SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant _____
Check the appropriate box:
X Preliminary Proxy Statement
_____ Definitive Proxy Statement
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Benham Equity Funds
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Benham Equity Funds
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
______ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
______ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
_____ Fee paid previously with preliminary materials
_____ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identifying the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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page 1
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December 15, 1995
Dear Benham Gold Equities Index Fund Shareholder:
The North American gold industry has changed significantly since we created your
Fund's benchmark index, the Benham North American Gold Equities Index, in 1987.
Consolidation in the gold industry has reduced the number of Index companies
from 44 to 30, and globalization of gold production has increased the
competition from gold producers located outside of North America. These changes
affect the Fund in two key ways:
* THE DECLINING NUMBER OF NORTH AMERICAN GOLD-PRODUCING COMPANIES MAKES IT A
CHALLENGE TO MAINTAIN A DIVERSIFIED PORTFOLIO. It is difficult for the Fund
to match its benchmark index while remaining diversified enough to meet IRS
mutual fund diversification requirements. For example, at the close of each
quarter the IRS requires the Fund to have no more than 25% of its total
assets invested in the securities of a single issuer. As a result, the Fund
has to underweight Barrick Gold Corporation, an important holding that
represents more than 25% of the index.
* GLOBALIZATION OF GOLD PRODUCTION MAKES A STRICT NORTH AMERICAN FOCUS
UNDESIRABLE. South Africa and Australia are important gold-producing
regions. A North American focus can limit the potential benefits to
investors from future gold finds in regions outside of North America.
In August, the Fund's board of directors approved a set of proposals to
broaden the Fund's focus from North American gold stocks to global gold stocks.
The proposals, which are subject to shareholder approval, would change the
Fund's benchmark from the Benham North American Gold Equities Index to a global
gold index and would change the Fund's name to reflect its new global focus.
We have enclosed proxy materials that detail the proposed changes. In the course
of representing and protecting your interests, the Fund's independent directors
have carefully and thoroughly evaluated the proposals, and they recommend that
you vote FOR each proposal.
YOUR VOTE IS IMPORTANT, AND WE URGE YOU TO VOTE PROMPTLY. You may cast your vote
by marking and signing the enclosed proxy card, then returning it in the
postage-paid envelope provided. You may also refer to the "Instructions for
Voting" on your proxy card for other voting options, or you may attend the
shareholder meeting on February 12, 1996. The meeting will begin at ___ Pacific
Standard Time in the ________ in Mountain View, CA.
Please note that this meeting is not a shareholder seminar.
Please take a few moments to complete your proxy card and mail it in the
postage-paid envelope enclosed. If we have not received your vote as the meeting
date approaches, you may receive a telephone call from an Investor Services
Representative to ask for your vote. We appreciate your attention to the proxy,
and thank you for investing with us.
Sincerely,
/s/James M. Benham
James M. Benham
Chairman of the Board
page 2
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THE BENHAM GOLD EQUITIES INDEX FUND
a series of
THE BENHAM EQUITY FUNDS
1665 Charleston Road, Mountain View, California 94043
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders of the Benham
Gold Equities Index Fund (the "Fund"), a series of the Benham Equity Funds (the
"Company") will be held at _______________________, California __________ on
February 12, 1996 at 3:00 p.m. (Pacific Time):
This Special Meeting will be held for the purpose of considering the following
proposals:
1. To amend the fundamental investment objective and fundamental investment
limitation concerning concentration of investments of the Fund and change
the Fund's name.
2. To approve the adoption of standardized investment limitations by amending
or eliminating certain of the Fund's current fundamental investment
objectives as described in the following sub-proposals:
a. To amend the fundamental investment limitation concerning the issuance
of senior securities
b. To amend the fundamental investment limitation concerning borrowing
c. To amend the fundamental investment limitation concerning lending
d. To amend the fundamental investment limitation concerning investments
in real estate
e. To amend the fundamental investment limitation concerning underwriting
f. To eliminate the fundamental investment limitation concerning
diversification of investments
g. To eliminate the fundamental investment limitation regarding
investments in illiquid securities
h. To eliminate the fundamental limitation concerning investment in other
investment companies
i. To eliminate the fundamental limitation concerning investments in
issuers with less than three years of continuous operations
j. To eliminate the fundamental investment limitation regarding
investments in warrants
k. To eliminate the fundamental investment limitation concerning
investments in oil, gas and other mineral exploration programs
l. To eliminate the fundamental limitation concerning short sales
Notice - Page 1
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m. To eliminate the fundamental investment limitation concerning margin
purchases of securities
n. To eliminate the fundamental limitation concerning purchasing
securities of an issuer in which the directors or officers of the Fund
or BMC hold more than 5% of the outstanding securities of such issuer
Each shareholder of record as of the close of business on December 14, 1995
will be entitled to vote.
By Order of the Board of Directors,
/s/Douglas A. Paul
Dated: December 15, 1995 Douglas A. Paul
Secretary
Notice - Page 2
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THE BENHAM GOLD EQUITIES INDEX FUND
a series of
THE BENHAM EQUITY FUNDS
a California Corporation
1665 Charleston Road, Mountain View, California 94043
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and Notice of Special Meeting with accompanying proxy
card are being mailed to shareholders of the Benham Gold Equities Index Fund, a
series of The Benham Equity Funds (the "Fund") on or about December 22, 1995.
They are being furnished in connection with the solicitation of proxies by the
Directors of the Company for use at the Special Meeting of shareholders on
February 12, 1996, or any adjournment thereof (the "Meeting") for the purposes
set forth in the accompanying Notice.
The most recent annual and semi-annual reports for the Fund have previously
been sent to shareholders and are available upon request to The Benham Group
without charge by calling 1-800-874-8782.
You can also place your vote by calling 1-800-874-8782.
If the accompanying proxy card is executed properly and returned, your
shares will be voted at the Meeting in accordance with the instructions on the
proxy card. However, if no instructions are specified, shares will be voted for
each of the proposals. Shareholders may revoke a proxy at any time prior to the
time it is voted by writing to the Secretary of the Company or by attending and
voting at the Meeting.
In the event that a quorum is present at the Meeting but sufficient votes
to approve any proposal are not received, the persons named as proxy agents may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the Meeting in person or by proxy. If a quorum is
present, the persons named as proxy agents will vote those proxies which they
are entitled to vote FOR the proposal in favor of such an adjournment and will
vote those proxies required to be voted AGAINST the proposal against any such
adjournment. A vote may be taken on any one of the proposals in this proxy
statement for a Fund prior to any adjournment if sufficient votes have been
received for approval.
Approval of each of the proposals will require the affirmative vote of the
holders of the lesser of either (a) 67% or more of the Fund's shares present at
the meeting if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
Fund shares ("1940 Act Majority").
Shares held by shareholders present in person or represented by proxy at
the Meeting will be counted both for the purpose of determining the presence of
a quorum and for calculating the votes cast on the issues before the Meeting.
Shares held by a broker or other fiduciary are counted toward the required
quorum with respect to a proposal if the beneficial owner has executed and
timely delivered the necessary proxy, or if the broker or fiduciary has
discretion to vote the beneficial owner's shares on that proposal and has
returned the proxy card to the Fund, whether or not the shares are actually
voted. Where the broker or fiduciary has no discretion to vote the shares as to
one or more issues before the Meeting, the non-voted shares will not be counted
toward establishing
PROXY STATEMENT - Page 1
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a quorum. Shareholders should note that while votes to ABSTAIN will count toward
establishing a quorum, passage of any proposal being considered at the Meeting
will occur only if a sufficient number of votes are cast FOR the proposal.
Accordingly, votes to ABSTAIN and votes AGAINST will have the same effect in
determining whether the proposal is approved.
The cost of soliciting proxies, including the fees of a proxy soliciting
agent, and all expenses relating to the Meeting will be borne by the Fund. In
addition to solicitation by telephone or mail, proxies may be solicited by
Directors, officers, regular employees and agents of the Company without
additional compensation. Benham Management Corporation ("BMC") will reimburse
brokerage firms and others for their expenses in forwarding proxy materials to
the beneficial owners and soliciting them to execute the proxies.
The close of business on December 14, 1995 has been fixed as the Record
Date for the determination of shareholders entitled to notice of and to vote at
the Meeting. Shareholders of the Fund are entitled to cast one vote for each
dollar of the Fund held in his or her name as of the Record Date. As of the
Record Date, there were ____________ shares of the Fund outstanding representing
____________ votes, or ____ votes per share. Shares of the Fund are shares of
common stock.
The shareholders who, to the knowledge of The Benham Group, owned of record
or beneficially greater than 5% of the Fund's total outstanding shares are
listed in Exhibit A.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of the Fund is required to constitute a quorum at the
Meeting.
PROPOSAL 1. TO AMEND THE FUNDAMENTAL INVESTMENT OBJECTIVE AND FUNDAMENTAL
INVESTMENT LIMITATION CONCERNING THE CONCENTRATION OF INVESTMENTS
OF THE FUND
Current Investment Objective
The Fund's current fundamental investment objective is:
"to realize a total return that corresponds to the total return of the
Benham North American Gold Equities Index (the Index)."
(The "Current Objective")
As required by the Investment Company Act of 1940 (the "1940 Act"), the
Fund also has a fundamental investment limitation which supplements the
investment objective of the Fund by prohibiting the Fund from deviating from its
policy of concentrating its investments in gold as follows:
"The Fund may not deviate from its policy of concentrating its investments
in securities of companies engaged, directly or indirectly, in mining for,
fabricating, processing or otherwise dealing in gold (gold companies)."
(The "Current Concentration Limitation")
PROXY STATEMENT - Page 2
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DISCUSSION OF PROPOSED CHANGES.
The Board of Directors has approved, and recommends that the Fund's
objective be modified to broaden the Fund's investment parameters and change the
Fund's focus from primarily holding securities in proportion to the Benham North
American Gold Index to being a more actively managed global gold equities fund.
The Directors and BMC believe that adoption of the proposed changes would result
in wider array of investment opportunities for the Fund and increase its ability
to invest in a broad portfolio of investments.
As proposed, the Fund's new objective would be revised to (i) allow the
Fund to invest in gold equity securities of foreign issuers and (ii) remove from
the Fund's objective the references to the Benham North America Gold Equities
Index. Specifically, it is proposed that the Current Objective be replaced with
the following fundamental investment objective:
"Benham Global Gold Fund seeks to achieve a total return (capital
appreciation and current income) that is consistent with investing in
securities of companies that are engaged in mining, processing,
fabricating, or distributing gold or other related precious metals
throughout the world."
(the "Proposed Objective")
In addition, the Current Concentration Limitation will be amended to
reflect the changes made in the Proposed Objective as follows:
"The Fund may not deviate from its policy of concentrating its investments
in securities of issuers engaged in mining, fabricating, processing or
dealing in gold or other precious metals, such as silver, platinum and
palladium."
(the "Proposed Concentration Limitation")
While North American gold equities will continue to be an important component of
the Fund's investments, BMC believes that the Proposed Objective will allow the
Fund to be in a position to respond to changes in the gold equity market
worldwide. The reasons for the changes recommended are set forth below.
THE GOLD EQUITIES MARKET
The business of mining, fabricating, processing or otherwise dealing in
gold or other metals or minerals (the "Gold Industry") has been characterized by
production which is increasingly located outside of the United States and North
America. Over 90% of the world's gold production currently comes from countries
located outside of North America. As a result, many companies in the Gold
Industry are located or have recently moved their operations to foreign
countries. More important to the Fund, a substantial portion of the foreign Gold
Industry companies are located outside of North America, most notably in South
Africa. These companies represent an important segment of the world's Gold
Industry. BMC believes that investments in these non-North American companies
must be part of the Fund's investment universe in order for the Fund to continue
to maintain a broad and representative Gold Industry portfolio.
BMC believes that the shift away from North American Gold Industry
companies is warranted for three reasons. First, heightened environmental
standards and increasing land patenting costs place North American gold
producers and companies at a disadvantage to their non-North American
counterparts. Second, as North American gold producers and companies continue to
experience
PROXY STATEMENT - Page 3
<PAGE>
a period of consolidation, the Fund will be hampered in its ability to remain
diversified for purposes of qualifying as a regulated investment company under
the Internal Revenue Code. BMC believes that the consolidation process will
continue in North America, since it is likely that only well-capitalized
companies will be able to afford the risks associated with undertaking global
exploration projects. Finally, the political and economic reforms which have
occurred in South Africa have given rise to attractive investment opportunities
which are not available to investors who are limited to North American gold
stocks. In 1994, South Africa accounted for 30% of the world's gold production
and 45% of the world's estimated gold ore reserves. For all of these reasons,
BMC believes that it would be detrimental to the Fund and its shareholders to
retain its current North American focus.
BMC believes that the Proposed Objective and Proposed Concentration
Limitation would have two general benefits to the Fund. First, the Fund's risk
profile would be improved by the expansion of its investment opportunities to a
global gold equities market. The proposed change from managing a proprietary
North American Gold index to active pursuit of broader global investment
opportunities will allow the Fund to better diversify its assets and reduce risk
exposure from holding large concentrations of increasingly fewer North American
gold companies. Second, the change to a global Gold Industry focus would better
position the Fund to achieve a return which is correlated to gold bullion while
offering higher earnings leverage to when compared to movements in the market
for gold bullion. The basis for this belief is that the technological
advancement of South African mining companies and their substantial experience
with underground mining will give them an advantage over non-South African gold
companies in the future in high exploration regions. Many sources of gold which
have been recently discovered require the type of underground mining techniques
utilized by these companies in South Africa. Consequently, BMC believes that
revision of the Fund's Current Objective to allow the Fund to pursue global
investment opportunities will provide an effective and beneficial response to
the current and expected changes in the North American Gold Industry.
OPERATION OF THE FUND UNDER THE PROPOSED OBJECTIVE AND PROPOSED CONCENTRATION
LIMITATION
The Proposed Objective features capital appreciation and current income as
primary goals. The Fund will seek to attain the objective of capital
appreciation by purchasing securities with the potential to increase in value,
so that its own shares will in turn increase in value. Because the Fund's
investment objective also includes the pursuit of current income, the payment of
dividends and interest may be a consideration when the Fund purchases
securities. Like the Current Objective, the Proposed Objective, if adopted, will
be a fundamental policy of the Fund and may not be changed without shareholder
approval.
Core Investment Strategy. BMC intends to use quantitative management
techniques in pursuit of the Proposed Objective. Quantitative investment
management combines a disciplined management approach with the flexibility to
respond to events that may affect the value of the Fund's investments. This
approach is a combination of active management, which allows the advisor to
select investments for a fund without reference to an index or investment model,
and indexing, in which the advisor tries to match a fund's portfolio composition
to that of a particular index.
The primary management technique BMC will use under the Proposed Objective
is enhanced benchmark management. Under this technique, BMC constructs the
Fund's portfolio to match the risk characteristics of the market for gold and
gold-related equity securities and, in turn, attempt to produce performance
indicative of performance in the worldwide gold equities market. As part of
evaluating and determining the appropriate investments for the Fund, BMC may
utilize various benchmarks, including worldwide indices such as the Financial
Times Gold Mining Index, to construct the Fund's portfolio so that it will have
risk and investment characteristics which BMC believes will provide a close
correlation to the global markets for gold bullion.
PROXY STATEMENT - Page 4
<PAGE>
Types of Investments. Under the Proposed Objective and Proposed
Concentration Limitation, the Fund will concentrate its investments in
securities of companies throughout the world which are engaged in mining,
processing or dealing with gold or other precious metals ("Gold Companies").
This means that at least 25% of the Fund's total assets must be invested in Gold
Companies. Under normal circumstances, at least 65% of the value of the Fund's
total assets will be invested in securities of issuers engaged in gold
operations, including securities of gold mining finance companies, as well as
operating companies with long-, medium- or short-life gold mines.
As is the case under the Current Objective, the Fund may invest in common
stocks, securities convertible into common stocks and sponsored or unsponsored
American Depositary Receipts ("ADRs") for the securities of Gold Companies, all
of which may be traded on a securities exchange or over-the-counter. In seeking
income or in times when BMC believes that a conservative policy is warranted,
the Fund may also purchase preferred stocks and debt securities, such as notes,
bonds, debentures or commercial paper, any of which may or may not be rated by
recognized securities rating agencies.
Foreign Securities. As part of its global investment strategy under the
Proposed Objective, the Fund will normally invest in securities of issuers
located in at least three different countries, one of which may be the United
States. For temporary defensive purposes, however, the Fund may invest in less
than three countries. BMC anticipates that a substantial portion of the Fund's
assets will be invested in securities of companies domiciled in or operating in
one or more foreign countries. As discussed in the Fund's Prospectus, there are
certain risks which are posed to the Fund when it invests in foreign securities.
While these risks exist under the Current Objective, their significance to the
Fund and its shareholders may be greater as the Fund increases its investments
in regions outside North America.
In particular, liquidity of the Fund's portfolio may be affected as the
Fund increases its global exposure. While the Fund intends to acquire securities
of foreign issuers only where there are public trading markets for such
securities, such investments may tend to reduce the liquidity of the Fund's
portfolio in the event of internal problems in such foreign countries or
deteriorating relations between the United States and such countries.
Investments in Gold Companies located in South Africa, which comprise a
significant component of the global gold industry, may present greater risks to
the Fund than investments in other countries because of its relatively unstable
internal political conditions.
As is the case with all mutual funds, there is no guarantee that the Fund
will achieve its investment objective.
CHANGE IN NAME OF THE FUND
The Directors and the management of BMC have determined that the proposed
investment objective will allow the Fund to pursue and develop a portfolio which
is more representative of the Gold Industry, and pursue returns which are more
closely correlated to the gold bullion market. In connection with their
recommendation of these changes, the Directors approved a change in the name of
the Fund to "Benham Global Gold Fund" to more accurately reflect the new
investment objective of the Fund. The Directors approval of the name change,
however, is conditioned upon shareholder approval of the Proposed Objective.
Therefore, the name of the Fund will be changed only if shareholders approve of
this Proposal 1.
PROXY STATEMENT - Page 5
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CONCLUSION
The Board of Directors believes that the proposed modification to the
Fund's investment objective is in the best interests of the Fund and its
shareholders, and unanimously recommends that shareholders vote FOR the
Proposal. If the Proposal is approved, the change to the Current Objective and
the Current Concentration Limitation of the Fund would be implemented upon the
conclusion of the Meeting and the name of the Fund would be changed to the
"Benham Global Gold Fund." If the Proposal is not approved, the Current
Objective, Current Concentration Limitation and name will remain unchanged.
PROPOSAL 2. TO APPROVE THE ADOPTION OF STANDARDIZED INVESTMENT LIMITATIONS BY
AMENDING OR ELIMINATING CERTAIN OF THE FUND'S CURRENT FUNDAMENTAL
INVESTMENT LIMITATIONS, AS DESCRIBED IN THE FOLLOWING SUB-PROPOSALS
BENEFITS OF ADOPTING STANDARDIZED INVESTMENT LIMITATIONS
The primary purpose of this Proposal 2 is to revise several of the Fund's
investment limitations to conform to limitations which are or are expected to
become standards for similar types of funds managed by BMC. The Board of
Directors has asked BMC to analyze the various fundamental and non-fundamental
investment limitations of the various funds of the Benham Group and, where
practical and appropriate to a fund's investment objective and policies, propose
to shareholders adoption of standard fundamental limitations and elimination of
certain other fundamental limitations. Generally, when fundamental limitations
are eliminated, Benham's standard non-fundamental limitations replace them. By
making these limitations non-fundamental, the Board of Directors may amend a
limitation as they deem appropriate, without seeking shareholder vote. The Board
of Directors would amend the limitations to respond, for instance, to
developments in the marketplace, or changes in federal or state law. The costs
of shareholder meetings convened to consider changes in fundamental investment
policies are generally borne by the Fund and, therefore, its shareholders.
It is not anticipated that any of the sub-proposals will substantially
affect the way the Fund is currently managed. However, BMC is presenting them to
you for your approval because BMC believes that increased standardization will
help to promote operational efficiencies and facilitate monitoring of compliance
with fundamental and non-fundamental investment limitations. Although adoption
of a new or revised limitation is not likely to have any impact on the current
investment techniques employed by the Fund, it will contribute to the overall
objectives of standardization. Set forth below, as a sub-section of this
Proposal 2, are each of the proposed changes. Shareholders will be given the
option to approve all, some or none of the proposed changes on the enclosed
proxy card.
Proposal 2(a) TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING THE
ISSUANCE OF SENIOR SECURITIES
The Fund's current fundamental investment limitation regarding the
issuance of senior securities states:
"The Fund may not issue or sell any class of senior security as defined
in the Investment Company Act of 1940 except for notes or other evidences of
indebtedness permitted under [the] investment restriction [concerning borrowing]
and 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."
PROXY STATEMENT - Page 6
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The Directors are recommending that shareholders vote to approve the
proposal and replace the Fund's fundamental investment limitation with the
following fundamental investment limitation governing the issuance of senior
securities:
"The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940."
The primary purpose of this proposed change is to revise the Fund's
fundamental senior securities limitation to conform to a limitation that is
expected to become the standard for all funds managed by BMC. (See "Benefits of
Adopting Standardized Investment Limitations" on page 6.) If the proposal is
approved, the new fundamental senior securities limitation cannot be changed
without a future vote of the fund's shareholders.
The proposed limitation clarifies that the funds may issue senior
securities to the full extent permitted under the 1940 Act. Although the
definition of a "senior security" involves complex statutory and regulatory
concepts, a senior security is generally thought of as an obligation of a fund
which has a claim to the fund's assets or earnings that takes precedence over
the claims of the fund's shareholders. The 1940 Act generally prohibits mutual
funds from issuing senior securities; however, mutual funds are permitted to
engage in certain types of transactions that might be considered "senior
securities" as long as certain conditions are satisfied. For example, a
transaction which obligates a fund to pay money at a future date (e.g., the
purchase of securities to be settled on a date that is further away than the
normal settlement period) may be considered a "senior security." A mutual fund
is permitted to enter into this type of transaction if it maintains a segregated
account containing liquid securities in an amount to its obligation to pay cash
for the securities at a future date. The Fund utilizes transactions that may be
considered "senior securities" only in accordance with applicable regulatory
requirements under the 1940 Act.
Adoption of the proposed limitation on senior securities is not
expected to affect the way in which each fund is managed, the investment
performance of the fund, or the securities or instruments in which the fund
invests. However, adoption of a standardized fundamental investment limitation
will facilitate BMC's investment compliance efforts (see "Benefits of Adopting
Standardized Investment Limitations" on page 6) and will allow the Fund to
respond to developments in the mutual fund industry and the 1940 Act which may
make the use of senior securities advantageous. The Board of Directors therefore
unanimously recommends that shareholders vote FOR the proposal. If the proposal
is approved, it will take effect upon the conclusion of the Meeting.
Proposal 2(b) TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
BORROWING
The Fund's current fundamental investment limitation concerning
borrowing states:
"The Fund may not borrow money except from a bank as a temporary
measure to satisfy redemption requests or for extraordinary or
emergency purposes and then only in an amount not exceeding 33-1/3% of
the market value of the Fund's total assets so that, immediately after
any such borrowing asset coverage of at least 300% for all such
borrowings exists. To secure any such borrowing, the Fund may not
mortgage, pledge, or hypothecate in excess of 33-1/3% of the value of
its total assets. The Fund will not purchase any security while
borrowings representing more than 5% of its total assets are
outstanding. The Fund may borrow money for temporary or emergency
purposes from other funds or portfolios for which BMC is the investment
advisor, or from a joint account of such funds or portfolios, as
permitted by federal regulatory agencies."
PROXY STATEMENT - Page 7
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Subject to shareholder approval of the proposal, the Directors intend
to replace the Fund's fundamental investment limitation with the following
fundamental investment limitation governing borrowing:
"The Fund may not borrow money, except that the Fund may borrow money
for temporary or emergency purposes (not for leveraging or investment)
in an amount not exceeding 33-1/3% of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33-1/3% limitation."
The primary purpose of the proposed change to the fundamental
investment limitation concerning borrowing is to conform it to a limitation that
is expected to become standard for all funds managed by BMC. (See "Benefits of
Adopting Standardized Investment Limitations on page 6.) If the proposal is
approved, the amended fundamental borrowing limitation cannot be changed without
a future vote of shareholders.
Adoption of the proposed limitation is not expected to affect the way
the Fund is managed, the investment performance of the Fund, or the securities
or instruments in which the Fund invests. However, the proposed change would
clarify several points. First, the proposed limitation would explicitly require
the Fund to reduce borrowings that come to exceed 33 1/3% of total assets for
any reason. Under the current limitation, no explicit requirement is expressed,
but the Fund is nonetheless required to reduce its borrowings by the 1940 Act.
In addition, the current limitations do not set a time frame for the
reduction of the Fund's borrowings in the event that the 33 1/3% limit is
exceeded. The proposed limitation would specifically require that the Fund
reduce its borrowings if the limit is exceeded within three business days. The
proposed limitation also specifically excludes Sundays and holidays from the
definition of "business days."
Finally, the Fund currently has a limitation describing its policy of
not purchasing a security while borrowings representing more than 5% of total
assets are outstanding included in its fundamental borrowing limitation.
Purchasing securities with borrowed funds is a speculative investment technique
known as leverage. There are risks associated with purchasing securities while
borrowings are outstanding, including a possible reduction of income and
increased fluctuation of net asset value per share. Interest on money borrowed
is an expense the Fund would not otherwise occur, so that it may have little or
no net investment income during periods of substantial borrowings. Borrowing for
investment therefore increases both investment opportunity and risk. While the
Fund has no current intention to purchase securities while borrowings equal to
5% of its total assets are outstanding, the flexibility to do so may be
beneficial to the Fund at a future date.
The proposed change will have no current impact on the Fund. However,
adoption of a standardized fundamental investment limitation will facilitate
BMC's investment compliance efforts (see "Benefits of Adopting Standardized
Investment Limitations" on page 6) and will enable the Fund to respond more
promptly if circumstances suggest such a change in the future. The Board of
Directors therefore unanimously recommends that shareholders vote FOR the
proposal. If the proposal is approved, it will take effect upon the conclusion
of the Meeting.
PROXY STATEMENT - Page 8
<PAGE>
Proposal 2(c) TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
LENDING
The Fund's current fundamental investment limitations concerning
lending states:
"The Fund may not make loans to others, except for the lending of
portfolio securities pursuant to guidelines established by the board of
directors or in connection with purchases of debt securities in
accordance with the Fund's investment objective and policies. The Fund
may also lend money to other funds or portfolios for which BMC is the
investment advisor, as permitted under investment restriction [the
Fund's current investment limitations regarding borrowing by the
Fund]."
Subject to shareholder approval of the proposal, the Directors intend
to replace the Fund's fundamental investment limitations with the following
amended fundamental limitation concerning lending which could not be changed
without a future vote of shareholders:
"The Fund may not lend any security or make any other loan if, as a
result, more than 33 1/3% of the Fund's total assets would be lent to
other parties, except, (i) through the purchase of a portion of an
issue of debt securities in accordance with its investment objective,
policies and limitations, or (ii) by engaging in repurchase agreements
with respect to portfolio securities."
In addition, the Directors intend to adopt the following non-fundamental policy
which could be changed without a vote of shareholders:
"As an operating policy, the Fund does not currently intend to lend
assets other than securities to other parties, except by (a) lending
money (up to 5% of the Fund's net assets) to a registered investment
company or portfolio for which its investment adviser or an affiliate
serves as investment adviser or (b) acquiring loans, loan
participation, or other forms of direct debt instruments and in
connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)"
The proposal is not expected to significantly affect the way in which
the Fund is managed, the investment performance of the Fund, or the securities
or instruments in which the Fund invests. However, the proposed limitation would
clarify the Fund's ability to invest in direct debt instruments such as loans
and loan participations, which are interests in amounts owed to another party by
a company, government or other borrower. These types of securities may have
additional risks beyond conventional debt securities because they may provide
less legal protection for the Fund, or there may be a requirement that the Fund
supply additional cash to a borrower on demand.
Finally, the adoption of standardized investment limitations proposed
will advance the goals of investment limitation standardization. (See "Benefits
of Adopting Standardized Investment Limitations" on page 6.)
The Board of Directors therefore unanimously recommends that
shareholders vote FOR the proposal. If the proposal is approved, it will take
effect upon the conclusion of the Meeting.
Proposal 2(d) TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
INVESTMENTS IN REAL ESTATE
The Fund currently has a fundamental investment limitation regarding
the purchase of real
PROXY STATEMENT - Page 9
<PAGE>
estate which states that the Fund may not purchase real estate, real estate
mortgage loans, interests in real estate limited partnerships
"provided that this limitation shall not prohibit (i) the purchase of
U.S. government securities and other debt securities secured by real
estate or interests therein; [and] (ii) the purchase of marketable
securities issued by companies or other entities or investment trusts
that deal in real estate or interests therein. . ."
The Directors recommend that shareholders approve amendment of the
above investment limitation. If the proposal is approved, the Fund's current
fundamental investment limitation will be replaced by the following fundamental
investment limitation which will govern future purchases and sales of real
estate:
"The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the fund from investment in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business)".
The primary purpose of the proposed amendment is to clarify the types
of securities in which the Fund is authorized to invest and to conform the
Fund's fundamental real estate limitation to a limitation that is expected to
become the standard for all funds managed by BMC. (See "Benefits of Adopting
Standardized Investment Limitations" on page 6.) If the proposal is approved,
the new fundamental real estate limitation may not be changed without a future
vote of shareholders.
The proposed limitation would clarify several points. First, the
proposed limitation permits investments in real estate-related instruments
whether they are marketable or not, while the current limitation refers only to
marketable securities. Any non-marketable securities will be limited to 10% (up
from 5% under the current limitation) of net assets by the Fund's existing
fundamental limitation on illiquid securities. Second, the proposed limitation
would make it explicit that the Fund may acquire a security or other instrument
whose payments of interest and principal may be secured by a mortgage or other
right to foreclose on real estate, in the event of default. Third, the proposed
limitation would clarify the fact that the Fund may invest without limitation in
securities issued or guaranteed by companies engaged in acquiring, constructing,
financing, developing, or operating real estate projects (e.g., securities of
issuers that develop various industrial, commercial, or residential real estate
projects such as factories, office buildings, or apartments). Any investments in
these securities are, of course, subject to the Fund's investment objective and
policies and to other limitations regarding diversification and concentration.
The proposed limitation also specifically permits the Fund to sell real estate
acquired as a result of ownership of securities or other instruments. However,
in light of the types of securities in which the Fund regularly invests, BMC
considers this to be a remote possibility.
To the extent that a fund buys securities and instruments of companies
in the real estate business, the fund's performance will be affected by the
condition of the real estate market. This industry is sensitive to factors such
as changes in real estate values and property taxes, overbuilding, variations in
rental income, and interest rates. Performance could also be affected by the
structure, cash flow, and arrangement skill of real estate companies.
While the proposed change will have no current impact on the Fund,
adoption of the proposed standardized fundamental investment limitation will
advance the goals of standardization (see "Benefits of Adopting Standardized
Investment Limitations" on page 6). The Board of Directors therefore unanimously
recommends that shareholders vote FOR the proposal. If the proposal is approved,
it will take effect upon the conclusion of the Meeting.
PROXY STATEMENT - Page 10
<PAGE>
Proposal 2(e) TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
UNDERWRITING
The Fund currently is subject to a fundamental investment limitation
concerning underwriting that provides as follows:
"The Fund may not act as an underwriter of securities issued by
others."
Subject to shareholder approval, the Directors intend to replace the
current limitation with the following amended fundamental investment limitation
concerning underwriting:
"The Fund may not act as underwriter of securities issued by others,
except to the extent that the Fund may be considered an underwriter
within the meaning of the Securities Act of 1933 in the disposition of
restricted securities."
The primary purpose of the proposed amendment is to clarify that the
Fund is not prohibited from selling restricted securities if, as a result of
such sale, the Fund is considered an underwriter under federal securities laws
and to revise the Fund's fundamental limitation on underwriting so that it
conforms to a limitation which is expected to become standard for all funds
managed by BMC. While the proposed change will have no current impact on the
Fund, adoption of the proposed standardized fundamental investment limitation
will advance the goals of standardization (see "Benefits of Adopting
Standardized Investment Limitations" on page 6). The Board of Directors
therefore unanimously recommends that shareholders vote FOR the proposal. If the
proposal is approved, it will take effect as soon as practicable upon the
conclusion of the Meeting. If the proposal is approved, the new fundamental
underwriting limitation cannot be changed without a future vote of shareholders.
Proposal 2(f) TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING DIVERSIFICATION OF INVESTMENTS
The Fund's current fundamental investment limitation concerning
diversification of investments reads as follows:
"The Fund may not purchase the securities of any one issuer if,
immediately after such purchase, the Fund would own more than 10% of
its outstanding voting securities of such issuer."
The Directors recommend that shareholders eliminate the above
fundamental investment limitation. If the proposal is approved, the Directors
intend to adopt the following non-fundamental investment limitation which could
be changed without a vote of shareholders:
"As an operating policy, the Fund does not currently intend to purchase
the securities of any one issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result thereof, the Fund would own more
than 10% of its outstanding voting securities of such issuer."
The primary purpose of the proposed change is to revise the Fund's
fundamental diversification limitation to conform to a limitation which is
expected to become standard for all non-diversified funds managed by BMC.
Because the new non-fundamental limitation is substantially similar in content
to the current fundamental limitation, it will not affect the operation of the
Fund. However, adoption of the proposed change would contribute to the overall
objectives of standardization. (See "Benefits of Adopting Standardized
Investment Limitations" on page 6.) The
PROXY STATEMENT - Page 11
<PAGE>
Board of Directors therefore unanimously recommends that shareholders vote FOR
the proposal. If the proposal is approved, it will take effect upon the
conclusion of the Meeting.
Proposal 2(g) TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
REGARDING INVESTMENTS IN ILLIQUID SECURITIES
The Fund's current fundamental investment limitation concerning
restricted and illiquid securities is as follows:
"The Fund may not 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 5% of
the Fund's net assets would be invested in illiquid securities."
Subject to shareholder approval, the Directors intend to replace this
fundamental limitation with the following non-fundamental limitation that could
be changed by vote of the Directors in response to regulatory, market, legal, or
other developments without further approval by shareholders"
"As an operating policy, the Fund does not currently intend to purchase
any security or enter into a repurchase agreement if, as a result, more
than 15% of its net assets would be invested in repurchase agreements
not entitling the holder to payment of principal and interest within
seven days and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market."
Under the rules established by the Securities and Exchange Commission
(the "SEC"), mutual funds are required to price their shares daily and to offer
daily redemptions with payment to follow within seven days of the redemption
request. In order to satisfy these requirements, mutual funds are required to
limit their holdings in illiquid securities to 15% of their net assets because
illiquid securities may be difficult to value daily and difficult to sell
promptly at an acceptable price. The percentage limitation restricting the
amount the Fund may invest in illiquid securities has changed over time. For
example, prior to 1993, the percentage limit on a fund's investment in illiquid
securities was 10%.
In order to be able to take advantage of regulatory and market
developments, the Directors recommend that shareholders vote to approve the
proposal and thereby eliminate its fundamental investment limitation with
respect to restricted and illiquid securities and replace it with a
non-fundamental limitation on illiquid securities. Non-fundamental investment
limitations can be changed without shareholder approval. Making the Fund's
limitation non-fundamental will allow the Fund to respond more quickly to legal,
regulatory, and market developments without the expense of a future shareholder
vote.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed illiquid will be determined by BMC, under the
supervision of the Directors who will monitor the Fund's investments in illiquid
securities. The ability of BMC to determine the liquidity of the securities it
purchases will provide the Fund with the flexibility to take advantage of
changing market and regulatory conditions which have made the Fund's current
limitations unnecessarily restrictive.
The types of securities that will be considered illiquid by BMC will
vary over time based on changing market and regulatory conditions. In
determining the liquidity of each Fund's investments, BMC may consider various
factors, including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer undertakings
to make a market, (4) the nature of the security (including any demand or tender
features), or (5) the nature
PROXY STATEMENT - Page 12
<PAGE>
of the marketplace for trades (including the ability to assign or offset the
Fund's rights and obligations relating to the investment). Currently, BMC
anticipates treating repurchase agreements maturing in more than seven days,
over-the-counter options, non-government stripped fixed-rate mortgage backed
securities, and some government stripped, fixed-rate mortgage backed securities,
loans and other direct debt instruments, and swap agreements as illiquid
securities.
The proposed change will have no current impact on the Fund. However,
adoption of a standardized non-fundamental investment limitation will facilitate
BMC's investment compliance efforts (see "Benefits of Adopting Standardized
Investment Limitations" on page 6) and will enable the Fund to respond more
promptly if circumstances suggest such a change in the future. The Board of
Directors therefore unanimously recommends that shareholders vote FOR the
proposal. If the proposal is approved, it will take effect upon the conclusion
of the Meeting.
Proposal 2(h) TO ELIMINATE THE FUNDAMENTAL LIMITATION CONCERNING
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund's current fundamental investment limitation concerning
investment in other investment companies states:
"The Fund may not, except in connection with a merger, consolidation,
acquisition, or reorganization, invest in the securities of other
investment companies, including investment companies advised by BMC,
if, immediately after such purchase or acquisition, more than 10% of
the value of the Fund's total assets would be invested in such
securities."
The Directors recommend that shareholders of the Fund approve the
elimination of the above limitation. If the proposal is approved, the Directors
intend to replace the current limitation with the following substantially
identical non-fundamental limitation, which could be changed without a vote of
shareholders:
"As an operating policy, the Fund may not, except in connection with a
merger, consolidation, acquisition, or reorganization, invest in the
securities of other investment companies, including investment
companies advised by BMC, if, immediately after such purchase or
acquisition, more than 10% of the value of the Fund's total assets
would be invested in such securities."
The ability of mutual funds to invest in other investment companies is
restricted by rules under the 1940 Act. These restrictions will remain
applicable to the Fund whether or not they are recited in a fundamental
limitation. As a result, elimination of the above fundamental limitation is not
expected to have any impact the Fund's investment practices, except to the
extent that regulatory requirements may change in the future. However, adoption
of a standardized non-fundamental investment limitation will facilitate BMC's
investment compliance efforts (see "Benefits of Adopting Standardized Investment
Limitations" on page 6).
The proposed change will have no current impact on the Fund. However,
adoption of a standardized non-fundamental investment limitation will facilitate
BMC's investment compliance efforts (see "Benefits of Adopting Standardized
Investment Limitations" on page 6) and will enable the Fund to respond more
promptly if circumstances suggest such a change in the future. The Board of
Directors therefore unanimously recommends that shareholders vote FOR the
proposal. If the proposal is approved, it will take effect upon the conclusion
of the Meeting.
Proposal 2(i) TO ELIMINATE THE FUNDAMENTAL LIMITATION CONCERNING
PROXY STATEMENT - Page 13
<PAGE>
INVESTMENTS IN ISSUERS WITH LESS THAN THREE YEARS OF
CONTINUOUS OPERATIONS
The Fund's current fundamental investment limitation concerning
investments in unseasoned issuers provides as follows:
"The Fund may not invest in securities of an issuer that, together with
any predecessor, has been in operation for less than three years if, as
a result, more than 5% of the total assets of the Fund would then be
invested in such securities."
The Directors are recommending that shareholders approve the
elimination of the above fundamental investment limitation. If the proposal is
approved, the Directors intend to adopt the following non-fundamental investment
limitation, which is substantially identical to the current fundamental
limitation but could be changed without a shareholder vote:
"As an operating policy, the Fund may not invest in securities of an
issuer that, together with any predecessor, has been in operation for
less than three years if, as a result, more than 5% of the total assets
of the Fund would then be invested in such securities."
Certain states require that mutual funds limit their investments in
companies which have less than three years of continuous operation. The above
non-fundamental investment limitation will continue in effect at least as long
as the Fund is sold in such states. BMC therefore believes that the proposed
change will have no current impact on the Fund. However, adoption of a
standardized non-fundamental investment limitation will facilitate BMC's
investment compliance efforts (see "Benefits of Adopting Standardized Investment
Limitations" on page 6) and will enable the Fund to respond more promptly if
applicable state laws change in the future. The Board of Directors therefore
unanimously recommends that shareholders vote FOR the proposal. If the proposal
is approved, it will take effect upon the conclusion of the Meeting.
Proposal 2(j) TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION REGARDING
INVESTMENTS IN WARRANTS
The Fund currently has a fundamental investment limitation regarding
investments in warrants which states:
"The Fund may not purchase warrants, valued at the lower of cost or
market, in excess of 5% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York or American
Stock Exchanges. Warrants acquired by the Fund at any time in units or
attached to securities are not subject to this restriction."
The Directors recommend that shareholders approve the elimination of
the above fundamental investment limitation. If the proposal is approved, the
Directors intend to replace the current fundamental limitation with a
non-fundamental limitation which could be changed without a vote of
shareholders. The proposed non-fundamental limitation is as follows:
"As an operating policy, the Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 10% of
the Fund's net assets. Included in that amount but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund
in units or attached to securities are not subject to
PROXY STATEMENT - Page 14
<PAGE>
these restrictions".
Warrants entitle the holder to buy the issuer's stock at a specific
price for a specific period of time. The price of a warrant tends to be more
volatile than, and does not always track, the price of the underlying stock.
Warrants are issued with expiration dates. Once a warrant expires, it has no
value in the market.
Certain state regulations currently prohibit mutual funds from
purchasing warrants in excess of 10% of the Fund's net assets. Of that amount,
no more than 2% of the value of the Fund's net assets may be warrants which are
not traded on principal domestic or foreign stock exchanges (the "Two Percent
Cap").
The proposed non-fundamental limitation differs from the current
investment limitation in two respects. First, the percentage limit on the amount
of warrants which may be purchased by the Fund is increased from the current 5%
to 10%. Second, the proposed limitation makes clear that the warrants subject to
the Two Percent Cap include only those warrants which are not traded on a
principal domestic or foreign exchange. Both of these changes reflect changes in
the applicable state regulations since the adoption of the current fundamental
limitation.
If the proposal is approved, the Board of Directors would be able to
change the proposed non-fundamental limitation in the future, without a vote of
shareholders, if state regulations were to change the Fund's ability to invest
in warrants, or if waivers from existing requirements were available, subject to
appropriate disclosure to investors.
In light of the substantially similar language of the proposed
non-fundamental limitation, elimination of the Fund's fundamental limitation
regarding investments in warrants is unlikely to affect the Fund's investment
techniques at this time. The Directors believe that efforts to standardize the
Fund's investment limitations with those of the other Funds in the Benham Group
will facilitate BMC's investment compliance efforts (see "Benefits of Adopting
Standardized Investment Limitations" on page 6) and are in the best interests of
shareholders. The Board of Directors therefore unanimously recommends that
shareholders vote FOR the proposal. If the proposal is approved, it will take
effect upon the conclusion of the Meeting.
Proposal 2(k) TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENTS IN OIL, GAS AND OTHER MINERAL
EXPLORATION PROGRAMS
Currently, the Fund maintains a fundamental investment limitation
specifying that it may not invest in "interests in oil, gas and/or mineral
exploration or development programs." Investment in oil, gas or other mineral
exploration programs is permitted under federal standards for mutual funds, but
is currently prohibited by some state regulations.
The Directors recommend that shareholders approve the elimination of
the current fundamental investment limitation. If the proposal is approved, the
Directors intend to adopt the following non-fundamental investment limitation,
which could be changed without a shareholder vote:
"As an operating policy, the Fund does not currently intend to invest
in oil, gas or other mineral exploration or development programs or
leases."
The proposed change will have no current impact on the Fund. However,
adoption of a standardized non-fundamental investment limitation will facilitate
BMC's investment compliance efforts (see "Benefits of Adopting Standardized
Investment Limitations" on page 6) and will enable
PROXY STATEMENT - Page 15
<PAGE>
the Fund to respond more promptly if applicable state laws change in the future.
The Board of Directors therefore unanimously recommends that shareholders vote
FOR the proposal. If the proposal is approved, it will take effect upon the
conclusion of the Meeting.
Proposal 2(l) TO ELIMINATE THE FUNDAMENTAL LIMITATION CONCERNING SHORT
SALES
The Fund's current fundamental investment limitation concerning selling
securities short states:
"The Fund may not engage in any short-selling operations."
The Directors recommend that shareholders approve the elimination of
the above fundamental investment limitation. If the proposal is approved, the
Directors intend to replace the current fundamental limitation with a
non-fundamental limitation which could be changed without a vote of
shareholders. The proposed non-fundamental limitation is as follows:
"As an operating policy, the Fund does not currently intend to sell
securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, and
provided that transaction in futures contracts and options are not
deemed to constitute selling securities short".
In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. In an
investment technique known as a short sale "against the box," an investor sells
short while owning the same securities in the same amount, or having the right
to obtain equivalent securities. The investor could have the right to obtain
equivalent securities, for example, through its ownership of warrants, options,
or convertible bonds.
Certain state regulations currently prohibit mutual funds from entering
into any short sales, other than short sales against the box. If the proposal is
approved, however, the Board of Directors would be able to change the proposed
non-fundamental limitation in the future, without a vote of shareholders, if
state regulations were to change to permit other types of short sales, or if
waivers from existing requirements were available, subject to appropriate
disclosure to investors.
Elimination of the Fund's fundamental limitation on short selling is
unlikely to affect the Fund's investment techniques at this time. The Directors
believe that efforts to standardize the Fund's investment limitations with those
of the other Funds in the Benham Group will facilitate BMC's investment
compliance efforts (see "Benefits of Adopting Standardized Investment
Limitations" on page 6) and are in the best interests of shareholders. The Board
of Directors therefore unanimously recommends that shareholders vote FOR the
proposal. If the proposal is approved, it will take effect upon the conclusion
of the Meeting.
Proposal 2(m) TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
MARGIN PURCHASES OF SECURITIES
The Fund's current fundamental investment limitation concerning
purchasing securities on margin states:
"The Fund may not purchase securities on margin, except that short-term
credits necessary for the clearance of transactions may be utilized."
The Directors recommend that shareholders of the Fund approve the
elimination of the above
PROXY STATEMENT - Page 16
<PAGE>
fundamental investment limitation. If the proposal is approved, the Directors
intend to adopt a substantially identical non-fundamental limitation for the
Fund that could be changed without a vote of shareholders.
Margin purchases involve the purchase of securities with money borrowed
from a broker. "Margin" is the cash or eligible securities that the borrower
places with a broker as collateral against the loan. The Fund's current
fundamental limitation prohibits the Fund from purchasing securities on margin,
except to obtain such short-term credits as may be necessary for the clearance
of transactions. Policies of the SEC also allow mutual funds to purchase
securities on margin for initial and variation margin payments made in
connection with the purchase and sale of futures contracts and options on
futures contracts. With these exceptions, mutual funds are prohibited from
entering into most types of margin purchases by applicable SEC policies. The
proposed non-fundamental limitation includes these exceptions.
If the proposal is approved by shareholders, the Directors intend to
adopt the following non-fundamental investment limitation, which would prohibit
margin purchases except as permitted under the conditions referred to above:
"As an operating policy, the Fund does not currently intend to purchase
securities on margin, except that the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts shall not constitute purchasing securities
on margin".
Although elimination of the Fund's fundamental limitation on margin
purchases is unlikely to affect the Fund's investment techniques at this time,
in the event of a change in federal regulatory requirements, the Fund may alter
its investment practices in the future. The Board of Directors believes that
efforts to standardize investment limitations will facilitate BMC's investment
compliance efforts (see "Benefits of Adopting Standardized Investment
Limitations" on page 6) and are in the best interests of shareholders. The Board
of Directors therefore unanimously recommends that shareholders vote FOR the
proposal. If the proposal is approved, it will take effect the conclusion of the
Meeting.
Proposal 2(n) TO ELIMINATE THE FUNDAMENTAL LIMITATION CONCERNING PURCHASING
SECURITIES OF AN ISSUER IN WHICH THE DIRECTORS OR OFFICERS OF
THE FUND OR BMC HOLD MORE THAN 5% OF THE OUTSTANDING SECURITIES
OF SUCH ISSUER
The Fund currently has an investment limitation which prohibits the
Fund from purchasing or retaining the securities of any issuer if the officers
and directors of the Fund or BMC who individually own more than 1/2 of 1% of
that issuer hold, in the aggregate, more than 5% of that issuer's securities.
This investment limitation was originally adopted to address state or "Blue Sky"
requirements in connection with the registration of shares of the Fund for sale.
Only one state currently requires such a limitation.
BMC believes that these fundamental limitations should be eliminated
because, while these limitations have not precluded investments in the past,
their elimination will potentially increase the Fund's flexibility when choosing
investments in the future. Subject to shareholder approval, the Directors of the
Fund intend to replace this fundamental limitation with a non-fundamental
investment limitation that could be changed by vote of the Directors in response
to regulatory, market, legal, or other developments without further approval by
shareholders. The new non-fundamental policy, which is substantially the same as
the Fund's current fundamental investment limitation, would
PROXY STATEMENT - Page 17
<PAGE>
provide that:
"As an operating policy, the Fund does not currently intend to purchase
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own more than 5% of
such issuer's securities."
The proposed change will have no current impact on the Fund. However,
adoption of a standardized non-fundamental investment limitation will facilitate
BMC's investment compliance efforts (see "Benefits of Adopting Standardized
Investment Limitations" on page 6) and will enable the Fund to respond more
promptly if applicable state laws change in the future. The Board of Directors
therefore unanimously recommends that shareholders vote FOR the proposal. If the
proposal is approved, it will take effect upon the conclusion of the Meeting.
Conclusion. The Board of Directors believes that all of the proposed
changes to the fundamental investment limitations of the Fund, as set forth in
Proposal 2, are in the best interests of shareholders and unanimously recommends
voting FOR all of the changes set forth in Proposal 2. As previously discussed,
approval of Proposal 2 would accomplish the standardization of investment
limitations for the Fund by amending or eliminating certain of the Fund's
current fundamental investment limitations. Each change that is approved by
shareholders will become effective upon the conclusion of the Meeting and the
investment limitations will be as described above and set forth in Exhibit C.
For any change that is not approved, the Fund's current investment limitation,
as set forth in the applicable sub-portion of Proposal 2, will remain unchanged.
SHAREHOLDER PROPOSALS
The Company does hot hold annual shareholder meetings. Shareholders who
wish to submit proposals for inclusion in a proxy statement for a subsequent
shareholder meeting should send their written proposals to Douglas A. Paul,
Secretary, The Benham Group, 1665 Charleston Road, Mountain View, California
94043.
YOU ARE URGED TO FILL IN, DATE, SIGN AND RETURN
THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Directors,
/s/Douglas A. Paul
December ___, 1995 Douglas A. Paul
Secretary
PROXY STATEMENT - Page 18
<PAGE>
Exhibit A
HOLDERS OF MORE THAN 5% OF THE FUND'S SHARES
As of November 30, 1995, to the knowledge of the Benham Group, the
following shareholders owned of record greater than 5% of the Fund's outstanding
shares:
Percentage of
Number of Outstanding
Name and Address of Shareholder Shares Shares
- - - ------------------------------- ------------- --------
Charles Schwab & Co. Inc. 8,331,902.452 16.71%
101 Montgomery Street
San Francisco, CA 94104-4122
No shareholders owned beneficially greater than 5% of the Fund's outstanding
shares
page A-1
<PAGE>
Exhibit B
CURRENT INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVE:
The Fund's investment objective is to realize a total return that
corresponds to the total return of the Benham North American Gold
Equities Index (the Index).
FUNDAMENTAL INVESTMENT POLICIES
(1) The Fund may not borrow money except from a bank as a temporary measure
to satisfy redemption requests or for extraordinary or emergency
purposes and then only in an amount not exceeding 33-1/3% of the market
value of a Fund's total assets so that, immediately after any such
borrowing asset coverage of at least 300% for all such borrowings
exists. To secure any such borrowing, the Fund may not mortgage,
pledge, or hypothecate in excess of 33-1/3% of the value of its total
assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding. The Fund
may borrow money for temporary or emergency purposes from other funds
or portfolios for which BMC is the investment advisor, or from a joint
account of such funds or portfolios, as permitted by federal regulatory
agencies.
(2) The Fund may not act as underwriter of securities issued by others.
(3) The Fund may not purchase real estate, real estate mortgage loans,
interests in real estate limited partnerships or interests in oil, gas
and/or mineral exploration or development programs or leases, provided
that this limitation shall not prohibit (i) the purchase of U.S.
government securities and other debt securities secured by real estate
or interests therein; (ii) the purchase of marketable securities issued
by companies or other entities or investment trusts that deal in real
estate or interests therein; and (iii) the purchase of marketable
securities issued by companies engaged in businesses relating to the
exploration, mining, processing or distribution of oil, gas and/or
mineral exploration programs.
(4) The Fund may not engage in any short-selling operations.
(5) The Fund may not make loans to others, except for the lending of
portfolio securities pursuant to guidelines established by the board of
directors or in connection with purchases of debt securities in
accordance with the Fund's investment objective and policies. The Fund
may also lend money to other funds or portfolios for which BMC is the
investment advisor, as permitted under investment restriction (1)
above.
(6) The Fund may not purchase warrants, valued at the lower of cost or
market, in excess of 5% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York or American
Stock Exchanges. Warrants acquired by the Fund at any time in units or
attached to securities are not subject to this restriction.
(7) The Fund may not purchase securities on margin, except that short-term
credits necessary for the clearance of transactions may be utilized.
(8) The Fund may not invest in securities that are not readily marketable
or the disposition of
page B-1
<PAGE>
which is restricted under federal securities laws (collectively
"illiquid securities") if, as a result, more than 5% of the Fund's net
assets would be invested in illiquid securities.
(9) The Fund may not issue or sell any class of senior security as defined
in the Investment Company Act of 1940 except for notes or other
evidences of indebtedness permitted under investment restriction (1)
above and 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) The Fund may not, except in connection with a merger, consolidation,
acquisition, or reorganization, invest in the securities of other
investment companies, including investment companies advised by BMC,
if, immediately after such purchase or acquisition, more than 10% of
the value of the Fund's total assets would be invested in such
securities.
(11) The Fund may not purchase or retain securities of any issuer if, to the
knowledge of the Fund's management, those officers and directors of the
Fund and of its investment advisor, who each own beneficially more than
0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities.
(12) The Fund may not invest in securities of an issuer that, together with
any predecessor, has been in operation for less than three years if, as
a result, more than 5% of the total assets of the Fund would then be
invested in such securities.
(13) The Fund may not purchase the securities of any one issuer if,
immediately after such purchase, the Fund would own more than 10% of
its outstanding voting securities of such issuer.
(14) The Fund may not deviate from its policy of concentrating its
investments in securities of companies engaged, directly or indirectly,
in mining for, fabricating, processing or otherwise dealing in gold
(gold companies).
NON-FUNDAMENTAL INVESTMENT POLICIES
(1) As an operating policy, the Fund may not purchase or sell options of
any kind.
(2) As an operating policy, the Fund may not purchase gold bullion, gold
coins, or gold represented by certificates of ownership interest or
gold futures contracts whose underlying commodity value would cause the
Fund's aggregate investment in such commodities to exceed 10% of the
Fund's net assets.
page B-2
<PAGE>
Exhibit C
PROPOSED FUNDAMENTAL INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVE:
Benham Global Gold Fund seeks to achieve a total return (capital
appreciation and current income) that is consistent with investing in
securities of companies that are engaged in mining, processing,
fabricating, or distributing gold or other related precious metals
throughout the world.
FUNDAMENTAL INVESTMENT POLICIES
(1) The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940.
(2) The Fund may not borrow money, except that the Fund may borrow money
for temporary or emergency purposes (not for leveraging or investment)
in an amount not exceeding 33-1/3% of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation.
(3) The Fund may not lend any security or make any other loan if, as a
result, more than 33 1/3% of the Fund's total assets would be lent to
other parties, except, (i) through the purchase of a portion of an
issue of debt securities in accordance with its investment objective,
policies and limitations, or (ii) by engaging in repurchase agreements
with respect to portfolio securities.
(4) The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the fund from investment in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business).
(5) The Fund may not deviate from its policy of concentrating its
investments in securities of issuers engaged in mining, fabricating,
processing or dealing in gold or other precious metals, such as silver,
platinum and palladium.
(6) The Fund may not act as underwriter of securities issued by others,
except to the extent that the Fund may be considered an underwriter
within the meaning of the Securities Act of 1933 in the disposition of
restricted securities.
page C-1
<PAGE>
Non-Fundamental Investment Policies
(7) As an operating policy, the Fund does not currently intend to purchase
the securities of any one issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result thereof, the Fund would own more
than 10% of its outstanding voting securities of such issuer.
(8) As an operating policy, the Fund does not currently intend to purchase
any security or enter into a repurchase agreement if, as a result, more
than 15% of its net assets would be invested in repurchase agreements
not entitling the holder to payment of principal and interest within
seven days and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market.
(9) As an operating policy, the Fund may not, except in connection with a
merger, consolidation, acquisition, or reorganization, invest in the
securities of other investment companies, including investment
companies advised by BMC, if, immediately after such purchase or
acquisition, more than 10% of the value of the Fund's total assets
would be invested in such securities.
(10) As an operating policy, the Fund may not purchase gold bullion, gold
coins, or gold represented by certificates of ownership interest or
gold futures contracts whose underlying commodity value would cause the
Fund's aggregate investment in such commodities to exceed 10% of the
Fund's net assets.
(11) As an operating policy, the Fund may not invest in securities of an
issuer that, together with any predecessor, has been in operation for
less than three years if, as a result, more than 5% of the total assets
of the Fund would then be invested in such securities.
(12) As an operating policy, the Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 10% of
the Fund's net assets. Included in that amount but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund
in units or attached to securities are not subject to these
restrictions.
(13) As an operating policy, the Fund does not currently intend to invest in
oil, gas or other mineral exploration or development programs or
leases.
(14) As an operating policy, the Fund does not currently intend to sell
securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, and
provided that transaction in futures contracts and options are not
deemed to constitute selling securities short.
(15) As an operating policy, the Fund does not currently intend to purchase
securities on margin, except that the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts shall not constitute purchasing securities
on margin.
(16) As an operating policy, the Fund does not currently intend to lend
assets other than
page C-2
<PAGE>
securities to other parties, except by (a) lending money (up to 5% of
the Fund's net assets) to a registered investment company or portfolio
for which its investment adviser or an affiliate serves as investment
adviser or (b) acquiring loans, loan participation, or other forms of
direct debt instruments and in connection therewith, assuming any
associated unfunded commitments of the sellers. (This limitation does
not apply to purchases of debt securities or to repurchase agreements.)
(17) As an operating policy, the Fund does not currently intend to purchase
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own more than 5% of
such issuer's securities.
(18) As an operating policy, the Fund may not purchase or sell options of
any kind.
page C-3
<PAGE>
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
Please fold and detach card at perforation before mailing
- - - --------------------------------------------------------------------------------
[Form of Proxy Card]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUND.
The undersigned hereby constitute(s) and appoint(s) James M. Benham,
James E. Stowers III, and Douglas A. Paul, or either of them, as proxies, each
with power to appoint his or her substitute, and hereby authorizes them to
represent and to vote by majority, as designated on the reverse side, all shares
of stock of the Fund, which the undersigned is entitled to vote at the Special
Meeting of Shareholders to be held at ____________, Mountain View, California,
on February 12, 1996, at 3:00 p.m. Pacific Time, and any adjournments thereof,
with respect to the matters set forth on the reverse side and described in the
Notice of Special Meeting and Proxy Statement dated December 15, 1995, receipt
of which is hereby acknowledged.
Dated:______________________,1995
The signature on this proxy should correspond exactly with the name of the
shareholder as it appears on the proxy. If stock is issued in the name of two or
more persons, each chould sign the proxy. If a proxy is signed by an
administrator, trustee, guargian, attorney or other fiduciary, please indicate
full title as such.
Signed:
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
Signature(s)
<PAGE>
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94045
Please fold and detach card at perforation before mailing
- - - --------------------------------------------------------------------------------
Benham Gold Equities Index Fund
Please vote by filling in the appropriate box below, as shown, using blue or
black ink or dark pencil. Do not use red ink.
If no specification is made, this proxy will be voted FOR all proposals. As to
any other matter, said attorneys will vote in accordance with their best
judgement.
The Board of Directors Recommends a vote "FOR" each proposal.
1. To amend the fundamental investment objective and fundamental investment
limitation concerning concentration of investments of the Fund and change the
Fund's name.
_____ FOR _____ AGAINST _____ ABSTAIN
2. To approve all proposed changes to the fundamental investment limitations for
purposes of standardization as described in each of the following proposals:
_____ APPROVE ALL _____ABSTAIN
(except those indicated below)
a. Limit use of senior securities
b. Restrict borrowing
c. Restrict lending
d. Restrict real estate
e. Restrict underwriting
f. Diversification requirements: replace fundamental limitation with operating
policy
g. Illiquid securities: replace fundamental limitation with operating policy
h. Other investment companies: replace fundamental limitation with operating
policy
i. Investments in issuers with less than three years of operations: replace
fundamental limitation with operating policy
j. Warrants: replace fundamental limitation with operating policy
k. Oil, gas, mineral exploration programs: replace fundamental limitation with
operating policy
l. Short sales: replace fundamental limitation with operating policy
m. Margin purchases: replace fundamental limitation with operating policy
n. Affiliate-owned securities: replace fundamental limitation with operating
policy
