SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__
File No. 33-43321:
Pre-Effective Amendment No.______ ____
Post-Effective Amendment No.__7___ _X__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__
File No. 811-6441:
Amendment No.__8__
BENHAM INTERNATIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)
1665 Charleston Road, Mountain View, CA 94043
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: First Offered 1/7/92
It is proposed that this filing will become effective:
______ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on April 22, 1996 pursuant to paragraph (b) of Rule 485
______ 60 days after filing pursuant to paragraph (a) of Rule 485
______ on (date) pursuant to paragraph (a) of Rule 485
______ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On February 15, 1996, Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended December 31,
1995.
<PAGE>
FORM N-1A
CROSS-REFERENCE SHEET
BENHAM INTERNATIONAL FUNDS
BENHAM EUROPEAN GOVERNMENT BOND FUND
1933 ACT POST-EFFECTIVE AMENDMENT NO. 7
1940 ACT AMENDMENT NO. 8
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 (a) Summary of Fund Expenses
(b),(c) Not Applicable
3 (a) Financial Highlights
(b) Not Applicable
(c),(d) Performance
4 (a)(i) Cover Page, About Benham International Funds
(a)(ii),(b)How the Fund Works, Management Approach, Other Investment
Policies and Techniques
(c) Management Approach, Investment Considerations
5 (a) About Benham International Funds
(b)-(f) The Benham Group, Advisory and Service Fees, Summary of Fund
Expenses
(g) Not Applicable
5A Not Applicable
6 (a) About Benham International Funds, How to Redeem Your
Investment
(b)-(d) Not Applicable
(e) How to Invest
(f),(g) Distributions and Taxes
7 (a) Cover Page, Distribution of Shares
(b) Share Price, Broker-Dealer Transactions
(c) Not Applicable
(d) How to Buy Shares, About Benham-Sponsored Retirement Plans
(e),(f) Not Applicable
8 (a) How to Redeem Your Investment, How to Redeem Shares, About
Benham-Sponsored Retirement Plans
(b) Broker-Dealer Transactions
(c),(d) About Benham-Sponsored Retirement Plans, How to Redeem Your
Investment
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 (a) Investment Policies, Techniques and Risk Factors
(b) Investment Restrictions
(c) Investment Policies, Techniques and Risk Factors, Investment
Restrictions
(d) Portfolio Transactions
14 (a)-(b) Trustees and Officers
(c) Not Applicable
15 (a) Not Applicable
(b) Additional Purchase and Redemption Information
(c) Trustees and Officers
16 (a) Investment Advisory Services
(b)-(d) Investment Advisory Services, Administrative and Transfer
Agent Services, Expense Limitation Agreement
(e)-(g) Not Applicable
(h) About Benham International Funds
(i) Administrative and Transfer Agent Services
17 (a) Portfolio Transactions
(b) Not Applicable
(c),(d) Portfolio Transactions
(e),(f) Not Applicable
18 (a) About Benham International Funds
(b) Not Applicable
19 (a) Additional Purchase and Redemption Information
(b) Valuation of Portfolio Securities
(c) Not Applicable
20 Taxes
21 (a) Additional Purchase and Redemption Information
(b),(c) Not Applicable
22 Performance
23 Cover Page
<PAGE>
BENHAM EUROPEAN
GOVERNMENT
BOND FUND
Prospectus * April 22, 1996
[picture of map of Europe]
[company logo] The Benham Group (R)
Part of the Twentieth Century Family of Mutual Funds
- ------------------
[information in left margin of page]
THE BENHAM GROUP
1665 Charleston Rd.
Mountain View
California 94043
Fund
Information
1-800-331-8331
1-415-965-4274
Investor
Services
1-800-321-8321
1-415-965-4222
TDD Service
1-800-624-6338
1-415-965-4764
Benham Group
Representatives
are available
by telephone
weekdays from
5 a.m. to 5 p.m.
Pacific Time.
- ----------------
BENHAM EUROPEAN GOVERNMENT BOND FUND
A Series of Benham International Funds
Prospectus o April 22, 1996
BENHAM EUROPEAN GOVERNMENT BOND FUND seeks over the long term as high a level of
total return as is consistent with investment in the highest-quality European
government debt securities. The Fund, a non-diversified series of Benham
International Funds, is 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 whether the Fund's goals match your own. A Statement
of Additional Information (also dated April 22, 1996) 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 return 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.
2
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 the Fund's
historical expenses.
================================================================================
A. SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Sales load imposed on purchases ............................. None
Sales load imposed on reinvested dividends .................. None
Deferred sales load ......................................... None
Exchange fee ................................................ None
================================================================================
B. ANNUAL FUND OPERATING EXPENSES*
As a Percentage of Average Daily Net Assets
- --------------------------------------------------------------------------------
Investment advisory fee ..................................... .45%
12b-1 fee ................................................... None
Other expenses .............................................. .37%
Total Fund operating expenses ............................... .82%
* Benham Management Corporation (BMC) has agreed to limit the Fund`s total
operating expenses to a percentage of average daily net assets through May 31,
1996. This expense limitation effectively requires that total expenses paid by
the Fund not exceed .90% of average daily net assets. Amounts which are actually
paid by unaffiliated third parties do not apply to this expense limit. The
agreement provides that BMC may recover amounts absorbed on behalf of the Fund
during the preceding 11 months if, and to the extent that, for any given month,
the Fund`s expenses were less than the expense limit in effect at the time. The
expense limitation is subject to annual renewal in June.
The Fund pays BMC investment advisory fees equal to an annualized percentage of
the Fund's average daily net assets. Other expenses include administrative and
transfer agent fees paid to Benham Financial Services, Inc. (BFS).
- -------------------
[information in right margin of page]
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.
- -------------------
3
================================================================================
C. EXAMPLE OF EXPENSES
- --------------------------------------------------------------------------------
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 based on
the expenses shown in Table B assuming (i) a 5% annual return and (ii) full
redemption at the end of each time period, as follows:
One Year Three Years Five Years Ten Years
$8 $26 $46 $101
We include this table to help you understand the various costs and expenses that
you, as a shareholder, will bear 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 auditors. Their report on the financial statements and
financial highlights is included in the Fund's Annual Report, which is
incorporated by reference in the Fund's Statement of Additional Information.
4
================================================================================
BENHAM EUROPEAN GOVERNMENT BOND FUND
Years ended December 31 (except as noted)
- --------------------------------------------------------------------------------
1995 1994 1993 1992+
------- ------- ------- -------
PER-SHARE DATA
- --------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.36 $10.82 $10.01 $10.00
Income From
Investment Operations
Net Investment Income .61 .78 .69 .79
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currency Contracts
and Transactions 1.88 (.63) .49 .38
------ ------ ------ ------
Total Income From
Investment Operations 2.49 .15 1.18 1.17
------ ------ ------ ------
Less Distributions
Dividends from Net
Investment Income (.90) (.60) (.37) (.66)
Distributions from Net Realized
Gains on Investments and
Foreign Currency Contracts
and Transactions 0 (.01) 0 (.50)
------ ------ ------ ------
Total Distributions (.90) (.61) (.37) (1.16)
------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD $11.95 $10.36 $10.82 $10.01
====== ====== ====== ======
TOTAL RETURN* 24.40% 1.52% 11.79% 7.08%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands of dollars) $252,247 $194,301 $355,615 $337,043
Ratio of Expenses to Average
Daily Net Assets++ .82% .86% .85% .51%**
Ratio of Net Investment Income
to Average Daily Net Assets 6.14% 6.09% 6.27% 7.59%**
Portfolio Turnover Rate 167% 166% 310% 252%
+ Commencement of operations for Benham European Government Bond Fund was
January 7, 1992.
++ The ratio for the year ended December 31, 1995, includes expenses paid
through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
5
HOW THE FUND WORKS
The following pages contain a discussion of the Fund's investment objective and
policies. See "Other Investment Policies and Techniques" beginning on page 10
for a more detailed discussion of the types of securities the Fund may buy and
the risks associated with them.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek over the long term as high a level of
total return as is consistent with investment in the highest-quality European
government debt securities. The Fund's concentration policy therefore requires
that the Fund invest primarily in European government bonds.
The Fund's investment objective and concentration policy 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
trustees. There is no assurance that the Fund will achieve its investment
objective.
CORE INVESTMENT POLICIES
ISSUER DIVERSIFICATION. The Fund invests primarily in bonds issued or guaranteed
by European governments and their political subdivisions. The Fund currently
intends to invest in bonds issued by governments and political subdivisions of
Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the
Netherlands, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
Political subdivisions include states, provinces, and municipalities, as well as
federal, regional, state, and municipal agencies or instrumentalities. The Fund
may also invest in bonds issued by supranational organizations such as the World
Bank or the European Investment Bank.
Typically, the Fund invests more than 25% of its total assets in securities
issued by the German government or its political subdivisions. For temporary
defensive purposes, however, the Fund may invest less than 25% of its total
assets in these securities. The Fund does not expect to invest more than 25% of
its total assets in government debt securities of any one foreign country other
than Germany.
6
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.
To provide a margin of liquidity for shareholder redemptions and exchanges, the
Fund may invest up to 5% of its total assets in U.S. government securities held
directly or under a repurchase agreement. For temporary defensive purposes, the
Fund may invest more than 5% of its total assets in U.S. government securities.
The Fund may invest in AAA-rated corporate bonds denominated in European
currencies or European Currency Units (ECUs). However, the Fund will limit its
investments in such corporate bonds to those amounts which will help it satisfy
the diversification requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, (the "Code").
CREDIT QUALITY. Like U.S. Treasury securities, direct obligations of a European
government are backed by the full faith and credit of that government. European
government agency debt may or may not be backed by government guarantees.
Under normal market conditions, the Fund invests at least 65% of its total
assets in European government bonds which are rated AAA at the time of purchase
by a nationally recognized statistical rating organization (a "rating agency")
or considered by the subadvisor to be of comparable quality. If a rating agency
downgrades a security held by the Fund or judges a security to be less than AAA
quality, the security would be sold as quickly as possible without unnecessarily
destabilizing the Fund's share price or yield.
Currency Diversification. Bonds eligible for inclusion in the Fund's portfolio
may be denominated in European currencies or ECUs. ECUs are a composite currency
consisting of fixed amounts of currency of European Economic Community member
countries. A government may issue bonds in domestic currency, ECUs, or the
currency of another sovereign government. In this regard, the Fund may buy
Australian or Canadian bonds issued in European currencies or ECUs. Under normal
market conditions, at least 30% of the Fund's total assets are invested in
securities denominated in German marks.
- -------------------
[information in right margin of page]
Under normal conditions, at least 65% of the Fund's total assets are invested in
European government bonds rated AAA or judged to be of comparable quality by the
subadvisor.
Under normal market conditions, at least 30% of the Fund's total assets are
invested in securities denominated in German marks.
- -------------------
7
- -------------------
[information in left margin of page]
The Fund is designed for U.S. investors seeking currency and interest rate
diversification. Accordingly, JPMIM limits its use of currency hedging
strategies intended to minimize the effect of currency fluctuations.
- -------------------
DOLLAR-WEIGHTED AVERAGE MATURITY. The Fund's dollar-weighted average portfolio
maturity ranges from two to ten years.
MANAGEMENT APPROACH
INTERNATIONAL SUBADVISOR
J.P. Morgan Investment Management Inc. (JPMIM) is the Fund's subadvisor and is
responsible for its day-to-day operations. JPMIM is headquartered in New York
and maintains offices in most of the world's financial centers, including London
and Frankfurt.
STRATEGY
JPMIM selects the Fund's investments by using a combination of fundamental
research and bond and currency valuation models. The following is a brief
summary of factors considered by JPMIM in selecting the Fund's investments:
* ECONOMIC/POLITICAL FUNDAMENTALS: JPMIM evaluates each country's economic
climate and political discipline for controlling deficits and inflation.
* EXPECTED RETURN: Using economic forecasts, JPMIM projects the expected return
for investments in each country.
* RELATIVE VALUE: By contrasting expected risks and return for investments in
each country, JPMIM selects those countries expected to produce the best
return at reasonable risk.
CURRENCY MANAGEMENT
The rate of exchange between U.S. dollars and European currencies fluctuates,
which results in gains and losses to the Fund. Even if the Fund's foreign
security holdings perform well, an increase in the value of the dollar relative
to the currencies in which portfolio securities are denominated can offset
security gains.
Because the Fund is designed for U.S. investors seeking currency and interest
rate diversification, JPMIM limits its use of hedging strategies intended to
minimize the effect of currency fluctuations. Although hedging strategies (if
they are successful) reduce exchange rate risk, they also reduce the potential
for share price appreciation when European currencies increase in value relative
to the U.S. dollar.
8
When JPMIM considers the U.S. dollar to be attractive relative to European
currencies, as much as 25% of the Fund's total assets may be hedged into
dollars. For temporary defensive purposes and under extraordinary circumstances
(such as significant political events), more than 25% of the Fund's total assets
may be hedged in this manner.
In managing the Fund's currency exposure, JPMIM will buy and sell foreign
currencies regularly, either in the spot (i.e., cash) market or the forward
market. Forward foreign currency exchange contracts (forward contracts) are
individually negotiated and privately traded between currency traders (usually
large commercial banks) and their customers. In most cases, no deposit
requirements exist and these contracts are traded at a net price without
commission. Forward contracts involve an obligation to purchase or sell a
specific currency at an agreed-upon price on a future date. Most contracts
expire in less than one year. The Fund will not use futures and options for
speculative purposes.
INVESTMENT CONSIDERATIONS
The Fund may be appropriate for U.S. investors who:
* Want to protect their income against a decline in the purchasing power of the
U.S. dollar relative to that of foreign currencies;
* Want to diversify their investments beyond U.S. dollar-denominated securities
and interest rate exposure.
As market conditions change (i.e., interest rate, political, and economic
changes occur), the Fund's value will vary. The Fund's performance will be
affected by currency values, foreign economies, and other foreign investment
factors.
The Fund itself is not a balanced investment plan and works best for investors
prepared to ride out the international markets' ups and downs.
The risks which the Fund faces most frequently are those posed by fluctuations
in currency values. The value of the investments held by the Fund is calculated
in U.S. dollars on each day that the New York Stock Exchange (the "Exchange") is
open for business. As a result, to the extent that the Fund's assets are
invested in instruments
- -------------------
[information in right margin of page]
The Fund may be appropriate for U.S. investors who want to protect their income
against a decline in the purchasing power of the U.S. dollar relative to that of
foreign currencies.
- -------------------
9
denominated in currencies other than the U.S. dollar and such currencies
appreciate relative to the U.S. dollar, the Fund's net asset value per share as
expressed in U.S. dollars (and, therefore, the value of a shareholder's
investment in the Fund as expressed in U.S. dollars) should increase. If the
U.S. dollar appreciates relative to such other currencies, the converse should
occur, except to the extent that losses are offset by net investment income
generated by the U.S. dollar-denominated instruments in which the Fund invests.
The currency-related gains and losses experienced by the Fund will be based on
changes in the value of portfolio securities attributable to currency
fluctuations only in relation to the original purchase price of such securities
stated in U.S. dollars. An individual shareholder's gains or losses on his or
her shares will be based on changes attributable to fluctuations in the net
asset value of such shares, expressed in U.S. dollars, in relation to the
original U.S. dollar purchase price of such shares. The relative amount of
appreciation or depreciation in the Fund's assets also will be affected by
changes in the value of the securities that are unrelated to changes in currency
exchange rates.
Interest rates paid on instruments denominated in foreign currencies may be
higher or lower than those paid on comparable U.S. dollar instruments.
Consequently, the Fund may have a higher or lower yield than a fund which
invests strictly in U.S. dollar-denominated instruments.
OTHER INVESTMENT POLICIES AND TECHNIQUES
WHEN-ISSUED SECURITIES AND FORWARD-COMMITMENT AGREEMENTS. When-issued securities
and forward-commitment agreements fix a security's price and yield for future
payment and delivery. The market value of a 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 adversely affect the market value of the Fund's
assets. As an operating policy, the Fund will not commit more than 35% of its
total assets to when-issued or forward-commitment agreements.
10
SHORT-TERM INSTRUMENTS. For liquidity purposes, the Fund may invest in
high-quality money market instruments with remaining maturities of one year or
less. Such instruments may include European-currency-denominated obligations of
European governments, European government agencies, and supranational
organizations, as well as high-quality certificates of deposit.
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 trustees. 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 other
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
policies and restrictions. To avoid duplicative investment advisory fees, the
Fund does not pay BMC investment advisory fees with respect to assets invested
in shares of Benham money market funds.
FUTURES AND OPTIONS TRANSACTIONS. In order to manage the Fund's exposure to
changes in market conditions such as movements in securities prices, interest
rates, and domestic and foreign economies, the Fund may invest in futures and
options. As with many investments, futures and options can be highly volatile.
If BMC incorrectly judges market conditions in an attempt to reduce risk or
enhance return or if certain markets pose liquidity difficulties, losses may
occur, and the Fund's value may be adversely affected. The Fund will not use
futures and options for speculative purposes.
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 trustees, 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.
- -------------------
[information in right margin of page]
The Fund may engage in futures and options transactions, including currency
futures transactions.
- -------------------
11
- -------------------
[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 the Fund's annual and
semiannual reports to shareholders.
- -------------------
OTHER PORTFOLIO MANAGEMENT TECHNIQUES. JPMIM 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.
PORTFOLIO TRANSACTIONS
JPMIM will not trade portfolio securities in pursuit of short-term profits for
the Fund, although, when circumstances warrant, securities may be sold without
regard to their remaining maturities. Under normal conditions, the Fund's annual
portfolio turnover rate is expected to be approximately 250% and may vary from
year to year. Higher turnover rates increase transaction costs and may increase
taxable capital gains (or losses). Short-term realized capital gains distributed
to shareholders are treated as ordinary income. JPMIM carefully weighs the
potential benefits of short-term investing against these considerations.
Transaction costs are normally higher for foreign bonds than for U.S.
securities; therefore, the Fund's anticipated portfolio turnover rate may have a
larger negative impact on total return than it would if the Fund invested
primarily or exclusively in U.S. securities.
PERFORMANCE
Mutual fund performance is commonly expressed in terms of historical yield or
total return and may be quoted in advertising and sales literature. Past
performance is no guarantee of future results.
YIELD is calculated based on the income the Fund earned 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
12
cumulative total return if the Fund's performance had been constant over an
entire period. Average annual total returns smooth out variations in the Fund's
performance; they are not the same as year-by-year results.
Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Fund's annual and
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 2.
SHARE PRICE
The price of your shares is the net asset value (the "NAV") for the Fund next
determined after receipt of your instruction to purchase, convert or redeem. The
NAV is determined by calculating the total value of a Fund's assets, deducting
total liabilities and dividing the result by the number of shares outstanding on
each day that the Exchange is open at the close of the Exchange (usually 1:00
p.m. Pacific Time).
Investments and requests to redeem shares will receive the share price next
determined after receipt by Benham of the investment or redemption request. For
example, investments and requests to redeem shares received by Benham before the
close of business of the Exchange are effective on, and will receive the price
determined on that day as of the close of the Exchange. Investment and
redemption requests received thereafter are effective on, and receive the price
determined as of the close of the Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by Benham. Wired funds are considered received on the day they are
deposited in Benham's bank account if they are deposited before the close of
business on the Exchange, usually 1:00 p.m. Pacific Time.
Investment and transaction instructions received by Benham on any business day
by mail prior to the close of business on the Exchange, usually 1:00 p.m.
Pacific Time, will receive that day's price. Investments and instructions
received after that time will receive the price determined on the next business
day.
- -------------------
[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.
- -------------------
13
- -------------------
[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 may result in transaction
delays.
- -------------------
HOW TO INVEST
To open an account, you must complete and sign an application. If an application
is not enclosed with this Prospectus, you may request one by calling one of the
Fund Information numbers listed below. Separate forms are required to establish
Benham-Sponsored Retirement Plan accounts, as discussed on pages 26 and 27.
Your investment will be credited to your account at the next NAV calculated
after The Benham Group or an authorized subtransfer agent receives and accepts
your order. Payment of redemption proceeds may be delayed until we have your
completed application on file and your investment matures (i.e., clears). See
page 22 for details.
Benham Group Representatives are available at the telephone numbers listed below
weekdays from 5:00 a.m. to 5:00 p.m. Pacific Time. For your protection, Benham
records all telephone conversations with its telephone representatives.
FUND INFORMATION: for information about any Benham fund or other investment
product, call 1-800-331-8331 or 1-415-965-4274.
INVESTOR SERVICES: to open an account, receive a Prospectus or Statement of
Additional Information for a Benham Fund, 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.
14
HOW TO BUY SHARES (Retirement investors, see pages 26 and 27).
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
BY CHECK Minimum initial investment: $1,000
Minimum additional investment: $100
MAKE YOUR INVESTMENT CHECK PAYABLE TO THE BENHAM
GROUP. Mail the check with your completed application
to
The Benham Group
P.O. Box 7730
San Francisco, California 94120-9853
FOR ADDITIONAL INVESTMENTS, enclose an investment
slip preprinted with the account number to which your
investment should be credited. If the payee
information provided on the check does not agree with
the information preprinted on the investment slip, we
will follow the instructions preprinted on the
investment slip.
If you do not have a preprinted investment slip, send
your check with separate written instructions
indicating the fund name and the account number. If
the payee information provided on the check does not
agree with the written instructions, we will follow
the written instructions.
You may also invest your check in person at a Benham
Investor Center. One is located at 1665 Charleston
Road in Mountain View, California; the other is
located at 2000 South Colorado Boulevard, Suite 1000,
in Denver, Colorado.
WE WILL NOT ACCEPT CASH INVESTMENTS OR THIRD-PARTY
CHECKS. We will, however, accept 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.
15
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
BY BANK WIRE Minimum initial investment: $25,000
Minimum additional investment: $100
If you wish to open an account by bank wire, please
call our Investor Services Department for more
information and an account number. Bank wire
investments should be addressed as follows:
State Street Bank and Trust Company Boston,
Massachusetts ABA Routing Number 011000028
Beneficiary = Benham European Government Bond Fund
Fund Account Number 05060868 FBO [Your Name, Your
Benham Fund Account Number]
- --------------------------------------------------------------------------------
BY EXCHANGE Minimum initial investment: $1,000
Minimum additional investment: $100
You may exchange your shares for shares of any other
Benham fund registered for sale in your state if you
have received the fund's prospectus. Exchanges may be
made by telephone (for identically registered
accounts only), by written request, or in person.
Certain restrictions apply; please see "Telephone
Transactions" on page 17 and "Exchange Privilege" on
page 18 for details. You may open a new account by
telephone exchange, provided that you meet the
minimum initial investment requirement.
- --------------------------------------------------------------------------------
AUTOMATIC Minimum: $25
INVESTMENT
SERVICES These services are offered with respect to additional
investments only. See details on page 20.
16
PROCESSING YOUR PURCHASE
Shares will be purchased at the next NAV calculated after your investment is
received and accepted by The Benham Group or an authorized subtransfer agent. An
investment received and accepted before the close of business of the Exchange,
normally 1:00 p.m. Pacific Time, will be included in your account balance the
same day. If the investment is received after the close of business of the
Exchange, usually 1:00 p.m. Pacific Time, it 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. ONCE YOUR TELEPHONE ORDER HAS BEEN PLACED,
IT MAY NOT BE MODIFIED OR CANCELLED.
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 believe
we have processed the transaction you requested incorrectly, please notify us as
soon as possible. If you fail to notify us of an error with reasonable
promptness, i.e., within 30 days of the date of your confirmation statement, we
will deem you to have ratified the transaction.
17
- -------------------
[information in left margin of page]
The free exchange privilege is a convenient way to buy shares in other Benham
funds if your investment goals change.
- -------------------
ACCOUNT 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, which is one hour prior to the
close of the Exchange, usually 12:00 p.m. Pacific Time for Benham Target
Maturities Trust; and at the close of the Exchange, usually 1:00 p.m. Pacific
Time for all other Benham funds.
The Benham Group discourages trading in response to short-term market
fluctuations. Such activity may encumber BMC's ability to invest the funds'
assets in accordance with their respective investment objectives and policies
and may be disadvantageous to other shareholders. More than six exchanges per
calendar year out of a variable-price fund may be deemed an abuse of the
exchange privilege. For purposes of determining the number of exchanges made,
accounts under common ownership or control will be aggregated.
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.
18
OPEN ORDER SERVICE
The Benham Group's Open Order Service allows you to designate a price at which
to buy or sell shares of a variable-price fund by exchange from or to a money
market fund. To place a "buy" order, you designate a purchase price that is
equal to or lower than the current NAV. To place a "sell" order, designate a
sales price that is equal to or higher than the current NAV. If the designated
price is met within 90 calendar days, we will automatically execute your order
at the NAV calculated that day as of the close of the Exchange. If the
designated price is not met within 90 calendar days, your Open Order to buy or
sell shares automatically expires. If you are buying shares of a variable-price
fund, we will exchange money from your money market account to purchase them. If
you are selling shares of a variable-price fund, we will transfer the proceeds
of that sale to your money market account. If you do not have a money market
account, we will open one for you when we execute your Open Order.
If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so that the distribution does not
inadvertently trigger an Open Order transaction on your behalf. If you close or
reregister the account from which shares are to be redeemed, your Open Order
will be canceled. Because of their time-sensitive nature, Open Order
transactions may be made only by telephone or in person. These transactions are
subject to the exchange limitations described in this prospectus (see "Exchange
Privilege" on page 18), except that all orders and cancellations received by one
hour prior to the close of the Exchange, usually 12:00 p.m. Pacific Time, are
effective the same day, otherwise they are effective the following business day.
- -------------------
[information in right margin of page]
Benham Open Orders allow investors to utilize a "buy low, sell high" investment
strategy.
- -------------------
19
- -------------------
[information in left margin of page]
Automatic Investment Services enable you to benefit from a dollar-cost averaging
investment strategy.
- -------------------
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 into
a Benham fund account.
BANK DIRECT allows you to deposit a fixed amount from your bank account into a
Benham fund account on the 1st and/or the 15th of each month (or the next
business day).
DIRECTED DIVIDENDS allow you to invest all or part of your dividend earnings
from one Benham fund account into one or more other Benham fund accounts. You
may choose to receive a portion of your dividends in cash and to invest the
remainder in another Benham fund account.
SYSTEMATIC EXCHANGES allow you to exchange from one Benham fund account to
another Benham fund account on the 1st and/or the 15th of each month (or the
next business day).
For more information about any of these services, please call our Investor
Services Department at 1-800-321-8321 or 1-415-965-4222.
BROKER-DEALER TRANSACTIONS
The Benham Group charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase shares directly from BFS may purchase
and sell Fund shares through registered broker-dealers and other qualified
service providers, who may charge investors fees for their services. These
broker-
20
dealers and service providers generally provide shareholder, administrative
and/or accounting services which would otherwise be provided by BFS as the
Fund's transfer agent. To accommodate these investors, BMC and its affiliates
have entered into agreements with some broker-dealers and service providers to
provide these aforementioned services. Fees for such services are borne normally
by the Fund at the rates normally paid to BFS, which would otherwise provide the
services. Any distribution expenses associated with these arrangements are borne
by BMC.
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 already 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.
21
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 sub-transfer agent
has received and accepted your redemption request. The Fund's NAV is calculated
at the close of business of the Exchange, usually 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, if the shares to be redeemed were
purchased by check, 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
TYPE OF INVESTMENT CALIFORNIA BANK? (IN BUSINESS DAYS)
- --------------------------------------------------------------------------------
Checks, cashiers' checks,
and bank money orders Yes 5 days
- --------------------------------------------------------------------------------
Same as above No 8 days
- --------------------------------------------------------------------------------
U.S. Treasury checks,
Traveler's checks,
U.S. Postal money orders,
Benham checks, bank wires,
and AIS Deposits* N/A 1 day
*Does not include bank direct deposits, which take 8 business days to mature.
- --------------------------------------------------------------------------------
22
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
Plan account should see pages 26 and 27 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 if the original account is closed.
- -------------------
[information in right margin of page]
You may redeem shares without charge.
- -------------------
23
HOW TO REDEEM SHARES (Retirement investors, see pages 26 and 27).
================================================================================
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. ONCE
YOUR TELEPHONE ORDER HAS BEEN PLACED, IT MAY NOT BE
MODIFIED OR CANCELLED.
- --------------------------------------------------------------------------------
IN WRITING Send a letter of instruction to
The Benham Group
Investor Services Department
1665 Charleston Road
Mountain View, California 94043
Your letter of instruction should specify:
* Your name
* Your account number
* The name of the Fund from which you wish to redeem
shares
* The dollar amount or number of shares you wish to
redeem.
For your protection, written redemption requests must
be accompanied by SIGNATURE GUARANTEES under the
following circumstances:
* Redemption proceeds go to a party other than the
registered account owner(s)
* Redemption proceeds go to an account other than
your predesignated bank account
* Redemption proceeds go to the registered account
owner(s), but the amount exceeds $25,000.
If you have instructed The Benham Group to require
more than one signature on written redemption
requests, each of the required number of signers must
have his or her signature guaranteed on the
redemption requests.
24
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
IN WRITING Signature guarantees may be provided by banks,
(continued) savings 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
REDEMPTION redemptions from your Benham fund account to your
SERVICES bank account or to another designated payee.
SYSTEMATIC EXCHANGES. You may arrange for periodic
exchange redemptions from one Benham fund account to
another Benham fund account.
25
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 Investor
Services 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 the
$1,000 per fund account minimum, (continued on the next page)
================================================================================
PLAN TYPE AVAILABLE TO MAXIMUM ANNUAL CONTRIBUTION
PER PARTICIPANT
- --------------------------------------------------------------------------------
Contributory An employed indi- $2,000 or 100% of compensation
IRA vidual under age 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 is
distribution from an 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.*
- --------------------------------------------------------------------------------
* Self-employed individuals should consult IRS Publication 560 for their annual
contribution limits.
26
(continued from previous page)
your account may be closed (see page 23 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 Keoghs.
YOU MUST COMPLETE SPECIFIC FORMS TO TAKE DISTRIBUTIONS (I.E., REDEEM SHARES)
FROM A BENHAM-SPONSORED RETIREMENT PLAN ACCOUNT. PLEASE CALL OUR INVESTOR
SERVICES DEPARTMENT AT 1-800-321-8321 FOR ASSISTANCE.
===============================================================================
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
tax year is April 15. year 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
anytime. be made within 60 days of receiv-
ing your distribution. There is no
age limit on rollover contributions
- -------------------------------------------------------------------------------
You may open an account anytime, Must be made by employer's tax
but the deadline for establishing and filing deadline (including
funding an account for the prior tax extensions).
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.
- -------------------------------------------------------------------------------
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.
27
- -------------------
[information in left margin of page]
Each January, you will be informed of the tax status of dividends and capital
gain distributions for the previous year.
- -------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund expects to pay dividends from net investment income quarterly (in
March, June, September, and December), although it may elect not to do so in any
given quarter. The Fund may forego a dividend if, for example, net foreign
currency losses exceed investment income. Net realized capital gains and net
foreign currency gains, if any, are declared and distributed annually in
December. The Fund's board of trustees may modify the Fund's distribution
policies at any time.
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 20 for further information). Please indicate your choice on
your account application or contact our Investor Services Department. See page
23 for a description of our policy regarding uncashed distribution checks.
TAXES
The Fund intends to qualify annually and elect to be treated as a regulated
investment company under the Code, 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 net realized capital gain distributions are subject to
federal income tax and applicable state and local taxes whether they are
received in cash or reinvested in additional shares. Dividends declared in
October, November or December and paid by January 31st of the following year are
generally taxable in the year in which they are declared.
Dividends from net investment income (including net short-term capital gains, if
any) are taxable as ordinary income. Distributions of any net realized capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, designated by the Fund as capital gain dividends are taxable as
long-term capital gains, regardless of how long you have held your shares.
28
The Fund will send you a tax statement (Form 1099) by January 31st showing the
tax status of distributions you received in the previous year and will file a
copy with the Internal Revenue Service (IRS). You may realize a taxable gain or
loss when you redeem (sell) or exchange shares. For most types of accounts, the
proceeds from your redemption transactions will be reported to the IRS annually.
However, because the tax treatment depends on your purchase price and your
personal tax position, you should keep your regular statements to use in
determining your taxes.
RETURN OF CAPITAL. If, during a given year, the Fund pays dividends that exceed
income earned on investments and any net realized capital gains from the sale of
securities, 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.
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
29
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.
BUYING A DIVIDEND. The timing of your investment could have undesirable tax
consequences. If you open a new account or buy more shares for your current
account just before the day a dividend or distribution is reflected in your
Fund's share price, you will receive a portion of your investment back as a
taxable dividend or distribution.
BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
reportable dividends, capital gain distributions, or redemptions payable to
shareholders who have not complied with IRS regulations. These regulations
require you to certify on your account application or on IRS Form W-9 that your
social security or taxpayer identification number ("TIN") is correct and that
you are not subject to backup withholding from previous underreporting to the
IRS, or that you are exempt from backup withholding.
The Benham Group may refuse to sell shares to investors who have not complied
with this requirement, either before or at the time of purchase. Until we
receive your certified TIN or social security number, we may redeem your shares
in the Fund at any time.
MANAGEMENT INFORMATION
ABOUT BENHAM INTERNATIONAL FUNDS
Benham International Funds (BIF) is a registered open-end management investment
company that was organized as a Massachusetts business trust on August 28, 1991.
BIF currently consists of five series.
A board of trustees oversees the Fund's activities and is responsible for
protecting shareholders' interests. The majority of trustees are not otherwise
affiliated with BMC. BIF is not required nor expected to hold annual meetings,
although special meetings may be called for purposes such as electing or
removing trustees or amending the Fund's advisory agreement or investment
30
policies. The number of votes you are entitled to is based upon the dollar value
of your investment. Each Fund votes separately on matters that pertain to it
exclusively. Voting rights are not cumulative.
THE BENHAM GROUP
BMC is investment advisor to the funds in The Benham Group and manages more than
$12 billion in assets as of April 1, 1996. BMC, incorporated in California in
1971, became a wholly owned subsidiary of Twentieth Century Companies, Inc.
(TCC), a Delaware corporation, on June 1, 1995, upon the merger of Benham
Management International, Inc., BMC's former parent company, into TCC. TCC is a
holding company that owns the operating companies that provide the investment
management, transfer agency, shareholder service, and other services for the
Twentieth Century family of funds, which now includes the Benham Group. The
combined company offers 65 mutual funds and, as of April 1, 1996, has combined
assets under management in excess of $48 billion.
BMC supervises and manages the investment portfolios of The Benham Group and
directs the purchase and sale of its investment securities. BMC utilizes teams
of portfolio managers, assistant portfolio managers, and analysts to manage the
assets of the funds. The teams meet regularly to review portfolio holdings and
to discuss purchase and sale activity. The teams adjust holdings in the funds'
portfolios deemed appropriate in pursuit of the funds' investment objectives.
Individual portfolio managers may also adjust portfolio holdings of the funds as
necessary between team meetings.
The portfolio manager members of the team managing the Fund described in this
prospectus and their work experience for the last five years is as follows:
MR. ROBERT P. BROWNE, Portfolio Manager, has been primarily responsible for the
day-to-day operations of the Fund since October of 1994. Mr. Browne transferred
to the Fixed-Income Group in London in 1994. He was previously located in the
Tokyo office and managed domestic and foreign fixed income as well as overall
currency exposure for J.P. Morgan Trust Bank's international portfolios. Mr.
Browne joined JPMIM in 1989. He holds a B.A. in Economics from Holy Cross
College and a Masters of International Business Studies from the University of
South Carolina.
- -------------------
[information in right margin of page]
The Benham Group serves more than 475,000 investors.
- -------------------
31
- -------------------
[information in left margin of page]
Subadvisory fees are paid by BMC, not by the Fund.
- -------------------
MR. JEFFREY R. TYLER oversees the portfolio manager's operation of the Fund. He
is a vice president of The Benham Group's portfolio management team. He is also
manager of Benham Capital Manager Fund and co-manager of Benham GNMA Income
Fund.
ADVISORY AND SERVICE FEES
For investment advice and portfolio management services, the Fund pays BMC a
monthly investment advisory fee based on the dollar amount derived from applying
the Fund's average daily net assets to an investment advisory fee rate schedule.
The investment advisory fee rate cannot exceed .45% of average daily net assets,
and it drops to a marginal rate of .29% of average daily net assets as the
Fund's assets increase.
Investment advisory fees paid by the Fund to BMC for the fiscal year ended
December 31, 1995, were equal to .45% of the Fund's average daily net assets or
$4.50 per $1,000 of the Fund's 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 Benham
money market funds.
JPMIM is the Fund's investment subadvisor. JPMIM is a leading manager of pension
funds, institutional accounts, and private accounts, with approximately $112
billion in assets under management. JPMIM makes investment decisions for the
Fund in accordance with the Fund's investment objective, policies, and
restrictions under the supervision of BMC and the board of trustees. JPMIM is a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated.
For subadvisory services, BMC pays JPMIM a monthly fee at the annual rate of
.20% of average daily net assets up to $200 million and .15% of average daily
net assets in excess of $200 million. For the fiscal year ended December 31,
1995, BMC paid JPMIM subadvisory fees equal to .19% of the Fund's average daily
net assets.
32
BFS, a wholly owned subsidiary of TCC, is BIF'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 the funds in The Benham Group. The
administrative fee rate ranges from .11% to .08% of average daily net assets,
dropping as Benham Group assets increase. For transfer agent services, the Fund
pays BFS monthly fees 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 trustees; costs of
printing and mailing prospectuses, statements of additional information, proxy
statements, notices, and reports to shareholders; insurance expenses; and costs
of registering the Fund's shares for sale under federal and state securities
laws. See the Statement of Additional Information for a more detailed discussion
of independent trustee compensation.
EXPENSE LIMITATION AGREEMENT
The 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, 1995,
were equal to .82% of the Fund's average daily net assets or $8.20 per $1,000 of
the Fund's average daily net assets.
In compliance with rules set forth by the SEC, the total operating expenses
described above and on page 3 include amounts paid by third parties under
expense offset arrangements with the Fund.
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 TCC.
- -------------------
[information in right margin of page]
Benham Financial Services, Inc. provides administrative and transfer agent
services to the Fund.
- -------------------
33
INVESTMENT ADVISOR
BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043
INVESTMENT SUBADVISOR
J.P. MORGAN INVESTMENT MANAGEMENT INC.
522 Fifth Avenue
New York, New York 10036
DISTRIBUTOR
BENHAM DISTRIBUTORS, INC.
1665 Charleston Road
Mountain View, California 94043
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02101
TRANSFER AGENT
BENHAM FINANCIAL SERVICES, INC.
1665 Charleston Road
Mountain View, California 94043
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
3 Embarcadero Center
San Francisco, California 94111
TRUSTEES
James M. Benham
Albert A. Eisenstat
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers III
Jeanne D. Wohlers
34
THE BENHAM GROUP OF INVESTMENT COMPANIES
Capital Preservation Fund
Capital Preservation Fund II
Benham Government Agency Fund
Benham Prime Money Market Fund
Benham Short-Term Treasury and Agency Fund
Benham Treasury Note Fund
Benham Long-Term Treasury and Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham GNMA Income Fund
Benham Target Maturities Trust
Benham California Tax-Free and Municipal Funds*
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund**
Benham Florida Municipal Intermediate-Term Fund**
Benham Arizona Municipal Intermediate-Term Fund***
Benham Global Gold 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.
35
CONTENTS
Summary of Fund Expenses ............... 3
Financial Highlights ................... 4
How The Fund Works ..................... 6
Investment Objective ................ 6
Core Investment Policies ............ 6
Management Approach .................... 8
Investment Considerations .............. 9
Other Investment Policies and Techniques 10
Portfolio Transactions ................. 12
Performance ............................ 12
Share Price ............................ 13
How to Invest .......................... 14
How to Buy Shares ...................... 15
Account Services ....................... 18
Exchange Privilege .................. 18
Open Order Service .................. 19
Automatic Investment Services ....... 20
Broker-Dealer Transactions .......... 20
TDD Service ......................... 21
Emergency Services .................. 21
How to Redeem Your Investment .......... 22
How to Redeem Shares ................... 24
About Benham-Sponsored Retirement Plans 26
Distributions and Taxes ................ 28
Management Information ................. 30
About Benham International Funds .... 30
The Benham Group .................... 31
Advisory and Service Fees ........... 32
Expense Limitation Agreement ........ 33
Distribution of Shares .............. 33
M012
<PAGE>
BENHAM EUROPEAN GOVERNMENT BOND FUND
A Series of Benham International Funds
The Benham Group(R)
1665 Charleston Road
Mountain View, CA 94043
Investor Services: 1-800-321-8321 or 1-415-965-4222
Fund Information: 1-800-331-8331 or 1-415-965-4274
STATEMENT OF ADDITIONAL INFORMATION
April 22, 1996
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated April 22, 1996. The Fund's Annual Report for the
fiscal year ended December 31, 1995, is incorporated herein by reference. To
obtain a copy of the Prospectus or Annual Report, call or write The Benham
Group.
TABLE OF CONTENTS
Page
Investment Policies, Techniques and Risk Factors.. 2
Investment Restrictions .......................... 11
Portfolio Transactions ........................... 12
Valuation of Portfolio Securities ................ 14
Performance ...................................... 14
Taxes ............................................ 16
About Benham International Funds ................. 19
Trustees and Officers ............................ 20
Investment Advisory Services ..................... 22
Administrative and Transfer Agent Services ....... 24
Direct Fund Expenses ............................. 24
Expense Limitation Agreement ..................... 24
Additional Purchase and Redemption Information ... 25
Other Information ................................ 25
1
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
The following paragraphs provide a more detailed description of securities and
investment practices identified in the Prospectus and the risks associated with
these practices. Unless otherwise noted, the policies described in this
Statement of Additional Information are not fundamental and may be changed by
the board of trustees.
EUROPEAN GOVERNMENT BONDS
The Fund invests primarily in European government bonds. The market for these
bonds is active; however, there are risks associated with investing in the
European government bond market distinct from those typically associated with
investing in U.S. government bonds. The following is a brief list of the primary
risks you should consider.
1. Currency Exchange Rate Risk--Currencies in which the Fund's investments are
denominated may decline significantly relative to the U.S. dollar.
2. Tax Risk--Interest income from European government bonds may be taxed by
foreign governments at significantly higher rates than interest income from
domestic investments. As has happened in the past, the U.S. government or
European governments may adopt tax policies that discourage overseas
investing.
3. Settlement Risk--J.P. Morgan Investment Management, Inc. (JPMIM) may
encounter difficulties resulting from delays in settling transactions with
European broker-dealers. Settlement delays may encumber portfolio management
efforts by tying up Fund assets at times when JPMIM perceives market
opportunities.
Under normal conditions, more than 25% of the Fund's total assets are invested
in securities issued by the German government or its political subdivisions.
This policy is currently viewed by the Securities and Exchange Commission (SEC)
staff as a concentration policy. Under Section 13 of the Investment Company Act
of 1940 (the "1940 Act"), a Fund may not change its concentration policy without
shareholder approval.
EUROPEAN CORPORATE BONDS
If necessary to satisfy diversification requirements under Subchapter M of the
Internal Revenue Code (the "Code"), the Fund may invest a portion of its assets
in AAA-rated European corporate bonds. The risks of investing in European
corporate bonds are somewhat greater than the risks associated with investing in
European government bonds. In addition to the risks outlined above with respect
to European government bonds, JPMIM may encounter difficulty obtaining adequate
public information about corporate bond issuers. Investment decisions may be
encumbered by the lack of uniform accounting, audit, or financial reporting
standards among European issuers or nations. The Fund may encounter greater
volatility and less liquidity in foreign corporate bond markets than it would in
U.S. bond markets and less government regulation of foreign exchanges and
broker-dealers than is typical in the United States.
The Fund's European investments (government or corporate) may be affected by
political or economic developments within or among European nations, or between
European nations and the United States.
2
U.S. GOVERNMENT SECURITIES
To accommodate shareholder redemptions and exchanges, up to 5% of the Fund's
total assets may be invested in U.S. government securities held directly or
under repurchase agreement. U.S. government securities include 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 supported 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 (FNMA), 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.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller 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. Delay or losses could result if the other party
to the agreement defaults or becomes bankrupt.
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) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's board of trustees;
(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 trustees
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 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;
(6) Taking delivery of securities subject to repurchase agreement and holding
them in a segregated account at the Fund's custodian bank.
3
The Fund has received permission from the SEC to participate in pooled
repurchase agreements collateralized by U.S. government securities with other
mutual funds advised by its investment advisor, Benham Management Corporation
(BMC). Pooled repos are expected to increase the income the Fund can earn from
repo transactions without increasing the risks associated with these
transactions.
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. Although 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 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 total
assets to when-issued or forward-commitment agreements. If fluctuations in the
value of securities held cause more than 35% of the Fund's total assets to be
committed under when-issued or forward-commitment agreements, JPMIM does not
need to sell such agreements, but it will be restricted from entering into
further agreements on behalf of the Fund until the percentage of assets
committed to such agreements is reduced to 35%. In addition, as an operating
policy, the Fund will not enter into when-issued or forward-commitment
transactions with settlement dates exceeding 120 days.
SECURITIES LENDING
The Fund may lend its portfolio securities to earn additional income. If a
borrower defaulted on a securities loan, the Fund could experience delays in
recovering the securities it loaned; if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss.
To minimize the risk of default on securities loans, BMC adheres to the
following guidelines prescribed by the board of trustees:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on behalf of the borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by the Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling.
4
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and
the borrower must agree to add collateral to the extent necessary to
maintain the 102% level specified in guideline (1). The borrower must
deposit additional collateral no later than the business day following the
business day on which a collateral deficiency occurs or collateral appears
to be inadequate.
(3) TERMINATION OF LOAN. The Fund must have the ability to terminate any loan
of portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either
in the form of a loan fee or premium or from the retention by the Fund of
part or all of the earnings and profits realized from the investment of
cash collateral in full faith and credit U.S government securities.
(5) LIMITATIONS ON PERCENTAGE OF PORTFOLIO SECURITIES ON LOAN. The Fund's loans
may not exceed 33-1/3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the board of trustees that BMC follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, BMC will analyze and monitor the
creditworthiness of all borrowers with which portfolio lending
arrangements are contemplated or entered into.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund expects to exchange dollars for the Fund`s underlying currencies, and
vice versa, in the normal course of managing the Fund`s underlying investments.
JPMIM does not expect that the Fund will hold currency that is not earning
income on a regular basis, although the Fund may do so temporarily when suitable
investments are not available. The Fund may exchange currencies on a "spot"
basis (i.e., for prompt delivery and settlement), or by entering into forward
currency exchange contracts (also called forward contracts) or other contracts
to purchase and sell currencies for settlement at a future date. The Fund will
incur costs in converting assets from one currency to another. Foreign exchange
dealers may charge a fee for conversion; in addition, they also realize a profit
based on the difference (i.e., the spread) between the prices at which they buy
and sell various currencies in the spot and forward markets. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, and repurchase it at a
lesser rate should the fund desire to resell the currency to the dealer.
Forward contracts are agreements to exchange a specific amount of one currency
for a specified amount of another at a future date. The date may be any agreed
fixed number of days in the future. The amount of currency to be exchanged, the
price at which the exchange will take place, and the date of the exchange are
negotiated when the Fund enters into the contract and are fixed for the term of
the contract. Forward contracts are traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and is
consummated without payment of any commission. However, the Fund may enter into
forward contracts with deposit requirements or commissions.
5
At the maturity of a forward contract, the Fund may complete the contract by
paying for and receiving the underlying currency, may seek to roll forward its
contractual obligation by entering into an "offsetting" transaction with the
same currency trader and paying or receiving the difference between the
contractual exchange rate and the current exchange rate. The Fund may also be
able to enter into an offsetting contract prior to the maturity of the
underlying contract. This practice is sometimes referred to as "cross hedging"
and may be employed if, for example, JPMIM believes that one foreign currency
(in which a portion of the Fund's foreign currency holdings are denominated)
will change in value relative to the U.S. dollar differently than another
foreign currency. There is no assurance that offsetting transactions, or new
forward contracts, will always be available to the Fund.
Investors should realize that the use of forward contracts does not eliminate
fluctuations in the underlying prices of the securities. Such contracts simply
establish a rate of exchange that the Fund can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to fluctuations in the value of the hedged currency when used as a hedge
against foreign currency declines, at the same time they tend to limit any
potential gain which might result from the change in the value of such currency.
Because investments in, and redemptions from, the Fund will be in U.S. dollars,
JPMIM expects that the Fund`s normal investment activity will involve a
significant amount of currency exchange. For example, the Fund may exchange
dollars for its underlying foreign currencies for dollars in order to meet
shareholder redemption requests or to pay expenses.
These transactions may be executed in the spot or forward markets.
In addition, the Fund may combine forward transactions in its underlying
currency with investments in U.S. dollar-denominated instruments, in an attempt
to construct an investment position whose overall performance will be similar to
that of a security denominated in its underlying currency. If the amount of
dollars to be exchange is properly matched with the anticipated value of the
dollar-denominated securities, the Fund should be able to "lock in" the foreign
currency value of the securities, and the Fund`s overall investment return from
the combined position should be similar to the return from purchasing a foreign
currency-denominated instrument. This is sometimes referred to as a "synthetic"
investment position or a "position hedge".
The execution of a synthetic investment position may not be successful. It is
impossible to forecast with absolute precision what the dollar value of a
particular security will be at any given time. If the value of a
dollar-denominated security is not exactly matched with the Fund`s obligation
under the forward contract on the contract`s maturity date, the Fund may be
exposed to some risk of loss from fluctuation of the dollar. Although JPMIM will
attempt to hold such mismatchings to a minimum, there can be no assurance that
JPMIM will be successful in doing so.
FUTURES AND OPTIONS TRANSACTIONS
FUTURES CONTRACTS provide for the sale by one party and purchase by another
party of a specific security at a specified future time and price. Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency.
6
Although futures contracts, by their terms, call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date. Closing out a futures position is done by taking
an opposite position in an identical contract (i.e., buying a contract that has
previously been sold, or selling a contract that has previously been bought).
To initiate and maintain open positions in futures contracts, the Fund is
required to make a good faith margin deposit in cash or government securities
with a broker or custodian. A margin deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying security) if it is not
terminated prior to the specified delivery date. Minimum initial margin
requirements are established by the futures exchanges and may be revised. In
addition, brokers may establish deposit requirements that are higher than the
exchange minimums.
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional "variation" margin. Conversely, changes in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to or
from the futures broker as long as the contract remains open and do not
constitute margin transactions for purposes of the Fund's investment
restrictions.
Those who trade futures contracts may be broadly classifed as either "hedgers"
or "speculators". Hedgers, such as the Fund, use the futures markets primarily
to offset unfavorable changes in the value of securities they hold or expect to
acquire for investment purposes. Speculators are less likely to own the
securities underlying the futures contracts they trade and are more likely to
use futures contracts with the expectation of realizing profits from
fluctuations in the prices of the underlying securities. The Fund will not
utilize futures contracts for speculative purposes.
Although techniques other than trading futures contracts can be used to control
the Fund's exposure to market fluctuations, the use of futures contracts may be
a more effective means of hedging this exposure. While the Fund pays brokerage
commissions in connection with opening and closing out futures positions, these
costs are lower than the transaction costs incurred in the purchase and sale of
the underlying securities.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund obtains
the right (but not the obligation) to sell the option's underlying instrument at
a fixed strike price. In return for this right, the Fund pays the current market
price for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indexes of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Fund will lose the entire premium it paid.
If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
7
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. If the Fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party chooses to exercise
the option. When writing an option on a futures contract, the Fund will be
required to make margin payments to a broker or custodian as described above for
futures contracts. The Fund may seek to terminate its position in a put option
it writes before exercise by closing out the option in the secondary market at
its current price. However, if the secondary market is not liquid for a put
option the Fund has written, the Fund must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes, and
must continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit, although
the gain would be limited to the amount of the premium received. If security
prices remain the same over time, it is likely that the writer will also profit
by being able to close out the option at a lower price. If security prices fall,
the put writer would expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the
premium received for writing the option should mitigate the effects of the
decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination with
one another, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, the Fund
may purchase a put option and write a call option on the same underlying
instrument to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price to reduce the risk of the written call
option in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.
OVER-THE-COUNTER OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter ("OTC") options (options not traded
on exchanges) generally are established through negotiation with the other party
to the option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit
8
risk than exchange-traded options, which are guaranteed by the clearing
organizations of the exchanges where they are traded. The risk of illiquidity is
also greater with OTC options because these options generally can be closed out
only by negotiation with the other party to the option.
OPTIONS ON FUTURES. By purchasing an option on a futures contract, the Fund
obtains the right, but not the obligation, to sell the futures contract (a put
option) or to buy the contract (a call option) at a fixed "strike" price. The
Fund can terminate its position in a put option by allowing it to expire or by
exercising the option. If the option is exercised, the Fund completes the sale
of the underlying security at the strike price. Purchasing an option on a
futures contract does not require the Fund to make margin payments unless the
option is exercised.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded futures and options contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in futures and options
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests (for example,
by hedging intermediate-term securities with a futures contract based on an
index of long-term bond prices); this involves a risk that the futures position
will not track the performance of the Fund's other investments.
Options and futures prices can diverge from the prices of their underlying
instruments even if the underlying instruments correlate well with the Fund's
investments. Options and futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and securities markets, from structural differences in how options and futures
and securities are traded, or from the imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in an effort to compensate for differences in volatility
between the contract and the securities, although this may not be successful in
all cases. If price changes in the Fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
FUTURES AND OPTIONS CONTRACTS RELATING TO FOREIGN CURRENCIES. The Fund may
purchase and sell currency futures and purchase and write currency options to
increase or decrease its exposure to different foreign currencies. A Fund may
also purchase and write currency options in connection with currency futures or
forward contracts.
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges and have standard contract sizes and
delivery dates. Most currency futures contracts call for payment or delivery in
U.S. dollars.
The uses and risks of currency futures are similar to those of futures relating
to securities or indexes, as previously described. Currency futures values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of the Fund's investments. A currency hedge, for example,
should protect a German-mark-denominated security from a decline in the German
mark, but it will not protect the Fund against a price decline resulting from a
deterioration in the issuer's creditworthiness.
9
LIQUIDITY OF FUTURES CONTRACTS AND OPTIONS. There is no assurance that a liquid
secondary market will exist for any particular futures contract or option at any
particular time. Options may have relatively low trading volume and liquidity if
their strike prices are not close to the underlying instrument's current price.
In addition, exchanges may establish daily price fluctuation limits for futures
contracts and options and may halt trading if a contract's price moves upward or
downward more than the limit on a given day. On volatile trading days when the
price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for the Fund to enter into new positions or close out existing
positions. If the secondary market for a contract was not liquid, because of
price fluctuation limits or otherwise, prompt liquidation of unfavorable
positions could be difficult or impossible, and the Fund could be required to
continue holding a position until delivery or expiration regardless of changes
in its value. Under these circumstances, the Fund's access to assets held to
cover its future positions could also be impaired.
Futures and options trading on foreign exchanges may not be regulated as
effectively as similar transactions in the U.S. and may not involve clearing
mechanisms or guarantees similar to those available in the U.S. The value of a
futures contract or option traded on a foreign exchange may be adversely
affected by the imposition of different exercise and settlement terms, trading
procedures, and margin requirements, and lesser trading volume.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. The Fund has filed a
notice of eligibility for exclusion as a "commodity pool operator" with the
Commodity Futures Trading Commission (CFTC) and the National Futures
Association, which regulates trading in the futures markets. The Fund intends to
comply with Section 4.5 of the regulations under the Commodity Exchange Act,
which limits the extent to which the Fund can commit assets to initial margin
deposits and options premiums.
The Fund may enter into futures transactions (including related options) for
hedging purposes without regard to the percentage of assets committed to initial
margin and for other than hedging purposes provided that assets committed to
initial margin deposits on such instruments, plus premiums paid for open futures
options positions, less the amount by which any such positions are
"in-the-money," do not exceed 5% of the Fund's total assets. To the extent
required by law, the Fund will set aside cash and appropriate liquid assets in a
segregated account to cover its obligations related to futures contracts and
options.
Financial futures or options purchased or sold by the Fund will be standardized
and traded through the facilities of a U.S. or foreign securities association or
listed on a U.S. or foreign securities or commodities exchange, board of trade,
or similar entity, or quoted on an automatic quotation system, except that the
Fund may effect transactions in over-the-counter options with primary U.S.
government securities dealers recognized by the Federal Reserve Bank of New
York. In addition, the Fund has undertaken to limit aggregate premiums paid on
all options purchased by the Fund to no more than 20% of the Fund's total
assets.
The Fund intends to comply with tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of a Fund's
gross income for each fiscal year. Gains on some futures contracts and options
are included in this 30% calculation, which may limit the Fund's investments in
these instruments.
10
INVESTMENT RESTRICTIONS
The Fund's investment restrictions, set forth below, are fundamental and may not
be changed without approval of a majority of the outstanding votes of
shareholders of the Fund as determined in accordance with the 1940 Act.
THE FUND MAY NOT:
(1) Borrow money except from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes provided
that the Fund maintains asset coverage of at least 300% for all such
borrowings. The Fund may borrow money for temporary or emergency purposes
from other funds or portfolios for which BMC is the investment advisor or
from a joint account of such funds or portfolios, as permitted by federal
regulatory agencies.
(2) Act as an underwriter of securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
(3) Purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of issuers engaged in the real estate business); physical
commodities; contracts relating to physical commodities; or interests in
oil, gas and/or mineral exploration or development programs or leases.
This restriction shall not be deemed to prohibit the Fund from purchasing
or selling currencies; entering into futures contracts on securities,
currencies, or on indexes of such securities or currencies, or any other
financial instruments; and purchasing and selling options on such futures
contracts.
(4) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(5) Issue senior securities, except as permitted under the 1940 Act.
The Fund is also subject to the following restrictions that are not fundamental
and may therefore be changed by the board of trustees without shareholder
approval.
THE FUND MAY NOT:
(a) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(b) Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in options and futures contracts may not be
deemed to constitute short sales of securities.
(c) Purchase warrants, valued at the lower of cost or market, in excess of 10%
of the Fund's net assets. Included within that amount, but not to exceed
2% of the Fund's net assets, are warrants whose underlying securities are
not traded on principal domestic or foreign exchanges. Warrants acquired
by the Fund in units or attached to securities are not subject to these
restrictions.
11
(d) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts shall not constitute the purchase of
securities on margin.
(e) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities. The Fund may not invest more than 10%
of its net assets in repurchase agreements providing for settlement in
more than seven days or options which are traded in the over-the-counter
market and investments hedged by such options.
(f) Acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would
be held by the Fund, more than 5% of the value of the Fund's assets would
be invested in shares of such investment company, or more than 10% of the
value of the Fund's assets would be invested in shares of investment
companies in the aggregate, or except in connection with a merger,
consolidation, acquisition, or reorganization.
(g) 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.
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 a change in the
Fund's net assets will not be considered in determining whether it has complied
with its investment restrictions.
PORTFOLIO TRANSACTIONS
In selecting broker-dealers to execute transactions on behalf of the Fund, JPMIM
seeks the best net price and execution available. In assessing the best net
price and execution available for any Fund transaction, JPMIM will consider all
factors it deems relevant including, but not limited to, (i) the breadth of the
market for the security, (ii) the price of the security, (iii) the financial
condition and execution capability of the broker-dealer, and (iv) the
reasonableness of any commission for the specific transaction. When the
execution and price offered by two or more broker-dealers are comparable, JPMIM
may, with discretion, in recognition of the value of brokerage or research
services provided by the broker-dealer, purchase and sell portfolio securities
to and from broker-dealers who provide the Fund with research and other services
provided, however, that in all instances best net price and execution shall be
the controlling factor, and in no event may JPMIM pay to a broker-dealer a
commission in excess of that which another broker-dealer would have charged for
effecting the same transaction.
When JPMIM deems the purchase or sale of a security to be in the best interest
of the Fund as well as its other clients, it may, to the extent permitted by
applicable law, aggregate the securities to be sold or purchased with those of
its other clients. In such an event, the allocation of securities so purchased
or sold will be made by JPMIM in a manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and its other clients.
12
JPMIM is authorized to execute such documents as may be required to affect
forward foreign currency exchange contracts on behalf of the Fund. In selecting
counterparties for such contracts, JPMIM seeks the best overall terms available
and executes or directs the execution of all such transactions as permitted by
law and consistent with the best interest of the Fund.
For the fiscal years ended December 31, 1995, and 1994, the Fund's portfolio
turnover rates were 167% and 166%, respectively.
TRANSACTIONS WITH JPMIM AFFILIATES
As described in further detail on pages 22 and 23, JPMIM is subadvisor to the
Fund pursuant to an agreement with Benham Management Corporation.
JPMIM, Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), J.P.
Morgan Securities Inc., and J.P. Morgan Securities Limited are wholly owned
subsidiaries of J.P. Morgan & Co. Incorporated, hereafter referred to
collectively as "Morgan affiliates."
J. P. Morgan Securities Inc. is a broker-dealer registered with the Securities
and Exchange Commission and is a member of the National Association of
Securities Dealers. It is active as a dealer in U.S. government securities and
an underwriter of and dealer in U.S. government agency securities and money
market instruments.
J.P. Morgan Securities Limited underwrites, distributes, and trades
international securities, including Eurobonds, commercial paper, and foreign
government bonds. J.P. Morgan & Co. Incorporated issues commercial paper and
long-term debt securities. Morgan Guaranty and some of its affiliates issue
certificates of deposit and create bankers' acceptances.
To the extent that the Fund invests a portion of its assets in such obligations,
it will not invest in securities issued or created by Morgan affiliates.
Certain activities of Morgan affiliates may affect the Fund's portfolio or the
markets for securities in which the Fund invests. In particular, activities of
Morgan affiliates may affect the prices of securities held by the Fund and the
supply of issues available for purchase by the Fund. Where a Morgan affiliate
holds a large portion of a given issue, the price at which that issue is traded
may influence the price of similar securities the Fund holds or is considering
purchasing.
The Fund will not purchase securities directly from Morgan affiliates, and the
size of Morgan affiliates' holdings may limit the selection of available
securities in a particular maturity, yield, or price range. The Fund will not
execute any transactions with Morgan affiliates and will use only unaffiliated
broker-dealers. In addition, the Fund will not purchase any securities of U.S.
government agencies during the existence of an underwriting or selling group of
which a Morgan affiliate is a member, except to the extent permitted by law.
The Fund's ability to engage in transactions with Morgan affiliates is
restricted by the SEC and the Federal Reserve Board. In JPMIM's opinion, these
limitations should not significantly impair the Fund's ability to pursue its
investment objectives. However, there may be circumstances in which the Fund is
disadvantaged by these limitations compared to other funds with similar
investment objectives that are not subject to these limitations.
13
In acting for its fiduciary accounts, including the Fund, JPMIM will not discuss
its investment decisions or positions with the personnel of any Morgan
affiliate. JPMIM has informed the Fund that, in making investment decisions, it
will not obtain or use material, non-public information in the possession of any
division or department of JPMIM or other Morgan affiliates.
The commercial banking divisions of Morgan Guaranty and its affiliates may have
deposit, loan, and other commercial banking relationships with issuers of
securities the Fund purchases, including loans that may be repaid in whole or in
part with the proceeds of securities purchased by the Fund. Except as may be
permitted by applicable law, the Fund will not purchase securities in any
primary public offering when the prospectus discloses that the proceeds will be
used to repay a loan from Morgan Guaranty. JPMIM will not cause the Fund to make
investments for the direct purpose of benefitting other commercial interests of
Morgan affiliates at the Fund's expense.
VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share ("NAV") is determined by Benham Financial
Services, Inc. (BFS), as of the close of business of the New York Stock Exchange
(the "Exchange") each day the Exchange is open for business, usually at 1:00
p.m. Pacific Time. The Exchange has designated the following holiday closings
for 1996: New Year's Day (observed), Presidents` Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (observed).
Although BFS expects the same holiday schedule to be observed in the future, the
Exchange may modify its holiday schedule at any time.
BMC typically completes its trading on behalf of the Fund in various markets
before the Exchange 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. Securities traded on exchanges will be valued at their last
sale prices. If no sale is reported, the mean between the latest bid and asked
prices is used. Securities traded over-the-counter will be valued at the mean
between the latest bid and asked prices. Fixed-income securities are priced at
market value on the basis of market quotations supplied by independent pricing
services. Trading of securities in foreign markets may not take place on every
day the Exchange is open, and trading takes place in various foreign markets on
days on which the Exchange 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 occuring 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.
JPMIM typically completes its trading on behalf of the Fund in various markets
before the Exchange closes for the day, and the value of portfolio securities is
determined when the primary market for those securities closes for the day.
Foreign currency exchange rates are also determined prior to the close of the
Exchange. However, if extraordinary events occur that are expected to affect the
value of a portfolio security after the close of the primary exchange on which
it is traded, the security will be valued at fair market value as determined in
good faith under the direction of the board of trustees.
PERFORMANCE
The Fund's yields and total returns may be quoted in advertising and sales
literature. These figures, as well as the Fund's share price, will vary. Past
performance should not be considered an indication of future results.
14
Yield quotations for the Fund are based on the investment income per share
earned during a particular 30-day period, less expenses accrued during the
period (net investment income), and are computed by dividing the Fund's net
investment income by its share price on the last day of the period, according to
the following formula:
6
YIELD = 2 [(a - b + 1) - 1]
-----
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
For the 30-day period ended December 31, 1995, the Fund's yield was 6.14%.
Total returns quoted in advertising and sales literature 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 NAV per share during the period.
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 10 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 10
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
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as 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 one year and life of fund average annual total return through
December 31, 1995 are 24.40% and 10.95%, respectively. The Fund commenced
operations on January 7, 1992. Performance information may be quoted numerically
or in a table, graph, or similar illustration.
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 Benham funds,
are sold with a sales charge or deferred sales charge. Sources of economic data
that may be considered in making such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon Government National Mortgage
Association securities (GNMAs) (source: Board of Governors of the Federal
Reserve System); the federal funds and discount rates (source: Federal Reserve
Bank of New York); yield curves for U.S. Treasury securities and AA/AAA-rated
corporate securities (source: Bloomberg Financial Markets); yield curves for
AAA-rated tax-free
15
municipal securities (source: Telerate); yield curves for foreign government
securities (sources: Bloomberg Financial Markets and Data Resources, Inc.);
total returns on foreign bonds (source: J.P. Morgan Securities Inc.); various
U.S. and foreign government reports; the junk bond market (source: Data
Resources, Inc.); the CRB Futures Index (source: Commodity Index Report); the
price of gold (sources: London a.m./p.m. fixing and New York Comex Spot Price);
rankings of any mutual fund or mutual fund category tracked by Lipper Analytical
Services, Inc. or Morningstar, Inc.; mutual fund rankings published in major,
nationally distributed periodicals; data provided by the Investment Company
Institute; Ibbotson Associates, Stocks, Bonds, Bills, and Inflation; major
indexes of stock market performance; and indexes and historical data supplied by
major securities brokerage or investment advisory firms. The Fund may also
utilize reprints from newspapers and magazines furnished by third parties to
illustrate historical performance.
The Fund's shares are sold without a sale charge (a load). No-load funds offer
an advantage to investors when compared to load funds with comparable investment
objectives and strategies. For example, if an investor pays $10,000 to buy
shares of a load fund with an 8.5% sales charge, $850 of that $10,000 is paid as
a commission to a salesperson, leaving only $9,150 to put to work for the
investor. Over time, the difference between paying a sales load and not paying
one can have a significant effect on an investor's total return. The Mutual Fund
Education Alliance provides a comparison of $10,000 invested in each of two
mutual funds, one with an 8.5% sales load and one without a sales load. Assuming
a compounded annual growth rate of 10% for both investments, the no-load fund
investment is worth $25,937 after ten years, and the load fund investment is
worth only $23,732.
The advisor may obtain ratings on the safety of Fund shares from one or more
rating agencies and may publish such ratings in advertisements and sales
literature.
TAXES
The Fund will be treated as a separate corporation for federal income tax
purposes and intends to qualify annually as a "regulated investment company"
under Subchapter M of the Code. By so qualifying, the Fund will not incur
federal or state income taxes on its net investment income or net realized
capital gains distributed to shareholders.
The Fund may be subject to a 4% excise tax on a portion of its undistributed
income. To avoid the tax, the Fund must distribute annually at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year and at least 98% of its capital gain net income for the 12-month
period ending on October 31 of the calendar year. Any dividend declared by the
Fund in October, November, or December of any year and payable to shareholders
of record on a specified date in such a month shall be deemed to have been
received by each shareholder on December 31 of such year and to have been paid
by the Fund not later than December 31 of such year, provided that such dividend
is actually paid by the Fund during January of the following year.
As of December 31, 1995, the Fund had a capital loss carryover of $2,287,194
that will expire on December 31, 2002. No capital gain distributions will be
made by the Fund until its capital loss carryovers have been offset or have
expired.
The Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the
16
Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the Fund to mark to market certain types of the positions in
its portfolio (i.e., treat them as if they were sold), which may cause the Fund
to recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the 90% and 98% distribution requirements for
relief from income and excise taxes, respectively. The Fund will monitor its
transactions and may make such tax elections as Fund management deems
appropriate with respect to foreign currency, options, futures contracts or
forward contracts. The Fund's status as a regulated investment company may limit
its transactions involving foreign currency, futures, options and forward
contracts.
Under the Code, gains or losses attributable to fluctuations in exchange rates
that occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, in disposing of
debt securities denominated in foreign currencies, certain forward currency
contracts, or other instruments, gains or losses attributable to fluctuations in
the value of a foreign currency between the date the security, contract, or
other instrument is acquired and the date it is disposed of are also usually
treated as ordinary income or loss. Under Section 988 of the Code, these gains
or losses may increase or decrease the amount of the Fund's investment company
taxable income distributed to shareholders as ordinary income.
Earnings derived by the Fund from sources outside the U.S. may be subject to
non-U.S. withholding and possibly other taxes. Such taxes may be reduced or
eliminated under the terms of a U.S. income tax treaty, and the Fund intends to
undertake any procedural steps required to claim the benefits of such a treaty.
With respect to any non-U.S. taxes actually paid by the Fund, if more than 50%
in value of the Fund's total assets at the close of any taxable year consists of
securities of foreign corporations, the Fund will elect to treat any non-U.S.
income and similar taxes it pays as though the taxes were paid by its
shareholders.
Some of the debt securities that may be acquired by the Fund may be treated as
debt securities originally issued at a discount. Generally, the amount of the
original issue discount (OID) is treated as interest income and is included in
income over the term of the debt security even though payment of that amount is
not received until a later time, usually when the debt security matures.
Some of the debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security if such market discount was not
previously included in taxable income. Generally, market discount accrues on a
daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security's maturity or, at the election
of the Fund, at a constant yield to maturity that takes into account the
semiannual compounding of interest.
17
Exchange control regulations that may restrict repatriation of investment
income, capital, or the proceeds of securities sales by foreign investors may
limit the Fund's ability to make sufficient distributions to satisfy the 90% and
excise tax distribution requirements.
TAXATION OF U.S. SHAREHOLDERS
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 a capital gain or loss, if the
shares are capital assets in the shareholder's hands, and will be long-term or
short-term depending on the length of time the 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 a 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 on which the shares were disposed. Under such circumstances, the basis of
the shares acquired would be adjusted to reflect the disallowed loss.
TAXATION OF NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who is a non-resident alien or a non-U.S.
corporation, partnership, trust, or estate depends on whether the payments
received from a Fund are "effectively connected" with a U.S. trade or business
carried on by such a shareholder. Ordinarily, income from the Fund will not be
treated as "effectively connected."
If the payments received from the Fund are effectively connected with a U.S.
trade or business of the shareholder, then all distributions of net investment
income and net capital gains of the Fund and gains realized upon the redemption,
exchange, or other taxable disposition of shares will be subject to U.S. federal
income tax at the graduated rates applicable to U.S. citizens, residents, or
domestic entities, although the tax may be eliminated under the terms of an
applicable U.S. income tax treaty. Non-U.S. corporate shareholders also may be
subject to a branch profits tax with respect to payments from the Fund.
If the shareholder is not engaged in a U.S. trade or business, or the payments
received from the Fund are not effectively connected with the conduct of such a
trade or business, the shareholder will generally be subject to U.S. tax
withholding at the rate of 30% (or a lower rate under an applicable U.S. income
tax treaty) on distributions of net investment income and net realized
short-term capital received. Non-U.S. shareholders not engaged in a U.S. trade
or business, or having no effectively connected income, may also be subject to
U.S. tax at the rate of 30% (or a lower treaty rate) on additional distributions
resulting from the Fund's election to treat any non-U.S. taxes it pays as though
the taxes were paid by its shareholders.
Distributions of net realized long-term capital gains to non-U.S. shareholders
and any capital gains realized by them upon the redemption or other taxable
disposition of shares generally will not be subject to U.S. tax. In the case of
individuals and other non-exempt, non-U.S. shareholders who fail
18
to furnish the Fund with required certifications regarding their foreign status
on IRS Form W-8 or an appropriate substitute, the Fund may be required to impose
backup withholding of U.S. tax at the rate of 31% on distributions of net
realized capital gains and proceeds of redemptions and exchanges.
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. The Fund and the Fund's distributions may also be
subject to state, local, or foreign taxes. A prospective investor may wish to
consult a tax advisor to determine whether the Fund is a suitable investment
based on his or her tax situation.
ABOUT BENHAM INTERNATIONAL FUNDS
Benham International Funds (BIF) was organized as a Massachusetts business trust
on August 28, 1991. Currently, there are five series of the Trust; one of which
is described herein. The board of trustees may create additional series from
time to time.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest without par value, which may
be issued in series (funds). Shares issued are fully paid and nonassessable and
have no preemptive, conversion, or similar rights.
Shares of the Fund have equal voting rights, provided that each series votes
separately on matters affecting only that series. Voting rights are not
cumulative. In the election of trustees, each nominee may receive only one vote
from each shareholder, and, because the election requires only a simple
majority, more than 50% of the shares voting in an election can elect all of the
trustees. Shares of the Fund have equal rights as to dividends and distributions
declared by the Fund and in the net assets of the Fund upon its liquidation or
dissolution.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration of Trust also
provides for indemnification and reimbursement of expenses of any shareholder
held personally liable for obligations of the Trust. The Declaration of Trust
provides that the Trust will, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. The Declaration of Trust further provides that the Trust may
maintain appropriate insurance (for example, fidelity, bonding, and errors and
omissions insurance) for the protection of the Trust, its shareholders,
trustees, officers, employees, and agents to cover possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.
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.
19
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 3 Embarcadero Center, San
Francisco, California 94111, serves as the Trust's independent auditors and
provides services including (i) audit of annual financial statements and (ii)
preparation of annual federal income tax returns filed on behalf of the Fund.
TRUSTEES AND OFFICERS
The BIF's activities are overseen by a board of trustees, including seven
independent trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of BIF (as defined in the 1940 Act) by
virtue of, among other considerations, their affiliation with either the BIF;
BIF's investment advisor, BMC; BIF's agent for transfer and administrative
services, BFS; BIF's distribution agent, Benham Distributors, Inc. (BDI); the
parent corporation, Twentieth Century Companies, Inc. (TCC) or TCC's
subsidiaries; or other funds advised by BMC. Each trustee listed below also
serves as a trustee or director of other funds in The Benham Group. Unless
otherwise noted, dates in parentheses indicate the dates the trustee or officer
began his or her service in a particular capacity. The trustees' and officers'
address with the exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston
Road, Mountain View, California 94043. The address of Mr. Stowers III and Ms.
Roepke is 4500 Main Street, Kansas City, Missouri 64141-0274.
TRUSTEES
*JAMES M. BENHAM, chairman of the board of trustees (1991), president and chief
executive officer (1996). Mr. Benham is also chairman of the boards of BFS
(1985), BMC (1971), and BDI (1988); president of BMC (1971), and BDI (1988); and
a member of the board of governors of the Investment Company Institute (1988).
Mr. Benham has been in the securities business since 1963, and he frequently
comments through the media on economic conditions, investment strategies, and
the securities markets.
ALBERT A. EISENSTAT, independent trustee (1995). Mr. Eisenstat is an independent
director of each of Commercial Metals Co. (1982), Sungard Data Systems (1991)
and Business Objects S/A (1994). Previously, he served as vice president of
corporate development and corporate secretary of Apple Computer and served on
its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent trustee (1995). Mr. Gilson is the Charles J.
Meyers Professor of Law and Business at Stanford Law School (1979) and the Mark
and Eva Stern Professor of Law and Business at Columbia University School of Law
(1992). He is counsel to Marron, Ried & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent trustee (1991). Mr. Scholes, a principal of
Long-Term Capital Management (1993), is also Frank E. Buck Professor of Finance
at the Stanford Graduate School of Business (1983), and a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).
20
KENNETH E. SCOTT, independent trustee (1991). 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 trustee (1991). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a director of
Encyclopedia Britannica.
ISAAC STEIN, independent trustee (1992). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III, trustee (1995). Mr. Stowers is the president and director
of Twentieth Century Investors, Inc., TCI Portfolios, Inc., Twentieth Century
World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth
Century Capital Portfolios, Inc., Twentieth Century Institutional Portfolios,
Inc., Twentieth Century Companies, Inc., Investors Research Corporation and
Twentieth Century Services, Inc.
JEANNE D. WOHLERS, independent trustee (1991). 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).
OFFICERS
*JAMES M. BENHAM, president and chief executive officer (1996).
*DOUGLAS A. PAUL, secretary, vice president, and general counsel (1991);
secretary, vice president and general counsel of BMC, BFS, BDI and all of the
funds in the Benham Group.
*ANN N. McCOID, controller (1991); controller of BFS and all of the funds in the
Benham Group.
*MARYANNE ROEPKE, CPA, chief financial officer and treasurer (1995); vice
president, treasurer and principal accounting officer, Twentieth Century
Strategic Asset Allocations; vice president and treasurer, Twentieth Century
Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century
Capital Portfolios, Inc., Twentieth Century Premium Reserves, Inc. and TCI
Portfolios, Inc.; vice president, Twentieth Century Services, Inc.
As of March 29, 1996, the trustees and officers, as a group, owned less than 1%
of the Fund's outstanding shares.
The table on the following page summarizes the compensation that the trustees of
the Fund received for the Fund's fiscal year ended December 31, 1995, as well as
the compensation received for serving as director or trustee of all other Benham
funds.
21
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------
Name of Aggregate Pension or Estimated Total
Trustee* Compensation Retirement Benefits Annual Benefits Compensation
From Fund Accrued As Part of Upon Retirement From Fund and
Fund Expenses Fund Complex
Paid to Trustees**
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Albert A. Eisenstat $0 Not Applicable Not Applicable $0
- -----------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $2,472 Not Applicable Not Applicable $48,833
- -----------------------------------------------------------------------------------------------------------------
Myron S. Scholes $4,523 Not Applicable Not Applicable $65,625
- -----------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $4,178 Not Applicable Not Applicable $65,125
- -----------------------------------------------------------------------------------------------------------------
Ezra Solomon $4,341 Not Applicable Not Applicable $58,792
- -----------------------------------------------------------------------------------------------------------------
Isaac Stein $4,185 Not Applicable Not Applicable $63,625
- -----------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $4,354 Not Applicable Not Applicable $67,375
- -----------------------------------------------------------------------------------------------------------------
* Interested trustees receive no compensation for their services as such.
** The Benham Group Fund Complex currently consists of 10 registered investment companies.
</TABLE>
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with Benham Management Corporation
(BMC), dated June 1, 1995, that was approved by the Fund's shareholders on May
31, 1995. The fee schedules for the agreements are illustrated on the next page.
BMC is a California corporation and a wholly owned subsidiary of TCC, a Delaware
corporation. BMC, as well as BFS and BDI, became wholly owned subsidiaries of
TCC on June 1, 1995, upon the merger of Benham Management International (BMI),
the former parent of BFS and BDI, into TCC. BMC has served as investment advisor
to the Fund, since the Fund's inception. TCC is a holding company that owns all
of the stock of the operating companies that provide the investment management,
transfer agency, shareholder service, and other services for the Twentieth
Century funds. James E. Stowers, Jr., controls TCC by virtue of his ownership of
a majority of its common stock. BMC has been a registered investment advisor
since 1971 and is investment advisor to other funds in The Benham Group.
The Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two year period,
it is approved at least annually by vote of either a majority of the Fund's
outstanding voting securities or by vote of a majority of the Trust's trustees,
including a majority of those trustees who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
The agreement is terminable on 60 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,
22
and restrictions. BMC determines which securities will be purchased and sold by
the Fund. It also assists the Trust's officers in carrying out decisions made by
the board of trustees.
For these services, the Fund pays BMC a monthly investment advisory fee based on
the dollar amount derived from applying the Fund's average daily net assets to
the following investment advisory fee rate schedule:
.45% of the first $200 million;
.40% of the next$300 million;
.35% of the next $1 billion;
.34% of the next $1 billion;
.33% of the next $1 billion;
.32% of the next $1 billion;
.31% of the next $1 billion;
.30% of the next $1 billion; and
.29% of net assets over $6.5 billion
Prior to June 1, 1994, the Fund's advisory fee schedule ranged from .50% to .19%
of the Fund's average daily net assets, dropping as the Fund's assets increased.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid
$1,017,677, $1,124,210, and $1,740,333, respectively, in investment advisory
fees (including recoupments described below) to BMC.
The investment advisory agreement provides that BMC may delegate certain
responsibilities under the agreement to a subadvisor. Currently, JPMIM serves as
subadvisor to the Fund under a subadvisory agreement between BMC and JPMIM dated
June 1, 1995, that was approved by shareholders on May 31, 1995. This superseded
subadvisory agreements dated December 31, 1991 and June 1, 1994. The subadvisory
agreement continues for an initial period of two years and thereafter so long as
continuance is specifically approved by vote of a majority of the Fund's
outstanding voting securities or by vote of a majority of the Fund's trustees,
including a majority of those trustees who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The subadvisory agreement is subject to
termination without penalty on 60 days' written notice by BMC, the board of
trustees, or a majority of the Fund's outstanding shares or 12 months' written
notice by JPMIM and will terminate automatically in the event of (i) its
assignment or (ii) termination of the investment advisory agreement between the
Fund and BMC.
The subadvisory agreement provides that JPMIM will make investment decisions for
the Fund in accordance with the Fund's investment objective, policies, and
restrictions, and whatever additional written guidelines it may receive from BMC
from time to time. For these services, BMC pays JPMIM a monthly fee at an annual
rate of .20% of the Fund's average daily net assets up to $200 million; and .15%
of average daily net assets over $200 million. Under the 1991 subadvisory
agreement, BMC paid JPMIM a monthly fee at an annual rate of .25% of average
daily net assets up to $200 million, and .05% of average daily net assets in
excess of $200 million, with a minimum annual fee of $250,000.
For the fiscal years ended December 31, 1995, 1994 and 1993, BMC paid JPMIM
subadvisory fees of $434,795, $480,751 and $580,770, respectively.
23
ADMINISTRATIVE AND TRANSFER AGENT SERVICES
BFS, a wholly owned subsidiary of TCC, is BIF's agent for transfer and
administrative services. For administrative services, the Fund pays BFS a
monthly fee based on its pro rata share of the dollar amount derived from
applying the average daily net assets of all 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
more than $9 billion .08
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.
For the fiscal years ended December 31, 1995 and 1994, the Fund paid BFS
$222,006 and $249,273 for administrative services and $264,019 and $275,941 for
transfer agent services, respectively.
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 trustees; custodian, audit,
tax preparation and pricing fees; fees of outside counsel and counsel employed
directly by the Trust; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions (if any); trade association
dues; costs of fidelity and liability insurance policies covering the Fund;
costs for incoming WATS lines maintained to receive and handle shareholder
inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
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 limitation in effect at that time. BMC has agreed under
contract to limit the Fund expenses to .90% of the Fund's average daily net
assets during the year ending May 31, 1996.
The Fund's contractual expense limitation is subject to annual renewal.
For the fiscal years ended December 31, 1995, 1994 and 1993, BMC recouped $0,
$1,215 and $178,230 respectively, of the Fund's expenses.
24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are continuously offered at NAV. Share certificates are issued
(without charge) only when requested in writing. Certificates are not issued for
fractional shares. Dividend and voting rights are not affected by the issuance
of certificates.
The Benham Group may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a series' tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a series' best interest. As of
March 29, 1996, Charles Schwab & Co., 101 Montgomery Street, San Francisco,
California 94104, was the record holder of 29.6% of the outstanding shares of
the Fund. As of that date, 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. BFS may, however, charge fees for special services
requested by a shareholder or necessitated by acts or omissions of a
shareholder. For example, BFS may charge a fee for processing dishonored
investment checks or stop-payment requests. BFS charges $10 per hour for account
research requested by investors. This charge will be assessed, for example, when
a shareholder request requires more than one hour of research on historical
account records. The fees charged are based on the estimated costs of performing
shareholder-requested services and are not intended to increase income to BFS.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Trust's investment advisor, BMC, has been continuously registered with the
SEC under the Investment Advisers Act of 1940 since December 14, 1971. The Trust
has filed a registration statement under the Securities Act of 1933 and the 1940
Act with respect to the shares offered. Such registrations do not imply approval
or supervision of the Trust or the advisor by the SEC.
For further information, please refer to the registration statement and exhibits
on file with the SEC in Washington, D.C. These documents are available upon
payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
25
<PAGE>
BENHAM INTERNATIONAL FUNDS
1933 Act Post-Effective Amendment No. 7
1940 Act Amendment No. 8
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for Benham European
Government Bond Fund for the fiscal year ended December 31, 1995, are
filed herein as included in the Fund's Statement of Additional
Information by reference to the Annual Report dated December 31, 1995,
filed on February 26, 1996, Accession #880268-96-000005.
(b) EXHIBITS.
(1) Amended and Restated Declaration of Trust, dated May 31, 1995,
is included herein as EX-99.B1.
(2) Amended and Restated Bylaws dated May 17, 1995 are
incorporated herein by reference to Exhibit 2(b) of
Post-Effective Amendment No. 6 filed on February 29, 1996,
Accession #880268-96-000007.
(3) Not Applicable.
(4) Specimen copy of Benham European Government Bond Fund's share
certificate is incorporated herein by reference to Exhibit 4
of the Trust's Registration Statement filed on October 16, 1991.
(5)(a) Investment Advisory Agreement between Benham International Funds
and Benham Management Corporation dated June 1, 1995, is
incorporated herein by reference to Exhibit 5(b) of
Post-Effective Amendment No. 6 filed on February 29, 1996,
Accession #880268-96-000007.
(b) Investment Sub-Advisory Agreement among Benham International
Funds, Benham Management Corporation, and J.P. Morgan Investment
Management Inc., dated June 1, 1995 is included herein as
EX-99.B5b.
(6) Distribution Agreement between Benham International Funds and
Benham Distributors, Inc., dated June 1, 1995, is incorporated
herein by reference to Exhibit 6 of Post-Effective Amendment
No. 6 filed on February 29, 1996, Accession #880268-96-000007.
(7) Not Applicable.
(8)(a) Custodian Agreement between Benham International Funds and State
Street Bank and Trust Company dated August 10, 1993 is included
herein as EX-99.B8a.
(b) Amendment No. 1 dated December 1, 1994, to the Custodian
Agreement between Benham International Funds and State Street
Bank and Trust Company dated August 10, 1993 is included herein
as EX-99.B8b.
(c) Amendment No. 2 dated March 4, 1996 to the Custodian Agreement
between Benham International Funds and State Street Bank and
Trust Company dated August 10, 1993 is included herein as
EX-99.B8c.
(9) Administrative Services and Transfer Agency Agreement between
Benham International Funds and Benham Financial Services, Inc.,
dated June 1, 1995, is incorporated herein by reference to
Exhibit 9 of Post-Effective Amendment No. 6 filed on February
29, 1996, Accession #880268-96-000007.
(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated February 15, 1996, is
incorporated herein by reference to Rule 24f-2 Notice filed on
February 15, 1996, Accession #880268-96-000003.
(11) Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein as EX-99.B11.
(12) Not Applicable.
(13) Letter of Understanding relating to initial capital, dated
December 20, 1991, is incorporated herein by reference to Exhibit
13 to Pre-Effective Amendment No. 1 filed on December 26, 1991.
(14)(a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 2 filed on April 30, 1993.
(b) Benham Pension/Profit Sharing Plan, including all instructions
and other relevant documents, dated February 1992, is
incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 2 filed on April 30, 1993.
(15) Not Applicable.
(16) Schedule for computation of each performance quotation provided
in response to Item 22 is incorporated herein by reference to
Exhibit 16 of Post-Effective Amendment No. 6 filed on February
29, 1996, Accession #880268-96-000007.
(17) Power of Attorney dated March 4, 1996, is included herein as
EX-99.B17.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not Applicable.
Item 26. Number of Holders of Securities.
As of March 29, 1996, Benham European Government Bond Fund (the sole
operating series of Benham International Funds) had 11,308 shareholders of
record.
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of
Trust, incorporated herein by reference to Exhibit 1 to the
Registration Statement, "The Trustees shall be entitled and
empowered to the fullest extent permitted by law to purchase
insurance for and to provide by resolution or in the Bylaws
for indemnification out of Trust assets for liability and for
all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim,
action, suit, or proceeding in which he or she becomes
involved by virtue of his or her capacity or former capacity
with the Trust. The provisions, including any exceptions and
limitations concerning indemnification, may be set forth in
detail in the Bylaws or in a resolution adopted by the Board
of Trustees." Registrant hereby incorporates by reference, as
though set forth fully herein, Article VI of the Registrant's
Bylaws, amended on May 17, 1995, appearing as Exhibit 2(b) to
Post-Effective Amendment No. 6 filed on February 29, 1996,
Accession #880268-96-000007.
Item 28. Business and other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management
Corporation, is also investment advisor to Capital
Preservation Fund, Inc., Capital Preservation Fund II, Inc.,
Benham Target Maturities Trust, Benham California Tax-Free and
Municipal Funds, Benham Municipal Trust, Benham Government
Income Trust, Benham Equity Funds, Benham Investment Trust,
and Benham Manager Funds.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Benham Distributors,
Inc., is also distribution agent to Capital Preservation Fund,
Inc., Capital Preservation Fund II, Inc., Benham California
Tax-Free and Municipal Funds, Benham Municipal Trust, Benham
Target Maturities Trust, Benham Government Income Trust,
Benham Equity Funds, Benham International Funds, and Benham
Manager Funds. The information required with respect to each
director, officer or partner of Benham Distributors, Inc. is
incorporated herein by reference to Benham Distributors' Form
B-D filed on January 19, 1996 (SEC File No.8-36938; Firm CRD
No. 18784).
Item 30. Location of Accounts and Records.
The Registrant, its investment advisor, Benham Management
Corporation, and its agent for transfer and administrative
services, Benham Financial Services, Inc., maintain, at the
Fund's principal office located at 1665 Charleston Road,
Mountain View, CA 94043, physical possession of each account,
book, or other document, and shareholder record as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer
and database for shareholder records are located at Central
Computer Facility, 401 North Broad Street, Sixth Floor,
Philadelphia, PA 19108.
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
Registrant undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 7/Amendment No. 8 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 19th day of April, 1996. I hereby certify that this Amendment
meets the requirements for immediate effectiveness pursuant to Rule 485(b).
BENHAM INTERNATIONAL FUNDS
By: /s/ Douglas A. Paul
Douglas A. Paul
Vice President, Secretary, and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 7/Amendment No. 8 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
/s/ James M. Benham Chairman of the Board of Trustees, April 19, 1996
James M. Benham* President, and Chief Executive Officer
/s/ Albert A. Eisenstat Trustee April 19, 1996
Albert A. Eisenstat*
/s/ Ronald J. Gilson Trustee April 19, 1996
Ronald J. Gilson*
/s/ Myron S. Scholes Trustee April 19, 1996
Myron S. Scholes*
/s/ Kenneth E. Scott Trustee April 19, 1996
Kenneth E. Scott*
/s/ Ezra Solomon Trustee April 19, 1996
Ezra Solomon*
/s/ Isaac Stein Trustee April 19, 1996
Isaac Stein*
/s/ James E. Stowers III Trustee April 19, 1996
James E. Stowers III*
/s/ Jeanne D. Wohlers Trustee April 19, 1996
Jeanne D. Wohlers*
/s/ Maryanne Roepke Chief Financial Officer, April 19, 1996
Maryanne Roepke* Treasurer
</TABLE>
/s/ Douglas A. Paul
*Douglas A. Paul, Attorney in Fact
(pursuant to a Power of Attorney
dated March 4, 1996).
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
EX-99.B1 Amended and Restated Declaration of Trust, dated May 31, 1995.
EX-99.B2 Bylaws dated May 17, 1995, are incorporated herein by
reference to EX-99.B2 to Post-Effective Amendment No. 6 filed
on February 29, 1996, Accession #880268-96-000007.
EX-99.B4 Specimen copy of Benham European Government Bond Fund's
share certificate is incorporated by reference to Exhibit 4 to
Post-Effective Amendment No. 1.
EX-99B.5a Investment Advisory Agreement between Benham International
Funds and Benham Management Corporation, dated June 1, 1995,
and incorporated herein by reference to Post-Effective
Amendment No. 6 filed on February 29, 1996, Accession
#880268-96-000007.
EX-99B.5b Investment Sub-Advisory Agreement between Benham International
Funds, Benham Management Corporation, and J.P. Morgan
Investment Management, Inc., dated June 1, 1995.
EX-99B.6 Distribution Agreement between Benham International Funds and
Benham Distributors, Inc., dated June 1, 1995, is incorporated
herein by reference to Post-Effective Amendment No. 6 filed on
February 29, 1996, Accession #880268-96-000007.
EX-99.B8a Custodian Agreement between Benham International Funds and
State Street Bank and Trust Company dated August 10, 1993.
EX-99.B8b Amendment No. 1 dated December 1, 1994, to the Custodian
Agreement between Benham International Funds and State Street
Bank and Trust Company dated August 10, 1993.
EX-99.B8c Amendment No. 2 dated March 4, 1996, to the Custodian
Agreement between Benham International Funds and State Street
Bank and Trust Company dated August 10, 1993.
EX-99.B9 Administrative Services and Transfer Agency Agreement between
Benham International Funds and Benham Financial Services,
Inc., dated June 1, 1995, is incorporated herein by reference
to Post-Effective Amendment No. 6 filed on February 29, 1996,
Accession #880268-96-000007.
EX-99.B10 Opinion and consent of counsel as to the legality of the
securities being registered, dated February 15, 1996, is
incorporated herein by reference to Rule 24f-2 Notice filed on
February 15, 1996, Accession #880268-96-000003.
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors.
EX-99.B13 Letter of Understanding relating to initial capital, dated
December 20, 1991, is incorporated herein by reference to
Exhibit 13 to Pre-Effective Amendment No. 1.
EX-99.B14a Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 2.
EX-99.B14b Benham Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 2.
EX-99.B16 Schedule for computation of each performance quotation
provided in response to Item 22 is incorporated herein by
reference to Post-Effective Amendment No. 6 filed on February
29, 1996, Accession #880268-96-000007.
EX-99.B17 Power of Attorney dated March 4, 1996
EX-27.5 Financial Data Schedule - Benham European Government Bond
Fund is incorporated herein by reference to Post-Effective
Amendment No. 6 filed on February 29, 1996, Accession
#880268-96-000007.
TABLE OF CONTENTS
BENHAM INTERNATIONAL FUNDS
AGREEMENT AND DECLARATION OF TRUST
(AMENDED MAY 31, 1995)
ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trustees
(c) Shares
(d) Shareholder
(e) 1940 Act
(f) Commission
(g) Declaration of Trust
(h) Bylaws
(i) Series Company
(j) Series
ARTICLE II Purpose of Trust
ARTICLE III Shares
1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Trustees to Change Provisions Relating to Shares
6. Establishment and Designation of Series
(a) Assets Belonging to Series
(b) Liabilities Belonging to Series
(c) Income, Distributions and Redemptions
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
8. Trustees Establishment and Designation of Series
ARTICLE IV The Trustees
1. Number, Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions
ARTICLE VI Net Asset Value, Distributions, and Redemptions
1. Determination of Net Asset Value, Net Income and Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust
ARTICLE VII Compensation and Limitation of Liability of Trustees
1. Compensation
2. Limitation of Liability
3. Indemnification
ARTICLE VIII Miscellaneous
1. Trustees, Shareholders, etc. Not Personally Liable; Notice
2. Trustees Good Faith Action; Expert Advice; No Bond or Surety
3. Liability of Third Persons Dealing with Trustees
4. Termination of Trust or Series
5. Merger and Consolidation
6. Filing of Copies; References; Headings
7. Applicable Law
8. Amendments
9. Trust Only
10. Use of the Name "Benham"
11. Provisions in Conflict with Law or Regulations
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
BENHAM INTERNATIONAL FUNDS
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
/s/28th day of August, 1991 by the Trustees hereunder.
WHEREAS the Trustees desire and have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
NAME AND DEFINITIONS
Section 1. NAME. This Trust shall be known as the BENHAM INTERNATIONAL
FUNDS and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine.
Section 2. DEFINITIONS. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected or appointed in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust property belonging to any Series of the Trust
(as the context may require) shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The term "Commission" shall mean the United States Securities and
Exchange Commission;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision; and
(j) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III. Present and future
separate "Series" in the Trust may be referred to as "Portfolios" or "Funds" and
these terms may be used alternatively in future publications and communications
sent to investors.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment
company registered under the 1940 Act and investing one or more portfolios
primarily in securities and debt instruments.
ARTICLE III
SHARES
Section 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, without
par value. Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders of
the Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by each Shareholder on the record
date for any dividend or on the date of termination, as the case my be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of any particular
Series into a greater or lesser number of Shares of that Series without thereby
changing the proportionate beneficial interest of the Shares of that Series in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.
Section 2. OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series and as to the number of Shares of each Series
held from time to time by each.
Section 3. INVESTMENTS IN THE TRUST. The Trustees may accept investments in
the Trust from such persons, at such times, and on such terms and for such
consideration as they from time to time authorize.
Section 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the right of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES.
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.
Without limiting the generality of the foregoing, the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any Series already
existing or otherwise) with such rights and preferences and such eligibility
requirements for investment therein as the Trustees shall determine and
reclassify any or all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;
(c) combine one or more Series of Shares into a single Series on such terms
and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series, including without limitation, to provide for the issue of
Shares of any Series in connection with any merger or consolidation of the Trust
with another trust or company or any acquisition by the Trust of part or all of
the assets of another trust or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the various Series of
Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series of
Shares;
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series.
Section 6. ESTABLISHMENT AND DESIGNATION OF SERIES. The establishment and
designation of any Series of Shares shall be effective upon the resolution by a
majority of the then Trustees, setting forth such establishment and designation
and the relative rights and preferences of such Series, or as otherwise provided
in such resolution. Such establishment and designation shall be set forth in an
amendment to this Declaration of Trust as provided in Section 8 of Article VIII.
Shares of each Series established pursuant to this Section 6, unless
otherwise provided in the resolution establishing such Series, shall have the
following relative rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the Trust for
the issue or sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, shall be so recorded upon
the books of account of the Trust, and are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series in such manner and on such basis as they, in their
sole discretion, deem fair and equitable, and any General Assets to, between or
among any one or more of the Series in such manner and on such basis as they, in
their sole discretion, deem fair and equitable, and any General Asset so
allocated to a particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust in respect
to that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustee
shall be conclusive and binding upon the holders of all Series for all purposes.
Under no circumstances shall the assets allocated or belonging to any particular
Series be charged with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to particular Series, or who
have a claim or contract which has been allocated to any particular Series,
shall look only to the assets of that particular Series for payment of such
credit, claim, or contract.
(c) INCOME, DISTRIBUTIONS, AND REDEMPTIONS. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders. Notwithstanding any other provision of this Declaration,
including, without limitation, Article VI, no dividend or distribution
(including, without limitation, Article VI, any distribution paid upon
termination of the Trust or of any Series) with respect to, nor any redemption
or repurchase of, the Shares of any Series shall be effected by the Trust other
than from the assets belonging to such Series, nor, except as specifically
provided in Section 7 of this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim against the assets belonging
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series.
(d) VOTING. The Trustees may from time to time establish conditions
according to which the several Series shall have separate voting rights. If any
Series would not, in the Trustees' sole judgment, be materially affected by a
voting proposal, the Trustees may determine that such Series shall have no
rights to vote on such proposal. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration or the Bylaws to be taken by Shareholders. The Bylaws may
include further provisions for Shareholders' votes and meetings and related
matters.
(e) EQUALITY. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) FRACTIONS. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole share of that Series, including rights
with respect to voting, receipt of dividends and distributions, redemption of
Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the Trustees may
amend this Declaration of Trust to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be effected in the
manner provided pursuant to Section 5 of this Article III.
Section 7. INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reasons, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Trust to be held harmless
from and indemnified against all loss and expense arising from such liability.
Section 8. TRUSTEES ESTABLISHMENT AND DESIGNATION OF SERIES. The Board of
Trustees hereby establishes and designates Benham European Government Bond Fund
as a Series of the Trust with the relative rights and preferences as described
in Section 6 of Article III.
ARTICLE IV
THE TRUSTEES
Section 1. NUMBER, ELECTION AND TENURE. The number of Trustees shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be less than two nor more than 15. There shall be one initial
Trustee. Eric G. Woodbury shall be such initial trustee. The Trustees may by
vote of a majority of the remaining Trustees fill vacancies in the Trustees or
remove Trustees with or without cause by vote of a majority of the Trustees who
are "non-interested" persons (as defined in the 1940 Act) if the Trustee to be
removed is a "non-interested" Trustee, or by vote of the Trustees who are
"interested persons" if the Trustee to be removed is an "interested" Trustee.
Each Trustee shall serve during the continued lifetime of the Trust until he
dies, resigns or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his successor, except, that Trustees who are not
"interested persons" or employees of the Benham Capital Management Group of
companies shall retire at the end of the calendar year in which they shall have
reached the age of seventy-five (75) years. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. The Shareholders may fix the number of Trustees and elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose.
Section 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in Article IV, Section 1 the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of such vacancy. In the event of the
death, declination, resignation, retirement, removal, or incapacity of all the
then Trustees within a short period of time and without the opportunity for at
least one Trustee being able to appoint additional Trustees to fill vacancies,
the Trust's investment advisor or investment advisors jointly, if there is more
than one, are empowered to appoint new Trustees.
Section 3. POWERS. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility including
the power to engage in securities transactions of all kinds on behalf of the
Trust. Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust any may amend and repeal them to the
extent that such Bylaws do not reserve that right to the Shareholders; they may
fill vacancies in or reduce the number of Trustees, and may elect and remove
such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number and establish and terminate
one or more committees consisting of two or more Trustees which may exercise the
powers and authority of the Trustees to the extent that the Trustees determine;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian, transfer or Shareholder servicing agent, or principal
underwriter. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, to hold cast uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, lend or otherwise deal in or
dispose of contracts for the future acquisition or delivery of fixed income or
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, bankers acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all persons, including, without
limitation, states, territories, and possessions of the United States and the
District of Columbia and any political subdivision, agency, or instrumentality
of the U.S. Government, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more persons, firms,
associations, or corporations to exercise any of said rights, powers, and
privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisors, principal underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as Trustee, officer, employee, agent, investment advisor, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against liability; and
(m) to pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust. The Trustees shall not in any way
be bound or limited by any present or future law or custom in regard to
investment by fiduciaries. The Trustees shall not be required to obtain any
court order to deal with any assets of the Trust or take any other action
hereunder.
Section 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, investment advisor or manager, principal
underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.
Section 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.
Section 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trustees.
Section 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as may be set forth in
the Bylaws, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services for the Trust or
for any Series with Benham Management Corporation or any other corporation,
trust, association or other organization (the "Advisor"); and any such contract
may contain such other terms as the Trustees may determine, including without
limitation, authority for the Advisor to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold or exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested and to make changes in the Trust's investments.
(b) The Trustees may also, at any time and from time to time, contract with
any corporation, trust, association, or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter for the Shares of
any, some, or all of the Series. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trust, associations, or other organizations,
appointing it or them the transfer agent(s) and/or shareholders servicing
agent(s) for the Trust or one or more of the Series. Specifically, the Trustees
are empowered to contract or join with other investment companies managed by the
Trust's investment advisor to have transfer agency and/or shareholder servicing
activities performed jointly by such investment companies and their employees
with an appropriate allocation between the investment companies of the costs and
expenses of providing such services. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws or stipulated by
resolution of the Trustees.
(d) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
advisor, principal underwriter, distributor or affiliate or agent of or
for any corporation, trust, association, or other organization, or for
any parent or affiliate of any organization with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract
may have been or may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder or has an interest
in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Article IV, Section 1, (ii) to the same extent as the
stockholders of a California business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iii) with respect to the termination of the Trust or any Series to the extent
and as provided in Article VIII, Section 4, and (iv) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the Bylaws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable. A Shareholder of each Series shall be entitled to one vote for each
dollar of net asset value per Share of such Series, on any matter on which such
Shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. All references in this Declaration
of Trust or the Bylaws to a vote of or the holders of a percentage of Shares
shall mean a vote of, or the holders of, that percentage of total votes
representing dollars of net asset value of a Series or of the Trust, as the case
may be. There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one of them unless
at or prior to exercise of the proxy the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. At any time when no Shares of a Series are outstanding, the Trustees
may exercise all rights of Shareholders of that Series with respect to matters
affecting that Series, take any action required by law, this Declaration of
Trust or the Bylaws to be taken by the Shareholders.
Section 2. VOTING POWER AND MEETINGS. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the Bylaws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the Bylaws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by applicable law, by the Bylaws or by this Declaration of Trust, forty
percent (40%) of the Shares entitled to vote shall constitute a quorum at a
Shareholders' meeting. When any one or more Series is to vote as a single class
separate from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of each such Series
entitled to vote shall constitute a quorum at a Shareholders' meeting of that
Series. Any meeting of Shareholders may be adjourned from time to time by a
majority of the votes properly cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further notice. Subject to
the provisions of Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the Bylaws or by applicable law.
Section 4. ACTION BY WRITTEN CONSENT. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the Bylaws)
and holding a majority (or such larger proportion as aforesaid) of the Shares of
any Series entitled to vote separately on the matter consent to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5. RECORD DATES. For the purpose of determining the Shareholders of
any Series who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which shall be not more
than 75 days before the date of any meeting of Shareholders, as the record date
for determining the Shareholders of such Series having the right to notice of
and to vote at such meeting and any adjournment thereof, and in such case only
Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.
Section 6. ADDITIONAL PROVISIONS. The Bylaws may include further provisions
for Shareholders' votes and meetings and related matters.
ARTICLE VI
NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS
Section 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS.
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the Bylaws or in a duly adopted
resolution of the Shares of any Series or net income attributable to the Shares
of any Series, or the declaration and payment of dividends and distributions on
the Shares of any Series, as they may deem necessary or desirable.
Section 2. REDEMPTIONS AND REPURCHASES. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws and applicable law, next
determined under the 1940 Act. Payment for said Shares shall be made by the
Trust to the Shareholder within seven days after the date on which the request
is made in proper form. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock Exchange is
closed for other than weekends or holidays, or if permitted by the rules of the
Commission, during periods when trading on the Exchange is restricted or during
any emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets belonging to such Series or during any other period permitted by order of
the Commission for the protection of investors, such obligation may be suspended
or postponed by the Trustees.
Section 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The Trust shall have the
right at its option and at any time to redeem Shares of any Shareholder at the
net asset value thereof as described in Section 1 of this Article VI: (i) if at
such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees;
or (ii) to the extent that such Shareholder owns Shares equal to or in excess of
a percentage determined from time to time by the Trustees of the outstanding
Shares of the Trust or of any Series.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. LIMITATION OF LIABILITY. The Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent,
employee, manager or Principal Underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
Section 3. INDEMNIFICATION. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase insurance for and to provide by
resolution or in the Bylaws for indemnification out of Trust assets for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he becomes involved by virtue of his capacity or former
capacity with the Trust. The provisions, including any exceptions and
limitations concerning indemnification, may be set forth in detail in the Bylaws
or in a resolution of the Trustees.
ARTICLE VIII
MISCELLANEOUS
Section 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by an officer or officers or
otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officer or
officers or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.
Section 2. TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. TERMINATION OF TRUST OR SERIES. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of at least two-thirds (66-2/3%) of the Shares of
each Series entitled to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series or the applicable Series, as the case may be),
to the Shareholders of that Series, as a Series, ratably according to the number
of Shares of that Series held by the several Shareholders on the date of
termination.
Section 5. MERGER AND CONSOLIDATION. The Trustees may cause the Trust or
one or more of its Series to be merged into or consolidated with another Trust
or company or the Shares exchanged under or pursuant to any state or Federal
statute, if any, or otherwise to the extent permitted by law. Such merger or
consolidation or share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust as a whole or any affected Series, as may be
applicable; provided that in all respects not governed by statute or applicable
law, the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
Section 6. FILING OF COPIES; REFERENCES; HEADINGS. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument, or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7. APPLICABLE LAW. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 8. AMENDMENTS. This Declaration of Trust may be amended at any time
by an instrument in writing signed by a majority of the then Trustees.
Section 9. TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a trust.
Nothing in this Agreement and Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association.
Section 10. USE OF THE NAME "BENHAM". Benham Management Corporation ("BMC")
has consented to the use by the Trust of the identifying word or name "Benham"
in the name of the Trust. Such consent is conditioned upon the employment of
BMC, its successors or any affiliate thereof, as the Advisor of the Trust. As
between the Trust and itself, BMC controls the use of the name of the Trust
insofar as such name contains "Benham." The name or identifying word "Benham"
may be used from time to time in other connections and for other purposes by BMC
or affiliated entities. BMC may require the Trust to cease using "Benham" in the
name of the Trust if the Trust ceases to employ, for any reason, BMC, an
affiliate, or any successor as Advisor of the Trust.
Section 11. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the initial Trustee as aforesaid does hereto set his
hand this 28th day of August, 1991.
/s/ Eric G. Woodbury
Eric G. Woodbury, as Initial Trustee and not individually
Ten Post Office Square
Boston, MA 02109
COMMONWEALTH OF MASSACHUSETTS )
)
COUNTY OF SUFFOLK ) /s/August 28, 1991
Then personally appeared before me the above-named Eric G.
Woodbury, known to me to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same.
/s/ Patricia M. Luke
My commission expires:
/s/ Patricia M. Luke
/s/ My Commission Expires July 9, 1993
/s/ Principal Office: 1665 Charleston Road
Mountain View, CA 94043
/s/ Resident Agent: CT Corportation System
2 Oliver Street
Boston, MA 02109
INVESTMENT SUB-ADVISORY AGREEMENT
BENHAM INTERNATIONAL FUNDS
BENHAM EUROPEAN GOVERNMENT BOND FUND
J. P. MORGAN INVESTMENT MANAGEMENT INC.
Agreement effective this /s/1st day of /s/June, 1995, between BENHAM
INTERNATIONAL FUNDS (the "Trust"), a business trust organized under the laws of
the Commonwealth of Massachusetts, acting on behalf of Benham European
Government Bond Fund, a portfolio of the Trust (the "Fund"), and Benham
Management Corporation ("BMC"), a corporation organized under the laws of the
state of California, with offices located at 1665 Charleston Road, Mountain
View, California 94043, hereby agree with J. P. MORGAN INVESTMENT MANAGEMENT
INC. (the "Sub-Advisor"), a corporation organized under the laws of the state of
Delaware with offices located at 522 Fifth Avenue, New York, New York 10036, as
follows:
I. INVESTMENT DESCRIPTION - APPOINTMENT The Trust desires to appoint the
Sub-Advisor to provide certain investment advisory services to the Fund in
accordance with the Fund's Prospectus and Statement of Additional
Information as in effect and as amended from time to time, in such manner
and to such extent as may be approved by the Board of Trustees of the
Trust. The Trust agrees to provide the Sub-Advisor copies of all amendments
to the Fund's Prospectus and Statement of Additional Information on an
ongoing basis. In consideration for the compensation set forth below the
Sub-Advisor accepts the appointment and agrees to furnish the services
described herein.
II. SERVICES AS INVESTMENT SUB-ADVISOR Subject to the general supervision of
the Board of Trustees of the Trust and of BMC, the Fund's investment
advisor, the Sub-Advisor will (i) act in conformity with the Trust's
Prospectus and Statement of Additional Information, the Investment Company
Act of 1940, the Investment Advisers Act of 1940, the Internal Revenue Code
and all other applicable federal and state laws and regulations, as the
same may from time to time be amended, (ii) make investment decisions for
the fund in accordance with the Fund's investment objective(s) and policies
as stated in the Fund's Prospectus and Statement of Additional Information
and with such written guidelines as BMC may from time to time provide to
the Sub-Advisor; (iii) place purchase and sale orders on behalf of the
Fund; (iv) maintain books and records with respect to the securities
transactions of the Fund and furnish the Trust's Board of Trustees such
periodic, regular and special reports as the Board may request; and (v)
treat confidentially and as proprietary information of the Trust all
records and other information related to the Trust and its prior, present
or potential shareholders. The Sub-Advisor will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld.
Such records may not be withheld when the Sub-Advisor may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust. In providing those services, the
Sub-Advisor will supervise the Fund's investments and conduct a continual
program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. In addition, the Sub-Advisor will
furnish the Trust or BMC with whatever information, including statistical
data, the Trust or BMC may reasonably request with respect to the
instruments that the Fund may hold or contemplate purchasing.
III. BROKERAGE
A. SECURITIES In executing transactions for the Fund and selecting
brokers or dealers, the Sub-Advisor will use its best efforts to
obtain the best net price and execution available and shall execute or
direct the execution of all such transactions as permitted by law and
in a manner that best suits the interest of the Fund and its
shareholders. In assessing the best net price and execution available
for any Fund transaction, the Sub-Advisor will consider all factors it
deems relevant including, but not limited to, breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of
any commission for the specific transaction and on a continuing basis.
Consistent with this obligation, when the execution and price offered
by two or more brokers or dealers are comparable, the Sub-Advisor may,
at its discretion, execute transactions with brokers and dealers who
provide the Trust with research advice and other services, but in all
instances best net price and execution shall control.
On occasions when the Sub-Advisor deems the purchase or sale of a
security to be in the best interest of the Fund as well as its other
clients, the Sub-Advisor may to the extent permitted by applicable
law, but shall not be obligated to, aggregate the securities to be
sold or purchased with those of its other clients. In such event,
allocation of the securities so purchased or sold will be made by the
Sub-Advisor in a manner it considers to be equitable and consistent
with its fiduciary obligations to the Trust and to such other clients.
Securities so allocated will be delivered in proportion to the
consideration paid. The expenses incurred in the transaction shall be
allocated pro-rata.
B. FOREIGN EXCHANGE TRANSACTIONS The Sub-Advisor is authorized to
effect, on behalf of the Fund, spot and forward foreign exchange
contracts for purposes consistent with the Fund's investment
objectives and policies as described in the Fund's Prospectus and
Statement of Additional Information, as amended, and with such other
operating policies and guidelines as BMC may from time to time provide
to the Sub-Advisor. The Sub-Advisor is further authorized to execute
such documents as may be required to effect such transactions. In
effecting such spot and forward foreign exchange contracts and in
selecting counterparties for such contracts, the Sub-Advisor shall use
its best efforts to seek the best overall terms available and shall
execute or direct the execution of all such transactions as permitted
by law and in a manner that best suits the interests of the Fund and
its shareholders.
IV. INFORMATION PROVIDED TO THE TRUST The Sub-Advisor will keep the Trust and
BMC informed of developments materially affecting the Fund and will take
initiative to furnish the Trust and BMC on at least a quarterly basis with
whatever information the Sub-Advisor believes is appropriate for this
purpose. Such regular quarterly reports shall include (i) a discussion of
the Fund's performance relative to its benchmark, (ii) an assessment of
investment decisions and analysis of the components of the Fund's
performance (i.e., bond selection and currency hedging), (iii) the
decisions it has made with respect to the Fund's assets and the purchase
and sale of its portfolio securities, (iv) the reasons for such decisions
and related actions, and (v) the extent to which those decisions have been
implemented.
Sub-Advisor will provide the Trust and BMC with such investment records,
ledgers, accounting and statistical data, and other information as the
Trust or BMC requires for the preparation of registration statements,
periodic and other reports and other documents required by federal and
state laws and regulations, and particularly as may be required for the
periodic review, renewal, amendment or termination of this Agreement, and
such additional documents and information as the Trust and BMC may
reasonably request for the management of their affairs. At least once
annually a representative of the Sub-Advisor shall attend a meeting of the
Board of Trustees to make a presentation on the Fund's performance during
the preceding year.
The Sub-Advisor shall furnish to regulatory authorities any information or
reports in connection with such services as may be lawfully requested. The
Sub-Advisor shall also, at the Trust's request, certify to the Trust's
independent auditors that sales or purchases aggregated with those of other
clients of the Sub-Advisor, as described in Section 3(a) above, were
equitably allocated.
In compliance with the requirements of the Investment Company Act of 1940,
the Sub-Advisor hereby agrees that all records that it maintains for the
Fund are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. Sub-Advisor
further agrees to preserve for the periods of time prescribed by the
Investment Company Act of 1940 and the Investment Advisers Act of 1940 the
records required to be maintained thereunder.
V. LIABILITY AND INDEMNIFICATION OF THE SUB-ADVISOR The Sub-Advisor shall be
responsible for the exercise of reasonable care in carrying out its
responsibilities hereunder; provided, however, that no provision of this
Agreement shall be construed to protect any trustee, director, officer,
agent or employee of the Sub-Advisor from liability by reason of
negligence, willful malfeasance, bad faith in the performance of such
person's duties or by reason of reckless disregard of obligations and
duties hereunder.
BMC shall indemnify and hold harmless the Sub-Advisor from and against all
claims, losses, liabilities or damages (including reasonable attorneys fees
and other related expenses), arising from or in connection with the
performance by the Sub-Advisor of its duties hereunder and not resulting
from the Sub-Advisor's negligence, willful malfeasance, bad faith in the
performance of its duties or by reason of its reckless disregard of
obligations and duties hereunder.
VI. COMPENSATION In consideration of the services rendered pursuant to this
Agreement, BMC will pay the Sub-Advisor on the first business day of each
month a fee for the previous month at an annual rate computed as follows:
0.20% of the Fund's average daily net assets up to $200 million; and
0.15% of the Fund's average daily net assets over $200 million.
The Sub-Advisor shall have no right to obtain compensation directly from
the Fund or the Trust for services provided hereunder and agrees to look
solely to BMC for payment of fees due. Upon termination of this Agreement
before the end of a month, the fee for that month shall be prorated
according to the proportion that such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Sub-Advisor, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus or Statement of Additional Information.
VII. EXPENSES The Sub-Advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the execution of
securities transactions.
VIII.SERVICES TO OTHER COMPANIES OR ACCOUNTS The Trust understands that the
Sub-Advisor now acts, will continue to act as investment advisor to one or
more other investment companies or series of investment companies. The
Trust has no objection to the Sub-Advisor so acting, provided that, as
described in Section 3 above, whenever the Fund and one or more other
accounts or investment companies advised by the Sub-Advisor have funds
available for investment, investments suitable and appropriate for each
will be allocated equitably to each entity in accordance with procedures.
Similarly, opportunities to sell securities will be allocated in an
equitable manner. In addition, the Trust understands that the persons
employed by the Sub-Advisor to assist in the performance of the
Sub-Advisor's duties hereunder will not devote their full time to such
service and nothing contained herein shall be deemed to limit or restrict
the right of the Sub-Advisor or any affiliate of the Sub-Advisor to engage
in and devote time and attention to other business or to render services of
whatever kind or nature.
IX. TERM OF AGREEMENT This Agreement shall become effective as of the date the
Fund commences its investment operations and shall continue for a two-year
term and thereafter so long as such continuance is specifically approved at
least annually by (i) the Board of Trustees of the Trust or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940, as amended)
of the Fund's outstanding voting securities, provided that in either event
the continuance is also approved by a majority of the Board of Trustees who
are not "interested persons" (as defined in said Act) of any part to this
Agreement, by a vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable, without penalty on
60 days' written notice, by BMC, the Board of Trustees of the Trust, or by
vote of holders of a majority of the Fund's shares, or upon twelve months'
written notice by the Sub-Advisor, and will terminate automatically upon
any termination of the advisory agreement between the Trust and BMC. In
addition, this Agreement will also terminate automatically in the event of
its assignment (as defined in said Act). The Sub-Advisor agrees to notify
the Trust of any circumstances that might result in this Agreement being
deemed to be assigned.
X. REPRESENTATIONS OF THE TRUST AND THE SUB-ADVISOR The Trust represents that
(i) a copy of its Agreement and Declaration of Trust, dated August 28,
1991, together with all amendments thereto, is on file in the office of the
Secretary of the Commonwealth of Massachusetts, (ii) the appointment of the
Sub-Advisor has been duly authorized, and (iii) it has acted and will
continue to act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
XI. AMENDMENT OF THIS AGREEMENT No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
XII. LIMITATION OF LIABILITY This Agreement has been executed on behalf of the
Trust by the undersigned officer of the Trust solely in his capacity as an
officer of the Trust. No shareholder, trustee, officer, employee or agent
of the Trust shall be subject to claims against or obligations of the Trust
to any extent whatsoever.
XIII.ENTIRE AGREEMENT This Agreement constitutes the entire agreement between
the parties hereto.
XIV. GOVERNING LAW This Agreement shall be governed in accordance with the laws
of the Commonwealth of Massachusetts.
XV. INDEPENDENT CONTRACTOR In the performance of its duties hereunder, the
Sub-Advisor is and shall be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Trust or BMC in any way, or otherwise be deemed to be an
agent of the Trust or BMC.
XVI. SEVERABILITY If any provision of this agreement shall be held or made
invalid by a court decision, statute, rule or similar authority, the
remainder of this Agreement shall not be affected thereby.
XVII.NOTICES Notices hereunder shall be addressed as follows:
To the Sub-Advisor: J.P. Morgan Investment Management Inc.
Attention: Ms. Nina Mettelman
522 Fifth Avenue
New York, New York 10036
with a copy to:
J.P. Morgan Investment Management Inc.
Attention: Ms. Dyana Hines
83 Pall Mall
London SWIY 5ES
England
To the Trust: Benham International Funds
Attention: Douglas A. Paul, Esq.
Vice President, Secretary and General
Counsel
1665 Charleston Road
Mountain View, California 94043
To BMC: Benham Management Corporation
Attention: Dent N. Hand, Jr., Esq.
Vice President, Secretary and General
Counsel
1665 Charleston Road
Mountain View, CA 94043
XVIII.PROMOTION AND DISTRIBUTION The Sub-Advisor shall have no responsibility
or authority to promote the sale or distribution of the Trust's shares in
any manner.
In witness whereof, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first written
above.
By:/s/John T. Kataoka
John T. Kataoka, President
BENHAM INTERNATIONAL FUNDS
By:/s/James M. Benham
James M. Benham, President
BENHAM MANAGEMENT CORPORATION
Accepted:
By: /s/Nina D. Mettelman
Nina D. Mettelman
Title: /s/Vice President
J.P. MORGAN INVESTMENT MANAGEMENT INC.
1993
OMNIBUS CUSTODIAN AGREEMENT BETWEEN
THE BENHAM GROUP OF FUNDS AND
STATE STREET BANK AND TRUST COMPANY
CONTENTS
SECTION
1 Employment of Custodian and Property to be Held by It.
2 Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States.
2.1 Holding Securities.
2.2 Delivery of Securities.
2.3 Registration of Securities.
2.4 Bank Accounts.
2.5 Availability of Federal Funds.
2.6 Collection of Income.
2.7 Payment of Fund Monies.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
2.9 Appointment of Agents.
2.10 Deposit of Securities in Securities Systems.
2.10A Fund Assets Held in the Custodian's Direct Paper System.
2.11 Segregated Account.
2.12 Ownership Certificates for Tax Purposes.
2.13 Proxies.
2.14 Communications Relating to Fund Portfolio Securities.
3 Duties of the Custodian with Respect to Property of the Funds held
Outside of the United States.
3.1 Appointment of Foreign Subcustodians.
3.2 Assets to be Held.
3.3 Foreign Securities Depositories.
3.4 Segregation of Securities.
3.5 Agreements with Foreign Banking Institutions.
3.6 Access of Independent Accountants of the Funds.
3.7 Reports by Custodian.
3.8 Transactions in Foreign Custody Account.
3.9 Liability of Foreign Sub-Custodians
3.10 Liability of Custodian.
3.11 Reimbursement for Advance
3.12 Monitoring Responsibilities
3.13 Branches of U.S. Banks
3.14 Tax Law
4 Payments for Repurchases or Redemptions and Sales of Shares of the
Fund.
5 Proper Instructions.
6 Actions Permitted without Express Authority.
7 Evidence of Authority.
8 Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
9 Records.
10 Opinion of Funds' Independent Accountants.
11 Reports to Fund by Independent Public Accountants.
12 Authorized Persons.
13 Affiliation Between Fund and Custodian.
14 Persons Having Access to Assets of the Portfolios.
15 Compensation of Custodian.
16 Responsibility of Custodian.
17 Data Access Services.
17.1 Services.
17.2 Proprietary Information.
17.3 Warranties.
17.4 Limitation of Liability.
17.5 Force Majeure.
17.6 Exclusive Remedy.
17.7 Indemnification.
17.8 Customer Originated Electronic Financial Instruction ("COEFI").
17.9 Injunctive Relief.
17.10 General
18 Effective Period, Termination and Amendment.
19 Successor Custodian.
20 Interpretive and Additional Provisions.
21 The Parties.
22 Governing Documents.
23 Massachusetts Law to Apply.
24 Prior Contracts.
EXHIBITS
A List of Funds
B Authorized Persons
C Foreign Banking Institutions/Foreign Depositories
D Subcustodian Agreement
This Contract between the registered investment companies listed in Exhibit
A hereto (each a "Fund" or, collectively, the "Funds"), and State Street Bank
and Trust Company, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT.
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the Governing Documents of the Fund.
The Fund agrees to deliver to the Custodian all securities and cash owned by it,
and all payments of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Fund from time to
time, and the cash consideration received by it for such new or treasury shares
(shares purchased and held by the Fund) of capital stock, ("Shares") of the Fund
as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5), the
Custodian shall from time to time employ one or more sub-custodians located in
the United States, but only in accordance with an applicable vote by the Board
of Directors/Trustees of the Fund, and provided that the Custodian shall have no
more or less responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian, provided that any such domestic sub-custodian agreement shall
contain a reasonable standard o(pound) care, unless otherwise agreed by the
parties hereto. The Custodian may employ as sub-custodians for the Fund's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Exhibit "C" hereto but only in accordance
with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE
CUSTODIAN IN THE UNITED STATES.
2.1 HOLDING SECURITIES.
The Custodian shall receive and hold as custodian for the Fund all
portfolio securities delivered to the Custodian including securities which are
delivered to the Custodian and maintained by Securities Systems pursuant to
Section 2.10. Custodian shall identify all such securities as the property of
the Fund on the books of the Custodian.
2.2 DELIVERY OF SECURITIES.
The Custodian shall release and deliver domestic securities owned by the
Fund held by the Custodian or in a Securities System account of the Custodian or
in the Custodian's Direct Paper book-entry system account ("Direct Paper System
Account") only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed pursuant to Article 1;
or for exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units; Provided that,
in any such case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in accordance
with "street delivery" custom; provided that in any such case, the Custodian
shall have no responsibility or liability for any loss arising from the delivery
of such securities prior to receiving payment for such securities except as may
arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon from time
to time by the Custodian and the Fund, which may be in the form of cash or
obligations issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for which collateral
is to be credited to the Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the Fund prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowing by the
Fund requiring a pledge of assets by the Fund, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the holders of
shares in connection with distributions in kind, as may be described from time
to time in the Fund's currently effective prospectus and statement of additional
information ("prospectus"), in satisfaction of requests by holders of Shares for
repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a resolution of the
Board of Directors/Trustees or of the Executive Committee signed by an officer
of the Fund and certified by the Secretary or an Assistant Secretary, specifying
the securities to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such securities shall be
made.
2.3 REGISTRATION OF SECURITIES.
Domestic securities held by the Custodian (other than bearer securities)
shall be registered in the name of the Portfolio or in the name of any nominee
of the Fund on behalf of the Portfolio or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Portfolio, unless the Fund has
authorized in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant to
Section 2.9 or in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the Custodian on behalf of the
Portfolio under the terms of this Contract shall be in "street name" or other
good delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best efforts only
to timely collect income due the Fund on such securities and to notify the Fund
on a best efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS.
The Custodian shall open and maintain a separate bank account or accounts
in the United States in the name of the Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this Contract, and shall hold in
such account or accounts, subject to the provisions hereof, all cash received by
it from or for the account of the Fund, other than cash maintained by the Fund
in a bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for the Fund may be
deposited by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be approved by vote of a
majority of the Board of Directors/Trustees of the Fund. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS.
Upon mutual agreement between the Funds on behalf of each applicable
Portfolio and the Custodian, the Custodian shall, upon receipt of Proper
Instructions from the Fund on behalf of a Portfolio, make federal funds
available to such Portfolio as of specified times agreed upon from time to time
by the Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME.
Subject to the provisions of Section 2.3, the Custodian shall collect on a
timely basis all income and other payments with respect to United States
registered securities held hereunder to which the Fund shall be entitled either
by law or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to United States bearer
securities if, on the date of payment by the issuer, such securities are held by
the Custodian or its agent thereof and shall credit such income, as collected,
to the Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the Fund on
United States securities loaned pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 PAYMENT OF FUND MONIES.
Upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies of
the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Fund but only (a) against
the delivery of such securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b)
in the case of a purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the conditions
set forth in Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest, taxes, management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose, and naming
the person or persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of the
Fund is made by the Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by the
Custodian.
2.9 APPOINTMENT OF AGENTS.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company which is itself qualified
under the Investment Company Act of 1940, as amended, to act as a custodian, as
its agent to carry out such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or liabilities
hereunder; and provided further, that this Section 2.9 shall not be construed to
or otherwise permit the Custodian to delegate substantially all its duties
hereunder to any agent appointed under this section. The Custodian shall have no
more or less responsibility or liability to the Funds on account of any actions
or omissions of any sub-custodian employed pursuant to this Section 2.9 than any
such sub-custodian has to the Custodian, provided that any such domestic
custodian agreement shall contain a reasonable standard of care, unless
otherwise agreed to by the parties hereto. The Custodian further agrees to
obtain and send or deliver to the Funds such reports on any such agent's systems
of internal accounting control as the Funds may reasonably request from time to
time.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS.
The Custodian may deposit and/or maintain domestic securities owned by the
Fund in a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund in a Securities
System provided that such securities are represented in an account("Account") of
the Custodian in the Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of the Fund. The Custodian shall transfer domestic securities sold
for the account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of domestic securities for the account of the
Fund shall identify the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities System
for the account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal accounting
control and procedures for safeguarding domestic securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 18 hereof;
6) Anything to the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Fund for any loss or damage to the Fund resulting from
use of the Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss or damage
if and to the extent that the Fund has not been made whole for any such loss or
damage.
2.10aFUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM.
The Custodian may deposit and/or maintain securities owned by the Fund in
the Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian to reflect
such payment and transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect such transfer and
receipt of payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice or notice,
of Direct Paper on the next business day following such transfer and shall
furnish to the Fund copies of daily transaction sheets reflecting each day's
transaction in the Securities System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from time to
time;
2.11 SEGREGATED ACCOUNT.
The Custodian shall upon receipt of Proper Instructions establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.10
hereof, (i) in accordance with the provisions of any agreement among the Fund,
the Custodian and a broker-dealer registered under the Exchange Act and a member
of the NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES.
The Custodian shall execute ownership and other certificates and affidavits
for all federal and state tax purposes in connection with receipt of income or
other payments with respect to domestic securities of the Fund held by it and in
connection with transfers of such securities.
2.13 PROXIES.
The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Fund or a nominee of the Fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices relating to such
securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES.
Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or sold by
the Fund) received by the Custodian from issuers of the domestic securities
being held for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund all written information received
by the Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Funds Held Outside
of the United States.
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS.
The Funds hereby authorize and instruct the Custodian to employ as
sub-custodians for the Portfolios' securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Exhibit C hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in Section 5
of this Contract, together with a certified resolution of a Funds' Board of
Directors/Trustees, the Custodian and a Fund may agree to amend Exhibit C hereto
from time to time to designate additional foreign banking institutions and
foreign securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, a Fund may instruct the Custodian to cease the employment of any
one or more such sub-custodians for maintaining custody of the Portfolios'
assets.
3.2 ASSETS TO BE HELD.
The Custodian shall limit the securities and other assets maintained in the
custody of the foreign sub-custodians to: (a) "foreign securities", as defined
in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and
(b) cash and cash equivalents in such amounts as the Custodian or the Funds may
determine to be reasonably necessary to effect the Portfolios' foreign
securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES.
Except as may otherwise be agreed upon in writing by the Custodian and the
Funds, assets of the Portfolios shall be maintained in foreign securities
depositories only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 SEGREGATION OF SECURITIES.
The Custodian shall identify on its books as belonging to each applicable
Portfolio of the Funds, the foreign securities of such Portfolios held by each
foreign sub-custodian. Each agreement pursuant to which the Custodian employs a
foreign banking institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund for each applicable
Portfolio of the Fund and physically segregate in each account, securities and
other assets of the Portfolios, and, in the event that such institution deposits
the securities of one or more of the Portfolios in a foreign securities
depository, that it shall identify on its books as belonging to the Custodian,
as agent for each applicable Portfolio, the securities so deposited.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS.
Each agreement with a foreign banking institution shall be substantially in
the form set forth in Exhibit D hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of each Portfolio will
be freely transferable without the payment of money or value other than for
custody or administration; (c) adequate records will be maintained identifying
the assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public accountants for
the Funds, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian; and
(e) assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUNDS.
Upon request of the Funds, the Custodian will use its best efforts to
arrange for the independent accountants of the Funds to be afforded access to
the books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance of
such foreign banking institution under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN.
The Custodian will supply to the Funds from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of the
Portfolios held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Portfolios' securities and
other assets and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking institution for the
Custodian on behalf of each applicable Portfolio indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical possession
of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply mutatis
mutandis to the foreign securities of the Funds held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and each Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS.
Each agreement pursuant to which the Custodian employs a foreign banking
institution as a foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance or such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign banking institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense, liability
or claim.
3.10 LIABILITY OF CUSTODIAN.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by section 3.13 hereof,
the Custodian shall not be liable for any loss, damage, cost, expense, liability
or claim resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or otherwise resulting from a bank or a securities
depository failure to exercise reasonable care. Notwithstanding the foregoing
provisions of this section 3.13, in delegating custody duties to State Street
London Ltd., the Custodian shall not be relieved of any responsibility to the
Funds for any loss due to such delegation, except such loss as may result from
(a) political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection, civil
strife or armed hostilities) or (b) other risk of loss (excluding a bankruptcy
or insolvency of State Street London Ltd. not caused by political risk) for
which neither the Custodian nor State Street London Ltd. would be liable
(including, but not limited to, losses due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street London
Ltd. have exercised reasonable care).
3.11 REIMBURSEMENT FOR ADVANCES.
If a Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES.
The Custodian shall furnish annually to the Funds, during the month of
June, information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Funds in connection with the initial approval of this Contract. In
addition, the Custodian will promptly inform the Funds in the event that the
Custodian learns of a material adverse change in the financial condition of a
foreign sub-custodian or any material loss of the assets of the Funds or in the
case of any foreign sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign sub-custodian
that there appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent thereof) or that
its shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios' assets are
maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting
the qualification set forth in Section 26(a) of said Act. The appointment
of any such branch as a sub-custodian shall be governed by paragraph 1 of
this Contract.
(b) Cash held for a Portfolio in the United Kingdom shall be
maintained in an interest bearing account established for the applicable
Fund with the Custodian's London branch, which account shall be subject to
the direction of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW.
The Custodian shall have no responsibility or liability for any obligations
now or hereafter imposed on the Fund or the Custodian as custodian of the Fund
by the tax law of the United States of America or any state or political
subdivision thereof. It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND.
From such funds as may be available for the purpose but subject to the
limitations of the Governing Documents of the Fund and any applicable votes of
the Board of Directors/Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or through
an commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian. The Custodian shall receive
from the distributor for the Fund's Shares or from the Transfer Agent of the
Fund and deposit into the Fund's account such payments as are received for
Shares of the Fund issued or sold from time to time by the Fund. The Custodian
will provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS.
Proper Instructions as used herein means a writing signed or initialled by
one or more person or persons as the Board of Directors/Trustees shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing and the Custodian shall immediately notify the Fund of the failure to
receive written confirmation of oral instructions within two (2) business days
of receiving the oral instructions. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Directors/Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors/Trustees, Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Directors/Trustees and the
Custodian are satisfied that such procedures afford adequate safeguards for the
Fund's assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.11.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise directed by the
Board of Directors/Trustees of the Fund.
7. EVIDENCE OF AUTHORITY.
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/Trustees pursuant to the Governing
Documents of the Fund as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors/Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. RECORDS.
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Funds under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Funds. All
such records shall be the property of the Funds and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Funds, Auditors employed by the
Funds and employees and agents of the Securities and Exchange Commission. Such
records shall also be open, during the regular business hours of the Custodian,
for inspection by independent public accountants retained by the Funds in
accordance with and to the extent required by 17f-2(f) under the Investment
Company Act of 1940. The Custodian shall, at the Funds' request, supply the
Funds with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Funds and for such
compensation as shall be agreed upon between the Funds and the Custodian,
include certificate numbers in such tabulations.
10. OPINION OF FUNDS' INDEPENDENT ACCOUNTANTS.
The Custodian shall take all reasonable action as the Fund may from time to
time request to enable the Fund to obtain from year to year favorable opinions
from the Fund's independent accountants in connection with the preparation of
the Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission. Without limiting the generality of the foregoing, the Custodian will
permit reasonable access by such accountants to records pertaining to the Fund
maintained by the Custodian and will otherwise cooperate with reasonable
requests by the accountants for assistance.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS.
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
domestic securities deposited and/or maintained in a Securities System, relating
to the services provided by the Custodian under this Contract; such reports
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
12. AUTHORIZED PERSONS.
(a) Authorized Persons shall be deemed to include the President, and
any Vice President, the Secretary, the Treasurer, or any other person,
whether or not any such person is an officer or employee of the Fund, duly
authorized by the Board of Directors/Trustees of the Fund to give oral
instructions and written instructions on behalf of the Fund and listed in
the certification annexed hereto as Exhibit B or such other certification
as may be received by the Custodian from time to time. (b) Annexed hereto
as Exhibit B is a certification signed by two of the present officers of
the Fund setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the Custodian a new
certification in similar form in the event that any such present Authorized
Person ceases to be such an Authorized Person or in the event that other or
additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully protected in
acting under the provisions of this Contract upon oral instructions or
signatures of the present Authorized Persons as set forth in the last
delivered certification.
13. AFFILIATION BETWEEN FUND AND CUSTODIAN.
It is understood the Directors/Trustees, officers, employees, agents and
shareholders of the Fund, and the officers, directors, employees, agents and
shareholders of the Fund's investment advisor, are or may be interested in the
Custodian as directors, officers, employees, agents, stockholders, or otherwise,
and that the directors, officers, employees, agents or stockholders of the
Custodian may be interested in the Fund as Directors/Trustees, officers,
employees, agents, shareholders, or otherwise, or in the investment advisor as
officers, directors, employees, agents, shareholders or otherwise.
14. PERSONS HAVING ACCESS TO ASSETS OF THE PORTFOLIOS.
(a) No Director/Trustee, officer, employee or agent of the Fund shall
have physical access to the assets of the Fund held by the Custodian or be
authorized or permitted to withdraw any investments of the Fund, nor shall
the Custodian deliver any assets of the Fund to any such person. No officer
or director, employee or agent of the Custodian who holds any similar
position with the Fund or the Advisor shall have access to the assets of
the Fund. (b) Only officers and employees of the Custodian shall have
access to the assets of the Fund. Such officers and employees shall be
identified by certification signed by a duly authorized officer of the
Custodian from time to time. The Custodian shall advise the Fund of any
change in the individuals authorized to have access to the assets of the
Fund by written notice to the Fund. (c) Nothing in this Article 14 shall
prohibit any officer, employee or agent of the Fund, or any officer,
director, employee or agent of the Advisor, from giving oral instructions
or written instructions to the Custodian or executing a Certificate so long
as it does not result in delivery of or access to assets of the Fund
prohibited by paragraph (a) of this Article 14.
15. COMPENSATION OF CUSTODIAN.
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Funds on
behalf of each applicable Portfolio and the Custodian. Custodian and the Fund
agree that any disputes with respect to Compensation due Custodian under this
Agreement shall be subject to Alternative Dispute Resolution.
16. RESPONSIBILITY OF CUSTODIAN.
With respect to the review of Bearer Securities (physical bearer securities
and municipal bearer securities but not including STRIPS), the Custodian agrees
to use reasonable efforts to review the certificate number for each Security as
part of the delivery to and settlement by the Custodian for the Account of The
Funds and to cross-reference the same against the SIC report. In the event the
Custodian confirms that a Security is identified on the SIC report it shall so
advise The Funds promptly in writing.
The Custodian expressly disclaims any liability for (i) the accuracy or
completeness of either the SIC report or the Custodian's own review process or
(ii) the validity, legality or authenticity of any Security. The Funds
acknowledge the foregoing limitations of liability and agrees to hold the
Custodian harmless with respect to the Custodian's performance as described
herein.
The Custodian agrees to begin the review process with respect to Securities
settled on or after April 23, 1991 and, further, reserves the right to terminate
the review process effective upon notice to The Funds.
So long as and to the extent that it is in the exercise of reasonable care, the
Custodian shall not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered by it pursuant
to this Contract and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties, including any futures
commission merchant acting pursuant to the terms of a three-party futures or
options agreement. The Custodian shall be held to the exercise of reasonable
care in carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Funds for any action taken
or omitted by it in good faith without negligence in accordance with the terms
of this Contract. The Custodian shall not be responsible for any delay in, or
failure of, the Securities System, issuer or paying agent in transferring or
paying cash or securities to the Custodian except for delay or failure resulting
from negligent action, negligent failure to act, willful misconduct or
unreasonable failure to perform on the part of the Custodian, its nominee or its
agents. Notwithstanding any other provision of this Agreement, the Custodian's
liability hereunder shall be limited to the direct damages resulting from the
Custodian's breach of this Agreement. In no event shall the Custodian be liable
for special, consequential or incidental damages suffered by the Custodian, a
Fund or any third person. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the FundS) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Funds.
The Custodian shall be liable for the acts or omissions of a foreign banking
institution appointed pursuant to the provisions of Article 3 to the same extent
as set forth in Article 1 hereof with respect to sub-custodians located in the
United States (except as specifically provided in section 3.10) and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by section 3.13 hereof, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by a Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any action
with respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian, result in the Custodian or its
nominee assigned to the Fund or the Portfolio being liable for the payment of
money or incurring liability or some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to
advance cash or securities for any purpose for the benefit of a Portfolio,
including the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
17. DATA ACCESS SERVICES.
17.1 SERVICES.
1) State Street maintains Customer Data within its proprietary data
base system. State Street agrees to provide the Customer with certain Data
Access Services as provided herein and in the Data Access operating procedures
as may be issued from time to time.
2) Customer agrees to use the Data Access Services solely for its
internal use and benefit and not for resale or other transfer or disposition to,
or use by or for the benefit of any other person or organization without the
prior written approval of State Street. Customer agrees to comply with user
identification and other password control requirements and other security
procedures as may be issued from time to time by State Street.
17.2 PROPRIETARY INFORMATION
Customer acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to Customer by State Street as part of the Data Access
Services constitute copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to State Street.
Customer agrees to treat all Proprietary Information as proprietary to State
Street and further agrees that it shall not divulge any Proprietary Information
to any person or organization except as may be provided hereunder. Without
limiting the foregoing, Customer agrees for itself and its employees and agents:
1) to access Customer Data solely from locations as may be designated in
writing by State Street and solely in accordance with State Street's applicable
user documentation;
2) to refrain from copying or duplicating in any way the Proprietary
Information;
3) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to inform
State Street in a timely manner of such fact and dispose of such information in
accordance with State Street's instructions;
4) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or other
location, except with the prior written consent of State Street;
5) that the Customer shall have access only to those authorized
transactions agreed upon by the parties;
6) to honor all reasonable written requests made by State Street to
protect at State Street's expense the rights of State Street in Proprietary
Information at common law, under federal copyright law and under other federal
or state law. Each party shall take reasonable efforts to advise its employees
of their obligations pursuant to this section 17.2. The obligations of this
section 17 shall survive any earlier termination of this agreement.
17.3 WARRANTIES.
If Customer notifies State Street that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, State Street shall endeavor in a timely manner
to correct such failure. Organizations from which State Street may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and Customer agrees to make no claim against State Street
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof.
(DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED
IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. STATE
STREET EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE).
17.4 LIMITATION OF LIABILITY.
State Street shall not be liable to the Customer for any loss or damage
claimed to have resulted from the use of the Data Access Services except for the
direct loss or damage resulting from the negligence or willful misconduct of
State Street. In no event shall the Custodian be liable for special,
consequential or incidental damages suffered by the Custodian, a Fund or any
third person.
This disclaimer applies without limitation to claims (i) arising from the
provision of the Data Access Services, the delivery, installation, use,
maintenance, or removal of State Street provided equipment, or any failure or
delay in connection with any of the foregoing; (ii) regardless of the form of
action, whether in contract, tort (including negligence), strict liability, or
otherwise; and (iii) regardless of whether such damages are foreseeable. Further
in no event shall State Street be liable for any claims that arise more than one
(1) year prior to the institution of suit therefor or any claim arising from
causes beyond State Street's control.
17.5 FORCE MAJEURE.
State Street shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Customer as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance in connection
with the Customers' use of the Data Access Services.
17.6 EXCLUSIVE REMEDY.
In consideration of the fees charged for Data Access Services, if any,
Customer's exclusive recovery with respect to Data Access Services regardless of
the basis of the claim asserted by it against State Street shall not exceed six
(6) times the average monthly fees billed to Customer hereunder and computed by
averaging the monthly billing for each of the twelve months preceding the month
in which the damage or injury is alleged to have occurred, but if this agreement
has not been in effect for twelve months preceding such date, then by averaging
the monthly billings for each of the preceding months that this agreement has
been in effect.
17.7 INDEMNIFICATION.
The Customer agrees to indemnify and hold State Street free and harmless
from any expense, loss, damage or claim including reasonable attorney's fees,
(collectively "costs") suffered by State Street and caused by or resulting from
(i) the negligence or willful misconduct in the use by the Customer, its
employees or agents, of the Data Access Services or the application software
systems supporting such services, including any costs incurred by State Street
resulting from a security breach at the customer's location or committed by its
former or present employees or agents and (ii) claims resulting from incorrect
Customer Originated Electronic Financial Instruction.
17.8 CUSTOMER ORIGINATED ELECTRONIC FINANCIAL INSTRUCTION ("COEFI").
If the transactions available to Customer include the ability to originate
electronic instructions to State Street in order to (i) effect the transfer or
movement of cash or securities held under custody or (ii) transmit accounting or
other information (such transactions constituting a "COEFI"), then in such event
State Street shall be entitled to rely on the validity and authenticity of such
instruction without undertaking any further inquiry as long as such instruction
is undertaken in conformity with security procedures established by State Street
from time to time.
17.9 INJUNCTIVE RELIEF.
In the event of a breach or threatened breach by Customer of Section 17.1
or 17.2 of section 17 hereof, State Street, after giving written notice to the
Customer, shall be entitled to obtain injunctive relief in addition to any other
remedies available at law or equity.
17.10GENERAL
1) Either party may terminate the use of or access to the Data Access
Services of this agreement immediately for failure of the other party to comply
with any material term and condition, in this section (17.10), by giving the
other party written notice of termination.
2) Charges, if any, for Data Access Services shall be as agreed upon
between the parties from time to time.
3) The right of use of the Data Access Services provided or in this
section (17.10) of this agreement shall not be assigned by either party without
the prior written consent of the other party, except that either party may
assign to a successor of all or a substantial portion of its business, or to a
party controlling, controlled by, or under common control with such party.
4) All provisions, of this section (17.10), regarding indemnification,
warranty, liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
agreement.
5) No term or provision, of this section (17.10), hereof shall be
deemed waived and no breach excused, unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. Any consent
by any party to, or waiver of, a breach by the other, whether express or
implied, shall not constitute a consent to, waiver of, or excuse for any other
different or subsequent breach.
18. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors/Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Directors/Trustees has reviewed the use
by the Fund of such Securities System, as required in each case by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors/Trustees has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors/Trustees has reviewed the use by the Fund of the
Direct Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Governing Documents of the Fund, and
further provided, that the Fund may at any time by action of its Board of
Directors/Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction. Upon termination of the Contract, the
Fund shall pay to the Custodian such compensation as may be due as of the date
of such termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
19. SUCCESSOR CUSTODIAN.
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in like
manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
20. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Governing Documents of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
21. THE PARTIES.
All references herein to "the Fund" are to each of the funds listed on
Exhibit A individually, as if this Contract were between such individual fund
and the Custodian. In the case of a series fund or trust, all references to "the
Fund" are to the individual series or portfolio of such fund or trust, or to
such fund or trust on behalf of the individual series or portfolio, as
appropriate. Any reference in this Contract to "the parties" shall mean the
Custodian and such other individual Fund as to which the matter pertains.
22. GOVERNING DOCUMENTS.
The term "Governing Documents" means the Articles of Incorporation,
Declaration of Trust, By-Laws and Registration Statement filed under the
Securities Act of 1933, as amended from time to time, as well as resolutions and
policies of the board of Directors/Trustees of each fund.
23. MASSACHUSETTS LAW TO APPLY.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
24. PRIOR CONTRACTS.
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the /s/10th day of /s/August, 1993.
ATTEST EACH OF THE PARTIES INDICATED ON EXHIBIT A
By /s/ Ann McCoid
ATTEST
Assistant Secretary STATE STREET BANK AND TRUST COMPANY
By /s/[Signature on file]
Executive Vice President
<PAGE>
CUSTODY AGREEMENT
EXHIBIT A
Fund Name Fund Number
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Money Market Fund MH20
Tax-Free Intermediate-Term Fund MH21
Tax-Free Long-Term Fund MH22
Municipal High Yield Fund MH23
Tax-Free Insured Fund MH24
Municipal Money Market Fund MH25
Tax-Free Short-Term Fund MH26
BENHAM EQUITY FUNDS
Benham Gold Equities Index Fund MH50
Benham Income & Growth Fund MH49
Benham Equity Growth Fund MH48
Benham Utilities Income Fund MH47
Benham Global Natural Resources Index Fund MH46
BENHAM GOVERNMENT INCOME TRUST
Benham Treasury Note Fund MH33
Benham Government Agency Fund MH52
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Money Market Fund MH10
Benham National Tax-Free Intermediate-Term Fund MH12
Benham National Tax-Free Long-Term Fund MH13
Benham Florida Municipal Money Market Fund MH14
Benham Florida Municipal Intermediate-Term Fund MH15
(*) Benham Florida Municipal Long-Term Fund MH16
Benham Arizona Municipal Intermediate-Term Fund MH17
(*) Benham Arizona Municipal Long-Term Fund MH18
BENHAM TARGET MATURITIES TRUST
(**) 1995 Portfolio MH02
2000 Portfolio MH03
2005 Portfolio MH04
2010 Portfolio MH05
2015 Portfolio MH06
2020 Portfolio MH07
(***) 2025 Portfolio ____
CAPITAL PRESERVATION FUND MH31
CAPITAL PRESERVATION FUND II MH32
BENHAM INTERNATIONAL FUNDS
Benham European Government Bond Fund MH73
(++) Benham International Equity Fund
(++) Benham Asian Tiger Fund
(++) Benham Emerging Markets Fund
(++) Benham Global Bond Fund
BENHAM INVESTMENT TRUST
Prime Money Market Fund MH60
BENHAM MANAGER FUNDS
Benham Capital Manager Fund MH51
- ---------------------------------------------------------------------------
(*) Has not commenced operations
(**) Funds to be closed on or about 1/1/96 (no deposits after 12/29/95)
(***) Operations to commence on or about 2/15/96
(++) Operations not commenced--to be dissolved in 1996
<PAGE>
EXHIBIT B-1
THE BENHAM GROUP(R) OF MUTUAL FUNDS
STATE STREET BANK AND TRUST COMPANY
CERTIFICATE OF AUTHORITY
We, Douglas A. Paul and Bruce R. Fitzpatrick, certify to State Street Bank
and Trust Company (the "Bank") that we are, respectively, Secretary and Chief
Financial Officer, of Capital Preservation Fund, Capital Preservation Fund II,
Benham Government Income Trust, Benham Target Maturities Trust, Benham
California Tax-Free and Municipal Funds, Benham Municipal Trust, Benham Equity
Funds Benham International Funds, and Benham Investment Trust ("the Funds) as
listed in Exhibit A.
We further certify that, as of the 5th day of December 1994 , that:
EXHIBIT B-2, attached hereto, is a true copy of the Certificate of
Authority Resolutions adopted at a duly constituted meeting of the
Board of Directors/Trustees of the Funds, held on November 16, 1992,
and amended thereafter through February 7, 1994, and that said
Certificate of Authority Resolutions remains in full force and effect.
EXHIBIT B-3, attached hereto, is a list of the "Authorized Persons"
empowered by said Certificate of Authority.
EXHIBIT B-4, attached hereto, shows the true and correct signature of
each such Authorized Person.
EXHIBIT A, attached hereto, is a "List of Funds", of the Funds or
Trusts, and the individual series or portfolio of such Funds or Trusts,
that are parties to this agreement.
/s/ Douglas A. Paul /s/ Bruce R. Fitzpatrick
Douglas A. Paul Bruce R. Fitzpatrick
Secretary Chief Financial Officer
<PAGE>
EXHIBIT B-2
STATE STREET BANK AND TRUST CO.
CERTIFICATE OF AUTHORITY
RESOLUTIONS
RESOLVED FIRST, that the employees of Benham Financial Services, Transfer
Agent for the above captioned regulated investment companies (the "Funds"), and
the employees of Benham Management Corporation, Investment Advisor for the
Funds, designated in the attached certificate of the Secretary, and the Chief
Financial Officer, of the Funds (the "Employees") be authorized to sign written
instructions for the execution of the Funds' investment portfolio transactions,
provided that in every case two (2) signatures are presented;
SECOND, that the Employees be authorized to give oral instructions for the
execution of the Funds' investment portfolio transactions when followed by a
confirming written instruction with signatures as required in Paragraph First of
these resolutions;
THIRD, that the Employees be authorized to sign instructions for the
transfer of monies between the Funds' custodian accounts specified on Exhibit A,
and the First Interstate Bank of California custodian clearing accounts
specified on Exhibit A, provided that any two (2) signatures are presented;
FOURTH, that the Employees be authorized to sign instructions for the
transfer of monies between each of the custodian accounts specified on Exhibit
A, provided that any two (2) signatures are presented;
FIFTH, that the Secretary of the Fund shall report to the Board of
Directors/Trustees annually the names of the Employees authorized to act
hereunder.
<PAGE>
EXHIBIT B-3
STATE STREET BANK AND TRUST CO.
CERTIFICATE OF AUTHORITY
AUTHORIZED PERSONS
(Current as of 7-1-95)
1) Authorized to sign written instructions for the execution of the Funds'
investment portfolio transactions, provided that in every case two (2)
signatures are presented:
CAPITAL PRESERVATION FUND
CAPITAL PRESERVATION FUND II
BENHAM GOVERNMENT INCOME TRUST
BENHAM TARGET MATURITIES TRUST
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
BENHAM EQUITY FUNDS
BENHAM INTERNATIONAL FUNDS
BENHAM INVESTMENT TRUST
BENHAM MANAGER FUNDS
James M. Benham Jennifer Gonzalez Merele A. May
Kevin Cuccias Thomas J. Grandsaert Asgar Padash
Richard Fay John T. Kataoka Maryanne Roepke
Terry Featherston Robert Leach Jean Wade
Bruce Fitzpatriack Ann McCoid Robert Wu
2) Authorized to give oral instructions for the execution of the Funds'
investment portfolio transactions when followed by a confirming written
instruction with signatures as required in Paragraph First of the attached
Certificate of Authority Resolution:
CAPITAL PRESERVATION FUND
CAPITAL PRESERVATION FUND II
Bob Gahagan Shobha Reddy
Bud Hoops David Schroder
Brian Howell Denise Tabacco
Randall W. Merk Jeffrey R. Tyler
Amy O'Donnell
BENHAM INVESTMENT TRUST
Bob Gahagan Randall W. Merk
Bud Hoops Amy J. O'Donnell
Jeff Houston Denise Tabacco
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
Bryan Karcher Steve M. Permut
George D. MacEwen Ken Salinger
Randall W. Merk Joel Silva
Todd Pardula
BENHAM EQUITY FUNDS
Harold Bradley John C. Schniedwind, Jr.
Steven L. Colton Joe Sterling
Herbert Kim Denise Tabacco
William H. Martin Jeffrey R. Tyler
Randall W. Merk
BENHAM TARGET MATURITIES TRUST
Bob Gahagan Shobha Reddy
Bud Hoops David W. Schroeder
Brian Howell Denise Tabacco
Randall W. Merk Jeffrey R. Tyler
Amy J. O'Donnell
BENHAM GOVERNMENT INCOME TRUST
Bob Gahagan Shobha Reddy
Bud Hoops David W. Schroeder
Brian Howell Denise Tabacco
Randall W. Merk Jeffrey R. Tyler
Amy J. O'Donnell
BENHAM INTERNATIONAL FUNDS
Bob Gahagan Amy J. O'Donnell
Bud Hoops David W. Schroeder
Brain Howell Denise Tabacco
Randall W. Merk Jeffrey R. Tyler
BENHAM MANAGER FUNDS
Harold Bradley Randall W. Merk
Charles Casey Colton Amy J. O'Donnell
Steven L. Colton Newlin Rankin
Bob Gahagan David W. Schroeder
Bud Hoops Joe Sterling
Brian Howell Denise Tabacco
Herbert Kim Jeffrey R. Tyler
William H. Martin
3) Authorized to sign instructions for the transfer of monies between the
Funds' custodian accounts specified on Exhibit A, and the First Interstate
Bank of California custodian clearing accounts specified on Exhibit A, and
to sign instructions for the transfer of monies between each of the
custodian accounts specified on Exhibit A, provided that any two (2)
signatures are presented:
Kevin P. Cuccias Thomas J. Grandsaert Asgar Padash
Richard Fay John T. Kataoka Maryanne Roepke
Terry Featherston Robert Leach Jean Wade
Bruce R. Fitzpatrick Ann N. McCoid Robert Wu
Jennifer Gonzalez Merele A. May
4) Authorized to enter into oral agreements for repurchase transactions with
State Street Bank and Trust Company for cash management purposes, when
followed by a confirming written instruction with signatures as required in
Paragraph First of the attached Certificate of Authority Resolution:
CAPITAL PRESERVATION FUND II
BENHAM EQUITY FUNDS
BENHAM INVESTMENT TRUST
BENHAM INTERNATIONAL FUNDS
BENHAM MANAGER FUNDS
Richard Fay Merele A. May
Terry Featherston Maryanne Roepke
Bruce Fitzpatrick Jean Wade
Robert Leach
<PAGE>
EXHIBIT B-4
STATE STREET BANK & TRUST CO.
CERTIFICATE OF AUTHORITY
SPECIMEN SIGNATURES
(Current as of 7-1-95)
/s/James M. Benham /s/Thomas J. Grandsaert
James M. Benham Thomas J. Grandsaert
/s/Harold Bradley /s/Dent Hand
Harold Bradley Dent Hand
/s/Charles Casey Colton /s/Bud Hoops
Charles Casey Colton Bud Hoops
/s/Steve L. Colton /s/Jeff Houston
Steve L. Colton Jeff Houston
/s/Kevin P. Cuccias /s/Brian Howell
Kevin P. Cuccias Brian Howell
/s/Richard Fay /s/Bryan Karcher
Richard Fay Bryan Karcher
/s/Terry Featherston /s/John T. Kataoka
Terry Featherston John T. Kataoka
/s/Bruce R. Fitzpatrick /s/Herbert Kim
Bruce R. Fitzpatrick Herbert Kim
/s/Bob Gahagan /s/Robert Leach
Bob Gahagan Robert Leach
/s/Jennifer Gonzalez /s/Ann McCoid
Jennifer Gonzalez Ann McCoid
/s/G. David MacEwen /s/Maryanne Roepke
G. David MacEwen Maryanne Roepke
/s/William H. Martin /s/Ken Salinger
William H. Martin Ken Salinger
/s/Merele A. May /s/John C. Schniedwind, Jr.
Merele A. May John C. Schniedwind, Jr.
/s/Randall W. Merk /s/David W. Schroeder
Randall W. Merk David W. Schroeder
/s/Amy J. O'Donnell /s/Joel Silva
Amy J. O'Donnell Joel Silva
/s/Todd Pardula /s/Joe Sterling
Todd Pardula Joe Sterling
/s/Asgar Padash /s/Denise Tabacco
Asgar Padash Denise Tabacco
/s/Steve M. Permut /s/Jeffrey R. Tyler
Steve M. Permut Jeffrey R. Tyler
/s/Newlin Rankin /s/Jean Wade
Newlin Rankin Jean Wade
/s/Shobha Reddy /s/Robert Wu
Shobha Reddy Robert Wu
<PAGE>
EXHIBIT C
FOREIGN BANKING INSTITUTIONS AND FOREIGN DEPOSITORIES
<PAGE>
EXHIBIT D
SUBCUSTODIAN AGREEMENT
AGREEMENT made this ______ ; between State Street Bank and Trust Company, A
Massachusetts Trust Company (hereinafter referred to as the "Custodian"), having
its principal place of business at 225 Franklin Street, Boston, MA, and ________
(hereinafter referred to as the "Subcustodian"), a bank organized under the laws
of _______ and having its registered office at ________________.
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Accounts (the "Accounts") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Accounts and to hold and
maintain all Property in the Accounts in accordance with the terms and
conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. THE ACCOUNT
A. ESTABLISHMENT OF THE ACCOUNT
Custodian hereby requests that Subcustodian establish for each client of
the Custodian an Account which shall be composed of:
1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter
defined) from time to time received by Subcustodian therefor.
B. USE OF THE ACCOUNT
The Account shall be used exclusively to hold, acquire, transfer or
otherwise care for, on behalf of Custodian as custodian and the customers of
Custodian and not for Custodian's own interest, Securities, and such Cash or
cash equivalents as are transferred to Subcustodian or as are received in
payment of any transfer of, or as payment on, or interest on, or dividend from,
any such Securities (herein collectively called "Cash").
C. TRANSFER OF PROPERTY IN THE ACCOUNT
Beneficial ownership of the Securities and Cash in the Account shall
be freely transferable without payment of money or value other than for safe
custody and administration.
D. OWNERSHIP AND SEGREGATION OF PROPERTY IN ACCOUNT
The ownership of the property in the Account, whether Securities, Cash
or both and whether any such property is held by Subcustodian in an Eligible
Depository, shall be clearly recorded on Subcustodian's books as belonging to
Custodian on behalf of Custodian's customers, and not for Custodian's own
interest and, to the extent that Securities are physically held in the Account,
such Securities shall also be physically segregated from the general assets of
Subcustodian, the assets of Custodian in its individual capacity and the assets
of Subcustodian's other customers. In addition, Subcustodian shall maintain such
other records as may be necessary to identify the property hereunder as
belonging to each Account.
E. REGISTRATION OF SECURITIES IN THE ACCOUNT
Securities which are eligible for deposit in a depository as provided
for in Paragraph III may be maintained with the depository in an account for
Subcustodian's customers. Securities which are not held in a depository and that
are ordinarily held in registered form will be registered in the name of the
Sub-custodian or in the name of the Sub-custodian's nominee, unless alternate
Instructions are furnished by Custodian.
II. SERVICES TO BE PROVIDED BY THE SUBCUSTODIAN
The Services Subcustodian will provide to Custodian and the manner in which
such services will be performed will be as set forth below in this Agreement.
A. SERVICES PERFORMED PURSUANT TO INSTRUCTIONS
All transactions involving the Securities and Cash in the Account shall be
executed solely in accordance with Custodian's Instructions as that term is
defined in Paragraph IV hereof, except those described in Paragraph B below.
B. SERVICES TO BE PERFORMED WITHOUT INSTRUCTIONS
Subcustodian will, unless it receives Instructions from Custodian to the
contrary:
1. COLLECT CASH
Promptly collect and receive all dividends, income, principal, proceeds
from transfer and other payments with respect to property held in the Account,
and present for payment all Securities held in the Account which are called
redeemed or retired or otherwise become payable and all coupons and other income
items which call for payment upon presentation, and credit Cash receipts
therefrom to the Deposit Account.
2. EXCHANGE SECURITIES
Promptly exchange Securities where the exchange is purely ministerial
including, without limitation, the exchange of temporary Securities for those in
definitive form and the exchange of warrants, or other documents of entitlement
to Securities, for the Securities themselves.
3. SALE OF RIGHTS AND FRACTIONAL INTERESTS
Whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is received for the
Account and such rights entitlement or fractional interest bears an expiration
date, Subcustodian will promptly endeavor to obtain Custodian's Instructions,
but should these not be received in time for Subcustodian to take timely action,
Subcustodian is authorized to sell such rights entitlement or fractional
interest and to credit the Account.
4. EXECUTE CERTIFICATES
Execute in Custodian's name for the Account, whenever Subcustodian deems it
appropriate, such ownership and other certificates as may be required to obtain
the payment of income from the Securities held in the Account.
5. PAY TAXES AND RECEIVE REFUNDS
To pay or cause to be paid from the Account any and all taxes and levies in
the nature of taxes imposed on the property in the Account by any governmental
authority, and to take all steps necessary to obtain all tax exemptions,
privileges or other benefits, including reclaiming and recovering any
withholding tax, relating to the Account and to execute any declarations,
affidavits, or certificates of ownership which may be necessary in connection
therewith.
6. PREVENT LOSSES
Take such steps as may be reasonably necessary to secure, or otherwise
prevent the loss of, entitlements attached to or otherwise relating to property
held in the Account.
C. ADDITIONAL SERVICES
1. TRANSMISSION OF NOTICES OF CORPORATE ACTION
By such means as will permit Custodian to take timely action with respect
thereto, Subcustodian will promptly notify Custodian upon receiving notices or
reports, or otherwise becoming aware, of corporate actions affecting Securities
held in the Account (including, but not limited to, calls for redemption,
mergers, consolidations, reorganizations, recapitalization, tender offers,
rights offerings, exchanges, subscriptions and other offerings) and dividend,
interest and other income payments relating to such Securities.
2. COMMUNICATIONS REGARDING THE EXERCISE OF ENTITLEMENTS
Upon request by Custodian, Subcustodian will promptly deliver, or cause any
Eligible Depository authorized and acting hereunder to deliver, to Custodian all
notices, proxies, proxy soliciting materials and other communications that call
for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting instruments
to be executed by the registered holder of the Securities, but without
indicating the manner in which such Securities are to be voted.
3. MONITOR FINANCIAL SERVICE
In furtherance of its obligations under this Agreement, Subcustodian will
monitor a leading financial service with respect to announcements and other
information respecting property held in the Account, including announcements and
other information with respect to corporate actions and dividend, interest and
other income payments.
III. USE OF SECURITIES DEPOSITORY
Subcustodian may, with the prior written approval of Custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in
____________ or (b) a transnational system for the central handling of
securities or equivalent book entries (herein called "Eligible Depository"),
provided however, that, while so maintained, such Securities shall be subject
only to the directions of Subcustodian, and that Subcustodian duties, obligation
and responsibilities with regard to such Securities shall be the same as if such
Securities were held by
Subcustodian on its premises.
IV. CLAIMS AGAINST PROPERTY IN THE ACCOUNT
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in favor
of Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment by Subcustodian for such
property's safe custody or administration in accordance with the terms of this
Agreement. Subcustodian will immediately notify Custodian of any attempt by any
party to assert any Charge against the property held in the Account and shall
take all lawful actions to protect such property from such Charges until
Custodian has had reasonable time to respond to such notice.
V. SUBCUSTODIAN'S WARRANTY
SUBCUSTODIAN REPRESENTS AND WARRANTS THAT:
(A) It is a branch of a "qualified U.S. bank" or it is an "eligible
foreign custodian" as those terms are defined in Rule 17f-5 of the Investment
Company Act of 1940, a copy of which is attached hereto as Attachment A (the
"Rule"), and Subcustodian shall immediately notify Custodian, in writing or by
other authorized means, in the event that there appears to be a substantial
likelihood that Subcustodian will cease to qualify under the Rule as currently
in effect or as hereafter amended, or
(B) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of
this section, Custodian may terminate this Agreement immediately without prior
notice to Subcustodian.
VI. DEFINITIONS
A. INSTRUCTIONS
The term "Instructions" means
1. instructions in writing signed by authorized individuals
designated as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instruction in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communications as from time to time may be
agreed upon by Custodian and Subcustodian, which Subcustodian believes in good
faith to have been given by Custodian or which are transmitted with proper
testing or authentication pursuant to terms and conditions which custodian may
specify.
Unless otherwise expressly provided, all Instructions shall continue in
full force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practices.
B. ACCOUNT
The term "Account" means collectively the Custody Account, and the
Deposit Account.
C. SECURITIES
The term "Securities" includes, without limitation, stocks, shares,
bonds, debentures, debt securities (convertible or non-convertible), notes, or
other obligations or securities and any certificates, receipts, futures
contracts, foreign exchange contracts, options, warrants, scrip or other
instruments representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interest therein, or in any
property or assets.
VII. MISCELLANEOUS PROVISIONS
A. STATEMENTS REGARDING THE ACCOUNT
Subcustodians will supply Custodian with such statements regarding the
Account as Custodian may request, including the identity and location of any
Eligible Depository authorized and acting hereunder. In addition, Subcustodian
will supply custodian an advice or notification of any transfers of Securities
to or from the Account indicating, as to Securities acquired for the Account, if
applicable, the Eligible Depository having physical possession of such
securities.
B. EXAMINATION OF BOOKS AND RECORDS
Subcustodian agrees that its books and records relating to the Account and
Sub-custodian's actions under this agreement shall be open to the physical,
on-premises inspection and audit at reasonable times by officers of, auditors
employed by, or other representatives of Custodian including (to the extent
permitted under the laws of _______ ) the independent public accountants for any
customer of Custodian whose property is being held hereunder) and such books and
records shall be retained for such period as shall be agreed upon by Custodian
and Subcustodian.
As custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.
C. STANDARD OF CARE
In holding, maintaining, servicing and disposing of Property under this
Agreement, and in fulfilling any other obligations hereunder, Subcustodian shall
exercise the same standard of care that is exercises over its own assets,
provided that Subcustodian shall exercise at least the degree of care and
maintain adequate insurance as expected of a prudent professional Subcustodian
for hire and shall assume the burden of proving that it has exercised such care
in its maintenance of Property held by Subcustodian in its Accounts. The
maintenance of the Property in an Eligible Depository shall not affect
Subcustodian's standard of care, and Subcustodian will remain as fully
responsible for any loss or damage to such securities as if it has itself
retained physical possession of them. Subcustodian shall indemnify and hold
harmless Custodian and each of Custodian's customers from and against any loss,
damage, cost, expense, liability or claim (including reasonable attorney's fees)
arising out of or in connection with the improper or negligent performance or
the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the
laws of __________, or any other law, applicable to Subcustodian in connection
with its duties hereunder, including (but not limited to ) the payment of all
transfer taxes or other taxes and compliance with any currency restrictions and
securities laws in connection with its duties as Subcustodian.
D. LOSS OF CASH OR SECURITIES
Subcustodian agrees that, in the event of any loss of securities or Cash in
the Account, Subcustodian will use its best efforts to ascertain the
circumstances relating to such loss and will promptly report the same to
Custodian and shall use every legal means available to it to effect the quickest
possible recovery.
E. COMPENSATION OF SUBCUSTODIAN
Custodian agrees to pay to Subcustodian from time to time such compensation
for its services and such out-of-pocket or incidental expenses of Subcustodian
pursuant to this Agreement as may be mutually agreed upon in writing from time
to time.
F. OPERATING REQUIREMENTS
The Subcustodian agrees to follow such Operating Requirements as the
Custodian may establish from time to time. A copy of current Custodian Operating
Requirements is attached as Attachment B to this Agreement.
G. TERMINATION
This Agreement may be terminated by Subcustodian or Custodian on 60 days'
written notice to the other party, sent by registered mail, provided that any
such notice, whether given by Subcustodian or Custodian, shall be followed
within 60 days by Instructions specifying the names of the persons to whom
Subcustodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If within 60 days following the giving of such notice
of termination, Subcustodian does not receive such Instruction, Subcustodian
shall continue to hold such Securities and Cash subject to this Agreement until
such Instructions are given. The obligations of the parties under this Agreement
shall survive the termination of this Agreement.
H. NOTICES
Unless otherwise specified in this Agreement, all notices and communication
with respect to matters contemplated by this Agreement shall be in writing, and
delivered by mail, postage prepaid, telex, SWIFT, or other mutually agreed
telecommunication methods to the following addresses (or to such other address
as either party hereto may from time to time designate by notice duly given in
accordance with this paragraph):
To Subcustodian
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, Massachusetts 02105
I. CONFIDENTIALLY
Subcustodian and Custodian shall each use its best efforts to maintain the
confidentiality of the property in the Account and the beneficial owners
thereof, subject however, to the provisions of any laws requiring disclosure. In
addition, Subcustodian shall safeguard any test keys, identification codes or
other security devices which Custodian shall make available to it. The
Subcustodian further agrees it will not disclose the existence of this Agreement
or any current business relationship unless compelled by applicable law or
regulation or unless it has secured the Custodian's written consent.
J. ASSIGNMENT
This Agreement shall not be assignable by either party but shall bind any
successor in interest of Custodian and Subcustodian respectively.
K. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of _________. To the extent inconsistent with this Agreement or Custodian's
Operating Requirements as attached hereto, Subcustodian's rules and conditions
regarding accounts generally or custody accounts specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By:
Date:
AGREED TO BY SUBCUSTODIAN:
By:
Date:
Amendment No. 1 to the Omnibus Custodian Agreement
Between The Benham Group of Funds
and State Street Bank and Trust Company
Amendment No. 1, dated as of December 1, 1994, to the Omnibus Custodian
Agreement dated August 10, 1993 (the "Agreement") between the registered
investment companies listed on Exhibit A to the Agreement (each a "Fund" or,
collectively, the "Funds"), as such Exhibit A may be amended from time to time,
and State Street and Trust Company, a Massachusetts trust company (the
"Custodian").
WHEREAS, each Fund is registered under the Investment Company Act of 1940;
and
WHEREAS, the Funds and the Custodian desire to amend the Agreement to
provide additional terms with respect to the payment or withholding of taxes on
(i) any cash, (ii) any Securities or distributions with respect thereto, and
(iii) the purchase, sale, loan or other transfer of any Security by the
Custodian, any Subcustodian or any Securities Depository on behalf of a Fund and
any proceeds or other income from sale, loan or other transfer;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and in the Agreement, the Funds and the Custodian hereby agree
as follows:
1. Exhibit A to the Agreement is hereby amended and restated in the form
attached hereto.
2. Section 3.14 of the Agreement is hereby amended and restated in its
entirety as follows:
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on any of the Funds, or the Custodian
as custodian of the Funds, by the tax law of the United States of America
or any state or political subdivision thereof. The responsibility of each
of the Funds and the Custodian with respect to the obligations imposed on
each Fund, or the Custodian as custodian of each Fund, by the tax law of
jurisdictions other than those referred to in the immediately preceding
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting, shall be as set forth in Appendix A attached hereto.
3. All other terms, conditions and provisions of the Agreement are hereby
affirmed and shall remain in full force and effect as written.
4. This Amendment No. 1 shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
5. This Amendment No. 1 may be executed in one or more counterparts and by
different partes hereto on separate counterparts, each of which, when so
executed, shall constitute one and the same agreement.
6. This Amendment No. 1 shall inure to the benefit of and be binding upon the
parties hereto, and their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
day and year first above written.
ATTEST: EACH OF THE FUNDS LISTED ON EXHIBIT A TO THE
AGREEMENT
/s/ [signature on file] /s/ [signature on file]
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [signature on file] /s/ [signature on file]
Executive Vice President
<PAGE>
APPENDIX A
The provisions of this Appendix A shall govern the rights,
responsibilities, duties and liabilities of the Funds and the Custodian with
respect to the payment or withholding of all taxes, assessments, duties or other
governmental charges (including any interest or penalty thereon or with respect
thereto) imposed by any governmental authority in the countries listed on
Exhibit [1] to the Omnibus Custodian Agreement (the "Agreement") upon or with
respect to (i) any cash (ii) any securities, and any distributions with respect
thereto, and (iii) the purchase, sale, loan or other transfer of any security by
the Custodian, any subcustodian or any securities depository on behalf of a Fund
and any proceeds or other income from such a sale, loan or other transfer (any
such tax, assessment, duty or other governmental charge being referred to herein
as a "Tax"). All capitalized terms not defined herein shall have the meanings
assigned to them in the Agreement.
1. LIABILITY FOR TAXES.
As further provided herein, the Funds shall be liable for all Taxes.
2. WITHHOLDING OF TAXES.
(a) CUSTODIAN TO WITHHOLD TAXES.
The Custodian shall, and shall instruct each subcustodian and
securities depository to, withhold the amount of any Tax which the
Custodian or such subcustodian or securities depository is required to
withhold under applicable law upon collection (on behalf of each Fund
pursuant to Proper Instructions) of (i) any dividend, interest or other
cash distribution made with respect to any security, (ii) any stock
dividend or distribution of rights, warrants or other property with respect
to any security and (iii) any proceeds or income from the sale, loan or
other transfer of any security.
(b) CUSTODIAN TO REMIT TAXES TO GOVERNMENTAL AUTHORITY.
The Custodian shall, and shall instruct each subcustodian and
securities depository to, timely remit the amount of any such Tax withheld
to the appropriate governmental authority in the countries listed on
listed on Exhibit [1] to the Agreement (each a "Governmental Authority") in
the manner required by applicable law.
(c) DISCRETION TO DETERMINE APPROPRIATE AMOUNTS TO BE WITHHELD.
The Custodian has, and is authorized to grant to each subcustodian and
securities depository, complete discretion to determine the amount of any
tax which the Custodian or such subcustodian or securities depository is
required to withhold from any distribution, proceeds or income under any
applicable law.
3. WITHDRAWAL OF CASH TO PAY APPLICABLE TAXES.
(a) CUSTODIAN MAY WITHDRAW CASH FROM CASH ACCOUNT.
If (i) the Custodian or any subcustodian or securities depository
is required under applicable law to pay any Tax on behalf of a Fund
(including a payment due by reason of an earlier failure to withhold such
Tax) or (ii) the Custodian or any subcustodian or securities depository is
required under applicable law to withhold or otherwise pay any Tax from or
with respect to any distribution or payment in property other than cash
which is collected by the Custodian or such subcustodian or securities
depository (on behalf of such Fund pursuant to Proper Instructions), the
Custodian is authorized to and shall withdraw cash from the applicable
Fund's cash account in the amount and currency required to pay such Tax and
is authorized to and shall use such cash, or remit such cash to the
appropriate subscustodian or securities depository, for the timely payment
of such Tax in the manner required by applicable law.
(b) CUSTODIAN MAY USE CASH FROM CASH ACCOUNT IN ANY CURRENCY TO PAY TAX IF
CASH ACCOUNT DOES NOT CONTAIN SUFFICIENT CASH IN APPROPRIATE CURRENCY.
If the applicable Fund's cash account does not contain sufficient cash
in the appropriate currency to pay such Tax, the Custodian is authorized,
following notice to the Fund, to withdraw cash in any other currency from
such Fund's cash account in any amount which, when converted to the
appropriate currency at the exchange rate prevailing on the date of
withdraw, is sufficient to enable the Custodian or the appropriate
subcustodian or securities depository to pay such Tax.
(c) CUSTODIAN TO NOTIFY FUND IF CASH ACCOUNT DOES NOT CONTAIN SUFFICIENT
CASH IN ANY CURRENCY.
If the aggregate amount of cash in all currencies in a Fund's cash
account is not sufficient to pay such Tax, the Custodian shall promptly
notify the Fund of the additional amount of cash (in the appropriate
currency) required, and the Fund shall deposit such additional amount in
its cash account promptly after receipt of such notice, for use by the
Custodian as specified herein.
4. REPORTS TO THE FUNDS OF TAXES WITHHELD OR PAID.
The information delivered to each Fund each month pursuant to Section 3.7
of the Agreement shall include the amount of each Tax (i) withheld by the
Custodian or any subcustodian or securities depository from any payment
collected on behalf of the Fund, (ii) withheld by the payor of any payment
collected by the Custodian or any subcustodian or securities depository on
behalf of the Fund or (iii) paid by the Custodian or any subcustodian or
securities depository on behalf of the Fund with cash withdrawn from such Fund's
cash account or otherwise obtained pursuant to Section 3 hereof. In each case,
such information shall be with respect to the period since the date of the
immediately preceding monthly report.
5. THE FUNDS' ELIGIBILITY FOR REDUCTION OR EXEMPTION FROM TAX UNDER
INTERNATIONAL TAX TREATIES.
(a) ESTABLISHMENT OF ELIGIBILITY FOR REDUCTION OR EXEMPTION.
As soon as practicable following the execution of this Amendment
No. 1, the Funds shall consult with the Custodian concerning eligibility
for the benefits of any tax treaty between the United States and countries
listed on Exhibit [1] to the Agreement. As soon as practicable thereafter,
each Fund shall furnish, and the Custodian shall assist each Fund in
obtaining, all forms or other documentary evidence required under
applicable law to establish eligibility for the benefits of any such tax
treaty.
(b) EFFECT OF ELIGIBILITY FOR REDUCED TAXES OR EXEMPTION FROM TAXES.
In the event that a Fund is eligible, pursuant to the provisions of
any such tax treaty, for a reduced rate of, or exemption from, any Tax
which the Custodian or any subcustodian or securities depository is
otherwise required to withhold or pay on behalf of the Fund under
applicable law, the Custodian shall, or shall instruct such subcustodian or
securities depository to, either withhold or pay such Tax at such reduced
rate or refrain from withholding or paying such Tax, as appropriate.
The Custodian shall not be obligated to make such instructions until
it has received from the applicable Fund all documentary evidence of
residence or other qualification for such reduced rate or exemption
required to be received under applicable law. As soon as practicable
following the execution of this Amendment No. 1, each Fund shall notify the
Custodian of such Fund's eligibility for the benefits of any such tax
treaties and, to the extent possible, furnish to the Custodian all forms or
other documentary evidence required under applicable law to establish such
eligibility. The Custodian shall, and shall instruct each subcustodian and
securities depository to, withhold or pay any Tax at a reduced rate
hereunder, or refrain from withholding or paying any Tax, only in reliance
upon documentation furnished to the Custodian pursuant to this Section 5.
(c) INDEMNIFICATION BY THE FUNDS.
The Custodian and each subcustodian and securities depository shall
have no responsibility for the accuracy or validity of any forms or
documentation provided by a Fund hereunder, and the Funds hereby indemnify
and agree to hold harmless the Custodian and each subcustodian and
securities depository in respect of any liability, including penalties and
interest, arising from any underwithholding or underpayment of any Tax
which results from the inaccuracy or invalidity or any such forms or other
documentation.
6. OTHER APPLICABLE TAXES.
(a) CUSTODIAN TO PROVIDE EVIDENCE OF ELIGIBILITY FOR EXEMPTION OR REDUCED
RATE OF TAXATION.
If the Custodian becomes aware that any person is required under the
applicable law of any country to withhold any Tax from any payment
collected by the Custodian or any subscustodian or securities depository on
behalf of a Fund, and the Fund has previously provided to the Custodian
pursuant to Section 5 hereof all forms or other documentary evidence
required under applicable law to establish eligibility for an exemption
from or reduced rate of such withholding pursuant to any tax treaty between
such country and the United States, then the Custodian shall, or shall
instruct such subcustodian or securities depository, to the extent
permissible and effective to establish such eligibility under applicable
law, to furnish such forms or other documentary evidence on behalf of the
Fund to the person required to withhold such Tax.
(b) IF CUSTODIAN CANNOT PROVIDE EVIDENCE OF ELIGIBILITY FOR EXEMPTION OR
REDUCED RATE
If the Custodian or such subcustodian or securities depository is not
permitted under applicable law to furnish the necessary forms or other
documentary evidence on behalf of the Fund, the Custodian shall make
reasonable efforts to notify such Fund reasonably promptly after it becomes
aware of such requirement that the Fund is required to withhold such tax.
(c) IF TAX IS IMPOSED BY A COUNTRY OTHER THAN THOSE LISTED ON EXHIBIT [1]
TO THE AGREEMENT.
If (i) the Tax which any such person is required to withhold is
imposed under applicable law of a country other than those listed on
Exhibit [1] to the Agreement or (ii) the withholding agent has determined
that any forms or other documentation previously provided to the Custodian
pursuant to Section 5 hereof are insufficient to establish the eligibility
of the Fund for a reduced rate of, or exemption from, withholding of any
Tax imposed under the applicable law of a country listed on such Exhibit
[1], the Custodian shall make reasonable efforts to so notify the Fund
reasonably promptly after the Custodian becomes aware that such Tax is
required to be withheld.
7. TAX REFUNDS.
If (i) the Fund is eligible, pursuant to the provisions of any tax treaty
between the United States and a country other than those listed on Exhibit [1]
to the Agreement, for a reduced rate of, or exemption from, withholding of any
Tax, which reduced rate or exemption is obtainable only by means of application
to the appropriate Governmental Authority for a refund of Tax paid or withheld,
or (ii) the Custodian or any subcustodian or securities depository withholds
from any distribution, proceeds or income collected on behalf of such Fund an
amount which is subsequently determined to be greater that the amount required
under applicable law to have been withheld, the Custodian shall, or shall
instruct the appropriate subcustodian or securities depository to, assist the
Fund, to the extent permissible under applicable law, to obtain a refund of such
Tax from the appropriate Governmental Authority in the amount for which the Fund
is eligible.
8. TAXES IN THE UNITED STATES.
The Custodian shall execute on behalf of each Fund all necessary ownership
certificates required by the Internal Revenue Code of 1986, as amended, or
regulations thereunder or the laws of any State now or hereafter in effect,
inserting such Fund's name on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
<PAGE>
Exhibit 1
Table of Contents
Directors' Materials Book 1 Book 3
Argentina Jordan
Introduction Australia Kenya
Austria Korea
Executive Summary Bangladesh Malaysia
Belgium Mexico
Global Custody Network Botswana Morocco
Brazil Netherlands
Rule 17f-5 Canada New Zealand
Chile Norway
Baker & McKenzie China Pakistan
Colombia Peru
Operating Requirements Cyprus Phillippines
Czech Republic Poland
Subcustodian Selection Procedures Barclays Contract Portugal
Citibank Contract Singapore
Subcustodian Monitoring South Africa
Barclays Contract
Citibank Contract
Annual Review Process
Book 2 Book 4
Denmark Spain
Egypt Sri Lanka
Finland Swaziland
France Sweden
Germany Switzerland
Ghana Taiwan
Greece Thailand
Hong Kong Turkey
Hungary United Kingdom
India Uruguay
Indonesia Venezuela
Ireland Zambia
Israel Zimbabwe
Italy Euroclear
Japan Cedel
Barclays Contract Barclays Contract
Citibank Contract
AMENDMENT TO OMNIBUS CUSTODIAN AGREEMENT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and each investment company which has adopted the Omnibus Custodian
Agreement (each a "Fund").
WHEREAS, the Custodian and the Fund are parties to a Omnibus Custodian
Agreement dated August 10,1993 (the "Omnibus Custodian Agreement") governing the
terms and conditions under which the Custodian maintains custody of the
securities and other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Omnibus Custodian Agreement
by the addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the Omnibus
Custodian Agreement, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, PROVIDED HOWEVER, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Omnibus Custodian Agreement shall continue to apply with full
force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this /s/ 4th day of /s/ March, 1996.
BENHAM GROUP OF FUNDS LISTED ON EXHIBIT A
By: /s/ Douglas A. Paul
Douglas A. Paul
Title: Vice President, Secretary and General
Counsel
STATE STREET BANK AND TRUST COMPANY
By: /s/ Carol C. Ayotte
Carol C. Ayotte
Title: Vice President
Consent Of Independent Auditors
The Board of Trustees and Shareholders
Benham International Funds:
We consent to the inclusion in Benham International Funds Post-Effective
Amendment No. 7 to the Registration Statement No. 33-43321 on Form N-1A under
the Securities Act of 1933 and Amendment No. 8 to the Registration statement No.
811-6441 filed on Form N-1A under the Investment Company Act of 1940 of our
report dated February 5, 1996 on the financial statements and financial
highlights of Benham International Funds for the periods indicated therein,
which reports have been incorporated by reference into the Statement of
Additional Information of Benham International Funds. We also consent to the
reference to our firm under the heading "Financial Highlights" in the Prospectus
of the Benham International Funds and under the heading "About Benham Investment
Trust" in the Statements of Additional Information which are incorporated by
reference in the Prospectuses.
/s/KPMG Peat Marwick LLP
San Francisco, California
April 19, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, BENHAM
INTERNATIONAL FUNDS, hereinafter called the "Trust" and certain trustees and
officers of the Trust, do hereby constitute and appoint James M. Benham, James
E. Stowers, III, William M. Lyons, Douglas A. Paul, and Patrick A. Looby, and
each of them individually, their true and lawful attorneys and agents to take
any and all action and execute any and all instruments which said attorneys and
agents may deem necessary or advisable to enable the Trust to comply with the
Securities Act of 1933 and/or the Investment Company Act of 1940, as amended,
and any rules regulations, orders, or other requirements of the United States
Securities and Exchange Commission thereunder, in connection with the
registration under the Securities Act of 1933 and/or the Investment Company Act
of 1940, as amended, including specifically, but without limitation of the
foregoing, power and authority to sign the name of the Trust in its behalf and
to affix its seal, and to sign the names of each of such trustees and officers
in their capacities as indicated, to any amendment or supplement to the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed as a part of
or in connection with such Registration Statement; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused this Power to be executed by
its duly authorized officers on this the 4th day of March, 1996
BENHAM INTERNATIONAL FUNDS
(A Massachusetts Business Trust)
By: /s/James M. Benham
James M. Benham, President
SIGNATURE AND TITLE
/s/James M. Benham /s/Ezra Solomon
James M. Benham Ezra Solomon
Chairman Director
/s/Albert A. Eisenstat /s/Isaac Stein
Albert A. Eisenstat Isaac Stein
Director Director
/s/Ronald J. Gilson /s/Jeanne D. Wohlers
Ronald J. Gilson Jeanne D. Wohlers
Director Director
/s/Myron S. Scholes /s/James E. Stowers III
Myron S. Scholes James E. Stowers, III
Director Director
/s/Kenneth E. Scott /s/Maryanne Roepke
Kenneth E. Scott Maryanne Roepke
Director Treasurer
Attest:
By: /s/ Douglas A. Paul
Douglas A. Paul, Secretary
