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)
4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 9/23/85)
It is proposed that this filing become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on September 3, 1996 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
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Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On May 16, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended March 31, 1996.
<PAGE>
BENHAM GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 29
1940 Act Amendment No. 30
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Financial Highlights, Performance
4 Investment Management, Further Information About the Funds, Investment
Objectives of the Funds, Information About Investment Policies of the
Funds, Risk Factors and Investment Techniques, Other Investment
Practices
5 Investment Management
5A Not Applicable
6 Further Information About the Funds, How to Redeem Shares, Cover Page,
Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Administrative and Transfer Agent
Services, Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
<PAGE>
BENHAM
U.S. Treasury &
Government Funds
Prospectus
SEPTEMBER 3,
1996
BENHAM GOVERNMENT INCOME TRUST
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
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The BENHAM CAPITAL PRESERVATION FUND, BENHAM CAPITAL PRESERVATION FUND II,
BENHAM GOVERNMENT AGENCY FUND, BENHAM SHORT-TERM TREASURY AND AGENCY FUND,
BENHAM TREASURY NOTE FUND, BENHAM LONG-TERM TREASURY AND AGENCY FUND, BENHAM
ADJUSTABLE RATE GOVERNMENT SECURITIES FUND and BENHAM GNMA INCOME FUND (the
"Funds") constitute the Benham U.S. Treasury & Government Funds, part of the
Twentieth Century family of funds, a family that includes 66 no-load mutual
funds covering a variety of investment opportunities. Eight of the funds are
described in this Prospectus. Their investment objectives are listed on pages 2
and 3 of this Prospectus. The other funds are described in separate
prospectuses.
NO-LOAD MUTUAL FUNDS
Twentieth Century offers retail investors a full line of no-load funds,
investments that have no sales charges or commissions. The Funds offered by this
Prospectus have no 12b-1 plan or other deferred sales charges.
INVESTMENTS IN THE FUNDS ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER AGENCY. THERE IS NO ASSURANCE THAT THE MONEY MARKET
FUNDS WILL BE ABLE TO MAINTAIN A $1.00 SHARE PRICE.
This Prospectus gives you information about the Funds that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated September 3, 1996 and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419200
Kansas City, MO 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: http://www.twentieth-century.com
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION OR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
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MONEY MARKET FUNDS
BENHAM CAPITAL
PRESERVATION FUND
(formerly known as Capital Preservation Fund) is a money market fund which
seeks maximum safety and liquidity. Its secondary objective is to seek to pay
shareholders the highest rate of return on their investment in the Fund
consistent with safety and liquidity. The Fund intends to pursue its
investment objectives by investing exclusively in short-term U.S. Treasury
securities guaranteed by the direct full faith and credit pledge of the U.S.
government and maintaining a dollar-weighted average portfolio maturity of
not more than 60 days.
BENHAM CAPITAL
PRESERVATION FUND II
(formerly known as Capital Preservation Fund II) is a money market fund which
seeks maximum safety and liquidity. Its secondary objective is to seek to pay
its shareholders the highest rate of return on their investment in the Fund
consistent with safety and liquidity. The Fund intends to pursue its
investment objectives by investing primarily in repurchase agreements
collateralized by securities that are backed by the full faith and credit of
the U.S. government. Such collateral may include U.S. Treasury bills, notes,
and bonds or mortgage-backed Ginnie Mae certificates.
BENHAM GOVERNMENT AGENCY FUND
is a money market fund which seeks to provide the highest rate of current
return on its investments, consistent with safety of principal and
maintenance of liquidity, by investing exclusively in short-term obligations
of the U.S. government and its agencies and instrumentalities, the income
from which is exempt from state taxes.
AN INVESTMENT IN THE MONEY MARKET FUNDS LISTED ABOVE IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER
SHARE.
THE MINIMUM INITIAL INVESTMENT FOR ALL OF THE ABOVE FUNDS IS $2,500 ($1,000
FOR IRA ACCOUNTS). SEE "HOW TO OPEN AN ACCOUNT," PAGE 22.
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT
OBJECTIVES.
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NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER
PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUNDS, AND YOU SHOULD NOT
RELY ON ANY OTHER INFORMATION OR REPRESENTATION.
2
INVESTMENT OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
U.S. TREASURY AND AGENCY FUNDS
BENHAM SHORT-TERM TREASURY
AND AGENCY FUND
seeks to earn and distribute the highest level of current income exempt from
state income taxes as is consistent with preservation of capital. The Fund
intends to pursue its investment objectives by investing exclusively in
securities issued or guaranteed by the U.S. Treasury and agencies or
instrumentalities of the U.S. government and maintaining a weighted average
portfolio maturity ranging from 13 months to 3 years.
BENHAM TREASURY NOTE FUND
seeks to earn and distribute the highest level of current income consistent
with the conservation of assets and the safety provided by U.S. Treasury
bills, notes, and bonds. The Fund intends to pursue its investment objectives
by investing primarily in U.S. Treasury notes, which carry the direct full
faith and credit pledge of the U.S. government and maintaining a weighted
average portfolio maturity which ranges from 13 months to 10 years.
BENHAM LONG-TERM TREASURY
AND AGENCY FUND
seeks to provide a consistent and high level of current income exempt from
state taxes. The Fund intends to pursue its investment objective by investing
exclusively in securities issued or guaranteed by the U.S. Treasury and
agencies or instrumentalities of the U.S. government and maintaining a
weighted average portfolio maturity ranging from 20 to 30 years.
MORTGAGE SECURITIES FUNDS
BENHAM ADJUSTABLE RATE
GOVERNMENT SECURITIES FUND
seeks to provide investors with a high level of current income, consistent
with stability of principal. The Fund intends to pursue its investment
objective by investing at least 65% of the Fund's total assets in adjustable
rate mortgage securities (ARMs) and other securities collateralized by or
representing interests in mortgages (collectively, "mortgage-backed
securities").
BENHAM GNMA INCOME FUND
seeks to provide a high level of current income consistent with safety of
principal and maintenance of liquidity by investing primarily in
mortgage-backed Ginnie Mae certificates.
THE MINIMUM INITIAL INVESTMENT FOR ALL OF THE ABOVE FUNDS IS $2,500 ($1,000
FOR IRA ACCOUNTS). SEE "HOW TO OPEN AN ACCOUNT," PAGE 22.
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT
OBJECTIVES.
3
TABLE OF CONTENTS
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Transaction and Operating Expense Table...........5
Financial Highlights..............................6
INFORMATION REGARDING THE FUNDS
Investment Policies of the Funds...................14
The Money Market Funds..........................14
Benham Capital Preservation Fund..............14
Benham Capital Preservation Fund II...........14
Benham Government Agency Fund.................15
The U.S. Treasury & Agency Funds................15
Benham Short-Term Treasury and
Agency Fund...............................15
Benham Treasury Note Fund.....................15
Benham Long-Term Treasury and
Agency Fund...............................16
The Mortgage Securities Funds...................16
Benham ARM Fund...............................16
Benham GNMA Income Fund.......................17
Risk Factors and Investment Techniques.............17
U.S. Government Securities......................17
Mortgage-Backed Securities......................18
Repurchase Agreements...........................19
Other Investment Practices,
Their Characteristics and Risks.................20
Portfolio Turnover..............................20
When-Issued and Forward Commitment
Agreements....................................20
Cash Management.................................20
Other Techniques................................20
Performance Advertising............................20
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
How to Open an Account.............................22
By Mail.........................................22
By Wire.........................................22
By Exchange.....................................22
In Person.......................................23
Subsequent Investments.............................23
By Mail.........................................23
By Telephone....................................23
By Wire.........................................23
In Person.......................................23
Automatic Investment Plan..........................23
How to Exchange from
One Account to Another..........................23
By Mail.........................................24
By Telephone....................................24
How to Redeem Shares...............................24
By Mail.........................................24
By Telephone....................................24
By Check-A-Month................................24
Other Automatic Redemptions.....................24
Redemption Proceeds................................24
By Check........................................24
By Wire and ACH.................................24
Redemption of Shares in
Low-Balance Accounts............................25
Signature Guarantee................................25
Special Investor Services..........................25
Automated Information Line......................25
CheckWriting....................................25
Open Order Service..............................26
Tax-Qualified Retirement Plans..................26
Important Policies Regarding Your
Investments.....................................26
Reports to Shareholders............................27
Employer-Sponsored Retirement Plans and
Institutional Accounts..........................28
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price........................................29
When Share Price is Determined..................29
How Share Price is Determined...................29
Where to Find Information About Share Price.....29
Distributions......................................30
Taxes..............................................30
Tax-Deferred Accounts...........................30
Taxable Accounts................................30
Management.........................................31
Investment Management...........................31
Code of Ethics..................................33
Transfer and Administrative Services............33
Distribution of Fund Shares.....................33
Expenses........................................34
Further Information About The Funds................34
4
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Benham
Benham Benham Benham Benham Adjustable Benham
Capital Capital Benham Short-Term Benham Long-Term Rate Gov't. GNMA
Preservation Preservation Government Treasury and Treasury Treasury and Securities Income
SHAREHOLDER Fund Fund II Agency Fund Agency Fund Note Fund Agency Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRANSACTION EXPENSES:
Maximum Sales Load Imposed
on Purchases none none none none none none none none
Maximum Sales Load Imposed
on Reinvested Dividends none none none none none none none none
Deferred Sales Load none none none none none none none none
Redemption Fee(1) none none none none none none none none
Exchange Fee none none none none none none none none
ANNUAL FUND
OPERATING EXPENSES:(2)
(as a percentage of net assets)
Management Fees
(net of expense limitation) .27% .43% .22% .21% .28% .17% .29% .28%
12b-1 Fees none none none none none none none none
Other Expenses .24% .30% .29% .39% .25% .43% .31% .30%
Total Fund Operating Expenses .51% .73% .51% .60% .53% .60% .60% .58%
Example: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period:
1 year $ 5 $ 7 $ 5 $ 6 $ 5 $ 6 $ 6 $ 6
3 years 16 23 16 19 17 19 19 19
5 years 29 41 29 33 30 33 33 32
10 years 64 91 64 75 66 75 75 73
</TABLE>
(1)Redemption proceeds sent by wire are subject to a $10 processing fee.
(2)Benham Management Corporation (the "Manager") has agreed to limit each Fund's
total operating expenses to specified percentages of each Fund's average
daily net assets. The agreement provides that the Manager may recover amounts
absorbed on behalf of the Fund during the preceding 11 months if, and to the
extent that, for any given month, Fund expenses were less than the expense
limit in effect at that time. The current expense limits for the Funds are as
follows: Benham Capital Preservation Fund, .53%; Benham Capital Preservation
Fund II, .73%; and .60% for the remaining Benham U.S. Government & Treasury
Funds. Amounts which are paid by unaffiliated third parties do not apply to
these expense limitations. These expense limitations are subject to annual
renewal in June. If the expense limitations were not in effect, the
Management Fee, Other Expenses and Total Fund Operating Expenses for the
following Funds would be as follows, respectively: Benham Capital
Preservation Fund II, .46%, .30% and .76%; Benham Government Agency Fund,
.27%, .29% and .56%; Benham Short-Term Treasury and Agency Fund, .27%, .39%
and .66%; and Benham Long-Term Treasury and Agency Fund, .27%, .43% and .70%.
Each Fund pays the Manager management fees equal to an annualized percentage
of each Fund's average daily net assets. Other expenses include administrative
and transfer agent fees paid to Twentieth Century Services, Inc.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Funds. The example set forth
above assumes reinvestment of all dividends and distributions and uses a 5%
annual rate of return as required by SEC regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BENHAM CAPITAL PRESERVATION FUND
The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors. Their report on these
Financial Highlights appears in each Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information. The
annual report contains additional performance information and will be made
available upon request and without charge.
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD.. $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From
Investment Operations
Net Investment Income .0521 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608 .0531
Less Distributions
Dividends from Net
Investment Income.. (.0521) (.0424) (.0259) (.0134) (.0382) (.0603) (.0750) (.0800) (.0608) (.0531)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE AT
END OF PERIOD........ $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*........ 5.21% 4.31% 2.63% 1.35% 3.88% 6.27% 7.77% 8.27% 6.30% 5.48%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in millions)...... $3,078 2,883 2,787 2,943 3,046 3,376 3,099 2,737 2,187 1,793
Ratio of Expenses to
Average Daily
Net Assets++....... .51% .50% .51% .50%** .51% .52% .56% .57% .59% .63%
Ratio of Net Investment
Income to Average Daily
Net Assets++....... 5.07% 4.24% 2.59% 2.68%** 3.82% 6.03% 7.50% 8.00% 6.08% 5.31%
- ---------------------------------------------------------------------------------------------------------------------------
+ The Fund's fiscal year-end was changed from September 30 to March 31 beginning with the period ended March 31, 1993,
resulting in a six-month period in 1993.
++The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
6
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM CAPITAL PRESERVATION FUND II
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+ 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD.. $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From
Investment Operations
Net Investment Income .0515 .0406 .0237 .0120 .0341 .0591 .0764 .0834 .0626 .0553
Less Distributions
Dividends from Net
Investment Income.. (.0515) (.0406) (.0237) (.0120) (.0341) (.0591) (.0764) (.0834) (.0626) (.0553)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE AT
END OF PERIOD........ $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*........ 5.15% 4.17% 2.40% 1.21% 3.42% 6.07% 7.91% 8.64% 6.46% 5.68%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in millions)...... $246 262 283 314 340 475 618 708 538 465
Ratio of Expenses to
Average Daily
Net Assets++....... .76% .75% .75% .75%** .74% .70% .69% .71% .73% .73%
Ratio of Net Investment
Income to Average
Daily Net Assets++. 5.03% 4.06% 2.37% 2.40%** 3.41% 5.91% 7.64% 8.34% 6.26% 5.53%
- ---------------------------------------------------------------------------------------------------------------------------
+ The Fund's fiscal year-end was changed from September 30 to March 31 beginning with the period ended March 31, 1993,
resulting in a six-month period in 1993.
++The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
7
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM GOVERNMENT AGENCY FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993 1992 1991 1990+
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD........ $1.00 1.00 1.00 1.00 1.00 1.00 1.00
Income From Investment Operations
Net Investment Income........................ .0535 .0435 .0265 .0304 .0517 .0742 .0264
Less Distributions
Dividends from Net Investment Income......... (.0535) (.0435) (.0265) (.0304) (.0517) (.0742) (.0264)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD............... $1.00 1.00 1.00 1.00 1.00 1.00 1.00
===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*.................................. 5.35% 4.47% 2.69% 3.07% 5.29% 7.97% 2.65%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in millions).... $503 462 562 646 906 1,074 62
Ratio of Expenses to Average Daily Net Assets++ .51% .50% .50% .50% .30% 0% 0%
Ratio of Net Investment Income to
Average Daily Net Assets++................... 5.20% 4.35% 2.65% 3.04% 5.17% 7.42% 8.25%**
- ---------------------------------------------------------------------------------------------------------------------------
+ From December 5, 1989 (commencement of operations) through March 31, 1990.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
**Annualized.
</TABLE>
8
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM SHORT-TERM TREASURY AND AGENCY FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD............................ . $9.73 9.86 10.04 10.00
Income From Investment Operations
Net Investment Income............................................. .53 .50 .36 .25
Net Realized and Unrealized Gains (Losses) on Investments......... .11 (.13) (.14) .04
----- ----- ----- -----
Total Income From Investment Operations.......................... .64 .37 .22 .29
----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income ............................. (.53) (.50) (.36) (.25)
Distributions from Net Realized Capital Gains..................... 0 0 (.03) 0
Distributions in Excess of Net Realized Capital Gains............. 0 0 (.01) 0
----- ----- ----- -----
Total Distributions.............................................. (.53) (.50) (.40) (.25)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD.................................... $9.84 9.73 9.86 10.04
===== ===== ===== =====
TOTAL RETURN*....................................................... 6.71% 3.85% 2.16% 2.79%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in millions)......................... $36 56 25 15
Ratio of Expenses to Average Daily Net Assets++................... .67% .67% .58% 0%
Ratio of Net Investment Income to Average Daily Net Assets++...... 5.39% 5.22% 3.53% 4.50%**
Portfolio Turnover Rate........................................... 224.03% 140.82% 261.61% 157.79%
- -------------------------------------------------------------------------------------------------------------
+ From September 8, 1992 (commencement of operations) through March 31, 1993.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
</TABLE>
9
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM TREASURY NOTE FUND
For a Share Outstanding Throughout the Years ended March 31
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD.. $9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91 11.97
Income From
Investment Operations
Net Investment Income .58 .53 .48 .56 .69 .75 .77 .76 .75 .71
Net Realized and
Unrealized Gains
(Losses) on Investments .25 (.19) (.27) .69 .29 .36 .24 (.49) (.60) (.08)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income From
Investment Operations .83 .34 .21 1.25 .98 1.11 1.01 .27 .15 .63
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income.. (.58) (.53) (.48) (.56) (.69) (.75) (.77) (.75) (.92) (.89)
Distributions from Net
Realized Capital Gains 0 0 (.06) (.48) 0 0 0 0 (.03) (.80)
Distributions in Excess
of Net Realized
Capital Gains..... 0 0 (.22) 0 0 0 0 0 0 0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions (.58) (.53) (.76) (1.04) (.69) (.75) (.77) (.75) (.95) (1.69)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE AT
END OF PERIOD........ $10.24 9.99 10.18 10.73 10.52 10.23 9.87 9.63 10.11 10.91
====== ===== ===== ====== ===== ====== ====== ===== ===== =====
TOTAL RETURN*........ 8.42% 3.54% 1.85% 12.36% 9.92% 11.59% 10.61% 2.78% 1.60% 6.60%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period
(in millions)...... $311 305 351 392 303 159 97 72 54 43
Ratio of Expenses
to Average Daily
Net Assets+........ .53% .53% .51% .53% .59% .73% .75% .75% .75% .93%
Ratio of Net Investment
Income to Average
Daily Net Assets+.. 5.65% 5.35% 4.50% 5.18% 6.55% 7.49% 7.66% 7.67% 7.36% 6.26%
Portfolio Turnover
Rate............... 167.89% 92.35% 212.91% 299.29% 148.75% 69.72% 216.84% 386.46% 465.35% 395.91%
- ---------------------------------------------------------------------------------------------------------------------------
* Total return figures assume reinvestment of dividends and capital gain distributions.
+ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
</TABLE>
10
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM LONG-TERM TREASURY AND AGENCY FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993+
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD............................. $9.05 9.38 10.24 10.00
Income From Investment Operations
Net Investment Income............................................. .60 .60 .63 .39
Net Realized and Unrealized Gains (Losses) on Investments......... .62 (.33) (.27) .24
----- ----- ----- -----
Total Income From Investment Operations.......................... 1.22 .27 .36 .63
----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income ............................. (.60) (.60) (.63) (.39)
Distributions from Net Realized Capital Gains..................... 0 0 (.45) 0
Distributions in Excess of Net Realized Capital Gains............. 0 0 (.14) 0
----- ----- ----- -----
Total Distributions.............................................. (.60) (.60) (1.22) (.39)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD.................................... $9.67 $9.05 9.38 10.24
===== ===== ===== =====
TOTAL RETURN*....................................................... 13.46% 3.25% 2.87% 6.48%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in millions)......................... $111 35 18 21
Ratio of Expenses to Average Daily Net Assets++................... .67% .67% .57% 0%
Ratio of Net Investment Income to Average Daily Net Assets++...... 5.93% 6.84% 5.89% 7.18%**
Portfolio Turnover Rate........................................... 112.35% 146.81% 200.34% 56.97%
- ---------------------------------------------------------------------------------------------------------------------------
+ From September 8, 1992 (commencement of operations) through March 31, 1993.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized
</TABLE>
11
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993 1992+
- ----------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD.................... $9.42 9.75 9.97 10.04 10.00
Income From Investment Operations
Net Investment Income................................... .54 .49 .54 .57 .40
Net Realized and Unrealized Gains (Losses) on Investments .05 (.33) (.22) (.07) .04
----- ----- ----- ----- -----
Total Income From Investment Operations................ .59 .16 .32 .50 .44
----- ----- ----- ----- -----
Less Distributions
Dividends from Net Investment Income.................... (.54) (.49) (.54) (.57) (.40)
Distributions from Net Realized Capital Gains........... 0 0 0 0 0
----- ----- ----- ----- -----
Total Distributions.................................... (.54) (.49) (.54) (.57) (.40)
----- ----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD.......................... $9.47 9.42 9.75 9.97 10.04
===== ===== ===== ===== =====
TOTAL RETURN*............................................. 6.42% 1.75% 3.27% 5.13% 4.55%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of Period (in millions)............... $299 397 937 1,495 886
Ratio of Expenses to Average Daily Net Assets++......... .60% .57% .51% .45% 0%
Ratio of Net Investment Income to Average Daily Net Assets++ 5.70% 4.98% 5.47% 5.66% 7.02%**
Portfolio Turnover Rate................................. 221.35% 60.29% 91.87% 82.71% 81.84%
- ---------------------------------------------------------------------------------------------------------------------------
+ From September 3, 1991 (commencement of operations) through March 31, 1992.
++ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
* Total return figures assume reinvestment of dividends and capital gain distributions and are not annualized.
** Annualized.
</TABLE>
12
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
BENHAM GNMA INCOME FUND
For a Share Outstanding Throughout the Years ended March 31(except as noted)
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD.. $10.18 10.35 10.88 10.52 10.21 9.85 9.56 9.96 10.42 10.42
Income From
Investment Operations
Net Investment Income .74 .72 .66 .79 .86 .88 .90 .89 .89 .91
Net Realized and
Unrealized Gains (Losses)
on Investments..... .27 (.18) (.52) .36 .31 .36 .29 (.40) (.40) .02
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Income
from Investment
Operations......... 1.01 .54 .14 1.15 1.17 1.24 1.19 .49 .49 .93
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions
Dividends from Net
Investment Income.. (.74) (.71) (.66) (.79) (.86) (.88) (.90) (.89) (.95) (.93)
Distributions from Net
Realized Capital Gains 0 0 (.01) 0 0 0 0 0 0 0
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions (.74) (.71) (.67) (.79) (.86) (.88) (.90) (.89) (.95) (.93)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE AT
END OF PERIOD........ $10.45 10.18 10.35 10.88 10.52 10.21 9.85 9.56 9.96 10.42
====== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*........ 10.08% 5.53% 1.30% 11.28% 11.85% 13.16% 12.73% 5.07% 5.23% 9.51%
- ------------
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net Assets at End of
Period (in millions) $1,120 980 1,129 1,160 724 409 290 253 259 393
Ratio of Expenses to
Average Daily
Net Assets+........ .58% .58% .54% .56% .62% .72% .75% .75% .73% .74%
Ratio of Net Investment
Income to Average
Daily Net Assets+.. 6.98% 7.08% 6.12% 7.31% 8.18% 8.85% 9.04% 9.11% 8.94% 8.79%
Portfolio Turnover
Rate............... 63.54% 119.56% 48.61% 70.57% 97.33% 206.60% 432.93% 496.52% 497.16% 566.27%
- ---------------------------------------------------------------------------------------------------------------------------
* Total return figures assume reinvestment of dividends and capital gain distributions.
+ The ratios for the year ended March 31, 1996 include expenses paid through expense offset arrangements.
</TABLE>
13
INFORMATION REGARDING THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
OF THE FUNDS
The Funds have adopted certain investment restrictions that are set
forth in the Statement of Additional Information. Those restrictions, as well
as the investment objectives of the Funds identified on pages 2 and 3 of this
Prospectus and any other investment policies which are designated as
"fundamental" in this Prospectus or in the Statement of Additional
Information, cannot be changed without shareholder approval. The Funds have
implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are
not designated as fundamental policies and may be changed without shareholder
approval.
Each Fund (except CPF II, ARM Fund, and GNMA Fund) seeks income exempt
from state taxes by investing exclusively in U.S. government securities whose
interest payments are state tax-exempt. As a result, these Funds' dividend
distributions are expected to be exempt from state income tax. See page 30
for more information on tax treatment of the Funds' distributions.
The descriptions that follow are designed to help you determine whether
a Fund fits your investment objectives. You may want to pursue more than one
objective by investing in other funds offered offered by Twentieth Century.
For an explanation of the securities ratings referred to in the
following discussion, see "Other Information" in the Statement of Additional
Information.
THE MONEY MARKET FUNDS
Each of the Money Market Funds seeks to maintain a $1.00 share price,
although there is no guarantee they will be able to do so. Shares of the
Money Market Funds are neither insured nor guaranteed by the U.S. government.
BENHAM CAPITAL PRESERVATION FUND ("CPF")
CPF seeks maximum safety and liquidity. Its secondary objective is to seek
to pay shareholders the highest rate of return on their investment in the CPF
consistent with safety and liquidity. CPF pursues its investment objectives
by investing exclusively in short-term U.S. Treasury securities guaranteed by
the direct full faith and credit pledge of the U.S. government. The CPF's
dollar-weighted average portfolio maturity will not exceed 60 days.
While the risks associated with investing in short-term U.S. Treasury
securities are very low, an investment in CPF is not risk-free.
BENHAM CAPITAL PRESERVATION FUND II ("CPF II")
CPF II seeks maximum safety and liquidity. Its secondary objective is to
seek to pay its shareholders the highest rate of return on their investment
in the Fund consistent with safety and liquidity. CPF II pursues its
investment objectives by investing primarily in repurchase agreements
collateralized by securities that are backed by the full faith and credit of
the U.S. government. Such collateral may include U.S. Treasury bills, notes,
and bonds or mortgage-backed Ginnie Mae certificates. Ginnie Mae certificates
are guaranteed by the Government National Mortgage Association (GNMA) and
backed by the full faith and credit of the U.S. government. Repurchase
agreements held by the Fund normally have maturities of seven days or less.
The Fund may invest directly in U.S. Treasury securities from time to time.
CPF II restricts its average portfolio maturity to seven days or less.
Because of this restriction, its yield responds more quickly to interest rate
increases or decreases than do yields on most other money market funds and
enhances portfolio liquidity. See page 19 for a discussion of the market and
credit risks associated with investing in repurchase agreements.
14
BENHAM GOVERNMENT AGENCY FUND
(THE "AGENCY FUND")
The Agency Fund seeks to provide the highest rate of current return on
its investments, consistent with safety of principal and maintenance of
liquidity, by investing exclusively in short-term obligations of the U.S.
government and its agencies and instrumentalities, the income from which is
exempt from state taxes. Under normal conditions, at least 65% of the Fund's
total assets are invested in securities issued by agencies and
instrumentalities of the U.S. government. Assets not invested in these
securities are invested in U.S. Treasury securities. For temporary defensive
purposes, the Fund may invest up to 100% of its assets in U.S. Treasury
securities. The Fund's weighted average portfolio maturity will not exceed 60
days.
The U.S. government provides varying levels of financial support to its
agencies and instrumentalities.
THE U.S. TREASURY & AGENCY FUNDS
The U.S. Treasury and Agency Funds are quite similar to one another but
can be differentiated by their dollar-weighted average maturities. The longer
a Fund's dollar-weighted average maturity, the more its share price will
fluctuate when interest rates change.
This pattern is due, in part, to the time value of money. A bond's worth
is determined in part by the present value of its future cash flows.
Consequently, changing interest rates have a greater effect on the present
value of a long-term bond than a short-term bond. Because of this interplay
between market interest rates and share price, investors are encouraged to
evaluate Fund performance on the basis of total return.
BENHAM SHORT-TERM TREASURY AND AGENCY FUND (THE "SHORT-TERM FUND")
The Short-Term Fund seeks to earn and distribute the highest level of
current income exempt from state income taxes as is consistent with
preservation of capital. The Short-Term Fund pursues this objective by
investing exclusively in securities issued or guaranteed by the U.S. Treasury
and agencies or instrumentalities of the U.S.
government.
Within this framework, the Short-Term Fund invests primarily in
securities with remaining maturities of 3 years or less, and, under normal
conditions, maintains a weighted average portfolio maturity ranging from 13
months to 3 years. The Short-Term Fund's portfolio may consist of any
combination of these securities consistent with investment strategies
employed by the Manager.
The Short-Term Fund may be appropriate for investors who are seeking
higher current yields than those available from money market funds and who
can tolerate some share price volatility.
BENHAM TREASURY NOTE FUND
(THE "TREASURY NOTE FUND")
The Treasury Note Fund seeks to earn and distribute the highest level of
current income consistent with the conservation of assets and the safety
provided by U.S. Treasury bills, notes, and bonds. The Treasury Note Fund
pursues this objective by investing primarily in U.S. Treasury notes, which
carry the direct full faith and credit pledge of the U.S. government. The
Treasury Note Fund may also invest in U.S. Treasury bills, bonds, and
zero-coupon securities, all of which are also backed by the direct full faith
and credit pledge of the U.S. government. The Treasury Note Fund's weighted
average portfolio maturity ranges from 13 months to 10 years, under normal
market conditions.
The Manager seeks a current yield for the Treasury Note Fund higher than
that of the Short-Term Fund, with correspondingly greater share price
volatility.
15
BENHAM LONG-TERM TREASURY AND AGENCY FUND (THE "LONG-TERM FUND")
The Long-Term Fund seeks to provide a consistent and high level of
current income exempt from state taxes. The Long-Term Fund pursues this
objective by investing exclusively in securities issued or guaranteed by the
U.S. Treasury and agencies or instrumentalities of the U.S. government. The
Long-Term Fund's portfolio may consist of any combination of these securities
consistent with investment strategies employed by the Manager. Within this
framework, the Fund invests primarily in securities with maturities of 10 or
more years and, under normal conditions, maintains a weighted average
portfolio maturity ranging from 20 to 30 years.
By maintaining an average portfolio maturity of 20 to 30 years, the
Long-Term Fund offers investors the potential to earn higher current yields
than those typically available from bond funds (such as the Short-Term and
Treasury Note Funds) that maintain shorter average maturities. The Long-Term
Fund may also offer greater potential for capital appreciation. However,
maintaining a relatively long average maturity also means that the Fund's
share price generally will be more volatile than those of funds that maintain
shorter average maturities (such as the Short-Term and Treasury Note Funds).
THE MORTGAGE SECURITIES FUNDS
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND (THE "ARM FUND")
The ARM Fund seeks to provide investors with a high level of current
income, consistent with stability of principal. The ARM Fund pursues this
objective by investing primarily in adjustable rate securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Under
normal conditions, the Manager invests at least 65% of the ARM Fund's total
assets in adjustable rate mortgage securities (ARMs) and other securities
collateralized by or representing interests in mortgages (collectively,
"mortgage-backed securities"). These securities have interest rates that are
reset periodically and that are issued or guaranteed by the U.S. government
or its agencies or instrumentalities.
ARMs are pass-through certificates representing ownership interests in
pools of adjustable rate mortgages and in the cash flows from those
mortgages. The ARMs in which the Fund may invest are issued or guaranteed by
GNMA, FNMA, or FHLMC.
The Fund may also invest in collateralized mortgage obligations (CMOs),
including CMO floaters and inverse floaters; stripped mortgage-backed
securities, including interest-only (IO) and principal-only (PO) securities
and IO inverse floaters; and fixed-rate mortgage securities issued or
guaranteed by GNMA, FNMA, or FHLMC. All CMOs purchased by the Fund are either
issued by a U.S. government agency or rated AAA by a nationally recognized
statistical rating organization commonly referred to as a rating agency.
Assets not invested in adjustable rate or mortgage-backed securities may
be invested in U.S. Treasury bills, notes, and bonds and in other securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. For temporary defensive purposes, the Fund may invest up
to 100% of its assets in these securities.
By investing primarily in mortgage-backed securities that have variable
interest rates, the ARM Fund seeks to maintain a more stable net asset value
than is characteristic of funds that invest in mortgage securities paying a
fixed rate of interest (such as the GNMA Fund). ARM prices generally
fluctuate less than fixed-rate mortgage securities prices because their
interest rates are reset periodically to reflect current interest rates.
There is always a lag between market interest rate changes and ARM rate
resets, however, and resets may be limited by caps on the rates that can be
charged to borrowers.
16
BENHAM GNMA INCOME FUND
(THE "GNMA FUND")
The GNMA Fund seeks to provide a high level of current income consistent
with safety of principal and maintenance of liquidity by investing primarily
in mortgage-backed Ginnie Mae certificates.
Ginnie Mae certificates represent interests in pools of mortgage loans
and in the cash flows from those loans. These certificates are guaranteed by
GNMA and backed by the full faith and credit of the U.S. government as to the
timely payment of interest and repayment of principal, which means that the
Fund receives its share of interest and principal payments owed on the
underlying pool of mortgage loans, regardless of whether borrowers make their
scheduled mortgage payments.
Assets not invested in Ginnie Mae certificates, directly or indirectly,
are invested in other U.S. government securities, such as U.S. Treasury
bills, notes, and bonds, or repurchase agreements collateralized by U.S.
government securities. For temporary defensive purposes, the Fund may invest
100% of its assets in these securities.
A unique feature of mortgage-backed securities, such as Ginnie Mae
certificates, is that their principal is scheduled to be paid back gradually
for the duration of the loan rather than in one lump sum at maturity.
Investors (such as the GNMA Fund) receive scheduled monthly payments of
principal and interest, but they may also receive unscheduled prepayments of
principal on the underlying mortgages. See "Mortgage-Backed Securities" on
page 18 for a discussion of prepayment risk.
RISK FACTORS AND INVESTMENT
TECHNIQUES
The obligations in which the Funds may invest differ from one another in
their interest rates, maturities, dates of issuance and interest payment
schedules. The pertinent features of the types of obligations in which the
Funds may invest are described in this section.
U.S. GOVERNMENT SECURITIES
U.S. Treasury bills, notes, zero-coupon bonds, and other bonds are
direct obligations of the U.S. Treasury, which has never failed to pay
interest and repay principal when due. Treasury bills have initial maturities
of one year or less, Treasury notes from two to ten years, and Treasury bonds
more than 10 years. Although U.S. Treasury securities carry little principal
risk if held to maturity, the prices of these securities (like all debt
securities) change between issuance and maturity in response to fluctuating
market interest rates.
A number of U.S. government agencies and government-sponsored
organizations issue debt securities. These agencies generally are created by
Congress to fulfill a specific need, such as providing credit to home buyers
or farmers. Among these agencies are the Federal Home Loan Banks, the Federal
Farm Credit Banks, the Student Loan Marketing Association, and the Resolution
Funding Corporation.
Some agency securities are backed by the full faith and credit of the
U.S. government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury
securities with similar maturities. However, these securities may involve
greater risk of default than securities backed by the U.S.
Treasury.
Interest rates on agency securities may be fixed for the term of the
investment (fixed-rate agency securities) or tied to prevailing interest
rates (floating-rate agency securities). Interest rate resets on
floating-rate agency securities
17
generally occur at intervals of one year or less, based on changes in a
predetermined interest rate index.
Floating-rate agency securities frequently have caps limiting the extent
to which coupon rates can be raised. The price of a floating-rate agency
security may decline if its capped coupon rate is lower than prevailing
market interest rates. Fixed- and floating-rate agency securities may be
issued with a call date (which permits redemption before the maturity date).
The exercise of a call may reduce an obligation's yield to maturity. CPF and
CPF II may not invest in floating-rate agency securities.
MORTGAGE-BACKED SECURITIES
The ARM and GNMA Funds may purchase mortgage pass-through securities.
These represent interests in "pools" of mortgages in which payments of both
interest and principal on the securities are generally made monthly. These
monthly mortgage payments are, in effect "passed-through" to the security
holder, (minus fees paid to the security's issuer or guarantor). Although
fixed-rate mortgages typically have stated maturities of 30 or more years,
most mortgage holders pay off their mortgages before they mature which may
make these subject to prepayment risk.
Also, mortgage-backed securities, like other fixed income securities,
generally decrease in value as a result of increases in interest rates, but
benefit less than other fixed-income securities from declining interest rates
because of the risk of prepayment resulting from homeowners' refinancing
their mortgages to take advantage of lower interest rates. On average,
securities backed by 30-year mortgages return principal within 7 to 10 years.
As a result, these securities have historically exhibited behavior comparable
to 7- to 10-year Treasury notes, while offering higher yields.
The primary issuers of mortgage securities are FNMA, FHLMC and GNMA.
Payments of principal and interest on GNMA securities are guaranteed by GNMA
and backed by the full faith and credit of the U.S. government. FNMA and
FHLMC have a close relationship with the U.S. government so even though their
securities are not backed by the full faith and credit of the U.S.
government, management considers them to be high-quality securities with
minimal credit risks.
ADJUSTABLE RATE MORTGAGE SECURITIES
Adjustable-rate mortage securities (ARMs) are pass-through securities
collateralized by mortgages with adjustable, rather than fixed, interest
rates. The interest rate payments and amortization of principal on the
underlying adjustable rate mortgages are tied to changes in predetermined
interest rate indexes. ARM rates are readjusted at intervals of one year or
less, subject to maximums (caps) and minimums (floors) on the rates that can
be charged to mortgage holders during a given period and during the life of a
mortgage. These periodic rate adjustments allow the ARM Fund to participate
in market interest rate increases (to produce higher yields with less share
price volatility) but only to the extent that the current rate on the
underlying mortgages remain at or below their specified caps.
ARM interest rate resets should cause the ARM Fund's share price to
fluctuate less dramatically than it would if the Fund were substantially
invested in securities backed by long-term, fixed-rate mortgages. This means
that share price declines should be less than for funds investing in
fixed-rate mortgages when interest rates rise. This characteristic of ARMs
should also cause the potential for share price appreciation when interest
rates decline to be less than for funds investing in fixed-rate mortgages.
If ARMs are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments may result in a decline in share price. On
the other hand, if ARMs are purchased at a discount, both scheduled and
unscheduled payments of principal may accelerate the recognition of income
and thereby increase the Fund's yield and total return.
18
The mortgages that collateralize ARMs issued by GNMA are fully
guaranteed by the Federal Housing Administration or the Department of
Veterans Affairs, which are divisions of the U.S. government. The mortgages
that collateralize ARMs issued by FNMA or FHLMC typically are conventional
residential mortgages that conform to standards prescribed by FNMA or FHLMC
and are guaranteed by those instrumentalities.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations (CMOs) are mortgage-backed
securities issued by government agencies; single-purpose, stand-alone
financial subsidiaries; trusts established by financial institutions; or
similar institutions. The ARM Fund may buy CMOs, provided that they:
o Are collateralized by pools of mortgages in which payment of principal
and interest of each mortgage is guaranteed by an agency or
instrumentality of the U.S. government;
o Are collateralized by pools of mortgages in which payment of principal
and interest are guaranteed by the issuer, and the guarantee is
collateralized by U.S. government securities; or
o Are securities in which the proceeds of the issue are invested in
mortgage securities and payments of principal and interest is supported
by the credit of an agency or instrumentality of the U.S. government.
The GNMA Fund may buy CMOs only if they are Ginnie-Mae-backed.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities (which are permitted investments for
the ARM Fund only) are usually structured with two classes. One class will
receive all of the interest (the interest-only class, or "IO"), whereas the
other class will receive all of the principal (the principal-only class, or
"PO"). Stripped mortgage securities are likely to experience greater price
volatility than other types of mortgage securities in which the ARM Fund
invests. The yield to maturity on the IO class is extremely sensitive, not
only to changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the underlying mortgage assets.
If prepayments accelerate, the ARM Fund may not fully recover its initial
investment in these securities. The ARM Fund's investments in stripped
mortgage securities together with investments in illiquid securities may not
exceed 10% of net assets.
REPURCHASE AGREEMENTS
Each Fund, with the exception of CPF, may invest in repurchase
agreements when such transactions present an attractive short-term return on
cash that is not otherwise committed to the purchase of securities pursuant
to the investment policies of that Fund.
A repurchase agreement occurs when, at the time the Fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to repurchase it on a
specified date in the future at an agreed-upon price. The repurchase price
reflects an agreed-upon interest rate during the time the Fund's money is
invested in the security.
Since the security purchase constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The Fund's risk is the ability of the seller to pay
the agreed-upon repurchase price on the repurchase date. If the seller
defaults, the Fund may incur costs in disposing of the collateral, which
would reduce the amount realized thereon. If the seller seeks relief under
the bankruptcy laws, the disposition of the collateral may be delayed or
limited. To the extent the value of the security decreases, the Fund could
experience a loss.
19
Each of the Funds, with the exception of CPF, may invest in repurchase
agreements with respect to any security in which that Fund is authorized to
invest, even if the remaining maturity of the underlying security would make
that security ineligible for purchase by such Fund.
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information regarding the investment practices of any of
the Funds, see the Statement of Additional Information.
PORTFOLIO TURNOVER
The portfolio turnover rates of the U.S. Treasury & Agency Funds and the
Mortgage Securities Funds are shown in the Financial Highlights tables on
pages 9, 10, 11, 12 and 13 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a particular Fund's
objectives. The rate of portfolio turnover is irrelevant when management
believes a change is in order to achieve those objectives and, accordingly,
the annual portfolio turnover rate cannot be accurately anticipated.
The portfolio turnover of each Fund may be higher than other mutual
funds with similar investment objectives. A high turnover rate involves
correspondingly higher transaction costs that are borne directly by a Fund.
It may also affect the character of capital gains, if any, realized and
distributed by a Fund since short-term capital gains are taxable as ordinary
income.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
Each of the Funds may purchase new issues of securities on a when-issued
or forward commitment basis when, in the opinion of the Manager, such
purchases will further the investment objectives of the Fund. The price of
when-issued securities is established at the time commitment to purchase is
made. Delivery of and payment for these securities typically occurs 15 to 45
days after the commitment to purchase. Market rates of interest on debt
securities at the time of delivery may be higher or lower than those
contracted for on the security. Accordingly, the value of each security may
decline prior to delivery, which could result in a loss to the Fund.
CASH MANAGEMENT
For cash management purposes, each of the Funds (except the Money Market
Funds) may invest up to an aggregate total of 5% of its total assets in any
money market fund advised by the Manager, provided that the investment is
consistent with the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Funds. When SEC guidelines require it
to do so, a Fund will set aside cash or appropriate liquid assets in a
segregated account to cover the Fund's obligations.
PERFORMANCE ADVERTISING
From time to time, the Funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield,
effective yield and tax-equivalent yield (for tax-exempt funds).
CUMULATIVE TOTAL RETURN data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. AVERAGE ANNUAL TOTAL RETURN is determined by
computing the annual compound return over a stated period of time that would
have produced a fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
20
A quotation of YIELD reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. In the case of the Money
Market Funds, yield is calculated by measuring the income generated by an
investment in the Fund over a seven-day period (net of Fund expenses). This
income is then annualized, that is, the amount of income generated by the
investment over the seven-day period is assumed to be generated over each
similar period each week throughout a full year and is shown as a percentage
of the investment. The EFFECTIVE YIELD is calculated in a similar manner but,
when annualized, the income earned by the investment is assumed to be
reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect on the assumed reinvestment.
With respect to the U.S. Treasury & Agency Funds and the Mortgage
Securities Funds, yield is calculated by adding over a 30-day (or one-month)
period all interest and dividend income (net of fund expenses) calculated on
each day's market values, dividing this sum by the average number of Fund
shares outstanding during the period, and expressing the result as a
percentage of the Fund's share price on the last day of the 30-day (or one
month) period. The percentage is then annualized. Capital gains and losses
are not included in the calculation.
Yields are calculated according to accounting methods that are
standardized in accordance with SEC rules. The SEC yield should be regarded
as an estimate of the Fund's rate of investment income, and it may not equal
the Fund's actual income distribution rate, the income paid to a
shareholder's account, or the income reported in the Fund's financial
statements.
A tax-equivalent yield demonstrates the taxable yield necessary to
produce after-tax yield equivalent to that of a mutual fund which invests in
exempt obligations. Each Fund (with the exception of CPF, CPF II, the ARM
Fund and the GNMA Fund) may quote tax-equivalent yields, which show the
taxable yields an investor would have to earn before taxes to equal the
Fund's tax-free yields. As a prospective investor in these Funds, you should
determine whether your tax-equivalent yield is likely to be higher with a
taxable or with a tax-exempt Fund. To determine this, you may use the
formulas depicted below.
You can calculate your tax-equivalent yield for a Fund (taking into
account only federal income taxes and not any applicable state taxes) using
the following equation:
Fund's State Tax-Free Yield Your Tax-
---------------------------- = Equivalent
100% - State Tax Rate Yield
The Funds may also include in advertisements data comparing performance
with the performance of non-related investment media, published editorial
comments and performance rankings compiled by independent organizations (such
as Lipper Analytical Services or Donoghue's Money Fund Report) and
publications that monitor the performance of mutual funds. Performance
information may be quoted numerically or may be presented in a table, graph
or other illustration. In addition, a fund's performance may be compared to
well-known indices of market performance including the Donoghue's Money Fund
Average and Bank Rate Monitor National Index of 21/2-year CD rates. A fund's
performance may also be compared, on a relative basis, to the other funds in
our fund family. This relative comparison, which may be based upon historical
or expected fund performance, volatility or other fund characteristics, may
be presented numerically, graphically or in text. The performance of a fund
may also be combined or blended with other funds in our fund family, and that
combined or blended performance may be compared to the same indices to which
individual funds may be compared.
All performance information advertised by the Funds is historical in
nature and is not intended to represent or guarantee future results. The
value of Fund shares when redeemed may be more or less than their original
cost.
21
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
- --------------------------------------------------------------------------------
The following section explains how to invest with Twentieth Century
Mutual Funds and The Benham Group, including purchases, redemptions,
exchanges and special services. You will find more detail about doing
business with us by referring to the Investor Services Guide that you will
receive when you open an account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer Sponsored Retirement Plans and Institutional Accounts," page 28.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application,
furnishing your taxpayer identification number. (You must also certify
whether you are subject to withholding for failing to report income to the
IRS.) Investments received without a certified taxpayer identification number
will be returned.
The minimum investment is $2,500 ($1,000 for IRA accounts).
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple
owners (e.g., as joint tenants) you must provide us with specific
authorization on your application in order for us to accept written or
telephone instructions from a single owner. Otherwise, all owners will have
to agree to any transactions that involve the account (whether the
transaction request is in writing or over the telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us
or mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64111
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more
than one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social security number
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get
information on opening an account by exchanging from another Twentieth
Century or Benham account. See page 23 for more information on exchanges.
22
IN PERSON
If you prefer to work with a representative in person, please visit one
of our Investors Centers, located at:
4500 Main Street
Kansas City, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222.
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by
any of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the
remittance portion of the confirmation of a previous investment. If the
remittance slip is not available, indicate your name, address and account
number on your check or a separate piece of paper. (Please be aware that the
investment minimum for subsequent investments is higher without a remittance
slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw
on your bank account. You may call an Investor Services Representative or use
our Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 24 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this
page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must
be at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application
to receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your Fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50
per month. See our Investor Services Guide for further information about
exchanges.
23
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham account to another. For additional information, please see
our Investor Services Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line--see page 25) if you
have authorized us to accept telephone instructions. You can authorize this
by selecting "Full Services" on your application or by calling us at
1-800-345-2021 to receive the appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will
be made at the next net asset value determined after a complete redemption
request is received.
Please note that a request to redeem shares in an IRA or 403(b) plan
must be accompanied by an executed IRS Form W4-P and a reason for withdrawal
as specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to
us. Certain redemptions may require a signature guarantee. Please see
"Signature Guarantee," page 25.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may
redeem your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with redemption proceeds in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to
send funds directly to you or to your account at a bank or other financial
institution. To set up automatic redemptions, call one of our Investor
Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up
to 15 days or longer to send redemption proceeds (to allow your purchase
funds to clear). No interest is paid on the redemption proceeds after the
redemption is processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For
more information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH.
These services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of
transmission. Funds transferred by ACH may be received up to seven days after
transmission. Wired funds are subject to a $10 fee to cover bank wire
charges, which is deducted from redemption proceeds. Once the funds are
transmitted, the time of receipt and the funds' availability are not under
our control.
24
REDEMPTION OF SHARES
IN LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to
either bring the value of the shares held in the account up to the minimum.
If action is not taken within 90 days of the letter's date, the shares held
in the account will be redeemed and proceeds from the redemption will be sent
by check to your address of record. We reserve the right to increase the
investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee
will depend on which service options you elect when you open your account.
For example, if you choose "In Writing Only," a signature guarantee will be
required when:
o Redeeming more than $25,000
o Establishing or increasing a Check-A-Month or automatic transfer on an
existing account.
You may obtain a signature guarantee from a bank or trust company,
credit union, broker- dealer, securities exchange or association, clearing
agency or savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any
transaction, or to change this policy at any time.
SPECIAL INVESTOR SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these
options and elect the ones that are appropriate for you. Be aware that the
"Full Services" option offers you the most flexibility. You will find more
information about each of these service options in our Investor Services
Guide.
Our special investor services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a
week, at 1-800-345-8765. By calling the Automated Information Line, you may
listen to fund prices, yields and total return figures. You may also use the
Automated Information Line to make investments into your accounts (if we have
your bank information on file) and obtain your share balance, value and most
recent transactions. If you have authorized us to accept telephone
instructions, you also may exchange shares from one fund to another via the
Automated Information Line. Redemption instructions cannot be given via the
Automated Information Line.
CHECKWRITING
We offer CheckWriting as a service option for your account in any of the
Money Market or Mortgage Securities Funds. CheckWriting allows you to redeem
shares in your account by writing a draft ("check") against your account
balance. (Shares held in certificate form may not be redeemed by check.)
There is no limit on the number of checks you can write, but each one must be
for at least $100.
When you write a check, you will continue to receive dividends on all
shares until your check is presented for payment to our clearing bank. If you
redeem all shares in your account by check, any accrued distributions on the
redeemed shares will be paid to you in cash on the next monthly distribution
date.
25
If you want to add CheckWriting to an existing account that offers
CheckWriting, contact us by phone or mail for an appropriate form. For a new
account, you may elect CheckWriting on your purchase application by choosing
the "Full Services" option. CheckWriting is not available for any account
held in an IRA or 403(b) plan.
CheckWriting redemptions may only be made on checks provided by us.
Currently, there is no charge for checks or for the CheckWriting service.
We will return checks drawn on insufficient funds or on funds from
investments made by means other than by wire within the previous 15 days.
Neither the company nor our clearing bank will be liable for any loss or
expenses associated with returned checks. Your account may be assessed a $15
service charge for checks drawn on insufficient funds.
A stop payment may be ordered on a check written against your account.
We will use reasonable efforts to stop a payment, but we cannot guarantee
that we will be able to do so. If we are successful in fulfilling a
stop-payment order, your account may be assessed a $15 fee.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to
buy shares of a variable-priced fund by exchange from one of our money market
funds, or a price at which to sell shares of a variable-priced fund by
exchange to one of our money market funds. The designated purchase price must
be equal to or lower, or the designated sale price equal to or higher, than
the variable-priced fund's net asset value at the time the order is placed,
If the designated price is met within 90 calendar days, we will execute your
exchange order automatically at that price (or better). Open orders not
executed within 90 days will be canceled.
If the fund you have selected deducts a distribution from its share
price, your order price will be adjusted accordingly so the distribution does
not inadvertently trigger an open order transaction on your behalf. If you
close or re-register the account from which the shares are to be redeemed,
your open order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders
and cancellations received before 2 p.m. Central time are effective the same
day, and orders or cancellations received after 2 p.m. Central time are
effective the next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or
write us and request the appropriate forms for:
o Individual Retirement Accounts ("IRA"s)
o 403(b) plans for employees of public school systems and non-profit
organizations
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company
or custodian. Call or write us for a "Request to Transfer" form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we
offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order
(including purchases by
26
exchange). Additionally, purchases may be refused if, in the opinion
of the Manager, they are of a size that would disrupt the management
of the Fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all
shareholders or only certain series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused.
(5) If a transaction request is made by a corporation, partnership,
trust, fiduciary, agent or unincorporated association, we will
require evidence satisfactory to us of the authority of the
individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include
requesting personal identification from callers, recording telephone
calls, and providing written confirmations of telephone transactions.
These procedures are designed to protect shareholders from
unauthorized or fraudulent instructions. If we do not employ
reasonable procedures to confirm the genuineness of instructions,
then we may be liable for losses due to unauthorized or fraudulent
instructions. The company, its transfer agent and investment adviser
will not be responsible for any loss due to instructions they
reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as Mary
Elizabeth Jones, she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an
increase in the number of shareholder telephone calls. If you
experience difficulty in reaching us during such periods, you may
send your transaction instructions by mail, express mail or courier
service, or you may visit one of our Investors Centers. You may also
use our Automated Information Line if you have requested and received
an access code and are not attempting to redeem shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50
to cover the penalty the IRS will impose on us for failure to report
your correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings,
as well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions and transactions by
CheckWriting, each time you invest, redeem, transfer or exchange shares, we
will send you a confirmation of the transactions. Transactions initiated by
27
CheckWriting will be confirmed on a monthly basis. See the Investor Services
Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If
you fail to provide notification of an error with reasonable promptness,
i.e., within 30 days of non-automatic transactions or within 30 days of the
date of your consolidated quarterly statement, in the case of automatic
transactions, we will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that
you may use in completing your U.S. income tax return. See the Investor
Services Guide for more information.
Each year, we will send you an annual and a semiannual report relating
to your fund, each of which is incorporated herein by reference. The annual
report includes audited financial statements and a list of portfolio
securities as of the fiscal year end. The semiannual report includes
unaudited financial statements for the first six months of the fiscal year,
as well as a list of portfolio securities at the end of the period. You also
will receive an updated prospectus at least once each year. Please read these
materials carefully as they will help you understand your fund.
EMPLOYER-SPONSORED
RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide and in the "How to
Invest" sections beginning on page 22 pertain to shareholders who invest
directly with Twentieth Century rather than through an employer-sponsored
retirement plan or through a financial intermediary. If you own or are
considering purchasing Fund shares through an employer-sponsored retirement
plan, your ability to purchase shares of the Funds, exchange them for shares
of other Twentieth Century or Benham funds, and redeem them will depend on
the terms of your plan. If you own or are considering purchasing Fund shares
through a bank, broker-dealer, insurance company or other financial
intermediary, your ability to purchase, exchange and redeem shares will
depend on your agreement with, and the policies of, such financial
intermediary.
You may reach one of our Institutional Investor Service Representatives
by calling 1-800-345-3533 to request information about our funds and
services, to obtain a current prospectus or to get answers to any questions
about our Funds that you are unable to obtain through your plan administrator
or financial intermediary.
28
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value.
Net asset value is determined by calculating the total value of a Fund's
assets, deducting total liabilities and dividing the result by the number of
shares outstanding. Net asset value is determined at the close of regular
trading on each day that the New York Stock Exchange (the "Exchange") is
open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment or
redemption or exchange request. For example, investments and requests to
redeem or exchange shares received by us or our authorized agents before the
close of business on the Exchange, usually 3 p.m. Central time, are effective
on, and will receive the price determined, that day as of the close of the
Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined as of, the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds
are received by us. Wired funds are considered received on the day they are
deposited in our bank account if your telephone call is received before the
close of business on the Exchange, usually 3 p.m. Central time and the money
is deposited that day.
Investments by telephone pursuant to your prior authorization to us to
draw on your bank account are considered received at the time of your
telephone call.
Investment and transaction instructions received by us on any business
day by mail prior to the close of business on the Exchange will receive that
day's price. Investments and instructions received after that time will
receive the price determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement
plan or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange
and redemption requests to the Funds' transfer agent prior to the applicable
cut-off time for receiving orders and to make payment for any purchase
transactions in accordance with the Funds' procedures or any contractual
arrangement with the Funds or the Funds' distributor in order for you to
receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be
summarized as follows:
Portfolio securities of each Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or
if local convention or regulation so provides, the mean of the latest bid and
asked prices is used. Depending on local convention or regulation, securities
traded over-the-counter are priced at the mean of the latest bid and asked
prices, or at the last sale price. When market quotations are not readily
available, securities and other assets are valued at fair value as determined
in accordance with procedures adopted by the board of directors/trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the board of trustees.
Pursuant to a determination by the Money Market Funds' board of
directors/trustees and Rule 2a-7 under the Investment Company Act of
29
1940 (the "the 1940 Act"), portfolio securities of the Funds are valued at
amortized cost. When a security is valued at amortized cost, it is valued at
its cost when purchased, and thereafter by assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Funds are published in leading newspapers
daily. The yields of the Money Market Funds are published weekly in leading
financial publications and daily in many local newspapers. The net asset
values, as well as yield information on all of the Funds and the other funds
in the Twentieth Century family of funds, may also be obtained by calling us.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the U.S. Treasury and Agency funds and the Mortgage Securities
Funds is determined and declared as a distribution. The distribution will be
paid monthly. For CPF, CPF II, and the Agency Funds, dividends are declared
and credited (i.e., available for redemption) daily and distributed monthly.
You will begin to participate in the distributions the day AFTER your
purchase is effective. See "When Share Price is Determined," page 29. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed (other than by CheckWriting), the
distribution on the redeemed shares will be included with your redemption
proceeds.
Distributions from net realized capital gains, if any, generally are
declared and paid once a year, but the Funds may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code and its Regulations, in all events in a manner consistent with
the provisions of the 1940 Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable
accounts, distributions will be reinvested unless you elect to receive them
in cash. Distributions of less than $10 generally will be reinvested.
Distributions made shortly after a purchase by check or ACH may be held up to
15 days. You may elect to have distributions on shares held in Individual
Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years
old or permanently and totally disabled. Distribution checks normally are
mailed within seven days after the record date. Please consult our Investor
Services Guide for further information regarding your distribution options.
The board of directors/trustees may elect not to distribute capital
gains in whole or in part to take advantage of loss carryovers.
TAXES
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code, which means that to the
extent its income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the Funds' shares are purchased through tax-deferred accounts, such
as a qualified employer-sponsored retirement or savings plan, income and
capital gains distributions paid by the Funds will generally not be subject
to current taxation, but will accumulate in your account under the plan on a
tax-deferred basis.
Employer-sponsored retirement and savings plans are governed by complex
tax rules. If you elect to participate in your employer's plan, consult your
plan administrator, your plan's summary plan description, or a professional
tax advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
30
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of
net investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of
the Funds do not qualify for the 70% dividends-received deduction for
corporations since they are derived from interest income. Dividends
representing income derived from tax-exempt bonds generally retain the bonds'
tax-exempt character in a shareholder's hands. Distributions from net
long-term capital gains are taxable as long-term capital gains regardless of
the length of time you have held the shares on which such distributions are
paid. However, you should note that any loss realized upon the sale or
redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to you with respect to such shares.
Distributions of capital gains are taxable to you regardless of whether
they are taken in cash or reinvested, even if the value of your shares is
below your cost. If you purchase shares shortly before a capital gain
distribution, you must pay income taxes on the distribution, even though the
value of your investment (plus cash received, if any) will not have
increased. In addition, the share price at the time you purchase shares may
include unrealized gains in the securities held in the investment portfolio
of the Fund. If these portfolio securities are subsequently sold and the
gains are realized, they will, to the extent not offset by capital losses, be
paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains.
In January of the year following the distribution, we or your financial
intermediary will send you a Form 1099-DIV notigying you of the status of
your distributions for federal income tax purposes. Distributions may also be
subject to state and local taxes, even if all or a substantial part of such
distribution are derived from interest on U.S. government obligations which,
if you received them directly, would be exempt from state income tax.
However, most but not all states allow this tax exemption to pass through to
Fund shareholders when a Fund pays distributions to its shareholders. You
should consult your tax adviser about the tax status of such distributions in
your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and its Regulations, we are required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends,
capital gains distributions and redemptions). Those regulations require you
to certify that the social security number or tax identification number you
provide is correct and that you are not subject to 31% withholding for
previous under-reporting to the IRS. You will be asked to make the
appropriate certification on your application. PAYMENTS REPORTED BY US THAT
OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US
TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL
TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT
REFUNDABLE.
Redemption of shares of a Fund (including redemptions made in an
exchange transaction) will be a taxable transaction for federal income tax
purposes and shareholders will generally recognize a gain or loss in an
amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term
if shareholders have held such shares for a period of more than one year. If
a loss is realized on the redemption of Fund shares, the reinvestment in
additional Fund shares within 30 days before or after the redemption may be
subject to the "wash sale" rules of the Internal Revenue Code, resulting in a
postponement of the recognition of such loss for federal income tax purposes.
31
MANAGEMENT
INVESTMENT MANAGEMENT
Benham Capital Preservation Fund and Benham Capital Preservation Fund II
(the "Companies") are the assumed names of Capital Preservation Fund, Inc.
and Capital Preservation Fund II, Inc., respectively, and are both California
corporations. The remaining Funds are series of the Benham Government Income
Trust, a Massachussetts business trust (the "Trust"). Under the laws of the
Commonwealth of Massachusetts, the board of trustees is responsible for
managing the business and affairs of the Trust. Under the laws of the State
of California, the board of directors is responsible for managing the
business and affairs of the Companies. The board of trustees of the Trust and
the boards of directors of the Companies are identical in composition.
Acting pursuant to an investment management agreement entered into with
the Trust, Benham Management Corporation (the "Manager") serves as the
investment manager of the Funds. Its principal place of business is 1665
Charleston Road, Mountain View, California 94043. The Manager has been
providing investments advisory services to investment companies and other
clients since 1971.
The Manager supervises and manages the investment portfolio of each of
the Funds and directs the purchase and sale of their investment securities.
The Manager utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the Funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the Funds' portfolios and the
Funds' asset mix as it deems appropriate in pursuit of the Funds' investment
objectives. Individual portfolio manager members of the team may also adjusts
portfolio holdings of the Funds or of sectors of the Funds as necessary
between team meetings.
In June 1995, Twentieth Century Companies, Inc. ("TCC") acquired Benham
Management International, Inc., the then-parent company of the Manager. TCC
is the parent company of Investors Research Corporation ("IRC"), which
provides investment management services to the Twentieth Century family of
funds. In the acquisition, the Manager became a wholly owned subsidiary of
TCC. Certain employees of the Manager will be providing investment management
services to the Twentieth Century family of funds, while certain Twentieth
Century employees provide investment management services to Benham funds.
The portfolio manager members of the teams managing the Funds described
in this Prospectus and their work experience for the last five years are
listed as follows:
ROBERT V. GAHAGAN has been primarily responsible for the day-to-day
operations of the Short-Term Fund since March, 1996. He is a Vice President
and Portfolio Manager with IRC. Mr. Gahagan has a B.A. and M.B.A. from the
University of Missouri in Kansas City and has over 12 years of investment
experience. He joined IRC in 1983. In addition to the Short-Term Fund, Mr.
Gahagan manages six Twentieth Century funds in Mountain View, California, the
fixed income headquarters for the new combined Twentieth Century/ Benham
company.
BRIAN HOWELL has been primarily responsible for the management of CPF
and the Agency Fund since May, 1995. Mr. Howell joined Benham in 1987 as a
research analyst and was promoted to his current position in January 1994.
DENISE TOBACCO has been primarily responsible for the day-to-day
operations of CPF II since June, 1995. Ms. Tobacco joined The Benham Group in
1988, the Portfolio Department in 1991 and was promoted to her current
position in 1995.
DAVID SCHROEDER joined the Manager in 1990 and has been primarily
responsible for the day-to-day operations of the Treasury Note Fund since
January, 1992, the Long-Term Fund since
32
September, 1992, and Benham Target Maturities Trust since July, 1990. Mr.
Schroeder has co-managed the GNMA Income Fund since January, 1996.
CASEY COLTON has co-managed the GNMA Income Fund since January, 1994,
and the Treasury Note Fund, the Long-Term Fund and the Target Maturities
Trust's Funds since January, 1996.Mr. Colton joined the Manager in 1990 as a
Municipal Analyst and was promoted to his current position in 1995. Mr.
Colton is a Chartered Financial Analyst (CFA).
NEWLIN RANKIN has been primarily responsible for the day-to-day
operations of the ARM Fund since January, 1995. Mr. Rankin joined the Manager
in 1994 and prior to that was Assistant Vice-President at Wells Fargo Bank
from 1991 to 1993.
The activities of the Manager are subject only to direction of the
trustees or directors, as the case may be. For the services provided to the
Funds by the Manager, CPF and CPF II each pay the Manager a monthly
investment advisory fee equal to the dollar amount derived from applying the
Fund's average daily net assets to an investment advisory fee schedule. Each
series of the Trust pays the Manager a monthly investment advisory fee equal
to its pro rata share of the dollar amount derived from applying the Trust's
average daily net assets to an investment advisory fee schedule.
The investment advisory fee rate ranges from .50% to .19% of average
daily net assets, dropping as the Funds' respective assets increase.
CODE OF ETHICS
The Funds and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with
access to information about the purchase or sale of securities in the Funds'
portfolios obtain preclearance before executing personal trades. With respect
to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
the Fund shareholders come before the interests of the people who manage
those Funds.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City,
Missouri, 64111, ("TCS") acts as transfer, administrative services and
dividend paying agent for the Funds. TCS provides facilities, equipment and
personnel to the Funds and is paid for such services by the Funds. For
administrative services, each Fund pays TCS a monthly fee equal to its pro
rata share of the dollar amount derived from applying the average daily net
assets of all of the Funds managed by the Manager. The administrative fee
rate ranges from .11% to .08% of average daily net assets, dropping as assets
managed by the Manager increase. For transfer agent services, each Fund pays
TCS a monthly fee for each shareholder account maintained and for each
shareholder transaction executed during that month.
The Funds charge no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from TCS
may purchase or sell Fund shares through registered broker-dealers and other
qualified service providers, who may charge investors fees for their
services. These broker-dealers and service providers generally provide
shareholder, administrative and/or accounting services which would otherwise
be provided by TCS as the Funds' transfer agent. To accommodate these
investors, the Manager and its affiliates have entered into agreements with
some broker-dealers and service providers to provide these services. Fees for
such services are
33
borne normally by the Funds at the rates normally paid to TCS, which would
otherwise provide the services. Any distribution expenses associated with
these arrangements are borne by the Manager.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation
of shareholder transactions, newsletters and a team of personal
representatives. Any expenses associated with these special services will be
paid by the Manager or its affiliates.
The Manager and TCS are both wholly owned by Twentieth Century
Companies, Inc. James E. Stowers Jr., Chairman of the board of directors of
TCC, controls TCC by virtue of his ownership of a majority of its common
stock.
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting sales of, and
distributing the Fund shares offered by this Prospectus. The Funds do not pay
any commissions or other fees to the Distributor or to any other
broker-dealers or financial intermediaries in connection with the
distribution of Fund shares.
EXPENSES
Each Fund pays certain operating expenses directly, including, but not
limited to: custodian, audit, and legal fees; fees of the independent
directors or trustees; costs of printing and mailing prospectuses, statements
of additional information, proxy statements, notices, and reports to
shareholders; insurance expenses; and costs of registering the Fund's shares
for sale under federal and state securities laws. See the Statements of
Additional Information for a more detailed discussion of independent
director/trustee compensation.
FURTHER INFORMATION ABOUT
THE FUNDS
CPF and CPF II were organized as California corporations on October 28,
1971 and April 2, 1980, respectively. The Trust was organized as a
Massachusetts business trust in May 1, 1984. The CPF, CPF II and the Trust
are diversified, open-end management investment companies. Their business and
affairs are managed by its officers under the direction of their respective
boards.
The principal office of the Funds is Twentieth Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries made
by mail should be directed to the address and phone numbers on the cover, or
by phone to 1-800-345-2021. (For international callers: 816-531-5575.)
CPF and CPF II issue shares with no par value. The remaining Funds are
individual series of the Trust which also issues shares with no par value.
The assets belonging to each series of shares are held separately by the
custodian and in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each
dollar of net asset value applicable to such share on all questions, except,
in the case of the Trust, those matters which must be voted on separately by
the series of shares affected. Matters affecting only one Fund are voted upon
only by that Fund.
Shares of the Trust have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of
trustees can elect all of the trustees if they choose to do so, and in such
event the holders of the remaining less-than 50% of the shares will not be
able to elect any person or persons to the board of trustees. Shares of the
Companies have cumulative voting rights only to the extent conferred upon
them by California law, which gives shareholders of the Companies the right
to cumulate votes in the election (or removal) of the Companies' respective
directors.
34
Unless required by the 1940 Act, it will not be necessary for the Trust
or the Companies to hold annual meetings of shareholders. As a result,
shareholders may not vote each year on the election of members of their
boards or the appointment of auditors. However, pursuant to the Trust's and
the Companies' by-laws, the holders of shares representing at least 10% of
the votes entitled to be cast may request that the Trust or the Company, as
the case may be, hold a special meeting of shareholders. The Trust or the
Companies will assist in the communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF ITS POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF
ADDITIONAL INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE
INSTANCES WHERE SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF A FUND ONLY
IN THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE
QUALIFIED FOR SALE. A FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING
IN STATES WHERE THE FUND'S SHARES ARE NOT REGISTERED.
35
BENHAM
U.S. Treasury &
Government Funds
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. Box 419200
Kansas City, Missouri
64141-6200
- --------------------------------------------
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
- --------------------------------------------
Fax: 816-340-7962
- --------------------------------------------
Internet: http://www.twentieth-century.com
- --------------------------------------------
BENHAM GOVERNMENT INCOME TRUST
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
- --------------------------------------------------------------------------------
BN-BKT-5483 [recycled logo]
9608 Recycled
<PAGE>
BENHAM GOVERNMENT INCOME TRUST
BENHAM GOVERNMENT AGENCY FUND (THE "AGENCY FUND")
BENHAM SHORT-TERM TREASURY AND AGENCY FUND (THE "SHORT-TERM FUND")
BENHAM TREASURY NOTE FUND (THE "TREASURY NOTE FUND")
BENHAM LONG-TERM TREASURY AND AGENCY FUND (THE "LONG-TERM FUND")
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND (THE "ARM FUND")
BENHAM GNMA INCOME FUND (THE "GNMA FUND")
4500 Main Street
Kansas City, MO 64111
Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575
Automated: 1-800-345-8765
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1996
This Statement is not a prospectus but should be read in conjunction with the
Funds' current Prospectus dated September 3, 1996. The Funds' Annual Reports for
the fiscal year ended March 31, 1996 is incorporated herein by reference. To
obtain a copy of the Prospectus or Annual Reports, call or write Twentieth
Century Mutual Funds.
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, the Short-Term Fund, Treasury Note Fund,
Long-Term Fund, ARM Fund, and GNMA Fund are referred to collectively as the
"Variable-Price Funds."
1
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.
2
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.
3
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
(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 331/3% 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
5
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: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.
FREDDIE MAC CERTIFICATES. The Federal Home Loan Mortgage Corporation (FHLMC or
Freddie Mac) is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970 (FHLMC Act), as amended.
Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit. Its principal activity consists of purchasing
first-lien conventional residential mortgage loans (and participation interests
in such mortgage loans) and reselling these loans in the form of mortgage-backed
securities, primarily Freddie Mac certificates.
6
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.
7
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.
8
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.
9
(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 331/3% 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.
10
(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
11
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.
(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.
12
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
(6) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, provided that this limitation will not
prohibit the Fund from purchasing U.S. government securities secured by
real estate or interests therein.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, provided that this limitation
will not prohibit the Fund from purchasing and selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.
(8) Make loans, other than loans of portfolio securities pursuant to guidelines
established by the board of trustees, provided that this restriction will
not prohibit the Fund from purchasing debt securities in accordance with
its investment objectives and policies. Loans, in the aggregate, will be
limited to 331/3% of the Fund's total assets.
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.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
13
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would
be held by the Fund, more than 5% of the value of the Fund's assets would
be invested in shares of such investment company, or more than 10% of the
value of the Fund's assets would be invested in shares of investment
companies in the aggregate, or except in connection with a merger,
consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and trustees of the Trust and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer together own beneficially more than
5% of such securities.
BENHAM GNMA INCOME 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.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the board of trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
14
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.
(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.
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.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) Purchase restricted securities.
(e) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(f) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(g) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
15
(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.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) 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
16
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 the board of
trustees may issue 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
17
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share ("NAV") is calculated by Twentieth Century
Services, Inc. (TCS), as of the close of business of the New York Stock Exchange
(the "Exchange") each day the Exchange is open for business, usually at 3:00
p.m. Central Time. The Exchange has designated the following holiday closings
for 1996: New Year's Day (observed), Presidents` Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (observed).
Although TCS expects the same holiday schedule to be observed in the future, the
Exchange may modify its holiday schedule at any time.
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. Although this method provides certainty in
valuation, it generally disregards the effect of fluctuating interest rates on
an instrument's market value. Consequently, the instrument's amortized cost
value may be higher or lower than its market value, and this discrepancy may be
reflected in the Fund's yield. During periods of declining interest rates, for
example, the daily yield on Fund shares computed as described above may be
higher than that of a fund with identical investments priced at market value.
The converse would apply in a period of rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule 2a-7
under the 1940 Act. Under the Rule, a fund such as 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, the 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.
18
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 the 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, the Agency Fund's yield was
4.73%, and its effective yield was 4.84%.
For THE VARIABLE-PRICE FUNDS, yield quotations are based on the investment
income per share earned during a particular 30-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.
19
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 4.981%
Short-Term Fund 6.71 N/A N/A 4.352
Treasury Note Fund 8.42 7.14 6.85 8.993
Long-Term Fund 13.46 N/A N/A 7.262
ARM Fund 6.42 N/A N/A 4.624
GNMA Fund 10.08 7.93 8.50 8.995
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:
20
Commodity Index Report); the price of gold (sources: London a.m./p.m. fixing and
New York Comex Spot Price); rankings of any mutual fund or mutual fund category
tracked by Lipper Analytical Services, Inc. or Morningstar, Inc.; mutual fund
rankings published in major nationally distributed periodicals; data provided by
the Investment Company Institute; Ibbotson Associates, Stocks, Bonds, Bills, and
Inflation; major indexes of stock market performance; and indexes and historical
data supplied by major securities brokerage or investment advisory firms. The
Funds may also utilize reprints from newspapers and magazines furnished by third
parties to illustrate historical performance.
The Fund's shares are sold without a sales charge (or load). No-load funds offer
an advantage to investors when compared to load funds with comparable investment
objectives and strategies. If an investor pays $10,000 to buy shares of a load
fund with an 8.5% sales charge, $850 of that $10,000 is paid as a commission to
a salesperson, leaving only $9,150 to put to work for the investor. Over time,
the difference between paying a sales load and not paying one can have a
significant effect on an investor's total return. The Mutual Fund Education
Alliance provides a comparison of $10,000 invested in each of two mutual funds,
one with an 8.5% sales load and one without a sales load. Assuming a compounded
annual growth rate of 10% for both investments, the no-load fund investment is
worth $25,937 after ten years, and the load fund investment is worth only
$23,732.
TAXES
Each Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying, each Fund will not incur federal income taxes on its net
investment income and on net realized capital gains to the extent distributed as
dividends to shareholders.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, a Fund must distribute during each calendar year
an amount equal to the sum of (a) at least 98% if its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are federally taxable to shareholders as ordinary income, regardless of
whether such dividends are taken in cash or reinvested in additional shares.
Distributions made from a Fund's net realized long-term capital gains and
designated as capital gain dividends are taxable to shareholders as long-term
capital gains, regardless of the length of time shares are held. Corporate
investors are not eligible for the dividends-received deduction with respect to
distributions from the Funds. A distribution will be treated as paid on December
31st of a calendar year if it is declared by a Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
Upon redeeming, selling, or exchanging shares of a Variable-Price Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares liquidated. The gain or loss generally will be long-term or
short-term depending on the length of time the shares were held. However, a loss
recognized by a shareholder in the disposition of shares on which capital gain
dividends were paid (or deemed paid) before the shareholder had held his or her
shares for more
21
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 the 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,
22
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.
Effective October 7, 1996, Chase Manhattan Bank, 4 Chase Metrotech Center,
Brooklyn, NY 11245 will provide the custodian services for the Funds.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Trust's independent auditors and
provides services including (a) audit of annual financial statements and (b)
preparation of annual federal income tax returns filed on behalf of the Fund.
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,
Twentieth Century Services (TCS); the Trust's distribution agent, Twentieth
Century Securities; the parent corporation, Twentieth Century Companies, Inc.
(TCC) or TCC's subsidiaries; or other funds advised by BMC. Each trustee listed
below serves as a trustee or director of other funds managed by BMC. Unless
otherwise noted, dates in parentheses indicate the dates the trustee or officer
began his or her service in a particular capacity. The trustees' and officers'
address with the exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston
Road, Mountain View, California 94043. The address of Mr. Stowers III and Ms.
Roepke is 4500 Main Street, Kansas City, Missouri 64111.
TRUSTEES
*JAMES M. BENHAM, chairman of the board of trustees (1985); president and chief
executive officer (1996). Mr. Benham is also chairman of the boards of Benham
Financial Services, Inc. (BFS), BMC (1971), and Benham Distributors, Inc. (BDI)
(1988); president of BMC (1971), and BDI (1988); and a member of the board of
governors of the Investment Company Institute (1988). Mr. Benham has been in the
securities business since 1963, and he frequently comments through the media on
economic conditions, investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent 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).
23
RONALD J. GILSON, independent trustee (1995); Charles J. Meyers Professor of Law
and Business at Stanford Law School (1979) and the Mark and Eva Stern Professor
of Law and Business at Columbia University School of Law (1992). He is counsel
to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent trustee (1985). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983) and a director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a managing director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent trustee (1985). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a director of
RCM Capital Funds, Inc. (June 1994).
EZRA SOLOMON, independent trustee (1985). Mr. Solomon is Dean Witter Professor
of Finance Emeritus at the Stanford Graduate School of Business, where he served
as Dean Witter Professor of Finance from 1965 to 1990, and a director of
Encyclopedia Britannica.
ISAAC STEIN, independent trustee (1992). Mr. Stein is former chairman of the
board (1990 to 1992) and chief executive officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the board of Raychem
Corporation (electrical equipment, 1993), president of Waverley Associates, Inc.
(private investment firm, 1983), and a director of ALZA Corporation
(pharmaceuticals, 1987). He is also a trustee of Stanford University (1994) and
chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III, trustee (1995); Mr. Stowers III is president and director
of 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 funds
managed by BMC.
24
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED
MARCH 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
NAME OF AGGREGATE PENSION OR ESTIMATED TOTAL
TRUSTEE* COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS COMPENSATION
FROM ACCRUED AS PART OF UPON RETIREMENT FROM FUND AND
EACH FUND FUND EXPENSES FUND COMPLEX**
PAID TO TRUSTEES
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Albert A. Eisenstat $ 267 (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.
** Twentieth Century family of funds includes 68 no-load mutual funds.
</TABLE>
25
As of July 31, 1996, the Trust's officers and trustees, as a group, owned less
than 1% of the outstanding shares of each Fund.
INVESTMENT ADVISORY SERVICES
The Funds have an investment advisory agreement with 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 the rest of Twentieth Century's Benham brand mutual funds.
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
26
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
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, (TCS) acts as transfer, administrative services and dividend paying agent
for the Funds. TCS provides facilities, equipment and personnel to the Funds and
is paid for such services by the Funds. For administrative services, each Fund
pays TCS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Fund managed by the
Manager to the following administrative fee rate schedule:
GROUP ASSETS ADMINISTRATIVE FEE RATE
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
For transfer agent services, each Fund pays TCS a monthly fee of $1.3958 for
each shareholder account maintained and $1.35 for each shareholder transaction
executed during that month.
Administrative service and transfer agent fees paid by each Fund for the fiscal
years ended March 31, 1996, 1995, and 1994 are indicated in the following
tables. Fee amounts are net of reimbursements as described on the next page.
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
27
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 TCS.
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 .60%
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.
28
NET EXPENSE ABSORBED (RECOUPED)
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.
Twentieth Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a Fund's tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a Fund's best interest.
As of July 31, 1996, to the knowledge of the Trust, the shareholders listed in
the chart below and on the next page were record holders of greater than 5% of
the outstanding shares of the individual Funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER # OF SHARES HELD % OF TOTAL
NAME AND ADDRESS SHARES OUTSTANDING
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Short-Term Fund Charles Schwab & Co. 603,137.117 17.6%
101 Montgomery Street
San Francisco, CA 94104
J. Harris Morgan 311,870.707 9.1%
P.O. Box 556
Greenville, TX 75401
Allied Clearings Co. 284,388.710 8.3%
P.O. Box 94303
Pasadena, CA 91109
- ------------------------------------------------------------------------------------------------------------------
Treasury Note Fund Charles Schwab & Co. 3,200,170.936 10.9%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
29
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FUND SHAREHOLDER # OF SHARES HELD % OF TOTAL
(CONTINUED) NAME AND ADDRESS SHARES OUTSTANDING
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Long-Term Fund Charles Schwab & Co. 6,328,833.651 49.6%
101 Montgomery Street
San Francisco, CA 94104
Natl. Fincl. Svcs. Corp. 1,236,573.553 9.7%
P.O. Box 3908
New York, NY 10008-3908
- -------------------------------------------------------------------------------------------------------------------
ARM Fund Charles Schwab & Co. 1,705,107.859 6.1%
101 Montgomery Street
San Francisco, CA 94104
- -------------------------------------------------------------------------------------------------------------------
GNMA Fund Charles Schwab & Co. 16,179,349.628 15.2%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
As of July 31, 1996, to the knowledge of the Trust, no other shareholder was the
record holder or beneficial owner of 5% or more of a Fund's total outstanding
shares.
TCS charges neither fees nor commissions on the purchase and sale of fund
shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
TCS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Shareholder Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
BMC has been continuously registered with the Securities and Exchange Commission
(SEC) under the Investment Advisers Act of 1940 since December 14, 1971. The
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.
30
<PAGE>
BENHAM GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 29
1940 Act Amendment No. 30
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for each series of
Benham Government Income Trust for the fiscal year ended March 31,
1996, are filed herein as included in the Trust's Statement of
Additional Information by reference to the Annual Report dated March
31, 1996, filed on May 24, 1996 (Accession # 0000773674-96-000002).
(b) EXHIBITS.
(1) Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(2) Amended and Restated Bylaws, dated May 17, 1995, are
incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(3) Not applicable.
(4) (a) Specimen copy of Benham GNMA Income Fund share certificate
is incorporated herein by reference to Exhibit 4 to the
registration statement filed on July 26, 1985.
(b) Specimen copy of Benham Adjustable Rate Government
Securities Fund share certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 17
filed on September 30, 1991.
(c) Specimen copy of Benham Treasury Note Fund share
certificate is incorporated herein by reference to Exhibit 4
to Post-Effective Amendment No. 18 filed on November 27, 1991.
(d) Specimen copy of Benham Government Agency Fund share
certificate is incorporated herein by reference to Exhibit 4
to Post-Effective Amendment No. 18 filed on November 27, 1991.
(e) Specimen copy of Benham Short-Term Treasury and Agency
Fund share certificate is incorporated herein by reference to
Exhibit 4(e) to Post-Effective Amendment No. 24 filed on
November 29, 1992.
(f) Specimen copy of Benham Long-Term Treasury and Agency Fund
share certificate is incorporated herein by reference to
Exhibit 4(f) to Post-Effective Amendment No. 24 filed on
November 29, 1992.
(5) Investment Advisory Agreement between Benham Government Income
Trust and Benham Management Corporation, dated June 1, 1995,
is incorporated herein by reference to Exhibit 5 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004)
(6) Distribution Agreement between Benham Government Income Trust
and Twentieth Century Securities, Inc. dated as of September
3, 1996, is included herein.
(7) Not applicable.
(8) (a) Custodian Agreement between Benham Government Income
Trust, on behalf of Benham Treasury Note Fund and Benham
Government Agency Fund, and State Street Bank and Trust
Company, dated August 10, 1993, Amendment No. 1 dated December
1, 1994 to the Custodian Agreement and Amendment No. 2 dated
March 4, 1996 to the Custodian Agreement are incorporated by
reference to Exhibit 8 of Post-Effective Amendment No. 7 to
the Registration Statement of Benham International Funds filed
on April 22, 1996 (Accession # 880268-96-000010).
(b) Custodian Agreement between Benham Government Income
Trust, on behalf of Benham Short-Term Treasury and Agency
Fund, Benham GNMA Income Fund, Benham Long-Term Treasury and
Agency Fund, and Benham Adjustable Rate Government Securities
Fund, and Morgan Guaranty Trust Company of New York, dated
September 21, 1992, is incorporated herein by reference to
Exhibit 8(b) of Post-Effective Amendment No. 24 filed on
November 29, 1992.
(9) Administrative Services and Transfer Agency Agreement between
Benham Government Income Trust and Twentieth Century Services,
dated as of September 3, 1996, is included herein.
(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is
incorporated herein by reference to Rule 24f-2 Notice filed on
May 16, 1996 (Accession # 773674-96-0001).
(11) Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
(12) Not applicable.
(13) Not applicable.
(14) (a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
(b) Benham Pension/Profit Sharing plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
(15) Not applicable.
(16) Schedule for computation of each performance quotation
provided in response to Item 22 is incorporated herein by
reference to Exhibit 16 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004)
(17) Power of Attorney dated March 4, 1996 is incorporated
herein by reference to Exhibit 17 of Post-Effective Amendment
No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of July 31, 1996, each series of Benham Government Income Trust had the
following number shareholders of record:
Benham Government Agency Fund 19,322
Benham Short-Term Treasury and Agency Fund 1,263
Benham Treasury Note Fund 11,458
Benham Long-Term Treasury and Agency Fund 3,347
Benham Adjustable Rate Government Securities Fund 14,917
Benham GNMA Income Fund 43,591
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit 1 to the Registration Statement, "The Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 to Post-Effective Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, Twentieth Century Securities, Inc., is
distribution agent to Capital Preservation Fund, Inc., Capital Preservation Fund
II, Inc., Benham California Tax-Free and Municipal Funds, Benham Government
Income Trust, Benham Municipal Trust, Benham Target Maturities Trust, Benham
Equity Funds, Benham International Funds, Benham Investment Trust, Benham
Manager Funds, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc.,
Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc.,
Twentieth Century Strategic Allocations, Inc. and Twentieth Century World
Investors, Inc. The information required with respect to each director, officer
or partner of Twentieth Century Securities is incorporated herein by reference
to Twentieth Century Securities' Form B-D filed on November 21, 1985 (SEC File
No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, Twentieth
Century Services, maintain their principal office at 4500 Main St., Kansas City,
MO 64111. Twentieth Century Services maintains physical possession of each
account, book, or other document, and shareholder records as required by
ss.31(a) of the 1940 Act and rules thereunder. The computer and data base for
shareholder records are located at Central Computer Facility, 401 North Broad
Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to furnish each person to whom a Prospectus is delivered
with a copy of the Registrant's latest report to shareholders, upon request and
without charge.
<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. 29/Amendment No. 30 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 30th day of August, 1996. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(b).
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. 29/Amendment No. 30 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, August 30, 1996
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee August 30, 1996
- ---------------------------------
Albert A. Eisenstat
* Trustee August 30, 1996
- ---------------------------------
Ronald J. Gilson
* Trustee August 30, 1996
- ---------------------------------
Myron S. Scholes
* Trustee August 30, 1996
- ---------------------------------
Kenneth E. Scott
* Trustee August 30, 1996
- ---------------------------------
Ezra Solomon
* Trustee August 30, 1996
- ---------------------------------
Isaac Stein
* Trustee August 30, 1996
- ---------------------------------
James E. Stowers III
* Trustee August 30, 1996
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer August 30, 1996
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004).
EX-99.B2 Amended and Restated Bylaws, dated May 17, 1995, are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004).
EX-99.B4) a) Specimen copy of Benham GNMA Income Fund share certificate
is incorporated herein by reference to Exhibit 4 to the
registration statement filed on July 26, 1985.
b) Specimen copy of Benham Adjustable Rate Government Securities
Fund share certificate is incorporated herein by reference to
Exhibit 4 to Post-Effective Amendment No. 17 filed on September
30, 1991.
c) Specimen copy of Benham Treasury Note Fund share certificate is
incorporated herein by reference to Exhibit 4 to Post-Effective
Amendment No. 18 filed on November 27, 1991.
d) Specimen copy of Benham Government Agency Fund share certificate
is incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 18 filed on November 27, 1991.
e) Specimen copy of Benham Short-Term Treasury and Agency Fund share
certificate is incorporated herein by reference to Exhibit 4(e)
to Post-Effective Amendment No. 24 filed on November 29, 1992.
f) Specimen copy of Benham Long-Term Treasury and Agency Fund share
certificate is incorporated herein by reference to Exhibit 4(f)
to Post-Effective Amendment No. 24 filed on November 29, 1992.
EX-99.B5 Investment Advisory Agreement between Benham Government Income Trust
and Benham Management Corporation, dated June 1, 1995, is
incorporated herein by reference to Exhibit 5 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004)
EX-99.B6 Distribution Agreement between Benham Government Income Trust and
Twentieth Century Securities, Inc. dated as of September 3, 1996, is
included herein.
EX-99.B8 a) Custodian Agreement between Benham Government Income Trust, on
behalf of Benham Treasury Note Fund and Benham Government Agency
Fund, and State Street Bank and Trust Company, dated August 10,
1993, Amendment No. 1 dated December 1, 1994 to the Custodian
Agreement and Amendment No. 2 dated March 4, 1996 to the
Custodian Agreement are incorporated by reference to Exhibit 8 of
Post-Effective Amendment No. 7 to the Registration Statement of
Benham International Funds filed on April 22, 1996 (Accession #
880268-96-000010).
b) Custodian Agreement between Benham Government Income Trust, on
behalf of Benham Short-Term Treasury and Agency Fund, Benham GNMA
Income Fund, Benham Long-Term Treasury and Agency Fund, and
Benham Adjustable Rate Government Securities Fund, and Morgan
Guaranty Trust Company of New York, dated September 21, 1992, is
incorporated herein by reference to Exhibit 8(b) of
Post-Effective Amendment No. 24 filed on November 29, 1992.
EX-99.B9 Administrative Services and Transfer Agency Agreement between
Benham Government Income Trust and Twentieth Century Services, dated
as of September 3, 1996, is included herein.
EX-99.B10 Opinion and consent of counsel as to the legality of the securities
being registered, dated May 16, 1996 is incorporated herein by
reference to Rule 24f-2 Notice filed on May 16, 1996 (Accession #
773674-96-0001).
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is included
herein.
EX-99.B14 a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February 1992,
is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
b) Benham Pension/Profit Sharing plan, including all instructions
and other relevant documents, dated February 1992, is
incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is incorporated herein by reference to Exhibit
16 of Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004)
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 28 filed on
May 29, 1996 (Accession # 0000773674-96-000004)
EX-27.5.1 FDS for Benham GNMA Income Fund.
EX-27.5.2 FDS for Benham Treasury Note Fund.
EX-27.4.3 FDS for Benham Government Agency Fund.
EX-27.5.4 FDS for Benham Adjustable Rate Government Securities Fund.
EX-27.5.5 FDS for Benham Short-Term Treasury and Agency Fund.
EX-27.5.6 FDS for Benham Long-Term Treasury and Agency Fund.
DISTRIBUTION AGREEMENT
The Benham Group
THIS DISTRIBUTION AGREEMENT is made and entered into by and between each of
the open-end management investment companies listed on Schedule A, attached
hereto, effective as of the 3rd day of September, 1996, together with all other
open end management investment companies subsequently established and made
subject to this agreement in accordance with Section 11 (the "Issuers") and
TWENTIETH CENTURY SECURITIES, INC. ("Distributor").
WHEREAS, the shares of common stock of each of the Issuers are currently
divided into a number of separate series of shares, or funds, each corresponding
to a distinct portfolio of securities; and
WHEREAS, Distributor is a registered as a broker-dealer with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc.; and
WHEREAS, the Boards of Directors/Trustees of the Funds (the"Board") wish to
engage the Distributor to act as the distributor of the Funds;
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties agree as follows:
SECTION 1. GENERAL RESPONSIBILITIES
Each Fund herewith engages Distributor to act as exclusive distributor of the
shares of its separate series, and any other series which may be designated from
time to time hereafter ("Series"), named and described on Schedule A. Said sales
shall be made only to Investors residing in those states in which each Fund is
registered. After effectiveness of each Fund's registration statement,
Distributor will hold itself available to receive by mail, telex and/or
telephone, orders for the purchase of shares and will receive by mail, telex
and/or telephone, orders for the purchase of shares and will accept or reject
such orders on behalf of the Funds in accordance with the provisions of the
applicable Funds prospectus, and will be available to transmit such orders as
are so accepted to the Funds' transfer agent as promptly as possible for
processing at the shares' net asset value next determined in accordance with the
prospectuses.
A. Offering Price. All shares sold by Distributor under this Agreement
shall be sold at the net asset value per share ("Net Asset Value")
determined in the manner described in each Fund's prospectus, as it
may be amended from time to time, next computed after the order is
accepted by Distributor. Each Fund shall determine and promptly
furnish to Distributor a statement of the Offering Price of shares of
said Fund's series at least once on each day on which the Fund is open
for trading as described in its current prospectus.
B. Promotion Support. Each Fund shall furnish to Distributor for use in
connection with the sale of its shares such written information with
respect to said Fund as Distributor may reasonably request. Each Fund
represents and warrants that such information, when authenticated by
the signature of one of its officers, shall be true and correct. Each
Fund shall also furnish to Distributor copies of its reports to its
shareholders and such additional information regarding said Fund's
financial condition as Distributor may reasonably request. Any and all
representations, statements and solicitations respecting a Fund's
shares made in advertisements, sales literature and in any other
manner whatsoever shall be limited to and conform in all respects to
the information provided hereunder.
C. Regulatory Compliance. Each Fund shall furnish to Distributor copies
of its current form of prospectus, as filed with the SEC, in such
quantity as Distributor may reasonably request from time to time, and
authorizes Distributor to use the prospectus in connection with the
sale of such Fund's shares. All such sales shall be initiated by offer
of, and conducted in accordance with, such prospectus and all of the
provisions of the Securities and Exchange Act of 1933, the Investment
Company Act of 1940 ("1940 Act") and all the rules and regulations
thereunder. Distributor shall furnish applicable federal and state
regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may
lawfully request in order to ascertain whether the Funds' operations
are being conducted in a manner consistent with any applicable law or
regulations.
D. Acceptance. All orders for the purchase of its shares are subject to
acceptance by each Fund.
E. Compensation. Except for the promises of the Funds contained in this
Agreement and its performance thereof, Distributor shall not be
entitled to compensation for its services hereunder.
SECTION 2. EXPENSES.
A. Each Fund shall pay all fees and expenses incurred by it in connection
with the preparation, printing and distribution to shareholders of its
prospectus and reports and other communications to shareholders,
future registrations of shares under the Securities Act of 1933 and
the 1940 Act, amendments of the registration statement subsequent to
the initial offering of shares, the qualification of shares for sale
in jurisdictions designated by Distributor, the issue and transfer of
shares, including the expenses of confirming purchase and redemption
orders and of supplying information, prices and other data to be
furnished by the Funds under this Agreement.
B. Distributor shall pay all fees and expenses of printing and
distributing any prospectuses or reports prepared for its use in
connection with the distribution of shares, the preparation and
mailing of any other advertisements or sales literature used by
Distributor in connection with the distribution of such shares, its
registration as a broker and the registration and qualification of its
officers, directors and representatives under federal and state laws.
SECTION 3. INDEPENDENT CONTRACTOR
Distributor shall be an independent contractor. Neither Distributor nor any of
its officers, trustees, employees or representatives is or shall be an employee
of a Fund in connection with the performance of Distributor's duties hereunder.
Distributor shall be responsible for its own conduct and the employment,
control, compensation and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and employees.
SECTION 4. INDEMNIFICATION
Each of the parties to this Agreement shall defend, indemnify and hold the other
harmless from and against any and all claims, demands, suits, actions, losses,
damages and other liabilities arising from, or as a result of, the acts or
omissions or acts and omissions of such party made or omitted in the course of
performing this Agreement.
SECTION 5. AFFILIATION WITH THE FUNDS
Subject to and in accordance with each Fund's formative documents, Section 10 of
the 1940 Act and Article III of this Agreement, it is understood that the
directors/trustees, officers, agents and shareholders of the Funds are or may be
interested in Distributor as directors, officers, or shareholders of
Distributor; that directors, officers, agents or shareholders of Distributor are
or may be interested in the Funds as directors/trustees, officers, shareholders
(directly or indirectly) or otherwise, and that the effect of any such interest
shall be governed by said Act and Article.
SECTION 6. BOOKS AND RECORDS
It is expressly understood and agreed that all documents, reports, records,
books, files and other materials relating to this Agreement and the services to
be performed hereunder shall be the sole property of the Funds and that such
property, to the extent held by Distributor, shall be held by Distributor as
agent, during the effective term of this Agreement. This material shall be
delivered to the applicable Fund upon the termination of this Agreement free
from any claim or retention of rights by Distributor.
SECTION 7. SERVICES NOT EXCLUSIVE
The services of Distributor to the Funds hereunder are not to be deemed
exclusive, and Distributor shall be free to render similar services to others.
SECTION 8. RENEWAL AND TERMINATION
a. Term and Annual Renewal. The term of this Agreement shall be from the
date of its approval by the vote of a majority of the board of
directors/trustees of each Fund, and it shall continue in effect from
year to year thereafter only so long as such continuance is
specifically approved at least annually by the vote of a majority of
its directors/trustees, and the vote of a majority of those said
directors/trustees who are neither parties to the Agreement nor
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. "Approved at least
annually" shall mean approval occurring, with respect to the first
continuance of the Agreement, during the ninety (90) days prior to and
including the date of its termination in the absence of such approval,
and with respect to any subsequent continuance, during the ninety (90)
days prior to and including the first anniversary of the date upon
which the most recent previous annual continuance of the Agreement
became effective.
b. Termination. This Agreement may be terminated at any time without
payment of any penalty, by a Fund's board of directors/trustees, upon
sixty (60) days written notice to Distributor, and by Distributor upon
sixty (60) days written notice to the Fund. This Agreement shall
terminate automatically in the event of its assignment. The terms
"assignment" and "vote of a majority of the outstanding voting
securities" shall have the meaning set forth for such terms in the
Investment 1940 Act and Rule 18f-2 thereunder.
SECTION 9. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or similar authority, the remainder of this Agreement
shall not be affected thereby.
SECTION 10. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the State of
Missouri.
SECTION 11. AMENDMENT
This Agreement and the SCHEDULE A forming a part hereof may be amended at any
time by a writing signed by each of the Parties. In the event that one or more
additional Funds are established, and the governing bodies of said Funds by
resolution indicate that the Funds are to be made Parties to this Agreement,
SCHEDULE A hereto shall be amended to reflect the addition of such new Funds,
and such new Funds shall become Parties hereto. In the event that any of the
Funds listed on SCHEDULE A terminates its registration as a management
investment company, or otherwise ceases operations, SCHEDULE A shall be amended
to reflect the deletion of such Fund.
TWENTIETH CENTURY SECURITIES, INC.
By: /s/William M. Lyons Date: September 3, 1996
William M. Lyons
General Counsel
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
BENHAM TARGET MATURITIES TRUST
BENHAM GOVERNMENT INCOME TRUST
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
BENHAM EQUITY FUNDS
BENHAM INTERNATIONAL FUNDS
BENHAM INVESTMENT TRUST
BENHAM MANAGER FUNDS
By: /s/Douglas A. Paul Date: September 3, 1996
Douglas A. Paul
General Counsel
<PAGE>
DISTRIBUTION AGREEMENT
SCHEDULE A
================================================================================
FUND BOARD APPROVAL DATE
================================================================================
CAPITAL PRESERVATION FUND, INC. May 17, 1996
================================================================================
CAPITAL PRESERVATION FUND II, INC. May 17, 1996
================================================================================
BENHAM TARGET MATURITIES TRUST
================================================================================
2000 Portfolio May 17, 1996
================================================================================
2005 Portfolio May 17, 1996
================================================================================
2010 Portfolio May 17, 1996
================================================================================
2015 Portfolio May 17, 1996
================================================================================
2020 Portfolio May 17, 1996
================================================================================
2025 Portfolio May 17, 1996
================================================================================
BENHAM GOVERNMENT INCOME TRUST
================================================================================
Benham Treasury Note Fund May 17, 1996
================================================================================
Benham GNMA Income Fund May 17, 1996
================================================================================
Benham Government Agency Fund May 17, 1996
================================================================================
Benham Adjustable Rate Government Securities Fund May 17, 1996
================================================================================
Benham Short-Term Treasury and Agency Fund May 17, 1996
================================================================================
Benham Long-Term Treasury and Agency Fund May 17, 1996
================================================================================
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
================================================================================
Tax-Free Money Market Fund May 17, 1996
================================================================================
Tax-Free Intermediate-Term Fund May 17, 1996
================================================================================
Tax-Free Long-Term Fund May 17, 1996
================================================================================
Municipal High Yield Fund May 17, 1996
================================================================================
Tax-Free Insured Fund May 17, 1996
================================================================================
Municipal Money Market Fund May 17, 1996
================================================================================
Tax-Free Limited-Term Fund May 17, 1996
================================================================================
BENHAM MUNICIPAL TRUST
================================================================================
Benham National Tax-Free Money Market Fund May 17, 1996
================================================================================
Benham National Tax-Free Intermediate-Term Fund May 17, 1996
================================================================================
Benham National Tax-Free Long-Term Fund May 17, 1996
================================================================================
Benham Florida Municipal Money Market Fund May 17, 1996
================================================================================
Benham Florida Municipal Intermediate-Term Fund May 17, 1996
================================================================================
Benham Florida Municipal Long-Term Fund May 17, 1996
================================================================================
Benham Arizona Municipal Intermediate-Term Fund May 17, 1996
================================================================================
BENHAM EQUITY FUNDS
================================================================================
Benham Global Gold Fund May 17, 1996
================================================================================
Benham Income & Growth Fund May 17, 1996
================================================================================
Benham Equity Growth Fund May 17, 1996
================================================================================
Benham Utilities Income Fund May 17, 1996
================================================================================
Benham Global Natural Resources Index Fund May 17, 1996
================================================================================
BENHAM INTERNATIONAL FUNDS
================================================================================
Benham European Government Bond Fund May 17, 1996
================================================================================
BENHAM MANAGER FUNDS
================================================================================
Benham Capital Manager Fund May 17, 1996
================================================================================
BENHAM INVESTMENT TRUST
================================================================================
Prime Money Market Fund May 17, 1996
================================================================================
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
The Benham Group
AGREEMENT effective as of the 3rd day of September, 1996, by each open-end
management investment company listed on Schedule E attached hereto and made part
of this agreement by reference, each portfolio of an open-end management
investment company listed on Schedule E and all open-end management investment
companies (or portfolios thereof) subsequently established and made subject to
this Agreement in accordance with Paragraph XI. (individually, "Fund" or
collectively, "Funds"), and Twentieth Century Services, Inc. ("TCS"), a
registered transfer agent incorporated under the laws of the State of California
and a wholly-owned subsidiary of TWENTIETH CENTURY COMPANIES, INC. ("TCC"), for
general administrative, transfer agency, and dividend disbursing services as
follows:
I. ADMINISTRATIVE SERVICES.
A. Description of Services. As consideration for the compensation
described in Section I.B, TCS agrees to provide the Funds with the
services described and set forth on Schedule A attached hereto and
made a part of this Agreement by reference.
B. Compensation. As consideration for the services described in Section
I.A above, each Fund shall pay TCS a fee equal to its pro rata share
of the dollar amount derived from applying the aggregate average daily
net assets of the Funds listed on Schedule E to the rate schedule set
forth on Schedule F attached hereto and made a part of this Agreement
by reference ("fund-level fee"). Each Fund's fund-level fee, or pro
rata share of the dollar amount derived from applying the Funds'
aggregate average daily net assets to the rate schedule set forth on
Schedule F, shall be determined on the basis of its average daily net
assets relative to all other Funds listed on Schedule E. Said
fund-level fees shall be calculated and accrued daily and payable
monthly in three installments, the first on the tenth of the month (or
the next business day, if not a business day), the second on the
twentieth of the month (or the next business day, if not a business
day), and the third not later than the third business day of the
following month.
II. TRANSFER AGENT SERVICES.
A. Services to be Provided. As consideration for the compensation
described in Section II.B, TCS will provide each Portfolio with the
share transfer and dividend disbursing services described on Schedule
B attached hereto and made a part of this Agreement by reference. TCS
agrees to maintain sufficient trained personnel, equipment, and
supplies to perform such services in conformity with the current
prospectus of each Fund and such other reasonable standards of
performance as the Funds may from time to time specify, and otherwise
in an accurate, timely, and efficient manner.
B. Compensation. As consideration for the services described in Section
II.A, each Fund agrees to pay TCS the fees specified on Schedule F for
each shareholder account maintained and each shareholder account
transaction executed by TCS each month. For purposes of this Agreement
"shareholder account transaction" is any one of the transactions
described on Schedule C attached hereto and made a part of this
Agreement by reference, as it may be amended from time to time. Such
fees shall be paid monthly in three installments, the first on the
tenth of the month (or the next business day, if not a business day),
the second on the twentieth of the month (or the next business day, if
not a business day), and the third on the third business day of the
following month.
C. Third Party Servicing. Subject to approval by the applicable Fund's
Board of Directors/Trustees, TCS may enter into agreements with third
parties for the performance of one or more of its obligations under
this Agreement (and such other services as TCS may desire) for all or
any portion of the shareholders of the Fund who maintain shareholder
accounts through, or who are otherwise provided services by, any such
third parties. To the extent that such third parties perform services
that TCS is obligated to perform under this Agreement, TCS shall be
entitled to receive the fees to which it would otherwise be entitled
hereunder had it performed such services directly; provided, however,
that the Fund's Board of Directors/Trustees may limit amounts
receivable by TCS under this Agreement for services performed on its
behalf by third parties. TCS will furnish the Fund shareholder and
account records and data upon which the Fund's obligations under this
Agreement are calculated, and such other data pertaining to any
services rendered by third parties as the Fund may reasonably require.
The Fund shall be entitled to have any and all such records audited by
the Fund's independent accountants at any time upon reasonable notice
to TCS.
III. EXPENSES.
A. Expenses of TCS. TCS shall pay all expenses incurred in providing the
Funds the services and facilities described in this Agreement, whether
or not such expenses are billed to TCS or the Funds.
B. Direct Expenses. Any provision of this Agreement to the contrary
notwithstanding, each Fund shall pay, or reimburse TCS for the payment
of, the following expenses (hereinafter "direct expenses") whether or
not such direct expenses are billed to the Funds, TCS, or any related
entity:
1. Fees and expenses of the Fund's Independent Directors/Trustees
and meetings thereof;
2. Fees and costs of investment advisory services;
3. Fees and costs of independent audits, income tax preparation, and
obtaining quotations for the purpose of calculating the Fund's
net asset value;
4. Fees and costs of outside legal counsel and legal counsel
employed directly by the Fund;
5. Fees and costs of custodian and banking services;
6. Costs (including postage) of printing and mailing prospectuses,
confirmations, proxy statements, and reports to Fund
shareholders;
7. Fees and costs for the registration of Fund shares with the
Securities and Exchange Commission and the jurisdictions in which
its shares are qualified for sale;
8. Fees and expenses associated with membership in the Investment
Company Institute and the Mutual Fund Education Alliance;
9. Expenses of fidelity bonding and liability insurance covering the
Fund;
10. Costs for incoming telephone WATS lines;
11. Organizational costs.
C. Extraordinary Expenses. Any provision of this Agreement to the
contrary notwithstanding, each Fund, as determined by its Board of
Directors/Trustees, shall pay (or reimburse TCS for payment of) the
following expenses, which shall be categorized as Extraordinary
Expenses and shall be excluded from each Fund's expense ratio, whether
or not the expense was billed to the Funds, TCS, or any related
entity:
1. Brokerage commissions
2. Taxes
3. Interest
4. Portfolio insurance premiums
5. Rating agency fees
6. Other extraordinary expenses, as authorized from time to time by
each Fund's Board of Directors/Trustees.
IV. TERM. With respect to each Fund, this Agreement shall become effective upon
its approval by vote of a majority of the Fund's shareholders at a meeting
called for the purpose of voting on such approval and a majority of the Fund's
Directors/Trustees, including a majority of those Directors/Trustees who are not
"interested persons" of the Fund or TCS (as that term is defined in the
Investment Company Act of 1940), and shall continue until it is terminated
pursuant to the provisions of Paragraph XII.
V. INSURANCE. The Funds and TCS agree to procure and maintain, separately or as
joint insureds with their Directors/Trustees, employees, agents, and others, an
insurance policy or policies against loss arising from breaches of trust or
errors and omissions and a fidelity bond meeting the requirements of the
Investment Company Act of 1940 in such amounts and with such deductibles as are
set forth on Schedule D attached to this Agreement and made a part hereof by
reference, as it may be amended from time to time, and to pay premiums therefor,
provided that if a Fund or TCS is party to a policy in which it is named as a
joint insured, its liability for premiums on said policy shall be determined on
the basis of premiums it would pay to obtain equivalent coverage separately
relative to the premiums each other joint insured would pay to obtain equivalent
coverage separately.
VI. REGISTRATION AND COMPLIANCE.
A. TCS represents that it is registered as a transfer agent with the
Securities and Exchange Commission ("SEC") pursuant to ss.17A of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, and agrees to maintain said registration and comply with
all of the requirements of said Act, rules, and regulations so long as
this Agreement remains in force.
B. Each Fund represents that it is an open-end management investment
company registered with the SEC under the Securities Act of 1933 and
the rules and regulations thereunder and the Investment Company Act of
1940 and the rules and regulations thereunder, and that it is
authorized to sell its shares pursuant to said Acts, and the rules and
regulations thereunder.
Each Fund will furnish TCS with a list of those jurisdictions in the
United States and elsewhere in which it is authorized to sell its
shares to the general public and maintain the currency of said list by
amendment. Each Fund agrees to promptly advise TCS of any change in or
limitation upon its authority to carry on business as an investment
company pursuant to said Acts, and the statutes, rules, and
regulations of each and every jurisdiction in which its shares are
registered for sale.
VII. DOCUMENTATION. Each of the Funds and TCS shall supply to the other upon
request such documentation as is required by them to carry out their respective
obligations under this Agreement, including, but not limited to, declarations of
trust, articles of incorporation, bylaws, codes of ethics, registration
statements, permits, financial reports, third party audits, certificates of
authority, computer tapes, and related items.
VIII. PROPRIETARY INFORMATION. It is agreed that all records and documents,
except computer data processing programs and any related documentation used or
prepared by, or on behalf of, TCS for the performance of its services hereunder,
are the property of the Funds and shall be open to audit or inspection by the
Funds or their duly authorized agents during the normal business hours of TCS,
shall be maintained in such fashion as to preserve the confidentiality thereof
and to comply with applicable federal and state laws and regulations, and shall,
in whole or any specified part, be surrendered and turned over to the Funds or
their duly authorized agents upon receipt by TCS of reasonable notice of and
request therefor.
IX. INDEMNITY. Each Fund shall indemnify and hold TCS harmless against any
losses, claims, damages, liabilities, or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action, or suit brought by
any person other than the Fund (including a shareholder naming the Fund as a
party) and not resulting from TCS's bad faith, willful misfeasance, reckless
disregard of its obligations and duties, negligence, or breach of this
Agreement, and arising out of, or in connection with:
A. TCS's performance of its obligations under this Agreement;
B. Any error or omission in any record (including but not limited to
magnetic tapes, computer printouts, hard copies, and microfilm or
microfiche copies) delivered, or caused to be delivered, by a Fund to
TCS in connection with this Agreement;
C. Bad faith, willful misfeasance, reckless disregard of its obligations
and duties, or negligence on the part of the Fund, or TCS's acting
upon any instructions reasonably believed by it to have been properly
executed or communicated by any person duly authorized by the Fund;
D. TCS's acting in reliance upon advice reasonably believed by it to have
been given by counsel for the Funds, or;
E. TCS's acting in reliance upon any instrument reasonably believed by it
to have been genuine and signed, countersigned, or executed by the
proper person(s) in accordance with the currently effective
certificate(s) of authority delivered to TCS by the Funds
In the event that TCS requests a Fund to indemnify or hold it
harmless hereunder, TCS shall use its best efforts to inform the Fund
of the relevant facts concerning the matter in question. TCS shall use
reasonable care to identify and promptly notify the Fund concerning
any matter which presents, or appears likely to present, a claim for
indemnification against the Fund.
Each Fund may elect to defend TCS against any claim which may be
the subject of indemnification hereunder. In the event that the Fund
makes such an election, it shall notify TCS and shall take over
defense of the claim and, if so requested by the Fund, TCS shall incur
no further legal or other expenses related thereto for which it is
entitled to indemnity hereunder; provided, however, that nothing
herein shall prevent TCS from retaining, at its own expense, counsel
to defend any claim. Except with the applicable Fund's prior consent,
TCS shall not confess to any claim or make any compromise in any
matter in which the Fund will be asked to indemnify or hold TCS
harmless hereunder without the Fund's prior consent.
X. LIABILITY.
A. Damages. TCS shall not be liable to any Fund, or any third party, for
punitive, exemplary, indirect, special, or consequential damages (even
if TCS has been advised of the possibility of such damages) arising
from the performance of its obligations under this Agreement,
including but not limited to loss of profits, loss of use of the
shareholder accounting system, cost of capital, and expenses for
substitute facilities, programs, or services.
B. Force Majeure. Any provision in this Agreement to the contrary
notwithstanding, TCS shall not be liable for delays or errors
occurring by reason of circumstances beyond its control or the control
of any of its affiliates and not attributable to the negligence of TCS
or any of its affiliates, including, but not limited to, acts of civil
or military authority, national emergencies, national or regional work
stoppages, fire, flood, catastrophe, earthquake, acts of God,
insurrection, war, riot, failure of communication systems, or
interruption of power supplies.
C. Trust Series Sole Obligor. TCS is expressly put on notice that, for
any Fund which is a series of a registered investment company
organized as a Massachusetts business trust (a "Trust Series"),
liability under this Agreement shall be limited to the Trust Series
incurring such liability and to the assets of such Trust Series. TCS
shall not have any rights or remedies against any trustee, officer,
employee, or shareholder of the Trust Series or any other series of
the Trust for breach of this Agreement nor recourse to the property of
any such persons or other series of the Trust for satisfaction of any
judgment or other claim against the Trust Series.
XI. AMENDMENT. This Agreement and the Schedules forming a part hereof may be
amended at any time, with or without shareholder approval (except as otherwise
required by law), by a document signed by each of the parties hereto. In the
event that one or more additional Funds are established, and the governing
bodies of said Funds by resolution indicate that the Funds are to be made
parties to this Agreement, Schedule E hereto shall be amended to reflect the
addition of such new Funds, and such new Funds shall become parties hereto. Any
change in a Fund's registration statement or other compliance documents, or in
the forms relating to any plan, program, or service offered by its current
prospectus which would require a change in TCS's obligations hereunder shall be
subject to TCS's approval, which shall not be unreasonably withheld.
XII. TERMINATION. This Agreement may be terminated by any Fund with respect to
said Fund, or by TCS, without cause, upon 120 days' written notice to the other
party, and at any time for cause in the event that such cause remains unremedied
for more than 30 days after receipt by the other party of written specification
of such cause.
In the event that a Fund designates a successor to perform any of TCS's
obligations hereunder, TCS shall, at the expense and pursuant to the direction
of the Fund, transfer to such successor all relevant books, records, and other
data of the Fund in the possession or under the control of TCS.
XIII. SEVERABILITY. If any clause or provision of this Agreement is determined
to be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
XIV. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of Missouri.
XV. ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement
constitutes the entire and complete understanding of the parties hereto relating
to the subject matter hereof and supersedes all prior contracts and discussions
between the parties.
TWENTIETH CENTURY SECURITIES, INC.
By: /s/William M. Lyons Date: September 3, 1996
William M. Lyons
General Counsel
CAPITAL PRESERVATION FUND, INC.
CAPITAL PRESERVATION FUND II, INC.
BENHAM TARGET MATURITIES TRUST
BENHAM GOVERNMENT INCOME TRUST
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
BENHAM MUNICIPAL TRUST
BENHAM EQUITY FUNDS
BENHAM INTERNATIONAL FUNDS
BENHAM INVESTMENT TRUST
BENHAM MANAGER FUNDS
By /s/Douglas A. Paul Date: September 3, 1996
Douglas A. Paul
General Counsel
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule A
Administrative Services
Benham Financial Services, Inc. agrees to provide each Fund the following
administrative services:
1. Fund and Portfolio Accounting
A. Maintain Fund General Ledger and Journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projections of available cash balances.
G. Record trading activity for purposes of determining net asset values
and dividend distributions.
H. Prepare daily portfolio evaluation reports to value portfolio
securities and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine income and capital gain dividend distributions per share.
K. Prepare monthly, quarterly, semi-annual, and annual financial
statements.
L. Provide financial information for reports to the Securities and
Exchange Commission in compliance with the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, the
Internal Revenue Service, and any other regulatory agencies as
required.
M. Provide financial, yield, net asset value, etc. information to the
NASD and other survey and statistical agencies as instructed by the
Funds.
2. Internal Audit
Provide an internal audit staff for independent review of Fund operations.
Internal audit staff will assist the independent accountants as
appropriate, and report directly to the Audit Committee of the Board of
Directors/Trustees.
3. Legal
A. Provide registration and other administrative services necessary to
qualify the Fund's shares for sale in those jurisdictions determined
from time to time by each Fund's Board of Directors/Trustees.
B. Maintain registration statements and make all other filings required
by the Securities and Exchange Commission in compliance with the
provisions of the Investment Company Act of 1940 and the Securities
Act of 1933.
C. Prepare and review Fund prospectuses.
D. Prepare proxy statements.
E. Prepare board materials and maintain minutes of board meetings.
F. Provide legal advice.
The Funds' outside counsel may provide the services listed above as a
direct Fund expense; however, the Funds have the option to employ their own
counsel to provide any or all of these services.
4. Insurance
A. Obtain errors and omissions policy.
B. Obtain fidelity bond.
5. Administrative Management
Provide each Fund with a president, a chief financial officer, a secretary,
and such other officers as are necessary to manage the Fund and administer
its affairs in accordance with law and appropriate business practice, all
subject to the approval of the Fund's Board of Directors/Trustees.
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule B
Share Transfer and Dividend Disbursing Services
Benham Financial Services, Inc. agrees to provide each Fund the following
transfer agency and dividend disbursing services:
1. Maintain shareholder accounts, including processing of new accounts.
2. Post address changes and other file maintenance for shareholder accounts.
3. Post all monetary transactions to the shareholder file, including:
* Dividends, capital gains, and reverse share splits (BTMT)
* Direct (including lock box) purchases
* Wire order purchases and redemptions
* Letter and telephone redemptions
* Draft redemptions
* Letter and telephone exchanges (as well as auto exchanges via VRU and PC
transmissions)
* Letter and telephone transfers
* Certificate issuances
* Certificate deposits
* Account fees
* Automated Clearing House ("ACH") transactions
* Exchanges initiated via Open Order Service
4. Conduct quality control reviews, by a separate dedicated group using
statistically reliable samples, of transactions and account maintenance
functions before mailing confirmations, checks, and/or share certificates
to shareholders.
5. Monitor fiduciary processing to ensure accuracy and proper deduction of
fees.
6. Prepare daily reconciliations of shareholder processing including money
movement instructions.
7. Process bounced check collections, including the immediate liquidation of
shares purchased and return of check, together with confirmation of entire
transaction, to investor.
8. Process all distribution and redemption checks and replace lost checks.
9. Withhold dividends and proceeds of redemptions as required by IRS
regulations.
10. Provide draft clearing services:
* Maintain signature cards and appropriate corporate resolutions
* For drafts in amounts greater than $5,000, compare signatures on drafts
with signatures on signature cards
* Receive checks presented for payment, verify negotiability, and
liquidate shares after verifying account balance
* For Funds that provide check writing privileges, process shareholder
check orders
* For Funds and retirement accounts that do not provide check writing
privileges, issue investment slip books
11. Mail confirmations, checks, and/or certificates resulting from transaction
requests to shareholders.
12. Process all other Fund mailings, including:
* Dividend and capital gain distributions
* Quarterly, semi-annual, and annual reports
* Year-end shareholder tax forms
* Directed payments
* Quarterly statements
* Shareholder drafts (on request)
* Combined statements
* Annual Prospectus revisions
13. Answer all service-related telephone inquiries from shareholders and
others, including:
* General and policy inquiries (research and resolve problems);
* Fund yield inquiries; and
* Shareholder transaction requests and account maintenance changes (e.g.,
redemptions, transfers, exchanges, address changes, and check book
orders).
In addition:
* Monitor processing production and quality;
* Monitor online statistical performance of unit; and
* Develop reports on telephone activity.
14. Respond to written inquiries by researching and resolving problems,
including:
* Initiating shareholder account reconciliation proceedings when
appropriate
* Writing and mailing form letters
* Responding to financial institutions regarding verification of deposits
* Initiating proceedings regarding lost share certificates
* Logging activities related to written inquiries
* Maintaining system for correspondence control
* Notifying shareholders of unacceptable transaction requests
15. Maintain and retrieve all required account history for shareholders and
provide research services as follows:
* Daily monitoring of all processing activity
* Providing exception reports
* Microfilming
* Storing, or archiving, and retrieving historical account information
* Obtaining microfiche of various reports
* Researching shareholder inquiries
* Resolving suspense items (e.g., transactions not posted due to an error
condition on the account)
16. Prepare materials for shareholder meetings, including:
* Addressing and mailing proxy solicitation materials
* Tabulating returned proxies and supplying daily reports to inform
management about the vote
* Providing Fund with an affidavit of mailing
* Furnishing certified list of shareholders (hard copy or microfilm) and
election inspectors
17. Report and remit assets as necessary to satisfy state escheat requirements.
18. On behalf of each Fund, file tax documents with appropriate federal and
state authorities.
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule C
Chargeable Transactions
For purposes of determining the per-transaction portion of the transfer
agency fee, the following types of transactions are considered chargeable
transactions.
1. Monetary Transactions
In general all monetary transactions are chargeable with the exception of
reversal transactions. The only chargeable reversal transaction is for
returned investment checks. The following is a current list of chargeable
transactions:
================================================================================
Description Transaction Type Sub Code Literal Code
================================================================================
Incoming Wires PUR 01 11
================================================================================
Wire Order Purchases WOF 01 00
================================================================================
Check Purchases PUR 01 02
================================================================================
PUR 01 03
================================================================================
PUR 01 05
================================================================================
PUR 01 08
================================================================================
PUR 01 09
================================================================================
PUR 07 00
================================================================================
PUR 07 01
================================================================================
PUR 08 00
================================================================================
PUR 09 00
================================================================================
PUR 09 01
================================================================================
PUR 09 14
================================================================================
PUR 10 00
================================================================================
PUR 14 00
================================================================================
PUR 15 00
================================================================================
PUR 16 01
================================================================================
PUR 22 00
================================================================================
PUR 01 97
================================================================================
PUR 01 98
================================================================================
PUR 26 00
================================================================================
RPO Purchases PUR 05 00
================================================================================
ACH Purchases PUR 01 12
================================================================================
PUR 07 02
================================================================================
PUR 09 02
================================================================================
PUR 02 00
================================================================================
PUR 17 00
================================================================================
PUR 18 00
================================================================================
PUR 19 00
================================================================================
PUR 20 00
================================================================================
Direct Dividend &
Capital Gains PUR 01 50
================================================================================
PUR 09 50
================================================================================
PUR 07 50
================================================================================
PUR 31 50
================================================================================
Systematic Exchange
Purchases PUR 01 60
================================================================================
PUR 07 60
================================================================================
PUR 31 60
================================================================================
BCM Accumulation
Purchases PUR 01 32
================================================================================
PUR 01 33
================================================================================
PUR 01 42
================================================================================
PUR 01 43
================================================================================
Exchange
Purchases/Liquidations EXI/EXO 01 00
================================================================================
EXI/EXO 01 61
================================================================================
EXI/EXO 01 81
================================================================================
EXI/EXO 01 82
================================================================================
EXI/EXO 01 85
================================================================================
EXI/EXO 01 86
================================================================================
PUR 01 06
================================================================================
PUR 01 45
================================================================================
PUR 07 61
================================================================================
PUR 07 62
================================================================================
PUR 08 61
================================================================================
PUR 09 61
================================================================================
PUR 09 63
================================================================================
PUR 10 61
================================================================================
PUR 14 61
================================================================================
PUR 16 61
================================================================================
PUR 22 61
================================================================================
PUR 01 75
================================================================================
PUR 26 61
================================================================================
Check Purchases
(Reversals) PUR 04 00
================================================================================
PUR 01 02 R
================================================================================
PUR 01 03 R
================================================================================
PUR 01 05 R
================================================================================
PUR 01 08 R
================================================================================
PUR 01 09 R
================================================================================
PUR 07 00 R
================================================================================
PUR 07 01 R
================================================================================
PUR 08 00 R
================================================================================
PUR 09 00 R
================================================================================
PUR 09 01 R
================================================================================
PUR 10 00 R
================================================================================
PUR 14 00 R
================================================================================
PUR 15 00 R
================================================================================
PUR 16 01 R
================================================================================
PUR 22 00 R
================================================================================
PUR 01 97 R
================================================================================
PUR 01 98 R
================================================================================
PUR 26 00 R
================================================================================
BCM Accumulation
Liquidations LIQ 01 32
================================================================================
LIQ 01 42
================================================================================
Transfers In/Out PUR 01 35
================================================================================
PUR 07 71
================================================================================
PUR 08 71
================================================================================
PUR 14 71
================================================================================
PUR 16 71
================================================================================
PUR 22 71
================================================================================
PUR 26 03
================================================================================
PUR 26 71
================================================================================
Transfers In & Out TFI/TFO 01 00
================================================================================
TFI/TFO 01 01
================================================================================
TFI/TFO 01 81
================================================================================
TFI/TFO 01 82
================================================================================
TFI/TFO 01 85
================================================================================
TFI/TFO 01 86
================================================================================
Check Liquidations LIQ 01 00
================================================================================
LIQ 01 01
================================================================================
LIQ 01 02
================================================================================
LIQ 01 03
================================================================================
LIQ 01 04
================================================================================
LIQ 01 05
================================================================================
LIQ 01 06
================================================================================
LIQ 01 07
================================================================================
LIQ 01 08
================================================================================
LIQ 01 09
================================================================================
LIQ 01 10
================================================================================
LIQ 01 11
================================================================================
LIQ 01 12
================================================================================
LIQ 01 39
================================================================================
LIQ 01 14
================================================================================
Wire Order Redemption WOR 01 00
================================================================================
SWIP Redemption
Checks LIQ 14 00
================================================================================
RPO Liquidations LIQ 05 00
================================================================================
Wires Out LIQ 01 20
================================================================================
Drafts Paid LIQ 03 00
================================================================================
Draft Order Fees LIQ 13 11
================================================================================
Other Fees LIQ 13 08
================================================================================
LIQ 13 13
================================================================================
LIQ 13 16
================================================================================
LIQ 13 17
================================================================================
LIQ 13 18
================================================================================
LIQ 13 19
================================================================================
LIQ 13 23
================================================================================
BCM Accumulation Fees LIQ 01 33
================================================================================
LIQ 01 43
================================================================================
Non-BCMG Advisor Fees LIQ 01 75
================================================================================
WOR 01 75
================================================================================
Certificate Issue CIS 01 00
================================================================================
CIS 02 00
================================================================================
Certificate Deposit CDP 01 00
================================================================================
ADJ Credits ADJ 01 00
================================================================================
PUR 04 01
================================================================================
PUR 26 01
================================================================================
ADJ Debits ADJ 02 00
================================================================================
2. Non-Monetary Transactions
The only chargeable non-monetary transactions will be for
shareholder-initiated account maintenance charges and one transaction
charge for each new account added to the shareholder file. The following is
a current list of non-monetary transactions:
================================================================================
DESCRIPTION TRANSACTION TYPE
================================================================================
General Account Maintenance MNT01 - MNT08
================================================================================
Draft Stop Add and Maintenance MNT009
================================================================================
Name/Address Change MNT10
================================================================================
New Account Setup N/A
================================================================================
Combined Statement Account Setup N/A
================================================================================
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule D
Liability Insurance
Benham Financial Services, Inc. agrees to provide each Fund at a minimum with
the following insurance coverages subject to a ratable allocation:
1. Errors and Omissions and Directors Liability.
* $10 million limit.
* $150,000 deductible for all claims.
* Individual director/trustee or officer sued - $5,000 deductible to
aggregate of $25,000.
2. Fidelity Insurance (Blanket Bond).
* $25,000,000 limit (each and every occurrence).
* $150,000 deductible.
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule E
Funds and Portfolios
Effective as of the date indicated below, each of the open-end management
investment companies and the portfolios of said open-end management investment
companies listed below is hereby made a party to the Benham Group Administrative
Services and Transfer Agency Agreement dated June 1, 1995.
Name of Fund/Portfolio Board Approval of Agreement
CAPITAL PRESERVATION FUND, INC. July 18, 1996
CAPITAL PRESERVATION FUND II, INC. July 18, 1996
BENHAM TARGET MATURITIES TRUST
2000 Portfolio July 18, 1996
2005 Portfolio July 18, 1996
2010 Portfolio July 18, 1996
2015 Portfolio July 18, 1996
2020 Portfolio July 18, 1996
2025 Portfolio July 18, 1996
BENHAM GOVERNMENT INCOME TRUST
Benham Treasury Note Fund July 18, 1996
Benham GNMA Income Fund July 18, 1996
Benham Government Agency Fund July 18, 1996
Benham Adjustable Rate Government Securities Fund July 18, 1996
Benham Short-Term Treasury and Agency Fund July 18, 1996
Benham Long-Term Treasury and Agency Fund July 18, 1996
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
Tax-Free Money Market Fund July 18, 1996
Tax-Free Intermediate-Term Fund July 18, 1996
Tax-Free Long-Term Fund July 18, 1996
Municipal High-Yield Fund July 18, 1996
Tax-Free Insured Fund July 18, 1996
Municipal Money Market Fund July 18, 1996
Tax-Free Limited-Term Fund July 18, 1996
BENHAM MUNICIPAL TRUST
Benham National Tax-Free Money Market Fund July 18, 1996
Benham National Tax-Free Intermediate-Term Fund July 18, 1996
Benham National Tax-Free Long-Term Fund July 18, 1996
Benham Florida Municipal Money Market Fund July 18, 1996
Benham Florida Municipal Intermediate-Term Fund July 18, 1996
Benham Florida Municipal Long-Term Fund July 18, 1996
Benham Arizona Municipal Intermediate-Term Fund July 18, 1996
Benham Arizona Municipal Long-Term Fund July 18, 1996
BENHAM EQUITY FUNDS
Benham Global Gold Fund July 18, 1996
Benham Income & Growth Fund July 18, 1996
Benham Equity Growth Fund July 18, 1996
Benham Utilities Income Fund July 18, 1996
Benham Global Natural Resources Fund July 18, 1996
BENHAM INTERNATIONAL FUNDS
Benham European Government Bond Fund July 18, 1996
BENHAM INVESTMENT TRUST
Benham Prime Money Market Fund July 18, 1996
BENHAM MANAGER FUNDS
Benham Capital Manager Fund July 18, 1996
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule F
Compensation
<TABLE>
<CAPTION>
=====================================================================================================================
Monthly
Per-Account Fee for Per-Transaction
Fund/Portfolio Account Maintenance Fee
============================================================================================================
<S> <C> <C>
CAPITAL PRESERVATION FUND, INC. $1.3958 $1.35
- ------------------------------------------------------------------------------------------------------------
CAPITAL PRESERVATION FUND II, INC. $1.3958 $1.35
- ------------------------------------------------------------------------------------------------------------
BENHAM CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS $1.3958 $1.35
Municipal Money Market Fund
Tax-Free Money Market Fund
Tax-Free Short-Term Fund
Tax-Free Intermediate-Term Fund
Tax-Free Long-Term Fund
Tax-Free Insured Fund
Municipal High-Yield Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM EQUITY FUNDS $1.35
Benham Global Gold Fund $1.1875
Benham Equity Growth Fund $1.1875
Benham Income & Growth Fund $1.3958
Benham Utilities Income Fund $1.3958
Benham Global Natural Resources Fund $1.1875
- ------------------------------------------------------------------------------------------------------------
BENHAM GOVERNMENT INCOME TRUST $1.3958 $1.35
Benham GNMA Income Fund
Benham Treasury Note Fund
Benham Government Agency Fund
Benham Adjustable Rate Government Securities Fund
Benham Short-Term Treasury and Agency Fund
Benham Long-Term Treasury and Agency Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM INTERNATIONAL FUNDS
Benham European Government Bond Fund $1.1875 $1.35
- ------------------------------------------------------------------------------------------------------------
BENHAM INVESTMENT TRUST $1.3958 $1.35
Benham Prime Money Market Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM MANAGER FUNDS $1.1875 $1.35
Benham Capital Manager Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM MUNICIPAL TRUST $1.3958 $1.35
Benham National Tax-Free Money Market Fund
Benham National Tax-Free Intermediate-Term Fund
Benham National Tax-Free Long-Term Fund
Benham Florida Municipal Money Market Fund
Benham Florida Municipal Intermediate-Term Fund
Benham Arizona Municipal Intermediate-Term Fund
- ------------------------------------------------------------------------------------------------------------
BENHAM TARGET MATURITIES TRUST $1.1875 $1.35
2000 Portfolio
2005 Portfolio
2010 Portfolio
2015 Portfolio
2020 Portfolio
2025 Portfolio
============================================================================================================
</TABLE>
Administrative Services Fee Rate Schedule
Group Assets Fee Rate
up to $4.5 billion .11%
up to $6 billion .10%
up to $9 billion .09%
balance over $9 billion .08%
Consent of Independent Auditors
The Board of Trustees and Shareholders
Benham Government Income Trust:
We consent to the inclusion in Benham Government Income Trust's Post-Effective
Amendment No. 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
Kansas City, Missouri
August 30, 1996
<TABLE> <S> <C>
<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
<RECEIVABLES> 63683898
<ASSETS-OTHER> 24886
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1270842397
<PAYABLE-FOR-SECURITIES> 92353364
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58469797
<TOTAL-LIABILITIES> 150823161
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1142144428
<SHARES-COMMON-STOCK> 107220778
<SHARES-COMMON-PRIOR> 96187494
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17047)
<ACCUMULATED-NET-GAINS> (23708422)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1600277
<NET-ASSETS> 1120019236
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 80640703
<OTHER-INCOME> 0
<EXPENSES-NET> 6004272
<NET-INVESTMENT-INCOME> 74636431
<REALIZED-GAINS-CURRENT> 8227610
<APPREC-INCREASE-CURRENT> 15697906
<NET-CHANGE-FROM-OPS> 98561947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 74692211
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32776505
<NUMBER-OF-SHARES-REDEEMED> 27214841
<SHARES-REINVESTED> 5471620
<NET-CHANGE-IN-ASSETS> 140349701
<ACCUMULATED-NII-PRIOR> 55780
<ACCUMULATED-GAINS-PRIOR> (31936032)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2980327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6151256
<AVERAGE-NET-ASSETS> 1066643
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.74
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0.74
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.45
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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
<INVESTMENTS-AT-COST> 306210734
<INVESTMENTS-AT-VALUE> 306236678
<RECEIVABLES> 5398232
<ASSETS-OTHER> 5391
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 311640301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 620387
<TOTAL-LIABILITIES> 620387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 318511987
<SHARES-COMMON-STOCK> 30370621
<SHARES-COMMON-PRIOR> 30557030
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1064)
<ACCUMULATED-NET-GAINS> (7516953)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25944
<NET-ASSETS> 311019914
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19193382
<OTHER-INCOME> 0
<EXPENSES-NET> 1620680
<NET-INVESTMENT-INCOME> 17572702
<REALIZED-GAINS-CURRENT> 6107998
<APPREC-INCREASE-CURRENT> 1285491
<NET-CHANGE-FROM-OPS> 24966191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17575076
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8615958
<NUMBER-OF-SHARES-REDEEMED> 10209066
<SHARES-REINVESTED> 1406699
<NET-CHANGE-IN-ASSETS> 5667215
<ACCUMULATED-NII-PRIOR> 1311
<ACCUMULATED-GAINS-PRIOR> (13624951)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 867876
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1648447
<AVERAGE-NET-ASSETS> 310556113
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.25
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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
<INVESTMENTS-AT-VALUE> 499687813
<RECEIVABLES> 3348477
<ASSETS-OTHER> 808507
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 503844797
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 516514
<TOTAL-LIABILITIES> 516514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 503328283
<SHARES-COMMON-STOCK> 503328283
<SHARES-COMMON-PRIOR> 461802827
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 503328283
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28047501
<OTHER-INCOME> 0
<EXPENSES-NET> 2459380
<NET-INVESTMENT-INCOME> 25588121
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 41525456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25588121
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 527427754
<NUMBER-OF-SHARES-REDEEMED> 510520815
<SHARES-REINVESTED> 24618517
<NET-CHANGE-IN-ASSETS> 41525456
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1371475
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2770545
<AVERAGE-NET-ASSETS> 490813026
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.054
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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
<INVESTMENTS-AT-COST> 318878940
<INVESTMENTS-AT-VALUE> 317990500
<RECEIVABLES> 37133299
<ASSETS-OTHER> 693543
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 355817342
<PAYABLE-FOR-SECURITIES> 32409235
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24870032
<TOTAL-LIABILITIES> 57279267
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368692148
<SHARES-COMMON-STOCK> 31524695
<SHARES-COMMON-PRIOR> 42195686
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (15975)
<ACCUMULATED-NET-GAINS> (69225819)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (912279)
<NET-ASSETS> 298538075
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21452894
<OTHER-INCOME> 0
<EXPENSES-NET> 2000808
<NET-INVESTMENT-INCOME> 19452086
<REALIZED-GAINS-CURRENT> (514222)
<APPREC-INCREASE-CURRENT> 2830174
<NET-CHANGE-FROM-OPS> 21768038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19432184
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6219269
<NUMBER-OF-SHARES-REDEEMED> 18583809
<SHARES-REINVESTED> 1693549
<NET-CHANGE-IN-ASSETS> (98852607)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (68711597)
<OVERDISTRIB-NII-PRIOR> (35877)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 950475
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2036164
<AVERAGE-NET-ASSETS> 340001469
<PER-SHARE-NAV-BEGIN> 9.42
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.47
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BENHAM S-T TREASURY & AGENCY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 34855153
<INVESTMENTS-AT-VALUE> 34670156
<RECEIVABLES> 964164
<ASSETS-OTHER> 71394
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35705714
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57542
<TOTAL-LIABILITIES> 57542
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35523872
<SHARES-COMMON-STOCK> 3624307
<SHARES-COMMON-PRIOR> 5765221
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 309297
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (184997)
<NET-ASSETS> 35648172
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2491421
<OTHER-INCOME> 0
<EXPENSES-NET> 267458
<NET-INVESTMENT-INCOME> 2223963
<REALIZED-GAINS-CURRENT> 843800
<APPREC-INCREASE-CURRENT> (98334)
<NET-CHANGE-FROM-OPS> 2969429
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2223963
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2445501
<NUMBER-OF-SHARES-REDEEMED> 4770075
<SHARES-REINVESTED> 183661
<NET-CHANGE-IN-ASSETS> (20442024)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (534503)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 114253
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 271351
<AVERAGE-NET-ASSETS> 41093487
<PER-SHARE-NAV-BEGIN> 9.73
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> BENHAM L-T TREASURY & AGENCY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 108496602
<INVESTMENTS-AT-VALUE> 108726780
<RECEIVABLES> 1943853
<ASSETS-OTHER> 239409
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110910042
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169134
<TOTAL-LIABILITIES> 169134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111489464
<SHARES-COMMON-STOCK> 11450121
<SHARES-COMMON-PRIOR> 3856904
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (978734)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 230178
<NET-ASSETS> 110740908
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4814158
<OTHER-INCOME> 0
<EXPENSES-NET> 470608
<NET-INVESTMENT-INCOME> 4343550
<REALIZED-GAINS-CURRENT> 1584748
<APPREC-INCREASE-CURRENT> (453793)
<NET-CHANGE-FROM-OPS> 5474505
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4343550
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13328034
<NUMBER-OF-SHARES-REDEEMED> 6109519
<SHARES-REINVESTED> 374702
<NET-CHANGE-IN-ASSETS> 75835385
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2563482)
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</TABLE>
