SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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File No. 33-43321:
Pre-Effective Amendment No.____
Post-Effective Amendment No._8_ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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File No. 811-6441:
Amendment No._9_
BENHAM INTERNATIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 1/7/92)
It is proposed that this filing become effective:
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
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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, the Registrant filed a
Rule 24f-2 Notice on Form 24f-2 with respect to its fiscal year ended December
31, 1995.
<PAGE>
BENHAM INTERNATIONAL FUNDS
1933 Act Post-Effective Amendment No. 8
1940 Act Amendment No. 9
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance
4 Investment Management, Further Information About the Fund, Investment
Objectives of the Fund, Information About Investment Policies of the
Fund, Risk Factors and Investment Techniques, Other Investment
Practices
5 Investment Management
5A Not Applicable
6 Further Information About the Fund, How to Redeem Shares, Cover Page,
Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
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 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Administrative and Transfer Agent
Services, Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
<PAGE>
BENHAM
European Government
Bond Fund
Prospectus
SEPTEMBER 3,
1996
BENHAM INTERNATIONAL FUNDS
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The BENHAM EUROPEAN GOVERNMENT BOND FUND (the "Fund") is a series of the
Benham International Funds, a member of the Twentieth Century family of funds, a
family that includes 66 no-load mutual funds covering a variety of investment
opportunities. One of the funds is described in this Prospectus. The other funds
are described in separate prospectuses.
INVESTMENT OBJECTIVE OF THE FUND
The 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.
MINIMUM INITIAL INVESTMENT: $2,500.
INVESTMENTS IN THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER AGENCY.
NO-LOAD MUTUAL FUNDS
Twentieth Century offers retail investors a full line of no-load funds,
investments that have no sales charges or commissions. The Fund offered by this
Prospectus has no 12b-1 plan or other deferred sales charges.
This Prospectus gives you information about the Fund that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated September 3, 1996 and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419200
Kansas City, MO 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: http://www.twentieth-century.com
There is no assurance that the Fund will achieve its investment objective.
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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.
<PAGE>
TABLE OF CONTENTS
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Transaction and Operating Expense Table.............3
Financial Highlights................................4
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND.....................5
Investment Objective.............................5
International Subadvisor.........................5
Investment Strategy..............................5
Currency Management..............................5
RISK FACTORS AND INVESTMENT TECHNIQUES..............6
Issuer Diversification...........................6
Credit Quality...................................7
Currency Diversification.........................7
Dollar-Weighted Average Maturity.................7
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS..................7
Portfolio Turnover...............................7
When-Issued and Forward Commitment
Agreements.....................................8
Interest Rate Futures Contracts and
Options Thereon................................8
Short-Term Instruments...........................9
Securities Lending...............................9
Other Techniques.................................9
PERFORMANCE ADVERTISING.............................9
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO OPEN AN ACCOUNT.............................11
By Mail.........................................11
By Wire.........................................11
By Exchange.....................................11
In Person.......................................12
SUBSEQUENT INVESTMENTS.............................12
By Mail.........................................12
By Telephone....................................12
By Wire.........................................12
In Person.......................................12
AUTOMATIC INVESTMENT PLAN..........................12
HOW TO EXCHANGE FROM ONE ACCOUNT
TO ANOTHER......................................12
By Mail.........................................13
By Telephone....................................13
HOW TO REDEEM SHARES...............................13
By Mail.........................................13
By Telephone....................................13
By Check-A-Month................................13
Other Automatic Redemptions.....................13
REDEMPTION PROCEEDS................................13
By Check........................................13
By Wire and ACH.................................13
REDEMPTION OF SHARES
IN LOW-BALANCE ACCOUNTS.........................14
SIGNATURE GUARANTEE................................14
SPECIAL INVESTOR SERVICES..........................14
Automated Information Line......................14
Open Order Service..............................14
Tax-Qualified Retirement Plans..................15
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS................................15
REPORTS TO SHAREHOLDERS............................16
EMPLOYER-SPONSORED RETIREMENT PLANS
AND INSTITUTIONAL ACCOUNTS......................17
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE........................................18
When Share Price is Determined..................18
How Share Price is Determined...................18
Where to Find Information About Share Price.....19
DISTRIBUTIONS......................................19
TAXES..............................................19
Tax-Deferred Accounts...........................19
Taxable Accounts................................19
MANAGEMENT.........................................20
Investment Management...........................20
Code of Ethics..................................21
Transfer and Administrative Services............22
Distribution of Fund Shares.....................22
Expenses........................................22
FURTHER INFORMATION ABOUT THE FUND.................23
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NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY
OTHER INFORMATION OR REPRESENTATION.
2
TRANSACTION AND OPERATING EXPENSE TABLE
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Benham European
Government Bond
Fund
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases none
Maximum Sales Load Imposed on Reinvested Dividends none
Deferred Sales Load none
Redemption Fee(1) none
Exchange Fee none
ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets) .44%
Management Fees none
12b-1 Fees .40%
Other Expenses .84%
Total Fund Operating Expenses
Example: You would pay the following expenses on a 1 year $ 9
$1,000 investment, assuming a 5% annual return and 3 years 27
redemption at the end of each time period: 5 years 47
10 years 104
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) Benham Management Corporation (the "Manager") has agreed to limit the Fund's
total operating expenses to specified percentages of the Fund's average
daily net assets. The agreement provides that the Manager may recover
amounts absorbed on behalf of the Fund during the preceding 11 months if,
and to the extent that, for any given month, Fund expenses were less than
the expense limit in effect at that time. The current expense limitation for
the Fund is .90%. This expense limitation is subject to annual renewal in
June.
The Fund pays the Manager management fees equal to an annualized percentage
of the Fund's average daily net assets. Other expenses include administrative
and transfer agent fees paid to Twentieth Century Services, Inc.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Fund. The example set forth
above assumes reinvestment of all dividends and distributions and uses a 5%
annual rate of return as required by SEC regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
3
<TABLE>
<CAPTION>
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FINANCIAL HIGHLIGHTS
BENHAM EUROPEAN GOVERNMENT BOND FUND
The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors (except as noted). Their
reports appear in the Fund's annual reports to shareholders which are
incorporated by reference into the Statement of Additional Information. The
semiannual and annual reports contain additional performance information and
will be made available upon request and without charge. For a Share Outstanding
Throughout the Six Months Ended June 30, 1996 (Unaudited) and the Years Ended
December 31 (except as noted)
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1993 1992+
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PER-SHARE DATA
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<S> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period.................... $11.95 10.36 10.82 10.01 10.00
Income From Investment Operations
Net Investment Income................................... .32 .61 .78 .69 .79
Net Realized and Unrealized Gains (Losses) on Investments
and Foreign Currency Transactions...................... (.51) 1.88 (.63) .49 .38
------- ------- ------- ------- -------
Total Income From Investment Operations................ (.19) 2.49 .15 1.18 1.17
------- ------- ------- ------- -------
Less Distributions
Dividends from Net Investment Income.................... (.39) (.90) (.60) (.37) (.66)
Distributions from Net Realized Gains on Investments and
Foreign Currency Transactions.......................... 0 0 (.01) 0 (.50)
------- ------- ------- ------- -------
Total Distributions.................................... (.39) (.90) (.61) (.37) (1.16)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD.......................... $11.37 11.95 10.36 10.82 10.01
======= ======= ======= ======= =======
TOTAL RETURN*............................................. (1.56)% 24.40% 1.52% 11.79% 7.08%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars)... $236,815 252,247 194,301 355,615 337,043
Ratio of Expenses to Average Daily Net Assets++......... 0.84%** 0.82% 0.86% 0.85% .51%**
Ratio of Net Investment Income to Average Daily Net Assets 5.60%** 6.14% 6.09% 6.27% 7.59%**
Portfolio Turnover Rate................................. 146% 167% 166% 310% 252%
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+ From January 7, 1992 (commencement of operations) to December 31, 1992.
++ The ratios for the periods beginning with the year ended December 31, 1995 include expenses paid through
expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
4
INFORMATION REGARDING THE FUND
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INVESTMENT POLICIES
OF THE FUND
The Fund has adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as
the investment objectives of the Fund identified on the front cover page of
this Prospectus and any other investment policies designated as "fundamental"
in this Prospectus or in the Statement of Additional Information, cannot be
changed without shareholder approval. The Fund has implemented additional
investment policies and practices to guide its activities in the pursuit of
its respective investment objectives. These policies and practices, which are
described throughout this Prospectus, are not designated as fundamental
policies and may be changed without shareholder approval.
The descriptions that follow are designed to help you determine whether
a fund fits your investment objectives. An investment in the Fund by itself
does not constitute a balanced investment plan and works best for investors
prepared to endure the market volatility associated with foreign investments.
For an explanation of the securities ratings referred to in the
following discussion, see "Other Information" in the Statement of Additional
Information.
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. There is no assurance that the Fund will
achieve its investment objective.
The Fund may be appropriate for U.S. investors who:
o Want to protect their income against a decline in the purchasing power
of the U.S. dollar relative to that of foreign currencies.
o 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.
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.
INVESTMENT 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:
o ECONOMIC/POLITICAL FUNDAMENTALS: JPMIM evaluates each country's
economic climate and political discipline for controlling deficits and
inflation.
o EXPECTED RETURN: Using economic forecasts, JPMIM projects the expected
return for each country.
o RELATIVE VALUE: By contrasting expected risks and returns 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.
5
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.
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.
RISK FACTORS AND
INVESTMENT TECHNIQUES
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 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.
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
6
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.
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 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.
The Fund may invest in AAA-rated corporate bonds denominated in European
currencies or European Currency Units ("ECU"s). 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.
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 agency (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.
DOLLAR-WEIGHTED AVERAGE MATURITY
The Fund's dollar-weighted average portfolio maturity ranges from two to
ten years.
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information regarding the investment practices of the
Fund, see the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Fund is shown in the Financial
Highlights table on page 4 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the Fund's
objectives. The rate of portfolio turnover is irrelevant when JPMIM believes
a change is in order to achieve those objectives and, accordingly, the annual
portfolio turnover rate cannot be accurately anticipated.
7
The portfolio turnover of the Fund may be higher than other mutual funds
with similar investment objectives. A high turnover rate involves
correspondingly higher transaction costs that are borne directly by the Fund.
It may also affect the character of capital gains, if any, realized and
distributed by the Fund since short-term capital gains are taxable as
ordinary income.
Transaction costs are normally higher for foreign securities 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.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may sometimes purchase new issues of securities on a
when-issued or forward commitment basis when, in the opinion of the manager,
such purchases will further the investment objectives of the Fund. The price
of when-issued securities is established at the time commitment to purchase
is made. Delivery and payment for these securities typically occurs 15 to 45
days after the commitment to purchase. Market rates of interest on debt
securities at the time of delivery may be higher or lower than those
contracted for on the security. Accordingly, the value of each security may
decline prior to delivery, which could result in a loss to the Fund.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The Fund may buy or sell interest rate futures contracts relating to
debt securities ("debt futures," i.e., futures relating to indexes on types
or groups of bonds) and write or buy put and call options relating to
interest rate futures contracts.
For options sold, the Fund will segregate cash or high-quality debt
securities equal to the value of securities underlying the option unless the
option is otherwise covered.
The Fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it has
purchased, less any margin deposited on its long position. It may hold cash
or acquire such debt obligations for the purpose of making these deposits.
The Fund may use futures and options transactions to maintain cash
reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Since futures contracts and options thereon can replicate movements in
the cash markets for the securities in which a fund invests without the large
cash investments required for dealing in such markets, they may subject a
fund to greater and more volatile risks than might otherwise be the case. The
principal risks related to the use of such instruments are (1) the offsetting
correlation between movements in the market price of the portfolio
investments (held or intended) being hedged and in the price of the futures
contract or option may be imperfect; (2) possible lack of a liquid secondary
market for closing out futures or option positions; (3) the need of
additional portfolio management skills and techniques; and (4) losses due to
unanticipated market price movements. For a hedge to be completely effective,
the price change of the hedging instrument should equal the price change of
the securities being hedged. Such equal price changes are not always possible
because the investment underlying the hedging instrument may not be the same
investment that is being hedged.
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the nature of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate trends by management may still not result in a successful transaction.
Management may be incorrect in its
8
expectations as to the extent of various interest rate movements or the time
span within which the movements take place.
See the Statement of Additional Information for further information
about these instruments and their risks.
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 the
Manager 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.
For cash management purposes, the Fund may invest up to 5% of its total
assets in any money market fund advised by the Manager, provided that the
investment is consistent with the Fund's investment policies and
restrictions.
SECURITIES LENDING
In order to realize additional income, the Fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash collateral
maintained on a current basis in an amount at least equal to the market value
of the securities loaned, or by irrevocable letters of credit. During the
existence of the loan, the Fund must continue to receive the equivalent of
the interest and dividends paid by the issuer on the securities loaned and
interest on the investment of the collateral. The Fund must have the right to
call the loan and obtain the securities loaned at any time on five days'
notice, including the right to call the loan to enable the Fund to vote the
securities. Such loans may not exceed one-third of the Fund's total assets
taken at market value.
OTHER TECHNIQUES
JPMIM may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it
to do so, the Fund will set aside cash or appropriate liquid assets in a
segregated account to cover the Fund's obligations. See the Fund's Statement
of Additional Information for a more detailed discussion of these investments
and some of the risks associated with them.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield and
effective yield.
CUMULATIVE TOTAL RETURN data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a period of time. AVERAGE ANNUAL TOTAL RETURN over a states period of
time that would have produced a fund's cumulative total return over the same
period if the fund's performance had remained constant throughout.
A quotation of YIELD reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. The EFFECTIVE YIELD is
calculated in a similar manner, but, when annualized, the income from the
investment is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect on the assumed
reinvestment.
9
Yield is calculated by adding over a 30-day (or one-month) period all
interest and dividend income (net of fund expenses) calculated on each day's
market values, dividing this sum by the average number of fund shares
outstanding during the period, and expressing the result as a percentage of
the fund's share price on the last day of the 30-day (or one month) period.
The percentage is then annualized.
Capital gains and losses are not included in the calculation.
Yields are calculated according to accounting methods that are
standardized in accordance with SEC rules for all stock and bond funds. The
SEC yield should be regarded as an estimate of the Fund's rate of investment
income, and it may not equal the Fund's actual income distribution rate, the
income paid to a shareholder's account, or the income reported in the Fund's
financial statements.
The Fund may also include in advertisements data comparing performance
with the performance of non-related investment media, published editorial
comments and performance rankings compiled by independent organizations (such
as Lipper Analytical Services) and publications that monitor the performance
of mutual funds. Performance information may be quoted numerically or may be
presented in a table, graph or other illustration. In addition, fund
performance may be compared to well-known indices of market performance A
fund's performance may also be compared, on a relative basis, to the other
funds in our fund family. This relative comparison, which may be based upon
historical or expected fund performance, volatility or other fund
characteristics, may be presented numerically, graphically or in text. The
performance of a fund may also be combined or blended with other funds in our
fund family, and that combined or blended performance may be compared to the
same indices to which individual funds may be compared.
All performance information advertised by the Fund is historical in
nature and is not intended to represent or guarantee future results. The
value of Fund shares when redeemed may be more or less than their original
cost.
10
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
- --------------------------------------------------------------------------------
The following section explains how to invest with Twentieth Century and
The Benham Group, including purchases, redemptions, exchanges and special
services. You will find more detail about doing business with us by referring
to the Investor Services Guide that you will receive when you open an
account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 17.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application,
furnishing your taxpayer identification number. (You must also certify
whether you are subject to withholding for failing to report income to the
IRS.) Investments received without a certified taxpayer identification number
will be returned.
The minimum investment is $2,500 ($1,000 for IRA accounts).
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple
owners (e.g., as joint tenants), you must provide us with specific
authorization on your application in order for us to accept written or
telephone instructions from a single owner. Otherwise, all owners will have
to agree to any transactions that involve the account (whether the
transaction request is in writing or over the telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us
or mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64111
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more
than one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social security number
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get
information on opening an account by exchanging from another Twentieth
Century or Benham account. See page 12 for more information on exchanges.
11
IN PERSON
If you prefer to work with a representative in person, please visit one
of our Investors Centers, located at:
4500 Main Street
Kansas City, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222.
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by
any of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the
remittance portion of the confirmation of a previous investment. If the
remittance slip is not available, indicate your name, address and account
number on your check or a separate piece of paper. (Please be aware that the
investment minimum for subsequent investments is higher without a remittance
slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw
on your bank account. You may call an Investor Services Representative or use
our Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 11 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this
page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must
be at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application
to receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM
ONE ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your Fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50
per month. See our Investor Services Guide for further information about
exchanges.
12
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham account to another. For additional information, please see
our Investor Services Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line--see page 14) if you
have authorized us to accept telephone instructions. You can authorize this
by selecting "Full Services" on your application or by calling us at
1-800-345-2021 to receive the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will
be made at the next net asset value determined after a complete redemption
request is received.
Please note that a request to redeem shares in an IRA or 403(b) plan
must be accompanied by an executed IRS Form W4-P and a reason for withdrawal
as specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to
us. Certain redemptions may require a signature guarantee. Please see
"Signature Guarantee," page 14.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may
redeem your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with redemption proceeds in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to
send funds directly to you or to your account at a bank or other financial
institution. To set up automatic redemptions, call one of our Investor
Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up
to 15 days or longer to send redemption proceeds (to allow your purchase
funds to clear). No interest is paid on the redemption proceeds after the
redemption is processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For
more information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH.
These services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of
transmission. Funds transferred by ACH may be received up to seven days after
transmission. Wired funds are subject to a $10 fee to cover bank wire
charges, which is deducted from redemption proceeds. Once the funds are
transmitted, the time of receipt and the funds' availability are not under
our control.
13
REDEMPTION OF SHARES
IN LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to
bring the value of the shares held in the account up to the minimum. If
action is not taken within 90 days of the letter's date, the shares held in
the account will be redeemed and proceeds from the redemption will be sent by
check to your address of record. We reserve the right to increase the
investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee
will depend on which service options you elect when you open your account.
For example, if you choose "In Writing Only," a signature guarantee will be
required when:
o Redeeming more than $25,000
o Establishing or increasing a Check-A-Month or automatic transfer on an
existing account.
You may obtain a signature guarantee from a bank or trust company,
credit union, broker-dealer, securities exchange or association, clearing
agency or savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any
transaction, or to change this policy at any time.
SPECIAL INVESTOR SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these
options and elect the ones that are appropriate for you. Be aware that the
"Full Services" option offers you the most flexibility. You will find more
information about each of these service options in our Investor Services
Guide.
Our special investor services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a
week, at 1-800-345-8765. By calling the Automated Information Line, you may
listen to fund prices, yields and total return figures. You may also use the
Automated Information Line to make investments into your accounts (if we have
your bank information on file) and obtain your share balance, value and most
recent transactions. If you have authorized us to accept telephone
instructions, you also may exchange shares from one fund to another via the
Automated Information Line. Redemption instructions cannot be given via the
Automated Information Line.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to
buy shares of a variable-priced fund by exchange from one of our money market
funds, or a price at which to sell shares of a variable-priced fund by
exchange to one of our money market funds. The designated purchase price must
be equal to or lower, or the designated sale price equal to or higher, than
the variable-priced fund's net asset value at the time the order is placed,
If the designated price is met within 90 calendar days, we will execute your
exchange order automatically at that price (or better). Open orders not
executed within 90 days will be canceled.
14
If the fund you have selected deducts a distribution from its share
price, your order price will be adjusted accordingly so the distribution does
not inadvertently trigger an open order transaction on your behalf. If you
close or re-register the account from which the shares are to be redeemed,
your open order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders
and cancellations received before 2 p.m. Central time are effective the same
day, and orders or cancellations received after 2 p.m. Central time are
effective the next business day.
TAX-QUALIFIED REITIREMENT PLANS
The Fund is available for your tax-deferred retirement plan. Call or
write us and request the appropriate forms for:
o Individual Retirement Accounts ("IRA"s)
o 403(b) plans for employees of public school systems and non-profit
organizations
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company
or custodian. Call or write us for a "Request to Transfer" form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we
offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by exchange). Additionally, purchases may be
refused if, in the opinion of the manager, they are of a size that
would disrupt the management of the Fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused.
(5) If a transaction request is made by a corporation, partnership,
trust, fiduciary, agent or unincorporated association, we will
require evidence satisfactory to us of the authority of the
individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include
requesting personal identification from callers, recording telephone
calls, and providing written confirmations of telephone transactions.
These procedures are designed to protect shareholders from
unauthorized or fraudulent instructions. If we do not employ
reasonable procedures to confirm the genuineness of instructions,
then we may be liable for losses due to unauthorized or fraudulent
instructions. The company, its transfer agent and investment adviser
will not be responsible for any loss due to instructions they
reasonably believe are genuine.
15
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as
Mary Elizabeth Jones, she should sign that way and not as Mary E.
Jones.
(8) Unusual stock market conditions have in the past resulted in an
increase in the number of shareholder telephone calls. If you
experience difficulty in reaching us during such periods, you may
send your transaction instructions by mail, express mail or courier
service, or you may visit one of our Investors Centers. You may also
use our Automated Information Line if you have requested and received
an access code and are not attempting to redeem shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50
to cover the penalty the IRS will impose on us for failure to report
your correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings,
as well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If
you fail to provide notification of an error with reasonable promptness,
i.e., within 30 days of non-automatic transactions or within 30 days of the
date of your consolidated quarterly statement, in the case of automatic
transactions, we will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that
you may use in completing your U.S. income tax return. See the Investor
Services Guide for more information.
Each year, we will send you an annual and a semiannual report relating
to your fund, each of which is incorporated herein by reference.. The annual
report includes audited financial statements and a list of portfolio
securities as of the fiscal year end. The semiannual report includes
unaudited financial statements for the first six months of the fiscal year,
as well as a list of portfolio securities at the end of the period. You also
will receive an updated prospectus at least once each year. Please read these
materials carefully as they will help you understand your fund.
16
EMPLOYER-SPONSORED
RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide and in the "How to
Invest" sections beginning on page 11 pertain to shareholders who invest
directly with Twentieth Century rather than through an employer-sponsored
retirement plan or through a financial intermediary. If you own or are
considering purchasing Fund shares through an employer-sponsored retirement
plan, your ability to purchase shares of the Funds, exchange them for shares
of other Twentieth Century or Benham funds, and redeem them will depend on
the terms of your plan. If you own or are considering purchasing Fund shares
through a bank, broker-dealer, insurance company or other financial
intermediary, your ability to purchase, exchange and redeem shares will
depend on your agreement with, and the policies of, such financial
intermediary.
You may reach one of our Institutional Investor Service Representatives
by calling 1-800-345-3533 to request information about our funds and
services, to obtain a current prospectus or to get answers to any questions
about our Funds that you are unable to obtain through your plan administrator
or financial intermediary.
17
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value.
Net asset value is determined by calculating the total value of the Fund's
assets, deducting total liabilities and dividing the result by the number of
shares outstanding. Net asset value is determined at the close of regular
trading on each day that the New York Stock Exchange (the "Exchange") is
open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment, redemption
or exchange request. For example, investments and requests to redeem or
exchange shares received by us or our authorized agents before the close of
business on the Exchange, usually 3 p.m. Central time, are effective on, and
will receive the price determined, that day as of the close of the Exchange.
Investment, redemption and exchange 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 us. Wired funds are considered received on the day they are
deposited in our bank account if your telephone call is received before the
close of business on the Exchange, usually 3 p.m. Central time and the money
is deposited that day.
Investments by telephone pursuant to your prior authorization to us to
draw on your bank account are considered received at the time of your
telephone call.
Investment and transaction instructions received by us on any business
day by mail prior to the close of business on the Exchange will receive that
day's price. Investments and instructions received after that time will
receive the price determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement
plan or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange
and redemption requests to the Fund's transfer agent prior to the applicable
cut-off time for receiving orders and to make payment for any purchase
transactions in accordance with the Fund's procedures or any contractual
arrangement with the Fund or the Fund's distributor in order for you to
receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be
summarized as follows:
Portfolio securities of the Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or
if local convention or regulation so provides, the mean of the latest bid and
asked prices is used. Depending on local convention or regulation, securities
traded over-the-counter are priced at the mean of the latest bid and asked
prices, or at the last sale price. When market quotations are not readily
available, securities and other assets are valued at fair value as determined
in accordance with procedures adopted by the board of trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the board of trustees.
18
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset value of the Fund is published in leading newspapers
daily. The net asset values, as well as yield information on the Fund and
other funds in the Twentieth Century family of funds may be obtained by
calling us.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the Fund is determined and declared as a distribution. The
distribution will be paid quarterly in March, June, September and December.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page 18. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed, the distribution on the redeemed
shares will be included with your redemption proceeds.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code, in all events in a manner consistent with the provisions of the
1940 Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable
accounts, distributions will be reinvested unless you elect to receive them
in cash. Distributions of less than $10 generally will be reinvested.
Distributions made shortly after a purchase by check or ACH may be held up to
15 days. You may elect to have distributions on shares held in Individual
Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years
old or permanently and totally disabled. Distribution checks normally are
mailed within seven days after the record date. Please consult our Investor
Services Guide for further information regarding your distribution options.
The board of trustees may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
TAXES
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the Fund's shares are purchased through tax-deferred accounts, such
as a qualified employer-sponsored retirement or savings plan, income and
capital gains distributions paid by the Fund will generally not be subject to
current taxation, but will accumulate in your account under the plan on a
tax-deferred basis.
Employer-sponsored retirement and savings plans are governed by complex
tax rules. If you elect to participate in your employer's plan, consult your
plan administrator, your plan's summary plan description, or a professional
tax advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of
net investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of
the Fund do not qualify for the 70% dividends-received deduction for
corporations since they are derived from interest income. Dividends
representing income derived from tax-exempt bonds generally retain the bonds'
tax-exempt character in a shareholder's hands. Distributions from net
long-term capital gains are taxable as long-term capital gains regardless of
the length of time you
19
have held the shares on which such distributions are paid. However, you
should note that any loss realized upon the sale or redemption of shares held
for six months or less will be treated as a long-term capital loss to the
extent of any distribution of long-term capital gain to you with respect to
such shares.
Distributions of capital gains are taxable to you regardless of whether
they are taken in cash or reinvested, even if the value of your shares is
below your cost. If you purchase shares shortly before a capital gain
distribution, you must pay income taxes on the distribution, even though the
value of your investment (plus cash received, if any) will not have
increased. In addition, the share price at the time you purchase shares may
include unrealized gains in the securities held in the investment portfolio
of the Fund. If these portfolio securities are subsequently sold and the
gains are realized, they will, to the extent not offset by capital losses, be
paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains.
In January of the year following the distribution, we or your financial
intermediary will send you a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes.
Distributions may also be subject to state and local taxes, even if all
or a substantial part of such distribution are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax
exemption to pass through to Fund shareholders when the Fund pays
distributions to its shareholders. You should consult your tax adviser about
the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Code and its
Regulations, we are required by federal law to withhold and remit to the IRS
31% of reportable payments (which may include dividends, capital gains
distributions and redemptions). Those regulations require you to certify that
the social security number or tax identification number you provide is
correct and that you are not subject to 31% withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your application. PAYMENTS REPORTED BY US THAT OMIT YOUR
SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A
PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO
PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT
REFUNDABLE.
Redemption of shares of the Fund (including redemptions made in an
exchange transaction) will be a taxable transaction for federal income tax
purposes and shareholders will generally recognize a gain or loss in an
amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term
if shareholders have held such shares for a period of more than one year. If
a loss is realized on the redemption of Fund shares, the reinvestment in
additional Fund shares within 30 days before or after the redemption may be
subject to the "wash sale" rules of the Internal Revenue Code, resulting in a
postponement of the recognition of such loss for federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
The Fund is a series of the Benham International Funds (the "Trust").
Under the laws of the Commonwealth of Massachusetts, the board of trustees is
responsible for managing the business and affairs of the Trust. Acting
pursuant to an investment management agreement entered into with the Trust,
Benham Management Corporation (the "Manager") serves as the investment
manager of the Fund. Its principal place of busi-
20
ness is 1665 Charleston Road, Mountain View, California 94043. The Manager
has been providing investment advisory services to investment companies and
other clients since 1971.
The Manager supervises and manages the investment portfolio of the Fund
and directs the purchase and sale of their investment securities. The Manager
utilizes a team of portfolio managers, assistant portfolio managers and
analysts acting together to supervise the management of the Fund's assets.
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 the Manager and the board
of trustees. JPMIM is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated.
In June 1995, Twentieth Century Companies, Inc. ("TCC") acquired Benham
Management International, Inc., the then-parent company of the Manager. TCC
is the parent company of Investors Research Corporation ("IRC"), which
provides investment management services to the Twentieth Century family of
funds. In the acquisition, the Manager became a wholly owned subsidiary of
TCC. Certain employees of the Manager provide investment management services
to the Twentieth Century family of funds, while certain Twentieth Century
employees provide investment management services to Benham funds.
The portfolio manager members of the teams managing the Funds described
in this Prospectus and their work experience for the last five years are
listed as follows:
ROBERT P. BROWNE, Portfolio Manager, JPMIM, has primary responsibility
for the day-to-day operations of the Fund. 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.
JEFFREY R. TYLER, Senior Vice President, the Manager, oversees the
portfolio manager's operation of the Fund. He is also manager of Benham
Capital Manager Fund and manages Benham's Fixed-Income Portfolio Department.
The activities of the Manager are subject only to directions of the
Trust's Board of trustees. For the services provided to the Funds, the
Manager receives an annual fee which 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.
For subadvisory services, the Manager 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, the Manager paid JPMIM subadvisory fees equal to
.19% of the Fund's average daily net assets.
CODE OF ETHICS
The Trust and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of securities in the Fund's
portfolios obtain preclearance before executing personal trades. With respect
to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
the fund shareholders come before the interests of the people who manage the
Fund.
21
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City,
Missouri, 64111, ("TCS") acts as transfer, administrative services and
dividend paying agent for the Fund. It provides facilities, equipment and
personnel to the Fund and is paid for such services by the Fund. For
administrative services, the Fund pays TCS a monthly fee equal to its pro
rata share of the dollar amount derived from applying the average daily net
assets of all of the Funds managed by the Manager. The administrative fee
rate ranges from .11% to .08% of average daily net assets, dropping as assets
managed by the Manager increase. For transfer agent services, the Fund pays
TCS a monthly fee for each shareholder account maintained and for each
shareholder transaction executed during that month.
The Fund charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from TCS
may purchase or sell Fund shares through registered broker-dealers and other
qualified service providers, who may charge investors fees for their
services. These broker-dealers and service providers generally provide
shareholder, administrative and/or accounting services which would otherwise
be provided by TCS as the Fund's transfer agent. To accommodate these
investors, the Manager and its affiliates have entered into agreements with
some broker-dealers and service providers to provide these services. Fees for
such services are borne normally by the Fund at the rates normally paid to
TCS, which would otherwise provide the services. Any distribution expenses
associated with these arrangements are borne by the Manager.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation
of shareholder transactions, newsletters and a team of personal
representatives. Any expenses associated with these special services will be
paid by the Manager or its affiliates.
The Manager and TCS are both wholly owned by Twentieth Century
Companies, Inc. James E. Stowers Jr., Chairman of the board of directors of
TCC, controls TCC by virtue of his ownership of a majority of its common
stock.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting sales of, and
distributing the Fund shares offered by this Prospectus. The Fund does not
pay any commissions or other fees to the Distributor or to any other broker
dealers or financial intermediaries in
connection with the distribution of Fund shares.
EXPENSES
The Fund pays certain operating expenses directly, including, but not
limited to: custodian, audit, and legal fees; fees of the independent
directors or 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 Statements of
Additional Information for a more detailed discussion of independent
director/ trustee compensation.
22
FURTHER INFORMATION
ABOUT THE FUND
The Trust was organized as a Massachusetts business trust August 28,
1991. The Trust is a diversified, open-end management investment company. Its
business and affairs are managed by its officers under the direction of its
board of trustees.
The principal office of the Trust is Twentieth Century Tower, 4500 Main
Street, P. O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may
be made by mail to that address, or by phone to 1-800-345-2021. (For
international callers: 816-531-5575.)
The Fund is an individual series of the Trust which issues shares with
no par value. Each series is commonly referred to as a Fund. The assets
belonging to each series of shares are held separately by the custodian and
in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each
dollar of net asset value applicable to such share on all questions, except
those matters which must be voted on separately by the series of shares
affected. Matters affecting only one Fund are voted upon only by that Fund.
Shares have non-cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of trustees can elect
all of the trustees if they choose to do so, and in such event the holders of
the remaining less-than 50% of the shares will not be able to elect any
person or persons to the board of trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust
to hold annual meetings of shareholders. As a result, shareholders may not
vote each year on the election of trustees or the appointment of auditors.
However, pursuant to the Trust's by-laws, the holders of shares representing
at least 10% of the votes entitled to be cast may request that the Trust hold
a special meeting of shareholders. We will assist in the communication with
other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF
ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE
INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF A FUND ONLY
IN THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE
QUALIFIED FOR SALE. A FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING
IN STATES WHERE THE FUND'S SHARES ARE NOT REGISTERED.
23
BENHAM
European Government
Bond Fund
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- --------------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- --------------------------------------------
Fax: 816-340-7962
- --------------------------------------------
Internet: http://www.twentieth-century.com
- --------------------------------------------
BENHAM
INTERNATIONAL FUNDS
- --------------------------------------------------------------------------------
BN-BKT-5488 [recycled logo]
9608 Recycled
<PAGE>
BENHAM EUROPEAN GOVERNMENT BOND FUND
A Series of Benham International Funds
4500 Main Street
Kansas City, MO 64111
Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575
Automated: 1-800-345-8765
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1996
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated September 3, 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 Twentieth
Century Mutual Funds.
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
Transfer and Administrative 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).
8
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, phe 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 calculated by Twentieth Century
Services, Inc. (TCS), as of the close of business of the New York Stock Exchange
(the "Exchange") each day the Exchange is open for business, usually at 3:00
p.m. Central 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 TCS 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 June 30, 1996, the Fund's yield was 5.62%.
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
June 30, 1996 are 4.78% and 9.28%, 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 31st 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 31st of such year and to have been paid
by the Fund not later than December 31st 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 (a) settling portfolio purchases and
sales, (b) reporting failed trades, (c) identifying and collecting portfolio
income, and (d) 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. Effective October 7, 1996, Chase Manhattan
Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245 will provide the custodian
services for the Fund.
19
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors and provides
services including (a) audit of annual financial statements and (b) 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, Twentieth Century Services, Inc. (TCS); BIF's distribution agent,
Twentieth Century Securities, Inc.; 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 managed
by BMC. 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 64111.
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 Benham
Financial Services, Inc. (BFS) (1985), BMC (1971), and Benham Distributors, Inc.
(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 III 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 funds
managed by BMC.
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested directors receive no compensation for their services as such.
** Twentieth Century family of funds includes 66 no-load mutual funds.
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 rest of Twentieth
Century's Benham brand mutual funds.
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
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, (TCS) acts as transfer, administrative services and dividend paying agent
for the Fund. TCS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, each Fund
pays TCS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Fund managed by the
Manager 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 TCS 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 $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 TCS.
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, 1997. 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.
Twentieth Century 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 July
31, 1996, Charles Schwab & Co., 101 Montgomery Street, San Francisco, California
94104, was the record holder of 32.5% of the outstanding shares of the Fund with
6,737,030.091 shares. 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.
TCS charges neither fees nor commissions on the purchase and sale of fund
shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
TCS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
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. 8
1940 Act Amendment No. 9
- --------------------------------------------------------------------------------
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
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 7 filed on April 22, 1996 (Accession #
0000880268-96-000010).
(2) Amended and Restated Bylaws dated May 17, 1995 are incorporated by
reference to Exhibit 2(b) of Post-Effective Amendment No. 6 filed
on February 29, 1996 (Accession # 0000880268-96-000007).
(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 #
0000880268-96-000007).
(b) Investment Sub-Advisory Agreement among Benham International
Funds, Benham Management Corporation, and J.P. Morgan Investment
Management Inc., dated June 1, 1995 is incorporated herein by
reference to Exhibit 5(b) of Post-Effective Amendment No. 7 filed
on April 22, 1996 (Accession # 0000880268-96-000010).
(6) Distribution Agreement between Benham International Funds and
Twentieth Century Securities, Inc. dated as of September 3, 1996,
is incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment No. 29 to the Registration Statement of the Benham
Government Income Trust filed on August 30, 1996 (Accession #
773674-96-000007).
(7) Not Applicable.
(8) (a) Custodian Agreement between Benham International Funds and
State Street Bank and Trust Company dated August 10, 1993 is
incorporated herein by reference to Exhibit 8(a) of Post-Effective
Amendment No. 7 filed on April 22, 1996 (Accession #
0000880268-96-000010).
(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 incorporated herein by
reference to Exhibit 8(b) of Post-Effective Amendment No. 7 filed
on April 22, 1996 (Accession # 0000880268-96-000010).
(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 incorporated herein by reference
to Exhibit 8(c) of Post-Effective Amendment No. 7 filed on April
22, 1996 (Accession # 0000880268-96-000010).
(9) Administrative Services and Transfer Agency Agreement between
Benham International Funds and Twentieth Century Services, Inc.
dated as of September 3, 1996,. is incorporated herein by reference
to Exhibit 9 of Post-Effective Amendment No. 29 to the Registration
Statement of the Benham Government Income Trust filed on August 30,
1996 (Accession # 773674-96-000007).
(10)Opinion and consent of counsel as to the legality of the
securities being registered, dated February 14, 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.
(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 included herein.
(17)Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 7 filed on
April 22, 1996 (Accession # 0000880268-96-000010).
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not Applicable.
Item 26. Number of Holders of Securities.
As of July 31, 1996, Benham European Government Bond Fund (the sole operating
series of Benham International Funds) had 10,417 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 # 0000880268-96-000007).
Item 28. Business and other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base 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. 8/Amendment No. 9 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 30th day of August, 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. 8/Amendment No. 9 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
* Chairman of the Board of Trustees, August 30, 1996
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee August 30, 1996
- ---------------------------------
Albert A. Eisenstat
* Trustee August 30, 1996
- ---------------------------------
Ronald J. Gilson
* Trustee August 30, 1996
- ---------------------------------
Myron S. Scholes
* Trustee August 30, 1996
- ---------------------------------
Kenneth E. Scott
* Trustee August 30, 1996
- ---------------------------------
Ezra Solomon
* Trustee August 30, 1996
- ---------------------------------
Isaac Stein
* Trustee August 30, 1996
- ---------------------------------
James E. Stowers III
* Trustee August 30, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer August 30, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Amended and Restated Declaration of Trust, dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 7 filed on April 22, 1996
(Accession # 0000880268-96-000010).
EX-99.B2 Amended and Restated Bylaws dated May 17, 1995 are incorporated
by reference to Exhibit 2(b) of Post-Effective Amendment No. 6
filed on February 29, 1996 (Accession # 0000880268-96-000007).
EX-99.B4 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.
EX-99.B5 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 # 0000880268-96-000007).
b) Investment Sub-Advisory Agreement among Benham International
Funds, Benham Management Corporation, and J.P. Morgan Investment
Management Inc., dated June 1, 1995 is incorporated herein by
reference to Exhibit 5(b) of Post-Effective Amendment No. 7 filed
on April 22, 1996 (Accession # 0000880268-96-000010).
EX-99.B6 Distribution Agreement between Benham International Funds and
Twentieth Century Securities, Inc. dated as of September 3, 1996,
is incorporated herein by reference to Exhibit 6 of
Post-Effective Amendment No. 29 to the Registration Statement
of the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
EX-99.B8 a) Custodian Agreement between Benham International Funds and
State Street Bank and Trust Company dated August 10, 1993 is
incorporated herein by reference to Exhibit 8(a) of
Post-Effective Amendment No. 7 filed on April 22, 1996 (Accession
# 0000880268-96-000010).
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 incorporated
herein by reference to Exhibit 8(b) of Post-Effective Amendment
No. 7 filed on April 22, 1996 (Accession # 0000880268-96-000010).
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 incorporated herein by
reference to Exhibit 8(c) of Post-Effective Amendment No. 7 filed
on April 22, 1996 (Accession # 0000880268-96-000010).
EX-99.B9 Administrative Services and Transfer Agency Agreement between
Benham International Funds and Twentieth Century Services, Inc.
dated as of September 3, 1996,. is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 29 to the
Registration Statement of the Benham Government Income Trust
filed on August 30, 1996 (Accession # 773674-96-000007).
EX-99.B10 Opinion and consent of counsel as to the legality of the
securities being registered, dated February 14, 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, is
included herein.
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 filed on December 26, 1991.
EX-99.B14 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.
EX-99.B16 Schedule for computation of each performance quotation provided
in response to Item 22 is included herein.
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 7 filed
on April 22, 1996 (Accession # 0000880268-96-000010).
EX-27.1 Financial Data Schedule
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. 8 to the Registration Statement No. 33-43321 on Form N-1A under
the Securities Act of 1933 and Amendment No. 9 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 the Benham European Government Bond Fund (the sole fund comprising
the Benham International Funds) for the periods indicated therein, which report
has 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 and under the heading
"About Benham International Funds" in the Statement of Additional Information
which is incorporated by reference in the Prospectus.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
August 30, 1996
BENHAM EUROPEAN GOVERNMENT BOND FUND
AVERAGE ANNUAL TOTAL RETURN
JUNE 30, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,047.80 1.000000 4.78%
Five Years $1,000.00 5.000000 N/A
Ten Years
Date Of Inception* $1,000.00 $1,489.04 4.486300 9.28%
TR=Total return for period. TR=(ERV/P) - 1 48.90%
*Date Of Inception: January 7, 1992
<PAGE>
BENHAM EUROPEAN GOVERNMENT BOND FUND
YIELD CALCULATION
JUNE 30, 1996
[ ( A-B ) 6 ]
Formula: Yield = 2[ (------- + 1) - 1 ]
[ ( C*D ) ]
A = Investment income earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = The per share price on the last day of the period.
Calculation:
A = $1,233,055.72
B = $153,669.85
C = 20,519,282.610
D = $11.37
Yield = 5.62%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BENHAM EUROPEAN GVT BOND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 226,546,705
<INVESTMENTS-AT-VALUE> 227,037,014
<RECEIVABLES> 8,347,451
<ASSETS-OTHER> 3,086,355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238,470,820
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,656,013
<TOTAL-LIABILITIES> 1,656,013
<SENIOR-EQUITY> 208,370,570
<PAID-IN-CAPITAL-COMMON> 27,087,775
<SHARES-COMMON-STOCK> 20,837,057
<SHARES-COMMON-PRIOR> 21,105,444
<ACCUMULATED-NII-CURRENT> (183,777)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 820,953
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 719,286
<NET-ASSETS> 236,814,807
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,906,644
<OTHER-INCOME> 0
<EXPENSES-NET> 1,030,722
<NET-INVESTMENT-INCOME> 6,875,922
<REALIZED-GAINS-CURRENT> 3,108,150
<APPREC-INCREASE-CURRENT> (14,486,927)
<NET-CHANGE-FROM-OPS> (4,502,855)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,388,739
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,225,745
<NUMBER-OF-SHARES-REDEEMED> 8,157,398
<SHARES-REINVESTED> 663,266
<NET-CHANGE-IN-ASSETS> (15,432,248)
<ACCUMULATED-NII-PRIOR> (3,997,106)
<ACCUMULATED-GAINS-PRIOR> 6,400,979
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 539,207
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,033,457
<AVERAGE-NET-ASSETS> 236,946,953
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> (0.51)
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.37
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
