CAPITAL PRESERVATION FUND INC, 485BPOS, 1996-05-30

CAPITAL PRESERVATION FUND INC
485BPOS, 1996-05-30

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__

File No. 2-42556:

Pre-Effective Amendment No.____ ____

Post-Effective Amendment No._64_ _X__

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__

File No. 811-2247:

Amendment No._64_

CAPITAL PRESERVATION FUND, INC.
(Exact Name of Registrant as Specified in Charter)

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

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

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

Approximate Date of Proposed Public Offering: First Offered 10/13/72

It is proposed that this filing become effective:

___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 29, 1996, pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) of Rule 485
___ on (date) pursuant to paragraph (a) of Rule 485
___ 75 days after filing pursuant to paragraph (a) (2) of Rule 485

- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On May 16, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended March 31, 1996.

<PAGE>

CAPITAL PRESERVATION FUND, INC.

1933 Act Post-Effective Amendment No. 64
1940 Act Amendment No. 64

FORM N-1A
CROSS-REFERENCE SHEET

PART A: PROSPECTUS

ITEM PROSPECTUS CAPTION

1. Cover Page

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

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

4 (a)(i) Cover Page, About the Funds
(a)(ii)-(c)How the Funds Work, Money Market Funds, About the Funds'
Investments, Other Investment Practices

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

5A Not Applicable

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

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

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

9 Not Applicable

PART B: STATEMENT OF ADDITIONAL INFORMATION

ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION

10 Cover Page

11 Table of Contents

12 Not Applicable

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

14 Directors and Officers

15 (a) Not Applicable
(b) Additional Purchase and Redemption Information
(c) Directors and Officers

16 (a),(b) Investment Advisory Services
(c),(d) Administrative and Transfer Agent Services, Expense
Limitation Agreement
(e)-(g) Not Applicable
(h) About the Fund
(i) Administrative and Transfer Agent Services

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

18 (a) About the Fund
(b) Not Applicable

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

20 Taxes

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

22 Performance

23 Cover Page

<PAGE>
BENHAM U.S. TREASURY
& GOVERNMENT FUNDS

[picture of the U.S.
Capitol building]

MONEY MARKET FUNDS
Capital Preservation Fund
Capital Preservation Fund II
Benham Government Agency Fund

U.S. TREASURY AND AGENCY FUNDS
Benham Short-Term Treasury and Agency Fund
Benham Treasury Note Fund
Benham Long-Term Treasury and Agency Fund

MORTGAGE SECURITIES FUNDS
Benham Adjustable Rate Government Securities Fund
Benham GNMA Income fund

Prospectus * May 29, 1996

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

<PAGE>
CONTENTS
Summary of Fund Expenses .................................... 3
Financial Highlights ........................................ 5
How the Funds Work ..........................................14
Money Market Funds ..........................................14
U.S. Treasury and Agency Funds ..............................16
Mortgage Securities Funds ...................................18
About the Funds' Investments ................................20
Mortgage-Backed Securities ..................................21
Other Investment Practices ..................................24
Portfolio Transactions ......................................25
Performance .................................................26
Share Price .................................................28
How to Invest ...............................................29
Account Services ............................................34
Exchange Privilege .......................................34
Open Order Service .......................................34
Automatic Investment Services ............................35
Broker-Dealer Transactions ...............................36
TDD Service ..............................................36
Emergency Services .......................................36
How to Redeem Your Investment ...............................37
About Benham-Sponsored Retirement Plans .....................40
Distributions and Taxes .....................................42
Management Information ......................................44
About the Funds ..........................................44
The Benham Group .........................................44
Advisory and Service Fees ................................46
Expense Limitation Agreement .............................48
Distribution of Shares ...................................48

BENHAM U.S. TREASURY & GOVERNMENT FUNDS

Capital Preservation Fund
Capital Preservation Fund II
Benham Government Agency Fund
Benham Short-Term Treasury and Agency Fund
Benham Treasury Note Fund
Benham Long-Term Treasury and Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham GNMA Income Fund

Prospectus o May 29, 1996

The BENHAM U.S. TREASURY AND GOVERNMENT FUNDS are eight diversified, no-load,
open-end mutual funds. They are members of The Benham Group of investment
companies, the oldest and largest mutual fund family specializing in U.S.
Treasury and government securities. Capital Preservation Fund, Inc. and Capital
Preservation Fund, Inc. II are each registered investment companies. The
remaining Funds are series of the Benham Government Income Trust, also a
registered investment company.

Please read this Prospectus carefully and retain it for future reference. It is
designed to help you decide whether a Fund's goals match your own. A Statement
of Additional Information (also dated May 29, 1996) has been filed with the
Securities and Exchange Commission (SEC) and is incorporated herein by
reference. For a free copy, call or write The Benham Group.

An investment in the Funds is neither insured nor guaranteed by the U.S.
government. There is no assurance that the Money Market Funds (as defined on the
next page) will be able to maintain a $1.00 share price. Mutual fund shares are
not insured by the FDIC, the Federal Reserve Board, or any other agency.

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

- -------------------
[information in right margin of page]
THE BENHAM GROUP
1665 Charleston Rd.
Mountain View
California 94043

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

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

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

Benham Group
Representatives
are available
by telephone weekdays from
5 a.m. to 5 p.m. Pacific Time.
- -------------------

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

MONEY MARKET FUNDS

CAPITAL PRESERVATION FUND (CPF) invests exclusively in short-term U.S. Treasury
securities. Weighted average portfolio maturity: 60 days or less.

CAPITAL PRESERVATION FUND II (CPF II) invests primarily in repurchase agreements
collateralized by U.S. government securities. Weighted average portfolio
maturity: seven days or less.

BENHAM GOVERNMENT AGENCY FUND (Agency Fund) invests exclusively in obligations
of the U.S. government and its agencies and instrumentalities. Weighted average
portfolio maturity: 60 days or less.

U.S. TREASURY AND AGENCY FUNDS

BENHAM SHORT-TERM TREASURY AND AGENCY FUND (Short-Term Fund) invests exclusively
in securities issued or guaranteed by the U.S. Treasury and agencies and
instrumentalities of the U.S. government. Weighted average portfolio maturity:
13 months to 3 years.

BENHAM TREASURY NOTE FUND (Treasury Note Fund) invests exclusively in U.S.
Treasury securities and primarily in U.S. Treasury notes. Weighted average
portfolio maturity: 13 months to 10 years.

BENHAM LONG-TERM TREASURY AND AGENCY FUND (Long-Term Fund) invests exclusively
in securities issued or guaranteed by the U.S. Treasury and agencies and
instrumentalities of the U.S. government. Weighted average portfolio maturity:
20 to 30 years.

MORTGAGE SECURITIES FUNDS

BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND (ARM Fund) invests primarily
in adjustable rate mortgage securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities.

BENHAM GNMA INCOME FUND (GNMA Fund) invests primarily in mortgage-backed GNMA
(Ginnie Mae) certificates.

The share prices of the U.S. Treasury and Agency Funds and the Mortgage
Securities Funds will fluctuate. These Funds are referred to collectively as the
"Variable-Price Funds."

Each Fund described in this Prospectus seeks the highest level of current income
consistent with its investment objective and policies as set forth on the
following pages. Each Fund (except CPF II, ARM Fund, and GNMA Fund) seeks
interest income exempt from state taxes. As a result, these Funds' dividend
distributions are expected to be exempt from state income tax.

SUMMARY OF FUND EXPENSES

The tables below and on pages 4 and 5 illustrate the fees and expenses an
investor in the Funds would incur directly or indirectly. The figures shown for
each Fund are based on historical expenses.

================================================================================
A. SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------

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

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

INVESTMENT TOTAL FUND
ADVISORY OPERATING
FEE EXPENSES
(net of expense 12b-1 OTHER (net of expense
limitation) FEE EXPENSES limitation)

CPF .27% None .24% .51%
CPF II .46 None .30 .76
Agency Fund .22 None .29 .51
Short-Term Fund .29 None .38 .67
Treasury Note Fund .28 None .25 .53
Long-Term Fund .24 None .43 .67
ARM Fund .29 None .31 .60
GNMA Fund .28 None .30 .58

* Benham Management Corporation (BMC) has agreed to limit each Fund's total
operating expenses to a percentage of each Fund's average daily net assets
(the 1995 expense limits were effective until May 31, 1996, and the 1996
expense limits are effective through May 31, 1997). This expense limitation,
in effect, requires that total expenses not exceed the limits as shown below.
Amounts which are actually paid by unaffiliated third parties do not apply to
this expense limit. The agreement provides that BMC may recover amounts
absorbed on behalf of a Fund during the preceding 11 months if, and to the
extent that, for any given month, that Fund's expenses were less than the
expense limit in effect at that time. If this expense limitation were not in
effect, the Funds' investment advisory fees, other expenses, and total
operating expenses would be .27%, .29%, and .56%, respectively, for the Agency
Fund; and .27%, .43%, and .70%, respectively, for the Long-Term Fund. The
expense limits for 1995 and 1996 (effective as of June 1 of each year) were as
follows: CPF, .54% and .53%; CPF II, .75% and .73%; Agency Fund, .50% and
.65%; Short-Term Fund, .65% and .60%; Treasury Note Fund, .65% and .60%;
Long-Term Fund, .65% and .60%; ARM Fund, .65% and .60%; and GNMA Fund, .65%
and .60%.

================================================================================
C. EXAMPLE OF EXPENSES
- --------------------------------------------------------------------------------

The following table illustrates the expenses a shareholder would pay on a $1,000
investment in each of the Funds over periods of one, three, five, and ten years.
These figures are based on expenses shown in Table B (on the previous page) and
assume (i) a 5% annual return and (ii) full redemption at the end of each time
period.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

CPF $5 $16 $29 $64
CPF II 8 24 42 94
Agency Fund 5 16 29 64
Short-Term Fund 7 21 37 83
Treasury Note Fund 5 17 30 66
Long-Term Fund 7 21 37 83
ARM Fund 6 19 33 75
GNMA Fund 6 19 32 73

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

FINANCIAL HIGHLIGHTS

The information presented on the following pages has been audited by KPMG Peat
Marwick LLP, independent auditors. Their reports on the financial statements and
financial highlights are included in the Funds' Annual Reports, which are
incorporated by reference in the Funds' respective Statements of Additional
Information.

==============================================================================================================
CAPITAL PRESERVATION FUND, INC.
Years ended March 31 (except as noted)
- --------------------------------------------------------------------------------------------------------------

1996 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 .0521 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608 .0531

Less Distributions

Dividends from Net
Investment Income (.0521) (.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* 5.21% 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 millions) $3,078 2,883 2,787 2,943 3,046 3,376 3,099 2,737 2,187 1,793

Ratio of Expenses
to Average Daily
Net Assets .51% .50 .51 .50** .51 .52 .56 .57 .59 .63

Ratio of Net Investment
Income to Average
Daily Net Assets 5.07% 4.24 2.59 2.68** 3.82 6.03 7.50 8.00 6.08 5.31

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

+ The Fund's fiscal year-end was changed from September 30 to March 31 beginning with the period ended March 31, 1993,
resulting in a six-month period in 1993.

* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.

** Annualized.
</TABLE>

==============================================================================================================
CAPITAL PRESERVATION FUND II, INC.
Years ended March 31 (except as noted)
- --------------------------------------------------------------------------------------------------------------

Income From
Investment Operations

Net Investment Income .0515 .0406 .0237 .0120 .0341 .0591 .0764 .0834 .0626 .0553

Less Distributions

Dividends from Net
Investment Income (.0515) (.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* 5.15% 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 millions) $246 262 283 314 340 475 618 708 538 465

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 5.03% 4.06 2.37 2.40** 3.41 5.91 7.64 8.34 6.26 5.53

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

+ The Fund's fiscal year-end was changed from September 30 to March 31 beginning with the period ended March 31, 1993,
resulting in a six-month period in 1993.

* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.

** Annualized.
</TABLE>

================================================================================================
BENHAM GOVERNMENT AGENCY FUND
Years ended March 31 (except as noted)
- ------------------------------------------------------------------------------------------------

1996 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 .0535 .0435 .0265 .0304 .0517 .0742 .0264

Less Distributions

Dividends from Net
Investment Income (.0535) (.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* 5.35% 4.47 2.69 3.07 5.29 7.97 2.65
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of
Period (in millions) $503 462 562 646 906 1,074 62

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 5.20% 4.35 2.65 3.04 5.17 7.42 8.25**

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

+ 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.
</TABLE>

================================================================================
BENHAM SHORT-TERM TREASURY AND AGENCY FUND Years ended March 31 (except as
noted)
- --------------------------------------------------------------------------------

1996 1995 1994 1993+
---- ---- ---- ----
PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING
OF PERIOD $9.73 9.86 10.04 10.00

Income From
Investment Operations

Net Investment Income .53 .50 .36 .25

Net Realized and Unrealized Gains
(Losses) on Investments .11 (.13) (.14) .04
----- ----- ----- -----

Total Income From
Investment Operations .64 .37 .22 .29
----- ----- ----- -----

Less Distributions

Dividends from Net Investment Income (.53) (.50) (.36) (.25)

Distributions from Net Realized
Capital Gains 0 0 (.03) 0

Distributions in excess of
Net Realized Capital Gains 0 0 (.01) 0
----- ----- ----- -----

Total Distributions (.53) (.50) (.40) (.25)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD $9.84 9.73 9.86 10.04
===== ===== ===== =====

TOTAL RETURN* 6.71% 3.85 2.16 2.79
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of Period
(in millions) $36 56 25 15

Ratio of Expenses to Average
Daily Net Assets .67% .67 .58 0

Ratio of Net Investment Income
to Average Daily Net Assets 5.39% 5.22 3.53 4.50**

Portfolio Turnover Rate 224.03% 140.82 261.61 157.79

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

+ From September 8, 1992 (commencement of operations), through March 31, 1993.

* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.

** Annualized.

==============================================================================================================
BENHAM TREASURY NOTE FUND
Years ended March 31
- --------------------------------------------------------------------------------------------------------------

1996 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 $9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91 11.97

Income From
Investment Operations

Net Investment Income .58 .53 .48 .56 .69 .75 .77 .76 .75 .71

Net Realized and
Unrealized Gains
(Losses) on Investments .25 (.19) (.27) .69 .29 .36 .24 (.49) (.60) (.08)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Income From
Investment Operations .83 .34 .21 1.25 .98 1.11 1.01 .27 .15 .63
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Less Distributions

Dividends from Net
Investment Income (.58) (.53) (.48) (.56) (.69) (.75) (.77) (.75) (.92) (.89)

Distributions from Net
Realized Capital Gains 0 0 (.06) (.48) 0 0 0 0 (.03) (.80)

Distributions in excess
of Net Capital Gains 0 0 (.22) 0 0 0 0 0 0 0
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Distributions (.58) (.53) (.76) (1.04) (.69) (.75) (.77) (.75) (.95) (1.69)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE AT
END OF PERIOD $10.24 9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 8.42% 3.54 1.85 12.36 9.92 11.59 10.61 2.78 1.60 6.60
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of
Period (in millions) $311 305 351 392 303 159 97 72 54 43

Ratio of Expenses
to Average Daily
Net Assets .53% .53 .51 .53 .59 .73 .75 .75 .75 .93

Ratio of Net Investment
Income to Average
Daily Net Assets 5.65% 5.35 4.50 5.18 6.55 7.49 7.66 7.67 7.36 6.26

Portfolio Turnover
Rate 167.89% 92.35 212.91 299.29 148.75 69.72 216.84 386.46 465.35 395.91

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

* Total return figures assume reinvestment of dividends and capital gain
distributions.
</TABLE>

================================================================================
BENHAM LONG-TERM TREASURY AND AGENCY FUND Years ended March 31 (except as noted)
- --------------------------------------------------------------------------------

1996 1995 1994 1993+
---- ---- ---- ----
PER-SHARE DATA
- --------------
NET ASSET VALUE AT BEGINNING
OF PERIOD $9.05 9.38 10.24 10.00

Income From
Investment Operations

Net Investment Income .60 .60 .63 .39

Net Realized and Unrealized Gains
(Losses) on Investments .62 (.33) (.27) .24
----- ----- ----- -----

Total Income From
Investment Operations 1.22 .27 .36 .63
----- ----- ----- -----

Less Distributions

Dividends from Net Investment Income (.60) (.60) (.63) (.39)

Distributions from Net Realized
Capital Gains 0 0 (.45) 0

Distributions in excess of Net
Realized Capital Gains 0 0 (.14) 0
----- ----- ----- -----
Total Distributions (.60) (.60) (1.22) (.39)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD $9.67 $9.05 9.38 10.24
===== ===== ===== =====

TOTAL RETURN* 13.46% 3.25 2.87 6.48
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of Period
(in millions) $111 35 18 21

Ratio of Expenses to Average
Daily Net Assets .67% .67 .57 0

Ratio of Net Investment Income
to Average Daily Net Assets 5.93% 6.84 5.89 7.18**

Portfolio Turnover Rate 112.35% 146.81 200.34 56.97

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

+ From September 8, 1992 (commencement of operations), through March 31, 1993.

* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.

** Annualized.

========================================================================================
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND Years ended March 31 (except
as noted)
- ----------------------------------------------------------------------------------------

1996 1995 1994 1993 1992+
---- ---- ---- ---- ----
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $9.42 9.75 9.97 10.04 10.00

Income From
Investment Operations

Net Investment Income .54 .49 .54 .57 .40

Net Realized and
Unrealized Gains
(Losses) on Investments .05 (.33) (.22) (.07) .04
----- ----- ----- ----- -----

Total Income From
Investment Operations .59 .16 .32 .50 .44
----- ----- ----- ----- -----

Less Distributions

Dividends from Net
Investment Income (.54) (.49) (.54) (.57) (.40)

Distributions from Net
Realized Capital Gains 0 0 0 0 0
----- ----- ----- ----- -----
Total Distributions (.54) (.49) (.54) (.57) (.40)
----- ----- ----- ----- -----
NET ASSET VALUE AT
END OF PERIOD $9.47 9.42 9.75 9.97 10.04
===== ===== ===== ===== =====

TOTAL RETURN* 6.42% 1.75 3.27 5.13 4.55
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of Period
(in millions) $299 397 937 1,495 886

Ratio of Expenses to Average
Daily Net Assets .60% .57 .51 .45 0

Ratio of Net Investment
Income to Average
Daily Net Assets 5.71% 4.98 5.47 5.66 7.02**

Portfolio Turnover Rate 221.35% 60.29 91.87 82.71 81.84

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

+ From September 3, 1991 (commencement of operations), through March 31, 1992.

* Total return figures assume reinvestment of dividends and capital gain
distributions and are not annualized.

** Annualized.
</TABLE>
``

==============================================================================================================
BENHAM GNMA INCOME FUND
Years ended March 31
- --------------------------------------------------------------------------------------------------------------

1996 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 $10.18 10.35 10.88 10.52 10.21 9.85 9.56 9.96 10.42 10.42

Income From
Investment Operations

Net Investment Income .74 .72 .66 .79 .86 .88 .90 .89 .89 .91

Net Realized and
Unrealized
Gains (Losses)
on Investments .27 (.18) (.52) .36 .31 .36 .29 (.40) (.40) .02
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Income (Losses)
from Investment
Operations 1.01 .54 .14 1.15 1.17 1.24 1.19 .49 .49 .93
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Less Distributions

Dividends from Net
Investment Income (.74) (.71) (.66) (.79) (.86) (.88) (.90) (.89) (.95) (.93)

Distributions from Net
Realized Capital Gains 0 0 (.01) 0 0 0 0 0 0 0
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Distributions (.74) (.71) (.67) (.79) (.86) (.88) (.90) (.89) (.95) (.93)
----- ---- ---- ---- ---- ---- ---- ---- ---- ----

NET ASSET VALUE AT
END OF PERIOD $10.45 10.18 10.35 10.88 10.52 10.21 9.85 9.56 9.96 10.42
===== ==== ==== ==== ==== ==== ==== ==== ==== ====

TOTAL RETURN* 10.08% 5.53 1.30 11.28 11.85 13.16 12.73 5.07 5.23 9.51
- ------------

SUPPLEMENTAL DATA AND RATIOS
- ----------------------------

Net Assets at End of
Period (in millions) $1,120 980 1,129 1,160 724 409 290 253 259 393

Ratio of Expenses to
Average Daily
Net Assets .58% .58 .54 .56 .62 .72 .75 .75 .73 .74

Ratio of Net Investment
Income to Average
Daily Net Assets 6.98% 7.08 6.12 7.31 8.18 8.85 9.04 9.11 8.94 8.79

Portfolio Turnover
Rate 63.54% 119.56 48.61 70.57 97.33 206.60 432.93 496.52 497.16 566.27

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

* Total return figures assume reinvestment of dividends and capital gain
distributions.
</TABLE>

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[information in left margin of page]
One feature all the Funds have in common is their susceptibility to changing
interest rates.

Each Fund (except CPF II, ARM Fund, and GNMA Fund) seeks income exempt from
state taxes.
- -------------------

HOW THE FUNDS WORK

The following pages contain a discussion of each Fund's investment objective and
policies. See "About the Funds' Investments" beginning on page 20 for a more
detailed discussion of the types of securities the Funds may buy and the risks
associated with them.

Each Fund (except CPF II, ARM Fund, and GNMA Fund) seeks income exempt from
state taxes by investing exclusively in U.S. government securities whose
interest payments are state tax-exempt. As a result, these Funds' dividend
distributions are expected to be exempt from state income tax. See pages 42 and
43 for more information on tax treatment of the Funds' distributions.

There is no guarantee that the Funds will achieve their investment objectives.
Each Fund's investment objectives are fundamental and may not be changed without
shareholder approval. Unless otherwise noted, the other policies described in
this Prospectus are not fundamental and may be changed by the Funds' directors
or trustees.

MONEY MARKET FUNDS

Capital Preservation Fund (CPF)

OBJECTIVES: CPF's primary investment objective is to seek maximum safety and
liquidity. Its secondary objective is to seek to pay shareholders the highest
rate of return on their investment in the Fund consistent with safety and
liquidity.

INVESTMENT POLICIES: CPF invests exclusively in short-term U.S. Treasury
securities guaranteed by the direct full faith and credit pledge of the U.S.
government. The Fund's dollar-weighted average portfolio maturity will not
exceed 60 days.

INVESTMENT CONSIDERATIONS: CPF seeks to maintain a $1.00 share price, although
there is no guarantee it will be able to do so. While the risks associated with
investing in short-term U.S. Treasury securities are very low, an investment in
CPF is not completely risk-free. The Fund's shares are neither insured nor
guaranteed by the U.S. government.

Capital Preservation Fund II (CPF II)

OBJECTIVES: CPF II's primary investment objectives are to seek maximum safety
and liquidity. Its secondary objective is to seek to pay its shareholders the
highest rate of return on their investment in the Fund consistent with safety
and liquidity.

INVESTMENT POLICIES: CPF II invests primarily in repurchase agreements
collateralized by securities that are backed by the full faith and credit of the
U.S. government. Such collateral may include U.S. Treasury bills, notes, and
bonds or mortgage-backed Ginnie Mae certificates. Ginnie Mae certificates are
guaranteed by the Government National Mortgage Association (GNMA) and backed by
the full faith and credit of the U.S. government. Repurchase agreements held by
the Fund normally have maturities of seven days or less. The Fund may invest
directly in U.S. Treasury securities from time to time.

INVESTMENT CONSIDERATIONS: CPF II seeks to maintain a $1.00 share price,
although there is no guarantee it will be able to do so. The Fund restricts its
average portfolio maturity to seven days or less. Because of this restriction,
its yield responds more quickly to interest rate increases or decreases than do
yields on most other money market funds and enhances portfolio liquidity. See
page 24 for a discussion of the market and credit risks associated with
investing in repurchase agreements.

Benham Government Agency Fund (Agency Fund)

OBJECTIVE: Agency Fund seeks to provide the highest rate of current return on
its investments, consistent with safety of principal and maintenance of
liquidity, by investing exclusively in short-term obligations of the U.S.
government and its agencies and instrumentalities, the income from which is
exempt from state taxes.

INVESTMENT POLICIES: Under normal conditions, at least 65% of the Fund's total
assets are invested in securities issued by agencies and instrumentalities of
the U.S. government. Assets not invested in these securities are invested in
U.S. Treasury securities. For temporary defensive purposes, the Fund may invest
up to 100% of its assets in U.S. Treasury securities. The Fund's weighted
average portfolio maturity will not exceed 60 days.

- -------------------
[information in right margin of page]
Interest rate changes will affect the Money Market Funds' yields.

In general, when interest rates rise, the Variable-Price Funds' share prices
decline, and when interest rates decline, their share prices rise.
- -------------------

- -------------------
[information in left margin of page]
Short-Term Fund offers investors the opportunity to limit share price volatility
while seeking current yields that typically are higher than those of money
market funds.
- -------------------

INVESTMENT CONSIDERATIONS: The Fund seeks to maintain a $1.00 share price,
although there is no guarantee it will be able to do so. The U.S. government
provides varying levels of financial support to its agencies and
instrumentalities.

U.S. TREASURY AND AGENCY FUNDS

The U.S. Treasury and Agency Funds are quite similar to one another but can be
differentiated by their dollar-weighted average maturities. The longer a Fund's
dollar-weighted average maturity, the more its share price will fluctuate when
interest rates change.

This pattern is due, in part, to the time value of money. A bond's worth is
determined in part by the present value of its future cash flows. Consequently,
changing interest rates have a greater effect on the present value of a
long-term bond than a short-term bond. Because of this interplay between market
interest rates and share price, Variable-Price Fund investors are encouraged to
evaluate Fund performance on the basis of total return. Total return
calculations are described on page 27.

Benham Short-Term Treasury and Agency Fund
(Short-Term Fund)

OBJECTIVE: Short-Term Fund seeks to earn and distribute the highest level of
current income exempt from state income taxes as is consistent with preservation
of capital.

INVESTMENT POLICIES: The Fund invests exclusively in securities issued or
guaranteed by the U.S. Treasury and agencies or instrumentalities of the U.S.
government.

Within this framework, the Fund invests primarily in securities with remaining
maturities of 3 years or less, and, under normal conditions, maintains a
weighted average portfolio maturity ranging from 13 months to 3 years.

The Fund invests exclusively in securities issued or guaranteed by the U.S.
Treasury and agencies of instrumentalities of the U.S. government. The Fund's
portfolio may consist of any combination of these securities consistent with
investment strategies employed by BMC.

INVESTMENT CONSIDERATIONS: The Fund may be appropriate for investors who are
seeking higher current yields than those available from money market funds and
who can tolerate some share price volatility.

Benham Treasury Note Fund (Treasury Note Fund)

OBJECTIVE: Treasury Note Fund seeks to earn and distribute the highest level of
current income consistent with the conservation of assets and the safety
provided by U.S. Treasury bills, notes, and bonds.

INVESTMENT POLICIES: The Fund invests primarily in U.S. Treasury notes, which
carry the direct full faith and credit pledge of the U.S. government. The Fund
may also invest in U.S. Treasury bills, bonds, and zero-coupon securities, all
of which are also backed by the direct full faith and credit pledge of the U.S.
government. The Fund's weighted average portfolio maturity ranges from 13 months
to 10 years, under normal market conditions.

INVESTMENT CONSIDERATIONS: BMC seeks a current yield for Treasury Note Fund
higher than that of Short-Term Fund, with correspondingly greater share price
volatility.

Benham Long-Term Treasury and Agency Fund
(Long-Term Fund)

OBJECTIVE: Long-Term Fund seeks to provide a consistent and high level of
current income exempt from state taxes.

INVESTMENT POLICIES: The Fund invests exclusively in securities issued or
guaranteed by the U.S. Treasury and agencies or instrumentalities of the U.S.
government.

Within this framework, the Fund invests primarily in securities with maturities
of 10 or more years and, under normal conditions, maintains a weighted average
portfolio maturity ranging from 20 to 30 years.

- -------------------
[information in left margin of page]
Factors such as prepayment risk can affect the way Mortgage Securities Funds'
share prices respond to fluctuating interest rates.

ARMS are pass-through certificates representing ownership interests in pools of
adjustable rate mortgages and in the cash flows from those mortgages.
- -------------------

INVESTMENT CONSIDERATIONS: By maintaining an average portfolio maturity of 20 to
30 years, Long-Term Fund offers investors the potential to earn higher current
yields than those typically available from bond funds (such as Short-Term and
Treasury Note Funds) that maintain shorter average maturities. The Fund may also
offer greater potential for capital appreciation. However, maintaining a
relatively long average maturity also means that the Fund's share price
generally will be more volatile than those of funds that maintain shorter
average maturities (such as Short-Term and Treasury Note Funds).

MORTGAGE SECURITIES FUNDS

Benham Adjustable Rate Government Securities Fund (ARM Fund)

OBJECTIVE: ARM Fund seeks to provide investors with a high level of current
income, consistent with stability of principal.

INVESTMENT POLICIES: The Fund invests primarily in adjustable rate securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Under normal conditions, BMC invests at least 65% of the
Fund's total assets in adjustable rate mortgage securities (ARMs) and other
securities collateralized by or representing interests in mortgages
(collectively, "mortgage-backed securities"). These securities have interest
rates that are reset periodically and that are issued or guaranteed by the U.S.
government or its agencies or instrumentalities.

ARMs are pass-through certificates representing ownership interests in pools of
adjustable rate mortgages and in the cash flows from those mortgages. The ARMs
in which the Fund may invest are issued or guaranteed by GNMA, FNMA, or FHLMC.

The Fund may also invest in collateralized mortgage obligations (CMOs),
including CMO floaters and inverse floaters; stripped mortgage-backed
securities, including interest-only (IO) and principal-only (PO) securities and
IO inverse floaters; and fixed-rate mortgage securities issued or guaranteed by
GNMA, FNMA, or FHLMC. All CMOs purchased by the Fund are either (i) issued by a
U.S. government agency or (ii) rated AAA by a nation-

ally recognized statistical rating organization commonly referred to as a rating
agency.

Assets not invested in adjustable rate or mortgage-backed securities may be
invested in U.S. Treasury bills, notes, and bonds and in other securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
these securities.

INVESTMENT CONSIDERATIONS: By investing primarily in mortgage-backed securities
that have variable interest rates, the Fund seeks to maintain a more stable net
asset value than is characteristic of funds that invest in mortgage securities
paying a fixed rate of interest (such as GNMA Fund). ARM prices generally
fluctuate less than fixed-rate mortgage securities prices because their interest
rates are reset periodically to reflect current interest rates. There is always
a lag between market interest rate changes and ARM rate resets, however, and
resets may be limited by caps on the rates that can be charged to mortgage
holders.

GNMA Income Fund (GNMA Fund)

OBJECTIVE: GNMA Fund seeks to provide a high level of current income consistent
with safety of principal and maintenance of liquidity by investing primarily in
mortgage-backed Ginnie Mae certificates.

INVESTMENT POLICIES: Ginnie Mae certificates represent interests in pools of
mortgage loans and in the cash flows from those loans. These certificates are
guaranteed by GNMA and backed by the full faith and credit of the U.S.
government as to the timely payment of interest and repayment of principal,
which means that the Fund receives its share of interest and principal payments
owed on the underlying pool of mortgage loans, regardless of whether borrowers
make their scheduled mortgage payments.

Assets not invested in Ginnie Mae certificates, directly or indirectly, are
invested in other U.S. government securities, such as U.S. Treasury bills,
notes, and bonds, or repurchase agreements collateralized by U.S. government
securities. For temporary defensive purposes, the Fund may invest 100% of its
assets in these securities.

- -------------------
[information in right margin of page]
Principal on GNMA Certificates scheduled to be paid back gradually for the
duration of the loan rather than in one lump sum at maturity.
- -------------------

INVESTMENT CONSIDERATIONS: A unique feature of mortgage-backed securities, such
as Ginnie Mae certificates, is that their principal is scheduled to be paid back
gradually for the duration of the loan rather than in one lump sum at maturity.
Investors (e.g., the Fund) receive scheduled monthly payments of principal and
interest, but they may also receive unscheduled prepayments of principal on the
underlying mortgages. See "Mortgage-Backed Securities" on page 21 for a
discussion of prepayment risk.

ABOUT THE FUNDS' INVESTMENTS

Government obligations differ from one another in their interest rates,
maturities, dates of issuance and interest payment schedules. Treasury bills
have initial maturities of one year or less, Treasury notes from two to ten
years, and Treasury bonds more than 10 years.

U.S. TREASURY SECURITIES

U.S. Treasury bills, notes, zero-coupon bonds, and other bonds are direct
obligations of the U.S. Treasury, which has never failed to pay interest and
repay principal when due. Although U.S. Treasury securities carry little
principal risk if held to maturity, the prices of these securities (like all
debt securities) change between issuance and maturity in response to fluctuating
market interest rates.

A number of U.S. government agencies and government-sponsored organizations
issue debt securities. These agencies generally are created by Congress to
fulfill a specific need, such as providing credit to home buyers or farmers.
Among these agencies are the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Student Loan Marketing Association, and the Resolution Funding
Corporation.

Some agency securities are backed by the full faith and credit of the U.S.
government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury securities
with similar maturities. However, these securities may involve greater risk of
default than securities backed by the U.S. Treasury.

Interest rates on agency securities may be fixed for the term of the investment
(fixed-rate agency securities) or tied to prevailing interest rates
(floating-rate agency securities). Interest rate resets on floating-rate agency
securities generally occur at intervals of one year or less, based on changes in
a predetermined interest rate index.

Floating-rate agency securities frequently have caps limiting the extent to
which coupon rates can be raised. The price of a floating-rate agency security
may decline if its capped coupon rate is lower than prevailing market interest
rates.

Fixed- and floating-rate agency securities may be issued with a call date (which
permits redemption before the maturity date ). The exercise of a call may reduce
an obligation's yield to maturity.

CPF and CPF II may not invest in floating-rate agency securities.

MORTGAGE-BACKED SECURITIES

The ARM and GNMA Funds may purchase mortgage pass-through securities. These
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). Although fixed-rate mortgages
typically have stated maturities of 30 or more years, most mortgage holders pay
off their mortgages before they mature which may make these subject to
prepayment risk.

PREPAYMENT RISK

Also, mortgage-backed securities, like other fixed income securities, generally
decrease in value as a result of increases in interest rates, but benefit less
than other fixed-income securities from declining interest rates because of the
risk of prepayment resulting from homeowners' refinancing their mortgages to
take advantage of lower interest rates. On average, securities backed by 30-year
mortgages return principal within 7 to 10 years. As a result, these securities
have historically exhibited behavior comparable to 7- to 10-year Treasury notes,
while offering higher yields.

- -------------------
[information in right margin of page]
Agency securities typically offer somewhat higher yields but may involve greater
risk of default than U.S. Treasury securities with similar maturities.

Most mortgage-backed securities are pass-through securities, which means that
they provide investors with payments consisting of both principal and interest
as mortgages in the underlying pool are paid off by borrowers.
- -------------------

The primary issuers of mortgage securities are FNMA, FHLMC and 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. FNMA and FHLMC have a close
relationship with the U.S. government so even though their securities are not
backed by the full faith and credit of the U.S. government, management considers
them to be high-quality securities with minimal credit risks.

ARMs are pass-through securities collateralized by mortgages with adjustable,
rather than fixed, interest rates. The interest rate payments and amortization
of principal on the underlying adjustable rate mortgages are tied to changes in
predetermined interest rate indexes. ARM rates are readjusted at intervals of
one year or less, subject to maximums (caps) and minimums (floors) on the rates
that can be charged to mortgage holders during a given period and during the
life of a mortgage. These periodic rate adjustments allow the ARM Fund to
participate in market interest rate increases (to produce higher yields with
less share price volatility) but only to the extent that the current coupons on
the underlying mortgages remain at or below their specified caps.

ARM coupon rate resets should cause the ARM Fund's share price to fluctuate less
dramatically than it would if the Fund were substantially invested in securities
backed by long-term, fixed-rate mortgages. This means that share price declines
should be less than for funds investing in fixed-rate mortgages when interest
rates rise. This characteristic of ARM securities should also cause the
potential for share price appreciation when interest rates decline to be less
than for funds investing in fixed-rate mortgages.

If ARMs are purchased at a premium, mortgage foreclosures and unscheduled
principal prepayments may result in some loss of principal. On the other hand,
if ARMs are purchased at a discount, both scheduled and unscheduled payments of
principal may accelerate the recognition of income and thereby increase the
Fund's yield and total return.

The mortgages that collateralize ARMs issued by GNMA are fully guaranteed by the
Federal Housing Administration or the Department of Veterans Affairs, which are
divisions of the U.S. government. The mortgages that collateralize ARMs issued
by FNMA or FHLMC typically are conventional residential mortgages that conform
to standards prescribed by FNMA or FHLMC and are guaranteed by those
instrumentalities.

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. ARM Fund
may buy CMOs, provided that they:

* Are collateralized by pools of mortgages in which payment of principal and
interest of each mortgage is guaranteed by an agency or instrumentality of
the U.S. government
* Are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer, and the guarantee is collateralized
by U.S. government securities
* Are securities in which the proceeds of the issue are invested in mortgage
securities and payments of principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government

GNMA Fund may buy CMOs only if they are Ginnie-Mae-backed.

STRIPPED MORTGAGE-BACKED SECURITIES (permitted investments for ARM Fund only)
are usually structured with two classes. One class will receive all of the
interest (the interest-only class, or "IO"), whereas the other class will
receive all of the principal (the principal-only class, or "PO"). Stripped
mortgage securities are likely to experience greater price volatility than other
types of mortgage securities in which ARM Fund invests. The yield to maturity on
the IO class is extremely sensitive, not only to changes in prevailing interest
rates but also to the rate of principal payments (including prepayments) on the
underlying mortgage assets. If prepayments

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[information in right margin of page]
ARM and GNMA Funds invest in CMOs to enhance investment return.
- -------------------

accelerate, the Fund may not fully recover its initial investment in these
securities. ARM Fund's investments in stripped mortgage securities together with
investments in illiquid securities may not exceed 10% of net assets.

OTHER INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

The Funds may enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers that are deemed to present
minimum credit risk. Credit risk determinations are made by BMC pursuant to
guidelines established by the board of trustees/directors. 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.

WHEN-ISSUED SECURITIES AND FORWARD-COMMITMENTS

When-issued securities and forward-commitments fix a security's price and yield
for future payment and delivery. The market value of a security may change
during this period, or a party to the agreement may fail to deliver or to pay
for the security. Either of these situations could adversely affect the market
value of a Fund's assets. As an operating policy, the Funds will not commit more
than 35% of total assets to when-issued or forward-commitment agreements.

CASH MANAGEMENT (VARIABLE-PRICE FUNDS)

For cash management purposes, each of the Variable-Price Funds may invest up to
5% of its assets in any Benham money market fund, provided that the investment
is consistent with that Fund's investment policies and restrictions. To avoid
duplicative investment advisory fees, the Fund does not pay BMC investment
advisory fees with respect to assets invested in shares of Benham Money Market
funds.

OTHER INVESTMENT MANAGEMENT TECHNIQUES

BMC may buy other types of securities or employ other portfolio management
techniques on behalf of the Funds. When SEC guidelines require it to do so, a
Fund will set aside cash or appropriate liquid assets in a segregated account to
cover its portfolio obligations. See the Statements of Additional Information
for a more detailed discussion of these investments and some of the risks
associated with them.

PORTFOLIO TRANSACTIONS

The Funds' portfolio securities are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread. Because
BMC trades U.S. government securities in large volumes, broker-dealers are
willing to work with the Funds on more favorable spreads than would be available
to most individual investors. Higher portfolio turnover rates can increase the
incidence of capital gains (or losses). Short-term realized capital gains
distributed to shareholders generally are treated as ordinary income.

- -------------------
[information in left margin of page]
State tax-equivalent yields show the state taxable yields an investor would have
to earn before taxes to equal a fund's state tax-free yield.
- -------------------

PERFORMANCE

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

FOR EACH OF THE MONEY MARKET FUNDS, YIELD is calculated based on the income
earned on its investments over a seven-day period, expressed as an annual
percentage rate. The Funds' yields are calculated according to methods that are
standardized for all money market funds. Effective yield is calculated
similarly, although this figure will be slightly higher than a Fund's yield
because it assumes that income earned from a Fund's investments is reinvested.

FOR EACH OF THE VARIABLE-PRICE FUNDS, YIELDS are a way of showing the rate of
income a Fund earns on its investments as a percentage of its share price. To
calculate yield, a Fund takes the interest it earned from its portfolio of
investments for a 30-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on its share price at the end of the 30-day
period.

The Variable-Price Funds' yields are calculated according to methods that are
standardized for all stock and bond funds. Because these yield calculation
methods differ from the methods used for other accounting purposes, a
Variable-Price Fund's yield may not equal its distribution rate, the income paid
to a shareholder's account, or the income reported in the Fund's financial
statements.

Each Fund (except CPF II, ARM Fund, and GNMA Fund) may quote STATE
TAX-EQUIVALENT YIELDS, which show the state taxable yields an investor would
have to earn before taxes to equal the Fund's state tax-free yields. You can
calculate your state tax-equivalent yield for any state tax-free fund using the
following equation:

Fund's State Tax-Free Yield Your State
--------------------------- = Tax-Equivalent
100% - Your State Tax Rate Yield

For example, if your state tax rate was 8% and a fund's state tax-free yield was
5%, your calculation would be as follows:

.05 A state tax-free yield
------- = .054 = 5.4% of 5% is equal to
1 - .08 a state taxable yield
of 5.4%.

In this example, your return would be higher from a state tax-free investment
yielding 5% if taxable yields (on investments with comparable quality and
maturity characteristics) were less than 5.4%. If only a portion of a Fund's
income were state tax exempt, only that portion should be used in the
calculation.

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

Performance data and a discussion of factors that affected performance during a
Fund's most recent reporting period are included in each Fund's semiannual and
annual reports to shareholders. These reports are routinely delivered to each
Fund's shareholders. For a free copy, call one of the Fund Information numbers
on page 1.

- -------------------
[information in right margin of page]
Performance data and a discussion of factors that affected performance during
the Fund's most recent reporting period are included in the Funds' semiannual
and annual reports to shareholders.
- -------------------

SHARE PRICE

The price of your shares is the net asset value (the "NAV") for the Fund next
determined after receipt of your instruction to purchase, exchange or redeem.
The NAV is determined by calculating the total value of a Fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding on each day that the New York Stock Exchange (the "Exchange") is
open at the close of the Exchange (usually 1:00 p.m. Pacific Time).

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

Investments are considered received only when your check or wired funds are
received by Benham. Wired funds are considered received on the day they are
deposited in Benham's bank account if they are deposited before the close of
business on the Exchange.

Investment and transaction instructions received by Benham 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.

SECURITIES HELD BY THE MONEY MARKET FUNDS are valued on the basis of amortized
cost. This method involves initially valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium paid at the time of purchase, rather than determining the security's
market value from day to day.

MOST SECURITIES HELD BY THE VARIABLE-PRICE FUNDS are priced at market value
using prices obtained daily from an independent pricing service. Other
securities are priced at fair market value as determined in good faith pursuant
to guidelines established by the Funds' board of trustees.

HOW TO INVEST

To open an account, you must complete and sign an application. If an application
is not enclosed with this Prospectus, you may request one by calling one of the
Fund Information numbers listed below. Separate forms are required to establish
Benham-Sponsored Retirement Plan accounts (see pages 40-41).

Your investment will be credited to your account at the next NAV calculated
after The Benham Group or an authorized subtransfer agent receives and accepts
your order. Payment of redemption proceeds may be delayed until we have your
completed application on file and your investment matures (i.e., clears). See
page 37 for details.

Benham Group Representatives are available at the telephone numbers listed below
weekdays from 5:00 a.m. to 5:00 p.m. Pacific Time.

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

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

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

- -------------------
[information in right margin of page]
Overnight and special delivery mail (e.g., Federal Express, Express Mail,
Priority Mail) should be sent to our street address: 1665 Charleston Rd.
Mountain View, California 94043. Failure to do so may result in transaction
delays.
- -------------------

HOW TO BUY SHARES (Retirement investors see pages 40 and 41).

================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------
BY CHECK Minimum initial investment: $1,000
Minimum additional investment: $100

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

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

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

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

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

WE WILL NOT ACCEPT CASH INVESTMENTS OR THIRD-PARTY CHECKS. We
will, however, accept checks drawn on foreign banks or foreign
branches of domestic banks and checks that are not drawn in
U.S. dollars (U.S. $100 minimum). The cost of collecting
payment on such checks will be passed on to the investor. These
costs may be substantial, and settlement may involve
considerable delays.

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

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

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

For CPF, CPF II, AGENCY FUND, and TREASURY NOTE FUND

State Street Bank and Trust Company
Boston, Massachusetts ABA
Routing Number 011000028
Beneficiary = [Benham Fund Name]
AC [State Street Fund Account Number]
FBO [Your Name, Your Benham Fund Account Number]

Benham Fund Names and State Street Fund Account Numbers:

Capital Preservation Fund................... 0505 924 1
Capital Preservation Fund II................ 0505 925 8
Benham Government Agency Fund............... 0505 916 7
Benham Treasury Note Fund................... 0505 926 6

FOR SHORT-TERM FUND, LONG-TERM FUND, ARM FUND AND GNMA FUND

Morgan Guaranty Trust
New York, New York
ABA Routing Number 021000238
Beneficiary = Benham Government Income Trust: [Benham Fund
Name]
DDA Number [See below]
Reference: [Your Name, Your Benham Fund Account Number]

Benham Fund Names and Morgan Guaranty DDA Numbers:

Benham Short-Term Treasury and Agency Fund.....001 48 702
Benham Long-Term Treasury and Agency Fund......001 48 713
Benham Adjustable Rate Government
Securities Fund..........................001 33 060
Benham GNMA Income Fund........................000 03 986

Minimum additional investment: $100

You may exchange your shares for shares of any other Benham
fund registered for sale in your state if you have received the
fund's prospectus. Exchanges may be made by telephone (for
identically registered accounts only), by written request, or
in person. Certain restrictions apply; please see page 34 for
details. You may open a new account by exchange, provided that
you meet the minimum initial investment requirement.

- --------------------------------------------------------------------------------
AUTOMATIC Minimum: $25
INVESTMENT
SERVICES These services are offered with respect to additional
investments only. See details on page 35.

PROCESSING YOUR PURCHASE

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

TELEPHONE TRANSACTIONS

Shareholders may order certain transactions (e.g., exchanges, wires, some types
of redemptions) by telephone. This privilege is granted to Benham fund
shareholders automatically; you need not specifically request this service, and
you may not specifically decline it. Once your telephone order has been placed,
it may not be modified or cancelled.

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

CONFIRMATION AND QUARTERLY STATEMENTS

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

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

ACCOUNT SERVICES

EXCHANGE PRIVILEGE

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

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

Currently, there are no restrictions on exchanges out of the Money Market Funds.
However, each Benham fund reserves the right to modify or revoke the exchange
privilege of any shareholder or to limit or reject any exchange. Although each
fund will attempt to give shareholders prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time.

OPEN ORDER SERVICE

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

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

If the fund you have selected deducts a distribution from its share price, your
order price will be adjusted accordingly so that the distribution does not
inadvertently trigger an Open Order transaction on your behalf. If you close or
reregister the account from which shares are to be redeemed, your Open Order
will be canceled. Because of their time-sensitive nature, Open Order
transactions may be made only by telephone or in person. These transactions are
subject to the exchange limitations described in this prospectus (see "Exchange
Privilege" on page 34), except that all orders and cancellations received by one
hour prior to the close of the Exchange, usually 12:00 p.m. Pacific Time, are
effective the same day, otherwise they are effective the following business day.

AUTOMATIC INVESTMENT SERVICES (AIS)

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

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

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

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

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

SYSTEMATIC EXCHANGES allow you to exchange from one Benham fund account to
another Benham fund account on the 1st and/or the 15th of each month (or the
next business day).

For more information about any of these services, please call our Investor
Services Department at 1-800-321-8321 or 1-415-965-4222.

BROKER-DEALER TRANSACTIONS

The Benham Group charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell shares directly from BFS may
purchase and sell Fund shares through registered broker-dealers and other
qualified service providers, who may charge investors fees for their services.
These broker-dealers and service providers generally provide shareholder,
administrative and/or accounting services which would otherwise be provided by
BFS as the Fund's transfer agent. To accommodate these investors, BMC and its
affiliates have entered into agreements with some broker-dealers and service
providers to provide these aforementioned services. Fees for such services are
borne normally by each Fund at the rates normally paid to BFS, which would
otherwise provide the services. Any distribution expenses associated with these
arrangements are borne by BMC.

TDD SERVICE FOR THE HEARING IMPAIRED

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

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

EMERGENCY SERVICES

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

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

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

HOW TO REDEEM YOUR INVESTMENT

When you place an order to redeem shares, your shares will be redeemed at the
next NAV calculated after The Benham Group or an authorized subtransfer agent
has received and accepted your redemption request. The Funds' NAVs are
calculated at the close of business of the Exchange, usually 1:00 p.m. Pacific
Time. See page 28 for details.

Barring extraordinary circumstances prescribed by law, redemption proceeds are
mailed within seven calendar days. However, The Benham Group reserves the right
to withhold the proceeds until the investment has matured (i.e., your payment
has cleared); see maturity periods below.

================================================================================
DRAWN FROM A MATURITY PERIOD
TYPE OF INVESTMENT CALIFORNIA BANK? (IN BUSINESS DAYS)
- --------------------------------------------------------------------------------
Checks, cashiers checks,
and bank money orders Yes 5 days
- --------------------------------------------------------------------------------
Same as above No 8 days
- --------------------------------------------------------------------------------
U.S. Treasury checks,
Traveler's checks,
U.S. Postal money orders,
Benham checks, bank wires,
and AIS Deposits* N/A 1 day
================================================================================
* Does not include bank direct deposits, which take 8 business days to
mature.

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

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

This policy applies to Benham's Individual Retirement Accounts (IRAs), excluding
SEP-IRAs, except that shareholders will receive at least 120 days' written
notice and an opportunity to increase their account balance before their
accounts are closed. Investors wishing to open a Benham-Sponsored Retirement
Plan account should see pages 40 and 41 for details.

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

HOW TO REDEEM SHARES (Retirement investors, see pages 40 and 41).
================================================================================
METHOD INSTRUCTIONS
- --------------------------------------------------------------------------------

BY TELEPHONE The Benham Group will accept telephone redemption
requests for any amount if the proceeds are to be sent to your
predesignated bank account. Redemptions of $25,000 or less
payable to the registered account owner(s) may also be ordered
by telephone. All other redemption requests must be made in
writing. ONCE YOUR TELEPHONE ORDER HAS BEEN PLACED, IT MAY NOT
BE MODIFIED OR CANCELLED.

- --------------------------------------------------------------------------------
IN WRITING Send a letter of instruction to

The Benham Group
Investor Services Department
1665 Charleston Road
Mountain View, California 94043

Your letter of instruction should specify

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

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

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

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

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

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

- --------------------------------------------------------------------------------
BY CHECK Nonretirement CPF, CPF II, and Agency Fund shareholders
automatically receive a free book of checks upon opening an
account in these Funds. Checks are available on request to
nonretirement ARM and GNMA Fund shareholders. Checks may be
drawn to the order of any payee in any amount of $100 or more.
There is no charge for additional checks, and there are no
per-check fees.

Each check must bear the signatures of those authorized to act
on the account. Check redemptions will be charged against your
account as of the date the check is received by First
Interstate Bank of California, the collecting bank.

Checks written against your account in ARM Fund or GNMA Fund
may generate taxable capital gains (or losses) and will be
reported to the IRS annually along with any other redemption
transactions. The check-writing option may be terminated or
modified by the board of directors or trustees. Checks may not
be used to close an account.

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

- --------------------------------------------------------------------------------
BY EXCHANGE See details on pages 34 and 35.

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

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

ABOUT BENHAM-SPONSORED RETIREMENT PLANS

Retirement plans offer investors a number of benefits, including the chance to
reduce current taxable income and to take advantage of tax-deferred compounding.
Retirement plan accounts require a special application; please let our Investor
Services Department know if you want to establish this type of account. We
suggest that you consult your tax advisor before establishing a retirement plan
account. The minimum account balance for all Benham Individual Retirement
Accounts (IRAs), excluding SEP-IRAs, is $1,000. If your balance falls below the
$1,000 per fund account minimum,

================================================================================
PLAN TYPE AVAILABLE TO MAXIMUM ANNUAL CONTRIBUTION
PER PARTICIPANT
- --------------------------------------------------------------------------------
Contributory An employed indi- $2,000 or 100% of compensation
IRA vidual under age 70 1/2. (whichever is less).

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

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

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

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

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

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

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

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

your account may be closed (see page 37 for details). This distribution may
result in a taxable event and a possible penalty for early withdrawal. The
minimum fund account balance for all other Benham-Sponsored Retirement Plan
accounts is $100. Benham charges no fees for its IRAs but does charge low
maintenance fees for its Keoghs.

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

================================================================================
DEADLINE FOR
OPENING ACCOUNT CONTRIBUTION DEADLINES
- --------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

MONEY MARKET FUNDS. Dividends are declared and credited (i.e., available for
redemption) daily and distributed on the last business day of the month.

VARIABLE-PRICE FUNDS. Dividends are declared daily, accrued throughout the
month, and distributed on the last business day of the month.

ALL FUNDS. Net realized capital gains, if any, will be declared once a year,
typically in December.

DISTRIBUTION OPTIONS. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares (see "Directed
Dividends" on page 35 for further information). Please indicate your choice on
your account application or contact our Investor Services Department. See page
37 for a description of our policy regarding uncashed distribution checks.

TAXES

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

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

Dividends from net investment income (including net short-term capital gains, if
any) are taxable as ordinary income. Distributions properly designated by the
Funds' as net capital gains (the excess of net long-term capital gains over net
short-term capital losses), if any, are federally taxable as long-term capital
gains, regardless of how long you have held your shares. Any distributions that
are not from a Fund's investment company taxable income or net capital gain may
be characterized as a return of capital to shareholders or, in some cases,
capital gain.

Dividend distributions attributable to interest earned on obligations of the
U.S. Government (including agencies and instrumentalities) from CPF, Agency
Fund, Short-Term Fund, Treasury Note Fund, and Long-Term Fund are expected to be
exempt from state income tax in all states. Short-term capital gains, although
they are treated as ordinary income for federal tax purposes, are not eligible
for tax-exempt pass-through at the state level. Some states and localities apply
an intangibles tax to shares owned (rather than taxing dividends received). Tax
laws vary from state to state; you may wish to consult your tax advisor or state
tax authorities regarding the tax status of distributions from the Funds.

You may realize a taxable gain or loss when you redeem (sell) or exchange shares
of a variable-price fund. For most types of accounts, the proceeds from your
redemption transactions will be reported to the IRS annually. However, because
the tax treatment depends on your purchase price and personal tax situation, you
should keep your regular account statements to use in determining your taxes.

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

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

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

- -------------------
[information in left margin of page]
The Benham Group serves more than 475,000 investors.
- -------------------

MANAGEMENT INFORMATION

ABOUT THE FUNDS

Capital Preservation Fund, Inc. (CPF), Capital Preservation Fund II, Inc. (CPF
II), and Benham Government Income Trust (BGIT) are registered open-end
management investment companies. CPF and CPF II were established as California
corporations on October 28, 1971, and April 2, 1980, respectively. BGIT was
organized as a Massachusetts business trust on July 24, 1985. BGIT currently
consists of six series and may create additional series from time to time.

CPF and CPF II each have a board of directors; BGIT has a board of trustees.
These directors and trustees are responsible for overseeing the Funds'
activities and for protecting shareholders' interests. The majority of directors
and trustees are not otherwise affiliated with BMC.

The Funds are neither required nor expected to hold annual meetings, although
special meetings may be called for purposes such as electing or removing
directors or trustees or amending a Fund's advisory agreement or investment
policies. BGIT series vote separately on matters affecting individual series,
and voting rights are not cumulative. For BGIT shareholders, the number of votes
you are entitled to is based upon the dollar value of your investment. Each Fund
votes separately on matters that pertain to it exclusively. Voting rights are
not cumulative except under California corporate law, where shareholders of CPF
and CPF II have the right to cumulate votes in the election (or removal) of
directors. A remote possibility exists that one Fund may become liable for any
misstatement in this Prospectus about another Fund.

THE BENHAM GROUP

Benham Management Corporation (BMC) is investment advisor to the funds in The
Benham Group and manages more than $12 billion in assets as of April 30, 1996.
BMC, incorporated in California in 1971, became a wholly owned subsidiary of
Twentieth Century Companies, Inc. (TCC), a Delaware corporation, on June 1,
1995, upon the merger of Benham Management International, Inc., BMC's former
parent company, into TCC. TCC is a holding company that owns the operating
companies that

provide the investment management, transfer agency, shareholder service, and
other services for the Twentieth Century family of funds, which now includes the
Benham Group. The combined company offers 65 mutual funds and, as of April 30,
1996, has combined assets under management in excess of $50 billion.

BMC supervises and manages the investment portfolios of The Benham Group and
directs the purchase and sale of its investment securities. BMC utilizes teams
of portfolio managers, assistant portfolio managers, and analysts to manage the
assets of the funds. The teams meet regularly to review portfolio holdings and
to discuss purchase and sale activity. The teams adjust holdings in the funds'
portfolios when deemed appropriate in pursuit of the funds' investment
objectives. Individual portfolio managers may also adjust portfolio holdings of
the funds as necessary between team meetings.

The portfolio manager team members managing the Funds described in this
prospectus and their work experience for the last five years is as follows:

ROBERT V. GAHAGAN has been primarily responsible for the day-to-day operation of
the Short-Term Fund since March, 1996. He is a Vice President and Portfolio
Manager with Investors Research Corporation (IRC), the investment advisor to the
Twentieth Century funds. Mr. Gahagan has a B.A. and M.B.A. from the University
of Missouri in Kansas City and has over 12 years of investment experience. He
joined IRC in 1983 and manages the following Twentieth Century funds in Mountain
View, California, the fixed income headquarters for the new combined Twentieth
Century/ Benham company: Cash Reserve, Premium Capital Reserve, U.S. Government
Reserve, U.S. Government Short-Term and U.S. Government Intermediate-Term.

Mr. Brian Howell has been primarily responsible for the management of CPF and
the Agency Fund since May, 1995. Mr. Howell joined Benham in 1987 as a research
analyst. He was promoted to his current position in January 1994.

- -------------------
[information in right margin of page]
Benham Management Corporation provides investment advice and portfolio
management services to the Funds.
- -------------------

MS. DENISE TOBACCO has been primarily responsible for the day-to-day operations
of CPF II since June, 1995. She joined The Benham Group in 1988, the Portfolio
Department in 1991 and was promoted to her current position in 1995.

MR. DAVID SCHROEDER has been primarily responsible for the day-to-day operations
of the Treasury Note Fund since January, 1992, and the Long-Term Fund since
September, 1992. He also manages Benham Target Maturities Trust. Before joining
BMC in 1990, Mr. Schroeder was a vice president and proprietary trader with
Pacific Securities in San Francisco (1988 to 1990) and a vice president and
fixed-income trader at Wells Fargo Bank.

MR. CASEY COLTON has co-managed the GNMA Income Fund since January, 1994, and
the Treasury Note Fund, the Long-Term Fund and the Target Maturities Trust's
Funds since January, 1996.Mr. Colton joined BMC in 1990 as a Municipal Analyst.
He was promoted to his current position in 1995. Mr. Colton is a Chartered
Financial Analyst (CFA).

MR. NEWLIN RANKIN has been primarily responsible for the day-to-day operation of
the ARM Fund since January, 1995, and the Treasury Note Fund, the Long-Term Fund
and the Target Maturities Trust's Funds since January, 1996. Before joining BMC,
Mr. Rankin was an assistant vice president at Wells Fargo Bank (1991 to 1993).

ADVISORY AND SERVICE FEES

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

The investment advisory fee rate ranges from .50% to .19% of average daily net
assets, dropping as CPF's, CPF II's, and BGIT's respective assets increase.

The table below illustrates investment advisory fees paid by the Funds for the
fiscal year ended March 31, 1996. For each Fund, the figures shown represent
investment advisory fees as a percentage of each Fund's average daily net assets
and as a dollar amount per $1,000 of each Fund's average daily net assets.

INVESTMENT ADVISORY FEES*

CPF .27% $2.70
CPF II .46 4.60
Agency Fund .22 2.20
Short-Term Fund .29 2.90
Treasury Note Fund .28 2.80
Long-Term Fund .24 2.40
ARM Fund .29 2.90
GNMA Fund .28 2.80

* Net of expense limitations, as described on pages 4 and 48.

To avoid duplicative investment advisory fees, the variable-price funds do not
pay BMC investment advisory fees with respect to assets invested in shares of
Benham money market funds.

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

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

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

EXPENSE LIMITATION AGREEMENT

ALL FUNDS. The expense limitation agreement between BMC and the Funds is
described on page 4.

The table below illustrates total operating expenses for each of the Funds for
the fiscal year ended March 31, 1996. For each Fund, the figures shown represent
total operating expenses as a percentage of the Fund's average daily net assets
and as a dollar amount per $1,000 of the Fund's average daily net assets.

TOTAL OPERATING EXPENSES*

CPF .51% $5.10
CPF II .76 7.60
Agency Fund .51 5.10
Short-Term Fund .67 6.70
Treasury Note Fund .53 5.30
Long-Term Fund .67 6.70
ARM Fund .60 6.00
GNMA Fund .58 5.80

* Net of expense limitations, as described above and on page 4.

In compliance with rules set forth by the SEC, the total operating expenses
described above and on page 4 include amounts paid by third parties under
expense offset arrangements with the Fund.

DISTRIBUTION OF SHARES

Benham Distributors, Inc. (BDI), and BMC distribute and market Benham products
and services. BMC pays all expenses for promoting sales of and distributing the
Funds' shares.

BDI is a wholly owned subsidiary of TCC.

INVESTMENT ADVISOR

BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043

DISTRIBUTOR

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

CUSTODIANS

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

MORGAN GUARANTY TRUST COMPANY OF NEW YORK
23 Wall Street
New York, New York 10015

TRANSFER AGENT

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

INDEPENDENT AUDITORS

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

TRUSTEES

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

THE BENHAM GROUP OF INVESTMENT COMPANIES

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

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

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

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

NOTES:

Q018

<PAGE>
CAPITAL PRESERVATION FUND

The Benham Group(R)
1665 Charleston Road
Mountain View, California 94043

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

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

STATEMENT OF ADDITIONAL INFORMATION

May 29, 1996

This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated May 29, 1996. The Fund's Annual Report for the
fiscal year ended March 31, 1996, is incorporated herein by reference. To obtain
a copy of the Prospectus or Annual Report, call or write The Benham Group.

TABLE OF CONTENTS

Page

Investment Policies and Techniques 2
Investment Restrictions 3
Portfolio Transactions 4
Valuation of Portfolio Securities 5
Performance 6
Taxes 7
About the Fund 8
Directors and Officers 9
Investment Advisory Services 11
Administrative and Transfer Agent Services 12
Direct Fund Expenses 13
Expense Limitation Agreement 13
Additional Purchase and Redemption Information 13
Other Information 14

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 directors.

WHEN-ISSUED SECURITIES 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 on a when-issued or
forward-commitment basis to purchase or sell securities with the intention of
actually receiving or delivering them, it may sell the securities before the
settlement date if doing so is deemed advisable as a matter of investment
strategy.

In purchasing securities on a when-issued or forward-commitment basis, the Fund
will maintain until the settlement date a segregated account consisting of cash,
U.S. government securities, and other high-quality liquid debt securities in an
amount sufficient to meet the purchase price. When the time comes to pay for
such 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, by
selling the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation). Selling securities to meet
when-issued or forward-commitment obligations may generate capital gains or
losses.

There is a risk that the party with whom the Fund enters into a
forward-commitment agreement will not uphold its commitment, which could cause
the Fund to miss a favorable price or yield opportunity or to suffer a loss. To
minimize this risk, BMC limits when-issued or forward-commitment transactions to
30% of the Fund's net assets of which no more than 10% of the Fund's net assets
may be committed to transactions in which the settlement date occurs more than
30 days after the trade date. The Fund will establish a segregated account as
described above to meet all payment obligations arising as a result of these
types of transactions.

ROLL TRANSACTIONS

The Fund may sell a security and at the same time make a commitment to purchase
the same or a comparable security at a future date and specified price.
Conversely, the Fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as "dollar-rolls", "cash and carry" or financing 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 an 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 limit roll transactions to 30%
of net assets.

In engaging in roll transactions, the Fund will maintain until the settlement
date a segregated account consisting of cash, cash equivalents, or high-quality
liquid debt securities in an amount sufficient to meet the purchase price, as
described above.

INVESTMENT RESTRICTIONS

The Fund's investment restrictions set forth below are fundamental and may not
be changed without the approval of a majority of the outstanding voting
securities of the Fund as determined in accordance with the Investment Company
Act of 1940 (the "1940 Act"). Unless otherwise indicated, percentage limitations
included in the restrictions apply at the time the Fund enters into a
transaction.

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 (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 amounts in excess of 10% of the cost or 5% of the market value of
its total assets, whichever is less, and then only from a bank and as a
temporary measure for extraordinary or emergency purposes. To secure any
such borrowing, the Fund may pledge or hypothecate not in excess of 15% of
the value of its total assets.

(3) Act as an underwriter of securities issued by others.

(4) Invest more than 25% of its assets in any one industry (this restriction
does not apply to securities of the U.S. government or its
instrumentalities or agencies or to certificates of deposit or bankers'
acceptances of U.S. commercial banks having assets over $10 billion).

(5) Purchase or sell real estate, commodities, or commodity contracts, or buy
or sell foreign exchange.

(6) Engage in any short-selling operations.

(7) Lend money other than through the purchase of debt securities in accordance
with its investment policies (management considers that this restriction
precludes purchase of other than publicly held debt securities).

(8) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.

(9) Purchase any debt securities that are not rated AA or AAA, or the
equivalent thereof, by either of the major statistical rating services
(Moody's or Standard & Poor's) or that, in the Fund's opinion, are the
equivalent thereof.

(10) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.

(11) Purchase securities for which the Fund might be liable for further payment
or liability.

(12) Invest in portfolio securities that the Fund may not be free to sell to the
public without registering under the Securities Act of 1933 or taking
similar action under other securities laws.

(13) Issue or sell any class of senior security, except to the extent that notes
evidencing temporary borrowing might be deemed such.

(14) Acquire or retain the securities of any other investment company.

(15) Purchase securities of companies in which directors or management personnel
of the Fund or its advisor have a substantial interest. (The Fund may not
purchase or retain securities of any company in which an officer or
director of the Fund or its advisor is an officer, director, or security
holder if such officers and directors who individually own beneficially
more than one-half of one percent (0.5%) of the shares or securities of
such company together own beneficially more than 5% of the shares or
securities of such company. Portfolio securities of the Fund may not be
purchased from or sold to the Fund's advisor or its directors, officers, or
employees.)

The Fund is also subject to the following restrictions that are not fundamental
and may therefore be changed by the board of directors without shareholder
approval.

THE FUND MAY NOT:

(a) Pledge, mortgage, or hypothecate in excess of 10% of its total assets at
market value.

(b) Acquire securities for the purpose of exercising control over management.

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 the
board of directors may issue 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 that the board of directors may issue 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.

U.S. government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.

On behalf of the Fund, BMC transacts in round lots ($100,000 to $10 million or
more) whenever possible. Since commissions are not charged for round-lot
transactions of U.S. Treasury securities, the Fund's transaction costs consist
solely of custodian charges and dealer mark-ups. The Fund may hold its portfolio
securities to maturity or sell or swap them for other securities, depending upon
the level and slope of, and anticipated changes in, the yield curve. The Fund
paid no brokerage commissions during the fiscal year ended March 31, 1996.

VALUATION OF PORTFOLIO SECURITIES

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

The Fund declares as daily dividends substantially all of its net income, plus
or minus any recognizable gains or losses. Net income equals the return on the
Fund's investment portfolio minus Fund expenses. Income and expenses are accrued
daily.

Securities held by the Fund are valued on the basis of amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the Fund's
yield. During periods of declining interest rates, for example, the daily yield
on Fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in
periods of rising interest rates.

BMC typically completes its trading on behalf of the Fund in various markets
before the NYSE closes for the day. The amortized cost valuation method is
permitted in accordance with Rule 2a-7 under the Investment Company Act of 1940.
Under the Rule, a fund such as CPF, holding itself out as a money market fund,
must adhere to certain quality and maturity criteria. In particular, such a fund
must limit its investments to U.S. dollar-denominated instruments that are
determined by its board of directors or trustees to present minimal credit risks
and that are (a) high-grade obligations rated in accordance with applicable
rules in one of the two highest rating categories for short-term obligations by
at least two rating agencies (or by one if only one has rated the obligation),
or (b) unrated obligations judged by the advisor, under the direction of the
fund's board of directors or trustees, to be of comparable quality. Further,
pursuant to Rule 2a-7, a money market fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less and may not purchase instruments
with remaining maturities in excess of 397 days. As an operating policy, the
Fund maintains a dollar-weighted average maturity of 60 days or less.

The directors have established procedures designed to stabilize the Fund's NAV
at $1.00 per share to the extent reasonably possible. These procedures require
the Fund's chief financial officer to notify the directors immediately if, at
any time, the Fund's weighted average maturity exceeds 60 days or its NAV, as
determined by using available market quotations, deviates from its amortized
cost per share by .25% or more. If such deviation exceeds .40%, a meeting of the
board of directors' audit committee will be called to consider what actions, if
any, should be taken. If such deviation exceeds .50%, the Fund's chief financial
officer is instructed to adjust daily dividend distributions immediately to the
extent necessary to reduce the deviation to .50% or lower and to call a meeting
of the board of directors to consider further action.

Actions the board may consider under these circumstances include but are not
limited to (a) selling portfolio securities prior to maturity; (b) withholding
dividends or distributions from capital; (c) authorizing a one-time dividend
adjustment; (d) discounting share purchases and initiating redemptions in kind;
or (e) valuing portfolio securities at market value for purposes of calculating
NAV.

PERFORMANCE

The Fund's yield and total return may be quoted in advertising and sales
literature. Yield and total return will vary, and past performance should not be
considered an indication of future results.

Yield quotations for the Fund are based on the change in the value of a
hypothetical investment (excluding realized gains and losses from the sale of
securities and unrealized appreciation and depreciation of securities) over a
seven-day period (base period) and stated as a percentage of the investment at
the start of the base period (base-period return). The base-period return is
then annualized by multiplying it by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent.

Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:

365/7
Effective Yield = [(Base-Period Return + 1) ] - 1

For the seven-day period ended March 31, 1996, the Fund's yield was 4.64%, and
its effective yield was 4.74%.

Total return quoted in advertising and sales literature reflect all aspects of
the Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value during the
period.

Average annual total return is calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.

In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Performance information may be quoted numerically or in a table, graph,
or similar illustration.

The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike Benham funds,
are sold with a sales charge or deferred sales charge. Sources of economic data
that may be considered in making such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon 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.

The Fund's shares are sold without a sales charge (or load). No-load funds offer
an advantage to investors when compared to load funds with comparable investment
objectives and strategies. If an investor pays $10,000 to buy shares of a load
fund with an 8.5% sales charge, $850 of that $10,000 is paid as a commission to
a salesperson, leaving only $9,150 to put to work for the investor. Over time,
the difference between paying a sales load and not paying one can have a
significant effect on an investor's total return. The Mutual Fund Education
Alliance provides a comparison of $10,000 invested in each of two mutual funds,
one with an 8.5% sales load and one without a sales load. Assuming a compounded
annual growth rate of 10% for both investments, the no-load fund investment is
worth $25,937 after ten years, and the load fund investment is worth only
$23,732.

The Fund may quote performance in various ways. Historical performance
information will be used in advertising and sales literature and is not
indicative of future results. The Fund's share price, yield and return will vary
with changing market conditions.

BMC may obtain Fund ratings from one or more rating agencies and may publish
these ratings in advertisements and sales literature.

TAXES

The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). By
so qualifying, the Fund will not incur federal income or state taxes on its net
investment income and on net realized capital gains to the extent distributed as
dividends to shareholders.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (a) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.

Under the Code, dividends derived from interest, and any short-term capital
gains, are taxable to shareholders as ordinary income for federal and state tax
purposes, regardless of whether such dividends are taken in cash or reinvested
in additional shares. Distributions made from the Fund's net realized long-term
capital gains (if any) and designated as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. Corporate investors are not eligible for the dividends-received
deduction with respect to distributions from the Fund. A distribution will be
treated as paid on December 31 of a calendar year if it is declared by the Fund
in October, November or December of the year with a record date in such a month
and paid by the Fund during January of the following year. Such distributions
will be taxable to shareholders in the calendar year the distributions are
declared, rather than the calendar year in which the distributions are received.

In most states, dividends paid by the Fund are exempt from state personal income
taxes to the extent that the Fund derives its income from debt securities of the
U.S. government, which generate interest payments that are state tax-exempt.

The information above is only a summary of some of the tax considerations
affecting the Fund and its shareholders. No attempt has been made to discuss
individual tax consequences. To determine whether the Fund is a suitable
investment based on his or her tax situation, a prospective investor may wish to
consult a tax advisor.

ABOUT THE FUND

Capital Preservation Fund was organized as a California corporation on October
28, 1971. The Fund is 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 (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 discretion of the board of directors.

Each share of Series A Common Stock is entitled to one vote and to equal
participation in dividends and distributions. Fund shares are fully paid and
nonassessable when issued and have no preemptive, conversion, exchange, or
similar rights. Fund shares are transferable without restriction.

Each shareholder is entitled to cast one vote for each share held in his or her
name as of the record date for a shareholder meeting. Under California
Corporations Code, Section 708, shareholders have the right to cumulate votes in
the election (or removal) of directors. For example, if six directors are
proposed for election, a shareholder may cast six votes for a single candidate,
or three votes for each of two candidates, etc.

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.

INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 3 Embarcadero Center, San
Francisco, California 94111, serves as the Fund'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.

DIRECTORS AND OFFICERS

The Fund's activities are overseen by a board of directors, including seven
independent directors. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Fund (as defined in the 1940 Act)
by virtue of, among other things, their affiliation with either the Fund; the
Fund's investment advisor, Benham Management Corporation (BMC); the Fund's agent
for transfer and administrative services, Benham Financial Services, Inc. (BFS);
the Fund's distribution agent, Benham Distributors, Inc. (BDI); the parent
corporation, Twentieth Century Companies, Inc. (TCC) or TCC's subsidiaries; or
other funds advised by BMC. Each director listed below serves as a trustee or
director of other funds in The Benham Group. Unless otherwise noted, a date in
parentheses indicates the date the director or officer began his or her service
in a particular capacity. The directors' and officers' address with the
exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston Road, Mountain
View, California 94043. The address of Mr. Stowers III and Ms.
Roepke is 4500 Main Street, Kansas City, Missouri 64141-0274.

DIRECTORS

*JAMES M. BENHAM, chairman of the board of directors (1971), president and chief
executive officer (1996). Mr. Benham is also chairman of the boards of BFS
(1985), BMC (1971), and BDI (1988); president of BMC (1971), and BDI (1988); and
a member of the board of governors of the Investment Company Institute (1988).
Mr. Benham has been in the securities business since 1963, and he frequently
comments through the media on economic conditions, investment strategies, and
the securities markets.

ALBERT A. EISENSTAT, independent 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 director (1995); Charles J. Meyers Professor of
Law and Business at Stanford Law School (1979) and the Mark and Eva Stern
Professor of Law and Business at Columbia University School of Law (1992). He is
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).

MYRON S. SCHOLES, independent director (1981). 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) and a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).

KENNETH E. SCOTT, independent director (1971). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a director of
RCM Capital Funds, Inc. (June 1994).

EZRA SOLOMON, independent director (1978). 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 director (1992). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).

*JAMES E. STOWERS III, director (1995). Mr. Stowers is president and director of
Twentieth Century Investors, Inc., TCI Portfolios, Inc., Twentieth Century World
Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century
Capital Portfolios, Inc., Twentieth Century Companies, Inc., Investors Research
Corporation and Twentieth Century Services, Inc.

JEANNE D. WOHLERS, independent director (1989). Ms. Wohlers is a private
investor and an independent director and partner of Windy Hill Productions, LP.
Previously, she served as vice president and chief financial officer of Sybase,
Inc. (software company, 1988 to 1992).

OFFICERS

*JAMES M. BENHAM, president and chief executive officer (1996).

*DOUGLAS A. PAUL, secretary (1988), vice president (1990), and general counsel
(1990); secretary, vice president and general counsel of BMC, BFS, BDI and all
of the funds in the Benham Group.

*ANN N. McCOID, CPA, controller (1987); controller of BFS and all of the funds
in the Benham Group.

*MARYANNE ROEPKE, CPA, chief financial officer and treasurer (1995); vice
president, treasurer and principal accounting officer, Twentieth Century
Strategic Asset Allocations; vice president and treasurer, Twentieth Century
Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century
Capital Portfolios, Inc., Twentieth Century Premium Reserves, Inc. and TCI
Portfolios, Inc.; vice president, Twentieth Century Services, Inc.

The table on the next page summarizes the compensation that the directors of
Capital Preservation Fund received from the Fund for the Fund's fiscal year
ended March 31, 1996, as well as the compensation received for serving as a
director or trustee of all other Benham funds.

DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED
MARCH 31, 1996
- ------------------------------------------------------------------------------------------------------------------
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
DIRECTOR* COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS COMPENSATION
FROM ACCRUED AS PART OF UPON RETIREMENT FROM FUND AND
THE FUND FUND EXPENSES FUND COMPLEX**
PAID TO DIRECTORS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $ 8,759 Not Applicable Not Applicable $79,833
- ------------------------------------------------------------------------------------------------------------------
Albert A. Eisenstat $ 1,619 Not Applicable Not Applicable $29,500
- ------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $10,740 Not Applicable Not Applicable $69,500
- ------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $12,282 Not Applicable Not Applicable $75,773
- ------------------------------------------------------------------------------------------------------------------
Ezra Solomon $10,654 Not Applicable Not Applicable $70,249
- ------------------------------------------------------------------------------------------------------------------
Isaac Stein $10,842 Not Applicable Not Applicable $70,500
- ------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $11,033 Not Applicable Not Applicable $71,250
- ------------------------------------------------------------------------------------------------------------------

* Interested directors receive no compensation for their services as such.
** The Benham Group Fund Complex currently consists of 10 registered investment companies.
</TABLE>

As of April 30, 1996, the Fund's officers and directors, as a group, owned less
than 1% of the outstanding shares of the Fund.

INVESTMENT ADVISORY SERVICES

The Fund has an investment advisory agreement with 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 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 BMC, 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 family of funds. James E. Stowers, Jr., controls TCC by virtue
of his ownership of a majority of its common stock. BMC has been a registered
investment advisor since 1971 and is investment advisor to other funds in The
Benham Group.

The Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two-year period,
it is approved at least annually by vote of a majority of the Fund's outstanding
shares or by vote of a majority of the Fund's directors, including a majority of
those directors 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 investment advisory 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.

Pursuant to the investment advisory agreement, BMC provides the Fund with
investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. The agreement also
provides that BMC will determine what securities will be purchased and sold by
the Fund and assist the Fund's officers in carrying out decisions made by the
board of directors.

For these services, the Fund pays BMC a monthly investment advisory fee based on
applying the Fund's average daily net assets to the following investment
advisory fee rate 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

Investment advisory fees paid by the Fund to BMC for the fiscal periods ended
March 31, 1996, 1995, and 1994, are indicated in the following table.

FISCAL PERIOD INVESTMENT ADVISORY FEES

Year ended 3/31/96 $8,039,420
Year ended 3/31/95 7,631,805
Year ended 3/31/94 7,677,592

The Fund's fiscal year-end was changed in 1993 from September 30 to March 31.

ADMINISTRATIVE AND TRANSFER AGENT SERVICES

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

GROUP ASSETS ADMINISTRATIVE FEE RATE

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

For transfer agent services, the Fund pays BFS a monthly fee of $1.3958 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.

Administrative service and transfer agent fees paid by the Fund to BFS for the
fiscal periods ended March 31, 1996, 1995, and 1994, are indicated in the
following table:

FISCAL PERIOD ADMINISTRATIVE FEES TRANSFER AGENCY FEES

Year ended 3/31/96 $2,896,754 $2,536,792
Year ended 3/31/95 2,781,843 2,582,343
Year ended 3/31/94 2,759,738 2,728,965

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 directors; custodian, audit,
tax preparation and pricing fees; fees of outside counsel and counsel employed
directly by the Fund; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions; 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

Under an Expense Limitation Agreement between the Fund and BMC, BMC is obligated
to limit the Fund's expenses to .53% of average daily net assets through May 31,
1997.

The Expense Limitation Agreement provides that BMC may recover amounts
(representing expenses in excess of the contractual limit) reimbursed to the
Fund during the preceding 11 months if, and to the extent that, for any given
month, the Fund's expenses were less than the contractual expense limitation in
effect at that time.

The expense limit is subject to annual renewal. The expense limits for the years
ended May 31, 1996 and 1995, were .54% and .57% respectively, of average daily
net assets

The former and current expense limitation agreements described above did not and
do not apply to extraordinary expenses such as brokerage commissions and taxes.

For the fiscal periods ended March 31, 1996, 1995, 1994 and 1993, and September
30, 1992, BMC and BFS paid no reimbursements to the Fund and recouped no
reimbursements previously paid to the Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

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

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

As of April 30, 1996, to the knowledge of the Fund, no shareholder was the
record holder or beneficial owner of 5% or more of the Fund's total shares
outstanding.

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

Share purchases and redemptions are governed by California law.

OTHER INFORMATION

BMC, has been continuously registered with the Securities Exchange Commission
(SEC) under the Investment Advisers Act of 1940 since December 14, 1971. The
Fund has filed a registration statement under the Securities Act of 1933 and the
1940 Act with respect to the shares offered. Such registrations do not imply
approval or supervision of the Fund 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.

14
<PAGE>
CAPITAL PRESERVATION FUND, INC.

1933 Act Post-Effective Amendment No. 64
1940 Act Amendment No. 64

PART C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) FINANCIAL STATEMENTS. Audited financial statements for Capital
Preservation Fund, Inc. for the fiscal year ended March 31, 1996, are
filed herein as included in the Statement of Additional Information by
reference to the Annual Report dated March 31, 1996, filed on May 24,
1996 (Accession No. 17271-96-000004).

(b) EXHIBITS.

(1) Amended and Restated Articles of Incorporation dated June 15,
1995 are included herein as EX-99.B1.

(2) Amended and Restated Bylaws dated May 31, 1995 are included
herein as EX-99.B2.

(3) Not applicable.

(4) Specimen copy of Capital Preservation Fund, Inc. share
certificate is incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 34.

(5) Investment Advisory Agreement between Capital Preservation Fund,
Inc. and Benham Management Corporation, dated June 1, 1995,
is included herein as EX-99.B5.

(6) Distribution Agreement between Capital Preservation Fund, Inc.
and Benham Distributors, Inc., dated June 1, 1995, is
incorporated herein by reference to Exhibit 6 to Post-Effective
Amendment No. 3 of Benham Investment Trust filed on April 24,
1996 (Accession No.908406-96-000004).

(7) Not applicable.

(8) Custodian Agreement between Capital Preservation Fund, Inc. and
State Street Bank & Trust Company, dated August 10, 1993,
Amendment No. 1 dated December 1, 1994 to the Custodian
Agreement and Amendment No. 2 dated March 4, 1996 to the
Custodian Agreement are incorporated by reference to
Post-Effective Amendment No. 7 of Benham International Funds
filed on April 22, 1996 (Accession No. 880268-96-000010).

(9) Administrative Services and Transfer Agency Agreement between
Capital Preservation Fund, Inc. and Benham Financial Services,
Inc., dated June 1, 1995, is incorporated herein by reference to
Exhibit 9 to Post- Effective Amendment No. 3 of Benham Investment
Trust filed on April 24, 1996 (Accession No.908406-96-000004).

(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 16, 1996
(Accession No.17271-96-000003).

(11) Consent of KPMG Peat Marwick, independent auditors, is included
herein as EX-99.B11.

(12) Not applicable.

(13) Not applicable.

(14) (a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 59 filed on September 25, 1992.

(b) Benham Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 59 filed on September 25, 1992.

(15) Not applicable.

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

(17) Power of Attorney dated March 4, 1996 is included herein as
EX-99.B17.

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

Not applicable.

Item 26. Number of Holders of Securities.

As of May 1, 1996, Capital Preservation Fund, Inc. had 89,386
shareholders of record.

Item 27. Indemnification.

Registrant hereby incorporates by reference, as though set
forth fully herein, Article IX of the Registrant's Bylaws,
amended on May 31, 1995, appearing as EX-99.B2 to this
Post-Effective Amendment.

Item 28. Business and Other Connections of Investment Advisor.

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

Item 29. Principal Underwriters.

The Registrant's distribution agent, Benham Distributors,
Inc., is also distribution agent to Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds,
Benham Municipal Trust, Benham Target Maturities Trust, Benham
Government Income Trust, Benham Equity Funds, Benham
International Funds, Benham Investment Trust and Benham
Manager Funds. The information required with respect to each
director, officer or partner of Benham Distributors, Inc. is
incorporated herein by reference to Benham Distributors' Form
B-D filed on January 19, 1996 (SEC File No.8-36938; Firm CRD
No. 18784).

Item 30. Location of Accounts and Records.

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

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

The Registrant undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest
report to shareholders, upon request and without charge.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 64/Amendment No. 64 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 24th day of May, 1996. I hereby certify that this Amendment
meets the requirements for immediate effectiveness pursuant to Rule 485(b).

CAPITAL PRESERVATION FUND, INC.

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. 64/Amendment No. 64 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date

<S> <C> <C>
*___________________ Chairman of the Board of Directors, May 24, 1996
James M. Benham President, and Chief Executive Officer

*___________________ Director May 24, 1996
Albert A. Eisenstat

*___________________ Director May 24, 1996
Ronald J. Gilson

*___________________ Director May 24, 1996
Myron S. Scholes

*___________________ Director May 24, 1996
Kenneth E. Scott

*___________________ Director May 24, 1996
Ezra Solomon

*___________________ Director May 24, 1996
Isaac Stein

*___________________ Director May 24, 1996
James E. Stowers III

*___________________ Director May 24, 1996
Jeanne D. Wohlers

*___________________ Chief Financial Officer, Treasurer May 24, 1996
Maryanne Roepke
</TABLE>

/s/Douglas A. Paul
*Douglas A. Paul, Attorney in Fact
(pursuant to a Power of Attorney
dated March 4, 1996).

EXHIBIT INDEX

EXHIBIT DESCRIPTION

EX-99.B1 Amended and Restated Articles of Incorporation dated June 15,
1995.

EX-99.B2 Amended and Restated Bylaws dated May 31, 1995.

EX-99.B4 Specimen copy of Capital Preservation Fund, Inc. share
certificate is incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 34.

EX-99.B5 Investment Advisory Agreement between Capital Preservation Fund,
Inc. and Benham Management Corporation dated June 1, 1995.

EX-99.B6 Distribution Agreement between Capital Preservation Fund, Inc.
and Benham Distributors, Inc., dated June 1, 1995, is
incorporated herein by reference to Exhibit 6 to Post-Effective
Amendment No. 3 of Benham Investment Trust filed on April 24,
1996 (Accession No.908406-96-000004).

EX-99.B8 Custodian Agreement between Capital Preservation Fund, Inc. and
State Street Bank & Trust Company, dated August 10, 1993,
Amendment No. 1 dated December 1, 1994 to the Custodian
Agreement and Amendment No. 2 dated March 4, 1996 to the
Custodian Agreement are incorporated by reference to
Post-Effective Amendment No. 7 of Benham International Funds
filed on April 22, 1996 (Accession No. 880268-96-000010).

EX-99.B9 Administrative Services and Transfer Agency Agreement between
Capital Preservation Fund, Inc. and Benham Financial Services,
Inc., dated June 1, 1995, is incorporated herein by reference to
Exhibit 9 to Post- Effective Amendment No. 3 of Benham Investment
Trust filed on April 24, 1996 (Accession No.908406-96-000004).

EX-99.B10 Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 16, 1996
(Accession No.17271-96-000003).

EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors.

EX-99.B14a Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 59 filed on September 25, 1992.

EX-99.B14b Benham Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 59 filed on September 25, 1992.

EX-99.B16 Schedule for computation of each performance quotation provided
in response to Item 22.

EX-99.B17 Power of Attorney Dated March 4, 1996.

EX-27.4 FDS for Benham Capital Preservation Fund.

RESTATED

ARTICLES OF INCORPORATION
OF
CAPITAL PRESERVATION FUND, INC.

JOHN T. KATAOKA and DOUGLAS A. PAUL certify that:

1. They are the President and Secretary, respectively, of Capital
Preservation Fund, Inc., a California corporation.

2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:

"ARTICLES OF INCORPORATION
OF
CAPITAL PRESERVATION FUND, INC.

The name of the corporation is:

CAPITAL PRESERVATION FUND, INC.

The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.

III

The corporation elects to be governed by all of the provisions of the
General Corporation Law effective January 1, 1977, not otherwise applicable to
it under Chapter 23 thereof.

The total number of shares which the corporation is authorized to
issue is ten billion shares (10,000,000,000) of one class, designated "Common
Stock," which may be issued in two or more series. Subject to any limitations
and restrictions imposed by these Articles, the Board of Directors of the
corporation is authorized to designate and fix the number of, and to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon, any wholly unissued series of said Common Stock.

Upon the amendment of this Article to read as hereinabove set forth,
five billion (5,000,000,000) of the authorized shares, including all issued
shares, shall be reclassified and designated as "Series A Common Stock." The
remaining five billion (5,000,000,000) authorized but unissued shares may be
designated and classified as additional series from time to time by the board of
directors as authorized above.

As to the Series A Common Stock, the corporation will declare and
credit as dividends daily its net income plus or minus gains and losses
recognizable under the Series' valuation policies. On any day when net income
would be exceeded by recognized losses, sufficient shares will be automatically
redeemed pro rata to offset such excess and allow the Series share price to
remain at $1.00 per share.

The corporation shall segregate into separate portfolios for
investment and redemption purposes the assets of each series of the Common Stock
issued. So long as the corporation is an open-end investment company registered
under the Investment Company Act of 1940, the corporation may issue shares of
each series which are redeemable at the option of the holder at a price
approximately equal to the shares' proportionate interest in the net assets of
the shares' respective series, and a shareholder may compel redemption of such
shares in accordance with these terms.

Such shares shall also be redeemable at the option of the corporation
at a price approximately equal to the shares' proportionate interest in the net
asset of the shares' respective series, whenever, because of redemptions, the
value of the account of the shareholder falls below a minimum value (determined
from time to time by resolution of the board of directors of the corporation)
and the shareholder fails, after 30 days' written notice from the corporation,
to purchase sufficient shares to bring the value of the account up to or above
the minimum.

The liability of the Directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.

VII

The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317, subject to the applicable limits set forth in Section 204 of the
California Corporations Code with respect to actions for breach of duty to the
corporation and its shareholders."

3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors.
.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of the
corporation is 2,910,473,842. The number of shares voting in favor of the
amendment exceeded the vote required, which was a vote of the holders of 80% of
the outstanding shares of the Corporation.

The undersigned declare under penalty of perjury and the laws of the
State of California that the matters set forth in this certificate are true and
correct of their own knowledge.

/s/ John T. Kataoka /s/ 6/15/95
John T. Kataoka, President Date

/s/ Douglas A. Paul /s/ 6/15/95
Douglas A. Paul, Secretary Date

TABLE OF CONTENTS

CAPITAL PRESERVATION FUND, INC.

BYLAWS
LAST AMENDED MAY 31, 1995

ARTICLE I SHAREHOLDERS

1. Place of Meetings
2. Meetings
3. Special Meetings
4. Notice of Meetings
5. Consent to Shareholders' Meetings
6. Shareholders Acting Without A Meeting
7. Quorum
8. Voting Rights; Cumulative Voting
9. Proxies
10. Organization
11. Inspectors of Election

ARTICLE II DIRECTORS; MANAGEMENT

1. Powers
2. Number and Qualification
3. Election and Tenure of Office
4. Vacancies
5. Removal of Directors
6. Place of Meetings and Meetings by Telephone
7. Organization Meetings
8. Other Regular Meetings
9. Special Meetings - Notices
10. Waiver of Notice
11. Directors Acting Without a Meeting by Unanimous
Written Consent
13. Quorum
14. Compensation of Directors
15. Executive Committee
16. Indemnification

ARTICLE III OFFICERS

1. Officers
2. Election
3. Subordinate Officers, Etc.
4. Removal and Resignation
5. Vacancies
6. Chairman of the Board
7. President
8. Vice-President
9. Secretary
10. Chief Financial Officer

ARTICLE IV CORPORATE RECORDS AND REPORTS - INSPECTION

1. Records
2. Inspection of Books and Records
3. Certification and Inspection of Bylaws
4. Checks, Drafts, Etc.
5. Contracts, Etc. -- How Executed
6. Annual Report
7. Fiscal Year

ARTICLE V CERTIFICATES AND TRANSFER OF SHARES

1. Certificates for Shares
2. Transfer on the Books
3. Lost or Damaged Certificates
4. Transfer Agent and Custodian
5. Legend Condition

ARTICLE VI CORPORATE SEAL

ARTICLE VII AMENDMENTS TO BYLAWS

<PAGE>

BYLAWS

CAPITAL PRESERVATION FUND, INC.
a California corporation
(last amended May 31, 1995)

ARTICLE I

SHAREHOLDERS

Section 1. Place of Meetings.

All meetings of the Shareholders shall be held at the office of
the corporation, in the State of California, as may be designated for that
purpose from time to time by the Board of Directors, or at any other suitable
place designated by the Board of Directors.

Section 2. Meetings.

In accordance with Section 600 of the California Corporations
Code, shareholder meetings shall be held as required by the Investment Company
Act of 1940 (15 U.S.C. Sec. 80a-1, et seq) or as the Board deems necessary.

Section 3. Special Meetings.

Special meetings of the shareholders for any purpose or purposes
may be called at any time by the president, a vice-president, the secretary, an
assistant secretary, or by the Board of Directors, or by one or more
shareholders holding not less than one-tenth (1/10) of the voting power of the
corporation. Upon request in writing by registered mail to the president, a
vice-president, the secretary or an assistant secretary, directed to such
officers at the principal office of the corporation, in California, or delivered
to such officer in person by any person entitled to call a meeting of
shareholders, it shall be the duty of such officer forthwith to cause notice to
be given to the shareholders entitled to vote of a meeting to be held at such
time as such officer may fix not less than ten nor more than sixty days after
the receipt of such request. If such notice shall not be given within seven days
after the date of mailing or date of delivery of such request, the person or
persons calling the meeting may fix the time of meeting and give notice thereof
in the manner provided by these Bylaws.

Section 4. Notice of Meetings.

Notices of meetings, annual or special, shall be given in writing
to shareholders entitled to vote by the secretary or the assistant secretary, or
if there be no such officer, or in the case of his neglect or refusal, by any
director or shareholder.

Such notices shall be sent to the shareholder's address appearing
on the books of the corporation, or supplied by him to the corporation for the
purpose of notice, but not less than seven days before such meeting.

Notice of any meeting of shareholders shall specify the place,
the day and the hour of meeting, and in case of special meeting, as provided by
the California Corporations Code, the general nature of the business to be
transacted.

If a shareholder supplies no address, notice shall be deemed to
have been given to him if mailed to the place where the principal office of the
company, in California, is situated, or published at least once in some
newspaper of general circulation in the County of said principal office. Such
notice shall specify the place, the day and hour of the meeting, and in the case
of special meetings, the general nature of the business to be transacted.

If a meeting is adjourned for more than 45 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting. Save, as aforesaid, it shall not be necessary to give any
notice of the adjournment or of the business to be transacted at an adjourned
meeting other than by announcement at the meeting at which such adjournment is
taken.

Section 5. Consent to Shareholders' Meetings.

The transactions of any meeting of shareholders, however called
and noticed, shall be valid as though had at a meeting duly held after regular
call and notice, if a quorum be present either in person or by proxy, and if,
either before or after the meeting, each of the shareholders entitled to vote,
not present in person or by proxy, sign a written waiver of notice, or a consent
to the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.

Section 6. Shareholders Acting Without A Meeting.

Unless otherwise provided in the Articles or in the California
Corporations Code, as amended from time to time, any action which may be taken
at any annual or special meeting of shareholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.

Section 7. Quorum.

The holders of a majority of the shares entitled to vote thereat,
present in person, or represented by proxy, shall be requisite and shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by law, by the Articles of Incorporation,
or by these Bylaws. If, however, such majority shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person, or by proxy, shall have the power to adjourn
the meeting from time to time, until the requisite amount of voting shares shall
be present. At such adjourned meeting at which the requisite amount of voting
shares shall be represented, any business may be transacted which might have
been transacted at the meeting as originally notified.

Section 8. Voting Rights; Cumulative Voting.

Every shareholder entitled to vote at any election of directors
may cumulate his votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute his votes on the same
principle among as many candidates as the shareholder sees fit; provided,
however, that no shareholder shall be entitled to cumulate votes unless the
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given such notice, all shareholders may cumulate
their votes for candidates in nomination.

The candidates receiving the highest number of votes of the
shares entitled to be voted for them, up to the number of directors to be
elected by such shares, are elected.

The Board of Directors may determine the shareholders entitled to
notice of any meeting, or to vote, or entitled to receive any payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any lawful action, by fixing, in advance, a
record date, which shall not be more than 60 nor less than 10 days prior to the
date of such meeting nor more than 60 days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of a meeting unless the
Board fixes a new record date for the adjourned meeting; but the Board shall fix
a new record date if the meeting is adjourned for more than 45 days from the
date set for the original meeting. Shareholders at the close of business are
entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date.

Section 9. Proxies.

Every person entitled to vote shares may authorize another person
or persons to act by proxy with respect to such shares by executing a proxy in
accordance with the provisions of the California Corporations Code.

Section 10. Organization.

The president, or in the absence of the president, any
vice-president, shall call the meeting of the shareholders to order, and shall
act as chairman of the meeting. In the absence of the president and all of the
vice-presidents, shareholders shall appoint a chairman for such meeting. The
secretary of the company shall act as secretary of all meetings of the
shareholders, but in the absence of the secretary at any meeting of the
shareholders, the presiding officer may appoint any person to act as secretary
of the meeting.

Section 11. Inspectors of Election.

In advance of any meeting of shareholders the Board of Directors
may, if they so elect, appoint inspectors of election to act at such meeting or
any adjournments thereof. If inspectors of election be not so appointed, the
chairman of any such meeting may, and on the request of any shareholder or his
proxy shall, make such appointment at the meeting. The number of inspectors
shall be either one or three.

ARTICLE II

DIRECTORS; MANAGEMENT

Section 1. Powers.

Subject to the limitation of the Articles of Incorporation, of
the Bylaws, and of the laws of the State of California as to action to be
authorized or approved by the shareholders, all corporate powers shall be
exercised by or under authority of, and the business and affairs of this
corporation shall be controlled by, a Board of Directors.

Section 2. Number and Qualification.

The authorized number of directors of the corporation shall be
not less than seven (7) nor more than 11. The exact number of directors shall be
fixed from time to time by a majority of the Board of Directors or by the
shareholders as provided in the California Corporations Code; provided, however,
that the authority of the Board to fix its number of directors shall in all
events be exercised in a manner consistent with the maintenance on the Board of
a majority of directors who are not "interested persons" in the corporation or
the corporation's investment advisor as defined by the Investment Company Act of
1940. The selection and nomination of disinterested directors is committed
solely to the discretion of a Nominating Committee consisting of all sitting
disinterested directors except where the remaining director or directors are
interested persons.

Section 3. Election and Tenure of Office.

The directors shall be elected by ballot at shareholder meetings
called for that purpose, to serve until their successors are elected and have
qualified, except, that directors who are not "interested persons" as defined
above or employees of the Benham Capital Management Group of companies shall
retire at the end of the calendar year in which they shall have reached the age
of seventy-five (75) years (amended September 5, 1989). Their term of office
shall begin immediately after election.

Section 4. Vacancies.

"Vacancy" when used with respect to the Board means any
authorized position of director which is not then filled by a duly elected,
appointed or approved director, whether caused by death, resignation, or
removal, of any director, or if the shareholders shall increase the authorized
number of directors but shall fail at the meeting at which such increase is
authorized, or an adjournment thereof, to elect the additional director so
provided for, or in case the shareholders fail at any time to elect the full
number of authorized directors.

Vacancies in the Board of Directors may be filled by a majority
of the remaining directors, whether or not less than a quorum, or by a sole
remaining director; provided, however, that except as may be otherwise required
by law, such vacancies shall be filled so that a majority of the Board of
Directors are disinterested directors; and, further, that the selection and
nomination of disinterested directors hereunder is committed solely to the
discretion of the Nominating Committee (described in Section 2 of this Article),
except where the remaining director or directors are interested persons.

Vacancies occurring on the Board of Directors by reason of the
removal of directors (as provided in California Corporations Code Section 304)
may be filled only by approval of the shareholders.

Each director so appointed or approved shall hold office until he
or his successor is elected at an annual meeting of shareholders or a special
meeting called for that purpose.

The shareholders may at any time elect a director to fill any
vacancy not filled by the directors, and may elect the additional directors at
the meeting at which an amendment of the Articles of Incorporation is voted
authorizing an increase in the number of directors.

A vacancy or vacancies shall be deemed to exist in case of death,
resignation or removal of any director, or if the shareholders shall increase
the authorized number of directors but shall fail at the meeting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
director so provided for, or in case the shareholders fail at any time to elect
the full number of authorized directors.

If the Board of Directors accepts the resignation of a Director
tendered to take effect at a future time, the Board, or the shareholders, shall
have power to elect a successor to take office when the resignation shall become
effective.

No reduction of the number of directors shall have the effect of
removing any director prior to the expiration of his term of office.

Section 5. Removal of Directors.

The entire Board of Directors or any individual director may be
removed from office as provided by Section 810 of the Corporations Code of the
State of California.

Section 6. Place of Meetings and Meetings by Telephone.

Meetings of the Board of Directors shall be held at the office of
the corporation in the State of California, as designated for that purpose, from
time to time, by resolution of the Board of Directors or written consent of all
of the members of the Board. Any meeting shall be valid, wherever held, if held
by the written consent of all members of the Board of Directors, given either
before or after the meeting and filed with the Secretary of the corporation. Any
meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as al directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting; provided that, in accordance with the provisions of the
Investment Company Act of 1940, the Board may not transact by such a meeting any
business which involves the entering into, or the renewal, performance, or
approval of any contract or agreement, whereby a person undertakes regularly to
serve or act as the Fund's Investment Advisor or principal underwriter.

Section 7. Organization Meetings.

The organization meetings of the Board of Directors shall be held
immediately following the adjournment of the annual meetings of the
shareholders.

Section 8. Other Regular Meetings.

Regular meetings of the Board of Directors shall be held at the
corporate offices, or such other place as may be designated by the Board of
Directors, as follows:

Time of Regular Meeting: 10:00 a.m.
Date of Regular Meeting: February 10, May 10, August 10
November 10

If said day shall fall upon a holiday, such meetings shall be
held on the next succeeding business day thereafter. No notice need be given of
such regular meetings.

Section 9. Special Meetings - Notices.

Special meetings of the Board of Directors for any purpose or
purposes shall be called at any time by the president or if he is absent or
unable or refuses to act, by any vice-president of by any two directors.

Written notice of the time and place of special meetings shall be
delivered personally to the directors or sent to each director by letter or by
telegram, charges prepaid, addressed to him at his address as it is shown upon
the records of the corporation, or if it is not so shown on such records or is
not readily ascertainable, at the place in which the meetings of the directors
are regularly held. In the case such notice is mailed or telegraphed, it shall
be deposited in the United States mail or delivered to the telegraph company in
the place in which the principal office of the corporation is located at least
forty-eight *(48) hours prior to the time of the holding of the meeting. In case
such notice is delivered as above provided, it shall be so delivered at least
twenty-four (24) hours prior to the time of the holding of the meeting. Such
mailing, telegraphing or delivery as above provided shall be due, legal and
personal notice to such director.

Section 10. Waiver of Notice.

When all of the directors are present at any directors' meeting,
however called or noticed, and sign a written consent thereto on the records of
such meeting, or, if a majority of the directors are present, and if those not
present sign in writing a waiver of notice of such meeting, whether prior to or
after the holding of such meeting, which said waiver shall be filed with the
Secretary of the corporation, the transactions thereof are as valid as if had at
a meeting regularly called and noticed.

Section 11. Directors Acting Without a Meeting by Unanimous Written Consent.

Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting and with the same force and effect as
if taken by a unanimous vote of directors, if authorized by a writing signed by
all members of the board; provided that, in accordance with the Investment
Company Act of 1940, such written consent does not approve the entering into, or
the renewal or performance of any contract or agreement, whereby a person
undertakes regularly to serve or act as the Fund's Investment Advisor or
principal underwriter. All consents shall be filed with the regular minutes of
the board.

Section 13. Quorum.

A majority of the number of directors as fixed by the Articles of
Incorporation or Bylaws shall be necessary to constitute a quorum for the
transaction of business, and the action of a majority of the directors present
at any meeting at which there is a quorum, when duly assembled, is valid as a
corporate act; provided that a minority of the directors, in the absence of a
quorum, may adjourn from time to time, but may not transact any business. As to
any business which by law requires a vote of the non-affiliated, independent
directors, such business may not be transacted without such vote.

Section 14. Compensation of Directors.

Directors, as such, shall not receive any stated salary for their
services, but by resolution of the Board a fixed sum and expense of attendance,
if any, may be allowed for attendance at each regular and special meeting of the
Board, provided that nothing herein contained shall be construed to preclude any
director from serving the company in any other capacity and receiving
compensation therefor. Directors unaffiliated with the corporation's investment
advisor will be paid by the corporation. Directors affiliated with the
corporation's investment advisor shall be paid, if at all, by the Advisor.

Section 15. Executive Committee.

An executive committee may be appointed by resolution passed by a
majority of the whole Board. The executive committee shall be composed of
members of the Board, and shall have such powers as may be expressly delegated
to it by resolution of the Board of Directors. It shall act only in the
intervals between meetings of the Board and shall be subject at all times to the
control of the Board of Directors.

Section 16. Indemnification.

In the event that any present or past director or office of the
Fund is named or threatened to be named as a defendant in any civil, criminal,
administrative or investigative action or proceeding arising out of his conduct
as a director or officer of the Fund (hereinafter "proceeding"), the Fund shall
to the extent permitted by this bylaw, Section 317 of the California
Corporations Code and Section 17 of the Investment Company Act of 1940 (the
"Act") advance or reimburse such officer or director for expenses, judgments,
fines, settlements and other amounts incurred in connection therewith.

The Fund shall in no event indemnify an officer or director for
expenses and other amounts incurred, except upon a determination by:

(1) a court or other body before whom the proceeding was brought, or

(2) in the absence of a determination by such court or other body,
by:

(a) the vote of a majority of a quorum of directors who are
neither "interested persons" of the company as defined in Section 2(a)(19) of
the Act nor a party to the proceeding, or

(b) an independent legal counsel in a written opinion,

that such person is not liable by reason of willful misfeasance, bad faith
gross, negligence, or reckless disregard of duties as described in Section 17(h)
of the Act.

The Fund shall indemnify an officer or director for any expenses
and amounts actually and reasonably incurred in connection with any proceeding
or claim other than one by or in right of the Fund, if such person has not
prevailed on the merits, upon a determination by:

(a) a majority of a quorum of directors who are not parties to
such proceeding, or

(b) the court in which such proceeding is or was pending, or

(c) approval of the shareholders as provided in Section 153 of
the California Corporations Code, with the shares owned by the person to be
indemnified not being entitled to vote,

that such person acted in good faith and in a manner such person reasonably
believed to be in the best interests of the Fund and, in the case of a criminal
proceeding, that such person had no reasonable cause to believe his conduct was
unlawful.

The Fund shall indemnify an officer or director for expenses
actually and reasonably incurred in connection with any proceeding by or in
right of the Fund, if such person has not prevailed on the merits, upon a
determination by:

(a) a majority of a quorum of directors who are not parties to
such proceeding, or

(b) the court in which such proceeding is or was pending,

(c) approval of the shareholders as provided in Section 153 of
the California Corporations Code, with the shares owned by the person to be
indemnified not being entitled to vote,

that such person acted in good faith, in a manner such person believed to be in
the best interests of the Fund and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances; except that no indemnification shall be made:

(a) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,

(b) of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval, or

(c) with respect to a claim for which such person shall have
been adjudged liable to the Fund, unless and to the extent that the court in
which such proceeding is or was pending shall determine that, in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for the expenses which such court shall determine.

To the extent an officer or director of the Fund has been
successful on the merits in defense of any proceeding, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith.

All amounts indemnified pursuant to this bylaw shall be
indemnified only upon final disposition of the proceeding in which they were
incurred, except that expenses incurred by an officer or director in defending
any proceeding shall be advanced prior to the final disposition of such
proceeding upon receipt by the Fund of an adequately secured undertaking by or
on behalf of such person to repay such amount advanced unless it be determined
ultimately that such person is entitled to indemnification pursuant to the
provisions of this bylaw.

ARTICLE III

OFFICERS

Section 1. Officers.

The officers of the corporation shall be a president, a vice
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, a chairman of the board, one
or more additional vice presidents, one or more assistant secretaries, one or
more assistant chief financial officers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article. One
person may hold two or more offices, except those of president and secretary.

Section 2. Election.

The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article shall be chosen by the Board of Directors, and each shall hold his
office until he shall resign or shall be removed or otherwise disqualified to
serve, or his successor shall be elected and qualified.

Section 3. Subordinate Officers, Etc.

The Board of Directors may appoint such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
Bylaws or as the Board of Directors may from time to time determine.

Section 4. Removal and Resignation.

Any officer may be removed, either with or without cause, by a
majority of the directors at the time in office, at any regular or special
meeting of the Board, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.

Any officer may resign at any time by giving written notice to
the Board of Directors, or to the president, or to the secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

Section 5. Vacancies.

A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the bylaws for regular appointments to such office.

Section 6. Chairman of the Board.

The Chairman of the Board, if there shall be such an officer,
shall, if present, preside at all meetings of the Board of Directors, and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by the bylaws.

Section 7. President.

Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the chief executive officer of the corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.

Section 8. Vice-President.

In the absence or disability of the president, the
vice-presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the vice-president designated by the Board of Directors, shall
perform all the duties of the president, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the president. The
vice-president shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board of
Directors or the bylaws.

Section 9. Secretary.

The secretary shall keep, or cause to be kept, a book of minutes
at the principal office or such other place as the Board of Directors may order,
of all meetings of Directors and Shareholders, with the time and place of
holding, whether regular or special, and if special, how authorized, the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at shareholders' meetings and the proceedings
thereof.

The secretary shall keep, or cause to be kept, at the principal
office or at the office of the corporation's transfer agent, a share register,
or duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by the
bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the bylaws.

Section 10. Chief Financial Officer.

The chief financial officer shall keep and maintain, or cause to
be kept and maintained, adequate and correct accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains losses, capital, surplus and shares.
Any surplus, including earned surplus, paid-in surplus and surplus arising from
a reduction of stated capital, shall be classified according to source and shown
in a separate account. The books of account shall at all reasonable times be
open to inspection by any director.

The chief financial officer shall deposit or cause to be
deposited all moneys and other valuables in the name and to the credit of the
corporation with the corporation's custodian bank. He shall cause disbursement
of funds of the corporation as may be ordered by the Board of Directors, shall
render to the president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or the bylaws.

ARTICLE IV

CORPORATE RECORDS AND REPORTS - INSPECTION

Section 1. Records.

The corporation shall maintain adequate and correct accounts,
books and records of its business and properties. All of such books, records and
accounts shall be kept at its principle place of business in the State of
California, or at the office of its transfer agent, custodian or accountant, as
determined by the president and secretary from time to time.

Section 2. Inspection of Books and Records.

All books and records provided for in Section 3003 of the
Corporations Code of California shall be open to inspection of the directors and
shareholders from time to time and in the manner provided in said Section 3003.

Section 3. Certification and Inspection of Bylaws.

The original or a copy of these Bylaws, as amended or otherwise
altered to date, certified by the Secretary, shall be open to inspection by the
shareholders of the company, as provided in Section 502 of the California
Corporations Code.

Section 4. Checks, Drafts, Etc.

All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, issued in the name of or payable to the
corporation, shall be signed or endorsed by such person or persons and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.

Section 5. Contracts, Etc. -- How Executed.

The Board of Directors, except as in the Bylaws otherwise
provided, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation. Such authority may be general or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent or employee
shall have any power or authority to bind the corporation by any contract or
engagement, or to pledge its credit, or to render it liable for any purpose or
to any amount.

Section 6. Annual Report.

The Board of Directors shall cause an annual report or statement
to be sent to the shareholders of this corporation not later than 120 days after
the close of the fiscal or calendar year in accordance with the provisions of
Section 3006-3010 of the Corporations Code of the State of California, and shall
distribute financial reports to the shareholders as of the last days of March,
June, September and December of each year.

Section 7. Fiscal Year.

The fiscal year of the corporation begins October 1 and ends on
September 30.

ARTICLE V

CERTIFICATES AND TRANSFER OF SHARES

Section 1. Certificates for Shares.

Certificates for shares shall be of such form and device as the
Board of Directors may designate and shall state the name of the record holder
of the shares represented thereby; its number; date of issuance; the number of
shares for which it is issued; the par value, if any, or a statement that such
shares are without par value; a statement of rights, privileges, preferences and
restrictions, if any; a statement as to the redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting, if any; if the
shares be assessable or, if assessments are collectible by personal action, a
plain statement of such facts.

Every certificate for shares must be signed by the Chairman,
President or any Vice President and by the Chief Financial Officer, the
Secretary, Controller, any Assistant Controller or any Assistant Secretary or
must be authenticated by facsimiles of the signatures of the president and
secretary or by a facsimile of the signature of its president and the written
signature of its secretary or an assistant secretary. Before it becomes
effective every certificate for shares authenticated by a facsimile of a
signature must be countersigned by a transfer agent or transfer clerk and must
be registered by an incorporated bank or trust company, either domestic or
foreign, as registrar of transfers.

Section 2. Transfer on the Books.

Upon surrender to the secretary or transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto; cancel the old certificate and record the transaction upon its books.

Section 3. Lost or Destroyed Certificates.

Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and shall if the
directors so require give the corporation a bond of indemnity, in the form and
with one or more sureties satisfactory to the Board, in at least double the
value of the stock represented by said certificate, whereupon a new certificate
may be issued in the same tenor and for the same number of shares as the one
alleged to be lost or destroyed.

Section 4. Transfer Agent and Custodian.

The Board of Directors may authorize the president to contract
for the services of a transfer agent and custodian for the corporation.

Section 5. Legend Condition.

In the event any shares of this corporation are issued pursuant
to a permit or exemption therefrom requiring the imposition of a legend
condition the person or persons issuing or transferring said shares shall make
such said legend appears on the certificate and the stub relating thereto in the
stock record book and shall not be required to transfer any shares free of such
legend unless an amendment to such permit or a new permit be first issued so
authorized such a deletion.

ARTICLE VI

CORPORATE SEAL

The corporate seal shall be circular in form, and shall have
inscribed thereon the name of the corporation, the date of its incorporation,
and the word California.

ARTICLE VII

AMENDMENTS TO BYLAWS

Section 1. By Shareholders.

New Bylaws may be adopted or these bylaws may be repealed or
amended at their annual meeting, or at any other meeting of the shareholders
called for that purpose, by a vote of shareholders entitled to exercise a
majority of the voting power of the corporation, or by written assent of such
shareholders.

Section 2. Powers of Directors.

Subject to the right of the shareholders to adopt, amend or
repeal bylaws, as provided in Section 1 of this Article VII, the Board of
Directors may adopt, amend or repeal any of these bylaws other than a bylaw or
amendment thereof changing the authorized number of directors.

Section 3. Record of Amendments.

Whenever an amendment or new bylaw is adopted, it shall be copied
in the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written assent was filed shall be stated in said book.

INVESTMENT ADVISORY AGREEMENT

CAPITAL PRESERVATION FUND, INC.

Agreement effective this 1st day of June, 1995, between CAPITAL
PRESERVATION FUND, INC., a registered open-end management investment company
organized as a California Corporation (the "Fund") and BENHAM MANAGEMENT
CORPORATION, a registered investment advisor incorporated in the State of
California (the "Advisor").

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

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

B. BROKERAGE. In executing transactions for the Fund and selecting
brokers or dealers, the Advisor will use its best efforts to seek the best price
and execution available and shall execute or direct the execution of all such
transactions in a manner both permitted by law and that suits the best interest
of the Fund and its shareholders. In assessing the best price and execution
available for any Fund transaction, the Advisor will consider all factors it
deems relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis. Consistent with the
obligation to obtain best execution, the Advisor may cause a Fund to pay a
broker which provides brokerage and research services to the Advisor a
commission for effecting a securities transaction in excess of the amount
another broker might have charged. Such higher commissions may not be paid
unless the Advisor determines in good faith that the amount paid is reasonable
in relation to the services received in terms of the particular transaction or
the Advisor's overall responsibilities to the Fund and any other of the
Advisor's clients.

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

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

D. PROMOTION AND DISTRIBUTION. The Advisor shall promote the sale
and distribution of the Fund's shares to the general public in such a manner and
at such times and places as the Advisor shall, in the exercise of reasonable
discretion, determine; and otherwise as the Advisor and the Fund's board of
directors may from time to time agree.

II. COMPENSATION FOR SERVICES.

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

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

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

(b) DETERMINATION OF FUND FEE. The Fund Fee shall be equal on an
annualized basis to a percentage of the value of the aggregate average daily net
assets of the Fund determined for each calendar day as follows:

0.50% of the first $100 million;
0.45% of the next $100 million;
0.40% of the next $100 million;
0.35% of the next $100 million;
0.30% of the next $100 million;
0.25% of the next $1 billion;
0.24% of the next $1 billion;
0.23% of the next $1 billion;
0.22% of the next $1 billion;
0.21% of the next $1 billion;
0.20% of the next $1 billion;
and 0.19% of the net assets over $6.5 billion.

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

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

A. The Fund Fee.

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

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

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

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

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

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

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

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

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

VII. RENEWAL, TERMINATION AND AMENDMENT. The term of this agreement shall
be from the date first written above, and shall continue in effect, unless
sooner terminated as provided herein, for two years from such date, and shall
continue in effect from year to year thereafter only so long as such continuance
is specifically approved at least annually by the vote of either a majority of
the outstanding voting securities of the Fund or a majority of the Fund's
directors, and the vote of a majority of the Fund's directors who are neither
parties to the agreement nor interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. "Approved
at least annually" shall mean approval occurring, with respect to the first
continuance of the agreement, during the 90 days prior to and including the date
of its termination in the absence of such approval, and with respect to any
subsequent continuance, during the 90 days prior to and including the first
anniversary of the date upon which the most recent previous annual continuance
of this agreement became effective. This agreement may be terminated at any time
without payment of any penalty, by the board of directors of the Fund or by a
vote of the majority of the outstanding voting securities of the Fund, upon 60
days' written notice to the Advisor, and by the Advisor upon 60 days' written
notice to the Fund. This agreement shall terminate automatically in the event of
its assignment. The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth for such terms
in the Investment Company Act of 1940 and Rule 18f-2 thereunder.

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

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

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

CAPITAL PRESERVATION FUND, INC.

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

BENHAM MANAGEMENT CORPORATION

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

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Capital Preservation Fund, Inc.:

We consent to the inclusion in Capital Preservation Fund, Inc.'s Post-Effective
Amendment No. 64 to the Registration Statement No. 2-42556 on Form N-1A under
the Securities Act of 1933 and Amendment No. 64 to the Registration Statement
No. 811-2247 filed on Form N-1A under the Investment Company Act of 1940 of our
report dated May 3, 1996 on the financial statements and financial highlights of
Capital Preservation Fund, Inc. for the periods indicated therein, which report
has been incorporated by reference into the Statement of Additional Information
of Capital Preservation Fund, Inc. We also consent to the reference to our firm
under the heading "Financial Highlights" in the Prospectus and under the heading
"About the Fund" in the Statement of Additional Information which is
incorporated by reference in the Prospectus.

/s/KPMG Peat Marwick LLP

San Francisco, California
May 28, 1996

CAPITAL PRESERVATION FUND
Yield Calculation
March 31, 1996

365/7
Effective Yield: = [ (Base Period Return) ] - 1

7 Day Yield = 4.64%

7 Day Effective Yield = 4.74%

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, CAPITAL
PRESERVATION FUND, INC., hereinafter called the "Corporation" and certain
directors and officers of the Corporation, do hereby constitute and appoint
James M. Benham, James E. Stowers, III, William M. Lyons, Douglas A. Paul, and
Patrick A. Looby, and each of them individually, their true and lawful attorneys
and agents to take any and all action and execute any and all instruments which
said attorneys and agents may deem necessary or advisable to enable the
Corporation to comply with the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, and any rules regulations, orders, or other
requirements of the United States Securities and Exchange Commission thereunder,
in connection with the registration under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, including specifically, but without
limitation of the foregoing, power and authority to sign the name of the
Corporation in its behalf and to affix its corporate seal, and to sign the names
of each of such directors and officers in their capacities as indicated, to any
amendment or supplement to the Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, and to any instruments or documents filed or to
be filed as a part of or in connection with such Registration Statement; and
each of the undersigned hereby ratifies and confirms all that said attorneys and
agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the Corporation has caused this Power to be
executed by its duly authorized officers on this the 4th day of March, 1996.

CAPITAL PRESERVATION FUND, INC.
(A California Corporation)

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

SIGNATURE AND TITLE

/s/ James M. Benham /s/ Ezra Solomon
James M. Benham Ezra Solomon
Chairman Director

/s/ Albert A. Eisenstat /s/ Isaac Stein
Albert A. Eisenstat Isaac Stein
Director Director

/s/ Ronald J. Gilson /s/ Jeanne D. Wohlers
Ronald J. Gilson Jeanne D. Wohlers
Director Director

/s/ Myron S. Scholes /s/James E. Stowers III
Myron S. Scholes James E. Stowers, III
Director Director

/s/Kenneth E. Scott /s/ Maryanne Roepke
Kenneth E. Scott Maryanne Roepke
Director Treasurer

Attest:

By: /s/ Douglas A. Paul
Douglas A. Paul, Secretary

<ARTICLE> 6
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<NUMBER> 1
<NAME> CAPITAL PRESERVATION FUND, INC.

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