BENHAM U.S. TREASURY
AND GOVERNMENT
MONEY MARKET FUNDS
Semiannual Report * September 30, 1995
[Sketch of the American Eagle similar
to that displayed on U.S. currency]
Capital Preservation Fund
Capital Preservation Fund II
Government Agency Fund
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
<PAGE>
CONTENTS
U.S. ECONOMIC REVIEW................................. 1
MARKET SUMMARY....................................... 2
CAPITAL PRESERVATION FUND
Performance Information.............................. 3
Portfolio Statistics & Composition................... 4
Management Discussion................................ 5
Financial Highlights..................................15
Financial Statements and Notes........................18
Schedule of Investments...............................25
CAPITAL PRESERVATION FUND II
Performance Information.............................. 6
Portfolio Statistics & Composition................... 7
Management Discussion................................ 8
Financial Highlights..................................16
Financial Statements and Notes........................18
Schedule of Investments...............................26
BENHAM GOVERNMENT AGENCY FUND
Performance Information.............................. 9
Portfolio Statistics & Composition....................10
Management Discussion.................................11
Financial Highlights..................................17
Financial Statements and Notes........................18
Schedule of Investments...............................28
INVESTMENT FUNDAMENTALS
Money Market Instruments..............................12
Investment Terms......................................14
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman of the Board M. Benham]
Lower-than-expected inflation during the 12 months ended September 30, 1995,
helped generate optimism in the U.S. financial markets. U.S. inflation, as
measured by the consumer price index, increased at an annual rate of just 2.5%
during the 12-month period. Corporate mergers, downsizing and global job
competition kept labor costs low, and technological advances made U.S. workers
more efficient, boosting U.S. productivity to a 10-year high.
[graph data described below]
Slow economic growth also contributed significantly to the low inflation rate.
The Federal Reserve (the Fed) achieved its goal of slow economic growth and low
inflation, the so-called "soft landing." The Fed raised short-term interest
rates seven times from February 1994 to February 1995 (see the accompanying
graph) to slow the economy and prevent inflation. The higher interest rates
caused slowdowns in auto, home and retail sales in the first quarter of 1995.
Growth was even slower in the second quarter. U.S. employment suffered the
biggest monthly jobs decline in four years, and industrial production declined
for three consecutive months. As a result, real annual growth was just 1.3% in
the second quarter.
Economic weakness was so pronounced by the summer of 1995 that the Fed reduced
interest rates in early July. The Fed lowered the target for the federal funds
rate from 6.00% to 5.75%, its first rate cut since September 1992. Despite this
action, economic signals remained mixed through the third quarter. Signs of
strength appeared in the housing and manufacturing sectors, but consumer
confidence ebbed and retail sales lagged. As a result, the Fed left interest
rates unchanged in August and September.
Despite a strong preliminary economic growth estimate for the third quarter, the
jury is still out regarding the strength of the U.S. economy. Many analysts
project that the economy could experience its smallest fourth-quarter growth
rate since 1991. If tangible signs of economic weakness (such as low holiday
season sales figures) appear and Congress and President Clinton agree on a
meaningful budget deficit-reduction plan (one that would cut government spending
and therefore inhibit economic growth), the Fed may cut short-term interest
rates again before the end of the year.
[graph data]
Discount Rate Fed Funds Rate
Oct-91 5 5.21
Nov-91 4.5 4.81
Dec-91 3.5 4.43
Jan-92 3.5 4.03
Feb-92 3.5 4.06
Mar-92 3.5 3.98
Apr-92 3.5 3.73
May-92 3.5 3.82
Jun-92 3.5 3.76
Jul-92 3 3.25
Aug-92 3 3.3
Sep-92 3 3.22
Oct-92 3 3.1
Nov-92 3 3.09
Dec-92 3 2.92
Jan-93 3 3.02
Feb-93 3 3.03
Mar-93 3 3.07
Apr-93 3 2.96
May-93 3 3
Jun-93 3 3.04
Jul-93 3 3.06
Aug-93 3 3.03
Sep-93 3 3.09
Oct-93 3 2.99
Nov-93 3 3.02
Dec-93 3 2.96
Jan-94 3 3.05
Feb-94 3 3.25
Mar-94 3 3.34
Apr-94 3 3.56
May-94 3.5 4.01
Jun-94 3.5 4.25
Jul-94 3.5 4.26
Aug-94 4 4.47
Sep-94 4 4.73
Oct-94 4 4.76
Nov-94 4.75 5.29
Dec-94 4.75 5.45
Jan-95 4.75 5.53
Feb-95 5.25 5.92
Mar-95 5.25 5.98
Apr-95 5.25 6.05
May-95 5.25 6.01
Jun-95 5.25 5.98
Jul-95 5.25 5.77
Aug-95 5.25 5.75
Sep-95 5.25 5.8
Oct-95 5.25 5.97
1
<PAGE>
MARKET SUMMARY
GOVERNMENT MONEY MARKET SECURITIES
Review
U.S. money market yields declined gradually during the six months ended
September 30, 1995. The three-month U.S. Treasury bill yield fell from 5.85% to
below 5.50% during the six-month period (see the graph below). The declining
yields reflected the modest U.S. economic growth and low inflation levels that
existed during the period (see page 1), as well as market expectations regarding
interest rate cuts by the Fed.
Treasury bill yields hovered around 5.75% in April and May, but they declined
sharply to 5.50% in June as the economy slowed and the market anticipated a Fed
interest rate cut. After the Fed lowered the federal funds rate target from
6.00% to 5.75% in July, Treasury bill yields remained 25 basis points (a basis
point equals 0.01%) below the federal funds rate, reflecting the market's
expectation that the Fed would lower rates again by the end of the year. In
September, weakness in the manufacturing sector heightened expectations of a
near-term Fed rate cut, and yields dipped as low as 5.30% before ending the
six-month period at 5.40%.
[graph data described below]
Treasury bill yields were also depressed by lower supply and steady demand. New
issuance of bills by the U.S. Treasury declined as a result of reduced deficit
spending by the federal government. Fears of slower economic growth and a stock
market correction kept demand for Treasury bills strong through the third
quarter.
Outlook
Going forward, we expect money market yields to continue their recent downward
trend. With inflation on pace to be less than 3% for the fourth straight year,
the Fed appears to have room for further interest rate cuts. However, any Fed
action will likely be delayed until President Clinton and the Republican-led
Congress resolve the current federal budget impasse. Until then, we expect money
market yields to hover at or below their current levels.
[graph data]
3-Month T-Bill Fed Funds Rate
4/7/95 5.85 6.2
4/14/95 5.745 5.98
4/21/95 5.777 6.07
4/28/95 5.86 5.99
5/5/95 5.756 6.05
5/12/95 5.86 6
5/19/95 5.86 6.02
5/26/95 5.828 5.99
6/2/95 5.568 6.02
6/9/95 5.756 6.03
6/16/95 5.641 6.02
6/23/95 5.511 6
6/30/95 5.568 5.95
7/7/95 5.547 6.21
7/14/95 5.599 5.81
7/21/95 5.584 5.72
7/28/95 5.578 5.75
8/4/95 5.568 5.83
8/11/95 5.578 5.73
8/18/95 5.573 5.74
8/25/95 5.485 5.7
9/1/95 5.452 5.71
9/8/95 5.516 5.77
9/15/95 5.438 5.73
9/22/95 5.338 5.78
9/29/95 5.411 5.8
2
<PAGE>
CAPITAL PRESERVATION FUND
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Net Asset 7-Day 7-Day Average Annual Total Returns
Value Current Effective
- --------------------------------------------------------------------------------
(4/1/95-9/30/95) Yield Yield 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$1.00 5.20% 5.34% 5.18% 3.66% 4.22% 5.54%
The Fund commenced operations on October 13, 1972.
PLEASE NOTE: Yields and total returns are based on historical Fund performance
and do not guarantee future results. The Fund's yields and total returns will
vary. The U.S. government neither insures nor guarantees investments in the
Fund. The Fund is managed to maintain a stable $1.00 share price, but, as with
all money market funds, there is no assurance that the Fund will be able to do
so.
PERFORMANCE DEFINITIONS
The 7-Day Current Yield is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-Day Effective Yield is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 15.
Dividends: All income dividends paid by the Fund during the six months ended
September 30, 1995, came from net income on direct investments in U.S. Treasury
securities. Interest income from U.S. Treasury securities is not subject to
state and local taxes in many states.
<TABLE>
<CAPTION>
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "U.S. Treasury
Money Market Funds" category.
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
The Fund`s Total Return: 5.18% 3.66% 4.22% 5.54%
Category Average
Total Return: 5.10% 3.59% 4.17% 5.51%
The Fund`s Ranking: 29 out of 89 19 out of 62 10 out of 32 7 out of 15
Total returns are based on historical performance and do not guarantee future
results.
</TABLE>
3
<PAGE>
CAPITAL PRESERVATION FUND
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $2,961,660,384 $2,870,788,915
Number of Issues: 25 12
Average Maturity: 54 days 35 days
Average Yield: 5.63% 5.78%
For definitions of these terms, see page 14.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data]
9/30/95
Treasury Bills: 81.8%
Treasury Notes: 15.7%
STRIPS: 2.5%
[graph data]
3/31/95
Treasury Bills: 91.7%
Treasury Notes: 3.6%
STRIPS: 4.7%
For definitions of these security types, see pages 12-13.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
1-30 days: 33.3% 1-30 days: 39.5%
31-60 days: 39.0% 31-60 days: 50.0%
61-90 days: 9.2% 61-90 Days: 10.5%
91-180 days: 18.5%
The Fund's dollar-weighted average portfolio maturity will not exceed 60 days.
The Fund generally maintains an average maturity between 30 and 60 days, with 45
days considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
4
<PAGE>
CAPITAL PRESERVATION FUND
MANAGEMENT DISCUSSION
with Brian Howell, Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 12-14).
Q: How did the Fund perform?
A: The Fund performed above average compared to its peers. For the
one-year period ended September 30, 1995, the Fund's total return was
5.18%, compared to the 5.10% average total return for the 89 funds in
Lipper's "U.S. Treasury Money Market Funds" category over the same
period (see the Lipper Performance Comparison on page 3). The Fund's
total return for the six-month period ended September 30 was 2.66%.
Q: You extended the Fund's average maturity* from 35 days to 54 days over
the past six months. Can you explain your strategy?
A: Treasury bill yields declined during the second quarter as the market
priced in expectations of a Fed interest rate cut. As a result, we
extended the Fund's average maturity from 35 days to about 50 days
between April and June in order to lock in higher yields before the
rate cut. After the Fed lowered rates in July, we held the Fund's
average maturity at 50-55 days as yields continued to decline through
September.
To lengthen the Fund's average maturity, we purchased Treasury notes
with remaining maturities of three to six months. These purchases
enabled us to extend the Fund's average maturity while adding a few
basis points* to the Fund's yield. Treasury notes are a little less
liquid (i.e., harder to sell) than Treasury bills, but this is not an
issue for the Fund because it typically holds Treasury notes until they
mature.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We intend to keep the Fund's average maturity longer than neutral.
Although we may see temporary rises in Treasury bill yields, we expect
the current downward trend to persist into 1996. As a result, we are
maintaining the Fund's average maturity at about 50 days. We plan to
extend the Fund's average maturity when favorable supply and demand
factors cause yields to rise.
5
<PAGE>
CAPITAL PRESERVATION FUND II
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Net Asset 7-Day 7-Day Average Annual Total Returns
Value Current Effective ------------------------------------------
(4/1/95-9/30/95) Yield Yield 1 Year 3 Years 5 Years 10 Years
------------------------------------------
$1.00 5.20% 5.33% 5.07% 3.47% 3.98% 5.50%
The Fund commenced operations on May 16, 1980.
PLEASE NOTE: Yields and total returns are based on historical Fund performance
and do not guarantee future results. The Fund's yields and total returns will
vary. The U.S. government neither insures nor guarantees investments in the
Fund. The Fund is managed to maintain a stable $1.00 share price, but, as with
all money market funds, there is no assurance that the Fund will be able to do
so.
PERFORMANCE DEFINITIONS
The 7-Day Current Yield is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-Day Effective Yield is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 16.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "U.S. Treasury
Money Market Funds" category.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
The Fund`s Total Return: 5.07% 3.47% 3.98% 5.50%
Category Average
Total Return: 5.10% 3.59% 4.17% 5.51%
The Fund`s Ranking: 51 out of 89 48 out of 62 28 out of 32 8 out of 15
Total returns are based on historical performance and do not guarantee future
results.
</TABLE>
6
<PAGE>
CAPITAL PRESERVATION FUND II
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $251,079,465 $261,097,411
Number of Issues: 13 14
Average Maturity: 3 days* 3 days*
Average Yield: 6.36% 6.14%
For definitions of these terms, see page 14.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data]
9/30/95
Repos:100%
[graph data]
3/31/95
Repos:100%
Repos (repurchase agreements) are defined on page 12.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
3 Days:100%* 3 Days:100%*
*The Fund invested primarily in repurchase agreements with one-day maturities
(overnight repos) during the six-month periods ended 9/30/95 and 3/31/95.
However, the average maturities were skewed when the periods ended on Fridays.
The securities purchased at the end of each period did not mature until the
following Mondays.
The composition of the Fund's portfolio may change over time.
7
<PAGE>
CAPITAL PRESERVATION FUND II
MANAGEMENT DISCUSSION
with Denise Tabacco, Associate Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 12-14).
Q: How did the Fund perform?
A: The Fund's performance was comparable to that of its peer group. For
the one-year period ended September 30, 1995, the Fund's total return
was 5.07%, just less than the 5.10% average total return for the 89
funds in Lipper's "U.S. Treasury Money Market Funds" category over the
same period (see the Lipper Performance Comparison on page 6). The
Fund's total return for the six-month period ended September 30 was
2.63%.
The Fund slightly underperformed the category average over the past
year because of the Fund's limited average maturity.* The Fund's
average maturity cannot exceed seven days and is typically just one
day. To maintain this one-day maturity, the Fund invests primarily in
overnight repos,* which offer the highest degree of liquidity but
typically have yields that are slightly lower than short-term Treasury
yields. Many of the Fund's peers are able to earn higher yields by
extending their average maturities out as far as 90 days.
Q: Did the Fund's strategy change over the past six months?
A: No. The maturity limitation placed on the Fund does not allow for a
very active management strategy. During the past six months, the Fund
invested primarily in overnight repos collateralized by U.S. Treasury
securities. The Fund's average maturity was usually one day.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We will continue to invest in overnight repos. We expect the Fed to
lower short-term interest rates during the next six months, and this
will likely result in lower repo yields. However, because the
short-term Treasury market has already factored this Fed rate cut into
their yields, we've currently been able to find overnight repo yields
that are higher than prevailing Treasury bill yields. This situation
should persist as long as short-term Treasury yields reflect
expectations of a Fed rate cut.
8
<PAGE>
GOVERNMENT AGENCY FUND
PERFORMANCE SUMMARY
For Periods Ended September 30, 1995
Net Asset 7-Day 7-Day Average Annual Total Returns
Value Current Effective ----------------------------------------
(4/1/95-9/30/95) Yield Yield 1 Year 3 Years 5 Years Life of Fund
----------------------------------------
$1.00 5.28% 5.42% 5.37% 3.76% 4.41% 4.97%
The Fund commenced operations on December 5, 1989.
PLEASE NOTE: Yields and total returns are based on historical Fund performance
and do not guarantee future results. The Fund's yields and total returns will
vary. The U.S. government neither insures nor guarantees investments in the
Fund. The Fund is managed to maintain a stable $1.00 share price, but, as with
all money market funds, there is no assurance that the Fund will be able to do
so.
PERFORMANCE DEFINITIONS
The 7-Day Current Yield is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-Day Effective Yield is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 17. Dividends: All
income dividends paid by the Fund during the six months ended September 30,
1995, came from net income on direct investments in U.S. Treasury and agency
securities. Interest income from U.S. Treasury and agency securities is not
subject to state and local taxes in many states.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/95 for the funds in Lipper's "U.S. Government
Money Market Funds" category.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Life of Fund+
<S> <C> <C> <C> <C>
The Fund`s Total Return: 5.37% 3.76% 4.41% 4.94%
Category Average
Total Return: 5.12% 3.59% 4.14% 4.59%
The Fund`s Ranking: 19 out of 105 20 out of 88 6 out of 67 4 out of 62
</TABLE>
+ From December 31, 1989, through September 30, 1995.
Total returns are based on historical performance and do not guarantee future
results.
9
<PAGE>
GOVERNMENT AGENCY FUND
KEY PORTFOLIO STATISTICS
9/30/95 3/31/95
Market Value: $490,429,623 $454,605,940
Number of Issues: 52 38
Average Maturity: 52 days 38 days
Average Yield: 5.72% 5.74%
For definitions of these terms, see page 14.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
[graph data]
9/30/95
Government Agency Discount Notes: 78.0%
Floating-Rate Agency Notes: 19.3%
Government Agency Notes: 2.7%
[graph data]
3/31/95
Government Agency Discount Notes: 64.8%
Floating-Rate Agency Notes: 20.3%
Government Agency Notes: 14.9%
For definitions of these security types, see pages 12-13.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
[graph data] [graph data]
9/30/95 3/31/95
1-30 days: 40.0% 1-30 days: 46.6%
31-60 days: 28.5% 31-60 days: 32.1%
61-90 days: 16.8% 61-90 days: 10.5%
91-180 days: 14.7% 91-180 days: 10.8%
The Fund's dollar-weighted average portfolio maturity will not exceed 60 days.
The Fund generally maintains an average maturity between 30 and 60 days, with 45
days considered a "neutral" position.
The composition of the Fund's portfolio may change over time.
10
<PAGE>
GOVERNMENT AGENCY FUND
MANAGEMENT DISCUSSION
with Brian Howell, Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 12-14).
Q: How did the Fund perform?
A: The Fund performed well compared to its peers. For the one-year period
ended September 30, 1995, the Fund's total return was 5.37%, compared
to the 5.12% average total return for the 105 funds in Lipper's "U.S.
Government Money Market Funds" category over the same period (see the
Lipper Performance Comparison on page 9). The Fund's total return for
the six-month period ended September 30 was 2.75%.
Q: You extended the Fund's average maturity* from 38 days to 52 days over
the past six months. Can you explain your strategy?
A: All short-term yields declined during the second quarter as the market
priced in expectations of a Fed interest rate cut. Short-term
government agency yields fell even further because of dwindling
supply--agencies primarily issued securities with one- and two-month
maturities, intending to wait until after the expected Fed rate cut to
issue longer-term securities. With this in mind, we extended the Fund's
average maturity from 35 days to about 45 days between April and June
in order to lock in higher yields before the rate cut. After the Fed
lowered rates in July, we continued to expand the Fund's average
maturity, lengthening it to 50-55 days as yields continued to decline
through September.
Q: You significantly reduced the Fund's holdings of government agency
notes* over the past six months (from 15% to 3%). Why?
A: We usually add agency notes to the Fund's portfolio when we are
compensated for their lower liquidity with a reasonable yield advantage
over agency discount notes.* Recently, agency notes and agency discount
notes have been yielding about the same, so we have preferred to hold
the more liquid agency discount notes.
Q: Looking ahead, what are your plans for the Fund over the next six
months?
A: We intend to keep the Fund's average maturity longer than neutral.
Although we may see temporary rises in government agency yields, we
expect the current downward trend to persist into 1996. As a result, we
are maintaining the Fund's average maturity at about 50 days. We plan
to extend the Fund's average maturity when favorable supply and demand
factors cause yields to rise.
11
<PAGE>
INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS
The Money Market
The "money market" is a highly liquid, multi-trillion dollar worldwide financial
market that matches supply from corporations, banks and governments that have
short-term cash or borrowing needs with demand from investors who want to buy
short-term, low-risk, interest-bearing instruments. On the supply side,
corporate, financial and fiscal entities sometimes have more current obligations
to meet than cash on hand, and they need to raise money. They are therefore
willing to sell short-term IOUs to investors in exchange for cash. For example,
the U.S. Treasury auctions three-month bills to raise cash to cover current
government expenses that are incurred before anticipated revenues. On the demand
side, investors want a place to "park" their money in the short term where it
can earn interest, retain value and be readily available for other opportunities
or expense payments. Finance officers at corporations, banks, government offices
and securities firms saw how they could satisfy both sides by issuing certain
types of debt securities. Most money market securities are issued at a discount
and pay full value at maturity (13 months or less). The difference between the
purchase value and the maturity value is the imputed interest.
Common U.S. Government Money Market Securities
Floating-Rate Agency Notes (FRANs)--see the "Derivatives" section on page 13.
Government Agency Discount Notes--short-term debt securities issued by U.S.
government agencies (such as the Federal Farm Credit Bank, the Federal Home Loan
Bank and the Federal National Mortgage Association). Some agency discount notes
are backed by the full faith and credit of the U.S. government, while others are
guaranteed only by the issuing agency. These notes are issued at a discount and
achieve full value at maturity (typically one year or less).
Government Agency Notes--intermediate-term debt securities issued by U.S.
government agencies (such as the Federal Farm Credit Bank, the Federal Home Loan
Bank and the Federal National Mortgage Association). Some agency notes are
backed by the full faith and credit of the U.S. government, while others are
guaranteed only by the issuing agency. These notes are issued with maturities
ranging from three months to 30 years. Benham Government Agency Fund typically
buys agency notes with remaining terms of 180 days or less.
Repurchase Agreements (Repos)--short-term debt agreements in which a fund buys a
security at one price and simultaneously agrees to sell it back to the seller at
a slightly higher price on a specified date (usually within seven days). Capital
Preservation Fund II typically invests in repos backed by U.S. Treasury
securities.
12
<PAGE>
INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS
(Continued from the previous page)
STRIPS--zero-coupon securities (zeros) issued by the U.S. Treasury and backed by
the direct "full faith and credit" pledge of the U.S. government. Unlike
ordinary Treasury securities, which pay interest periodically, zeros pay no
interest. Instead, these securities are issued at a deep discount and then
redeemed for their full face value at maturity. Capital Preservation Fund
typically buys STRIPS with remaining maturities of 180 days or less.
Treasury bills (T-bills)--short-term debt securities issued by the U.S. Treasury
and backed by the direct "full faith and credit" pledge of the U.S. government.
T-bills are issued with maturities ranging from three months to one year.
Capital Preservation Fund typically buys T-bills with remaining maturities of 90
days or less.
Treasury notes (T-notes)--intermediate-term debt securities issued by the U.S.
Treasury and backed by the direct "full faith and credit" pledge of the U.S.
government. T-notes are issued with maturities ranging from 2 to 30 years.
Capital Preservation Fund typically buys T-notes with remaining maturities of
180 days or less.
Derivatives
Capital Preservation Fund and Capital Preservation Fund II do not own any
derivatives. Benham Government Agency Fund is permitted to invest a portion of
its portfolio in floating-rate agency notes (FRANs), which are considered
derivatives.
FRANs are debt securities issued by U.S. government agencies, and they have
interest rates that change when a designated base rate changes. The base rate is
often a bank's prime rate, the federal funds rate, the 90-day Treasury bill rate
or the London Interbank Offered Rate (LIBOR). FRANs are considered derivatives
because they "derive" their interest rates from their designated base rates.
However, FRANs are not "risky" derivatives--their behavior is similar to that of
their designated base rates. The SEC has recognized this similarity and does not
consider FRANs to be inappropriate investments for money market funds.
13
<PAGE>
INVESTMENT FUNDAMENTALS
INVESTMENT TERMS
Portfolio Statistics
Market Value--the market value of a fund's investments on a given date.
Number of Issues--the number of different securities issuances held by a fund on
a given date.
Average Maturity--a weighted average of all security maturities in a fund's
portfolio (see also below).
Average Yield--a weighted average of the yields to maturity of the securities in
a money market fund's portfolio.
Basis Points
A basis point equals one one-hundredth of a percentage point (or 0.01%).
Therefore, 100 basis points equals one percentage point (or 1%). Basis points
are used to clearly describe interest rate changes. For example, if a news
report indicates that interest rates rose by 1%, does that mean 1% of the
previous rate or one percentage point? It is more accurate to state that
interest rates rose by 100 basis points.
Average Maturity
Average maturity measures the interest rate sensitivity and interest rate
exposure of a portfolio. It reflects the average amount of time that will pass
until a portfolio receives its principal payments from matured securities. The
longer a portfolio's average maturity is, the more interest rate exposure and
interest rate sensitivity it has. For example, a portfolio with a 90-day average
maturity will take much longer to reinvest its maturing securities than a
portfolio with a 30-day average maturity. Portfolios with longer average
maturities generally pay higher yields to compensate for the greater interest
rate exposure. To help ensure the share price stability of money market funds,
the SEC mandates that a money market fund's average maturity cannot exceed 90
days.
Average maturity is also an important strategic tool. Reducing a fund's average
maturity as interest rates rise allows the portfolio manager to more quickly
reinvest matured assets in higher-yielding securities. Conversely, lengthening a
fund's average maturity as interest rates fall allows the portfolio manager to
"lock in" higher yields.
14
<PAGE>
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and
the Years Ended March 31 (except as noted)
(Unaudited)
Sept.30, Mar.31, Mar.31, Mar.31, Sept.30, Sept.30, Sept.30, Sept.30, Sept.30, Sept.30,
1995 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
PER-SHARE DATA
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of
Period................. $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment
Operations
Net Investment Income..... .0263 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608 .0531
Less Distributions
Dividends from Net
Investment Income...... (.0263) (.0424) (.0259) (.0134) (.0382) (.0603) (.0750) (.0800) (.0608) (.0531)
----- ----- ---- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of
Period...................... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*............... 2.66% 4.31% 2.63% 1.35% 3.88% 6.27% 7.77% 8.27% 6.30% 5.48%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands)......... $2,984,764 2,883,350 2,786,614 2,943,242 3,045,501 3,375,505 3,098,997 2,736,531 2,187,096 1,793,056
Ratio of Expenses to Average
Daily Net Assets....... .50%** .50% .51% .50%** .51% .52% .56% .57% .59% .63%
Ratio of Net Investment Income to
Average Daily Net Assets 5.25%** 4.24% 2.59% 2.68%** 3.82% 6.03% 7.50% 8.00% 6.08% 5.31%
- --------------------
</TABLE>
+ The fiscal year-end for Capital Preservation Fund was changed from September
30 to March 31 beginning with the period ended March 31, 1993. This column
represents a six-month period.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND II, INC.
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and
the Years Ended March 31 (except as noted)
(Unaudited)
Sept.30, Mar.31, Mar.31, Mar.31, Sept.30, Sept.30, Sept.30, Sept.30, Sept.30, Sept.30,
1995 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of
Period.................. $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment
Operations
Net Investment Income...... .0260 .0406 .0237 .0120 .0341 .0591 .0764 .0834 .0626 .0553
Less Distributions
Dividends from Net
Investment Income....... (.0260) (.0406) (.0237) (.0120) (.0341) (.0591) (.0764) (.0834) (.0626) (.0553)
----- ----- ---- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of
Period....................... $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ==== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* 2.63% 4.17% 2.40% 1.21% 3.42% 6.07% 7.91% 8.64% 6.46% 5.68%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands).......... $252,445 262,440 283,487 313,855 339,729 474,888 617,885 707,716 537,653 465,023
Ratio of Expenses to Average Daily
Net Assets.............. .76%** .75% .75% .75%** .74% .70% .69% .71% .73% .73%
Ratio of Net Investment Income
to Average Daily Net Assets 5.19%** 4.06% 2.37% 2.40%** 3.41% 5.91% 7.64% 8.34% 6.26% 5.53%
- --------------
</TABLE>
+ The fiscal year-end for Capital Preservation Fund II was changed from
September 30 to March 31 beginning with the period ended March 31, 1993. This
column represents a six-month period.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
BENHAM GOVERNMENT AGENCY FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30 and
the Years Ended March 31
(Unaudited)
Sept. 30, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1995 1995 1994 1993 1992 1991 1990+
----- ----- ----- ----- ----- ----- -----
PER-SHARE DATA
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period........ $1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment Operations
Net Investment Income....................... .0271 .0435 .0265 .0304 .0517 .0742 .0264
Less Distributions
Dividends from Net Investment Income........ (.0271) (.0435) (.0265) (.0304) (.0517) (.0742) (.0264)
----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of Period.............. $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*................................. 2.75% 4.47% 2.69% 3.07% 5.29% 7.97% 2.65%
- ---------------
SUPPLEMENTAL DATA AND RATIOS
- ---------------------------------
Net Assets at End of Period (in thousands).... $490,624 461,803 561,766 646,006 906,368 1,073,730 61,768
Ratio of Expenses to Average Daily Net Assets. .51%** .50% .50% .50% .30% 0% 0%
Ratio of Net Investment Income to Average
Daily Net Assets............................. 5.40%** 4.35% 2.65% 3.04% 5.17% 7.42% 8.25%**
- ---------------
</TABLE>
+ From December 5, 1989 (commencement of operations), through March 31, 1990.
* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.
** Annualized.
See the accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1995
(Unaudited)
Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
------- ------- -------
ASSETS
<S> <C> <C> <C>
Investment securities (at amortized cost)............................... $ 2,961,660,384 251,079,465 490,429,623
Cash.................................................................... 5,437,038 1,377,612 1,482,300
Receivables for securities sold......................................... 348,987,335 0 0
Interest receivable..................................................... 7,366,000 88,776 1,943,697
Receivables for fund shares sold........................................ 21,247,350 640,324 1,365,429
Prepaid expenses and other assets....................................... 81,336 12,147 16,929
------------- ------------- ------------
Total assets.......................................................... 3,344,779,443 253,198,324 495,237,978
------------- ------------- ------------
LIABILITIES
Payable for fund shares redeemed........................................ 8,470,606 498,353 4,262,408
Payable for securities purchased........................................ 349,034,333 0 0
Dividends payable....................................................... 987,229 83,285 147,132
Payable to affiliates (Note 2).......................................... 1,219,324 154,042 202,810
Accrued expenses & other liabilities.................................... 303,701 17,184 1,722
------------- ------------- ------------
Total liabilities..................................................... 360,015,193 752,864 4,614,072
------------- ------------- ------------
NET ASSETS, equivalent to $1.00 per share................................. $ 2,984,764,250 252,445,460 490,623,906
============= ============= ============
Outstanding shares (Note 3)............................................... 2,984,764,250 252,445,460 490,623,906
============= ============= ============
Net asset value, offering and redemption price per share.................. $1.00 1.00 1.00
===== ==== ====
- ------------------------
See the accompanying notes to financial statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1995
(Unaudited)
Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
------- ------- -------
<S> <C> <C> <C>
Investment Income......................................................... $84,643,194 7,622,198 14,180,680
----------- ----------- -----------
Expenses (Note 2)
Investment advisory fees................................................ 3,970,135 588,814 671,689
Transfer agency fees.................................................... 1,273,878 159,411 297,878
Administrative fees..................................................... 1,435,871 124,964 233,705
Printing and postage.................................................... 244,360 26,423 57,521
Custodian fees.......................................................... 208,722 28,808 36,053
Auditing and legal fees................................................. 22,181 8,412 9,458
Registration and filing fees............................................ 34,371 16,303 11,543
Directors' fees and expenses............................................ 31,582 6,953 5,194
Other operating expenses................................................ 171,381 9,913 30,842
----------- ----------- -----------
Total expenses........................................................ 7,392,481 970,001 1,353,883
Amount recouped (waived) (Note 2)......................................... 0 5,013 (128,488)
Custodial earnings credits (Note 4)....................................... (153,940) (12,006) (24,617)
----------- ----------- -----------
Net expenses............................................................ 7,238,541 963,008 1,200,778
----------- ----------- -----------
Net investment income................................................. $77,404,653 6,659,190 12,979,902
=========== =========== ===========
- ----------------------------
See the accompanying notes to financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended September 30, 1995, and Year Ended March 31, 1995
(Unaudited)
Capital Capital Benham Government
Preservation Fund Preservation Fund II Agency Fund
------------------ ------------------ ------------------
Sept. 30, Mar. 31, Sept. 30, Mar. 31, Sept. 30, Mar. 31,
1995 1995 1995 1995 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From investment activities:
Net investment income...................... $77,404,653 119,479,687 6,659,190 11,129,988 12,979,902 21,099,696
Dividends paid or payable to shareholders.. (77,404,653) (119,479,687) (6,659,190) (11,129,988) (12,979,902) (21,099,696)
----------- ------------ ----------- ----------- ----------- -----------
Change in net assets derived from
investment activities................... 0 0 0 0 0 0
------------- ------------ ----------- ----------- ----------- -----------
From capital share transactions:
Proceeds from sales of shares.............. 1,381,245,350 2,558,519,051 79,676,717 202,421,818 261,805,968 652,415,506
Net asset value of dividends reinvested.... 73,738,694 113,713,677 6,380,134 10,700,190 12,522,507 20,202,136
Cost of shares redeemed....................(1,353,569,929)(2,575,496,283) (96,051,792) (234,168,675) (245,507,396)(772,580,324)
------------- ------------ ------------ ------------ ------------ ------------
Change in net assets derived from
capital share transactions................ 101,414,115 96,736,445 (9,994,941) (21,046,667) 28,821,079 (99,962,682)
------------- ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.... 101,414,115 96,736,445 (9,994,941) (21,046,667) 28,821,079 (99,962,682)
Net assets:
Beginning of period........................ 2,883,350,135 2,786,613,690 262,440,401 283,487,068 461,802,827 561,765,509
------------- ------------ ------------ ------------ ------------ ------------
End of period..............................$2,984,764,250 2,883,350,135 252,445,460 262,440,401 490,623,906 461,802,827
============= ============= ============ ============ ============ ============
- --------------------
See the accompanying notes to financial statements.
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES
Capital Preservation Fund, Inc. (CPF), Capital Preservation Fund II, Inc. (CPF
II) and Benham Government Agency Fund (BGAF) (the Funds) are open-end,
diversified management investment companies registered under the Investment
Company Act of 1940. BGAF is one of the six funds composing Benham Government
Income Trust (BGIT). Significant accounting policies followed by the Funds are
summarized below.
Valuation of Investment Securities--Securities are valued at amortized cost,
which approximates current market value. Repurchase agreements are valued at
cost and are collateralized by U.S. government securities whose market value
plus accrued interest exceed the carrying value of the repurchase agreements.
Securities transactions are recorded on the date the order to buy or sell is
executed. Realized gains and losses from security transactions are determined on
the basis of identified cost.
Forward Commitments--Periodically, CPF and BGAF enter into purchase or sale
transactions on a forward commitment basis. In these transactions, CPF and BGAF
sell a security and at the same time make a commitment to purchase the same
security at a future date and specified price. Conversely, these Funds may
purchase a security and at the same time make a commitment to sell the same
security at a future date and specified price. These types of transactions are
executed simultaneously in what are known as forward commitment or "roll"
transactions. These Funds take possession of any security they purchase in these
transactions.
Income Taxes--Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By complying with the
provisions of Subchapter M, each Fund will not be subject to federal income or
California franchise taxes to the extent that it distributes its net investment
income and net realized capital gains to shareholders. Accordingly, no provision
for income taxes has been made for federal or state taxes.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial statement and tax purposes.
21
<PAGE>
Share Valuation--Each Fund's net asset value per share is computed by dividing
the value of its total assets, less liabilities, by the total number of shares
outstanding at the beginning of each business day. It is the Funds' policy to
maintain a constant net asset value of $1.00 per share, although there is no
guarantee they will be able to do so.
Investment Income, Dividends and Other Distributions--Income and expenses are
accrued daily. Discounts and premiums on securities purchased are amortized on a
straight-line basis over the life of the securities. Dividends to the
shareholders are declared and credited daily. Shareholders may elect to receive
distributions in cash or to reinvest them in additional shares. Cash dividends
are distributed on the last business day of the month.
(2) INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). BMC's former parent company, Benham Management
International, Inc., merged into TCC on June 1, 1995. CPF and CPF II pay BMC a
monthly investment advisory fee, which is calculated by applying the Fund's
average daily net assets to the following annualized fee schedule. BGAF pays BMC
a monthly advisory fee based on its pro rata share of the dollar amount derived
from applying BGIT's average daily net assets to the following annualized fee
schedule.
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion
BMC provides the Funds with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Fund officers and trustees who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.
CPF, CPF II and BGIT have Administrative Services and Transfer Agency Agreements
with Benham Financial Services, Inc. (BFS), a wholly owned subsidiary of TCC.
Under the agreement, BFS provides
22
<PAGE>
substantially all administrative and transfer agency services necessary to
operate each Fund. Fees for these services are based on transaction volume,
number of accounts and average net assets of all funds in The Benham Group.
The Funds have an additional agreement with BMC pursuant to which BMC
established a contractual expense guarantee that limits each Fund's expenses
(excluding extraordinary expenses such as brokerage commissions and taxes and
including expense offset arrangements on an annualized basis) to .57% for CPF,
.75% for CPF II, and .50% for BGAF of average daily net assets. The agreement
provides that BMC may recover amounts (representing expenses in excess of the
Fund's expense guarantee rate) absorbed during the preceding 11 months if, and
to the extent that, for any given month, the Fund's expenses are less than the
expense guarantee rate in effect at that time. The expense guarantee rate is
renewed annually in June.
The payables to affiliates as of September 30, 1995, based on the above
agreements, were as follows:
Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
------------- ------------- -------------
Investment Advisor............ $ 660,365 94,219 97,538
Administrative Services....... 238,243 20,110 39,368
Transfer Agent................ 320,716 39,713 65,904
---------- ------- -------
$ 1,219,324 154,042 202,810
========== ======= =======
As of September 30, 1995, certain other funds managed by BMC (the variable-rate
funds) owned shares of CPF, with a total value of $16,948,340. The terms of such
transactions were identical to those of nonrelated entities except that, to
avoid duplicative investment advisory and administrative fees, the variable-rate
funds do not pay BMC or BFS investment advisory and administrative fees for
assets invested in shares of CPF.
CPF, CPF II and BGIT have distribution agreements with Benham Distributors, Inc.
(BDI), which is responsible for promoting sales and distributing the Funds'
shares. BDI is a wholly owned subsidiary of TCC.
(3) CAPITAL STOCK
CPF and CPF II are each authorized to issue ten billion (10,000,000,000) shares
of common stock, which may be issued in two or more series. Of the ten billion
shares, five billion each (5,000,000,000) are designated "Series A Common
Stock." The remaining five billion shares may be designated and classified as
additional series from time to time at the
23
<PAGE>
discretion of the respective boards of directors. BGAF is authorized to issue an
unlimited number of shares of beneficial interest.
(4) EXPENSE OFFSET ARRANGEMENTS
Each Fund's Statement of Operations shows custodial earnings credits. This
amount represents credits received on cash balances maintained by the Fund at
the custodian bank. The Funds could have invested the excess cash balances in an
income-producing asset if they had not agreed to a reduction in fees under the
expense offset arrangement. Beginning with the six months ending September 30,
1995, the ratios of expenses to average daily net assets shown in the Financial
Highlights are calculated without the credits received under the expense offset
arrangement.
24
<PAGE>
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND, INC.
Schedule of Investment Securities
September 30, 1995
(Unaudited)
Rate** Maturity Face Amount Value Percent
------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury bills..................................................... 4.95% 10/05/95 $ 222,000,000 221,879,623 7.50%
U.S. Treasury bills..................................................... 5.44 10/12/95 75,500,000 75,376,329 2.55
U.S. Treasury bills..................................................... 5.44 10/19/95 401,000,000 399,926,696 13.50
U.S. Treasury bills..................................................... 5.41 10/26/95 287,000,000 285,941,125 9.65
U.S. Treasury bills..................................................... 5.54 11/02/95 211,000,000 209,980,056 7.09
U.S. Treasury bills..................................................... 5.55 11/09/95 134,500,000 133,707,302 4.51
U.S. Treasury bills..................................................... 5.46 11/16/95 355,000,000 352,575,129 11.90
U.S. Treasury bills..................................................... 5.53 11/24/95 306,000,000 303,516,618 10.25
U.S. Treasury bills..................................................... 5.42 12/07/95 150,000,000 148,522,836 5.01
U.S. Treasury bills..................................................... 5.40 12/21/95 75,000,000 74,111,531 2.50
U.S. Treasury bills..................................................... 5.53 02/08/96 50,000,000 49,034,028 1.66
U.S. Treasury bills..................................................... 5.65 02/15/96 25,000,000 24,480,542 .83
U.S. Treasury bills..................................................... 5.62 03/28/96 150,000,000 145,974,986 4.93
------------ ------------ ------
Total (cost $2,425,026,801*)........................................................... 2,442,000,000 2,425,026,801 81.88
------------ ------------ ------
U.S. Treasury notes..................................................... 8.625 10/15/95 6,405,000 6,411,782 .23
U.S. Treasury notes..................................................... 3.875 10/31/95 31,000,000 30,956,186 1.05
U.S. Treasury notes..................................................... 8.500 11/15/95 75,000,000 75,255,500 2.54
U.S. Treasury notes..................................................... 9.500 11/15/95 25,000,000 25,112,271 .85
U.S. Treasury notes..................................................... 4.250 11/30/95 50,000,000 49,891,183 1.68
U.S. Treasury notes..................................................... 9.250 01/15/96 50,000,000 50,490,465 1.70
U.S. Treasury notes..................................................... 4.000 01/31/96 50,000,000 49,740,057 1.68
U.S. Treasury notes..................................................... 4.625 02/15/96 125,000,000 124,502,612 4.20
U.S. Treasury notes..................................................... 7.875 02/15/96 25,000,000 25,191,127 .85
U.S. Treasury notes..................................................... 8.875 02/15/96 25,000,000 25,284,567 .85
------------ ------------ ------
Total (cost $462,835,750*)............................................................. 462,405,000 462,835,750 15.63
------------ ------------ ------
U.S. Treasury zero-coupon bonds......................................... 5.57 11/15/95 25,000,000 24,829,485 0.84
U.S. Treasury zero-coupon bonds......................................... 5.61 02/15/96 50,000,000 48,968,348 1.65
------------ ------------ ------
Total (cost $73,797,833*).............................................................. 75,000,000 73,797,833 2.49
------------ ------------ ------
TOTAL INVESTMENT SECURITIES (cost $2,961,660,384*)........................................... $2,979,405,000 2,961,660,384 100.00%
============ ============ ======
- --------------------------------------------------
</TABLE>
* Cost for financial reporting and federal income tax purposes is the same.
** The rates for U.S. Treasury bills and zero-coupon bonds are the yields to
maturity as of September 30, 1995. The rate for U.S. Treasury notes is the
stated coupon rate.
See the accompanying notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND II, INC.
Schedule of Investment Securities
September 30, 1995
(Unaudited)
Repurchase Agreements:
Issuer Collateral Rate Maturity+ Value Percent
- ----------------- --------------------------------------------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
BA Securities............. Due in the amount of $12,006,150 (collateralized by 6.150% 10/02/95 $ 12,000,000 4.78%
$12,257,582 in U.S. Treasury bills due 03/28/1996)
Bank of Tokyo............. Due in the amount of $12,006,400 (collateralized by 6.400 10/02/95 12,000,000 4.78
$12,264,808 in U.S. Treasury notes, 6.75%, due 04/30/2000)
Barclays de Zoete Wedd.... Due in the amount of $12,006,000 (collateralized by 6.000 10/02/95 12,000,000 4.78
$12,229,275 in U.S. Treasury notes, 6.50%, due 09/30/1996)
Daiwa Securities.......... Due in the amount of $12,006,450 (collateralized by 6.450 10/02/95 12,000,000 4.78
$12,245,922 in U.S. Treasury notes, 7.75%, due 01/31/2000)
Fuji Securities........... Due in the amount of $62,072,984 (collateralized by 6.430 10/02/95 62,039,741 24.71
$27,364,819 in U.S. Treasury STRIPS due from 11/15/1997
to 02/15/2015, $10,240,595 in U.S. Treasury bonds, 7.25% to
14.25%, due from 02/15/2002 to 08/15/2022, $55,419 in U.S.
Treasury bills due 12/07/1995 and $25,109,411 in U.S.
Treasury notes, 5.50% to 7.75%, due 03/31/1996 to 05/15/2005)
Goldman Sachs............. Due in the amount of $7,003,675 (collateralized by 6.300 10/02/95 7,000,000 2.78
$7,152,304 in U.S. Treasury notes, 7.875%, due 06/30/1996)
Hong Kong and
Shanghai Bank............. Due in the amount of $12,006,400 (collateralized by 6.400 10/02/95 12,000,000 4.78
$12,255,891 in U.S. Treasury notes, 5.75%, due 08/15/2003)
J.P. Morgan............... Due in the amount of $12,006,300 (collateralized by 6.300 10/02/95 12,000,000 4.78
$12,326,372 in U.S. Treasury bonds, 8.125%, due 08/15/2019)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Issuer Collateral Rate Maturity+ Value Percent
- ----------------- --------------------------------------------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Nikko Securities.......... Due in the amount of $12,006,450 (collateralized by 6.450% 10/02/95 $ 12,000,000 4.78%
$12,260,462 in U.S. Treasury notes, 5.50%, due 02/28/1999)
Nomura Securities......... Due in the amount of $62,073,070 (collateralized 6.450 10/02/95 62,039,724 24.71
by $62,699,726 in U.S. Treasury notes, 6.00% to 7.75%,
due from 11/30/1997 to 02/15/2001)
Sanwa Securities (USA)
Co. ...................... Due in the amount of $12,006,000 (collateralized by 6.000 10/02/95 12,000,000 4.78
$12,268,238 in U.S. Treasury notes, 7.75%, due 12/31/1999)
SBC Government Securities. Due in the amount of $12,006,450 (collateralized by 6.450 10/02/95 12,000,000 4.78
$12,245,678 in U.S. Treasury bills due 07/25/1996)
Union Bank Switzerland.... Due in the amount of $12,006,300 (collateralized by 6.300 10/02/95 12,000,000 4.78
$12,265,150 in U.S. Treasury notes, 6.875%, due 08/31/1999)
----------- ------
TOTAL INVESTMENT SECURITIES (cost $251,079,465*)........................................................... $251,079,465 100.00%
=========== ======
</TABLE>
- ----------------------------
+ All repurchase agreements were entered into on September 29, 1995.
* Cost for financial reporting and federal income tax purposes is the same.
See the accompanying notes to financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
BENHAM GOVERNMENT AGENCY FUND
Schedule of Investment Securities
September 30, 1995
(Unaudited)
Face
Rate** Maturity Amount Value Percent
----- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Discount Notes
Federal Home Loan Bank.................................................... 5.86% 10/06/95 $ 8,400,000 8,393,259 1.71%
Federal Home Loan Bank.................................................... 5.61 10/10/95 3,000,000 2,995,853 0.62
Federal Farm Credit Bank.................................................. 5.60 10/12/95 12,000,000 11,979,797 2.43
Tennessee Valley Authority................................................ 5.68 10/12/95 9,000,000 8,984,628 1.83
Federal Farm Credit Bank.................................................. 5.67 10/17/95 1,870,000 1,865,363 0.38
Federal Home Loan Bank.................................................... 5.86 10/17/95 3,000,000 2,992,307 0.61
Federal Farm Credit Bank.................................................. 5.66 10/19/95 5,000,000 4,986,076 1.02
Federal Home Loan Bank.................................................... 5.68 10/19/95 10,000,000 9,972,050 2.02
Tennessee Valley Authority................................................ 5.73 10/24/95 10,000,000 9,964,031 2.03
Federal Home Loan Bank.................................................... 5.69 10/25/95 2,000,000 1,992,547 0.41
Tennessee Valley Authority................................................ 5.74 10/27/95 10,000,000 9,959,267 2.03
Federal Home Loan Bank.................................................... 5.70 10/30/95 14,405,000 14,340,017 2.92
Federal Farm Credit Bank.................................................. 5.73 10/30/95 12,500,000 12,443,309 2.54
Federal Farm Credit Bank.................................................. 5.69 11/01/95 9,600,000 9,553,859 1.95
Tennessee Valley Authority................................................ 5.68 11/01/95 14,000,000 13,932,816 2.84
Tennessee Valley Authority................................................ 5.76 11/02/95 15,000,000 14,924,667 3.04
Federal Farm Credit Bank.................................................. 5.69 11/03/95 3,000,000 2,984,655 0.61
Federal Farm Credit Bank.................................................. 5.78 11/06/95 29,765,000 29,596,341 6.05
Federal Home Loan Bank.................................................... 5.68 11/06/95 3,800,000 3,778,834 0.77
Federal Farm Credit Bank.................................................. 5.71 11/10/95 25,000,000 24,844,622 5.08
Federal Home Loan Bank.................................................... 5.71 11/13/95 1,000,000 993,323 0.20
Federal Farm Credit Bank.................................................. 5.66 11/15/95 8,000,000 7,944,600 1.62
Federal Home Loan Bank.................................................... 5.68 11/20/95 15,345,000 15,226,424 3.10
Federal Farm Credit Bank.................................................. 5.72 11/27/95 8,000,000 7,929,194 1.62
Tennessee Valley Authority................................................ 5.71 12/04/95 13,000,000 12,871,040 2.62
Federal Home Loan Bank.................................................... 5.71 12/06/95 5,000,000 4,948,942 1.01
Federal Home Loan Bank.................................................... 5.70 12/11/95 15,000,000 14,835,516 3.03
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Face
Rate** Maturity Amount Value Percent
----- ------ ------- ------- -----
U.S. Government Agency Discount Notes (continued)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank.................................................... 5.68% 12/13/95 $ 9,425,000 9,319,121 1.90%
Federal Farm Credit Bank.................................................. 5.67 12/14/95 8,500,000 8,403,379 1.71
Federal Farm Credit Bank.................................................. 5.66 12/15/95 2,000,000 1,977,000 0.40
Federal Home Loan Bank.................................................... 5.63 12/26/95 2,500,000 2,467,272 0.50
Federal Home Loan Bank.................................................... 5.83 12/28/95 2,000,000 1,972,280 0.40
Federal Home Loan Bank.................................................... 5.59 12/29/95 26,180,000 25,827,789 5.28
Federal Farm Credit Bank.................................................. 5.55 01/05/96 1,000,000 985,600 0.20
Federal Home Loan Bank.................................................... 5.78 01/08/96 2,000,000 1,969,145 0.40
Federal Home Loan Bank.................................................... 5.67 01/19/96 10,000,000 9,831,945 2.00
Federal Farm Credit Bank.................................................. 5.64 02/05/96 1,000,000 980,738 0.20
Federal Farm Credit Bank.................................................. 5.77 02/15/96 7,000,000 6,851,620 1.40
Federal Home Loan Bank.................................................... 5.70 02/16/96 1,060,000 1,037,652 0.21
Federal Home Loan Bank.................................................... 5.71 02/26/96 5,000,000 4,886,944 1.00
Federal Home Loan Bank.................................................... 5.63 03/01/96 7,600,000 7,425,758 1.51
Federal Farm Credit Bank.................................................. 5.65 03/18/96 17,000,000 16,566,654 3.38
Federal Farm Credit Bank.................................................. 5.59 03/20/96 7,000,000 6,821,448 1.39
Federal Farm Credit Bank.................................................. 5.69 03/27/96 10,000,000 9,730,033 1.98
----------- ---------- -----
Total (cost $382,287,715*)................................................................. 385,950,000 382,287,715 77.95
----------- ----------- -----
U.S. Government Agency Notes
Federal Home Loan Bank.................................................... 6.00 10/06/95 5,000,000 5,000,068 1.02
Federal Home Loan Bank.................................................... 6.59 11/22/95 3,000,000 3,003,139 0.61
Federal Farm Credit Bank.................................................. 7.21 01/02/96 5,000,000 5,017,830 1.02
----------- ---------- -----
Total (cost $13,021,037*).................................................................. 13,000,000 13,021,037 2.65
----------- ---------- -----
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investment Securities--Government Agency Fund (Continued)
===================================================================================================================================
Face
Rate** Maturity+ Amount Value Percent
----- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Floating-Rate Notes***
Student Loan Marketing Association, resets weekly off the 3-Month T-Bill
rate plus .08% with no caps,final maturity 10/12/95..................... 5.37% 10/03/95 $ 25,000,000 24,999,753 5.10%
Student Loan Marketing Association, resets weekly off the 3-Month T-Bill
rate plus .15% with no caps, final maturity 11/09/95.................... 5.44 10/03/95 30,125,000 30,121,988 6.14
Federal Farm Credit Bank, resets quarterly off the 3-Month T-Bill rate
plus .18% with no caps, final maturity 11/14/95......................... 5.76 11/14/95 5,000,000 4,999,130 1.02
Federal Home Loan Bank, resets monthly off the 3-Month LIBOR minus .13%
with no caps, final maturity 12/15/95................................... 5.75 10/15/95 10,000,000 10,000,000 2.04
Federal Home Loan Bank, resets daily off the Fed Funds rate plus .05%
with no caps, final maturity 02/07/96................................... 6.25 10/02/95 25,000,000 25,000,000 5.10
----------- ---------- -----
Total (cost $95,120,871*)................................................................ 95,125,000 95,120,871 19.40
----------- ---------- -----
TOTAL INVESTMENT SECURITIES (cost $490,429,623*).............................................. $494,075,000 490,429,623 100.00%
=========== ========== =====
</TABLE>
* Cost for financial reporting and federal income tax purposes is the same.
** The rate for U.S. government agency discount notes is the yield to maturity
as of September 30, 1995. The rates for U.S. government agency notes are the
stated coupon rates. The rates for the floating-rate notes are the reset
rates as of September 30, 1995.
***These floating-rate notes do not have caps. A cap is a predetermined rate
that a fixed-income security's coupon will never exceed, regardless of where
the coupon formula resets. A cap limits the investor's coupon payments,
regardless of how interest rates rise. In volatile interest rate
environments, caps can cause and amplify price instability for fixed-income
securities. Therefore, it has always been the policy of the Fund not to
purchase floating-rate notes with caps.
+ The maturity for U.S. government agency floating-rate notes is the next
interest reset date.
See the accompanying notes to financial statements.
30
<PAGE>
PROXY VOTING RESULTS
A special shareholder meeting was held on May 31, 1995, to vote on the following
proposals. All of the proposals received the required majority of votes and were
adopted.
Proposal I.--To consider and vote on approval or disapproval of new Investment
Advisory Agreements with CPF, CPF II, and BGAF on behalf of each Fund with BMC
to take effect upon the closing of the proposed merger of BMC's parent company,
Benham Management International, Inc., into TCC.
Proposals II and IV are not applicable to shareholders of CPF, CPF II, and BGAF.
Proposal III.-- To amend the Articles of Incorporation and Bylaws of CPF to
authorize an increase in the size of the Board of Directors of that Fund from 7
to a range of 7 to 11 and to lower the vote required for future changes in the
authorized number of Directors outside of this range.
Proposal V.--To elect the Board of Directors of CPF, CPF II, and BGAF.
Proposal VI.--To ratify the Board of Directors' selection of KPMG Peat Marwick
LLP as independent auditors for CPF's, CPF II's, and BGAF's current fiscal year
end.
Proposal VII.--To amend BGIT's Articles of Incorporation to provide dollar-based
voting rights for shareholders of the Funds.
A summary of voting results is as follows:
<TABLE>
<CAPTION>
Benham
Capital Capital Government
Preservation Fund Preservation Fund II Agency Fund
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Proposal I. For 2,050,147,135 For 136,977,097 For 250,871,289
Against 129,500,838 Against 6,899,332 Against 13,001,838
Abstained 180,130,280 Abstained 3,346,354 Abstained 14,771,334
- ----------------------------------------------------------------------------------------------------------------
Proposal III. For 1,982,868,061 For N/A For N/A
Against 191,404,970 Against N/A Against N/A
Abstained 185,505,221 Abstained N/A Abstained N/A
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Benham
Capital Capital Government
Preservation Fund Preservation Fund II Agency Fund
- -----------------------------------------------------------------------------------------------
Proposal V.
<S> <C> <C> <C>
James M. Benham For 2,146,234,531 For 143,630,197 For 263,498,421
Withheld* 213,543,722 Withheld* 6,592,587 Withheld* 15,146,041
Ronald J. Gilson For 2,142,359,384 For 143,481,669 For 263,133,618
Withheld* 217,418,869 Withheld* 6,741,115 Withheld* 15,510,844
Myron S. Scholes For 2,146,318,585 For 143,575,293 For 263,528,791
Withheld* 213,459,668 Withheld* 6,647,491 Withheld* 15,115,671
Kenneth E. Scott For 2,145,930,739 For 143,573,942 For 263,543,582
Withheld* 213,847,514 Withheld* 6,648,842 Withheld* 15,100,880
Ezra Solomon For 2,142,165,176 For 143,338,322 For 262,602,072
Withheld* 217,613,077 Withheld* 6,884,462 Withheld* 16,042,390
Isaac Stein For 2,145,368,971 For 143,530,384 For 263,422,565
Withheld* 214,409,282 Withheld* 6,692,400 Withheld* 15,221,897
James E. Stowers, III For 2,134,577,845 For 143,521,962 For 262,202,693
Withheld* 225,200,408 Withheld* 6,700,822 Withheld* 16,441,769
Jeanne D. Wohlers For 2,144,908,364 For 143,552,557 For 263,256,530
Withheld* 214,869,889 Withheld* 6,670,227 Withheld* 15,387,932
*Shares Withholding Authority to Vote
- -----------------------------------------------------------------------------------------------
Proposal VI. For 2,128,793,109 For 141,613,086 For 262,256,509
Agains 57,408,505 Against 2,793,089 Against 4,807,991
Abstained 173,576,639 Abstained 5,816,608 Abstained 11,579,962
- -----------------------------------------------------------------------------------------------
Proposal VII. For N/A For N/A For 251,567,037
Against N/A Against N/A Against 11,538,718
Abstained N/A Abstained N/A Abstained 15,533,390
</TABLE>
32
<PAGE>
Trustees
James M. Benham
Chairman of the Board
John T. Kataoka
President and Chief Executive Officer
Bruce R. Fitzpatrick
Vice President
Maryanne Roepke
Treasurer
Douglas A. Paul
Vice President, Secretary
and General Counsel
Ann N. McCoid
Controller
[company logo] The Benham Group
Part of the Twentieth Century Family of Mutual Funds
1665 Charleston Road
Mountain View, CA 94043
1-800-321-8321
Not authorized for distribution unless preceded or
accompanied by a current fund prospectus.
Benham Distributors, Inc. 11/95 Q060
