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._4_ X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
File No. 811-8668:
Amendment No._6_
BENHAM MANAGER FUNDS
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 12/1/94)
It is proposed that this filing become effective:
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
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 12, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended November 30,
1995.
<PAGE>
BENHAM MANAGER FUNDS
1933 Act Post-Effective Amendment No. 4
1940 Act Amendment No. 6
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance
4 Investment Management, Further Information About the Fund, Investment
Objectives of the Fund, Information About Investment Policies of the
Fund, Risk Factors and Investment Techniques, Other Investment
Practices
5 Investment Management
5A Not Applicable
6 Further Information About the Fund, How to Redeem Shares, Cover Page,
Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Administrative and Transfer Agent
Services, Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
<PAGE>
BENHAM
Capital Manager Fund
Prospectus
SEPTEMBER 3,
1996
BENHAM MANAGER FUNDS
- --------------------------------------------------------------------------------
The BENHAM CAPITAL MANAGER FUND (the "Fund") is a series of the Benham
Manager Funds, a member of the Twentieth Century family of funds, a family that
includes 66 no-load mutual funds covering a variety of investment opportunities.
One of the funds is described in this Prospectus. The other funds are described
in separate prospectuses.
INVESTMENT OBJECTIVE OF THE FUND
The Fund'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 this objective by allocating its assets among
(1) U.S. equity securities, (2) U.S. fixed-income securities, (3) money market
instruments, (4) foreign equity and fixed-income securities, and (5) securities
of companies with substantial gold-related assets and natural resources linked
investments.
MINIMUM INITIAL INVESTMENT: $2,500.
NO-LOAD MUTUAL FUNDS
Twentieth Century offers retail investors a full line of no-load funds,
investments that have no sales charges or commissions. The Fund offered by this
Prospectus has no 12b-1 plan or other deferred sales charges.
INVESTMENTS IN THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER AGENCY.
This Prospectus gives you information about the Fund that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated September 3, 1996 and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419200
Kansas City, MO 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: http://www.twentieth-century.com
There is no assurance that the Fund will achieve its investment objective.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Transaction and Operating Expense Table.............3
Financial Highlights................................4
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND.....................5
Investment Objective.............................5
Management Approach..............................5
Investment Categories............................6
RISK FACTORS AND INVESTMENT TECHNIQUES..............8
Equity Securities................................8
Fixed-Income Securities..........................8
Foreign Securities...............................9
Currency Risk....................................9
Gold Companies and Natural Resources
Linked Investments.............................9
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS..................9
Portfolio Turnover...............................9
When-Issued and Forward Commitment
Agreements....................................10
Mortgage-Related and Other
Asset-Backed Securities.......................10
Borrowing ......................................10
Securities Lending..............................10
Restricted and Illiquid Securities..............10
Investment Companies............................11
Derivatives.....................................11
Cash Management.................................14
Other Techniques................................14
PERFORMANCE ADVERTISING............................15
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO OPEN AN ACCOUNT.............................16
By Mail.........................................16
By Wire.........................................16
By Exchange.....................................16
In Person.......................................17
SUBSEQUENT INVESTMENTS.............................17
By Mail.........................................17
By Telephone....................................17
By Wire.........................................17
In Person.......................................17
AUTOMATIC INVESTMENT PLAN..........................17
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER..............................17
By Mail.........................................18
By Telephone....................................18
HOW TO REDEEM SHARES...............................18
By Mail.........................................18
By Telephone....................................18
By Check-A-Month................................18
Other Automatic Redemptions.....................18
REDEMPTION PROCEEDS................................18
By Check........................................18
By Wire and ACH.................................18
REDEMPTION OF SHARES IN
LOW-BALANCE ACCOUNTS............................19
SIGNATURE GUARANTEE................................19
SPECIAL INVESTOR SERVICES..........................19
Automated Information Line......................19
Open Order Service..............................19
Tax-Qualified Retirement Plans..................20
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS................................20
REPORTS TO SHAREHOLDERS............................21
EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS..........................22
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE........................................23
When Share Price is Determined..................23
How Share Price is Determined...................23
Where to Find Information About Share Price.....24
DISTRIBUTIONS......................................24
TAXES..............................................24
Tax-Deferred Accounts...........................24
Taxable Accounts................................24
MANAGEMENT.........................................25
Investment Management...........................25
Code of Ethics..................................26
Transfer and Administrative Services............26
Distribution of Fund Shares.....................27
Expenses........................................27
FURTHER INFORMATION ABOUT THE FUND.................27
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY
OTHER INFORMATION OR REPRESENTATION.
<PAGE>
TRANSACTION AND OPERATING EXPENSE TABLE
- --------------------------------------------------------------------------------
Benham Capital
Manager Fund
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases none
Maximum Sales Load Imposed on Reinvested Dividends none
Deferred Sales Load none
Redemption Fee (1) none
Exchange Fee none
ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets)
Management Fees .44%
12b-1 Fees none
Other Expenses .57%
Total Fund Operating Expenses 1.01%
Example: You would pay the following expenses on a 1 year $10
$1,000 investment, assuming a 5% annual return and 3 years 32
redemption at the end of each time period: 5 years 56
10 years 124
(1)Redemption proceeds sent by wire are subject to a $10 processing fee.
(2)Benham Management Corporation (the "Manager") has agreed to limit the Fund's
total operating expenses to specified percentages of the Fund's average daily
net assets. The agreement provides that the Manager may recover amounts
absorbed on behalf of the Fund during the preceding 11 months if, and to the
extent that, for any given month, Fund expenses were less than the expense
limit in effect at that time. The current expense limit for the Fund is
1.00%. Amounts paid by unaffiliated third parties do not apply to this
expense limit. This expense limit is subject to annual renewal in June. If
the expense limit was not in effect, the Fund's Management Fee, Other
Expenses and Total Fund Operating Expenses would be as follows, respectively:
.65%, .57% and 1.22%.
The Fund pays the Manager management fees equal to an annualized percentage
of the Fund's average daily net assets. Other expenses include administrative
and transfer agent fees paid to Twentieth Century Services, Inc.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Fund. The example set forth
above assumes reinvestment of all dividends and distributions and uses a 5%
annual rate of return as required by SEC regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BENHAM CAPITAL MANAGER FUND
The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors (except as noted). Their
reports appear in the Fund's annual reports to shareholders which are
incorporated by reference into the Statement of Additional Information. The
semiannual and annual reports contain additional performance information and
will be made available upon request and without charge.
For a Share Outstanding Throughout the Six Months Ended May 31 (Unaudited) and
Year Ended November 30
May 31,
1996 Nov. 30,
(Unaudited) 1995++
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING OF PERIOD............. $11.70 10.00
Income from Investment Operations
Net Investment Income............................ .20 .36
Net Realized and Unrealized Gains on
Investments and Foreign Currency Transactions.. .51 1.62
-------- --------
Total Income from Investment Operations......... .71 1.98
-------- --------
Less Distributions
Dividends from Net Investment Income............. (.24) (.28)
Distributions from Net Realized Gains on
Investment Transactions........................ (.18) 0
-------- --------
Total Distributions............................. (.42) (.28)
------- --------
NET ASSET VALUE AT END OF PERIOD................... $11.99 11.70
======== ========
TOTAL RETURN*...................................... 6.22% 20.12%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in thousands
of dollars)................................... $80,490 51,157
Ratio of Expenses to Average Daily Net Assets+... 1.01%** 1.01%
Ratio of Net Investment Income to Average
Daily Net Assets+............................. 3.44%** 3.70%
Portfolio Turnover Rate.......................... 47.71% 100%
- --------------------------------------------------------------------------------
+ The ratios include expenses paid through expense offset arrangements.
++ Inception date December 1, 1994.
* The total return figures assume reinvestment of dividend and capital
gain distributions and are not annualized.
** Annualized.
4
INFORMATION REGARDING THE FUND
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
OF THE FUND
The Fund has adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as
the investment objectives of the Fund identified on the front cover page of
this Prospectus and any other investment policies designated as "fundamental"
in this Prospectus or in the Statement of Additional Information, cannot be
changed without shareholder approval. The Fund has implemented additional
investment policies and practices to guide its activities in the pursuit of
their respective investment objectives. These policies and practices, which
are described throughout this Prospectus, are not designated as fundamental
policies and may be changed without shareholder approval.
The descriptions that follow are designed to help you determine whether
a fund fits your investment objectives. You may want to pursue more than one
objective by also investing in other funds in the Twentieth Century family of
funds.
For an explanation of the securities ratings referred to in the
following discussion, see "Other Information" in the Statement of Additional
Information.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek to maximize total return
(capital appreciation plus dividend income) consistent with prudent
investment risk. The Fund seeks to achieve this objective by allocating its
assets among (1) U.S. equity securities, (2) U.S. fixed-income securities,
(3) money market instruments, (4) foreign equity and fixed-income securities,
and (5) securities of companies with substantial gold-related assets and
natural resources linked investments. There is no assurance 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, the Manager 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.
- --------------------------------------------------------------------------------
NEUTRAL OPERATING
ASSET CLASS MIX 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.
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 the Manager'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.
5
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, the Manager may alter the
Fund's investment mix and particular securities within each asset class. The
Manager makes investment decisions for the Fund in a two-tiered process by:
(1) determining how the Fund's assets should be distributed among asset
classes and (2) deciding which securities should be purchased within each
asset class.
The Manager 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, the Manager also utilizes several analytical techniques, including
historical analyses and projections for economics and markets worldwide.
In selecting securities denominated in foreign currencies, the Manager
will consider, among other factors, the impact of foreign exchange rates
relative to the U.S. dollar value of such securities. The Manager may use
forward exchange currency contracts or other hedging techniques to seek to
minimize foreign exchange rate risks. See "Currency Risk" on page __.
Periodically, or under extraordinary circumstances, the Fund's manager
recommends an asset allocation strategy to a committee of senior officers and
portfolio managers. Subsequently, the Fund's manager works with the 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 and Investment Techniques" on page 8. 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 Growth;
small capitalization Growth and
stocks traded on Income
U.S. exchanges.
- --------------------------------------------------------------------------------
Bonds Investment grade Income
corporate and U.S
government debt
obligations.
- --------------------------------------------------------------------------------
Short-term High-grade, short- Preservation of
term government Capital; Income;
and corporate Liquidity
debt instruments.
No derivatives.
- --------------------------------------------------------------------------------
Inter- Stocks: Primarily Growth,
national EAFE Index countries Currency Hedge;
(Europe, Australia, International
and the Far East). Diversification
Bonds: Investment-
grade corporate and
government debt
obligations.
- --------------------------------------------------------------------------------
Specialty Natural resources Inflation Hedge;
stocks;(including gold) Growth
commodity-linked
or index-linked notes.
- --------------------------------------------------------------------------------
U.S EQUITY SECURITIES
The Fund will generally invest 25-45% of its total 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
6
U.S. and foreign equity securities, the Manager 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
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 (a
"rating agency") or, if unrated, judged by the Manager 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 total 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 10.
The Fund may buy debt securities rated, at the time of purchase,
investment-grade quality by a rating agency or, if unrated, judged by the
Manager, 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 the Manager's perception of market and economic conditions.
SHORT-TERM INSTRUMENTS
The Fund will normally invest 10-25% of its total 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 risks. Credit risk determinations are made by the
Manager pursuant to guidelines established by the board of trustees. A
repurchase agreement involves the purchase of a security and a simultaneous
agreement to sell the security back to the seller at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes bankrupt.
The Fund may invest up to 5% of its total assets in money market funds
advised by the Manager, provided that the investment is consistent with the
Fund's investment policies and restrictions. 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 purchase, to be of investment-grade quality or, if unrated, judged by the
Manager under the supervision of the board of trustees to be of comparable
quality.
7
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 11. The Fund will not invest more that 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.
GOLD COMPANIES AND NATURAL
RESOURCES-LINKED INVESTMENTS
The Fund will generally invest 0-10% of its total assets 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 page 14.
RISK FACTORS AND
INVESTMENT TECHNIQUES
The Fund is a convenient way to diversity 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' up 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
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
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 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.
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,
8
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
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 24 and the Statement of
Additional Information for further details.
CURRENCY RISK
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 and vulnerable to natural disasters including,
but not limited to fire, flood, and drought.
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information regarding the investment practices of the
Fund, see the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rate of the Fund is shown in the Financial
Highlights table on page 10 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the Fund's
objectives. The rate of portfolio turnover is irrelevant when management
believes a change is in order to achieve those objectives and, accord-
9
ingly, the annual portfolio turnover rate cannot be accurately anticipated.
The portfolio turnover of the Fund may be higher than other mutual funds
with similar investment objectives. A high turnover rate involves
correspondingly higher transaction costs that are borne directly by the Fund.
It may also affect the character of capital gains, if any, realized and
distributed by the Fund since short-term capital gains are taxable as
ordinary income.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may sometimes purchase new issues of securities on a
when-issued or forward commitment basis when, in the opinion of the manager,
such purchases will further the investment objectives of the Fund. The price
of when-issued securities is established at the time commitment to purchase
is made. Delivery and payment for these securities typically occurs 15 to 45
days after the commitment to purchase. Market rates of interest on debt
securities at the time of delivery may be higher or lower than those
contracted for on the security. Accordingly, the value of each security may
decline prior to delivery, which could result in a loss to the Fund.
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
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 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 page 11 for more 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
In order to realize additional income, the Fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash collateral
maintained on a current basis in an amount at least equal to the market value
of the securities loaned, or by irrevocable letters of credit. During the
existence of the loan, the Fund must continue to receive the equivalent of
the interest and dividends paid by the issuer on the securities loaned and
interest on the investment of the collateral. The Fund must have the right to
call the loan and obtain the securities loaned at any time on five days'
notice, including the right to call the loan to enable the Fund to vote the
securities. Such loans may not exceed one-third of the Fund's total assets
taken at market value.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet established
criteria for selection. Rule 144A securities are securities that are
privately placed
10
with and traded among qualified institutional buyers rather than the general
public. Although Rule 144A securities are considered "restricted securities,"
they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the
staff of the SEC has taken the position that the liquidity of such securities
in the portfolio of a fund offering redeemable securities is a question of
fact for the board of trustees to determine, such determination to be based
upon a consideration of the readily available trading markets and the review
of any contractual restrictions. Accordingly, the board of trustees is
responsible for developing and establishing the guidelines and procedures for
determining the liquidity of Rule 144A securities. As allowed by Rule 144A,
the board of trustees of the Fund has delegated the day-to-day function of
determining the liquidity of Rule 144A securities to the Manager. The board
retains the responsibility to monitor the implementation of the guidelines
and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A
security that is illiquid. In such an event, the Manager will consider
appropriate remedies to minimize the effect on such fund's liquidity. The
Fund may not invest more than 15% of its net assets in illiquid securities
(securities that may not be sold within seven days at approximately the price
used in determining the net asset value of Fund shares).
INVESTMENT COMPANIES
The Fund is seeking an exemptive order from the SEC to permit it to
invest a portion of its assets in the Benham European Government Bond Fund
(the "EuroBond Fund"), a series of the Benham International Funds, and any
future international funds established and managed by the Manager. There is,
however, no assurance that the Fund will be able to receive the necessary
exemptive order.
The Manager believes that by investing in foreign securities through
investment in funds such as the EuroBond Fund, 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.
The EuroBond Fund's investment objective is to seek over the long term
as high a level of total return as is consistent with investment in the
highest-quality European government debt securities. To avoid paying
duplicative fees, the Fund will not pay the Manager advisory fees for any
portion of its assets invested in any fund advised by the Manager or its
affiliates.
DERIVATIVES
The Fund may invest in securities that are commonly referred to as
"derivative" securities. Generally, a derivative is a financial arrangement
the value of which is based on, or "derived" from, a traditional security,
asset, or market index. Certain derivative securities are more accurately
described as "index/structured" securities. Index/structured securities are
derivative securities whose value or performance is linked to other equity
securities (such as depositary receipts), currencies, interest rates, indices
or other financial indicators ("reference indices").
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 many different types of derivatives and many different ways to
use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest
rates, securities prices, or currency exchange rates and for cash management
purposes as a low-cost method of gaining exposure to a particular securities
market without investing directly in those securities.
11
The Fund may not invest in a derivative security unless the reference
index or the instrument to which it relates is an eligible investment for the
Fund. For example, a security whose underlying value is linked to the price
of oil would not be a permissible investment since the Fund may not invest in
oil and gas leases or futures.
The return on a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio
manager anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the
exchange, either of which may make it difficult or impossible to close
out a position when desired;
o the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The 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.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The Fund may buy or sell interest rate futures contracts relating to
debt securities ("debt futures," i.e., futures relating to indexes on types
or groups of bonds) and write or buy put and call options relating to
interest rate futures contracts.
For options sold, the Fund will segregate cash or high-quality debt
securities equal to the value of securities underlying the option unless the
option is otherwise covered.
The Fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it has
purchased, less any margin deposited on its long position. It may hold cash
or acquire such debt obligations for the purpose of making these deposits.
The Fund may use futures and options transactions to maintain cash
reserves while remaining fully invested, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index.
Since futures contracts and options thereon can replicate movements in
the cash markets for the securities in which a fund invests without the large
cash investments required for dealing in such markets, they may subject a
fund to greater and more volatile risks than might otherwise be the case. The
principal risks related to the use of such instruments are (1) the offsetting
correlation between movements in the market price of the portfolio
investments (held or intended) being hedged and in the price of the futures
contract or option may be imperfect; (2) possible lack of a liquid secondary
market for closing out futures or option positions; (3) the need of
additional portfolio management skills and techniques; and (4) losses due to
unanticipated market price movements. For a hedge to be completely effective,
the price change of the hedging instrument should equal the price change of
the securities being hedged. Such equal price changes are not always possible
because the investment underlying the hedging instrument may not be the same
investment that is being hedged.
12
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the nature of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate trends by management may still not result in a successful transaction.
Management may be incorrect in its expectations as to the extent of various
interest rate movements or the time span within which the movements take
place.
See the Statement of Additional Information for further information
about these instruments and their risks.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Some of the foreign securities held by the Fund may be denominated in
foreign currencies. Other securities, such as ADRs, may be denominated in
U.S. dollars, but have a value that is dependent on the performance of a
foreign security, as valued in the currency of its home country. As a result,
the value of the Fund's portfolio may be affected by changes in the exchange
rates between foreign currencies and the dollar, as well as by changes in the
market values of the securities themselves. The performance of foreign
currencies relative to the dollar may be a factor in the overall performance
of the Fund.
To protect against adverse movements in exchange rates between
currencies, the Fund may, for hedging purposes only, enter into forward
foreign currency exchange contracts. A forward foreign currency exchange
contract obligates a fund to purchase or sell a specific currency at a future
date at a specific price.
A fund may elect to enter into a forward foreign currency exchange
contract with respect to a specific purchase or sale of a security, or with
respect to the fund's portfolio positions generally.
By entering into a forward foreign currency exchange contract with
respect to the specific purchase or sale of a security denominated in a
foreign currency, the Fund can "lock in" an exchange rate between the trade
and settlement dates for that purchase or sale. This practice is sometimes
referred to as "transaction hedging." The Fund may enter into transaction
hedging contracts with respect to all or a substantial portion of its foreign
securities trades.
When the manager believes that a particular currency may decline in
value compared to the dollar, a fund may enter into forward foreign currency
exchange contracts to sell the value of some or all of the Fund's portfolio
securities either denominated in, or whose value is tied to, that currency.
This practice is sometimes referred to as "portfolio hedging." The Fund may
not enter into a portfolio hedging transaction where it would be obligated to
deliver an amount of foreign currency in excess of the aggregate value of its
portfolio securities or other assets denominated in, or whose value is tied
to, that currency.
The Fund will make use of the portfolio hedging to the extent deemed
appropriate by the manager. However, it is anticipated that the Fund will
enter into portfolio hedges much less frequently than transaction hedges.
If the Fund enters into a forward contract, the Fund, when required,
will instruct its custodian bank to segregate cash or liquid high-grade
securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily,
and if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than
the amount of the Fund's commitment.
Predicting the relative future values of currencies is very difficult,
and there is no assurance that any attempt to protect a fund against adverse
currency movements through the use of forward foreign currency exchange
contracts will be successful. In addition, the use of forward foreign
currency exchange contracts tends to limit the potential gains that might
result from a positive change in the relationships between the foreign
currency and the U.S. dollar.
13
WARRANTS
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
Collateralized mortgage obligations ("CMOs") are mortgage-backed
securities issued by government agencies; single-purpose, stand-alone
financial subsidiaries; trusts established by financial institutions; or
similar institutions. 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 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 structural
notes is subject to the limits of the Funds investment in gold companies and
natural resources-linked investments as well as to considerations related to
the Fund's tax status.
CASH MANAGEMENT
The Fund may invest up to 5% of its total assets in any money market
fund advised by the Manager, provided that the investment is consistent with
the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it
to do so, the Fund will set aside cash or appropriate liquid assets in a
segregated account to cover the Fund's obligations. See the Fund's Statement
of Additional Information for a more detailed discussion of those investments
and some of the risks associated with them.
14
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield and
effective yield.
CUMULATIVE TOTAL RETURN data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a period of time. AVERAGE ANNUAL TOTAL RETURN over a states period of
time that would have produced a fund's cumulative total return over the same
period if the fund's performance had remained constant throughout.
A quotation of YIELD reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. The EFFECTIVE YIELD is
calculated in a similar manner, but, when annualized, the income earned by
the investment is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect on the
assumed reinvestment.
Yield is calculated by adding over a 30-day (or one-month) period all
interest and dividend income (net of fund expenses) calculated on each day's
market values, dividing this sum by the average number of fund shares
outstanding during the period, and expressing the result as a percentage of
the fund's share price on the last day of the 30-day (or one month) period.
The percentage is then annualized. Capital gains and losses are not included
in the calculation.
Yields are calculated according to accounting methods that are
standardized in accordance with SEC rules for all stock and bond funds. The
SEC yield should be regarded as an estimate of the Fund's rate of investment
income, and it may not equal the Fund's actual income distribution rate, the
income paid to a shareholder's account, or the income reported in the Fund's
financial statements.
The Fund may also include in advertisements data comparing performance
with the performance of non-related investment media, published editorial
comments and performance rankings compiled by independent organizations (such
as Lipper Analytical Services) and publications that monitor the performance
of mutual funds. Performance information may be quoted numerically or may be
presented in a table, graph or other illustration. In addition, fund
performance may be compared to well-known indices of market performance. The
Fund's performance may also be compared, on a relative basis, to the other
funds in our fund family. This relative comparison, which may be based upon
historical or expected fund performance, volatility or other fund
characteristics, may be presented numerically, graphically or in text. The
performance of the Fund may also be combined or blended with other funds in
our fund family, and that combined or blended performance may be compared to
the same indices to which individual funds may be compared.
All performance information advertised by the Fund is historical in
nature and is not intended to represent or guarantee future results. The
value of Fund shares when redeemed may be more or less than their original
cost.
15
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
- --------------------------------------------------------------------------------
The following section explains how to invest with Twentieth Century and
The Benham Group, including purchases, redemptions, exchanges and special
services. You will find more detail about doing business with us by referring
to the Investor Services Guide that you will receive when you open an
account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 22.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application,
furnishing your taxpayer identification number. (You must also certify
whether you are subject to withholding for failing to report income to the
IRS.) Investments received without a certified taxpayer identification number
will be returned.
The minimum investment is $2,500 ($1,000 for IRA accounts). These
minimums will be waived if you establish an automatic investment plan to your
account that is the equivalent of at least $50 per month. See "Automatic
Investment Plan," page 17.
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple
owners (e.g., as joint tenants), you must provide us with specific
authorization on your application in order for us to accept written or
telephone instructions from a single owner. Otherwise, all owners will have
to agree to any transactions that involve the account (whether the
transaction request is in writing or over the telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us
or mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64111
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more
than one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social security number
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get
information on opening an account by exchanging from another Twentieth
Century or Benham account. See page 17 for more information on exchanges.
16
IN PERSON
If you prefer to work with a representative in person, please visit one
of our Investors Centers, located at:
4500 Main Street
Kansas City, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222.
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by
any of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the
remittance portion of the confirmation of a previous investment. If the
remittance slip is not available, indicate your name, address and account
number on your check or a separate piece of paper. (Please be aware that the
investment minimum for subsequent investments is higher without a remittance
slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw
on your bank account. You may call an Investor Services Representative or use
our Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 16 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this
page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must
be at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application
to receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM
ONE ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your Fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50
per month. See our Investor Services Guide for further information about
exchanges.
17
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham account to another. For additional information, please see
our Investor Services Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line-see page 19) if you
have authorized us to accept telephone instructions. You can authorize this
by selecting "Full Services" on your application or by calling us at
1-800-345-2021 to receive the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will
be made at the next net asset value determined after a complete redemption
request is received.
Please note that a request to redeem shares in an IRA or 403(b) plan
must be accompanied by an executed IRS Form W4-P and a reason for withdrawal
as specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to
us. Certain redemptions may require a signature guarantee. Please see
"Signature Guarantee," page 19.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may
redeem your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with redemption proceeds in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call to request
our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to
send funds directly to you or to your account at a bank or other financial
institution. To set up automatic redemptions, call one of our Investor
Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up
to 15 days or longer to send redemption proceeds (to allow your purchase
funds to clear). No interest is paid on the redemption proceeds after the
redemption is processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For
more information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH.
These services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of
transmission. Funds transferred by ACH may be received up to seven days after
transmission. Wired funds are subject to a $10 fee to cover bank wire
charges, which is deducted from redemption proceeds. Once the funds are
transmitted, the time of receipt and the funds' availability are not under
our control.
18
REDEMPTION OF SHARES IN
LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to
bring the value of the shares held in the account up to the minimum. If
action is not taken within 90 days of the letter's date, the shares held in
the account will be redeemed and proceeds from the redemption will be sent by
check to your address of record. We reserve the right to increase the
investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee
will depend on which service options you elect when you open your account.
For example, if you choose "In Writing Only," a signature guarantee will be
required when:
o Redeeming more than $25,000
o Establishing or increasing a Check-A-Month or automatic transfer on an
existing account.
You may obtain a signature guarantee from a bank or trust company,
credit union, broker-dealer, securities exchange or association, clearing
agency or savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any
transaction, or to change this policy at any time.
SPECIAL INVESTOR SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these
options and elect the ones that are appropriate for you. Be aware that the
"Full Services" option offers you the most flexibility. You will find more
information about each of these service options in our Investor Services
Guide.
Our special investor services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a
week, at 1-800-345-8765. By calling the Automated Information Line, you may
listen to fund prices, yields and total return figures. You may also use the
Automated Information Line to make investments into your accounts (if we have
your bank information on file) and obtain your share balance, value and most
recent transactions. If you have authorized us to accept telephone
instructions, you also may exchange shares from one fund to another via the
Automated Information Line. Redemption instructions cannot be given via the
Automated Information Line.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to
buy shares of a variable-priced fund by exchange from one of our money market
funds, or a price at which to sell shares of a variable-priced fund by
exchange to one of our money market funds. The designated purchase price must
be equal to or lower, or the designated sale price equal to or higher, than
the variable-priced fund's net asset value at the time the order is placed,
If the designated price is met within 90 calendar days, we will execute your
exchange order automatically at that price (or better). Open orders not
executed within 90 days will be canceled.
19
If the fund you have selected deducts a distribution from its share
price, your order price will be adjusted accordingly so the distribution does
not inadvertently trigger an open order transaction on your behalf. If you
close or re-register the account from which the shares are to be redeemed,
your open order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders
and cancellations received before 2 p.m. Central time are effective the same
day, and orders or cancellations received after 2 p.m. Central time are
effective the next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or
write us and request the appropriate forms for:
o Individual Retirement Accounts ("IRAs")
o 403(b) plans for employees of public school systems and non-profit
organizations
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year. You can
also transfer your tax-deferred plan to us from another company or custodian.
Call or write us for a "Request to Transfer" form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we
offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by exchange). Additionally, purchases may be
refused if, in the opinion of the Manager, they are of a size that
would disrupt the management of the Fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused.
(5) If a transaction request is made by a corporation, partnership,
trust, fiduciary, agent or unincorporated association, we will
require evidence satisfactory to us of the authority of the
individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include
requesting personal identification from callers, recording telephone
calls, and providing written confir-
20
mations of telephone transactions. These procedures are designed to
protect shareholders from unauthorized or fraudulent instructions. If
we do not employ reasonable procedures to confirm the genuineness of
instructions, then we may be liable for losses due to unauthorized or
fraudulent instructions. The company, its transfer agent and
investment adviser will not be responsible for any loss due to
instructions they reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as Mary
Elizabeth Jones, she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an
increase in the number of shareholder telephone calls. If you
experience difficulty in reaching us during such periods, you may
send your transaction instructions by mail, express mail or courier
service, or you may visit one of our Investors Centers. You may also
use our Automated Information Line if you have requested and received
an access code and are not attempting to redeem shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50
to cover the penalty the IRS will impose on us for failure to report
your correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings,
as well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If
you fail to provide notification of an error with reasonable promptness,
i.e., within 30 days of non-automatic transactions or within 30 days of the
date of your consolidated quarterly statement, in the case of automatic
transactions, we will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that
you may use in completing your U.S. income tax return. See the Investor
Services Guide for more information.
Each year, we will send you an annual and a semiannual report relating
to your fund, each of which is incorporated herein by reference. The annual
report includes audited financial statements and a list of portfolio
securities as of the fiscal year end. The semiannual report includes
unaudited financial statements for the first six months of the fiscal year,
as well as a list of portfolio securities at the end of the period. You also
will receive an updated prospectus at least once each year. Please read these
materials carefully as they will help you understand your fund.
21
EMPLOYER-SPONSORED
RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide and in the "How to
Invest" sections beginning on page 16 pertain to shareholders who invest
directly with Twentieth Century rather than through an employer-sponsored
retirement plan or through a financial intermediary. If you own or are
considering purchasing Fund shares through an employer-sponsored retirement
plan, your ability to purchase shares of the Fund, exchange them for shares
of other Twentieth Century or Benham funds, and redeem them will depend on
the terms of your plan. If you own or are considering purchasing Fund shares
through a bank, broker-dealer, insurance company or other financial
intermediary, your ability to purchase, exchange and redeem shares will
depend on your agreement with, and the policies of, such financial
intermediary.
You may reach one of our Institutional Investor Service Representatives
by calling 1-800-345-3533 to request information about our funds and services
to obtain a current prospectus or to get answers to any questions about our
funds and services that you are unable to obtain through your plan
administrator or financial intermediary.
22
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value.
Net asset value is determined by calculating the total value of the Fund's
assets, deducting total liabilities and dividing the result by the number of
shares outstanding. Net asset value is determined at the close of regular
trading on each day that the New York Stock Exchange (the "Exchange") is
open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment, redemption
or exchange request. For example, investments and requests to redeem or
exchange shares received by us or our authorized agents before the close of
business on the Exchange, usually 3 p.m. Central time, are effective on, and
will receive the price determined, that day as of the close of the Exchange.
Investment, redemption and exchange requests received thereafter are
effective on, and receive the price determined as of, the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds
are received by us. Wired funds are considered received on the day they are
deposited in our bank account if your telephone call is received before the
close of business on the Exchange, usually 3 p.m. Central time and the money
is deposited that day.
Investments by telephone pursuant to your prior authorization to us to
draw on your bank account are considered received at the time of your
telephone call.
Investment and transaction instructions received by us on any business
day by mail prior to the close of business on the Exchange will receive that
day's price. Investments and instructions received after that time will
receive the price determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement
plan or other financial intermediary, it is the responsibility of your plan
record-keeper or financial intermediary to transmit your purchase, exchange
and redemption requests to the Fund's transfer agent prior to the applicable
cut-off time for receiving orders and to make payment for any purchase
transactions in accordance with the Fund's procedures or any contractual
arrangement with the Fund or the Fund's distributor in order for you to
receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be
summarized as follows:
Portfolio securities of the Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or
if local convention or regulation so provides, the mean of the latest bid and
asked prices is used. Depending on local convention or regulation, securities
traded over-the-counter are priced at the mean of the latest bid and asked
prices, or at the last sale price. When market quotations are not readily
available, securities and other assets are valued at fair value as determined
in accordance with procedures adopted by the board of trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the board of trustees.
23
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset value of the Fund is published in leading newspapers
daily. The net asset value of, as well as yield information on the Fund and
other funds in the Twentieth Century family of fund may be obtained by
calling us.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the Fund is determined and declared as a distribution. The
distribution will be paid quarterly in March, June, September and December.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page 23. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed, the distribution on the redeemed
shares will be included with your redemption proceeds.
Distributions from net realized securities gains, if any, generally are
declared and paid once a year, but the fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code, in all events in a manner consistent with the provisions of the
1940 Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable
accounts, distributions will be reinvested unless you elect to receive them
in cash. Distributions of less than $10 generally will be reinvested.
Distributions made shortly after a purchase by check or ACH may be held up to
15 days. You may elect to have distributions on shares held in Individual
Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years
old or permanently and totally disabled. Distribution checks normally are
mailed within seven days after the record date. Please consult our Investor
Services Guide for further information regarding your distribution options.
The board of trustees may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
TAXES
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the Fund's shares are purchased through tax-deferred accounts, such
as a qualified employer-sponsored retirement or savings plan, income and
capital gains distributions paid by the Fund will generally not be subject to
current taxation, but will accumulate in your account under the plan on a
tax-deferred basis.
Employer-sponsored retirement and savings plans are governed by complex
tax rules. If you elect to participate in your employer's plan, consult your
plan administrator, your plan's summary plan description, or a professional
tax advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of
net investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of
the Fund do not qualify for the 70% dividends-received deduction for
corporations since they are derived from interest income. Dividends
representing income derived from tax-exempt bonds generally retain the bonds'
tax-exempt character in a shareholder's hands. Distributions from net
long-term capital gains are taxable as long-term capital gains regardless of
the length of time you
24
have held the shares on which such distributions are paid. However, you
should note that any loss realized upon the sale or redemption of shares held
for six months or less will be treated as a long-term capital loss to the
extent of any distribution of long-term capital gain to you with respect to
such shares.
Distributions of capital gains are taxable to you regardless of whether
they are taken in cash or reinvested, even if the value of your shares is
below your cost. If you purchase shares shortly before a capital gain
distribution, you must pay income taxes on the distribution, even though the
value of your investment (plus cash received, if any) will not have
increased. In addition, the share price at the time you purchase shares may
include unrealized gains in the securities held in the investment portfolio
of the fund. If these portfolio securities are subsequently sold and the
gains are realized, they will, to the extent not offset by capital losses, be
paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains.
In January of the year following the distribution, we or your financial
intermediary will send you a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes.
Distributions may also be subject to state and local taxes, even if all
or a substantial part of such distribution are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax
exemption to pass through to Fund shareholders when the Fund pays
distributions to its shareholders. You should consult your tax adviser about
the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, we are required by federal law to withhold and remit to
the IRS 31% of reportable payments (which may include dividends, capital
gains distributions and redemptions). Those regulations require you to
certify that the social security number or tax identification number you
provide is correct and that you are not subject to 31% withholding for
previous under-reporting to the IRS. You will be asked to make the
appropriate certification on your application. Payments reported by us that
omit your social security number or tax identification number will subject us
to a penalty of $50, which will be charged against your account if you fail
to provide the certification by the time the report is filed, and is not
refundable.
Redemption of shares of the Fund (including redemptions made in an
exchange transaction) will be a taxable transaction for federal income tax
purposes and shareholders will generally recognize a gain or loss in an
amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term
if shareholders have held such shares for a period of more than one year. If
a loss is realized on the redemption of Fund shares, the reinvestment in
additional Fund shares within 30 days before or after the redemption may be
subject to the "wash sale" rules of the Internal Revenue Code, resulting in a
postponement of the recognition of such loss for federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
The Fund is a series of the Benham Manager Funds (the "Trust"). Under
the laws of the Commonwealth of Massachusetts, the board of trustees is
responsible for managing the business and affairs of the Trust. Acting
pursuant to an investment management agreement entered into with the Trust,
Benham Management Corporation (the "Manager") serves as the investment
manager of the Fund. Its principal
25
place of business is 1665 Charleston Road, Mountain View, California 94043.
The Manager has been providing investment advisory services to investment
companies and other clients since 1971.
The Manager supervises and manages the investment portfolio of the Fund
and directs the purchase and sale of its investment securities. The Manager
utilizes a team of portfolio managers, assistant portfolio managers and
analysts acting together to manage the assets of the Fund. The team meets
regularly to review portfolio holdings and to discuss purchase and sale
activity. The team adjusts holdings in the Fund's portfolios and the Fund's
asset mix as it deems appropriate in pursuit of the Fund's investment
objective. Individual portfolio manager members of the team may also adjust
portfolio holdings of the Fund or of sectors of the Fund as necessary between
team meetings.
In June 1995, Twentieth Century Companies, Inc. ("TCC") acquired Benham
Management International, Inc., the then-parent company of the Manager. TCC
is the parent company of Investors Research Corporation ("IRC"), which
provides investment management services to the Twentieth Century family of
funds. In the acquisition, the Manager became a wholly owned subsidiary of
TCC. Certain employees of the Manager provide investment management services
to the Twentieth Century family of funds, while certain Twentieth Century
employees provide investment management services to Benham funds.
The portfolio manager members of the teams managing the Fund described
in this Prospectus and his work experience for the last five years is as
follows:
JEFFREY TYLER, Senior Vice President, the Manager, is primarily
responsible for the day-to-day management of the Fund. Mr. Tyler heads the
Manager's fixed income portfolio department and is also co-manager of the
Benham European Government Bond Fund. Mr. Tyler joined Benham in 1987. 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.
The activities of the Manager are subject only to direction of the
Trust's board of trustees. For the services provided to the Funds, the
Manager receives an annual fee which cannot exceed .65% of average daily net
assets. The Manager's fee drops to a marginal rate of .27% of average daily
net assets as the Trust's assets increase.
CODE OF ETHICS
The Trust and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of securities in the funds'
portfolios obtain preclearance before executing personal trades. With respect
to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
the fund shareholders come before the interests of the people who manage
those funds.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City,
Missouri, 64111, ("TCS") acts as transfer, administrative services and
dividend paying agent for the Fund. It provides facilities, equipment and
personnel to the Fund and is paid for such services by the Fund. For
administrative services, the Fund pays TCS a monthly fee equal to its pro
rata share of the dollar amount derived from applying the average daily net
assets of all of the funds managed by the Manager. The administrative fee
rate ranges from .11% to .08% of average daily net assets,
26
dropping as assets managed by the Manager increase. For transfer agent
services, the Fund pays TCS a monthly fee for each shareholder account
maintained and for each shareholder transaction executed during that month.
The Fund charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from TCS
may purchase or sell Fund shares through registered broker-dealers and other
qualified service providers, who may charge investors fees for their
services. These broker-dealers and service providers generally provide
shareholder, administrative and/or accounting services which would otherwise
be provided by TCS as the funds' transfer agent. To accommodate these
investors, the Manager and its affiliates have entered into agreements with
some broker-dealers and service providers to provide these services. Fees for
such services are borne normally by the Fund at the rates normally paid to
TCS, which would otherwise provide the services. Any distribution expenses
associated with these arrangements are borne by the Manager.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation
of shareholder transactions, newsletters and a team of personal
representatives. Any expenses associated with these special services will be
paid by the Manager or its affiliates.
The Manager and TCS are both wholly owned by Twentieth Century
Companies, Inc. James E. Stowers Jr., Chairman of the board of directors of
TCC, controls TCC by virtue of his ownership of a majority of its common
stock.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting sales of, and
distributing the Fund shares offered by this Prospectus. The Fund does not
pay any commissions or other fees to the Distributor or to any other
broker-dealers or financial intermediaries in connection with the
distribution of Fund shares.
EXPENSES
The Fund pays certain operating expenses directly, including, but not
limited to: custodian, audit, and legal fees; fees of the independent
trustees; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, notices, and reports to
shareholders; insurance expenses; and costs of registering the Fund's shares
for sale under federal and state securities laws. See the Statement of
Additional Information for a more detailed discussion of independent trustee
compensation.
FURTHER INFORMATION
ABOUT THE FUND
The Trust was organized as a Massachusetts business trust on July 12,
1994. The Trust is a diversified, open-end management investment company. Its
business and affairs are managed by its officers under the direction of its
board of trustees.
The principal office of the Trust is Twentieth Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries may
be made by mail to that address, or by phone to 1-800-345-2021. (For
international callers: 816-531-5575.)
The Fund is an individual series of the Trust which issues shares with
no par value. Each series is commonly referred to as a fund. Currently, the
Fund is the only existing series of the Trust. In the event that additional
series of the Trust are created, the assets belonging to each series of
shares will be held separately by the custodian and in effect each series
will be a separate fund.
27
Each share, irrespective of series, is entitled to one vote for each
dollar of net asset value applicable to such share on all questions, except
those matters which must be voted on separately by the series of shares
affected. Matters affecting only one Fund are voted upon only by that Fund.
Shares have non-cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of trustees can elect
all of the trustees if they choose to do so, and in such event the holders of
the remaining less-than 50% of the shares will not be able to elect any
person or persons to the board of trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust
to hold annual meetings of shareholders. As a result, shareholders may not
vote each year on the election of trustees or the appointment of auditors.
However, pursuant to the Trust's by-laws, the holders of shares representing
at least 10% of the votes entitled to be cast may request that the Trust hold
a special meeting of shareholders. The Trust will assist in the communication
with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF
ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE
INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF THE FUND ONLY
IN THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE
QUALIFIED FOR SALE. THE FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS
RESIDING IN STATES WHERE THE FUND'S SHARES ARE NOT REGISTERED.
28
BENHAM
Capital Manager
Fund
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- --------------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- --------------------------------------------
Fax: 816-340-7962
- --------------------------------------------
Internet: http://www.twentieth-century.com
- --------------------------------------------
BENHAM
MANAGER FUNDS
- --------------------------------------------------------------------------------
BN-BKT-5492 [recycled logo]
9608 Recycled
<PAGE>
BENHAM CAPITAL MANAGER FUND
A SERIES OF BENHAM MANAGER FUNDS
4500 Main Street
Kansas City, MO 64111
Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575
Automated: 1-800-345-8765
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1996
This Statement is not a Prospectus, but should be read in conjunction with the
Fund's current Prospectus dated September 3, 1996. The Fund's Annual Report for
the fiscal year ended November 30, 1995 is incorporated herein by reference. To
obtain a copy of the Prospectus or Annual Report, call or write Twentieth
Century Mutual Funds.
TABLE OF CONTENTS
PAGE
Investment Policies 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
Transfer and Administrative Services 26
Direct Fund Expenses 27
Expense Limitation Agreement 27
Additional Purchase and Redemption Information 27
Other Information 28
1
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
(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
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
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
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
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
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
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
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
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
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
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
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
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
(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
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 calculated by Twentieth Century
Services, Inc. (TCS), as of the close of business of the New York Stock Exchange
(the "Exchange") each day the Exchange is open for business, usually at 3:00
p.m. Central Time. The Exchange has designated the following holiday closings
for 1996: New Year's Day (observed), Presidents` Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (observed).
Although TCS expects the same holiday schedule to be observed in the future, the
Exchange may modify its holiday schedule at any time.
BMC typically completes its trading on behalf of the Fund in various markets
before the Exchange closes for the day. Securities are valued at market,
depending upon the market or exchange on which they trade. Price quotations for
exchange-listed securities are taken from the primary exchanges on which these
securities trade. Securities traded on exchanges will be valued at their last
sale prices. If no sale is reported, the mean between the latest bid and asked
prices is used. Securities traded over-the-counter will be valued at the mean
between the latest bid and asked prices. Fixed-income securities are priced at
market value on the basis of market quotations supplied by independent pricing
services. Trading of securities in foreign markets may not take place on every
day the Exchange is open, and trading takes place in various foreign markets on
days on which the Exchange and the Fund's offices are not open and the Fund's
net asset value is not calculated. The Fund's net asset value may be
significantly affected on days when shareholders have no access to the Fund.
Securities for which market quotations are not readily available, or which may
change in value due to events occuring after their primary exchange has closed
for the day, are valued at fair market value as determined in good faith under
the direction of the board of directors.
17
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 SINCE INCEPTION*
13.04% 17.61%
* Since Fund inception on December 1, 1994.
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
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
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 31st of the calendar year.
Any dividend declared by the Fund in October, November or December of any year
and payable to shareholders of record on a specified date in such a month shall
be deemed to have been received by each shareholder on December 31st of such
year 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.
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.
20
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.
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
21
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
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
22
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 (a) settling portfolio purchases and sales, (b) reporting
failed trades, (c) identifying and collecting portfolio income, and (d)
providing safekeeping of securities. The custodian takes no part in determining
the Fund's investment policies or in determining which securities are sold or
purchased by the Fund. Effective October 7, 1996, Chase Manhattan Bank, 4 Chase
Metrotech Center, Brooklyn, NY 11245 will provide the custodian services for the
Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
TRUSTEES AND OFFICERS
The 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, Twentieth Century Services, Inc. (TCS); the Trust's distribution
agent, Twentieth Century Securities, Inc.; the parent corporation, Twentieth
Century Companies, Inc. (TCC) or TCC's subsidiaries; or other funds advised by
BMC. Each trustee listed below also serves as a trustee or director of other
funds managed by BMC. Unless otherwise noted, dates in parentheses indicate the
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 Benham Financial Services, Inc. (BFS) (1985), BMC
(1971), and Benham Distributors, Inc. (BDI) (1988); president of BMC (1971), and
BDI (1988); and a member of the board of governors of the Investment Company
Institute (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
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 III 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 funds
managed by BMC.
24
<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
- ---------------------------------------------------------------------------------------------------------------------------
** Interested directors receive no compensation for their services as such.
** Twentieth Century family of funds includes 66 no-load mutual funds.
As of July 31, 1996, 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 the rest of Twentieth Century's Benham brand mutual funds.
The Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two year period,
it is approved at least annually by vote of 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
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
Investment advisory fees paid by the Fund for the fiscal period ended November
30, 1995 are $22,524. Fee amounts are net of reimbursements.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, (TCS) acts as transfer, administrative services and dividend paying agent
for the Fund. TCS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, each Fund
pays TCS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Fund managed by the
Manager to the following administrative fee rate schedule:
GROUP ASSETS ADMINISTRATIVE FEE RATE
up to $4.5 billion .11%
up to $6 billion .10%
up to $9 billion .09%
balance over $9 billion .08%
For transfer agent services, the Fund pays TCS a monthly fee of $1.1875 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during that month.
The Fund paid $29,031 in administrative service fees and $59,873 in transfer
agent fees net of reimbursements for the fiscal period ended November 30, 1995.
26
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.
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 Fund's expenses to 1.00% of
the Fund's average daily net assets until May 31, 1997.
The Fund's contractual expense limit is subject to annual renewal. The expense
limit for the years ended November 30, 1995 and 1996 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)
FISCAL
1995
Benham Capital Manager Fund $183,426
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.
- --------------------------------------------------------------------------------
FUND SHAREHOLDER # OF SHARES HELD % OF TOTAL
NAME AND ADDRESS SHARES OUTSTANDING
- --------------------------------------------------------------------------------
Benham Twentieth Century Money 401,595.226 6.1%
Capital Manager Purchase Plan
Fund 4500 Main Street
Kansas City, MO 64111
- --------------------------------------------------------------------------------
As of July 31, 1996, to the knowledge of the Trust, no other shareholder was the
record holder or beneficial owner of 5% or more of the Fund's total shares
outstanding.
27
Twentieth Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
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. TCS charges neither fees nor commissions on the purchase and sale of
fund shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
TCS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The 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. 4
1940 Act Amendment No. 6
- --------------------------------------------------------------------------------
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 # 927793-96-000003).
(B) EXHIBITS.
(1) Agreement and Declaration of Trust of Benham Manager Funds, dated
July 12, 1994, as amended May 31, 1995, is incorporated herein by
reference to Exhibit 1 of Post-Effective Amendment No. 3 filed on
January 29, 1996 (Accession # 927793-96-000004).
(2) Amended and Restated Bylaws, dated May 17, 1995, are incorporated
herein by reference to Exhibit 2(b) of Post-Effective Amendment No.
3 filed on January 29, 1996 (Accession # 927793-96-000004).
(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.
(5) Investment Advisory Agreement between Benham Manager Funds: Benham
Capital Manager Fund and BMC, dated June 1, 1995, is incorporated
herein by reference to Exhibit 5(b) of Post-Effective Amendment No.
3 filed on January 29, 1996 (Accession # 927793-96-000004).
(6) Distribution Agreement between Benham Manager Funds and Twentieth
Century Securities, Inc. dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment No. 29 to the Registration Statement of the Benham
Government Income Trust filed on August 30, 1996 (Accession #
773674-96-000007).
(7) Not applicable.
(8) 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.
(9) Administrative Services and Transfer Agency Agreement between
Benham Manager Funds and Twentieth Century Services, Inc. dated as
of September 3, 1996,. is incorporated herein by reference to
Exhibit 9 of Post-Effective Amendment No. 29 to the Registration
Statement of the Benham Government Income Trust filed on August 30,
1996 (Accession # 773674-96-000007).
(10)Opinion and consent of counsel as to the legality of the
securities being registered, dated January 12, 1996, is
incorporated herein by reference to Rule 24f-2 Notice filed on
January 19, 1996 (Accession # 927793-96-000002).
(11)Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
(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 included herein.
(17)Power of Attorney dated December 15, 1995, is incorporated herein
by reference to Exhibit 17 of Post-Effective Amendment No. 3 filed
on January 29, 1996 (Accession # 927793-96-000004).
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities
As of July 31, 1996, there were 4,383 shareholders of record of Registrant's
shares.
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit 1 to the Registration Statement, "The Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2(b) of Post-Effective Amendment No. 3 filed on January 29, 1996
(Accession # 927793-96-000004).
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual 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. 4/Amendment No. 6 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 30th day of August, 1996. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
BENHAM 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. 4/Amendment No. 6 has been signed below by the following persons
in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Date
<S> <C> <C>
* Chairman of the Board of Trustees, August 30, 1996
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee August 30, 1996
- ---------------------------------
Albert A. Eisenstat
* Trustee August 30, 1996
- ---------------------------------
Ronald J. Gilson
* Trustee August 30, 1996
- ---------------------------------
Myron S. Scholes
* Trustee August 30, 1996
- ---------------------------------
Kenneth E. Scott
* Trustee August 30, 1996
- ---------------------------------
Ezra Solomon
* Trustee August 30, 1996
- ---------------------------------
Isaac Stein
* Trustee August 30, 1996
- ---------------------------------
James E. Stowers III
* Trustee August 30, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer August 30, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Agreement and Declaration of Trust of Benham Manager Funds, dated
July 12, 1994, as amended May 31, 1995, is incorporated herein by
reference to Exhibit 1 of Post-Effective Amendment No. 3 filed on
January 29, 1996 (Accession #927793-96-000004).
EX-99.B2 Amended and Restated Bylaws, dated May 17, 1995, are incorporated
herein by reference to Exhibit 2(b) of Post-Effective Amendment No.
3 filed on January 29, 1996 (Accession # 927793-96-000004).
EX-99.B4 Specimen copy of Benham Capital Manager Fund share certificate is
incorporated herein by reference to Exhibit 4 to the Registration
Statement.
EX-99.B5 Investment Advisory Agreement between Benham Manager Funds: Benham
Capital Manager Fund and BMC, dated June 1, 1995, is incorporated
herein by reference to Exhibit 5(b) of Post-Effective Amendment No.
3 filed on January 29, 1996 (Accession # 927793-96-000004).
EX-99.B6 Distribution Agreement between Benham Manager Funds and Twentieth
Century Securities, Inc. dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 6 of Post-Effective
Amendment No. 29 to the Registration Statement of the Benham
Government Income Trust filed on August 30, 1996 (Accession #
773674-96-000007).
EX-99.B8 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.
EX-99.B9 Administrative Services and Transfer Agency Agreement between Benham
Manager Funds and Twentieth Century Services, Inc. dated as of
September 3, 1996,. is incorporated herein by reference to Exhibit 9
of Post-Effective Amendment No. 29 to the Registration Statement of
the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
EX-99.B10 Opinion and consent of counsel as to the legality of the securities
being registered, dated January 12, 1996, is incorporated herein by
reference to Rule 24f-2 Notice filed on January 19, 1996 (Accession
# 927793-96-000002).
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is included
herein.
EX-99.B13 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.
EX-99.B14 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).
EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is included herein.
EX-99.B17 Power of Attorney dated December 15, 1995, is incorporated herein
by reference to Exhibit 17 of Post-Effective Amendment No. 3 filed
on January 29, 1996 (Accession # 927793-96-000004).
EX-27.1 Financial Data Schedule
Consent of Independent Auditors
The Board of Trustees and Shareholders
Benham Manager Funds:
We consent to the inclusion in Benham Manager Funds' Post-Effective Amendment
No. 4 to the Registration Statement No. 33-82264 on Form N-1A under the
Securities Act of 1933 and Amendment No. 6 to the Registration Statement No.
811-8668 filed on Form N-1A under the Investment Company Act of 1940 of our
report dated January 5, 1996 on the financial statements and financial
highlights of the Benham Capital Manager Fund (the sole fund comprising the
Benham Manager Funds) for the periods indicated therein, which report has been
incorporated by reference into the Statement of Additional Information of Benham
Manager Funds. We also consent to the reference to our firm under the heading
"Financial Highlights" in the Prospectus and under the heading "About Benham
Manager Funds" in the Statement of Additional Information which is incorporated
by reference in the Prospectus.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
August 30, 1996
BENHAM CAPITAL MANAGER FUND
AVERAGE ANNUAL TOTAL RETURN
MAY 31, 1996
( ERV ) 1/N
Formula: T = (-----) - 1
( P )
P = A hypothetical initial payment of $1,000.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.
N = Number of years.
T = Average annual total return.
P ERV N T
Calculation: --------- --------- -------- -------
One Year $1,000.00 $1,130.40 1.000000 13.04%
Five Years
Ten Years
Date Of Inception* $1,000.00 $1,275.74 1.501369 17.61%
TR=Total return for period. TR=(ERV/P) - 1 27.57%
*Date Of Inception: December 1, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000927793
<NAME> BENHAM CAPITAL MANAGER FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 78509072
<INVESTMENTS-AT-VALUE> 82580858
<RECEIVABLES> 2070946
<ASSETS-OTHER> 74547
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84726351
<PAYABLE-FOR-SECURITIES> 3885040
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 350981
<TOTAL-LIABILITIES> 4236021
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74289549
<SHARES-COMMON-STOCK> 6715895
<SHARES-COMMON-PRIOR> 4374062
<ACCUMULATED-NII-CURRENT> 265040
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1780278
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4155463
<NET-ASSETS> 80490330
<DIVIDEND-INCOME> 306187
<INTEREST-INCOME> 1137814
<OTHER-INCOME> 0
<EXPENSES-NET> 326680
<NET-INVESTMENT-INCOME> 1117321
<REALIZED-GAINS-CURRENT> 1612950
<APPREC-INCREASE-CURRENT> 1005035
<NET-CHANGE-FROM-OPS> 3735306
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1196616
<DISTRIBUTIONS-OF-GAINS> 817408
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38988103
<NUMBER-OF-SHARES-REDEEMED> 13314841
<SHARES-REINVESTED> 1939256
<NET-CHANGE-IN-ASSETS> 29333800
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 399214
<AVERAGE-NET-ASSETS> 65245646
<PER-SHARE-NAV-BEGIN> 11.70
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .51
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
