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:
_____ Preliminary Proxy Statement
__X__ Definitive Proxy Statement
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Benham Equity Funds
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(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):
_____ $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:
__X__ 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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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 proposals to broaden the
Fund's focus from North American gold stocks to global gold stocks and to adopt
standardized investment limitations. These 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, Benham Gobal Gold Fund.
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 "Telephone Voting"
paragraph on your proxy card for telephone voting instructions, or you may
attend the shareholder meeting on February 12, 1996, at 10:00 a.m. Pacific
Standard Time at the Century Cinemas, 1500 N. Shoreline Blvd., 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
Proxy Specialist 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, Benham Funds
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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 the Century Cinemas, 1500 N. Shoreline Blvd.,
Mountain View, California 94043 on February 12, 1996 at 10:00 a.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
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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
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
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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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
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PROXY STATEMENT
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SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and Notice of Special Meeting with accompanying proxy card
is 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.
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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 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 44,075,055.466 shares of the Fund outstanding representing
545,208,436.114 votes, or 12.37 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.
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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")
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
a 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
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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.
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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 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.
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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.
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.
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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
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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.
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.
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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."
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 8.) If the proposal is approved,
the new fundamental senior securities limitation cannot be changed without a
future vote of the fund's shareholders.
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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 8) 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
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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."
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 8.) 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."
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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
leveraging. 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 incur, 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 8) 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(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:
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"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 8.)
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.
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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 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 8.) 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
14
<PAGE>
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 8). 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(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."
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<PAGE>
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 8). 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
16
<PAGE>
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 8.) 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(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%.
17
<PAGE>
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 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 8) 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.
18
<PAGE>
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 8).
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 8) and will enable the Fund to respond more promptly if
circumstances suggest such a change in the future. The Board of Directors
therefore
19
<PAGE>
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
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 8) 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.
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<PAGE>
Proposal2(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 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").
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<PAGE>
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 8) 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:
22
<PAGE>
"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 8) 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(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
23
<PAGE>
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 8) 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 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.
24
<PAGE>
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 8) 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
25
<PAGE>
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 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 8) 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.
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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 15, 1995 Douglas A. Paul
Secretary
<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. 7,670,778.009 17.07%
101 Montgomery Street
San Francisco, CA 94104-4122
No other shareholders owned beneficially greater than 5% of the Fund's
outstanding shares
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.
B-1
<PAGE>
(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 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.
B-2
<PAGE>
(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.
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<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.
C-1
<PAGE>
(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.
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
C-2
<PAGE>
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 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.
C-3
<PAGE>
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
Telephone Voting: To vote by telephone, please call 1-800-874-8782 between 6:00
a.m. and 5:00 p.m. Pacific Standard Time, Monday through Friday.
Please fold and detach card at perforation before mailing
- --------------------------------------------------------------------------------
BENHAM GOLD EQUITIES INDEX FUND
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 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 Century Cinemas, 1500 N. Shoreline Boulevard, Mountain View, California,
on February 12, 1996, at 10:00 a.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.
Date____________________
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
should sign the proxy. If a proxy is
signed by an administrator, trustee,
guardian, attorney or other
fiduciary, please indicate full
title as such.
Signed:
------------------------------------
------------------------------------
Signature(s) 080
<PAGE>
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
Telephone Voting: To vote by telephone, please call 1-800-874-8782 between 6:00
a.m. and 5:00 p.m. Pacific Standard Time, Monday through Friday.
Please fold and detach card at perforation before mailing
- --------------------------------------------------------------------------------
Benham Gold Equities Index Fund
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. To amend the fundamental investment objective and fundamental investment _____FOR _____AGAINST _____ABSTAIN
limitation concerning concentration of investments of the Fund and change the
Fund's name.
2. To approve all proposed changes to the fundamental investment limitations for _____APPROVE ALL _____APPROVE ALL _____ABSTAIN
purposes of standardization as described in each of the following proposals: EXCEPT THOSE
INDICATED
* Cross out below those sub-proposals which you do NOT wish to approve. BELOW*
a. Limit use of senior securities i. Investments in issuers with less than three years of operations:
b. Restrict borrowing replace fundamental limitation with operating policy
c. Restrict lending j. Warrants: replace fundamental limitation with operating policy
d. Restrict real estate k. Oil, gas, mineral exploration programs: replace fundamental
e. Restrict underwriting limitation with operating policy
f. Diversification requirements: replace l. Short sales: replace fundamental limitation with operating policy
fundamental limitation with operating m. Margin purchases: replace fundamental limitation with operating policy
policy n. Affiliate-owned securities: replace fundamental limitation with
g. Illiquid securities: replace fundamental operating policy
limitation with operating policy
h. Other investment companies: replace
fundamental limitation with operating
policy
Check if you plan to attend the meeting _____ 080
</TABLE>
