SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
File No. 2-67189:
Pre-Effective Amendment No.____
Post-Effective Amendment No._34_ X
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
File No. 811-3036:
Amendment No._34_
CAPITAL PRESERVATION FUND II, INC.
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 5/14/80)
It is proposed that this filing become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on September 3, 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
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
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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 II, INC.
1933 Act Post-Effective Amendment No. 34
1940 Act Amendment No. 34
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance
4 Investment Management, Further Information About the Funds, Investment
Objectives of the Funds, Information About Investment Policies of the
Funds, Risk Factors and Investment Techniques, Other Investment
Practices
5 Investment Management
5A Not Applicable
6 Further Information About the Funds, How to Redeem Shares, Cover Page,
Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Administrative and Transfer Agent
Services, Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
<PAGE>
BENHAM
U.S. Treasury &
Government Funds
Prospectus
SEPTEMBER 3,
1996
BENHAM GOVERNMENT INCOME TRUST
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
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The BENHAM CAPITAL PRESERVATION FUND, BENHAM 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 and BENHAM GNMA INCOME FUND (the
"Funds") constitute the Benham U.S. Treasury & Government Funds, part of the
Twentieth Century family of funds, a family that includes 66 no-load mutual
funds covering a variety of investment opportunities. Eight of the funds are
described in this Prospectus. Their investment objectives are listed on pages 2
and 3 of this Prospectus. The other funds are described in separate
prospectuses.
NO-LOAD MUTUAL FUNDS
Twentieth Century offers retail investors a full line of no-load funds,
investments that have no sales charges or commissions. The Funds offered by this
Prospectus have no 12b-1 plan or other deferred sales charges.
INVESTMENTS IN THE FUNDS ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER AGENCY. THERE IS NO ASSURANCE THAT THE MONEY MARKET
FUNDS WILL BE ABLE TO MAINTAIN A $1.00 SHARE PRICE.
This Prospectus gives you information about the Funds that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated September 3, 1996 and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419200
Kansas City, MO 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: http://www.twentieth-century.com
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION OR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
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MONEY MARKET FUNDS
BENHAM CAPITAL
PRESERVATION FUND
(formerly known as Capital Preservation Fund) is a money market fund which
seeks 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. The Fund intends to pursue its
investment objectives by investing exclusively in short-term U.S. Treasury
securities guaranteed by the direct full faith and credit pledge of the U.S.
government and maintaining a dollar-weighted average portfolio maturity of
not more than 60 days.
BENHAM CAPITAL
PRESERVATION FUND II
(formerly known as Capital Preservation Fund II) is a money market fund which
seeks 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. The Fund intends to pursue its
investment objectives by investing 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.
BENHAM GOVERNMENT AGENCY FUND
is a money market fund which 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.
AN INVESTMENT IN THE MONEY MARKET FUNDS LISTED ABOVE IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER
SHARE.
THE MINIMUM INITIAL INVESTMENT FOR ALL OF THE ABOVE FUNDS IS $2,500 ($1,000
FOR IRA ACCOUNTS). SEE "HOW TO OPEN AN ACCOUNT," PAGE 22.
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT
OBJECTIVES.
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NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER
PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUNDS, AND YOU SHOULD NOT
RELY ON ANY OTHER INFORMATION OR REPRESENTATION.
2
INVESTMENT OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
U.S. TREASURY AND AGENCY FUNDS
BENHAM SHORT-TERM TREASURY
AND AGENCY FUND
seeks to earn and distribute the highest level of current income exempt from
state income taxes as is consistent with preservation of capital. The Fund
intends to pursue its investment objectives by investing exclusively in
securities issued or guaranteed by the U.S. Treasury and agencies or
instrumentalities of the U.S. government and maintaining a weighted average
portfolio maturity ranging from 13 months to 3 years.
BENHAM 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. The Fund intends to pursue its investment objectives
by investing primarily in U.S. Treasury notes, which carry the direct full
faith and credit pledge of the U.S. government and maintaining a weighted
average portfolio maturity which ranges from 13 months to 10 years.
BENHAM LONG-TERM TREASURY
AND AGENCY FUND
seeks to provide a consistent and high level of current income exempt from
state taxes. The Fund intends to pursue its investment objective by investing
exclusively in securities issued or guaranteed by the U.S. Treasury and
agencies or instrumentalities of the U.S. government and maintaining a
weighted average portfolio maturity ranging from 20 to 30 years.
MORTGAGE SECURITIES FUNDS
BENHAM ADJUSTABLE RATE
GOVERNMENT SECURITIES FUND
seeks to provide investors with a high level of current income, consistent
with stability of principal. The Fund intends to pursue its investment
objective by investing 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").
BENHAM GNMA INCOME 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.
THE MINIMUM INITIAL INVESTMENT FOR ALL OF THE ABOVE FUNDS IS $2,500 ($1,000
FOR IRA ACCOUNTS). SEE "HOW TO OPEN AN ACCOUNT," PAGE 22.
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT
OBJECTIVES.
3
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Transaction and Operating Expense Table...........5
Financial Highlights..............................6
INFORMATION REGARDING THE FUNDS
Investment Policies of the Funds...................14
The Money Market Funds..........................14
Benham Capital Preservation Fund..............14
Benham Capital Preservation Fund II...........14
Benham Government Agency Fund.................15
The U.S. Treasury & Agency Funds................15
Benham Short-Term Treasury and
Agency Fund...............................15
Benham Treasury Note Fund.....................15
Benham Long-Term Treasury and
Agency Fund...............................16
The Mortgage Securities Funds...................16
Benham ARM Fund...............................16
Benham GNMA Income Fund.......................17
Risk Factors and Investment Techniques.............17
U.S. Government Securities......................17
Mortgage-Backed Securities......................18
Repurchase Agreements...........................19
Other Investment Practices,
Their Characteristics and Risks.................20
Portfolio Turnover..............................20
When-Issued and Forward Commitment
Agreements....................................20
Cash Management.................................20
Other Techniques................................20
Performance Advertising............................20
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
How to Open an Account.............................22
By Mail.........................................22
By Wire.........................................22
By Exchange.....................................22
In Person.......................................23
Subsequent Investments.............................23
By Mail.........................................23
By Telephone....................................23
By Wire.........................................23
In Person.......................................23
Automatic Investment Plan..........................23
How to Exchange from
One Account to Another..........................23
By Mail.........................................24
By Telephone....................................24
How to Redeem Shares...............................24
By Mail.........................................24
By Telephone....................................24
By Check-A-Month................................24
Other Automatic Redemptions.....................24
Redemption Proceeds................................24
By Check........................................24
By Wire and ACH.................................24
Redemption of Shares in
Low-Balance Accounts............................25
Signature Guarantee................................25
Special Investor Services..........................25
Automated Information Line......................25
CheckWriting....................................25
Open Order Service..............................26
Tax-Qualified Retirement Plans..................26
Important Policies Regarding Your
Investments.....................................26
Reports to Shareholders............................27
Employer-Sponsored Retirement Plans and
Institutional Accounts..........................28
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price........................................29
When Share Price is Determined..................29
How Share Price is Determined...................29
Where to Find Information About Share Price.....29
Distributions......................................30
Taxes..............................................30
Tax-Deferred Accounts...........................30
Taxable Accounts................................30
Management.........................................31
Investment Management...........................31
Code of Ethics..................................33
Transfer and Administrative Services............33
Distribution of Fund Shares.....................33
Expenses........................................34
Further Information About The Funds................34
4
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Benham
Benham Benham Benham Benham Adjustable Benham
Capital Capital Benham Short-Term Benham Long-Term Rate Gov't. GNMA
Preservation Preservation Government Treasury and Treasury Treasury and Securities Income
SHAREHOLDER Fund Fund II Agency Fund Agency Fund Note Fund Agency Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRANSACTION EXPENSES:
Maximum Sales Load Imposed
on Purchases none none none none none none none none
Maximum Sales Load Imposed
on Reinvested Dividends none none none none none none none none
Deferred Sales Load none none none none none none none none
Redemption Fee(1) none none none none none none none none
Exchange Fee none none none none none none none none
ANNUAL FUND
OPERATING EXPENSES:(2)
(as a percentage of net assets)
Management Fees
(net of expense limitation) .27% .43% .22% .21% .28% .17% .29% .28%
12b-1 Fees none none none none none none none none
Other Expenses .24% .30% .29% .39% .25% .43% .31% .30%
Total Fund Operating Expenses .51% .73% .51% .60% .53% .60% .60% .58%
Example: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period:
1 year $ 5 $ 7 $ 5 $ 6 $ 5 $ 6 $ 6 $ 6
3 years 16 23 16 19 17 19 19 19
5 years 29 41 29 33 30 33 33 32
10 years 64 91 64 75 66 75 75 73
</TABLE>
(1)Redemption proceeds sent by wire are subject to a $10 processing fee.
(2)Benham Management Corporation (the "Manager") has agreed to limit each Fund's
total operating expenses to specified percentages of each Fund's average
daily net assets. The agreement provides that the Manager may recover amounts
absorbed on behalf of the Fund during the preceding 11 months if, and to the
extent that, for any given month, Fund expenses were less than the expense
limit in effect at that time. The current expense limits for the Funds are as
follows: Benham Capital Preservation Fund, .53%; Benham Capital Preservation
Fund II, .73%; and .60% for the remaining Benham U.S. Government & Treasury
Funds. Amounts which are paid by unaffiliated third parties do not apply to
these expense limitations. These expense limitations are subject to annual
renewal in June. If the expense limitations were not in effect, the
Management Fee, Other Expenses and Total Fund Operating Expenses for the
following Funds would be as follows, respectively: Benham Capital
Preservation Fund II, .46%, .30% and .76%; Benham Government Agency Fund,
.27%, .29% and .56%; Benham Short-Term Treasury and Agency Fund, .27%, .39%
and .66%; and Benham Long-Term Treasury and Agency Fund, .27%, .43% and .70%.
Each Fund pays the Manager management fees equal to an annualized percentage
of each Fund's average daily net assets. Other expenses include administrative
and transfer agent fees paid to Twentieth Century Services, Inc.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Funds. The example set forth
above assumes reinvestment of all dividends and distributions and uses a 5%
annual rate of return as required by SEC regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BENHAM CAPITAL PRESERVATION FUND
The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors. Their report on these
Financial Highlights appears in each Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information. The
annual report contains additional performance information and will be made
available upon request and without charge.
For a Share Outstanding Throughout the 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.
++The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
6
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM CAPITAL PRESERVATION FUND II
For a Share Outstanding Throughout the 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 .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.
++The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
7
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM GOVERNMENT AGENCY FUND
For a Share Outstanding Throughout the 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.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
8
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM SHORT-TERM TREASURY AND AGENCY FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
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.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
</TABLE>
9
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM TREASURY NOTE FUND
For a Share Outstanding Throughout the 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 Realized
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.
+ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
</TABLE>
10
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM LONG-TERM TREASURY AND AGENCY FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
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.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized
</TABLE>
11
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
For a Share Outstanding Throughout the 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++ 5.70% 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.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
</TABLE>
12
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM GNMA INCOME FUND
For a Share Outstanding Throughout the 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.. $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
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.
+ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
</TABLE>
13
INFORMATION REGARDING THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
OF THE FUNDS
The Funds have adopted certain investment restrictions that are set
forth in the Statement of Additional Information. Those restrictions, as well
as the investment objectives of the Funds identified on pages 2 and 3 of this
Prospectus and any other investment policies which are designated as
"fundamental" in this Prospectus or in the Statement of Additional
Information, cannot be changed without shareholder approval. The Funds have
implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are
not designated as fundamental policies and may be changed without shareholder
approval.
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 page 30
for more information on tax treatment of the Funds' distributions.
The descriptions that follow are designed to help you determine whether
a Fund fits your investment objectives. You may want to pursue more than one
objective by investing in other funds offered offered by Twentieth Century.
For an explanation of the securities ratings referred to in the
following discussion, see "Other Information" in the Statement of Additional
Information.
THE MONEY MARKET FUNDS
Each of the Money Market Funds seeks to maintain a $1.00 share price,
although there is no guarantee they will be able to do so. Shares of the
Money Market Funds are neither insured nor guaranteed by the U.S. government.
BENHAM CAPITAL PRESERVATION FUND ("CPF")
CPF seeks maximum safety and liquidity. Its secondary objective is to seek
to pay shareholders the highest rate of return on their investment in the CPF
consistent with safety and liquidity. CPF pursues its investment objectives
by investing exclusively in short-term U.S. Treasury securities guaranteed by
the direct full faith and credit pledge of the U.S. government. The CPF's
dollar-weighted average portfolio maturity will not exceed 60 days.
While the risks associated with investing in short-term U.S. Treasury
securities are very low, an investment in CPF is not risk-free.
BENHAM CAPITAL PRESERVATION FUND II ("CPF II")
CPF II seeks 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. CPF II pursues its
investment objectives by investing 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.
CPF II 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 19 for a discussion of the market and
credit risks associated with investing in repurchase agreements.
14
BENHAM GOVERNMENT AGENCY FUND
(THE "AGENCY FUND")
The 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. 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.
The U.S. government provides varying levels of financial support to its
agencies and instrumentalities.
THE U.S. TREASURY & 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, investors are encouraged to
evaluate Fund performance on the basis of total return.
BENHAM SHORT-TERM TREASURY AND AGENCY FUND (THE "SHORT-TERM FUND")
The 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. The Short-Term Fund pursues this objective by
investing exclusively in securities issued or guaranteed by the U.S. Treasury
and agencies or instrumentalities of the U.S.
government.
Within this framework, the Short-Term 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 Short-Term Fund's portfolio may consist of any
combination of these securities consistent with investment strategies
employed by the Manager.
The Short-Term 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
(THE "TREASURY NOTE FUND")
The 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. The Treasury Note Fund
pursues this objective by investing primarily in U.S. Treasury notes, which
carry the direct full faith and credit pledge of the U.S. government. The
Treasury Note 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 Treasury Note Fund's weighted
average portfolio maturity ranges from 13 months to 10 years, under normal
market conditions.
The Manager seeks a current yield for the Treasury Note Fund higher than
that of the Short-Term Fund, with correspondingly greater share price
volatility.
15
BENHAM LONG-TERM TREASURY AND AGENCY FUND (THE "LONG-TERM FUND")
The Long-Term Fund seeks to provide a consistent and high level of
current income exempt from state taxes. The Long-Term Fund pursues this
objective by investing exclusively in securities issued or guaranteed by the
U.S. Treasury and agencies or instrumentalities of the U.S. government. The
Long-Term Fund's portfolio may consist of any combination of these securities
consistent with investment strategies employed by the Manager. 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.
By maintaining an average portfolio maturity of 20 to 30 years, the
Long-Term Fund offers investors the potential to earn higher current yields
than those typically available from bond funds (such as the Short-Term and
Treasury Note Funds) that maintain shorter average maturities. The Long-Term
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 the Short-Term and Treasury Note Funds).
THE MORTGAGE SECURITIES FUNDS
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND (THE "ARM FUND")
The ARM Fund seeks to provide investors with a high level of current
income, consistent with stability of principal. The ARM Fund pursues this
objective by investing primarily in adjustable rate securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Under
normal conditions, the Manager invests at least 65% of the ARM 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
issued by a U.S. government agency or rated AAA by a nationally 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.
By investing primarily in mortgage-backed securities that have variable
interest rates, the ARM 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 the 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 borrowers.
16
BENHAM GNMA INCOME FUND
(THE "GNMA FUND")
The 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.
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.
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 (such as the GNMA 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 18 for a discussion of prepayment risk.
RISK FACTORS AND INVESTMENT
TECHNIQUES
The obligations in which the Funds may invest differ from one another in
their interest rates, maturities, dates of issuance and interest payment
schedules. The pertinent features of the types of obligations in which the
Funds may invest are described in this section.
U.S. GOVERNMENT 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. Treasury bills have initial maturities
of one year or less, Treasury notes from two to ten years, and Treasury bonds
more than 10 years. 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
17
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.
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.
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.
ADJUSTABLE RATE MORTGAGE SECURITIES
Adjustable-rate mortage securities (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 rate on the
underlying mortgages remain at or below their specified caps.
ARM interest 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 ARMs
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 a decline in share price. 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.
18
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
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. The ARM Fund may buy CMOs, provided that they:
o 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;
o 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; or
o Are securities in which the proceeds of the issue are invested in
mortgage securities and payments of principal and interest is supported
by the credit of an agency or instrumentality of the U.S. government.
The GNMA Fund may buy CMOs only if they are Ginnie-Mae-backed.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities (which are permitted investments for
the 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 the 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 accelerate, the ARM Fund may not fully recover its initial
investment in these securities. The ARM Fund's investments in stripped
mortgage securities together with investments in illiquid securities may not
exceed 10% of net assets.
REPURCHASE AGREEMENTS
Each Fund, with the exception of CPF, may invest in repurchase
agreements when such transactions present an attractive short-term return on
cash that is not otherwise committed to the purchase of securities pursuant
to the investment policies of that Fund.
A repurchase agreement occurs when, at the time the Fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to repurchase it on a
specified date in the future at an agreed-upon price. The repurchase price
reflects an agreed-upon interest rate during the time the Fund's money is
invested in the security.
Since the security purchase constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The Fund's risk is the ability of the seller to pay
the agreed-upon repurchase price on the repurchase date. If the seller
defaults, the Fund may incur costs in disposing of the collateral, which
would reduce the amount realized thereon. If the seller seeks relief under
the bankruptcy laws, the disposition of the collateral may be delayed or
limited. To the extent the value of the security decreases, the Fund could
experience a loss.
19
Each of the Funds, with the exception of CPF, may invest in repurchase
agreements with respect to any security in which that Fund is authorized to
invest, even if the remaining maturity of the underlying security would make
that security ineligible for purchase by such Fund.
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information regarding the investment practices of any of
the Funds, see the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rates of the U.S. Treasury & Agency Funds and the
Mortgage Securities Funds are shown in the Financial Highlights tables on
pages 9, 10, 11, 12 and 13 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a particular Fund's
objectives. The rate of portfolio turnover is irrelevant when management
believes a change is in order to achieve those objectives and, accordingly,
the annual portfolio turnover rate cannot be accurately anticipated.
The portfolio turnover of each Fund may be higher than other mutual
funds with similar investment objectives. A high turnover rate involves
correspondingly higher transaction costs that are borne directly by a Fund.
It may also affect the character of capital gains, if any, realized and
distributed by a Fund since short-term capital gains are taxable as ordinary
income.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
Each of the Funds may purchase new issues of securities on a when-issued
or forward commitment basis when, in the opinion of the Manager, such
purchases will further the investment objectives of the Fund. The price of
when-issued securities is established at the time commitment to purchase is
made. Delivery of and payment for these securities typically occurs 15 to 45
days after the commitment to purchase. Market rates of interest on debt
securities at the time of delivery may be higher or lower than those
contracted for on the security. Accordingly, the value of each security may
decline prior to delivery, which could result in a loss to the Fund.
CASH MANAGEMENT
For cash management purposes, each of the Funds (except the Money Market
Funds) may invest up to an aggregate total of 5% of its total assets in any
money market fund advised by the Manager, provided that the investment is
consistent with the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the 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 the Fund's obligations.
PERFORMANCE ADVERTISING
From time to time, the Funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield,
effective yield and tax-equivalent yield (for tax-exempt funds).
CUMULATIVE TOTAL RETURN data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. AVERAGE ANNUAL TOTAL RETURN is determined by
computing the annual compound return over a stated period of time that would
have produced a fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
20
A quotation of YIELD reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. In the case of the Money
Market Funds, yield is calculated by measuring the income generated by an
investment in the Fund over a seven-day period (net of Fund expenses). This
income is then annualized, that is, the amount of income generated by the
investment over the seven-day period is assumed to be generated over each
similar period each week throughout a full year and is shown as a percentage
of the investment. The EFFECTIVE YIELD is calculated in a similar manner but,
when annualized, the income earned by the investment is assumed to be
reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect on the assumed reinvestment.
With respect to the U.S. Treasury & Agency Funds and the Mortgage
Securities Funds, yield is calculated by adding over a 30-day (or one-month)
period all interest and dividend income (net of fund expenses) calculated on
each day's market values, dividing this sum by the average number of Fund
shares outstanding during the period, and expressing the result as a
percentage of the Fund's share price on the last day of the 30-day (or one
month) period. The percentage is then annualized. Capital gains and losses
are not included in the calculation.
Yields are calculated according to accounting methods that are
standardized in accordance with SEC rules. The SEC yield should be regarded
as an estimate of the Fund's rate of investment income, and it may not equal
the Fund's actual income distribution rate, the income paid to a
shareholder's account, or the income reported in the Fund's financial
statements.
A tax-equivalent yield demonstrates the taxable yield necessary to
produce after-tax yield equivalent to that of a mutual fund which invests in
exempt obligations. Each Fund (with the exception of CPF, CPF II, the ARM
Fund and the GNMA Fund) may quote tax-equivalent yields, which show the
taxable yields an investor would have to earn before taxes to equal the
Fund's tax-free yields. As a prospective investor in these Funds, you should
determine whether your tax-equivalent yield is likely to be higher with a
taxable or with a tax-exempt Fund. To determine this, you may use the
formulas depicted below.
You can calculate your tax-equivalent yield for a Fund (taking into
account only federal income taxes and not any applicable state taxes) using
the following equation:
Fund's State Tax-Free Yield Your Tax-
---------------------------- = Equivalent
100% - State Tax Rate Yield
The Funds may also include in advertisements data comparing performance
with the performance of non-related investment media, published editorial
comments and performance rankings compiled by independent organizations (such
as Lipper Analytical Services or Donoghue's Money Fund Report) and
publications that monitor the performance of mutual funds. Performance
information may be quoted numerically or may be presented in a table, graph
or other illustration. In addition, a fund's performance may be compared to
well-known indices of market performance including the Donoghue's Money Fund
Average and Bank Rate Monitor National Index of 21/2-year CD rates. A fund's
performance may also be compared, on a relative basis, to the other funds in
our fund family. This relative comparison, which may be based upon historical
or expected fund performance, volatility or other fund characteristics, may
be presented numerically, graphically or in text. The performance of a fund
may also be combined or blended with other funds in our fund family, and that
combined or blended performance may be compared to the same indices to which
individual funds may be compared.
All performance information advertised by the Funds is historical in
nature and is not intended to represent or guarantee future results. The
value of Fund shares when redeemed may be more or less than their original
cost.
21
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
- --------------------------------------------------------------------------------
The following section explains how to invest with Twentieth Century
Mutual Funds and The Benham Group, including purchases, redemptions,
exchanges and special services. You will find more detail about doing
business with us by referring to the Investor Services Guide that you will
receive when you open an account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer Sponsored Retirement Plans and Institutional Accounts," page 28.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application,
furnishing your taxpayer identification number. (You must also certify
whether you are subject to withholding for failing to report income to the
IRS.) Investments received without a certified taxpayer identification number
will be returned.
The minimum investment is $2,500 ($1,000 for IRA accounts).
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple
owners (e.g., as joint tenants) you must provide us with specific
authorization on your application in order for us to accept written or
telephone instructions from a single owner. Otherwise, all owners will have
to agree to any transactions that involve the account (whether the
transaction request is in writing or over the telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us
or mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64111
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more
than one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social security number
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get
information on opening an account by exchanging from another Twentieth
Century or Benham account. See page 23 for more information on exchanges.
22
IN PERSON
If you prefer to work with a representative in person, please visit one
of our Investors Centers, located at:
4500 Main Street
Kansas City, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222.
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by
any of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the
remittance portion of the confirmation of a previous investment. If the
remittance slip is not available, indicate your name, address and account
number on your check or a separate piece of paper. (Please be aware that the
investment minimum for subsequent investments is higher without a remittance
slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw
on your bank account. You may call an Investor Services Representative or use
our Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 24 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this
page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must
be at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application
to receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your Fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50
per month. See our Investor Services Guide for further information about
exchanges.
23
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham account to another. For additional information, please see
our Investor Services Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line--see page 25) if you
have authorized us to accept telephone instructions. You can authorize this
by selecting "Full Services" on your application or by calling us at
1-800-345-2021 to receive the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will
be made at the next net asset value determined after a complete redemption
request is received.
Please note that a request to redeem shares in an IRA or 403(b) plan
must be accompanied by an executed IRS Form W4-P and a reason for withdrawal
as specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to
us. Certain redemptions may require a signature guarantee. Please see
"Signature Guarantee," page 25.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may
redeem your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with redemption proceeds in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to
send funds directly to you or to your account at a bank or other financial
institution. To set up automatic redemptions, call one of our Investor
Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up
to 15 days or longer to send redemption proceeds (to allow your purchase
funds to clear). No interest is paid on the redemption proceeds after the
redemption is processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For
more information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH.
These services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of
transmission. Funds transferred by ACH may be received up to seven days after
transmission. Wired funds are subject to a $10 fee to cover bank wire
charges, which is deducted from redemption proceeds. Once the funds are
transmitted, the time of receipt and the funds' availability are not under
our control.
24
REDEMPTION OF SHARES
IN LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to
either bring the value of the shares held in the account up to the minimum.
If action is not taken within 90 days of the letter's date, the shares held
in the account will be redeemed and proceeds from the redemption will be sent
by check to your address of record. We reserve the right to increase the
investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee
will depend on which service options you elect when you open your account.
For example, if you choose "In Writing Only," a signature guarantee will be
required when:
o Redeeming more than $25,000
o Establishing or increasing a Check-A-Month or automatic transfer on an
existing account.
You may obtain a signature guarantee from a bank or trust company,
credit union, broker- dealer, securities exchange or association, clearing
agency or savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any
transaction, or to change this policy at any time.
SPECIAL INVESTOR SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these
options and elect the ones that are appropriate for you. Be aware that the
"Full Services" option offers you the most flexibility. You will find more
information about each of these service options in our Investor Services
Guide.
Our special investor services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a
week, at 1-800-345-8765. By calling the Automated Information Line, you may
listen to fund prices, yields and total return figures. You may also use the
Automated Information Line to make investments into your accounts (if we have
your bank information on file) and obtain your share balance, value and most
recent transactions. If you have authorized us to accept telephone
instructions, you also may exchange shares from one fund to another via the
Automated Information Line. Redemption instructions cannot be given via the
Automated Information Line.
CHECKWRITING
We offer CheckWriting as a service option for your account in any of the
Money Market or Mortgage Securities Funds. CheckWriting allows you to redeem
shares in your account by writing a draft ("check") against your account
balance. (Shares held in certificate form may not be redeemed by check.)
There is no limit on the number of checks you can write, but each one must be
for at least $100.
When you write a check, you will continue to receive dividends on all
shares until your check is presented for payment to our clearing bank. If you
redeem all shares in your account by check, any accrued distributions on the
redeemed shares will be paid to you in cash on the next monthly distribution
date.
25
If you want to add CheckWriting to an existing account that offers
CheckWriting, contact us by phone or mail for an appropriate form. For a new
account, you may elect CheckWriting on your purchase application by choosing
the "Full Services" option. CheckWriting is not available for any account
held in an IRA or 403(b) plan.
CheckWriting redemptions may only be made on checks provided by us.
Currently, there is no charge for checks or for the CheckWriting service.
We will return checks drawn on insufficient funds or on funds from
investments made by means other than by wire within the previous 15 days.
Neither the company nor our clearing bank will be liable for any loss or
expenses associated with returned checks. Your account may be assessed a $15
service charge for checks drawn on insufficient funds.
A stop payment may be ordered on a check written against your account.
We will use reasonable efforts to stop a payment, but we cannot guarantee
that we will be able to do so. If we are successful in fulfilling a
stop-payment order, your account may be assessed a $15 fee.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to
buy shares of a variable-priced fund by exchange from one of our money market
funds, or a price at which to sell shares of a variable-priced fund by
exchange to one of our money market funds. The designated purchase price must
be equal to or lower, or the designated sale price equal to or higher, than
the variable-priced fund's net asset value at the time the order is placed,
If the designated price is met within 90 calendar days, we will execute your
exchange order automatically at that price (or better). Open orders not
executed within 90 days will be canceled.
If the fund you have selected deducts a distribution from its share
price, your order price will be adjusted accordingly so the distribution does
not inadvertently trigger an open order transaction on your behalf. If you
close or re-register the account from which the shares are to be redeemed,
your open order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders
and cancellations received before 2 p.m. Central time are effective the same
day, and orders or cancellations received after 2 p.m. Central time are
effective the next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or
write us and request the appropriate forms for:
o Individual Retirement Accounts ("IRA"s)
o 403(b) plans for employees of public school systems and non-profit
organizations
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company
or custodian. Call or write us for a "Request to Transfer" form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we
offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by exchange). Additionally, purchases may be
refused if, in the opinion of the Manager, they are of a size that
would disrupt the management of the Fund.
26
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused.
(5) If a transaction request is made by a corporation, partnership,
trust, fiduciary, agent or unincorporated association, we will
require evidence satisfactory to us of the authority of the
individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include
requesting personal identification from callers, recording telephone
calls, and providing written confirmations of telephone transactions.
These procedures are designed to protect shareholders from
unauthorized or fraudulent instructions. If we do not employ
reasonable procedures to confirm the genuineness of instructions,
then we may be liable for losses due to unauthorized or fraudulent
instructions. The company, its transfer agent and investment adviser
will not be responsible for any loss due to instructions they
reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as Mary
Elizabeth Jones, she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an
increase in the number of shareholder telephone calls. If you
experience difficulty in reaching us during such periods, you may
send your transaction instructions by mail, express mail or courier
service, or you may visit one of our Investors Centers. You may also
use our Automated Information Line if you have requested and received
an access code and are not attempting to redeem shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50
to cover the penalty the IRS will impose on us for failure to report
your correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings,
as well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions and transactions by
CheckWriting, each time you invest, redeem, transfer or exchange shares, we
will send you a confirmation of the transactions. Transactions initiated by
27
CheckWriting will be confirmed on a monthly basis. See the Investor Services
Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If
you fail to provide notification of an error with reasonable promptness,
i.e., within 30 days of non-automatic transactions or within 30 days of the
date of your consolidated quarterly statement, in the case of automatic
transactions, we will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that
you may use in completing your U.S. income tax return. See the Investor
Services Guide for more information.
Each year, we will send you an annual and a semiannual report relating
to your fund, each of which is incorporated herein by reference. The annual
report includes audited financial statements and a list of portfolio
securities as of the fiscal year end. The semiannual report includes
unaudited financial statements for the first six months of the fiscal year,
as well as a list of portfolio securities at the end of the period. You also
will receive an updated prospectus at least once each year. Please read these
materials carefully as they will help you understand your fund.
EMPLOYER-SPONSORED
RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide and in the "How to
Invest" sections beginning on page 22 pertain to shareholders who invest
directly with Twentieth Century rather than through an employer-sponsored
retirement plan or through a financial intermediary. If you own or are
considering purchasing Fund shares through an employer-sponsored retirement
plan, your ability to purchase shares of the Funds, exchange them for shares
of other Twentieth Century or Benham funds, and redeem them will depend on
the terms of your plan. If you own or are considering purchasing Fund shares
through a bank, broker-dealer, insurance company or other financial
intermediary, your ability to purchase, exchange and redeem shares will
depend on your agreement with, and the policies of, such financial
intermediary.
You may reach one of our Institutional Investor Service Representatives
by calling 1-800-345-3533 to request information about our funds and
services, to obtain a current prospectus or to get answers to any questions
about our Funds that you are unable to obtain through your plan administrator
or financial intermediary.
28
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value.
Net asset value is determined by calculating the total value of a Fund's
assets, deducting total liabilities and dividing the result by the number of
shares outstanding. Net asset value is determined at the close of regular
trading on each day that the New York Stock Exchange (the "Exchange") is
open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment or
redemption or exchange request. For example, investments and requests to
redeem or exchange shares received by us or our authorized agents before the
close of business on the Exchange, usually 3 p.m. Central time, are effective
on, and will receive the price determined, that day as of the close of the
Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined as of, the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds
are received by us. Wired funds are considered received on the day they are
deposited in our bank account if your telephone call is received before the
close of business on the Exchange, usually 3 p.m. Central time and the money
is deposited that day.
Investments by telephone pursuant to your prior authorization to us to
draw on your bank account are considered received at the time of your
telephone call.
Investment and transaction instructions received by us on any business
day by mail prior to the close of business on the Exchange will receive that
day's price. Investments and instructions received after that time will
receive the price determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement
plan or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange
and redemption requests to the Funds' transfer agent prior to the applicable
cut-off time for receiving orders and to make payment for any purchase
transactions in accordance with the Funds' procedures or any contractual
arrangement with the Funds or the Funds' distributor in order for you to
receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be
summarized as follows:
Portfolio securities of each Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or
if local convention or regulation so provides, the mean of the latest bid and
asked prices is used. Depending on local convention or regulation, securities
traded over-the-counter are priced at the mean of the latest bid and asked
prices, or at the last sale price. When market quotations are not readily
available, securities and other assets are valued at fair value as determined
in accordance with procedures adopted by the board of directors/trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the board of trustees.
Pursuant to a determination by the Money Market Funds' board of
directors/trustees and Rule 2a-7 under the Investment Company Act of
29
1940 (the "the 1940 Act"), portfolio securities of the Funds are valued at
amortized cost. When a security is valued at amortized cost, it is valued at
its cost when purchased, and thereafter by assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Funds are published in leading newspapers
daily. The yields of the Money Market Funds are published weekly in leading
financial publications and daily in many local newspapers. The net asset
values, as well as yield information on all of the Funds and the other funds
in the Twentieth Century family of funds, may also be obtained by calling us.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the U.S. Treasury and Agency funds and the Mortgage Securities
Funds is determined and declared as a distribution. The distribution will be
paid monthly. For CPF, CPF II, and the Agency Funds, dividends are declared
and credited (i.e., available for redemption) daily and distributed monthly.
You will begin to participate in the distributions the day AFTER your
purchase is effective. See "When Share Price is Determined," page 29. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed (other than by CheckWriting), the
distribution on the redeemed shares will be included with your redemption
proceeds.
Distributions from net realized capital gains, if any, generally are
declared and paid once a year, but the Funds may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code and its Regulations, in all events in a manner consistent with
the provisions of the 1940 Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable
accounts, distributions will be reinvested unless you elect to receive them
in cash. Distributions of less than $10 generally will be reinvested.
Distributions made shortly after a purchase by check or ACH may be held up to
15 days. You may elect to have distributions on shares held in Individual
Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years
old or permanently and totally disabled. Distribution checks normally are
mailed within seven days after the record date. Please consult our Investor
Services Guide for further information regarding your distribution options.
The board of directors/trustees may elect not to distribute capital
gains in whole or in part to take advantage of loss carryovers.
TAXES
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code, which means that to the
extent its income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the Funds' shares are purchased through tax-deferred accounts, such
as a qualified employer-sponsored retirement or savings plan, income and
capital gains distributions paid by the Funds will generally not be subject
to current taxation, but will accumulate in your account under the plan on a
tax-deferred basis.
Employer-sponsored retirement and savings plans are governed by complex
tax rules. If you elect to participate in your employer's plan, consult your
plan administrator, your plan's summary plan description, or a professional
tax advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
30
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of
net investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of
the Funds do not qualify for the 70% dividends-received deduction for
corporations since they are derived from interest income. Dividends
representing income derived from tax-exempt bonds generally retain the bonds'
tax-exempt character in a shareholder's hands. Distributions from net
long-term capital gains are taxable as long-term capital gains regardless of
the length of time you have held the shares on which such distributions are
paid. However, you should note that any loss realized upon the sale or
redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to such shares.
Distributions of capital gains are taxable to you regardless of whether
they are taken in cash or reinvested, even if the value of your shares is
below your cost. If you purchase shares shortly before a capital gain
distribution, you must pay income taxes on the distribution, even though the
value of your investment (plus cash received, if any) will not have
increased. In addition, the share price at the time you purchase shares may
include unrealized gains in the securities held in the investment portfolio
of the Fund. If these portfolio securities are subsequently sold and the
gains are realized, they will, to the extent not offset by capital losses, be
paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains.
In January of the year following the distribution, we or your financial
intermediary will send you a Form 1099-DIV notigying you of the status of
your distributions for federal income tax purposes. Distributions may also be
subject to state and local taxes, even if all or a substantial part of such
distribution are derived from interest on U.S. government obligations which,
if you received them directly, would be exempt from state income tax.
However, most but not all states allow this tax exemption to pass through to
Fund shareholders when a Fund pays distributions to its shareholders. You
should consult your tax adviser about the tax status of such distributions in
your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and its Regulations, we are required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends,
capital gains distributions and redemptions). Those regulations require you
to certify that the social security number or tax identification number you
provide is correct and that you are not subject to 31% withholding for
previous under-reporting to the IRS. You will be asked to make the
appropriate certification on your application. PAYMENTS REPORTED BY US THAT
OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US
TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL
TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT
REFUNDABLE.
Redemption of shares of a Fund (including redemptions made in an
exchange transaction) will be a taxable transaction for federal income tax
purposes and shareholders will generally recognize a gain or loss in an
amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term
if shareholders have held such shares for a period of more than one year. If
a loss is realized on the redemption of Fund shares, the reinvestment in
additional Fund shares within 30 days before or after the redemption may be
subject to the "wash sale" rules of the Internal Revenue Code, resulting in a
postponement of the recognition of such loss for federal income tax purposes.
31
MANAGEMENT
INVESTMENT MANAGEMENT
Benham Capital Preservation Fund and Benham Capital Preservation Fund II
(the "Companies") are the assumed names of Capital Preservation Fund, Inc.
and Capital Preservation Fund II, Inc., respectively, and are both California
corporations. The remaining Funds are series of the Benham Government Income
Trust, a Massachussetts business trust (the "Trust"). Under the laws of the
Commonwealth of Massachusetts, the board of trustees is responsible for
managing the business and affairs of the Trust. Under the laws of the State
of California, the board of directors is responsible for managing the
business and affairs of the Companies. The board of trustees of the Trust and
the boards of directors of the Companies are identical in composition.
Acting pursuant to an investment management agreement entered into with
the Trust, Benham Management Corporation (the "Manager") serves as the
investment manager of the Funds. Its principal place of business is 1665
Charleston Road, Mountain View, California 94043. The Manager has been
providing investments advisory services to investment companies and other
clients since 1971.
The Manager supervises and manages the investment portfolio of each of
the Funds and directs the purchase and sale of their investment securities.
The Manager utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the Funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the Funds' portfolios and the
Funds' asset mix as it deems appropriate in pursuit of the Funds' investment
objectives. Individual portfolio manager members of the team may also adjusts
portfolio holdings of the Funds or of sectors of the Funds as necessary
between team meetings.
In June 1995, Twentieth Century Companies, Inc. ("TCC") acquired Benham
Management International, Inc., the then-parent company of the Manager. TCC
is the parent company of Investors Research Corporation ("IRC"), which
provides investment management services to the Twentieth Century family of
funds. In the acquisition, the Manager became a wholly owned subsidiary of
TCC. Certain employees of the Manager will be providing investment management
services to the Twentieth Century family of funds, while certain Twentieth
Century employees provide investment management services to Benham funds.
The portfolio manager members of the teams managing the Funds described
in this Prospectus and their work experience for the last five years are
listed as follows:
ROBERT V. GAHAGAN has been primarily responsible for the day-to-day
operations of the Short-Term Fund since March, 1996. He is a Vice President
and Portfolio Manager with IRC. 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. In addition to the Short-Term Fund, Mr.
Gahagan manages six Twentieth Century funds in Mountain View, California, the
fixed income headquarters for the new combined Twentieth Century/ Benham
company.
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 and was promoted to his current position in January 1994.
DENISE TOBACCO has been primarily responsible for the day-to-day
operations of CPF II since June, 1995. Ms. Tobacco joined The Benham Group in
1988, the Portfolio Department in 1991 and was promoted to her current
position in 1995.
DAVID SCHROEDER joined the Manager in 1990 and has been primarily
responsible for the day-to-day operations of the Treasury Note Fund since
January, 1992, the Long-Term Fund since
32
September, 1992, and Benham Target Maturities Trust since July, 1990. Mr.
Schroeder has co-managed the GNMA Income Fund since January, 1996.
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 the Manager in 1990 as a
Municipal Analyst and was promoted to his current position in 1995. Mr.
Colton is a Chartered Financial Analyst (CFA).
NEWLIN RANKIN has been primarily responsible for the day-to-day
operations of the ARM Fund since January, 1995. Mr. Rankin joined the Manager
in 1994 and prior to that was Assistant Vice-President at Wells Fargo Bank
from 1991 to 1993.
The activities of the Manager are subject only to direction of the
trustees or directors, as the case may be. For the services provided to the
Funds by the Manager, CPF and CPF II each pay the Manager 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 the Trust pays the Manager a monthly investment advisory fee equal
to its pro rata share of the dollar amount derived from applying the Trust's
average daily net assets to an investment advisory fee schedule.
The investment advisory fee rate ranges from .50% to .19% of average
daily net assets, dropping as the Funds' respective assets increase.
CODE OF ETHICS
The Funds and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of securities in the Funds'
portfolios obtain preclearance before executing personal trades. With respect
to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
the Fund shareholders come before the interests of the people who manage
those Funds.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City,
Missouri, 64111, ("TCS") acts as transfer, administrative services and
dividend paying agent for the Funds. TCS provides facilities, equipment and
personnel to the Funds and is paid for such services by the Funds. For
administrative services, each Fund pays TCS a monthly fee equal to its pro
rata share of the dollar amount derived from applying the average daily net
assets of all of the Funds managed by the Manager. The administrative fee
rate ranges from .11% to .08% of average daily net assets, dropping as assets
managed by the Manager increase. For transfer agent services, each Fund pays
TCS a monthly fee for each shareholder account maintained and for each
shareholder transaction executed during that month.
The Funds charge no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from TCS
may purchase or sell Fund shares through registered broker-dealers and other
qualified service providers, who may charge investors fees for their
services. These broker-dealers and service providers generally provide
shareholder, administrative and/or accounting services which would otherwise
be provided by TCS as the Funds' transfer agent. To accommodate these
investors, the Manager and its affiliates have entered into agreements with
some broker-dealers and service providers to provide these services. Fees for
such services are
33
borne normally by the Funds at the rates normally paid to TCS, which would
otherwise provide the services. Any distribution expenses associated with
these arrangements are borne by the Manager.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation
of shareholder transactions, newsletters and a team of personal
representatives. Any expenses associated with these special services will be
paid by the Manager or its affiliates.
The Manager and TCS are both wholly owned by Twentieth Century
Companies, Inc. James E. Stowers Jr., Chairman of the board of directors of
TCC, controls TCC by virtue of his ownership of a majority of its common
stock.
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting sales of, and
distributing the Fund shares offered by this Prospectus. The Funds do not pay
any commissions or other fees to the Distributor or to any other
broker-dealers or financial intermediaries in connection with the
distribution of Fund shares.
EXPENSES
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.
FURTHER INFORMATION ABOUT
THE FUNDS
CPF and CPF II were organized as California corporations on October 28,
1971 and April 2, 1980, respectively. The Trust was organized as a
Massachusetts business trust in May 1, 1984. The CPF, CPF II and the Trust
are diversified, open-end management investment companies. Their business and
affairs are managed by its officers under the direction of their respective
boards.
The principal office of the Funds is Twentieth Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries made
by mail should be directed to the address and phone numbers on the cover, or
by phone to 1-800-345-2021. (For international callers: 816-531-5575.)
CPF and CPF II issue shares with no par value. The remaining Funds are
individual series of the Trust which also issues shares with no par value.
The assets belonging to each series of shares are held separately by the
custodian and in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each
dollar of net asset value applicable to such share on all questions, except,
in the case of the Trust, those matters which must be voted on separately by
the series of shares affected. Matters affecting only one Fund are voted upon
only by that Fund.
Shares of the Trust have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of
trustees can elect all of the trustees if they choose to do so, and in such
event the holders of the remaining less-than 50% of the shares will not be
able to elect any person or persons to the board of trustees. Shares of the
Companies have cumulative voting rights only to the extent conferred upon
them by California law, which gives shareholders of the Companies the right
to cumulate votes in the election (or removal) of the Companies' respective
directors.
34
Unless required by the 1940 Act, it will not be necessary for the Trust
or the Companies to hold annual meetings of shareholders. As a result,
shareholders may not vote each year on the election of members of their
boards or the appointment of auditors. However, pursuant to the Trust's and
the Companies' by-laws, the holders of shares representing at least 10% of
the votes entitled to be cast may request that the Trust or the Company, as
the case may be, hold a special meeting of shareholders. The Trust or the
Companies will assist in the communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF ITS POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF
ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE
INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF A FUND ONLY
IN THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE
QUALIFIED FOR SALE. A FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING
IN STATES WHERE THE FUND'S SHARES ARE NOT REGISTERED.
35
BENHAM
U.S. Treasury &
Government Funds
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- --------------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- --------------------------------------------
Fax: 816-340-7962
- --------------------------------------------
Internet: http://www.twentieth-century.com
- --------------------------------------------
BENHAM GOVERNMENT INCOME TRUST
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
- --------------------------------------------------------------------------------
BN-BKT-5483 [recycled logo]
9608 Recycled
<PAGE>
Capital Preservation Fund II, Inc.
d/b/a
BENHAM CAPITAL PRESERVATION FUND II
4500 Main Street
Kansas City, MO 64111
Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575
Automated: 1-800-345-8765
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1996
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated September 3, 1996. The Fund's Annual Report for
the fiscal year ended March 31, 1996, is incorporated herein by reference. To
obtain a copy of the Prospectus or Annual Report, call or write Twentieth
Century Mutual Funds.
TABLE OF CONTENTS
PAGE
Investment Policies and Techniques 2
Investment Restrictions 4
Portfolio Transactions 5
Valuation of Portfolio Securities 6
Performance 7
Taxes 8
About the Fund 9
Directors and Officers 10
Investment Advisory Services 12
Administrative and Transfer Agent Services 13
Direct Fund Expenses 14
Expense Limitation Agreement 14
Additional Purchase and Redemption Information 15
Other Information 15
1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the board of directors.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at an agreed upon price on a
specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed upon rate of return and that is unrelated to the interest
rate on the underlying security. Delay or losses could result if the other party
to the agreement defaults or becomes bankrupt.
The investment advisor attempts to minimize the risks associated with repurchase
agreements by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's board of directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102%
of the agreed upon resale price, provided however that the board of
directors may determine that a broker-dealer's credit standing is
sufficient to allow collateral to fall to as low as 101% of the agreed
upon resale price before the broker-dealer deposits additional securities
with the Fund's custodian;
(5) Taking delivery of securities subject to repurchase agreements and
holding them in a segregated account at the Fund's custodian bank.
The Fund has received permission from the SEC to participate in pooled
repurchase agreements collateralized by U.S. government securities with other
mutual funds advised by its investment advisor, Benham Management Corporation
(BMC). Pooled repos are expected to increase the income the Fund can earn from
repo transactions without increasing the risks associated with these
transactions.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase agreements
are considered to be loans.
2
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 20% 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 20%
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.
3
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 votes of shareholders of
the Fund as determined in accordance with 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 33-1/3% of the market value of its total
assets, and then only from a bank and as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes, and
provided that immediately after any such borrowing there is an asset
coverage of at least 300 per centum for all such borrowings. To secure any
such borrowing, the Fund may pledge or hypothecate not in excess of 33-1/3%
of the value of its total assets. The Fund will not purchase any security
while borrowings representing more than 5% of its total assets are
outstanding.
(3) Act as an underwriter of securities issued by others.
(4) Invest more than 25% of its total assets in any one industry (this
restriction does not apply to securities of the U.S. government or its
corporate 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.
4
(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 borrowings 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 of 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 restriction that is not fundamental
and may therefore be changed by the board of directors without shareholder
approval.
THE FUND MAY NOT:
(a) 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.
5
VALUATION OF PORTFOLIO SECURITIES
The Fund's net asset value per share ("NAV") is calculated by Twentieth Century
Services, Inc. (TCS), as of the close of business of the New York Stock Exchange
(the "Exchange") each day the Exchange is open for business, usually at 3:00
p.m. Central Time. The Exchange has designated the following holiday closings
for 1996: New Year's Day (observed), Presidents` Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (observed).
Although TCS expects the same holiday schedule to be observed in the future, the
Exchange may modify its holiday schedule at any time.
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.
The amortized cost valuation method is permitted in accordance with Rule 2a-7
under the 1940 Act. Under the Rule, a fund such as CPF II, 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 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 seven
days or less.
The directors have established procedures designed to stabilize the Fund's NAV,
to the extent reasonably possible, at $1.00 per share. These procedures require
the Fund's chief financial officer to notify the directors immediately if, at
any time, the Fund's 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.
6
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 4.62%, and
its effective yield was 4.73%.
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.
7
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 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
8
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 31st 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 31st 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.
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 situation, a prospective investor may wish to
consult a tax advisor.
ABOUT THE FUND
Capital Preservation Fund II, Inc., doing business as Benham Capital
Preservation Fund II, was organized as a California corporation on April 2,
1980. 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. Effective October 7, 1996, Chase Manhattan Bank, 4 Chase
Metrotech Center, Brooklyn, NY 11245 will provide the custodian services for the
Fund.
9
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, 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 considerations, their affiliation with either the
Fund; the Fund's investment advisor, Benham Management Corporation (BMC); the
Fund's agent for transfer and administrative services, Twentieth Century
Services (TCS); the Fund's distribution agent, Twentieth Century Securities; 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 managed by BMC. Unless otherwise noted,
dates in parentheses indicate the dates 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 64111.
DIRECTORS
*JAMES M. BENHAM, chairman of the board of directors (1980), president and chief
executive officer (1996). Mr. Benham is also chairman of the boards of Benham
Financial Services, Inc. (BFS) (1985), BMC (1971), and Benham Distributors, Inc.
(BDI) (1988); president of BMC (1971), and BDI (1988); and a member of the board
of governors of the Investment Company Institute (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 (1980). 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).
10
KENNETH E. SCOTT, independent director (1980). 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 (1980). 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 III 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 (1984). 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 II 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 funds managed by BMC.
11
<TABLE>
<CAPTION>
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 $1,982 Not Applicable Not Applicable $79,833
- ------------------------------------------------------------------------------------------------------------------
Albert A. Eisenstat $ 132 Not Applicable Not Applicable $29,500
- ------------------------------------------------------------------------------------------------------------------
Myron S. Scholes $2,402 Not Applicable Not Applicable $69,500
- ------------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $2,527 Not Applicable Not Applicable $75,773
- ------------------------------------------------------------------------------------------------------------------
Ezra Solomon $2,391 Not Applicable Not Applicable $70,249
- ------------------------------------------------------------------------------------------------------------------
Isaac Stein $2,410 Not Applicable Not Applicable $70,500
- ------------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $2,424 Not Applicable Not Applicable $71,250
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Interested directors receive no compensation for their services as such.
** Twentieth Century family of funds includes 66 no-load mutual funds.
As of July 31, 1996, the Fund's officers and directors, as a group, owned less
than 1% of the outstanding shares of each 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 the rest of Twentieth
Century's Benham brand mutual funds.
The Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two-year period,
it is approved at least annually by vote of a majority of the Fund's outstanding
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.
12
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. Fee
amounts are net of reimbursements as described below.
FISCAL PERIOD INVESTMENT ADVISORY FEES
Year ended 3/31/96 $1,152,933
Year ended 3/31/95 1,202,074
Year ended 3/31/94 1,253,912
The Fund's fiscal year-end was changed in 1993 from September 30 to March 31.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, (TCS) acts as transfer, administrative services and dividend paying agent
for the Fund. TCS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, each Fund
pays TCS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Fund managed by the
Manager to the following administrative fee rate schedule:
GROUP ASSETS ADMINISTRATIVE FEE RATE
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
13
For transfer agent services, the Fund pays TCS 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 for the fiscal
periods ended March 31, 1996, 1995, and 1994, are indicated in the following
table. Fee amounts are net of reimbursements as described below.
FISCAL PERIOD ADMINISTRATIVE FEES TRANSFER AGENCY FEES
Year ended 3/31/96 $244,651 $311,969
Year ended 3/31/95 270,400 354,585
Year ended 3/31/94 289,344 421,194
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by BMC or TCS.
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 if any; 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 .73% 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 limit for the years
ended May 31, 1996 and 1995 was .75% 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.
Net amounts absorbed or recouped for the fiscal periods ended March 31, 1996,
1995, and 1994, are indicated in the table below.
FISCAL PERIOD NET AMOUNTS ABSORBED (RECOUPED)
Year ended 3/31/96 $ 8,733
Year ended 3/31/95 43,426
Year ended 3/31/94 85,055
Six-months ended 3/31/93* 38,373
* The Fund's fiscal year-end was changed from September 30 to March 31 in 1993.
14
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.
Twentieth Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Fund; to avoid
jeopardizing the Fund's tax status; or whenever, in management's opinion, such
rejection or limitation is in the Fund's best interest.
As of July 31, 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.
TCS charges neither fees nor commissions on the purchase and sale of fund
shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
TCS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
BMC has been continuously registered with the Securities and 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.
<PAGE>
CAPITAL PRESERVATION FUND II, INC.
1933 Act Post-Effective Amendment No. 34
1940 Act Amendment No. 34
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for Capital
Preservation Fund II, Inc. for the fiscal year ended March 31, 1996,
are filed herein as included in the Fund's Statement of Additional
Information by reference to the Annual Report dated March 31, 1996,
filed on May 24, 1996 (Accession # 0000017271-96-000004).
(b) EXHIBITs
(1) Amended and Restated Articles of Incorporation dated December 18,
1992 are incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).
(2) Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 33
filed on May 30, 1996 (Accession # 0000315961-96-000002).
(3) Not applicable.
(4) Specimen copy of Capital Preservation Fund II, Inc. share
certificate is incorporated herein by reference to Exhibit 4 to the
registration statement filed on May 14, 1980.
(5) Investment Advisory Agreement between Capital Preservation Fund II,
Inc. and Benham Management Corporation, dated June 1, 1995, is
incorporated herein by reference to Exhibit 5 of Post-Effective
Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).
(6) Distribution Agreement between Capital Preservation Fund II, Inc.
and Twentieth Century Securities, Inc. dated as of September 3,
1996, is incorporated herein by reference to Exhibit 6 of
Post-Effective Amendment No. 29 to the Registration Statement of
the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
(7) Not applicable.
(8) Custodian Agreement between Capital Preservation Fund II, Inc. and
State Street Bank and 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 Exhibit 8 of Post-Effective
Amendment No. 7 to the Registration Statement of Benham
International Funds filed on April 22, 1996 (Accession #
880268-96-000010).
(9) Administrative Services and Transfer Agency Agreement between
Capital Preservation Fund II, Inc. and Twentieth Century Services,
Inc. dated as of September 3, 1996,. is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 29 to the
Registration Statement of the Benham Government Income Trust filed
on August 30, 1996 (Accession # 773674-96-000007).
(10)Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 16, 1996
(Accession # 0000315961-96-000001).
(11)Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
(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. 28 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. 28 filed on September 25, 1992.
.
(15)Not applicable.
(16)Schedule for computation of each performance quotation provided in
response to Item 22 is incorporated herein by reference to Exhibit
16 of Post-Effective Amendment No. 33 filed on May 30, 1996
(Accession # 0000315961-96-000002).
(17)Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 33 filed on
May 30, 1996 (Accession # 0000315961-96-000002).
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of July 31, 1996, Capital Preservation Fund II, Inc. had 11,866 shareholders
of record.
Item 27. Indemnification.
Under the laws of the State of California, the Directors are entitled and
empowered to purchase insurance for and to provide by resolution or in the
Bylaws for indemnification out of Corporation assets for liability and for all
expenses reasonably incurred or paid or expected to be paid by a Director or
officer in connection with any claim, action, suit, or proceeding in which he or
she becomes involved by virtue of his or her capacity or former capacity with
the Corporation. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the Bylaws or in a
resolution adopted by the Board of Directors.
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 of Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to furnish 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. 34/Amendment No. 34 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 30th day of August, 1996. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
CAPITAL PRESERVATION FUND II, 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. 34/Amendment No. 34 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, August 30, 1996
- --------------------------------- President, and Chief
James M. Benham Executive Officer
* Director August 30, 1996
- ---------------------------------
Albert A. Eisenstat
* Director August 30, 1996
- ---------------------------------
Ronald J. Gilson
* Director August 30, 1996
- ---------------------------------
Myron S. Scholes
* Director August 30, 1996
- ---------------------------------
Kenneth E. Scott
* Director August 30, 1996
- ---------------------------------
Ezra Solomon
* Director August 30, 1996
- ---------------------------------
Isaac Stein
* Director August 30, 1996
- ---------------------------------
James E. Stowers III
* Director August 30, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer August 30, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Amended and Restated Articles of Incorporation dated December 18,
1992 are incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).
EX-99.B2 Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No.
33 filed on May 30, 1996 (Accession # 0000315961-96-000002).
EX-99.B4 Specimen copy of Capital Preservation Fund II, Inc. share
certificate is incorporated herein by reference to Exhibit 4 to
the registration statement filed on May 14, 1980.
EX-99.B5 Investment Advisory Agreement between Capital Preservation Fund
II, Inc. and Benham Management Corporation, dated June 1, 1995, is
incorporated herein by reference to Exhibit 5 of Post-Effective
Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).
EX-99.B6 Distribution Agreement between Capital Preservation Fund II, Inc.
and Twentieth Century Securities, Inc. dated as of September 3,
1996, is incorporated herein by reference to Exhibit 6 of
Post-Effective Amendment No. 29 to the Registration Statement of
the Benham Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).
EX-99.B8 Custodian Agreement between Capital Preservation Fund II, Inc. and
State Street Bank and 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 Exhibit 8 of Post-Effective
Amendment No. 7 to the Registration Statement of Benham
International Funds filed on April 22, 1996 (Accession #
880268-96-000010).
EX-99.B9 Administrative Services and Transfer Agency Agreement between
Capital Preservation Fund II, Inc. and Twentieth Century Services,
Inc. dated as of September 3, 1996,. is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 29 to the
Registration Statement of the Benham Government Income Trust filed
on August 30, 1996 (Accession # 773674-96-000007).
EX-99.B10 Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 16, 1996
(Accession # 0000315961-96-000001).
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
EX-99.B14 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. 28 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. 28 filed on September 25, 1992.
.
EX-99.B16 Schedule for computation of each performance quotation
provided in response to Item 22 is incorporated herein by
reference to Exhibit 16 of Post-Effective Amendment No. 33 filed
on May 30, 1996 (Accession # 0000315961-96-000002).
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 33 filed
on May 30, 1996 (Accession # 0000315961-96-000002).
EX-99.B27.4.1 Financial Data Schedule
Consent of Independent Auditors
The Board of Directors and Shareholders
Capital Preservation Fund II, Inc.:
We consent to the inclusion in Capital Preservation Fund II, Inc.'s
Post-Effective Amendment No. 34 to the Registration Statement No. 2-67189 on
Form N-1A under the Securities Act of 1933 and Amendment No. 34 to the
Registration Statement No. 811-3036 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated May 3, 1996 on the financial statements
and financial highlights of the Benham Capital Preservation Fund II (the assumed
business name of Capital Preservation Fund II, Inc.) for the periods indicated
therein, which reports have been incorporated by reference into the Statement of
Additional Information of Capital Preservation Fund II, 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 are incorporated by reference in the Prospectus.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
August 30, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CAPITAL PRESERVATION FUND II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 244000000
<INVESTMENTS-AT-VALUE> 244000000
<RECEIVABLES> 787515
<ASSETS-OTHER> 1051271
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 245838786
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262608
<TOTAL-LIABILITIES> 262608
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 245576178
<SHARES-COMMON-STOCK> 245576178
<SHARES-COMMON-PRIOR> 262440401
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 245576178
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14609187
<OTHER-INCOME> 0
<EXPENSES-NET> 1896685
<NET-INVESTMENT-INCOME> 12712502
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (16864223)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12712502
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171364900
<NUMBER-OF-SHARES-REDEEMED> 200390890
<SHARES-REINVESTED> 12161767
<NET-CHANGE-IN-ASSETS> (16864223)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1161666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1937494
<AVERAGE-NET-ASSETS> 252315434
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.052
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.052
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
