SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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File No. 2-99222
Pre-Effective Amendment No. ____
Post-Effective Amendment No._30_ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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File No. 811-4363
Amendment No._31_
BENHAM GOVERNMENT INCOME TRUST
(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 9/23/85)
It is proposed that this filing become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
__X__ 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.
The Prospectus of the 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, dated September 3, 1996, are incorporated by reference herein to Benham
Government Income Trust's filing pursuant to Rule 497(e) on September 3, 1996
(Accession # 0000773674-96-000007).
BENHAM GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 30
1940 Act Amendment No. 31
American Century - Benham Inflation-
Adjusted Treasury Fund
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Performance Advertising
4 Management, Further Information About the Fund, Information About
Investment Policies of the Fund, Risk Factors and Investment
Techniques, Other Investment Practices, Their Characteristics and
Risks
5 Management
5A Not Applicable
6 Further Information About the Fund, How to Redeem Shares, Cover Page,
Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Administrative and Transfer Agent
Services, Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
PROSPECTUS
February 8, 1997
BENHAM INFLATION-
ADJUSTED TREASURY FUND
AMERICAN CENTURY GOVERNMENT INCOME TRUST
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American Century Government Income Trust is a part of American Century
Investments, a family of funds that includes nearly 70 no-load mutual funds
covering a variety of investment opportunities. One of the funds from our Benham
Group of funds, the American Century-Benham Treasury Inflation-Protection
Securities Fund (the "Fund"), is described in this Prospectus.
The Fund seeks to provide a real investment return and inflation protection
consistent with investment in U.S. Treasury inflation-protection securities.
There is no assurance that the Fund will achieve its investment objective.
Investments in the Fund are not insured or guaranteed by the U.S.
government or any other agency.
American Century offers investors a full line of no-load funds, investments
that have no sales charges or commissions.
This Prospectus gives you information about the Fund that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated January 30, 1997 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:
AMERICAN CENTURY INVESTMENTS
4500 Main Street * P.O. Box 419200
Kansas City, MO 64141-6200 * 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 * In Missouri: 816-753-1865
www.americancentury.com
Additional information, including this Prospectus and the Statement of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Blank Page]
2 Prospectus American Century Investments
TABLE OF CONTENTS
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TRANSACTION AND OPERATING EXPENSE TABLE.............4
INFORMATION REGARDING THE FUND
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INVESTMENT POLICIES OF THE FUND.....................5
Investment Objective...........................5
Investment Strategy............................5
RISK FACTORS AND INVESTMENT TECHNIQUES..............6
Treasury Inflation-Protection Securities.......6
Treasury Securities............................8
Zero Coupon ("Stripped") Inflation-
Protection Securities ......................8
Repurchase Agreements..........................8
OTHER INVESTMENT PRACTICES, THEIR
CHARACTERISTICS AND RISKS .....................9
Portfolio Turnover.............................9
When-Issued And Forward Commitment Agreements..9
Cash Management................................9
Other Techniques...............................9
PERFORMANCE ADVERTISING.............................9
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
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AMERICAN CENTURY INVESTMENTS.......................11
INVESTING IN AMERICAN CENTURY......................11
HOW TO OPEN AN ACCOUNT.............................11
By Mail.......................................11
By Wire.......................................11
By Exchange...................................12
In Person.....................................12
SUBSEQUENT INVESTMENTS.............................12
By Mail.......................................12
By Telephone..................................13
By Online Access..............................13
By Wire.......................................13
In Person.....................................13
AUTOMATIC INVESTMENT PLAN..........................13
HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER........13
By Mail.......................................13
By Telephone..................................13
By Online Access..............................14
HOW TO REDEEM SHARES...............................14
By Mail.......................................14
By Telephone..................................14
By Check-A-Month..............................14
Other Automatic Redemptions...................14
REDEMPTION PROCEEDS................................14
By Check......................................14
By Wire and ACH...............................14
REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS.......15
SIGNATURE GUARANTEE................................15
SPECIAL INVESTOR SERVICES..........................15
Automated Information Line....................15
Online Account Access.........................15
Open Order Service............................16
Tax-Qualified Retirement Plans................16
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS......16
REPORTS TO SHAREHOLDERS............................17
EMPLOYER-SPONSORED RETIREMENT PLANS
AND INSTITUTIONAL ACCOUNTS ...................18
ADDITIONAL INFORMATION YOU SHOULD KNOW
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SHARE PRICE........................................19
When Share Price Is Determined................19
How Share Price Is Determined.................19
Where To Find Information About Share Price...20
DISTRIBUTIONS......................................20
TAXES..............................................20
Tax-Deferred Accounts.........................20
Taxable Accounts..............................20
MANAGEMENT.........................................22
Investment Management.........................22
Code Of Ethics................................22
Transfer And Administrative Services..........23
Distribution Of Fund Shares...................23
Expenses......................................23
FURTHER INFORMATION ABOUT THE FUND.................24
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NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY
OTHER INFORMATION OR REPRESENTATION.
Prospectus Table of Contents 3
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Inflation-Protection
Securities
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C>
Maximum Sales Load Imposed on Purchases none
Maximum Sales Load Imposed on Reinvested Dividends none
Deferred Sales Load none
Redemption Fee (1) none
Exchange Fee none
ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets)
Advisory Fees (net of expense limitation) .30%
12b-1 Fees none
Other Expenses .30%
Total Fund Operating Expenses .60%
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 $ 6
3 years 19
5 years 33
10 years 75
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) Estimated. 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 limitation for the Fund is .60%. This expense limitation is subject to annual
renewal in June, 1997.
</TABLE>
The Fund pays the Manager investment advisory fees equal to an annualized
percentage of its average daily net assets. Other expenses include
administrative and transfer agent fees paid to American Century Services
Corporation.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Fund. The example set forth
above assumes reinvestment of all dividends and distributions and uses a 5%
annual rate of return as required by SEC regulations.
Neither the 5% rate of return nor the expenses shown above should be
considered indications of past or future returns and expenses. Actual returns
and expenses may be greater or less than those shown.
4 Information Regarding the Fund Prospectus
INFORMATION REGARDING THE FUND
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INVESTMENT POLICIES OF THE FUND
The Fund has adopted certain investment restrictions that are set forth in
the Statement of Additional Information. Those restrictions, as well as the
investment objective of the Fund identified on page 1 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 Fund has implemented additional investment
policies and practices to guide its activities in the pursuit of its investment
objective. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
Investment Objective
The Fund seeks to provide an inflation-protected rate of return consistent
with investment in U.S. Treasury inflation-protection securities. There is no
assurance that the Fund will achieve its investment objective.
Investment Strategy
The Fund pursues its investment objective by investing, under normal market
conditions, at least 65% of its total assets in securities that are backed by
the full faith and credit of the U.S. government and indexed or otherwise
structured by the U.S. Treasury to provide protection against inflation
("TIPS"). TIPS may be issued by the U.S. Treasury in the form of notes or bonds.
The Fund may also invest in U.S. Treasury securities which are not indexed to
inflation for liquidity and tax purposes, or if at any time the manager believes
there is an inadequate supply of appropriate TIPS in which to invest. The Fund's
portfolio may consist of any combination of these securities consistent with
investment strategies employed by the Manager.
There are no maturity or duration restrictions for the securities in which
the Fund may invest. The U.S. Treasury initially is issuing TIPS securities with
a 10 year term to maturity. It has announced its intention (although there is no
guarantee it will do so) to issue additional securities with a term to maturity
as long as 30 years and as short as five years. When these securities of
differing maturity are issued, the manager will buy from among the available
issues those securities that will provide the maximum relative value to the
Fund.
The Fund may be appropriate for investors who are seeking to protect all or
a part of their investment portfolio from the effects of inflation. Traditional
U.S. Treasury fixed-principal notes and bonds pay a stated return or rate of
interest in dollars and are redeemed at their par amount. Inflation during the
period the securities are outstanding will diminish the future purchasing power
of these dollars. The Fund is designed to serve as a vehicle to protect against
this diminishing effect.
The Fund is not, however, managed to pursue or provide current income. The
Fund's income yield will likely reflect "real rates" of interest (that is, the
then-prevailing current interest rates minus the then-prevailing expectations
for inflation) available in the Treasury market. Because these "real rates" of
interest have historically been around 3.5%, the current income generated by the
Fund is expected to be substantially below that of more traditional government
securities funds, such as Treasury bond funds or government agency bond funds.
The Fund, however, should benefit as a result of the inflation adjustments that
will be made to its portfolio holdings at their final maturity, therefore
providing a degree of predictability to the value of the Fund.
5 Information Regarding the Fund Prospectus
TIPS in which the Fund may invest are new securities. There are special
investment risks, particularly share price volatility and potential adverse tax
consequences, associated with investment in TIPS. These risks are described in
the following section. You should read that section carefully to make sure you
understand the nature of the Fund before you invest in it.
RISK FACTORS AND INVESTMENT TECHNIQUES
The obligations in which the Fund may invest will 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 Fund
may invest are described in this section. To the extent that these features
impact the value of Fund holdings, they will in turn impact the net asset value
of the Fund. While the Fund seeks to provide a measure of inflation protection
to its investors, there is no assurance that the Fund will provide less risk
than a fund investing in conventional fixed amount treasury securities.
Treasury Inflation-Protection Securities
TIPS are Treasury securities with a final value and interest payment stream
linked to the inflation rate. TIPS may be issued in either note or bond form.
Treasury inflation-protection notes have maturities of at least one year, but
not more than ten years. Treasury inflation-protection bonds have maturities of
more than ten years.
TIPS may be attractive to investors seeking an investment backed by the
full faith and credit of the U.S. Government that provides a return in excess of
the rate of inflation. While, according to the U.S. Treasury, TIPS are modeled
after the "Real Return Bonds" currently issued by the government of Canada,
these securities are new to the U.S. market, having first been sold in January
1997. There is uncertainty as to how these securities will be treated by the
marketplace. See "Immaturity of TIPS Market" below. Inflation protection
securities were first auctioned in January 1997 for issuance on January 15. The
securities will be auctioned and issued on a quarterly basis thereafter.
Structure and Inflation Index
The principal value of TIPS will be adjusted to reflect changes in the
level of inflation. The index for measuring the inflation rate for TIPS is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Consumers published monthly by the U.S. Department of Labor's Bureau of
Labor Statistics.
Semiannual coupon interest payments are made at a fixed percentage of the
inflation-adjusted principal value. The coupon rate or "real yield" for the
semiannual interest payment of each issuance of securities will be determined at
the time the securities are sold to the public. While a reduction in inflation
will cause a reduction in the interest payment made on the securities, the
repayment of principal at the maturity of the security will never be less than
the original face or par amount of the security at issuance.
Indexing Methodology
The principal value of TIPS will be indexed, or adjusted, semi-annually to
account for changes in the Consumer Price Index. Semi-annual coupon interest
payment amounts will be determined by multiplying the inflation-adjusted
principal amount by one-half the stated rate of interest on each interest
payment date.
The Consumer Price Index used for the purpose of adjusting the principal
value will be the index for the first day of the third month prior to the
adjustment. Even if the Bureau of Labor Standards has subsequently revised that
index, the original index will be used. To the extent that
6 Information Regarding the Fund Prospectus
inflation has increased the three months prior to an interest payment, that
interest payment will not be protected from the inflation increase. Further, to
the extent that inflation has increased during the final three months of a
security's maturity, the final value of the security will not be protected
against that increase, which will negatively impact the value of the security.
Additionally, there is disagreement among financial market professionals as to
whether the Consumer Price Index actually reflects the true rate of inflation.
If the market perceives that the adjustment mechanism of the TIPS securities
does not accurately adjust for inflation, the value of the TIPS securities could
be adversely affected.
Taxation
Taxation applicable to TIPS is similar to conventional bonds. Both interest
payments and the difference between original principal and the
inflation-adjusted principal will be treated as interest income subject to
taxation. Interest payments are taxable when received or accrued. The inflation
adjustment to the principal is subject to tax in the year adjustment is made,
not at maturity of the security when the cash from the repayment of principal is
received. If an upward adjustment has been made (which typically should happen),
investors in non-tax deferred accounts will pay taxes on this amount currently.
Decreases in the indexed principal can only be deducted from current or previous
interest payments reported as income.
TIPS therefore have a potential cash flow mismatch to an investors, since
investors must pay taxes on the inflation-adjusted principal before the
repayment of principal is received. It is possible that, particularly for high
income tax bracket investors, TIPS security would not generate enough income in
a given year to cover the tax liability it could create. This is similar to the
current tax treatment for zero coupon bonds and other discount securities. If an
inflation-protection security is sold prior to maturity, capital losses or gains
are realized in the same manner as traditional bonds. For more information about
taxes and their affect on you as an investor in the Fund, see "Taxes," on page
20.
Immaturity of TIPS Market
The Treasury securities market is the largest and most liquid securities
market in the world. However, prior to January 1997, the Treasury had never
issued TIPS. It is uncertain at this time the extent to which, if at all, the
Treasury will support the TIPS market. Without Treasury support, the market
could be relatively illiquid or inefficient. The marketability of TIPS may be
enhanced over time as the Treasury issues additional TIPS and more investors
participate in the market.
The secondary market for TIPS may not be as active as the secondary market
for Treasury fixed-principal notes and bonds. In addition, TIPS may not be as
widely traded or as well understood as Treasury fixed-principal securities, nor
is it known at this time exactly how the market for TIPS will develop or react.
If the number of TIPS market participants is limited, it may result in
larger spreads between bid and asked prices for inflation-protection securities
than the bid-asked spreads for fixed-principal notes and bonds with similar
terms to maturity. Such larger bid-ask spreads normally result in higher
transactions costs and/or lower returns. If the market does not develop
sufficient liquidity, large buyers or sellers of these securities may
disproportionately negatively impact the value of the securities and, hence, the
Fund's asset value.
The Manager currently believes that the market for TIPS will be sufficient
to permit the Fund to pursue its investment objective. However, should the
market for TIPS prove less active than anticipated by the Manager, the Manager
is authorized to treat such an environment as an abnormal market condition. This
means that the Manager may purchase other types of Treasury
American Century * Benham Group of Funds Information Regarding the Fund 7
securities in excess of 35% of the Fund's total assets. During such a period,
the Fund will not be fully pursuing its investment objective.
Share price volatility
TIPS are designed to offer a return linked to inflation, thereby protecting
future purchasing power of the money invested in them. TIPS provide this
"protected" return only if held to maturity, however. In addition, TIPS may not
trade at par value. "Real" interest rates (the market rate of interest less the
anticipated rate of inflation) change over time, as a result of many factors,
such as what investors are demanding as a true value for money. When real rates
do change, TIPS prices will be more sensitive to these changes than conventional
bonds, since these securities were sold originally based upon a "real" interest
rate that is no longer prevailing. Should market expectations for real interest
rates rise, the price of TIPS and the share price of the Fund will fall.
Investors in the Fund should be prepared to accept not only this share price
volatility but also the possible adverse tax consequences it may cause.
Treasury Securities
Under certain circumstances the Fund will invest in fixed principal amount
U.S. Treasury bills, notes, zero-coupon bonds, and other bonds. These securities
are direct obligations of the U.S. Treasury. Treasury bills have initial
maturities of one year or less, Treasury notes from two to ten years, and
Treasury bonds more than 10 years. These securities are issued with a fixed
interest coupon rate and a fixed final value at maturity. 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.
Zero Coupon ("Stripped") Inflation-Protection Securities
The Fund may invest in zero coupon ("stripped") TIPS if they become
available. Further information about such securities is currently contained in
the Statement of Additional Information.
Repurchase Agreements
The Fund 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 the 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 purchased 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.
The Fund may invest in repurchase agreements with respect to any security
in which it is authorized to invest.
8 Information Regarding the Fund Prospectus
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS
For additional information regarding the investment practices of the Fund,
see the Statement of Additional Information.
Portfolio Turnover
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the Fund's objective.
The rate of portfolio turnover is irrelevant when Management believes a change
is in order to achieve this objective and, accordingly, the annual portfolio
turnover rate cannot be accurately anticipated. The portfolio turnover of the
Fund may be higher than other mutual funds with similar investment objectives. A
high turnover rate involves correspondingly higher transaction costs that are
borne directly by the Fund. It may also affect the character of capital gains,
if any, realized and distributed by the Fund since short-term capital gains are
taxable as ordinary income.
When-Issued And Forward Commitment Agreements
The Fund may 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 objective 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, the Fund 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 Fund. When SEC guidelines require it to
do so, the Fund will set aside cash or appropriate liquid assets in a segregated
account to cover the Fund's obligations.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield,
effective yield and tax-equivalent yield.
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.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the Fund's share price. 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. The effective yield is
calculated in a similar manner but, when annualized, the
American Century * Benham Group of Funds Information Regarding the Fund 9
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.
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. The Fund may quote tax-equivalent yield, which show the taxable
yield an investor would have to earn before taxes to equal the Fund's tax-free
yield. As a prospective investor in the Fund, 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 the 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-
100% - State Tax Rate = Equivalent Yield
The Fund may also include in advertisements data comparing performance with
the performance of non-related investment media, published editorial comments
and performance rankings compiled by independent organizations (such as Lipper
Analytical Services 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 2 1/2 -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 Fund is historical in nature
and is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.
10 Information Regarding the Fund Prospectus
HOW TO INVEST WITH
AMERICAN CENTURY INVESTMENTS
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AMERICAN CENTURY INVESTMENTS
The Fund offered by this Prospectus is a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities, from the aggressive equity growth funds in our
Twentieth Century Group, to the fixed income funds in our Benham Group, to the
moderate risk and specialty funds in our American Century Group. Please call
1-800-345-2021 for a brochure or prospectuses for the other funds in the
American Century Investments family.
INVESTING IN AMERICAN CENTURY
The following section explains how to invest in American Century funds,
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 18.
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 $5,000 ($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 American Century Investments.
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)
11 American Century * Benham Group of Funds
How to Invest with American Century Investments
Beneficiary (BNF):
American Century Services Corporation
4500 Main St., Kansas City, MO 64111
Beneficiary account number (BNF ACCT):
2804918
Reference for Beneficiary (RFB):
American 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):
- Taxpayer identification or Social Security number
- If more than one account, account numbers and amount to be invested in
each account.
- 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 American Century account. See
page 13 for more information on exchanges.
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, Missouri 64111
1665 Charleston Road
Mountain View, California 94043
2000 S. Colorado Blvd.
Denver, Colorado 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 an investment slip.)
12 How to Invest with American Century Investments Prospectus
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 Online Access
Once your account is open, you may make investments online if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account.
By Wire
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 13 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. An exchange request will be processed the same day it is received if it
is received before the Fund's net asset values are calculated, which is one hour
prior to the close of the New York Stock Exchange for the funds in the American
Century Target Maturities Trust, and at the close of the Exchange for all of our
other funds.
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.
By Mail
You may direct us in writing to exchange your shares from one American
Century 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 __) 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.
American Century * Benham Group of Funds Information Regarding the Fund 13
By Online Access
You can make exchanges online if you have authorized us to accept
instructions over the Internet. You can authorize this by selecting "Full
Services" on your application or by calling us at 1-800-345-2021 to get 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 15.
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
If you have at least a $10,000 balance in your account, 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
14 How to Invest with American Century Investments Prospectus
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.
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:
- redeeming more than $25,000; or
- 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.
Online Account Access
You may contact us 24 hours a day, seven days a week, through our Web site
at www.americancentury.com to access your fund's daily share prices, receive
updates on major market indices and view historical performance of your funds.
If you select "Full Services" on your application, you can use your personal
access code and Social Security number to view your
American Century * Benham Group of Funds Information Regarding the Fund 15
account balances and account activity, make subsequent investments from your
bank account or exchange shares from one fund to another.
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:
- Individual Retirement Accounts ("IRA"s)
- 403(b) plans for employees of public school systems and non-profit
organizations
- Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a "Request to Transfer" form.
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by exchange). Additionally, purchases may be
refused if, in the opinion of the Manager, they are of a size that
would disrupt the management of the Fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused. Once you have mailed or otherwise transmitted
your transaction instructions to us, they may not be modified or
canceled.
16 How to Invest with American Century Investments Prospectus
(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 per hour 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 American Century holdings, as well as an
individual statement for each fund you own that reflects all year-to-date
activity in your account. You may request a statement of your account activity
at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If you
fail to provide notification of an error with reasonable promptness, i.e.,
within 30 days of non-automatic transactions or within 30 days of the date of
your consolidated quarterly statement, in the case of automatic transactions, we
will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that you
may use in completing your U.S. income tax return. See the Investor Services
Guide for more information. Each year, we will send you an annual and a
semiannual report relating to your fund, each of which is incorporated herein by
reference. The annual report includes audited financial statements and a list of
portfolio securities as of the fiscal year end. The semiannual report includes
unaudited financial statements for the first six months of the fiscal year, as
well as a list of portfolio securities at the end of the period. You also will
receive an updated prospectus at
American Century * Benham Group of Funds Information Regarding the Fund 17
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 pertains to
shareholders who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the Fund,
exchange them for shares of other American Century 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.
18 How to Invest with American Century Investments Prospectus
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 they are deposited before the close of business
on the Exchange.
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 Fund's procedures or any contractual arrangement with the
Fund or the Fund's distributor in order for you to receive that day's price.
How Share Price Is Determined
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of the Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the board of 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.
19 American Century * Benham Group of Funds
Additional Information You Should Know
Where To Find Information About Share Price
The net asset value of the Fund is published in leading newspapers daily.
The net asset values, as well as yield information on the Fund and the other
funds in the American Century family of funds, may also be obtained by calling
us or by accessing our Web site at www.americancentury.com.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the Fund, included amounts attributable to increases in the principal
amount of TIPS, is determined and declared as a distribution. The distribution
will be paid monthly.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page __. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed, the distribution on the redeemed shares
will be included with your redemption proceeds.
Distributions from net realized capital gains, if any, generally are
declared and paid once a year, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code 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 59 1/2 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.
TAXES
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
Tax-Deferred Accounts
If the Fund's shares are purchased through tax-deferred accounts, such as a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions paid by the Fund will generally not be subject to current
taxation, but will accumulate in your account under the plan on a tax-deferred
basis. Employer-sponsored retirement and savings plans are governed by complex
tax rules. If you elect to participate in your employer's plan, consult your
plan administrator, your plan's summary plan description, or a professional tax
advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
Taxable Accounts
If Fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of the
Fund does 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-
20 Additional Information You Should Know Prospectus
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.
The TIPS purchased by the Fund accrue additional interest for federal
income tax purposes in addition to the current interest paid. This additional
interest is commonly referred to as "imputed income". The Fund must distribute
this imputed income to shareholders as ordinary income dividends, which are
subject to federal taxes but generally exempt from state taxes. In periods of
high inflation, it is possible that the imputed income earned by the Fund will
exceed current interest earned.
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, if you own shares in a
taxable account, we or your financial intermediary will send you a Form 1099-DIV
notifying you of the status of your distributions for federal income tax
purposes. Distributions may also be subject to state and local taxes, even if
all or a substantial part of such distribution are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to Fund shareholders when 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
underreporting to the IRS. You will be asked to make the appropriate
certification on your application. Payments reported by us that omit your social
security number or tax identification number will subject us to a penalty of
$50, which will be charged against your account if you fail to provide the
certification by the time the report is filed, and is not refundable.
Redemption of shares of the Fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize a gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. Assuming
that shareholders hold such shares as a capital asset, the gain or loss will be
a capital gain or loss and will generally be long term if shareholders have held
such shares for a period of more than one year. If a loss is realized on the
redemption of Fund shares, the reinvestment in additional Fund shares within 30
days before or after the redemption may be subject to the "wash sale" rules of
the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
American Century * Benham Group of Funds
Additional Information You Should Know 21
MANAGEMENT
Investment Management
The Fund is a series of the American Century Government Income Trust, a
Massachusetts business trust formerly known as the Benham Government Income
Trust (the "Trust"), and is officially designated as "American Century - Benham
Treasury Inflation Protection Securities Fund". Under the laws of the
Commonwealth of Massachusetts, the board of trustees is responsible for managing
the business and affairs of the Trust.
Acting pursuant to an investment advisory agreement entered into with the
Trust, Benham Management Corporation (the "Manager") serves as the investment
adviser of the Fund. Its principal place of business is 1665 Charleston Road,
Mountain View, California 94043. The Manager has been providing investment
advisory services to investment companies and other clients since 1971.
The Manager supervises and manages the investment portfolio of the Fund and
directs the purchase and sale of its investment securities. The Manager utilizes
a team of portfolio managers, assistant portfolio managers and analysts acting
together to manage the assets of the Fund. The team meets regularly to review
portfolio holdings and to discuss purchase and sale activity. The team adjusts
holdings in the Fund's portfolios and the Fund's asset mix as it deems
appropriate in pursuit of the Fund's investment objective. Individual portfolio
manager members of the team may also adjusts portfolio holdings of the Fund as
necessary between team meetings.
In June 1995, American Century Companies, Inc. ("ACC"), acquired Benham
Management International, Inc., the then-parent company of the Manager. ACC is
the parent company of American Century Investment Management, Inc. ("ACIM"),
which provides investment advisory services to many funds in the American
Century family of funds. In the acquisition, the Manager became a wholly owned
subsidiary of ACC. Certain employees of the Manager will be providing investment
management services to funds managed by ACIM, while certain ACIM employees
provide investment management services to fund managed by the Manager.
David Schroeder joined the Manager in 1990 and has been primarily
responsible for the day-to-day operations of the Fund since its inception and is
in charge of the team managing the Fund. Mr. Schroeder also has managed the
American Century-Benham Intermediate-Term Treasury Fund since January, 1992, the
American Century-Benham Long-Term Treasury Fund since September, 1992, and
American Century Target Maturities Trust since July, 1990. Mr. Schroeder has
co-managed the American Century-Benham GNMA Fund since January, 1996.
The activities of the Manager are subject only to direction of the
trustees. The Manager pays all of the expenses of the Fund except brokerage,
taxes, interest and fees and expenses of the disinterested Trustees (including
counsel fees) and extraordinary expenses.
For the services provided to the Fund by the Manager, the Fund pays the
Manager a monthly investment advisory fee equal to an amount derived from
applying the Trust's average daily net assets to an investment advisory fee
schedule.
The investment advisory fee rate ranges from .45% to .35% of average daily
net assets, dropping as the Fund's total assets increase.
Code Of Ethics
The Fund 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 Fund's portfolios
obtain preclearance before executing personal trades. With respect to portfolio
managers and other investment personnel, the Code of Ethics prohibits
acquisition of
22 Additional Information You Should Know Prospectus
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 the Fund.
Transfer And Administrative Services
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri, 64111, (the "transfer agent") acts as transfer, administrative
services and dividend paying agent for the Fund. The transfer agent provides
facilities, equipment and personnel to the Fund and is paid for such services by
the Fund. For transfer and administrative services, the Manager, not the Fund,
pays the transfer agent a monthly fee.
The Fund charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from the
transfer agent 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 the 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 paid
by the Manager at the rates normally paid to the transfer agent, which would
otherwise provide the services. Any distribution expenses associated with these
arrangements are also borne by the Manager.
Although there is no sales charge levied by the Fund, transactions in
shares of the Fund may be executed by brokers or investment advisers who charge
a transaction-based fee or other fee for their services. Such charges may vary
among broker-dealers and financial advisors, but in all cases will be retained
by the broker-dealer or financial advisor and not remitted to the Fund or the
Manager. You should be aware of the fact that these transactions may be made
directly with American Century without incurring such fees.
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 the transfer agent are both wholly owned by ACC. James E.
Stowers Jr., Chairman of the board of directors of ACC, controls ACC by virtue
of his ownership of a majority of its common stock.
Distribution Of Fund Shares
The Fund's shares are distributed by American Century Investment Services,
Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting and distributing the Fund's
shares offered by this Prospectus. The Fund does not pay any commissions or
other fees to the Distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of Fund shares.
Expenses
The Fund pays certain operating expenses directly, including, but not
limited to: custodian, audit, and legal fees; fees of the independent 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 Statement of Additional Information
for a more detailed discussion of independent director/trustee compensation.
American Century * Benham Group of Funds
Additional Information You Should Know 23
FURTHER INFORMATION ABOUT THE FUND
The Trust was organized as a Massachusetts business trust in May 1, 1984.
The Trust is a diversified, open-end management investment company. Their
business and affairs are managed by its officers under the direction of the
board of trustees.
The principal office of the Fund is American 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. (international calls: 816-531-5575.)
The Fund is an 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 noncumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of trustees can
elect all of the trustees if they choose to do so, and in such event the holders
of the remaining less-than 50% of the shares will not be able to elect any
person or persons to the board of trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust to
hold annual meetings of shareholders. As a result, shareholders may not vote
each year on the election of members of their boards or the appointment of
auditors. However, pursuant to the Trust's by-laws, the holders of shares
representing at least 10% of the votes entitled to be cast may request that the
Trust hold a special meeting of shareholders. The Trust will assist in the
communication with other shareholders.
We reserve the right to change any of 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 the Fund only in
those states where the Fund's shares have been registered or otherwise qualified
for sale. The Fund will not accept applications from persons residing in states
where the Fund's shares are not registered.
24 Additional Information You Should Know Prospectus
AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY GOVERNMENT INCOME TRUST
American Century-Benham Government Agency Money Market Fund
("Government Agency")
American Century-Benham Short-Term Treasury Fund ("Short-Term Treasury")
American Century-Benham Intermediate-Term Treasury Fund
("Intermediate-Term Treasury")
American Century-Benham Long-Term Treasury Fund ("Long-Term Treasury")
American Century-Benham Adjustable Rate Government Securities Fund ("ARM Fund")
American Century-Benham GNMA Income Fund ("GNMA Fund")
American Century-Benham Inflation-Adjusted Treasury Fund ("Inflation Fund")
4500 Main Street
Kansas City, Missouri 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
revised February 8, 1997
This Statement is not a prospectus but should be read in conjunction with the
Funds' current Prospectus dated September 3, 1996 (except Inflation Fund, which
is dated February 8, 1997). The Funds' Annual Reports for the fiscal year ended
March 31, 1996 is incorporated herein by reference. To obtain a copy of the
Prospectus or Annual Reports, call or write American Century Investments.
TABLE OF CONTENTS
Page
Investment Policies and Techniques 2
Investment Restrictions 10
Portfolio Transactions 17
Valuation of Portfolio Securities 18
Performance 19
Taxes 21
About the Trust 22
Trustees and Officers 23
Investment Advisory Services 26
Transfer and Administrative Services 27
Direct Fund Expenses 28
Expense Limitation Agreement 28
Additional Purchase and Redemption Information 29
Other Information 30
Note: Throughout this document, Short-Term Treasury, Intermediate-Term Treasury,
Long-Term Treasury, ARM Fund, GNMA Fund and Inflation Fund are referred to
collectively as the "Variable-Price Funds."
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American Century Government Income Trust
Statement of Additional Information
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INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of the securities and
investment practices identified in the Prospectus. Unless otherwise noted, the
policies described in this Statement of Additional Information are not
fundamental and may be changed by the board of trustees.
Repurchase Agreements (Variable Price Funds)
The Funds may engage in repurchase agreements collateralized by U.S. Treasury
bills, notes, and bonds, or by mortgage-backed GNMA certificates, which are
guaranteed by the Government National Mortgage Association and backed by the
full faith and credit of the U.S. government.
Repos may involve risks not associated with direct investments in U.S.
government debt securities. If the seller fails to complete the terms of the
agreement, the Fund may experience delays in recovering its cash or incur costs
in the disposal of securities it has purchased under the agreement. The Fund
could also suffer a loss if the securities decline in value before they can be
sold in the open market.
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.
Benham Management Corporation (the "Manager") 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 trustees;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed upon resale price, provided however that the board of trustees
may determine that a broker-dealer's credit standing is sufficient to allow
collateral to fall to as low as 101% of the agreed upon resale price before
the broker-dealer deposits additional securities with the Fund's custodian;
(5) Investing no more than 10% of the Fund's total assets in repurchase
agreements of more than seven days' duration (although the underlying
securities usually will have longer maturities);
(6) Taking delivery of securities subject to repurchase agreements and holding
them in a segregated account at the Fund's custodian bank.
The Funds have received permission from the SEC to participate in pooled
repurchase agreements collateralized by U.S. government securities with other
mutual funds advised by the Manager or its affiliates. Pooled repos are expected
to increase the income a Fund can earn from repo transactions without increasing
the risks associated with these transactions.
Under the Investment Company Act of 1940 (the "1940 Act"), repos are considered
to be loans.
When-Issued Purchases and Forward Commitments (all Funds)
The Funds 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, each
Fund assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Although a Fund will make commitments to purchase or sell
securities with the intention of actually receiving or delivering them, it may
sell the securities before the settlement date if it is deemed advisable as a
matter of investment strategy.
2
American Century Government Income Trust
Statement of Additional Information
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In purchasing securities on a when-issued or forward commitment basis, a Fund
will establish and maintain until the settlement date a segregated account
consisting of cash, U.S. government securities, or 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, through sales of when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Selling securities to meet when-issued or forward commitment
obligations may generate taxable capital gains or losses.
Roll Transactions
A 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, a 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 a Fund
owns. The Fund will sell that security to the broker-dealer and simultaneously
enter into a forward commitment agreement to buy it back at a future date. This
type of transaction generates income for the Fund if the dealer is willing to
execute the transaction at a favorable price in order to acquire a specific
security. As an operating policy, the Manager limits forward commitment
transactions (including roll transactions) to 35% of a Fund's total assets and
will not enter into when-issued or forward commitment transactions with
settlement dates that exceed 120 days.
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 securities in an amount sufficient to meet the purchase price, as
described above.
Interest Rate Resets on Floating-Rate U.S. Government Agency Securities
Interest rate resets on floating-rate U.S. government agency securities
generally occur at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indexes,
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost of funds index. Commonly used indexes include the
three-month, six-month, and one-year Treasury bill rate; the two-year Treasury
note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index
(EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the
prices of floating-rate U.S. government agency securities are typically
attributed to differences between the coupon rates on these securities and
prevailing market interest rates between interest rate reset dates.
Master Demand Notes (Government Agency only)
Government Agency may acquire variable-rate master demand notes issued by U.S.
government agencies such as the Student Loan Marketing Association. Master
demand notes allow the Fund to lend money at varying rates of interest under
direct agreements with borrowers. The Fund may adjust the amount of money loaned
under a master demand note daily or weekly up to the full amount specified in
the agreement, and the borrower may prepay up to the full amount of the loan
without penalty. Master demand notes may or may not be backed by bank letters of
credit. Although, as direct agreements between lenders and borrowers, there is
no secondary market for master demand notes, these instruments are redeemable
(immediately repayable by the borrower) at par plus accrued interest at any
time.
Securities Lending (All Funds Except Intermediate-Term Treasury)
The Manager may seek approval from the board of trustees to engage in securities
lending on behalf of the Funds. Such loans would be made with the intention of
allowing the Funds to earn additional income. If a borrower defaulted on a
securities loan, the lending Fund could experience delays in recovering the
securities it loaned; if the value of the loaned securities increased in the
meantime, the Fund could suffer a loss. To minimize the risk of default on
securities loans, the Manager adheres to the following guidelines prescribed by
the board of trustees:
(1) Type and Amount of Collateral. At the time a loan is made, the Fund must
receive, from or on behalf of a borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by a Fund in connection with loans of portfolio
securities may be commingled by the Fund's custodian with other cash and
marketable securities, provided that the loan agreement expressly allows
such commingling.
(2) Additions to Collateral. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the
3
American Century Government Income Trust
Statement of Additional Information
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extent necessary to maintain the 102% level specified in guideline (1)
above. The borrower must deposit additional collateral no later than the
business day following the business day on which a collateral deficiency
occurs or collateral appears to be inadequate.
(3) Termination of Loan. The Fund must have the ability to terminate a loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice. The normal settlement period
for U.S. government securities is typically two trading days.
(4) Reasonable Return on Loan. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
or all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S. government securities.
(5) Limitations on Percentage of Fund Assets on Loan. A Fund's loans may not
exceed 33 1/3 % of its total assets.
(6) Credit Analysis. As part of the regular monitoring procedures set forth by
the board of trustees that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor
the creditworthiness of all borrowers with which portfolio lending
arrangements are contemplated or entered into.
Mortgage-Backed Securities (ARM Fund and GNMA Fund)
Background. A mortgage-backed security represents an ownership interest in a
pool of mortgage loans. The loans are made by financial institutions to finance
home and other real estate purchases. As the loans are repaid, investors receive
payments of both interest and principal.
Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest over the life of the security. However,
unlike a bond, which returns principal to the investor in one lump sum at
maturity, mortgage-backed securities return principal to the investor in
increments over the life of the security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages, or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage securities rise, and vice versa. Changing interest rates have
additional significance for mortgage-backed securities investors, however,
because they influence prepayment rates (the rates at which mortgage holders
prepay their mortgages), which in turn affect the yields on mortgage-backed
securities. When interest rates decline, prepayment rates generally increase.
Mortgage holders take advantage of the opportunity to refinance their mortgages
at lower rates with lower monthly payments. When interest rates rise, mortgage
holders are less inclined to refinance their mortgages. The effect of prepayment
activity on yield depends on whether the mortgage-backed security was purchased
at a premium or at a discount.
A Fund may get back principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the Fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a Fund might miss an opportunity to earn interest at higher
prevailing rates.
Ginnie Mae Certificates. The Government National Mortgage Association (GNMA or
Ginnie Mae) is a wholly owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. The National Housing Act
of 1934 (Housing Act), as amended, authorizes Ginnie Mae to guarantee the timely
payment of interest and repayment of principal on certificates that are backed
by a pool of mortgage loans insured by the Federal Housing Administration under
the Housing Act, or by Title V of the Housing Act of 1949 (FHA Loans), or
guaranteed by the Veterans' Administration under the Servicemen's Readjustment
Act of 1944 (VA Loans), as amended, or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit of the U.S.
government is pledged to the payment of all amounts that may be required to be
paid under any guarantee. Ginnie Mae has unlimited authority to borrow from the
U.S. Treasury in order to meet its obligations under this guarantee.
Ginnie Mae certificates represent a pro rata interest in one or more pools of
the following types of mortgage loans: (a) fixed-rate level payment mortgage
loans; (b) fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate
growing equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects
4
American Century Government Income Trust
Statement of Additional Information
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(PLCs); (g) fixed-rate mortgage loans that use escrowed funds to reduce the
borrower's monthly payments during the early years of the mortgage loans
(buydown mortgage loans); and (h) mortgage loans that provide for payment
adjustments based on periodic changes in interest rates or in other payment
terms of the mortgage loans.
Fannie Mae Certificates. The Federal National Mortgage Association (FNMA or
Fannie Mae) is a federally chartered and privately owned corporation established
under the Federal National Mortgage Association Charter Act. Fannie Mae was
originally established in 1938 as a U.S. government agency designed to provide
supplemental liquidity to the mortgage market and was reorganized as a
stockholder-owned and privately managed corporation by legislation enacted in
1968. Fannie Mae acquires capital from investors who would not ordinarily invest
in mortgage loans directly and thereby expands the total amount of funds
available for housing. This money is used to buy home mortgage loans from local
lenders, replenishing the supply of capital available for mortgage lending.
Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a governmental agency) of
the following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.
Freddie Mac Certificates. The Federal Home Loan Mortgage Corporation (FHLMC or
Freddie Mac) is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970 (FHLMC Act), as amended.
Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit. Its principal activity consists of purchasing
first-lien conventional residential mortgage loans (and participation interests
in such mortgage loans) and reselling these loans in the form of mortgage-backed
securities, primarily Freddie Mac certificates.
Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.
Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on an underlying mortgage loan, but no later than 30 days
following (a) foreclosure sale, (b) payment of a claim by any mortgage insurer,
or (c) the expiration of any right of redemption, whichever occurs later, and in
any event no later than one year after demand has been made upon the mortgager
for accelerated payment of principal. Obligations guaranteed by Freddie Mac are
not backed by the full faith and credit of the U.S. government.
Collateralized Mortgage Obligations (CMOs). A CMO is a multiclass bond backed by
a pool of mortgage pass-through certificates or mortgage loans. CMO's may be
collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, or (d) any combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called "tranches". Each CMO is a set of two
or more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven, and twenty
years.
As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
"sequential pay" or "plain vanilla" CMO.
5
American Century Government Income Trust
Statement of Additional Information
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Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as an
"accrual bond" or "accretion bond." Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche-known as a companion bond, support, or
non-PAC bond--that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that is
usually tied to the London Interbank Offered Rate (LIBOR). Institutional
investors with short-term liabilities, such as commercial banks, often find
floating-rate CMOs attractive investments. "Super floaters" (which float a
certain percentage above LIBOR) and "inverse floaters" (which float inversely to
LIBOR) are variations on the floater structure that have highly variable cash
flows.
Stripped Mortgage-Backed Securities (ARM Fund only). Stripped mortgage
securities are created by segregating the cash flows from underlying mortgage
loans or mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each investor
class receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type of
security, known as an interest-only security, or IO, and all of the principal is
distributed to holders of another type of security known as a principal-only
security, or PO. Strips can be created in a pass-through structure or as
tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a Fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
Adjustable-Rate Mortgage Loans (ARMs). ARMs eligible for inclusion in a mortgage
pool will generally provide for a fixed initial mortgage interest rate for a
specified period of time, generally for either the first three, six, twelve,
thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter, the
interest rates are subject to periodic adjustment based on changes in an index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indexes that provide the basis for ARM rate adjustments:
those based on market rates and those based on a calculated measure, such as a
cost of funds index or a moving average of mortgage rates. Commonly utilized
indexes include the one-year, three-year, and five-year constant maturity U.S.
Treasury rates (as reported by the Federal Reserve Board); the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the Eleventh District Federal Home Loan Bank Cost of Funds
Index (EDCOFI); the National Median Cost of Funds Index; the one-month,
three-month, six-month, or one-year London Interbank Offered Rate (LIBOR); or
six-month CD rates. Some indexes, such as the one-year constant maturity
Treasury rate or three-month LIBOR, are highly correlated with changes in market
interest rates. Other indexes, such as the EDCOFI, tend to lag behind changes in
market rates and be somewhat less
6
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volatile over short periods of time.
The EDCOFI reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California, and Nevada (the Federal Home Loan Bank Eleventh District) and who
are member institutions of the Federal Home Loan Bank of San Francisco (the FHLB
of San Francisco), as computed from statistics tabulated and published by the
FHLB of San Francisco. The FHLB of San Francisco normally announces the Cost of
Funds Index on the last working day of the month following the month in which
the cost of funds was incurred.
One-year and three-year Constant Maturity Treasury (CMT) rates are calculated by
the Federal Reserve Bank of New York, based on daily closing bid yields on
actively traded Treasury securities submitted by five leading broker-dealers.
The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is calculated
monthly by the Federal Home Loan Bank Board (FHLBB) and represents the average
monthly interest expenses on liabilities of member institutions. A median,
rather than an arithmetic mean, is used to reduce the effect of extreme numbers.
The London Interbank Offered Rate Index (LIBOR) is the rate at which banks in
London offer Eurodollars in trades between banks. LIBOR has become a key rate in
the U.S. domestic money market because it is perceived to reflect the true
global cost of money.
The Manager may invest in ARMs whose periodic interest rate adjustments are
based on new indexes as these indexes become available.
Zero-Coupon Securities (Short-Term Treasury, Intermediate-Term Treasury,
Long-Term Treasury and Inflation Fund)
Zero-coupon U.S. Treasury securities are the unmatured interest coupons and
underlying principal portions of U.S. Treasury notes and bonds. Originally,
these securities were created by broker-dealers who bought Treasury notes and
bonds and deposited these securities with a custodian bank. The broker-dealers
then sold receipts representing ownership interests in the coupons or principal
portions of the notes and bonds. Some examples of zero-coupon securities sold
through custodial receipt programs are CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and generic TRs
(Treasury Receipts).
The U.S. Treasury subsequently introduced a program called Separate Trading of
Registered Interest and Principal of Securities (STRIPS). In this program,
eligible securities may be presented to the U.S. Treasury and exchanged for
their component parts, which are then traded in book-entry form. (Book-entry
trading eliminated the bank credit risks associated with broker-dealer sponsored
custodial receipt programs.) STRIPS are direct obligations of the U.S.
government and have the same credit risks as other U.S. Treasury securities.
Principal and interest on bonds issued by the Resolution Funding Corporation
(REFCORP) have also been separated and issued as stripped securities. The U.S.
government and its agencies may issue securities in zero-coupon form. These
securities are referred to as "original issue zero-coupon securities."
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below are fundamental and may not
be changed without approval of a majority of the votes of shareholders of the
Fund, as determined in accordance with the Investment Company Act of 1940.
Government Agency may not:
(1) Borrow money in excess of 33 1/3 % of the market value of its total assets.
The Fund may borrow from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes, 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.
The Fund may also borrow money for temporary or emergency purposes from
other funds or portfolios for which Benham Management Corporation is the
investment advisor, or from a joint account of such funds or portfolios, as
permitted by federal regulatory agencies.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or
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other mineral exploration or development programs, provided that this
limitation shall not prohibit the purchase of U.S. government securities
and other debt securities secured by real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities which are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities.
Short-Term Treasury may not:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, (a) more than
5% of the Fund's 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) Issue senior securities, except as permitted under the Investment Company
Act of 1940 and except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(3) Borrow money, except for temporary or emergency purposes, and then only
from a bank. Such borrowings may not exceed 33 1/3 % of the Fund's total
assets.
(4) Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in disposing of restricted securities.
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
(6) Purchase or sell real estate unless acquired as result of ownership of
securities or other instruments, provided that this limitation will not
prohibit the Fund from purchasing U.S. government securities secured by
real estate or interests therein.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, provided that this limitation
will not prohibit the Fund from purchasing and selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.
(8) Make loans, other than loans of portfolio securities pursuant to guidelines
established by the board of trustees, provided that this restriction will
not prohibit the Fund from purchasing debt securities in accordance with
its investment objectives and policies. Loans, in the aggregate, will be
limited to 33 1/3 % of the Fund's total assets.
Intermediate-Term Treasury may not:
(1) Purchase the securities of any issuer other than the U.S. Treasury. This
restriction shall not apply to repurchase agreements consisting of U.S.
government securities or to purchases by the Fund of shares of other
investment companies, provided that not more than 3% of such investment
company's outstanding shares would be held by the Fund, not more than 5% of
the value of the Fund's assets would be invested in shares of such company,
and not more than 10% of the value of the Fund's assets would be invested
in shares of investment companies in the aggregate.
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(2) Engage in any short-selling operations.
(3) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(4) Purchase or sell real estate, commodities, or commodity contracts, or buy
and sell foreign exchange.
(5) Purchase securities for which the Fund might be liable for further payment
or liability.
(6) Invest in portfolio securities that the Fund may not be free to sell to the
public without registration under the Securities Act of 1933 or the taking
of similar actions under other securities laws relating to the sale of
securities.
(7) Issue or sell any class of senior security, except to the extent that notes
evidencing temporary borrowing might be deemed such.
(8) Lend money other than through the purchase of debt securities in accordance
with its investment policy (this restriction does not apply to repurchase
agreements).
(9) Borrow money except from a bank as a temporary measure to satisfy
redemption requests, or for extraordinary or emergency purposes and then
only in an amount not exceeding 33 1/3 % of the market value of the Fund's
total assets, so 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 not pledge or hypothecate 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.
Long-Term Treasury may not:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result (a) more than
5% of the Fund's 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) Issue senior securities, except as permitted under the Investment Company
Act of 1940 and except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(3) Borrow money, except for temporary or emergency purposes, and then only
from a bank. Such borrowings may not exceed 33 1/3 % of the Fund's total
assets.
(4) Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in disposing of restricted securities.
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
(6) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, provided that this limitation will not
prohibit the Fund from purchasing U.S. government securities secured by
real estate or interests therein.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, provided that this limitation
will not prohibit the Fund from purchasing and selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.
(8) Make loans, other than loans of portfolio securities pursuant to guidelines
established by the board of trustees, provided that this restriction will
not prohibit the Fund from purchasing debt securities in accordance with
its investment objectives and policies. Loans, in the aggregate, will be
limited to 33 1/3 %of the Fund's total assets.
ARM Fund may not:
(1) Borrow money 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.
(2) Act as an underwriter of securities issued by others.
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(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would
be held by the Fund, more than 5% of the value of the Fund's assets would
be invested in shares of such investment company, or more than 10% of the
value of the Fund's assets would be invested in shares of investment
companies in the aggregate, or except in connection with a merger,
consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer together own beneficially more than
5% of such securities.
GNMA Fund may not:
(1) Borrow money 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.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.
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(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer together own beneficially more than
5% of such securities.
Inflation Fund may not:
(1) Issue senior securities, except as permitted under the 1940 Act.
(2) Borrow money, except as permitted under the 1940 Act.
(3) Lend any security or make any other loan if, except as permitted under the
1940 Act.
(4) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
(5) Act as underwriter of securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
Some of the Funds are also subject to the following restrictions that are not
fundamental and may therefore be changed by the board of trustees without
shareholder approval.
Government Agency may not:
(a) Invest in oil, gas, or other mineral leases.
Short-Term Treasury may not:
(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) Purchase restricted securities.
(e) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(f) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(g) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(h) Purchase any equity securities, including warrants or bonds with warrants
attached, or any preferred stocks, convertible bonds, or convertible
debentures.
(i) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(j) Purchase securities of any issuer if, to the knowledge of the Fund's
investment advisor, those trustees and officers of the Trust and those
directors and officers of the investment advisor who individually own more
than 0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
(k) Invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation and securities of issuers which are
restricted as to disposition (including 144A securities).
Long-Term Treasury may not:
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(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
Atotal assets are outstanding.
(d) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(e) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(f) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(g) Purchase any equity securities, including warrants or bonds with warrants
attached, or any preferred stocks, convertible bonds, or convertible
debentures.
(h) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(i) Purchase securities of any issuer if, to the knowledge of the Fund's
investment advisor, those trustees and officers of the Trust, and those
directors and officers of the investment advisor who individually own more
than 0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
(j) Invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation and securities of issuers which are
restricted as to disposition (including 144A securities).
(k) Purchase restricted securities.
ARM Fund may not:
(a) Invest in oil, gas, or other mineral leases.
Portfolio Transactions
Each Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objectives, policies, and restrictions, and with any
instructions from the board of trustees that may be issued from time to time.
Within this framework, the Manager 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 Funds.
In placing orders for the purchase and sale of portfolio securities, the Manager
will use its best possible price and execution and will otherwise place orders
with broker-dealers subject to and in accordance with any instructions the board
of trustees may issue from time to time. The Manager will select broker-dealers
to execute portfolio transactions on behalf of the Funds 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 Funds, the Manager 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 Funds' transaction costs
consist solely of custodian charges and dealer mark-ups. Each Fund may hold its
portfolio securities to maturity or sell or swap them for others, depending upon
the level and slope of, and anticipated changes in, the yield curve. The Funds
paid no brokerage commissions during the fiscal year ended March 31, 1996.
The portfolio turnover rates for each of the Variable Price Funds appear in the
Financial
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Highlights appearing in the Prospectus.
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share ("NAV") is calculated by American Century
Services Corporation (the "transfer agent"), 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 the transfer agent expects the same holiday
schedule to be observed in the future, the Exchange may modify its holiday
schedule at any time.
Each Fund's share price is calculated by adding the value of all portfolio
securities and other assets, deducting liabilities, and dividing the result by
the number of shares outstanding. Expenses and interest on portfolio securities
are accrued daily.
Securities held by Government Agency 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 a
period 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 Government Agency, holding
itself out as a money market fund, must adhere to certain quality and maturity
criteria which are described in the Prospectus.
The trustees have established procedures designed to stabilize, to the extent
reasonably possible, Government Agency's NAV at $1.00 per share. These
procedures require the Fund's chief financial officer to notify the trustees
immediately if, at any time, the Fund's weighted average maturity exceeds 60
days, or its NAV, as determined by using available market quotations, deviates
from its amortized cost per share by .25% or more. If such deviation exceeds
.40%, a meeting of the board of trustees' audit committee will be called to
consider what action, 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 trustees to consider further
action.
Actions the board may consider under these circumstances include (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 for purposes of calculating NAV.
Most securities held by the Variable-Price Funds are valued at current market
value as provided by an independent pricing service. Other securities are priced
at fair value as determined in good faith pursuant to guidelines established by
the Fund's board of trustees.
PERFORMANCE
A 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. A Fund's share price, yield and return will vary with changing market
conditions.
For Government Agency, yield quotations 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:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the seven-day period ended March 31, 1996, the Agency Fund's yield was
4.73%, and its effective yield was 4.84%.
For the Variable-Price Funds, yield quotations are based on the investment
income per share earned during a particular 30-
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day period, less expenses accrued during the period (net investment income), and
are computed by dividing the Fund's net investment income by its share price on
the last day of the period, according to the following formula:
YIELD = 2 [(a - b + 1)6 - 1]
------
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
Each Variable-Price Fund's yield for the 30-day period ended March 31, 1996, is
indicated in the following table.
Fund 30-day Yield
Short-Term Treasury 5.02%
Intermediate-Term Treasury 5.43
Long-Term Treasury 6.18
ARM Fund 5.43
GNMA Fund 6.86
Inflation Fund N/A
Total returns quoted in advertising and sales literature reflect all aspects of
a Fund's return, including the effect of reinvesting dividends and capital gain
distributions and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a 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 return of 100% over
ten 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 ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Funds' performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to actual year-to-year
performance. The Funds' average annual returns for the one-year, five-year,
ten-year, and life-of-fund periods ended March 31, 1996, are indicated in the
following table.
<TABLE>
<CAPTION>
Average Annual Total Returns
Fund One Year Five Years Ten Years Life of Fund
<S> <C> <C> <C> <C>
Government Agency 5.35% 4.17% N/A 4.98(1)%
Short-Term Treasury 6.71 N/A N/A 4.35(2)
Intermediate-Term Treasury 8.42 7.14 6.85 8.99(3)
Long-Term Treasury 13.46 N/A N/A 7.26(2)
ARM Fund 6.42 N/A N/A 4.62(4)
GNMA Fund 10.08 7.93 8.50 8.99(5)
1 Government Agency commenced operations on December 5, 1989.
2 Short-Term Treasury and Long-Term Treasury commenced operations on September
8, 1992.
3 Intermediate-Term Treasury commenced operations on May 16, 1980.
4 ARM Fund commenced operations on September 3, 1991.
5 GNMA Fund commenced operations on September 23, 1985.
</TABLE>
In addition to average annual total returns, each 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. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Performance information may be quoted numerically or in a table, graph,
or similar illustration.
14
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
The Funds' 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 American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock market
performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The Funds 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.
TAXES
Each 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, each Fund will not incur federal income taxes on its net
investment income and on net realized capital gains to the extent distributed as
dividends to shareholders.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, a Fund must distribute during each calendar year
an amount equal to the sum of (a) at least 98% if its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are federally taxable to shareholders as ordinary income, regardless of
whether such dividends are taken in cash or reinvested in additional shares.
Distributions made from a Fund's net realized long-term capital gains 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 Funds. A distribution will be treated as paid on December
31st of a calendar year if it is declared by a 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.
Upon redeeming, selling, or exchanging shares of a Variable-Price Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares liquidated. The gain or loss generally will be long-term or
short-term depending on the length of time the shares were held. However, a loss
recognized by a shareholder in the disposition of shares on which capital gain
dividends were paid (or deemed paid) before the shareholder had held his or her
shares for more than six months would be treated as a long-term capital loss for
tax purposes to the extent of capital gain dividends paid (or deemed paid).
As of March 31, 1996, capital loss carryovers were as follows: $7,505,846
(Intermediate-Term Treasury), $857,191 (Long-Term Treasury), $69,205,630 (ARM
Fund), and $23,041,420 (GNMA Fund). All loss carryovers will expire during the
period March 31, 2000 through March 31, 2004. A Fund will not make capital gain
distributions to its shareholders until all of its capital loss carryovers have
been offset or expired.
15
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
The Funds may invest in obligations issued at a discount. In that case, a
portion of the discount element generally is included in the Fund's investment
company taxable income in each taxable period in which the obligation is held.
Such amounts are subject to the Fund's tax-related distribution requirements
even if not received by the Fund in cash in that period.
Dividends paid by Government Agency, Short-Term Treasury, Intermediate-Term
Treasury, and Long-Term Treasuryare exempt from state personal income taxes in
all states to the extent these Funds derive their income from debt securities of
the U.S. government, whose interest payments are state tax-exempt.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences. The Funds' distributions may also be
subject to state, local, or foreign taxes. To determine whether a Fund is a
suitable investment based on his or her tax situation, a prospective investor
may wish to consult a tax advisor.
ABOUT THE TRUST
American Century Government Income Trust, formerly known as Benham Government
Income Trust, was organized as a Massachusetts business trust on July 24, 1985.
Currently, there are seven series of the Trust as follows: American
Century-Benham Government Agency Money Market Fund, American Century-Benham
Short-Term Treasury Fund, American Century-Benham Intermediate-Term Treasury
Fund, American Century-Benham Long-Term Treasury Fund, American Century-Benham
Adjustable Rate Government Securities Fund, American Century-Benham GNMA Fund
and American Century-Benham Inflation-Adjusted Treasury Fund. The board of
trustees may create additional series from time to time.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest without par value, which may
be issued in series (funds). Shares issued are fully paid and nonassessable and
have no preemptive, conversion, or similar rights.
Each series votes separately on matters affecting that series exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all series') outstanding shares may elect a board of trustees.
The Trust has instituted dollar-based voting, meaning that the number of votes
you are entitled to is based upon the dollar value of your investment. The
election of trustees is determined by the votes received from all Trust
shareholders, without regard to whether a majority of shareholders of any one
series voted in favor of a particular nominee or all nominees as a group. Shares
of each series have equal rights as to dividends and distributions declared by
the series and in the net assets of such series upon its liquidation or
dissolution.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees, and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss because of shareholder
liability is limited to circumstances in which both inadequate insurance exists
and the Trust is unable to meet its obligations.
Custodian Banks: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245, is custodian of the assets of the Funds. Services provided by the
custodian bank include (a) settling portfolio purchases and sales, (b) reporting
failed trades, (c) identifying and collecting portfolio income, and (d)
providing safekeeping of securities. The custodian takes no part in determining
the Fund's investment policies or in determining which securities are sold or
purchased by the Fund.
Independent Auditors: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
16
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a board of trustees, including seven
independent trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act of 1940) by virtue of, among other considerations, their affiliation
with either the Trust; the Manager; the transfer agent; the Trust's distribution
agent, American Century Investment Services, Inc.; the parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each trustee listed below serves as a trustee or
director of other funds managed by the Manager. Unless otherwise noted, dates in
parentheses indicate the dates the trustee or officer began his or her service
in a particular capacity. The trustees' 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.
Trustees
*JAMES M. BENHAM, chairman of the board of trustees (1985); president and chief
executive officer (1996). Mr. Benham is also chairman of the boards of Benham
Financial Services, Inc. (BFS), the Manager (1971), and Benham Distributors,
Inc. (BDI) (1988); president of the Manager (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 trustee (1995). Mr. Eisenstat is an independent
director of each of Commercial Metals Co. (1982), Sungard Data Systems (1991)
and Business Objects S/A (1994). Previously, he served as vice president of
corporate development and corporate secretary of Apple Computer and served on
its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent trustee (1995); 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 trustee (1985). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983) and a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent trustee (1985). 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 trustee (1985). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a director of
Encyclopedia Britannica.
ISAAC STEIN, independent trustee (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, trustee (1995); Mr. Stowers III is president and director
of American Century Mutual Funds, Inc., TCI Portfolios, Inc., American Century
World Mutual Funds, Inc., American Century Premium Reserves, Inc., American
Century Capital Portfolios, Inc., American Century Companies, Inc., American
Century Investment Management, Inc.and American Century Services Corporation.
JEANNE D. WOHLERS, independent trustee (1985). 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).
17
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
*DOUGLAS A. PAUL, secretary (1988), vice president (1990), and general counsel
(1990); secretary, vice president and general counsel of the Manager and all of
the funds managed by the Manager.
*MARYANNE ROEPKE, CPA, chief financial officer and treasurer (1995); vice
president, treasurer and principal accounting officer, American Century
Strategic Asset Allocations, Inc.; vice president and treasurer, American
Century Mutual Funds, Inc., American Century World Mutual Funds, Inc., American
Century Capital Portfolios, Inc., American Century Premium Reserves, Inc. and
TCI Portfolios, Inc.; vice president, American Century Services Corporation.
*C. JEAN WADE, CPA, controller (1996); controller, American Century Premium
Reserves, Inc., American Century-Benham Capital Preservation Fund, American
Century-Benham Capital Preservation Fund II, American Century Target Maturities
Trust, American Century California Tax-Free and Municipal Funds, American
Century Municipal Trust and American Century Investment Trust; formerly,
accountant, Baird, Kurtz & Dobson.
The table on the next page summarizes the compensation that the trustees of the
Funds received 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 the Manager.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Name of Aggregate Pension or Estimated Total
Trustee* Compensation Retirement Benefits Annual Benefits Compensation
From Accrued As Part of Upon Retirement From Fund and
Each Fund Fund Expenses Fund Complex**
Paid to Trustees
<S> <C> <C> <C> <C>
Albert A. Eisenstat $ 267 (Government Agency) Not Applicable Not Applicable $29,500
20 (Short-Term Treasury)
165 (Intermediate-Term Treasury)
55 (Long-Term Treasury)
165 (ARM Fund)
593 (GNMA Fund)
Ronald J. Gilson $1,450 (Government Agency) Not Applicable Not Applicable $79,833
885 (Short-Term Treasury)
1,222 (Intermediate-Term Treasury)
929 (Long-Term Treasury)
1,252 (ARM Fund)
2,178 (GNMA Fund)
Myron S. Scholes $1,776 (Government Agency) Not Applicable Not Applicable $69,500
1,066 (Short-Term Treasury)
1,492 (Intermediate-Term Treasury)
1,110 (Long-Term Treasury)
1,549 (ARM Fund)
2,683 (GNMA Fund)
Kenneth E. Scott $2,032 (Government Agency) Not Applicable Not Applicable $75,773
1,084 (Short-Term Treasury)
1,649 (Intermediate-Term Treasury)
1,169 (Long-Term Treasury)
2,702 (ARM Fund)
3,258 (GNMA Fund)
Ezra Solomon $1,765 (Government Agency) Not Applicable Not Applicable $70,249
1,060 (Short-Term Treasury)
1,481 (Intermediate-Term Treasury)
1,118 (Long-Term Treasury)
1,523 (ARM Fund)
2,661 (GNMA Fund)
Isaac Stein $1,791 (Government Agency) Not Applicable Not Applicable $70,500
1,068 (Short-Term Treasury)
1,503 (Intermediate-Term Treasury)
1,120 (Long-Term Treasury)
18
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
1,557 (ARM Fund)
2,727 (GNMA Fund)
Jeanne D. Wohlers $1,825 (Government Agency) Not Applicable Not Applicable $71,250
1,069 (Short-Term Treasury)
1,521 (Intermediate-Term Treasury)
1,127 (Long-Term Treasury)
1,571 (ARM Fund)
2,799 (GNMA Fund)
* Interested trustees receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
As of July 31, 1996, the Trust's officers and trustees, as a group, owned less
than 1% of the outstanding shares of each Fund.
INVESTMENT ADVISORY SERVICES
The Funds have an investment advisory agreement with the Manager dated June 1,
1995, that was approved by shareholders on May 31, 1995.
The Manager is a California corporation and a wholly owned subsidiary of ACC, a
Delaware corporation. The Manager , as well as its affiliates, became wholly
owned subsidiaries of ACC on June 1, 1995, upon the merger of Benham Management
International (BMI), the former parent of the Manager, into ACC. The Manager has
served as investment advisor to the Fund since the Fund's inception. ACC 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 American Century family of funds. James E. Stowers, Jr.,
controls ACC by virtue of his ownership of a majority of its common stock. The
Manager has been a registered investment advisor since 1971 and is investment
advisor to many of American Century's mutual funds.
Each Fund's agreement with the Manager 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
shareholders or by vote of a majority of the Trust's trustees, including a
majority of those trustees who are neither parties to the agreement nor
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
Each Fund's agreement is terminable on sixty days' written notice, either by the
Fund or by the Manager, to the other party, and terminates automatically in the
event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides the Fund
with investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. The Manager determines
what securities will be purchased and sold by the Fund and assist the Trust's
officers in carrying out decisions made by the board of trustees.
For these services, each Fund pays the Manager a monthly investment advisory fee
based on a percentage of the Trust's average daily net assets to the following
investment advisory fee schedule:
.50% of the first $100 million
.45% of the next $100 million
.40% of the next $100 million
.35% of the next $100 million
.30% of the next $100 million
.25% of the next 1 billion
.24% of the next 1 billion
.23% of the next 1 billion
.22% of the next 1 billion
.21% of the next 1 billion
.20% of the next 1 billion
.19% of average daily net assets over $6.5 billion
Investment advisory fees paid by each Fund to the Manager for the fiscal years
ended March 31, 1996, 1995 and 1994,
19
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
are indicated in the following table. Fee amounts are net of reimbursements as
described below.
<TABLE>
<CAPTION>
Investment Advisory Fees
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
<S> <C> <C> <C>
Government Agency $1,104,214 $1,014,951 $1,073,248
Short-Term Treasury 118,721 60,440 11,846
Intermediate-Term Treasury 867,876 875,087 1,020,441
Long-Term Treasury 174,665 33,915 7,598
ARM Fund 971,274 1,646,614 3,282,058
GNMA Fund 2,980,327 2,807,230 3,322,727
</TABLE>
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri,
64111, (the transfer agent) acts as transfer, administrative services and
dividend paying agent for the Funds. The transfer agent provides facilities,
equipment and personnel to the Funds and is paid for such services by the Funds.
For administrative services, each Fund pays the transfer agent 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
For transfer agent services, each Fund pays the transfer agent a monthly fee of
$1.3958 for each shareholder account maintained and $1.35 for each shareholder
transaction executed during that month.
Administrative service and transfer agent fees paid by each Fund for the fiscal
years ended March 31, 1996, 1995, and 1994 are indicated in the following
tables. Fee amounts are net of reimbursements as described on the next page.
<TABLE>
<CAPTION>
Administrative Fees
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
<S> <C> <C> <C>
Government Agency $475,745 $478,410 $564,901
Short-Term Treasury 39,657 30,662 21,286
Intermediate-Term Treasury 301,079 312,814 378,294
Long-Term Treasury 69,302 23,884 19,336
ARM Fund 423,862 595,079 1,215,816
GNMA Fund 1,149,339 1,003,636 1,232,514
Transfer Agent Fees
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
Government Agency $591,421 $636,462 $863,944
Short-Term Treasury 44,415 36,254 29,973
Intermediate-Term Treasury 283,949 317,653 356,584
Long-Term Treasury 120,818 37,365 26,909
ARM Fund 329,830 684,702 1,141,251
GNMA Fund 1,033,782 1,178,768 1,348,081
</TABLE>
DIRECT FUND EXPENSES
Each Fund pays certain operating expenses that are not assumed by the Manager or
the transfer agent. These include fees and expenses of the independent trustees;
custodian, audit, and pricing fees; fees of outside counsel and counsel
20
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
employed directly by the Trust; costs of printing and mailing prospectuses,
statements of additional information, notices, confirmations, and reports to
shareholders; fees for registering the Fund's shares under federal and state
securities laws; brokerage fees and commissions; trade association dues; costs
of fidelity and liability insurance policies covering the Fund; costs for
incoming WATS lines maintained to receive and handle shareholder inquiries; and
organizational costs.
EXPENSE LIMITATION AGREEMENT
The Manager has agreed to limit each Fund's expenses to a specified percentage
of its average daily net assets during the year ending May 31, 1997, as follows:
Government Agency .60%
Short-Term Treasury .60%
Intermediate-Term Treasury .60%
Long-Term Treasury .60%
ARM Fund .60%
GNMA Fund .60%
Inflation Fund ___%
The Manager may recover amounts absorbed on behalf of the Funds during the
preceding 11 months if, and to the extent that, for any given month, a Fund's
expenses were less than the expense limit in effect at that time. Each Fund's
expense limit for the years ending May 31, 1996 and 1995, as a percentage of
average daily net assets, is listed below:
1996 1995
Government Agency .50% .50%
Short-Term Treasury .65% .66%
Intermediate-Term Treasury .65% .66%
Long-Term Treasury .65% .66%
ARM Fund .65% .60%
GNMA Fund .65% .66%
Net amounts absorbed or recouped for the fiscal years ended March 31, 1996,
1995, and 1994, are indicated in the table on the next page.
<TABLE>
<CAPTION>
Net Expense Absorbed (Recouped)
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
<S> <C> <C> <C>
Government Agency $267,261 $323,152 $451,622
Short-Term Treasury (4,468) 25,537 45,651
Intermediate-Term Treasury 0 0 0
Long-Term Treasury 25,358 33,125 44,468
ARM Fund (20,799) 11,331 0
GNMA Fund 0 0 0
</TABLE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' 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.
American Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a Fund's tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a Fund's best interest.
As of July 31, 1996, to the knowledge of the Trust, the shareholders listed in
the chart below and on the next page were record holders of greater than 5% of
the outstanding shares of the individual Funds.
<TABLE>
Fund Shareholder # of Shares Held % of Total
Name and Address Shares Outstanding
21
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury Charles Schwab & Co. 603,137.117 17.6%
101 Montgomery Street
San Francisco, CA 94104
J. Harris Morgan 311,870.707 9.1%
P.O. Box 556
Greenville, TX 75401
Allied Clearings Co. 284,388.710 8.3%
P.O. Box 94303
Pasadena, CA 91109
Intermediate-Term Charles Schwab & Co. 3,200,170.936 10.9%
Treasury 101 Montgomery Street
San Francisco, CA 94104
22
American Century Government Income Trust
Statement of Additional Information
- --------------------------------------------------------------------------------
Fund Shareholder # of Shares Held % of Total
(continued) Name and Address Shares Outstanding
Long-Term Treasury Charles Schwab & Co. 6,328,833.651 49.6%
101 Montgomery Street
San Francisco, CA 94104
Natl. Fincl. Svcs. Corp. 1,236,573.553 9.7%
P.O. Box 3908
New York, NY 10008-3908
ARM Fund Charles Schwab & Co. 1,705,107.859 6.1%
101 Montgomery Street
San Francisco, CA 94104
GNMA Fund Charles Schwab & Co. 16,179,349.628 15.2%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
As of July 31, 1996, to the knowledge of the Trust, no other shareholder was the
record holder or beneficial owner of 5% or more of a Fund's total outstanding
shares.
The transfer agent charges neither fees nor commissions on the purchase and sale
of fund shares. However, the transfer agent may charge fees for special services
requested by a shareholder or necessitated by acts or omissions of a
shareholder. For example, the transfer agent 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
For further information, please refer to 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.
23
BENHAM GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 30
1940 Act Amendment No. 31
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for each series of
Benham Government Income Trust for the fiscal year ended March 31,
1996, are filed herein as included in the Trust's Statement of
Additional Information by reference to the Annual Report dated March
31, 1996, filed on May 24, 1996 (Accession # 0000773674-96-000002).
(b) EXHIBITS.
(1) (a) Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(b) Amendment to Declaration of Trust to be filed by
amendment.
(2) Amended and Restated Bylaws, dated May 17, 1995, are
incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(3) Not applicable.
(4) (a) Specimen copy of Benham GNMA Income Fund share certificate
is incorporated herein by reference to Exhibit 4 to the
registration statement filed on July 26, 1985.
(b) Specimen copy of Benham Adjustable Rate Government
Securities Fund share certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 17
filed on September 30, 1991.
(c) Specimen copy of Benham Treasury Note Fund share
certificate is incorporated herein by reference to Exhibit 4
to Post-Effective Amendment No. 18 filed on November 27, 1991.
(d) Specimen copy of Benham Government Agency Fund share
certificate is incorporated herein by reference to Exhibit 4
to Post-Effective Amendment No. 18 filed on November 27, 1991.
(e) Specimen copy of Benham Short-Term Treasury and Agency
Fund share certificate is incorporated herein by reference to
Exhibit 4(e) to Post-Effective Amendment No. 24 filed on
November 29, 1992.
(f) Specimen copy of Benham Long-Term Treasury and Agency Fund
share certificate is incorporated herein by reference to
Exhibit 4(f) to Post-Effective Amendment No. 24 filed on
November 29, 1992.
(5) Investment Advisory Agreement between Benham Government Income
Trust and Benham Management Corporation, dated June 1, 1995,
is incorporated herein by reference to Exhibit 5 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004)
(6) Distribution Agreement between Benham Government Income Trust
and Twentieth Century Securities, Inc. dated as of September
3, 1996, is included herein.
(7) Not applicable.
(8) (a) Custodian Agreement between Benham Government Income
Trust, on behalf of Benham Treasury Note Fund and Benham
Government Agency Fund, 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).
(b) Custodian Agreement between Benham Government Income
Trust, on behalf of Benham Short-Term Treasury and Agency
Fund, Benham GNMA Income Fund, Benham Long-Term Treasury and
Agency Fund, and Benham Adjustable Rate Government Securities
Fund, and Morgan Guaranty Trust Company of New York, dated
September 21, 1992, is incorporated herein by reference to
Exhibit 8(b) of Post-Effective Amendment No. 24 filed on
November 29, 1992.
(9) Administrative Services and Transfer Agency Agreement between
Benham Government Income Trust and Twentieth Century Services,
dated as of September 3, 1996, is included herein.
(10) (a) 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 # 773674-96-0001).
(b) Opinion and consent of counsel as to the legality of the
American Century Benham Inflation-Adjusted Treasury Fund,
to be filed by amendment.
(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. 23 filed on September 28, 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. 23 filed on September 28, 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. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004)
(17) Power of Attorney dated March 4, 1996 is incorporated
herein by reference to Exhibit 17 of Post-Effective Amendment
No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of November 25, 1996, each series of Benham Government Income Trust had the
following number shareholders of record:
Benham Government Agency Fund 18,582
Benham Short-Term Treasury and Agency Fund 1,186
Benham Treasury Note Fund 10,803
Benham Long-Term Treasury and Agency Fund 3,238
Benham Adjustable Rate Government Securities Fund 13,605
Benham GNMA Income Fund 41,823
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit 1 to the Registration Statement, "The Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 to Post-Effective Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to furnish each person to whom a Prospectus is delivered
with a copy of the Registrant's latest report to shareholders, upon request and
without charge.
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. 30/Amendment No. 31 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 25th day of November, 1996. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(a).
BENHAM GOVERNMENT INCOME TRUST
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. 30/Amendment No. 31 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 Trustees, NOVEMBER 25, 1996
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Albert A. Eisenstat
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Ronald J. Gilson
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Myron S. Scholes
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Kenneth E. Scott
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Ezra Solomon
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Isaac Stein
* Trustee NOVEMBER 25, 1996
- ---------------------------------
James E. Stowers III
* Trustee NOVEMBER 25, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer NOVEMBER 25, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004).
EX-99.B2 Amended and Restated Bylaws, dated May 17, 1995, are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004).
EX-99.B4) a) Specimen copy of Benham GNMA Income Fund share certificate
is incorporated herein by reference to Exhibit 4 to the
registration statement filed on July 26, 1985.
b) Specimen copy of Benham Adjustable Rate Government Securities
Fund share certificate is incorporated herein by reference to
Exhibit 4 to Post-Effective Amendment No. 17 filed on September
30, 1991.
c) Specimen copy of Benham Treasury Note Fund share certificate is
incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 18 filed on November 27, 1991.
d) Specimen copy of Benham Government Agency Fund share certificate
is incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 18 filed on November 27, 1991.
e) Specimen copy of Benham Short-Term Treasury and Agency Fund share
certificate is incorporated herein by reference to Exhibit 4(e)
to Post-Effective Amendment No. 24 filed on November 29, 1992.
f) Specimen copy of Benham Long-Term Treasury and Agency Fund share
certificate is incorporated herein by reference to Exhibit 4(f)
to Post-Effective Amendment No. 24 filed on November 29, 1992.
EX-99.B5 Investment Advisory Agreement between Benham Government Income Trust
and Benham Management Corporation, dated June 1, 1995, is
incorporated herein by reference to Exhibit 5 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
EX-99.B6 Distribution Agreement between Benham Government Income Trust and
Twentieth Century Securities, Inc. dated as of September 3, 1996, is
included herein.
EX-99.B8 a) Custodian Agreement between Benham Government Income Trust, on
behalf of Benham Treasury Note Fund and Benham Government Agency
Fund, 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).
b) Custodian Agreement between Benham Government Income Trust, on
behalf of Benham Short-Term Treasury and Agency Fund, Benham GNMA
Income Fund, Benham Long-Term Treasury and Agency Fund, and
Benham Adjustable Rate Government Securities Fund, and Morgan
Guaranty Trust Company of New York, dated September 21, 1992, is
incorporated herein by reference to Exhibit 8(b) of
Post-Effective Amendment No. 24 filed on November 29, 1992.
EX-99.B9 Administrative Services and Transfer Agency Agreement between
Benham Government Income Trust and Twentieth Century Services, dated
as of September 3, 1996, is included herein.
EX-99.B10 a) 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 # 773674-96-0001).
b) Opinion and consent of counsel as to the legality of the
American Century Benham Inflation-Adjusted Treasury Fund, to be
filed by amendment.
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. 23 filed on September 28, 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. 23 filed on September 28, 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. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004)
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 28 filed on
May 29, 1996 (Accession # 0000773674-96-000004)
EX-27.5.1 FDS for Benham GNMA Income Fund.
EX-27.5.2 FDS for Benham Treasury Note Fund.
EX-27.4.3 FDS for Benham Government Agency Fund.
EX-27.5.4 FDS for Benham Adjustable Rate Government Securities Fund.
EX-27.5.5 FDS for Benham Short-Term Treasury and Agency Fund.
EX-27.5.6 FDS for Benham Long-Term Treasury and Agency Fund.
DISTRIBUTION AGREEMENT
The Benham Group
THIS DISTRIBUTION AGREEMENT is made and entered into by and between each of
the open-end management investment companies listed on Schedule A, attached
hereto, effective as of the 3rd day of September, 1996, together with all other
open end management investment companies subsequently established and made
subject to this agreement in accordance with Section 11 (the "Issuers") and
TWENTIETH CENTURY SECURITIES, INC. ("Distributor").
WHEREAS, the shares of common stock of each of the Issuers are currently
divided into a number of separate series of shares, or funds, each corresponding
to a distinct portfolio of securities; and
WHEREAS, Distributor is a registered as a broker-dealer with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc.; and
WHEREAS, the Boards of Directors/Trustees of the Funds (the"Board") wish to
engage the Distributor to act as the distributor of the Funds;
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties agree as follows:
SECTION 1. GENERAL RESPONSIBILITIES
Each Fund herewith engages Distributor to act as exclusive distributor of the
shares of its separate series, and any other series which may be designated from
time to time hereafter ("Series"), named and described on Schedule A. Said sales
shall be made only to Investors residing in those states in which each Fund is
registered. After effectiveness of each Fund's registration statement,
Distributor will hold itself available to receive by mail, telex and/or
telephone, orders for the purchase of shares and will receive by mail, telex
and/or telephone, orders for the purchase of shares and will accept or reject
such orders on behalf of the Funds in accordance with the provisions of the
applicable Funds prospectus, and will be available to transmit such orders as
are so accepted to the Funds' transfer agent as promptly as possible for
processing at the shares' net asset value next determined in accordance with the
prospectuses.
A. Offering Price. All shares sold by Distributor under this Agreement
shall be sold at the net asset value per share ("Net Asset Value")
determined in the manner described in each Fund's prospectus, as it
may be amended from time to time, next computed after the order is
accepted by Distributor. Each Fund shall determine and promptly
furnish to Distributor a statement of the Offering Price of shares of
said Fund's series at least once on each day on which the Fund is open
for trading as described in its current prospectus.
B. Promotion Support. Each Fund shall furnish to Distributor for use in
connection with the sale of its shares such written information with
respect to said Fund as Distributor may reasonably request. Each Fund
represents and warrants that such information, when authenticated by
the signature of one of its officers, shall be true and correct. Each
Fund shall also furnish to Distributor copies of its reports to its
shareholders and such additional information regarding said Fund's
financial condition as Distributor may reasonably request. Any and all
representations, statements and solicitations respecting a Fund's
shares made in advertisements, sales literature and in any other
manner whatsoever shall be limited to and conform in all respects to
the information provided hereunder.
C. Regulatory Compliance. Each Fund shall furnish to Distributor copies
of its current form of prospectus, as filed with the SEC, in such
quantity as Distributor may reasonably request from time to time, and
authorizes Distributor to use the prospectus in connection with the
sale of such Fund's shares. All such sales shall be initiated by offer
of, and conducted in accordance with, such prospectus and all of the
provisions of the Securities and Exchange Act of 1933, the Investment
Company Act of 1940 ("1940 Act") and all the rules and regulations
thereunder. Distributor shall furnish applicable federal and state
regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may
lawfully request in order to ascertain whether the Funds' operations
are being conducted in a manner consistent with any applicable law or
regulations.
D. Acceptance. All orders for the purchase of its shares are subject to
acceptance by each Fund.
E. Compensation. Except for the promises of the Funds contained in this
Agreement and its performance thereof, Distributor shall not be
entitled to compensation for its services hereunder.
SECTION 2. EXPENSES.
A. Each Fund shall pay all fees and expenses incurred by it in connection
with the preparation, printing and distribution to shareholders of its
prospectus and reports and other communications to shareholders,
future registrations of shares under the Securities Act of 1933 and
the 1940 Act, amendments of the registration statement subsequent to
the initial offering of shares, the qualification of shares for sale
in jurisdictions designated by Distributor, the issue and transfer of
shares, including the expenses of confirming purchase and redemption
orders and of supplying information, prices and other data to be
furnished by the Funds under this Agreement.
B. Distributor shall pay all fees and expenses of printing and
distributing any prospectuses or reports prepared for its use in
connection with the distribution of shares, the preparation and
mailing of any other advertisements or sales literature used by
Distributor in connection with the distribution of such shares, its
registration as a broker and the registration and qualification of its
officers, directors and representatives under federal and state laws.
SECTION 3. INDEPENDENT CONTRACTOR
Distributor shall be an independent contractor. Neither Distributor nor any of
its officers, trustees, employees or representatives is or shall be an employee
of a Fund in connection with the performance of Distributor's duties hereunder.
Distributor shall be responsible for its own conduct and the employment,
control, compensation and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and employees.
SECTION 4. INDEMNIFICATION
Each of the parties to this Agreement shall defend, indemnify and hold the other
harmless from and against any and all claims, demands, suits, actions, losses,
damages and other liabilities arising from, or as a result of, the acts or
omissions or acts and omissions of such party made or omitted in the course of
performing this Agreement.
SECTION 5. AFFILIATION WITH THE FUNDS
Subject to and in accordance with each Fund's formative documents, Section 10 of
the 1940 Act and Article III of this Agreement, it is understood that the
directors/trustees, officers, agents and shareholders of the Funds are or may be
interested in Distributor as directors, officers, or shareholders of
Distributor; that directors, officers, agents or shareholders of Distributor are
or may be interested in the Funds as directors/trustees, officers, shareholders
(directly or indirectly) or otherwise, and that the effect of any such interest
shall be governed by said Act and Article.
SECTION 6. BOOKS AND RECORDS
It is expressly understood and agreed that all documents, reports, records,
books, files and other materials relating to this Agreement and the services to
be performed hereunder shall be the sole property of the Funds and that such
property, to the extent held by Distributor, shall be held by Distributor as
agent, during the effective term of this Agreement. This material shall be
delivered to the applicable Fund upon the termination of this Agreement free
from any claim or retention of rights by Distributor.
SECTION 7. SERVICES NOT EXCLUSIVE
The services of Distributor to the Funds hereunder are not to be deemed
exclusive, and Distributor shall be free to render similar services to others.
SECTION 8. RENEWAL AND TERMINATION
a. Term and Annual Renewal. The term of this Agreement shall be from the
date of its approval by the vote of a majority of the board of
directors/trustees of each Fund, and it shall continue in effect from
year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of
its directors/trustees, and the vote of a majority of those said
directors/trustees who are neither parties to the Agreement nor
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. "Approved at least
annually" shall mean approval occurring, with respect to the first
continuance of the Agreement, during the ninety (90) days prior to and
including the date of its termination in the absence of such approval,
and with respect to any subsequent continuance, during the ninety (90)
days prior to and including the first anniversary of the date upon
which the most recent previous annual continuance of the Agreement
became effective.
b. Termination. This Agreement may be terminated at any time without
payment of any penalty, by a Fund's board of directors/trustees, upon
sixty (60) days written notice to Distributor, and by Distributor upon
sixty (60) days written notice to the Fund. This Agreement shall
terminate automatically in the event of its assignment. The terms
"assignment" and "vote of a majority of the outstanding voting
securities" shall have the meaning set forth for such terms in the
Investment 1940 Act and Rule 18f-2 thereunder.
SECTION 9. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or similar authority, the remainder of this Agreement
shall not be affected thereby.
SECTION 10. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the State of
Missouri.
SECTION 11. AMENDMENT
This Agreement and the SCHEDULE A forming a part hereof may be amended at any
time by a writing signed by each of the Parties. In the event that one or more
additional Funds are established, and the governing bodies of said Funds by
resolution indicate that the Funds are to be made Parties to this Agreement,
SCHEDULE A hereto shall be amended to reflect the addition of such new Funds,
and such new Funds shall become Parties hereto. In the event that any of the
Funds listed on SCHEDULE A terminates its registration as a management
investment company, or otherwise ceases operations, SCHEDULE A shall be amended
to reflect the deletion of such Fund.
TWENTIETH CENTURY SECURITIES, INC.
By: /s/William M. Lyons Date: September 3, 1996
William M. Lyons
General Counsel
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
BENHAM TARGET MATURITIES TRUST
BENHAM GOVERNMENT INCOME TRUST
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
BENHAM EQUITY FUNDS
BENHAM INTERNATIONAL FUNDS
BENHAM INVESTMENT TRUST
BENHAM MANAGER FUNDS
By: /s/Douglas A. Paul Date: September 3, 1996
Douglas A. Paul
General Counsel
DISTRIBUTION AGREEMENT
SCHEDULE A
================================================================================
FUND BOARD APPROVAL DATE
================================================================================
CAPITAL PRESERVATION FUND, INC. May 17, 1996
================================================================================
CAPITAL PRESERVATION FUND II, INC. May 17, 1996
================================================================================
BENHAM TARGET MATURITIES TRUST
================================================================================
2000 Portfolio May 17, 1996
================================================================================
2005 Portfolio May 17, 1996
================================================================================
2010 Portfolio May 17, 1996
================================================================================
2015 Portfolio May 17, 1996
================================================================================
2020 Portfolio May 17, 1996
================================================================================
2025 Portfolio May 17, 1996
================================================================================
BENHAM GOVERNMENT INCOME TRUST
================================================================================
Benham Treasury Note Fund May 17, 1996
================================================================================
Benham GNMA Income Fund May 17, 1996
================================================================================
Benham Government Agency Fund May 17, 1996
================================================================================
Benham Adjustable Rate Government Securities Fund May 17, 1996
================================================================================
Benham Short-Term Treasury and Agency Fund May 17, 1996
================================================================================
Benham Long-Term Treasury and Agency Fund May 17, 1996
================================================================================
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
================================================================================
Tax-Free Money Market Fund May 17, 1996
================================================================================
Tax-Free Intermediate-Term Fund May 17, 1996
================================================================================
Tax-Free Long-Term Fund May 17, 1996
================================================================================
Municipal High Yield Fund May 17, 1996
================================================================================
Tax-Free Insured Fund May 17, 1996
================================================================================
Municipal Money Market Fund May 17, 1996
================================================================================
Tax-Free Limited-Term Fund May 17, 1996
================================================================================
BENHAM MUNICIPAL TRUST
================================================================================
Benham National Tax-Free Money Market Fund May 17, 1996
================================================================================
Benham National Tax-Free Intermediate-Term Fund May 17, 1996
================================================================================
Benham National Tax-Free Long-Term Fund May 17, 1996
================================================================================
Benham Florida Municipal Money Market Fund May 17, 1996
================================================================================
Benham Florida Municipal Intermediate-Term Fund May 17, 1996
================================================================================
Benham Florida Municipal Long-Term Fund May 17, 1996
================================================================================
Benham Arizona Municipal Intermediate-Term Fund May 17, 1996
================================================================================
BENHAM EQUITY FUNDS
================================================================================
Benham Global Gold Fund May 17, 1996
================================================================================
Benham Income & Growth Fund May 17, 1996
================================================================================
Benham Equity Growth Fund May 17, 1996
================================================================================
Benham Utilities Income Fund May 17, 1996
================================================================================
Benham Global Natural Resources Index Fund May 17, 1996
================================================================================
BENHAM INTERNATIONAL FUNDS
================================================================================
Benham European Government Bond Fund May 17, 1996
================================================================================
BENHAM MANAGER FUNDS
================================================================================
Benham Capital Manager Fund May 17, 1996
================================================================================
BENHAM INVESTMENT TRUST
================================================================================
Prime Money Market Fund May 17, 1996
================================================================================
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
The Benham Group
AGREEMENT effective as of the 3rd day of September, 1996, by each open-end
management investment company listed on Schedule E attached hereto and made part
of this agreement by reference, each portfolio of an open-end management
investment company listed on Schedule E and all open-end management investment
companies (or portfolios thereof) subsequently established and made subject to
this Agreement in accordance with Paragraph XI. (individually, "Fund" or
collectively, "Funds"), and Twentieth Century Services, Inc. ("TCS"), a
registered transfer agent incorporated under the laws of the State of California
and a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES, INC. ("TCC"), for
general administrative, transfer agency, and dividend disbursing services as
follows:
I. ADMINISTRATIVE SERVICES.
A. Description of Services. As consideration for the compensation
described in Section I.B, TCS agrees to provide the Funds with the
services described and set forth on Schedule A attached hereto and
made a part of this Agreement by reference.
B. Compensation. As consideration for the services described in Section
I.A above, each Fund shall pay TCS a fee equal to its pro rata share
of the dollar amount derived from applying the aggregate average daily
net assets of the Funds listed on Schedule E to the rate schedule set
forth on Schedule F attached hereto and made a part of this Agreement
by reference ("fund-level fee"). Each Fund's fund-level fee, or pro
rata share of the dollar amount derived from applying the Funds'
aggregate average daily net assets to the rate schedule set forth on
Schedule F, shall be determined on the basis of its average daily net
assets relative to all other Funds listed on Schedule E. Said
fund-level fees shall be calculated and accrued daily and payable
monthly in three installments, the first on the tenth of the month (or
the next business day, if not a business day), the second on the
twentieth of the month (or the next business day, if not a business
day), and the third not later than the third business day of the
following month.
II. TRANSFER AGENT SERVICES.
A. Services to be Provided. As consideration for the compensation
described in Section II.B, TCS will provide each Portfolio with the
share transfer and dividend disbursing services described on Schedule
B attached hereto and made a part of this Agreement by reference. TCS
agrees to maintain sufficient trained personnel, equipment, and
supplies to perform such services in conformity with the current
prospectus of each Fund and such other reasonable standards of
performance as the Funds may from time to time specify, and otherwise
in an accurate, timely, and efficient manner.
B. Compensation. As consideration for the services described in Section
II.A, each Fund agrees to pay TCS the fees specified on Schedule F for
each shareholder account maintained and each shareholder account
transaction executed by TCS each month. For purposes of this Agreement
"shareholder account transaction" is any one of the transactions
described on Schedule C attached hereto and made a part of this
Agreement by reference, as it may be amended from time to time. Such
fees shall be paid monthly in three installments, the first on the
tenth of the month (or the next business day, if not a business day),
the second on the twentieth of the month (or the next business day, if
not a business day), and the third on the third business day of the
following month.
C. Third Party Servicing. Subject to approval by the applicable Fund's
Board of Directors/Trustees, TCS may enter into agreements with third
parties for the performance of one or more of its obligations under
this Agreement (and such other services as TCS may desire) for all or
any portion of the shareholders of the Fund who maintain shareholder
accounts through, or who are otherwise provided services by, any such
third parties. To the extent that such third parties perform services
that TCS is obligated to perform under this Agreement, TCS shall be
entitled to receive the fees to which it would otherwise be entitled
hereunder had it performed such services directly; provided, however,
that the Fund's Board of Directors/Trustees may limit amounts
receivable by TCS under this Agreement for services performed on its
behalf by third parties. TCS will furnish the Fund shareholder and
account records and data upon which the Fund's obligations under this
Agreement are calculated, and such other data pertaining to any
services rendered by third parties as the Fund may reasonably require.
The Fund shall be entitled to have any and all such records audited by
the Fund's independent accountants at any time upon reasonable notice
to TCS.
III. EXPENSES.
A. Expenses of TCS. TCS shall pay all expenses incurred in providing the
Funds the services and facilities described in this Agreement, whether
or not such expenses are billed to TCS or the Funds.
B. Direct Expenses. Any provision of this Agreement to the contrary
notwithstanding, each Fund shall pay, or reimburse TCS for the payment
of, the following expenses (hereinafter "direct expenses") whether or
not such direct expenses are billed to the Funds, TCS, or any related
entity:
1. Fees and expenses of the Fund's Independent Directors/Trustees
and meetings thereof;
2. Fees and costs of investment advisory services;
3. Fees and costs of independent audits, income tax preparation, and
obtaining quotations for the purpose of calculating the Fund's
net asset value;
4. Fees and costs of outside legal counsel and legal counsel
employed directly by the Fund;
5. Fees and costs of custodian and banking services;
6. Costs (including postage) of printing and mailing prospectuses,
confirmations, proxy statements, and reports to Fund
shareholders;
7. Fees and costs for the registration of Fund shares with the
Securities and Exchange Commission and the jurisdictions in which
its shares are qualified for sale;
8. Fees and expenses associated with membership in the Investment
Company Institute and the Mutual Fund Education Alliance;
9. Expenses of fidelity bonding and liability insurance covering the
Fund;
10. Costs for incoming telephone WATS lines;
11. Organizational costs.
C. Extraordinary Expenses. Any provision of this Agreement to the
contrary notwithstanding, each Fund, as determined by its Board of
Directors/Trustees, shall pay (or reimburse TCS for payment of) the
following expenses, which shall be categorized as Extraordinary
Expenses and shall be excluded from each Fund's expense ratio, whether
or not the expense was billed to the Funds, TCS, or any related
entity:
1. Brokerage commissions
2. Taxes
3. Interest
4. Portfolio insurance premiums
5. Rating agency fees
6. Other extraordinary expenses, as authorized from time to time by
each Fund's Board of Directors/Trustees.
IV. TERM. With respect to each Fund, this Agreement shall become effective upon
its approval by vote of a majority of the Fund's shareholders at a meeting
called for the purpose of voting on such approval and a majority of the Fund's
Directors/Trustees, including a majority of those Directors/Trustees who are not
"interested persons" of the Fund or TCS (as that term is defined in the
Investment Company Act of 1940), and shall continue until it is terminated
pursuant to the provisions of Paragraph XII.
V. INSURANCE. The Funds and TCS agree to procure and maintain, separately or as
joint insureds with their Directors/Trustees, employees, agents, and others, an
insurance policy or policies against loss arising from breaches of trust or
errors and omissions and a fidelity bond meeting the requirements of the
Investment Company Act of 1940 in such amounts and with such deductibles as are
set forth on Schedule D attached to this Agreement and made a part hereof by
reference, as it may be amended from time to time, and to pay premiums therefor,
provided that if a Fund or TCS is party to a policy in which it is named as a
joint insured, its liability for premiums on said policy shall be determined on
the basis of premiums it would pay to obtain equivalent coverage separately
relative to the premiums each other joint insured would pay to obtain equivalent
coverage separately.
VI. REGISTRATION AND COMPLIANCE.
A. TCS represents that it is registered as a transfer agent with the
Securities and Exchange Commission ("SEC") pursuant to ss.17A of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, and agrees to maintain said registration and comply with
all of the requirements of said Act, rules, and regulations so long as
this Agreement remains in force.
B. Each Fund represents that it is an open-end management investment
company registered with the SEC under the Securities Act of 1933 and
the rules and regulations thereunder and the Investment Company Act of
1940 and the rules and regulations thereunder, and that it is
authorized to sell its shares pursuant to said Acts, and the rules and
regulations thereunder.
Each Fund will furnish TCS with a list of those jurisdictions in the
United States and elsewhere in which it is authorized to sell its
shares to the general public and maintain the currency of said list by
amendment. Each Fund agrees to promptly advise TCS of any change in or
limitation upon its authority to carry on business as an investment
company pursuant to said Acts, and the statutes, rules, and
regulations of each and every jurisdiction in which its shares are
registered for sale.
VII. DOCUMENTATION. Each of the Funds and TCS shall supply to the other upon
request such documentation as is required by them to carry out their respective
obligations under this Agreement, including, but not limited to, declarations of
trust, articles of incorporation, bylaws, codes of ethics, registration
statements, permits, financial reports, third party audits, certificates of
authority, computer tapes, and related items.
VIII. PROPRIETARY INFORMATION. It is agreed that all records and documents,
except computer data processing programs and any related documentation used or
prepared by, or on behalf of, TCS for the performance of its services hereunder,
are the property of the Funds and shall be open to audit or inspection by the
Funds or their duly authorized agents during the normal business hours of TCS,
shall be maintained in such fashion as to preserve the confidentiality thereof
and to comply with applicable federal and state laws and regulations, and shall,
in whole or any specified part, be surrendered and turned over to the Funds or
their duly authorized agents upon receipt by TCS of reasonable notice of and
request therefor.
IX. INDEMNITY. Each Fund shall indemnify and hold TCS harmless against any
losses, claims, damages, liabilities, or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action, or suit brought by
any person other than the Fund (including a shareholder naming the Fund as a
party) and not resulting from TCS's bad faith, willful misfeasance, reckless
disregard of its obligations and duties, negligence, or breach of this
Agreement, and arising out of, or in connection with:
A. TCS's performance of its obligations under this Agreement;
B. Any error or omission in any record (including but not limited to
magnetic tapes, computer printouts, hard copies, and microfilm or
microfiche copies) delivered, or caused to be delivered, by a Fund to
TCS in connection with this Agreement;
C. Bad faith, willful misfeasance, reckless disregard of its obligations
and duties, or negligence on the part of the Fund, or TCS's acting
upon any instructions reasonably believed by it to have been properly
executed or communicated by any person duly authorized by the Fund;
D. TCS's acting in reliance upon advice reasonably believed by it to have
been given by counsel for the Funds, or;
E. TCS's acting in reliance upon any instrument reasonably believed by it
to have been genuine and signed, countersigned, or executed by the
proper person(s) in accordance with the currently effective
certificate(s) of authority delivered to TCS by the Funds
In the event that TCS requests a Fund to indemnify or hold it
harmless hereunder, TCS shall use its best efforts to inform the Fund
of the relevant facts concerning the matter in question. TCS shall use
reasonable care to identify and promptly notify the Fund concerning
any matter which presents, or appears likely to present, a claim for
indemnification against the Fund.
Each Fund may elect to defend TCS against any claim which may be
the subject of indemnification hereunder. In the event that the Fund
makes such an election, it shall notify TCS and shall take over
defense of the claim and, if so requested by the Fund, TCS shall incur
no further legal or other expenses related thereto for which it is
entitled to indemnity hereunder; provided, however, that nothing
herein shall prevent TCS from retaining, at its own expense, counsel
to defend any claim. Except with the applicable Fund's prior consent,
TCS shall not confess to any claim or make any compromise in any
matter in which the Fund will be asked to indemnify or hold TCS
harmless hereunder without the Fund's prior consent.
X. LIABILITY.
A. Damages. TCS shall not be liable to any Fund, or any third party, for
punitive, exemplary, indirect, special, or consequential damages (even
if TCS has been advised of the possibility of such damages) arising
from the performance of its obligations under this Agreement,
including but not limited to loss of profits, loss of use of the
shareholder accounting system, cost of capital, and expenses for
substitute facilities, programs, or services.
B. Force Majeure. Any provision in this Agreement to the contrary
notwithstanding, TCS shall not be liable for delays or errors
occurring by reason of circumstances beyond its control or the control
of any of its affiliates and not attributable to the negligence of TCS
or any of its affiliates, including, but not limited to, acts of civil
or military authority, national emergencies, national or regional work
stoppages, fire, flood, catastrophe, earthquake, acts of God,
insurrection, war, riot, failure of communication systems, or
interruption of power supplies.
C. Trust Series Sole Obligor. TCS is expressly put on notice that, for
any Fund which is a series of a registered investment company
organized as a Massachusetts business trust (a "Trust Series"),
liability under this Agreement shall be limited to the Trust Series
incurring such liability and to the assets of such Trust Series. TCS
shall not have any rights or remedies against any trustee, officer,
employee, or shareholder of the Trust Series or any other series of
the Trust for breach of this Agreement nor recourse to the property of
any such persons or other series of the Trust for satisfaction of any
judgment or other claim against the Trust Series.
XI. AMENDMENT. This Agreement and the Schedules forming a part hereof may be
amended at any time, with or without shareholder approval (except as otherwise
required by law), by a document signed by each of the parties hereto. In the
event that one or more additional Funds are established, and the governing
bodies of said Funds by resolution indicate that the Funds are to be made
parties to this Agreement, Schedule E hereto shall be amended to reflect the
addition of such new Funds, and such new Funds shall become parties hereto. Any
change in a Fund's registration statement or other compliance documents, or in
the forms relating to any plan, program, or service offered by its current
prospectus which would require a change in TCS's obligations hereunder shall be
subject to TCS's approval, which shall not be unreasonably withheld.
XII. TERMINATION. This Agreement may be terminated by any Fund with respect to
said Fund, or by TCS, without cause, upon 120 days' written notice to the other
party, and at any time for cause in the event that such cause remains unremedied
for more than 30 days after receipt by the other party of written specification
of such cause.
In the event that a Fund designates a successor to perform any of TCS's
obligations hereunder, TCS shall, at the expense and pursuant to the direction
of the Fund, transfer to such successor all relevant books, records, and other
data of the Fund in the possession or under the control of TCS.
XIII. SEVERABILITY. If any clause or provision of this Agreement is determined
to be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
XIV. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of Missouri.
XV. ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement
constitutes the entire and complete understanding of the parties hereto relating
to the subject matter hereof and supersedes all prior contracts and discussions
between the parties.
TWENTIETH CENTURY SECURITIES, INC.
By: /s/William M. Lyons Date: September 3, 1996
William M. Lyons
General Counsel
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
BENHAM TARGET MATURITIES TRUST
BENHAM GOVERNMENT INCOME TRUST
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
BENHAM EQUITY FUNDS
BENHAM INTERNATIONAL FUNDS
BENHAM INVESTMENT TRUST
BENHAM MANAGER FUNDS
By /s/Douglas A. Paul Date: September 3, 1996
Douglas A. Paul
General Counsel
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule A
Administrative Services
Benham Financial Services, Inc. agrees to provide each Fund the following
administrative services:
1. Fund and Portfolio Accounting
A. Maintain Fund General Ledger and Journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projections of available cash balances.
G. Record trading activity for purposes of determining net asset values
and dividend distributions.
H. Prepare daily portfolio evaluation reports to value portfolio
securities and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine income and capital gain dividend distributions per share.
K. Prepare monthly, quarterly, semi-annual, and annual financial
statements.
L. Provide financial information for reports to the Securities and
Exchange Commission in compliance with the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, the
Internal Revenue Service, and any other regulatory agencies as
required.
M. Provide financial, yield, net asset value, etc. information to the
NASD and other survey and statistical agencies as instructed by the
Funds.
2. Internal Audit
Provide an internal audit staff for independent review of Fund operations.
Internal audit staff will assist the independent accountants as
appropriate, and report directly to the Audit Committee of the Board of
Directors/Trustees.
3. Legal
A. Provide registration and other administrative services necessary to
qualify the Fund's shares for sale in those jurisdictions determined
from time to time by each Fund's Board of Directors/Trustees.
B. Maintain registration statements and make all other filings required
by the Securities and Exchange Commission in compliance with the
provisions of the Investment Company Act of 1940 and the Securities
Act of 1933.
C. Prepare and review Fund prospectuses.
D. Prepare proxy statements.
E. Prepare board materials and maintain minutes of board meetings.
F. Provide legal advice.
The Funds' outside counsel may provide the services listed above as a
direct Fund expense; however, the Funds have the option to employ their own
counsel to provide any or all of these services.
4. Insurance
A. Obtain errors and omissions policy.
B. Obtain fidelity bond.
5. Administrative Management
Provide each Fund with a president, a chief financial officer, a secretary,
and such other officers as are necessary to manage the Fund and administer
its affairs in accordance with law and appropriate business practice, all
subject to the approval of the Fund's Board of Directors/Trustees.
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule B
Share Transfer and Dividend Disbursing Services
Benham Financial Services, Inc. agrees to provide each Fund the following
transfer agency and dividend disbursing services:
1. Maintain shareholder accounts, including processing of new accounts.
2. Post address changes and other file maintenance for shareholder accounts.
3. Post all monetary transactions to the shareholder file, including:
* Dividends, capital gains, and reverse share splits (BTMT)
* Direct (including lock box) purchases
* Wire order purchases and redemptions
* Letter and telephone redemptions
* Draft redemptions
* Letter and telephone exchanges (as well as auto exchanges via VRU and PC
transmissions)
* Letter and telephone transfers
* Certificate issuances
* Certificate deposits
* Account fees
* Automated Clearing House ("ACH") transactions
* Exchanges initiated via Open Order Service
4. Conduct quality control reviews, by a separate dedicated group using
statistically reliable samples, of transactions and account maintenance
functions before mailing confirmations, checks, and/or share certificates
to shareholders.
5. Monitor fiduciary processing to ensure accuracy and proper deduction of
fees.
6. Prepare daily reconciliations of shareholder processing including money
movement instructions.
7. Process bounced check collections, including the immediate liquidation of
shares purchased and return of check, together with confirmation of entire
transaction, to investor.
8. Process all distribution and redemption checks and replace lost checks.
9. Withhold dividends and proceeds of redemptions as required by IRS
regulations.
10. Provide draft clearing services:
* Maintain signature cards and appropriate corporate resolutions
* For drafts in amounts greater than $5,000, compare signatures on drafts
with signatures on signature cards
* Receive checks presented for payment, verify negotiability, and
liquidate shares after verifying account balance
* For Funds that provide check writing privileges, process shareholder
check orders
* For Funds and retirement accounts that do not provide check writing
privileges, issue investment slip books
11. Mail confirmations, checks, and/or certificates resulting from transaction
requests to shareholders.
12. Process all other Fund mailings, including:
* Dividend and capital gain distributions
* Quarterly, semi-annual, and annual reports
* Year-end shareholder tax forms
* Directed payments
* Quarterly statements
* Shareholder drafts (on request)
* Combined statements
* Annual Prospectus revisions
13. Answer all service-related telephone inquiries from shareholders and
others, including:
* General and policy inquiries (research and resolve problems);
* Fund yield inquiries; and
* Shareholder transaction requests and account maintenance changes (e.g.,
redemptions, transfers, exchanges, address changes, and check book
orders).
In addition:
* Monitor processing production and quality;
* Monitor online statistical performance of unit; and
* Develop reports on telephone activity.
14. Respond to written inquiries by researching and resolving problems,
including:
* Initiating shareholder account reconciliation proceedings when
appropriate
* Writing and mailing form letters
* Responding to financial institutions regarding verification of deposits
* Initiating proceedings regarding lost share certificates
* Logging activities related to written inquiries
* Maintaining system for correspondence control
* Notifying shareholders of unacceptable transaction requests
15. Maintain and retrieve all required account history for shareholders and
provide research services as follows:
* Daily monitoring of all processing activity
* Providing exception reports
* Microfilming
* Storing, or archiving, and retrieving historical account information
* Obtaining microfiche of various reports
* Researching shareholder inquiries
* Resolving suspense items (e.g., transactions not posted due to an error
condition on the account)
16. Prepare materials for shareholder meetings, including:
* Addressing and mailing proxy solicitation materials
* Tabulating returned proxies and supplying daily reports to inform
management about the vote
* Providing Fund with an affidavit of mailing
* Furnishing certified list of shareholders (hard copy or microfilm) and
election inspectors
17. Report and remit assets as necessary to satisfy state escheat requirements.
18. On behalf of each Fund, file tax documents with appropriate federal and
state authorities.
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule C
Chargeable Transactions
For purposes of determining the per-transaction portion of the transfer
agency fee, the following types of transactions are considered chargeable
transactions.
1. Monetary Transactions
In general all monetary transactions are chargeable with the exception of
reversal transactions. The only chargeable reversal transaction is for
returned investment checks. The following is a current list of chargeable
transactions:
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
Incoming Wires PUR 01 11
================================================================================
Wire Order Purchases WOF 01 00
================================================================================
Check Purchases PUR 01 02
================================================================================
PUR 01 03
================================================================================
PUR 01 05
================================================================================
PUR 01 08
================================================================================
PUR 01 09
================================================================================
PUR 07 00
================================================================================
PUR 07 01
================================================================================
PUR 08 00
================================================================================
PUR 09 00
================================================================================
PUR 09 01
================================================================================
PUR 09 14
================================================================================
PUR 10 00
================================================================================
PUR 14 00
================================================================================
PUR 15 00
================================================================================
PUR 16 01
================================================================================
PUR 22 00
================================================================================
PUR 01 97
================================================================================
PUR 01 98
================================================================================
PUR 26 00
================================================================================
RPO Purchases PUR 05 00
================================================================================
ACH Purchases PUR 01 12
================================================================================
PUR 07 02
================================================================================
PUR 09 02
================================================================================
PUR 02 00
================================================================================
PUR 17 00
================================================================================
PUR 18 00
================================================================================
PUR 19 00
================================================================================
PUR 20 00
================================================================================
Direct Dividend &
Capital Gains PUR 01 50
================================================================================
PUR 09 50
================================================================================
PUR 07 50
================================================================================
PUR 31 50
================================================================================
Systematic Exchange
Purchases PUR 01 60
================================================================================
PUR 07 60
================================================================================
PUR 31 60
================================================================================
BCM Accumulation
Purchases PUR 01 32
================================================================================
PUR 01 33
================================================================================
PUR 01 42
================================================================================
PUR 01 43
================================================================================
Exchange
Purchases/Liquidations EXI/EXO 01 00
================================================================================
EXI/EXO 01 61
================================================================================
EXI/EXO 01 81
================================================================================
EXI/EXO 01 82
================================================================================
EXI/EXO 01 85
================================================================================
EXI/EXO 01 86
================================================================================
PUR 01 06
================================================================================
PUR 01 45
================================================================================
PUR 07 61
================================================================================
PUR 07 62
================================================================================
PUR 08 61
================================================================================
PUR 09 61
================================================================================
PUR 09 63
================================================================================
PUR 10 61
================================================================================
PUR 14 61
================================================================================
PUR 16 61
================================================================================
PUR 22 61
================================================================================
PUR 01 75
================================================================================
PUR 26 61
================================================================================
Check Purchases
(Reversals) PUR 04 00
================================================================================
PUR 01 02 R
================================================================================
PUR 01 03 R
================================================================================
PUR 01 05 R
================================================================================
PUR 01 08 R
================================================================================
PUR 01 09 R
================================================================================
PUR 07 00 R
================================================================================
PUR 07 01 R
================================================================================
PUR 08 00 R
================================================================================
PUR 09 00 R
================================================================================
PUR 09 01 R
================================================================================
PUR 10 00 R
================================================================================
PUR 14 00 R
================================================================================
PUR 15 00 R
================================================================================
PUR 16 01 R
================================================================================
PUR 22 00 R
================================================================================
PUR 01 97 R
================================================================================
PUR 01 98 R
================================================================================
PUR 26 00 R
================================================================================
BCM Accumulation
Liquidations LIQ 01 32
================================================================================
LIQ 01 42
================================================================================
Transfers In/Out PUR 01 35
================================================================================
PUR 07 71
================================================================================
PUR 08 71
================================================================================
PUR 14 71
================================================================================
PUR 16 71
================================================================================
PUR 22 71
================================================================================
PUR 26 03
================================================================================
PUR 26 71
================================================================================
Transfers In & Out TFI/TFO 01 00
================================================================================
TFI/TFO 01 01
================================================================================
TFI/TFO 01 81
================================================================================
TFI/TFO 01 82
================================================================================
TFI/TFO 01 85
================================================================================
TFI/TFO 01 86
================================================================================
Check Liquidations LIQ 01 00
================================================================================
LIQ 01 01
================================================================================
LIQ 01 02
================================================================================
LIQ 01 03
================================================================================
LIQ 01 04
================================================================================
LIQ 01 05
================================================================================
LIQ 01 06
================================================================================
LIQ 01 07
================================================================================
LIQ 01 08
================================================================================
LIQ 01 09
================================================================================
LIQ 01 10
================================================================================
LIQ 01 11
================================================================================
LIQ 01 12
================================================================================
LIQ 01 39
================================================================================
LIQ 01 14
================================================================================
Wire Order Redemption WOR 01 00
================================================================================
SWIP Redemption
Checks LIQ 14 00
================================================================================
RPO Liquidations LIQ 05 00
================================================================================
Wires Out LIQ 01 20
================================================================================
Drafts Paid LIQ 03 00
================================================================================
Draft Order Fees LIQ 13 11
================================================================================
Other Fees LIQ 13 08
================================================================================
LIQ 13 13
================================================================================
LIQ 13 16
================================================================================
LIQ 13 17
================================================================================
LIQ 13 18
================================================================================
LIQ 13 19
================================================================================
LIQ 13 23
================================================================================
BCM Accumulation Fees LIQ 01 33
================================================================================
LIQ 01 43
================================================================================
Non-BCMG Advisor Fees LIQ 01 75
================================================================================
WOR 01 75
================================================================================
Certificate Issue CIS 01 00
================================================================================
CIS 02 00
================================================================================
Certificate Deposit CDP 01 00
================================================================================
ADJ Credits ADJ 01 00
================================================================================
PUR 04 01
================================================================================
PUR 26 01
================================================================================
ADJ Debits ADJ 02 00
================================================================================
2. Non-Monetary Transactions
The only chargeable non-monetary transactions will be for
shareholder-initiated account maintenance charges and one transaction
charge for each new account added to the shareholder file. The following is
a current list of non-monetary transactions:
================================================================================
DESCRIPTION TRANSACTION TYPE
================================================================================
General Account Maintenance MNT01 - MNT08
================================================================================
Draft Stop Add and Maintenance MNT009
================================================================================
Name/Address Change MNT10
================================================================================
New Account Setup N/A
================================================================================
Combined Statement Account Setup N/A
================================================================================
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule D
Liability Insurance
Benham Financial Services, Inc. agrees to provide each Fund at a minimum with
the following insurance coverages subject to a ratable allocation:
1. Errors and Omissions and Directors Liability.
* $10 million limit.
* $150,000 deductible for all claims.
* Individual director/trustee or officer sued - $5,000 deductible to
aggregate of $25,000.
2. Fidelity Insurance (Blanket Bond).
* $25,000,000 limit (each and every occurrence).
* $150,000 deductible.
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule E
Funds and Portfolios
Effective as of the date indicated below, each of the open-end management
investment companies and the portfolios of said open-end management investment
companies listed below is hereby made a party to the Benham Group Administrative
Services and Transfer Agency Agreement dated June 1, 1995.
Name of Fund/Portfolio Board Approval of Agreement
CAPITAL PRESERVATION FUND, INC. July 18, 1996
CAPITAL PRESERVATION FUND II, INC. July 18, 1996
BENHAM TARGET MATURITIES TRUST
2000 Portfolio July 18, 1996
2005 Portfolio July 18, 1996
2010 Portfolio July 18, 1996
2015 Portfolio July 18, 1996
2020 Portfolio July 18, 1996
2025 Portfolio July 18, 1996
BENHAM GOVERNMENT INCOME TRUST
Benham Treasury Note Fund July 18, 1996
Benham GNMA Income Fund July 18, 1996
Benham Government Agency Fund July 18, 1996
Benham Adjustable Rate Government Securities Fund July 18, 1996
Benham Short-Term Treasury and Agency Fund July 18, 1996
Benham Long-Term Treasury and Agency Fund July 18, 1996
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Money Market Fund July 18, 1996
Tax-Free Intermediate-Term Fund July 18, 1996
Tax-Free Long-Term Fund July 18, 1996
Municipal High-Yield Fund July 18, 1996
Tax-Free Insured Fund July 18, 1996
Municipal Money Market Fund July 18, 1996
Tax-Free Limited-Term Fund July 18, 1996
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Money Market Fund July 18, 1996
Benham National Tax-Free Intermediate-Term Fund July 18, 1996
Benham National Tax-Free Long-Term Fund July 18, 1996
Benham Florida Municipal Money Market Fund July 18, 1996
Benham Florida Municipal Intermediate-Term Fund July 18, 1996
Benham Florida Municipal Long-Term Fund July 18, 1996
Benham Arizona Municipal Intermediate-Term Fund July 18, 1996
Benham Arizona Municipal Long-Term Fund July 18, 1996
BENHAM EQUITY FUNDS
Benham Global Gold Fund July 18, 1996
Benham Income & Growth Fund July 18, 1996
Benham Equity Growth Fund July 18, 1996
Benham Utilities Income Fund July 18, 1996
Benham Global Natural Resources Fund July 18, 1996
BENHAM INTERNATIONAL FUNDS
Benham European Government Bond Fund July 18, 1996
BENHAM INVESTMENT TRUST
Benham Prime Money Market Fund July 18, 1996
BENHAM MANAGER FUNDS
Benham Capital Manager Fund July 18, 1996
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule F
Compensation
<TABLE>
<CAPTION>
=====================================================================================================================
Monthly
Per-Account Fee for Per-Transaction
Fund/Portfolio Account Maintenance Fee
============================================================================================================
<S> <C> <C>
CAPITAL PRESERVATION FUND, INC. $1.3958 $1.35
- ------------------------------------------------------------------------------------------------------------
CAPITAL PRESERVATION FUND II, INC. $1.3958 $1.35
- ------------------------------------------------------------------------------------------------------------
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS $1.3958 $1.35
Municipal Money Market Fund
Tax-Free Money Market Fund
Tax-Free Short-Term Fund
Tax-Free Intermediate-Term Fund
Tax-Free Long-Term Fund
Tax-Free Insured Fund
Municipal High-Yield Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM EQUITY FUNDS $1.35
Benham Global Gold Fund $1.1875
Benham Equity Growth Fund $1.1875
Benham Income & Growth Fund $1.3958
Benham Utilities Income Fund $1.3958
Benham Global Natural Resources Fund $1.1875
- ------------------------------------------------------------------------------------------------------------
BENHAM GOVERNMENT INCOME TRUST $1.3958 $1.35
Benham GNMA Income Fund
Benham Treasury Note Fund
Benham Government Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham Short-Term Treasury and Agency Fund
Benham Long-Term Treasury and Agency Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM INTERNATIONAL FUNDS
Benham European Government Bond Fund $1.1875 $1.35
- ------------------------------------------------------------------------------------------------------------
BENHAM INVESTMENT TRUST $1.3958 $1.35
Benham Prime Money Market Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM MANAGER FUNDS $1.1875 $1.35
Benham Capital Manager Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM MUNICIPAL TRUST $1.3958 $1.35
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund
Benham Florida Municipal Intermediate-Term Fund
Benham Arizona Municipal Intermediate-Term Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM TARGET MATURITIES TRUST $1.1875 $1.35
2000 Portfolio
2005 Portfolio
2010 Portfolio
2015 Portfolio
2020 Portfolio
2025 Portfolio
============================================================================================================
</TABLE>
Administrative Services Fee Rate Schedule
Group Assets Fee Rate
up to $4.5 billion .11%
up to $6 billion .10%
up to $9 billion .09%
balance over $9 billion .08%
Consent of Independent Auditors
The Board of Trustees and Shareholders
Benham Government Income Trust:
We consent to the inclusion in Benham Government Income Trust's Post-Effective
Amendment No. 30 to the Registration Statement No. 2-99222 on Form N-1A under
the Securities Act of 1933 and Amendment No. 31 to the Registration Statement
No. 811-4363 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 Short-Term Treasury and Agency Fund, Benham Treasury Note Fund,
Benham Long-Term Treasury and Agency Fund, Benham GNMA Income Fund, Benham
Adjustable Rate Government Securities Fund, and Benham Government Agency Fund
(the six of the funds comprising the Benham Government Income Trust) for the
periods indicated therein, which reports have been incorporated by reference
into the Statements of Additional Information of Benham Government Income Trust.
We also consent to the reference to our firm under the heading "Financial
Highlights" in the Prospectuses and under the heading "About the Trust" in the
Statement of Additional Information which is incorporated by reference in the
Prospectuses.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
November 21, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BENHAM GNMA INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 1,129,431,463
<INVESTMENTS-AT-VALUE> 1,124,075,837
<RECEIVABLES> 7,617,323
<ASSETS-OTHER> 3,444,054
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,135,137,214
<PAYABLE-FOR-SECURITIES> 11,400,238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,466,751
<TOTAL-LIABILITIES> 16,866,989
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,151,255,414
<SHARES-COMMON-STOCK> 108,106,970
<SHARES-COMMON-PRIOR> 107,220,778
<ACCUMULATED-NII-CURRENT> 25,484
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,655,047)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,355,626)
<NET-ASSETS> 1,118,270,225
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,156,984
<OTHER-INCOME> 0
<EXPENSES-NET> 3,028,759
<NET-INVESTMENT-INCOME> 38,128,225
<REALIZED-GAINS-CURRENT> (3,946,624)
<APPREC-INCREASE-CURRENT> (6,955,903)
<NET-CHANGE-FROM-OPS> 27,225,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,085,694
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,611,713
<NUMBER-OF-SHARES-REDEEMED> 16,555,822
<SHARES-REINVESTED> 2,830,301
<NET-CHANGE-IN-ASSETS> (1,749,011)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,538,387
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,082,604
<AVERAGE-NET-ASSETS> 1,103,449,105
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 20.37
<PER-SHARE-DIVIDEND> 0.36
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> BENHAM TREASURY NOTE FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 303,621,958
<INVESTMENTS-AT-VALUE> 301,977,425
<RECEIVABLES> 4,201,175
<ASSETS-OTHER> 282,513
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306,461,113
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,262,091
<TOTAL-LIABILITIES> 1,262,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,282,121
<SHARES-COMMON-STOCK> 29,954,516
<SHARES-COMMON-PRIOR> 30,370,621
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,440,824)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,644,533)
<NET-ASSETS> 305,199,022
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,332,594
<OTHER-INCOME> 0
<EXPENSES-NET> 782,665
<NET-INVESTMENT-INCOME> 8,549,929
<REALIZED-GAINS-CURRENT> 76,129
<APPREC-INCREASE-CURRENT> (1,670,477)
<NET-CHANGE-FROM-OPS> 6,955,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,546,608
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,319,706
<NUMBER-OF-SHARES-REDEEMED> 4,434,457
<SHARES-REINVESTED> 698,646
<NET-CHANGE-IN-ASSETS> (5,820,892)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 418,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 792,508
<AVERAGE-NET-ASSETS> 294,852,171
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 204.75
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> BENHAM GOVERNMENT AGENCY FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 479,110,026
<INVESTMENTS-AT-VALUE> 479,110,026
<RECEIVABLES> 1,698,812
<ASSETS-OTHER> 4,454,742
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 485,263,580
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,598,343
<TOTAL-LIABILITIES> 2,598,343
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 482,665,237
<SHARES-COMMON-STOCK> 482,665,237
<SHARES-COMMON-PRIOR> 503,328,283
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 482,665,237
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,034,042
<OTHER-INCOME> 0
<EXPENSES-NET> 1,387,579
<NET-INVESTMENT-INCOME> 11,646,463
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,646,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,720,259
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 201,154,449
<NUMBER-OF-SHARES-REDEEMED> 233,188,696
<SHARES-REINVESTED> 11,371,201
<NET-CHANGE-IN-ASSETS> (20,663,046)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 682,603
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,350,681
<AVERAGE-NET-ASSETS> 489,991,314
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 259,472,149
<INVESTMENTS-AT-VALUE> 259,292,403
<RECEIVABLES> 3,151,791
<ASSETS-OTHER> 454,322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 262,898,516
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,564,711
<TOTAL-LIABILITIES> 1,564,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 330,836,487
<SHARES-COMMON-STOCK> 27,527,436
<SHARES-COMMON-PRIOR> 31,524,695
<ACCUMULATED-NII-CURRENT> 8,277
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (69,331,213)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (179,746)
<NET-ASSETS> 261,333,805
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,367,847
<OTHER-INCOME> 0
<EXPENSES-NET> 805,752
<NET-INVESTMENT-INCOME> 7,562,095
<REALIZED-GAINS-CURRENT> (105,394)
<APPREC-INCREASE-CURRENT> 732,533
<NET-CHANGE-FROM-OPS> 8,189,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,537,843
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,787,774
<NUMBER-OF-SHARES-REDEEMED> 9,434,835
<SHARES-REINVESTED> 649,802
<NET-CHANGE-IN-ASSETS> (37,204,270)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 384,643
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 830,026
<AVERAGE-NET-ASSETS> 277,053,328
<PER-SHARE-NAV-BEGIN> 9.47
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BENHAM S-T TREASURY & AGENCY FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 34,310,929
<INVESTMENTS-AT-VALUE> 34,216,599
<RECEIVABLES> 352,237
<ASSETS-OTHER> 356,888
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,925,724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,992
<TOTAL-LIABILITIES> 114,992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,833,088
<SHARES-COMMON-STOCK> 3,552,807
<SHARES-COMMON-PRIOR> 3,624,307
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 71,974
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (94,330)
<NET-ASSETS> 34,810,732
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,012,231
<OTHER-INCOME> 0
<EXPENSES-NET> 108,008
<NET-INVESTMENT-INCOME> 904,223
<REALIZED-GAINS-CURRENT> (237,323)
<APPREC-INCREASE-CURRENT> 90,667
<NET-CHANGE-FROM-OPS> 757,567
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 904,223
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 857,413
<NUMBER-OF-SHARES-REDEEMED> 999,989
<SHARES-REINVESTED> 71,075
<NET-CHANGE-IN-ASSETS> (837,440)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131,727
<AVERAGE-NET-ASSETS> 34,791,468
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 20.44
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> BENHAM L-T TREASURY & AGENCY FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 129,610,913
<INVESTMENTS-AT-VALUE> 128,554,193
<RECEIVABLES> 1,939,522
<ASSETS-OTHER> 63,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,556,787
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 478,449
<TOTAL-LIABILITIES> 478,449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,949,624
<SHARES-COMMON-STOCK> 13,717,916
<SHARES-COMMON-PRIOR> 11,450,121
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,814,566)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,056,720)
<NET-ASSETS> 130,078,338
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,118,817
<OTHER-INCOME> 0
<EXPENSES-NET> 360,418
<NET-INVESTMENT-INCOME> 3,758,399
<REALIZED-GAINS-CURRENT> (858,832)
<APPREC-INCREASE-CURRENT> (1,286,898)
<NET-CHANGE-FROM-OPS> 1,635,669
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,758,399
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,368,234
<NUMBER-OF-SHARES-REDEEMED> 3,457,854
<SHARES-REINVESTED> 357,415
<NET-CHANGE-IN-ASSETS> 19,337,430
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,287
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 362,124
<AVERAGE-NET-ASSETS> 116,914,620
<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 20.29
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.48
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
