BENHAM GOVERNMENT INCOME TRUST, 485BPOS, 1996-05-30

BENHAM GOVERNMENT INCOME TRUST
485BPOS, 1996-05-30

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__

File No. 2-99222

Pre-Effective Amendment No. ____ ____

Post-Effective Amendment No._28_ _X__

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__

File No. 811-4363

Amendment No._29_

BENHAM GOVERNMENT INCOME TRUST
(Exact Name of Registrant as Specified in Charter)

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

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

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

Approximate Date of Proposed Public Offering: First Offered 9/23/85

It is proposed that this filing become effective:

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

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

<PAGE>
BENHAM GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 28
1940 Act Amendment No. 29

FORM N-1A
CROSS-REFERENCE SHEET

PART A: PROSPECTUS

ITEM PROSPECTUS CAPTION

1 Cover Page

2 Summary of Fund Expenses

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

4(a)(i) About the Funds
(a)(ii)-(c) How the Funds Work, Money Market Funds, U.S. Treasury and Agency
Funds, Mortgage Securities Funds, About the Funds' Investments,
Mortgage-Backed Securities, Other Investment Practices.

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

5A Not Applicable

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

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

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

9. Not Applicable

PART B: STATEMENT OF ADDITIONAL INFORMATION

ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION

10 Cover Page

11 Table of Contents

12 Not Applicable

13(a) Investment Policies and Techniques
(b) Investment Restrictions
(c) Investment Policies and Techniques, Investment Restrictions
(d) Portfolio Transactions

14 Trustee and Officers

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

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

17 Portfolio Transactions

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

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

20 Taxes

21 Additional Purchase and Redemption Information

22 Performance

23 Cover Page

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

[picture of the U.S.
Capitol building]

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

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

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

Prospectus * May 29, 1996

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

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

BENHAM U.S. TREASURY & GOVERNMENT FUNDS

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

Prospectus o May 29, 1996

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

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

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

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

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

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

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

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

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

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

MONEY MARKET FUNDS

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

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

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

U.S. TREASURY AND AGENCY FUNDS

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

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

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

MORTGAGE SECURITIES FUNDS

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

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

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

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

SUMMARY OF FUND EXPENSES

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

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

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

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

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

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

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

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

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS

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

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

FINANCIAL HIGHLIGHTS

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

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

1996 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Income From
Investment Operations

Net Investment Income .0521 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608 .0531

Less Distributions

Dividends from Net
Investment Income (.0521) (.0424) (.0259) (.0134) (.0382) (.0603) (.0750) (.0800) (.0608) (.0531)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

NET ASSET VALUE AT
END OF PERIOD $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ==== ==== ==== ==== ==== ==== ==== ==== ====

TOTAL RETURN* 5.21% 4.31 2.63 1.35 3.88 6.27 7.77 8.27 6.30 5.48
- ------------

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

Net Assets at
End of Period
(in millions) $3,078 2,883 2,787 2,943 3,046 3,376 3,099 2,737 2,187 1,793

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

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

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

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

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

** Annualized.
</TABLE>

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

Income From
Investment Operations

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

Less Distributions

Dividends from Net
Investment Income (.0515) (.0406) (.0237) (.0120) (.0341) (.0591) (.0764) (.0834) (.0626) (.0553)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

NET ASSET VALUE AT
END OF PERIOD $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 5.15% 4.17 2.40 1.21 3.42 6.07 7.91 8.64 6.46 5.68
- ------------

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

Net Assets at
End of Period
(in millions) $246 262 283 314 340 475 618 708 538 465

Ratio of Expenses to
Average Daily
Net Assets .76% .75 .75 .75** .74 .70 .69 .71 .73 .73

Ratio of Net Investment
Income to Average
Daily Net Assets 5.03% 4.06 2.37 2.40** 3.41 5.91 7.64 8.34 6.26 5.53

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

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

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

** Annualized.
</TABLE>

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

1996 1995 1994 1993 1992 1991 1990+
---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $1.00 1.00 1.00 1.00 1.00 1.00 1.00

Income From
Investment Operations

Net Investment Income .0535 .0435 .0265 .0304 .0517 .0742 .0264

Less Distributions

Dividends from Net
Investment Income (.0535) (.0435) (.0265) (.0304) (.0517) (.0742) (.0264)
----- ----- ----- ----- ----- ----- -----

NET ASSET VALUE AT
END OF PERIOD $1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ==== ==== ==== ==== ==== ====
TOTAL RETURN* 5.35% 4.47 2.69 3.07 5.29 7.97 2.65
- ------------

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

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

Ratio of Expenses to
Average Daily
Net Assets .51% .50 .50 .50 .30 0 0

Ratio of Net
Investment Income
to Average Daily
Net Assets 5.20% 4.35 2.65 3.04 5.17 7.42 8.25**

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

+ From December 5, 1989 (commencement of operations), through March 31, 1990.

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

** Annualized.
</TABLE>

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

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

Income From
Investment Operations

Net Investment Income .53 .50 .36 .25

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

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

Less Distributions

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

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

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

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

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

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

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

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

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

Portfolio Turnover Rate 224.03% 140.82 261.61 157.79

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

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

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

** Annualized.

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

1996 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91 11.97

Income From
Investment Operations

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

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

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

Less Distributions

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

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

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

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

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

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

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

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

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

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

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

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

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

Income From
Investment Operations

Net Investment Income .60 .60 .63 .39

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

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

Less Distributions

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

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

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

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

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

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

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

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

Portfolio Turnover Rate 112.35% 146.81 200.34 56.97

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

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

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

** Annualized.

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

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

Income From
Investment Operations

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

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

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

Less Distributions

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

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

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

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

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

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

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

Portfolio Turnover Rate 221.35% 60.29 91.87 82.71 81.84

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

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

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

** Annualized.
</TABLE>
``

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

1996 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.18 10.35 10.88 10.52 10.21 9.85 9.56 9.96 10.42 10.42

Income From
Investment Operations

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

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

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

Less Distributions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HOW THE FUNDS WORK

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

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

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

MONEY MARKET FUNDS

Capital Preservation Fund (CPF)

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

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

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

Capital Preservation Fund II (CPF II)

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

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

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

Benham Government Agency Fund (Agency Fund)

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

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

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

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

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

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

U.S. TREASURY AND AGENCY FUNDS

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

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

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

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

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

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

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

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

Benham Treasury Note Fund (Treasury Note Fund)

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

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

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

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

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

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

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

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

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

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

MORTGAGE SECURITIES FUNDS

Benham Adjustable Rate Government Securities Fund (ARM Fund)

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

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

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

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

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

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

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

GNMA Income Fund (GNMA Fund)

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

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

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

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

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

ABOUT THE FUNDS' INVESTMENTS

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

U.S. TREASURY SECURITIES

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

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

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

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

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

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

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

MORTGAGE-BACKED SECURITIES

The ARM and GNMA Funds may purchase mortgage pass-through securities. These
represent interests in "pools" of mortgages in which payments of both interest
and principal on the securities are generally made monthly. These monthly
mortgage payments are, in effect "passed-through" to the security holder, (minus
fees paid to the security's issuer or guarantor). Although fixed-rate mortgages
typically have stated maturities of 30 or more years, most mortgage holders pay
off their mortgages before they mature which may make these subject to
prepayment risk.

PREPAYMENT RISK

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

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

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

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

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

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

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) are mortgage-backed securities issued
by government agencies; single-purpose, stand-alone financial subsidiaries;
trusts established by financial institutions; or similar institutions. ARM Fund
may buy CMOs, provided that they:

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

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

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

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

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

OTHER INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

The Funds may enter into repurchase agreements, collateralized by U.S.
government securities, with banks or broker-dealers that are deemed to present
minimum credit risk. Credit risk determinations are made by BMC pursuant to
guidelines established by the board of trustees/directors. A repurchase
agreement involves the purchase of a security and a simultaneous agreement to
sell the security back to the seller at a higher price. Delays or losses could
result if the other party to the agreement defaults or becomes bankrupt.

WHEN-ISSUED SECURITIES AND FORWARD-COMMITMENTS

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

CASH MANAGEMENT (VARIABLE-PRICE FUNDS)

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

OTHER INVESTMENT MANAGEMENT TECHNIQUES

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

PORTFOLIO TRANSACTIONS

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

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

PERFORMANCE

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

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

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

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

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

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

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

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

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

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

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

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

SHARE PRICE

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

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

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

Investment and transaction instructions received by Benham on any business day
by mail prior to the close of business on the Exchange, will receive that day's
price. Investments and instructions received after that time will receive the
price determined on the next business day.

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

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

HOW TO INVEST

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Benham Fund Names and State Street Fund Account Numbers:

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

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

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

Benham Fund Names and Morgan Guaranty DDA Numbers:

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

Minimum additional investment: $100

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

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

PROCESSING YOUR PURCHASE

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

TELEPHONE TRANSACTIONS

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

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

CONFIRMATION AND QUARTERLY STATEMENTS

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

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

ACCOUNT SERVICES

EXCHANGE PRIVILEGE

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

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

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

OPEN ORDER SERVICE

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

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

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

AUTOMATIC INVESTMENT SERVICES (AIS)

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

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

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

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

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

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

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

BROKER-DEALER TRANSACTIONS

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

TDD SERVICE FOR THE HEARING IMPAIRED

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

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

EMERGENCY SERVICES

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

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

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

HOW TO REDEEM YOUR INVESTMENT

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

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

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

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

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

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

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

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

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

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

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

Your letter of instruction should specify

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

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

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

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

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

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

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

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

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

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

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

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

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

ABOUT BENHAM-SPONSORED RETIREMENT PLANS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

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

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

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

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

TAXES

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

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

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

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

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

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

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

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

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

MANAGEMENT INFORMATION

ABOUT THE FUNDS

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

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

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

THE BENHAM GROUP

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

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

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

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

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

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

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

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

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

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

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

ADVISORY AND SERVICE FEES

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

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

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

INVESTMENT ADVISORY FEES*

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

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

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

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

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

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

EXPENSE LIMITATION AGREEMENT

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

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

TOTAL OPERATING EXPENSES*

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

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

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

DISTRIBUTION OF SHARES

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

BDI is a wholly owned subsidiary of TCC.

INVESTMENT ADVISOR

BENHAM MANAGEMENT CORPORATION
1665 Charleston Road
Mountain View, California 94043

DISTRIBUTOR

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

CUSTODIANS

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

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

TRANSFER AGENT

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

INDEPENDENT AUDITORS

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

TRUSTEES

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

THE BENHAM GROUP OF INVESTMENT COMPANIES

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

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

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

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

NOTES:

Q018

<PAGE>
BENHAM GOVERNMENT INCOME TRUST

BENHAM GOVERNMENT AGENCY FUND (AGENCY FUND)
BENHAM SHORT-TERM TREASURY AND AGENCY FUND (SHORT-TERM FUND)
BENHAM TREASURY NOTE FUND (TREASURY NOTE FUND)
BENHAM LONG-TERM TREASURY AND AGENCY FUND (LONG-TERM FUND)
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND (ARM FUND)
BENHAM GNMA INCOME FUND (GNMA FUND)

THE BENHAM GROUP(R)
1665 Charleston Road
Mountain View, California 94043

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

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

STATEMENT OF ADDITIONAL INFORMATION

MAY 29, 1996

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

TABLE OF CONTENTS

PAGE

Investment Policies and Techniques 2
Investment Restrictions 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
Administrative and Transfer Agent 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 Fund, Treasury Note Fund, Long-Term
Fund, ARM Fund, and GNMA Fund are referred to collectively as the
"Variable-Price Funds."

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 (ARM FUND AND GNMA FUND)

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.

The advisor attempts to minimize the risks associated with repurchase agreements
by adhering to the following criteria:

(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;

(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's board of 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 its investment advisor, Benham Management Corporation
(BMC). 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.

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, BMC 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 (AGENCY FUND ONLY)

Agency Fund 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 TREASURY NOTE FUND)

The advisor 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, BMC 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 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 BMC follows to evaluate banks and broker-dealers
in connection with, for example, repurchase agreements and municipal
securities credit issues, BMC 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 (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: (i) fixed-rate level payment mortgage loans; (ii)
fixed-rate growing equity mortgage loans; (iii) fixed-rate graduated payment
mortgage loans; (iv) adjustable-rate mortgage loans; and (v) 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.

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 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.

BMC may invest in ARMs whose periodic interest rate adjustments are based on new
indexes as these indexes become available.

ZERO-COUPON SECURITIES (TREASURY NOTE 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.

BENHAM GOVERNMENT AGENCY FUND 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 331/3% 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 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.

BENHAM SHORT-TERM TREASURY AND AGENCY FUND 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 331/3% of the Fund's total assets.

BENHAM TREASURY NOTE FUND 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

(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 331/3% 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 331/3% 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.

BENHAM LONG-TERM TREASURY AND AGENCY FUND 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.

(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.

(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.

BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND MAY NOT:

(1) Borrow money in excess of 331/3% 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 331/3% 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.

(4) Engage in any short-selling operations.

(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.

(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.

BENHAM GNMA INCOME FUND MAY NOT:

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

(4) Engage in any short-selling operations.

(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.

(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.

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.

BENHAM GOVERNMENT AGENCY FUND MAY NOT:

(a) Invest in oil, gas, or other mineral leases.

BENHAM SHORT-TERM TREASURY AND AGENCY FUND 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.

(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).

BENHAM LONG-TERM TREASURY AND AGENCY FUND MAY NOT:

(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.

(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.

BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND MAY NOT:

(a) Invest in oil, gas, or other mineral leases.

PORTFOLIO TRANSACTIONS

Each Fund's assets are invested by BMC 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, BMC is responsible for making all determinations as to the purchase
and sale of portfolio securities and for taking all steps necessary to implement
securities transactions on behalf of the Funds.

In placing orders for the purchase and sale of portfolio securities, BMC will
use its best possible price and execution and will otherwise place orders with
broker-dealers subject to and in accordance with any instructions from the board
of trustees that may be issued from time to time. BMC 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, BMC transacts in round lots ($100,000 to $10 million or
more) whenever possible. Since commissions are not charged for round-lot
transactions of U.S. Treasury securities, the 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 following table illustrates the portfolio turnover rates for each Fund
(except Agency Fund) for the fiscal years ended March 31, 1996, and 1995.

PORTFOLIO TURNOVER RATES

FISCAL YEAR FISCAL YEAR
FUND 1996 1995

Short-Term Fund 224.03% 140.82%
Treasury Note Fund 167.89 92.35
Long-Term Fund 112.35 146.81
ARM Fund 221.35 60.29
GNMA Fund 63.54 119.56

VALUATION OF PORTFOLIO SECURITIES

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

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 BENHAM GOVERNMENT AGENCY FUND are valued on the basis of
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium paid at the time of purchase. While this method provides certainty in
valuation, it 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 Agency Fund, 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, Agency Fund'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 AGENCY FUND, 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:

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

For the seven-day period ended March 31, 1996, 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-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:

6
YIELD = 2 [(a - b + 1) - 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 Fund 5.02%
Treasury Note Fund 5.43
Long-Term Fund 6.18
ARM Fund 5.43
GNMA Fund 6.86

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.

AVERAGE ANNUAL TOTAL RETURNS

FUND ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND

Agency Fund 5.35% 4.17% N/A 4.98(1)%
Short-Term Fund 6.71 N/A N/A 4.35(2)
Treasury Note Fund 8.42 7.14 6.85 8.99(3)
Long-Term Fund 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 Agency Fund commenced operations on December 5, 1989.
2 Short-Term Fund and Long-Term Fund commenced operations on September 8, 1992.
3 Treasury Note Fund commenced operations on May 16, 1980.
4 ARM Fund commenced operations on September 3, 1991.
5 GNMA Fund commenced operations on September 23, 1985.

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.

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 Benham 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 (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 (the "Code"), as amended. 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
(Treasury Note), $857,191 (Long-Term), $69,205,630 (ARM), and $23,041,420
(GNMA). 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.

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 Agency Fund, Short-Term Fund, Treasury Note Fund, and
Long-Term Fund are 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

Benham Government Income Trust was organized as a Massachusetts business trust
on July 24, 1985. Currently, there are six series of the Trust as follows:
Benham Government Agency Fund, Benham Short-Term Treasury and Agency Fund,
Benham Treasury Note Fund, Benham Long-Term Treasury and Agency Fund, Benham
Adjustable Rate Government Securities Fund, and Benham GNMA Income Fund. The
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: Morgan Guaranty Trust Company of New York, 23 Wall Street, New
York, New York 10015, is custodian of the assets of Short-Term Fund, Long-Term
Fund, ARM Fund, and GNMA Fund. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02101, is custodian of the assets of Agency Fund
and Treasury Note Fund. Services provided by the custodian banks include (a)
settling portfolio purchases and sales, (b) reporting failed trades, (c)
identifying and collecting portfolio income, and (d) providing safekeeping of
securities. The custodian takes no part in determining the Fund's investment
policies or in determining which securities are sold or purchased by the Fund.

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

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 Trust's investment advisor, Benham Management
Corporation (BMC); the Trust's agent for transfer and administrative services,
Benham Financial Services, Inc. (BFS); the Trust's distribution agent, Benham
Distributors, Inc. (BDI); the parent corporation, Twentieth Century Companies,
Inc. (TCC) or TCC's subsidiaries; or other funds advised by BMC. Each trustee
listed below serves as a trustee or director of other funds in The Benham Group.
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 64141-0274.

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 BFS
(1985), BMC (1971), and BDI (1988); president of BMC (1971), and BDI (1988); and
a member of the board of governors of the Investment Company Institute (1988).
Mr. Benham has been in the securities business since 1963, and he frequently
comments through the media on economic conditions, investment strategies, and
the securities markets.

ALBERT A. EISENSTAT, independent 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 is president and director of
Twentieth Century Investors, Inc., TCI Portfolios, Inc., Twentieth Century World
Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century
Capital Portfolios, Inc., Twentieth Century Companies, Inc., Investors Research
Corporation and Twentieth Century Services, Inc.

JEANNE D. WOHLERS, independent 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).

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

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

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

The table on the next page summarizes the compensation that the 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 Benham
funds.

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 (Agency Fund) Not Applicable Not Applicable $29,500
20 (S-T Fund)
165 (T-Note Fund)
55 (L-T Fund)
165 (ARM Fund)
593 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Ronald J. Gilson $ 1,450 (Agency Fund) Not Applicable Not Applicable $79,833
885 (S-T Fund)
1,222 (T-Note Fund)
929 (L-T Fund)
1,252 (ARM Fund)
2,178 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Myron S. Scholes $ 1,776 (Agency Fund) Not Applicable Not Applicable $69,500
1,066 (S-T Fund)
1,492 (T-Note Fund)
1,110 (L-T Fund)
1,549 (ARM Fund)
2,683 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Kenneth E. Scott $ 2,032 (Agency Fund) Not Applicable Not Applicable $75,773
1,084 (S-T Fund)
1,649 (T-Note Fund)
1,169 (L-T Fund)
2,702 (ARM Fund)
3,258 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Ezra Solomon $ 1,765 (Agency Fund) Not Applicable Not Applicable $70,249
1,060 (S-T Fund)
1,481 (T-Note Fund)
1,118 (L-T Fund)
1,523 (ARM Fund)
2,661 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Isaac Stein $ 1,791 (Agency Fund) Not Applicable Not Applicable $70,500
1,068 (S-T Fund)
1,503 (T-Note Fund)
1,120 (L-T Fund)
1,557 (ARM Fund)
2,727 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers $ 1,825 (Agency Fund) Not Applicable Not Applicable $71,250
1,069 (S-T Fund)
1,521 (T-Note Fund)
1,127 (L-T Fund)
1,571 (ARM Fund)
2,799 (GNMA Fund)
- -----------------------------------------------------------------------------------------------------------------

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

As of April 30, 1996, the 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 Benham Management
Corporation (BMC) dated June 1, 1995, that was approved by shareholders on May
31, 1995.

BMC is a California corporation and a wholly owned subsidiary of Twentieth
Century Companies (TCC), a Delaware corporation. BMC, as well as BFS and BDI,
became wholly owned subsidiaries of TCC on June 1, 1995, upon the merger of
Benham Management International (BMI), the former parent of BMC, BFS and BDI,
into TCC. BMC has served as investment advisor to the Fund since the Fund's
inception. TCC is a holding company that owns all of the stock of the operating
companies that provide the investment management, transfer agency, shareholder
service, and other services for the Twentieth Century family of funds. James E.
Stowers, Jr., controls TCC by virtue of his ownership of a majority of its
common stock. BMC has been a registered investment advisor since 1971 and is
investment advisor to other funds in The Benham Group.

Each Fund's agreement with BMC continues for an initial period of two years and
thereafter from year to year provided that, after the initial two year period,
it is approved at least annually by vote of a majority of the Fund's
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 BMC, to the other party, and terminates automatically in the event of
its assignment.

Pursuant to the investment advisory agreement, BMC provides the Fund with
investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. BMC 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 BMC 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 BMC for the fiscal years ended
March 31, 1996, 1995 and 1994, are indicated in the following table. Fee amounts
are net of reimbursements as described below.

INVESTMENT ADVISORY FEES

FISCAL FISCAL FISCAL
FUND 1996 1995 1994

Agency Fund $1,104,214 $1,014,951 $1,073,248
Short-Term Fund 118,721 60,440 11,846
Treasury Note Fund 867,876 875,087 1,020,441
Long-Term Fund 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

ADMINISTRATIVE AND TRANSFER AGENT SERVICES

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

GROUP ASSETS ADMINISTRATIVE FEE RATE

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

For transfer agent services, each Fund pays BFS 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 to BFS 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.

ADMINISTRATIVE FEES

FISCAL FISCAL FISCAL
FUND 1996 1995 1994

Agency Fund $475,745 $478,410 $564,901
Short-Term Fund 39,657 30,662 21,286
Treasury Note Fund 301,079 312,814 378,294
Long-Term Fund 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

Agency Fund $591,421 $636,462 $863,944
Short-Term Fund 44,415 36,254 29,973
Treasury Note Fund 283,949 317,653 356,584
Long-Term Fund 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

DIRECT FUND EXPENSES

Each Fund pays certain operating expenses that are not assumed by BMC or BFS.
These include fees and expenses of the independent trustees; custodian, audit,
and pricing fees; fees of outside counsel and counsel 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

BMC 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:

Agency Fund .65%
Short-Term Fund .60%
Treasury Note Fund .60%
Long-Term Fund .60%
ARM Fund .60%
GNMA Fund .60%

BMC 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

Agency Fund .50% .50%
Short-Term Fund .65% .66%
Treasury Note Fund .65% .66%
Long-Term Fund .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.

NET EXPENSE ABSORBED (RECOUPED) BY BMC AND BFS

FISCAL FISCAL FISCAL
FUND 1996 1995 1994

Agency Fund $267,261 $323,152 $451,622
Short-Term Fund (4,468) 25,537 45,651
Treasury Note Fund 0 0 0
Long-Term Fund 25,358 33,125 44,468
ARM Fund (20,799) 11,331 0
GNMA Fund 0 0 0

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.

The Benham Group 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 April 30, 1996, 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>
<CAPTION>
- ------------------------------------------------------------------------------------------
FUND SHAREHOLDER # OF SHARES HELD % OF TOTAL
NAME AND ADDRESS SHARES OUTSTANDING

- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Fund Charles Schwab & Co. 650,812.439 18.3%
101 Montgomery Street
San Francisco, CA 94104

J. Harris Morgan 311,870.707 8.8%
P.O. Box 556
Greenville, TX 75401

Allied Clearings Co. 280,693.752 7.9%
P.O. Box 94303
Pasadena, CA 91109-4303

- ------------------------------------------------------------------------------------------
Treasury Note Fund Charles Schwab & Co. 3,238,968.281 10.8%
101 Montgomery Street
San Francisco, CA 94104

</TABLE>

- ------------------------------------------------------------------------------------------
FUND SHAREHOLDER # OF SHARES HELD % OF TOTAL
(CONTINUED) NAME AND ADDRESS SHARES OUTSTANDING

- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-Term Fund Charles Schwab & Co. 4,824,815.125 45.4%
101 Montgomery Street
San Francisco, CA 94104

Natl. Fincl. Svcs. Corp. 1,137,671.818 10.7%
P.O. Box 3908
New York, NY 10008-3908

- ------------------------------------------------------------------------------------------
ARM Fund Charles Schwab & Co. 1,785,301.585 5.8%
101 Montgomery Street
San Francisco, CA 94104

- ------------------------------------------------------------------------------------------
GNMA Fund Charles Schwab & Co. 15,545,764.582 14.5%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>

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

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

Share purchases and redemptions are governed by California law.

OTHER INFORMATION

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

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.

<PAGE>
BENHAM GOVERNMENT INCOME TRUST

1933 Act Post-Effective Amendment No. 28
1940 Act Amendment No. 29

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 #773-96-000002, 000003,
17271-96-000004).

(b) EXHIBITS.

(1) Agreement and Declaration of Trust dated May 31, 1995, is
included herein as EX-99.B1.

(2) Amended and Restated Bylaws, dated May 17, 1995, are included
herein as EX-99.B2.

(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
included herein as EX-99.B5.

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

(7) Not applicable.

(8) (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 Post-Effective Amendment No. 7 of Benham
International Funds filed on April 22, 1996 (Accession No.
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) to Post-Effective Amendment No.
24.

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

(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is
incorporated herein by reference to Rule 24f-2 Notice filed
on May 16, 1996 (Accession No. 773674-96-000001).

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

(12) Not applicable.

(13) Not applicable.

(14) (a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a)
to Post-Effective Amendment No. 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 included herein as EX-99.B16.

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

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

Not applicable.

Item 26. Number of Holders of Securities.

As of May 1, 1996, each series of Benham Government Income Trust had the
following number shareholders of record:

Benham Government Agency Fund 19,454
Benham Short-Term Treasury and Agency Fund 1,263
Benham Treasury Note Fund 11,582
Benham Long-Term Treasury and Agency Fund 3,252
Benham Adjustable Rate Government Securities Fund 15,247
Benham GNMA Income Fund 43,944

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(b) to this Post-Effective Amendment.

Item 28. Business and Other Connections of Investment Advisor.

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

Item 29. Principal Underwriters.

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

Item 30. Location of Accounts and Records.

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

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

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

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 28/Amendment No. 29 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 24th day of May, 1996. I hereby certify that this Amendment
meets the requirements for immediate effectiveness pursuant to Rule 485(b).

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. 28/Amendment No. 29 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, May 24, 1996
James M. Benham President, and Chief Executive Officer

* Trustee May 24, 1996
Albert A. Eisenstat

* Trustee May 24, 1996
Ronald J. Gilson

* Trustee May 24, 1996
Myron S. Scholes

* Trustee May 24, 1996
Kenneth E. Scott

* Trustee May 24, 1996
Ezra Solomon

* Trustee May 24, 1996
Isaac Stein

* Trustee May 24, 1996
James E. Stowers III

* Trustee May 24, 1996
Jeanne D. Wohlers

* Chief Financial Officer, Treasurer May 24, 1996
Maryanne Roepke

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

EXHIBIT INDEX

EXHIBIT DESCRIPTION

EX-99.B1 Agreement and Declaration of Trust dated May 31, 1995.

EX-99.B2 Amended and Restated Bylaws, dated May 17, 1995.

EX-99.B4a Specimen copy of Benham GNMA Income Fund share certificate is
incorporated herein by reference to Exhibit 4 to the registration
statement filed on Form N-1A July 26, 1985.

EX-99.B4b 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 Form N1-A
on September 30, 1991.

EX-99.B4c 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 Form N-1A on November 27, 1991.

EX-99.B4d 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 Form N-1A on November
27, 1991.

EX-99.B4e 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 Form N1-A on November
29, 1992.

EX-99.B4f 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 Form N1-A on November
29, 1992.

EX-99.B5 Investment Advisory Agreement between Benham Government Income
Trust and Benham Management Corporation, dated June 1, 1995.

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

EX-99.B8a 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
Post-Effective Amendment No. 7 of Benham International Funds
filed on Form N-1A on April 22, 1996 (Accession No.
880268-96-000010).

EX-99.B8b Custodian Agreement between Benham Government Income Trust, on
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) to
Post-Effective Amendment No. 24.

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

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

EX-99.B14a Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 23 filed on September 28, 1992.

EX-99.B14b Benham Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 23 filed on September 28, 1992.

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

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

EX-27.5.1 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.

TABLE OF CONTENTS

BENHAM GOVERNMENT INCOME TRUST
AGREEMENT AND DECLARATION OF TRUST

APPROVED SEPTEMBER 17, 1985
AMENDED MAY 31, 1995

ARTICLE I. NAME AND DEFINITIONS

1. Name
2. Definitions
(a) Trust
(b) Trustees
(c) Shares
(d) Shareholder
(e) 1940 Act
(f) Commission
(g) Declaration of Trust
(h) Bylaws
(i) Fund or Series
(j) Series

ARTICLE II PURPOSE OF TRUST

ARTICLE III SHARES

1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Trustees to Change Provisions Relating to Shares
6. Establishment and Designation of Series
(a) Assets Belonging to Series
(b) Liabilities Belonging to Series
(c) Income, Distributions and Redemptions
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
8. Trustees Establishment and Designation of Series

ARTICLE IV THE TRUSTEES

1. Number, Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts

ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS

1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions

ARTICLE VI NET ASSET VALUE, DISTRIBUTIONS, AND REDEMPTIONS

1. Determination of Net Asset Value, Net Income and Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust

ARTICLE VII COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

1. Compensation
2. Limitation of Liability
3. Indemnification

ARTICLE VIII MISCELLANEOUS

1. Trustees, Shareholders, etc. Not Personally Liable; Notice
2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety
3. Liability of Third Persons Dealing with Trustees
4. Termination of Trust or Series
5. Merger and Consolidation
6. Filing of Copies, References, Headings
7. Applicable Law
8. Amendments
9. Trust Only
10. Use of the Name "Benham"

<PAGE>

AGREEMENT AND DECLARATION OF TRUST

BENHAM GOVERNMENT INCOME TRUST

AGREEMENT AND DECLARATION OF TRUST made at Palo Alto, California this 24th
day of July, 1985 by the Trustees hereunder.

WHEREAS the Trustees desire and have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth,

NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of the Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.

ARTICLE I
NAME AND DEFINITIONS

Section 1. NAME. This Trust shall be known as the "BENHAM GOVERNMENT INCOME
TRUST" and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine.

Section 2. DEFINITIONS. Whenever used herein, unless otherwise required by
the context or specifically provided:

(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;

(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected or appointed in accordance with such Article;

(c) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust (as the context may require) shall be divided from time to
time;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;

(f) The term "Commission" shall mean the United States Securities and
Exchange Commission;

(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;

(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;

(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision; and

(j) "Series" refers to each "Series of Shares" established and designated
under or in accordance with the provisions of Article III; Fund(s) may be
substituted whenever "Series" or "Series of Shares" is used.

ARTICLE II
PURPOSE OF TRUST

The purpose of the Trust is to provide investors a managed investment
company registered under the 1940 Act and investing one or more Series in
securities and debt instruments.

ARTICLE III
SHARES

Section 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, without
par value. Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders of
the Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by each Shareholder on the record
date for any dividend or on the date of termination, as the case may be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of any particular
Series into a greater or lesser number of Shares of that Series without thereby
changing the proportionate beneficial interest of the Shares of that Series in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.

Section 2. OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series. Certificates
certifying the ownership of Shares shall be issued as the Trustees may determine
from time to time. The Trustees may make such rules as they consider appropriate
for the transfer of Shares of each Series and similar matters. The record books
of the Trust as kept by the Trust or any transfer or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders of each Series and as
to the number of Shares of each Series held from time to time by each.

Section 3. INVESTMENTS IN THE TRUST. The Trustees may accept investments in
the Trust from such persons, at such times, and on such terms and for such
consideration as they from time to time authorize.

Section 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholder as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.

Section 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES.
Notwithstanding any other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.

Without limiting the generality of the foregoing, the Trustees may, for the
above stated purposes, amend the Declaration of Trust to:

(a) create one or more Series of Shares (in addition to any Series already
existing or otherwise) with such rights and preferences and such eligibility
requirements for investment therein as the Trustees shall determine and
reclassify any or all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;

(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;

(c) combine one or more Series of Shares into a single Series on such terms
and conditions as the Trustees shall determine;

(d) change or eliminate any eligibility requirements for investment in
Shares of any Series, including without limitation, to provide for the issue of
Shares of any Series in connection with any merger or consolidation of the Trust
with another trust or company or any acquisition by the Trust of part or all of
the assets of another trust or investment company;

(e) change the designation of any Series of Shares;

(f) change the method of allocating dividends among the various Series of
Shares;

(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series of
Shares;

(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series.

Section 6. ESTABLISHMENT AND DESIGNATION OF SERIES. The establishment and
designation of any Series of Shares shall be effective upon the resolution by a
majority of the then Trustees, setting forth such establishment and designation
and the relative rights and preferences of such Series, or as otherwise provided
in such resolution. Such establishment and designation shall be set forth in an
amendment to this Declaration of Trust as provided in Section 8 of Article VIII.

Shares of each Series established pursuant to this Section 6, unless
otherwise provided in the resolution establishing such Series, shall have the
following relative rights and preferences:

(a) ASSETS BELONGING TO THE SERIES. All consideration received by the Trust
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, shall be so recorded upon
the books of account of the Trust, and are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one ore more of the Series in such manner and on such basis as they, in
their sole discretion, deem fair and equitable, and any General Asset so
allocated to a particular Series shall belong to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.

(b) LIABILITIES BELONGING TO THE SERIES. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust in respect
to that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustee
shall be conclusive and binding upon the holders of all Series for all purposes.
Under no circumstances shall the assets allocated or belonging to any particular
Series be charged with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to a particular Series, or who
have a claim or contract which has been allocated to any particular Series,
shall look only to the assets of that particular Series for payment of such
credit, claim or contract.

(c) INCOME, DISTRIBUTIONS, AND REDEMPTIONS. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders. Notwithstanding any other provision of this Declaration,
including, without limitation, Article VI, no dividend or distribution
(including, without limitation, any distribution paid upon termination of the
Trust or of any Series ) with respect to, nor any redemption or repurchase of,
the Shares of any Series shall be effected by the Trust other than from the
assets belonging to such Series, nor, except as specifically provided in Section
7 of this Article III, shall any Shareholder of any particular Series otherwise
have any right or claim against the assets belonging to any other Series except
to the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series.

(d) VOTING. All Shares of the Trust entitled to vote on a matter shall vote
separately by Series. That is, the Shareholders of each Series shall have the
right to approve or disapprove matters affecting the Trust and each respective
Series as if the Series were separate companies. There are, however, two
exceptions to voting by separate Series. First, if the 1940 Act requires all
Shares of the Trust to be voted in the aggregate without differentiation between
the separate Series, then all Series shall vote together. Second, if any matter
affects only the interests of some but not all Series, then only such affected
Series shall be entitled to vote on the matter.

(e) EQUALITY. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.

(f) FRACTIONS. Any fractional Share of a Series shall carry proportionately
all the rights and obligations of a whole share of that Series, including rights
with respect to voting, receipt of dividends and distributions, redemption of
Shares and termination of the Trust.

(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.

(h) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single series.

(i) ELIMINATION OF A SERIES. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be effected
in the manner provided pursuant to Section 5 of this Article III.

Section 7. INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Trust to be held harmless
from and indemnified against all loss and expense arising from such liability.

Section 8. TRUSTEES ESTABLISHMENT AND DESIGNATION OF SERIES. The Board of
Trustees hereby establishes and designates Benham GNMA Income Fund, Benham
Treasury Note Fund and Benham Government Agency Fund, Benham Short-Term
Government Treasury & Agency Fund, and Benham Long-Term Treasury & Agency Fund
as Series of the Trust with the relative rights and preferences as described in
Section 6 of Article III.

ARTICLE IV
THE TRUSTEES

Section 1. NUMBER, ELECTION AND TENURE. The number of Trustees shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be less than three nor more than 15. The initial Trustees
shall be Donald E. Farrar, Dent N. Hand, Jr., and John T. Kataoka. The Trustees
may by vote of a majority of the remaining Trustees fill vacancies in the
Trustees or remove Trustees with or without cause by vote of a majority of the
Trustees who are "non-interested" persons (as defined in the 1940 Act) if the
Trustee to be removed is a "non-interested" Trustee, or by vote of the Trustees
who are "interested persons" if the Trustee to be removed is an "interested"
Trustee. Each Trustee shall serve during the continued lifetime of the Trust
until he dies, resigns or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his successor, except, that Trustees who are not
"interested persons" or employees of the Benham Capital Management Group of
companies shall retire at the end of the calendar year in which they shall have
reached the age of seventy-five (75) years. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. The Shareholders may fix the number of Trustees and elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose.

Section 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEES. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in Article IV, Section 1, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
A written instrument certifying the existence of such vacancy singed by a
majority of the Trustees shall be conclusive evidence of such vacancy signed by
a majority of the Trustees shall be conclusive evidence of such vacancy. In the
event of the death, declination, resignation, retirement, removal, or incapacity
of all the then Trustees within a short period of time and without the
opportunity for at least one Trustee being able to appoint additional Trustees
to fill vacancies, the Trust's investment advisor or investment advisors
jointly, if there is more than one, are empowered to appoint new Trustees.

Section 3. POWERS. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility including
the power to engage in securities transactions of all kinds on behalf of the
Trust. Without limiting the foregoing, the Trustees may adopt Bylaws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such Bylaws do not reserve that right to the Shareholders; they may
fill vacancies in or reduce the number of Trustees, and may elect and remove
such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number and establish and terminate
one or more committees consisting of two or more Trustees which may exercise the
powers and authority of the Trustees to the extent that the Trustees determine;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set recorded dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian, transfer or Shareholder servicing agent, or principal
underwriter. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration of Trust, the presumption shall be in favor of a grant of
power to the Trustees.

Without limiting the foregoing, the Trustees shall have power and
authority:

(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, lend or otherwise deal in or
dispose of contracts for the future acquisition or delivery of fixed income or
other securities, and securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, bankers' acceptances, and
other securities of any kind, issues, created, guaranteed, or sponsored by any
and all persons, including, without limitation, states, territories, and
possessions of the United States and the District of Columbia and any political
subdivision, agency, or instrumentality of the U.S. Government, any foreign
government or any political subdivision of the U.S. Government or any foreign
government, or any international instrumentality, or by any bank or savings
institution, or by an corporation or organization organized under the laws of
the United States or any state, territory, or possession thereof, or by any
corporation or organization organized under any foreign law, or in "when issued"
contracts for any such securities, to change the investments of the assets of
the Trust; and to exercise any and all rights, powers, and privileges of
ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations, or corporations to exercise any of said rights, powers, and
privileges in respect of any of said instruments;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;

(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;

(d) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;

(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;

(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;

(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depository or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or trustee as the Trustees shall deem
proper;

(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;

(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;

(j) To borrow funds or other property;

(k) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;

(1) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisors, principal underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as Trustee, officer, employee, agent, investment advisor, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against liability; and

(m) to pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.

The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust. The Trustees shall not in any way
be bound or limited by any present or future law or custom in regard to
investment by fiduciaries. The Trustees shall not be required to obtain any
court order to deal with any assets of the Trust or take any other action
hereunder.

Section 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, investment advisor or manager, principal
underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.

Section 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, Shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.

Section 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trustees.

Section 7. SERVICE CONTRACTS.

(a) Subject to such requirements and restrictions as may be set forth in
the Bylaws, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services for the Trust or
for any Series with Benham Management Corporation or any other corporation,
trust, association or other organization (the "Advisor"); and any such contract
may contain such other terms as the Trustees may determine, including without
limitation, authority for the Advisor to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold or exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested and to make changes in the Trust's investments.

(b) The Trustees may also, at any time and from time to time, contract with
any corporation, trust, association, or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter for the Shares of
any, some, or all of the Series. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms as the Trustees may determine.

(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trusts, associations, or other organizations,
appointing it or them the transfer agent(s) and/or shareholder servicing
agent(s) for the Trust or one or more of the Series. Specifically, the Trustees
are empowered to contract or join with other investment companies managed by the
Trust's investment advisor to have transfer agency and/or shareholder servicing
activities performed jointly by such investment companies and their employees
with an appropriate allocation between the investment companies of the costs and
expenses of providing such services. Every such contract shall comply with such
requirements and restrictions as may be set forth in the Bylaws or stipulated by
resolution of the Trustees.

(d) The fact that:

(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
advisor, principal underwriter, distributor or affiliate or agent of or
for any corporation, trust, association, or other organization, or for
any parent or affiliate of any organization with which any advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract
may have been or may hereafter be made, or that any such organization,
or any parent or affiliate thereof, is a Shareholder or has an interest
in the Trust, or that

(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract with one or more other corporations, trust,
associations, or other organizations, or has other business interests,

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.

ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS

Section 1. VOTING POWERS. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Article IV, Section 1, (ii) to the same extent as the
stockholders of a California business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iii) with respect to the termination of the Trust or any Series to the extent
and as provided in Article VIII, Section 4, and (iv) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the Bylaws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable. A Shareholder of each Series shall be entitled to one vote for each
dollar of net asset value per Share of such Series, on any matter on which such
Shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. All references in this Declaration
of Trust or the Bylaws to a vote of, or the holders of that percentage of Shares
shall mean a vote of or the holders of that percentage of total votes
representing dollars of net asset value of a Series or of the Trust, as the case
may be. There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one of them unless
at or prior to exercise of the proxy the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise and the burden of proving invalidity shall rest on the
challenger. At any time when no Shares of a Series are outstanding, the Trustees
may exercise all rights of Shareholders of that Series with respect to matters
affecting that Series, take any action required by law, this Declaration of
Trust or the Bylaws to be taken by the Shareholders.

Section 2. VOTING POWER AND MEETINGS. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the Bylaws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the Bylaws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.

Section 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by applicable law, by the Bylaws or by this Declaration of Trust, forty
percent (40%) of the Shares entitled to vote shall constitute a quorum at a
Shareholders' meeting. When any one or more Series is to vote as a single class
separate from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of each such Series
entitled to vote shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time to time by a
majority of the votes properly cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further notice. Subject to
the provisions of Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the Bylaws or by applicable law.

Section 4. ACTION BY WRITTEN CONSENT. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the Bylaws)
and holding a majority (or such larger proportion as aforesaid) of the Shares of
any Series entitled to vote separately on the matter consent to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.

Section 5. RECORD DATES. For the purpose of determining the Shareholders of
any Series who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which shall be not more
the 75 days before the date of any meeting of Shareholders, as the record date
for determining the Shareholders of such Series having the right to notice of
and to vote at such meeting and any adjournment thereof, and in such case only
Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.

Section 6. ADDITIONAL PROVISIONS. The Bylaws may include further provisions
for Shareholders' votes and meetings and related matters.

ARTICLE VI
NET ASSET VALUE, DISTRIBUTIONS AND REDEMPTIONS

Section 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS.
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the Bylaws or in a duly adopted
resolution of the Trustees such bases and time for determining the per Share or
net asset value of the Shares of any Series or net income attributable to the
Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.

Section 2. REDEMPTIONS AND REPURCHASES. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument or transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the Bylaws and applicable law, next
determined under the 1940 Act. Payment for said Shares shall be made by the
Trust to the Shareholder within seven days after the date on which the request
is made in proper form. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock Exchange is
closed for other than weekends or holidays, or if permitted by the rules of the
Commission, during periods when trading on the Exchange is restricted or during
any emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets belonging to such Series or during any other period permitted by order of
the Commission for the protection of investors, such obligation may be suspended
or postponed by the Trustees.

Section 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The Trust shall have the
right at its option and at any time to redeem Shares of any Shareholder at the
net asset value thereof as described in Section 1 of this Article VI: (i) if at
such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount, not to exceed $1,000, determined from time
to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares
equal to or in excess of a percentage determined from time to time by the
Trustees of the outstanding Shares of the Trust or of any Series.

ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

Section 1. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.

Section 2. LIMITATION OF LIABILITY. The Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent,
employee, manager or Principal Underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

Section 3. INDEMNIFICATION. 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 becomes involved by virtue of his 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 of the Trustees.

ARTICLE VIII
MISCELLANEOUS

Section 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason or
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by any officer or officers or
otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officer or
officers or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract, instrument, certificate or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.

Section 2. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their power and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bonds as such, nor any
surety if a bond is required.

Section 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

Section 4. TERMINATION OF TRUST OR SERIES. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of at least two-thirds (66-2/3%) of the Shares of
each Series entitled to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.

Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as the case may
be), to the Shareholders of that Series, as a Series, ratably according to the
number of Shares of that Series held by the several Shareholders on the date of
termination.

Section 5. MERGER AND CONSOLIDATION. The Trustees may cause the Trust or
one or more of its Series to be merged into or consolidated with another Trust
or company or the Shares exchanged under or pursuant to any state or Federal
statute, if any, or otherwise to the extent permitted by law. Such merger or
consolidation or share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust as a whole or any affected Series, as may be
applicable; provided that in all respects not governed by statute or applicable
law, the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.

Section 6. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
or reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.

Section 7. APPLICABLE LAW. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of The Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.

Section 8. AMENDMENTS. This Declaration of Trust may be amended at any time
by an instrument in writing signed by a majority of the then Trustees.

Section 9. TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a trust.
Nothing in this Agreement and Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association.

Section 10. USE OF THE NAME "BENHAM". Benham Management Corporation ("BMC")
has consented to the use by the Trust of the identifying word or name "Benham"
in the name of the Trust. Such consent is conditioned upon the employment of
BMC, its successors or any affiliate thereof, as the Advisor of the Trust. As
between the Trust and itself, BMC controls the use of the name of the Trust
insofar as such name contains "Benham." The name or identifying word "Benham"
may be used from time to time in other connections and for other purposes by BMC
or affiliated entities. BMC may require the Trust to cease using "Benham" in the
name of the Trust if the Trust ceases to employ, for any reason, BMC, an
affiliate, or any successor as Advisor of the Trust.

IN WITNESS WHEREOF, a majority of the Trustees as aforesaid do hereto set
their hands this 24th day of July, 1985.

/s/Donald E. Farrar /s/Dent N. Hand, Jr.
Donald E. Farrar Dent N. Hand, Jr.

/s/John T. Kataoka
John T. Kataoka

BENHAM GOVERNMENT INCOME TRUST
BYLAWS

(LAST AMENDED MAY 17, 1995)

ARTICLE I OFFICES

1. Principal Office
2. Other Offices

ARTICLE II MEETINGS OF SHAREHOLDERS

1. Place of Meetings
2. Call of Meeting
3. Notice of Shareholders' Meeting
4. Manner of Giving Notice; Affidavit of Notice
5. Adjourned Meeting; Notice
6. Voting
7. Waiver of Notice of Consent by Absent Shareholders
8. Shareholder Action by Written Consent without a Meeting
9. Record Date for Shareholder Notice, Voting and Giving
Consents
10. Proxies
11. Inspectors of Election

ARTICLE III TRUSTEES

1. Powers
2. Number and Qualification of Trustees
3. Vacancies
4. Place of Meetings and Meetings by Telephone
5. Regular Meetings
6. Special Meetings
7. Quorum
8. Waiver of Notice
9. Adjournment
10. Notice of Adjournment
11. Action Without a Meeting
12. Fees and Compensation of Trustees

ARTICLE IV COMMITTEES

1. Committees of Trustees
2. Meetings and Action of Committees

ARTICLE V OFFICERS

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

ARTICLE VI INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER AGENTS

1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion and Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Advance of Expenses
8. Other Contractual Rights
9. Limitations
10. Insurance
11. Fiduciaries of Corporate Employee Benefit Plan

ARTICLE VII RECORDS AND REPORTS

1. Maintenance and Inspection of Share Register
2. Maintenance and Inspection of Bylaws
3. Maintenance and Inspection of Other Records
4. Inspection by Trustees
5. Financial Statements

ARTICLE VIII GENERAL MATTERS

1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Certificate of Shares
4. Lost Certificates
5. Representation of Shares of Other Entities

ARTICLE IX AMENDMENTS

1. Amendment by Shareholders
2. Amendment by Trustees
<PAGE>

BYLAWS
OF
BENHAM GOVERNMENT INCOME TRUST
A Massachusetts Business Trust

last amended May 17, 1995

ARTICLE 1
OFFICES

Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix the location
of the principal executive office of the Trust at any place within or outside
The Commonwealth of Massachusetts.

Section 2. OTHER OFFICES. The Board of Trustees may at any time establish
branch or subordinate offices at any place or places where the Trust intends to
do business.

ARTICLE II
MEETINGS OF SHAREHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place within or outside The Commonwealth of Massachusetts designated by the
Board of Trustees. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the Trust.

Section 2. CALL OF MEETING. A meeting of the shareholders may be called at
any time by the Board of Trustees or by the chairman of the Board or by the
president.

Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than ten (10) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.

If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Declaration of Trust, (iii) a reorganization
of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall
also state the general nature of that proposal.

Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.

If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at the address, all future notices or
reports shall be deemed to have been duly given without further mailing if these
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.

Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, whether or
not a quorum is present, may be adjourned from time to time by the vote of the
majority of the shares represented at that meeting, either in person or by
proxy.

When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Where
required, notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Section 3 and 4 of this Article II. At any adjourned
meeting, the Trust may transact any business which might have been transacted at
the original meeting.

Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. On
any matter other than elections of trustees, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.

Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.

Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.

Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy holders or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders may revoke the consent by a writing received by the Secretary of the
Trust before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.

If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.

Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to action without a meeting, the Board of
Trustees may fix in advance a record date which shall not be more than
seventy-five (75) days nor less than ten (10) days before the date of any such
meeting as provided in the Declaration of Trust.

If the Board of Trustees does not so fix a record date:

(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.

(b) The record date for determining shareholders entitled to give consent
to action in writing without a meeting, (i) when no prior action by the Board of
Trustees has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the Board of Trustees has been taken, shall
be at the close of business on the day on which the Board of Trustees adopt the
resolution relating to that action or the seventy-fifth day before the date of
such other action, whichever is later.

Section 10. PROXIES. Every person entitled to vote for trustees or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in person by the
person executing that proxy; or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the Trust before the vote pursuant to
that proxy is counted; provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of the California General
Corporation Law.

Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Trustees may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy, shall appoint a person to fill the
vacancy.

These inspectors shall:

(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;

(b) Receive votes, ballots or consents;

(d) Count and tabulate all votes or consents;

(e) Determine when the polls shall close;

(f) Determine the result; and

(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.

ARTICLE III
TRUSTEES

Section 1. POWERS. Subject to the applicable provisions of the Declaration
of Trust and these Bylaws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.

Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The authorized number of
trustees shall be not less than 7 nor more than 11 until changed by a duly
adopted amendment to the Bylaws or by resolution of the Trustees. The selection
and nomination of disinterested directors is committed solely to the discretion
of a Nominating Committee consisting of all sitting disinterested directors
except where the remaining director or directors are interested persons.

Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled by a
majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing trustees. In the event that at any time less than a
majority of the trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission.

Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the
Board of Trustees may be held at any place within or outside The Commonwealth of
Massachusetts that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the Trust. Any meeting, regular or special,
may be held by conference telephone or similar communication equipment, so long
as all trustees participating in the meeting can hear one another and all such
trustees shall be deemed to be present in person at the meeting provided that,
in accordance with the provisions of the Investment Company Act of 1940, the
Board may not transact by such a meeting any business which involves the
entering into, or the approval, performance, or renewal of any contract or
agreement, whereby a person undertakes regularly to serve or act as the Fund's
Investment Advisor or principal underwriter.

Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.

Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees for
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or the secretary or any two (2) trustees.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. In case the notice is delivered personally
or by telephone or to the telegraph company, it shall be given at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
trustee or to a person at the office of the trustee who the person giving the
notice has reason to believe will promptly communicate it to the trustee. The
notice need not specify the purpose of the meeting or the place if the meeting
is to be held at the principal executive office of the Trust.

Section 7. QUORUM. A majority of the authorized number of trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by at least a majority of the required
quorum for that meeting.

Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to any
trustee who either before or after the meeting signs a written waiver of notice,
a consent to holding the meeting or an approval of the minutes. The waiver of
notice of consent need not specify the purpose of the meeting. All such waivers,
consents and approvals shall be filed with the records of the Trust or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any trustee who attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.

Section 9. ADJOURNMENT. A majority of the trustees present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.

Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting in the manner specified in
Section 6 of this Article III to the trustees who were present at the time of
the adjournment.

Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Trustees may be taken without a meeting if a majority
of the members of the Board of Trustees shall individually or collectively
consent in writing to that action; provided that, in accordance with the
Investment Company Act of 1940, such written consent does not approve the
entering into, or the renewal or performance of any contract or agreement,
whereby a person undertakes regularly to serve or act as the Fund's Investment
Advisor or principal underwriter. Any other action by written consent shall have
the same force and effect as a majority vote of the Board of Trustees. Written
consents shall be filed with the minutes of the proceedings of the Board of
Trustees.

Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee or otherwise and receiving compensation for those services.

ARTICLE IV
COMMITTEES

Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by resolution
adopted by a majority of the authorized number of trustees designate one or more
committees, each consisting of two (2) or more trustees, to serve at the
pleasure of the Board. The Board may designate one or more trustees as alternate
members of any committee who may replace any absent member at any meeting of the
committee. Any committee to the extent provided in the resolution of the Board,
shall have the authority of the Board, except with respect to:

(a) the approval of any action which under applicable law also requires
shareholders' approval or approval of the outstanding shares, or requires
approval by a majority of the entire Board or certain members of said Board;

(b) the filling of vacancies on the Board of Trustees or in any committee;

(d) the amendment or repeal of the Declaration of Trust or of the Bylaws or
the adoption of new Bylaws;

(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable;

(f) a distribution to the shareholders of the Trust, except at a rate or in
a periodic amount or within a designated range determined by the Board of
Trustees; or

(g) the appointment of any other committees of the Board of Trustees or the
members of these committees.

Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these Bylaws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, and notice of special meetings of
committees shall also be given to all alternate members who shall have the right
to attend all meetings of the committee. The Board of Trustees may adopt rules
for the government of any committee not inconsistent with the provisions of
these Bylaws.

ARTICLE V
OFFICERS

Section 1. OFFICERS. The officers of the Trust shall be a president, a
secretary, and a treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a chairman of the Board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.

Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.

Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may
empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these Bylaws or as the
Board of Trustees may from time to time determine.

Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Trustees at any regular or special
meeting of the Board of Trustees or except in the case of an officer upon whom
such power of removal may be conferred by the Board of Trustees.

Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.

Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or other cause shall be filled in the
manner prescribed in these Bylaws for regular appointment to that office.

Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer is elected, shall if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
Bylaws.

Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Trustees to the chairman of the board, if there be such an
officer, the president shall be the principal executive officer and the
principal operating officer of the Trust and shall, subject to the control of
the Board of Trustees, have general supervision, direction and control of the
business and the officers of the Trust. He shall preside at all meetings of the
shareholders and in the absence of the chairman of the board or if there be
none, at all meetings of the Board of Trustees. He shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Trustees or these Bylaws.

Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the Board of
Trustees or if not ranked, a vice president designated by the Board of Trustees,
shall perform all the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Trustees or
by these Bylaws and the president or the chairman of the board.

Section 9. SECRETARY. The secretary shall keep or cause to be kept at the
principal executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings and the
proceedings.

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

The secretary shall give or cause to be given notice of all meetings of the
shareholders and the Board of Trustees required by these Bylaws or by applicable
law to be given and shall have such other powers and perform such other duties
as may be prescribed by the Board of Trustees or by these Bylaws.

Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall be
the principal financial and accounting officer of the Trust and shall keep and
maintain or cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions of the Trust,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any trustee.

The chief financial officer shall deposit all monies and other valuables in
the name and to the credit of the Trust with such depositories as may be
designated by the Board of Trustees. He shall disburse the funds of the Trust as
may be ordered by the Board of Trustees, shall render to the president and
trustees, whenever they request it, an account of all of his transactions as
chief financial officer and of the financial condition of the Trust and shall
have other powers and perform such other duties as may be prescribed by the
Board of Trustees or these Bylaws.

ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS

Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.

Section 2. ACTIONS OTHER THAN BY TRUST: This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of this Trust
and in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which the person reasonably believed to be in the
best interests of this Trust or that the person had reasonable cause to believe
that the person's conduct was unlawful.

Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of this Trust to procure a judgment in
its favor by reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be in the best interests of this
Trust and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.

Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.

No indemnification shall be made under Sections 2 or 3 of this Article:

(a) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's duty to this
Trust, unless and only to the extent that the court in which that action was
brought shall determine upon application that in view of all the circumstances
of the case, that person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine; or

(b) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval, unless the required approval set forth in Section 6
of this Article is obtained.

Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
Trust has been successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article or in defense of any claim, issue or matter
therein, before the court or other body before whom the proceeding was brought,
the agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, provided that the Board of Trustees,
including a majority who are disinterested, non-party trustees, also determines
that based upon a review of the facts, the agent was not liable by reason of the
disabling conduct referred to in Section 4 of this Article.

Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:

(a) A majority vote of a quorum consisting of trustees who are not parties
to the proceeding and are not interested persons of the Trust (as defined in the
Investment Company Act of 1940); or

(b) A written opinion by an independent legal counsel.

Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.

Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.

Section 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Sections 5 or 6 in any circumstances where
it appears:

(a) That it would be inconsistent with a provision of the Declaration of
Trust, a resolution of the shareholders or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid which prohibits or otherwise
limits indemnification; or

(b) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.

Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.

Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.

ARTICLE VII
RECORDS AND REPORTS

Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust shall
keep at its principal executive office or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the Board
of Trustees, a record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each shareholder.

Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The Trust shall keep at
its principal executive office the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours.

Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.

Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.

Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and any
income statement of the Trust for each quarterly period of each fiscal year and
accompanying balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the principal executive
office of the Trust for at least twelve (12) months and each such statement
shall be exhibited at all reasonable times to any shareholder demanding an
examination of any such statement or a copy shall be mailed to any such
shareholder.

The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.

ARTICLE VIII
GENERAL MATTERS

Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the Trust shall be signed or endorsed by
such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.

Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees,
except as otherwise provided in these Bylaws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Board of Trustees or within the agency power of an officer, no officer, agent,
or employee shall have any power or authority to bind the Trust by any contract
or engagement or to pledge its credit or to render it liable for any purpose or
for any amount.

Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any Fund of the Trust shall be issued to each
shareholder when any of these shares are fully paid. All certificates shall be
signed in the name of the Trust by the Chairman of the Board or the President or
any Vice President and by the Chief Financial Officer, Controller, any Assistant
Controller, or the Secretary or any Assistant Secretary, certifying the number
of shares and the Fund for which the shareholder owns the shares. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by the
Trust with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue. Notwithstanding the foregoing, the Trust may
adopt and use a system of issuance, recordation and transfer of its shares by
electronic or other means.

Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Trust and cancelled at the same time. The Board of
Trustees may in case any share certificate or certificate for any other security
is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.

Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES. The chairman of the
board, the president or any vice president or any other person authorized by
resolution of the Board of Trustees or by any of the foregoing designated
officers, is authorized to vote on behalf of the Trust any and all shares of any
corporation or corporations, partnerships, trusts, or other entities, foreign or
domestic, standing in the name of the Trust. The authority granted to these
officers to vote or represent on behalf of the Trust any and all shares held by
the Trust in any form of entity may be exercised by any of these officers in
person of by any person authorized to do so by a proxy duly executed by these
officers.

ARTICLE IX
AMENDMENTS

Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be amended or repealed
by the affirmative vote or written consent of a majority of the outstanding
shares entitled to vote, except as otherwise provided by applicable law or by
the Declaration of Trust or these Bylaws.

Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal Bylaws, and
except as otherwise provided by applicable law or by the Declaration of Trust,
these Bylaws may be adopted, amended, or repealed by the Board of Trustees.

INVESTMENT ADVISORY AGREEMENT

BENHAM GOVERNMENT INCOME TRUST

Agreement effective this 1st day of June, 1995, between BENHAM GOVERNMENT
INCOME TRUST, a registered open-end management investment company organized as a
business trust in the Commonwealth of Massachusetts (the "Trust"), and BENHAM
MANAGEMENT CORPORATION, a registered investment advisor incorporated in the
State of California (the "Advisor").

Whereas, the Trust is authorized to issue shares of beneficial interest in
one or more series with each such series representing interests in a separate
portfolio of securities and other assets; and

Whereas, the Trust currently offers its shares in six series designated as
the Benham Treasury Note Fund, Benham Government Agency Fund, Benham Adjustable
Rate Government Securities Fund, Benham GNMA Income Fund, Benham Short-Term
Treasury and Agency Fund, and Benham Long-Term Treasury and Agency Fund (the
"Initial Series"), (such Initial Series together with all other series
subsequently established by the Trust with respect to which the Trust desires to
retain the Advisor to render investment advisory services hereunder and with
respect to which the Advisor is willing to do so herein collectively referred to
as the "Series"). In the event the Trust establishes one or more series other
than the Initial Series with respect to which it desires to retain the Advisor
to render management and investment advisory services hereunder, it shall notify
the Advisor in writing, whereupon such series shall become a Series hereunder.

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

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

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

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

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

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

II. COMPENSATION FOR SERVICES.

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

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

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

(b) DETERMINATION OF TRUST FEE. The Trust Fee for each Series shall be
equal to that Series' pro-rata share of the value of the aggregated average
daily net assets of the Trust, determined for each calendar day, pursuant to the
following schedule of annualized rates:

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

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

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

A. The Trust Fee plus the Individual Fund Fee (if any).

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

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

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

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

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

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

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

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

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

VII. RENEWAL, TERMINATION AND AMENDMENT. The term of this agreement shall
be from the date first written above, and shall continue in effect, unless
sooner terminated as provided herein, for two years from such date, and it shall
continue in effect with respect to a Series from year to year thereafter only so
long as such continuance is specifically approved at least annually by the vote
of either a majority of the outstanding voting securities of that Series or a
majority of the Trust's trustees, and the vote of a majority of the Trust's
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 90 days prior to
and including the date of its termination in the absence of such approval, and
with respect to any subsequent continuance, during the 90 days prior to and
including the first anniversary of the date upon which the most recent previous
annual continuance of this agreement became effective. This agreement may be
terminated at any time without payment of any penalty, by the board of trustees
of the Trust, or with respect to a Series, by a vote of the majority of the
outstanding voting securities of such Series, upon 60 days' written notice to
the Advisor, and by the Advisor upon 60 days' written notice to the Trust. This
agreement shall terminate automatically in the event of its assignment. The
terms "assignment" and "vote of a majority of the outstanding voting securities"
shall have the meanings set forth for such terms in the Investment Company Act
of 1940 and Rule 18f-2 thereunder.

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

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

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

BENHAM GOVERNMENT INCOME TRUST

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

BENHAM MANAGEMENT CORPORATION

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

Consent of Independent Auditors

The Board of Trustees and Shareholders
Benham Government Income Trust:

We consent to the inclusion in Benham Government Income Trust's Post-Effective
Amendment No. 28 to the Registration Statement No. 2-99222 on Form N-1A under
the Securities Act of 1933 and Amendment No. 29 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 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 Prospectus and under the heading "About the Trust" in the Statements of
Additional Information which are incorporated by reference in the Prospectus.

/s/KPMG Peat Marwick LLP

San Francisco, California
May 28, 1996

BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
Average Annual Total Return
March 31, 1996

1/N
Formula: T = (ERV divided by P) - 1

P = A hypothetical initial payment of $1,000.

ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.

N = Number of years.

T = Average annual total return.

Calculation: P ERV N T
--------- --------- -------- -----
One Year $1,000.00 $1,064.20 1.000000 6.42%

Five Years $0.00 $0.00 5.000000

Ten Years

Date Of Inception* $1,000.00 $1,229.70 4.578082 4.62%

*Date Of Inception: September 3, 1991

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

BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
Yield Calculation
March 31, 1996

6
Formula: Yield = 2 { [ (A-B) divided by (C-D) + 1 ] - 1 }

A = Investment income 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.

D = The per share price on the last day of the period.

Calculation:
A = $1,475,919.66

B = $146,614.40

C = 31,394,925.273

D = $9.47

Yield = 5.43%

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

BENHAM GOVERNMENT AGENCY FUND
Yield Calculation
March 31, 1996

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

7 Day Yield = 4.73%

7 Day Effective Yield = 4.84%

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

BENHAM TREASURY NOTE FUND
Average Annual Total Return
March 31, 1996

1/N
Formula: T = (ERV divided by P) - 1

P = A hypothetical initial payment of $1,000.

ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.

N = Number of years.

T = Average annual total return.

Calculation: P ERV N T
--------- --------- --------- -----
One Year $1,000.00 $1,084.20 1.000000 8.42%

Five Years $1,000.00 $1,411.75 5.000000 7.14%

Ten Years $1,000.00 $1,939.75 10.000000 6.85%

*Date Of Inception: May 16, 1980

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

BENHAM TREASURY NOTE FUND
Yield Calculation
March 31, 1996

6
Formula: Yield = 2 { [ (A-B) divided by (C-D) + 1 ] - 1 }

A = Investment income 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.

D = The per share price on the last day of the period.

Calculation:
A = $1,517,165.94

B = $125,863.22

C = 30,357,799.256

D = $10.24

Yield = 5.43%

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

BENHAM GNMA INCOME FUND
Average Annual Total Return
March 31, 1996

1/N
Formula: T = (ERV divided by P) - 1

P = A hypothetical initial payment of $1,000.

ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.

N = Number of years.

T = Average annual total return.

Calculation: P ERV N T
--------- --------- --------- ------
One Year $1,000.00 $1,100.80 1.000000 10.08%

Five Years $1,000.00 $1,464.57 5.000000 7.93%

Ten Years

Date Of Inception* $1,000.00 $2,260.98 10.000000 8.50%

*Date Of Inception: September 23, 1985

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

BENHAM GNMA INCOME FUND
Yield Calculation
March 31, 1996

6
Formula: Yield = 2 { [ (A-B) divided by (C-D) + 1 ] - 1 }

A = Investment income 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.

D = The per share price on the last day of the period.

Calculation:
A = $6,825,477.75

B = $532,199.94

C = 106,866,561.795

D = $10.45

Yield = 6.86%

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

BENHAM LONG-TERM TREASURY AND AGENCY FUND
Average Annual Total Return
March 31, 1996

1/N
Formula: T = (ERV divided by P) - 1

P = A hypothetical initial payment of $1,000.

ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.

N = Number of years.

T = Average annual total return.

Calculation: P ERV N T
--------- --------- -------- ------
One Year $1,000.00 $1,134.80 1.000000 13.48%

Five Years $0.00 5.000000

Ten Years

Date of Inception* $1,000.00 $1,283.78 3.564383 7.26%

*Date Of Inception: September 8, 1992

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

BENHAM LONG-TERM TREASURY AND AGENCY FUND
Yield Calculation
March 31, 1996

6
Formula: Yield = 2 { [ (A-B) divided by (C-D) + 1 ] - 1 }

A = Investment income 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.

D = The per share price on the last day of the period.

Calculation:
A = $608,595.19

B = $58,113.64

C = 11,187,048.783

D = $9.67

Yield = 6.18%

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

BENHAM SHORT-TERM TREASURY AND AGENCY FUND
Average Annual Total Return
March 31, 1996

1/N
Formula: T = (ERV divided by P) - 1

P = A hypothetical initial payment of $1,000.

ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.

N = Number of years.

T = Average annual total return.

Calculation: P ERV N T
---------- --------- -------- -----
One Year $1,000.00 $1,067.10 1.000000 6.71%

Five Years $0.00 5.000000

Ten Years

Date Of Inception* $1,000.00 $1,163.90 3.564380 4.35%

*Date Of Inception: September 8, 1992

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

BENHAM SHORT-TERM TREASURY AND AGENCY FUND
Yield Calculation
March 31, 1996

6
Formula: Yield = 2 { [ (A-B) divided by (C-D) + 1 ] - 1 }

A = Investment income 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.

D = The per share price on the last day of the period.

Calculation:
A = $168,017.44

B = $19,143.81

C = 3,655,392.623

D = $9.84

Yield = 5.02%

POWER OF ATTORNEY

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

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

BENHAM GOVERNMENT INCOME TRUST
(A Massachusetts Business Trust)

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

SIGNATURE AND TITLE

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

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

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

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

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

Attest:

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

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BENHAM GNMA INCOME FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1205378021
<INVESTMENTS-AT-VALUE> 1207133613
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> BENHAM TREASURY NOTE FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
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<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> BENHAM GOVERNMENT AGENCY FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 499687813
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<EXPENSES-NET> 2459380
<NET-INVESTMENT-INCOME> 25588121
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 41525456
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<DISTRIBUTIONS-OF-INCOME> 25588121
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<NUMBER-OF-SHARES-SOLD> 527427754
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<SHARES-REINVESTED> 24618517
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
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<ACCUMULATED-NET-GAINS> (69225819)
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<ACCUM-APPREC-OR-DEPREC> (912279)
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<EXPENSES-NET> 2000808
<NET-INVESTMENT-INCOME> 19452086
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BENHAM S-T TREASURY & AGENCY

<S> <C>
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<PERIOD-END> MAR-31-1996
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</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> BENHAM L-T TREASURY & AGENCY

<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> MAR-31-1996
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</TABLE>