BENHAM
GOLD EQUITIES
INDEX FUND
Prospectus * February 22, 1995
[picture of ledger,
map, gold nuggets,
compass]
[company logo] The Benham Group
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[information in left margin of page]
THE BENHAM GROUP
1665 Charleston Road
Mountain View, California 94043
SHAREHOLDER RELATIONS
1-800-321-8321
1-415-965-4222
FUND INFORMATION
1-800-331-8331
1-415-965-4274
TDD SERVICE
1-800-624-6338
1-415-965-4764
BENHAM GROUP REPRESENTATIVES ARE AVAILABLE BY TELEPHONE WEEKDAYS FROM 5 A.M. TO
5 P.M. PACIFIC TIME.
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BENHAM
GOLD EQUITIES
INDEX FUND
A Series of Benham Equity Funds
Prospectus * February 22, 1995
BENHAM GOLD EQUITIES INDEX FUND seeks to realize a total return that corresponds
to the total return of the Benham North American Gold Equities Index, an index
composed of stocks of North American goldproducing companies. The Fund may
invest in securities of companies with operations outside of North America. The
Fund is a non-diversified series of Benham Equity Funds (BEF), a no-load,
open-end mutual fund.
Please read this Prospectus carefully and retain it for future reference. It is
designed to help you decide if the Fund's goals match your own. A Statement of
Additional Information (also dated February 22, 1995) has been filed with the
Securities and Exchange Commission (SEC) and is incorporated herein by
reference. For a free copy, call or write The Benham Group.
Mutual fund shares are not insured by the FDIC, the Federal Reserve Board, or
any other agency. The value of the investment and its returns will fluctuate and
is not guaranteed.
AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SUMMARY OF FUND EXPENSES
The tables below illustrate the fees and expenses an investor in the Fund would
incur directly or indirectly. The figures shown are based on historical
expenses, adjusted to reflect the expense limitation agreement in effect as of
February 22, 1995.
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A. SHAREHOLDER TRANSACTION EXPENSES
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Sales load imposed on purchases............................ None
Sales load imposed on reinvested dividends................. None
Deferred sales load........................................ None
Redemption fee............................................. None
Exchange fee............................................... None
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B. ANNUAL FUND OPERATING EXPENSES
As a Percentage of Average Daily Net Assets
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Investment advisory fee (net of expense limitation)........ .32%*
12b-1 fee.................................................. None
Other expenses............................................. .29%
TOTAL FUND OPERATING EXPENSES (NET OF EXPENSE LIMITATION).. .61%*
* Benham Management Corporation (BMC) has agreed under contract to limit the
Fund's total operating expenses to .75% of average daily net assets through May
31, 1995. The contract provides that BMC may recover amounts absorbed on behalf
of the Fund during the preceding 11 months if, and to the extent that, for any
given month, the Fund's expenses were less than the expense limit in effect at
that time. The expense limit is up for annual renewal in June. As indicated
above, the Fund's actual expenses were below its contractual expense limitation
of .75% of average daily net assets.
The Fund pays BMC investment advisory fees equal to an annualized percentage of
Fund average daily net assets. Other expenses include administrative and
transfer agent fees paid to Benham Financial Services, Inc. (BFS).
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C. EXAMPLE OF EXPENSES
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The following table illustrates the expenses a shareholder would pay on a $1,000
investment in the Fund over periods of one, three, five, and ten years. These
figures are based on the expenses shown in Table B and assume (i) a 5% annual
return and (ii) full redemption at the end of each time period.
One Year Three Years Five Years Ten Years
$6 $20 $34 $76
We include this table to help you understand the various costs and expenses that
you, as a shareholder, will bear either directly or indirectly. THIS EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
PERFORMANCE; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN, AND THE
FUND MAY NOT REALIZE THE 5% HYPOTHETICAL RATE OF RETURN REQUIRED BY THE SEC FOR
THIS EXAMPLE.
FINANCIAL HIGHLIGHTS
The information presented on the following page has been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Their unqualified report
on the financial statements and financial highlights is included in the Fund's
Annual Report, which is part of the Statement of Additional Information.
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<TABLE>
<CAPTION>
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BENHAM GOLD EQUITIES INDEX FUND
Years ended December 31 (except as noted)
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1994 1993 1992 1991 1990 1989 1988+
<S> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
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NET ASSET VALUE (NAV) AT
BEGINNING OF PERIOD $ 13.67 7.55 8.28 9.35 11.71 9.05 10.00
Income (Losses) From
Investment Operations
Net Investment Income .0299 .0124 .0181 .0247 .0006 .0372 .0895
Net Realized and Unrealized
Gains (Losses) on Investments (2.3213) 6.1197 (.7324) (1.0753) (2.2691) 2.7547 (.9688)
-------- -------- -------- -------- -------- -------- --------
Total Income (Losses) From
Investment Operations (2.2914) 6.1321 (.7143) (1.0506) (2.2685) 2.7919 (.8793)
Less Distributions
Dividends from Net
Investment Income (.0214) (.0114) (.0157) (.0194) (.0006) (.0372) (.0666)
Distributions from Net
Realized Capital Gains 0 (.0007) 0 0 (.0909) (.0947) (.0041)
Distributions in Excess of Net
Realized Capital Gains and
Foreign Currency Transactions (.0272) 0 0 0 0 0 0
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Total Distributions (.0486) (.0121) (.0157) (.0194) (.0915) (.1319) (.0707)
NAV AT END OF PERIOD $ 11.33 13.67 7.55 8.28 9.35 11.71 9.05
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN* (16.75)% 81.22 (8.65) (11.23) (19.43) 29.93 (9.19)
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SUPPLEMENTAL DATA AND RATIOS
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Net Assets at End of Period
(in millions of dollars) $ 568.0 616.3 163.8 124.4 104.2 61.8 7.7
Ratio of Expenses to
Average Daily Net Assets .61% .72 .75 .75 .96 1.00 0
Ratio of Expenses to
Average Daily Net Assets
Before Waiver .61% .72 .89 .97 1.11 1.93 2.97**
Ratio of Net Investment Income
to Average Daily Net Assets .20% .23 .23 .30 .01 .36 2.04***
Ratio of Net Investment Income
to Average Daily Net Assets
Before Waiver .20% .23 .10 .08 (.15) (.56) (.93)***
Portfolio Turnover Rate 41.67% 28.38 52.57 56.33 20.96 34.39 .92
+ From August 17, 1988 (commencement of operations), through December 31, 1988.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not anualized.
** Annualized.
*** Annualized (includes .76% from nonrecurring income).
</TABLE>
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[information in left margin of page]
The Fund seeks to achieve a total return that corresponds to the total return of
the Benham North American Gold Equities Index.
The Fund concentrates its assets in gold company shares, so its share price is
likely to be more volatile than the share price of a fund that diversifies
across multiple industries.
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HOW THE FUND WORKS
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).
There is no guarantee that the Fund will achieve its investment objective.
The Fund's investment objective and industry concentration policy, described on
the following pages, are fundamental and may not be changed without shareholder
approval. The other policies described in this Prospectus are not fundamental
and may be changed by the Fund's board of directors.
CORE INVESTMENT STRATEGIES
The Fund invests primarily in equity securities of companies included in the
Index, although it may invest in other types of securities, as described on page
8. The Index, established by BMC in 1987, consists of stocks of North American
companies engaged in exploring for, mining, processing, fabricating, or
otherwise dealing in gold (Index securities). To be included in the Index, a
company must satisfy all of the following criteria:
* Fifty percent or more of its revenue or net profits must result, directly
or indirectly, from exploring for, mining, processing, fabricating, or
otherwise dealing in gold;
* The company must have a market capitalization of at least $50 million;
* There must be a liquid trading market for the company's equity shares; and
* The company must be headquartered in North America, or the value of gold
produced by its North American gold operations must equal or exceed 50% of
the value of all of its gold operations.
As of December 31, 1994, the aggregate market capitalization of the Index was
approximately $31.6 billion. Companies included in the Index as of that date are
listed on page 32. See the Statement of Additional Information to learn more
about the Index.
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To pursue the Fund's investment objective, BMC tries to match the Fund's
composition to that of the Index. For example, the stock of a company whose
market capitalization represents 1% of the Index's total market capitalization
will ideally represent 1% of the value of the Fund's portfolio. However, the
Fund may vary its investments from the Index model in order to satisfy
diversification requirements under the Internal Revenue Code.
While the Fund invests primarily in Index securities, it may invest up to 20% of
its assets in non-Index securities for diversification purposes. Deviations
between the composition of the Fund's portfolio and that of the Index are
monitored daily and reported to the board of directors quarterly.
BMC works to balance three goals:
* To match the Fund's portfolio composition to that of the Index as closely
as possible while meeting IRS diversification requirements;
* To keep enough cash on hand to meet shareholder redemption requests and pay
operational expenses; and
* To keep portfolio transaction costs low.
The Fund's board of directors reviews Index composition annually. The directors
may change the companies included in the Index and the criteria for adding
companies to or dropping them from the Index. Such changes may be made if the
Index criteria cease to adequately represent the North American gold industry.
On an ongoing basis, BMC changes the composition of the Index to reflect
mergers, acquisitions, name changes, and bankruptcy proceedings.
The Fund is a "non-diversified company" as defined in the
Investment Company Act of 1940 (the 1940 Act), which means that the proportion
of the Fund's assets that may be invested in the securities of a single issuer
is not limited by the 1940 Act. However, the Internal Revenue Code limits the
proportion of assets a fund may invest in the securities of any single issuer.
The Fund intends to follow these limits in order to qualify as a regulated
investment company.
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[information in left margin of page]
Political and economic conditions in gold-producing countries (such as the
Republic of South Africa and the former U.S.S.R.) affect gold pricing and
distribution worldwide.
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RISK FACTORS
By itself, the Fund does not constitute a balanced investment plan. The Fund may
be appropriate for investors seeking to diversify their stock portfolios through
broad-based exposure to the North American gold industry. The Fund works best
for long-term investors prepared to ride out the markets' ups and downs. Since
the Fund concentrates its investments in stocks of companies engaged in the gold
industry (gold company shares), its share price is likely to be more volatile
than the share price of a fund that diversifies across multiple industries.
Many investors perceive that gold investments hedge against inflation, currency
devaluations, and general stock market declines; however, there is no assurance
that these historical inverse relationships will persist. Changing market
conditions (i.e., fluctuating operating costs, political events, and changes in
interest rates and currency rates) may affect gold prices and tend to have a
more exaggerated effect on gold stocks. Because of their high share price
volatility, gold stocks are considered speculative and may affect the Fund's
share price.
OTHER INVESTMENT POLICIES AND TECHNIQUES
CONVERTIBLE SECURITIES
In addition to common stock shares of Index companies, the Fund may buy
securities convertible into common stock (including stock of non-Index
companies), such as convertible bonds, convertible preferred stocks, and
warrants. BMC may purchase these securities if it believes that a company's
convertible securities are undervalued in the market.
FOREIGN SECURITIES
The Fund may invest in securities of foreign issuers. A number of companies
included in the Index are based in Canada, although their shares are traded on
U.S. securities exchanges. BMC expects that the majority of the Fund's foreign
holdings will be limited to American Depositary Receipts (ADRs), "ordinary
shares," or "New York shares," all of which trade on U.S. securities exchanges
in U.S. dollars.
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Securities of foreign issuers may be affected by the strength of foreign
currencies relative to the U.S. dollar or by political or economic developments
in foreign countries. Foreign companies may not be subject to accounting
standards or governmental regulations comparable to those that affect U.S.
companies, and there may be less public information about their operations.
WHEN-ISSUED SECURITIES AND FIRM-COMMITMENT AGREEMENTS
When-issued securities and firm-commitment agreements fix a security's price and
yield for future payment and delivery. The market value of the security may
change during this period, or a party to the agreement may fail to deliver or
pay for the security. Either of these situations could affect the market value
of the Fund's assets.
NON-INDEX INVESTMENTS
To assure compliance with IRS diversification requirements and to facilitate
portfolio management, BMC may invest up to 20% of the Fund's total assets in
non-Index investments, some of which are briefly discussed below.
GOLD INVESTMENTS. The Fund may purchase gold, gold certificates, or gold futures
(referred to collectively as "Gold Investments"), although it will not purchase
gold in any form that is not readily marketable and that cannot be stored in
accordance with custody regulations applicable to mutual funds.
BMC may use a Gold Investment when it judges the price of gold to be
artificially low. BMC may also use a Gold Investment as a hedge if it expects a
rise in the price of gold to correlate with rising prices of the Fund's other
gold-related investments. If gold prices rise as BMC predicted, proceeds from
the sale of the Gold Investment may be used to cover the increased price of the
hedged security. However, if the price of the Gold Investment declines, the Fund
may suffer a loss.
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[information in right margin of page]
Up to 20% of the Fund's total assets may be committed to non-Index investments,
including gold, securities of companies, not included in the Index, and
short-term instruments.
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Direct purchases of gold bullion or coins may generate higher custody and
transaction costs than other types of investments and do not generate interest
or dividend income for the Fund. The sole source of return on such investments
is from gains (or losses) realized at the time of sale. Gold coins may be
purchased for their intrinsic value only and not for their numismatic value.
The Fund purchases Gold Investments only to the extent necessary to meet IRS
income requirements and state restrictions on the purchase of gold and other
commodities.
NON-INDEX EQUITY SECURITIES. The Fund may invest in gold companies that do not
meet all of the Index inclusion criteria. Such companies may, for example, focus
their mining operations on metals other than gold (e.g., silver or platinum).
They may be small companies that do not meet the capitalization requirement for
inclusion in the Index but that BMC believes represent significant investment
opportunities for the Fund. Within this category, BMC attempts to select the
securities of issuers with revenues and earnings expected to be influenced by
changes in the price of gold and expected to perform in a manner that causes the
Fund's performance to closely track Index performance.
SHORT-TERM INSTRUMENTS. For liquidity purposes, the Fund may invest
in high-quality money market instruments with remaining maturities of one year
or less.
The Fund may also enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers that are deemed to present
minimal credit risk. Credit risk determinations are made by BMC pursuant to
guidelines established by the board of directors. A repurchase agreement
involves the purchase of a security and a simultaneous agreement to sell the
security back to the seller at a higher price. Delays or losses could result if
the party to the agreement defaults or becomes bankrupt.
The Fund may invest up to 5% of its total assets in any money market fund
advised by BMC, provided that the investment is consistent with the Fund's
investment policies and restrictions.
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INTEREST RATE SWAPS. The Fund may enter into interest rate swap agreements with
banks or broker-dealers. These transactions may be used to help the Fund meet
IRS diversification requirements or to improve the correlation between the
Fund's total return and that of the Index.
Swap transactions used by BMC typically involve entering into a contract with a
broker-dealer to receive the total returns of a specific Index security or
basket of Index securities (minus a fee) in exchange for periodic payments based
on a money market interest rate index such as the London Interbank Offered Rate
(LIBOR).
SECURITIES LENDING
The Fund may lend its portfolio securities to banks and broker-dealers to earn
additional income. Securities loans are subject to guidelines prescribed by the
board of directors, which are set forth in the Statement of Additional
Information.
This practice could result in a loss or a delay in recovering the Fund's
securities. Loans are limited to 33-1/3% of the Fund's total assets.
OTHER PORTFOLIO MANAGEMENT TECHNIQUES
BMC may buy other types of securities or employ other portfolio management
techniques on behalf of the Fund. When required by SEC guidelines, the Fund will
set aside cash or appropriate liquid assets in a segregated account to cover its
portfolio obligations. See the Statement of Additional Information for a more
detailed discussion of these investments and some of the risks associated with
them.
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[information in left margin of page]
Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in its semiannual reports
to shareholders.
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PORTFOLIO TRANSACTIONS
BMC selects brokerage firms solely on the basis of best net price and execution
and engages in regular trading on behalf of the Fund. The Fund's annual
portfolio turnover rate is not expected to exceed 100% and may vary from year to
year.
PERFORMANCE
Mutual fund performance is commonly measured as yield or total
return. It is based on historical fund performance and may be quoted in
advertising and sales literature. Past performance is no guarantee of future
results.
YIELD calculations show the rate of income the Fund earns on its
investments as an annual percentage rate. The Fund's yield is calculated
according to methods that are standardized for all stock and bond funds.
TOTAL RETURN represents the Fund's changes over a specified time period,
assuming reinvestment of dividends and capital gains, if any. CUMULATIVE TOTAL
RETURN illustrates the Fund's actual performance over a stated period of time.
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that illustrates
the annually compounded return that would have produced the same cumulative
total return if the Fund's performance had been constant over a entire period.
Average annual total returns smooth out variations in the Fund's performance;
they are not the same as year-by-year results.
Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Fund's semiannual
reports to shareholders. These reports are routinely delivered to the Fund's
shareholders. For a free copy, call one of the Fund Information numbers on page
14.
BMC does not expect the Fund's total return to differ from that of the Index by
more than five percentage points per year.
The table on the next page compares the Fund's year-by-year cumulative total
returns to those of the Index for each year since the Fund's inception.
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PERIOD FUND INDEX
ENDED 12/31 TOTAL RETURN TOTAL RETURN
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1988* -9.19% -8.74%
1989 29.93 34.13
1990 -19.43 -18.84
1991 -11.23 -10.14
1992 -8.65 -8.16
1993 81.22 81.94
1994 -16.75 -16.80
* August 17, 1988 (commencement of operations), through December 31, 1988.
The Fund's life-of-fund cumulative and average annual total returns for the
period August 17, 1988, through December 31, 1994, were 16.28% and 2.40%,
respectively.
SHARE PRICE
BMC normally calculates the Fund's purchase and sale price per share (net asset
value, or NAV) at 1:00 p.m. Pacific Time each day the New York Stock Exchange is
open for business. NAV is calculated by adding the value of the Fund's assets,
deducting its liabilities, and then dividing the result by the number of shares
outstanding.
If market quotations are readily available, securities are valued at their
market value. Gold investments are valued at the most recent London a.m. fixing.
If market quotations are not readily available, securities are priced at fair
value as determined in good faith under the direction of the board of directors.
The valuations of foreign securities are translated from their respective
currencies into U.S. dollars using current exchange rates.
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[information in right margin of page]
Shares may be purchased and redeemed without any sales charge, commission,
redemption fee, 12b-1 fee, or contingent deferred sales load.
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[information in left margin of page]
Overnight and special delivery mail (e.g., Federal Express, Express Mail,
Priority Mail) should be sent to our street address: 1665 Charleston Rd.
Mountain View, California 94043. Failure to do so will result in transaction
delays.
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HOW TO INVEST
To open an account, you must complete and sign an application. If an application
is not enclosed with this Prospectus, you may request one by calling one of the
Fund Information numbers below. If you prefer, we will fill out your application
over the telephone and mail it to you for your signature. Separate forms are
required to establish Benham-sponsored retirement plan accounts, as discussed on
pages 24 and 25.
Your in
vestment will be credited to your account and begin earning
interest at the next NAV calculated after The Benham Group or an authorized
subtransfer agent receives and accepts your order. However, you may not redeem
shares until we have your completed application on file and your investment
matures (i.e., clears). See page 21 for details.
Benham Group Representatives are available at the telephone numbers listed below
weekdays from 5:00 a.m. to 5:00 p.m. Pacific Time.
FUND INFORMATION: for information about any Benham fund or other investment
product, call 1-800-331-8331 or 1-415-965-4274.
SHAREHOLDER RELATIONS: to open an account, or inquire about or make transactions
in an existing account, call 1-800-321-8321 or 1-415-965-4222.
Benham shareholders may make transactions and obtain prices, yields, and total
return information for all Benham funds with TeleServ, our 24-hour automated
telephone information service. Dial 1-800-321-8321 and press 1.
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HOW TO BUY SHARES (Retirement plan accounts have different minimums. See pages
24 and 25 for details.)
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METHOD INSTRUCTIONS
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BY CHECK Minimum initial investment: $1,000
Minimum additional investment: $100
MAKE YOUR INVESTMENT CHECK PAYABLE TO THE BENHAM GROUP. Mail the
check with your completed application to:
The Benham Group
P.O. Box 7730
San Francisco, CA 94120-9853
For ADDITIONAL INVESTMENTS, enclose an investment slip preprinted
with the account number to which your investment should be
credited. If the payee information provided on the check does not
agree with information preprinted on the investment slip, we will
follow the instructions preprinted on the investment slip.
If you do not have a preprinted investment slip, send your check
with written instructions indicating the fund name and the
account number. If the payee information provided on the check
does not agree with your written instructions, we will follow the
written instructions.
You may also invest your check in person at a Benham Investor
Center. One is located at 1665 Charleston Road in Mountain View,
California; the other is located at 2000 South Colorado
Boulevard, Suite 1000, in Denver, Colorado.
WE WILL NOT ACCEPT CASH INVESTMENTS OR THIRD-PARTY CHECKS. We
will, however, accept properly endorsed second-party checks made
payable to the investor(s) to whose account the investment should
be credited.
We will also accept checks drawn on foreign banks or foreign
branches of domestic banks and checks that are not drawn in U.S.
dollars (U.S. $100 minimum). The cost of collecting payment on
such checks will be passed on to the investor. These costs may be
substantial, and settlement may involve considerable delays.
Investors will be charged $5 for every investment check returned
unpaid.
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METHOD INSTRUCTIONS
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BY BANK WIRE Minimum initial investment: $25,000
Minimum additional investment: $100
If you wish to OPEN AN ACCOUNT BY BANK WIRE, please call our
Shareholder Relations Department for more information and an
account number. Bank wire investments should be addressed as
follows:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Routing Number 011000028
Beneficiary = Benham Equity Funds:Benham Gold Equities Index Fund
AC - 0505 917 5
FBO [Your Name, Your Benham Fund Account Number]
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BY EXCHANGE Minimum initial investment: $1,000
Minimum additional investment: $100
You may exchange your shares for shares of any other Benham fund
registered for sale in your state if you have received and read
the fund's prospectus. Exchanges may be made by telephone (for
identically registered accounts only), by written request, or in
person. Certain restrictions apply; please see page 18 for
details. You may open a new account by telephone exchange,
provided that you meet the minimum initial investment
requirement.
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AUTOMATIC Minimum: $25
INVESTMENT These services are offered with respect to additional
SERVICES investments only. See details on page 19.
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PROCESSING YOUR SHARE PURCHASES
Shares will be purchased at the next NAV calculated after your investment is
received and accepted by The Benham Group or an authorized subtransfer agent.
Investments received and accepted before 1:00 p.m. Pacific Time will be credited
to your account the same day. After 1:00 p.m. Pacific Time, they will be
credited to your account the following business day. The Fund reserves the right
to refuse any investment.
TELEPHONE TRANSACTIONS
Shareholders may order certain
transactions (e.g., exchanges, wires, some types of redemptions) by telephone.
This privilege is granted to Benham fund shareholders automatically; you need
not specifically request this service, and you may not specifically decline it.
The Benham Group will not be liable for losses resulting from unauthorized or
fraudulent instructions if it follows procedures designed to verify the caller's
identity. BMC will request personal identification, record telephone calls, and
send confirmation statements for every telephone transaction to the
shareholder's record address. The Fund reserves the right to refuse or terminate
telephone transactions at any time.
CONFIRMATION AND QUARTERLY STATEMENTS
All transactions are summarized on quarterly account statements. In addition,
for every transaction that you request, a confirmation statement will be mailed
to your record address. Please review these statements carefully. If you fail to
notify us of an error within 30 days of the confirmation statement date, you
will be deemed to have ratified the transaction.
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[information in left margin of page]
The free exchange privilege is a convenient way to buy shares in other Benham
funds when your investment goals change.
Benham Open Orders allow investors to utilize a "buy low, sell high" investment
strategy.
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SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange your shares for shares of equivalent value in any other Benham
fund registered for sale in your state. Such an exchange may generate a taxable
gain or loss. An exchange request will be processed the same day if it is
received before the funds' NAVs are calculated (12:00 p.m. Pacific Time for
Benham Target Maturities Trust, 1:00 p.m. Pacific Time for all other Benham
funds).
The Benham Group discourages trading in response to short-term market
fluctuations. Such activity may encumber BMC's ability to invest the funds'
assets in accordance with their respective investment objectives and policies
and may be disadvantageous to other shareholders. More than six exchanges per
calendar year out of a variable-price fund may be deemed an abuse of the
exchange privilege. For purposes of determining the number of exchanges made,
accounts under common ownership or control will be aggregated.
Each Benham fund reserves the right to modify or revoke the exchange privilege
of any shareholder or to limit or reject any exchange. Although each fund will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.
OPEN ORDER SERVICE
The Benham Group's Open Order Service allows you to designate a price at which
to exchange shares between a Benham variable-price fund and a Benham money
market fund. You must designate a purchase price equal to or lower, or a sale
price equal to or higher, than the variable-price fund's NAV at the time you
place your order. If the designated price is met within 90 calendar days, we
will execute your exchange order automatically at the specified price (or
better).
If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so that the distribution does not
inadvertently trigger an Open Order transaction on your behalf.
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If you close or reregister the account from which shares are to be redeemed,
your Open Order will be cancelled. Because of their time-sensitive nature, Open
Order transactions may be made only by telephone or in person and are subject to
the exchange limitations described in each fund's prospectus, except that
(regardless of which funds are involved in the transaction) orders and
cancellations received before 12:00 p.m. Pacific Time are effective the same
day. After 12:00 p.m. Pacific Time, they are effective the following business
day.
AUTOMATIC INVESTMENT SERVICES (AIS)
TREASURY DIRECT allows you to deposit interest and principal payments from
Treasury securities directly into a Benham fund account.
PAYROLL DIRECT allows you to deposit any amount of your paycheck directly into a
Benham fund account.
GOVERNMENT DIRECT allows you to deposit your entire U.S. government payment
directly into a Benham fund account.
BANK DIRECT allows you to deposit a fixed amount from your bank account directly
into a Benham fund account on the 1st and/or 15th of each month.
DIRECTED DIVIDENDS allow you to invest all or part of your dividend earnings
from one Benham fund account in one or more other Benham fund accounts. You may
choose to receive a portion of your dividends in cash and to invest the
remainder in other Benham fund accounts.
SYSTEMATIC EXCHANGES allow you to exchange from one Benham fund account to
another Benham fund account on the 1st and/or the 15th of each month.
For more information about any of these services, please call our Shareholder
Relations Department at 1-800-321-8321 or 1-415-965-4222.
- --------------
[information in right margin of page]
Automatic Investment Services enable you to benefit from a dollar-cost averaging
investment strategy.
- --------------
19
<PAGE>
- ---------------
[information in left margin of page]
You may redeem shares without charge.
- ---------------
BROKER-DEALER TRANSACTIONS
The Benham Group charges no sales commissions, or "loads," of any kind. However,
investors may purchase and sell shares through registered broker-dealers, who
may charge fees for their services.
The Benham Group will accept orders for the purchase of shares from authorized
broker-dealers who agree in writing to pay in full for such shares in
immediately available funds no later than 1:00 p.m. Pacific Time the following
business day.
TDD SERVICE FOR THE HEARING IMPAIRED
TDD users may contact The Benham Group at 1-800-624-6338 or 1-415-965-4764.
California residents may wish to contact us through the California Relay Service
(CRS) at 1-800-735-2929. Your transaction requests via CRS will be handled on a
recorded line. The Benham Group cannot accept responsibility for instructions
miscommunicated by CRS.
EMERGENCY SERVICES
The Benham Group has established an alternate operations site from which we can
access customer accounts and the mainframe computers used by the Benham funds in
the event of an emergency. Telephone lines and terminals are currently in place.
If our regular service is interrupted, the following numbers will automatically
connect you to this site.
From within the U.S., including Alaska and Hawaii, call 1-800-321-8321.
From all foreign countries, call collect, 1-303-759-9337 or 1-510-820-1409. The
operator will request your Benham fund account number before accepting the call.
20
<PAGE>
HOW TO REDEEM YOUR INVESTMENT
When you place an order to redeem shares, your shares will be redeemed at the
next NAV calculated after The Benham Group or an authorized subtransfer agent
has received and accepted your redemption request. The Fund's NAV is normally
calculated at 1:00 p.m. Pacific Time. See page 13 for further information.
Barring extraordinary circumstances prescribed by law, redemption proceeds are
mailed within seven calendar days. However, The Benham Group reserves the right
to withhold the proceeds until the investment has matured (i.e., your payment
has cleared); see maturity periods below.
================================================================================
Drawn from a Maturity Period
Method of Payment California Bank? (in business days)
- --------------------------------------------------------------------------------
Checks, cashiers checks,
and bank money orders Yes 5 days
- --------------------------------------------------------------------------------
Same as above No 8 days
- --------------------------------------------------------------------------------
U.S. Treasury checks, Traveler's checks,
U.S. Postal money orders, Benham
checks, bank wires, and AIS Deposits* N/A 1 day
* Does not include bank direct deposits, which take 8 business days to mature.
================================================================================
If you hold shares in certificate form, redemption requests must be accompanied
by properly endorsed certificates.
If you want to keep your account open, please maintain a balance of shares worth
at least $1,000. If your account balance falls below $1,000 due to redemption,
your account may be closed, but not without at least 30 days' notice and an
opportunity to increase your account balance to the $1,000 minimum. Your shares
will be redeemed at the NAV calculated on the day your account is closed.
Proceeds will be mailed to the record address.
This policy also applies to Benham's Individual Retirement Accounts (IRAs),
excluding SEP-IRAs, except that shareholders will receive at least 120 days'
written notice and an opportunity to increase their account balance before their
accounts are closed. Investors wishing to open a Benham-sponsored retirement
account should see pages 24 and 25 for details.
UNCASHED CHECKS. We may reinvest at the Fund's then-current NAV any distribution
or redemption checks that remain uncashed for six months. Until we receive
instructions to the contrary, subsequent distributions will be reinvested in the
original account. Uncashed redemption checks may be reinvested in an identically
registered account.
21
<PAGE>
HOW TO REDEEM SHARES (Retirement investors, see pages 24 and 25.)
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
BY TELEPHONE The Benham Group will accept telephone redemption requests for
any amount if the proceeds are to be sent to your predesignated
bank account. Redemptions of $25,000 or less payable to the
registered account owner(s) may also be ordered by telephone. All
other redemption requests must be made in writing.
- --------------------------------------------------------------------------------
IN WRITING Send a letter of instruction to:
The Benham Group
Shareholder Relations Department
1665 Charleston Road
Mountain View, California 94043
Your letter of instruction should specify:
* Your name
* Your account number
* The name of the Fund from which you wish to redeem shares
* The dollar amount or number of shares you wish to redeem
For your protection, written redemption requests must be
accompanied by signature guarantees under the following
circumstances:
* Redemption proceeds go to a party other than the registered
account owner(s).
* Redemption proceeds go to an account other than your
predesignated bank account.
* Redemption proceeds go to the registered account owner(s),
but the amount exceeds $25,000.
If you have instructed The Benham Group to require more than one
signature on written redemption requests, each of the required
number of signers must have his or her signature guaranteed on
these redemption requests.
22
<PAGE>
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
IN WRITING Signature guarantees may be provided by banks, savings
(continued) and loan associations, savings banks, credit unions, stock
brokerage firms, or a Benham Investor Center. Shareholders must
appear in person with identification to obtain a signature
guarantee. Notary public certifications are not accepted in lieu
of signature guarantees.
BFS may require written consent of all account owners prior to
acting on the written instructions of any account owner.
- --------------------------------------------------------------------------------
BY BANK WIRE If you included bank wire information on your account application
or made subsequent arrangements to accommodate bank wire
redemptions, you may wire funds to your bank by calling
1-800-321-8321 or 1-415-965-4222. The minimum amount for a bank
wire redemption is $1,000. Allow at least two business days for
redemption proceeds to be credited to your bank account.
- --------------------------------------------------------------------------------
BY EXCHANGE See details on pages 16 and 18.
- --------------------------------------------------------------------------------
AUTOMATIC DIRECTED PAYMENTS. You may arrange for periodic redemptions
REDEMPTION from your Benham fund account to your bank account or to another
SERVICES designated payee.
SYSTEMATIC EXCHANGES. You may arrange for periodic exchange
redemptions from one Benham fund account to another Benham fund
account.
23
<PAGE>
ABOUT BENHAM-SPONSORED RETIREMENT PLANS
Retirement plans offer investors a number of benefits, including the chance to
reduce current taxable income and to take advantage of tax-deferred compounding.
Retirement plan accounts require a special application; please let our
Shareholder Relations Department know if you want to establish this type of
account. We suggest that you consult your tax advisor before establishing a
retirement plan account.
The minimum account balance for all Benham Individual Retirement Accounts
(IRAs), excluding SEP-IRAs, is $1,000. If your balance falls below (continued on
next page)
================================================================================
BENHAM MAXIMUM ANNUAL CONTRIBUTION
PLAN TYPE AVAILABLE TO PER PARTICIPANT
- --------------------------------------------------------------------------------
CONTRIBUTORY An employed indi- $2,000 or 100% of compensation
IRA vidual underage 70 1/2. (whichever is less).
- --------------------------------------------------------------------------------
SPOUSAL IRA A nonworking spouse $2,250 (can be split between
(under age 70 1/2) of a Spousal and Contributory IRAs,
wage earner. provided that no IRA receives
more than a total of $2,000).
- --------------------------------------------------------------------------------
ROLLOVER IRA An individual with a None, as long as total amount
distribution from an is eligible.
employer's retirement
plan or a rollover IRA.
- --------------------------------------------------------------------------------
SEP-IRA A self-employed indi- $22,500 or 15% of compensation
vidual or a business. (whichever is less).
- --------------------------------------------------------------------------------
MONEY Same as for SEP-IRA. $30,000 or 25% of compensation
PURCHASE PLAN (whichever is less). Annual
(KEOGH) contribution is mandatory.
- --------------------------------------------------------------------------------
PROFIT Same as for SEP-IRA. $22,500 or 15% of compensation
SHARING PLAN (whichever is less). Annual
(KEOGH) contribution is optional.
(table continued on next page)
For all Benham-sponsored retirement plans, you may begin taking distributions at
age 59 1/2 . You must begin to take required distributions by April 1 of the
year after you turn age 70 1/2. You may take distributions from your IRA or
SEP-IRA before you reach age 59 1/2; however, a penalty may apply.
24
<PAGE>
(continued from previous page)
the $1,000 per fund account minimum, your account may be closed (see page 21 for
details). This distribution may result in a taxable event and a possible penalty
for early withdrawal. The minimum fund account balance for all other
Benham-sponsored retirement plan accounts is $100. Benham charges no fees for
its IRAs but does charge low maintenance fees for its Koeghs.
YOU MUST COMPLETE SPECIFIC FORMS TO TAKE DISTRIBUTIONS (I.E., REDEEM SHARES)
FROM A BENHAM-SPONSORED RETIREMENT PLAN ACCOUNT. PLEASE CALL OUR SHAREHOLDER
RELATIONS DEPARTMENT AT 1-800-321-8321 FOR ASSISTANCE.
(table continued from previous page)
================================================================================
DEADLINE FOR OPENING ACCOUNT CONTRIBUTION DEADLINES
- --------------------------------------------------------------------------------
You may open an account anytime, Annual contributions can be made
but the deadline for establishing from January 1 through April 15 of
and funding an IRA for the prior the following tax year up to the year
tax year is April 15. you turn age 70 1/2.
- --------------------------------------------------------------------------------
Same as for Contributory IRA. Same as for Contributory IRA.
- --------------------------------------------------------------------------------
You may open a Rollover IRA Eligible rollover contributions must
account anytime. be made within 60 days of receiving
your distribution. There is no age
limit for rollover contributions.
- --------------------------------------------------------------------------------
You may open an account anytime, Must be made by employer's tax fil-
but the deadline for establishing and ing deadline (including extensions).
funding an account for the prior tax
year is the employer's tax deadline
(including extensions).
- --------------------------------------------------------------------------------
The end of the employer's plan Same as for SEP-IRA.
year, usually December 31.
- --------------------------------------------------------------------------------
The end of the employer's plan Same as for SEP-IRA.
year, usually December 31.
25
<PAGE>
- -------------------
[information in left margin of page]
Each January, you will be informed of the tax status of the dividends and
capital gain distributions for the previous year.
- -------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends, if any, will be declared semiannually in June and December. Long-term
capital gain distributions, if any, will be declared once a year, typically in
December.
DISTRIBUTION OPTIONS. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares. (See "Directed
Dividends" on page 19 for further information.) Please indicate your choice on
your account application or contact our Shareholder Relations Department. See
page 21 for a description of our policy regarding uncashed distribution checks.
TAXES
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended, by distributing all or
substantially all of its net investment income and net realized capital gains to
shareholders each year.
The Fund's dividends and capital gain distributions are subject to federal
income tax and applicable state or local taxes whether they are received in cash
or reinvested in additional shares. Distributions are generally taxable in the
year they are declared.
Dividends from net investment income (including net short-term capital gains, if
any) are taxable as ordinary income. Distributions from net long-term capital
gains (minus net short-term capital losses) designated by the Fund as capital
gain dividends are taxable as long-term capital gains, regardless of how long
you have held your shares. Ordinary income distributions made by the Fund to
corporate shareholders may qualify for the dividends-received deduction
available to corporations. Shareholders will be notified each year of the
amount, if any, that qualifies for this deduction.
26
<PAGE>
A portion of the Fund's dividends may qualify for the dividends-received
deduction available to corporations. The Fund will send you a tax statement
(Form 1099) by January 31 showing the tax status of distributions you received
in the previous year and will file a copy with the IRS.
You may realize a taxable gain or loss when you redeem (sell) or exchange shares
of the Fund. For most types of accounts, the proceeds from your redemption
transactions will be reported to you and the IRS annually. However, because the
tax treatment depends on your purchase price and personal tax position, you
should keep your regular account statements to use in determining your taxes.
RETURN OF CAPITAL. If, during a given year, the Fund pays dividends that exceed
the income earned on investments, a portion of your dividends may be
reclassified as a "return of capital." This reclassification of dividends paid
has at least two tax implications for shareholders:
(1) The amount of taxable dividends (as reported on your 1099-DIV from the Fund)
will be less than the amount of dividends you actually received during the tax
year.
(2) The return of capital reduces your cost basis in the shares you own, so that
when you redeem shares (and calculate your gain or loss), you must reduce your
investment cost by the amount of dividends that were reclassified as a return of
capital. For example, if you invest $10,000 in the Fund, and $100 worth of
dividends are reclassified as a return of capital, you must adjust your cost
from $10,000 to $9,900 to determine the amount of gain or loss on your
investment.
"BUYING A DIVIDEND." The timing of your investment could have undesirable tax
consequences. If you buy shares on or just before the day the Fund declares a
dividend, you will pay full price for the shares and may receive a portion of
your investment back as a taxable distribution.
27
<PAGE>
FOREIGN TAX WITHHOLDING. The income the Fund receives from foreign stocks may be
subject to withholding taxes. If more than 50% of the Fund's total assets at the
end of any tax year consist of foreign securities, the Fund will treat any
foreign taxes it pays as taxes paid directly by shareholders. Under such
circumstances, a shareholder would be required to include as "income" his or her
proportionate share of foreign taxes paid by the Fund and might be able to claim
either a credit or a deduction for this amount. You will receive notice from the
Fund each year indicating (i) whether it made the election and (ii) the amount
of foreign taxes, if any, that will be treated as though they were paid by you.
You may wish to consult the Statement of Additional Information and your tax
advisor for more information regarding the tax consequences of an investment in
the Fund.
BACKUP WITHHOLDING. The Fund generally will be required to withhold federal
income tax at a rate of 31% (backup withholding) from dividends, capital gain
distributions, and redemption proceeds paid to a shareholder if (i) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number and fails to make such
certifications as the Fund may require, (ii) the IRS notifies the shareholder or
the Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (iii)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Any amounts withheld may be credited against the
shareholder's federal income tax liability.
The Benham Group may refuse to sell shares to investors who have not complied
with this requirement, either before or at the time of purchase. Until we
receive your certified TIN or social security number, we may redeem your shares
in the Fund at any time.
28
<PAGE>
MANAGEMENT INFORMATION
ABOUT BENHAM EQUITY FUNDS
Benham Equity Funds (BEF) is a registered open-end management investment company
that was organized as a California corporation on December 31, 1987. BEF
currently consists of five series.
A board of directors oversees the Fund's activities and is responsible for
protecting shareholders' interests. The majority of the directors are not
otherwise affiliated with BMC. BEF is neither required nor expected to hold
annual meetings, although special meetings may be called for purposes such as
electing or removing directors or amending a series' advisory agreement or
investment policies. Shareholders are entitled to one vote for each share owned.
Each series votes separately on matters that pertain to it exclusively. Under
California corporate law, BEF shareholders have the right to cumulate votes in
the election (or removal) of directors.
THE BENHAM GROUP
Benham Management Corporation (BMC) is investment advisor to the funds in The
Benham Group, which currently constitute $10 billion in assets. BMC,
incorporated in California in 1971, is a wholly owned subsidiary of Benham
Management International, Inc. (BMI), which is also a California corporation.
BMI's primary business is to provide financial services to the general public.
Mr. William Martin, Portfolio Manager, has primary responsibility for the
day-to-day operation of the Fund. He is also Portfolio Manager for Benham Global
Natural Resources Index Fund. Prior to joining BMC in 1989, Mr. Martin was an
investment broker for A. G. Edwards of St. Louis, Missouri (1987 to 1989). Mr.
Martin received his Charter Financial Analyst designation in 1991.
- --------------
[information in right margin of page]
The Benham Group serves more than 350,000 investors.
- --------------
29
<PAGE>
- -------------
[information in left margin of page]
Benham Management Corporation provides investment advice and portfolio
management services to the Fund.
Benham Financial Services, Inc. provides administrative and transfer agent
services to the Fund.
- -------------
ADVISORY AND SERVICE FEES
For investment advice and portfolio management services, the Fund pays BMC a
monthly investment advisory fee equal to its pro rata share of the dollar amount
derived from applying BEF's average daily net assets to an investment advisory
fee schedule. The investment advisory fee rate ranges from .50% to .19% of
average daily net assets, dropping as BEF's assets increase.
Investment advisory fees paid by the Fund to BMC for the fiscal year ended
December 31, 1994, were equal to .32% of the Fund's average daily net assets, or
$3.20 per $1,000 of average daily net assets.
To avoid duplicative investment advisory fees, the Fund does not pay BMC
investment advisory fees with respect to assets invested in shares of any Benham
money market fund.
Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of BMI, is
BEF's agent for transfer and administrative services. For administrative
services, the Fund pays BFS a monthly fee equal to its pro rata share of the
dollar amount derived from applying the average daily net assets of all of the
funds in The Benham Group to an administrative fee schedule. The administrative
fee rate ranges from .11% to .08% of average daily net assets, dropping as
Benham Group assets increase. For transfer agent services, the Fund pays BFS a
monthly fee for each shareholder account maintained and for each shareholder
transaction executed during that month.
The Fund pays certain operating expenses directly, including but not limited to,
custodian, audit, and legal fees; fees of the independent directors; costs of
printing and mailing prospectuses, statements of additional information, proxy
statements, notices, and reports to shareholders; insurance expenses; and costs
of registering shares for sale under federal and state securities laws. See the
Statement of Additional Information for a more detailed discussion of
independent director compensation.
30
<PAGE>
EXPENSE LIMITATION AGREEMENT
A contractual expense limitation agreement between BMC and the Fund is described
on page 3.
The Fund's total operating expenses for the fiscal year ended December 31, 1994,
were equal to .61% of the Fund's average daily net assets, or $6.10 per $1,000
of average daily net assets.
DISTRIBUTION OF SHARES
Benham Distributors, Inc. (BDI) and BMC distribute and market Benham products
and services. BMC pays all expenses for promoting sales of and distributing the
Fund's shares. The Fund does not pay commissions to, or receive compensation
from, broker-dealers.
BDI is a wholly owned subsidiary of BMI.
31
<PAGE>
INDEX COMPANIES*
Agnico Eagle Mines, Ltd.
Alta Gold Company
Amax Gold, Inc.
American Barrick Resources Corp.
AUR Resources, Inc.
Battle Mountain Gold Company
Cambior, Inc.
Coeur D'Alene International, Ltd.
Crown Resources, Inc.
Echo Bay Mines, Ltd.
Euro-Nevada Mining Corporation, Ltd.
First Mississippi Gold, Inc.
FMC Gold Company
Franco-Nevada Mining, Ltd.
Glamis Gold, Ltd.
Golden Knight Resources, Inc.
Hecla Mining Company
Hemlo Gold Mines, Inc.
Homestake Mining Company
Kinross Gold Corporation (effective January 14, 1995)
LAC Minerals, Ltd.
Newmont Mining Company
Pegasus Gold, Inc.
Placer Dome, Inc.
Prime Resources Inc.
Royal Oak Mines, Ltd.
Teck Corporation, Class B
TVX Gold, Inc.
Viceroy Resources Corp.
Wharf Resources, Ltd.
* This listing reflects changes made following the annual review of the Index
and approval by the board of directors on December 16, 1994.
32
<PAGE>
INVESTMENT ADVISOR
BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043
DISTRIBUTOR
BENHAM DISTRIBUTORS, INC.
1665 Charleston Road
Mountain View, California 94043
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02101
TRANSFER AGENT
BENHAM FINANCIAL SERVICES, INC.
1665 Charleston Road
Mountain View, California 94043
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG PEAT MARWICK LLP
3 Embarcadero Center
San Francisco, California 94111
LEGAL COUNSEL
DECHERT PRICE & RHOADS
1500 K Street, N.W. Suite 500
Washington, DC 20005
DIRECTORS
James M. Benham
John T. Kataoka
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
Jeanne D. Wohlers
33
<PAGE>
THE BENHAM GROUP OF INVESTMENT COMPANIES
Capital Preservation Fund
Capital Preservation Fund II
Benham Prime Money Market Fund
Benham Government Agency Fund
Benham Short-Term Treasury and Agency Fund
Benham Treasury Note Fund
Benham Long-Term Treasury and Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham GNMA Income Fund
Benham Target Maturities Trust
Benham California Tax-Free and Municipal Funds*
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund**
Benham Florida Municipal Intermediate-Term Fund**
Benham Arizona Municipal Intermediate-Term Fund***
Benham Gold Equities Index Fund
Benham Income & Growth Fund
Benham Equity Growth Fund
Benham Utilities Income Fund
Benham Global Natural Resources Index Fund
Benham European Government Bond Fund
Benham Capital Manager Fund
* Available only to residents of California, Arizona, Colorado, Hawaii, Nevada,
New Mexico, Oregon, Texas, Utah, and Washington.
** Available only to residents of Florida, California, Georgia, Illinois,
Michigan, New Jersey, New York, and Pennsylvania.
***Available only to residents of Arizona, California, Colorado, Nevada, Oregon,
Washington, and Texas.
34
<PAGE>
NOTES:
35
<PAGE>
CONTENTS
Summary of Fund Expenses ............... 3
Financial Highlights ................... 4
How The Fund Works ..................... 6
Investment Objective .......... 6
Core Investment Strategies .... 6
Risk Factors ........................... 8
Other Investment Policies and Techniques 8
Portfolio Transactions ................. 12
Performance ............................ 12
Share Price ............................ 13
How to Invest .......................... 14
Shareholder Services ................... 18
Exchange Privilege ............ 18
Open Order Service ............ 18
Automatic Investment Services . 19
Broker-Dealer Transactions..... 20
TDD Service ................... 20
Emergency Services ............ 20
How to Redeem Your Investment .......... 21
About Benham-Sponsored Retirement Plans 24
Distributions and Taxes ................ 26
Management Information ................. 29
About Benham Equity Funds ..... 29
The Benham Group .............. 29
Advisory and Service Fees ..... 30
Expense Limitation Agreement .. 31
Distribution of Shares ........ 31
<PAGE>
BENHAM GOLD EQUITIES INDEX FUND
A SERIES OF BENHAM EQUITY FUNDS
THE BENHAM GROUP
1665 Charleston Road
Mountain View, CA 94043
Shareholder Relations: 1-800-321-8321 or 1-415-965-4222
Fund Information: 1-800-331-8331 or 1-415-965-4274
STATEMENT OF ADDITIONAL INFORMATION
February 22, 1995
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated February 22, 1995. The Fund's Annual Report for
the fiscal year ended December 31, 1994, is included in this Statement of
Additional Information. To obtain a copy of the Prospectus, call or write The
Benham Group.
TABLE OF CONTENTS
Page
Investment Policies and Techniques 2
Investment Restrictions 8
Portfolio Transactions 10
Valuation of Portfolio Securities 11
Performance 11
Taxes 13
About Benham Equity Funds 14
Directors and Officers 15
Investment Advisory Services 17
Administrative and Transfer Agent Services 18
Direct Fund Expenses 19
Expense Limitation Agreement 20
Additional Purchase and Redemption Information 20
Appendix 21
Financial Statements 22
1
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of securities and
investment practices identified in the Prospectus. Unless otherwise noted, the
policies described in this Statement of Additional Information are not
fundamental and may be changed by the board of directors.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities, including bills, notes, and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are backed by the direct "full faith and credit" pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
government to purchase the agencies' obligations; and others are supported only
by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
WHEN-ISSUED AND FORWARD-COMMITMENT AGREEMENTS
The Fund may engage in securities transactions on a when-issued or
forward-commitment basis, in which the transaction price and yield are each
fixed at the time the commitment is made, but payment and delivery occur at a
future date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward-commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments to purchase or sell
securities on a when-issued or forward-commitment basis with the intention of
actually receiving or delivering them, it may, nevertheless, sell the securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.
In purchasing securities on a when-issued or forward-commitment basis, the Fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents, or high-quality securities in an amount
sufficient to meet the purchase price. When the time comes to pay for
when-issued securities, the Fund will meet its obligations with available cash,
through the sale of securities or, although it would not normally expect to do
so, through sales of the when-issued securities themselves (which may have a
market value greater or less than the Fund's payment obligation). Selling
securities to meet when-issued or forward-commitment obligations may generate
capital gains or losses.
As an operating policy, the Fund will not commit more than 35% of its assets to
when-issued or forward-commitment agreements. If fluctuations in the value of
securities held cause more than 35% of the Fund's assets to be committed under
when-issued or forward-commitment agreements, BMC need not sell such
commitments, but it will be restricted from entering into further agreements on
behalf of the Fund until the percentage of assets committed to such agreements
is reduced to 35%. In addition, as an operating policy, the Fund will not enter
into when-issued or firm-commitment transactions with settlement dates exceeding
120 days.
2
<PAGE>
CONVERTIBLE SECURITIES
The Fund may buy securities that are convertible into common stock. The
following is a brief description of the various types of convertible securities
the Fund may buy.
CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds of the
same quality and maturity, but they give holders the option to exchange their
bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value and the option to convert to common shares becomes
more valuable.
CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds; however, they do not have a maturity date. Due to their fixed-income
features, convertible issues typically are more sensitive to interest rate
changes than the underlying common stock. In the event of liquidation,
bondholders would have claims on company assets senior to those of stockholders;
preferred stockholders would have claims senior to those of common stockholders.
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.
REPURCHASE AGREEMENTS
In a repurchase agreement (repo), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at at an agreed upon price
on a specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed-upon rate of return and that is unrelated to the interest
rate on the underlying security.
The advisor attempts to minimize the risks associated with repurchase agreements
by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) who are deemed to be
creditworthy under guidelines established by a nationally recognized statistical
rating organization and approved by the Fund's board of directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed-upon resale price, provided, however, that the board of directors may
determine that a broker-dealer's credit standing is sufficient to allow
collateral to fall to as low as 101% of the agreed-upon resale
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price before the broker-dealer deposits additional securities with the Fund's
custodian or sub-custodian;
(5) Investing no more than 5% of the Fund's total assets in repurchase
agreements that mature in more than seven days (together with any other illiquid
securities the Fund holds); and
(6) Taking delivery of securities subject to repurchase agreement and holding
them in a segregated account at the Fund's custodian bank.
The Fund has received permission from the Securities and Exchange Commission to
participate in pooled repurchase agreements collateralized by U.S. government
securities with other mutual funds advised by Benham Management Corporation
(BMC), the Fund's investment advisor. Pooled repos are expected to increase the
income the Fund can earn from repo transactions without increasing the risks
associated with these transactions.
FOREIGN SECURITIES
Although the Fund may buy securities of foreign issuers in foreign markets, most
of its foreign securities investments are made by purchasing American Depositary
Receipts (ADRs), "ordinary shares," or "New York shares" in the U.S. For
example, several companies represented in the Benham North American Gold
Equities Index are based in Canada, although their shares trade in U.S. dollars
on U.S. exchanges.
ADRs are dollar-denominated receipts representing interests in the securities of
a foreign issuer. They are issued by U.S. banks and traded on exchanges or over
the counter in the U.S. Ordinary shares are shares of foreign issuers that are
traded abroad and on a U.S. exchange. New York shares are shares that a foreign
issuer has allocated for trading in the U.S. ADRs, ordinary shares, and New York
shares all may be purchased with and sold for U.S. dollars, which protects the
Fund from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies and of dividends from such securities can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that apply to U.S. companies, and it may be more difficult
to obtain reliable information regarding a foreign issuer's financial condition
and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial fees, are generally
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
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Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments that are adverse to the interests of U.S.
investors, including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment, or restrictions
on the ability to repatriate assets or to convert currency into U.S. dollars.
There may be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.
To offset the currency risks associated with investing in securities of foreign
issuers, the Fund may hold foreign currency deposits and may convert dollars and
foreign currencies in the foreign exchange markets. Currency conversion involves
dealer spreads and other costs, although commissions usually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis or by entering into
forward contracts to purchase or sell foreign currencies at a future date and
price. By entering into a forward contract to buy or sell the amount of foreign
currency involved in a security transaction for a fixed amount of U.S. dollars,
BMC can protect the Fund against losses resulting from adverse changes in the
relationship between the U.S._dollar and the foreign currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received. However, it should be noted that using forward contracts to
protect the Fund's foreign investments from currency fluctuations does not
eliminate fluctuations in the prices of the underlying securities themselves.
Forward contracts simply establish a rate of exchange that can be achieved at
some future point in time. Additionally, although forward contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they also limit any gain that might result if the hedged currency's value were
to increase.
Foreign exchange dealers do not charge fees for currency conversions. Instead,
they realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. A dealer may offer to sell
a foreign currency at one rate while simultaneously offering a lesser rate of
exchange on the purchase of that currency.
BMC uses forward contracts for currency hedging purposes only and not for
speculative purposes. The Fund is not required to enter into forward contracts
with regard to its foreign holdings and will not do so unless doing so is deemed
appropriate by the advisor.
The Fund's assets are valued daily in U.S. dollars, although foreign currency
holdings are not physically converted into U.S. dollars on a daily basis.
INTEREST RATE SWAPS
Swap transactions contemplated by BMC typically would involve entering into a
contract with a broker-dealer to receive the total returns of a specific Index
security or basket of Index securities (minus a fee) in exchange for periodic
payments based on a money market interest rate index such as the London
Interbank Offered Rate (LIBOR).
The net amount of the excess, if any, of one party's obligations over its
entitlements with respect to the interest rate swap agreement would be accrued
on a daily basis, and an equal amount of
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cash, cash equivalents, or high-grade liquid debt securities would be maintained
in a segregated account by the Fund's custodian.
The Fund would not enter into an interest rate swap transaction unless: (1) the
unsecured senior debt or claims-paying ability of the other party was rated in
the top two rating categories by at least two rating agencies at the time the
transaction was entered into, (2) unless it was so rated by one such rating
agency if unrated by the other two, or (3) if unrated by all three, it was
considered by the advisor to be of comparable quality.
If the other party to a swap transaction defaulted, the Fund would have certain
contractual remedies under the agreement but would nonetheless bear a risk of
loss of unrealized income (not principal) in the event of default or bankruptcy
of the broker-dealer.
Certain restrictions imposed on the Fund by the Internal Revenue Code may limit
the Fund's ability to use swap agreements. The swap market is relatively new and
largely unregulated. It is possible that developments in the swap market,
including government regulation, could adversely affect the Fund's ability to
terminate existing agreements or to realize amounts to be received under such
agreements. BMC believes that the swap market is relatively liquid. However, as
long as the SEC staff considers swap agreements to be illiquid, the Fund intends
to treat them as such for purposes of its investment restrictions.
In the event that the unsecured senior debt or claims-paying ability of the
other party to an interest rate swap transaction ceased to be rated or was
downgraded by a rating agency, BMC would, although it would not be required to,
sell or exchange such instrument within a reasonable time thereafter, taking
into consideration such factors as price, credit risk, market conditions,
interest rates, and other hedging strategies available to the Fund.
GOLD FUTURES CONTRACTS
The Fund may enter into contracts for the future delivery of gold. A gold
futures contract is an agreement between two parties to buy and sell gold
bullion on a future date at a specified price. The purchaser of a gold futures
contract is bound by the terms of the contract to pay a fixed price for gold to
be delivered on a fixed date in the future. The seller of a gold futures
contract is obligated to deliver gold on a fixed date in the future in exchange
for a fixed price. Contracts of this type involve daily settlement, in cash, of
the gain or loss on the underlying gold. Although futures contracts, by their
terms, require actual delivery and acceptance of the underlying metal, in most
cases the contracts are closed out before the settlement date.
Gold futures contracts are standardized obligations traded on major commodities
exchanges. In the United States, gold futures contracts trade on the Commodity
Exchange, Inc. in New York, the Chicago Board of Trade, and the Mid-America
Commodity Exchange in Chicago. Gold futures contracts traded on U.S._commodity
exchanges are subject to regulation by the applicable exchange and by the
Commodity Futures Trading Commission (CFTC). The CFTC's mandate is to prevent
price manipulation and excessive speculation and to promote orderly and
effective commodity futures markets. CFTC regulations may include trading,
price, and position limits as well as margin requirements.
When the Fund purchases or sells a futures contract, it deposits an initial
margin with its custodian equal to a percentage of the contract's value. If the
value of either party's position
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changes, that party is required to make maintenance margin payments to settle
the change in value on a daily basis. The Fund makes a payment if its futures
position becomes less valuable, and it receives a payment if its futures
position becomes more valuable.
Positions in gold futures contracts may be closed out only on an exchange or
board of trade that provides a secondary market for such contracts. Although the
Fund intends to purchase contracts only on national exchanges or boards of trade
where there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular contract at any
particular time.
Because it is possible to enter into a gold futures contract by making an
initial payment of as little as 5% of the value of the underlying gold, these
contracts can involve a high degree of risk. A small decline in the price of the
underlying gold could result in the loss of most or all of the cash invested.
Pursuant to a 1988 undertaking with the State of California, the Fund's combined
margin deposits on gold futures contracts may not exceed 5% of the Fund's net
assets. The extent to which the Fund enters into gold futures contracts (and
forward foreign currency transactions) may also be limited by the fact that the
Fund intends to meet Internal Revenue Service requirements for qualification as
a regulated investment company, including requirements regarding diversification
of assets and qualifying income. To assure that the Fund's investments in gold
futures contracts do not involve leveraging, cash or cash equivalents equal to
the underlying commodity value (at the time a contract is executed) of any gold
futures contract purchased by the Fund (less related margin deposits) will be
deposited in a segregated account with the Fund's custodian.
SECURITIES LENDING
The Fund may lend its portfolio securities to earn additional income, subject to
the following guidelines prescribed by the board of directors:
(1) The borrower must provide and maintain collateral consisting of cash or full
faith and credit U.S. government securities equal to at least 102% of the value
of the securities loaned;
(2) The Fund must have the option to terminate the loan and recover its
securities within the normal settlement period for the types of securities
loaned; and
(3) The borrower must agree that the Fund will receive all dividends, interest,
or other distributions on the loaned securities and that the Fund will be paid a
reasonable return on such loans, either in the form of a loan fee premium or by
allowing the Fund to retain part or all of the earnings or profits realized from
investing the cash collateral in full faith and credit U.S. government
securities.
RESTRICTED SECURITIES
Restricted securities held by the Fund generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the Fund may be required to pay all or part of the registration
expense, and a considerable period may elapse between the time it decides to
seek registration of the securities and the time it is permitted to sell them
under an effective
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registration statement. If, during this period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to try to register the securities initially.
CHANGES IN THE INDEX
BMC reviews the Benham North American Gold Equities Index with the board of
directors annually. Companies that meet the inclusion criteria (set forth in the
Prospectus) at that time are added. A company may be dropped from the Index if
it does not meet all of the following criteria:
(1) The company must derive at least one-third of its revenues or net profits
from gold operations;
(2) The company must have a market capitalization of at least $20 million;
(3) There must be a liquid trading market for the company's shares;
(4) The company must maintain its headquarters in North America, or the value of
the gold produced by the company's North American gold operations must be equal
to at least one-third of the value of the gold produced by all of its gold
operations; and
(5) The company must have met the inclusion criteria at least once during the
preceding five years, either at the time it was added or at the time of an
annual review.
The Fund's board of directors may change the Index criteria (set forth in the
Prospectus) and the criteria for continued inclusion in the Index (set forth
above) at the time of its annual review. These criteria will be altered if they
cease to adequately represent the characteristics of large North American gold
companies.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions are set forth below. Except for those
designated as operating policies, these restrictions are fundamental and may not
be changed without approval of "a majority of the outstanding voting securities"
of the Fund as defined in the Investment Company Act of 1940. Unless otherwise
indicated, percentage limitations included in the restrictions apply at the time
transactions are entered into. Accordingly, any later increase or decrease
beyond the specified limitation resulting from changes in the Fund's net assets
will not be considered in determining whether it has complied with its
investment restrictions.
(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 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.
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(2) The Fund may not act as an 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 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.
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(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 the 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).
(15) As an operating policy, the Fund may not purchase or sell options of any
kind.
(16) 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.
PORTFOLIO TRANSACTIONS
The Fund's assets are invested by BMC in a manner consistent with the Fund's
investment objective, policies, and restrictions and with any instructions from
the board of directors that may be issued from time to time. Within this
framework, BMC is responsible for making all determinations as to the purchase
and sale of portfolio securities and for taking all steps necessary to implement
securities transactions on behalf of the Fund. In placing orders for the
purchase and sale of portfolio securities, BMC will use its best efforts to
obtain the best possible price and execution and otherwise will place orders
with broker-dealers subject to and in accordance with any instructions from the
board of directors that may be issued from time to time. BMC will select
broker-dealers to execute portfolio transactions on behalf of the Fund solely on
the basis of best price and execution.
Under normal conditions, the Fund's annual portfolio turnover rate is not
expected to exceed 100%. The table below illustrates the Fund's portfolio
turnover rates for the fiscal years ended December 31, 1994 and 1993.
PORTFOLIO TURNOVER RATES
FISCAL FISCAL
1994 1993
41.67% 28.38%
Brokerage commissions paid by the Fund during the fiscal years ended December
31, 1994, 1993, and 1992, are indicated in the following table.
BROKERAGE COMMISSIONS
FISCAL FISCAL FISCAL
1994 1993 1992
$1,533,658 $1,465,792 $770,442
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VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share (NAV) is determined by Benham Financial
Services, Inc. (BFS) at 1:00 p.m. Pacific Time each day the New York Stock
Exchange (NYSE) is open for business. The NYSE has designated the following
holiday closings for 1995: New Year's Day (observed), Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Although BFS expects the same holiday schedule to be observed in
the future, the NYSE may modify its holiday schedule at any time.
BMC typically completes its trading on behalf of the Fund in various markets
before the NYSE closes for the day. Securities are valued at market, depending
upon the market or exchange on which they trade. Price quotations for
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Stocks traded on exchanges or over-the-counter are valued
according to last sale prices, if such prices are available, or at the current
bid price. Fixed-income securities are priced at market value on the basis of
market quotations supplied by independent pricing services. Foreign currency
exchange rates are also determined prior to the close of the NYSE. Trading of
securities in foreign markets may not take place on every day the NYSE is open,
and trading takes place in various foreign markets on days on which the NYSE and
the Fund's offices are not open and the Fund's net asset value is not
calculated. The Fund's net asset value may be significantly affected on days
when shareholders have no access to the Fund. Securities for which market
quotations are not readily available, or which may change in value due to events
occurring after their primary exchange has closed for the day, are valued at
fair market value as determined in good faith under the direction of the board
of directors.
PERFORMANCE
The Fund's total returns may be quoted in advertisements and sales literature.
Total returns reflect all aspects of the Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share during the period. The Fund's share price and
total returns will vary.
Past performance should not be considered an indication of future results.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over ten years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time but changes from year to year and that average annual
returns represent averaged figures as opposed to actual year-to-year
performance.
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The Fund's average annual total returns for the one-year, five-year, and
life-of-fund periods ended December 31, 1994, are indicated in the table below.
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS LIFE OF FUND*
- -16.75% -.29% 2.40%
* The Fund commenced operations on August 17, 1988.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns, which reflect the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return.
The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike the Benham
funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons include, but are not limited
to: U.S. Treasury bill, note, and bond yields, money market fund yields, U.S.
government debt and percentage held by foreigners, the U.S. money supply, net
free reserves, and yields on current-coupon GNMAs (source: Board of Governors of
the Federal Reserve System); the federal funds and discount rates (source:
Federal Reserve Bank of New York); yield curves for U.S. Treasury securities and
AA/AAA-rated corporate securities (source: Bloomberg Financial Markets); yield
curves for AAA tax-free municipal securities (source: Telerate); yield curves
for foreign government securities (sources: Bloomberg Financial Markets and Data
Resources, Inc.); total return on foreign bonds (source: J.P. Morgan Securities
Inc.); various U.S. and foreign government reports; the junk bond market
(source: Data Resources, Inc.); the CRB Futures Index (source: Commodity Index
Report); the price of gold (sources: London am/pm fixing and New York Comex Spot
Price); rankings of any mutual fund or mutual fund category tracked by Lipper
Analytical Services, Inc. or Morningstar, Inc.; mutual fund rankings published
in major, nationally distributed periodicals; data provided by the Investment
Company Institute; Ibbotson Associates, Stocks, Bonds, Bills, and Inflation;
major indexes of stock market performance; and indexes and historical data
supplied by major securities brokerage or investment advisory firms.
Indexes may assume reinvestment of dividends, but generally they do not reflect
administrative and management costs such as those incurred by a mutual fund.
The Fund's sales literature may illustrate the market for gold within the
context of historical and current economic conditions. Specific illustrations
may include the relationship of the price of gold (per London pm fixing) to
30-year U.S. Treasury bond yields, 30-year U.S. Treasury bond prices, inflation
as measured by the Consumer Price Index, or equity securities as measured by the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) or the Dow Jones
Industrial Average.
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Occasionally, statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's net
asset value or performance to a market index. One measure of volatility is
"beta." Beta expresses Fund volatility relative to the total market as
represented by the S&P 500. A beta of more than 1.00 indicates volatility
greater than that of the market, and a beta of less than 1.00 indicates
volatility less than that of the market. Another measure of volatility or risk
is "standard deviation." Standard deviation is used to measure the variability
of net asset value or total return relative to an average over a specified
period of time. The premise is that greater volatility connotes greater risk
undertaken to achieve desired performance.
The Fund's shares are sold without a sales charge (or "load"). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies. For example, if you invest $10,000 in a
no-load fund, 100% of your investment is used to buy shares. If you invest
$10,000 in a fund with a 5.5% load, only $9,450 ($10,000 minus $550) is used to
buy shares. Over time, this difference can have a significant effect on total
return. Assuming a compounded annual growth rate of 10% for both investments,
the no-load fund investment would be worth $25,937 after ten years, while the
load fund investment would be worth only $24,511.
The Benham Group has distinguished itself as an innovative provider of low-cost,
true no-load mutual funds. Among other innovations, The Benham Group established
the first no-load fund that invests primarily in zero-coupon U.S. Treasury
securities; the first no-load double tax-free California short-term bond fund;
the first no-load adjustable rate government securities fund; the first no-load
AAA-rated European government bond fund; and the first no-load utilities fund
designed to pay monthly dividends.
BMC may obtain ratings on the safety of Fund shares from one or more nationally
recognized statistical rating organizations (rating agencies) and may publish
such ratings in advertisements and sales literature.
TAXES
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. By so qualifying, the Fund will be
exempt from federal and California income taxes to the extent that it
distributes substantially all of its net investment income and net realized
capital gains to shareholders.
Distributions from the Fund are taxable to shareholders regardless of whether
they are taken in cash or reinvested in additional shares. For federal income
tax purposes, shareholders receiving distributions in the form of additional
shares will have a basis in each such share equal to the Fund's net asset value
per share on the reinvestment date.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. The board of directors does not
expect to declare dividends on a regular basis. However, to the extent that
dividends are declared and to the extent that they consist of dividend income
from domestic corporations, such dividends may be eligible for the
dividends-received deduction available to corporations. Shareholders will be
notified annually of the federal tax status of distributions.
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Upon redeeming, selling, or exchanging shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares
liquidated. The gain or loss generally will be long-term or short-term,
depending on the length of time shares were held. However, a loss recognized by
a shareholder in the disposition of shares on which capital gain dividends were
paid (or deemed paid) before the shareholder had held his or her shares for more
than six months would be treated as a long-term capital loss for tax purposes. A
gain realized on the redemption, sale, or exchange of shares would not be
affected by the reacquisition of shares. A loss realized on the redemption,
sale, or exchange of shares would be disallowed to the extent that the shares
disposed of were replaced (whether through reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the date shares were disposed of. Under such circumstances, the basis
of the shares acquired would be adjusted to reflect the disallowed loss.
As described in the Prospectus, the Fund intends to elect to consider any
foreign taxes it pays as paid by shareholders if foreign securities represent
more than 50% of the value of its total assets at the close of any fiscal year.
If the Fund makes this election, shareholders will be required, when computing
their federal taxes, to include their proportionate share of the foreign taxes
paid by the Fund as income and may be entitled to claim a credit or a deduction
for this amount.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S._tax attributable to his or her taxable income
from foreign sources. Gains realized by the Fund from the sale of securities
will be treated as derived from U.S._sources, and certain currency gains,
including gains from foreign-currency-denominated debt securities, receivables,
and payables, will be treated as income derived from U.S._sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, which may include certain dividends received from the Fund and
certain other types of income. Accordingly, shareholders may be unable to claim
a credit for the full amount of their proportionate share of the foreign taxes
paid by the Fund.
The information above is only a summary of some of the tax considerations
affecting the Fund and its shareholders; no attempt has been made to discuss
individual tax consequences. Shareholders who are neither citizens nor residents
of the U.S. may be subject to a nonresident alien withholding tax of 30% or a
lower treaty rate, depending on the country in which they reside. The Fund's
distributions also may be subject to state, local, or foreign taxes. To
determine whether the Fund is a suitable investment based on his or her tax
situation, a prospective investor may wish to consult a tax advisor .
ABOUT BENHAM EQUITY FUNDS
Benham Equity Funds (BEF) was organized as a California corporation on December
31, 1987, under the name "Benham Equities, Inc." The corporation was renamed
Benham Equity Funds on September 2, 1988. BEF is authorized to issue ten classes
of shares and to issue two billion (2,000,000,000) shares of each such class.
Within each class, the directors may issue an unlimited number of series.
Currently, there are four classes of shares: Benham Gold Equities Index Fund,
Benham Income & Growth Fund, Benham Equity Growth Fund, and Benham Utilities
Income Fund. With respect to each class, shares issued are fully paid and
nonassessable and have no preemptive, conversion, or similar rights. All
consideration received by BEF for shares of any class, and all assets, income,
and gains (or losses) earned thereon, belong to that series exclusively and are
subject to the liabilities related thereto.
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<PAGE>
Shares of each class have equal voting rights, provided that each class votes
separately on matters that pertain to it exclusively. Each shareholder is
entitled to cast one vote for each share held in his or her name as of the
record date for a shareholder meeting. Under California Corporations Code
Section 708, shareholders have the right to cumulate votes in the election (or
removal) of directors. For example, if six directors are up for election, a
shareholder may cast six votes for a single candidate, three votes for each of
two candidates, etc.
CUSTODIAN BANK: State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, is custodian of the Fund's assets. Services
provided by the custodian bank include (i) settling portfolio purchases and
sales, (ii) reporting failed trades, (iii) identifying and collecting portfolio
income, and (iv) providing safekeeping of securities. The custodian takes no
part in determining the Fund's investment policies or in determining which
securities are sold or purchased by the Fund.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT: KPMG Peat Marwick LLP, 3 Embarcadero
Center, San Francisco, California 94111, serves as BEF's independent certified
public accountant and provides services including (i) audit of annual financial
statements and (ii) preparation of annual federal income tax returns filed on
behalf of each series of BEF.
DIRECTORS AND OFFICERS
BEF's activities are overseen by a board of directors, including five
independent directors. The individuals listed below whose names are marked with
an asterisk (*) are "interested persons" of BEF (as defined in the Investment
Company Act of 1940) by virtue of, among other things, their affiliation with
either BEF; BEF's investment advisor, Benham Management Corporation (BMC); BEF's
agent for transfer and administrative services, Benham Financial Services, Inc.
(BFS); BEF's distribution agent, Benham Distributors, Inc. (BDI); the parent
corporation, Benham Management International, Inc. (BMI); or other funds advised
by BMC. Each director listed below also serves as a trustee or director of other
funds in The Benham Group. Unless otherwise noted, dates in parentheses indicate
the dates the director or officer began his or her service in a particular
capacity. The directors' and officers' address is 1665 Charleston Road, Mountain
View, California 94043.
*JAMES M. BENHAM, chairman of the board of directors (1988). Mr. Benham is also
chairman of the boards of BFS (1985), BMC (1971), BMI (1982), and BDI (1988);
president of BMC (1971), BMI (1982), and BDI (1988); and a member of the board
of governors of the Investment Company Institute (1989) and the Mutual Fund
Education Alliance (formerly the No-Load Mutual Fund Association, 1974). Mr.
Benham has been in the securities business since 1963, and he frequently
comments through the media on economic conditions, investment strategies, and
the securities markets.
*JOHN T. KATAOKA, director, president, and chief executive officer (1988). Mr.
Kataoka is also a director and president of BFS (1985); director and executive
vice president of BMC and BMI (1984); and executive vice president and chief
operating officer of BDI (1988).
MYRON S. SCHOLES, independent director (1988). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a director of
Dimensional Fund Advisors (1982) and the
.
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<PAGE>
Smith Breeden Family of Funds (1992). From August 1991 to June 1993, Mr. Scholes
was a managing director of Salomon Brothers Inc. (securities brokerage)
KENNETH E. SCOTT, independent director (1988). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a director of
RCM Capital Management (June 1994).
EZRA SOLOMON, independent director (1988). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a director of
Encyclopedia Britannica.
ISAAC STEIN, independent director (1992). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).
JEANNE D. WOHLERS, independent director (1988). Ms. Wohlers is a private
investor, and an independent director and partner of Windy Hill Productions, LP.
Previously, she served as vice president and chief financial officer of Sybase,
Inc. (software company, 1988 to 1992).
*BRUCE R. FITZPATRICK, vice president, chief financial officer, and treasurer
(1988).
*DOUGLAS A. PAUL, secretary (1988), vice president (1990), and general counsel
(1990).
*ANN N. MCCOID, controller (1988).
As of January 31, 1995, BEF's directors and officers, as a group, owned less
than 1% of the Fund's outstanding shares.
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<PAGE>
The following table summarizes the compensation that the directors of the Fund
received for the Fund's fiscal year ended December 31, 1994, as well as the
compensation received for serving as a director or trustee of all other Benham
funds.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
=========================================================================================================
NAME OF DIRECTOR AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON FROM FUND AND FUND
FUND PART OF FUND EXPENSES RETIREMENT COMPLEX* PAID TO
DIRECTORS
=========================================================================================================
<S> <C> <C> <C> <C>
James M. Benham $0 Not Applicable Not Applicable $0
- ---------------------------------------------------------------------------------------------------------
John T. Kataoka $0 Not Applicable Not Applicable $0
- ---------------------------------------------------------------------------------------------------------
Myron S. Scholes $3,111 Not Applicable Not Applicable $62,000
- ---------------------------------------------------------------------------------------------------------
Kenneth E. Scott $3,239 Not Applicable Not Applicable $72,250
- ---------------------------------------------------------------------------------------------------------
Ezra Solomon $3,098 Not Applicable Not Applicable $74,750
- ---------------------------------------------------------------------------------------------------------
Isaac Stein $2,859 Not Applicable Not Applicable $68,750
- ---------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $3,077 Not Applicable Not Applicable $71,000
=========================================================================================================
</TABLE>
* The Benham Group fund complex currently consists of 41 investment companies.
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with Benham Management Corporation
(BMC), dated August 4, 1992, that was approved by shareholders on that date.
BMC is a California corporation and a wholly owned subsidiary of Benham
Management International, Inc. (BMI). BMI is a California corporation owned by
James M. Benham and a group of private investors. As owner of 100% of BMI's
voting stock, Mr. Benham controls both BMI and BMC. BMC has been a registered
investment advisor since 1971 and is investment advisor to other funds in The
Benham Group.
James M. Benham and John T. Kataoka are directors and officers of BMC. Messrs.
Benham and Kataoka also serve as directors, and Mr. Kataoka serves as president,
of BEF.
The Fund's agreement with BMC continues from year to year provided that it is
approved at least annually by vote of a majority of the Fund's shareholders or
by vote of a majority of the Fund's directors, including a majority of those
directors who are neither parties to the agreement nor interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.
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<PAGE>
The agreement is terminable on sixty days' written notice, either by the Fund or
by BMC, to the other party and terminates automatically in the event of its
assignment.
Pursuant to the investment advisory agreement, BMC provides the Fund with
investment advice and portfolio management services in accordance with the
Fund's investment objective, policies, and restrictions. BMC determines which
securities will be purchased and sold by the Fund. It also assists the Fund's
officers in carrying out decisions made by the board of directors.
Under the investment advisory agreement, the Fund pays BMC a monthly investment
advisory fee equal to its pro rata share of the dollar amount derived from
applying BEF's average daily net assets to the following investment advisory fee
rate schedule:
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of net assets over $6.5 billion.
An investment advisory agreement between BEF and BMC in effect prior to August
4, 1992, provided that BEF would pay BMC a monthly investment advisory fee
according to a schedule that ranged from .50% of BEF's average daily net assets
up to $100 million to a marginal rate of .25% of BEF's average daily net assets
over $500 million. The dollar amount derived from applying BEF assets to this
fee rate schedule was apportioned to each series of BEF based on its average net
assets relative to other series of BEF. BMC voluntarily agreed to adopt the
extended fee rate schedule shown above effective June 1, 1991, pending
shareholder approval of the August 4, 1992 contract.
Investment advisory fees paid by the Fund to BMC for the fiscal years ended
December 31, 1994, 1993, and 1992, are indicated in the following table. Fee
amounts are net of expense limitations and recoupments as described below.
INVESTMENT ADVISORY FEES
FISCAL FISCAL FISCAL
1994 1993 1992
$1,884,679 $1,325,964 $441,713
ADMINISTRATIVE AND TRANSFER AGENT SERVICES
Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of BMI, is
BEF's agent for transfer and administrative services.
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<PAGE>
For administrative services, the Fund pays BFS a monthly fee based on its pro
rata share of the dollar amount derived from applying the aggregate average
daily net assets of all of the funds in The Benham Group to the following
administrative fee rate schedule:
GROUP ASSETS ADMINISTRATIVE FEE RATE
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
Prior to May 1, 1993, the administrative fee rate schedule ranged from .10% for
assets up to $4.5 billion to .07% for assets over $7.5 billion. This fee rate
schedule was adopted by BFS on a voluntary basis effective January 1, 1991, and
then formalized under a revised Administrative Services and Transfer Agency
Agreement that became effective on June 1, 1992.
For transfer agent services, the Fund pays BFS monthly fees of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by the Fund to BFS for the
fiscal years ended December 31, 1994, 1993, and 1992, are indicated in the
following table. Fee amounts are net of expense limitations as described below.
ADMINISTRATIVE FEES
FISCAL FISCAL FISCAL
1994 1993 1992
$583,896 $356,629 $125,849
TRANSFER AGENT FEES
FISCAL FISCAL FISCAL
1994 1993 1992
$645,099 $428,747 $211,617
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by BMC or BFS.
These include fees and expenses of the independent directors; custodian, audit,
and pricing fees; fees of outside counsel and counsel employed directly by BEF;
costs of printing and mailing prospectuses, statements of additional
information, notices, confirmations, and reports to shareholders; fees for
registering the Fund's shares under federal and state securities laws; brokerage
fees and commissions; trade association dues; costs of fidelity and liability
insurance policies covering the Fund; costs for incoming WATS lines maintained
to receive and handle shareholder inquiries; and organizational costs.
19
<PAGE>
EXPENSE LIMITATION AGREEMENTS
As part of the administrative services and transfer agency agreement between BEF
and BFS in effect through May 31, 1992, the directors set an expense limitation,
pursuant to which BFS would limit the Fund's expenses to .75% of the Fund's
average daily net assets. The agreement provided that BFS could recover amounts
absorbed on behalf of the Fund during the preceding 11 months if, and to the
extent that, for any given month, the Fund's expenses were less than .75% of
average daily net assets.
On June 1, 1992, the directors established a separate Reimbursement and Expense
Allocation Agreement (R&EA Agreement) between BEF, BMC, and BFS, pursuant to
which BMC and BFS limited the Fund's expenses to .75% of the Fund's average
daily net assets. Amounts absorbed on behalf of the Fund were apportioned to BMC
and BFS based on the income each had received from the Fund. The R&EA Agreement
provided further that BMC and BFS could recover amounts absorbed on behalf of
the Fund during the preceding 11 months if, and to the extent that, for any
given month, the Fund's expenses were less than .75% of average daily net
assets.
The R&EA Agreement was superseded by an Expense Reimbursement Agreement on June
1, 1993. which provided that BMC could recover amounts absorbed on behalf of the
Fund during the preceding 11 months if, and to the extent that, for any given
month, the Fund's expenses were less than .75% of average daily net assets. The
Expense Reimbursement Agreement included a provision giving BFS the ability to
recover amounts absorbed on behalf of the Fund under the R&EA Agreement for up
to 11 months following June 1, 1993, subject to the conditions described for
recoupments by BMC.
On October 16, 1993, the board of trustees approved an amended Expense
Reimbursement Agreement that limits the Fund's expenses to .75% of average daily
net assets. This contained no material revisions with respect to the Fund.
Net amounts absorbed and recouped for the fiscal years ended December 31, 1994,
1993, and 1992, are indicated in the table below.
NET AMOUNTS ABSORBED (RECOUPED) BY BMC AND BFS
FISCAL FISCAL FISCAL
1994 1993 1992
$0 $47,247 $191,623
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are offered continuously at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
The Benham Group may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling BEF or one of its series;
to avoid jeopardizing a series' tax status; or whenever, in management's
opinion, such rejection is in BEF's or a series' best interest. As of January
31, 1995, Charles Schwab & Co., 101 Montgomery Street, San
20
<PAGE>
Francisco, CA 94104, was the record holder of 5,790,811.203 shares of the Fund
(or 12.31% of the Fund's total shares outstanding). As of January 31, 1995, to
BEF's knowledge, no other shareholder was the record holder or beneficial owner
of 5% or more of the Fund's total shares outstanding.
The Benham Group charges neither fees nor commissions on the purchase and sale
of Benham fund shares. However, BFS may charge fees for special services
requested by a shareholder or necessitated by acts or omissions of a
shareholder. For example, BFS may charge a fee for processing dishonored
investment checks or stop-payment requests. BFS charges $10 per hour for account
research requested by investors. This charge will be assessed, for example, when
a shareholder request requires more than one hour of research on historical
account records. The fees charged are based on the estimated costs of performing
shareholder-requested services and are not intended to increase income.
Share purchases and redemptions are governed by California law.
APPENDIX
BEF's investment advisor has been continuously registered with the Securities
and Exchange Commission under the Investment Advisers Act of 1940 since December
14, 1971. BEF has filed a registration statement under the Securities Act of
1933 and the Investment Company Act of 1940 with respect to the shares offered.
These registrations do not imply approval or supervision of BEF or the advisor
by the Securities and Exchange Commission.
For further information, refer to the registration statement and exhibits on
file with the Securities and Exchange Commission in Washington, D.C. These
documents are available upon payment of a reproduction fee. Statements in the
Prospectus and this Statement of Additional Information concerning the contents
of contracts or other documents, copies of which are filed as exhibits to the
registration statement, are qualified by reference to such contracts or
documents.
21
