitable.
Section 3. Determination of Accumulated Net Income. The Accumulated Net
Income of each Series of the Trust shall be determined by or on behalf of the
Trustees daily or more frequently at the discretion of the Trustees, on each
business day at such time or times as the Trustees shall in their discretion
determine. Such determination shall be made in accordance with generally
accepted accounting principles and practices and the accounting policies
established by the Trustees, and may include realized and/or unrealized gain
from the sale or disposition of securities or other property of each portfolio
of the Trust if the Trust issues two or more Series of Shares. The power and
duty to determine Accumulated Net Income may be delegated by the Trustees from
time to time to one or more of the Trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 1 or 2 of Article
VII, or to the Custodian or to a transfer agent.
Section 4. Net Asset Value of Shares. The net asset value of each Share
of each Series of the Trust outstanding shall be determined at least once on
each business day by or on behalf of the Trustees. The power and duty to
determine net asset value may be delegated by the Trustees from time to time to
one or more of the Trustees or officers of the Trust, to the other party to any
contract entered into pursuant to Section 1 or 2 of Article VII, or to the
Custodian or to a transfer agent.
The net asset value of each Share of the Trust as of any particular
time shall be calculated in accordance with the requirements of the 1940 Act and
any applicable rules, regulations and orders thereunder, and applicable
provisions of the Bylaws of the Trust in conformity with generally accepted
accounting practices and principles.
Section 5. Suspension of the Right of Redemption. The Trustees may
declare a suspension of the determination of net asset value and/or the right of
redemption or postpone the date of payment or the whole or any part of any
period (i) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, (ii) during which trading on the New
York Stock Exchange is restricted, (iii) during which an emergency exists as a
result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or (iv) during any other period when
the Commission may for the protection of security holders of the Trust by order,
rule or interpretation permit suspension of the right of redemption or
postponement of the date of payment on redemption; provided that applicable
rules, interpretations and regulations of the Commission shall govern as to
whether the conditions prescribed in (ii) or (iii) exist. Such suspension shall
take effect at such time as the Trustees shall specify but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment
until the Trustees shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which in the absence of an official ruling by the Commission, the
determination of the Trustees shall be conclusive).
Section 6. Trust's Right to Redeem Shares. The Trust shall have the
right to cause the redemption of Shares in any Shareholder's account for their
then current net asset value (which will be promptly paid to the Shareholder in
cash) if at any time the total investment in the account does not have a minimum
dollar value determined from time to time by the Trustees in their sole
discretion. Shares of the Trust are redeemable at the option of the Trust if, in
the opinion of the Trustees, ownership of Trust Shares has or may become
concentrated to an extent which would cause the Trust to be a personal holding
company within the meaning of the U.S. Internal Revenue Code (and thereby
disqualified under Subchapter M of said Code); in such circumstances the Trust
may compel the redemption of Shares, reject any order for the purchase of Shares
or refuse to give effect to a transfer or exchange of Shares.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders. The Trustees, officers, employees or agents of the Trust shall
have no power to bind any Shareholder personally or to call upon any Shareholder
for the payment of any sum of money or assessment whatsoever, other than such as
the Shareholder may at any time agree to pay by way of subscription to any
Shares or otherwise.
No Shareholder or former Shareholder of the Trust shall be liable
solely by reason of his being or having been a Shareholder for any debt, claim,
action, demand, suit, proceeding, judgment, decree, liability, or obligation of
any kind, against, or with respect to the Trust arising out of any action taken
or omitted for or on behalf of the Trust, and the Trust shall be solely liable
therefore and resort shall be had solely to the Trust property for the payment
or performance thereof.
Each Shareholder or former Shareholder of the Trust (or their heirs,
executors, administrators or other legal representatives or, in case of a
corporate entity, its corporate or general successor) shall be entitled to
indemnity and reimbursement out of the Trust property to the full extent of such
liability and the costs of any litigation or other proceedings in which such
liability shall have been determined, including, without limitation, the fees
and disbursements of counsel if, contrary to the provisions hereof, such
Shareholder or former Shareholder of the Trust shall be personally liable.
The Trust shall, upon request by the Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
Section 2. Limitation of Personal Liability of Trustees, Officers,
Employees, or Agents of the Trust. No Trustee, officer, employee, or agent of
the Trust shall have the power to bind any other Trustee, officer, employee or
agent of the Trust personally. The Trustees, officers, employees, or agents of
the Trust incurring any debts, liabilities, or obligations, or in taking or
omitting any other actions for or in connection with the Trust are, and each
shall be deemed to be, acting as trustee, officer, employee, or agent of the
Trust and not in his own individual capacity.
Provided they have acted under the belief that their actions are in the
best interest of the Trust, the Trustees and officers shall not be responsible
for or liable in any event for neglect or wrongdoing by them or any officer,
agent, employee, investment advisor, principal underwriter, transfer agent or
custodian of the Trust or of any entity providing administrative services for
the Trust, but nothing herein contained shall protect any Trustee or officer
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 3. Express Exculpatory Clauses and Instruments. The Trustees
shall use appropriate means to assure that all persons having dealings with the
Trust shall be informed that the property of the Shareholders and the Trustees,
officers, employees, and agents of the Trust shall not be subject to claims
against or obligations of the Trust to any extent whatsoever. The Trustees may
cause to be inserted in any written agreement, undertaking or obligation made or
issued on behalf of the Trust (including certificates for Shares of the Trust)
an appropriate reference to this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees, nor any agent of the
Trust shall be liable thereunder, and that the other parties to such instrument
shall look solely to the Trust property for the payment of any claim thereunder
or for the performance thereof; but the omission of such provisions from any
such instrument shall not render any Shareholder Trustee, officer, employee, or
agent liable, nor shall the Trustee, or any officer, employee, or agent of the
Trust be liable to anyone on account of such omission. If, notwithstanding this
provision, any Shareholder, Trustee, officer, employee, or agent shall be held
liable to any other person by reason of the omission of such provision from any
such agreement, undertaking or obligation, the Shareholder, Trustee, officer,
employee, or agent shall be entitled to indemnity and reimbursement out of the
Trust property, as provided in this Article XI.
Section 4. Mandatory Indemnification.
(a) Subject only to the provisions hereof, every person who is or has
been a trustee, officer, employee, or agent of the Trust and every person who
serves at the Trust's request as trustee, director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
shall be indemnified by the Trust to the fullest extent permitted by law against
all liabilities and against all expenses reasonably incurred or paid by him in
connection with any debt, claim, action, demand, suit, proceeding, judgment,
decree, liability or obligation of any kind in which he becomes involved as a
party or otherwise or is threatened by virtue of his being or having been a
trustee, officer, employee or agent of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Trust against amounts paid or incurred by him in the defense, compromise or
settlement thereof.
(b) The words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative,
legislative, investigative or other, including appeals), actual or threatened,
and the words "liabilities" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(c) No indemnification shall be provided hereunder against any
liabilities to the Trust or its Shareholders adjudicated to have been incurred
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee, officer, employee, or agent may
now or hereafter be entitled, shall continue as to a person who has ceased to be
such Trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person; provided, however, that no
person may satisfy any right of indemnity or reimbursement granted herein except
out of the property of the Trust, and no other person shall be personally liable
to provide indemnity or reimbursement hereunder (except an insurer or surety or
person otherwise bound by contract).
(e) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4 may be paid by the Trust prior to final
disposition thereof upon receipt of a written undertaking by or on behalf of the
Trustee, officer, employee, or agent to reimburse the Trust if it is ultimately
determined under this Section 4 that he is not entitled to indemnification.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust Is Not a Partnership. It is hereby expressly
declared that a trust and not a partnership is created hereby.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the provisions of Article
XI, the Trustees shall not be liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust, and subject to the
provisions of Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. Establishment of Record Dates. The Trustees may fix in
advance a date, not exceeding sixty (60) days preceding the date of any meeting
of Shareholders, or the date for the payment of any dividend or the making of
any distribution to Shareholders, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect, or the last day on which the consent or dissent of Shareholders may be
effectively expressed for any purpose, as a record date for the determination of
the Shareholders entitled to notice of, and, to vote at, any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to any such allotment of rights, or to exercise the right to
give such consent or dissent, and in such case, such Shareholders and only such
Shareholders as shall be Shareholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting, or to receive payment
of such dividend or distribution, or to receive such allotment or rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
Shares on the books of the Trust after any such date fixed as aforesaid.
<PAGE>
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but subject to
the provisions of paragraphs (b), (c), and (d) of this Section 4.
(b) The Trustees, with the approval of the holders of a majority of the
outstanding Shares, may merge, consolidate, or sell and convey the assets of the
Trust including its goodwill to another trust or corporation organized under the
laws of any state of the United States for an adequate consideration which may
include the assumption of all outstanding obligations, taxes, and other
liabilities, accrued or contingent, of the Trust and which may include shares of
beneficial interest or stock of such trust or corporation. Upon making provision
for the payment of all such liabilities, by such assumption or otherwise, the
Trustees shall distribute the net proceeds of the transaction ratably among the
holders of the Shares of the Trust then outstanding.
(c) Subject to a Majority Shareholder Vote, the Trustees may at any
time sell and convert into money all the assets of the Trust. Upon making
provisions for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust, the Trustees shall distribute
the remaining assets of the Trust ratably among the holders of the outstanding
Shares.
(d) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in paragraphs (b) and (c), the Trust shall
terminate and the Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title, and interests of all
parties shall be cancelled and discharged.
Section 5. Offices of the Trust, Filing of Copies, References,
Headings. The Trust may maintain such offices in such locations as the Trustees
may from time to time determine. The original or a copy of this instrument and
of each Declaration of Trust supplemental hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each supplemental Declaration of Trust shall be filed by the
Trustees with the Massachusetts Secretary of State, as well as any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such supplemental Declaration of Trust has been made and
as to any matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an officer of
the Trust to be a copy of this instrument or of any such supplemental
Declaration of Trust. In this instrument or in any such supplemental Declaration
of Trust, references to this instrument, and all expressions like "herein,"
"hereof," and "hereunder," shall be deemed to refer to this instrument as
amended or affected by any such supplemental Declaration of Trust. Headings are
placed herein for convenience or reference only and in case of any conflict, the
text of this instrument, rather than the headings, shall control. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7. Amendments. Prior to the initial issuance of Shares pursuant
to the second sentence of Section 3 of Article III, a majority of the Trustees
then in office may amend or otherwise supplement this instrument by making a
Declaration of Trust supplemental hereto, which thereafter shall form a part
hereof. Subsequent to such initial issuance of Shares, if authorized by a
majority of the Trustees then in office and, if required in any particular case
by applicable law or this Declaration of Trust, by a Majority Shareholder Vote
or any larger vote, the Trustees shall amend or otherwise supplement this
instrument, by making a Declaration of Trust supplemental hereto which
thereafter shall form a part hereof. Any such supplemental Declaration of Trust
shall be signed by at least a majority of the Trustees then in office. Copies of
the supplemental Declaration of Trust shall be filed as specified in Section 5
of this Article XII.
Section 8. Conflicts with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees determine, with the advice of counsel, that any such provision is
in unresolvable conflict with the 1940 Act, with the provisions of the Internal
Revenue Code relating the tax treatment of a regulated investment company or
other matters concerning regulated investment companies, or with other
applicable laws or regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions hereof nor
render invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not attach to such provision in any other jurisdiction or any other provision
hereof in any jurisdiction.
Section 9. Use of the name "Benham". Benham Management Corporation
(BMC) has consented to the use by the Trust of the identifying word "Benham" in
the name of the Trust. Such consent shall not be withdrawn so long as BMC is
investment advisor of the Trust. BMC controls the use of the name of the Trust
insofar as such name contains the word "Benham." BMC may from time to time use
the identifying word "Benham" in other connections and for other purposes,
including, without limitation, in the names of other investment companies,
corporations or businesses which it may manage, advise, sponsor or own or in
which it may have a financial interest. (amended September 16, 1983)
IN WITNESS WHEREOF, the undersigned have executed this instrument on
the date first written above.
/s/John T. Kataoka
------------------------------------
John T. Kataoka
/s/Donald E. Farrar
------------------------------------
Donald E. Farrar
INVESTMENT ADVISORY AGREEMENT
Benham California Tax-Free and Municipal Funds
Agreement effective this 1st day of June, 1995, between BENHAM CALIFORNIA
TAX-FREE AND MUNICIPAL FUNDS, a registered open-end management investment
company organized as a business trust in the Commonwealth of Massachusetts (the
"Trust"), and BENHAM MANAGEMENT CORPORATION, a registered investment advisor
incorporated in the State of California (the "Advisor").
Whereas, the Trust is authorized to issue shares of beneficial interest in
one or more series with each such series representing interests in a separate
portfolio of securities and other assets; and
Whereas, the Trust currently offers its shares in seven series designated
as the Benham California Tax-Free Money Market Fund, Benham California Tax-Free
Intermediate-Term Fund, Benham California Tax-Free Long-Term Fund, Benham
California Municipal High Yield Fund, Benham California Tax-Free Insured Fund,
Benham California Municipal Money Market Fund, and Benham California Tax-Free
Short-Term Fund (the "Initial Series"), (such Initial Series together with all
other series subsequently established by the Trust with respect to which the
Trust desires to retain the Advisor to render investment advisory services
hereunder and with respect to which the Advisor is willing to do so being herein
collectively referred to as the "Series"). In the event the Trust establishes
one or more series other than the Initial Series with respect to which it
desires to retain the Advisor to render management and investment advisory
services hereunder, it shall notify the Advisor in writing, whereupon such
series shall become a Series hereunder.
I. DESCRIPTION OF SERVICES TO BE PROVIDED. In consideration for the
compensation hereinafter described, the Advisor agrees to provide the following
services to the Trust and to the Series:
A. Investment Advice and Portfolio Management. The Advisor shall
manage the investment and reinvestment of the Series' assets in accordance with
the investment objectives and policies of the Series as set forth in the Trust's
registration statement with the Securities and Exchange Commission as amended
from time to time and such instructions as the Trust's board of trustees may
issue. Consistent with the foregoing, the Advisor shall make all determinations
as to the investment of the Series' assets and the purchase and sale of its
portfolio securities and take all steps necessary to implement same. Such
determinations and services shall also include determining the manner in which
voting rights, rights to consent to corporate actions and other rights
pertaining to the Series' portfolio securities shall be exercised. In placing
orders for the execution of the Series' portfolio transactions, the Advisor
shall use its best efforts to obtain the best possible price and execution and
shall otherwise place such orders subject to and in accordance with any
directions which the Trust's board of trustees may issue from time to time with
respect thereto. The Advisor shall select brokers and dealers for the execution
of portfolio transactions in accordance with the provisions of Section I.B. of
this agreement.
B. Brokerage. In executing transactions for the Series and selecting
brokers or dealers, the Advisor will use its best efforts to seek the best price
and execution available and shall execute or direct the execution of all such
transactions in a manner both permitted by law and that suits the best interest
of the Series and its shareholders. In assessing the best price and execution
available for any Series transaction, the Advisor will consider all factors it
deems relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis. Consistent with the
obligation to obtain best execution, the Advisor may cause a Series to pay a
broker which provides brokerage and research services to the Advisor a
commission for effecting a securities transaction in excess of the amount
another broker might have charged. Such higher commissions may not be paid
unless the Advisor determines in good faith that the amount paid is reasonable
in relation to the services received in terms of the particular transaction or
the Advisor's overall responsibilities to the Series and any other of the
Advisor's clients.
<PAGE>
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Series as permitted by applicable law, the
Advisor may aggregate the securities to be sold or purchased with purchases of
sales of other funds in order to obtain the best execution of the order or lower
brokerage commissions, if any. The Advisor may also on occasion purchase or sell
a particular security for one or more clients in different amounts. On either
occasion, and to the extent permitted by applicable law and regulations,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Advisor in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Trust and to such other customers.
C. Reports and Information. The Advisor shall render regular reports
to the Trust at quarterly meetings of the board of trustees and at such other
times as may reasonably be requested by the Trust's board of (i) the decisions
it has made with respect to the Series' assets and the purchase and sale of its
portfolio securities, (ii) the reasons for such decisions and related actions
and, (iii) the extent to which those decisions have been implemented. In
addition, the Advisor will provide the Trust with such accounting and
statistical data as it requires for the preparation of registration statements,
reports and other documents required by federal and state securities, tax and
other applicable laws and regulations and such additional documents and
information as the Trust may reasonably request for the management of its
affairs.
D. Promotion and Distribution. The Advisor shall promote the sale and
distribution of the Series' shares to the general public in such a manner and at
such times and places as the Advisor shall, in the exercise of reasonable
discretion, determine; and otherwise as the Advisor and the Trust's board of
trustees may from time to time agree.
II. COMPENSATION FOR SERVICES.
(a) Amount of Compensation. As compensation for the services rendered
and duties assumed by the Advisor, the Trust, on behalf of the Series, shall,
within ten (10) days after the last day of each calendar month, pay the Advisor
an advisory fee equal to the amount determined using the following formula: (A)
a Trust Fee plus an Individual Fund Fee (if any), minus (B) the amount by which
the Series' Expenses exceed the Expense Guarantee Rate as defined below, minus
(C) any further amount by which the Advisor publicly announces it will reduce
the Series' Expenses, plus (D) the amount of any recoupment as described below.
The Advisor's compensation shall be computed and accrued daily.
Upon termination of this agreement before the end of any calendar month,
the fee for the period from the end of the calendar month preceding the month of
termination to the date of termination shall be prorated according to the
proportion which the number of calendar days in the month prior to the date of
termination bears to the number of calendar days in the month of termination,
and shall be payable within ten (10) days after the date of termination. For
this purpose, the value of the Series' net assets shall be computed by the same
method at the end of each business day as the Series uses to compute the value
of its net assets in connection with the determination of the net asset value of
Series shares, all as more fully set forth in the Series' prospectus. To the
extent that Expenses of the Series in excess of the Series' Expense Guarantee
Rate exceed the total of the Trust Fee and Individual Fund Fee (if any), plus
any recoupment due, the Advisor will reimburse the Series for such excess.
2
<PAGE>
(b) Determination of Trust Fee. The Trust Fee for each Series shall be
equal to that Series' pro-rata share of the value of the aggregated average
daily net assets of the Trust, determined for each calendar day, pursuant to the
following schedule of annualized rates:
0.50% of the first $100 million;
0.45% of the next $100 million;
0.40% of the next $100 million;
0.35% of the next $100 million;
0.30% of the next $100 million;
0.25% of the next $1 billion;
0.24% of the next $1 billion;
0.23% of the next $1 billion;
0.22% of the next $1 billion;
0.21% of the next $1 billion;
0.20% of the next $1 billion;
and 0.19% of the net assets over $6.5 billion.
(c) Limitation of Fund Expenses.
1. The Expense Guarantee Rate for each Series is set
forth on Schedule A, attached hereto, as such
schedule may be amended from time to time by the
Trust's board of trustees.
2. The term "Expenses" as used in Section II of this
agreement shall mean:
A. The Trust Fee plus the Individual Fund Fee
(if any).
B. Compensation for administrative and transfer
agent services as specified in Section I.B
and II.B of The Administrative Services
Agreement, as such agreement may be amended
from time to time by the Trust's board of
trustees or shareholders (the
"Administrative Services Agreement").
C. Direct expenses as specified in Section
III.B of the Administrative Services
Agreement.
D. Extraordinary Expenses, as specified in
Section III.C of the Administrative Services
Agreement, are excluded from the definition
of Expenses as set forth herein.
3. The Advisor will be legally bound by any public
announcement that it will reduce, in accordance with
the terms of its announcement, the Series' Expenses
below the Expense Guarantee Rate.
(d) Recoupment. The Advisor may recover amounts (representing Expenses
in excess of the Expense Guarantee Rate) which reduced the Advisor's
compensation or that it reimbursed to a Series during the preceding 11 months
if, and to the extent that, for any given month, the Series' expense ratio (net
of reimbursements) was lower than the Expense Guarantee Rate in effect at the
time, but not during any period, during which the Advisor has agreed, pursuant
to paragraph (c)3 above, to limit the Series' Expenses to an amount less than
the Expense Guarantee Rate.
III. EXPENSES. Except as hereinafter provided, the Advisor shall pay all of
its expenses incurred in the performance of this agreement, including but not
limited to salaries and other compensation of its officers and employees and all
other costs of providing such advice, portfolio management and information and
reports to the Trust and the Series as are required hereunder, and all expenses
associated with any activity primarily intended to result in the sale of Series'
shares, such as advertising, printing and mailing of prospectuses to other than
current shareholders, printing and mailing of sales literature and compensation
of sales personnel.
3
<PAGE>
IV. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Series
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. Subject to and in accordance with the
Declaration of Trust and the Bylaws of the Trust and to Section 10(a) of the
Investment Company Act of 1940, it is understood that trustees, officers, agents
and shareholders of the Trust are or may be interested in the Advisor as
directors, officers or shareholders of the Advisor, that directors, officers,
agents or shareholders of the Advisor are or may be interested in the Trust as
trustees, officers, shareholders or otherwise, that the Advisor is or may be
interested in the Trust as a shareholder or otherwise, and that the effect of
any such interest shall be governed by the Trust's Declaration of Trust, its
Bylaws and the Investment Company Act of 1940.
V. LIABILITY OF THE ADVISOR. In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of its obligations and duties
hereunder, the Advisor shall not be subject to liability to the Series or to any
shareholder of the Series for any act or omission in the course of, or connected
with, rendering advice or services hereunder or for any losses that may be
sustained in the purchase, retention or sale of any security. No provision of
this agreement shall be construed to protect any trustee or officer of the Trust
or any director or officer of the Advisor from liability in violation of
Sections 17(h) and (i) of the Investment Company Act of 1940.
VI. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it has
received notice of and accepts the limitations of the Trust's liability set
forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder shall be limited to the Series and to its assets and that
the Advisor shall not seek satisfaction of any such obligation from the
shareholders of the Series nor from any trustee, officer, employee or agent of
the Trust.
VII. RENEWAL, TERMINATION AND AMENDMENT. The term of this agreement shall
be from the date first written above, and shall continue in effect, unless
sooner terminated as provided herein, for two years from such date, and shall
continue in effect with respect to a Series from year to year thereafter only so
long as such continuance is specifically approved at least annually by the vote
of either a majority of the outstanding voting securities of that Series or a
majority of the Trust's trustees, and the vote of a majority of the Trust's
trustees who are neither parties to the agreement nor interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. "Approved at least annually" shall mean approval occurring, with
respect to the first continuance of the agreement, during the 90 days prior to
and including the date of its termination in the absence of such approval, and
with respect to any subsequent continuance, during the 90 days prior to and
including the first anniversary of the date upon which the most recent previous
annual continuance of this agreement became effective. This agreement may be
terminated at any time without payment of any penalty, by the board of trustees
of the Trust, or with respect to a Series, by a vote of the majority of the
outstanding voting securities of such Series, upon 60 days' written notice to
the Advisor, and by the Advisor upon 60 days' written notice to the Trust. This
agreement shall terminate automatically in the event of its assignment. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meanings set forth for such terms in the Investment Company Act
of 1940 and Rule 18f-2 thereunder.
VIII.SEVERABILITY. If any provision of this agreement shall be held or made
invalid by a court decision, statute, rule or similar authority, the remainder
of this agreement shall not be affected thereby.
IX. APPLICABLE LAW. This agreement shall be construed in accordance with
the laws of the State of California.
4
<PAGE>
In witness whereof, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first written
above.
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
By /s/John T. Kataoka
John T. Kataoka
President
BENHAM MANAGEMENT CORPORATION
By /s/James M. Benham
James M. Benham
President
5
<PAGE>
<TABLE>
<CAPTION>
EXPENSE GUARANTEE RATES
SCHEDULE A
Expense Guarantee Rates and Effective Dates
Approved by Board of Directors/Trustees April 3, 1995
=======================================================================================================
Proposed '95) BOARD EFFECTIVE
FUND EXPENSE GUARANTEE APPROVAL DATES
RATE DATE
=======================================================================================================
<S> <C> <C> <C>
Capital Preservation Fund .54% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Capital Preservation Fund II .75% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham California Tax-Free and Municipal Funds
- -------------------------------------------------------------------------------------------------------
Municipal High-Yield Fund .62% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Municipal Money Market Fund .58% " "
- -------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund .62% " "
- -------------------------------------------------------------------------------------------------------
Tax-Free Intermediate Fund .62% " "
- -------------------------------------------------------------------------------------------------------
Tax-Free Long-Term Fund .62% " "
- -------------------------------------------------------------------------------------------------------
Tax-Free Money Market Fund .54% " "
- -------------------------------------------------------------------------------------------------------
Tax-Free Short-Term Fund .62% " "
- -------------------------------------------------------------------------------------------------------
Benham Equity Funds
- -------------------------------------------------------------------------------------------------------
Benham Equity Growth Fund .75% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham Gold Equities Index Fund .75% " "
- -------------------------------------------------------------------------------------------------------
Benham Income & Growth Fund .75% " "
- -------------------------------------------------------------------------------------------------------
Benham Utilities Income Fund .75% " "
- -------------------------------------------------------------------------------------------------------
Benham Global Natural Resources Index Fund .75% " "
- -------------------------------------------------------------------------------------------------------
Benham Government Income Trust
- -------------------------------------------------------------------------------------------------------
Benham GNMA Income Fund .65% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham Treasury Note Fund .65% " "
- -------------------------------------------------------------------------------------------------------
Benham Government Agency Fund .50% " "
- -------------------------------------------------------------------------------------------------------
Benham Adjustable Rate Government Securities Fund .65% " "
- -------------------------------------------------------------------------------------------------------
Benham Short-Term Treasury and Agency Fund .65% " "
- -------------------------------------------------------------------------------------------------------
Benham Long-Term Treasury and Agency Fund .65% " "
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Proposed '95) BOARD EFFECTIVE
FUND EXPENSE GUARANTEE APPROVAL DATES
RATE DATE
=======================================================================================================
<S> <C> <C> <C>
Benham International Funds
- -------------------------------------------------------------------------------------------------------
Benham European Government Bond Fund .90% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham Investment Trust
- -------------------------------------------------------------------------------------------------------
Benham Prime Money Market Fund .50% 4/3/95 6/1/95 to
5/31/98
- -------------------------------------------------------------------------------------------------------
Benham Manager Funds
- -------------------------------------------------------------------------------------------------------
Benham Capital Manager Fund 1.00% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham Municipal Trust
- -------------------------------------------------------------------------------------------------------
Benham National Tax-Free Money Market Fund .64% 4/3/95 6/1/94 to
5/31/96
- -------------------------------------------------------------------------------------------------------
Benham National Tax-Free Intermediate-Term Fund .69% " "
- -------------------------------------------------------------------------------------------------------
Benham National Tax-Free Long-Term Fund .69% " "
- -------------------------------------------------------------------------------------------------------
Benham Florida Municipal Money Market Fund .65% " "
- -------------------------------------------------------------------------------------------------------
Benham Florida Municipal Intermediate-Term Fund .69% " "
- -------------------------------------------------------------------------------------------------------
Benham Arizona Municipal Intermediate-Term Fund .69% " "
- -------------------------------------------------------------------------------------------------------
Benham Target Maturities Trust
- -------------------------------------------------------------------------------------------------------
1995 Portfolio .70% 4/3/95 6/1/95 to
5/31/96
- -------------------------------------------------------------------------------------------------------
2000 Portfolio .70% " "
- -------------------------------------------------------------------------------------------------------
2005 Portfolio .70% " "
- -------------------------------------------------------------------------------------------------------
2010 Portfolio .70% " "
- -------------------------------------------------------------------------------------------------------
2015 Portfolio .70% " "
- -------------------------------------------------------------------------------------------------------
2020 Portfolio .70% " "
- -------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION AGREEMENT
The Benham Group
AGREEMENT between each of the open-end management investment companies
listed on Schedule A, attached hereto, as of the dates noted on such Schedule A,
together with all other open-end management investment companies subsequently
established and made subject to this agreement in accordance with paragraph X
(each a "Fund", or, collectively, the "Funds") and BENHAM DISTRIBUTORS, INC.
("Distributor"), a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES, INC.
("TCC") and a California corporation registered as a broker-dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
with the California Department of Corporations under the California Corporations
Code, and a member of the National Association of Securities Dealers, Inc., as
follows:
I. GENERAL RESPONSIBILITIES. Each Fund herewith engages Distributor to
act as exclusive distributor of the shares of its separate series, and
any other series which may be designated from time to time hereafter
("Series"), named and described on Schedule A. Said sales shall be
made only to Investors residing in those states in which each Fund is
registered. After effectiveness of each Fund's registration statement,
Distributor will hold itself available to receive by mail, telex
and/or telephone, orders for the purchase of shares and will receive
by mail, telex and/or telephone, orders for the purchase of shares and
will accept or reject such orders on behalf of the Funds in accordance
with the provisions of the applicable Funds prospectus, and will be
available to transmit such orders as are so accepted to the Funds'
transfer agent as promptly as possible for processing at the shares'
net asset value next determined in accordance with the prospectuses.
A. Offering Price. All shares sold by Distributor under this
Agreement shall be sold at the net asset value per share
("Offering Price") determined in the manner described in each
Fund's prospectus, as it may be amended from time to time, next
computed after the order is accepted by Distributor. Each Fund
shall determine and promptly furnish to Distributor a statement
of the Offering Price of shares of said Fund's series at least
once on each day on which the Fund is open for trading as
described in its current prospectus.
B. Promotion. Each Fund shall furnish to Distributor for use in
connection with --------- the sale of its shares such written
information with respect to said Fund as Distributor may
reasonably request. Each Fund represents and warrants that such
information, when authenticated by the signature of one of its
officers, shall be true and correct. Each Fund shall also furnish
to Distributor copies of its reports to its shareholders and such
additional information regarding said Fund's financial condition
as Distributor may reasonably request. Any and all
representations, statements and solicitations respecting a Fund's
shares made in advertisements, sales literature and in any other
manner whatsoever shall be limited to and conform in all respects
to the information provided hereunder.
C. Regulatory Compliance. Each Fund shall prepare and furnish to
Distributor ---------------------- from time to time such number
of copies of the most recent form of its prospectus filed with
the Securities and Exchange Commission as Distributor may
reasonably request and authorizes Distributor to use the
prospectus in connection with the sale of its shares. All such
sales shall be initiated by offer of, and conducted in accordance
with, such prospectus and all of the provisions of the Securities
and Exchange Act of 1933, the Investment Company Act of 1940
("1940 Act") and all the rules and regulations thereunder.
Distributor shall furnish applicable federal and state regulatory
authorities with any information or reports in connection with
its services under this Agreement which such authorities may
lawfully request in order to ascertain whether the Funds'
operations are being conducted in a manner consistent with any
applicable law or regulations.
1
<PAGE>
D. Acceptance. All orders for the purchase of its shares are subject
to acceptance by each Fund.
E. Compensation. Except for the promises of the Funds contained in
this Agreement and its performance thereof, Distributor shall not
be entitled to compensation for its services hereunder.
II. EXPENSES.
A. Each Fund shall pay all fees and expenses in connection with the
preparation, printing and distribution to shareholders of its
prospectus and reports and other communications to shareholders,
future registrations of shares under the Securities Act of 1933
and the 1940 Act, amendments of the registration statement
subsequent to the initial offering of shares, the qualification
of shares for sale in jurisdictions designated by Distributor,
the issue and transfer of shares, including the expenses of
confirming purchase and redemption orders and of supplying
information, prices and other data to be furnished by the Funds
under this Agreement.
B. Distributor shall pay all fees and expenses of printing and
distributing any prospectuses or reports prepared for its use in
connection with the distribution of shares, the preparation and
mailing of any other advertisements or sales literature used by
Distributor in connection with the distribution of such shares,
its registration as a broker and the registration and
qualification of its officers, directors and representatives
under federal and state laws.
III. INDEPENDENT CONTRACTOR. Distributor shall be an independent
contractor. Neither Distributor nor any of its officers, trustees,
employees or representatives is or shall be an employee of a Fund in
connection with the performance of Distributor's duties hereunder.
Distributor shall be responsible for its own conduct and the
employment, control, compensation and conduct of its agents and
employees and for injury to such agents or employees or to others
through its agents and employees.
IV. INDEMNIFICATION. Each of the parties to this Agreement shall defend,
indemnify and hold the other harmless from and against any and all
claims, demands, suits, actions, losses, damages and other liabilities
arising from, or as a result of, the acts or omissions or acts and
omissions of such party made or omitted in the course of performing
this Agreement.
V. AFFILIATION WITH THE FUNDS. Subject to and in accordance with each
Fund's formative documents, Section 10 of the 1940 Act and Article III
of this Agreement, it is understood that the directors/trustees,
officers, agents and shareholders of the Funds are or may be
interested in Distributor as directors, officers, or shareholders of
Distributor; that directors, officers, agents or shareholders of
Distributor are or may be interested in the Funds as
directors/trustees, officers, shareholders (directly or indirectly) or
otherwise, and that the effect of any such interest shall be governed
by said Act and Article.
VI. BOOKS AND RECORDS. It is expressly understood and agreed that all
documents, reports, records, books, files and other materials relating
to this Agreement and the services to be performed hereunder shall be
the sole property of the Funds and that such property, to the extent
held by Distributor, shall be held by Distributor as agent, during the
effective term of this Agreement. This material shall be delivered to
the applicable Fund upon the termination of this Agreement free from
any claim or retention of rights by Distributor.
2
<PAGE>
VII. SERVICES NOT EXCLUSIVE. The services of Distributor to the Funds
hereunder are not to be deemed exclusive, and Distributor shall be
free to render similar services to others.
VII. RENEWAL AND TERMINATION. The term of this Agreement shall be from the
date of its approval by the vote of a majority of the board of
directors/trustees of each Fund, and it shall continue in effect from
year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of
its directors/trustees, and the vote of a majority of those said
directors/trustees who are neither parties to the Agreement nor
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. "Approved at least
annually" shall mean approval occurring, with respect to the first
continuance of the Agreement, during the ninety (90) days prior to and
including the date of its termination in the absence of such approval,
and with respect to any subsequent continuance, during the ninety (90)
days prior to and including the first anniversary of the date upon
which the most recent previous annual continuance of the Agreement
became effective.
This Agreement may be terminated at any time without payment
of any penalty, by a Fund's board of directors/trustees, upon sixty
(60) days written notice to Distributor, and by Distributor upon sixty
(60) days written notice to the Fund. This Agreement shall terminate
automatically in the event of its assignment. The terms "assignment"
and "vote of a majority of the outstanding voting securities" shall
have the meaning set forth for such terms in the Investment 1940 Act
and Rule 18f-2 thereunder.
VIII. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or similar authority, the
remainder of this Agreement shall not be affected thereby.
IX. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of California.
3
<PAGE>
X. AMENDMENT. This Agreement and the Schedule A forming a part hereof may
be amended at any time by a writing signed by each of the Parties. In
the event that one or more additional Funds are established, and the
governing bodies of said Funds by resolution indicate that the Funds
are to be made Parties to this Agreement, Schedule A hereto shall be
amended to reflect the addition of such new Funds, and such new Funds
shall become Parties hereto. In the event that any of the Funds listed
on Schedule A terminates its registration as a management investment
company, or otherwise ceases operations, Schedule A shall be amended
to reflect the deletion of such Fund.
By __/s/James M. Benham______________ __6/1/95__________________
James M. Benham, President Date
BENHAM DISTRIBUTORS, INC.
By __/s/Douglas A. Paul______________ __6/1/95___________________
Douglas A. Paul, Secretary Date
to the FUNDS
4
<PAGE>
DISTRIBUTION AGREEMENT
SCHEDULE A
Effective as of the date herein below indicated, each of the open-end
management investment companies listed below is hereby made a party to the
Benham Group Distribution Agreement dated June 1, 1995.
================================================================================
FUND BOARD APPROVAL DATE
================================================================================
Capital Preservation Fund, Inc. April 3, 1995
================================================================================
Capital Preservation Fund II, Inc. April 3, 1995
================================================================================
Benham Target Maturities Trust
================================================================================
1995 Portfolio April 3, 1995
================================================================================
2000 Portfolio "
================================================================================
2005 Portfolio "
================================================================================
2010 Portfolio "
================================================================================
2015 Portfolio "
================================================================================
2020 Portfolio "
================================================================================
Benham Government Income Trust
================================================================================
Benham Treasury Note Fund April 3, 1995
================================================================================
Benham GNMA Income Fund "
================================================================================
Benham Government Agency Fund "
================================================================================
Benham Adjustable Rate Government Securities Fund "
================================================================================
Benham Short-Term Treasury and Agency Fund "
================================================================================
Benham Long-Term Treasury and Agency Fund "
================================================================================
Benham California Tax-Free and Municipal Funds
================================================================================
Tax-Free Money Market Fund April 3, 1995
================================================================================
Tax-Free Intermediate-Term Fund "
================================================================================
Tax-Free Long-Term Fund "
================================================================================
Municipal High Yield Fund "
================================================================================
Tax-Free Insured Fund "
================================================================================
Municipal Money Market Fund "
================================================================================
Tax-Free Short-Term Fund "
================================================================================
5
<PAGE>
================================================================================
FUND BOARD APPROVAL DATE
================================================================================
Benham Municipal Trust
================================================================================
Benham National Tax-Free Money Market Fund April 3, 1995
================================================================================
Benham National Tax-Free Intermediate-Term Fund "
================================================================================
Benham National Tax-Free Long-Term Fund "
================================================================================
Benham Florida Municipal Money Market Fund "
================================================================================
Benham Florida Municipal Intermediate-Term Fund "
================================================================================
Benham Arizona Municipal Intermediate-Term Fund "
================================================================================
Benham Equity Funds
================================================================================
Benham Global Natural Resources Index Fund April 3, 1995
================================================================================
Benham Gold Equities Index Fund "
================================================================================
Benham Income & Growth Fund "
================================================================================
Benham Equity Growth Fund "
================================================================================
Benham Utilities Income Fund "
================================================================================
Benham International Funds
================================================================================
Benham European Government Bond Fund April 3, 1995
================================================================================
Benham Manager Funds
================================================================================
Benham Capital Manager Fund April 3, 1995
================================================================================
Benham Investment Trust
================================================================================
Prime Money Market Fund April 3, 1995
================================================================================
6
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
The Benham Group
AGREEMENT effective this 1st day of June, 1995, by each open-end management
investment company listed on Schedule E attached hereto and made part of this
agreement by reference, each portfolio of an open-end management investment
company listed on Schedule E and all open-end management investment companies
(or portfolios thereof) subsequently established and made subject to this
Agreement in accordance with Paragraph XI. (individually, "Fund" or
collectively, "Funds"), and BENHAM FINANCIAL SERVICES, INC. ("BFS"), a
registered transfer agent incorporated under the laws of the State of California
and a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES, INC. ("TCC"), for
general administrative, transfer agency, and dividend disbursing services as
follows:
I. ADMINISTRATIVE SERVICES.
A. Description of Services. As consideration for the compensation
described in Section I.B, BFS agrees to provide the Funds with
the services described and set forth on Schedule A attached
hereto and made a part of this Agreement by reference.
B. Compensation. As consideration for the services described in
Section I.A above, each Fund shall pay BFS a fee equal to its pro
rata share of the dollar amount derived from applying the
aggregate average daily net assets of the Funds listed on
Schedule E to the rate schedule set forth on Schedule F attached
hereto and made a part of this Agreement by reference
("fund-level fee"). Each Fund's fund-level fee, or pro rata share
of the dollar amount derived from applying the Funds' aggregate
average daily net assets to the rate schedule set forth on
Schedule F, shall be determined on the basis of its average daily
net assets relative to all other Funds listed on Schedule E. Said
fund-level fees shall be calculated and accrued daily and payable
monthly in three installments, the first on the tenth of the
month (or the next business day, if not a business day), the
second on the twentieth of the month (or the next business day,
if not a business day), and the third not later than the third
business day of the following month.
II. TRANSFER AGENT SERVICES.
A. Services to be Provided. As consideration for the compensation
described in Section II.B, BFS will provide each Portfolio with
the share transfer and dividend disbursing services described on
Schedule B attached hereto and made a part of this Agreement by
reference. BFS agrees to maintain sufficient trained personnel,
equipment, and supplies to perform such services in conformity
with the current prospectus of each Fund and such other
reasonable standards of performance as the Funds may from time to
time specify, and otherwise in an accurate, timely, and efficient
manner.
B. Compensation. As consideration for the services described in
Section II.A, each Fund agrees to pay BFS the fees specified on
Schedule F for each shareholder account maintained and each
shareholder account transaction executed by BFS each month. For
purposes of this Agreement "shareholder account transaction" is
any one of the transactions described on Schedule C attached
hereto and made a part of this Agreement by reference, as it may
be amended from time to time. Such fees shall be paid monthly in
three installments, the first on the tenth of the month (or the
next business day, if not a business day), the second on the
twentieth of the month (or the next business day, if not a
business day), and the third on the third business day of the
following month.
1
<PAGE>
C. Third Party Servicing. Subject to approval by the applicable
Fund's Board of Directors/Trustees, BFS may enter into agreements
with third parties for the performance of one or more of its
obligations under this Agreement (and such other services as BFS
may desire) for all or any portion of the shareholders of the
Fund who maintain shareholder accounts through, or who are
otherwise provided services by, any such third parties. To the
extent that such third parties perform services that BFS is
obligated to perform under this Agreement, BFS shall be entitled
to receive the fees to which it would otherwise be entitled
hereunder had it performed such services directly; provided,
however, that the Fund's Board of Directors/Trustees may limit
amounts receivable by BFS under this Agreement for services
performed on its behalf by third parties. BFS will furnish the
Fund shareholder and account records and data upon which the
Fund's obligations under this Agreement are calculated, and such
other data pertaining to any services rendered by third parties
as the Fund may reasonably require. The Fund shall be entitled to
have any and all such records audited by the Fund's independent
accountants at any time upon reasonable notice to BFS.
III. EXPENSES.
A. Expenses of BFS. BFS shall pay all expenses incurred in providing
the Funds the services and facilities described in this
Agreement, whether or not such expenses are billed to BFS or the
Funds.
B. Direct Expenses. Any provision of this Agreement to the contrary
notwithstanding, each Fund shall pay, or reimburse BFS for the
payment of, the following expenses (hereinafter "direct
expenses") whether or not such direct expenses are billed to the
Funds, BFS, or any related entity:
1. Fees and expenses of the Fund's Independent Directors/Trustees
and meetings thereof;
2. Fees and costs of investment advisory services;
3. Fees and costs of independent audits, income tax preparation,
and obtaining quotations for the purpose of calculating the
Fund's net asset value;
4. Fees and costs of outside legal counsel and legal counsel
employed directly by the Fund;
5. Fees and costs of custodian and banking services;
6. Costs (including postage) of printing and mailing
prospectuses, confirmations, proxy statements, and reports to
Fund shareholders;
7. Fees and costs for the registration of Fund shares with the
Securities and Exchange Commission and the jurisdictions in
which its shares are qualified for sale;
2
<PAGE>
8. Fees and expenses associated with membership in the Investment
Company Institute and the Mutual Fund Education Alliance;
9. Expenses of fidelity bonding and liability insurance covering
the Fund;
10.Costs for incoming telephone WATS lines;
11.Organizational costs.
C. Extraordinary Expenses. Any provision of this Agreement to the
contrary notwithstanding, each Fund, as determined by its Board
of Directors/Trustees, shall pay (or reimburse BFS for payment
of) the following expenses, which shall be categorized as
Extraordinary Expenses and shall be excluded from each Fund's
expense ratio, whether or not the expense was billed to the
Funds, BFS, or any related entity:
1. Brokerage commissions
2. Taxes
3. Interest
4. Portfolio insurance premiums
5. Rating agency fees
6. Other extraordinary expenses, as authorized from time to time
by each Fund's Board of Directors/Trustees.
IV. TERM. With respect to each Fund, this Agreement shall become effective upon
its approval by vote of a majority of the Fund's shareholders at a meeting
called for the purpose of voting on such approval and a majority of the Fund's
Directors/Trustees, including a majority of those Directors/Trustees who are not
"interested persons" of the Fund or BFS (as that term is defined in the
Investment Company Act of 1940), and shall continue until it is terminated
pursuant to the provisions of Paragraph XII.
V. INSURANCE. The Funds and BFS agree to procure and maintain, separately or as
joint insureds with their Directors/Trustees, employees, agents, and others, an
insurance policy or policies against loss arising from breaches of trust or
errors and omissions and a fidelity bond meeting the requirements of the
Investment Company Act of 1940 in such amounts and with such deductibles as are
set forth on Schedule D attached to this Agreement and made a part hereof by
reference, as it may be amended from time to time, and to pay premiums therefor,
provided that if a Fund or BFS is party to a policy in which it is named as a
joint insured, its liability for premiums on said policy shall be determined on
the basis of premiums it would pay to obtain equivalent coverage separately
relative to the premiums each other joint insured would pay to obtain equivalent
coverage separately.
VI. REGISTRATION AND COMPLIANCE.
A. BFS represents that it is registered as a transfer agent with the
Securities and Exchange Commission ("SEC") pursuant to ss.17A of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder, and agrees to maintain said registration and comply
with all of the requirements of said Act, rules, and regulations
so long as this Agreement remains in force.
3
<PAGE>
B. Each Fund represents that it is an open-end management investment
company registered with the SEC under the Securities Act of 1933
and the rules and regulations thereunder and the Investment
Company Act of 1940 and the rules and regulations thereunder, and
that it is authorized to sell its shares pursuant to said Acts,
and the rules and regulations thereunder.
Each Fund will furnish BFS with a list of those
jurisdictions in the United States and elsewhere in which it
is authorized to sell its shares to the general public and
maintain the currency of said list by amendment. Each Fund
agrees to promptly advise BFS of any change in or limitation
upon its authority to carry on business as an investment
company pursuant to said Acts, and the statutes, rules, and
regulations of each and every jurisdiction in which its shares
are registered for sale.
VII. DOCUMENTATION. Each of the Funds and BFS shall supply to the other upon
request such documentation as is required by them to carry out their respective
obligations under this Agreement, including, but not limited to, declarations of
trust, articles of incorporation, bylaws, codes of ethics, registration
statements, permits, financial reports, third party audits, certificates of
authority, computer tapes, and related items.
VIII. PROPRIETARY INFORMATION. It is agreed that all records and documents,
except computer data processing programs and any related documentation used or
prepared by, or on behalf of, BFS for the performance of its services hereunder,
are the property of the Funds and shall be open to audit or inspection by the
Funds or their duly authorized agents during the normal business hours of BFS,
shall be maintained in such fashion as to preserve the confidentiality thereof
and to comply with applicable federal and state laws and regulations, and shall,
in whole or any specified part, be surrendered and turned over to the Funds or
their duly authorized agents upon receipt by BFS of reasonable notice of and
request therefor.
IX. INDEMNITY. Each Fund shall indemnify and hold BFS harmless against any
losses, claims, damages, liabilities, or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action, or suit brought by
any person other than the Fund (including a shareholder naming the Fund as a
party) and not resulting from BFS's bad faith, willful misfeasance, reckless
disregard of its obligations and duties, negligence, or breach of this
Agreement, and arising out of, or in connection with:
A. BFS's performance of its obligations under this Agreement;
B. Any error or omission in any record (including but not limited to
magnetic tapes, computer printouts, hard copies, and microfilm or
microfiche copies) delivered, or caused to be delivered, by a
Fund to BFS in connection with this Agreement;
C. Bad faith, willful misfeasance, reckless disregard of its
obligations and duties, or negligence on the part of the Fund, or
BFS's acting upon any instructions reasonably believed by it to
have been properly executed or communicated by any person duly
authorized by the Fund;
D. BFS's acting in reliance upon advice reasonably believed by it to
have been given by counsel for the Funds, or;
E. BFS's acting in reliance upon any instrument reasonably believed
by it to have been genuine and signed, countersigned, or executed
by the proper person(s) in accordance with the currently
effective certificate(s) of authority delivered to BFS by the
Funds
4
<PAGE>
In the event that BFS requests a Fund to indemnify or
hold it harmless hereunder, BFS shall use its best efforts to inform
the Fund of the relevant facts concerning the matter in question. BFS
shall use reasonable care to identify and promptly notify the Fund
concerning any matter which presents, or appears likely to present, a
claim for indemnification against the Fund.
Each Fund may elect to defend BFS against any claim which
may be the subject of indemnification hereunder. In the event that the
Fund makes such an election, it shall notify BFS and shall take over
defense of the claim and, if so requested by the Fund, BFS shall incur
no further legal or other expenses related thereto for which it is
entitled to indemnity hereunder; provided, however, that nothing herein
shall prevent BFS from retaining, at its own expense, counsel to defend
any claim. Except with the applicable Fund's prior consent, BFS shall
not confess to any claim or make any compromise in any matter in which
the Fund will be asked to indemnify or hold BFS harmless hereunder
without the Fund's prior consent.
X. LIABILITY.
A. Damages. BFS shall not be liable to any Fund, or any third party,
for punitive, exemplary, indirect, special, or consequential
damages (even if BFS has been advised of the possibility of such
damages) arising from the performance of its obligations under
this Agreement, including but not limited to loss of profits,
loss of use of the shareholder accounting system, cost of
capital, and expenses for substitute facilities, programs, or
services.
B. Force Majeure. Any provision in this Agreement to the contrary
notwithstanding, BFS shall not be liable for delays or errors
occurring by reason of circumstances beyond its control or the
control of any of its affiliates and not attributable to the
negligence of BFS or any of its affiliates, including, but not
limited to, acts of civil or military authority, national
emergencies, national or regional work stoppages, fire, flood,
catastrophe, earthquake, acts of God, insurrection, war, riot,
failure of communication systems, or interruption of power
supplies.
C. Trust Series Sole Obligor. BFS is expressly put on notice that,
for any Fund which is a series of a registered investment company
organized as a Massachusetts business trust (a "Trust Series"),
liability under this Agreement shall be limited to the Trust
Series incurring such liability and to the assets of such Trust
Series. BFS shall not have any rights or remedies against any
trustee, officer, employee, or shareholder of the Trust Series or
any other series of the Trust for breach of this Agreement nor
recourse to the property of any such persons or other series of
the Trust for satisfaction of any judgment or other claim against
the Trust Series.
XI. AMENDMENT. This Agreement and the Schedules forming a part hereof may be
amended at any time, with or without shareholder approval (except as otherwise
required by law), by a document signed by each of the parties hereto. In the
event that one or more additional Funds are established, and the governing
bodies of said Funds by resolution indicate that the Funds are to be made
parties to this Agreement, Schedule E hereto shall be amended to reflect the
addition of such new Funds, and such new Funds shall become parties hereto. Any
change in a Fund's registration statement or other compliance documents, or in
the forms relating to any plan, program, or service offered by its current
prospectus which would require a change in BFS's obligations hereunder shall be
subject to BFS's approval, which shall not be unreasonably withheld.
5
<PAGE>
XII. TERMINATION. This Agreement may be terminated by any Fund with respect to
said Fund, or by BFS, without cause, upon 120 days' written notice to the other
party, and at any time for cause in the event that such cause remains unremedied
for more than 30 days after receipt by the other party of written specification
of such cause.
In the event that a Fund designates a successor to perform any of
BFS's obligations hereunder, BFS shall, at the expense and pursuant to
the direction of the Fund, transfer to such successor all relevant
books, records, and other data of the Fund in the possession or under
the control of BFS.
XIII. SEVERABILITY. If any clause or provision of this Agreement is determined
to be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
XIV. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of California.
XV. ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement
constitutes the entire and complete understanding of the parties hereto relating
to the subject matter hereof and supersedes all prior contracts and discussions
between the parties.
By_/s/John T. Kataoka___________ Date___6/1/95______________
John T. Kataoka, President
BENHAM FINANCIAL SERVICES, INC.
By_/s/Douglas A. Paul___________ Date___6/1/95______________
Douglas A. Paul, Secretary
to the FUNDS
6
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule A
Administrative Services
Benham Financial Services, Inc. agrees to provide each Fund the following
administrative services:
1. Fund and Portfolio Accounting
A. Maintain Fund General Ledger and Journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projections of available cash balances.
G. Record trading activity for purposes of determining net asset values
and dividend distributions.
H. Prepare daily portfolio evaluation reports to value portfolio
securities and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine income and capital gain dividend distributions per share.
K. Prepare monthly, quarterly, semi-annual, and annual financial
statements.
L. Provide financial information for reports to the Securities and
Exchange Commission in compliance with the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, the
Internal Revenue Service, and any other regulatory agencies as
required.
M. Provide financial, yield, net asset value, etc. information to the
NASD and other survey and statistical agencies as instructed by the
Funds.
2. Internal Audit
Provide an internal audit staff for independent review of Fund operations.
Internal audit staff will assist the independent accountants as
appropriate, and report directly to the Audit Committee of the Board of
Directors/Trustees.
7
<PAGE>
3. Legal
A. Provide registration and other administrative services necessary to
qualify the Fund's shares for sale in those jurisdictions determined
from time to time by each Fund's Board of Directors/Trustees.
B. Maintain registration statements and make all other filings required
by the Securities and Exchange Commission in compliance with the
provisions of the Investment Company Act of 1940 and the Securities
Act of 1933.
C. Prepare and review Fund prospectuses.
D. Prepare proxy statements.
E. Prepare board materials and maintain minutes of board meetings.
F. Provide legal advice.
The Funds' outside counsel may provide the services listed above as a
direct Fund expense; however, the Funds have the option to employ their own
counsel to provide any or all of these services.
4. Insurance
A. Obtain errors and omissions policy.
B. Obtain fidelity bond.
5. Administrative Management
Provide each Fund with a president, a chief financial officer, a secretary,
and such other officers as are necessary to manage the Fund and administer
its affairs in accordance with law and appropriate business practice, all
subject to the approval of the Fund's Board of Directors/Trustees.
8
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule B
Share Transfer and Dividend Disbursing Services
Benham Financial Services, Inc. agrees to provide each Fund the following
transfer agency and dividend disbursing services:
1. Maintain shareholder accounts, including processing of new accounts.
2. Post address changes and other file maintenance for shareholder accounts.
3. Post all monetary transactions to the shareholder file, including:
* Dividends, capital gains, and reverse share splits (BTMT) Y Direct
(including lock box) purchases Y Wire order purchases and redemptions
* Letter and telephone redemptions Y Draft redemptions
* Letter and telephone exchanges (as well as auto exchanges via VRU and
PC transmissions)
* Letter and telephone transfers
* Certificate issuances
* Certificate deposits
* Account fees
* Automated Clearing House ("ACH") transactions
* Exchanges initiated via Open Order Service
4. Conduct quality control reviews, by a separate dedicated group using
statistically reliable samples, of transactions and account maintenance
functions before mailing confirmations, checks, and/or share certificates
to shareholders.
5. Monitor fiduciary processing to ensure accuracy and proper deduction of
fees.
6. Prepare daily reconciliations of shareholder processing including money
movement instructions.
7. Process bounced check collections, including the immediate liquidation of
shares purchased and return of check, together with confirmation of entire
transaction, to investor.
8. Process all distribution and redemption checks and replace lost checks.
9. Withhold dividends and proceeds of redemptions as required by IRS
regulations.
10. Provide draft clearing services:
* Maintain signature cards and appropriate corporate resolutions
* For drafts in amounts greater than $5,000, compare signatures on
drafts with signatures on signature cards
* Receive checks presented for payment, verify negotiability, and
liquidate shares after verifying account balance
* For Funds that provide check writing privileges, process shareholder
check orders
* For Funds and retirement accounts that do not provide check writing
privileges, issue investment slip books
9
<PAGE>
11.Mail confirmations, checks, and/or certificates resulting from transaction
requests to shareholders.
12.Process all other Fund mailings, including:
* Dividend and capital gain distributions
* Quarterly, semi-annual, and annual reports
* Year-end shareholder tax forms
* Directed payments
* Quarterly statements
* Shareholder drafts (on request)
* Combined statements
* Annual Prospectus revisions
13.Answer all service-related telephone inquiries from shareholders and others,
including:
* General and policy inquiries (research and resolve problems);
* Fund yield inquiries; and
* Shareholder transaction requests and account maintenance changes
(e.g., redemptions, transfers, exchanges, address changes, and check
book orders).
In addition:
* Monitor processing production and quality; Y Monitor online
statistical performance of unit; and Y Develop reports on telephone
activity.
14.Respond to written inquiries by researching and resolving problems,
including:
* Initiating shareholder account reconciliation proceedings when
appropriate
* Writing and mailing form letters
* Responding to financial institutions regarding verification of
deposits
* Initiating proceedings regarding lost share certificates
* Logging activities related to written inquiries
* Maintaining system for correspondence control
* Notifying shareholders of unacceptable transaction requests
15.Maintain and retrieve all required account history for shareholders and
provide research services as follows:
* Daily monitoring of all processing activity
* Providing exception reports
* Microfilming
* Storing, or archiving, and retrieving historical account information
* Obtaining microfiche of various reports
* Researching shareholder inquiries
* Resolving suspense items (e.g., transactions not posted due to an
error condition on the account)
10
<PAGE>
16.Prepare materials for shareholder meetings, including:
* Addressing and mailing proxy solicitation materials
* Tabulating returned proxies and supplying daily reports to inform
management about the vote
* Providing Fund with an affidavit of mailing
* Furnishing certified list of shareholders (hard copy or microfilm) and
election inspectors
17.Report and remit assets as necessary to satisfy state escheat requirements.
18.Onbehalf of each Fund, file tax documents with appropriate federal and state
authorities.
11
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule C
Chargeable Transactions
For purposes of determining the per-transaction portion of the transfer
agency fee, the following types of transactions are considered chargeable
transactions.
1. Monetary Transactions
In general all monetary transactions are chargeable with the exception
of reversal transactions. The only chargeable reversal transaction is for
returned investment checks. The following is a current list of chargeable
transactions:
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
Incoming Wires PUR 01 11
================================================================================
Wire Order Purchases WOF 01 00
================================================================================
Check Purchases PUR 01 02
================================================================================
PUR 01 03
================================================================================
PUR 01 05
================================================================================
PUR 01 08
================================================================================
PUR 01 09
================================================================================
PUR 07 00
================================================================================
PUR 07 01
================================================================================
PUR 08 00
================================================================================
PUR 09 00
================================================================================
PUR 09 01
================================================================================
PUR 09 14
================================================================================
PUR 10 00
================================================================================
PUR 14 00
================================================================================
PUR 15 00
================================================================================
PUR 16 01
================================================================================
PUR 22 00
12
<PAGE>
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
PUR 01 97
================================================================================
PUR 01 98
================================================================================
PUR 26 00
================================================================================
RPO Purchases PUR 05 00
================================================================================
ACH Purchases PUR 01 12
================================================================================
PUR 07 02
================================================================================
PUR 09 02
================================================================================
PUR 02 00
================================================================================
PUR 17 00
================================================================================
PUR 18 00
================================================================================
PUR 19 00
================================================================================
PUR 20 00
================================================================================
Direct Dividend &
Capital Gains PUR 01 50
================================================================================
PUR 09 50
================================================================================
PUR 07 50
================================================================================
PUR 31 50
================================================================================
Systematic Exchange
Purchases PUR 01 60
================================================================================
PUR 07 60
================================================================================
PUR 31 60
================================================================================
BCM Accumulation
Purchases PUR 01 32
================================================================================
PUR 01 33
================================================================================
PUR 01 42
================================================================================
PUR 01 43
================================================================================
Exchange
Purchases/Liquidations EXI/EXO 01 00
================================================================================
EXI/EXO 01 61
================================================================================
EXI/EXO 01 81
================================================================================
EXI/EXO 01 82
================================================================================
EXI/EXO 01 85
================================================================================
EXI/EXO 01 86
================================================================================
13
<PAGE>
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
PUR 01 06
================================================================================
PUR 01 45
================================================================================
PUR 07 61
================================================================================
PUR 07 62
================================================================================
PUR 08 61
================================================================================
PUR 09 61
================================================================================
PUR 09 63
================================================================================
PUR 10 61
================================================================================
PUR 14 61
================================================================================
PUR 16 61
================================================================================
PUR 22 61
================================================================================
PUR 01 75
================================================================================
PUR 26 61
================================================================================
Check Purchases
(Reversals) PUR 04 00
================================================================================
PUR 01 02 R
================================================================================
PUR 01 03 R
================================================================================
PUR 01 05 R
================================================================================
PUR 01 08 R
================================================================================
PUR 01 09 R
================================================================================
PUR 07 00 R
================================================================================
PUR 07 01 R
================================================================================
PUR 08 00 R
================================================================================
PUR 09 00 R
================================================================================
PUR 09 01 R
================================================================================
PUR 10 00 R
================================================================================
PUR 14 00 R
================================================================================
PUR 15 00 R
================================================================================
PUR 16 01 R
================================================================================
PUR 22 00 R
================================================================================
PUR 01 97 R
================================================================================
PUR 01 98 R
================================================================================
14
<PAGE>
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
PUR 26 00 R
================================================================================
BCM Accumulation
Liquidations LIQ 01 32
================================================================================
LIQ 01 42
================================================================================
Transfers In/Out PUR 01 35
================================================================================
PUR 07 71
================================================================================
PUR 08 71
================================================================================
PUR 14 71
================================================================================
PUR 16 71
================================================================================
PUR 22 71
================================================================================
PUR 26 03
================================================================================
PUR 26 71
================================================================================
Transfers In & Out TFI/TFO 01 00
================================================================================
TFI/TFO 01 01
================================================================================
TFI/TFO 01 81
================================================================================
TFI/TFO 01 82
================================================================================
TFI/TFO 01 85
================================================================================
TFI/TFO 01 86
================================================================================
Check Liquidations LIQ 01 00
================================================================================
LIQ 01 01
================================================================================
LIQ 01 02
================================================================================
LIQ 01 03
================================================================================
LIQ 01 04
================================================================================
LIQ 01 05
================================================================================
LIQ 01 06
================================================================================
LIQ 01 07
================================================================================
LIQ 01 08
================================================================================
LIQ 01 09
================================================================================
LIQ 01 10
================================================================================
LIQ 01 11
================================================================================
LIQ 01 12
================================================================================
LIQ 01 39
================================================================================
15
<PAGE>
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
LIQ 01 14
================================================================================
Wire Order Redemption WOR 01 00
================================================================================
SWIP Redemption
Checks LIQ 14 00
================================================================================
RPO Liquidations LIQ 05 00
================================================================================
Wires Out LIQ 01 20
================================================================================
Drafts Paid LIQ 03 00
================================================================================
Draft Order Fees LIQ 13 11
================================================================================
Other Fees LIQ 13 08
================================================================================
LIQ 13 13
================================================================================
LIQ 13 16
================================================================================
LIQ 13 17
================================================================================
LIQ 13 18
================================================================================
LIQ 13 19
================================================================================
LIQ 13 23
================================================================================
BCM Accumulation Fees LIQ 01 33
================================================================================
LIQ 01 43
================================================================================
Non-BCMG Advisor Fees LIQ 01 75
================================================================================
WOR 01 75
================================================================================
Certificate Issue CIS 01 00
================================================================================
CIS 02 00
================================================================================
Certificate Deposit CDP 01 00
================================================================================
ADJ Credits ADJ 01 00
================================================================================
PUR 04 01
================================================================================
PUR 26 01
================================================================================
ADJ Debits ADJ 02 00
================================================================================
16
<PAGE>
2. Non-Monetary Transactions
The only chargeable non-monetary transactions will be for
shareholder-initiated account maintenance charges and one transaction
charge for each new account added to the shareholder file. The following is
a current list of non-monetary transactions:
================================================================================
DESCRIPTION TRANSACTION TYPE
================================================================================
General Account Maintenance MNT01 - MNT08
================================================================================
Draft Stop Add and Maintenance MNT009
================================================================================
Name/Address Change MNT10
================================================================================
New Account Setup N/A
================================================================================
Combined Statement Account Setup N/A
================================================================================
17
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule D
Liability Insurance
Benham Financial Services, Inc. agrees to provide each Fund at a minimum with
the following insurance coverages subject to a ratable allocation:
1. Errors and Omissions and Directors Liability.
* $10 million limit.
* $150,000 deductible for all claims.
* Individual director/trustee or officer sued - $5,000
deductible to aggregate of $25,000.
2. Fidelity Insurance (Blanket Bond).
* $25,000,000 limit (each and every occurrence).
* $150,000 deductible.
18
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule E
Funds and Portfolios
Effective as of the date indicated below, each of the open-end management
investment companies and the portfolios of said open-end management investment
companies listed below is hereby made a party to the Benham Group Administrative
Services and Transfer Agency Agreement dated June 1, 1995.
Name of Fund/Portfolio Board Approval of Agreement
Capital Preservation Fund, Inc. April 3, 1995
Capital Preservation Fund II, Inc. April 3, 1995
Benham Target Maturities Trust
1995 Portfolio April 3, 1995
2000 Portfolio "
2005 Portfolio "
2010 Portfolio "
2015 Portfolio "
2020 Portfolio "
Benham Government Income Trust
Benham GNMA Income Fund April 3, 1995
Benham Treasury Note Fund "
Benham Government Agency Fund "
Benham Adjustable Rate Government Securities Fund "
Benham Short-Term Treasury and Agency Fund "
Benham Long-Term Treasury and Agency Fund "
Benham California Tax-Free and Municipal Funds
Municipal Money Market Fund April 3, 1995
Tax-Free Money Market Fund "
Tax-Free Short-Term Fund "
Tax-Free Intermediate-Term Fund "
Tax-Free Long-Term Fund "
Municipal High-Yield Fund "
Tax-Free Insured Fund "
Benham Municipal Trust
Benham National Tax-Free Money Market Fund April 3, 1995
Benham National Tax-Free Intermediate-Term Fund "
Benham National Tax-Free Long-Term Fund "
Benham Florida Municipal Money Market Fund "
Benham Florida Municipal Intermediate-Term Fund "
Benham Florida Municipal Long-Term Fund "
Benham Arizona Municipal Intermediate-Term Fund "
Benham Arizona Municipal Long-Term Fund "
19
<PAGE>
Name of Fund/Portfolio Board Approval of Agreement
Benham Equity Funds
Benham Gold Equities Index Fund April 3, 1995
Benham Equity Growth Fund "
Benham Income & Growth Fund "
Benham Utilities Income Fund "
Benham Global Natural Resources Fund April 3, 1995
Benham International Funds
Benham European Government Bond Fund April 3, 1995
Benham International Equity Fund "
Benham Asian Tiger Fund "
Benham Emerging Markets Fund "
Benham Global Bond Fund "
Benham Investment Trust
Benham Prime Money Market Fund April 3, 1995
Benham Manager Funds
Benham Capital Manager Fund April 3, 1995
20
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule F
Compensation
<TABLE>
<CAPTION>
=====================================================================================================================
Monthly
Per-Account Fee for Per-Transaction
Fund/Portfolio Account Maintenance Fee
=====================================================================================================================
<S> <C> <C>
Capital Preservation Fund, Inc. $1.3958 $1.35
- ---------------------------------------------------------------------------------------------------------------------
Capital Preservation Fund II, Inc. $1.3958 $1.35
- ---------------------------------------------------------------------------------------------------------------------
Benham California Tax-Free and Municipal Funds $1.3958 $1.35
Municipal Money Market Fund
Tax-Free Money Market Fund
Tax-Free Short-Term Fund
Tax-Free Intermediate-Term Fund
Tax-Free Long-Term Fund
Tax-Free Insured Fund
Municipal High-Yield Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Equity Funds $1.35
Benham Gold Equities Index Fund $1.1875
$1.1875
Benham Equity Growth Fund $1.3958
Benham Income & Growth Fund $1.3958
Benham Utilities Income Fund $1.1875
Benham Global Natural Resources Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Government Income Trust $1.3958 $1.35
Benham GNMA Income Fund
Benham Treasury Note Fund
Benham Government Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham Short-Term Treasury and Agency Fund
Benham Long-Term Treasury and Agency Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham International Funds
Benham European Government Bond Fund $1.1875 $1.35
- ---------------------------------------------------------------------------------------------------------------------
Benham Investment Trust $1.3958 $1.35
Benham Prime Money Market Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Manager Funds $1.1875 $1.35
Benham Capital Manager Fund
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Monthly
Per-Account Fee for Per-Transaction
Fund/Portfolio Account Maintenance Fee
=====================================================================================================================
<S> <C> <C>
Benham Municipal Trust $1.3958 $1.35
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund
Benham Florida Municipal Intermediate-Term Fund
Benham Arizona Municipal Intermediate-Term Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Target Maturities Trust $1.1875 $1.35
1995 Portfolio
2000 Portfolio
2005 Portfolio
2010 Portfolio
2015 Portfolio
2020 Portfolio
=====================================================================================================================
</TABLE>
Administrative Services Fee Rate Schedule
Group Assets Fee Rate
up to $4.5 billion .11%
up to $6 billion .10%
up to $9 billion .09%
balance over $9 billion .08%
22
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
POST-EFFECTIVE AMENDMENT NO. 22
Written Representation Pursuant to Rule 485(e)
of the Securities Act of 1933.
As required by paragraph (e) of Rule 485, I hereby certify, as Vice
President, Secretary, and General Counsel of the Registrant, that this
Post-Effective Amendment No. 22 meets all of the requirements for effectiveness
set forth in paragraph (b) of Rule 485 and hereby represent that such
Post-Effective Amendment No. 22 does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) of Rule 485.
/s/Douglas A. Paul
Douglas A. Paul
Vice President, Secretary,
and General Counsel
Mountain View, California
25 October, 1995
Independent Auditors' Consent
The Board of Trustees and Shareholders
Benham California Tax-Free and Municipal Funds:
We consent to the inclusion in Benham California Tax-Free and Municipal Funds'
Post-Effective Amendment No. 22 to the Registration Statement No. 2-82734 on
Form N-1A under the Securities Act of 1933 and Amendment No. 26 to the
Registration Statement No. 811-3706 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated October 9, 1995 on the financial
statement and financial highlights of Benham California Tax-Free Money Market
Fund, Benham California Municipal Money Market Fund, Benham California Municipal
High-Yield Fund, Benham California Tax-Free Insured Fund, Benham California
Tax-Free Short-Term Fund, Benham California Tax-Free Intermediate-Term Fund, and
Benham California Tax-Free Long-Term Fund (the series comprising Benham
California Tax-Free and Municipal Funds) for the periods indicated therein,
which reports have been incorporated by reference in the Statement of Additional
Information of Benham California Tax-Free and Municipal Funds. We also consent
to the reference to our firm under the "Financial Highlights" in the Prospectus
of the Benham California Tax-Free and Municipal Funds and under the heading
"About the Trust" in the Statement of Additional Information which is
incorporated by reference in the Prospectus.
San Francisco, California
October 25, 1995
BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: ---------- ----------- ---------- --------
One Year $1,000.00 $1,033.10 1.000000 3.31%
Five Years $1,000.00 $1,156.46 5.000000 2.95%
Ten Years $1,000.00 $1,453.00 10.000000 3.81%
Date Of Inception* $1,000.00 $1,584.00 11.8164 3.97%
TR = Total return for period. TR = (ERV/P) -1 58.40%
*Date Of Inception: November 9, 1983 11/9/83 30629
08/31/95 34942
1
<PAGE>
BENHAM CALIFORNIA MUNICIPAL HIGH-YIELD FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: ---------- --------- -------- --------
One Year $1,000.00 $1,070.90 1.000000 7.09%
Five Years $1,000.00 $1,483.00 5.000000 8.20%
Ten Years
Date Of Inception* $1,000.00 $1,671.00 8.673973 6.10%
TR = Total return for period. TR = (ERV/P) -1 67.10%
*Date Of Inception: December 30, 1986 12/30/86 31776
08/31/95 34942
2
<PAGE>
BENHAM CALIFORNIA TAX-FREE INTERMEDIATE FUND
Average Annual Total Return
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- --------
One Year $1,000.00 $1,070.90 1.000000 7.09%
Five Years $1,000.00 $1,432.00 5.000000 7.45%
Ten Years $1,000.00 $2,010.00 10.000000 7.23%
Date Of Inception* $1,000.00 $1,831.00 8.816400 7.10%
TR = Total return for period. TR = (ERV/P) -1 83.10%
*Date Of Inception: November 9, 1983
3
<PAGE>
BENHAM CALIFORNIA TAX-FREE LONG-TERM FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- ---------
One Year $1,000.00 $1,072.10 1.000000 7.21%
Five Years $1,000.00 $1,506.00 5.000000 8.53%
Ten Years $1,000.00 $2,225.00 10.000000 8.33%
Date Of Inception* $1,000.00 $2,627.00 11.816438 8.52%
TR = Total return for period. TR = (ERV/P) -1 162.70%
*Date Of Inception: November 9, 1983
4
<PAGE>
BENHAM CALIFORNIA TAX-FREE INSURED FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- ---------
One Year $1,000.00 $1,080.90 1.000000 8.09%
Five Years $1,000.00 $1,510.00 5.000000 8.59%
Ten Years
Date Of Inception* $1,000.00 $1,746.00 8.673973 6.64%
TR = Total return for period. TR = (ERV/P) -1 74.60%
12/30/86 31776
08/31/95 34942
*Date Of Inception: December 30, 1986
5
<PAGE>
BENHAM CALIFORNIA MUNICIPAL MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- ---------
One Year $1,000.00 $1,033.50 1.000000 3.35%
Five Years
Ten Years
Date Of Inception* $1,000.00 $1,152.50 4.668493 3.09%
TR = Total return for period. TR = (ERV/P) -1 15.25%
12/31/90 33238
08/31/95 34942
*Date Of Inception: December 31, 1990
6
<PAGE>
BENHAM CALIFORNIA TAX-FREE SHORT-TERM FUND
AVERAGE ANNUAL TOTAL RETURN
AUGUST 31, 1995
[GRAPHIC OMITTED]
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- --------- ---------
One Year $1,000.00 $1,053.30 1.000000 5.33%
Five Years
Ten Years
Date Of Inception* $1,000.00 $1,164.50 3.249315 4.80%
TR = Total return for period. TR = (ERV/P) -1 16.45%
*Date Of Inception: June 1, 1992
7
<PAGE>
BENHAM CALIFORNIA TAX-FREE INTERMEDIATE FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $ 1,786,259.39
B = $ 162,453.80
C = $37,531,070.42
D = $ 11.05
Yield = 4.74%
8
<PAGE>
BENHAM CALIFORNIA TAX-FREE LONG-TERM FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $ 1,332,195.33
B = $ 102,515.54
C = $24,191,218.744
D = $ 10.89
Yield = 5.67%
9
<PAGE>
BENHAM CALIFORNIA MUNICIPAL HIGH-YIELD FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $ 655,325.47
B = $ 48,525.63
C = $12,632,332.875
D = $ 9.07
Yield = 6.44%
10
<PAGE>
BENHAM CALIFORNIA TAX-FREE INSURED FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $ 863,815.45
B = $ 69,876.38
C = $17,892,502.193
D = $ 9.85
Yield = 5.47%
11
<PAGE>
BENHAM CALIFORNIA TAX-FREE SHORT-TERM FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $ 386,019.94
B = $ 47,716.03
C = $10,152,295.979
D = $ 10.23
Yield = 3.94%
12
<PAGE>
BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
7 Day Yield = 3.20%
7 Day Effective Yield = 3.25%
BENHAM CALIFORNIA MUNICIPAL MONEY MARKET FUND
YIELD CALCULATION
AUGUST 31, 1995
[GRAPHIC OMITTED]
7 Day Yield = 3.29%
7 Day Effective Yield = 3.34%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BENHAM CALIFORNIA TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 408659073
<INVESTMENTS-AT-VALUE> 408659073
<RECEIVABLES> 2519625
<ASSETS-OTHER> 8442567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 419621265
<PAYABLE-FOR-SECURITIES> 3530170
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1991890
<TOTAL-LIABILITIES> 5522060
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 414243637
<SHARES-COMMON-STOCK> 414243637
<SHARES-COMMON-PRIOR> 363927801
<ACCUMULATED-NII-CURRENT> 975117
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1119549)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 414099205
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14475199
<OTHER-INCOME> 0
<EXPENSES-NET> 1984663
<NET-INVESTMENT-INCOME> 12490536
<REALIZED-GAINS-CURRENT> (285303)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12205233
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12368993
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 466211495
<NUMBER-OF-SHARES-REDEEMED> 434739843
<SHARES-REINVESTED> 11717045
<NET-CHANGE-IN-ASSETS> 43024937
<ACCUMULATED-NII-PRIOR> 834246
<ACCUMULATED-GAINS-PRIOR> (834246)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1118609
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1984663
<AVERAGE-NET-ASSETS> 380596516
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .033
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .033
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> BENHAM MUNICIPAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 188048764
<INVESTMENTS-AT-VALUE> 188048764
<RECEIVABLES> 1419996
<ASSETS-OTHER> 4565031
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194033791
<PAYABLE-FOR-SECURITIES> 1512930
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 798521
<TOTAL-LIABILITIES> 2311451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191817804
<SHARES-COMMON-STOCK> 191817804
<SHARES-COMMON-PRIOR> 204350976
<ACCUMULATED-NII-CURRENT> 66904
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (162368)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 191722340
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8346065
<OTHER-INCOME> 0
<EXPENSES-NET> 1159454
<NET-INVESTMENT-INCOME> 7186611
<REALIZED-GAINS-CURRENT> (162368)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7024243
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7127335
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 310209174
<NUMBER-OF-SHARES-REDEEMED> 368979533
<SHARES-REINVESTED> 6894430
<NET-CHANGE-IN-ASSETS> (51979021)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 638989
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1159454
<AVERAGE-NET-ASSETS> 217431310
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .033
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .033
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> BENHAM CALIFORNIA TAX-FREE INTERMEDIATE-TERM FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 396090513
<INVESTMENTS-AT-VALUE> 412450277
<RECEIVABLES> 6427242
<ASSETS-OTHER> 2742359
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 421619878
<PAYABLE-FOR-SECURITIES> 3414772
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 654962
<TOTAL-LIABILITIES> 4069734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 403158066
<SHARES-COMMON-STOCK> 37743491
<SHARES-COMMON-PRIOR> 38264468
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 37
<ACCUMULATED-NET-GAINS> (1967649)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16359764
<NET-ASSETS> 417550144
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22864487
<OTHER-INCOME> 0
<EXPENSES-NET> 2010680
<NET-INVESTMENT-INCOME> 20853807
<REALIZED-GAINS-CURRENT> (1365817)
<APPREC-INCREASE-CURRENT> 7497113
<NET-CHANGE-FROM-OPS> 26985103
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20852276
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83210172
<NUMBER-OF-SHARES-REDEEMED> 136048570
<SHARES-REINVESTED> 15963090
<NET-CHANGE-IN-ASSETS> 30742481
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2914565)
<OVERDISTRIB-NII-PRIOR> 2185
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1219371
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2010680
<AVERAGE-NET-ASSETS> 414922402
<PER-SHARE-NAV-BEGIN> 10.86
<PER-SHARE-NII> .541
<PER-SHARE-GAIN-APPREC> .200
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .541
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> BENHAM CALIFORNIA TAX-FREE LONG-TERM FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 265676227
<INVESTMENTS-AT-VALUE> 272596939
<RECEIVABLES> 8665495
<ASSETS-OTHER> 842967
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 282105401
<PAYABLE-FOR-SECURITIES> 4676700
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1343656
<TOTAL-LIABILITIES> 6020356
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 269661972
<SHARES-COMMON-STOCK> 25238519
<SHARES-COMMON-PRIOR> 25571648
<ACCUMULATED-NII-CURRENT> 570
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (498209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6920712
<NET-ASSETS> 276085045
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16979331
<OTHER-INCOME> 0
<EXPENSES-NET> 1302545
<NET-INVESTMENT-INCOME> 15676786
<REALIZED-GAINS-CURRENT> (498209)
<APPREC-INCREASE-CURRENT> 3178301
<NET-CHANGE-FROM-OPS> 18356878
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15680810
<DISTRIBUTIONS-OF-GAINS> 1423246
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69814068
<NUMBER-OF-SHARES-REDEEMED> 84059454
<SHARES-REINVESTED> 11600463
<NET-CHANGE-IN-ASSETS> (1392101)
<ACCUMULATED-NII-PRIOR> 97
<ACCUMULATED-GAINS-PRIOR> (3654128)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 788383
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1302545
<AVERAGE-NET-ASSETS> 268259316
<PER-SHARE-NAV-BEGIN> 10.88
<PER-SHARE-NII> .623
<PER-SHARE-GAIN-APPREC> .118
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .681
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.94
<EXPENSE-RATIO> .49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BENHAM MUNICIPAL HIGH-YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 110224874
<INVESTMENTS-AT-VALUE> 113306820
<RECEIVABLES> 2417793
<ASSETS-OTHER> 739650
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116464263
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 298395
<TOTAL-LIABILITIES> 298395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114953650
<SHARES-COMMON-STOCK> 12756782
<SHARES-COMMON-PRIOR> 12015383
<ACCUMULATED-NII-CURRENT> 4091
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1873819)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3081946
<NET-ASSETS> 116165868
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7372018
<OTHER-INCOME> 0
<EXPENSES-NET> 555327
<NET-INVESTMENT-INCOME> 6816691
<REALIZED-GAINS-CURRENT> (1873070)
<APPREC-INCREASE-CURRENT> 1850452
<NET-CHANGE-FROM-OPS> 6794073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6813446
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58165774
<NUMBER-OF-SHARES-REDEEMED> 62756859
<SHARES-REINVESTED> 4776705
<NET-CHANGE-IN-ASSETS> 166247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2904070)
<OVERDISTRIB-NII-PRIOR> 470
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 317026
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555327
<AVERAGE-NET-ASSETS> 107881691
<PER-SHARE-NAV-BEGIN> 9.06
<PER-SHARE-NII> .561
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .561
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.11
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> BENHAM CALIFORNIA TAX-FREE INSURED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 171565384
<INVESTMENTS-AT-VALUE> 176460181
<RECEIVABLES> 2897975
<ASSETS-OTHER> 944895
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180303051
<PAYABLE-FOR-SECURITIES> 1050811
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 339677
<TOTAL-LIABILITIES> 1390488
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175244715
<SHARES-COMMON-STOCK> 18084945
<SHARES-COMMON-PRIOR> 17684272
<ACCUMULATED-NII-CURRENT> 3829
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1230778)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4894797
<NET-ASSETS> 178912563
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10389130
<OTHER-INCOME> 0
<EXPENSES-NET> 860632
<NET-INVESTMENT-INCOME> 9528498
<REALIZED-GAINS-CURRENT> 232451
<APPREC-INCREASE-CURRENT> 3002263
<NET-CHANGE-FROM-OPS> 12763212
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9528450
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51954200
<NUMBER-OF-SHARES-REDEEMED> 72174227
<SHARES-REINVESTED> 6459209
<NET-CHANGE-IN-ASSETS> (10526056)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3226628)
<OVERDISTRIB-NII-PRIOR> 14793
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 505500
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 860632
<AVERAGE-NET-ASSETS> 172020065
<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> .532
<PER-SHARE-GAIN-APPREC> .220
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .532
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> BENHAM CALIFORNIA TAX-FREE SHORT-TERM FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 104322862
<INVESTMENTS-AT-VALUE> 105636293
<RECEIVABLES> 2560395
<ASSETS-OTHER> 711052
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 108907740
<PAYABLE-FOR-SECURITIES> 4047666
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136812
<TOTAL-LIABILITIES> 4184478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104823183
<SHARES-COMMON-STOCK> 10233826
<SHARES-COMMON-PRIOR> 10705168
<ACCUMULATED-NII-CURRENT> 6462
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1419814)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1313431
<NET-ASSETS> 104723262
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5026490
<OTHER-INCOME> 0
<EXPENSES-NET> 553511
<NET-INVESTMENT-INCOME> 4472979
<REALIZED-GAINS-CURRENT> (900112)
<APPREC-INCREASE-CURRENT> 1720049
<NET-CHANGE-FROM-OPS> 5292916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4472853
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50256918
<NUMBER-OF-SHARES-REDEEMED> 70640061
<SHARES-REINVESTED> 3659833
<NET-CHANGE-IN-ASSETS> (15903247)
<ACCUMULATED-NII-PRIOR> 4284
<ACCUMULATED-GAINS-PRIOR> (1529544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 320571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 553511
<AVERAGE-NET-ASSETS> 109082067
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> .415
<PER-SHARE-GAIN-APPREC> .110
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .415
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>