CAPITAL PRESERVATION FUND INC, N-30D, 1996-11-20

CAPITAL PRESERVATION FUND INC
N-30D, 1996-11-20

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BENHAM U.S. TREASURY
AND GOVERNMENT
MONEY MARKET FUNDS

---------

Semiannual Report * September 30, 1996

[Sketch of the American Eagle similar
to that displayed on U.S. currency]

Capital Preservation Fund
Capital Preservation Fund II
Government Agency Fund

Twentieth Century Mutual Funds
and The Benham Group

[cover page]

CONTENTS

U.S. ECONOMIC REVIEW................................. 1

MARKET SUMMARY....................................... 2

CAPITAL PRESERVATION FUND
Performance Information.............................. 3
Portfolio Statistics & Composition................... 4
Management Discussion................................ 5
Financial Highlights..................................14
Financial Statements and Notes........................17
Schedule of Investments...............................24

CAPITAL PRESERVATION FUND II
Performance Information.............................. 6
Management Discussion and Portfolio Statistics....... 7
Financial Highlights..................................15
Financial Statements and Notes........................17
Schedule of Investments...............................25

BENHAM GOVERNMENT AGENCY FUND
Performance Information.............................. 8
Portfolio Statistics & Composition................... 9
Management Discussion.................................10
Financial Highlights..................................16
Financial Statements and Notes........................17
Schedule of Investments...............................27

INVESTMENT FUNDAMENTALS
Money Market Instruments..............................11
Other Definitions.....................................13

U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of
Chairman, Benham Funds James M. Benham]

The U.S. economy grew at a healthy pace for the first three quarters of 1996,
confounding market analysts who predicted a significant slowdown. During 1995,
economic weakness prompted the Federal Reserve (the Fed) to make a series of
short-term interest rate cuts, culminating in a quarter-of-a-percent cut in
January 1996. This expansionary monetary policy helped speed the pace of U.S.
economic growth from an anemic 0.3% annual rate in the fourth quarter of 1995 to
2.0% in the first quarter of 1996. Growth expanded further to an impressive 4.7%
in the second quarter of the year (see the graph below).

[bar graph - data listed below]

Stronger-than-expected corporate earnings fueled increased corporate expansion
and job growth. Nearly two million new jobs were created in the first nine
months of the year, sending the U.S. unemployment rate to a six-year low.
Healthy employment numbers and a strong performance by U.S. stocks led to fears
of inflationary pressure and expectations of an interest rate hike by the Fed.
As a result, U.S. bonds overall gave a lackluster performance.

But the expected surge in inflation failed to materialize. For the first nine
months of the year, inflation, as measured by the consumer price index (CPI),
grew at an annualized rate of 3.2%, compared to the 2.5% inflation rate for all
of 1995 (the lowest annual rate since 1986). Because of this apparent lack of
inflationary pressure, the Fed held interest rates steady through September.

But the economic picture remains uncertain. The economy grew at a 2.2% annual
rate in the third quarter, and recent economic data seem to suggest that the
economy may be slowing. Market participants are no longer sure that the Fed will
raise interest rates this year, and some even contend that the Fed's next move
may be toward lower rates. On the other hand, signs of wage inflation have
surfaced in recent employment reports. In spite of higher interest rates for
most of this year, the housing market has remained robust, and consumer
confidence is high, indicating that the U.S. consumer may still have some
spending power. Given the present state of economic uncertainty, it is likely
that shifting expectations of Fed interest rate policy may have more of an
impact on U.S. financial markets in the coming months than any actual move by
the Fed.

[graph data]
GDP (Annualized)
vs. Inflation (Consumer Price Index)
July 1994 - September 1996
GDP CPI
Jan-94 2.52%
Feb-94 2.51
Mar-94 2.50% 2.51
Apr-94 2.36
May-94 2.29
Jun-94 4.90 2.56
Jul-94 2.70
Aug-94 2.90
Sep-94 3.50 3.03
Oct-94 2.68
Nov-94 2.60
Dec-94 3.00 2.60
Jan-95 2.87
Feb-95 2.79
Mar-95 0.40 2.86
Apr-95 2.98
May-95 3.12
Jun-95 0.70 3.04
Jul-95 2.83
Aug-95 2.62
Sep-95 3.80 2.54
Oct-95 2.74
Nov-95 2.67
Dec-95 0.30 2.67
Jan-96 2.72
Feb-96 2.72
Mar-96 2.00 2.84
Apr-96 2.90
May-96 2.96
Jun-96 4.70 2.75
Jul-96 2.95
Aug-96 2.88
Sep-96 2.20 3.00
Source: Bloomberg Financial Markets

MARKET SUMMARY
GOVERNMENT MONEY MARKET SECURITIES

During the six-month period ended September 30, 1996, the Federal Reserve held
short-term interest rates steady. However, the combination of
stronger-than-expected economic growth and low inflation (discussed on page 1)
caused uncertainty in U.S. financial markets about the Fed's interest rate
intentions. Money market yields fluctuated throughout the period in response to
each change in market expectations.

The graph below illustrates this reactive volatility in money market rates. The
federal funds rate target (the lending rate targeted by the Fed for large
overnight loans between commercial banks) remained steady after the Fed's last
rate hike in January. But the three-month Treasury bill yield, which tends to
reflect the financial market's current expectations of interest rate policy,
fluctuated significantly. Some of the sharpest movements in the three-month
T-bill yield occurred at the beginning of each month, when the government
released its monthly employment report. The markets monitor this report closely,
viewing it as a key gauge of economic strength.

The general trend in money market rates during the six-month period reflected
the market's expectations of Fed interest rate policy. After falling in early
April, the three-month T-bill yield rose by more than 30 basis points (a basis
point equals 0.01%) between April and July, reflecting the market's belief that
the Fed would raise rates during the second half of the year. Late in the
period, however, the market became less certain about a Fed rate hike, and the
three-month T-bill yield reversed its course, ending up 10 basis points lower
than it was at the start of the period. Demand from foreign central banks also
contributed to lower T-bill yields.

Although the three-month T-bill yield fell during the period, government money
market fund yields rose slightly. According to IBC Financial Data, the seven-day
current yield of the average U.S. government money market fund rose from 4.63%
to 4.69% during the six-month period.

[line graph - data below]

Fed Funds Rate Target vs. Three-Month T-Bill Yield
3-month T-Bill Yield Fed Funds Rate Target
4/1/96 5.16% 5.25%
4/2/96 5.16 5.25
4/3/96 5.15 5.25
4/4/96 5.11 5.25
4/5/96 5.13 5.25
4/8/96 5.15 5.25
4/9/96 5.08 5.25
4/10/96 5.08 5.25
4/11/96 5.09 5.25
4/12/96 5.07 5.25
4/15/96 5.00 5.25
4/16/96 4.96 5.25
4/17/96 4.95 5.25
4/18/96 4.99 5.25
4/19/96 5.02 5.25
4/22/96 4.99 5.25
4/23/96 5.10 5.25
4/24/96 5.13 5.25
4/25/96 5.10 5.25
4/26/96 5.12 5.25
4/29/96 5.14 5.25
4/30/96 5.16 5.25
5/1/96 5.11 5.25
5/2/96 5.12 5.25
5/3/96 5.14 5.25
5/6/96 5.12 5.25
5/7/96 5.15 5.25
5/8/96 5.12 5.25
5/9/96 5.13 5.25
5/10/96 5.13 5.25
5/13/96 5.16 5.25
5/14/96 5.14 5.25
5/15/96 5.14 5.25
5/16/96 5.16 5.25
5/17/96 5.16 5.25
5/20/96 5.16 5.25
5/21/96 5.19 5.25
5/22/96 5.19 5.25
5/23/96 5.19 5.25
5/24/96 5.18 5.25
5/27/96 5.18 5.25
5/28/96 5.18 5.25
5/29/96 5.18 5.25
5/30/96 5.19 5.25
5/31/96 5.18 5.25
6/3/96 5.22 5.25
6/4/96 5.23 5.25
6/5/96 5.22 5.25
6/6/96 5.20 5.25
6/7/96 5.26 5.25
6/10/96 5.29 5.25
6/11/96 5.27 5.25
6/12/96 5.26 5.25
6/13/96 5.24 5.25
6/14/96 5.20 5.25
6/17/96 5.18 5.25
6/18/96 5.22 5.25
6/19/96 5.24 5.25
6/20/96 5.27 5.25
6/21/96 5.27 5.25
6/24/96 5.28 5.25
6/25/96 5.25 5.25
6/26/96 5.24 5.25
6/27/96 5.20 5.25
6/28/96 5.17 5.25
7/1/96 5.22 5.25
7/2/96 5.32 5.25
7/3/96 5.23 5.25
7/4/96 5.22 5.25
7/5/96 5.30 5.25
7/8/96 5.30 5.25
7/9/96 5.35 5.25
7/10/96 5.28 5.25
7/11/96 5.26 5.25
7/12/96 5.30 5.25
7/15/96 5.29 5.25
7/16/96 5.26 5.25
7/17/96 5.26 5.25
7/18/96 5.25 5.25
7/19/96 5.29 5.25
7/22/96 5.31 5.25
7/23/96 5.31 5.25
7/24/96 5.31 5.25
7/25/96 5.29 5.25
7/26/96 5.29 5.25
7/29/96 5.36 5.25
7/30/96 5.35 5.25
7/31/96 5.32 5.25
8/1/96 5.26 5.25
8/2/96 5.20 5.25
8/5/96 5.18 5.25
8/6/96 5.19 5.25
8/7/96 5.17 5.25
8/8/96 5.15 5.25
8/9/96 5.15 5.25
8/12/96 5.14 5.25
8/13/96 5.18 5.25
8/14/96 5.17 5.25
8/15/96 5.20 5.25
8/16/96 5.18 5.25
8/19/96 5.19 5.25
8/20/96 5.17 5.25
8/21/96 5.14 5.25
8/22/96 5.13 5.25
8/23/96 5.17 5.25
8/26/96 5.19 5.25
8/27/96 5.19 5.25
8/28/96 5.20 5.25
8/29/96 5.23 5.25
8/30/96 5.29 5.25
9/2/96 5.29 5.25
9/3/96 5.31 5.25
9/4/96 5.32 5.25
9/5/96 5.36 5.25
9/6/96 5.33 5.25
9/9/96 5.28 5.25
9/10/96 5.29 5.25
9/11/96 5.30 5.25
9/12/96 5.28 5.25
9/13/96 5.20 5.25
9/16/96 5.17 5.25
9/17/96 5.32 5.25
9/18/96 5.26 5.25
9/19/96 5.23 5.25
9/20/96 5.29 5.25
9/23/96 5.30 5.25
9/24/96 5.11 5.25
9/25/96 5.06 5.25
9/26/96 5.01 5.25
9/27/96 5.03 5.25
9/30/96 5.04 5.25
Source: Bloomberg Financial Markets

CAPITAL PRESERVATION FUND
YIELD AND TOTAL RETURN SUMMARY
For Periods Ended September 30, 1996

Net Asset 7-Day 7-Day Average Annual Total Returns
Value Current Effective
- --------------------------------------------------------------------------------
(4/1/96-9/30/96) Yield Yield 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------

$1.00 4.73% 4.85% 4.92% 4.41% 3.95% 5.35%

The Fund commenced operations on October 13, 1972.

PLEASE NOTE: Yields and total returns are based on historical Fund performance
and do not guarantee future results. The Fund's yields and total returns will
vary. The U.S. government neither insures nor guarantees investments in the
Fund. The Fund is managed to maintain a stable $1.00 share price, but, as with
all money market funds, there is no assurance that the Fund will be able to do
so.

PERFORMANCE DEFINITIONS

The 7-Day Current Yield is calculated based on the income generated by an
investment in the Fund over a seven-day period and is expressed as an annual
percentage rate. The 7-Day Effective Yield is calculated similarly, although
this figure is slightly higher than the Fund's 7-Day Current Yield because of
the effects of compounding. The 7-Day Effective Yield assumes that income earned
from the Fund's investments is reinvested and generating additional income.

Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 14.

LIPPER PERFORMANCE COMPARISON

Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/96 for the funds in Lipper's "U.S. Treasury
Money Market Funds" category.

1 Year 3 Years 5 Years 10 Years
The Fund: 4.92% 4.41% 3.95% 5.35%
Category Average: 4.82% 4.33% 3.89% 5.34%
The Fund`s Ranking: 25 out of 92 23 out of 73 14 out of 47 6 out of 15

Total returns are based on historical performance and do not guarantee future
results.

CAPITAL PRESERVATION FUND
KEY PORTFOLIO STATISTICS

9/30/96 3/31/96

Portfolio Value: $2,975,728,537 $2,884,311,605
Number of Issues: 19 24
Average Maturity: 46 days 47 days

For definitions of these terms, see page 13.

PORTFOLIO COMPOSITION BY SECURITY TYPE

[pie charts]

9/30/96 3/31/96
Treasury Bills: 53.8% Treasury Bills: 71.3%
Treasury Notes: 42.2% Treasury Notes: 28.7%
STRIPS: 4.0%

For definitions of these security types, see page 12.

PORTFOLIO COMPOSITION BY MATURITY

[pie charts]

9/30/96 3/31/96
1-30 days: 52.6% 1-30 days: 38.1%
31-60 days: 34.6% 31-60 days: 28.2%
61-90 days: 7.5% 61-90 days: 17.3%
91-180 days: 5.3% 91-180 days: 13.3%
181-397 days: 3.1%

The Fund's dollar-weighted average maturity will not exceed 60 days. The Fund
generally maintains an average maturity between 30 and 60 days, with 45 days
considered a "neutral" position.

CAPITAL PRESERVATION FUND
MANAGEMENT DISCUSSION
with Brian Howell, Portfolio Manager

NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 11-13).

Q: How did the Fund perform?

A: The Fund continued to perform above average compared to its peers. For
the six-month period ended September 30, 1996, the Fund's total return
was 2.39%, compared to the 2.32% average total return for the 97 funds
in Lipper's "U.S. Treasury Money Market Funds" category over the same
period. The Fund also outperformed its peer group average over longer
time periods (see the Lipper Performance Comparison on page 3 for
comparisons of the Fund's one-year, three-year, five-year and ten-year
returns).

Q: How was the Fund positioned during the six-month period?

A: The Fund's average maturity* was slightly longer than neutral (45-50
days) in April and May. We shortened the Fund's maturity to around 40
days in June, when strong employment growth and hints of wage pressures
increased the likelihood of an interest rate increase by the Federal
Reserve. But the potential inflation increase never materialized, so we
extended back out to about 50 days toward the end of the period.

Q: Treasury notes* made up nearly half of the Fund's portfolio at the end
of the period, up from about 25% six months before. What's the
attraction?

A: We typically use Treasury notes and STRIPS* to enhance Fund performance
without incurring any additional risk. For much of the period, Treasury
notes were offering yields 10-15 basis points* higher than Treasury
bills with comparable maturities. T-bill yields were depressed by
strong demand from foreign central banks, as well as from stock and
bond investors concerned about a market correction. We took advantage
of these wide spreads to boost the Fund's yield.

Q: Looking ahead, what are your plans for the Fund over the next six
months?

A: We believe that the Fed has dug its heels in and won't raise interest
rates unless it sees a string of strong economic reports. Accordingly,
we plan to keep the Fund's average maturity longer than neutral, in a
range of 45-55 days. As shifting supply and demand factors cause
temporary yield increases, we will look to extend the Fund's average
maturity out to the upper end of this range.

CAPITAL PRESERVATION FUND II
YIELD AND TOTAL RETURN SUMMARY
For Periods Ended September 30, 1996

$1.00 4.59% 4.69% 4.82% 4.28% 3.73% 5.30%

The Fund commenced operations on May 16, 1980.

PERFORMANCE DEFINITIONS

LIPPER PERFORMANCE COMPARISON

1 Year 3 Years 5 Years 10 Years
The Fund: 4.82% 4.28% 3.73% 5.30%
Category Average: 4.82% 4.33% 3.89% 5.34%
The Fund`s Ranking: 45 out of 92 46 out of 73 39 out of 47 8 out of 15

Total returns are based on historical performance and do not guarantee future
results.

CAPITAL PRESERVATION FUND II
MANAGEMENT DISCUSSION
with Denise Tabacco, Associate Portfolio Manager

Q: How did the Fund perform?

A: For the six-month period ended September 30, 1996, the Fund's total
return was 2.33%, compared to the 2.32% average total return for the 97
funds in Lipper's "U.S. Treasury Money Market Funds" category over the
same period (see the Lipper Performance Comparison on page 6 for
additional comparative performance figures).

Q: How was the Fund positioned during the six-month period?

A: There was little change to the Fund's investment strategy. For the most
part, the Fund maintained a one-day average maturity by investing
primarily in overnight repurchase agreements (repos) collateralized by
U.S. Treasury securities.

Q: There was some unusual activity in the repo market in late July and
early August. Can you explain?

A: At specific times during the year, repo rates tend to rise temporarily
in response to increased demand for cash in the repo market. Demand
increases at month-end, quarter-end and year-end, when businesses use
their cash for balance sheet purposes. In addition, bank reserve
settlements occur every other Wednesday--on these days, member banks
typically need cash to meet their reserve requirements.

All of these factors came together on July 31. In addition to month-end
business demands for cash, the 31st was the settlement date for
Treasury auctions of two-year and five-year notes, as well as a
Wednesday bank reserve settlement date. The huge demand for cash caused
the overnight repo rate to surge from 5.33% to 6.35% in a single day.
It took nearly a week before the rate stabilized around 5.25%.

Q: Looking ahead, what are your plans for the Fund in the next six months?

A: We will continue to invest in overnight repos. In general, repo rates
tend to closely track the federal funds rate, the Fed's short-term
interest rate target. We believe the Fed will be on hold for the
remainder of 1996, so we expect fairly steady repo rates over the next
few months.

KEY PORTFOLIO STATISTICS

9/30/96 3/31/96
Portfolio Value: $240,000,000 $244,000,000
Number of Issues: 12 13
Average Maturity: 1 day 3 days

For definitions of these terms, see page 13.

GOVERNMENT AGENCY FUND
YIELD AND TOTAL RETURN SUMMARY
For Periods Ended September 30, 1996

Net Asset 7-Day 7-Day Average Annual Total Returns
Value Current Effective
- --------------------------------------------------------------------------------
(4/1/96-9/30/96) Yield Yield 1 Year 3 Years 5 Years Life of Fund
- --------------------------------------------------------------------------------

$1.00 4.78% 4.89% 5.01% 4.54% 4.05% 4.96%

The Fund commenced operations on December 5, 1989.

PERFORMANCE DEFINITIONS

LIPPER PERFORMANCE COMPARISON

1 Year 3 Years 5 Years Life of Fund+
The Fund: 5.01% 4.54% 4.05% 4.95%
Category Average: 4.84% 4.36% 3.90% 4.64%
The Fund`s Ranking: 29 out of 113 20 out of 92 16 out of 72 4 out of 56

+ from December 31, 1989, through September 30, 1996

Total returns are based on historical performance and do not guarantee future
results.

GOVERNMENT AGENCY FUND
KEY PORTFOLIO STATISTICS

9/30/96 3/31/96

Portfolio Value: $479,110,026 $499,687,813
Number of Issues: 40 49
Average Maturity: 49 days 44 days

For definitions of these terms, see page 13.

PORTFOLIO COMPOSITION BY SECURITY TYPE

[pie charts]

9/30/96
Government Agency Discount Notes: 70.2%
Floating-Rate Agency Notes: 22.7%
Government Agency Notes: 7.1%

3/31/96
Government Agency Discount Notes: 78.6%
Floating-Rate Agency Notes: 13.9%
Government Agency Notes: 6.6%
Treasury Securities: 0.9%

For definitions of these security types, see pages 11-12.

PORTFOLIO COMPOSITION BY MATURITY

[pie charts]

9/30/96 3/31/96
1-30 days: 38.9% 1-30 days: 56.1%
31-60 days: 27.3% 31-60 days: 15.2%
61-90 days: 15.0% 61-90 days: 12.7%
91-180 days: 17.0% 91-180 days: 12.7%
181-397 days: 1.8% 181-397 days: 3.3%

The Fund's dollar-weighted average maturity will not exceed 60 days. The Fund
generally maintains an average maturity between 30 and 60 days, with 45 days
considered a "neutral" position.

GOVERNMENT AGENCY FUND
MANAGEMENT DISCUSSION
with Brian Howell, Portfolio Manager

NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 11-13).

Q: How did the Fund perform?

A: The Fund continued to perform well compared to its peers. For the
six-month period ended September 30, 1996, the Fund's total return was
2.43%, compared to the 2.34% average total return for the 116 funds in
Lipper's "U.S. Government Money Market Funds" category over the same
period. The Fund also outperformed its peer group average over longer
time periods (see the Lipper Performance Comparison on page 8 for
comparisons of the Fund's one-year, three-year, five-year and
life-of-fund returns).

Q: How was the Fund positioned during the six-month period?

A: We kept the Fund's average maturity* shorter than neutral (35-45 days)
for most of the period, primarily because of our expectations for a Fed
interest rate increase. But supply factors also contributed to this
positioning--most of the short-term securities issued by government
agencies tend to have maturities of 30-60 days, and this heavy supply
results in higher yields. By the end of the period, a rate hike by the
Fed became less likely, so we extended the Fund's maturity back out to
a neutral position (around 45 days).

Q: You increased the Fund's holdings of floating-rate agency notes* during
the period. Why?

A: "Floaters" typically have short maturities because of their frequent
interest rate resets--most of the Fund's floaters reset their rates
weekly--and this characteristic was useful when we were keeping the
Fund's maturity relatively short. Floaters also tend to perform best
when the Fed raises short-term interest rates. At one point, we had as
much as 25% of the Fund's portfolio invested in floaters, but we cut
back to about 20% when we extended the Fund's maturity back to neutral.

Q: Looking ahead, what are your plans for the Fund over the next six
months?

A: We believe that the Fed has dug its heels in and won't raise interest
rates unless it sees a string of strong economic reports. Accordingly,
we plan to keep the Fund's average maturity around neutral, in a range
of 45-50 days. As shifting supply and demand factors cause temporary
yield increases, we will look to extend the Fund's average maturity out
to the upper end of this range.

INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS

The Money Market

The "money market" is a highly liquid, multi-trillion-dollar worldwide financial
market that matches supply from corporations, banks and governments that have
short-term cash or borrowing needs with demand from investors who want to buy
short-term, low-risk, interest-bearing instruments.

On the supply side, corporate, financial and fiscal entities sometimes have more
current obligations to meet than cash on hand. They are therefore willing to
sell short-term IOUs to investors in exchange for cash. For example,
corporations issue short-term securities called commercial paper to raise cash
to cover current expenses that are incurred before anticipated revenues.

On the demand side, investors want a place to park their money in the short term
where it can earn interest, retain value and be readily available for other
opportunities or expense payments. Finance officers at corporations, banks,
government offices and securities firms saw how they could satisfy both sides by
issuing certain types of debt securities.

Most money market securities are issued at a discount and pay full value at
maturity (13 months or less). The difference between the purchase value and the
maturity value is the imputed interest.

Common U.S. Government Money Market Securities

Floating-Rate Agency Notes (Floaters)--debt securities issued by U.S. government
agencies with interest rates that change when a designated base rate changes.
The base rate is often the federal funds rate, the 90-day Treasury bill rate or
the London Interbank Offered Rate (LIBOR). Floaters are considered derivatives
because they "derive" their interest rates from their designated base rates.
However, floaters are not "risky" derivatives--their behavior is similar to that
of their designated base rates. The SEC has recognized this similarity and does
not consider floaters to be inappropriate investments for money market funds.

Government Agency Discount Notes--short-term debt securities issued by U.S.
government agencies (such as the Federal Farm Credit Bank and the Federal Home
Loan Bank). Some agency discount notes are backed by the full faith and credit
of the U.S. government, while most are guaranteed only by the issuing agency.
These notes are issued at a discount and achieve full value at maturity
(typically one year or less).

INVESTMENT FUNDAMENTALS
MONEY MARKET INSTRUMENTS
(Continued from the previous page)

Government Agency Notes--intermediate-term debt securities issued by U.S.
government agencies (such as the Federal Farm Credit Bank and the Federal Home
Loan Bank). Some agency notes are backed by the full faith and credit of the
U.S. government, while most are guaranteed only by the issuing agency. These
notes are issued with maturities ranging from three months to 30 years. Benham
Government Agency Fund typically buys agency notes with remaining terms of 180
days or less.

Repurchase Agreements (Repos)--short-term debt agreements in which a fund buys a
security at one price and simultaneously agrees to sell it back to the seller at
a slightly higher price on a specified date (usually within seven days). Capital
Preservation Fund II typically invests in repos backed by U.S. Treasury
securities.

STRIPS--zero-coupon securities (zeros) issued by the U.S. Treasury and backed by
the direct "full faith and credit" pledge of the U.S. government. Unlike
ordinary Treasury securities, which pay interest periodically, zeros pay no
interest. Instead, these securities are issued at a deep discount and then
redeemed for their full face value at maturity. Capital Preservation Fund
typically buys STRIPS with remaining maturities of 180 days or less.

Treasury Bills (T-bills)--short-term debt securities issued by the U.S. Treasury
and backed by the direct "full faith and credit" pledge of the U.S. government.
T-bills are issued with maturities ranging from three months to one year.
Capital Preservation Fund typically buys T-bills with remaining maturities of 90
days or less.

Treasury Notes (T-notes)--intermediate-term debt securities issued by the U.S.
Treasury and backed by the direct "full faith and credit" pledge of the U.S.
government. T-notes are issued with maturities ranging from 2 to 30 years.
Capital Preservation Fund typically buys T-notes with remaining maturities of
180 days or less.

INVESTMENT FUNDAMENTALS
OTHER DEFINITIONS

Investment Terms

Basis Points--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equals one percentage point (or 1%).

Yield Curve--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
Most "normal" yield curves start in the lower left corner of the graph and rise
to the upper right corner, indicating that yields rise as maturities lengthen.
This upward sloping yield curve illustrates a normal risk/return
relationship--more return (yield) for more risk (a longer maturity). Conversely,
a "flat" yield curve (one that shows short-term securities having almost the
same yields as long-term securities) or an "inverted" yield curve (one that
shows short-term securities having higher yields than long-term securities)
provide little or no extra return for taking on more risk.

Portfolio Statistics

Portfolio Value--the amortized cost of a money market fund's investments on a
given date.

Number of Issues--the number of different securities issuances held by a fund on
a given date.

Average Maturity--a weighted average of all maturities in a fund's portfolio
(see also below).

Average Maturity

Average maturity measures the interest rate sensitivity and interest rate
exposure of a money market portfolio. It reflects the average amount of time
that will pass until the securities in the portfolio mature. The longer a
portfolio's average maturity, the more interest rate exposure and interest rate
sensitivity it has. For example, a portfolio with a 90-day average maturity will
take much longer to reinvest its maturing securities than a portfolio with a
30-day average maturity. Portfolios with longer average maturities generally pay
higher yields to compensate for the greater interest rate exposure. To help
ensure the share price stability of money market funds, the SEC mandates that a
money market fund's average maturity cannot exceed 90 days.

Average maturity is also an important strategic tool. Reducing a fund's average
maturity as interest rates rise allows the portfolio manager to more quickly
reinvest matured assets in higher-yielding securities. Conversely, lengthening a
fund's average maturity as interest rates fall allows the portfolio manager to
"lock in" higher yields.

13
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30
and Years Ended March 31 (except as noted)

Sept. 30,
1996 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(Unaudited) 1996 1995 1994 1993+ 1992 1991 1990 1989 1988
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
- -----------------
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 .... .0234 .0521 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608

Less Distributions
Dividends from Net
Investment Income ...... (.0234) (.0521) (.0424) (.0259) (.0134) (.0382) (.0603) (.0750) (.0800) (.0608)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of
Period ................... $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* .............. 2.39% 5.21% 4.31% 2.63% 1.35% 3.88% 6.27% 7.77% 8.27% 6.30%
- ---------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands) ......... $3,016,281 3,077,558 2,883,350 2,786,614 2,943,242 3,045,501 3,375,505 3,098,997 2,736,531 2,187,096
Ratio of Expenses to Average
Daily Net Assets++ ..... .49%** .51% .50% .51% .50%** .51% .52% .56% .57% .59%
Ratio of Net Investment Income to
Average Daily
Net Assets++ ........... 4.68%** 5.07% 4.24% 2.59% 2.68%** 3.82% 6.03% 7.50% 8.00% 6.08%
- ---------------

+ The fiscal year-end for Capital Preservation Fund was changed from September 30 to March 31 beginning with the period ended
March 31, 1993. This column represents a six-month period.
++ The ratio beginning with the year ended March 31, 1996, includes expenses paid through expense offset arrangements. * Total
return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.

See the accompanying notes to financial statements.
</TABLE>

14
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND II, INC.
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30
and Years Ended March 31 (except as noted)

Sept. 30,
1996 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(Unaudited) 1996 1995 1994 1993+ 1992 1991 1990 1989 1988
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 .... .0228 .0515 .0406 .0237 .0120 .0341 .0591 .0764 .0834 .0626

Less Distributions
Dividends from Net
Investment Income ...... (.0228) (.0515) (.0406) (.0237) (.0120) (.0341) (.0591) (.0764) (.0834) (.0626)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value at End of
Period .................... $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* .............. 2.33% 5.15% 4.17% 2.40% 1.21% 3.42% 6.07% 7.91% 8.64% 6.46%
- -------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in thousands) ......... $240,697 245,576 262,440 283,487 313,855 339,729 474,888 617,885 707,716 537,653
Ratio of Expenses to Average Daily
Net Assets++ ........... .74%** .76% .75% .75% .75%** .74% .70% .69% .71% .73%
Ratio of Net Investment Income to
Average Daily
Net Assets++ ........... 4.54%** 5.03% 4.06% 2.37% 2.40%** 3.41% 5.91% 7.64% 8.34% 6.26%
- ---------------

+ The fiscal year-end for Capital Preservation Fund II was changed from September 30 to March 31 beginning with the period ended
March 31, 1993. This column represents a six-month period.
++ The ratio beginning with the year ended March 31, 1996, includes expenses paid through expense offset arrangements. * Total
return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.

See the accompanying notes to financial statements.
</TABLE>
15
<TABLE>
<CAPTION>
BENHAM GOVERNMENT AGENCY FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Six Months Ended September 30
and Years Ended March 31 (except as noted)

Sept. 30,
1996 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
(Unaudited) 1996 1995 1994 1993 1992 1991 1990+
-------- -------- -------- -------- -------- -------- -------- --------
PER-SHARE DATA
- -----------------
<S> <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
Income From Investment Operations
Net Investment Income ................... .0238 .0535 .0435 .0265 .0304 .0517 .0742 .0264

Less Distributions
Dividends from Net Investment Income .... (.0238) (.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 1.00
===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN* ............................. 2.43% 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 thousands) ..........................$482,665 503,328 461,803 561,766 646,006 906,368 1,073,730 61,768
Ratio of Expenses to Average Daily Net
Assets++ ................................ .57%** .51% .50% .50% .50% .30% 0% 0%
Ratio of Net Investment Income to Average
Daily Net Assets++ ...................... 4.75%** 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.
++ The ratio beginning with the year ended March 31, 1996, includes expenses paid through expense offset arrangements. * Total
return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.

See the accompanying notes to financial statements.
</TABLE>
16
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
(Unaudited)

Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investment securities (amortized cost of $2,975,728,537, $240,000,000 and
$479,110,026, respectively) .................................................... $2,975,728,537 240,000,000 479,110,026
Cash ............................................................................. 21,127,384 1,690,309 4,448,767
Interest receivable .............................................................. 30,961,030 37,819 1,698,812
Prepaid expenses and other assets ................................................ 36,353 8,010 5,975
------------- ------------- ------------
Total assets ................................................................... 3,027,853,304 241,736,138 485,263,580
------------- ------------- ------------
LIABILITIES
Payable for fund shares redeemed ................................................. 7,219,379 604,990 1,521,867
Disbursements in excess of demand deposit cash ................................... 2,979,722 288,167 834,157
Dividends payable ................................................................ 20,838 1,281 0
Payable to affiliates (Note 2) ................................................... 1,202,415 143,134 241,378
Accrued expenses and other liabilities ........................................... 149,773 1,081 941
------------- ------------- ------------
Total liabilities .............................................................. 11,572,127 1,038,653 2,598,343
------------- ------------- ------------
NET ASSETS, consisting of capital stock, equivalent to $1.00 per share ............. $3,016,281,177 240,697,485 482,665,237
============= ============= ============
Outstanding shares (Note 3) ........................................................ 3,016,281,177 240,697,485 482,665,237
============= ============= ============
Net asset value, offering and redemption price per share ........................... $1.00 1.00 1.00
===== ==== ====
- ------------------------

See the accompanying notes to financial statements.
</TABLE>
17
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1996
(Unaudited)

Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
------- ------- -------
<S> <C> <C> <C>
Investment income .................................................................. $ 78,858,164 6,412,239 13,034,042
----------- ----------- -----------
Expenses (Note 2)
Investment advisory fees ......................................................... 4,085,072 560,923 682,603
Transfer agency fees ............................................................. 1,266,363 145,503 290,190
Administrative fees .............................................................. 1,464,925 116,610 235,172
Printing and postage ............................................................. 278,534 22,405 51,751
Custodian fees ................................................................... 210,951 30,877 37,392
Auditing and legal fees .......................................................... 43,156 12,085 15,085
Registration and filing fees ..................................................... 36,047 21,192 7,179
Directors' fees and expenses ..................................................... 36,408 8,048 5,999
Other operating expenses ......................................................... 71,805 9,763 25,310
----------- ----------- -----------
Total expenses ................................................................. 7,493,261 927,406 1,350,681
Amount recouped (waived) (Note 2) .................................................. 0 (24,532) 54,042
Custodian earnings credits (Note 4) ................................................ (110,147) (7,963) (17,144)
----------- ----------- -----------
Net expenses ..................................................................... 7,383,114 894,911 1,387,579
----------- ----------- -----------
Net investment income .......................................................... $ 71,475,050 5,517,328 11,646,463
=========== =========== ===========
- ------------------------

See the accompanying notes to financial statements.
</TABLE>
18
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended September 30, 1996 (Unaudited), and the Year Ended March 31, 1996

Capital Capital Benham Government
Preservation Fund Preservation Fund II Agency Fund
------------------ ------------------ ------------------
Sept. 30, March 31, Sept. 30, March 31, Sept. 30, March 31,
1996 1996 1996 1996 1996 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From investment activities:
Net investment income ................... $ 71,475,050 151,847,678 5,517,328 12,712,502 11,646,463 25,588,121
--------------- -------------- ------------ ------------ ------------ ------------
From distributions to shareholders:
Net investment income ................... (71,475,050) (151,847,678) (5,517,328) (12,712,502) (11,646,463) (25,588,121)
--------------- -------------- ------------ ------------ ------------ ------------
From capital share transactions:
Proceeds from sales of shares ........... 1,162,041,326 3,051,788,845 76,587,286 171,364,900 201,154,449 527,427,754
Net asset value of dividends reinvested . 69,020,959 144,805,698 5,361,675 12,161,767 11,371,201 24,618,517
Cost of shares redeemed ................. (1,292,339,605) (3,002,386,181) (86,827,654) (200,390,890) (233,188,696) (510,520,815)
--------------- -------------- ------------ ------------ ------------ ------------
Change in net assets derived from
capital share transactions ............. (61,277,320) 194,208,362 (4,878,693) (16,864,223) (20,663,046) 41,525,456
--------------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets . (61,277,320) 194,208,362 (4,878,693) (16,864,223) (20,663,046) 41,525,456

Net assets:
Beginning of period ..................... 3,077,558,497 2,883,350,135 245,576,178 262,440,401 503,328,283 461,802,827
--------------- -------------- ------------ ------------ ------------ ------------
End of period ........................... $ 3,016,281,177 3,077,558,497 240,697,485 245,576,178 482,665,237 503,328,283
=============== ============== ============ ============ ============ ============

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

See the accompanying notes to financial statements.
</TABLE>
19

NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Capital Preservation Fund, Inc. (CPF), Capital Preservation Fund II, Inc. (CPF
II) and Benham Government Agency Fund (BGAF) (the Funds) are open-end,
diversified management investment companies registered under the Investment
Company Act of 1940. BGAF is one of the six funds composing Benham Government
Income Trust (BGIT). CPF invests exclusively in short-term U.S. Treasury
securities. CPF II invests primarily in repurchase agreements collateralized by
U.S. government securities. BGAF invests exclusively in obligations of the U.S.
government and its agencies and instrumentalities. The following significant
accounting policies are in accordance with accounting policies generally
accepted in the investment company industry.

Security Valuations--The portfolio securities are valued at amortized cost,
which approximates current market value.

Security Transactions--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.

Investment Income--Interest income is recorded on the accrual basis and includes
amortization of premiums and discounts. Premiums and discounts are amortized
daily on a straight-line basis.

Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held on the Fund's behalf by its custodian bank. Repurchase
agreements are collateralized by U.S. government securities whose market value
plus accrued interest exceed the value of the repurchase agreement.

Forward Commitments--Periodically, CPF and BGAF enter into purchase or sale
transactions on a forward commitment basis. In these transactions, CPF and BGAF
sell a security and at the same time make a commitment to purchase the same
security at a future date and specified price. Conversely, these Funds may
purchase a security and at the same time make a commitment to sell the same
security at a future date at a specified price. These types of transactions are
executed simultaneously in what are known as forward commitment or "roll"
transactions. The Funds take possession of any security they purchase in these
transactions.

Income Tax Status--It is the policy of the Funds to distribute all net
investment income and net realized capital gains to shareholders and to
otherwise qualify as a regulated investment company under the provisions of the
Internal Revenue Code. Accordingly, no provision has been made for federal or
state taxes.

Distributions to Shareholders--The Fund's dividends are declared and credited
daily and distributed monthly. The Funds do not expect to realize any long-term
capital gains and, accordingly, do not expect to pay any capital gains
distributions.

The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes due to differences in the recognition of income and
expense items for financial statement and tax purposes.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.

(2) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Benham Management Corporation (BMC) is a wholly owned subsidiary of Twentieth
Century Companies, Inc. (TCC). CPF and CPF II pay BMC a monthly investment
advisory fee, which is calculated by applying the Fund's average daily net
assets to the following annualized fee schedule. BGAF pays BMC a monthly
advisory fee based on its pro rata share of the dollar amount derived from
applying BGIT's average daily net assets to the following annualized fee
schedule.

.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next $1 billion
.24% of the next $1 billion
.23% of the next $1 billion
.22% of the next $1 billion
.21% of the next $1 billion
.20% of the next $1 billion
.19% of average daily net assets over $6.5 billion

BMC provides the Funds with all investment advice. Twentieth Century Services,
Inc. pays all compensation of Fund officers and directors who are officers or
directors of TCC or any of its subsidiaries. In addition, promotion and
distribution expenses are paid by BMC.

CPF, CPF II and BGIT have Administrative Services and Transfer Agency Agreements
with Twentieth Century Services, Inc. (TCS), a wholly owned subsidiary of TCC.
Under the agreement, TCS provides substantially all administrative and transfer
agency services necessary to operate each Fund. Fees for these services are
based on transaction volume, number of accounts and average net assets of all
funds in The Benham Group. The agreement was formerly with Benham Financial
Services, Inc.

The Funds have an additional agreement with BMC pursuant to which BMC
established a contractual expense guarantee that limits each Fund's expenses
(excluding expenses such as brokerage commissions, taxes, interest, custodian
earnings credits, and extraordinary expenses) to .53% for CPF, .73% for CPF II,
and .60% for BGAF of average daily net assets. The agreement provides that BMC
may recover amounts (representing expenses in excess of the Fund's expense
guarantee rate) absorbed during the preceding 11 months if, and to the extent
that, for any given month, the Fund's expenses are less than the expense
guarantee rate in effect at that time. The expense guarantee rate is subject to
renewal in June 1997.

The payables to affiliates as of September 30, 1996, based on the above
agreements, were as follows:
Capital Capital Benham
Preservation Preservation Government
Fund Fund II Agency Fund
------------- ------------- -------------

Investment Advisor ............ $ 670,492 88,387 138,845
Administrative Services ....... 240,442 19,125 38,186
Transfer Agent ................ 291,481 35,622 64,347
--------- ------- -------
$ 1,202,415 143,134 241,378
========= ======= =======

As of September 30, 1996, certain other funds managed by BMC (the variable-rate
Funds) owned shares of CPF, with a total value of $7,616,444. The terms of such
transactions were identical to those of nonrelated entities except that, to
avoid duplicative investment advisory and administrative fees, the variable-rate
funds do not pay BMC or TCS investment advisory and administrative fees for
assets invested in shares of CPF.

CPF, CPF II and BGIT have distribution agreements with Twentieth Century
Securities, Inc., which is responsible for promoting sales and distributing the
Funds' shares. Twentieth Century Securities, Inc. is a wholly owned subsidiary
of TCC. The distribution agreements were formerly with Benham Distributors, Inc.

(3) CAPITAL STOCK

CPF and CPF II are each authorized to issue ten billion (10,000,000,000) shares
of common stock, which may be issued in two or more series. Of the ten billion
shares, five billion each (5,000,000,000) are designated "Series A Common
Stock." The remaining five billion shares may be designated and classified as
additional series from time to time at the discretion of the respective boards
of directors. BGAF is authorized to issue an unlimited number of shares of
beneficial interest.

(4) EXPENSE OFFSET ARRANGEMENTS

Each Fund's Statement of Operations reflects custodian earnings credits. These
amounts are used to offset the custody fees payable by the Funds to the
custodian bank. The credits are earned when the Fund maintains a balance of
uninvested cash at the custodian bank. Beginning with the year ending March 31,
1996, the ratios of expenses to average daily net assets shown in the Financial
Highlights are calculated as if these credits had not been earned.

23
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND, INC.
Schedule of Investment Securities
September 30, 1996
(Unaudited)

Rate** Maturity Face Amount Value Percent
------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
U.S. Treasury bills ...................... 4.87% 10/03/96 $ 50,000,000 49,986,667 1.68%
U.S. Treasury bills ...................... 4.98 10/10/96 150,000,000 149,815,875 5.04
U.S. Treasury bills ...................... 5.09 10/17/96 250,000,000 249,443,556 8.40
U.S. Treasury bills ...................... 5.22 10/31/96 1,500,000 1,493,588 .05
U.S. Treasury bills ...................... 5.06 11/07/96 275,000,000 273,597,854 9.18
U.S. Treasury bills ...................... 5.03 11/14/96 200,000,000 198,794,400 6.67
U.S. Treasury bills ...................... 5.10 11/21/96 150,000,000 148,937,854 5.01
U.S. Treasury bills ...................... 5.18 11/29/96 185,000,000 183,463,296 6.17
U.S. Treasury bills ...................... 5.26 12/05/96 150,000,000 148,607,915 5.00
U.S. Treasury bills ...................... 5.23 12/12/96 125,000,000 123,722,500 4.15
U.S. Treasury bills ...................... 5.29 12/19/96 75,000,000 74,150,750 2.49
-------------- ------------- ------
Total (cost $1,602,014,255) ......................................... 1,611,500,000 1,602,014,255 53.84
-------------- ------------- ------
U.S. Treasury notes ...................... 8.000 10/15/96 50,000,000 50,053,169 1.68
U.S. Treasury notes ...................... 6.875 10/31/96 427,950,000 428,473,528 14.40
U.S. Treasury notes ...................... 4.375 11/15/96 175,000,000 174,793,731 5.87
U.S. Treasury notes ...................... 7.250 11/15/96 275,000,000 275,625,254 9.26
U.S. Treasury notes ...................... 7.250 11/30/96 44,000,000 44,126,562 1.48
U.S. Treasury notes ...................... 7.500 12/31/96 280,000,000 281,412,853 9.46
-------------- ------------- ------
Total (cost $1,254,485,097) ......................................... 1,251,950,000 1,254,485,097 42.15
-------------- ------------- ------
STRIPS-- PRINCIPAL ....................... 5.25 11/15/96 50,000,000 49,676,563 1.67
STRIPS-- COUPON .......................... 5.18 11/15/96 70,000,000 69,552,622 2.34
-------------- ------------- ------
Total (cost $119,229,185) ........................................... 120,000,000 119,229,185 4.01
-------------- ------------- ------
TOTAL INVESTMENT SECURITIES
(cost $2,975,728,537*) ................................................ $2,983,450,000 2,975,728,537 100.00%
============== ============= ======

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

* Cost for financial reporting and federal income tax purposes is the same.
** The rates for U.S. Treasury bills and STRIPS are the yields to maturity as of September 30, 1996. The rate for U.S. Treasury
notes is the stated coupon rate.
See the accompanying notes to financial statements.
</TABLE>
24
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND II, INC.
Schedule of Investment Securities
September 30, 1996
(Unaudited)

Repurchase Agreements:

Issuer Collateral Rate Maturity+ Value Percent
----------------- --------------------------------------------- ---- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Bank of America Securities ... Due in the amount of $12,001,867 (collateralized by $12,250,000 5.60% 10/01/96 $12,000,000 5.0%
in U.S. Treasury notes, 5.750%, due 09/30/97)

Barclay's De Zoete ........... Due in the amount of $12,001,867 (collateralized by $9,569,000 5.60 10/01/96 12,000,000 5.0
in U.S. Treasury bonds, 10.750%, due 08/15/05)

BT Securities ................ Due in the amount of $12,001,867 (collateralized by $11,950,000 5.60 10/01/96 12,000,000 5.0
in U.S. Treasury notes, 7.250%, due 02/15/98)

Daiwa Securities ............. Due in the amount of $60,009,550 (collateralized by $50,000,000 5.73 10/01/96 60,000,000 25.0
in U.S. Treasury bonds, 8.750%, due 05/15/17; $244,000
in U.S. Treasury bonds, 8.125%, due 08/15/19; and $175,000 in U.S.
Treasury bonds, 8.875%, due 08/15/17)

First Boston ................. Due in the amount of $12,001,833 (collateralized by $12,255,000 5.50 10/01/96 12,000,000 5.0
in U.S. Treasury notes, 6.000%, due 09/30/98)

Hong Kong and Shanghai ....... Due in the amount of $12,001,883 (collateralized by $12,100,000 5.65 10/01/96 12,000,000 5.0
U.S. Treasury notes, 5.625%, due 06/30/97)

Goldman Sachs Company ........ Due in the amount of $12,001,867 (collateralized by $11,815,000 5.60 10/01/96 12,000,000 5.0
in U.S. Treasury notes, 8.000%, due 10/15/96)

JP Morgan Securities, Inc. ... Due in the amount of $12,001,867 (collateralized by $12,000,000 5.60 10/01/96 12,000,000 5.0
in U.S. Treasury bonds, 7.125%, due 02/15/23 and $40,000 in U.S.
Treasury bonds, 7.625% due 11/15/22)

Schedule of Investment Securities--Capital Preservation Fund II, Inc. (Continued)
===================================================================================================================================

Issuer Collateral Rate Maturity+ Value Percent
- ----------------- --------------------------------------------- ---- ----- ------- -------
Nikko Securities ............. Due in the amount of $12,001,900 (collateralized by $11,180,000 5.70% 10/01/96 $12,000,000 5.0%
in U.S. Treasury bonds, 7.625%, due 11/15/22)

Sanwa Securities ............. Due in the amount of $12,001,883 (collateralized by $12,274,000 5.65 10/01/96 12,000,000 5.0
in U.S. Treasury notes, 6.375%, due 03/31/01)

Swiss Bank Corp. ............. Due in the amount of $12,001,900 (collateralized by $9,842,000 5.70 10/01/96 12,000,000 5.0
in U.S. Treasury bonds, 9.250%, due 02/15/16)

Union Bank of Switzerland .... Due in the amount of $60,009,533 (collateralized by $50,150,000 5.72 10/01/96 60,000,000 25.0
in U.S. Treasury bonds, 8.875%, due 08/15/17)
------------ ------

TOTAL INVESTMENT SECURITIES (cost $240,000,000*) .............................................................. $240,000,000 100.00%
============ ======
- ------------------------

+ All repurchase agreements were entered into on September 30, 1996.
* Cost for financial reporting and federal income tax purposes is the same.

See the accompanying notes to financial statements.
</TABLE>
26
<TABLE>
<CAPTION>
BENHAM GOVERNMENT AGENCY FUND
Schedule of Investment Securities
September 30, 1996
(Unaudited)

Face
Rate** Maturity Amount Value Percent
----- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Discount Notes
Federal Farm Credit Bank ......................... 5.25% 10/09/96 $ 10,000,000 9,988,489 2.08%
Federal Farm Credit Bank ......................... 5.42 10/15/96 7,000,000 6,985,436 1.46
Federal Farm Credit Bank ......................... 5.35 10/17/96 10,000,000 9,976,534 2.08
Federal Farm Credit Bank ......................... 5.41 10/21/96 4,000,000 3,988,133 0.83
Federal Home Loan Bank ........................... 5.41 10/15/96 13,425,000 13,397,120 2.80
Federal Home Loan Bank ........................... 5.31 10/28/96 8,000,000 7,968,560 1.66
Federal Home Loan Bank ........................... 5.30 11/05/96 10,000,000 9,949,152 2.08
Federal Home Loan Bank ........................... 5.36 11/13/96 6,000,000 5,962,088 1.24
Federal Home Loan Bank ........................... 5.27 11/21/96 33,000,000 32,756,900 6.84
Federal Home Loan Bank ........................... 5.29 12/03/96 24,500,000 24,276,193 5.07
Federal Home Loan Bank ........................... 5.44 12/04/96 6,000,000 5,942,720 1.24
Federal Home Loan Bank ........................... 5.44 12/16/96 6,000,000 5,932,043 1.24
Federal Home Loan Bank ........................... 5.27 12/31/96 10,000,000 9,868,555 2.06
Federal Home Loan Bank ........................... 5.40 01/31/97 6,000,000 5,891,623 1.23
Federal Home Loan Bank ........................... 5.29 02/10/97 1,000,000 980,860 0.20
Federal Home Loan Bank ........................... 5.32 02/11/97 10,000,000 9,806,226 2.05
Federal Home Loan Bank ........................... 5.29 02/18/97 5,000,000 4,898,500 1.02
Federal Home Loan Bank ........................... 5.58 03/05/97 5,000,000 4,881,597 1.02
Student Loan Marketing Association ............... 5.20 10/01/96 13,000,000 13,000,000 2.71
Student Loan Marketing Association ............... 5.42 12/18/96 42,290,000 41,800,291 8.73
Student Loan Marketing Association ............... 5.26 12/31/96 44,000,000 43,423,363 9.07
Tennessee Valley Authority ....................... 5.27 10/10/96 10,000,000 9,987,000 2.08
Tennessee Valley Authority ....................... 5.37 10/22/96 10,000,000 9,969,130 2.08
Tennessee Valley Authority ....................... 5.27 11/01/96 25,000,000 24,888,056 5.20
Tennessee Valley Authority ....................... 5.41 11/06/96 20,000,000 19,893,320 4.15
----------- ----------- -----
Total (cost $336,411,889) ....................................................... 339,215,000 336,411,889 70.22
----------- ----------- -----
</TABLE>
27
<TABLE>
<CAPTION>
Schedule of Investment Securities--Benham Government Agency Fund (Continued)
====================================================================================================================================

Face
Rate** Maturity+ Amount Value Percent
----- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Notes
Federal Farm Credit Bank .......................... 5.530% 10/01/96 $8,000,000 8,000,000 1.67%
Federal Farm Credit Bank .......................... 5.600 11/01/96 5,000,000 4,999,509 1.04
Federal Farm Credit Bank .......................... 5.560 01/02/97 4,695,000 4,695,000 .98
Federal Farm Credit Bank .......................... 5.520 01/02/97 4,000,000 4,000,000 .83
Federal Home Loan Bank ............................ 7.100 10/25/96 2,500,000 2,502,678 .52
Federal Home Loan Bank ............................ 5.645 05/15/97 9,525,000 9,524,364 2.00
---------- ---------- -----
Total (cost $33,721,551) ........................................................ 33,720,000 33,721,551 7.04
---------- ---------- -----

U.S. Government Agency Floating-Rate Notes***
Student Loan Marketing Association,
resets weekly off the 3-Month T-Bill rate
plus .12% with no caps, final maturity 10/10/96 ..... 5.44 10/01/96 5,000,000 4,999,892 1.04
Student Loan Marketing Association,
resets weekly off the 3-Month T-Bill rate
plus .40% with no caps, final maturity 11/01/96 ..... 5.72 10/01/96 10,000,000 10,001,676 2.09
Student Loan Marketing Association,
resets weekly off the 3-Month T-Bill rate
plus .09% with no caps, final maturity 03/13/97 ..... 5.41 10/01/96 5,000,000 5,000,000 1.04
Federal Farm Credit Bank, resets weekly off the
6-Month T-Bill rate plus .05% with no caps,
final maturity 06/13/97 ............................. 5.57 10/01/96 19,000,000 19,000,000 3.96
Federal Farm Credit Bank, resets monthly off the
3-Month T-Bill rate plus .22% with no caps,
final maturity 07/01/97 ............................. 5.43 10/01/96 10,000,000 9,999,275 2.09
Federal Farm Credit Bank, resets weekly off the
6-Month T-Bill rate plus .05% with no caps,
final maturity 06/19/97 ............................. 5.57 10/01/96 10,000,000 10,000,000 2.09
Federal Farm Credit Bank, resets monthly off the
1-Month LIBOR minus .20% with no caps,
final maturity 03/17/97 ............................. 5.29 10/17/96 25,000,000 24,986,597 5.21
Federal Home Loan Bank, resets monthly off the
1-Month LIBOR minus .16% with no caps, final
maturity 04/04/97 ................................... 5.28 10/04/96 15,000,000 14,992,925 3.13
Federal Home Loan Bank, resets monthly off the
1-Month LIBOR minus .16% with no caps, final
maturity 03/27/97 ................................... 5.29 10/27/96 10,000,000 9,996,221 2.09
----------- ---------- ------
Total (cost $108,976,586) ....................................................... 109,000,000 108,976,586 22.74
----------- ---------- ------
TOTAL INVESTMENT SECURITIES (cost $479,110,026*) .................................... $481,935,000 479,110,026 100.00%
=========== =========== ======
- ------------------------------------------------------------------------------------------------------------------------------------

* Cost for financial reporting and federal income tax purposes is the same.
** The rates for U.S. government agency discount notes are the yield to maturity as of September 30, 1996. The rates for U.S.
government agency notes and U.S. Treasury notes are the stated coupon rates. The rates for the floating-rate notes are the reset
rates as of September 30, 1996.
*** These floating-rate notes do not have caps. A cap is a predetermined rate that a fixed-income security's coupon will never
exceed, regardless of where the coupon formula resets. A cap limits the investor's coupon payments, regardless of how interest
rates rise. In volatile interest rate environments, caps can cause and amplify price instability for fixed-income securities.
Therefore, it has always been the policy of the Fund not to purchase floating-rate notes with caps.

+ The maturity for U.S. government agency floating-rate notes is the next interest reset date.

See the accompanying notes to financial statements.
</TABLE>
28

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

OFFICERS

James M. Benham
Chairman of the Board

Maryanne Roepke
Treasurer and Chief Financial Officer

Douglas A. Paul
Vice President, Secretary
and General Counsel

Ann N. McCoid
Controller

TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP

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

P.O. Box 419200 * Kansas City, Missouri 64141-6200

Person-to-person assistance:
1-800-345-2021 or 816-531-5575

Internet: http://www.twentieth-century.com

For more information on risks, management fees and
expenses, call 1-800-345-2021 for a free prospectus. Read the
prospectus carefully before investing or sending money.

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