BENHAM MANAGER FUNDS
485BPOS, 1996-01-29
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                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933              _X__
                                                                     
         File No. 33-82264:

         Pre-Effective Amendment No.____                             ____

         Post-Effective Amendment No._3__                            _X__

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      _X__
                                                                     

         File No. 811-8668:

         Amendment No._5__


         BENHAM MANAGER FUNDS
         (Exact Name of Registrant as Specified in Charter)

         1665 Charleston Road, Mountain View, CA  94043
         (Address of Principal Executive Offices)

         Registrant's Telephone Number, including Area Code:  415-965-8300

         Douglas A. Paul
         1665 Charleston Road, Mountain View, CA  94043
         (Name and Address of Agent for Service)

Approximate Date of Initial Public Offering:  12/1/94

It is proposed that this filing will become effective:

         __X_ immediately upon filing pursuant to paragraph (b) of Rule 485 
         ____ 60 days after filing pursuant to paragraph (a)(1) 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 

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 January 17, 1996, Registrant filed its Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended November 30,
1995.
<PAGE>
                              BENHAM MANAGER FUNDS
                           BENHAM CAPITAL MANAGER FUND

                              CROSS-REFERENCE SHEET
                     1933 Act Post-Effective Amendment No. 3
                            1940 Act Amendment No. 5

PART A: PROSPECTUS

Item              Prospectus Caption

1                 Cover Page

2    (a)          Summary of Fund Expenses
     (b), (c)     Not Applicable

3    (a), (b)     Not Applicable
     (c)          Performance
     (d)          Not Applicable

4    (a)(i)       Cover Page, About Benham Manager Funds
     (a)(ii)-(c)  Investment Objectives, Other Investment Policies and
                  Techniques

5    (a)          About Benham Manager Funds
     (b)-(f)      The Benham Group, Advisory and Service Fees
     (g)          Not Applicable

5A                Not Applicable

6    (a)          About Benham Manager Funds, How to Redeem Your Investment
     (b)-(d)      Not Applicable
     (e)          How to Invest
     (f), (g)     Distributions and Taxes

7    (a)          Distribution of Shares
     (b)          Share Price
     (c)          Not Applicable
     (d)          How to Buy Shares, About Benham-Sponsored Retirement Plans
     (e), (f)     Not Applicable

8    (a)          How to Redeem Your Investment, How to Redeem Shares, About 
                  Benham-Sponsored Retirement Plans
     (b)          Broker-Dealer Transactions
     (c), (d)     How to Redeem Your Investment, About Benham-Sponsored 
                  Retirement Plans

9                 Not Applicable


<PAGE>


                              CROSS-REFERENCE SHEET
                                   (continued)

PART B: STATEMENT OF ADDITIONAL INFORMATION

Item              Statement of Additional Information Caption

10                Cover Page

11                Table of Contents

12                Not Applicable

13   (a)          Investment Policies and Techniques
     (b)          Investment Restrictions
     (c)          Investment Policies and Techniques, Investment Restrictions
     (d)          Not Applicable

14   (a)-(b)      Trustees and Officers
     (c)          Not Applicable

15   (a)-(b)      Not Applicable
     (c)          Trustees and Officers

16   (a), (b)     Investment Advisory Services
     (c), (d)     Administrative and Transfer Agent Services
     (e)-(g)      Not Applicable
     (h)          About Benham Manager Funds
     (i)          Administrative and Transfer Agent Services

17   (a)          Portfolio Transactions
     (b)          Not Applicable
     (c)          Portfolio Transactions
     (d), (e)     Not Applicable

18   (a)          About Benham Manager Funds
     (b)          Not Applicable

19   (a)          Additional Purchase and Redemption Information
     (b)          Valuation of Portfolio Securities
     (c)          Not Applicable

20                Taxes

21   (a)          Additional Purchase and Redemption Information
     (b), (c)     Not Applicable

22                Performance


<PAGE>


                                     BENHAM
                                 CAPITAL MANAGER
                                      FUND



                        A Series of Benham Manager Funds

   
                          Prospectus * January 29, 1996
    


                       [picture of pie slices representing
                            investments in the fund]




                        [company logo] The Benham Group
   
                        Part of the Twentieth Century Family of Mutual Funds
    

<PAGE>

- -------------------
[information in left margin of page] 
THE BENHAM GROUP 
1665 Charleston Road
Mountain View, California 94043

FUND INFORMATION
1-800-331-8331
1-415-965-4274

   
INVESTOR SERVICES
    
1-800-321-8321
1-415-965-4222

TDD SERVICE
1-800-624-6338
1-415-965-4764

BENHAM GROUP REPRESENTATIVES ARE AVAILABLE BY TELEPHONE WEEKDAYS FROM 5 A.M. TO
5 P.M. PACIFIC TIME.
- -------------------

BENHAM CAPITAL MANAGER FUND

A Series of Benham Manager Funds
   
Prospectus  *  January 29, 1996
    

BENHAM CAPITAL MANAGER FUND (Fund) seeks to maximize total return (capital
appreciation plus dividend income) consistent with prudent investment risk. The
Fund seeks to achieve these objectives by allocating its assets among (i) U.S.
equity securities, (ii) U.S. fixed-income securities, (iii) money market
instruments, (iv) foreign equity and fixed-income securities, and (v) securities
of companies with substantial gold-related assets and natural resources linked
investments. The Fund is a diversified series of Benham Manager Funds, a
no-load, open-end management investment company.
   
Please read this prospectus carefully and retain it for future reference. It is
designed to help you decide whether the Fund's goals match your own. A Statement
of Additional Information (also dated January 29, 1996) has been filed with the
Securities and Exchange Commission (SEC) and is incorporated herein by
reference. For a free copy, call or write The Benham Group.
    
Mutual fund shares are not insured by the FDIC, the Federal Reserve Board, or
any other agency. The value of the investment and its returns will fluctuate and
is not guaranteed.

AS WITH ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.



2
<PAGE>

SUMMARY OF FUND EXPENSES
   
The tables below illustrate the fees and expenses an investor in the Fund would
incur directly or indirectly. The figures shown are based on the Fund's
anticipated expenses, adjusted to reflect the expense limitation agreement in
effect as of January 29, 1996.
    
================================================================================
A. SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------

Sales load imposed on purchases.........................  None
Sales load imposed on reinvested dividends..............  None
Deferred sales load.....................................  None
Exchange fee............................................  None

================================================================================
B. ANNUAL FUND OPERATING EXPENSES
As a Percentage of Average Daily Net Assets
- --------------------------------------------------------------------------------

Investment advisory fee
      (net of expense limitation).......................  .07%*
12b-1 fee...............................................  None
Other expenses..........................................  .94% 
Total Fund operating expenses
      (net of expense limitation)....................... 1.01%*

   
* Benham Management Corporation (BMC) has agreed to continue to limit the Fund's
total operating expenses as a percentage of its average daily net assets through
May 31, 1996. The operation of this expense limitation effectively requires that
total expenses paid by the Funds not exceed 1.00%. Amounts which are actually
paid by unaffiliated third parties do not apply to this expense limit. The
agreement provides that BMC may recover amounts absorbed on behalf of the Fund
during the preceding 11 months if, and to the extent that, for any given month,
Fund expenses were less than the expense limit in effect at that time. The
expense limitation is subject to annual renewal in June. If the expense
limitation were not in effect, the Fund's advisory fee, other expenses, and
total operating expenses would have been .65%, .94% and 1.59%, respectively.

The Fund pays BMC investment advisory fees equal to an annualized percentage of
the Fund's average daily net assets . Other expenses include administrative and
transfer agent fees paid to Benham Financial Services, Inc. (BFS).
    

- -------------------
[information in right margin of page]
   
Please read this Prospectus carefully and retain it for future reference.  It is
designed to help you decide if the Fund's goals match your own.
    
- -------------------

                                                                               3
<PAGE>

================================================================================
C. EXAMPLE OF EXPENSES
- --------------------------------------------------------------------------------
   
The following table illustrates the expenses a shareholder would pay on a $1,000
investment in the Fund over periods of one, three, five, and ten years based on
expenses shown in Table B and assume (i) a 5% annual return and (ii) full
redemption at the end of each time period.

  ONE YEAR       THREE YEARS      FIVE YEARS       TEN YEARS
     $10             $32              $56            $124
    

We include this table to help you understand the various costs and expenses that
you, as a shareholder, will bear directly or indirectly. THIS EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE; ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN, AND THE FUND MAY NOT REALIZE
THE 5% HYPOTHETICAL RATE OF RETURN REQUIRED BY THE SEC FOR THIS EXAMPLE.

FINANCIAL HIGHLIGHTS

   
The information presented on the following pages has been audited by KPMG Peat
Marwick LLP, independent auditors. Their unqualifed report on the financial
statements and financial highlights is included in the Fund's Annual Report,
which is incorporated by reference in the Fund's Statement of Additional
Information.
    


4
<PAGE>
   
================================================================================
BENHAM CAPITAL MANAGER FUND
Year ended November 30, 1995
- --------------------------------------------------------------------------------

PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING OF PERIOD.........................  $10.00

Income From Investment Operations

Net Investment Income..........................................    0.36

Net Realized and Unrealized Gains on Investments
and Foreign Currency Contracts and Transactions................    1.62
                                                                  -----
Total Income From Investment Operations........................    1.98
                                                                  -----
Less Distributions

Dividends from Net Investment Income...........................   (0.28)

Distributions from Net Realized Gains on Investments
and Foreign Currency Contracts and Transactions................    0.00
                                                                  -----
Total Distributions............................................   (0.28)
                                                                  -----
NET ASSET VALUE AT END OF PERIOD...............................  $11.70
                                                                  =====
TOTAL RETURN*..................................................   20.12%
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands of dollars).......... $51,157
Ratio of Expenses to Average Daily Net Assets..................    1.01%**
Ratio of Net Investment Income to Average Daily Net Assets.....    3.70%
Portfolio Turnover Rate........................................     100%
Average Commission Paid per share traded.......................  $0.024

- -------------------
* Total return figures assume reinvestment of dividends and capital gain
  distributions.

**The ratios include expenses paid through expense offset arrangements.
    

                                                                               5
<PAGE>

INVESTMENT OBJECTIVE

   
The Fund's investment objective is to seek to maximize total return (capital
appreciation plus dividend income) consistent with prudent investment risk. The
Fund seeks to achieve these objectives by allocating its assets among (i) U.S.
equity securities, (ii) U.S. fixed-income securities, (iii) money market
instruments, (iv) foreign equity and fixed-income securities, and (v) securities
of companies with substantial gold-related assets and natural resources linked
investments.

The Fund's investment objective is fundamental and may not be changed without
shareholder approval. Unless otherwise noted, all other investment policies are
nonfundamental and may be changed by the board of trustees. There is no
guarantee that the Fund will achieve its investment objective.
    

MANAGEMENT APPROACH

The Fund has a neutral mix that represents the way the Fund's investments will
be generally allocated over the long term. Working from the neutral mix, BMC may
gradually adjust the Fund's investments within their operating ranges to reflect
either growth-oriented or defensive strategies. The Fund's neutral mix and
operating range for each asset class are illustrated below.

ASSET CLASS                                  NEUTRAL MIX        OPERATING RANGE
- --------------------------------------------------------------------------------
U.S. Equity Securities (Stocks)                  35%                25-45%
- --------------------------------------------------------------------------------
U.S. Fixed-Income Securities (Bonds)             35%                25-45%
- --------------------------------------------------------------------------------
Money Market Securities
(Short-Term Instruments)                         15%                10-25%
- --------------------------------------------------------------------------------
Foreign Equity and Fixed-
Income Securities (International)                12%                 5-25%
- --------------------------------------------------------------------------------
Gold Companies and
Natural Resources Linked
Investments (Specialty)                           3%                 0-10%
- --------------------------------------------------------------------------------

Under extreme market conditions, the Fund may adopt broader ranges for its asset
classes as follows: 20-70% in stocks, 20-70% in bonds, 10-40% in short-term
instruments, 0-40% in international securities, and 0-10% in specialty
securities.


6
<PAGE>

This "flexible" investment approach allows the Fund to take advantage of
performance opportunities as they occur. Fund performance may be affected by a
variety of factors, such as interest rate changes, market conditions, economic
events, and BMC's skill in allocating assets.

The composition of the asset classes in the neutral mix is designed to create a
diversified portfolio emphasizing total return. The Fund's diversification
reduces the potential risks of any one asset class. No single mutual fund,
however, can provide an appropriate balanced investment plan for all investors.

The essence of the Fund's diversification strategy is to produce competitive
returns and limit volatility by owning assets that have historically responded
differently under similar market conditions. As opportunities arise or market
conditions warrant, BMC may alter the Fund's investment mix and particular
securities within each asset class. BMC makes investment decisions for the Fund
in a two-tiered process by: (i) determining how the Fund's assets should be
distributed among asset classes and (ii) deciding which securities should be
purchased within each asset class.

BMC begins the decision making process by using a quantitative asset allocation
model and a market scenario analysis to determine how the Fund's investments
should be distributed among its five asset classes, without regard to specific
securities. This analysis includes consideration of the relative opportunity for
capital appreciation of stocks and bonds, dividend yields, and the level of
interest rates paid on debt securities of various maturities.

In determining the allocation of assets among U.S. and foreign capital markets,
BMC also utilizes several analytical techniques, including historical analyses
and projections for economies and markets worldwide.

In selecting securities denominated in foreign currencies, BMC will consider,
among other factors, the impact of foreign exchange rates relative to the U.S.
dollar value of such securities. BMC may use forward exchange currency contracts
or other hedging techniques to seek to minimize foreign exchange rate risks. See
Currency Risk on page 13.

- -------------------
[information in right margin of page]
The essence of the Fund's diversification strategy is to produce competitive
returns and limit volatility by owning assets that respond differently under
similar market conditions.

Our portfolio manager draws on the experience and skills of the entire Benham
portfolio management team.
- -------------------

                                                                               7
<PAGE>

Periodically, or under extraordinary circumstances, the Fund's manager
recommends an asset allocation strategy to a committee of senior BMC officers
and portfolio managers. Subsequently, the Fund's manager works with the Benham
portfolio management team within their respective areas of expertise to
implement changes to the asset allocation and portfolio holdings.


INVESTMENT CATEGORIES

The types of securities the Fund may buy within each asset class and their
strategic use in pursuing the Fund's objective are illustrated in the table
below and are described more fully on the following pages. Risks related to each
asset class and specific types of investments are discussed under "RISK FACTORS"
on page 11. See the Statement of Additional Information for a more detailed
discussion of the Fund's investment techniques.

================================================================================
ASSET CLASS   TYPE OF SECURITY                              STRATEGIC USE
- --------------------------------------------------------------------------------

Stocks        Large, medium, and small capitalization       Growth; Growth
              stocks traded on U.S. exchanges.              and Income
- --------------------------------------------------------------------------------

Bonds         Investment grade corporate and                Income
              U.S. government debt obligations.
- --------------------------------------------------------------------------------

Short-Term    High-grade, short-term government             Preservation of
              and corporate debt instruments.               Capital; Income;
              No derivatives.                               Liquidity
- --------------------------------------------------------------------------------

Int'l         Stocks: Primarily EAFE Index countries        Growth; Currency
              (Europe, Australia, and the Far East).        Hedge; International
              Bonds: Investment-grade corporate             Diversification
              and government debt obligations.
- --------------------------------------------------------------------------------
   
Specialty     Natural resources (including gold) stocks;    Inflation Hedge;
              stocks; commodity-linked or                   Growth
              index-linked notes.
    
- --------------------------------------------------------------------------------

   
U.S. EQUITY SECURITIES. The Fund will generally invest 25-45% of its assets in
common stocks, preferred stocks, convertible securities, and warrants. These
investments may include stocks of large, medium, and small capitalization
companies located in the United States. In selecting both U.S. and foreign
equity securities, BMC considers a variety of factors relating to dividend and
cash flow valuation, earnings growth, and the likelihood that earnings will
exceed analysts' estimates.
    

Convertible securities are bonds, preferred stocks, and other securities that
may be exchanged or converted into shares of the issuer's underlying common
stock at a specific price for a specific time period. The value of 

8
<PAGE>

convertible securities is linked to the price of the underlying stock and is
sensitive to interest rate changes and the credit quality of the issuer.

The Fund may buy convertible securities rated, at the time of investment, within
the top four rating categories (i.e., investment-grade quality) by a nationally
recognized statistical rating organization (rating agency) or, if unrated,
judged by BMC under the supervision of the board of trustees to be of comparable
quality.

U.S. FIXED-INCOME SECURITIES. The Fund will generally invest 25-45% of its
assets in securities issued or guaranteed by the U.S. government and its
agencies or instrumentalities and in debt obligations issued by U.S.
corporations. The Fund may also invest in instruments described under
"Mortgage-Related and Other Asset-Backed Securities" on page 13.

The Fund may buy debt securities rated, at the time of investment,
investment-grade quality by a rating agency or, if unrated, judged by BMC, under
the supervision of the board of trustees, to be of comparable quality. The
maturities of securities included in this portion of the Fund's portfolio will
generally range from 2 to 30 years and may be adjusted depending upon BMC's
perception of market and economic conditions.

   
SHORT-TERM INSTRUMENTS. The Fund will normally invest 10-25% of its assets in
high-quality money market instruments with remaining maturities of 13 months or
less. Such instruments may include obligations of U.S. or foreign governments,
government agencies, and supranational organizations; commercial paper;
short-term corporate debt obligations; and high-quality certificates of deposit
(including non-U.S. dollar deposits).
    

The Fund may also enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers that are deemed to present
minimal credit risk. Credit risk determinations are made by BMC pursuant to
guidelines established by the board of trustees. A repurchase agreement involves
the purchase of a security and a simultaneous agreement to sell the security
back to the seller at a higher price. Delays or losses could result if the other
party to the agreement defaults or becomes bankrupt.

- -------------------
[information in right margin of page]
Because U.S. stocks and bonds tend to move together, the Fund will invest in
money market and international securities to enhance the benefits of
diversification.
- -------------------
                                                                               9
<PAGE>

   
The Fund may invest up to 5% of its total assets in any money market fund
advised by BMC provided that the investment is consistent with the Fund's
investment policies and restrictions. BMC and its affiliates will waive fees
charged to the Fund on amounts invested in such money market funds to avoid
duplication of expense to Fund shareholders. For temporary defensive purposes,
the Fund may invest up to 100% of its assets in short-term instruments.

FOREIGN EQUITY AND FIXED-INCOME SECURITIES. The foreign securities segment may
consist of equity securities of foreign issuers (including common stocks,
preferred stocks, warrants, and securities convertible into common stocks) as
well as debt securities of foreign issuers (including bonds, notes and other
debt securities, and obligations of foreign governments and their political
subdivisions). The Fund's foreign equity securities are generally issued by
developed countries in Europe, Canada, Mexico, Australia, and the Far East.
These countries' stock markets are represented in the Morgan Stanley Capital
International's EAFE Index (EAFE Index).
    

The Fund may buy debt securities deemed by a rating agency, at the time of
investment, to be of investment-grade quality or, if unrated, judged by BMC
under the supervision of the board of trustees to be of comparable quality.

The Fund does not intend to invest more than 5% of its net assets in securities
of issuers located in developing countries. The Fund may also invest in other
investment companies as described under "Investment Companies" on page 15. The
Fund will not invest more than 25% of its total assets in securities of issuers
located in any one foreign country. The maturities of foreign fixed-income
securities included in the Fund's portfolio will range from 2 to 30 years.

The Fund may also invest in sponsored or unsponsored American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), International Depositary Receipts (IDRs), or other similar securities
convertible into securities of foreign issuers.


10
<PAGE>

GOLD COMPANIES AND NATURAL RESOURCES LINKED INVESTMENTS. The Fund will generally
invest 0-10% of its portfolio in stocks of domestic and foreign companies that
are engaged in exploring for, mining, processing, fabricating, or otherwise
dealing in gold and other precious metals (such as silver and platinum) or other
natural resources. Stocks included in this category must be issued by a company
that derives fifty percent or more of its revenue or net profits from one or
more of these activities. This segment may also include structured notes, which
are described on pages 17 and 18.

RISK FACTORS

The Fund is a convenient way to diversify while seeking total return. Risk
exposure to any one asset class is limited by the allocation of the Fund's
assets among various investment categories. The Fund may be appropriate for
investors seeking one-stop diversification across various investment categories,
both in the U.S. and abroad. The Fund works best for long-term investors
prepared to ride out the markets' ups and downs.

The Fund cannot assure that the techniques it uses will be successful.
Diversification among asset classes will not necessarily protect the Fund from
loss; it is possible that several of the Fund's asset classes will experience
losses simultaneously under certain market conditions.

EQUITY SECURITIES are subject to the risks of stock market investing, including
the possibility of sudden or prolonged market declines as well as the risks
associated with individual companies. The Fund may invest in stocks of companies
of large, medium, or small capitalization. Investing in smaller, less seasoned
companies may present greater opportunities for growth but also may involve
greater risks than are customarily associated with more established companies.

FIXED-INCOME SECURITIES are affected primarily by changes in interest rates. The
prices of these securities tend to rise when interest rates fall, and conversely
fall when interest rates rise. Interest rate changes will have a greater effect
on the Fund if it is heavily invested in long-term or zero-coupon bonds.
Fixed-income securities may also be affected by changes in the credit quality of
their issuers.

- -------------------
Risk exposure to any one asset class is limited by the allocation of the Fund's
assets among various investment categories.

A diversified Fund may produce competitive returns with less risk than a Fund 
concentrated in just one or two types of investments.
- -------------------
                                                                              11
<PAGE>

Securities rated in the lowest investment-grade category may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher grade bonds. In the event that an existing holding
is downgraded below investment grade, the Fund will seek to dispose of the
security, but its ability to do so may be limited by its intention to qualify as
a regulated investment company for federal tax purposes.

The Fund may purchase zero-coupon bonds ("zeros"), which are debt obligations
that do not pay interest periodically. Zeros are issued at a substantial
discount from their maturity value, and this discount is amortized over the life
of the security. Because interest on zeros is not distributed on a current basis
but is, in effect, compounded, zeros tend to be subject to greater market risk
than interest-paying securities with similar maturities.

FOREIGN SECURITIES may present unique investment opportunities; however,
overseas investing involves risks not associated with domestic investing.
Foreign securities markets are not always as efficient as those in the U.S. and
are often less liquid and more volatile.

Other risks involved in investing in the securities of foreign issuers include
differences in accounting, auditing and financial reporting standards; generally
higher commission rates on foreign portfolio transactions; political
instability, which could affect U.S. investments in foreign countries; and
potential restrictions on the flow of capital.

The extent of the support of foreign government obligations varies. Some foreign
government obligations are direct obligations of the foreign government. The
payment of principal and interest is unconditionally guaranteed on certain other
foreign government securities. Other foreign government obligations are neither
direct obligations of, nor guaranteed by, a foreign government but involve
government sponsorship in one way or another, such as specific collateralization
or support by the credit of the issuing government agency or instrumentality.
Foreign taxes can also affect the Fund's performance; see "Taxes" on page 32 and
the Statement of Additional Information for further details.


12
<PAGE>

CURRENCY RISK will affect the value of foreign-currency-denominated securities
when foreign exchange rates fluctuate. Currency risks are generally higher in
lesser developed markets. The Fund may, however, engage in foreign currency
transactions to protect its portfolio against fluctuations in currency exchange
rates in relation to the U.S. dollar. Such foreign currency transactions may
include forward foreign currency contracts, currency exchange transactions on a
spot (i.e., cash) basis, put and call options on foreign currencies, and foreign
exchange futures contracts.

GOLD COMPANIES AND NATURAL RESOURCES LINKED INVESTMENTS. When the economy is
threatened by inflation, the Fund may increase its holdings in gold stocks to
benefit from rising commodities prices and offset bond market declines. Based
upon historical experience, during periods of economic or financial instability,
the prices of securities of companies included in this segment reflect the price
volatility of gold and other natural resources. Instability of prices may affect
earnings of such companies and may adversely affect the financial condition of
such companies. In addition, some companies involved in natural resources
businesses may also be subject to the risks generally associated with extraction
of natural resources, such as oil spills, as well as be vulnerable to natural
disasters including, but not limited to, fire, flood, and drought.


OTHER INVESTMENT POLICIES AND TECHNIQUES
   
WHEN-ISSUED SECURITIES AND FORWARD-COMMITMENT AGREEMENTS

When-issued securities and forward-commitment agreements fix a security's price
and yield for future payment and delivery. The market value of a security may
change during this period, or a party to the agreement may fail to pay for the
security. Either of these situations could affect the market value of the Fund's
total assets. The Fund will not commit more than 35% of its total assets to
these agreements.
    
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

The Fund may purchase mortgage pass-through securities, subject to the Fund's
limits on investments in U.S. fixed-income securities. Mortgage pass-through
securities represent interests in "pools" of mortgages in which 

- -------------------
[information in right margin of page]
Gold and natural resources investments typically seek to hedge against 
inflation.
- -------------------

                                                                              13
<PAGE>

payments of both interest and principal on the securities are generally made
monthly. These monthly mortgage payments are in effect "passed through" to the
security holder (minus fees paid to the security's issuer or guarantor). These
securities may be subject to prepayment risk.

The primary issuers of mortgage securities are the Federal National Mortgage
Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the
Government National Mortgage Association (GNMA). Payments of principal and
interest on GNMA securities are guaranteed by GNMA and backed by the full faith
and credit of the U.S. government. Because FNMA and FHLMC have a close
relationship with the U.S. government, even though their securities are not
backed by the full faith and credit of the U.S. government, they are
high-quality securities with minimal credit risks.

The Fund may also invest in collateralized mortgage obligations. See 
"Derivatives" on pages 15 and 16 for details.

BORROWING

The Fund may borrow money only for temporary or emergency purposes. Borrowings
are not expected to exceed 5% of the Fund's total assets.

SECURITIES LENDING

The Fund may lend its portfolio securities to banks and broker-dealers to earn
additional income. Securities loans are subject to guidelines prescribed by the
board of trustees, which are set forth in the Statement of Additional
Information.

This practice could result in a loss or a delay in recovering the Fund's
securities. Loans are limited to 33-1/3% of the Fund's total assets.

ILLIQUID AND RESTRICTED SECURITIES AND PRIVATE PLACEMENTS

The Fund may acquire some securities that are difficult to sell promptly at an
acceptable price (i.e., illiquid). Difficulty in selling securities may result
in losses and extra expenses to the Fund. Consequently, legal restrictions may
apply to the sale of these securities.


14
<PAGE>

The Fund may invest up to 15% of its net assets in illiquid securities,
including restricted securities and private placements.

INVESTMENT COMPANIES

The Fund is seeking an exemptive order from the SEC to permit it to invest a
portion of its assets in Benham European Government Bond Fund (BEGBF), a series
of Benham International Funds, and any future international funds established
and managed by BMC. There is, however, no assurance that the Fund will be able
to receive the necessary exemptive order.

BMC believes that by investing in foreign securities through investment in
Benham International Funds, the Fund may achieve economies of scale resulting in
lower fees paid to managers skilled in international investing; lower custodial,
brokerage, and other transactional costs; and enhanced diversification of the
Fund's assets.

BEGBF'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. To avoid paying duplicative fees, the Fund will not
pay BMC advisory fees for any portion of its assets invested in any fund advised
by BMC.

DERIVATIVES

The Fund may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement that bases, or
"derives," its value from a traditional security, asset, or market index. Some
derivatives such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. 

There are, in fact, many different types of derivatives and many different ways
to use them. There is a range of risks associated with those uses, which are
discussed on the following pages. Some derivatives are used for leverage, which
tends to magnify the effects of an instrument's price changes as market
conditions change. Leveraging involves utilizing small amounts of money to
control significant financial assets and can, in some circumstances, lead to
significant losses. In contrast, the 

                                                                              15
<PAGE>

Fund may use derivatives to enhance return and for hedging, not leveraging,
purposes. A description of the derivatives that the Fund may use and some of
their associated risks follows.

FUTURES AND OPTIONS. In order to manage the Fund's exposure to changes in market
conditions, such as movements in securities prices, interest rates, and domestic
and foreign economies, the Fund may engage in buying and selling futures and
options. As with many investments, futures and options can be highly volatile.
If BMC incorrectly judges market conditions in an attempt to reduce risk or
increase return or if certain markets pose liquidity difficulties, losses may
occur and the Fund's value may be affected. The Fund will not utilize futures
and options for speculative purposes.

FORWARD CURRENCY CONTRACTS. The Fund may enter into forward foreign currency
exchange contracts for hedging purposes to offer limited protection against
uncertainty of future foreign exchange rates or in conjunction with the purchase
of a when-issued security or forward-commitment agreement. The Fund may not
enter into such contracts for speculative purposes. The Fund's use of forward
currency contracts is subject to the Fund's limits on investment in foreign
equity and fixed-income securities.

   
A forward foreign currency exchange contract is an obligation that sets a future
date and price at which to purchase or sell a specific currency. These contracts
may be bought or sold to protect the Fund to a limited extent against the
possible weakening of a particular currency. For example, the Fund could buy a
foreign currency or enter into a foreign currency contract for the currency to
preserve the U.S. dollar price of securities it has or is contracted to
purchase. The Fund might also sell a foreign currency to preserve the "U.S."
dollar amount of dividends, interest or other amounts it expects to receive.
However, forward currency exchange contracts do not eliminate fluctuations in
the underlying prices of the securities. They also tend to limit any potential
gain that might be realized if the value of the hedged currency were to
increase.
    

Successful use of forward contracts depends on BMC's skill in analyzing and
predicting relative currency values. Forward contracts alter the Fund's exposure
to 

16
<PAGE>

currency exchange rate activity and could result in losses to the Fund if
currencies do not perform as BMC anticipates. The Fund may incur significant
costs when converting assets from one currency to another.

WARRANTS are instruments issued by a corporation that give the holder the right
to subscribe to a specific amount of the corporation's capital stock at a set
price for a specified period of time. The Fund may invest up to 5% of its net
assets in warrants, except that this limitation does not apply to warrants
acquired in units or attached to securities.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and principal on a CMO are paid monthly,
quarterly, or semiannually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA.

CMOs are categorized in multiple classes, or "tranches," with each class bearing
a different stated maturity. Monthly payments of principal, including
prepayments, are returned to investors in ascending order of the maturity class
they hold.

Floating-rate CMO tranches ("floaters") pay a variable rate of interest that is
usually tied to the London Interbank Offered Rate (LIBOR). "Super floaters"
(which float a certain percentage above LIBOR) and "inverse floaters" (which
float inversely to LIBOR) are variations on the floater structure with highly
variable cash flows. The yield of any floater is sensitive to the rate of
prepayments as well as to the level of the applicable index. Low levels of the
index will reduce a floater's yield, while an interest rate cap on the floater
will limit the floater's yield when the level of the index is high. Because the
rate of interest paid on an inverse floater often varies inversely with a
multiple of the index, any change in the index may have an exaggerated effect on
the yield of the inverse floater.

STRUCTURED NOTES. The Fund may invest up to 5% of its total assets in structured
notes whose coupons or principal value is linked to the performance of a
particular commodity or index price. Structured notes may have 

                                                                              17
<PAGE>

return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Structured
notes may be more volatile than the underlying instrument itself and present
many of the same risks as investing in futures and options. Structured notes are
also subject to credit risks associated with the issuer of the security. The
Fund's investment in structured notes is subject to the limits of the Fund's
investment in gold companies and natural resources linked investments as well as
to considerations relating to the Fund's tax status.

OTHER INVESTMENT MANAGEMENT TECHNIQUES

BMC may employ other portfolio management techniques on behalf of the Fund. When
required by SEC guidelines, the Fund will set aside cash or appropriate liquid
assets in a segregated account to cover its portfolio obligations including
leveraging resulting from structured notes. See the Statement of Additional
Information for a more detailed discussion of those investments and some of the
risks associated with them.

   
PORTFOLIO TRANSACTIONS
    
BMC will not trade portfolio securities in pursuit of short-term profits for the
Fund. However, when circumstances warrant, securities may be sold without regard
to their remaining maturities. Under normal conditions, the annual portfolio
turnover rate for the Fund's fixed-income investments is expected to be
approximately 250% and approximately 150% for the Fund's equity investments.
These turnover rates may vary from year to year. Higher portfolio turnover rates
increase transaction costs and can increase the incidence of capital gains (or
losses). Short-term capital gains distributed to shareholders are treated as
ordinary income.

PERFORMANCE

   
Mutual fund performance is commonly expressed in terms of historical yield or
total return and may be quoted in advertising and sales literature. Past
performance is no guarantee of future results.
    

YIELD calculations show the rate of income the Fund earns on its investments as
an annual percentage rate. The Fund's yield is calculated according to methods
that are standardized for all stock and bond funds.


18
<PAGE>

TOTAL RETURN represents the Fund's changes over a specified time period,
assuming reinvestment of dividends and capital gains, if any. CUMULATIVE TOTAL
RETURN illustrates the Fund's actual performance over a stated period of time.
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that illustrates
the annually compounded return that would have produced the same cumulative
total return if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in the Fund's performance;
they are not the same as year-by-year results.

Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Fund's annual report
to shareholders. These reports are routinely delivered to the Fund's
shareholders.  For a free copy, call one of the Fund Information numbers on page
20.

SHARE PRICE
   
The price of your shares is the net asset value next determined for the Fund
after receipt of your instruction to purchase, convert or redeem. Net asset
value is determined by calculating the total value of a Fund's assets, deducting
total liabilities and dividing the result by the number of shares outstanding.
Net asset value (NAV) is determined on each day that the New York Stock Exchange
(the "Exchange") is open.

Investments and requests to redeem shares will receive the share price next
determined after receipt by Benham of the investment or redemption request. For
example, investments and requests to redeem shares received by Benham before the
close of business on the Exchange are effective on, and will receive the price
determined, that day as of the close of the Exchange. Investment and redemption
requests received thereafter are effective on, and receive the price determined
as of the close of the Exchange on the next day the Exchange is open.

Investments are considered received only when your check or wired funds are
received by Benham. Wired funds are considered received on the day they are
deposited in Benham's bank account if they are deposited before the close of
business on the Exchange, usually 1:00 p.m. Pacific Time.
    
- -------------------
[information in right margin of page]
Shares may be purchased and redeemed without any sales charge, commission,
redemption fee, 12b-1 fee, or contingent deferred sales load.
- -------------------

                                                                              19
<PAGE>

- -------------------
[information in left margin of page]
Overnight and special delivery mail (e.g., Federal Express, Express Mail, 
Priority Mail) should be sent to our street address: 1665 Charleston Rd. 
Mountain View California 94043.  Failure to do so may result in transaction
delays.
- -------------------
   
Investment and transaction instructions received by Benham on any business day
by mail at its office prior to the close of business on the Exchange, usually
1:00 p.m. Pacific Time, will receive that day's price. Investments and
instructions received after that time will receive the price determined on the
next business day.
    

HOW TO INVEST

To open an account, you must complete and sign an application. If an application
is not enclosed with this Prospectus, you may request one by calling one of the
Fund Information numbers listed below. If you prefer, we will fill out your
application over the telephone and mail it to you for your signature. Separate
forms are required to establish Benham-Sponsored Retirement Plan accounts, as
discussed on pages 30 and 31.

   
Your investment will be credited to your account at the next NAV calculated
after The Benham Group or an authorized subtransfer agent receives and accepts
your order. Payment of redemption proceeds may be delayed until we have your
completed application on file and your investment matures (i.e., clears). See
page 19 for details.

Benham Group Representatives are available at the telephone numbers listed below
weekdays from 5:00 a.m. to 5:00 p.m. Pacific Time. For your protection, Benham
records all telephone conversations with its telephone representatives.

FUND INFORMATION: for information about any Benham fund or other investment
product, call 1-800-331-8331 or 1-415-965-4274.

INVESTOR SERVICES: to open an account, receive a Prospectus or Statement of
Additional Information for a Benham Fund or make transactions in an existing
account, call 1-800-321-8321 or 1-415-965-4222.
    

Benham shareholders may make transactions and obtain prices, yields, and total
return information for all Benham funds with TeleServ, our 24-hour automated
telephone information service. Dial 1-800-321-8321 and press 1.


20
<PAGE>

HOW TO BUY SHARES (Retirement investors, see pages 30 and 31).
================================================================================
METHOD           INSTRUCTIONS
- --------------------------------------------------------------------------------
   
BY CHECK         Minimum initial investment: $1,000
    
                 Minimum additional investment: $100

                 MAKE YOUR INVESTMENT CHECK PAYABLE TO THE BENHAM GROUP. Mail 
                 the check with your completed application to

                 The Benham Group
                 P.O. Box 7730
                 San Francisco, California 94120-9853

                 FOR ADDITIONAL INVESTMENTS, enclose an investment slip
                 preprinted with the account number to which your investment
                 should be credited. If the payee information provided on the
                 check does not agree with the information preprinted on the
                 investment slip, we will follow the instructions preprinted on
                 the slip.

                 If you do not have a preprinted investment slip, send your
                 check with separate written instructions indicating the fund
                 name and the account number. If the payee information provided
                 on the check does not agree with the written instructions, we
                 will follow the written instructions.

                 You may also invest your check in person at a Benham Investor
                 Center. One is located at 1665 Charleston Road in Mountain
                 View, California; the other is located at 2000 South Colorado
                 Boulevard, Suite 1000, in Denver, Colorado.

                 WE WILL NOT ACCEPT CASH INVESTMENTS OR THIRD-PARTY CHECKS. We
                 will, however, accept properly endorsed second-party checks
                 made payable to the investor(s) to whose account the investment
                 is to be credited.

                 We will also accept checks drawn on foreign banks or foreign
                 branches of domestic banks and checks that are not drawn in
                 U.S. dollars (U.S. $100 minimum). The cost of collecting
                 payment on such checks will be passed on to the investor. These
                 costs may be substantial, and settlement may involve
                 considerable delays.

                 Investors will be charged $5 for every investment check
                 returned unpaid.

                                                                              21
<PAGE>

================================================================================
METHOD           INSTRUCTIONS
- --------------------------------------------------------------------------------
BY BANK WIRE     Minimum initial investment: $25,000
                 Minimum additional investment: $100

                 If you wish to open an account by bank wire, please call our
                 Investor Services Department for more information and an
                 account number. Bank wire investments should be addressed as
                 follows:

                 State Street Bank and Trust Company
                 Boston, Massachusetts
                 ABA Routing Number 011000028
                 Beneficiary = Benham Manager Funds: Benham Capital Manager Fund
                 Fund Account Number 0505 885 4
                 FBO [Your Name, Your Benham Fund Account Number]

- --------------------------------------------------------------------------------
   
BY EXCHANGE      Minimum initial investment: $1,000
    
                 Minimum additional investment: $100

                 You may exchange your shares for shares of any other Benham
                 fund registered for sale in your state if you have received the
                 fund's prospectus. Exchanges may be made by telephone (for
                 identically registered accounts only), by written request, or
                 in person. Certain restrictions apply; please see page 24 for
                 details. You may open a new account by exchange, provided that
                 you meet the minimum initial investment requirement.

- --------------------------------------------------------------------------------
AUTOMATIC        Minimum: $25
INVESTMENT       These services are offered with respect to additional 
SERVICES         investments only. See details on page 25.



22
<PAGE>

PROCESSING YOUR PURCHASE

   
Shares will be purchased at the next NAV calculated after your investment is
received and accepted by The Benham Group or an authorized subtransfer agent. An
investment received and accepted before the close of business of the Exchange,
normally 1:00 p.m. Pacific Time, will be included in your account balance the
same day. If the investment is received after the close of business of the
Exchange, usually 1:00 p.m. Pacific Time, it will be credited to your account
the following business day. The Fund reserves the right to refuse any
investment.
    

TELEPHONE TRANSACTIONS

   
Shareholders may order certain transactions (e.g., exchanges, wires, some types
of redemptions) by telephone. This privilege is granted to Benham fund
shareholders automatically; you need not specifically request this service, and
you may not specifically decline it. ONCE YOUR TELEPHONE ORDER HAS BEEN PLACED,
IT MAY NOT BE MODIFIED OR CANCELLED.
    

The Benham Group will not be liable for losses resulting from unauthorized or
fraudulent instructions if it follows procedures designed to verify the caller's
identity. BMC will request personal identification, record telephone calls, and
send confirmation statements for every telephone transaction to the
shareholder's record address. The Fund reserves the right to revise or terminate
telephone transaction privileges at any time.

CONFIRMATION AND QUARTERLY STATEMENTS

   
All transactions are summarized on quarterly account statements. In addition,
for every transaction that you request, a confirmation statement will be mailed
to your record address. Please review these statements carefully. If you believe
we have processed the transaction you requested incorrectly, please notify us as
soon as possible. If you fail to notify us of an error with reasonable
promptness, i.e., within 30 days of the date of your confirmation statement, we
will deem you to have ratified the transaction.
    


                                                                              23
<PAGE>

- -------------------
[information in left margin of page]
The free exchange privilege is a convenient way to buy shares in other Benham
funds if your investment goals change.

Benham Open Orders allow investors to utilize a "buy low, sell high" investment
strategy.
- -------------------
   
ACCOUNT SERVICES
    

EXCHANGE PRIVILEGE

   
You may exchange your shares for shares of equivalent value in any other Benham
fund registered for sale in your state. Such an exchange may generate a taxable
gain or loss. An exchange request will be processed the same day if it is
received before the funds' NAVs are calculated, which is one hour prior to the
close of the Exchange, usually 12:00 p.m. Pacific Time for Benham Target
Maturities Trust; and at the close of the Exchange, usually 1:00 p.m. Pacific
Time for all other Benham funds.
    

The Benham Group discourages trading in response to short-term market
fluctuations. Such activity may encumber BMC's ability to invest the funds'
assets in accordance with their respective investment objectives and policies
and may be disadvantageous to other shareholders. More than six exchanges per
calendar year out of a variable-price fund may be deemed an abuse of the
exchange privilege. For purposes of determining the number of exchanges made,
accounts under common ownership or control will be aggregated.

Each Benham fund reserves the right to modify or revoke the exchange privilege
of any shareholder or to limit or reject any exchange. Although each fund will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.

OPEN ORDER SERVICE

   
The Benham Group's Open Order Service allows you to designate a price at which
to buy or sell shares of a variable-price fund by exchange from or to a money
market fund. To place a "buy" order, you designate a purchase price that is
equal to or lower than the current NAV. To place a "sell" order, designate a
sale price that is equal to or higher than the current NAV. If the designated
price is met within 90 calendar days, we will automatically execute your order
at the NAV calculated that day as of the close of the Exchange. If the
designated price is not met within 90 calendar days, your Open Order to buy or
sell shares automatically expires. If you are buying shares of a variable-price
fund, we will exchange money from your money market account to purchase them. If
you are 
    

24
<PAGE>

   
selling shares of a variable-price fund, we will transfer the proceeds of that
sale to your money market account. If you do not have a money market account, we
will open one for you when we execute your Open Order.

If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so that the distribution does not
inadvertently trigger an Open Order transaction on your behalf. If you close or
reregister the account from which shares are to be redeemed, your Open Order
will be canceled. Because of their time-sensitive nature, Open Order
transactions may only be made by telephone or in person. All orders and
cancellation of orders received by one hour prior to the close of the Exchange,
usually 12:00 p.m. Pacific Time, will be considered to be effective the same
day. All orders and cancellation of orders not received one hour prior to the
close of the Exchange, usually 12:00 p.m. Pacific Time, will be considered
effective the following business day.
    

AUTOMATIC INVESTMENT SERVICES (AIS)

TREASURY DIRECT allows you to deposit interest and principal payments from
Treasury securities directly into a Benham fund account.

PAYROLL DIRECT allows you to deposit any amount of your paycheck directly into a
Benham fund account.

GOVERNMENT DIRECT allows you to deposit your entire U.S. government payment
directly into a Benham fund account.

   
BANK DIRECT allows you to deposit a fixed amount from your bank account directly
into a Benham fund account on the 1st and/or the 15th of each month (or the next
business day).
    

DIRECTED DIVIDENDS allow you to invest all or part of your dividend earnings
from one Benham fund account in one or more other Benham fund accounts. You may
choose to receive a portion of your dividends in cash and to invest the
remainder in another Benham fund account.

   
SYSTEMATIC EXCHANGES allow you to exchange from one Benham fund account to
another Benham fund account on the 1st and/or the 15th of each month (or the
next business day).
    
- -------------------
[information in right margin of page]
Automatic Investment Services enable you to benefit from a dollar-cost averaging
investment strategy.
- -------------------
                                                                              25
<PAGE>

- -------------------
[information in left margin of page]
You may redeem shares without charge.
- -------------------
   
For more information about any of these services, please call our Investor
Services Department at 1-800-321-8321 or 1-415-965-4222.
    

BROKER-DEALER TRANSACTIONS

   
The Benham Group charges no sales commissions, or "loads," of any kind. However,
investors may purchase and sell shares through registered broker-dealers and
other qualified institutions, who may charge fees for their services.

The Benham Group will accept orders for the purchase of shares from such
institutions who agree in writing to pay in full for such shares in immediately
available funds no later than 1:00 p.m. Pacific Time the following business day.
    

TDD SERVICE FOR THE HEARING IMPAIRED

TDD users may contact The Benham Group at 1-800-624-6338 or 1-415-965-4764.
California residents may wish to contact us through the California Relay Service
(CRS) at 1-800-735-2929.

Your transaction requests via CRS will be handled on a recorded line. The Benham
Group cannot accept responsibility for instructions miscommunicated by CRS.

EMERGENCY SERVICES

The Benham Group has established an alternate operations site from which we can
access customer accounts and the mainframe computers used by the Benham funds in
the event of an emergency. Telephone lines and terminals are currently in place.
If our regular service is interrupted, the following numbers will automatically
connect you to this site.

From within the U.S., including Alaska and Hawaii, call 1-800-321-8321.

From all foreign countries, call collect, 1-303-759-9337 or 1-510-820-1409. The
operator will request your Benham fund account number before accepting the call.


HOW TO REDEEM YOUR INVESTMENT

   
When you place an order to redeem shares, your shares will be redeemed at the
next NAV calculated after The Benham Group or an authorized subtransfer agent
has received and accepted your redemption request. The 
    

26
<PAGE>

   
Fund's NAV is normally calculated at the close of business of the Exchange,
usually 1:00 p.m. Pacific Time. See page 24 for details.

Barring extraordinary circumstances prescribed by law, redemption proceeds are
mailed within seven calendar days. However, The Benham Group reserves the right
to withhold the proceeds until the investment has matured (i.e., your method of
payment has cleared); see maturity periods below.
    
- --------------------------------------------------------------------------------
                                       Drawn from a           Maturity Period
   Type of Investment                California Bank?       (in business days)
- --------------------------------------------------------------------------------
   Checks, cashiers' checks,
   and bank money orders                    Yes                   5 days
- --------------------------------------------------------------------------------
   Same as above                            No                    8 days
- --------------------------------------------------------------------------------
   U.S. Treasury checks,
   Traveler's checks,
   U.S. Postal money orders,
   Benham checks, bank wires,
   and AIS Deposits*                        N/A                   1 day

   *Does not include bank direct deposits, which take 8 business days to mature.
- --------------------------------------------------------------------------------

If you hold shares in certificate form, redemption requests must be accompanied
by properly endorsed certificates.

If you want to keep your account open, please maintain a balance of shares worth
at least $1,000. If your account balance falls below $1,000 due to redemption,
your account may be closed, but not without at least 30 days' notice and an
opportunity to increase your account balance to the $1,000 minimum. Your shares
will be redeemed at the NAV calculated on the day your account is closed.
Proceeds will be mailed to the record address.

This policy applies to Benham's Individual Retirement Accounts (IRAs), excluding
SEP-IRAs, except that shareholders will receive at least 120 days' written
notice and an opportunity to increase their account balance before their
accounts are closed. Investors wishing to open a Benham-sponsored retirement
account should see pages 30 and 31 for details.

UNCASHED CHECKS

   
We may reinvest at the Fund's then-current NAV any distribution or redemption
check that remains uncashed for six months. Until we receive instructions to the
contrary, subsequent distributions will be reinvested in the original account.
Uncashed redemption checks may be reinvested in an identically registered
account if the original account is closed.
    


                                                                              27
<PAGE>

HOW TO REDEEM SHARES (Retirement investors, see pages 30 and 31).
================================================================================
METHOD           INSTRUCTIONS
- --------------------------------------------------------------------------------
   
BY TELEPHONE      The Benham Group will accept telephone redemption requests for
                  any amount if the proceeds are to be sent to your
                  predesignated bank account. Redemptions of $25,000 or less
                  payable to the registered account owner(s) may also be ordered
                  by telephone. All other redemption requests must be made in
                  writing. ONCE YOUR TELEPHONE ORDER HAS BEEN PLACED, IT MAY NOT
                  BE MODIFIED OR CANCELLED.
    
- --------------------------------------------------------------------------------
IN WRITING        Send a letter of instruction to
   
                  The Benham Group
                  Investor Services Department
                  1665 Charleston Road
                  Mountain View, California 94043
    
                  Your letter of instruction should specify

                  *  Your name
                  *  Your account number
                  *  The name of the Fund from which you wish to redeem shares 
                  *  The dollar amount or number of shares you wish to redeem

                  For your protection, written redemption requests must be
                  accompanied by SIGNATURE GUARANTEES under the following
                  circumstances 

                  *  Redemption proceeds go to a party other than the registered
                     account owner(s) 
                  *  Redemption proceeds go to an account other than your 
                     predesignated bank account 
                  *  Redemption proceeds go to the registered account owner(s), 
                     but the amount exceeds $25,000

                  If you have instructed The Benham Group to require more than
                  one signature on written redemption requests, each of the
                  required number of signers must have his or her signature
                  guaranteed on the redemption requests. Signature guarantees
                  may be provided by banks, savings and loan associations,
                  savings banks, credit unions, stock brokerage firms, or a
                  Benham Investor Center.


28
<PAGE>

================================================================================
METHOD            INSTRUCTIONS
- --------------------------------------------------------------------------------
IN WRITING        Shareholders must appear in person with identification to
(continued)       obtain a signature guarantee. Notary public certifications are
                  not accepted in lieu of signature guarantees.

                  BFS may require written consent of all account owners prior to
                  acting on the written instructions of any account owner.

- --------------------------------------------------------------------------------
BY BANK WIRE      If you included bank wire information on your account 
                  application or made subsequent arrangements to accommodate
                  bank wire redemptions, you may wire funds to your bank by
                  calling 1-800-321-8321 or 1-415-965-4222. The minimum amount
                  for a bank wire redemption is $1,000. Allow at least two
                  business days for redemption proceeds to be credited to your
                  bank account.

- --------------------------------------------------------------------------------
BY EXCHANGE       See details on page 24.

- --------------------------------------------------------------------------------
AUTOMATIC         DIRECTED PAYMENTS. You may arrange for periodic redemptions
REDEMPTION        from your Benham fund account to your bank account or to
SERVICES          another designated payee.

                  SYSTEMATIC EXCHANGES. You may arrange for periodic exchange 
                  redemptions from one Benham fund account to another Benham 
                  fund account.


                                                                              29
<PAGE>

ABOUT BENHAM-SPONSORED RETIREMENT PLANS

   
Retirement plans offer investors a number of benefits, including the chance to
reduce current taxable income and to take advantage of tax-deferred compounding.
Retirement plan accounts require a special application; please let our Investor
Services Department know if you want to establish this type of account. We
suggest that you consult your tax advisor before establishing a retirement plan
account. The minimum account balance for all Benham Individual Retirement
Accounts (IRAs), excluding SEP-IRAs, is $1,000. If your balance falls below the
$1,000 per fund account (continued on the next page)
    
================================================================================
PLAN TYPE         AVAILABLE TO              MAXIMUM ANNUAL CONTRIBUTION
                                            PER PARTICIPANT
- --------------------------------------------------------------------------------
Contributory      An employed indi-         $2,000 or 100% of compensation
IRA               vidual under age 70 1/2.  (whichever is less).


- --------------------------------------------------------------------------------

Spousal IRA       A nonworking spouse       $2,250 (can be split between
                  (under age 70 1/2) of a   Spousal and Contributory IRAs,
                  wage earner.              provided that no IRA receives
                                            more than a total of $2,000).
- --------------------------------------------------------------------------------

Rollover IRA      An individual with a      None, as long as total amount is
                  distribution from an      eligible.
                  employer's retirement
                  plan or a rollover IRA.
- --------------------------------------------------------------------------------

SEP-IRA           A self-employed indi-     $22,500 or 15% of compensation
                  vidual or a business.     (whichever is less).*


- --------------------------------------------------------------------------------

Money             Same as for SEP-IRA.      $30,000 or 25% of compensation
Purchase Plan                               (whichever is less). Annual
(Keogh)                                     contribution is mandatory.*
- --------------------------------------------------------------------------------

Profit            Same as for SEP-IRA.      $22,500 or 15% of compensation
Sharing Plan                                (whichever is less). Annual
(Keogh)                                     contribution is optional.*
- --------------------------------------------------------------------------------

   
* Self-employed individuals should consult IRS Publication 560 for their annual
contribution limits.
    

30
<PAGE>

(continued from the previous page)
minimum, your account may be closed (see page 27 for details). This distribution
may result in a taxable event and a possible penalty for early withdrawal. The
minimum fund account balance for all other Benham-Sponsored Retirement Plan
accounts is $100. Benham charges no fees for its IRAs but does charge low
maintenance fees for its Keoghs.

   
YOU MUST COMPLETE SPECIFIC FORMS TO TAKE DISTRIBUTIONS (I.E., REDEEM SHARES)
FROM A BENHAM-SPONSORED RETIREMENT PLAN ACCOUNT. PLEASE CALL OUR INVESTOR
SERVICES DEPARTMENT AT 1-800-321-8321 FOR ASSISTANCE.
    
================================================================================
DEADLINE  FOR
OPENING ACCOUNT                             CONTRIBUTION DEADLINES
- --------------------------------------------------------------------------------

You may open an account anytime,            Annual contributions can be made 
but the deadline for establishing           from January 1 through April 15 of 
and funding an IRA for the prior            the following tax year up to the 
tax year is April 15.                       year you turn age 70 1/2.
- --------------------------------------------------------------------------------

Same as for Contributory IRA.               Same as for Contributory IRA.



- --------------------------------------------------------------------------------
   
You may open a Rollover IRA                 Eligible rollover contributions must
anytime.                                    be made within 60 days of receiv-
                                            ing your distribution. There is no
                                            age limit on rollover contributions.
    
- --------------------------------------------------------------------------------


You may open an account anytime,            Must be made by employer's tax
but the deadline for establishing and       filing deadline (including
funding an account for the prior tax        extensions).
year is the employer's tax deadline
(including extensions).
- --------------------------------------------------------------------------------

The end of the employer's plan              Same as for SEP-IRA.
year, usually December 31.

- --------------------------------------------------------------------------------

The end of the employer's plan              Same as for SEP-IRA.
year, usually December 31.

- --------------------------------------------------------------------------------

For all Benham-Sponsored Retirement Plans, you may begin taking distributions at
age 59 1/2. You must begin to take required distributions by April 1 of the year
after you turn age 70 1/2. You may take distributions from your IRA or SEP-IRA
before you reach age 59 1/2; however, a penalty may apply.

                                                                              31
<PAGE>

- -------------------
[information in left margin of page]
Each January, you will be informed of the tax status of dividends and capital
gain distributions for the previous year.
- -------------------

DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

The Fund expects to pay dividends from net investment income quarterly although
it may elect not to do so in any given quarter. The Fund expects to distribute
net capital gains and net foreign currency gains, if any, in December but may
distribute short term capital gains and net foreign currency gains more
frequently. The trustees may modify the Fund's distribution policies at any
time.

   
DISTRIBUTION OPTIONS. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares. (See "Directed
Dividends" on page 25 for further information.) Please indicate your choice on
your account application or contact our Investor Services Department. See page
27 for a description of our policy regarding uncashed distribution checks.
    

TAXES
   
The Fund intends to qualify and elect to be treated annually as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986 (the
"Code"), as amended, by distributing all, or substantially all, of its net
investment income and net realized capital gains to shareholders each year.
    

The Fund's dividends and capital gain distributions are subject to federal
income tax and applicable state and local taxes whether they are received in
cash or reinvested in additional shares. Distributions are generally taxable in
the year they are declared.

Dividends from net investment income (including net short-term capital gains, if
any) are taxable as ordinary income. Distributions of any net capital gains (net
long-term capital gains minus net short-term capital losses) designated by the
Fund as capital gain dividends are taxable as long-term capital gains,
regardless of how long you have held your shares. Ordinary income distributions
made by the Fund to corporate shareholders may qualify for the
dividends-received deduction available to corporations. Shareholders will be
notified each year of the amount, if any, which qualifies for this deduction.


32
<PAGE>

The Fund will send you a tax statement (Form 1099) by January 31 showing the tax
status of distributions you received in the previous year and will file a copy
with the IRS. You may realize a taxable gain or loss when you redeem (sell) or
exchange shares. For most types of accounts, the proceeds from your redemption
transactions will be reported to the IRS annually. However, because the tax
treatment depends on your purchase price and your personal tax position, you
should keep your regular statements to use in determining your taxes.

FOREIGN TAXES. Income received by the Fund from sources within foreign countries
may be subject to withholding and other income or similar taxes imposed by such
countries.

   
BUYING A DIVIDEND. The timing of your investment could have undesirable tax
consequences. If you open a new account or buy more shares for your current
account just before the day a dividend or distribution is reflected in your
Fund's share price, you will receive a portion of your investment back as a
taxable dividend or distribution.

BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
reportable dividends and capital gain distributions payable to shareholders who
have not complied with IRS regulations. These regulations require you to certify
on your account application or on IRS Form W-9 that your social security or
taxpayer identification number (TIN) is correct and that you are not subject to
backup withholding from previous underreporting to the IRS, or that you are
exempt from backup withholding.
    

The Benham Group may refuse to sell shares to investors who have not complied
with the certification requirements described above, either before or at the
time of purchase. Until we receive your certified TIN, we may redeem your Fund
shares at any time.


                                                                              33
<PAGE>

- -------------------
[information in left margin of page]
The Benham Group serves more than 350,000 investors.
- -------------------

MANAGEMENT INFORMATION

ABOUT BENHAM MANAGER FUNDS

   
Benham Manager Funds (the "Trust") is a registered open-end management
investment company that was organized as a Massachusetts business trust on July
12, 1994. Benham Capital Manager Fund is currently the sole series of the Trust.
Additional series may be created from time to time.

A board of trustees oversees the Trust's activities and is responsible for
protecting shareholders' interests. The majority of the trustees are not
otherwise affiliated with Benham. The Trust is neither required nor expected to
hold annual meetings, although special meetings may be called for purposes such
as electing or removing trustees or amending the Fund's advisory agreement or
investment policies. The number of votes you are entitled to is based upon the
dollar value of your investment. Each Fund votes separately on matters that
pertain to it exclusively. Voting rights are not cumulative.
    

THE BENHAM GROUP

   
BMC is investment advisor to the funds in The Benham Group, which currently
constitute more than $12 billion in assets. BMC, incorporated in California in
1971, became a wholly owned subsidiary of Twentieth Century Companies, Inc.
(TCC), a Delaware corporation, on June 1, 1995, upon the merger of Benham
Management International, Inc., BMC's former parent, into TCC. TCC is a holding
company that owns the operating companies that provide the investment
management, transfer agency, shareholder service, and other services for the
Twentieth Century family of funds, which now includes The Benham Group. The
combined company offers 62 mutual funds and, as of January 16, 1996, has
combined assets under management in excess of $44 billion.

BMC supervises and manages the investment portfolios of The Benham Group and
directs the purchase and sale of its investment securities. BMC utilizes teams
of portfolio managers, assistant portfolio managers, and analysts to manage the
assets of the funds. The teams meet regularly to review portfolio holdings and
to discuss purchase and sale activity. The teams adjust 
    

34
<PAGE>
   
holdings in the funds' portfolios deemed appropriate in pursuit of the funds'
investment objectives. Individual portfolio managers may also adjust portfolio
holdings of the funds as necessary between team meetings.

The portfolio manager member of the team managing the Fund described in this
prospectus and his work experience for the last five years is as follows:

JEFFREY TYLER is a Senior Vice President for Benham Management Corporation. He
manages Benham's Fixed-Income Portfolio Department and is Manager of Benham
Capital Manager Fund and Co-Manager of Benham GNMA Income Fund. He is also
responsible for Benham European Government Bond Fund. Before joining Benham in
1987, Mr. Tyler was Assistant Vice President, Citicorp Investment Bank. Mr.
Tyler has a bachelor's degree in Business Economics from the University of
California at Santa Barbara and a Master of Management degree in Finance and
Economics from Northwestern University.

BMC has adopted a Code of Ethics (the "Code"), which restricts personal
investing practices. Among other provisions, the Code requires that employees
with access to information about the purchase and sale of securities in the
funds' portfolios obtain preclearance before executing personal trades. With
respect to portfolio managers and other investment personnel, the Code 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 fund shareholders
come before the interests of the people who manage the funds.

ADVISORY AND SERVICE FEES

For investment advice and portfolio management services, the Fund pays BMC a
monthly investment advisory fee equal to its pro rata share of the dollar amount
derived from applying the Trust's average daily net assets to an investment
advisory fee rate schedule.

The investment advisory fee rate cannot exceed .65% of average daily net assets,
and it drops to a marginal rate of .27% of average daily net assets as Fund
assets increase.
    
- -------------------
[information in right margin of page]
Benham Management Corporation provides investment advice and portfolio 
management services to the Fund.
- -------------------

                                                                              35
<PAGE>

- -------------------
[information in left margin of page]
Benham Financial Services, Inc. provides administrative and transfer agent
services to the Fund.
- -------------------

To avoid duplicative investment advisory fees, the Funds do not pay BMC
investment advisory fees with respect to assets invested in shares of other
funds advised by BMC.

   
BFS, a wholly owned subsidiary of TCC, is the Trust's agent for transfer and
administrative services. For administrative services, the Fund pays BFS a
monthly fee equal to its pro rata share of the dollar amount derived from
applying the average daily net assets of all of the funds in The Benham Group to
an administrative fee schedule. The administrative fee rate ranges from .11% to
 .08% of average daily net assets, dropping as Benham Group assets increase. For
transfer agent services, the Fund pays BFS a monthly fee for each shareholder
account maintained and for each shareholder transaction executed during that
month.
    

The Fund pays certain operating expenses directly, including, but not limited
to, custodian, audit, and legal fees; fees of the independent trustees; costs of
printing and mailing prospectuses, statements of additional information, proxy
statements, notices, and reports to shareholders; insurance expenses; and costs
of registering shares for sale under federal and state securities laws. See the
Statement of Additional Information for a more detailed discussion of
independent trustee compensation.


36
<PAGE>

EXPENSE LIMITATION AGREEMENT

An expense limitation agreement between BMC and the Fund is described on page 3.

The Fund's total operating expenses for the fiscal year ended November 30, 1995,
are 1.01%, as a percentage of the Funds average daily net assets and as a dollar
amount per $1,000 of the Fund's average daily net assets.

   
TOTAL OPERATING EXPENSES

Benham Capital Manager Fund               1.01%      $10.10

In compliance with rules promulgated by the SEC, the total operating expenses
include amounts paid by third parties under expense offset arrangements with the
Fund.
    

DISTRIBUTION OF SHARES

Benham Distributors, Inc. (BDI) and BMC distribute and market Benham products
and services. BMC pays all expenses for promoting sales of and distributing the
Fund's shares. The Fund does not pay commissions to, or receive compensation
from, broker-dealers. 

   
BDI is a wholly owned subsidiary of TCC.
    


                                                                              37
<PAGE>

INVESTMENT ADVISOR

BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043

DISTRIBUTOR

BENHAM DISTRIBUTORS, INC.
1665 Charleston Road
Mountain View, California 94043

CUSTODIAN

STATE STREET BANK AND TRUST COMPANY 
225 Franklin Street 
Boston, Massachusetts 02101

TRANSFER AGENT

BENHAM FINANCIAL SERVICES, INC.
1665 Charleston Road
Mountain View, California 94043

   
INDEPENDENT AUDITORS
    
KPMG PEAT MARWICK LLP
3 Embarcadero Center
San Francisco, California 94111

TRUSTEES

   
James M. Benham
Albert A. Eisenstat
Ronald J. Gilson
Myron S. Scholes
Kenneth E. Scott
Ezra Solomon
Isaac Stein
James E. Stowers III
Jeanne D. Wohlers
    

38
<PAGE>


THE BENHAM GROUP OF INVESTMENT COMPANIES

Capital Preservation Fund
Capital Preservation Fund II
Benham Government Agency Fund
Benham Prime Money Market Fund
Benham Short-Term Treasury and Agency Fund 
Benham Treasury Note Fund 
Benham Long-Term Treasury and Agency Fund 
Benham Adjustable Rate Government Securities Fund 
Benham GNMA Income Fund 
Benham Target Maturities Trust 
Benham California Tax-Free and Municipal Funds* 
Benham National Tax-Free Money Market Fund 
Benham National Tax-Free Intermediate-Term Fund 
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund** 
Benham Florida Municipal Intermediate-Term Fund** 
Benham Arizona Municipal Intermediate-Term Fund***
Benham Gold Equities Index Fund 
Benham Income & Growth Fund 
Benham Equity Growth Fund 
Benham Utilities Income Fund 
Benham Global Natural Resources Index Fund
Benham European Government Bond Fund 
Benham Capital Manager Fund

*  Available only to residents of California, Arizona, Colorado, Hawaii, Nevada,
   New Mexico, Oregon, Texas, Utah, and Washington.

** Available only to residents of Florida, California, Georgia, Illinois, 
   Michigan, New Jersey, New York, and Pennsylvania.

***Available only to residents of Arizona, California, Colorado, Nevada, Oregon,
   Washington, and Texas.


                                                                              39
<PAGE>

                 CONTENTS

   
                 Summary of Fund Expenses ...............    3
                 Financial Highlights ...................    4
                 Investment Objective ...................    6
                 Investment Categories ..................    8
                 Risk Factors ...........................   11
                 Other Investment Policies and Techniques   13
                 Portfolio Transactions .................   18
                 Performance ............................   18
                 Share Price ............................   19
                 How to Invest ..........................   20
                 Account Services .......................   24
                    Exchange Privilege ..................   24
                    Open Order Service ..................   24
                    Automatic Investment Services .......   25
                    Broker-Dealer Transactions ..........   26
                    TDD Service .........................   26
                    Emergency Services ..................   26
                 How to Redeem Your Investment ..........   26
                 About Benham-Sponsored Retirement Plans    30
                 Distributions and Taxes ................   32
                 Management Information .................   34
                    About Benham Manager Funds ..........   34
                    The Benham Group ....................   34
                    Advisory and Service Fees ...........   35
                    Expense Limitation Agreement ........   37
                    Distribution of Shares ..............   37
    

<PAGE>
                           BENHAM CAPITAL MANAGER FUND

                        A SERIES OF BENHAM MANAGER FUNDS

                               THE BENHAM GROUP(R)
                              1665 Charleston Road
                             Mountain View, CA 94043

   
               Investor Services: 1-800-321-8321 or 1-415-965-4222
    

               Fund Information: 1-800-331-8331 or 1-415-965-4274


                       STATEMENT OF ADDITIONAL INFORMATION

   
                                JANUARY 29, 1996


     This Statement is not a Prospectus, but should be read in conjunction with
     the Fund's current Prospectus dated January 29, 1996. The Fund's Annual
     Report for the fiscal year ended November 30, 1995, is incorporated herein
     by reference. To obtain a copy of the Prospectus or Annual Report, call or
     write The Benham Group.
    

                                TABLE OF CONTENTS

                                                              Page
                                                              ----
   
              Investment Policies and Techniques ...........    2
              Investment Restrictions ......................   15
              Portfolio Transactions .......................   17
              Valuation of Portfolio Securities ............   17
              Performance ..................................   18
              Taxes ........................................   20
              About Benham Manager Funds ...................   22
              Trustees and Officers ........................   23
              Investment Advisory Services .................   25
              Administrative and Transfer Agent Services ...   26
              Direct Fund Expenses .........................   26
              Expense Limitation Agreement .................   27
              Additional Purchase and Redemption Information   27
              Other Information ............................   28
    


                                       1

<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the board of trustees.

U.S. GOVERNMENT SECURITIES

   
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, 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 (or "Repo"), the Fund buys a security at one price and
simultaneously agrees to resell it 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. Delays 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) who 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 subcustodian;

(5)   Investing no more than 15% of the Fund's net assets in repurchase
      agreements that mature in more than seven days (together with any other
      illiquid security the Fund holds); and

                                       2
<PAGE>

(6)   Taking delivery of all securities subject to repurchase agreement and
      holding them in an account at the Fund's custodian bank.

The Fund has received permission from the Securities and Exchange Commission
("SEC") to participate in pooled repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by the Fund's 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. While the Fund will make commitments to purchase or sell
securities on a when-issued or forward-commitment basis with the intention of
actually receiving or delivering them, it may nevertheless sell the securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.

In purchasing securities on a when-issued or forward-commitment basis, the Fund
will establish and maintain until the settlement date a segregated account
consisting of cash, U.S. government securities, and other liquid high-quality
debt 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 taxable gains or losses.

   
These types of transactions are executed simultaneously in what are known as
"dollar-roll" or "cash-and-carry" transactions. For example, a broker-dealer may
seek to purchase a particular security that the Fund owns. The Fund will sell
that security to the broker-dealer and simultaneously enter into a
forward-commitment agreement to buy it back at a future date. This type of
transaction generates income for the Fund if the dealer is willing to execute
the transaction at a favorable price in order to acquire a specific security.
    

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, BMC need not sell
such commitment, 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.

MORTGAGE-BACKED SECURITIES

GENERAL. A mortgage-backed security represents an ownership interest in a pool
of mortgage loans. The loans are made by financial institutions to finance home
and other real estate purchases. As the loans are repaid, investors receive
payments of both interest and principal.


                                       3
<PAGE>

Like fixed-income securities, such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest over the life of the security. However,
unlike a bond, which returns principal to the investor in one lump sum at
maturity, mortgage-backed securities return principal to the investor in
increments over the life of the security.

Because the timing and speed of principal repayments vary, the cash flow on
mortgage securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages, or default on their loans, the
principal is distributed pro rata to investors.

As with other fixed-income securities, the prices of mortgage securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage securities rise, and vice versa. Changing interest rates have
additional significance for mortgage-backed securities investors, however,
because they influence prepayment rates (the rates at which mortgage holders
prepay their mortgages), which in turn affect the yields on mortgage-backed
securities. When interest rates decline, prepayment rates generally increase.
Mortgage holders take advantage of the opportunity to refinance their mortgages
at lower rates with lower monthly payments. When interest rates rise, mortgage
holders are less inclined to refinance their mortgages. The effect of prepayment
activity on yield depends on whether the mortgage-backed security was purchased
at a premium or at a discount.

The Fund may get back principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the Fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, the Fund might miss an opportunity to earn interest at higher
prevailing rates.

GINNIE MAE CERTIFICATES. The Government National Mortgage Association ("GNMA" or
"Ginnie Mae") is a wholly owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. The National Housing Act
of 1934 ("Housing Act"), as amended, authorizes Ginnie Mae to guarantee the
timely payment of interest and repayment of principal on certificates that are
backed by a pool of mortgage loans insured by the Federal Housing Administration
under the Housing Act, or by Title V of the Housing Act of 1949 (FHA Loans), or
guaranteed by the Veterans' Administration under the Servicemen's Readjustment
Act of 1944 (VA Loans), as amended, or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit of the U.S.
government is pledged to the payment of all amounts that may be required to be
paid under any guarantee. Ginnie Mae has unlimited authority to borrow from the
U.S. Treasury in order to meet its obligations under this guarantee.

Ginnie Mae certificates represent a pro rata interest in one or more pools of
the following types of mortgage loans: (i) fixed-rate level payment mortgage
loans; (ii) fixed-rate graduated payment mortgage loans ("GPM"s); (iii)
fixed-rate growing equity mortgage loans ("GEM"s); (iv) fixed-rate mortgage
loans secured by manufactured (mobile) homes ("MH"s); (v) mortgage loans on
multifamily residential properties under construction ("CLC"s); (vi) mortgage
loans on completed multifamily projects ("PLC"s); (vii) fixed-rate mortgage
loans that use escrowed funds to reduce the borrower's monthly payments during
the early years of the mortgage loans (buydown mortgage loans); and (viii)
mortgage loans that provide for payment adjustments based on periodic changes in
interest rates or in other payment terms of the mortgage loans.


                                       4
<PAGE>

FANNIE MAE CERTIFICATES. The Federal National Mortgage Association ("FNMA" or
"Fannie Mae") is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act. Fannie
Mae was originally established in 1938 as a U.S. government agency to provide
supplemental liquidity to the mortgage market and was reorganized as a
stockholder-owned and privately managed corporation by legislation enacted in
1968. Fannie Mae acquires capital from investors who would not ordinarily invest
in mortgage loans directly and thereby expands the total amount of funds
available for housing. This money is used to buy home mortgage loans from local
lenders, which replenishes the supply of capital for additional mortgage
lending.

Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a governmental agency) of
the following types: (i) fixed-rate level payment mortgage loans; (ii)
fixed-rate growing equity mortgage loans; (iii) fixed-rate graduated-payment
mortgage loans; (iv) adjustable-rate mortgage loans; and (v) fixed-rate mortgage
loans secured by multifamily projects.

Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.

FREDDIE MAC CERTIFICATES. The Federal Home Loan Mortgage Corporation ("FHLMC" or
"Freddie Mac") is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970 ("FHLMC Act"), as amended.
Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit. Its principal activity consists of purchasing
first-lien conventional residential mortgage loans (and participation interest
in such mortgage loans) and reselling these loans in the form of mortgage-backed
securities, primarily Freddie Mac certificates.

Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of ten to thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations constituting another Freddie Mac certificate
group.

Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on any underlying mortgage loan, but no later than 30
days following: (i) foreclosure sale, (ii) payment of a claim by any mortgage
insurer, or (iii) the expiration of any right of redemption, whichever occurs
later, and in any event no later than one year after demand has been made upon
the mortgager for accelerated payment of principal. Obligations guaranteed by
Freddie Mac are not backed by the full faith and credit of the U.S. government.


                                       5
<PAGE>

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMO"S). A CMO is a multiclass bond backed
by a pool of mortgage pass-through certificates or mortgage loans. CMO's may be
collateralized by (i) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (ii) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (iii)
unsecuritized conventional mortgages, or (iv) any combination thereof.

In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called "tranches." Each CMO is a set of two
or more tranches with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven, and twenty
years.

As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off.
This basic type of CMO is known as a "sequential pay" or "plain vanilla" CMO.

Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.

The final tranches of a CMO often take the form of a Z-bond, also known as an
"accrual bond" or "accretion bond." Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal
balance, plus any principal prepayments from the underlying mortgage loans. The
existence of a Z-bond tranche helps stabilize cash flow patterns in the other
tranches. In a changing interest rate environment, however, the value of the
Z-bond tends to be more volatile.

As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class ("PAC") and targeted amortization class ("TAC"), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.

The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche known as a companion bond, support, or
non-PAC bond that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.

Floating-rate CMO tranches ("floaters") pay a variable rate of interest that is
usually tied to the London Interbank Offered Rate ("LIBOR"). Institutional
investors with short-term liabilities, such as commercial banks, often find
floating-rate CMOs attractive investments. "Super floaters" (which float a
certain percentage above LIBOR) and "inverse floaters" (which float inversely to
LIBOR) are variations on the floater structure with highly variable cash flows.

                                       6
<PAGE>

CONVERTIBLE SECURITIES

The Fund may buy securities that are convertible into common stock. Listed below
are brief descriptions of the various types of convertible securities the Fund
may buy.

CONVERTIBLE BONDS are issued with lower coupons than nonconvertible bonds of the
same quality and maturity, but they give holders the option to exchange their
bonds for a specific number of shares of the company's common stock at a
predetermined price. This structure allows the convertible bond holder to
participate in share price movements in the company's common stock. The actual
return on a convertible bond may exceed its stated yield if the company's common
stock appreciates in value, and the option to convert to common shares becomes
more valuable.

CONVERTIBLE PREFERRED STOCKS are nonvoting equity securities that pay a fixed
dividend. These securities have a convertible feature similar to convertible
bonds; however, they do not have a maturity date. Due to their fixed-income
features, convertible issues typically are more sensitive to interest rate
changes than the underlying common stock. In the event of liquidation,
bondholders would have claims on company assets senior to those of stockholders;
preferred stockholders would have claims senior to those of common stockholders.

WARRANTS entitle the holder to buy the issuer's stock at a specific price for a
specific period of time. The price of a warrant tends to be more volatile than,
and does not always track, the price of its underlying stock. Warrants are
issued with expiration dates. Once a warrant expires, it has no value in the
market.

FOREIGN SECURITIES

The Fund's investments in securities of foreign issuers may subject the Fund to
additional investment risks.

Investing in foreign companies may involve risks not typically associated with
investing in U.S. companies. The value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be very volatile.

Many foreign countries lack uniform accounting and disclosure standards
comparable to those that apply to U.S. companies, and it may be more difficult
to obtain reliable information regarding a foreign issuer's financial condition
and operations. In addition, the costs of foreign investing, including
withholding or other taxes, brokerage commissions, and custodial fees, are
generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.

Investing abroad carries political and economic risks distinct from those
associated with investing in the U.S. Foreign investments may be affected by
actions of foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of assets,

                                       7
<PAGE>

confiscatory taxation, restrictions on U.S. investment, or restrictions on the
ability to repatriate assets or to convert currency into U.S. dollars. There may
be a greater possibility of default by foreign governments or
foreign-government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments.

To offset the currency risks associated with investing in securities of foreign
issuers, the Fund may hold foreign currency deposits and may convert dollars and
foreign currencies in the foreign exchange markets. Currency conversion involves
dealer spreads and other costs, although commissions usually are not charged.

   
Currencies may be exchanged on a spot (i.,e., cash) basis or by entering into
forward contracts to purchase or sell foreign currencies at future date and
price. By entering into a forward contract to buy or sell the amount of foreign
currency involved in a security transaction for a fixed amount of U.S. dollars,
BMC can protect the Fund against losses resulting from adverse changes in the
relationship between the U.S. dollar and the foreign currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received. However, it should be noted that using forward contracts to
protect the Fund's foreign investments from currency fluctuations does not
eliminate fluctuations in the prices of the underlying securities themselves.
Forward contracts simply establish a rate of exchange that can be achieved at
some future point in time. Additionally, although forward contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they also limit any gain that might result if the hedged currency's value were
to increase.

Foreign exchange dealers do not charge fees for currency conversions. Instead,
they realize a profit based on the difference (the spread) between the prices at
which they are buying and selling various currencies. A dealer may offer to sell
a foreign currency at one rate while simultaneously offering a lesser rate of
exchange on the purchase of that currency.
    

DEPOSITARY RECEIPTS

American Depositary Receipts and European Depositary Receipts ("ADR"s and
"EDR"s) are receipts representing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. These are designed for
U.S. and European securities markets as alternatives to purchasing underlying
securities in their corresponding national markets and currencies. ADRs and EDRs
can be sponsored or unsponsored.

Sponsored ADRs and EDRs are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored ADRs and EDRS
are not contractually obligated to disclose material information in the United
States. Therefore, there may not be a correlation between such information and
the market value of the unsponsored ADR or EDR.

RESTRICTED SECURITIES

Restricted securities held by the Fund generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where registration
is required, the Fund may be required to pay all or a part of the registration
expense, and a considerable period may elapse between the time it decides to
seek 

                                       8
<PAGE>

registration of the securities and the time it is permitted to sell them under
an effective registration statement. If, during this period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to try to register the securities initially.

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. The loan must not reduce the risk of loss or opportunity
      for gain in the securities loaned.

(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.
    
If a borrower fails financially, there may be delays in recovering loaned
securities and a loss in the value of collateral. However, loans will only be
made to parties that meet the guidelines prescribed by the board of trustees.


                                       9
<PAGE>

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

BMC may engage in foreign currency exchange transactions on behalf of the Fund
to manage currency risk. Foreign currencies may be purchased and sold regularly,
either in the spot (i.e., cash) market or in the forward market (through forward
foreign currency exchange contracts, or "forward contracts"). Foreign exchange
dealers do not charge fees for currency conversions. Instead, they realize a
profit based on the difference (the spread) between the prices at which they are
buying and selling various currencies. A dealer may offer to sell a foreign
currency at one rate while simultaneously offering a lesser rate of exchange on
the purchase of that currency.

When the Fund agrees to buy or sell a security denominated in a foreign
currency, it may enter into a forward contract to "lock in" the U.S. dollar
price of the security. By entering into a forward contract to buy or sell the
amount of foreign currency involved in the underlying securities transaction for
a fixed amount of U.S. dollars, BMC can protect the Fund against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the foreign currency between the security's purchase or sale date and its
payment date. This type of transaction is sometimes referred to as a "position
hedge."

In addition to position hedges, BMC may engage in "cross-hedging" transactions
on behalf of the Fund. Cross hedging involves entering into a forward contract
to sell one foreign currency and buy another. BMC may employ a cross-hedging
strategy on behalf of the Fund if it 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.

Successful use of forward contracts depends on BMC's skill in analyzing and
predicting currency values. Forward contracts could result in losses to the Fund
if currencies do not perform as anticipated. The advisor uses forward contracts
for currency hedging purposes only. The adviser does not use forward contracts
for speculative purposes. The Fund is not required to enter into forward
contracts with regard to its foreign holdings and will not do so unless it is
deemed appropriate by the advisor.

The Fund's assets are valued daily in U.S. dollars, although foreign currency
holdings are not physically converted into U.S. dollars on a daily basis.

The currency management techniques discussed above are limited by various
constraints, including the intention to protect the U.S. tax status of the Fund
as a regulated investment company.

SHORT SALES AND PUT OPTIONS ON INDIVIDUAL SECURITIES

The Fund may buy puts and enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if BMC anticipates a
decline in the price of the stock underlying a convertible security the Fund
holds, it may purchase a put option on the stock or sell the stock short. If the
stock price subsequently declines, the proceeds of the short sale or an increase
in the value of the put option could be expected to offset all or a portion of
the effect of the stock's decline on the value of the convertible security.

When a Fund enters into a short sale, it will be required to set aside cash or
appropriate liquid assets in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to
continue to hold them while the short sale is outstanding. The 

                                       10
<PAGE>

Fund will incur transaction costs, including interest expenses, in connection
with opening, maintaining, and closing short sales.

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.

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 

                                       11
<PAGE>

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).

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. If the secondary market is not liquid for a put option the
Fund has written, however, 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 were to 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 were to remain the same over time, the writer would likely also
profit by being able to close out the option at a lower price. If security
prices were to 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
other options or in combination with futures or forward contracts in order 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 in order 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 in order to reduce the risk of
the written call option in the event of a substantial price increase. 

                                       12
<PAGE>

Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.

OTC 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 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 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 than the securities in which they typically invest (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 the 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. The Fund may
also purchase and write currency options in conjunction 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.


                                       13
<PAGE>

The uses and risks of currency futures are similar to those of futures and
options relating to securities or indexes, as described above. Currency futures
and options 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 deutsche-mark-denominated security
from a decline in the deutsche mark, but it will not protect the Fund against a
price decline resulting from a deterioration in the issuer's creditworthiness.

LIQUIDITY OF FUTURES CONTRACTS AND OPTIONS. There is no assurance 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 were 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 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 net asset value.


                                       14
<PAGE>

The Fund intends to comply with tax rules applicable to regulated investment
companies, including a requirement that gains from the sale of securities and
certain other assets held less than three months constitute less than 30% of the
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.

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 voting securities"
of the Fund, as defined in the Investment Company Act of 1940.

THE FUND MAY NOT

(1)   Purchase the securities of any issuer (other than securities issued or
      guaranteed by the U.S. government, its agencies or instrumentalities) if,
      as a result, at the time of such investment, (a) more than 5% of its total
      assets would be invested in the securities of that issuer, or (b) the Fund
      would hold more than 10% of the outstanding voting securities of that
      issuer.

(2)   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 will not purchase any security while borrowings
      representing more than 5% of its total assets are outstanding. The Fund
      may borrow money for temporary or emergency purposes from other funds or
      portfolios for which BMC is the investment advisor, or from a joint
      account of such funds or portfolios, as permitted by federal regulatory
      agencies, and provided it has received any necessary exemptive order from
      the Securities and Exchange Commission.

(3)   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.

(4)   Purchase or sell real estate or real estate limited partnerships, 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 readily marketable 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 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.

(5)   Make loans to others, except for the lending of portfolio securities
      pursuant to guidelines established by the board of directors and except as
      otherwise in accordance with the Fund's investment objective and policies.

(6)   Issue senior securities, except as permitted under the Investment Company
      Act of 1940.


                                       15
<PAGE>

(7)   Purchase any security if, as a result, 25% or more of the Fund's total
      assets would be invested in the securities of issuers having their
      principal business activities in the same industry. However, this
      limitation does not apply to securities issued or guaranteed by the U.S.
      government or any of its agencies or instrumentalities.

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)   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 are not deemed
      to constitute short sales of securities.

(b)   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.

(c)   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.

(d)   Invest in securities that are not readily marketable, or that are illiquid
      because they are subject to legal or contractual restrictions on resale
      (collectively, "illiquid securities") if, as a result, more than 15% of
      the Fund's net assets would be invested in illiquid securities.

(e)   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, except in connection with a merger,
      consolidation, acquisition, or reorganization or as otherwise permitted by
      applicable law.

(f)   Invest in securities of an issuer that, together with any predecessor or
      unconditional guarantor, 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, except obligations issued or guaranteed by
      the U.S. government or its agencies.

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.

   
For purposes of the Funds' investment restrictions, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the 
    


                                       16
<PAGE>

   
security is backed only by the assets and revenues of the subdivision, the
subdivision is deemed the sole issuer. Similarly, in the case of an Industrial
Development Bond ("IDB"), if the bond were backed only by the assets and
revenues of a non-governmental user, the non-governmental user would be deemed
the sole issuer. If, in either case, the creating government or some other
entity were to guarantee the security, the guarantee would be considered a
separate security and treated as an issue of the guaranteeing entity.
    

PORTFOLIO TRANSACTIONS

The Fund's assets are invested by BMC in a manner consistent with the Fund's
investment objectives, policies, and restrictions, and with any instructions
from the board of trustees that may be issued from time to time. Within this
framework, BMC is responsible for making all determinations as to the purchase
and sale of portfolio securities and for taking all steps necessary to implement
securities transactions on behalf of the Fund. In placing orders for the
purchase and sale of portfolio securities, BMC will use its best efforts to
obtain the best possible price and execution and will otherwise place orders
with broker-dealers subject to and in accordance with any instructions from the
board of trustees that may be issued from time to time. BMC will select
broker-dealers to execute portfolio transactions on behalf of the Fund solely on
the basis of best price and execution.

The Fund's annual portfolio turnover rate for the fixed-income portion of its
portfolio is not expected to exceed 250%; the equity portion of its portfolio is
not expected to exceed 150%. These turnover rates may vary from year to year.
Because a higher turnover rate increases transaction costs and may increase
taxable gains, the advisor carefully weighs the potential benefits of short-term
investing against these considerations.

VALUATION OF PORTFOLIO SECURITIES

   
The Fund's net asset value per share ("NAV") is normally calculated by Benham
Financial Services, Inc. (BFS) at the close of business of the New York Stock
Exchange (the "Exchange"), usually 1:00 p.m. The Exchange designated the
following holiday closings for 1996: New Year's Day (observed), Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day
(observed). Although BFS expects the same holiday schedule to be observed in the
future, the Exchange may modify its holiday schedule at any time.
    

BMC typically completes its trading on behalf of the Fund in various markets
before the Exchange closes for the day. Securities are valued at market,
depending upon the market or exchange on which they trade. Price quotations for
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Securities traded on exchanges will be valued at their last
sale prices. If no sale is reported, the mean between the latest bid and asked
prices is used. Securities traded over-the-counter will be valued at the mean
between the latest bid and asked prices. Fixed-income securities are priced at
market value on the basis of market quotations supplied by independent pricing
services. Trading of securities in foreign markets may not take place on every
day the Exchange is open, and trading takes place in various foreign markets on
days on which the Exchange and the Fund's offices are not open and the Fund's
net asset value is not calculated. The Fund's net asset value may be
significantly affected on days when shareholders have no access to the Fund.
Securities for which market quotations are not readily available, or which may
change in value due to events occuring after their primary exchange has closed
for the day, are valued at fair market value as determined in good faith under
the direction of the board of directors.



                                       17
<PAGE>

   
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.
    

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 as indicative of future results.
    

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.

   
AVERAGE ANNUAL TOTAL RETURN

           ONE YEAR*

            20.12%

* Since Fund inception on December 1, 1994.

The Fund's average annual total return for the year ended November 30, 1995, was
20.12%.
    
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over ten years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year-to-year, and that average annual
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 percentages or as dollar amounts 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) to illustrate the
relationship of these factors and their contributions to total return.


                                       18
<PAGE>

In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns, which reflect the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return.

The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike Benham funds,
are sold with a sales charge or deferred sales charge. Sources of economic data
that may be used for 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 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 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.

Indexes may assume reinvestment of dividends, but, generally, they do not
reflect administrative and management costs such as those incurred by a mutual
fund.

Occasionally statistics may be used to illustrate Fund volatility or risk.
Measures of volatility or risk generally are used to compare the Fund's net
asset value or performance to a market index. One measure of volatility is
"beta." Beta expresses Fund volatility relative to the total market as
represented by the S&P 500. A beta of more than 1.00 indicates volatility
greater than that of the market, and a beta of less than 1.00 indicates
volatility less than that of the market. Another measure of volatility or risk
is "standard deviation." Standard deviation is used to measure variability of
net asset value or total return relative to an average over a specified period
of time. The premise is that greater volatility connotes greater risk undertaken
to achieve desired performance.

The Fund's shares are sold without a sales charge (load). No-load funds offer an
advantage to investors when compared to load funds with comparable investment
objectives and strategies. For example, if you invest $10,000 in a no-load fund,
100% of your investment is used to buy shares. If you invest $10,000 in a fund
with a 5.5% load, only $9,450 ($10,000 minus $550) is used to buy shares. Over
time, this difference can have a significant effect on total return. Assuming a
compounded annual growth rate of 10% for both investments, the no-load fund
investment would be worth $25,937 after ten years, while the load fund
investment would be worth only $24,511.


                                       19
<PAGE>

The Benham Group has distinguished itself as an innovative provider of low-cost
true no-load mutual funds. Among other innovations, The Benham Group established
the first no-load fund that invests primarily in zero-coupon U.S. Treasury
securities, the first no-load double tax-free California money market and
short-term bond funds, the first no-load adjustable rate government securities
fund, and the first no-load utilities fund designed to pay monthly dividends.

TAXES

The Fund intends to qualify annually as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. By
so qualifying, the Fund will not incur federal income or state taxes on its net
investment income and 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 timely 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, as a general rule, on October 31 of the calendar year.
Any dividend declared by the Fund in October, November or December of any year
and payable to shareholders of record on a specified date in such a month shall
be deemed to have been received by each shareholder on December 31 of such year
provided that such dividend is actually paid by the Fund during January of the
following year.

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 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 a Fund to mark to market certain types of the positions in its
portfolio (i.e., treat them as if they were closed out), 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. 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, forward contracts, or hedged
investments. 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 and certain forward currency
contracts, gains or losses attributable to fluctuations in the value of a
foreign currency between the date the security or contract 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 to be distributed to
shareholders as ordinary income and correspondingly decrease or increase
distributions of capital gains.


                                       20
<PAGE>

The Fund may invest in shares of foreign corporations that may be classified
under the Code as passive foreign investment companies ("PFIC"s). In general, a
foreign corporation is classified as a PFIC is at least one-half of its assets
constitute passive investment-type assets or 75% or more of its gross income is
passive investment-type income. Certain distributions from a PFIC and gains from
the sale of PFIC shares are treated as excess distributions. These excess
distributions and gains may subject the Fund to non-deductible federal income
tax.

   
The Fund will monitor its transactions and may make such tax elections as Fund
management deems appropriate with respect to its holdings in PFICs. The Fund's
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC shares.
    

Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss, and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on excess distributions from PFIC shares, the amount that must be
distributed to shareholders, which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially
compared to a fund that did not invest in PFIC shares.

   
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 generally
intends to undertake any procedural steps required to claim the benefits of such
a treaty. Generally, such taxes will reduce the Fund's income distributable to
shareholders. This Fund will not qualify to pass through any such foreign taxes
to the Fund's shareholders.
    

Some of the debt securities that may be acquired by the Fund may be treated as
debt securities that are 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. Therefore, distribution of this income may be required even though the
Fund would not have received the cash with which to make the distribution.

   
Some of the debt securities may be purchased in the secondary market 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 previously included
in the fund's investment company taxable income. At the election of the Fund,
market discount accrues for tax purposes 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.
    

Generally, the Fund will be required to distribute to shareholders dividends
representing the accretion of discounts on debt securities that are currently
includable in income, even if cash representing such income has not been
received by the Fund. Cash to pay such dividends may be obtained from proceeds
of sales of securities held by the Fund.

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%
income tax and 98% excise tax distribution requirements.


                                       21
<PAGE>

Ordinarily, the Fund will declare and pay dividends of net investment income
quarterly and make distributions of net realized capital gains, if any, at least
annually.

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. The deduction of 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 disposal date. Under such circumstances, the basis
of the shares acquired would be adjusted to reflect the disallowed loss.

The information above is only a summary of some of the tax considerations
generally affecting the Fund and its shareholders. No attempt has been made to
discuss individual tax consequences. The Fund's distributions may also be
subject to state, local, or foreign taxes. U.S. tax rules applicable to foreign
investors may differ significantly from those outlined above. To determine
whether the Fund is a suitable investment based on his or her tax situation
prospective investor may wish to consult a tax advisor.

ABOUT BENHAM MANAGER FUNDS

Benham Manager Funds (the "Trust") is a registered open-end management
investment company that was organized as a Massachusetts business trust on July
12, 1994. The Fund is currently the sole series of the Trust. 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 portfolios. Shares issued are fully paid and nonassessable and have
no preemptive, conversion, or similar rights.

   
Shares of the Fund have equal voting rights, although on matters affecting the
Fund exclusively. Voting rights are not cumulative, investors holding more than
50% of the Trust's outstanding shares may elect a board of trustees. The Trust
has instituted dollar-based voting, meaning that the number of votes you are
entitled to is based upon the dollar amount of their investment. The election of
trustees is determined by the votes received from all Trust shareholders without
regard to whether a majority of shareholders voted in favor of a particular
nominee or all nominees as a group. Each shareholder has rights to dividends and
distributions declared by the Fund and in the net assets of the Fund upon its
liquidation or dissolution proportionate to his or her share ownership interest
in the Fund.
    

The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable 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

                                       22
<PAGE>

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 itself is unable to meet its obligations.

CUSTODIAN BANK: State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02101, is custodian of the Fund's assets. Services provided by the
custodian bank include (i) settling portfolio purchases and sales, (ii)
reporting failed trades, (iii) identifying and collecting portfolio income, and
(iv) providing safekeeping of securities. The custodian takes no part in
determining the Fund's investment policies or in determining which securities
are sold or purchased by the Fund.

   
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 3 Embarcadero Center, San
Francisco, California 94111, serves as the Trust's independent auditors. KPMG
audits the annual report and provides tax and other services as auditors.

TRUSTEES AND OFFICERS

The Trust's activities are overseen by a board of trustees, including seven
independent trustees. The individuals listed below whose names are marked with
an asterisk (*) are "interested persons" of the Trust (as defined in the
Investment Company Act of 1940) by virtue of, among other things, their
affiliation with either the Trust; the Trust's investment advisor, Benham
Management Corporation (BMC); the Trust's agent for transfer and administrative
services, Benham Financial Services, Inc. (BFS); the Trust's distribution agent,
Benham Distributors, Inc. (BDI); the parent corporation, Twentieth Century
Companies, Inc. (TCC) or TCC's subsidiaries; or other funds advised by BMC. Each
trustee listed below also serves as a trustee or director of other funds in The
Benham Group. Unless otherwise noted, dates in parentheses indicate the date the
trustee or officer began his or her service in a particular capacity. The
trustees' and officers', with the exception of Mr. Stowers III, address is 1665
Charleston Road, Mountain View, California 94043 and Mr. Stowers III address is
4500 Main Street, Kansas City, Missouri 64111.

*JAMES M. BENHAM, chairman of the board of trustees (1994). Mr. Benham is also
chairman of the boards of BFS (1985), BMC (1971), and BDI (1988); president of
BMC (1971), and BDI (1988); and a member of the board of governors of the
Investment Company Institute (1989). 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 director (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 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);
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
    

                                       23
<PAGE>

MYRON S. SCHOLES, independent trustee (1994). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983), a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).

KENNETH E. SCOTT, independent trustee (1994). 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 (1994). 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 (1994). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).

   
*JAMES E. STOWERS III, trustee (1995). Mr. Stowers is president and director,
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 (1994). Ms. Wohlers is a private
investor, and an independent director and partner, Windy Hill Productions, LP..
Previously, she served as vice president and chief financial officer of Sybase,
Inc. (software company, 1988 to 1992).

   
*JOHN T. KATAOKA, president and chief executive officer (1994).
    

*DOUGLAS A. PAUL, secretary (1994), vice president (1994), and general counsel 
(1994).

*ANN N. McCOID, controller (1994).

   
*MARYANNE ROEPKE, chief financial officer and treasurer (1995).

The table on the following page summarizes the compensation that the trustees of
the Fund received for the Fund's fiscal year ended November 30, 1995, as well as
the compensation received for serving as director or trustee of all other Benham
funds.
    

                                       24
<PAGE>

   
<TABLE>
<CAPTION>
                 TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED
                                November 30, 1995

- -----------------------------------------------------------------------------------------------------------------
      Name of                Aggregate             Pension or               Estimated                 Total
      Trustee              Compensation        Retirement Benefits       Annual Benefits          Compensation
                               From            Accrued As Part of        Upon Retirement          From Fund and
                             The Fund             Fund Expenses                                   Fund Complex
                                                                                                Paid to Trustees
<S>                           <C>                <C>                     <C>                         <C>
- -----------------------------------------------------------------------------------------------------------------
Albert A. Eisenstat           $0                 Not Applicable          Not Applicable              $0
- -----------------------------------------------------------------------------------------------------------------
Ronald J. Gilson              $1,273             Not Applicable          Not Applicable              $48,583
- -----------------------------------------------------------------------------------------------------------------
Myron S. Scholes              $2,787             Not Applicable          Not Applicable              $65,375
- -----------------------------------------------------------------------------------------------------------------
Kenneth E. Scott              $2,845             Not Applicable          Not Applicable              $64,875
- -----------------------------------------------------------------------------------------------------------------
Ezra Solomon                  $2,784             Not Applicable          Not Applicable              $58,542
- -----------------------------------------------------------------------------------------------------------------
Isaac Stein                   $2,845             Not Applicable          Not Applicable              $63,375
- -----------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers             $2,782             Not Applicable          Not Applicable              $67,173
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

* Interested trustees receive no compensation for their services as such.

As of December 29, 1995, the Trust's officers and trustees, as a group, owned
less than 1% of each Fund's total shares outstanding.

INVESTMENT ADVISORY SERVICES

The Fund has an investment advisory agreement with Benham Management Corporation
(BMC), dated June 1, 1995, that was approved by shareholders on May 31, 1995.

BMC is a California corporation and a wholly owned subsidiary of Twentieth
Century Companies (TCC), a Delaware corporation. BMC, as well as BFS and BDI,
became wholly owned subsidiaries of TCC on June 1, 1995, upon the merger of
Benham Management International (BMI), the former parent of BFS and BDI, into
TCC. BMC has served as investment advisor to the Fund since the Fund's
inception. TCC is a holding company that owns all of the stock of the operating
companies that provide the investment management, transfer agency, shareholder
service, and other services for the Twentieth Century funds. James E. Stowers,
Jr., controls TCC by virtue of his ownership of a majority of its common stock.
BMC has been a registered investment advisor since 1971 and is investment
advisor to other funds in The Benham Group.

The Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two year period,
it is approved at least annually by vote of 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 agreement is terminable on sixty days' written notice, either by the Fund or
by BMC, to the other party, and terminates automatically in the event of its
assignment.

                                       25
<PAGE>

Pursuant to the investment advisory agreement, BMC provides the Fund with
investment advice and portfolio management services in accordance with the
Fund's investment objective, policies, and restrictions. BMC determines what
securities will be purchased and sold by the Fund and 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
its pro rata share of the dollar amount derived from applying the Trust's
average daily net assets to the following investment advisory fee rate schedule:

0.65% of the first $100 million 
0.60% of the next $100 million 
0.55% of the next $100 million 
0.50% of the next $100 million 
0.45% of the next $100 million 
0.37% of the next $1 billion 
0.34% of the next $1 billion 
0.31% of the next $1 billion
0.30% of the next $1 billion 
0.29% of the next $1 billion 
0.28% of the next $1 billion
0.27% of the net assets over $6.5 billion

ADMINISTRATIVE AND TRANSFER AGENT SERVICES

   
BFS, a wholly owned subsidiary of TCC, is the Trust's agent for transfer and
administrative services. For administrative services, the Fund pays BFS a
monthly fee based on its pro rata share of the dollar amount derived from
applying the aggregate average daily net assets of all of the funds in The
Benham Group to the following administrative fee rate schedule:
    

GROUP ASSETS                     ADMINISTRATIVE FEE RATE

up to $4.5 billion                         .11%
up to $6 billion                           .10%
up to $9 billion                           .09%
balance over $9 billion                    .08%

   
For transfer agent services, the Fund pays BFS a monthly fee of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during that month.
    

DIRECT FUND EXPENSES

The Fund pays certain operating expenses that are not assumed by BMC or BFS.
These include fees and expenses of the independent trustees; custodian, audit,
tax preparation, and pricing fees; fees of outside counsel and counsel employed
directly by the Trust; costs of printing and mailing prospectuses, statements of
additional information, notices, proxy statements, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions; trade association dues; costs
of fidelity and liability insurance policies covering the Fund; costs for
incoming WATS lines maintained to receive and handle shareholder inquiries; and
organizational costs.


                                       26
<PAGE>

   
EXPENSE LIMITATION AGREEMENT

BMC may recover amounts absorbed on behalf of the Fund during the preceeding 11
months if, and to the extent that, for any given month, the Fund's expense limit
in effect at that time. BMC has agreed to limit the Funds' expenses to 1.00% of
the Funds' average daily net assets during the year ending May 31, 1996.

The Fund's contractual expense limit is subject to annual renewal. The expense
limit for the year ended November 30, 1995, was 1.00% of average daily net
assets.

Net amounts absorbed and recouped for the fiscal year ended November 30, 1995 is
indicated below.

NET REIMBURSEMENTS (RECOUPMENTS) BY BMC AND BFS

                                            FISCAL
                                             1995

Benham Capital Manager Fund                 $2,957
    

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The Fund's shares are continuously offered at NAV. Share certificates are issued
(without charge) only when requested in writing. Certificates are not issued for
fractional shares. Dividend and voting rights are not affected by the issuance
of certificates.

The Benham Group may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
portfolios; to avoid jeopardizing a portfolio's tax status; or whenever, in
management's opinion, such rejection is in the Trust's or a portfolio's best
interest.

   
As of December 29, 1995, to BMF's knowledge, no shareholder was the record
holder or beneficial owner of 5% or more of the Fund's total shares outstanding.
    

The Benham Group charges neither fees nor commissions on the purchase and sale
of Benham fund shares. However, BFS may charge fees for special services
requested by a shareholder or necessitated by acts or omissions of a
shareholder. For example, BFS may charge a fee for processing dishonored
investment checks or stop-payment requests. BFS charges $10 per hour for account
research requested by investors. This charge will be assessed, for example, when
a shareholder request requires more than one hour of research on historical
account records. The fees charged are based on the estimated costs of performing
shareholder-requested services and are not intended to increase income.

Share purchases and redemptions are governed by California law.


                                       27
<PAGE>

OTHER INFORMATION

   
The Fund'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
Investment Company Act of 1940 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.
    



                                       28
<PAGE>
BENHAM MANAGER FUNDS

1933 Act Post-Effective Amendment No. 3.
1940 Act Amendment No. 5.


PART C: OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(A)      FINANCIAL STATEMENTS. Audited financial statements for Benham Capital 
         Manager Fund for the fiscal year ended November 30, 1995, are filed 
         herein as included in the Statement of Additional Information by 
         reference to the Annual Report dated November 30, 1995,filed on January
         26, 1996 (Accession No. 0000927793-96-000003).

(B)      EXHIBITS.

         (1)      Agreement and Declaration of Trust of Benham Manager Funds,
                  dated July 12, 1994, as amended May 31, 1995, is filed herein
                  as EX-99.B1.

         (2)      (a) Bylaws is incorporated herein by reference to Exhibit 2 to
                  the Registration Statement filed July 29, 1994.

                  (b) Bylaws of Benham Manager Funds, as amended May 17, 1995,
                  is filed herein as EX-99.B2b.

         (3)      Not applicable.

         (4)      Specimen copy of Benham Capital Manager Fund share certificate
                  is incorporated herein by reference to Exhibit 4 to the
                  Registration Statement filed July 29, 1994.

         (5)      (a) Investment Advisory Agreement between Benham Manager Funds
                  on behalf of Benham Capital Manager Fund and Benham Management
                  Corporation, dated August 30, 1994, is incorporated herein by
                  reference to Exhibit 5 to Pre-Effective Amendment No. 1 filed
                  October 13, 1994.

                  (b) Investment Advisory Agreement between Benham Manager 
                  Funds: Benham Capital Manager Fund and BMC, dated June 1, 
                  1995, is filed herein as EX-99.B5b.

         (6)      Distribution Agreement between Benham Manager Funds and Benham
                  Distributors, Inc., dated June 1, 1995, is filed herein as 
                  EX-99.B6.

         (7)      Not applicable.

         (8)      Omnibus Custodian Agreement between Benham Manager Funds and
                  State Street Bank and Trust Company, dated August 10, 1993, is
                  incorporated herein by reference to Exhibit 8 to the
                  Registration Statement filed July 29, 1994.

         (9)      Administrative Services and Transfer Agency Agreement between 
                  Benham Manager Funds and Benham Financial Services, Inc., 
                  dated June 1, 1995, is filed herein as EX-99.B9.


<PAGE>


         (10)     Opinion and consent of counsel as to the legality of the
                  securities being registered, dated January 12, 1996, is
                  incorporated herein by reference to Rule 24f-2 Notice filed on
                  January 17, 1996 (Accession No. 0000927793-96-000002).

         (11)     (a) Consent of KPMG Peat Marwick LLP, independent auditors, is
                  filed herein as EX-99.B11a.

                  (b) Written representation pursuant to Rule 485(e) under the
                  Securities Act of 1933 is filed herein as EX-99.B11b.

         (12)     Not applicable.

         (13)     Written assurances that purchase representing initial capital
                  were made for investment purposes only without any present
                  intention of redeeming or reselling, dated October 12, 1994,
                  is incorporated herein by reference to Exhibit 13 to
                  Pre-Effective Amendment No. 1.

         (14)     (a) Benham Individual Retirement Account Plan, including all
                  instructions and other relevant documents, are incorporated
                  herein by reference to Exhibit 14(a) to the Registration
                  Statement for Benham Investment Trust (File No. 33-65170).

                  (b) Benham Pension/Profit Sharing Plan, including all
                  instructions and other relevant documents are incorporated
                  herein by reference to Exhibit 14(b) to the Registration
                  Statement for Benham Investment Trust (File No.
                  33-65170).

         (15)     Not applicable.

         (16)     Schedule for computation of each performance quotation
                  provided in response to Item 22 is filed herein as EX-99.B16.

         (17)     Power of Attorney dated December 15, 1995, is filed herein as 
                  EX-99.B17.

Item 25. Persons Controlled by or Under Common Control with Registrant.

         Not applicable.

Item 26. Number of Holders of Securities

         As of December 29, 1995, there were 3,287 shareholders of record of
Registrant's shares.




<PAGE>


Item 27. Indemnification.

         Registrant hereby incorporates by reference as though it were set forth
fully herein Article VII, Section 3 of Registrant's amended and restated
Declaration of Trust, dated July 12, 1994, appearing as Exhibit 1(b) to
Post-Effective Amendment No. 2, and Article VI, Section 4 of the Registrant's
Bylaws appearing as Exhibit 2 to the Registration Statement.

Item 28. Business and Other Connections of Investment Advisor.

         The Fund's investment advisor, Benham Management Corporation, is also
investment advisor to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Municipal
Trust, Benham Target Maturities Trust, Benham Government Income Trust, Benham
Equity Funds, Benham International Funds, and Benham Investment Trust.

Item 29. Principal Underwriters.

         The Registrant's distribution agent, Benham Distributors, Inc., is also
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Municipal
Trust, Benham Target Maturities Trust, Benham Government Income Trust, Benham
Equity Funds, Benham International Funds, and Benham Investment Trust.

Item 30. Location of Accounts and Records.

         The Registrant, its investment advisor, Benham Management Corporation,
and its agent for transfer and administrative services, Benham Financial
Services, Inc., maintain, at the Fund's principal office located at 1665
Charleston Road, Mountain View, CA 94043, physical possession of each account,
book, or other document, and shareholder records as required by 31 (a) of the
1940 Act and rules thereunder. The computer and database for shareholder records
are located at Central Computer Facility, 401 North Broad Street, Sixth Floor,
Philadelphia, PA 19108.

Item 31. Management Services.
         Not applicable.

Item 32. Undertakings.

         Registrant undertakes to furnish to 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. 3 /Amendment No. 5 to be signed on its behalf by the undersigned, 
thereunto duly authorized, in the City of Mountain View, and State of 
California, on the 16 day of January, 1996.

                              BENHAM MANAGER 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. 3 /Amendment No. 5 has been signed below by the following persons 
in the capacities and on the dates indicated.


                                Chairman of the Board of
- ----------------------          Trustees
James M. Benham*                

                                Trustee
- ----------------------          
James E. Stowers, III*                 

                                Trustee
- ----------------------                 
Albert A. Eisenstat*

                                Trustee
- ----------------------
Ronald J. Gilson*

                                Trustee
- ----------------------
Myron S. Scholes*

                                Trustee
- ----------------------
Kenneth E. Scott*

                                Trustee
- ----------------------
Ezra Solomon*

                                Trustee
- ----------------------
Isaac Stein*

                                Trustee
- ----------------------
Jeanne D. Wohlers*

                                Chief Financial
- ----------------------          Officer/Treasurer
Maryanne Roepke*


*By: /s/Douglas A. Paul
     Douglas A. Paul
     Attorney in Fact (pursuant to a Power of Attorney dated December 15, 1995)



                                 EXHIBIT INDEX


EXHIBIT                    DESCRIPTION OF DOCUMENT                 
NUMBER                                                               
                                                                       
EX-99.B1            Amendment to Agreement and Declaration of Trust of Benham 
                    Manager Funds, dated May 31, 1995.

EX-99.B2b           Amendment to Bylaws of Benham Manager Funds, dated May 17, 
                    1995.

EX-99.B5b           Investment Advisory Agreement between Benham
                    Manager Funds: Benham Capital Manager Fund and Benham 
                    Management Corporation, dated June 1, 1995.

EX-99.B6            Distribution Agreement between Benham Manager Funds
                    and Benham Distributors, Inc., dated June 1, 1995.

EX-99.B9            Administrative Services and Transfer Agency Agreement
                    between Benham Manager Funds and Benham Financial 
                    Services, Inc., dated June 1, 1995.

EX-99.B11a          Consent of KPMG Peat Marwick LLP, independent auditors. 

EX-99.B11b          Written representation pursuant to Rule 485(e) under the
                    Securities Act of 1933.

EX-99.B16           Schedule for computation of each performance quotation.

EX-99.B17           Power of Attorney dated December 15, 1995.

EX-27.1             Financial Data Schedule for Benham Capital Manager Fund

                                    EXHIBIT 1

                       AGREEMENT AND DECLARATION OF TRUST
                                       OF
                              BENHAM MANAGER FUNDS
                             (amended May 31, 1995)


AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this ____ day
of July, 1994, by the Trustees hereunder.

         WHEREAS the Trustees desire and have agreed to manage all property
coming into their hands as trustees of a Massachusetts business trust in
accordance with the provisions hereinafter set forth,

         NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of the Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.

                                    ARTICLE I

                              NAME AND DEFINITIONS

         Section 1. Name. This Trust shall be known as BENHAM MANAGER FUNDS and
the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.

         Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:

         (a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time;

         (b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected or appointed in accordance with such Article;

         (c) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust property belonging to any and all Series
and Classes of the Trust (as the context may require) shall be divided from time
to time;

         (d) "Shareholder" means a record owner of Shares;

         (e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;

         (f) The term "Commission" shall mean the United States Securities and
Exchange Commission;


<PAGE>

         (g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;

         (h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;

         (i) "Series Company" refers to the form of registered open-end 
investment company described in Section 18(f)(2) of the 1940 Act or in any 
successor statutory provision; and

         (j) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III. Present and future
separate "Series" of the Trust may be referred to as "Portfolios" or "Funds" and
these terms may be used alternatively in publications and communications with
investors. Unless the context otherwise requires, the term "Series" shall
include Classes into which Shares of the Trust, or of a Series, may be divided
from time to time.

         (k) "Class" means the two or more Classes as may be established and
designated from time to time pursuant to Section 7 hereof.

                                   ARTICLE II

                                PURPOSE OF TRUST

         The purpose of the Trust is to provide investors a managed investment
company registered under the 1940 Act consisting of one or more Series that
invest primarily in debt or equity securities.

                                   ARTICLE III
                                     SHARES

         Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into an unlimited number of Shares,
without par value. Subject to the provisions of Sections 6 and 7 of this Article
III, each Share shall have voting rights as provided in Article V hereof, and
holders of the Shares of any Series shall be entitled to receive dividends, when
and as declared with respect thereto in the manner provided in Article VI,
Section 1 hereof. No Shares shall have any priority or preference over any other
Share of the same Series with respect to dividends or distributions upon
termination of the Trust or of such Series made pursuant to Article VIII,
Section 4 hereof. All dividends and distributions shall be made ratably among
all Shareholders of a particular Series from the assets belonging to such Series
according to the number of Shares of such Series held of record by each
Shareholder on the record date established for any dividend or on the date of
termination, as the case may be. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities issued by the
Trust or any Series. The Trustees may from time to time divide or combine the
Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby changing the proportionate beneficial interest of
the Shares of that Series in the assets belonging to that Series or in any way
affecting the rights of Shares of any other Series.

         Section 2. Ownership of Shares. The ownership of Shares shall be 
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series.  No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each Series and as to the number of Shares of each Series
held from time to time by each shareholder.

         Section 3. Investments in the Trust. The Trustees may accept
investments in the Trust from such persons, at such times, on such terms, and
for such consideration as they from time to time authorize.

         Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this Declaration of Trust. Each Shareholder, by virtue of having become a
Shareholder, shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
existence of the Trust shall neither operate to terminate the Trust, nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust property, other than as specified in this
Declaration of Trust, or right to call for a partition or division of the same,
or for an accounting; nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than that which the Shareholder may at any time personally agree to pay.

         Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without Shareholder approval, to add to,
delete, replace, or otherwise modify any provisions relating to the Shares
issued pursuant to this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval, the Trustees shall determine that
it is consistent with the fair and equitable treatment of all Shareholders or
that Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.

         Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend this Declaration of Trust to:

         (a) create one or more Series of Shares (in addition to any Series
already existing or otherwise) with such rights and preferences and such
eligibility requirements for investment as the Trustees shall determine, and
reclassify any or all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;

         (b) amend any of the provisions set forth in paragraphs (a) through (i)
of Section 6 and paragraphs (a) through (d) of Section 7 of this Article III;


<PAGE>

         (c) combine one or more Series of Shares into a single Series on such
terms and conditions as the Trustees shall determine;

         (d) change or eliminate requirements for investment in Shares of any
Series, including without limitation, to provide for the issue of Shares of any
Series in connection with any merger or consolidation of the Trust with another
trust or company or any acquisition by the Trust of part or all of the assets of
another trust or investment company;

         (e) change the designation of any Series of Shares;

         (f) change the method of allocating dividends among the various Series
of Shares;

         (g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series of 
Shares;

         (h) specifically allocate assets to any or all Series of Shares or
create one or more additional Series of Shares which are preferred over all
other Series of Shares in respect of assets specifically allocated thereto or
any dividends paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or other rights with
respect to such Series.

         Section 6. Establishment and Designation of Series. The establishment
and designation of any Series of Shares shall be effective upon the resolution
by a majority of the Trustees, setting forth such establishment and designation
and the relative rights and preferences of such Series, or as otherwise provided
in such resolution.

         Shares of each Series established pursuant to this Section 6, unless
otherwise provided in the resolution establishing such Series, shall have the
following relative rights and preferences:

         (a) Assets Belonging to Series. All consideration received by the Trust
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange, or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, shall be so recorded upon
the books of account of the Trust, and are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds, or payments that are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between, or among
any one or more of, the Series in such manner and on such basis as they, in
their sole discretion, deem fair and equitable, and any General Assets so
allocated to a particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.

         (b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust with
respect to that Series and all expenses, costs, charges, and reserves
attributable to that Series. Any general liabilities of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustee
shall be conclusive and binding upon the holders of all Series for all purposes.
Under no circumstances shall the assets allocated or belonging to any particular
Series be charged with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to particular Series, or who
have a claim or contract which has been allocated to any particular Series,
shall look only to the assets of that particular Series for payment of such
credit, claim, or contract.

         (c) Income, Distributions, and Redemptions. The Trustees shall have
full discretion, to the extent consistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders. Notwithstanding any other provision of this Declaration of Trust,
including, without limitation, Article VI, no dividend or distribution
(including, without limitation, any distribution paid upon termination of the
Trust or of any Series) with respect to, nor any redemption or repurchase of,
the Shares of any Series shall be effected by the Trust other than from the
assets belonging to such Series. Except as specifically provided in Section 7 of
this Article III, no Shareholder of any particular Series shall otherwise have
any right or claim against the assets belonging to any other Series except to
the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series.

         (d) Voting. A Shareholder of each Series shall be entitled to one vote
for each dollar of net asset value of such Series, on any matter on which such
Shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. All references in this Declaration
of Trust or the Bylaws to a vote of, or the holders of, a percentage of Shares
shall mean a vote of, or the holders of, that percentage of total votes
representing dollars of net asset value of a Series or of the Trust, as the case
may be. The Trustees may from time to time establish conditions according to
which the several Series shall have separate voting rights. If any Series would
not, in the Trustees' sole judgment, be materially affected by a proposal, the
Trustees may determine that such Series shall have no rights to vote on such
proposal. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust,
or the Bylaws, to be taken by Shareholders. The Bylaws may include further
provisions regarding Shareholder voting, meetings and related matters.

         (e) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets belonging to that Series (subject
to the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.

         (f) Fractions. Any fractional Share of a Series shall carry all the
rights and obligations of a whole share of that Series, including rights with
respect to voting, receipt of dividends and distributions, redemption of Shares
and termination of the Trust proportionate to its value in relation to a whole
Share of that Series.


<PAGE>

         (g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.

         (h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single Series.

         (i) Elimination of Series. If at any time there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may eliminate such Series in their sole discretion.

         Section 7. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other Shares of the Trust or the same
Series, as the case may be, except that there may be variations between
different Classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Classes shall have separate voting rights.
All references to Shares in this Declaration of Trust shall be deemed to be
Shares of any or all Classes as the context may require.

         If the Trustees shall divide the Shares of the Trust or any Series into
two or more Classes, the following provisions shall be applicable:

         (a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of any Series
of the Trust, except as the context requires otherwise.

         (b) The number of Shares of each Class that may be issued shall be
unlimited. The trustees may classify or reclassify any unissued Shares of the
Trust or any Series or any Shares previously issued and reacquired of any Class
of the Trust or of any Series into one or more Classes that may be established
and designated from time to time. The Trustees may hold as treasury Shares (of
the same or some other Class), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Class reacquired by the Trust
at their discretion from time to time.

         (c) Liabilities, expenses, costs, charges, and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend,
redemption, and liquidation rights of, the Shares of different Classes. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Classes for all
purposes.

         (d) The establishment and designation of any Class of Shares shall be
effective upon the execution of a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such instrument. The
Trustees may, by an instrument executed by a majority of their number, abolish
any Class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration of Trust.

         Section 8. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be held personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reasons, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal representatives or,
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Series of which he or she
is (or was) a Shareholder, to be held harmless from and indemnified against all
loss and expense arising from such liability.

                                   ARTICLE IV

                                  THE TRUSTEES

         Section 1. Number, Election and Tenure. The number of Trustees shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be less than two nor more than fifteen. The initial Trustees
shall be Joseph R. Fleming and Richard A. Stamm. The Trustees may, by vote of a
majority of the remaining Trustees, fill vacancies on the Board of Trustees or
remove Trustees with or without cause, by vote of a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) if the Trustee to be
removed is not an "interested" Trustee, or by vote of the Trustees who are
"interested persons," if the Trustee to be removed is an "interested" Trustee.
Each Trustee shall serve during the lifetime of the Trust until he dies,
resigns, or is removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the election and
qualification of his successor, except, that Trustees who are not "interested
persons" or employees of The Benham Group of companies shall retire at the end
of the calendar year in which they shall have reached the age of seventy-five
(75) years. Any Trustee may resign at any time by written instrument signed by
him and delivered to any officer of the Trust or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless otherwise specified in
such written instrument. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee removed shall have
any right to any compensation for any period following his resignation or
removal, or any right to damages on account of such removal. The Shareholders
may fix the number of Trustees and elect Trustees at any meeting of Shareholders
called by the Trustees for that purpose.

         Section 2. Effect of Death, Resignation, Etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. Whenever a
vacancy on the Board of Trustees shall occur, until such vacancy is filled as
provided in Article IV, Section 1, the Trustees in office, regardless of their
number, shall have all of the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of such vacancy. In the event of the
death, declination, resignation, retirement, removal, or incapacity of all of
the Trustees within a short period of time and without the opportunity for at
least one Trustee to appoint additional Trustees to fill vacancies, the Trust's
investment advisor or investment advisors jointly, if there is more than one,
are empowered to appoint new Trustees.

         Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility,
including the power to engage in securities transactions of all kinds on behalf
of the Trust. Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal such Bylaws to
the extent that any amendments do not result in reserving the right to amend
this Declaration of Trust and do not reserve that right to the Shareholders;
they may fill vacancies in or reduce the number of Trustees, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate. They may appoint from their own number and establish and terminate
one or more committees consisting of two or more Trustees which may exercise the
powers and authority of the Trustees to the extent that the Trustees determine.
They may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank. They may retain a transfer or shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of eligible Shareholders with respect to various matters, and, in
general, to delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees, and to any agent or employee of the
Trust or to any such custodian, transfer or Shareholder servicing agent, or
principal underwriter. Any determination as to what is in the best interest of
the Trust made by the Trustees in good faith shall be conclusive. In construing
the provisions of this Declaration of Trust, the presumption shall be in favor
of a grant of power to the Trustees.

         Without limiting the foregoing, the Trustees shall have power and
authority:

         (a) To invest and reinvest cash, to hold cast uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, lend or otherwise deal in
or dispose of contracts for the future acquisition or delivery of fixed income
securities or certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all persons, including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality of the U.S. Government, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international or supranational instrumentality, or by any bank or savings
institution, or by any corporation or organization organized under the laws of
the United States or of any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or in "when issued"
contracts for any such securities; to change the investments of the assets of
any Series of the Trust; and to exercise any and all rights, powers and
privileges of ownership or interest with respect to any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, and with power to designate one
or more persons, firms, associations, or corporations to exercise any of said
rights, powers, and privileges with respect to any of said instruments;

         (b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust,

         (c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;

         (d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;

         (e) To hold any security or property, whether in bearer, unregistered,
or any other negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;

         (f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;

         (g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;

         (h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;

         (i) To enter into joint ventures, general or limited partnerships and 
any other combinations or associations;

         (j) To borrow funds or other property;

         (k) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;


<PAGE>

         (l) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
Trust's business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisors, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being, or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment advisor, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
liability;

         (m) to pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees, and agents of the Trust; and

         (n) notwithstanding any other provision hereof, to invest all of the
assets of any series in a single open-end investment company, including
investment by means of transfer of such assets in exchange for an interest or
interests in such investment company.

         The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust. The Trustees shall not in any way
be bound or limited by any present or future law or custom in regard to
investment by fiduciaries. The Trustees shall not be required to obtain any
court order to deal with any assets of the Trust or take any other action
hereunder.

         Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes, and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation, and such expenses and
charges for the services of the Trust's officers, employees, investment advisor
or manager, principal underwriter, auditors, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.

         Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.


<PAGE>

         Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trustees.

         Section 7. Service Contracts.

         (a) Subject to such requirements and restrictions as may be set forth
in the Bylaws, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services for the Trust or
for any Series with Benham Management Corporation or any other corporation,
trust, association, or other organization (the "Advisor"); and any such contract
may contain such other terms as the Trustees may determine, including without
limitation, authority for the Advisor to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold, or exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested, and to make changes in the Trust's investments.

         (b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association, or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter for the Shares of
any, some, or all of the Series. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms as the Trustees may determine.

         (c) The Trustees are also empowered, at any time and from time to time,
to contract with any corporations, trust, associations, or other organizations,
appointing it or them the transfer agent(s) and/or shareholders servicing
agent(s) of the Trust or one or more of the Series. Specifically, the Trustees
are empowered to contract or join with other investment companies managed by the
Trust's Investment Advisor to have transfer agency and/or shareholder servicing
activities performed jointly by such transfer agents or shareholder servicing
agents and their employees with an appropriate allocation between the investment
companies of the costs and expenses of providing such services. Each such
requirements and restrictions as may be set forth in the Bylaws or stipulated by
resolution of the Trustees.

         (d)      The fact that:

                  (i) any of the Shareholders, Trustees, or officers of the
                  Trust is a shareholder, director, officer, partner, trustee,
                  employee, manager, advisor, principal underwriter, distributor
                  or affiliate or agent of or for any corporation, trust,
                  association, or other organization, or for any parent or
                  affiliate of any organization with which an advisory or
                  management contract, or principal underwriter's or
                  distributor's contract, or transfer, shareholder
                  servicing or other agency contract may have been or may
                  hereafter be made, or that any such organization, or any
                  parent or affiliate thereof, is a Shareholder or has an
                  interest in the Trust, or that

                  (ii) any corporation, trust, association or other organization
                  with which an advisory or management contract or principal
                  underwriter's or distributor's contract, or transfer,
                  shareholder servicing or other agency contract may have been
                  or may hereafter be made also has an advisory or management
                  contract, or principal underwriter's or distributor's
                  contract, or transfer, shareholder servicing or other agency
                  contract with one or more other corporations, trusts,
                  associations, or other organizations, or has other business or
                  interests,

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee, or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.

                                    ARTICLE V

              SHAREHOLDERS' VOTING POWERS AND SHAREHOLDER MEETINGS

         Section 1. Voting Powers. Subject to the provisions of Article III,
Section 6(d), the Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1, (ii) to the same
extent as the stockholders of a California business corporation as to whether or
not a court action, proceeding, or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, (iii) with respect to the termination of the Trust or any Series
to the extent as provided in Article VIII, Section 4, and (iv) with respect to
such additional matters relating to the Trust as may be required by the 1940 Act
or other applicable law, this Declaration of Trust, the Bylaws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. On any matter
submitted to a vote of the Shareholders, all Shares shall be voted by individual
Series, except (i) when required by the 1940 Act, Shares shall be voted in the
aggregate and not by individual Series, and (ii) when the Trustees have
determined that the matter affects only the interests of one or more Series,
then only the Shareholders of such Series shall be entitled to vote thereon.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held in the name of
two or more persons shall be valid if executed by any one of them, unless at or
prior to exercise of the proxy the Trust receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
At any time when no Shares of a Series are outstanding, the Trustees may
exercise all rights of Shareholders of that Series with respect to matters
affecting that Series, and may take any action required by law, this Declaration
of Trust, or the Bylaws to be taken by the Shareholders.

         Section 2. Shareholder Meetings. Shareholder meetings may be called by
the Trustees for the purpose of electing Trustees as provided in Article IV,
Section 1, and for such other purposes as may be prescribed by law, by this
Declaration of Trust, or by the Bylaws. Shareholder meetings may also be called
by the Trustees from time to time for the purpose of taking action upon any
other matter deemed by the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees. Written notice
of any meeting of Shareholders shall be given or caused to be given by the
Trustees by mailing such notice at least seven days before such meeting, postage
prepaid, stating the time and place of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. Whenever notice
of a meeting is required to be given to a Shareholder under this Declaration of
Trust or the Bylaws, a written waiver thereof, executed before or after the
meeting by such Shareholder or by his attorney thereunto authorized, and filed
with the records of the meeting, shall be deemed equivalent to such notice.

         Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the Bylaws, or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders' meeting. When any one or more Series is to vote as a single
Class separate from other Shares which are to vote on the same matters, forty
percent (40%) of the Shares of each such Series entitled to vote shall
constitute a quorum at a Shareholder meeting of that Series. Any Shareholder
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present, and the meeting may
be held as adjourned within a reasonable time after the date set for the
original meeting without further notice. Subject to the provisions of Article
III, Section 6(d), when a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions, and a plurality shall elect a Trustee,
except when a larger vote is required by any provision of this Declaration of
Trust, the Bylaws, or applicable law.

         Section 4. Action by Written Consent. Any action permitted to be taken
by Shareholders may be taken without a meeting if Shareholders holding a
majority of the Shares entitled to vote on the matter (or such larger proportion
thereof as shall be required by any express provision of this Declaration of
Trust or by the Bylaws) consent to the action in writing, and such written
consents are filed with the records of the Trust. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.

         Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than 75 days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series having the right to
notice of and to vote at such meeting and any adjournment thereof. In such case,
only Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may, for
voting and/or distribution purposes, close the register or transfer books for 
one or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this 
section shall be construed as precluding the Trustees from setting different 
record dates for different Series.

         Section 6. Additional Provisions. Bylaws may include further provisions
concerning Shareholder voting, Shareholder meetings, and related matters.

                                   ARTICLE VI

                 NET ASSET VALUE, DISTRIBUTIONS AND REDEMPTIONS

         Section 1. Determination of Net Asset Value, Net Income and
Distributions. Subject to Article III, Sections 6 and 7 hereof, the Trustees, in
their absolute discretion, as they may deem necessary or desirable, may
prescribe and shall set forth in the Bylaws or in a duly adopted resolution the
manner of determining the net income attributable to the Shares of any Series or
of any Class, and the declaration and payment of dividends and distributions on
the Shares of any Series or Class.

         Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize, and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the 1940 Act, and with any other
applicable provisions of law or of the Bylaws. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the date on which
the request is made in proper form. The obligation set forth in this Section 2
may be suspended or postponed by the Trustees in the event that any time the New
York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the Commission, during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series, or during any other
period permitted by order of the Commission for the protection of investors.

         Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees;
or (ii) to the extent that such Shareholder owns Shares equal to or in excess of
a percentage of the outstanding Shares of the Trust or of any Series, as such
percentage may be determined from time to time by the Trustees.

                                   ARTICLE VII

              COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

         Section 1. Compensation.  The Trustees shall be entitled to reasonable
compensation from the Trust, and they may fix the amount of such compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.

         Section 2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, manager, or principal underwriter of the Trust, nor shall any
Trustee be responsible for the acts or omissions of any other Trustee, but
nothing herein contained shall protect any Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.

         Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed, or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed, or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.

         Section 3. Indemnification. The Trustees shall be entitled and
empowered to the fullest extent permitted by law to purchase insurance for and
to provide by resolution or in the Bylaws for indemnification out of Trust
assets for liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with any claim,
action, suit, or proceeding in which he 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.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         Section 1. Trustees and Shareholders Not Personally Liable; Notice. All
persons extending credit to, contracting with, or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the 
extent that the liability of the Trust may have been expressly limited by 
contract to the assets of a particular Series, only to the assets belonging to 
the relevant Series, for payment under such credit, contract or claim; and 
neither the Shareholders nor the Trustees, nor any of the Trust's officers, 
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason of 
willful misfeasance, bad faith, gross negligence, or reckless disregard of the 
duties involved in the conduct of the office of Trustee.

         Every note, bond, contract, instrument, certificate, or undertaking
made or issued on behalf of the Trust by the Trustees, by an officer or officers
or otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officer or
officers or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract instrument, certificate, or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.

         Section 2. Trustee's Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his own
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.

         Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

         Section 4. Termination of Trust or Series. Unless terminated as
provided herein, the Trust shall continue indefinitely. The Trust may be
terminated at any time by vote of at least two-thirds (66-2/3%) of the Shares of
each Series entitled to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.

         Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses, and
liabilities belonging, severally, to each Series (or to the applicable Series,
as the case may be), whether due or accrued or anticipated as may be determined
by the Trustees, the Trust shall, in accordance with such procedures as the
Trustees consider appropriate, reduce the remaining assets belonging, severally,
to each Series (or the applicable Series, as the case may be), to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds belonging to each Series or the applicable Series, as
the case may be), to the Shareholders of that Series, as a Series, ratably
according to the number of Shares of that Series held by each Shareholder on the
date of termination.

         Section 5. Merger and Consolidation. The Trustees may cause the Trust
or one or more of its Series to be merged into or consolidated with another
Trust or company or the Shares exchanged under or pursuant to any state or
federal statute, if any, or otherwise to the extent permitted by law. Such
merger or consolidation or share exchange must be authorized by vote of a
majority of the outstanding Shares of the Trust as a whole or any affected
Series, as applicable; provided that in all respects not governed by statute or
applicable law, the Trustees shall have power to prescribe the procedure 
necessary or appropriate to accomplish an exchange, sale of assets, merger or 
consolidation.

         Section 6. Filing of Copies; References; Headings. The original or a
copy of this Declaration of Trust and of each amendment hereto shall be kept at
the office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of the Commonwealth of Massachusetts and with any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this Declaration of Trust, or of any such amendments. In this Declaration of
Trust and in any such amendment, references to this Declaration of Trust, and
all expressions like "herein," "hereof" and "hereunder," shall be deemed to
refer to this Declaration of Trust as amended or affected by any such
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this Declaration of Trust. This Declaration of Trust
may be executed in any number of counterparts each of which shall be deemed an
original.

<PAGE>

         Section 7. Applicable Law. This Declaration of Trust is created under
and is to be governed by and construed and administered according to the laws of
the Commonwealth of Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily exercised by such
a trust.

         Section 8. Amendments.  This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the Trustees subject to
Shareholder voting rights, if any, pursuant to Article V hereof.

         Section 9. Trust Only. It is the intention of the Trustees to create
only the relationship of trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.

         Section 10. Use of the Name "Benham". Benham Management Corporation
("BMC") has consented to the Trust's use of the identifying word or name
"Benham" in the Trust's name. Such consent is conditioned upon the employment of
BMC, its successors or any affiliate thereof, as the Advisor of the Trust. As
between the Trust and itself, BMC controls the use of the Trust's name insofar
as such name contains the name and identifying word "Benham," which may be used
from time to time in other connections and for other purposes by BMC or
affiliated entities. BMC may require the Trust to cease using "Benham" in the
Trust's name if the Trust ceases for any reason to employ BMC, an affiliate, or
any successor as the Trust's Advisor.

         Section 11. Provisions in Conflict with Law or Regulations.  (a) The
provisions of this Declaration of Trust are severable.  If the Trustees shall
determine, with the advice of counsel, that any of such provisions conflicts
with the 1940 Act, the regulated investment company provisions of the Internal
Revenue Code, or with other applicable laws and regulations, the conflicting    
shall be deemed never to have constituted a part of this Declaration of Trust;
provided, however, that such determination shall not affect any of the remaining
provisions of this Declaration of Trust or render invalid or improper any action
taken or omitted prior to such determination.

         (b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any provision of this
Declaration of Trust in any jurisdiction.

         IN WITNESS WHEREOF, the initial Trustees as aforesaid do hereto set
their hands this ____ day of July, 1994.

________________________  Joseph R. Fleming, as Initial 
                          Trustee and not individually

________________________  Richard a. Stamm, as Initial 
                          Trustee and not individually


Principal Office:          1665 Charleston Road
                           Mountain View, CA 94043

Resident Agent:            CT Corporation System
                           2 Oliver Street
                           Boston, MA 02109

Trustees:                  Dechert Price & Rhoads
                           Ten Post Office Square, South
                           Suite 1230
                           Boston, MA  02109-4603


                                                                               
                                     BYLAWS
                                       OF
                              BENHAM MANAGER FUNDS
                         A Massachusetts Business Trust
                           (last amended May 17, 1995

                                    ARTICLE I
                                     OFFICES

         Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix the
location of the principal executive office of the Trust at any place within or
outside the Commonwealth of Massachusetts.

         Section 2. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.


                                   ARTICLE II
                              SHAREHOLDER MEETINGS

         Section 1. LOCATION OF MEETINGS. Shareholder meetings shall be held at
any place within or outside the Commonwealth of Massachusetts designated by the
Board of Trustees. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the Trust.

         Section 2. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees, the Chairman of the Board, or the
President.

         Section 3. NOTICE OF SHAREHOLDER MEETING. Notices of any shareholder
meetings shall be sent or otherwise given in accordance with Section 4 of this
Article II not less than ten (10) nor more than seventy-five (75) days before
the date of the meeting. The notice shall specify (i) the location, date, and
hour of the meeting, and (ii) the general nature of the business to be
conducted. The notice of any shareholder meeting at which Trustees are to be
elected also shall include the name of any nominee or nominees whom at the time 
of the notice are intended to be presented for election.

         If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee or Trustee nominee has a direct or
indirect financial interest, (ii) an amendment to the Declaration of Trust,
(iii) a reorganization of the Trust, or (iv) a voluntary dissolution of the
Trust, the notice shall state the general nature of that proposal.

         Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally, or by United States
mail, or telegraphic, or other written communication, charges prepaid, addressed
to the shareholder at the address of that shareholder appearing on the books of
the Trust or its transfer agent or given by the 

                                       1
<PAGE>

shareholder to the Trust for the purpose of receiving notice of shareholder
meetings. If no such address appears on the Trust's books or is given, notice
shall be deemed to have been given if sent to that shareholder by United States
mail or telegraphic or other written communication to the Trust's principal
executive office, or if said notice is published at least once in a newspaper of
general circulation in the county where the Trust's principal office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.

         If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust by the
United States Postal Service marked to indicate that the Postal Service is
unable to deliver the notice to the shareholder at the address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the Trust for a period of one
year from the date of giving notice.

         An affidavit of the mailing or other means of giving any notice of any
shareholder meeting shall be executed by the secretary, assistant secretary, or
any transfer agent of the Trust giving the notice, and shall be filed and
maintained in the minute book of the Trust.

         Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting,
whether or not a quorum is present, may be adjourned from time to time by vote
of a majority of the shares represented at that meeting, either in person or by
proxy.

         When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Where
required, notice of any such adjournment shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Section 3 and 4 of this Article II. At any adjourned meeting, the
Trust may conduct any business which might have been conducted at the original
meeting.

         Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election of Trustees
must be by ballot if any shareholder demands a ballot vote before the voting has
begun. On any matter other than election of Trustees, a shareholder may vote a
portion of his shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but if the shareholder fails
to specify the number of shares which he is voting affirmatively, it will be
conclusively presumed that the shareholder's affirmative vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.

         Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though such transaction had occurred at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote who was not present in person or by proxy signs a written


                                       2
<PAGE>
waiver of notice or a consent to holding the meeting or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be conducted or the purpose of any shareholder meeting.

         Attendance by a shareholder at a meeting shall also constitute a waiver
of notice of that meeting, except when the shareholder objects at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened, and provided that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the beginning
of the meeting.

         Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy, or a transferee of the shares, or
a personal representative of the shareholder or their respective proxy may
revoke the consent to action without a meeting by written notice received by the
Secretary of the Trust before written consents of the number of shares required
to authorize the proposed action have been filed with the Secretary.

         If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a Trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, or (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.

         Section 9. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any meeting,
or to vote at such meeting, or entitled to give consent to action without a
meeting, the Board of Trustees may fix in advance a record date which shall not
be more than seventy-five (75) days nor less than ten (10) days before the date
of any such meeting as provided in the Declaration of Trust.

         If the Board of Trustees does not so fix a record date:

         (a) The record date for determining the shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given, or if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held.


                                       3
<PAGE>

         (b) The record date for determining the shareholders entitled to give
consent to action in writing without a meeting (i) when no prior action by the
Board of Trustees has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the Board of Trustees has been
taken, shall be at the close of business on the day on which the Board of
Trustees adopt the resolution relating to that action or the seventy-fifth day
before the date of such other action, whichever is later.

         Section 10. PROXIES. Every shareholder entitled to vote for Trustees,
or on any other matter, shall have the right to do so either in person or by one
or more agents authorized by a written proxy signed by the shareholder and filed
with the Secretary of the Trust. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the Trust stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing that proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Trust before the vote
pursuant to that proxy is counted; provided however, that no proxy shall be 
valid after the expiration of eleven (11) months from the date of the proxy 
unless otherwise provided in the proxy. The revocability of a proxy that states 
on its face that it is irrevocable shall be governed by the provisions of the 
California General Corporation Law.

         Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may and on the
request of any shareholder or a shareholder's proxy, shall appoint a person to
fill the vacancy.

         Inspectors of Election shall:

         (a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum and the
authenticity, validity, and effect of proxies;

         (b) Receive votes, ballots, or consents;

         (c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;

         (d) Count and tabulate all votes or consents;


                                       4
<PAGE>

         (e) Determine when the polls shall close;

         (f) Determine the result; and

         (g) Perform any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.

                                   ARTICLE III
                                    TRUSTEES

         Section 1. POWERS. Subject to the applicable provisions of the
Declaration of Trust and these Bylaws relating to actions required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the Trust shall be managed, and all powers shall be exercised by or
under the direction of, the Board of Trustees.

         Section 2. NUMBER AND QUALIFICATION OF Trustees The authorized number
of Trustees shall be not less than 7 nor more than 11 until changed by a duly
adopted amendment to the Bylaws or by resolution of the Trustees. The selection
and nomination of disinterested directors is committed solely to the discretion
of a Nominating Committee consisting of all sitting disinterested directors
except where the remaining director or directors are interested persons.

         Section 3. VACANCIES. Vacancies on the Board of Trustees may be filled
by a majority of the remaining Trustees, though less than a quorum, or by a sole
remaining Trustee, unless the Board of Trustees calls a meeting of shareholders
for the purpose of electing Trustees. In the event that at any time less than a
majority of the Trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
Trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission.

         Section 4. LOCATION OF MEETING; MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any location within or outside the
Commonwealth of Massachusetts. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another, and all such Trustees shall
be deemed to be present in person at the meeting; provided that, in accordance
with the provisions of the Investment Company Act of 1940, the Board may not
transact by such a meeting any business which involves the entering into, or the
approval, performance, or renewal of any contract or agreement, whereby a person
undertakes regularly to serve or act as the Fund's investment advisor or 
principal underwriter.

         Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held at such time as shall from time to time be fixed by the Board of
Trustees. Such regular meetings may be held without notice.

                                       5
<PAGE>

         Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose may be called at any time by the Chairman of the Board or the
President or any Vice President or the Secretary or any two (2) Trustees.

         Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each Trustee at that Trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
meeting is to be held. In case the notice is delivered personally or by
telephone or telegraph, it shall be given at least forty-eight (48) hours before
the time the meeting is to be held. Any oral notice given personally or by
telephone may be communicated either to a Trustee or to a person at the office
of the Trustee who the person giving the notice has reason to believe will
promptly communicate it to the Trustee. The notice need not specify the purpose
of the meeting or the place f the meeting is to be held at the principal
executive office of the Trust.

         Section 7. QUORUM. A majority of the authorized number of Trustees
shall constitute a quorum, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of the Trustees
present at a meeting duly held, at which a quorum is present, shall be regarded
as the act or decision of the Board of Trustees, subject to the provisions of
the Declaration of Trust. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of one or more
Trustees if any action taken is approved by at least a majority of the required
quorum for that meeting.

         Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any Trustee who, either before or after the meeting, signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting
before or at its commencement the lack of notice to that Trustee.

         Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and location.

         Section 10. NOTICE OF ADJOURNMENT. Notice of the time and location of
an adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours. In such a case notice of the time and location
shall be given before the time of the adjourned meeting, in the manner specified
in Section 6 of this Article III, to the Trustees who were present at the time
of the adjournment.

         Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Trustees may be taken without a meeting, if a
majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action; provided that, in accordance
with the Investment Company Act of 1940, such written consent does not approve
the entering into, or the renewal, or performance, of any contract or agreement,
whereby a person undertakes regularly to serve or act as the Trust's investment
advisor or principal underwriter. Any other action by written consent shall have
the same force and effect 



                                       6
<PAGE>

as a majority vote of the Board of Trustees. Written consents shall be filed
with the minutes of the proceedings of the Board of Trustees.

         Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise, and receiving compensation for those services.

                                   ARTICLE IV
                                   COMMITTEES

         Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of Trustees designate
one or more committees, each consisting of two (2) or more Trustees, to serve at
the pleasure of the Board. The Board may designate one or more Trustees as
alternate members of any committee who may replace any absent member at any
meeting of the committee. Any committee, to the extent provided in the
resolution of the Board, shall have the authority of the Board, except with
respect to:

         (a) the approval of any action which under applicable law also requires
shareholders' approval or approval of the outstanding shares, or requires
approval by a majority of the entire Board or certain members of said Board;

         (b) the filling of vacancies on the Board of Trustees or on any
committee;

         (c) the fixing of compensation of the Trustees for serving on the Board
of Trustees or on any committee;

         (d) the amendment or repeal of the Declaration of Trust or of the
Bylaws or the adoption of new Bylaws;

         (e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable;

         (f) a distribution to the shareholders of the Trust, except at a rate
or in a periodic amount or within a designated range determined by the Board of
Trustees; or

         (g) the appointment of any other committees of the Board of Trustees or
the members of these committees

         Section 2. MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, and notice of special meetings of
committees shall also 

                                       7
<PAGE>

be given to all alternate members who shall have the right to attend all
meetings of the committee. The Board of Trustees may adopt rules for the
government of any committee consistent with the provisions of these Bylaws.

                                    ARTICLE V
                                    OFFICERS

         Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a Chairman of the Board, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.

         Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.

         Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint, and
may empower the President to appoint, such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority, and perform such duties from time to time, as are provided in these
Bylaws or as the Board of Trustees may from time to time determine.

         Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board if Trustees or, except in the case of an officer
chosen by the Board of Trustees, by any officer upon such power of removal may
be conferred by the Board of Trustees.

         Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.

         Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause shall be filled in the
manner prescribed in these Bylaws for regular appointment to that office.

         Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall if present preside at meetings of the Board of
Trustees, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
Bylaws.

         Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the Chairman of the Board, if there be
such an officer, the President 


                                       8
<PAGE>

shall be the principal executive officer and the principal operating officer of
the Trust and shall, subject to the control of the Board of Trustees, have
general supervision, direction and control of the business and the officers of
the Trust. He shall preside at all shareholder meetings and, in the absence of
the Chairman of the Board or if there be none, at all meetings of the Board of
Trustees. He shall have the general powers and duties of management usually
vested in the office of President of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees or these Bylaws.

         Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Trustees or, if not ranked, a Vice President designated by the Board of
Trustees, shall perform all the duties of the President, and when so acting,
shall have all powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Trustees or by these Bylaws, and by the President or the Chairman of
the Board.

         Section 9. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust, or such other place as the Board of
Trustees may direct, a book of minutes of all meetings and actions of Trustees,
committees of Trustees, and shareholders with the time and location, whether
regular or special, and, if special, how authorized; the notice given; the names
of those present at Trustees' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings and the proceedings of
all such meetings.

         The Secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
as determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses; the number, series, and classes of shares held by each; the number
and date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.

         The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and the Board of Trustees required by these Bylaws, or by
applicable law, to be given, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these Bylaws.

         Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the principal financial and accounting officer of the Trust, and shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the property and business transactions of the Trust,
including accounts of its assets, liabilities, receipts, disbursements, gains, 
losses, capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any Trustee.

         The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Trust with such depositories as
may be designated by the Board of Trustees. He shall disburse the funds of the
Trust as may be ordered by the Board of Trustees; shall render to the President
and Trustees, whenever they request it, an account of all of his 


                                       9
<PAGE>

transactions as Chief Financial Officer and of the financial condition of the
Trust; and shall have other powers and perform such other duties as may be
prescribed by the Board of Trustees or these Bylaws.

                                   ARTICLE VI
                     INDEMNIFICATION OF TRUSTEES, OFFICERS,
                           EMPLOYEES AND OTHER AGENTS

         Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee, or
other agent of this Trust, or is or was serving at the request of this Trust as
a Trustee, director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, Trust or other enterprise, or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification under this Article.

         Section 2. ACTIONS OTHER THAN BY THE TRUST: This Trust shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of this Trust
and, in the case of a criminal proceeding, had no reasonable cause to believe
the conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
the best interests of this Trust, or that the person had reasonable cause to
believe that the person's conduct was unlawful.

         Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that person is or was an agent of
this Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action, if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.

         Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.

         No indemnification shall be made under Sections 2 or 3 of this Article:


                                       10
<PAGE>

         (a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of his duties to the
Trust, unless and only to the extent that the court in which that action was
brought shall determine, upon application, that in view of all the circumstances
of the case, the person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine; or

         (b) Of amounts paid in settling or otherwise disposing of a threatened
or pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval, unless the required approval set forth in Section 6
of this Article is obtained.

         Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue, or matter therein, before the court or other body before whom the
proceeding was brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith, provided that the
Board of Trustees, including a majority who are not party to the proceeding and
who are not interested persons of the Trust (as defined in the Investment
Company Act of 1940), also determines that based upon a review of the facts, the
agent was not liable by reason of the disabling conduct referred to in Section 4
of this Article.

         Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by the Trust only
if authorized in each specific case. No indemnification shall be made without a
determination that indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct set forth in
Sections 2 or 3 of this Article and that such agent is not prohibited from
indemnification because of the disabling conduct set forth in Section 4 of this
Article,

         Such determination shall be evidenced by:

         (a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and who are not interested persons of the Trust (as
defined in the Investment Company Act of 1940); or

         (b)  A written opinion of independent legal counsel.

         Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.


                                       11
<PAGE>

         Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.

         Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6, in any circumstances
where it appears that:

         (a) It would be inconsistent with a provision of the Declaration of
Trust, a resolution of the shareholders, or an agreement in effect at the time
the alleged cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid which prohibits or otherwise limits
indemnification; or

         (b) It would be inconsistent with any condition expressly imposed by a
court in approving a settlement.

         Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.

         Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager, or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.

                                  ARTICLE VII
                              RECORDS AND REPORTS

         Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series and classes of shares
held by each shareholder.

         Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The Trust shall keep
at its principal executive office the original or a copy of these Bylaws as
amended to date, which shall be open to inspection by shareholders at all
reasonable times during office hours.

         Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such location or locations designated by the Board of Trustees, or in
the absence of such designation, at the 


                                       12
<PAGE>

principal executive office of the Trust. The minutes shall be kept in written
form, and the accounting books and records shall be kept either in written form
or in any other form capable of being converted into written form. The minutes
and accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting Trust certificate at any
reasonable time during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a voting Trust
certificate. The inspection may be made in person or by an agent or attorney and
shall include the right to copy and make extracts.

         Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical property of the Trust. This inspection
by a Trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.

         Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each quarterly period of each fiscal year
and accompanying balance sheet of the Trust as of the end of each such period
that has been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and each such
statement shall be made available at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.

         The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.

                                  ARTICLE VIII
                                 GENERAL MATTERS

         Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed by such person or persons and in such manner as from time to time shall
be determined by resolution of the Board of Trustees.

         Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these Bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.

         Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust shall be issued to each
shareholder provided that the shares are fully paid. All certificates for shares
shall be signed in the name of the Trust by the 


                                       13
<PAGE>

Chairman of the Board, the President or any Vice President and by the Chief
Financial Officer, Controller, Assistant Controller, or the Secretary or
Assistant Secretary, certifying the number of shares and the name of the series
of which the shareholder owns shares. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed on a certificate,
shall have ceased to be that officer, transfer agent, or registrar before that
certificate is issued, the certificate may be issued by the Trust with the same
effect as if that person were an officer, transfer agent, or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation, and transfer of its shares by electronic or
other means.

         Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the Trust and cancelled at the same time. The Board
of Trustees may share certificate or certificate for any other security is lost,
stolen, or destroyed, authorize the issuance of a replacement certificate on
such terms and conditions as the Board of Trustees may require, including a
provision for indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that may be made
against it, including any expense or liability on account of the alleged loss,
theft, or destruction of the certificate or the issuance of the replacement
certificate.

         Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES. The Chairman of
the Board, the President, any Vice President or any other person authorized by
resolution of the Board of Trustees or by any of the foregoing designated
officers, is authorized to vote on behalf of the Trust any and all shares of any
corporations, partnerships, Trusts, or other entities, foreign or domestic, held
in the name of the Trust. The authority granted to these officers to vote, or to
represent on behalf of the Trust any and all shares held by the Trust in any
form of entity may be exercised by any of these officers in person or by any
person authorized to do so by a proxy duly executed by any of these officers.

                                   ARTICLE IX
                              CUSTODY OF SECURITIES

         Section 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of a custodian (including any sub-custodian for
the custodian) all funds, securities and similar investments included in the
Trust property. The custodian (and any sub-custodian) shall be a bank having not
less than $2,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.

         Section 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a custodian agreement or the inability of the custodian to
continue to serve, the Trustees shall promptly appoint a successor custodian. In
the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding voting securities of the
Trust, the custodian shall deliver and pay over all Trust property held by it as
specified in such vote.


                                       14
<PAGE>

         Section 3. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Securities and Exchange Commission (the
"Commission") may adopt, the Trustees may direct the custodian to deposit all or
any part of the securities owned by the Trust in a system for the central
handling of securities established by a national securities exchange association
registered with the Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are tested
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust or its custodian.

         Section 4. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.

                                    ARTICLE X
                                   AMENDMENTS

         Section 1. AMENDMENT BY SHAREHOLDERS. The Bylaws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares of the Trust entitled to vote, except as otherwise provided
by applicable law or by the Declaration of Trust or these Bylaws.

         Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders
as provided in Section 1 of this Article to adopt, amend, or repeal Bylaws, and
except as otherwise provided by applicable law or by the Declaration of Trust,
these Bylaws may be amended, or repealed by the Board of Trustees.




                                       15

                          INVESTMENT ADVISORY AGREEMENT

                              BENHAM MANAGER FUNDS

         Agreement effective this 1st day of June, 1995, between BENHAM MANAGER
FUNDS, a registered open-end management investment company organized as a
business trust in the Commonwealth of Massachusetts (the "Trust"), and BENHAM
MANAGEMENT CORPORATION, a registered investment advisor incorporated in the
State of California (the "Advisor").

         Whereas, the Trust is authorized to issue shares of beneficial interest
in one or more series with each such series representing interests in a separate
portfolio of securities and other assets; and

         Whereas, the Trust currently offers its shares in one series designated
as the Benham Capital Manager Fund (the "Initial Series"), (such Initial Series
together with all other series subsequently established by the Trust with
respect to which the Trust desires to retain the Advisor to render investment
advisory services hereunder and with respect to which the Advisor is willing to
do so being herein collectively referred to as the "Series"). In the event the
Trust establishes one or more series other than the Initial Series with respect
to which it desires to retain the Advisor to render management and investment
advisory services hereunder, it shall notify the Advisor in writing, whereupon
such series shall become a Series hereunder.

         I. DESCRIPTION OF SERVICES TO BE PROVIDED. In consideration for the
compensation hereinafter described, the Advisor agrees to provide the following
services to the Trust and to the Series:

              A. Investment Advice and Portfolio Management. The Advisor shall
manage the investment and reinvestment of the Series' assets in accordance with
the investment objectives and policies of the Series as set forth in the Trust's
registration statement with the Securities and Exchange Commission as amended
from time to time and such instructions as the Trust's board of trustees may
issue. Consistent with the foregoing, the Advisor shall make all determinations
as to the investment of the Series' assets and the purchase and sale of its
portfolio securities and take all steps necessary to implement the same. Such
determinations and services shall also include determining the manner in which
voting rights, rights to consent to corporate actions and other rights
pertaining to the Series' portfolio securities shall be exercised. In placing
orders for the execution of the Series' portfolio transactions, the Advisor
shall use its best efforts to obtain the best possible price and execution and
shall otherwise place such orders subject to and in accordance with any
directions which the Trust's board of trustees may issue from time to time with
respect thereto. The Advisor shall select brokers and dealers for the execution
of portfolio transactions in accordance with the provisions of Section I.B. of
this agreement.

              B. Brokerage. In executing transactions for the Series and
selecting brokers or dealers, the Advisor will use its best efforts to seek the
best price and execution available and shall execute or direct the execution of
all such transactions in a manner both permitted by law and that suits the best
interest of the Series and its shareholders. In assessing the best price and
execution available for any Series transaction, the Advisor will consider all
factors it deems relevant including, but not limited to, breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Consistent
with the obligation to obtain best execution, the Advisor may cause a Series to
pay a broker which provides brokerage and research services to the 


                                       1
<PAGE>

Advisor a commission for effecting a securities transaction in excess of the
amount another broker might have charged. Such higher commissions may not be
paid unless the Advisor determines in good faith that the amount paid is
reasonable in relation to the services received in terms of the particular
transaction or the Advisor's overall responsibilities to the Series and any
other of the Advisor's clients.

On occasions when the Advisor deems the purchase or sale of a security to be in
the best interest of the Series as permitted by applicable law, the Advisor may
aggregate the securities to be sold or purchased with purchases of sales of
other funds in order to obtain the best execution of the order or lower
brokerage commissions, if any. The Advisor may also on occasion purchase or sell
a particular security for one or more clients in different amounts. On either
occasion, and to the extent permitted by applicable law and regulations,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Advisor in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Trust and to such other customers.

              C. Reports and Information. The Advisor shall render regular
reports to the Trust at quarterly meetings of the board of trustees and at such
other times as may reasonably be requested by the Trust's board of (i) the
decisions it has made with respect to the Series' assets and the purchase and
sale of its portfolio securities, (ii) the reasons for such decisions and
related actions and, (iii) the extent to which those decisions have been
implemented. In addition, the Advisor will provide the Trust with such
accounting and statistical data as it requires for the preparation of
registration statements, reports and other documents required by federal and
state securities, tax and other applicable laws and regulations and such
additional documents and information as the Trust may reasonably request for the
management of its affairs.

              D. Promotion and Distribution. The Advisor shall promote the sale
and distribution of the Series' shares to the general public in such a manner
and at such times and places as the Advisor shall, in the exercise of reasonable
discretion, determine; and otherwise as the Advisor and the Company's board of
trustees may from time to time agree.

         II. COMPENSATION FOR SERVICES.

              (a) Amount of Compensation. As compensation for the services
rendered and duties assumed by the Advisor, the Trust, on behalf of the Series,
shall, within ten (10) days after the last day of each calendar month, pay the
Advisor an advisory fee equal to the amount determined using the following
formula: (A) a Trust Fee plus an Individual Fund Fee (if any), minus (B) the
amount by which the Series' Expenses exceed the Expense Guarantee Rate as
defined below, minus (C) any further amount by which the Advisor publicly
announces it will reduce the Series' Expenses, plus (D) the amount of any
recoupment as described below.

         The Advisor's compensation shall be computed and accrued daily.

         Upon termination of this agreement before the end of any calendar
month, the fee for the period from the end of the calendar month preceding the
month of termination to the date of termination shall be prorated according to
the proportion which the number of calendar days in the month prior to the date
of termination bears to the number of calendar days in the month of termination,
and shall be payable within ten (10) days after the date of termination. For
this purpose, the value of the Series' net assets shall be computed by the same
method at the end of each business day as the Series uses to compute the value
of its net assets in connection with the determination of the net asset value of
Series shares, all as more fully set forth in the Series' prospectus. To the
extent that Expenses of the Series in excess of the Series' Expense Guarantee
Rate exceed the total of the Trust Fee and Individual Fund Fee (if any), plus
any recoupment due, the Advisor will reimburse the Series for such excess.



                                       2
<PAGE>

              (b) Determination of Trust Fee. The Trust Fee for each Series
shall be equal to that Series' pro-rata share of the value of the aggregated
average daily net assets of the Trust, determined for each calendar day,
pursuant to the following schedule of annualized rates:

                        0.65% of the first $100 million;
                        0.60% of the next $100 million;
                        0.55% of the next $100 million;
                        0.50% of the next $100 million;
                        0.45% of the next $100 million;
                         0.37% of the next $1 billion;
                         0.34% of the next $1 billion;
                         0.31% of the next $1 billion;
                         0.30% of the next $1 billion;
                         0.29% of the next $1 billion;
                        0.28% of the next $1 billion; and
                   0.27% of the net assets over $6.5 billion.

              (c) Limitation of Fund Expenses.

                         1.   The Expense Guarantee Rate for each Series is set
                              forth on Schedule A, attached hereto, as such
                              schedule may be amended from time to time by the
                              Trust's board of trustees.

                         2.   The term "Expenses" as used in Section II of
                              this agreement shall mean:

                              A.     The Trust Fee plus the Individual Fund Fee
                                     (if any).

                              B.     Compensation for administrative and
                                     transfer agent services as specified in
                                     Section I.B and II.B of The
                                     Administrative Services Agreement, as
                                     such agreement may be amended from time
                                     to time by the Trust's board of trustees
                                     or shareholders (the "Administrative
                                     Services Agreement").

                              C.     Direct expenses as specified in Section
                                     III.B of the Administrative Services
                                     Agreement.

                              D.     Extraordinary Expenses, as specified in
                                     Section III.C of the Administrative
                                     Services Agreement, are excluded from
                                     the definition of Expenses as set forth
                                     herein.

                         3.   The Advisor will be legally bound by any public
                              announcement that it will reduce, in accordance
                              with the terms of its announcement, the Series'
                              Expenses below the Expense Guarantee Rate.

              (d) Recoupment. The Advisor may recover amounts (representing
Expenses in excess of the Expense Guarantee Rate) which reduced the Advisor's
compensation or that it reimbursed to a Series during the preceding 11 months
if, and to the extent that, for any given month, the Series' expense ratio (net
of reimbursements) was lower than the Expense Guarantee Rate in effect at the
time, but not during any period, during which the Advisor has agreed, pursuant
to paragraph (c)3 above, to limit the Series' Expenses to an amount less than
the Expense Guarantee Rate.


                                       3
<PAGE>

         III. EXPENSES. Except as hereinafter provided, the Advisor shall pay
all of its expenses incurred in the performance of this agreement, including but
not limited to salaries and other compensation of its officers and employees and
all other costs of providing such advice, portfolio management and information
and reports to the Trust and the Series as are required hereunder, and all
expenses associated with any activity primarily intended to result in the sale
of Series' shares, such as advertising, printing and mailing of prospectuses to
other than current shareholders, printing and mailing of sales literature and
compensation of sales personnel.

         IV. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the
Series hereunder are not to be deemed exclusive, and the Advisor shall be free
to render similar services to others. Subject to and in accordance with the
Declaration of Trust and the Bylaws of the Trust and to Section 10(a) of the
Investment Company Act of 1940, it is understood that trustees, officers, agents
and shareholders of the Trust are or may be interested in the Advisor as
directors, officers or shareholders of the Advisor, that directors, officers,
agents or shareholders of the Advisor are or may be interested in the Trust as
trustees, officers, shareholders or otherwise, that the Advisor is or may be
interested in the Trust as a shareholder or otherwise, and that the effect of
any such interest shall be governed by the Trust's Declaration of Trust, its
Bylaws and the Investment Company Act of 1940.

         V. LIABILITY OF THE ADVISOR. In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of its obligations and duties
hereunder, the Advisor shall not be subject to liability to the Series or to any
shareholder of the Series for any act or omission in the course of, or connected
with, rendering advice or services hereunder or for any losses that may be
sustained in the purchase, retention or sale of any security. No provision of
this agreement shall be construed to protect any trustee or officer of the Trust
or any director or officer of the Advisor from liability in violation of
Sections 17(h) and (i) of the Investment Company Act of 1940.

         VI. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations of the Trust's liability set
forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder shall be limited to the Series and to its assets and that
the Advisor shall not seek satisfaction of any such obligation from the
shareholders of the Series nor from any trustee, officer, employee or agent of
the Trust.

         VII. RENEWAL, TERMINATION AND AMENDMENT. The term of this agreement
shall be from the date first written above, and shall continue in effect, unless
sooner terminated as provided herein, for two years from such date, and shall
continue in effect with respect to a Series from year to year thereafter only so
long as such continuance is specifically approved at least annually by the vote
of either a majority of the outstanding voting securities of that Series or a
majority of the Trust's trustees, and the vote of a majority of the Trust's
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. "Approved at least annually" shall mean approval occurring, with
respect to the first continuance of the agreement, during the 90 days prior to
and including the date of its termination in the absence of such approval, and
with respect to any subsequent continuance, during the 90 days prior to and
including the first anniversary of the date upon which the most recent previous
annual continuance of this agreement became effective. This agreement may be
terminated at any time without payment of any penalty, by the board of trustees
of the Trust, or with respect to a Series, by a vote of the majority of the
outstanding voting securities of such Series upon 60 days' written notice to the
Advisor, and by the Advisor upon 60 days' written notice to the Trust. This
agreement shall terminate automatically in the event of its assignment. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meanings set forth for such terms in the Investment Company Act
of 1940 and Rule 18f-2 thereunder.


                                       4
<PAGE>

         XIII. SEVERABILITY. If any provision of this agreement shall be held or
made invalid by a court decision, statute, rule or similar authority, the
remainder of this agreement shall not be affected thereby.

         IX. APPLICABLE LAW. This agreement shall be construed in accordance
with the laws of the State of California.

         In witness whereof, the parties hereto have caused this instrument to
be executed by their officers designated below on the day and year first written
above.


BENHAM MANAGER FUNDS


By /s/John T. Kataoka
   John T. Kataoka, President


BENHAM MANAGEMENT CORPORATION


By /s/James M. Benham
   James M. Benham, President



                                       5
<PAGE>

                          INVESTMENT ADVISORY AGREEMENT
                                 APPROVAL RECORD

                                       FOR

                              BENHAM MANAGER FUNDS


================================================================================
SHAREHOLDERS' MEETING (MERGER)                              MAY 31, 1995
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

================================================================================



                                       1
<PAGE>
                             EXPENSE GUARANTEE RATES
                                   SCHEDULE A
                   Expense Guarantee Rates and Effective Dates
              Approved by Board of Directors/Trustees April 3, 1995

================================================================================
                                         (Proposed         BOARD       EFFECTIVE
         FUND                              '95)           APPROVAL       DATES
                                          EXPENSE          DATE               
                                         GUARANTEE             
                                           RATE
================================================================================
CAPITAL PRESERVATION FUND                  .54%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
CAPITAL PRESERVATION FUND II               .75%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
BENHAM CALIFORNIA TAX-FREE AND
MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
  Municipal High-Yield Fund                .62%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
  Municipal Money Market Fund              .58%              "              "
- --------------------------------------------------------------------------------
  Tax-Free Insured Fund                    .62%              "              "
- --------------------------------------------------------------------------------
  Tax-Free Intermediate Fund               .62%              "              "
- --------------------------------------------------------------------------------
  Tax-Free Long-Term Fund                  .62%              "              "
- --------------------------------------------------------------------------------
  Tax-Free Money Market Fund               .54%              "              "
- --------------------------------------------------------------------------------
  Tax-Free Short-Term Fund                 .62%              "              "
- --------------------------------------------------------------------------------
BENHAM EQUITY FUNDS
- --------------------------------------------------------------------------------
  Benham Equity Growth Fund                .75%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
  Benham Gold Equities Index Fund          .75%              "              "
- --------------------------------------------------------------------------------
  Benham Income & Growth Fund              .75%              "              "
- --------------------------------------------------------------------------------
  Benham Utilities Income Fund             .75%              "              "
- --------------------------------------------------------------------------------



<PAGE>
================================================================================
                                         (Proposed         BOARD       EFFECTIVE
                                            '95)          APPROVAL       DATES
           FUND                           EXPENSE          DATE               
                                         GUARANTEE             
                                           RATE
================================================================================
  Benham Global Natural Resources                                              
  Index Fund                               .75%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
BENHAM GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
  Benham GNMA Income Fund                  .65%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
  Benham Treasury Note Fund                .65%              "              "
- --------------------------------------------------------------------------------
  Benham Government Agency Fund            .50%              "              "
- --------------------------------------------------------------------------------
  Benham Adjustable Rate Government        .65%              "              "
- --------------------------------------------------------------------------------
  Securities Fund
- --------------------------------------------------------------------------------
  Benham Short-Term Treasury and           .65%              "              "
- --------------------------------------------------------------------------------
  Agency Fund
- --------------------------------------------------------------------------------
  Benham Long-Term Treasury and            .65%              "              "
  Agency Fund
- --------------------------------------------------------------------------------
BENHAM INTERNATIONAL FUNDS
  Benham European Government Bond          .90%           4/3/95         6/1/95
  Fund                                                                     to
                                                                         5/31/96
- --------------------------------------------------------------------------------
BENHAM INVESTMENT TRUST
  Benham Prime Money Market Fund           .50%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/98
- --------------------------------------------------------------------------------
BENHAM MANAGER FUNDS
  Benham Capital Manager Fund              1.00%          4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
BENHAM MUNICIPAL TRUST


<PAGE>
================================================================================
                                         (Proposed         BOARD       EFFECTIVE
                                           '95)          APPROVAl        DATES
            FUND                          EXPENSE          DATE                
                                         GUARANTEE             
                                           RATE
================================================================================
  Benham National Tax-Free Money           .64%           4/3/95         6/1/94
  Market Fund                                                              to
                                                                         5/31/96
- --------------------------------------------------------------------------------
  Benham National Tax-Free                 .69%              "              "
  Intermediate-Term Fund
- --------------------------------------------------------------------------------
  Benham National Tax-Free Long-Term       .69%              "              "
  Fund
- --------------------------------------------------------------------------------
  Benham Florida Municipal Money           .65%              "              "
  Market Fund
- --------------------------------------------------------------------------------
  Benham Florida Municipal                 .69%              "              "
  Intermediate-Term Fund
- --------------------------------------------------------------------------------
  Benham Arizona Municipal                 .69%              "              "
  Intermediate-Term Fund
- --------------------------------------------------------------------------------
BENHAM TARGET MATURITIES TRUST
  1995 Portfolio                           .70%           4/3/95         6/1/95
                                                                           to
                                                                         5/31/96
- --------------------------------------------------------------------------------
  2000 Portfolio                           .70%              "              "
- --------------------------------------------------------------------------------
  2005 Portfolio                           .70%              "              "
- --------------------------------------------------------------------------------
  2010 Portfolio                           .70%              "              "
- --------------------------------------------------------------------------------
  2015 Portfolio                           .70%              "              "
- --------------------------------------------------------------------------------
  2020 Portfolio                           .70%              "              "
================================================================================




                             DISTRIBUTION AGREEMENT

                                The Benham Group



         AGREEMENT between each of the open-end management  investment companies
listed on Schedule A, attached hereto, as of the dates noted on such Schedule A,
together with all other open-end management  investment  companies  subsequently
established  and made subject to this  agreement in accordance  with paragraph X
(each a "Fund", or,  collectively,  the "Funds") and BENHAM  DISTRIBUTORS,  INC.
("Distributor"),  a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES, INC.
("TCC") and a California  corporation  registered  as a  broker-dealer  with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
with the California Department of Corporations under the California Corporations
Code, and a member of the National  Association of Securities Dealers,  Inc., as
follows:

I.        GENERAL  RESPONSIBILITIES.  Each Fund herewith engages  Distributor to
          act as exclusive distributor of the shares of its separate series, and
          any other series which may be designated  from time to time  hereafter
          ("Series"),  named and  described  on  Schedule A. Said sales shall be
          made only to Investors  residing in those states in which each Fund is
          registered. After effectiveness of each Fund's registration statement,
          Distributor  will hold  itself  available  to receive  by mail,  telex
          and/or  telephone,  orders for the purchase of shares and will receive
          by mail, telex and/or telephone, orders for the purchase of shares and
          will accept or reject such orders on behalf of the Funds in accordance
          with the provisions of the applicable  Funds  prospectus,  and will be
          available  to  transmit  such  orders as are so accepted to the Funds'
          transfer  agent as promptly as possible for  processing at the shares'
          net asset value next determined in accordance with the prospectuses.

          A.   Offering  Price.  All  shares  sold  by  Distributor  under  this
               Agreement  shall  be  sold  at the  net  asset  value  per  share
               ("Offering  Price")  determined  in the manner  described in each
               Fund's  prospectus,  as it may be amended from time to time, next
               computed  after the order is accepted by  Distributor.  Each Fund
               shall  determine and promptly  furnish to Distributor a statement
               of the  Offering  Price of shares of said Fund's  series at least
               once on each  day on  which  the  Fund is  open  for  trading  as
               described in its current prospectus.

          B.   Promotion.  Each Fund  shall  furnish to  Distributor  for use in
               connection  with  ---------  the sale of its shares such  written
               information   with  respect  to  said  Fund  as  Distributor  may
               reasonably  request.  Each Fund represents and warrants that such
               information,  when  authenticated  by the signature of one of its
               officers, shall be true and correct. Each Fund shall also furnish
               to Distributor copies of its reports to its shareholders and such
               additional  information regarding said Fund's financial condition
               as   Distributor   may   reasonably   request.    Any   and   all
               representations, statements and solicitations respecting a Fund's
               shares made in advertisements,  sales literature and in any other
               manner whatsoever shall be limited to and conform in all respects
               to the information provided hereunder.

          C.   Regulatory  Compliance.  Each Fund shall  prepare  and furnish to
               Distributor  ---------------------- from time to time such number
               of copies of the most  recent form of its  prospectus  filed with
               the  Securities  and  Exchange   Commission  as  Distributor  may
               reasonably   request  and  authorizes   Distributor  to  use  the
               prospectus  in connection  with the sale of its shares.  All such
               sales shall be initiated by offer of, and conducted in accordance
               with, such prospectus and all of the provisions of the Securities
               and  Exchange  Act of 1933,  the  Investment  Company Act of 1940
               ("1940  Act")  and  all the  rules  and  regulations  thereunder.
               Distributor shall furnish applicable federal and state regulatory
               authorities  with any  information or reports in connection  with
               its services  under this  Agreement  which such  authorities  may
               lawfully  request  in  order  to  ascertain  whether  the  Funds'
               operations are being  conducted in a manner  consistent  with any
               applicable law or regulations.

                                       1
<PAGE>

          D.   Acceptance. All orders for the purchase of its shares are subject
               to acceptance by each Fund.

          E.   Compensation.  Except for the promises of the Funds  contained in
               this Agreement and its performance thereof, Distributor shall not
               be entitled to compensation for its services hereunder.

II.      EXPENSES.

          A.   Each Fund shall pay all fees and expenses in connection  with the
               preparation,  printing and  distribution  to  shareholders of its
               prospectus and reports and other  communications to shareholders,
               future  registrations  of shares under the Securities Act of 1933
               and  the  1940  Act,  amendments  of the  registration  statement
               subsequent to the initial offering of shares,  the  qualification
               of shares for sale in  jurisdictions  designated by  Distributor,
               the issue and  transfer  of shares,  including  the  expenses  of
               confirming  purchase  and  redemption  orders  and  of  supplying
               information,  prices and other data to be  furnished by the Funds
               under this Agreement.

          B.   Distributor  shall  pay all fees and  expenses  of  printing  and
               distributing  any prospectuses or reports prepared for its use in
               connection with the  distribution of shares,  the preparation and
               mailing of any other  advertisements  or sales literature used by
               Distributor in connection  with the  distribution of such shares,
               its   registration   as  a  broker  and  the   registration   and
               qualification  of its  officers,  directors  and  representatives
               under federal and state laws.

III.      INDEPENDENT   CONTRACTOR.   Distributor   shall   be  an   independent
          contractor.  Neither  Distributor  nor any of its officers,  trustees,
          employees or  representatives  is or shall be an employee of a Fund in
          connection with the  performance of  Distributor's  duties  hereunder.
          Distributor   shall  be  responsible  for  its  own  conduct  and  the
          employment,  control,  compensation  and  conduct  of its  agents  and
          employees  and for  injury to such  agents or  employees  or to others
          through its agents and employees.

IV.       INDEMNIFICATION.  Each of the parties to this Agreement  shall defend,
          indemnify  and hold the other  harmless  from and  against any and all
          claims, demands, suits, actions, losses, damages and other liabilities
          arising  from,  or as a result of, the acts or  omissions  or acts and
          omissions  of such party  made or omitted in the course of  performing
          this Agreement.

V.        AFFILIATION  WITH THE FUNDS.  Subject to and in  accordance  with each
          Fund's formative documents, Section 10 of the 1940 Act and Article III
          of this  Agreement,  it is  understood  that  the  directors/trustees,
          officers,  agents  and  shareholders  of  the  Funds  are  or  may  be
          interested in Distributor as directors,  officers,  or shareholders of
          Distributor;  that  directors,  officers,  agents or  shareholders  of
          Distributor   are   or   may   be   interested   in   the   Funds   as
          directors/trustees, officers, shareholders (directly or indirectly) or
          otherwise,  and that the effect of any such interest shall be governed
          by said Act and Article.

VI.      BOOKS AND  RECORDS.  It is  expressly  understood  and agreed  that all
         documents,  reports, records, books, files and other materials relating
         to this Agreement and the services to be performed  hereunder  shall be
         the sole  property of the Funds and that such  property,  to the extent
         held by Distributor,  shall be held by Distributor as agent, during the
         effective term of this  Agreement.  This material shall be delivered to
         the  applicable  Fund upon the  termination of this Agreement free from
         any claim or retention of rights by Distributor.

                                       2
<PAGE>
VII.      SERVICES  NOT  EXCLUSIVE.  The  services of  Distributor  to the Funds
          hereunder are not to be deemed  exclusive,  and  Distributor  shall be
          free to render similar services to others.

VII.      RENEWAL AND TERMINATION.  The term of this Agreement shall be from the
          date  of its  approval  by the  vote of a  majority  of the  board  of
          directors/trustees  of each Fund, and it shall continue in effect from
          year  to  year  thereafter  only  so  long  as  such   continuance  is
          specifically  approved at least  annually by the vote of a majority of
          its  directors/trustees,  and the vote of a  majority  of  those  said
          directors/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.  "Approved at least
          annually"  shall mean  approval  occurring,  with respect to the first
          continuance of the Agreement, during the ninety (90) days prior to and
          including the date of its termination in the absence of such approval,
          and with respect to any subsequent continuance, during the ninety (90)
          days prior to and  including  the first  anniversary  of the date upon
          which the most recent  previous  annual  continuance  of the Agreement
          became effective.

                  This  Agreement may be terminated at any time without  payment
         of any  penalty,  by a Fund's board of  directors/trustees,  upon sixty
         (60) days written notice to Distributor,  and by Distributor upon sixty
         (60) days written notice to the Fund.  This Agreement  shall  terminate
         automatically  in the event of its assignment.  The terms  "assignment"
         and "vote of a majority of the  outstanding  voting  securities"  shall
         have the  meaning set forth for such terms in the  Investment  1940 Act
         and Rule 18f-2 thereunder.

VIII.     SEVERABILITY. If any provision of this Agreement shall be held or made
          invalid by a court decision,  statute, rule or similar authority,  the
          remainder of this Agreement shall not be affected thereby.

IX.       APPLICABLE  LAW. This Agreement  shall be construed in accordance with
          the laws of the State of California.

                                       3
<PAGE>



X.        AMENDMENT. This Agreement and the Schedule A forming a part hereof may
          be amended at any time by a writing signed by each of the Parties.  In
          the event that one or more additional Funds are  established,  and the
          governing  bodies of said Funds by resolution  indicate that the Funds
          are to be made Parties to this  Agreement,  Schedule A hereto shall be
          amended to reflect the addition of such new Funds,  and such new Funds
          shall become Parties hereto. In the event that any of the Funds listed
          on Schedule A terminates its  registration as a management  investment
          company,  or otherwise ceases operations,  Schedule A shall be amended
          to reflect the deletion of such Fund.





By __/s/James M. Benham______________                __6/1/95__________________
     James M. Benham, President                      Date
     BENHAM DISTRIBUTORS, INC.






By __/s/Douglas A. Paul______________                __6/1/95___________________
     Douglas A. Paul, Secretary                      Date
     to the FUNDS





                                       4
<PAGE>



                             DISTRIBUTION AGREEMENT

                                  SCHEDULE A

     Effective  as of the date  herein  below  indicated,  each of the  open-end
management  investment  companies  listed  below is  hereby  made a party to the
Benham Group Distribution Agreement dated June 1, 1995.



================================================================================
                             FUND                         BOARD APPROVAL DATE
================================================================================
Capital Preservation Fund, Inc.                              April 3, 1995
================================================================================
Capital Preservation Fund II, Inc.                           April 3, 1995
================================================================================
Benham Target Maturities Trust
================================================================================
     1995 Portfolio                                          April 3, 1995
================================================================================
     2000 Portfolio                                                "
================================================================================
     2005 Portfolio                                                "
================================================================================
     2010 Portfolio                                                "
================================================================================
     2015 Portfolio                                                "
================================================================================
     2020 Portfolio                                                "
================================================================================
Benham Government Income Trust
================================================================================
     Benham Treasury Note Fund                               April 3, 1995
================================================================================
     Benham GNMA Income Fund                                       "
================================================================================
     Benham Government Agency Fund                                 "
================================================================================
     Benham Adjustable Rate Government Securities Fund             "
================================================================================
     Benham Short-Term Treasury and Agency Fund                    "
================================================================================
     Benham Long-Term Treasury and Agency Fund                     "
================================================================================
Benham California Tax-Free and Municipal Funds
================================================================================
     Tax-Free Money Market Fund                              April 3, 1995
================================================================================
     Tax-Free Intermediate-Term Fund                               "
================================================================================
     Tax-Free Long-Term Fund                                       "
================================================================================
     Municipal High Yield Fund                                     "
================================================================================
     Tax-Free Insured Fund                                         "
================================================================================
     Municipal Money Market Fund                                   "
================================================================================
     Tax-Free Short-Term Fund                                      "
================================================================================

                                       5
<PAGE>

================================================================================
                             FUND                         BOARD APPROVAL DATE
================================================================================
Benham Municipal Trust
================================================================================
     Benham National Tax-Free Money Market Fund           April 3, 1995
================================================================================
     Benham National Tax-Free Intermediate-Term Fund            "
================================================================================
     Benham National Tax-Free Long-Term Fund                    "
================================================================================
     Benham Florida Municipal Money Market Fund                 "
================================================================================
     Benham Florida Municipal Intermediate-Term Fund            "
================================================================================
     Benham Arizona Municipal Intermediate-Term Fund            "
================================================================================
Benham Equity Funds
================================================================================
     Benham Global Natural Resources Index Fund           April 3, 1995
================================================================================
     Benham Gold Equities Index Fund                            "
================================================================================
     Benham Income & Growth Fund                                "
================================================================================
     Benham Equity Growth Fund                                  "
================================================================================
     Benham Utilities Income Fund                               "
================================================================================
Benham International Funds
================================================================================
     Benham European Government Bond Fund                 April 3, 1995
================================================================================
Benham Manager Funds
================================================================================
     Benham Capital Manager Fund                          April 3, 1995
================================================================================
Benham Investment Trust
================================================================================
     Prime Money Market Fund                              April 3, 1995
================================================================================



                                       6

              ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT

                                The Benham Group

     AGREEMENT effective this 1st day of June, 1995, by each open-end management
investment  company  listed on Schedule E attached  hereto and made part of this
agreement by  reference,  each  portfolio of an open-end  management  investment
company listed on Schedule E and all open-end  management  investment  companies
(or  portfolios  thereof)  subsequently  established  and made  subject  to this
Agreement  in   accordance   with   Paragraph  XI.   (individually,   "Fund"  or
collectively,   "Funds"),  and  BENHAM  FINANCIAL  SERVICES,   INC.  ("BFS"),  a
registered transfer agent incorporated under the laws of the State of California
and a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES,  INC. ("TCC"), for
general  administrative,  transfer agency, and dividend  disbursing  services as
follows:

I. ADMINISTRATIVE SERVICES.

          A.   Description of Services.  As  consideration  for the compensation
               described  in Section  I.B,  BFS agrees to provide the Funds with
               the  services  described  and set forth on  Schedule  A  attached
               hereto and made a part of this Agreement by reference.

          B.   Compensation.  As  consideration  for the  services  described in
               Section I.A above, each Fund shall pay BFS a fee equal to its pro
               rata  share  of the  dollar  amount  derived  from  applying  the
               aggregate  average  daily  net  assets  of the  Funds  listed  on
               Schedule E to the rate  schedule set forth on Schedule F attached
               hereto  and  made  a  part  of  this   Agreement   by   reference
               ("fund-level fee"). Each Fund's fund-level fee, or pro rata share
               of the dollar amount  derived from applying the Funds'  aggregate
               average  daily  net  assets  to the rate  schedule  set  forth on
               Schedule F, shall be determined on the basis of its average daily
               net assets relative to all other Funds listed on Schedule E. Said
               fund-level fees shall be calculated and accrued daily and payable
               monthly  in three  installments,  the  first on the  tenth of the
               month (or the next  business  day,  if not a business  day),  the
               second on the  twentieth of the month (or the next  business day,
               if not a  business  day),  and the third not later than the third
               business day of the following month.

II. TRANSFER AGENT SERVICES.

          A.   Services to be Provided.  As  consideration  for the compensation
               described in Section II.B,  BFS will provide each  Portfolio with
               the share transfer and dividend  disbursing services described on
               Schedule B attached  hereto and made a part of this  Agreement by
               reference.  BFS agrees to maintain  sufficient trained personnel,
               equipment,  and supplies to perform such  services in  conformity
               with  the  current   prospectus  of  each  Fund  and  such  other
               reasonable standards of performance as the Funds may from time to
               time specify, and otherwise in an accurate, timely, and efficient
               manner.

          B.   Compensation.  As  consideration  for the  services  described in
               Section II.A,  each Fund agrees to pay BFS the fees  specified on
               Schedule  F for  each  shareholder  account  maintained  and each
               shareholder account  transaction  executed by BFS each month. For
               purposes of this Agreement  "shareholder  account transaction" is
               any one of the  transactions  described  on  Schedule  C attached
               hereto and made a part of this Agreement by reference,  as it may
               be amended from time to time.  Such fees shall be paid monthly in
               three  installments,  the first on the tenth of the month (or the
               next  business  day,  if not a business  day),  the second on the
               twentieth  of the  month  (or the  next  business  day,  if not a
               business  day),  and the third on the third  business  day of the
               following month.

                                       1
<PAGE>

          C.   Third Party  Servicing.  Subject to  approval  by the  applicable
               Fund's Board of Directors/Trustees, BFS may enter into agreements
               with  third  parties  for the  performance  of one or more of its
               obligations  under this Agreement (and such other services as BFS
               may  desire) for all or any  portion of the  shareholders  of the
               Fund  who  maintain  shareholder  accounts  through,  or who  are
               otherwise  provided  services by, any such third parties.  To the
               extent  that such  third  parties  perform  services  that BFS is
               obligated to perform under this Agreement,  BFS shall be entitled
               to  receive  the fees to which it  would  otherwise  be  entitled
               hereunder  had it performed  such  services  directly;  provided,
               however,  that the Fund's Board of  Directors/Trustees  may limit
               amounts  receivable  by BFS under  this  Agreement  for  services
               performed  on its behalf by third  parties.  BFS will furnish the
               Fund  shareholder  and  account  records  and data upon which the
               Fund's obligations under this Agreement are calculated,  and such
               other data  pertaining to any services  rendered by third parties
               as the Fund may reasonably require. The Fund shall be entitled to
               have any and all such records  audited by the Fund's  independent
               accountants at any time upon reasonable notice to BFS.
             
III. EXPENSES.

          A.   Expenses of BFS. BFS shall pay all expenses incurred in providing
               the  Funds  the  services  and   facilities   described  in  this
               Agreement,  whether or not such expenses are billed to BFS or the
               Funds.

          B.   Direct Expenses.  Any provision of this Agreement to the contrary
               notwithstanding,  each Fund shall pay, or  reimburse  BFS for the
               payment  of,  the   following   expenses   (hereinafter   "direct
               expenses")  whether or not such direct expenses are billed to the
               Funds, BFS, or any related entity:

               1. Fees and expenses of the Fund's Independent Directors/Trustees
                  and meetings thereof;

               2. Fees and costs of investment advisory services;

               3. Fees and costs of independent audits,  income tax preparation,
                  and obtaining  quotations for the purpose of  calculating  the
                  Fund's net asset value;

               4. Fees and costs of  outside  legal  counsel  and legal  counsel
                  employed directly by the Fund;

               5. Fees and costs of custodian and banking services;

               6. Costs   (including    postage)   of   printing   and   mailing
                  prospectuses,  confirmations, proxy statements, and reports to
                  Fund shareholders;

               7. Fees and costs for the  registration  of Fund  shares with the
                  Securities and Exchange  Commission and the  jurisdictions  in
                  which its shares are qualified for sale;

                                       2
<PAGE>

               8. Fees and expenses associated with membership in the Investment
                  Company Institute and the Mutual Fund Education Alliance;

               9. Expenses of fidelity bonding and liability  insurance covering
                  the Fund;

               10.Costs for incoming telephone WATS lines;

               11.Organizational costs.

          C.   Extraordinary  Expenses.  Any provision of this  Agreement to the
               contrary  notwithstanding,  each Fund, as determined by its Board
               of  Directors/Trustees,  shall pay (or  reimburse BFS for payment
               of)  the  following  expenses,  which  shall  be  categorized  as
               Extraordinary  Expenses  and shall be  excluded  from each Fund's
               expense  ratio,  whether  or not the  expense  was  billed to the
               Funds, BFS, or any related entity:

               1. Brokerage commissions

               2. Taxes

               3. Interest

               4. Portfolio insurance premiums

               5. Rating agency fees

               6. Other extraordinary  expenses, as authorized from time to time
                  by each Fund's Board of Directors/Trustees.

IV. TERM. With respect to each Fund, this Agreement shall become  effective upon
its  approval  by vote of a  majority  of the Fund's  shareholders  at a meeting
called for the purpose of voting on such  approval  and a majority of the Fund's
Directors/Trustees, including a majority of those Directors/Trustees who are not
"interested  persons"  of the  Fund  or BFS (as  that  term  is  defined  in the
Investment  Company  Act of 1940),  and shall  continue  until it is  terminated
pursuant to the provisions of Paragraph XII.

V. INSURANCE. The Funds and BFS agree to procure and maintain,  separately or as
joint insureds with their Directors/Trustees,  employees, agents, and others, an
insurance  policy or policies  against loss  arising  from  breaches of trust or
errors and  omissions  and a  fidelity  bond  meeting  the  requirements  of the
Investment  Company Act of 1940 in such amounts and with such deductibles as are
set forth on  Schedule D attached  to this  Agreement  and made a part hereof by
reference, as it may be amended from time to time, and to pay premiums therefor,
provided  that if a Fund or BFS is party  to a policy  in which it is named as a
joint insured,  its liability for premiums on said policy shall be determined on
the basis of  premiums  it would pay to obtain  equivalent  coverage  separately
relative to the premiums each other joint insured would pay to obtain equivalent
coverage separately.

VI. REGISTRATION AND COMPLIANCE.

          A.   BFS represents that it is registered as a transfer agent with the
               Securities and Exchange  Commission ("SEC") pursuant to ss.17A of
               the Securities Exchange Act of 1934 and the rules and regulations
               thereunder,  and agrees to maintain said  registration and comply
               with all of the  requirements of said Act, rules, and regulations
               so long as this Agreement remains in force.

                                       3
<PAGE>

          B.   Each Fund represents that it is an open-end management investment
               company  registered with the SEC under the Securities Act of 1933
               and the  rules  and  regulations  thereunder  and the  Investment
               Company Act of 1940 and the rules and regulations thereunder, and
               that it is authorized  to sell its shares  pursuant to said Acts,
               and the rules and regulations thereunder.

               Each Fund will furnish BFS with a list of those jurisdictions in
               the United States and elsewhere in which it is authorized to sell
               its shares to the general public and maintain the currency of
               said list by amendment. Each Fund agrees to promptly advise BFS
               of any change in or limitation upon its authority to carry on
               business as an investment company pursuant to said Acts, and the
               statutes, rules, and regulations of each and every jurisdiction
               in which its shares are registered for sale.

VII.  DOCUMENTATION.  Each of the Funds and BFS shall  supply to the other  upon
request such  documentation as is required by them to carry out their respective
obligations under this Agreement, including, but not limited to, declarations of
trust,  articles  of  incorporation,   bylaws,  codes  of  ethics,  registration
statements,  permits,  financial  reports,  third party audits,  certificates of
authority, computer tapes, and related items.

VIII.  PROPRIETARY  INFORMATION.  It is agreed that all  records and  documents,
except computer data processing  programs and any related  documentation used or
prepared by, or on behalf of, BFS for the performance of its services hereunder,
are the  property of the Funds and shall be open to audit or  inspection  by the
Funds or their duly  authorized  agents during the normal business hours of BFS,
shall be maintained in such fashion as to preserve the  confidentiality  thereof
and to comply with applicable federal and state laws and regulations, and shall,
in whole or any specified  part, be surrendered  and turned over to the Funds or
their duly  authorized  agents upon receipt by BFS of  reasonable  notice of and
request therefor.

IX.  INDEMNITY.  Each Fund shall  indemnify  and hold BFS  harmless  against any
losses, claims, damages,  liabilities, or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand,  action, or suit brought by
any person  other than the Fund  (including a  shareholder  naming the Fund as a
party) and not resulting  from BFS's bad faith,  willful  misfeasance,  reckless
disregard  of  its  obligations  and  duties,  negligence,  or  breach  of  this
Agreement, and arising out of, or in connection with:

          A.   BFS's performance of its obligations under this Agreement;

          B.   Any error or omission in any record (including but not limited to
               magnetic tapes, computer printouts, hard copies, and microfilm or
               microfiche  copies)  delivered,  or caused to be delivered,  by a
               Fund to BFS in connection with this Agreement;

          C.   Bad  faith,  willful  misfeasance,   reckless  disregard  of  its
               obligations and duties, or negligence on the part of the Fund, or
               BFS's acting upon any instructions  reasonably  believed by it to
               have been properly  executed or  communicated  by any person duly
               authorized by the Fund;

          D.   BFS's acting in reliance upon advice reasonably believed by it to
               have been given by counsel for the Funds, or;

          E.   BFS's acting in reliance upon any instrument  reasonably believed
               by it to have been genuine and signed, countersigned, or executed
               by  the  proper   person(s)  in  accordance  with  the  currently
               effective  certificate(s)  of  authority  delivered to BFS by the
               Funds

                                       4
<PAGE>

                       In the event  that BFS  requests a Fund to  indemnify  or
         hold it harmless  hereunder,  BFS shall use its best  efforts to inform
         the Fund of the relevant facts  concerning the matter in question.  BFS
         shall use  reasonable  care to identify  and  promptly  notify the Fund
         concerning any matter which presents,  or appears likely to present,  a
         claim for indemnification against the Fund.

                       Each Fund may elect to defend BFS against any claim which
         may be the subject of indemnification  hereunder. In the event that the
         Fund makes such an  election,  it shall  notify BFS and shall take over
         defense of the claim and, if so requested by the Fund,  BFS shall incur
         no further  legal or other  expenses  related  thereto  for which it is
         entitled to indemnity hereunder; provided, however, that nothing herein
         shall prevent BFS from retaining, at its own expense, counsel to defend
         any claim.  Except with the applicable Fund's prior consent,  BFS shall
         not confess to any claim or make any  compromise in any matter in which
         the Fund  will be asked to  indemnify  or hold BFS  harmless  hereunder
         without the Fund's prior consent.

X. LIABILITY.

          A.   Damages. BFS shall not be liable to any Fund, or any third party,
               for punitive,  exemplary,  indirect,  special,  or  consequential
               damages (even if BFS has been advised of the  possibility of such
               damages)  arising from the performance of its  obligations  under
               this  Agreement,  including  but not  limited to loss of profits,
               loss  of  use of  the  shareholder  accounting  system,  cost  of
               capital,  and expenses for substitute  facilities,  programs,  or
               services.

          B.   Force  Majeure.  Any provision in this  Agreement to the contrary
               notwithstanding,  BFS shall not be  liable  for  delays or errors
               occurring  by reason of  circumstances  beyond its control or the
               control  of any of its  affiliates  and not  attributable  to the
               negligence of BFS or any of its  affiliates,  including,  but not
               limited  to,  acts  of  civil  or  military  authority,  national
               emergencies,  national or regional work stoppages,  fire,  flood,
               catastrophe,  earthquake,  acts of God, insurrection,  war, riot,
               failure  of  communication  systems,  or  interruption  of  power
               supplies.

          C.   Trust Series Sole  Obligor.  BFS is expressly put on notice that,
               for any Fund which is a series of a registered investment company
               organized as a Massachusetts  business trust (a "Trust  Series"),
               liability  under  this  Agreement  shall be  limited to the Trust
               Series  incurring  such liability and to the assets of such Trust
               Series.  BFS shall not have any rights or  remedies  against  any
               trustee, officer, employee, or shareholder of the Trust Series or
               any other  series of the Trust for breach of this  Agreement  nor
               recourse to the  property of any such  persons or other series of
               the Trust for satisfaction of any judgment or other claim against
               the Trust Series.

XI.  AMENDMENT.  This  Agreement and the Schedules  forming a part hereof may be
amended at any time, with or without  shareholder  approval (except as otherwise
required by law),  by a document  signed by each of the parties  hereto.  In the
event  that one or more  additional  Funds are  established,  and the  governing
bodies  of said  Funds by  resolution  indicate  that the  Funds  are to be made
parties to this  Agreement,  Schedule E hereto  shall be amended to reflect  the
addition of such new Funds, and such new Funds shall become parties hereto.  Any
change in a Fund's registration  statement or other compliance documents,  or in
the forms  relating  to any plan,  program,  or service  offered by its  current
prospectus which would require a change in BFS's obligations  hereunder shall be
subject to BFS's approval, which shall not be unreasonably withheld.   

                                       5
<PAGE>

XII.  TERMINATION.  This Agreement may be terminated by any Fund with respect to
said Fund, or by BFS, without cause,  upon 120 days' written notice to the other
party, and at any time for cause in the event that such cause remains unremedied
for more than 30 days after receipt by the other party of written  specification
of such cause.

               In the event that a Fund designates a successor to perform any of
          BFS's obligations hereunder, BFS shall, at the expense and pursuant to
          the  direction of the Fund,  transfer to such  successor  all relevant
          books,  records, and other data of the Fund in the possession or under
          the control of BFS.

XIII.  SEVERABILITY.  If any clause or provision of this Agreement is determined
to be illegal,  invalid, or unenforceable under present or future laws effective
during  the term  hereof,  then such  clause or  provision  shall be  considered
severed  herefrom and the  remainder of this  Agreement  shall  continue in full
force and effect.

XIV.  APPLICABLE  LAW.  This  Agreement  shall be  subject to and  construed  in
accordance with the laws of the State of California.

XV.  ENTIRE  AGREEMENT.  Except as otherwise  provided  herein,  this  Agreement
constitutes the entire and complete understanding of the parties hereto relating
to the subject matter hereof and supersedes all prior  contracts and discussions
between the parties.




By_/s/John T. Kataoka___________                    Date___6/1/95______________
   John T. Kataoka, President
   BENHAM FINANCIAL SERVICES, INC.




By_/s/Douglas A. Paul___________                    Date___6/1/95______________
   Douglas A. Paul, Secretary
   to the FUNDS

                                       6
<PAGE>
                            ADMINISTRATIVE SERVICES AND
                             TRANSFER AGENCY AGREEMENT

                                     Schedule A
                               Administrative Services


Benham  Financial  Services,  Inc.  agrees to  provide  each Fund the  following
administrative services:

1.   Fund and Portfolio Accounting

     A.   Maintain Fund General Ledger and Journal.

     B.   Prepare and record disbursements for direct Fund expenses.

     C.   Prepare daily money transfers.

     D.   Reconcile all Fund bank and custodian accounts.

     E.   Assist Fund independent auditors as appropriate.

     F.   Prepare daily projections of available cash balances.

     G.   Record trading  activity for purposes of determining  net asset values
          and dividend distributions.

     H.   Prepare  daily  portfolio   evaluation   reports  to  value  portfolio
          securities and determine daily accrued income.

     I.   Determine the daily net asset value per share.

     J.   Determine income and capital gain dividend distributions per share.

     K.   Prepare  monthly,   quarterly,   semi-annual,   and  annual  financial
          statements.

     L.   Provide  financial  information  for  reports  to the  Securities  and
          Exchange   Commission  in  compliance   with  the  provisions  of  the
          Investment  Company Act of 1940 and the  Securities  Act of 1933,  the
          Internal  Revenue  Service,  and  any  other  regulatory  agencies  as
          required.

     M.   Provide  financial,  yield, net asset value,  etc.  information to the
          NASD and other survey and  statistical  agencies as  instructed by the
          Funds.

2.   Internal Audit

     Provide an internal audit staff for independent  review of Fund operations.
     Internal   audit  staff  will  assist  the   independent   accountants   as
     appropriate,  and report  directly to the Audit  Committee  of the Board of
     Directors/Trustees.

                                       7
<PAGE>

3.   Legal

     A.   Provide  registration and other  administrative  services necessary to
          qualify the Fund's shares for sale in those  jurisdictions  determined
          from time to time by each Fund's Board of Directors/Trustees.

     B.   Maintain  registration  statements and make all other filings required
          by the  Securities  and Exchange  Commission  in  compliance  with the
          provisions of the  Investment  Company Act of 1940 and the  Securities
          Act of 1933.

     C.   Prepare and review Fund prospectuses.

     D.   Prepare proxy statements.

     E.   Prepare board materials and maintain minutes of board meetings.

     F.   Provide legal advice.

     The Funds'  outside  counsel  may provide the  services  listed  above as a
     direct Fund expense; however, the Funds have the option to employ their own
     counsel to provide any or all of these services.

4.   Insurance

     A.   Obtain errors and omissions policy.

     B.   Obtain fidelity bond.

5.   Administrative Management

     Provide each Fund with a president, a chief financial officer, a secretary,
     and such other  officers as are necessary to manage the Fund and administer
     its affairs in accordance with law and appropriate  business practice,  all
     subject to the approval of the Fund's Board of Directors/Trustees.


                                       8
<PAGE>
                          ADMINISTRATIVE SERVICES AND
                           TRANSFER AGENCY AGREEMENT

                                   Schedule B
                 Share Transfer and Dividend Disbursing Services


Benham  Financial  Services,  Inc.  agrees to  provide  each Fund the  following
transfer agency and dividend disbursing services:

1.   Maintain shareholder accounts, including processing of new accounts.

2.   Post address changes and other file maintenance for shareholder accounts.

3.   Post all monetary transactions to the shareholder file, including:

          *  Dividends, capital gains, and reverse share splits (BTMT) 
          *  Direct (including  lock box) purchases 
          *  Wire order purchases and redemptions
          *  Letter and telephone redemptions 
          *  Draft redemptions
          *  Letter and telephone exchanges (as well as auto exchanges via VRU 
             and PC transmissions)
          *  Letter and telephone transfers
          *  Certificate issuances
          *  Certificate deposits
          *  Account fees
          *  Automated Clearing House ("ACH") transactions
          *  Exchanges initiated via Open Order Service

4.   Conduct  quality  control  reviews,  by a separate  dedicated  group  using
     statistically  reliable  samples,  of transactions and account  maintenance
     functions before mailing  confirmations,  checks, and/or share certificates
     to shareholders.

5.   Monitor  fiduciary  processing to ensure  accuracy and proper  deduction of
     fees.

6.   Prepare daily  reconciliations  of shareholder  processing  including money
     movement instructions.

7.   Process bounced check collections,  including the immediate  liquidation of
     shares purchased and return of check,  together with confirmation of entire
     transaction, to investor.

8.   Process all distribution and redemption checks and replace lost checks.

9.   Withhold   dividends  and  proceeds  of  redemptions  as  required  by  IRS
     regulations.

10.  Provide draft clearing services:

     *    Maintain signature cards and appropriate corporate resolutions

     *    For drafts in amounts  greater  than  $5,000,  compare  signatures  on
          drafts with signatures on signature cards

     *    Receive  checks  presented  for  payment,  verify  negotiability,  and
          liquidate shares after verifying account balance

     *    For Funds that provide check writing  privileges,  process shareholder
          check orders 

     *    For Funds and  retirement  accounts  that do not provide check writing
          privileges, issue investment slip books

                                       9
<PAGE>

11.Mail confirmations,  checks,  and/or certificates  resulting from transaction
     requests to shareholders.

12.Process all other Fund mailings, including:

     *    Dividend and capital gain distributions
     *    Quarterly, semi-annual, and annual reports
     *    Year-end shareholder tax forms
     *    Directed payments
     *    Quarterly statements
     *    Shareholder drafts (on request)
     *    Combined statements
     *    Annual Prospectus revisions

13.Answer all service-related  telephone inquiries from shareholders and others,
     including:

     *    General and policy inquiries (research and resolve problems);
     *    Fund yield inquiries; and
     *    Shareholder  transaction  requests  and  account  maintenance  changes
          (e.g., redemptions,  transfers,  exchanges, address changes, and check
          book orders).

     In addition:

     *    Monitor processing production and quality;   
     *    Monitor online statistical performance of unit;  and 
     *    Develop reports on telephone activity.

14.Respond  to  written   inquiries  by  researching  and  resolving   problems,
     including:

     *    Initiating   shareholder  account   reconciliation   proceedings  when
          appropriate
     *    Writing and mailing form letters
     *    Responding  to  financial   institutions   regarding  verification  of
          deposits
     *    Initiating proceedings regarding lost share certificates
     *    Logging activities related to written inquiries
     *    Maintaining system for correspondence control
     *    Notifying shareholders of unacceptable transaction requests

15.Maintain and retrieve  all  required  account  history for  shareholders  and
     provide research services as follows:

     *    Daily monitoring of all processing activity
     *    Providing exception reports
     *    Microfilming
     *    Storing, or archiving, and retrieving historical account information
     *    Obtaining microfiche of various reports
     *    Researching shareholder inquiries
     *    Resolving  suspense  items  (e.g.,  transactions  not posted due to an
          error condition on the account)

                                       10
<PAGE>

16.Prepare materials for shareholder meetings, including:

     *    Addressing and mailing proxy solicitation materials
     *    Tabulating  returned  proxies and  supplying  daily  reports to inform
          management about the vote
     *    Providing Fund with an affidavit of mailing
     *    Furnishing certified list of shareholders (hard copy or microfilm) and
          election inspectors

17.Report and remit assets as necessary to satisfy state escheat requirements.

18.Onbehalf of each Fund, file tax documents with appropriate  federal and state
     authorities.


                                       11

<PAGE>
                         ADMINISTRATIVE SERVICES AND
                          TRANSFER AGENCY AGREEMENT

                                 Schedule C
                          Chargeable Transactions


      For purposes of determining  the  per-transaction  portion of the transfer
agency fee,  the  following  types of  transactions  are  considered  chargeable
transactions.

      1. Monetary Transactions

          In general all monetary transactions are chargeable with the exception
     of reversal  transactions.  The only chargeable reversal transaction is for
     returned  investment  checks. The following is a current list of chargeable
     transactions:

================================================================================
            Description        Transaction Type     Sub Code       Literal Code
================================================================================
      Incoming Wires                  PUR              01               11
================================================================================
      Wire Order Purchases            WOF              01               00
================================================================================
      Check Purchases                 PUR              01               02
================================================================================
                                      PUR              01               03
================================================================================
                                      PUR              01               05
================================================================================
                                      PUR              01               08
================================================================================
                                      PUR              01               09
================================================================================
                                      PUR              07               00
================================================================================
                                      PUR              07               01
================================================================================
                                      PUR              08               00
================================================================================
                                      PUR              09               00
================================================================================
                                      PUR              09               01
================================================================================
                                      PUR              09               14
================================================================================
                                      PUR              10               00
================================================================================
                                      PUR              14               00
================================================================================
                                      PUR              15               00
================================================================================
                                      PUR              16               01
================================================================================
                                      PUR              22               00
================================================================================


                                       12
<PAGE>

================================================================================
            Description        Transaction Type     Sub Code       Literal Code 
================================================================================
                                    PUR               01               97
================================================================================
                                    PUR               01               98
================================================================================
                                    PUR               26               00
================================================================================
RPO Purchases                       PUR               05               00
================================================================================
ACH Purchases                       PUR               01               12
================================================================================
                                    PUR               07               02
================================================================================
                                    PUR               09               02
================================================================================
                                    PUR               02               00
================================================================================
                                    PUR               17               00
================================================================================
                                    PUR               18               00
================================================================================
                                    PUR               19               00
================================================================================
                                    PUR               20               00
================================================================================
Direct Dividend &
Capital Gains                       PUR               01               50
================================================================================
                                    PUR               09               50
================================================================================
                                    PUR               07               50
================================================================================
                                    PUR               31               50
================================================================================
Systematic Exchange
Purchases                           PUR               01               60
================================================================================
                                    PUR               07               60
================================================================================
                                    PUR               31               60
================================================================================
BCM Accumulation
Purchases                           PUR               01               32
================================================================================
                                    PUR               01               33
================================================================================
                                    PUR               01               42
================================================================================
                                    PUR               01               43
================================================================================
Exchange
Purchases/Liquidations            EXI/EXO             01               00
================================================================================
                                  EXI/EXO             01               61
================================================================================
                                  EXI/EXO             01               81
================================================================================
                                  EXI/EXO             01               82
================================================================================
                                  EXI/EXO             01               85
================================================================================
                                  EXI/EXO             01               86
================================================================================

                                       13
<PAGE>

================================================================================
            Description        Transaction Type     Sub Code       Literal Code 
================================================================================
                                    PUR                 01             06
================================================================================
                                    PUR                 01             45
================================================================================
                                    PUR                 07             61
================================================================================
                                    PUR                 07             62
================================================================================
                                    PUR                 08             61
================================================================================
                                    PUR                 09             61
================================================================================
                                    PUR                 09             63
================================================================================
                                    PUR                 10             61
================================================================================
                                    PUR                 14             61
================================================================================
                                    PUR                 16             61
================================================================================
                                    PUR                 22             61
================================================================================
                                    PUR                 01             75
================================================================================
                                    PUR                 26             61
================================================================================
Check Purchases
(Reversals)                         PUR                 04             00
================================================================================
                                    PUR                 01            02 R
================================================================================
                                    PUR                 01            03 R
================================================================================
                                    PUR                 01            05 R
================================================================================
                                    PUR                 01            08 R
================================================================================
                                    PUR                 01            09 R
================================================================================
                                    PUR                 07            00 R
================================================================================
                                    PUR                 07            01 R
================================================================================
                                    PUR                 08            00 R
================================================================================
                                    PUR                 09            00 R
================================================================================
                                    PUR                 09            01 R
================================================================================
                                    PUR                 10            00 R
================================================================================
                                    PUR                 14            00 R
================================================================================
                                    PUR                 15            00 R
================================================================================
                                    PUR                 16            01 R
================================================================================
                                    PUR                 22            00 R
================================================================================
                                    PUR                 01            97 R
================================================================================
                                    PUR                 01            98 R
================================================================================


                                       14
<PAGE>

================================================================================
            Description        Transaction Type     Sub Code       Literal Code 
================================================================================
                                   PUR                26             00 R
================================================================================
BCM Accumulation
Liquidations                       LIQ                01              32
================================================================================
                                   LIQ                01              42
================================================================================
Transfers In/Out                   PUR                01              35
================================================================================
                                   PUR                07              71
================================================================================
                                   PUR                08              71
================================================================================
                                   PUR                14              71
================================================================================
                                   PUR                16              71
================================================================================
                                   PUR                22              71
================================================================================
                                   PUR                26              03
================================================================================
                                   PUR                26              71
================================================================================
Transfers In & Out               TFI/TFO              01              00
================================================================================
                                 TFI/TFO              01              01
================================================================================
                                 TFI/TFO              01              81
================================================================================
                                 TFI/TFO              01              82
================================================================================
                                 TFI/TFO              01              85
================================================================================
                                 TFI/TFO              01              86
================================================================================
Check Liquidations                 LIQ                01              00
================================================================================
                                   LIQ                01              01
================================================================================
                                   LIQ                01              02
================================================================================
                                   LIQ                01              03
================================================================================
                                   LIQ                01              04
================================================================================
                                   LIQ                01              05
================================================================================
                                   LIQ                01              06
================================================================================
                                   LIQ                01              07
================================================================================
                                   LIQ                01              08
================================================================================
                                   LIQ                01              09
================================================================================
                                   LIQ                01              10
================================================================================
                                   LIQ                01              11
================================================================================
                                   LIQ                01              12
================================================================================
                                   LIQ                01              39
================================================================================


                                       15
<PAGE>
================================================================================
            Description        Transaction Type     Sub Code       Literal Code 
================================================================================
                                     LIQ                01               14
================================================================================
Wire Order Redemption                WOR                01               00
================================================================================
SWIP Redemption 
Checks                               LIQ                14               00
================================================================================
RPO Liquidations                     LIQ                05               00
================================================================================
Wires Out                            LIQ                01               20
================================================================================
Drafts Paid                          LIQ                03               00
================================================================================
Draft Order Fees                     LIQ                13               11
================================================================================
Other Fees                           LIQ                13               08
================================================================================
                                     LIQ                13               13
================================================================================
                                     LIQ                13               16
================================================================================
                                     LIQ                13               17
================================================================================
                                     LIQ                13               18
================================================================================
                                     LIQ                13               19
================================================================================
                                     LIQ                13               23
================================================================================
BCM Accumulation Fees                LIQ                01               33
================================================================================
                                     LIQ                01               43
================================================================================
Non-BCMG Advisor Fees                LIQ                01               75
================================================================================
                                     WOR                01               75
================================================================================
Certificate Issue                    CIS                01               00
================================================================================
                                     CIS                02               00
================================================================================
Certificate Deposit                  CDP                01               00
================================================================================
ADJ Credits                          ADJ                01               00
================================================================================
                                     PUR                04               01
================================================================================
                                     PUR                26               01
================================================================================
ADJ Debits                           ADJ                02               00
================================================================================


                                       16
<PAGE>
2.   Non-Monetary Transactions

     The   only    chargeable    non-monetary    transactions    will   be   for
     shareholder-initiated  account  maintenance  charges  and  one  transaction
     charge for each new account added to the shareholder file. The following is
     a current list of non-monetary transactions:

================================================================================
                 DESCRIPTION                        TRANSACTION TYPE
================================================================================
General Account Maintenance                          MNT01 - MNT08
================================================================================
Draft Stop Add and Maintenance                           MNT009
================================================================================
Name/Address Change                                      MNT10
================================================================================
New Account Setup                                         N/A
================================================================================
Combined Statement Account Setup                          N/A
================================================================================



                                       17
<PAGE>


                            ADMINISTRATIVE SERVICES AND
                             TRANSFER AGENCY AGREEMENT

                                    Schedule D
                               Liability Insurance


Benham  Financial  Services,  Inc. agrees to provide each Fund at a minimum with
the following insurance coverages subject to a ratable allocation:

        1.    Errors and Omissions and Directors Liability.

                   *       $10 million limit.
                   *       $150,000 deductible for all claims.
                   *       Individual  director/trustee or officer sued - $5,000
                           deductible to aggregate of $25,000.

        2.    Fidelity Insurance (Blanket Bond).

                   *       $25,000,000 limit (each and every occurrence).
                   *       $150,000 deductible.


                                       18
<PAGE>
                        ADMINISTRATIVE SERVICES AND
                         TRANSFER AGENCY AGREEMENT

                                 Schedule E
                            Funds and Portfolios

Effective  as of the  date  indicated  below,  each of the  open-end  management
investment  companies and the portfolios of said open-end management  investment
companies listed below is hereby made a party to the Benham Group Administrative
Services and Transfer Agency Agreement dated June 1, 1995.

 Name of Fund/Portfolio                              Board Approval of Agreement

 Capital Preservation Fund, Inc.                              April 3, 1995

 Capital Preservation Fund II, Inc.                           April 3, 1995

 Benham Target Maturities Trust
     1995 Portfolio                                           April 3, 1995
     2000 Portfolio                                                 "
     2005 Portfolio                                                 "
     2010 Portfolio                                                 "
     2015 Portfolio                                                 "
     2020 Portfolio                                                 "

 Benham Government Income Trust
     Benham GNMA Income Fund                                  April 3, 1995
     Benham Treasury Note Fund                                      "
     Benham Government Agency Fund                                  "
     Benham Adjustable Rate Government Securities Fund              "
     Benham Short-Term Treasury and Agency Fund                     "
 Benham Long-Term Treasury and Agency Fund                          "

 Benham California Tax-Free and Municipal Funds
 Municipal Money Market Fund                                  April 3, 1995
 Tax-Free Money Market Fund                                         "
     Tax-Free Short-Term Fund                                       "
 Tax-Free Intermediate-Term Fund                                    "
 Tax-Free Long-Term Fund                                            "
 Municipal High-Yield Fund                                          "
 Tax-Free Insured Fund                                              "

 Benham Municipal Trust
     Benham National Tax-Free Money Market Fund               April 3, 1995
     Benham National Tax-Free Intermediate-Term Fund                "
     Benham National Tax-Free Long-Term Fund                        "
     Benham Florida Municipal Money Market Fund                     "
     Benham Florida Municipal Intermediate-Term Fund                "
     Benham Florida Municipal Long-Term Fund                        "
     Benham Arizona Municipal Intermediate-Term Fund                "
     Benham Arizona Municipal Long-Term Fund                        "


                                       19
<PAGE>

 Name of Fund/Portfolio                              Board Approval of Agreement

 Benham Equity Funds                          
     Benham Gold Equities Index Fund                          April 3, 1995
     Benham Equity Growth Fund                                      "
     Benham Income & Growth Fund                                    "
     Benham Utilities Income Fund                                   "
     Benham Global Natural Resources Fund                     April 3, 1995

 Benham International Funds
     Benham European Government Bond Fund                     April 3, 1995
     Benham International Equity Fund                               "
     Benham Asian Tiger Fund                                        "
     Benham Emerging Markets Fund                                   "
     Benham Global Bond Fund                                        "

 Benham Investment Trust
     Benham Prime Money Market Fund                           April 3, 1995

 Benham Manager Funds
     Benham Capital Manager Fund                              April 3, 1995

                                       20
<PAGE>

                           ADMINISTRATIVE SERVICES AND
                            TRANSFER AGENCY AGREEMENT
                                   Schedule F
                                  Compensation
<TABLE>
<CAPTION>
=====================================================================================================================
                                                                              Monthly
                                                                        Per-Account Fee for       Per-Transaction
                      Fund/Portfolio                                  Account Maintenance             Fee
=====================================================================================================================
<S>                                                                           <C>                      <C>  
Capital Preservation Fund, Inc.                                               $1.3958                  $1.35
- ---------------------------------------------------------------------------------------------------------------------
Capital Preservation Fund II, Inc.                                            $1.3958                  $1.35
- ---------------------------------------------------------------------------------------------------------------------
Benham California Tax-Free and Municipal Funds                                $1.3958                  $1.35
     Municipal Money Market Fund
     Tax-Free Money Market Fund
     Tax-Free Short-Term Fund
     Tax-Free Intermediate-Term Fund
     Tax-Free Long-Term Fund
     Tax-Free Insured Fund
     Municipal High-Yield Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Equity Funds                                                                                    $1.35
     Benham Gold Equities Index Fund                                          $1.1875
     Benham Equity Growth Fund                                                $1.1875
     Benham Income & Growth Fund                                              $1.3958
     Benham Utilities Income Fund                                             $1.3958
     Benham Global Natural Resources Fund                                     $1.1875
     
- ---------------------------------------------------------------------------------------------------------------------
Benham Government Income Trust                                                $1.3958                  $1.35
     Benham GNMA Income Fund
     Benham Treasury Note Fund
     Benham Government Agency Fund
     Benham Adjustable Rate Government Securities Fund
     Benham Short-Term Treasury and Agency Fund
     Benham Long-Term Treasury and Agency Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham International Funds
     Benham European Government Bond Fund                                     $1.1875                  $1.35

- ---------------------------------------------------------------------------------------------------------------------
Benham Investment Trust                                                       $1.3958                  $1.35
     Benham Prime Money Market Fund
- ---------------------------------------------------------------------------------------------------------------------
Benham Manager Funds                                                          $1.1875                  $1.35
     Benham Capital Manager Fund
- ---------------------------------------------------------------------------------------------------------------------


</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
                                                                              Monthly
                                                                        Per-Account Fee for       Per-Transaction
                      Fund/Portfolio                                  Account Maintenance             Fee
=====================================================================================================================
<S>                                                                           <C>                      <C>  
Benham Municipal Trust                                                        $1.3958                  $1.35
     Benham National Tax-Free Money Market Fund
     Benham National Tax-Free Intermediate-Term Fund
     Benham National Tax-Free Long-Term Fund
     Benham Florida Municipal Money Market Fund
     Benham Florida Municipal Intermediate-Term Fund
     Benham Arizona Municipal Intermediate-Term Fund

- ---------------------------------------------------------------------------------------------------------------------
Benham Target Maturities Trust                                                $1.1875                  $1.35
     1995 Portfolio
     2000 Portfolio
     2005 Portfolio
     2010 Portfolio
     2015 Portfolio
     2020 Portfolio
=====================================================================================================================
</TABLE>

                    Administrative Services Fee Rate Schedule

                  Group Assets                         Fee Rate
        
               up to $4.5 billion                        .11%
                up to $6 billion                         .10%
                up to $9 billion                         .09%
             balance over $9 billion                     .08%



                                       22

                          Independent Auditors' Consent




The Board of Trustees and Shareholders
Benham Manager Funds:

We consent to the inclusion in Benham Manager Funds' Post-Effective Amendment
No. 3 to the Registration Statement No. 33-82264 on Form N-1A under the
Securities Act of 1933 and Amendment No. 5 to the Registration Statement No.
811-8668 filed on Form N- 1A under the Investment Company Act of 1940 of our
reports dated January 5, 1996 on the financial statement and financial
highlights of Benham Capital Manager for the periods indicated therein, which
reports have been incorporated by reference in the Statement of Additional
Information of Benham Manager Funds. We also consent to the reference to our
firm under the "Financial Highlights" in the Prospectus of the Benham California
Tax-Free and Municipal Funds and under the heading "About the Trust" in the
Statement of Additional Information which is incorporated by reference in the
Prospectus.


/s/KPMG Peat Marwick LLP
San Francisco, California
January 26, 1996



                              BENHAM MANAGER FUNDS
                         POST-EFFECTIVE AMENDMENT NO. 3

                 Written Representation Pursuant to Rule 485(e)
                         of the Securities Act of 1933.

         As required by paragraph (e) of Rule 485, I hereby certify, as Vice
President, Secretary, and General Counsel of the Registrant, that this
Post-Effective Amendment No. 3 meets all of the requirements for effectiveness
set forth in paragraph (b) of Rule 485 and hereby represent that such
Post-Effective Amendment No. 3 does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) of Rule 485.




                                                /s/Douglas A. Paul         
                                                Douglas A. Paul
                                                Vice President, Secretary, and
                                                General Counsel


Mountain View, California

16 January, 1996



                                                                         

                           BENHAM CAPITAL MANAGER FUND
                           AVERAGE ANNUAL TOTAL RETURN
                                NOVEMBER 30, 1995



                                    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     $1,201.20     1.000000       20.12%

 Five Years            $1,000.00                   5.000000 

 Ten Years  

 Date Of Inception*    $1,000.00     $1,201.20     1.000000       20.12%


*Date Of Inception:  December 1, 1994




                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that the undersigned, BENHAM MANAGER
FUNDS, hereinafter called the "Trust" and certain trustees and officers of the
Trust, do hereby constitute and appoint James M. Benham, James E. Stowers, III,
William M. Lyons, Douglas A. Paul, and Patrick A. Looby, and each of them
individually, their true and lawful attorneys and agents to take any and all
action and execute any and all instruments which said attorneys and / or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders,
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and / or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the name of
the Trust in its behalf and to affix its seal, and to sign the names of each of
such trustees and officers in their capacities as indicated, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and / or the Investment Company Act
of 1940, as amended, and to any instruments or documents filed or to be filed as
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.

         IN WITNESS WHEREOF, the Trust has caused this Power to be executed by
its duly authorized officers on this the 15th day of December, 1995.

                                  BENHAM MANAGER FUNDS
                                  (A Massachusetts Business Trust)
   
                                  By: /s/John T. Kataoka
                                      John T. Kataoka, President

/s/James M. Benham                    /s/Ezra Solomon
James M. Benham                       Ezra Solomon
Chairman                              Trustee


/s/Albert A. Eisenstat                /s/Isaac Stein
Albert A. Eisenstat                   Isaac Stein
Trustee


/s/Ronald J. Gilson                   /s/Jeanne D. Wohlers
Ronald J. Gilson                      Jeanne D. Wohlers
Trustee                               Trustee
                    
                    
/s/Myron S. Scholes                   /s/James E. Stowers, III
Myron S. Scholes                      James E. Stowers, III
Trustee                               Trustee
                    
                    
/s/Kenneth E. Scott                   /s/Maryanne Roepke
Kenneth E. Scott                      Maryanne Roepke
Trustee                               Treasurer


Attest:

By: /s/Douglas A. Paul
    Douglas A. Paul, Secretary


<TABLE> <S> <C>

<ARTICLE> 6
<CIK> 0000927793
<NAME> BENHAM CAPITAL MANAGER FUND
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          NOV-30-1995
<PERIOD-END>                               NOV-30-1995
<INVESTMENTS-AT-COST>                         48126725
<INVESTMENTS-AT-VALUE>                        51192709
<RECEIVABLES>                                   591716
<ASSETS-OTHER>                                  178109
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                51962534
<PAYABLE-FOR-SECURITIES>                        689622
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       116382
<TOTAL-LIABILITIES>                             806004
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                      46677031
<SHARES-COMMON-STOCK>                          4374062
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                       326266
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        1002805
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       3150428
<NET-ASSETS>                                  51156530
<DIVIDEND-INCOME>                               342154
<INTEREST-INCOME>                              1147056
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  316732
<NET-INVESTMENT-INCOME>                        1172478
<REALIZED-GAINS-CURRENT>                       1002805
<APPREC-INCREASE-CURRENT>                      3150428
<NET-CHANGE-FROM-OPS>                          5325711
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       846212
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                       62385736
<NUMBER-OF-SHARES-REDEEMED>                   16610500
<SHARES-REINVESTED>                             801795
<NET-CHANGE-IN-ASSETS>                        51056530
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           205950
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 503115
<AVERAGE-NET-ASSETS>                          31659340
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                    .36
<PER-SHARE-GAIN-APPREC>                           1.62
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                          .28
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              11.70
<EXPENSE-RATIO>                                   1.01
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>


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