As filed with the Securities and Exchange Commission on April 21, 1997
Registration Nos. 2-99222 - 811-4363
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. ____ [ ]
- --------------------------------------------------------------------------------
AMERICAN CENTURY GOVERNMENT INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
4500 Main Street,
P.O. Box 419200
Kansas City, MO 64141-6200
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-965-8300
Douglas A. Paul
Vice President and Associate General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on May 21, 1997 pursuant
to Rule 488 under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration Nos. 2-99222, 811-4363) pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant is filing as an
exhibit to this Registration Statement an opinion related to the legality of
shares being issued in connection with this Registration Statement. Pursuant to
Rule 429, this Registration Statement relates to the aforesaid Registration
Statement on Form N-1A. The Registrant filed a Rule 24f-2 Notice on Form 24f-2
with respect to its fiscal year ended March 31, 1996.
<PAGE>
AMERICAN CENTURY GOVERNMENT INCOME TRUST
FORM N-14
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
<S> <C> <C>
1. Beginning of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Prospectus Table of Contents
3. Fee Table, Synopsis Information and Risk Factors Important Information You Should Consider;
Comparison of Certain Information Regarding the
Funds; Risk Factors; Transaction and Operating
Expense Information; Information About the Funds
4. Information About the Transaction Important Information You Should Consider; Risk
Factors; Additional Information Relating to the
Proposed Transaction; Information About the Funds;
Appendix I
5. Information About the Registrant Important Information You Should Consider;
Comparison of Certain Information Regarding the
Funds; Risk Factors; Information About the Funds;
Additional Information
6. Information About the Companies Being Acquired Important Information You Should Consider;
Comparison of Certain Information Regarding the
Funds; Risk Factors; Information About the Funds;
Additional Information
7. Voting Information Important Information You Should Consider;
Information Relating to Voting Matters
8. Interest of Certain Persons and Experts Information Relating To Voting Matters
9. Additional Information Required for Reoffering by Not applicable
Persons Deemed to be Underwriters
Part B
10. Cover Page Statement of Additional Information Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Registrant Statement of Additional Information of the
Acquiring Funds.
13. Additional Information About the Company Being Statements of Additional Information of the
Acquired Liquidating Funds.
14. Financial Statements Pro Forma Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
</TABLE>
<PAGE>
American Century Investments
4500 Main Street
Kansas City, Missouri 64111
- ---------------, 1997
Dear American Century Mutual Funds Shareholder:
I am writing to ask for your support of an important proposal affecting
your fund. The proposal will be voted on at an upcoming Special Meeting of
shareholders to be held on Wednesday, July 30, 1997. Please take a few minutes
to read the enclosed materials, complete and sign the proxy voting card and mail
it back to us.
As a shareholder of one of the American Century mutual funds listed
below, you are being asked to approve the combination of your fund with the
other American Century fund set forth opposite your fund's name:
American Century Mutual Funds, Inc. American Century Government Income Trust
- ----------------------------------- ----------------------------------------
Short-Term Government Fund Adjustable Rate Government Securities Fund*
Intermediate-Term Government Fund Intermediate-Term Treasury Fund
American Century Municipal Trust
--------------------------------
Limited-Term Tax-Exempt Fund Limited-Term Tax-Free Fund
Intermediate-Term Tax-Exempt Fund Intermediate-Term Tax-Free Fund
Long-Term Tax-Exempt Fund Long-Term Tax-Free Fund
- --------------------
*This fund is currently in the process of changing its name to Short-Term
Government Fund and is modifying its investment objective and strategies to be
substantially similar to those of your Short-Term Government Fund. The adoption
of similar policies is a condition to the merger and if such policies are not
adopted the transaction will not occur.
The reason for each combination is that the funds to be combined are
very similar, as you will see by reading the enclosed materials. Each fund,
other than the Limited-Term Tax-Free Fund, was started prior to the 1995
combination of the Benham and Twentieth Century mutual fund families. As a
result of that combination, each fund shares portfolio managers with the fund
into which it is being merged. Management believes it will be more efficient to
have each fund's talented portfolio management team focus on a single, larger
portfolio of assets than to continue managing two very similar, smaller
portfolios. The Limited-Term Tax-Free Fund was created as a series of the
American Century Municipal Trust to create a fund into which the Limited-Term
Tax-Exempt Fund may be merged in order to keep all of the American Century
tax-exempt funds within the same issuer.
The Board of Directors of your fund has unanimously voted in favor of
this reorganization and believes the combination is in your fund's and your best
interests. We encourage you to vote "FOR" the reorganization. The enclosed
materials give more detailed information about the proposed reorganization and
the reasons why we recommend you vote for it.
If you lead a busy life, as I do, you're probably tempted to put these
materials aside, having the best intentions to return to them at another time.
PLEASE DON'T DO THAT. If shareholders don't return their proxies, additional
expenses must be incurred to pay for follow-up mailings and phone calls. PLEASE
TAKE A FEW MINUTES TO REVIEW THE ENCLOSED MATERIALS AND SIGN AND RETURN YOUR
PROXY CARD TODAY.
To more efficiently handle this proxy solicitation, we have hired D.F.
King & Co., Inc. to act as our proxy solicitor. If you have any questions or
need any help in voting your shares, please call them at 1-800-755-3107. Any
question they cannot respond to will be forwarded to us immediately.
Thank you for your time in considering this important proposal. We
believe the reorganization will enable us to better serve your needs. Thank you
for investing with American Century and for your continued support.
Sincerely,
/s/ James E. Stowers III
James E. Stowers III
President, Chief Executive Officer
<PAGE>
AMERICAN CENTURY MUTUAL FUNDS, INC.
American Century Investments
4500 Main Street
P. O. Box 419200
Kansas City, Missouri 64141-6200
(800) 345-2021
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on July 30, 1997
To American Century Shareholders:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the shareholders of
the American Century-Benham Short-Term Government Fund, American Century-Benham
Intermediate-Term Government Fund, American Century-Benham Limited-Term
Tax-Exempt Fund, American Century-Benham Intermediate-Term Tax-Exempt Fund and
American Century-Benham Long-Term Tax-Exempt Fund, each a portfolio of American
Century Mutual Funds, Inc. (the "Liquidating Funds") will be held at American
Century Tower I, 4500 Main Street, Kansas City, Missouri on Wednesday, July 30,
1997 at 10:00 a.m. (Central time) for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an
Agreement and Plan of Reorganization and the transactions contemplated
thereby, including:
(a) the transfer of substantially all of the assets and liabilities
of the Liquidating Funds to certain investment portfolios of
American Century Government Income Trust and American Century
Municipal Trust as described in the attached proxy statement (the
"Acquiring Funds") in exchange for shares in the Acquiring Funds;
and
(b) the distribution of the Acquiring Funds' shares to the
shareholders of the Liquidating Funds according to their
respective interests.
ITEM 2. To transact such other business as may properly come
before the Special Meeting or any adjournment(s) thereof.
The proposed reorganization and related matters are described in the
attached Combined Prospectus/Proxy Statement. Appendix I to the Combined
Prospectus/Proxy Statement is a copy of the Agreement and Plan of
Reorganization.
Shareholders of record as of the close of business on May 17, 1997 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
PLEASE EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE EACH ACCOMPANYING
PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF AMERICAN
CENTURY MUTUAL FUNDS, INC. PLEASE RETURN YOUR PROXY CARD EVEN IF YOU ARE
PLANNING TO ATTEND THE MEETING. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
/s/ William M. Lyons
William M. Lyons
Secretary
-----------, 1997
<PAGE>
COMBINED PROSPECTUS/PROXY STATEMENT
of
AMERICAN CENTURY MUTUAL FUNDS, INC.,
AMERICAN CENTURY GOVERNMENT INCOME TRUST
and
AMERICAN CENTURY MUNICIPAL TRUST
May --, 1997
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of votes by the Board of Directors of American Century
Mutual Funds, Inc. on behalf of its Short-Term Government Fund,
Intermediate-Term Government Fund, Limited-Term Tax-Exempt Fund,
Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund in connection
with a Special Meeting of Shareholders to be held on Wednesday, July 30, 1997 at
10:00 p.m. (Central time) at American Century Tower I, 4500 Main Street, Kansas
City, Missouri.
At the Special Meeting, shareholders of the funds identified below are
being asked to approve the combination of their fund into the Acquiring Fund
indicated below opposite its name. A copy of the proposed Agreement and Plan of
Reorganization is attached as Appendix I.
Liquidating Funds Acquiring Funds
----------------- ---------------
American Century Mutual Funds, Inc. American Century Government Income Trust
- ----------------------------------- ----------------------------------------
Short-Term Government Fund* Adjustable Rate Government Securities Fund
Intermediate-Term Government Fund Intermediate-Term Treasury Fund*
American Century Municipal Trust
--------------------------------
Limited-Term Tax-Exempt Fund* Limited-Term Tax-Free Fund
Intermediate-Term Tax-Exempt Fund* Intermediate-Term Tax-Free Fund
Long-Term Tax-Exempt Fund* Long-Term Tax-Free Fund
- --------------------
* Denotes the surviving fund for the purposes of maintaining the financial
statements and performance history in the post-reorganization fund.
Each fund reorganization involves funds that are similarly managed
diversified, open-end mutual funds that invest in a similar mix of fixed income
securities. The purpose of the reorganization is to achieve management and
operational efficiencies by combining these similar funds. Each fund has shares
registered with the Securities and Exchange Commission.
This Combined Prospectus/Proxy Statement constitutes the Proxy
Statement of your fund for the Special Meeting of Shareholders and a prospectus
for the Acquiring Funds' shares that are to be issued in connection with the
reorganization. It is intended to give you the information you need to consider
and vote on the proposed reorganization. You should retain this document for
future reference. A Statement of Additional Information, dated _______________,
1997, about your fund and the Acquiring Funds has been filed with the Commission
and is incorporated into this document by reference. A copy of the Statement of
Additional Information may be obtained without charge upon request by calling or
writing to us at the address or telephone number set forth below.
The principal executive offices of your fund and the Acquiring Funds are
located at American Century Investments, 4500 Main Street, P. O. Box 419200,
Kansas City, Missouri 64141-6200. The funds' telephone number is 1-800 345-2021.
Copies of the Acquiring Funds' prospectuses accompany this document and
are incorporated into it by reference.
The information contained in this Combined Prospectus/Proxy Statement
is required by rules of the Securities and Exchange Commission; some of it is
highly technical. If you have any questions about these materials or how to vote
your shares, please call our proxy solicitor, D.F. King & Co., Inc., toll-free
at 1-800-755-3107.
LIKE ALL MUTUAL FUND SHARES, THE SECURITIES OF THE ACQUIRING FUNDS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS
COMBINED PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus/Proxy
Statement and in the materials expressly incorporated herein by reference. If
given or made, such other information or representations must not be relied upon
as having been authorized by your fund, the Acquiring Funds or anyone affiliated
with American Century Investments.
PLEASE NOTE THAT THE SPECIAL MEETING OF SHAREHOLDERS IS NOT A SHAREHOLDER
SEMINAR.
<PAGE>
TABLE OF CONTENTS
IMPORTANT INFORMATION YOU SHOULD CONSIDER.....................................
COMPARISON OF CERTAIN INFORMATION REGARDING THE FUNDS.........................
COMPARISON OF FUND SERVICE PROVIDERS..........................................
RISK FACTORS..................................................................
TRANSACTION AND OPERATING EXPENSE INFORMATION.................................
ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION.........................
Summary of Plan of Reorganization..........................................
Description of the Acquiring Funds Securities..............................
Reasons Supporting the Reorganization......................................
Federal Income Tax Consequences............................................
Capitalization.............................................................
INFORMATION ABOUT THE FUNDS...................................................
Acquiring Funds............................................................
Liquidating Funds..........................................................
Fundamental Investment Restrictions........................................
INFORMATION RELATING TO VOTING MATTERS........................................
General Information........................................................
Voting and Revocation of Proxies...........................................
Record Date................................................................
Quorum.....................................................................
Shareholder Vote Required..................................................
Cost of Proxy Solicitation.................................................
Certain Shareholders.......................................................
Appraisal Rights...........................................................
Annual Meetings............................................................
ADDITIONAL INFORMATION........................................................
LITIGATION....................................................................
FINANCIAL STATEMENTS..........................................................
OTHER BUSINESS................................................................
SHAREHOLDER INQUIRIES.........................................................
APPENDIX I AGREEMENT AND PLAN OF REORGANIZATION...............................
APPENDIX II MANAGEMENT DISCUSSION & ANALYSIS..................................
APPENDIX III STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS.................
APPENDIX IV CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS.......................
IMPORTANT INFORMATION YOU SHOULD CONSIDER
The following Q&A is a brief summary of some of the issues that may be
important to you. As is true with all summaries, however, not all of the
information or topics that you may think are important will be included. As a
result, this Q&A is qualified in its entirety by the more detailed information
contained elsewhere in this document, or incorporated into this document, or
attached as an Appendix. Please read all the enclosed proxy materials before
voting. PLEASE REMEMBER TO VOTE YOUR SHARES AS SOON AS POSSIBLE. If enough
shareholders return their proxy cards soon, additional costs for follow-up
mailings and phone calls may be avoided.
Q. What is the purpose of the upcoming meeting?
A. The Board of Directors has recommended reorganizing the funds
as follows:
<TABLE>
<S> <C> <C>
Short-Term Government Fund into Adjustable Rate Government Securities Fund
Intermediate-Term Government Fund into Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund into Limited-Term Tax-Free Fund
Intermediate-Term Tax-Exempt Fund into Intermediate-Term Tax-Free Fund
Long-Term Tax-Exempt Fund into Long-Term Tax-Free Fund
</TABLE>
These combinations require shareholder approval. The meeting
will be held on Wednesday, July 30, 1997 at 10:00 a.m.
(Central time) at American Century Tower I, 4500 Main Street,
Kansas City, Missouri. Shareholders of record as of the close
of business on May 17, 1997 are eligible to vote.
Q. Why is the reorganization being proposed?
A. The reorganization seeks to improve operational and investment
management efficiencies by combining funds with similar
investment objectives, investment policies and approaches,
procedures and portfolio securities. Combining these similar
funds will also help eliminate customer confusion regarding
which fund to choose.
Q. How will the reorganization be accomplished?
A. Shareholders of the Liquidating Funds are being asked to
approve the combination of their fund with the corresponding
Acquiring Fund pursuant to the Agreement and Plan of
Reorganization attached as Appendix I. The reorganization will
take the form of a sale of assets by your fund in exchange for
shares of the Acquiring Funds. Your fund will then make a
liquidating distribution of those shares to its shareholders.
Q. What will shareholders get if the reorganization is approved?
A. As a result of the liquidating distribution, you will receive
shares of the corresponding Acquiring Fund in an amount equal
to the VALUE of your shares on the date the combination takes
place (probably August 30th). Because the net asset value
(price per share) of your fund may be different than the net
asset value of the corresponding fund with which your fund
will be combined, you may receive a different number of shares
than you have, but the TOTAL VALUE of your account after the
reorganization WILL BE THE SAME as before the reorganization.
Q. Why did the Board of Directors approve the reorganization?
A. After reviewing many factors, your Board of Directors
unanimously determined that the reorganization was in the best
interests of each of the Liquidating Funds and each fund's
shareholders. Some of the factors considered include:
o the management fee of each of the Acquiring Funds is, in all
cases, lower than the total expense ratio of your fund;
o the similarity of the corresponding two funds' investment
objectives and policies;
o the possibility of achieving management and operational
efficiencies; and
o the fact that each fund's investment advisor is a
wholly-owned subsidiary of American Century Companies, Inc.
and that the parent company is taking steps to consolidate
all investment advisory activities into a single investment
advisor.
Q. Will the exchange for shares of the Acquiring Funds cause you to
realize income or capital gains for tax purposes?
A. No. The exchange of shares in the reorganization will be
tax-free. We will obtain a legal opinion from Dechert Price &
Rhoads, a law firm that specializes in this area, confirming
that the reorganization will not be a taxable event for you
for federal income tax purposes. Your tax basis and holding
period for your shares will be unchanged.
Q. How do the fee structure and total expense ratio of your fund compare
to the Acquiring Fund?
A. Although each fund's fee structure is currently quite
different, each Acquiring Fund's Board of Trustees has
approved, and has recommended that shareholders also approve a
management fee, in many ways similar to the expense structure
of your fund. Under this "all inclusive" management fee
structure, your fund pays a single management fee. In exchange
for this fee, the manager is responsible for paying all of the
costs associated with providing or procuring all services for
the fund except taxes, interest, brokerage commissions, the
fees and expenses of outside directors, and extraordinary
items. The following table sets forth the total operating
expenses for your fund and the expected total operating
expenses for each of the Acquiring Funds after the
reorganization (assuming the fee structure approved by the
Acquiring Funds' Boards of Trustees is also approved by
shareholders):
<TABLE>
<S> <C> <C> <C>
Short-Term Government Fund 0.70% Adjustable Rate Government Securities Fund 0.60%
Intermediate-Term Government Fund 0.75% Intermediate-Term Treasury Fund 0.52%
Limited-Term Tax-Exempt Fund 0.60% Limited-Term Tax-Free Fund 0.52%
Intermediate-Term Tax-Exempt Fund 0.60% Intermediate-Term Tax-Free Fund 0.52%
Long-Term Tax-Exempt Fund 0.60% Long-Term Tax-Free Fund 0.52%
</TABLE>
Q. Are any of the Acquiring Funds riskier than your fund?
A. Relative risk is difficult to assess with corresponding funds
that are as similar as these, and not all experts agree on the
definition of risk. But if you interpret "risk" to mean
short-term price volatility, then we would probably expect the
corresponding funds' risks to be fairly similar. The funds
invest in similar investment portfolios and utilize similar
investment techniques. The corresponding funds also have
similar weighted average maturities. Although the Short-Term
Government Fund and Adjustable Rate Government Securities Fund
currently do have different risk profiles, it is a condition
of the reorganization that the Adjustable Rate Government
Securities Fund adopt the investment objective and policies of
the Short-Term Government Fund prior to the reorganization.
Q. If shareholders send their proxies in now as requested, can they change
their vote later?
A. Yes! A proxy can be revoked at any time by writing to us, or
by sending us another proxy, or by showing up at the meeting
and voting in person. Even if you plan to show up at the
meeting to vote in person, we ask that you return the enclosed
proxy. Doing so will help us achieve a quorum for the meeting.
Q. How do shareholders vote their shares?
A. You can vote by mail or in person at the Special Meeting. The
fastest and most convenient way is to complete, sign and mail
the enclosed proxy voting card to us in the enclosed
postage-paid envelope. We will vote your shares EXACTLY as you
tell us. If you simply sign the card and return it, we will
follow the recommendation of your Board of Directors and vote
it "FOR" the reorganization. If you have any questions
regarding the enclosed proxy statement or need assistance in
voting your shares, please call our proxy solicitor, D.F. King
& Co., Inc., at 1-800-755-3107.
Q. When and how will the combination take place?
A. Subject to receiving shareholder approval, the reorganization
is scheduled to take place on August 30, 1997. After the funds
have calculated the value of their assets and liabilities on
August 29th, each of the Liquidating Funds will transfer its
assets and liabilities to the Acquiring Funds in exchange for
the appropriate number of Acquiring Fund shares. Each
Liquidating Fund will then make a liquidating distribution of
those shares pro rata to its shareholders according to the
value of their accounts immediately prior to the transfer of
assets. THE VALUE OF YOUR ACCOUNT WILL NOT CHANGE AS A RESULT
OF THIS REORGANIZATION.
Q. Will the reorganization affect the management team of your Fund?
A. No. The portfolio managers of your fund also serve as
portfolio managers for the fund with which your fund will be
combined.
Q. How will the distribution, purchase and redemption procedures and
exchange rights change as a result of the reorganization?
A. They won't. The Acquiring Funds have the same distribution,
purchase and exchange policies and procedures as the
Liquidating Funds.
Q. Where can shareholders get more information about the funds?
A. Each fund is registered with the Securities and Exchange
Commission. As a result, each has a prospectus and statement
of additional information with even more detailed information
than is contained in this document. A copy of each applicable
Acquiring Fund's Prospectus accompanies this proxy statement.
In addition, the Manager's Discussion and Analysis of Fund
performance portion of the Acquiring Funds' most recent
Semiannual Report to Shareholders is included in this document
as Appendix II. If you would like a copy of the any of the
funds' prospectuses or statements of additional information,
or most recent annual report, please call our proxy solicitor
at 1-800-755-3107.
COMPARISON OF CERTAIN INFORMATION
REGARDING THE FUNDS
The following charts are provided to show a comparison of certain key
attributes of your fund with its Acquiring Fund. No comparison is provided for
the Short-Term Government Fund and Adjustable Rate Government Securities Fund
since the ARM fund will, as a condition to the reorganization, adopt an
investment objective and strategies that are substantially similar to the
Short-Term Government Fund prior to the reorganization.(1) The Total Expenses
Ratios for the Liquidating Funds are stated as of their most recent fiscal year
ended October 31, 1996, while the Total Expense Ratio shown for the
corresponding Acquiring Fund is the fee expected to be in place at the time of
the reorganization. Actual total expense ratios for the Acquiring Funds for
their most recent fiscal year ended are included in the Fee Table under the
heading "Transaction and Operating Expense Information" starting at page 4 in
each prospectus. For additional information about the funds, see the section
titled "Information About the Funds" starting at page --- below.
<TABLE>
<S> <C> <C>
Intermediate-Term Government Fund Intermediate-Term Treasury Fund
--------------------------------- -------------------------------
Type of Fund Taxable Bond Fund Taxable Bond Fund
Investment Objective seeks a competitive level of income. seeks to earn and distribute the highest
level of current income consistent with the
conservation of assets and the safety
provided by U.S. Treasury bills, notes and
bonds.
Investment Policies pursues its objective by investing in pursues its objective by investing primarily
securities of the U.S. government and its in U.S. Treasury notes, which carry the
agencies. direct full faith and credit pledge of the
U.S. Government.
Weighted Average Portfolio Maturity 3 to 10 years 13 months to 10 years
Credit Quality Highest Quality Securities Only Highest Quality Securities Only
Total Expense Ratio 0.75% 0.52%
Distribution Policy Same as Intermediate-Term Treasury Fund Dividends: declared daily, paid monthly
Capital Gains: declared and paid annually
Purchases and Exchanges Same as Intermediate-Term Treasury Fund See pages 20-22 of accompanying Prospectus
Redemption Policies Same as Intermediate-Term Treasury Fund See page 22 of accompanying Prospectus
- ------------------------
(1) The only difference between the Short-Term Government Fund and the
post-reorganization fund is that the post-reorganization fund will
maintain a duration of 3 years or less, as compared to the Short-Term
Government Fund which maintains a weighted average portfolio maturity
of 3 years or less.
Limited-Term Tax-Exempt Fund Limited-Term Tax-Free Fund
---------------------------- --------------------------
Type of Fund Tax-Exempt Bond Fund Tax-Exempt Bond Fund
Investment Objective seeks to provide investors with income seek to provide investors with income
generally exempt from federal income taxes. generally exempt from
federal income taxes.
Investment Policies pursues its objective by investing in a pursues its objective by investing in a
portfolio of tax-exempt securities. portfolio of tax-exempt securities.
Weighted Average Portfolio Maturity 5 years or less 5 years or less
Credit Quality Investment Grade (Baa or BBB) or if Investment Grade (Baa or BBB) or if
unrated, determined by the manager to be unrated, determined by the manager to be
of comparable quality to those so rated. comparable quality to those so rated.
Total Expense Ratio 0.60% 0.52%
Distribution Policy Same as Limited-Term Tax-Free Fund Dividends: declared daily, paid monthly
Capital Gains: declared and paid annually
Purchases and Exchanges Same as Limited-Term Tax-Free Fund See pages --- of accompanying Prospectus
Redemption Policies Same as Limited-Term Tax-Free Fund See pages --- of accompanying Prospectus
Intermediate-Term Tax-Exempt Fund Intermediate-Term Tax-Free Fund
--------------------------------- -------------------------------
Type of Fund Tax-Exempt Bond Fund Tax-Exempt Bond Fund
Investment Objective seeks a competitive level of income seeks as high a level of interest income
generally exempt from federal income taxes. exempt from regular federal income taxes as
is consistent with prudent investment
management, while seeking to conserve
shareholders' capital.
Investment Policies pursues its objective by investing in a pursues its objective by investing in a
portfolio of tax-exempt securities. portfolio of tax-exempt securities.
Weighted Average Portfolio Maturity 3 to 10 years 5 to 10 years
Credit Quality Investment Grade (Baa or BBB) or if Investment Grade (Baa or BBB) or if
unrated, determined by the manager to be unrated, determined by the manager to be
of comparable quality to those so rated. of comparable quality to those so rated.
Total Expense Ratio 0.60% 0.52%
Distribution Policy Same as Intermediate-Term Tax-Free Fund Dividends: declared daily, paid monthly
Capital Gains: declared and paid annually
Purchases and Exchanges Same as Intermediate-Term Tax-Free Fund See pages 20-22 of accompanying Prospectus
Redemption Policies Same as Intermediate-Term Tax-Free Fund See pages 22-23 of accompanying Prospectus
Long-Term Tax-Exempt Fund Long-Term Tax-Free Fund
------------------------- -----------------------
Type of Fund Tax-Exempt Bond Fund Tax-Exempt Bond Fund
Investment Objective seeks to provide investors with income Seeks as high a level of interest income
generally exempt from federal income taxes. exempt from regular federal income taxes as
is consistent with prudent investment
management, while seeking to conserve
shareholders' capital.
Investment Policies pursues its objective by investing in a pursues its objective by investing in a
portfolio of tax-exempt securities. portfolio of tax-exempt securities.
Weighted Average Portfolio Maturity 10 years or more 10 years or more
Credit Quality Investment Grade (Baa or BBB) or if Investment Grade (Baa or BBB) or if
unrated, determined by the manager to be unrated, determined by the manager to be
of comparable quality to those so rated. of comparable quality to those so rated.
Total Expense Ratio 0.60% 0.52%
Distribution Policy Same as Long-Term Tax-Free Fund Dividends: declared daily, paid monthly
Capital Gains: declared and paid annually
Purchases and Exchanges Same as Long-Term Tax-Free Fund See pages 20-22 of accompanying Prospectus
Redemption Policies Same as Long-Term Tax-Free Fund See pages 22-23 of accompanying Prospectus
</TABLE>
<TABLE>
<CAPTION>
COMPARISON OF FUND SERVICE PROVIDERS
Liquidating Funds Acquiring Funds Post-Reorganization Funds
----------------- --------------- -------------------------
<S> <C> <C> <C>
Investment Advisor American Century Investment Benham Management Corporation(1) ACIM
Management, Inc.(1) ("ACIM") ("BMC")
Transfer Agent American Century Services American Century Services American Century Services
Corporation Corporation Corporation
Distributor American Century Investment American Century Investment American Century Investment
Services, Inc. Services, Inc. Services, Inc.
Custodians Chase Manhattan Bank Chase Manhattan Bank Chase Manhattan Bank
Independent Auditors Baird, Kurtz & Dobson KPMG Peat Marwick LLP Coopers & Lybrand
- ------------------------
(1) BMC and ACIM are both wholly-owned subsidiaries of American Century
Companies, Inc. Through this and many other proposals being submitted to
shareholders, American Century is seeking to consolidate all of its investment
advisory activities in ACIM.
</TABLE>
RISK FACTORS
Because each of the funds has similar investment objectives and shares
substantially similar investment policies, approaches and procedures with the
fund with which it is being merged, your Board of Directors does not believe
that the reorganization exposes shareholders of the Liquidating Funds to any new
or different risks than they are exposed to as shareholders of their funds. For
a discussion of the various investment policies, approaches and procedures of
the Acquiring Funds and the risks associated therewith, please see the
accompanying Prospectuses beginning at page 13 for the Adjustable Rate
Government Securities Fund and Intermediate-Term Treasury Fund, page __ for the
Limited-Term Tax-Free Fund and page 11 for the Intermediate-Term Tax-Free Fund
and Long-Term Tax-Free Fund.
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE INFORMATION
The tables below compare various shareholder transaction and annual fund
operating expenses of the Liquidating Funds as of their most recent fiscal year
end (October 31, 1996) and the Acquiring Funds as of their most recent fiscal
year end (March 31, 1996 with respect to the Adjustable Rate Government
Securities Fund and Intermediate-Term Government Fund and May 31, 1996 with
respect to the Intermediate-Term Tax-Free Fund and Long-Term Tax-Free Fund) and
show these expense levels after the reorganization. The first table compares
shareholder transaction expenses among all of the Liquidating Funds and
Acquiring Funds as a group. The next five tables compare, on a fund-by-fund
basis, various annual fund operating expenses, including pro forma annual fund
operating expenses of the post-reorganization funds.
Pro Forma:
Liquidating Acquiring Acquiring
Funds Funds Funds (1)
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fee None(2) None(2) None(2)
Exchange Fee None None None
Adjustable-Rate Pro-Forma
Short-Term Government Short-Term
Government Fund Securities Fund Government Fund
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.70% 0.29% 0.60%
12b-1 Fees None None None
Other Expenses 0.00%(3) 0.31% 0.00%(3)
----- ----- --------
Total Fund Operating Expenses 0.70% 0.60%(4) 0.60%
----- ----- -----
EXAMPLE:
You would pay the following expenses 1 year $ 7 $ 6 $ 6
on a $1,000 investment, assuming a 5% 3 years 22 19 19
annual return and redemption at the 5 years 39 33 33
end of each time period. 10 years 87 75 75
Pro-Forma
Intermediate-Term Intermediate-Term Intermediate-Term
Government Fund Treasury Fund Treasury Fund
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.75% 0.28% 0.52%
12b-1 Fees None None None
Other Expenses 0.00%(3) 0.25% 0.00%(3)
----- ----- --------
Total Fund Operating Expenses 0.75% 0.53%(4) 0.52%
----- ----- -----
EXAMPLE:
You would pay the following expenses 1 year $ 8 $ 5 $ 5
on a $1,000 investment, assuming a 5% 3 years 24 17 17
annual return and redemption at the 5 years 42 30 29
end of each time period. 10 years 93 66 65
Pro-Forma
Limited-Term Limited-Term Limited-Term
Tax-Exempt Fund Tax-Free Fund Tax-Free Fund
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees 0.60% ____(5) 0.52%
12b-1 Fees None ____ None
Other Expenses 0.00%(3) ____ 0.00% (3)
-------- ---------
Total Fund Operating Expenses 0.60% ____ 0.52%
----- -----
EXAMPLE:
You would pay the following expenses 1 year $ 6 ____ $ 5
on a $1,000 investment, assuming a 5% 3 years 19 ____ 17
annual return and redemption at the 5 years 33 ____ 29
end of each time period. 10 years 75 ____ 65
Pro-Forma
Intermediate-Term Intermediate-Term Intermediate-Term
Tax-Exempt Fund Tax-Free Fund Tax-Free Fund
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees
(after fee waivers and reimbursements) 0.60% 0.38% 0.52%
12b-1 Fees None None None
Other Expenses 0.00%(3) 0.29% 0.00%(3)
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and reimbursements) 0.60% 0.67%(4) 0.52%
----- ----- -----
EXAMPLE:
You would pay the following expenses 1 year $ 6 $ 7 $ 5
on a $1,000 investment, assuming a 5% 3 years 19 21 17
annual return and redemption at the 5 years 33 37 29
end of each time period. 10 years 75 83 65
Pro-Forma
Long-Term Long-Term Long-Term
Tax-Exempt Fund Tax-Free Fund Tax-Free Fund
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees
(after fee waivers and reimbursements) 0.60% 0.35% 0.52%
12b-1 Fees None None None
Other Expenses 0.00%(3) 0.32% 0.00%(3)
----- ----- -----
Total Fund Operating Expenses
(after fee waivers and reimbursements) 0.60% 0.67%(4) 0.52%
----- ----- -----
EXAMPLE:
You would pay the following expenses 1 year $ 6 $ 7 $ 5
on a $1,000 investment, assuming a 5% 3 years 19 21 17
annual return and redemption at the 5 years 33 37 29
end of each time period. 10 years 75 83 65
- -------------------
(1) The Management Fee information assumes approval of the proposed
Management Agreement for the "all inclusive" fee submitted by the Board of
Trustees to shareholders for approval.
(2) Redemption proceeds sent by wire are subject to a $10 processing
charge.
(3) Other Expenses, which include the fees and expenses (including
legal counsel fees) of those directors who are not "interested persons" as
defined in the Investment Company Act, were less than 0.01 of 1% of average net
assets for the fund's most recent fiscal year. The manager expects Other
Expenses to be less than 0.005 of 1% of average net assets for the combined
funds' next fiscal year end.
(4) Benham Management Corporation, the fund's investment advisor, has
agreed to limit the fund's total operating expenses to specified percentages of
the fund's average daily net assets. The agreement provides that the advisor 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 limit for the
Adjustable Rate Government Securities Fund and Intermediate-Term Treasury Fund
is 0.60%. The current expense limit for the Intermediate-Term Tax-Free Fund and
Long-Term Tax-Free Fund is 0.67%. These expense limits are subject to annual
renewal in June. Amounts which are paid by unaffiliated third parties do not
apply to these limitations. If the expense limitations were not in effect, the
Intermediate-Term Tax-Free Fund's Management Fees, Other Expenses and Total
Operating Expenses would have been 0.44%, 0.29% and 0.73%, respectively, and the
Long-Term Tax-Free Fund's Management Fees, Other Expenses and Total Operating
Expenses would have been 0.44%, 0.32% and 0.76%, respectively.
(5) The Limited-Term Tax Free Fund will commence operations as a new
investment portfolio of American Century Municipal Trust to acquire the assets
of the Limited-Term Tax-Exempt Fund in connection with the reorganization.
</TABLE>
The purpose of the above tables is to help you compare the various
costs and expenses that shareholders bear, directly or indirectly, as a result
of owning 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 Securities and Exchange Commission regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION
SUMMARY OF PLAN OF REORGANIZATION
Subject to receipt of shareholder approval, the reorganization will be
carried out pursuant to the terms of the Agreement and Plan of Reorganization
provided as Attachment I. The following is a brief summary of some of the
important terms of that Agreement.
EFFECTIVE TIME OF THE REORGANIZATION. The Agreement requires that the
exchange of assets for stock take place after the close of business on one
business day but before (or as of) the opening of business on the next business
day (the "Effective Time"). It is currently anticipated that the reorganization
will take place after the close of business on August 29, 1997, but before (or
as of) the opening of business on September 2, 1997. However, the Agreement
gives the officers of the funds the flexibility to choose another date. See
Section 8 of the Agreement.
EXCHANGE OF ASSETS. After the close of business on August 29th, the
funds will determine the value of their assets and liabilities in the same
manner as described in the enclosed corresponding Acquiring Fund Prospectus. The
assets and liabilities of the Liquidating Funds will then be transferred to the
Acquiring Funds in exchange for that number of full and fractional shares
(rounded to the third decimal place) that have the same aggregate net asset
value as the value of the net assets received in the exchange. The Liquidating
Funds will retain enough cash to pay any unpaid dividends and distributions
payable by the funds. See Sections 1.1 through 1.5 of the Agreement.
LIQUIDATING DISTRIBUTIONS AND TERMINATION OF THE LIQUIDATING FUNDS.
Immediately after the exchange of its assets for the Acquiring Funds shares,
each Liquidating Fund will distribute pro rata all of the shares received in the
exchange to its shareholders of record at the Effective Time. All of the
outstanding shares of the Liquidating Funds will be redeemed and canceled and
their stock books closed. As a result, Liquidating Fund shareholders will become
shareholders of the corresponding Acquiring Fund. See Section 2 of the
Agreement.
SHAREHOLDER APPROVAL. Consummation of each reorganization requires
approval of the appropriate Liquidating Fund's shareholders. See Sections 6.1
and 6.2 of the Agreement.
REPRESENTATIONS AND WARRANTIES. The Agreement contains representations
and warranties made by each fund to the other fund with which it will be merged
concerning the fund's formation and existence under applicable state law, its
power to consummate the reorganization, its qualification as a "regulated
investment company" under applicable tax law, the registration of its shares
under federal law and other matters that are customary in a reorganization of
this type. The representations and warranties terminate at the Effective Time.
See Sections 4, 5 and 13 of the Agreement.
CONDITIONS TO CLOSING. The Agreement contains conditions to closing the
proposed reorganizations for the benefit of each fund. The conditions to closing
each of the reorganizations require approval by Liquidating Fund shareholders,
that all representations of the funds be true in all material respects, receipt
of the legal opinion described on page 17 below under the caption "Federal
Income Tax Consequences," and other matters that are customary in a
reorganization of this type. See Sections 9 and 10 of the Agreement.
TERMINATION OF AGREEMENT. The Agreement may be terminated by a fund as
a result of a failure by the other fund with which it is to be merged to meet
one of its conditions to closing, or by mutual consent. See Sections 14.1 and
14.2 of the Agreement.
GOVERNING LAW. The Agreement states that it is to be interpreted under
Massachusetts law, the state of organization of the Acquiring Funds. See Section
16 of the Agreement.
DESCRIPTION OF THE ACQUIRING FUNDS SECURITIES
The Adjustable Rate Government Securities Fund and Intermediate-Term
Treasury Fund are each a series of shares offered by American Century Government
Income Trust. The Limited-Term Tax-Free Fund, Intermediate-Term Tax-Free Fund
and Long-Term Tax-Free Fund are each a series of shares offered by American
Century Municipal Trust. Each series is commonly referred to as a mutual fund.
The assets belonging to each series of shares are held separately by the
custodian.
The fund with which your fund is to be combined is a Massachusetts
business trust, which means its activities are overseen by a Board of Trustees
rather than a Board of Directors. The function of the Board of Trustees is the
same as the function of the Board of Directors of your fund.
Each of the Acquiring Funds currently offers only one class of shares,
although each may offer additional classes of shares in the future. The
Acquiring Funds' shares have no up-front charges, commissions or 12b-1 fees.
Your Board of Directors believes there are no material differences
between the rights of a Liquidating Fund shareholder and the rights of a
shareholder of the corresponding Acquiring Fund with which it will be combined.
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 for those
matters that must be voted on separately by the fund affected. Matters affecting
only one fund are voted upon only by that fund.
Shares have non-cumulative voting rights, which means that the holders
of more than 50% of the votes cast in an election of trustees can elect all of
the trustees if they choose to do so, and in such event the holders of the
remaining votes will not be able to elect any person or persons to the Board of
Trustees.
Unless required by the Investment Company Act of 1940, it is not
necessary for the Acquiring Funds to hold annual meetings of shareholders. As a
result, shareholders may not vote each year on the election of trustees or the
appointment of auditors. However, pursuant to each fund's bylaws, the holders of
at least 10% of the votes entitled to be cast may request the fund to hold a
special meeting of shareholders.
REASONS SUPPORTING THE REORGANIZATION
The reasons supporting the combination of these funds are described
fully in the second question of the Q&A at the front of this document. The
Liquidating Funds were started by its investment manager before the combination
of the Benham family of mutual funds and the Twentieth Century family of mutual
funds. After a year of operating funds that have similar investment objectives,
investment strategies, approaches, procedures and portfolio securities, American
Century believes that combining the Liquidating Funds with the corresponding
Acquiring Funds will create operational and management efficiencies. In
addition, the combination will help eliminate customer confusion regarding which
fund to choose.
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the reorganization is subject to the condition that we
receive a legal opinion from Dechert Price & Rhoads to the effect that for
federal income tax purposes (i) no gain or loss will be recognized by you or any
fund, (ii) your basis in the Acquiring Fund shares that you receive will be the
same as your basis in the Liquidating Fund shares held by you immediately prior
to the reorganization, and (iii) your holding period for the Acquiring Fund
shares will include your holding period for your fund shares.
We have not sought a tax ruling from the Internal Revenue Service, but
are relying upon the opinion of counsel referred to above. That opinion is not
binding on the IRS and does not preclude them from taking a contrary position.
The opinion of Dechert Price & Rhoads does not cover state or local taxes and
you should consult your own advisers concerning the potential tax consequences.
The Agreement and Plan of Reorganization provides that the Liquidating
Funds will declare dividends prior to the reorganization which, together with
all previous dividends, will have the effect of distributing to the Liquidating
Fund shareholders all undistributed ordinary income earned and net capital gains
realized up to and including the effective time of the reorganization. The
distribution is necessary to ensure that the reorganization will not create tax
consequences to the Liquidating Funds. The distributions to shareholders
generally will be taxable to the extent ordinary distributions are taxable to
such shareholders; provided, that distributions to shareholders of
Intermediate-Term Tax-Free and Long-Term Tax-Free will be taxable to the extent
they are not designated as "Exempt Interest Dividends."
CAPITALIZATION
The following set forth as of October 31, 1996 (i) the capitalization
of the Liquidating Funds and Acquiring Funds and (ii) the pro forma
capitalization of the Acquiring Funds as adjusted to give effect to the
reorganization. If consummated, the capitalization of each Acquiring Fund will
be different at the effective time of the reorganization as a result of market
fluctuations and daily share purchase and redemption activity in the funds.
<TABLE>
<S> <C> <C>
- --------------------------------------------- -------------------------------------------- -----------------------------------------
Pro Forma:
Short-Term Adjustable Rate Short-Term
Government Government Securities Government
Fund Fund Fund
- --------------------------------------------- -------------------------------------------- -----------------------------------------
$ 367,317 $ 327,056 $ 694,388
- --------------------------------------------- -------------------------------------------- -----------------------------------------
- --------------------------------------------- -------------------------------------------- -----------------------------------------
Pro Forma:
Intermediate-Term Intermediate-Term Intermediate-Term
Government Treasury Treasury
Fund Fund Fund
- --------------------------------------------- -------------------------------------------- -----------------------------------------
$ 24,250,631 $ 310,275,306 $ 334,525,937
- --------------------------------------------- -------------------------------------------- -----------------------------------------
- --------------------------------------------- -------------------------------------------- -----------------------------------------
Pro Forma:
Limited-Term Limited-Term Limited-Term
Tax-Exempt Tax-Free Tax-Free
Fund Fund Fund
- --------------------------------------------- -------------------------------------------- -----------------------------------------
$ 49,455,996 N/A $ 49,455,996
- --------------------------------------------- -------------------------------------------- -----------------------------------------
- --------------------------------------------- -------------------------------------------- -----------------------------------------
Pro Forma:
Intermediate-Term Intermediate-Term Intermediate-Term
Tax-Exempt Tax-Free Tax-Free
Fund Fund Fund
- --------------------------------------------- -------------------------------------------- -----------------------------------------
$ 78,401 $ 61,143 $ 139,554
- --------------------------------------------- -------------------------------------------- -----------------------------------------
- --------------------------------------------- -------------------------------------------- -----------------------------------------
Pro Forma:
Long-Term Long-Term Long-Term
Tax-Exempt Tax-Free Tax-Free
Fund Fund Fund
- --------------------------------------------- -------------------------------------------- -----------------------------------------
$ 57,802 $ 51,687 $ 109,497
- --------------------------------------------- -------------------------------------------- -----------------------------------------
</TABLE>
INFORMATION ABOUT THE FUNDS
ACQUIRING FUNDS
Complete information about the Acquiring Funds is contained in their
prospectuses included with this Prospectus/Proxy Statement. The content of these
prospectuses is incorporated into this document by reference. Below is a list of
types of information about the Acquiring Funds and the pages in those
prospectuses where the information can be found.
<TABLE>
<CAPTION>
INFORMATION ABOUT THE CAN BE FOUND IN THE
FOLLOWING ITEMS FOLLOWING PLACES
--------------- ----------------
IN THE ADJUSTABLE RATE IN THE
GOVERNMENT SECURITIES INTERMEDIATE-TERM IN THE
FUND AND TAX-FREE FUND AND LIMITED-TERM
INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE FUND
TREASURY FUND PROSPECTUS FUND PROSPECTUS PROSPECTUS
------------------------ --------------- ----------
Condensed financial information about the funds.
<S> <C> <C> <C>
See Financial Highlights. ............................. pages 9 - 11 pages 9-10 page __
Organization and proposed operation of the funds,
including a description of the investment
objectives and policies, and how the funds
seek to achieve such objectives.
See Further Information About American
Century ................................. page 31 page 32 page __
Investment Policies of the Funds ........ pages 13-18 pages 11-17 page __
Other Investment Practices, Their
Characteristics and Risks ................ page 18 pages 17-19 page __
A description of the individuals who will be managing
the funds, the services the investment manager will
provide, and its fees.
See Management -
Investment Management .................. pages 28-30 page 31 page __
The funds' policies with respect to dividends and distributions and
tax consequences of investments in the funds.
See Distributions ................................. page 27 page 28 page __
Taxes ....................................... pages 27-28 pages 28-30 page __
An explanation of "net asset value" of your shares.
See When Share Price is Determined ................ page 26 page 27 page __
Information about the transaction and operating
expenses of the funds.
See Transaction and Operating
Expense Table ............................... page 4 page 4 page __
Information about distribution of the funds' shares,
such as the name of the funds' transfer agent and
dividend paying agent, distributor of fund
shares, and charges that may be imposed by
broker-dealers.
See Distribution of Fund Shares ................... page 30 page 32 page __
Transfer and Administrative
Services .................................... page 30 page 32 page __
The funds' minimum initial and subsequent investments.
See How to Open An Account ....................... pages 20-21 pages 20-21 pages __
Discussion regarding each fund's voting rights
and restrictions of shareholders.
See Further Information About American
Century ..................................... page 31 pages 32-33 page __
Procedures for redeeming shares, refusals to honor
redemption requests and involuntary redemption
of shares.
See How to Redeem Shares .......................... page 22 pages 22-23 page __
Redemption of Shares in Low-Balance
Accounts. ................................... page 22 page 23 page __
</TABLE>
LIQUIDATING FUNDS
Complete information about the Liquidating Funds is contained in their
prospectuses, which are available to you by calling us at 1-800-345-2021. The
content of these prospectuses is incorporated into this document by reference.
Below is a list of types of information about the Liquidating Funds and the
pages in those prospectuses where the information can be found.
<TABLE>
<CAPTION>
INFORMATION ABOUT THE CAN BE FOUND IN THE
FOLLOWING ITEMS: FOLLOWING PLACES:
---------------- -----------------
IN THE LIMITED-TERM
IN THE SHORT-TERM GOVERNMENT TAX-EXEMPT FUND,
FUND AND INTERMEDIATE-TERM INTEREMDIATE-TERM TAX-EXEMPT
GOVERNMENT FUND FUND AND LONG-TERM TAX-EXEMPT
PROSPECTUS FUND PROSPECTUS
---------- ---------------
Condensed financial information about the funds.
<S> <C> <C>
See Financial Highlights .......................... pages 5 - 6 pages 5 - 7
Organization and proposed operation of the funds,
including a description of the investment objectives
and policies, and how the funds seek to achieve
such objectives.
See Further Information About American
Century ................................. pages 17 pages 24-25
Investment Policies of the Funds ........ pages 7-9 pages 8-10
Other Investment Practices, Their
Characteristics and Risks ................ pages 9-11 pages 10-13
A description of the individuals who will be managing
the funds, the services the investment manager will
provide, and its fees.
See Management -
Investment Management ....................... pages 15-16 pages 23
The funds' policies with respect to dividends and
distributions and tax consequences of investments
in the funds.
See Distributions ................................. pages 13-14 pages 21-22
Taxes ....................................... pages 14-15 pages 22-23
An explanation of "net asset value" of your shares.
See When Share Price is Determined .................... page 13 page 21
Information about the transaction and operating
expenses of the funds.
See Transaction and Operating
Expense Table ............................... page 4 page 4
Information about distribution of the funds' shares,
such as the name of the funds' transfer agent and
dividend paying agent, distributor of fund shares, and
charges that may be imposed by broker-dealers.
See Distribution of Fund Shares ................... page 16 page 24
Transfer and Administrative
Services .................................... page 16 page 24
The funds' minimum initial and subsequent investments.
See How to Open An Account. ....................... pages 12 pages 15-16
Discussion regarding each fund's voting rights and
restrictions of shareholders.
See Further Information About American
Century ..................................... pages 17 pages 24-25
Procedures for redeeming shares, refusals to honor
redemption requests and involuntary redemption
of shares.
See How to Redeem Shares .......................... page 12 page 17
Redemption of Shares in Low-Balance
Accounts ..................................... pages ----- pages 17-18
</TABLE>
FUNDAMENTAL INVESTMENT RESTRICTIONS
Neither the Liquidating Funds nor the Acquiring Funds may change their
investment objectives or any of their investment policies designated as
"fundamental" in their Prospectuses or Statements of Additional Information
without shareholder approval. As stated above, each fund that is proposed to be
combined with another (other than the Short-Term Government Fund) has a similar,
but not identical, investment objective and similar investment strategies with
the fund into which it is to be combined. As a condition to closing, the
shareholders of the Adjustable Rate Government Securities Funds must approve the
modification of its investment objective and strategies to be substantially
similar to those of the Short-Term Government Fund.
Each Acquiring Fund's shareholders (other then the Limited-Term
Tax-Free Fund) are currently considering proposals to modify certain of its
investment restrictions in order to make them consistent with the other funds
within the American Century family of funds. If you would like to review those
policies as proposed, they are set forth in Appendix III. There is no assurance
that a fund's shareholders will approve these proposals and their approval is
not a condition to closing the proposed reorganization. If an Acquiring Fund's
shareholders do not approve the proposed revisions, then the existing
limitations, which are similar but not identical to those proposed, will remain
in effect. You should be aware however, that if the reorganization proposed by
this proxy is not approved, it is anticipated that the manager will propose that
the Board of Directors approve the submission to a vote of shareholders of
substantially similar policies for your fund in order to make its investment
restrictions consistent with the other funds within the American Century family
of funds. If you would like to review the Acquiring Funds' current investment
limitations, they are set forth in Appendix IV.
As a new series of shares of American Century Municipal Trust, the
Limited-Term Tax-Free Fund was established with investment restrictions that are
the same as those set forth in Appendix IV. No shareholder vote is needed to
approve those policies and restrictions.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION
This Combined Prospectus/Proxy Statement is being furnished in
connection with the solicitation of proxies by the Board of Directors of the
Liquidating Funds. To more efficiently handle the proxy solicitation, American
Century Investment Management, Inc. has hired D.F. King & Co., Inc. to act as
proxy solicitor. Proxies may also be solicited by officers and employees of the
investment advisors of the funds, their affiliates and employees. It is
anticipated that the solicitation of proxies will be primarily by mail,
telephone, facsimile or personal interview. Authorizations to execute proxies
may be obtained by telephonic or electronically transmitted instructions in
accordance with procedures designed to authenticate the shareholder's identity
and to confirm that the shareholder has received the Combined Prospectus/Proxy
Statement and proxy card. If you have any questions regarding voting your shares
or the proxy, you should call D.F. King & Co., Inc. at 1-800-755-3107.
VOTING AND REVOCATION OF PROXIES
The fastest and most convenient way to vote your shares is to complete,
sign and mail the enclosed proxy voting card to us in the enclosed envelope.
This will help us obtain a quorum for the meeting and avoid the cost of
additional proxy solicitation efforts. If you return your proxy to us, we will
vote it EXACTLY as you tell us. If you simply sign the card and return it, we
will follow the recommendation of the Board of Directors and vote "FOR" the
reorganization.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting a written notice of revocation, or a subsequently
executed proxy, or by attending the meeting and voting in person.
RECORD DATE
Only shareholders of record at the close of business on May 17, 1997
will be entitled to vote at the meeting. On that date the number of shares
outstanding and entitled to be voted at the meeting or any adjournment of the
meeting were:
Short-Term Government Fund ______ shares
Intermediate-Term Government Funds ______ shares
Limited-Term Tax-Exempt Fund....... ______ shares
Intermediate-Term Tax-Exempt Fund.. ______ shares
Long-term Tax-Exempt Fund ......... ______ shares
QUORUM
A quorum is the number of shareholders legally required to be at a
meeting in order to conduct business. The quorum for the Special Shareholders
Meeting is 33 1/3% of the outstanding shares of the fund entitled to vote at the
meeting. Shares may be represented in person or by proxy. Proxies properly
executed and marked with a negative vote or an abstention will be considered to
be present at the meeting for the purposes of determining the existence of a
quorum for the transaction of business. If a quorum is not present at the
meeting, or if a quorum is present at the meeting but sufficient votes are not
received to approve the Agreement and Plan of Reorganization, the persons named
as proxies may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares affected by the adjournment that are represented
at the meeting in person or by proxy. If a quorum is not present, the persons
named as proxies will vote those proxies for which they are required to vote FOR
the Agreement and Plan of Reorganization in favor of such adjournments, and will
vote those proxies for which they are required to vote AGAINST such proposals
against any such adjournments.
SHAREHOLDER VOTE REQUIRED
The Agreement and Plan of Reorganization must be approved by the
holders of a majority of the outstanding shares of the Liquidating Funds in
accordance with the provisions of their Articles of Incorporation and the
requirements of the Investment Company Act of 1940. The term "majority of the
outstanding shares" means more than 50% of its outstanding shares.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees that cannot be voted on a proposal
because instructions have not been received from the beneficial owners) will be
counted for purposes of determining whether or not a quorum is present for
purposes of convening the meeting. Abstentions and broker non-votes will,
however, be considered to be a vote against the Agreement and Plan of
Reorganization.
The approval of the reorganization by the shareholders of the Acquiring
Funds is not being solicited because their approval or consent is not legally
required.
COST OF PROXY SOLICITATION
The cost of the proxy solicitation and shareholder meeting will be
borne by American Century Investment Management, Inc. and NOT by the
shareholders of the funds.
CERTAIN SHAREHOLDERS
The following tables list, as of ----------, 1997, the names, addresses
and percentage of ownership of each person who owned of record or is known by
either fund to own beneficially 5% or more of a Liquidating Fund, or 5% or more
of the an Acquiring Fund. The percentage of shares to be owned after
consummation of the reorganization is based upon their holdings and the
outstanding shares of both funds on ----------, 1997. Beneficial ownership
information is not required to be disclosed to the funds, so to the extent that
information is provided below, it is done so using the best information that the
funds have been provided.
SHORT-TERM GOVERNMENT FUND/ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
[Table of 5% shareholders to be provided later]
----------- ----------- -------- ------- ------------- --------------
SHAREHOLDER NO. OF % OF % OWNED AFTER
NAME ADDRESS FUND SHARES OWNERSHIP REORGANIZATION
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
(1) Shares owned of record
(2) Shares beneficially owned
(3) Shares owned both beneficially and of record
INTERMEDIATE-TERM GOVERNMENT FUND/INTERMEDIATE-TERM TREASURY FUND
[Table of 5% shareholders to be provided later]
----------- ----------- -------- ------- ------------- --------------
SHAREHOLDER NO. OF % OF % OWNED AFTER
NAME ADDRESS FUND SHARES OWNERSHIP REORGANIZATION
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
(1) Shares owned of record
(2) Shares beneficially owned
(3) Shares owned both beneficially and of record
LIMITED-TERM TAX-EXEMPT FUND/LIMITED-TERM TAX-FREE FUND
[Table of 5% shareholders to be provided later]
----------- ----------- -------- ------- ------------- --------------
SHAREHOLDER NO. OF % OF % OWNED AFTER
NAME ADDRESS FUND SHARES OWNERSHIP REORGANIZATION
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
(1) Shares owned of record
(2) Shares beneficially owned
(3) Shares owned both beneficially and of record
INTERMEDIATE-TERM TAX-EXEMPT FUND/INTERMEDIATE-TERM TAX-FREE FUND
[Table of 5% shareholders to be provided later]
----------- ----------- -------- ------- ------------- --------------
SHAREHOLDER NO. OF % OF % OWNED AFTER
NAME ADDRESS FUND SHARES OWNERSHIP REORGANIZATION
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
(1) Shares owned of record
(2) Shares beneficially owned
(3) Shares owned both beneficially and of record
LONG-TERM TAX-EXEMPT FUND/LONG-TERM TAX-FREE FUND
[Table of 5% shareholders to be provided later]
----------- ----------- -------- ------- ------------- --------------
SHAREHOLDER NO. OF % OF % OWNED AFTER
NAME ADDRESS FUND SHARES OWNERSHIP REORGANIZATION
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
----------- ----------- -------- ------- ------------- --------------
(1) Shares owned of record
(2) Shares beneficially owned
(3) Shares owned both beneficially and of record
At ----------, 1997, the directors and officers of the issuer of the
Liquidating Funds, as a group, owned less than 1% of the outstanding shares of
each Liquidating Fund. At ----------, 1997, the trustees and officers of the
issuer of the Acquiring Funds, as a group, owned less than 1% of the outstanding
shares of each Acquiring Fund.
APPRAISAL RIGHTS
Shareholders of the Liquidating Funds are not entitled to any rights of
share appraisal under their Articles of Incorporation, or under the laws of the
State of Maryland.
Shareholders have, however, the right to redeem their fund shares until
the reorganization, and thereafter, shareholders may redeem from American
Century Government Income Trust and American Century Municipal Trust the
Acquiring Fund shares received in the reorganization. Any such redemption will
be made at the fund's net asset value as determined in accordance with the
fund's then-current prospectus.
ANNUAL MEETINGS
American Century Government Income Trust and American Century Municipal
Trust, the issuers of the Acquiring Funds, intend to hold an annual meeting of
shareholders for the election trustees, the ratification of the appointment of
auditors, the modification of certain fundamental policies (as described in the
section above titled "Fundamental Investment Restrictions," page ---), and such
other business as may properly come before the meeting. That meeting is also
scheduled to be held on Wednesday, July 30, 1997. Unless you are also a
shareholder of the Acquiring Funds separate and apart from the shares you may
receive on the Effective Date of the reorganization, you will not be entitled to
vote at this meeting.
Thereafter, the Acquiring Funds do not intend to hold annual meetings
of shareholders. Shareholders of the Acquiring Funds have the right to call a
special meeting of shareholders and such meeting will be called when requested
in writing by the holders of record of 10% or more of the fund's votes. To the
extent required by law, American Century Government Income Trust and American
Century Municipal Trust will assist in shareholder communications on such
matters.
The Liquidating Funds do not intend to hold an annual meeting of
shareholders this year for the election of directors or the ratification of the
appointment of auditors.
ADDITIONAL INFORMATION
Information about the Liquidating Funds is incorporated into this
document by reference from its Prospectuses and Statements of Additional
Information, each dated March 1, 1997, and information about the Acquiring Funds
is incorporated herein by reference from their Prospectuses and Statements of
Additional Information, each dated [April 1, 1997], copies of each of which may
be obtained without charge by writing or calling D.F.King & Co., Inc. at the
address and telephone number shown on the cover page of this Combined
Prospectus/Proxy Statement. Copies may also be obtained by calling one of our
Investor Services Representatives at 1-800-345-2021.
Reports and other information filed by the Liquidating Funds and
Acquiring Funds may be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such materials may be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates or by accessing the Web
site maintained by the SEC (www.sec.gov).
LITIGATION
Neither the Liquidating Funds nor the Acquiring Funds is involved in
any litigation or proceeding.
FINANCIAL STATEMENTS
The financial highlights and financial statements for the Liquidating
Funds for the year ended October 31, 1996 are contained in their Annual Report
to Shareholders and in the Prospectuses and Statements of Additional Information
dated March 1, 1997, each of which is incorporated by reference into this
Combined Prospectus/Proxy Statement. The financial highlights and the financial
statements for the Adjustable Rate Government Securities Fund and
Intermediate-Term Treasury Fund for the fiscal year ended March 31, 1996 and
six-month period ended September 30, 1996, and the financial highlights and the
financial statements for the Intermediate-Term Tax-Free Fund and Long-Term
Tax-Free Fund for the fiscal year ended May 31, 1996 and six-month period ended
November 30, 1996, are contained in their Annual Reports and Semi-Annual Reports
to Shareholders and in the Prospectuses and Statements of Additional Information
dated [April 1, 1997], which are incorporated by reference in this Combined
Prospectus/Proxy Statement.
The audited financial statements of the Liquidating Funds for the
fiscal year ended October 31, 1996, contained in its Annual Report and
incorporated by reference in this Combined Prospectus/Proxy Statement, have been
audited by of Baird, Kurtz & Dobson, independent certified public accountants,
as indicated in their reports with respect thereto and are incorporated herein
in reliance on their report given upon the authority of such firm as experts in
accounting and auditing.
The audited financial statements of the American Century Government
Income Trust for the fiscal year ended March 31, 1996 and the audited financial
statements for American Century Municipal Trust for the fiscal year ended May
31, 1996 contained in their respective Annual Reports and incorporated by
reference in this Combined Prospectus/Proxy Statement, have been audited by KPMG
Peat Marwick LLP, independent public accountants, as indicated in their reports
with respect thereto and are incorporated herein in reliance on their reports
given the authority of said firm as experts in accounting and auditing.
OTHER BUSINESS
The Board of Directors is not aware of any other business to be brought
before the meeting. However, if any other matters come before the meeting, it is
the intention that proxies that do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be directed to D.F. King & Co., Inc. at
1-800-755-3107 or addressed to us at the address or telephone number set forth
on the cover page of this Combined Prospectus/Proxy Statement.
SHAREHOLDERS ARE REQUESTED TO DATE AND SIGN EACH ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE. PLEASE RETURN YOUR PROXY CARD EVEN IF YOU
ARE PLANNING TO ATTEND THE MEETING. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
<PAGE>
Appendix I
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
AMERICAN CENTURY GOVERNMENT INCOME TRUST,
AMERICAN CENTURY MUNICIPAL TRUST
and
AMERICAN CENTURY MUTUAL FUNDS, INC.
DATED ------------------, 1997
TABLE OF CONTENTS
1. Transfer of Assets of the Acquired Funds.............................
2. Liquidating Distributions and Termination of the Acquired Fund.......
3. Valuation Times......................................................
4. Certain Representatins, Warranties and Agreements of the
Acquired Company...................................................
5. Certain Representations, Warranties and Agreements of the
Acquiring Companies................................................
6. Shareholder Action on Behalf of the Acquired Funds...................
7. Registration Statement and Proxy Solicitation Materials..............
8. Effective Times of the Reorganization................................
9. The Acquiring Companies' Conditions..................................
10. The Acquired Company's Conditions...................................
11. Tax Documents.......................................................
12. Further Assurances..................................................
13. Termination of Representations and Warranties.......................
14. Termination of Agreement............................................
15. Amendment and Waiver................................................
16. Governing Law.......................................................
17. Successors and Assigns..............................................
18. Beneficiaries.......................................................
19. Acquiring Company Liability.........................................
20. Acquired Companies Liability........................................
21. Notices.............................................................
22. Expenses............................................................
23. Entire Agreement....................................................
24. Counterparts........................................................
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION made as of ----------------, 1997
by and among American Century Government Income Trust and American Century
Municipal Trust, each a Massachusetts business trust (the "Acquiring
Companies"), and American Century Mutual Funds, Inc., a Maryland corporation
(the "Acquired Company").
WHEREAS, the parties desire that substantially all of the assets and
liabilities of the Acquired Company be transferred to, and be acquired and
assumed by, corresponding portfolios of the Acquiring Companies in exchange for
shares of the Acquiring Companies' portfolios which shall thereafter be
distributed by the Acquired Company to the holders of shares of its portfolios,
all as described in this Agreement (the "Reorganization");
WHEREAS, the parties intend that the transfers of assets, assumptions
of liabilities and distributions of shares in the Acquired Funds (as defined in
Section 1.2) be treated as a tax-free reorganization under Section 368(a)(1)(C),
368(a)(1)(D) or 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the parties intend that in connection with the Reorganization
the Acquired Funds shall be terminated under state law and de-registered as
described in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions hereof, and
intending to be legally bound hereby, the Acquired Company and the Acquiring
Companies agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUNDS.
1.1. At the Effective Time of the Reorganization (as defined in
Section 8) with respect to the Acquired Funds, all property of
every description, and all interests, rights, privileges and
powers of the Acquired Funds other than cash in an amount
necessary to pay any unpaid dividends and distributions as
provided in Section 4.7 (such assets, the "Acquired Fund
Assets") shall be transferred and conveyed by the Acquired
Funds to the Acquiring Companies on behalf of corresponding
portfolios set forth in Section 1.2 (the "Acquiring Funds"),
and shall be accepted by the Acquiring Companies on behalf of
such Acquiring Funds, and the Acquiring Companies, on behalf
of such Acquiring Funds, shall assume all known liabilities
whether accrued, absolute, contingent or otherwise, of the
Acquired Funds reflected in the calculation of such Acquired
Funds' net asset values (the "Acquired Fund Liabilities"), so
that at and after the Effective Time of the Reorganization
with respect to the Acquired Funds: (i) all assets of the
Acquired Funds shall become and be the assets of its Acquiring
Funds; and (ii) all known liabilities of the Acquired Funds
reflected as such in the calculation of an Acquired Fund's net
asset value shall attach to the corresponding Acquiring Fund
as aforesaid and may thenceforth be enforced against the
Acquiring Fund to the extent as if the same had been incurred
by it. Without limiting the generality of the foregoing, the
Acquired Fund Assets shall include all property and assets of
any nature whatsoever, including, without limitation, all
cash, cash equivalents, securities, other investments, claims
and receivables (including dividend and interest receivables)
owned by an Acquired Fund, and any deferred or prepaid
expenses shown as an asset on the Acquired Fund's books, at
the Effective Time of the Reorganization of the Acquired Fund,
and all good will, all other intangible property and all books
and records belonging to the Acquired Fund. Recourse by any
person for the Acquired Fund Liabilities assumed by the
Acquiring Funds shall, at and after the Effective Time of the
Reorganization of the Acquired Funds, be limited to the
Acquiring Funds.
1.2. The assets of the Acquired Funds shall be acquired by the
Acquiring Funds identified below opposite its name, and the
holders of the Acquired Funds shall receive the of common
stock of the Acquiring Fund identified below opposite its
name:
Acquired Funds Acquiring Funds
-------------- ---------------
AMERICAN CENTURY MUTUAL FUNDS, INC. AMERICAN CENTURY GOVERNMENT INCOME TRUST
Short-Term Government Fund Adjustable Rate Government Securities Fund
Intermediate-Term Government Fund Intermediate-Term Treasury Fund
AMERICAN CENTURY MUNICIPAL TRUST
Limited-Term Tax-Exempt Fund Limited-Term Tax-Free Fund
Intermediate-Term Tax-Exempt Fund Intermediate-Term Tax-Free Fund
Long-Term Tax-Exempt Fund Long-Term Tax-Free Fund
1.3. In exchange for the transfer of the Acquired Fund Assets and
the assumption of the Acquired Fund Liabilities, the Acquiring
Companies shall simultaneously issue at the applicable
Effective Time of the Reorganization to the Acquired Funds a
number of full and fractional shares to the third decimal
place of the Acquiring Funds specified in Section 1.2 all
determined and adjusted as provided in this Agreement. The
number of shares of the Acquiring Funds so issued will have an
aggregate net asset value equal to the value of the Acquired
Fund Assets that are represented by shares of the
corresponding Acquired Funds, the holders of which shall
receive shares of the Acquiring Funds, as specified in Section
1.2, all determined and adjusted as provided in this
Agreement.
1.4. The net asset value of such shares of the Acquiring Funds and
the net asset value of the Acquired Funds shall be determined
as of the applicable Valuation Time with respect to the
Acquired Funds specified in Section 3.
1.5. The net asset value of shares of the Acquiring Funds shall be
computed in the manner set forth in the Acquiring Funds' then
current prospectuses under the Securities Act of 1933, as
amended (the "1933 Act"). The net asset value of the Acquired
Fund Assets to be transferred by the Acquired Company shall be
computed by the Acquired Company and shall be subject to
adjustment by the amount, if any, agreed to by the Acquiring
Companies and the Acquired Company. In determining the value
of the securities transferred by the Acquired Funds to the
Acquiring Funds, each security shall be priced in accordance
with the policies and procedures of the Acquiring Companies as
described in their then current prospectuses and statement of
additional information and adopted by the Acquiring Companies'
Board of Trustees, which are and shall be consistent with the
policies now in effect for the Acquired Company. Price
quotations and the security characteristics relating to
establishing such quotations shall be determined by the
Acquiring Companies, provided that such determination shall be
subject to the approval of the Acquired Company.
2. LIQUIDATING DISTRIBUTIONS AND TERMINATION OF THE ACQUIRED FUNDS.
Immediately after the Effective Time of the Reorganization with respect
to the Acquired Funds, the Acquired Funds shall distribute in complete
liquidation pro rata to the record holders of its shares at the
applicable Effective Time of the Reorganization the shares of the
Acquiring Funds identified in Section 1.2 to be received by the record
holders of such Acquired Funds. In addition, each shareholder of record
of the Acquired Funds shall have the right to receive any unpaid
dividends or other distributions which were declared before the
applicable Effective Time of the Reorganization with respect to the
shares of the Acquired Funds that are held by the shareholder at the
applicable Effective Time of the Reorganization. In accordance with
instructions they receive from the Acquired Company, the Acquiring
Companies shall record on their books the ownership of shares of the
Acquiring Funds by the record holders of shares of the Acquired Funds
identified in Section 1.2. All of the issued and outstanding shares of
the Acquired Funds shall be redeemed and canceled on the books of the
Acquired Company at the Effective Time of the Reorganization of the
Acquired Funds and shall thereafter represent only the right to receive
the shares of the Acquiring Funds identified in Section 1.2, and the
Acquired Funds' transfer books shall be closed permanently. As soon as
practicable after the Effective Time of the Reorganization with respect
to the Acquired Funds, the Acquired Company shall take all steps as
shall be necessary and proper to effect the dissolution of the Acquired
Funds under federal and state law. After the Effective Time of the
Reorganization with respect solely to the Acquired Funds, the Acquired
Company shall not conduct any business except in connection with the
Acquired Funds' liquidation and dissolution.
3. VALUATION TIMES.
Subject to Section 1.5 hereof, the Valuation Time for the
Reorganization with respect to the Acquired Funds shall be as set forth
in the Acquired Funds' prospectuses, on such date as may be agreed in
writing by the duly authorized officers of both parties hereto.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ACQUIRED
COMPANY.
The Acquired Company, on behalf of itself and the Acquired Funds,
represents and warrants to, and agrees with, the Acquiring Companies as
follows:
4.1. The Acquired Company is a Maryland corporation duly created
pursuant to its Articles of Incorporation for the purpose of
acting as a management investment company under the 1940 Act
and is validly existing under the laws of, and duly authorized
to transact business in, the State of Maryland. The Acquired
Funds are registered with the Securities and Exchange
Commission (the "SEC") as open-end management investment
companies under the 1940 Act and such registration is in full
force and effect.
4.2. It has power to own all of its properties and assets and,
subject to the approvals of shareholders referred to herein,
to carry out and consummate the transactions contemplated
hereby, and has all necessary federal, state and local
authorizations to carry on its business as now being conducted
and to consummate the transactions contemplated by this
Agreement.
4.3. This Agreement has been duly authorized, executed and
delivered by the Acquired Company, and represents the Acquired
Company's valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to
bankruptcy, insolvency reorganization, arrangement,
moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general
principles of equity. The execution and delivery of this
Agreement does not and will not, and the consummation of the
transactions contemplated by this Agreement will not, violate
the Acquired Company's Articles of Incorporation, By-laws, or
any agreement or arrangement to which it is a party or by
which it is bound.
4.4. The Acquired Funds have elected to qualify and have qualified
as "regulated investment companies" under Subtitle A, Chapter
1, Subchapter M, Part I of the Code, as of and since their
first taxable years; have been such regulated investment
companies at all times since the end of their first taxable
years when they so qualified; and qualifies and shall continue
to qualify as regulated investment companies until the
Effective Time of the Reorganization with respect to the
Acquired Funds.
4.5. All federal, state, local and foreign income, profits,
franchise, sales, withholding, customs, transfer and other
taxes, including interest, additions to tax and penalties
(collectively, "Taxes") relating to the Acquired Fund Assets
or properly shown to be due on any return filed by any
Acquired Funds with respect to taxable periods ending on or
prior to, and the portion of any interim period up to, the
date hereof have been fully and timely paid or provided for;
and there are no levies, liens, or other encumbrances relating
to Taxes existing, threatened or pending with respect to the
Acquired Fund Assets.
4.6. The financial statements of the Acquired Funds for the fiscal
year ended October 31, 1996, examined by Baird, Kurtz &
Dobson, independent certified public accountants, copies of
which have been previously furnished to the Acquiring
Companies, present fairly the financial position of the
Acquired Funds as of October 31, 1996 and the results of its
operations for the year then ending, in conformity with
generally accepted accounting principles.
4.7. Prior to the Valuation Time, the Acquired Funds shall have
declared a dividend or dividends, with a record date and
ex-dividend date prior to such Valuation Time, which, together
with all previous dividends, shall have the effect of
distributing to their shareholders all of their investment
company taxable income, if any, for the taxable periods or
years ended on or before the Acquired Funds' most recent
fiscal year end, and for the periods from said date to and
including the Effective Time of the Reorganization applicable
to the Acquired Funds (computed without regard to any
deduction for dividends paid), and all of their net capital
gain, if any, realized in taxable periods or years ended on or
before each Acquired Fund's fiscal year end and for the period
from said date to and including the Effective Time of the
Reorganization applicable to the Acquired Funds.
4.8. At both the Valuation Time and the Effective Time of the
Reorganization with respect to the Acquired Funds, there shall
be no known liabilities of the Acquired Funds, whether
accrued, absolute, contingent or otherwise, not reflected in
the net asset values per share of its outstanding shares.
4.9. There are no legal, administrative or other proceedings
pending or, to the Acquired Company's knowledge threatened,
against the Acquired Company or the Acquired Funds which could
result in liability on the part of the Acquired Company or the
Acquired Funds.
4.10. Subject to the approvals of shareholders, at both the
Valuation Time and the Effective Time of the Reorganization
with respect to the Acquired Funds, it shall have full right,
power and authority to sell, assign, transfer and deliver the
Acquired Fund Assets of such Acquired Funds and, upon delivery
and payment for the Acquired Fund Assets as contemplated
herein, the Acquiring Funds shall acquire good and marketable
title thereto, free and clear of all liens and encumbrances,
and subject to no restrictions on the ownership or transfer
thereof (except as imposed by federal or state securities
laws).
4.11. No consent, approval, authorization or order of any court or
mutual authority is required for the consummation by the
Acquired Company of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act,
the Securities Exchange Act of 1934, as amended ("1934 Act"),
the 1940 Act, the rules and regulations under those Acts, and
state securities laws.
4.12. Insofar as the following relate to the Acquired Company, the
registration statement filed by the Acquiring Companies on
Form N-14 relating to the shares of the Acquiring Funds that
will be registered with the SEC pursuant to this Agreement,
which, without limitation, shall include a proxy statement of
the Acquired Company and the prospectuses of the Acquiring
Companies with respect to the transactions contemplated by
this Agreement, and any supplement or amendment thereto or to
the documents contained or incorporated therein by reference
(the "N-14 Registration Statement"), on the effective date of
the N-14 Registration Statement, at the time of any
shareholders' meeting referred to herein and at each Effective
Time of the Reorganization: (i) shall comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act, the rules and regulations thereunder, and state
securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this subsection shall apply
only to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with
information furnished by the Acquired Company for use in the
N-14 Registration Statement.
4.13. All of the issued and outstanding shares of the Acquired Funds
have been duly and validly issued, are fully paid and
non-assessable, and were offered for sale and sold in
conformity with all applicable federal and state securities
laws, and no shareholder of the Acquired Funds has any
preemptive right of subscription or purchase in respect of
such shares.
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ACQUIRING
COMPANIES.
The Acquiring Companies, on behalf of themselves and the Acquiring
Funds, represent and warrant to, and agree with, the Acquired Company
as follows:
5.1. They are each a Massachusetts business trust duly created
pursuant to a Declaration of Trust for the purpose of acting
as a management investment company under the 1940 Act and are
validly existing under the laws of, and duly authorized to the
Commonwealth of Massachusetts. The Acquiring Funds are
registered with the SEC as open-end management investment
companies under the 1940 Act and such registrations are in
full force and effect.
5.2. They have the power to own all of their properties and assets
and to carry out and consummate the transactions contemplated
herein, and have all necessary federal, state and local
authorizations to carry on their business as now being
conducted and to consummate the transactions contemplated by
this Agreement.
5.3. This Agreement has been duly authorized, executed and
delivered by the Acquiring Companies, and represents the
Acquiring Companies valid and binding contract, enforceable in
accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, arrangement,
moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general
principles of equity. The execution and delivery of this
Agreement did not, and the consummation of the transactions
contemplated by this Agreement will not, violate the Acquiring
Companies' Declarations of Trust or By-laws or any agreement
or arrangement to which it is a party or by which they are
bound.
5.4. The Acquiring Funds, other than the Limited-Term Tax-Free
Fund, have elected to qualify, and have qualified, as
"regulated investment companies" under Subtitle A, Chapter 1,
Subchapter M, Part I of the Code, as of and since their first
taxable years; the Acquiring Funds, other than the
Limited-Term Tax-Free Fund, have been such regulated
investment companies at all times since the end of their first
taxable years when they so qualified and intend to continue to
qualify as regulated investment companies; and the
Limited-Term Tax-Free Fund will elect to qualify as a
regulated investment company and intend to continued to
qualify as a regulated investment company.
5.5. The financial statements of the Acquiring Funds for their
fiscal years ended March 31, 1996 with respect to the
Adjustable Rate Government Securities Fund and
Intermediate-Term Treasury Fund and May 31, 1996 with respect
to the Intermediate-Term Tax-Free Fund and Long-Term Tax-Free
Fund, examined by KPMG Peat Marwick LLP, copies of which have
been previously furnished to the Acquired Company, present
fairly the financial position of the Acquiring Funds as of
March 31, 1996 and May 31, 1996, respectively, and the results
of their operations for the years then ending, in conformity
with generally accepted accounting principles.
5.6. At both the Valuation Time and the Effective Time of the
Reorganization with respect to the Acquiring Funds, there
shall be no known liabilities of the Acquiring Funds, whether
accrued, absolute, contingent or otherwise, not reflected in
the net asset values per share of its shares to be issued
pursuant to this Agreement.
5.7. There are no legal, administrative or other proceedings
pending or, to their knowledge, threatened against the
Acquiring Companies or the Acquiring Funds which could result
in liability on the part of the Acquiring Companies or the
Acquiring Funds.
5.8. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Companies of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act,
the 1934 Act, the 1940 Act, the rules and regulations under
those Acts, and state securities laws.
5.9. Insofar as the following relate to the Acquiring Companies,
the N-14 Registration Statement on its effective date, at the
time of any shareholders' meetings referred to herein and at
each Effective Time of the Reorganization: (i) shall comply in
all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act, the rules and regulations
thereunder, and state securities laws, and (ii) shall not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by the Acquiring
Companies for use in the N-14 Registration Statement.
5.10. The shares of the Acquiring Funds to be issued and delivered
to the Acquired Funds for the account of record holders of
shares of the Acquired Funds pursuant to the terms hereof
shall have been duly authorized as of the Effective Time of
the Reorganization applying to the Acquiring Funds and, when
so issued and delivered, shall be registered under the 1933
Act and under applicable state securities laws, duly and
validly issued, fully paid and non-assessable, and no
shareholder of the Acquiring Companies shall have any
preemptive right of subscription or purchase in respect
thereto.
6. SHAREHOLDER ACTION ON BEHALF OF THE ACQUIRED FUNDS.
6.1. As soon as practicable after the effective date of the N-14
Registration Statement, but in any event prior to the
Effective Time of the Reorganization applicable to the
Acquired Funds and as a condition to the Reorganization, the
Board of Directors of the Acquired Company shall call, and the
Acquired Company shall hold, a meeting of the shareholders of
the Acquired Funds for the purpose of considering and voting
upon:
6.1.1. Approval of this Agreement and the transactions
contemplated hereby, including, without limitation:
6.1.1.1. The transfer of the Acquired Funds Assets
belonging to the Acquired Funds to an
Acquiring Funds, and the assumption by the
Acquiring Funds of the Acquired Funds
Liabilities of such Acquired Funds, in
exchange for shares of the Acquiring Funds,
as set forth in Section 1.2;
6.1.1.2. The liquidation of the Acquired Funds
through the distribution to its record
holders of shares of the shares of Acquiring
Funds as described in this Agreement; and
6.1.2. Such other matters as may be determined by the Board
of Directors or authorized officers of the parties.
6.2. Approval of this Reorganization Agreement by the shareholders
of the Acquired Funds shall constitute the waiver of the
application of any fundamental policy of the Acquired Funds
that might be deemed to prevent them from taking the actions
necessary to effectuate the Reorganization as described, and
such policies, if any, shall be deemed to have been amended
accordingly.
7. REGISTRATION STATEMENT AND PROXY SOLICITATION MATERIALS.
The Acquiring Companies shall file the N-14 Registration Statement
under the 1933 Act, and the Acquired Company shall file the combined
prospectus/proxy statement contained therein under the 1934 Act and
1940 Act proxy rules, with the SEC as promptly as practicable. The
Acquiring Companies and the Acquired Company have cooperated and shall
continue to cooperate with the other, and have furnished and shall
continue to furnish the other with the information relating to itself
that is required by the 1933 Act, the 1934 Act, the 1940 Act, the rules
and regulations under each of those Acts and state securities laws, to
be included in the N-14 Registration Statement.
8. EFFECTIVE TIMES OF THE REORGANIZATION.
Delivery of the Acquired Fund Assets of the Acquired Funds and the
shares of the Acquiring Funds to be issued pursuant to Section 1 and
the liquidation of the Acquired Funds pursuant to Section 2 shall occur
at the opening of business on the next business day following the
Valuation Time applicable to the Acquired Funds, or on such other date,
and at such place and time and date, as may be determined by the
President or any Vice President of each party hereto. The respective
date and time at which such actions are taken with respect to the
Acquired Funds are referred to herein as the "Effective Time of the
Reorganization." To the extent any Acquired Fund Assets are, for any
reason, not transferred at the applicable Effective Time of the
Reorganization, the Acquired Company shall cause such Acquired Funds
Assets to be transferred in accordance with this Agreement at the
earliest practicable date thereafter.
9. THE ACQUIRING COMPANIES' CONDITIONS.
The obligations of the Acquiring Companies hereunder with respect to
the Acquiring Funds shall be subject to the following conditions
precedent:
9.1. This Agreement and the transactions contemplated by this
Agreement shall have been approved by the shareholders of the
Acquired Funds, in the manner required by law.
9.2. The Acquired Company shall have duly executed and delivered to
the Acquiring Companies such bills of sale, assignments,
certificates and other instruments of transfer ("Transfer
Documents") as may be necessary or desirable to transfer all
right, title and interest of the Acquired Company and the
Acquired Funds in and to the Acquired Funds Assets of the
Acquired Funds. The Acquired Fund Assets shall be accompanied
by all necessary state stock transfer stamps or cash for the
appropriate purchase price therefor.
9.3. All representations and warranties made in this Agreement
shall be true and correct in all material respects as if made
at and as of each Valuation Time and each Effective Time of
the Reorganization. As of the Valuation Time and the Effective
Time of the Reorganization applicable to the Acquired Funds,
there shall have been no material adverse change in the
financial position of the Acquired Funds since October 31,
1996 other than those changes incurred in the ordinary course
of business as an investment company. No action, suit or other
proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein.
9.4. The Acquiring Companies shall have received an opinion of
Dechert Price & Rhoads addressed to the Acquiring Companies
and the Acquired Company in a form reasonably satisfactory to
them and dated the Effective Time of the Reorganization
applicable to the Acquired Funds, substantially to the effect
that for federal income tax purposes: (i) the transfers of all
of the Acquired Funds Assets hereunder, and the assumption by
the Acquiring Funds of Acquired Fund Liabilities, in exchange
for shares of the Acquiring Funds, and the distribution of
said shares to the shareholders of the Acquired Funds, as
provided in this Agreement, will each constitute a
reorganization within the meaning of Section 368(a)(1)(C),
368(a)(1)(D) or 368(a)(1)(F) of the Code and with respect to
each reorganization, the Acquired Funds and the Acquiring
Funds will each be considered "a party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) in
accordance with Sections 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by the Acquired Funds
as a result of such transactions; (iii) in accordance with
Section 1032(a) of the Code, no gain or loss will be
recognized by the Acquiring Funds as a result of such
transactions; (iv) in accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by the shareholders
of the Acquired Funds on the distribution to them by the
Acquired Funds of shares of the Acquiring Funds in exchange
for their shares of the Acquired Funds; (v) in accordance with
Section 358(a)(1) of the Code, the aggregate basis of
Acquiring Fund shares received by each shareholder of the
Acquired Funds will be the same as the aggregate basis of the
shareholder's Acquired Fund shares immediately prior to the
transactions; (vi) in accordance with Section 362(b) of the
Code, the basis of the Acquired Fund Assets to the Acquiring
Funds will be the same as the basis of the Acquired Fund
Assets in the hands of the Acquired Funds immediately prior to
the exchange; (vii) in accordance with Section 1223(1) of the
Code, a shareholder's holding period for Acquiring Fund shares
will be determined by including the period for which the
shareholder held the shares of the Acquired Fund exchanged
therefor, provided that the shareholder held such shares of
the Acquired Fund as a capital asset; and (viii) in accordance
with Section 1223(2) of the Code, the holding period of the
Acquiring Funds with respect to the Acquired Fund Assets will
include the period for which the Acquired Fund Assets were
held by the Acquired Funds.
9.5. With respect only to the reorganization of the Short-Term
Government Fund and Adjustable Rate Government Securities
Fund, the Acquiring Company shall have submitted to the
shareholders of the Adjustable Rate Government Securities
Fund, and such shareholders shall have approved, a revised
name, investment objective and investment strategies to those
identical to the Short-Term Government Fund.
9.6. The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any
proceeding seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940
Act.
9.7. The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge
of the Acquiring Companies, contemplated by the SEC and the
parties shall have received all permits and other
authorizations necessary under state securities laws to
consummate the transactions contemplated by this Agreement.
9.8. The President or a Vice President of the Acquired Company
shall have certified that the Acquired Company has performed
and complied in all material respects with each of its
agreements and covenants required by this Agreement to be
performed or complied with by it prior to or at each Valuation
Time and each Effective Time of the Reorganization.
10. THE ACQUIRED COMPANY'S CONDITIONS.
The obligations of the Acquired Company hereunder with respect to the
Acquired Funds shall be subject to the following conditions precedent:
10.1. This Agreement and the transactions contemplated by this
Agreement shall have been approved by the shareholders of the
Acquired Funds, in the manner required by law.
10.2. All representations and warranties of the Acquiring Companies
made in this Agreement shall be true and correct in all
material respects as if made at and as of each Valuation Time
and each Effective Time of the Reorganization. As of the
Valuation Time and the Effective Time of the Reorganization
applicable to the Acquired Funds, there shall have been no
material adverse change in the financial condition of the
Acquiring Funds since March 31, 1996 with respect to the
Adjustable Rate Government Securities Fund and
Intermediate-Term Treasury Fund and May 31, 1996 with respect
to the Intermediate-Term Tax-Free Fund and Long-Term Tax-Free
Fund other than those changes incurred in the ordinary course
of business as an investment company. No action, suit or other
proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein.
10.3. The Acquired Company shall have received an opinion of
Dechert, Price & Rhoads, addressed to the Acquiring Companies
and the Acquired Company in a form reasonably satisfactory to
them and dated the Effective Time of the Reorganization
applicable to the Acquired Funds, with respect to the matters
specified in Section 9.4.
10.4. The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted, or to the knowledge
of the Acquiring Companies, contemplated by the SEC and the
parties shall have received all permits and other
authorizations necessary under state securities laws to
consummate the transactions contemplated by this Agreement.
10.5. The Acquired Company shall not sell or otherwise dispose of
any shares of the Acquiring Funds to be received in the
transactions contemplated herein, except in distribution to
its shareholders as contemplated herein.
10.6. The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any
proceeding seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940
Act.
10.7. The President or a Vice President of the Acquiring Companies
shall have certified that the Acquiring Companies have
performed and complied in all material respects with each of
their agreements and covenants required by this Agreement to
be performed or complied with by it prior to or at each
Valuation Time and each Effective Time of the Reorganization.
11. TAX DOCUMENTS.
The Acquired Company shall deliver to the Acquiring Companies at the
Effective Time of the Reorganization confirmations or other adequate
evidence as to the adjusted tax basis of the Acquired Fund Assets then
delivered to the Acquiring Funds in accordance with the terms of this
Agreement.
12. FURTHER ASSURANCES.
Subject to the terms and conditions herein provided, each of the
parties hereto shall use its best efforts to take, or cause to be
taken, such action, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments, and to do, or
cause to be done, all things necessary, proper or advisable under the
provisions of this Agreement and under applicable law to consummate and
make effective the transactions contemplated by this Agreement.
13. TERMINATION OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the parties set forth in this
Agreement shall terminate at the Effective Time of the Reorganization.
14. TERMINATION OF AGREEMENT.
14.1. This Agreement may be terminated as to one or more investment
portfolios prior to the Effective Time of the Reorganization
by the Boards of Trustees of the Acquiring Companies or the
Board of Directors of the Acquired Company, as provided below:
14.1.1. By the Acquiring Companies, or either of them, if the
conditions set forth in Section 9 are not satisfied
as specified in said Section;
14.1.2. By the Acquired Company if the conditions set forth
in Section 10 are not satisfied as specified in said
Section;
14.1.3. By the mutual consent of the parties.
14.2. If a party terminates this Agreement as to any investment
portfolio because one or more of its conditions precedent have
not been fulfilled, or if this Agreement is terminated by
mutual consent, this Agreement will become null and void
without any liability of either party or any of their
investment portfolios to the other; provided, however, that if
such termination is by the Acquiring Companies, or either of
them, pursuant to Section 14.1.1 as a result of a breach by
the Acquired Company of any of its representations, warranties
or covenants in this Agreement, or such termination is by the
Acquired Company pursuant to Section 14.1.2 as a result of a
breach by the Acquiring Companies, or either of them, of any
of their representations, warranties or covenants in this
Agreement, nothing herein shall affect the non-breaching
party's right to damages on account of such other party's
breach.
15. AMENDMENT AND WAIVER.
At any time prior to or (to the fullest extent permitted by law) after
approval of this Agreement by the shareholders of the Acquired Company,
(a) the parties hereto may, by written agreement authorized by their
respective Board of Directors or Trustees, as the case may be, or their
respective Presidents or any Vice Presidents, and with or without the
approval of their shareholders, amend any of the provisions of this
Agreement, and (b) either party may waive any breach by the other party
or the failure to satisfy any of the conditions to its obligations
(such waiver to be in writing and executed by the President or Vice
President of the waiving party with or without the approval of such
party's shareholders).
16. GOVERNING LAW.
This Agreement and the transactions contemplated hereby shall be
governed, construed and enforced in accordance with the laws of
Massachusetts without giving effect to the conflicts of law principles
otherwise applicable therein.
17. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the respective successors and
permitted assigns of the parties hereto. This Agreement and the rights,
obligations and liabilities hereunder may not be assigned by either
party without the consent of the other party.
18. BENEFICIARIES.
Nothing contained in this Agreement shall be deemed to create rights in
persons not parties hereto, other than the successors and permitted
assigns of the parties.
19. ACQUIRING COMPANIES LIABILITY.
19.1. The name "American Century Government Income Trust and
"American Century Municipal Trust" and "Trustees of American
Century Government Income Trust" and "Trustees of American
Century Municipal Trust" refer respectively to the trusts
created and the trustees, as trustees but not individually or
personally, acting from time to time under Declarations of
Trust dated May 1, 1984, which are hereby referred to and
copies of which are on file at the office of the State
Secretary of the Commonwealth of Massachusetts and at the
principal office of the Acquiring Companies. The obligations
of the Acquiring Companies entered into in the name or on
behalf thereof by any of the trustees, representatives or
agents are made not individually, but in such capacities, and
are not binding upon any of the trustees, shareholders or
representatives of the Acquiring Companies personally, but
bind only the trust property, and all persons dealing with any
portfolio of the Acquiring Companies must look solely to the
trust property belonging to such portfolio for the enforcement
of any claims against the Acquiring Companies.
19.2. Both parties specifically acknowledge and agree that any
liability of the Acquiring Companies under this Agreement with
respect to the Acquiring Funds, or in connection with the
transactions contemplated herein with respect to the Acquiring
Funds, shall be discharged only out of the assets of the
particular Acquiring Funds and that no other portfolio of the
Acquiring Companies, if any, shall be liable with respect
thereto.
20. ACQUIRED COMPANY LIABILITY.
20.1. Both parties specifically acknowledge and agree that any
liability of the Acquired Company under this Agreement with
respect to the Acquired Funds, or in connection with the
transactions contemplated herein with respect to the Acquired
Funds, shall be discharged only out of the assets of that
particular Acquired Fund and that no other portfolio of the
Acquired Company shall be liable with respect thereto.
21. NOTICES.
All notices required or permitted herein shall be in writing and shall
be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, or delivered to a
nationally recognized overnight courier service, in each case properly
addressed to the party entitled to receive such notice at the address
or telecopier number stated below or to such other address or
telecopier number as may hereafter be furnished in writing by notice
similarly given by one party to the other party hereto:
If to American Century Government Income Trust, American Century
Municipal Trust or American Century Mutual Funds, Inc.:
Pat Looby
4500 Main Street
Kansas City, Missouri 64111
22. EXPENSES.
Each party represents to the other that its expenses incurred in
connection with the Reorganization will be borne by American Century
Investment Management, Inc. or one or more of its affiliates.
23. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding of the
parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for
herein.
24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the date
first written above.
AMERICAN CENTURY GOVERNMENT INCOME TRUST
ATTEST:
- ----------------------------------------- By:----------------------------
AMERICAN CENTURY MUNICIPAL TRUST
ATTEST:
- ----------------------------------------- By:----------------------------
AMERICAN CENTURY MUTUAL FUNDS, INC.
ATTEST:
- ----------------------------------------- By:----------------------------
<PAGE>
APPENDIX II : MANAGEMENT DISCUSSION & ANALYSIS
OUR MESSAGE TO YOU
The twelve months ended October 31, 1996, were distinguished by change, both
in the U.S. bond market and at Twentieth Century. After a rocky period in the
first half of 1996, bonds stabilized during the summer and enjoyed a rebound in
October. In the following pages, our investment management team provides some
further details about the market's changing direction and how your fund was
managed throughout the period.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange money between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. The U.S. Governments Short-Term and Intermediate-Term funds will
be part of the Benham Group because the funds' investment style--conservative
fixed-income--matches the key attributes of that group.
You may have noticed that this annual report includes only U.S. Governments
Short-Term and Intermediate-Term, whereas in the past it covered nine funds.
This new focused format allows us to give you better information by tailoring
the report specifically to the issues that are most relevant to you and your
fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds, including both taxable and tax-exempt funds.
- --------------------------------------------------------------------------------
U.S. Governments Short-Term
U.S. Governments Short-Term, which was established on December 15, 1982, is
intended for investors seeking income with limited price fluctuations. The fund
invests in securities of the U.S. government and its agencies and seeks to
maintain a weighted average maturity of three years or less.
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the twelve months ended October 31, 1996, inflation (as
measured by the consumer price index) rose at a 3.0% annualized rate. In light
of this lack of inflationary pressure, the Fed held short-term interest rates
steady from February through October.
U.S. Bond Market
Much like the economy, the U.S. bond market experienced several distinct
shifts during the 12 months ended October 31, 1996. The end result was slightly
positive performance across all maturity sectors. For example, the two-year
Treasury note posted a total return of 5.6% during the period, while the 30-year
Treasury bond returned 2.7%.
In late 1995, the bond market extended its year-long rally as the economy
continued to grow at a moderate pace. But bond yields soared during the first
and second quarters of 1996, when signs of stronger economic growth sparked
inflation fears. The 30-year Treasury bond yield, which had fallen as low as 6%
in January, rose above 7% by May as the market priced in an interest rate
increase by the Fed (see the accompanying graph).
Bonds traded listlessly throughout the summer, reflecting the market's
uncertainty about the economic outlook. But the Fed held short-term interest
rates steady through the end of the period, and increasing evidence of
moderating economic growth ultimately convinced the bond market that a rate hike
was unnecessary. This conclusion sparked a substantial rebound in bond prices,
causing Treasury yields to fall by 30-40 basis points (a basis point equals
0.01%) across the maturity spectrum in October.
U.S. government agency securities performed well versus Treasurys during the
period. While demand was strong for agency securities, issuance was relatively
light, causing yield spreads between agency and Treasury securities to tighten.
Mortgage-backed securities, with their higher yields, outperformed both Treasury
and agency securities during the period.
[line graph - data below]
Treasury Yield Curve
Years 10/31/95 4/30/96 10/31/96
1 5.541% 5.611% 5.404%
2 5.608 6.043 5.732
3 5.681 6.183 5.860
4 5.740 6.320 5.890
5 5.804 6.409 6.070
6 5.872 6.495 6.105
7 5.940 6.580 6.140
8 5.966 6.610 6.207
9 5.992 6.640 6.274
10 6.018 6.670 6.341
11 6.034 6.711 6.376
12 6.051 6.752 6.411
13 6.067 6.793 6.445
14 6.084 6.834 6.480
15 6.100 6.875 6.515
16 6.116 6.916 6.550
17 6.132 6.957 6.585
18 6.148 6.998 6.620
19 6.164 7.039 6.655
20 6.180 7.080 6.690
21 6.195 7.062 6.685
22 6.210 7.044 6.680
23 6.225 7.026 6.675
24 6.240 7.008 6.670
25 6.255 6.990 6.665
26 6.270 6.973 6.660
27 6.286 6.956 6.655
28 6.301 6.938 6.651
29 6.317 6.921 6.646
30 6.332 6.904 6.641
3
U.S. GOVERNMENTS SHORT-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Bob Gahagan, Vice President and Senior Portfolio Manager.
Q: How did the fund perform?
A: For the fiscal year ended October 31, 1996, the fund nearly kept pace with
its peer group average, producing a 5.09% total return versus the 5.15%
average total return for the 54 "Short U.S. Government Funds" tracked by
Lipper Analytical Services.
Q: How was the fund positioned during the period?
A: For most of the period, the fund was positioned similarly to many of its
peers in terms of duration and weighted average maturity. When government
employment reports showed signs of surging economic growth in the first and
second quarters of 1996, we shortened the fund's duration from just over
two years in January to around 1.7 years by June. When subsequent reports
showed that fears of brisk economic growth and wage inflation were
exaggerated, we began to cautiously extend the fund's duration.
Q: How did this affect the fund's performance?
A: The fund's performance was aided by its shorter duration in the spring and
summer when bond yields were moving higher. And though the fund's duration
was shorter than its peer group average when bonds rallied in September and
October 1996,
QUICK
FUND
FACTS
-----
U.S. GOVERNMENTS SHORT-TERM
---------------------------
Strategy:
Competitive level
of current income
with limited price volatility.
Inception date:
December 15, 1982
Size:
$349.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
U.S. Governments Merrill Lynch Govt.
Short-Term (1-3 Year) Index
---------- ----------------
1 Year 5.09% 5.91%
5 Years 4.94% 5.97%
10 Years 6.07% 7.20%
- --------------------------------------------------------------------------------
[pie chart]
Asset Allocation (as of October 31, 1996)
- --------------------------------------------------------------------------------
U.S. Government Agency Securities 26%
Mortgage-Backed Securities 30%
U.S. Treasury Securities 44%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over a 10-Year Period
Value on 10/31/96:
- ------------------
$18,027 U.S. Governments Short-Term
$20,049 Merrill Lynch Govt. (1-3 Year)
$14,064 Consumer Price Index*
$10,000
investment
made on 10/31/86
U.S. Governments Merrill Lynch Consumer Price Index
Short-Term Govt. (1-3 Year)
10/31/86 $10000 $10000 $10000
Dec-86 10067 10091 10018
Mar-87 10179 10217 10063
Jun-87 10133 10284 10189
Sep-87 10063 10302 10317
Dec-87 10452 10660 10356
Mar-88 10729 10942 10455
Jun-88 10828 11055 10590
Sep-88 10979 11216 10752
Dec-88 11041 11324 10814
Mar-89 11151 11465 10975
Jun-89 11723 12035 11137
Sep-89 11833 12210 11218
Dec-89 12145 12555 11317
Mar-90 12106 12667 11550
Jun-90 12400 13021 11657
Sep-90 12632 13332 11909
Dec-90 13061 13776 12008
Mar-91 13276 14079 12116
Jun-91 13503 14356 12205
Sep-91 14009 14839 12313
Dec-91 14581 15385 12376
Mar-92 14459 15409 12502
Jun-92 14853 15852 12583
Sep-92 15284 16325 12681
Dec-92 15221 16354 12735
Mar-93 15511 16716 12887
Jun-93 15642 16896 12960
Sep-93 15807 17138 13022
Dec-93 15857 17239 13084
Mar-94 15694 17153 13210
Jun-94 15655 17167 13281
Sep-94 15786 17337 13407
Dec-94 15778 17337 13434
Mar-95 16280 17920 13453
Jun-95 16775 18494 13551
Sep-95 17006 18771 13614
Dec-95 17437 19244 13641
Mar-96 17428 19308 13836
Jun-96 17590 19503 13924
Sep-96 17835 19825 14022
Oct-96 18027 20049 14064
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Merrill Lynch Government Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
4
October 31, 1996
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS SHORT-TERM
the fund managed to keep pace with its competitors because of the extra
return provided by its government agency and mortgage-backed securities.
Q: Can you elaborate?
A: Over the past year, we cut the fund's Treasury position from 83% to 44%,
moving these assets into government agency and mortgage-backed securities.
We've maintained a 20-30% weighting in mortgage-backeds throughout 1996.
The higher yields offered by these securities helped them to outperform
both Treasury and agency securities while bond prices languished for most
of the year.
In April, we began shifting some of the fund's Treasury holdings into
government agency securities, specifically callable agency notes, which
typically yield more than non-callables because of the added risk of the
call feature. Callable securities generally perform best if interest rates
remain in a relatively narrow range or move higher, as they did during the
last six months.
As of October 31, 26% of the fund's assets were invested in agency
securities. The higher yield provided by these agency notes, coupled with
the tightening of Treasury/agency yield spreads, enhanced fund performance.
(A "yield spread" is the difference between the yields of two different
types of debt securities with comparable maturities and is used to
determine their relative values.)
Q: What is your outlook for bonds over the next six months?
A: There is still considerable uncertainty regarding the strength of economic
growth going forward. While many market participants believe that growth
will slow significantly over the next few months, we think it possible that
consumer spending, which accounts for about two-thirds of the U.S. economy,
may not slow as much as some analysts expect. Currently, U.S. bond markets
seem appropriately priced for a steady Fed interest rate policy. As long as
economic data continue to support a steady monetary policy, we see no
reason for short- and intermediate-term interest rates to move dramatically
in either direction.
Q: How will this outlook affect your plans for the fund going forward?
A: We plan to maintain the fund's neutral duration until we see a significant
shift in market sentiment or economic fundamentals. If yield spreads
between Treasury and agency securities continue to tighten, our next move
would be to reduce our exposure to the agency market, which has performed
well relative to Treasurys over the last six months.
If we begin to see signs of a weakening economy, which could cause the Fed
to lower short-term interest rates, we would extend the fund's duration and
look to either (1) restructure our mortgage-backed position by selling
premium bonds (bonds trading above par value) and replacing them with
discount mortgage-backed securities, which tend to perform better than
premiums as rates fall; or (2) increase the fund's Treasury position by
reducing our holdings in mortgage-backed securities.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's rating) % of fund investments
AAA 100%
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.0
Weighted average maturity indicates the average time until the principal on the
Fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 1.7
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
<PAGE>
U.S. ECONOMIC REVIEW
JAMES M. BENHAM [photo of James
Chairman, Benham Funds M. Benham]
The U.S. economy grew at a healthy pace for the first three quarters of 1996,
confounding market analysts who predicted a significant slowdown. During 1995,
economic weakness prompted the Federal Reserve (the Fed) to make a series of
short-term interest rate cuts, culminating in a quarter-of-a-percent cut in
January 1996. This expansionary monetary policy helped speed the pace of U.S.
economic growth from an anemic 0.3% annual rate in the fourth quarter of 1995 to
2.0% in the first quarter of 1996. Growth expanded further to an impressive 4.7%
in the second quarter of the year (see the graph below).
[bar graph - data described below]
Stronger-than-expected corporate earnings fueled increased corporate expansion
and job growth. Nearly two million new jobs were created in the first nine
months of the year, sending the U.S. unemployment rate to a six-year low.
Healthy employment numbers and a strong performance by U.S. stocks led to fears
of inflationary pressure and expectations of an interest rate hike by the Fed.
As a result, U.S. bonds overall gave a lackluster performance.
But the expected surge in inflation failed to materialize. For the first nine
months of the year, inflation, as measured by the consumer price index (CPI),
grew at an annualized rate of 3.2%, compared to the 2.5% inflation rate for all
of 1995 (the lowest annual rate since 1986). Because of this apparent lack of
inflationary pressure, the Fed held interest rates steady through September.
But the economic picture remains uncertain. The economy grew at a 2.2% annual
rate in the third quarter, and recent economic data seem to suggest that the
economy may be slowing. Market participants are no longer sure that the Fed will
raise interest rates this year, and some even contend that the Fed's next move
may be toward lower rates. On the other hand, signs of wage inflation have
surfaced in recent employment reports. In spite of higher interest rates for
most of this year, the housing market has remained robust, and consumer
confidence is high, indicating that the U.S. consumer may still have some
spending power. Given the present state of economic uncertainty, it is likely
that shifting expectations of Fed interest rate policy may have more of an
impact on U.S. financial markets in the coming months than any actual move by
the Fed.
[graph data]
GDP (Annualized)
vs. Inflation (Consumer Price Index)
July 1994 - September 1996
GDP CPI
Jan-94 2.52%
Feb-94 2.51
Mar-94 2.50% 2.51
Apr-94 2.36
May-94 2.29
Jun-94 4.90 2.56
Jul-94 2.70
Aug-94 2.90
Sep-94 3.50 3.03
Oct-94 2.68
Nov-94 2.60
Dec-94 3.00 2.60
Jan-95 2.87
Feb-95 2.79
Mar-95 0.40 2.86
Apr-95 2.98
May-95 3.12
Jun-95 0.70 3.04
Jul-95 2.83
Aug-95 2.62
Sep-95 3.80 2.54
Oct-95 2.74
Nov-95 2.67
Dec-95 0.30 2.67
Jan-96 2.72
Feb-96 2.72
Mar-96 2.00 2.84
Apr-96 2.90
May-96 2.96
Jun-96 4.70 2.75
Jul-96 2.95
Aug-96 2.88
Sep-96 2.20 3.00
Source: Bloomberg Financial Markets
1
MARKET SUMMARY
TREASURY AND GOVT. AGENCY SECURITIES
by Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Treasury Market Overview
Despite some occasional volatility triggered by uncertainty about the strength
of the U.S. economy and the Fed's interest rate intentions, the Treasury bond
market held relatively steady during the six months ended September 30, 1996.
Overall, bond yields remained in a fairly narrow range, with the yield on the
30-year Treasury bond hovering between 6.75% and 7.25%. Bond returns for the
period were disappointing, ranging from about 2.50% for three-month Treasury
bills to -0.38% for 30-year Treasury bonds.
[line graph - data described below]
The accompanying graph illustrates the movement of the Treasury yield curve*
over the six-month period. For the first three months of the period, signs of
economic strength and fears of inflation caused an upward shift of the entire
curve as bond yields rose across the maturity spectrum. Yields peaked in early
July in the wake of a stronger-than-expected employment report.
But continued low inflation, lack of action by the Fed and hints of an economic
slowdown (discussed on page 1) helped bonds regain some of the ground they had
lost. The yield curve shifted downward through August and September, though
bonds traded listlessly, reflecting the market's continuing uncertainty about
the economic outlook. By the end of September, bond yields were still 25-30
basis points* higher across the yield curve than they had been at the end of
March.
Strong foreign demand helped support the Treasury market throughout the period.
Relatively high Treasury bond yields (especially compared to Japanese and other
Asian bonds) and the recent strength of the U.S. dollar in foreign exchange
markets (dollar holdings are typically invested in Treasurys) have driven
foreign central bank Treasury holdings to historically high levels.
[graph data]
Shifting Treasury Yield Curves
3/29/96 7/8/96 9/30/96
"1" 5.38% 5.95% 5.67%
5.75 6.42 6.09
5.88 6.6 6.25
6.02 6.69 6.29
"5" 6.08 6.81 6.45
6.18 6.865 6.495
6.28 6.92 6.54
6.293 6.96 6.593
6.307 7 6.647
"10" 6.32 7.04 6.7
6.372 7.067 6.733
6.424 7.094 6.766
6.476 7.121 6.799
6.528 7.148 6.832
"15" 6.58 7.175 6.865
6.632 7.202 6.898
6.684 7.229 6.931
6.736 7.256 6.964
6.788 7.283 6.997
"20" 6.84 7.31 7.03
6.823 7.297 7.019
6.806 7.284 7.008
6.789 7.271 6.997
6.772 7.258 6.986
"25" 6.755 7.245 6.975
6.738 7.232 6.964
6.721 7.219 6.953
6.704 7.206 6.942
6.687 7.193 6.931
"30" 6.67 7.18 6.92
Source: Bloomberg Financial Markets
2
MARKET SUMMARY
TREASURY AND GOVT. AGENCY SECURITIES
(Continued from the previous page)
Treasury vs. Agency Securities
Yield spreads* between Treasury and government agency securities continued to
tighten during the six-month period. Spreads narrowed slightly (by 3 basis
points in the two-year maturity sector and 6 basis points in the 30-year sector)
as agency yields rose in tandem with Treasury yields (see the graphs below).
Demand for agency issues was strong during the period as fund managers and
investors looked for additional yield. At the same time, issuance of agency
securities--especially in the longer-maturity sectors--was relatively light.
Agency issuance slowed from a projected annual rate of about $300 billion in the
first quarter of the year to an estimated $260 billion pace by the middle of
August. This combination of strong demand and light supply was a key factor in
keeping yield spreads tight.
The trend toward tightening Treasury/agency yield spreads may continue through
the end of the year. Agency security issuance continued to slow through
September. It is estimated that $8 to $9 billion in agency securities may be
called between October and December, but total issuance for 1996 is projected to
fall below 1995's $220 billion total volume unless there is a significant
increase in new issuance in the fourth quarter of the year.
[line graphs]
YIELD SPREADS
Treasury Curve vs. Agency Curve
3/29/96
Agency Treasury
"1" 5.57% 5.38%
5.9 5.75
6.06 5.88
6.24 6.02
"5" 6.31 6.08
6.425 6.18
6.54 6.28
6.573 6.293
6.607 6.307
"10" 6.64 6.32
6.698 6.372
6.756 6.424
6.814 6.476
6.872 6.528
"15" 6.93 6.58
6.988 6.632
7.046 6.684
7.104 6.736
7.162 6.788
"20" 7.22 6.84
7.212 6.822
7.204 6.804
7.196 6.786
7.188 6.768
"25" 7.18 6.75
7.172 6.734
7.164 6.718
7.156 6.702
7.148 6.686
"30" 7.14 6.67
9/30/96
Agency Treasury
"1" 5.87% 5.67%
6.22 6.09
6.38 6.25
6.56 6.29
"5" 6.61 6.45
6.71 6.495
6.81 6.54
6.88 6.593
6.95 6.647
"10" 7.02 6.7
7.05 6.732
7.08 6.764
7.11 6.796
7.14 6.828
"15" 7.17 6.86
7.218 6.894
7.266 6.928
7.314 6.962
7.362 6.996
"20" 7.41 7.03
7.412 7.018
7.414 7.006
7.416 6.994
7.418 6.982
"25" 7.42 6.97
7.4 6.96
7.38 6.95
7.36 6.94
7.34 6.93
"30" 7.32 6.92
Source: Bloomberg Financial Markets
TREASURY NOTE FUND
PERFORMANCE INFORMATION
For Periods Ended September 30, 1996
Net Asset 30-Day Average Annual Total Returns
Value Range SEC
- --------------------------------------------------------------------------------
(4/1/96-9/30/96) Yield 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$10.05-$10.28 6.20% 4.81% 4.05% 6.33% 6.81%
The Fund commenced operations on May 16, 1980.
PLEASE NOTE: Yields and total returns are based on historical Fund performance
and do not guarantee future results. The Fund's share price, yields and total
returns will vary, so that shares, when redeemed, may be worth more or less than
their original cost.
PERFORMANCE DEFINITIONS
Net Asset Value (NAV) Range indicates the Fund's share price movements over the
stated period and can be used to gauge the stability of the Fund's share price.
Yields are a way of showing the rate of income the Fund earns on its investments
as a percentage of its share price. The 30-Day SEC Yield represents net
investment income earned by the Fund over a 30-day period, expressed as an
annualized percentage rate based on the Fund's share price at the end of the
30-day period. 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.
Total Return figures show the overall dollar or percentage change in the value
of a hypothetical investment in the Fund and assume that all of the Fund's
distributions are reinvested. Average Annual Total Returns illustrate the
annually compounded returns that would have produced the Fund's cumulative total
returns if the Fund's performance had been constant over the entire period.
Average annual total returns smooth out variations in a fund's return; they are
not the same as year-by-year results. For fiscal year-by-year total returns,
please refer to the Fund's "Financial Highlights" on page 23.
SIX-MONTH TOTAL RETURN BREAKDOWN
For the Period Ended September 30, 1996
% From Realized
% From and Unrealized Losses Six-Month
Income + on Investments = Total Return
2.83% + (0.43)% = 2.40%
8
TREASURY NOTE FUND
SEC PERFORMANCE COMPARISON
[line graph]
Comparative Performance of $10,000 Invested on 9/30/86 in the Fund and in the
Merrill Lynch 1- to 10-Year Intermediate-Term U.S. Treasury Index
Index Fund
Sep-86 $10000 $10000
Oct-86 10123 10155
Nov-86 10224 10298
Dec-86 10243 10301
Jan-87 10331 10412
Feb-87 10391 10469
Mar-87 10348 10355
Apr-87 10179 9992
May-87 10169 9913
Jun-87 10284 10021
Jul-87 10304 9966
Aug-87 10274 9863
Sep-87 10139 9633
Oct-87 10458 10039
Nov-87 10516 10056
Dec-87 10615 10187
Jan-88 10883 10559
Feb-88 10996 10687
Mar-88 10948 10522
Apr-88 10934 10457
May-88 10873 10377
Jun-88 11050 10578
Jul-88 11023 10513
Aug-88 11032 10510
Sep-88 11223 10704
Oct-88 11376 10859
Nov-88 11277 10730
Dec-88 11287 10722
Jan-89 11398 10828
Feb-89 11351 10762
Mar-89 11407 10815
Apr-89 11618 10995
May-89 11862 11234
Jun-89 12164 11536
Jul-89 12413 11783
Aug-89 12240 11581
Sep-89 12302 11628
Oct-89 12554 11868
Nov-89 12677 11965
Dec-89 12709 12001
Jan-90 12637 11927
Feb-90 12668 11960
Mar-90 12693 11962
Apr-90 12649 11906
May-90 12916 12168
Jun-90 13084 12328
Jul-90 13272 12508
Aug-90 13215 12449
Sep-90 13335 12571
Oct-90 13521 12743
Nov-90 13722 12935
Dec-90 13917 13106
Jan-91 14058 13225
Feb-91 14132 13284
Mar-91 14208 13349
Apr-91 14355 13487
May-91 14437 13558
Jun-91 14452 13554
Jul-91 14608 13696
Aug-91 14881 13974
Sep-91 15134 14201
Oct-91 15305 14375
Nov-91 15485 14542
Dec-91 15863 14907
Jan-92 15703 14735
Feb-92 15762 14763
Mar-92 15698 14674
Apr-92 15842 14830
May-92 16067 15052
Jun-92 16300 15270
Jul-92 16603 15568
Aug-92 16794 15735
Sep-92 17027 15973
Oct-92 16817 15764
Nov-92 16743 15672
Dec-92 16963 15885
Jan-93 17280 16191
Feb-93 17539 16419
Mar-93 17605 16488
Apr-93 17744 16611
May-93 17691 16547
Jun-93 17950 16803
Jul-93 17987 16819
Aug-93 18262 17073
Sep-93 18340 17134
Oct-93 18373 17162
Nov-93 18284 17069
Dec-93 18356 17142
Jan-94 18538 17320
Feb-94 18275 17051
Mar-94 18019 16792
Apr-94 17897 16660
May-94 17915 16666
Jun-94 17928 16667
Jul-94 18150 16868
Aug-94 18207 16929
Sep-94 18061 16799
Oct-94 18065 16792
Nov-94 17975 16697
Dec-94 18043 16740
Jan-95 18342 16995
Feb-95 18693 17298
Mar-95 18796 17386
Apr-95 19012 17571
May-95 19555 18034
Jun-95 19683 18153
Jul-95 19696 18152
Aug-95 19857 18312
Sep-95 19991 18415
Oct-95 20215 18631
Nov-95 20468 18843
Dec-95 20676 19034
Jan-96 20853 19181
Feb-96 20620 18970
Mar-96 20521 18850
Apr-96 20456 18792
May-96 20445 18769
Jun-96 20645 18980
Jul-96 20708 19041
Aug-96 20731 18982
Sep-96 20994 19303
Past performance does not guarantee future results.
This graph compares the Fund's performance with a broad-based market index, the
Merrill Lynch One- to 10-Year Intermediate-Term U.S. Treasury Index, over 10
years. Although the investment characteristics of the Index are similar to those
of the Fund, the securities owned by the Fund and those composing the Index are
likely to be different, and securities that the Fund and the Index have in
common are likely to have different weightings in the respective portfolios.
Investors cannot invest directly in the Index.
PLEASE NOTE: The line representing the Fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Index's total return line does not.
LIPPER PERFORMANCE COMPARISON
Lipper Analytical Services (Lipper) is an independent mutual fund ranking
service located in Summit, NJ. Rankings are based on average annual total
returns for the periods ended 9/30/96 for the funds in Lipper's "Intermediate
U.S. Treasury Funds" category.
1 Year 3 Years 5 Years 10 Years
The Fund: 4.81% 4.05% 6.33% 6.81%
Category Average: 3.59% 3.58% 6.63% 6.81%
The Fund`s Ranking: 1 out of 12 4 out of 8 4 out of 4 1 out of 1
Total returns are based on historical performance and do not guarantee future
results.
KEY PORTFOLIO STATISTICS
9/30/96 3/31/96
Market Value: $301,977,425 $306,236,678
Number of Issues: 12 10
Average Coupon: 6.64% 6.89%
Average Maturity: 5.40 years 3.80 years
Average Duration: 4.34 years 3.08 years
For definitions of these terms, see page 17.
9
TREASURY NOTE FUND
MANAGEMENT DISCUSSION
with Dave Schroeder, Vice President & Senior Portfolio Manager
NOTE: The terms marked with an asterisk (*) are defined in the Investment
Fundamentals section (pages 16-20).
Q: How did the Fund perform?
A: Though the Fund's returns reflected the listless bond market
performance we've seen over the past six months, it performed very well
relative to its peers. For the six-month period, the Fund had a total
return of 2.40%, 61 basis points* higher than the average 1.79% return
for the funds in Lipper's "Intermediate U.S. Treasury Funds" category.
For the year ended September 30, 1996, the fund was ranked #1 out of
the 12 funds in its Lipper group (see the Lipper Performance Comparison
on page 9). Its 4.81% total return for the one-year period was 122
basis points higher than the 3.59% average one-year return for its
peers.
Q: Why did the Fund outperform its peers?
A: Historically, the Fund has been more conservatively positioned than
most of its peers, with a shorter duration and average maturity. When
bond prices plunged earlier in the year, the Fund's shorter duration
caused it to suffer less price depreciation than other
intermediate-term funds.
Q: I understand that you've adopted a new internal benchmark for the Fund.
Why?
A: To align the Fund more with its competitors. The Fund's old
benchmark--the Merrill Lynch One- to 10-Year Intermediate-Term U.S.
Treasury Index--typically had a shorter duration than the Fund's peers.
This gave the Fund a relatively conservative stance, causing it to
underperform its peers in a rising bond market while outperforming them
in a falling bond market. Shifting to the new benchmark--the Salomon
Brothers Three- to 10-Year U.S. Treasury Index--will allow the Fund to
behave more like its intermediate-term peers.
PORTFOLIO COMPOSITION BY MATURITY
[pie charts]
9/30/96 3/31/96
0-3 Years: 2% 0-3 Years: 32%
3-5 Years: 65% 3-5 Years: 48%
5-7 Years: 17% 5-7 Years: 17%
7-10 Years: 13% 10-30 Years: 3%
10-20 Years: 3%
The Fund's weighted average portfolio maturity is typically one to ten years.
10
TREASURY NOTE FUND
MANAGEMENT DISCUSSION
(Continued from the previous page)
Q: What changes did you make in the Fund's positioning to accommodate the
new benchmark?
A: We extended the Fund's duration from 3 years to 4.3 years. We
accomplished the duration extension by selling securities that matured
in less than three years and buying five-, seven- and 10-year
securities. This pushed the Fund's average maturity out from 3.8 years
at the end of March to 5.5 years at the end of September. We took
advantage of periods of bond market weakness to purchase the
longer-term securities at very attractive prices.
Q: Will investors notice a difference in the Fund's performance?
A: The Fund's longer duration means that its share price will tend to move
slightly more in response to market changes than it did in the past.
Specifically, it will show slightly more price appreciation when
interest rates fall and slightly more price depreciation when interest
rates rise.
Q: What are your plans for the Fund going forward?
A: In the near term, barring any significant shifts in market sentiment,
we will likely keep the Fund's duration roughly neutral to that of its
peer group and its new benchmark.
PORTFOLIO COMPOSITION BY SECURITY TYPE
[pie charts]
9/30/96 3/31/96
Treasury Notes: 97% Treasury Notes: 97%
Treasury Bonds: 3% Treasury Bonds: 3%
For definitions of these security types, see page 16.
<PAGE>
OUR MESSAGE TO YOU
The 12 months ended October 31, 1996, were distinguished by change, both in
the U.S. bond market and at Twentieth Century. After a rocky period in the first
half of 1996, bonds stabilized during the summer and enjoyed a rebound in
October. In the following pages, our investment management team provides some
further details about the market's changing direction and how your fund was
managed throughout the period.
Changing market conditions underscore the importance of quality investments.
Our commitment to quality securities is exemplified by the expansion of our
municipal credit research team. The three members of the team carry out in-depth
analysis on all securities considered for purchase by Twentieth Century/Benham
municipal money market and bond funds. Over the past year, the team established
a new credit management system that defines investment limits to cap our funds'
exposure to individual issuers, sectors or regions. The team plays an important
role in the management of the Tax-Exempt funds, helping to identify quality
securities with undervalued credit ratings.
[photo of James E. Stowers and James E. Stowers III]
On the corporate front, we completed the operational integration of
Twentieth Century and The Benham Group in September. As a result, you now have
direct access to a broader spectrum of funds and services, including the Benham
family of U.S. Treasury, government and municipal funds. Another integration
landmark is the new Twentieth Century Web site. If you use a personal computer
and have access to the Internet, we've made it easier for you to download
information about Twentieth Century and Benham funds and access your fund
accounts. You can view account balances, exchange shares between existing
accounts and make additional investments. The Web site address is:
www.twentieth-century.com. We are one of the first fund companies to offer
direct on-line transactions via the Internet.
In October, we announced the new name for our recently integrated company.
Beginning January 1, 1997, we will serve you under the name American Century
Investments, which reflects our expanded identity, the spirit of independence
common to Twentieth Century and Benham, and our optimism for a new century of
continued American prosperity. American Century's fund family will be divided
into three groups--the Benham Group, American Century Group and Twentieth
Century Group. Tax-Exempt Short-Term, Intermediate-Term and Long-Term will be
part of the Benham Group because the funds' investment style--tax-exempt
fixed-income--matches key attributes of that group.
You may have noticed that this annual report includes only Tax-Exempt
Short-Term, Intermediate-Term and Long-Term, whereas in the past it covered nine
funds. This new focused format allows us to give you better information by
tailoring the report specifically to the issues that are most relevant to you
and your fund.
We continue to work to provide you with information and services that we
believe are useful and convenient to you. Thank you for investing with us.
Sincerely,
/s/James E. Stowers
James E. Stowers
Chairman of the Board and Founder
/s/James E. Stowers III
James E. Stowers III
President and Chief Executive Officer
1
INVESTMENT PHILOSOPHY
Twentieth Century introduced its first fixed-income fund in 1982. Today,
with Twentieth Century's acquisition of The Benham Group, the combined company
offers 41 fixed-income funds, ranging from money market funds to long-term bond
funds and including both taxable and tax-exempt funds.
TAX-EXEMPT FUNDS
Tax-Exempt Short-Term, which was established on March 1, 1993, is intended
for investors who seek tax-exempt income and can accept some fluctuation in
principal. The fund invests primarily in short-term municipal bonds and seeks to
maintain a weighted average maturity of three years or less. However, as of
March 1, 1997, the weighted average maturity limitation will change. Please see
the management Q&A discussion on page 5 for an explanation.
Tax-Exempt Intermediate-Term, which was established on March 2, 1987, is
intended for investors who can accept fluctuation in the value of their
investment in order to earn a higher level of tax-exempt income than is
generally available from tax-exempt short-term bonds. The Fund invests in
tax-exempt bonds and seeks to maintain a weighted average maturity of 3-10
years.
Tax-Exempt Long-Term, which was established on March 2, 1987, is intended
for investors who seek a higher level of tax-exempt income and can accept the
greater degree of price volatility associated with longer-term bonds. The fund
invests in longer-term tax-exempt bonds and seeks to maintain a weighted average
maturity of 10 years or more.
Portfolio Management Team
- --------------------------------------------------------------------------------
Dave MacEwen, Vice President & Senior Municipal
Portfolio Manager
Joel Silva, Municipal Portfolio Manager
Municipal Credit Analysis Team
- --------------------------------------------------------------------------------
Steven Permut, Municipal Credit Research Manager
Scott Lord, Credit Analyst
Bill McClintock, Credit Analyst
2
October 31, 1996
- --------------------------------------------------------------------------------
PERIOD OVERVIEW
U.S. Economy
A series of interest rate cuts by the Federal Reserve (the Fed) beginning in
1995 and culminating in January 1996 helped the U.S. economy rebound in 1996. An
improving retail sector, surging auto sales and a resilient housing market
helped the economy expand at an impressive 4.7% annual rate in the second
quarter of 1996. The economy remained strong throughout the summer as healthy
employment growth sent the national unemployment rate to a six-year low of 5.1%.
However, this trend appeared to reverse itself in the third quarter as economic
growth slowed to a more sedate 2.2% annual pace. Some recent economic data seem
to suggest that slowing could continue, but there has been enough conflicting
evidence to cause considerable uncertainty about the rate of growth going
forward.
In spite of the second-quarter surge in growth, inflation remained tame
during the period. For the twelve months ended October 31, inflation (as
measured by the consumer price index) rose at a 3.0% annualized rate. In light
of this lack of inflationary pressure, the Fed held short-term interest rates
steady from February through October.
U.S. Municipal Bond Market
Although U.S. bonds finished the fiscal year ended October 31, 1996, in the
midst of a rally, the overall period was not always a pleasant one for
investors. After ending 1995 with bullish optimism, market expectations turned
bearish during the first quarter of 1996 because of an unexpected economic
growth surge that ignited inflation fears and caused the bond market to sell
off. As a result, the yield curve--a graphic representation of the relationship
between bond maturities and returns--rose from February to April (see the graph
below).
While municipal bond (muni) prices headed lower, Treasury securities
(Treasurys) fell further; as a result, munis significantly outperformed
Treasurys during the first ten months of 1996. Much of the strong performance of
munis early in 1996 can be attributed to the dissipation of flat-tax fears,
which had a negative effect on munis in 1995 and caused them to be inexpensively
priced compared to Treasurys. As the Dole/ Kemp ticket with its flat-tax
platform lost steam during the months preceding the election, concern over tax
reform disappeared.
Once it became official that the balance of power between the Democratic
White House and deficit-wary Republican Congress would continue, optimism grew
that the status-quo election results would allow bond investors to continue
enjoying favorable returns. In addition, historically low levels of muni
issuance that supported bond prices in 1995 continued to work in munis' favor
during 1996. These bond-friendly factors, combined with subdued inflation
levels, fueled a strong rally that sent muni yields sharply lower from October
through early November.
[line graph - data below]
Municipal Yield Curve
Years 11/1/95 4/30/96 10/31/96
1 3.630% 3.640% 3.650%
2 3.830 3.980 3.950
3 3.980 4.190 4.150
4 4.100 4.340 4.300
5 4.200 4.490 4.400
6 4.300 4.600 4.500
7 4.400 4.710 4.600
8 4.500 4.810 4.700
9 4.600 4.910 4.800
10 4.700 5.010 4.900
11 4.806 5.104 4.984
12 4.912 5.198 5.068
13 5.018 5.292 5.152
14 5.124 5.386 5.236
15 5.230 5.480 5.320
16 5.276 5.518 5.352
17 5.322 5.556 5.384
18 5.368 5.594 5.416
19 5.414 5.632 5.448
20 5.460 5.670 5.480
21 5.476 5.678 5.488
22 5.492 5.686 5.496
23 5.508 5.694 5.504
24 5.524 5.702 5.512
25 5.540 5.710 5.520
26 5.544 5.714 5.524
27 5.548 5.718 5.528
28 5.552 5.722 5.532
29 5.556 5.726 5.536
30 5.560 5.730 5.540
3
CREDIT REVIEW AND ANALYSIS
The favorable national economic trends outlined in the Period Overview on
page 3 led to further improvements in municipal credit quality. Credit upgrades
outpaced downgrades by more than a 4-to-1 ratio during the first three quarters
of 1996. This contrasted sharply with the start of 1995, when credit downgrades
were predominant.
Regionally, the Rocky Mountain and Southwest states continued to display the
strongest economic growth in the nation, and this strength has now extended to
the West Coast (see the accompanying map). California's economy in particular is
growing at a faster rate than the nation as a whole, having fully recovered from
its economic downturn in the early 1990s. Florida and the Southeastern portions
of the country are also showing strong growth, while growth is relatively steady
in the Midwest. Overall, the Northeast and Great Lakes regions are the only
lagging areas, though they have seen improving economic conditions in 1996.
Credit Quality Trends
[map of the United States]
General obligation bonds have benefited from the stronger economic
environment that has fueled increased tax revenues. However, federal welfare
reform enacted in the third-quarter of 1996 may pose longer-term credit concerns
for both state and local governments. Among other specific sectors, health care
issues continued to suffer credit pressures due to a widespread trend toward
managed care. Public power issues in specific regions also experienced
competitive pressures stemming from the partial deregulation of the electric
utilities industry. We will continue to monitor these and other credit issues as
they develop.
It is important to note that this type of sector analysis provides only a
glimpse of broader trends within the municipal marketplace. While such analysis
remains an important element in municipal research, growing market complexity
and issue disparities point to a continuing need for thorough case-by-case
analysis.
4
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT SHORT-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 4.26%,
compared with the 3.95% average return of the 30 "Short Municipal Debt
Funds" tracked by Lipper Analytical Services.
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund was positioned more aggressively
than many of its peers, with the fund's portfolio holdings more heavily
weighted toward the long and short ends of the fund's bond-maturity
spectrum. This positioning allowed the fund to benefit from the bond rally
that lasted into the first quarter of 1996. After the end of the first
quarter, we began to shorten the fund's average maturity as evidence of a
strengthening economy caused the market to sell off. By the end of April,
the average maturity was down to 2.4 years, and it remained close to that
mark through the end of the period. While shortening the fund's average
maturity, we took the opportunity to sell some discount bonds (bonds that
are trading at less than face value) and used the proceeds to purchase
premium
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
SHORT-TERM
- --------------------------------------------------------------------------------
Strategy:
Tax-exempt income
with limited principal
fluctuations.
Inception date:
March 1, 1993
Size:
$49.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Merrill Lynch Muni
Short-Term (0-3 Year) Index
6 Months+ 2.38% 2.24%
1 Year 4.26% 4.17%
Inception 4.23% 4.11%
(3/1/93 to 10/31/96)
+Cumulative total return
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
[pie chart]
General Obligation Bonds 36%
Electric Revenue 17%
Lease/Certificate of Participation 13%
Housing Revenue 5%
Higher Education 4%
Industrial Development Revenue 3%
Water and Sewer Revenue 3%
Other Tax-Exempt Securities 19%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
- ------------------
$11,640 Tax-Exempt Short-Term
$11,593 Merrill Lynch Muni (0-3 Year) Index
$11,060 Consumer Price Index*
$10,000
investment
made on 3/1/93
(Inception date)
Tax-Exempt Short-Term Merrill Lynch Muni (0-3 Year) Consumer Price Index
3/1/93 $10000 $10000 $10000
Mar-93 10014 9993 10035
Jun-93 10132 10112 10091
Sep-93 10227 10151 10140
Dec-93 10336 10323 10188
Mar-94 10322 10320 10286
Jun-94 10426 10397 10342
Sep-94 10524 10500 10440
Dec-94 10592 10459 10461
Mar-95 10791 10694 10580
Jun-95 10965 10905 10657
Sep-95 11111 11065 10706
Dec-95 11307 11214 10728
Mar-96 11365 11326 10881
Jun-96 11436 11404 10951
Sep-96 11565 11536 11027
Oct-96 11640 11593 11060
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Merrill Lynch Muni Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
5
- --------------------------------------------------------------------------------
TAX-EXEMPT SHORT-TERM
bonds(bonds trading above face value). We also distributed the fund's
portfolio holdings more evenly across the bond-maturity spectrum. This
neutral posture allows us to more quickly adjust the fund if market
conditions suddenly shift.
Q: As of March 1, 1997, the fund's name will change to the "Tax-Exempt
Limited-Term Fund." Why the change?
A: According to Securities and Exchange Commission (SEC) guidelines, a
"short-term" fund cannot extend its average maturity beyond three years. To
improve the fund's performance when market conditions are favorable, we
want the flexibility to extend the fund's maturity up to five years and
vary the fund's portfolio structure to a greater degree. The name change
will allow us to take advantage of an area in the bond market that we feel
has stronger growth potential than the one- to three-year maturity sector.
Q: Will this result in any significant change in the fund's performance?
A: Yes. We are hopeful that the change will allow us to provide stronger
risk-adjusted returns in the long run. Changing to a "limited-term" fund
will allow us to extend the fund's average maturity and duration when
appropriate. As a result, we will be able to do more value-added trading in
an attempt to improve the fund's performance. However, the longer average
maturity will increase the fund's share-price volatility. While the longer
average maturity will benefit shareholders when interest rates are falling,
it will have the opposite effect when interest rates are rising.
Q: What is the outlook for munis going forward?
A: Currently, slowing economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. With consumer confidence at such high levels
and with the steady increase in consumer income this year, a strong turnout
during the holiday season could awaken the prospects for inflation. As a
result, the outlook for bonds in general is rather uncertain. However, in
the muni market we expect supply and demand factors to continue working in
munis' favor for the near future. The historically low muni issuance was a
major factor helping to support prices during the past year.
Q: Given this situation, what are your plans for the fund over the next six
months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's average maturity and duration in a narrow range
around this stance when appropriate. If the economic outlook does change
dramatically, we believe the fund is positioned to respond appropriately.
In addition, we will continue to utilize our strong credit research team to
search out securities with undervalued credit ratings that we believe have
the potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 45%
AA 20%
A 19%
BBB 16%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.3
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 2.1
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Short-Term schedule of investments begins on page 11.
6
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Joel Silva, a municipal portfolio manager on the Tax-Exempt
Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 4.47%,
compared with the 4.34% average return of the 134 "Intermediate Municipal
Debt Funds" tracked by Lipper Analytical Services.
Q: Why did the fund perform well against its peers?
A: One contributing factor was the fund's large contingent of premium
noncallable bonds. (Premium bonds trade at prices above face value.)
Noncallable bonds cannot be repurchased prior to maturity by the issuer and
replaced with lower-yielding securities if interest rates decline. Despite
the market's gyrations, these premium noncallable bonds performed even
better than expected, and we sold many of them near the end of the period
at a substantial profit. In addition, our strong credit research staff made
many accurate assessments of specific credit situations throughout the U.S.
The credit team's diligent work led to the purchase of many undervalued
securities that subsequently appreciated in value.
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
INTERMEDIATE-TERM
- --------------------------------------------------------------------------------
Strategy:
High level of tax-
exempt income.
Inception date:
March 2, 1987
Size:
$80.6 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Lehman 5-Year Gen.
Intermediate-Term Obligation Index
6 Months+ 3.30% 3.17%
1 Year 4.47% 4.81%
5 Years 6.09% 6.35%
Inception 5.94% 6.37%
(3/2/87 to 10/31/96)
+Cumulative total return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
Hospital Revenue 18%
General Obligation Bonds 14%
Water and Sewer Revenue 11%
Electric Revenue 9%
Higher Education 7%
Lease/Certificate of Participation 4%
Transportation Revenue 4%
Housing Revenue 3%
Other Tax-Exempt Securities 30%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$17,465 Tax-Exempt Intermediate-Term
$18,167 Lehman 5-Year General Obligation Index
$14,179 Consumer Price Index*
$10,000
investment
made on 3/2/87
(Inception date)
Tax-Exempt Lehman 5-Year Consumer Price Index
Intermediate-Term General Obligation
3/2/87 $10000 $10000 $10000
Mar-87 9958 9943 10045
Jun-87 9856 9852 10171
Sep-87 9720 9649 10299
Dec-87 10036 10017 10338
Mar-88 10235 10328 10436
Jun-88 10402 10371 10571
Sep-88 10521 10489 10732
Dec-88 10640 10553 10795
Mar-89 10630 10524 10956
Jun-89 10964 11018 11117
Sep-89 11070 11141 11198
Dec-89 11349 11474 11296
Mar-90 11394 11529 11529
Jun-90 11575 11787 11636
Sep-90 11700 11912 11888
Dec-90 12062 12307 11986
Mar-91 12316 12572 12094
Jun-91 12505 12792 12184
Sep-91 12885 13246 12291
Dec-91 13275 13690 12353
Mar-92 13348 13679 12479
Jun-92 13720 14124 12561
Sep-92 13976 14475 12659
Dec-92 14228 14705 12712
Mar-93 14581 15079 12864
Jun-93 14925 15435 12936
Sep-93 15305 15768 12998
Dec-93 15518 15962 13061
Mar-94 14969 15459 13186
Jun-94 15142 15667 13257
Sep-94 15262 15793 13383
Dec-94 15198 15741 13410
Mar-95 15832 16380 13563
Jun-95 16194 16798 13662
Sep-95 16575 17257 13725
Dec-95 17011 17572 13752
Mar-96 16927 17629 13949
Jun-96 16976 17705 14038
Sep-96 17280 17993 14136
Oct-96 17465 18167 14179
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman 5-Year General Obligation Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
7
- --------------------------------------------------------------------------------
TAX-EXEMPT INTERMEDIATE-TERM
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund was positioned more aggressively
than many of its peers, with its portfolio holdings more heavily weighted
toward the long and short ends of the fund's bond-maturity spectrum. This
positioning allowed the fund to benefit from the bond rally that lasted
into the first quarter of 1996. After the end of the first quarter, we
began to shorten the fund's average maturity as evidence of a strengthening
economy caused the market to sell off. By the end of April, the average
maturity was down to 7.3 years, and it remained close to that mark through
the end of the period. While shortening the fund's average maturity, we
took the opportunity to sell some longer discount bonds (bonds trading at
less than face value) and used the proceeds to purchase premium noncallable
bonds. We also distributed the fund's portfolio holdings more evenly across
the bond-maturity spectrum. This neutral posture allows us to more quickly
adjust the fund if market conditions suddenly shift.
Q: You significantly decreased your holdings of California munis while
increasing your holdings of New York munis. Why?
A: In late 1995, we purchased some California munis at very attractive prices.
As California's economy continued to improve throughout the period, the
securities appreciated in value. In the third quarter of 1996, New York
issued a larger-than-normal amount of munis at very attractive prices. To
take advantage of this situation, we sold many of the California munis at a
profit and used the proceeds to purchase some of the New York munis.
Q: What is the outlook for munis going forward?
A: Currently, slowing U.S. economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. With consumer confidence at such high levels
and the steady increase in consumer income this year, a strong turnout
during the holiday season could increase the prospects for inflation. As a
result, the outlook for bonds in general is rather uncertain. However, in
the muni market we expect supply and demand factors to continue working in
munis' favor for the near future.
Q: Given this situation, what are your plans for the Fund over the next six
months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's average maturity and duration in a narrow range
around this stance when appropriate. If the economic outlook does change
dramatically, we believe the fund is positioned to respond appropriately.
In addition, we will continue to utilize our strong credit research team to
search out securities with undervalued credit ratings that we believe have
the potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 75%
AA 9%
A 11%
BBB 5%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 7.1
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 5.3
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Intermediate-Term schedule of investments begins on page 13.
8
October 31, 1996
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
- --------------------------------------------------------------------------------
Management Q & A
An interview with Dave MacEwen, vice president and a senior municipal
portfolio manager on the Tax-Exempt Bond funds management team.
Q: How did the fund perform?
A: The fund managed a strong performance in comparison with its peers. For the
fiscal year ended October 31, 1996, the fund's total return was 5.60%,
compared to the 5.11% average return of the 228 "General Municipal Debt
Funds" tracked by Lipper Analytical Services.
Q: Why did the fund perform well against its peers?
A: One contributing factor was the fund's large contingent of premium
noncallable bonds. (Premium bonds trade at prices above face value.)
Noncallable bonds cannot be repurchased prior to maturity by the issuer and
replaced with lower-yielding securities if interest rates decline. Despite
the market's gyrations, these premium noncallable bonds performed even
better than expected, and we sold many of them near the end of the period
at a substantial profit. In addition, our strong credit research staff made
many accurate assessments of specific credit situations throughout the U.S.
The credit team's diligent work led to the purchase of many undervalued
securities that subsequently appreciated in value.
QUICK
FUND
FACTS
- --------------------------------------------------------------------------------
TAX-EXEMPT
LONG-TERM
- --------------------------------------------------------------------------------
Strategy:
High level of tax-
exempt income.
Inception date:
March 2, 1987
Size:
$60.8 million
(as of October 31, 1996)
- --------------------------------------------------------------------------------
Average Annual Total Returns
(as of October 31, 1996)
Tax-Exempt Lehman Muni
Long-Term Bond Index
6 Months+ 5.39% 4.54%
1 Year 5.60% 5.70%
5 Years 7.19% 7.50%
Inception 7.13% 7.53%
(3/2/87 to 10/31/96)
+Cumulative total return
[pie chart]
- --------------------------------------------------------------------------------
Asset Allocation (as of October 31, 1996)
General Obligation Bonds 18%
Electric Revenue 16%
Water and Sewer Revenue 14%
Lease/Certificate of Participation 8%
Higher Education 5%
Industrial Development Revenue 5%
Hospital Revenue 3%
Prerefunded Bonds 3%
Other Tax-Exempt Securities 28%
Percent of fund investments.
[mountain graph - data below]
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
Value on 10/31/96:
$19,455 Tax-Exempt Long-Term
$20,181 Lehman Muni Bond Index
$14,179 Consumer Price Index*
$10,000
investment
made on 3/2/87
(Inception date)
Tax-Exempt Long-Term Lehman Muni Bond Consumer Price Index
3/2/87 $10000 $10000 $10000
Mar-87 9962 9894 10045
Jun-87 9562 9625 10171
Sep-87 9179 9385 10299
Dec-87 9852 9805 10338
Mar-88 10094 10142 10436
Jun-88 10289 10339 10571
Sep-88 10572 10604 10732
Dec-88 10872 10802 10795
Mar-89 10919 10873 10956
Jun-89 11570 11517 11117
Sep-89 11470 11525 11198
Dec-89 11910 11967 11296
Mar-90 11821 12021 11529
Jun-90 12124 12302 11636
Sep-90 12017 12310 11888
Dec-90 12644 12840 11986
Mar-91 12838 13131 12094
Jun-91 13054 13412 12184
Sep-91 13594 13933 12291
Dec-91 14163 14400 12353
Mar-92 14175 14443 12479
Jun-92 14713 14991 12561
Sep-92 15080 15389 12659
Dec-92 15240 15670 12712
Mar-93 15786 16251 12864
Jun-93 16282 16782 12936
Sep-93 16863 17349 12998
Dec-93 17092 17592 13061
Mar-94 16159 16627 13186
Jun-94 16267 16809 13257
Sep-94 16368 16925 13383
Dec-94 16137 16683 13410
Mar-95 17215 17863 13563
Jun-95 17577 18293 13662
Sep-95 18065 18818 13725
Dec-95 19122 19596 13752
Mar-96 18596 19360 13949
Jun-96 18673 19508 14038
Sep-96 19223 19954 14136
Oct-96 19455 20181 14179
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. The line representing the fund's total return includes operating
expenses (such as transaction costs and management fees) that reduce returns,
while the Lehman Muni Bond Index's total return line does not.
*Source: Lipper Analytical Services, Inc.
9
- --------------------------------------------------------------------------------
TAX-EXEMPT LONG-TERM
Q: Why and how did you change the fund's position over the fiscal year?
A: During late 1995 and early 1996, the fund's duration was positioned more
aggressively than many of its peers, and its portfolio holdings were more
heavily weighted toward the long and short ends of the fund's bond-maturity
spectrum. This positioning allowed the fund to benefit from the bond rally
that lasted into the first quarter of 1996. After the end of the first
quarter, we began to shorten the fund's duration as evidence of a
strengthening economy caused the market to sell off. By the end of April,
the duration was down to 8.2 years, and it remained close to that mark
through the end of the period. While shortening the fund's duration, we
took the opportunity to sell some long discount bonds (bonds that are
selling at less than face value) and used the proceeds to purchase premium
noncallable bonds. We also distributed the fund's portfolio holdings more
evenly across the bond-maturity spectrum. This neutral posture allows us to
more quickly adjust the fund if market conditions suddenly shift.
Q: You significantly decreased your holdings of California munis while
increasing your holdings of New York munis. Why?
A: In late 1995, we purchased some California munis at very attractive prices.
As California's economy continued to improve throughout the period, the
securities appreciated in value. In the third quarter of 1996, New York
issued a larger-than-normal amount of munis at very attractive prices. To
take advantage of this situation, we sold many of the California munis at a
profit and used the proceeds to purchase some of the New York munis.
Q: What is the outlook for munis going forward?
A: Currently, slowing U.S. economic growth is benefiting all fixed-income
securities, but the holiday shopping season could have a significant impact
upon the inflation outlook. As a result, the outlook for bonds in general
is rather uncertain despite the recent rally in interest rates. On a
positive note, we expect supply and demand factors to continue working in
munis' favor for the near future.
Q: What are your plans for the fund over the next six months?
A: We will likely maintain the fund's neutral posture, lengthening or
shortening the fund's duration in a narrow range around this stance when
appropriate. If the economic outlook does change dramatically, we believe
the fund is positioned to respond appropriately. In addition, we will
continue to utilize our strong credit research team to search out
securities with undervalued credit ratings that we believe have the
potential to appreciate in value.
Quality Diversification (as of October 31, 1996)
- --------------------------------------------------------------------------------
(Moody's ratings)% of fund investments
AAA 54%
AA 24%
A 12%
BBB 10%
------
100%
======
Weighted Average Maturity (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 17.8
Weighted average maturity indicates the average time until the principal on the
fund's bond portfolio is expected to be repaid, weighted by dollar amount.
Duration (as of October 31, 1996)
- --------------------------------------------------------------------------------
Years 8.3
Duration is a measure of the sensitivity of a portfolio to changes in interest
rates. As the duration of a fund increases, the impact of a change in interest
rates on the value of its portfolio also increases.
Tax-Exempt Long-Term schedule of investments begins on page 16.
APPENDIX III
STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Acquiring Fund's shareholders (other than the Limited-Term
Tax-Free Fund) is currently considering a proposal to modify its fundamental
investment restrictions to those set forth in the following table in order to
make them consistent with the other funds within the American Century family of
funds. These fundamental investment restrictions cannot be changed without the
approval a fund's shareholders. The Limited-Term Tax-Free Fund was established
with the following fundamental investment restrictions already in place.
Accordingly, no shareholder vote is needed to amend that fund's fundamental
investment restrictions.
STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS
- -------------------------- ----------------------------------------------------
CATEGORY PROPOSED LIMITATION
- -------------------------- ----------------------------------------------------
SENIOR SECURITIES The funds shall not issue senior securities, except
as permitted under the Investment Company Act
of 1940.
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
BORROWING The funds shall not borrow money, except that a fund
may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not
exceeding 33-1/3% of the fund's total assets
(including the amount borrowed) less liabilities
(other than borrowings).
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
LENDING The funds shall not lend any security or make any
other loan if, as a result, more than 33-1/3% of a
fund's total assets would be lent to other parties,
except, (i) through the purchase of debt securities
in accordance with its investment objective, policies
and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
REAL ESTATE The funds shall not purchase or sell real estate
unless acquired as a result of ownership of
securities or other instruments. This policy shall
not prevent a fund from investment in
securities or other instruments backed by real estate
or securities of companies that deal in real estate
or are engaged in the real estate business.
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
CONCENTRATION The funds shall not concentrate their investments in
securities of issuers in a particular industry
(other than securities issued or guaranteed by the
U.S. government or any of its agencies or
instrumentalities).
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
UNDERWRITING The funds shall not act as an underwriter of
securities issued by others, except to the extent
that a fund may be considered an underwriter within
the meaning of the Securities Act of 1933 in the
disposition of restricted securities.
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
COMMODITIES The funds shall not purchase or sell physical
commodities unless acquired as a result of ownership
of securities or other instruments; provided that
this limitation shall not prohibit a fund from
purchasing or selling options and futures contracts
or from investing in securities or other instruments
backed by physical commodities.
- -------------------------- ----------------------------------------------------
- -------------------------- ----------------------------------------------------
INVESTING FOR CONTROL The funds shall not invest for purposes of exercising
control over management.
- -------------------------- ----------------------------------------------------
<PAGE>
APPENDIX IV
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS
The existing fundamental investment restrictions for each of the
Acquired Funds (other than the Limited-Term Tax-Free Fund) is set forth in the
table below. In the event that the shareholders of an Acquiring Fund do not
approve the limitations set forth in Appendix III, the limitations set forth
below will remain as fundamental investment restrictions for that fund.
<TABLE>
<CAPTION>
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
INTERMEDIATE-TERM TAX-FREE FUND
INTERMEDIATE-TERM TREASURY FUND AND LONG-TERM TAX-FREE FUND
CATEGORY ARM FUND
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C> <C>
SENIOR SECURITIES Issue or sell any class of Issue or sell any class of senior Issue or sell any class of senior
senior security as defined in security, except to the extent security as defined in the
the Investment Company Act of that notes evidencing temporary Investment Company Act of 1940
1940 except to the extent that borrowing might be deemed such. except to the extent that
notes evidencing temporary transactions in options, futures,
borrowings or the purchase of options on futures, other
securities on a when-issued or interest rate hedging
delayed-delivery basis might be instruments, notes evidencing
deemed such. temporary borrowings, or the
purchase of securities on a
when-issued or delayed-delivery
basis might be deemed such.
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
BORROWING Borrow money in excess of 331/3% Borrow money except from a bank as Borrow money in excess of 331/3%
of the market value of its total a temporary measure to satisfy of the market value of its total
assets, and then only from a redemption requests, or for assets, and then only from a
bank and as a temporary measure extraordinary or emergency bank and as a temporary measure
to satisfy redemption requests purposes and then only in an to satisfy redemption requests
or for extraordinary or amount not exceeding 331/3% of the for extraordinary or emergency
emergency purposes, and provided market value of the fund's total purposes, and provided that
that immediately after any such assets, so that immediately after immediately after any such
borrowing there is an asset any such borrowing there is an borrowing there is an asset
coverage of at least 300 per asset coverage of at least 300 per coverage of at least 300 per
centum for all such borrowings. centum for all such borrowings. centum for all such borrowings.
To secure any such borrowing, To secure any such borrowing, the To secure any such borrowing, the
the fund may pledge or fund may not pledge or hypothecate fund may not mortgage, pledge, or
hypothecate not in excess of in excess of 331/3% of the value hypothecate in excess of 331/3%
331/3% of the value of its total of its total assets. The fund of the value of its total
assets. The fund will not will not purchase any security assets. The fund will not
purchase any security while while borrowings representing more purchase any security while
borrowings representing more than 5% of its total assets are borrowings representing more than
than 5% of its total assets are outstanding. 5% of its total assets are
outstanding. outstanding.
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
LENDING Make loans to others, except for Lend money other than through the The funds shall not lend any
the lending of portfolio purchase of debt securities in security or make any other loan
securities pursuant to accordance with its investment if, as a result, more than
guidelines established by the policy (this restriction does not 33-1/3% of a fund's total assets
Board of Trustees or for the apply to repurchase agreements). would be lent to other parties,
purchase of debt securities in except, (i) through the purchase
accordance with the fund's of debt securities in accordance
investment objective and with its investment objective,
policies. policies and limitations, or (ii)
by engaging in repurchase
agreements with respect to
portfolio securities.
- ------------------- ---------------------------------- ------------------------------------ -----------------------------------
- ------------------- ---------------------------------- ------------------------------------ ------------------------------------
UNDERWRITING Act as an underwriter of N/A The funds shall not act as an
securities issued by others. underwriter of securities issued
by others, except to the extent that a
fund may be considered an underwriter
within the meanin of the Securities
Act of 1933 in the disposition of
restricted securities.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
REAL ESTATE AND Purchase, sell, or invest in real Purchase or sell real estate, Purchase, sell, or invest in real
COMMODITIES estate, commodities, commodity commodities, or commodity estate, commodities, commodity
contracts, foreign exchange, or contracts, or buy and sell foreign contracts, foreign exchange, or
interest in oil, gas, or other exchange. interests in oil, gas, or other
mineral exploration or mineral exploration or development
development programs, provided programs, provided that this
that this limitation shall not limitation shall not prohibit the
prohibit the purchase of U.S. purchase of municipal securities
government securities and other and other debt securities secured
debt securities secured by real by real estate or interests
estate or interests therein. therein, and shall no prohibit the
fund from purchasing, selling, or
entering into options on securities or
indexes of securities, futures
contracts, options on futures
contracts, or any other interest rate
hedging instrument, subject to the
fund's compliance with applicable
provisions of the federal securities or
commodities laws.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
SHORT-SALES Engage in any short-selling Engage in any short-selling Engage in any short-selling
operations operations. operations, except that the fund
may purchase, sell, or enter into short
positions in options on securities or
indexes of securities, futures contracts,
options on futures contracts, and any
other interest rate hedging instrument
as may be permitted under the federal
securities or commodities laws.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
EQUITY Purchase any equity securities in N/A N/A
SECURITIES any companies, including warrants
or bonds with warrants attached,
or any preferred stocks,
convertible bonds, or convertible
debentures.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
U.S. TREASURY N/A Purchase the securities of any N/A
SECURITIES issuer other than the U.S.
Treasury. This restriction
shall not apply to
repurchase agreements
consisting of U.S.
government securities or
to purchases by the fund
of shares of other
investment companies,
provided that not more
than 3% of such investment
company's outstanding
shares would be held by
the fund, not more that 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.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
OTHER Acquire or retain the securities See Limitation on "U.S. Treasury Acquire or retain the securities
INVESTMENT of any other investment company Securities" above. of any other investment company,
COMPANIES if, as a result, more than 3% of except that the fund may, for
such investment company's temporary purposes, purchase
outstanding shares would be held shares of the American Century
by the fund, more than 5% of the Money Market Fund, subject to such
value of the fund's assets would restrictions as may be imposed by
be invested in shares of such (i) the Investment Company Act of
investment company, or more that 1940 and rules thereunder or (ii)
10% of the value of the fund's any state in which shares of the
assets would be invested in fund are registered, and may
shares of investment companies in acquire shares of any investment
the aggregate, or except in company in connection with a
connection with a merger, merger, consolidation,
consolidation, acquisition, or acquisition, or reorganization.
reorganization.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
MARGIN Engage in margin transactions or Engage in margin transactions or Engage in margin transactions,
TRANSACTIONS in transactions involving puts, in transactions involving puts, except that it may purchase, sell,
calls, straddles, or spreads. calls, straddles, or spreads. or enter into positions in options
on securities or indexes of
securities, futures contracts,
options on futures contracts, and
other interest rate hedging
instruments, and may make margin
deposits in connection therewith,
and may purchase and hold
securities with rights to put
securities to the seller (standby
commitments) in accordance with
its investments techniques.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
RESTRICTED Invest in securities that are not Invest in portfolio securities N/A
SECURITIES readily marketable or the that the fund may not be free to
disposition of which is sell to the public without
restricted under federal registration under the Securities
securities laws. (collectively, Act of 1933 or the taking of
"illiquid securities") if, as a similar actions under other
result, more than 10% of the securities laws relating to the
fund's net assets would be sale of securities.
invested in illiquid securities.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
FURTHER N/A Purchase securities for which the N/A
LIABILITY fund might be liable for further
payment or liability.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
INVESTING FOR Purchase or retain securities of N/A N/A
CONTROL 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.
- ----------------- ----------------------------------- ------------------------------------ ------------------------------------
</TABLE>
<PAGE>
PART B
AMERICAN CENTURY MUTUAL FUNDS, INC.
American Century Investments
4500 Main Street
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021
AMERICAN CENTURY GOVERNMENT INCOME TRUST
AMERICAN CENTURY MUNICIPAL TRUST
American Century Investments
4500 Main Street
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021
Statement of Additional Information
1997 Special Meeting of Shareholders of American Century Mutual Funds, Inc.
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement/Prospectus dated
__________, 1997 for the Special Meeting of Shareholders to be held on July 30,
1997. Copies of the Combined Proxy Statement/Prospectus may be obtained at no
charge by calling American Century Mutual Funds, Inc. at 1-800-345-2021.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement/Prospectus.
Further information about the Acquiring Funds is contained in and
incorporated by reference to their Statements of Additional Information dated
_________, 1997, copies of which are incorporated herein by reference. The
audited financial statements and related independent accountant's report for the
Acquiring Funds contained in the Annual Reports dated March 31, 1996 with
respect to the Adjustable Rate Government Securities Fund and Intermediate-Term
Treasury Fund and May 31, 1996 with respect to the Intermediate-Term Tax-Free
Fund and Long-Term Tax-Free Fund are incorporated herein by reference. The
Acquired Funds' respective Semi-Annual Reports dated September 30, 1996 and
November 30, 1996 are also incorporated herein by reference. No other parts of
the Annual Report are incorporated by reference herein.
Further information about the Liquidating Funds is contained in and
incorporated by reference to its Statements of Additional Information dated
March 1, 1997. The audited financial statements and related independent
accountant's report for the Liquidating Funds contained in their Annual Reports
dated October 31, 1996 are incorporated herein be reference. No other parts of
the Annual Report are incorporated by reference herein.
The date of this Statement of Additional Information is _______, 1997.
<PAGE>
TABLE OF CONTENTS
General Information...........................................................
Pro Forma Financial Statements................................................
<PAGE>
GENERAL INFORMATION
The Shareholders of the Acquiring Funds are being asked to approve or
disapprove an Agreement and Plan of Reorganization (the "Reorganization
Agreement") dated as of _______, 1997 between the American Century Government
Income Trust, American Century Municipal Trust, and American Century Mutual
Funds, Inc. and the transactions contemplated thereby. The Reorganization
Agreement contemplates the transfer of substantially all of the assets and
liabilities of the Acquired Company's Liquidating Funds to the Acquiring Funds
in exchange for full and fractional shares representing interests in such
corresponding funds. The shares issued by the Acquiring Funds will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the Liquidating Funds that are outstanding immediately before the effective
time of the Reorganization.
Following the exchange, the Liquidating Funds will make a liquidating
distribution of Acquiring Fund shares to shareholders. Each shareholder owning
shares of the Liquidating Funds at the effective time of the reorganization will
receive shares of the Acquiring Funds of equal value, plus the right to receive
any unpaid dividends and distributions that were declared before the effective
time of the reorganization on Liquidating Fund shares.
The Special Meeting of Shareholders to consider the Reorganization
Agreement and the related transactions will be held at 10:00 a.m. Central time
on July 30, 1997 at American Century Towers I, 4500 Main Street, Kansas City,
Missouri. For further information about the transaction, see the Combined Proxy
Statement/Prospectus.
PRO FORMA FINANCIAL STATEMENTS
In accordance with Item 14(a)(2) of Form N-14, pro forma financial statements
were not prepared for the proposed combination of the American Century - Benham
Intermediate-Term Government Fund and the American Century - Benham
Intermediate-Term Treasury Fund, since the net asset value of the American
Century - Benham Intermediate-Term Government Fund (non-surviving fund) did not
exceed ten percent of the net asset value of the American Century - Benham
Intermediate-Term Treasury Fund (surviving fund) on March 10, 1997.
<PAGE>
<TABLE>
<CAPTION>
BENHAM SHORT-TERM GOVERNMENT FUND
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
Benham
Adjustable
Benham Rate
October 31, 1996 (Unaudited) Short-Term Government Pro Forma
Government Securities Combined
Fund Fund Adjustments (Note 1)
---------------($ in Thousands, Except Per-Share Amounts)-------------------
ASSETS
<S> <C> <C> <C> <C>
Investment securities,
at value (identified
cost of $345,317 and
$255,853, respectively) $347,730 $256,362 $604,092
Cash - 542 $(410) (b) 132
Receivable for investments
sold - 11,834 11,834
Interest receivable 3,822 1,814 5,636
Prepaid expenses and other
assets - 4 (4) (c) -
----------------------------------------------------------------------------
351,552 270,556 (414) 621,694
----------------------------------------------------------------------------
LIABILITIES
Disbursements in excess
of demand deposit
cash 1,079 - (410) (b) 669
Payable for investments
purchased - 9,958 9,958
Payable for capital
shares redeemed 182 1,942 2,124
Dividend payable 311 240 551
Payable to affiliates - 115 (115) (c) -
Accrued management fee 208 - 103 (c) 311
Accrued expenses and
other liabilities - 7 (7) (c) -
-----------------------------------------------------------------------------
1,780 12,262 (429) 13,613
-----------------------------------------------------------------------------
Net Assets Applicable
to Outstanding Shares $349,772 $258,294 $15 $608,081
=============================================================================
CAPITAL SHARES (NOTE 3)
Outstanding 36,941 27,130 145 (a) 64,216
=============================================================================
Net Asset Value Per Share $9.47 $9.52 $9.47
=============================================================================
NET ASSETS CONSIST OF:
Capital paid in $367,317 $327,056 $15 (c) $694,388
Accumulated undistributed
net realized gain
(loss) from investment
transactions (19,958) (69,271) (89,229)
Net unrealized appreciation
(depreciation) on
investments 2,413 509 2,922
----------------------------------------------------------------------------
$349,772 $258,294 $15 $608,081
============================================================================
(a) Adjustment to reflect the issuance of Adjustable Rate Government Securities shares (at the Short-Term Government net asset value
per share since this fund is the accounting survivor) in connection with the proposed reorganization.
(b) Adjustment to net bank overdraft of the Short-Term Government Fund with cash of the Adjustable Rate Government Securities Fund.
(c) Adjustment restates the funds' accrued management fees to reflect the unitary fee structure at the proposed rate of the
reorganized entity.
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BENHAM SHORT-TERM GOVERNMENT FUND
BENHAM ADJUSTABLE RATE GOVERNMENT SECURITIES FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
Benham
Adjustable
Benham Rate
Year Ended October 31, 1996 Short-Term Government Pro Forma
(Unaudited) Government Securities Combined
Fund Fund Adjustments (Note 1)
---------------------------($ in Thousands)----------------------------------------
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest $22,514 $17,834 $40,348
-----------------------------------------------------------------------------------
Expenses:
Management fees 2,570 - 1,389 (a) 3,959
Investment advisory fees - 805 (805) (a) -
Administrative fees - 372 (372) (a) -
Transfer agency fees - 266 (266) (a) -
Custodian fees - 123 (123) (a) -
Printing and postage - 82 (82) (a) -
Registration and filing fees - 18 (18) (a) -
Directors' fees and expenses 4 10 (10) (a) 4
Auditing and legal fees - 24 (24) (a) -
Organizational expenses - 3 (3) (a) -
Other operating expenses - 57 (57) (a) -
----------------------------------------------------------------------------
Total expenses 2,574 1,760 (371) 3,963
Amount waived - (5) 5 (a) -
Custodian earnings credits - (78) 78 (a) -
----------------------------------------------------------------------------
Net expenses 2,574 1,677 (288) 3,963
----------------------------------------------------------------------------
Net investment income 19,940 16,157 288 36,385
----------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (339) 363 24
Change in net unrealized
appreciation (depreciation) (1,269) 379 (890)
Net realized and unrealized gain
(loss) on investments (1,608) 742 (866)
----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $18,332 $16,899 $288 $35,519
============================================================================
(a) Adjustment restates the funds' management fees to reflect the unitary fee structure at the proposed rate of the reorganized
entity and the expected savings when the two funds become one.
See Notes to Pro Forma Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ in Thousands)
- --------------------------------------------------
Adjustable Pro Forma
Short-Term Rate Combined
Principal Principal Principal
Amount Amount Amount
U. S. TREASURY SECURITIES--27.3%
<S> <C> <C> <C>
$23,100 - $23,100 U.S. Treasury Notes, 5.75%, 9-30-97
23,100 - 23,100 U.S. Treasury Notes, 7.375%, 11-15-97
12,800 - 12,800 U.S. Treasury Notes, 5.375%, 11-30-97
11,070 - 11,070 U.S. Treasury Notes, 5.00%, 1-31-98
11,080 - 11,080 U.S. Treasury Notes, 7.25%, 2-15-98
11,000 - 11,000 U.S. Treasury Notes, 6.125%, 3-31-98
12,000 $8,000 20,000 U.S. Treasury Notes, 5.875%, 10-31-98
12,925 - 12,925 U.S. Treasury Notes, 5.00%, 1-31-99
18,600 - 18,600 U.S. Treasury Notes, 5.00%, 2-15-99
10,615 - 10,615 U.S. Treasury Notes, 6.75%, 5-31-99
4,670 - 4,670 U.S. Treasury Notes, 7.75%, 2-15-01
- 5,000 5,000 U.S. Treasury Notes, 7.00%, 7-15-06
U.S. GOVERNMENT AGENCY SECURITIES--15.0%
44,500 - 44,500 FHLB, 5.99%, 2-9-98
6,000 - 6,000 FHLB, 6.25%, 3-9-98
9,290 - 9,290 FHLMC, 5.19%, 1-20-99
25,000 - 25,000 FNMA, 6.01%, 10-9-98
6,000 - 6,000 FNMA, 5.20%, 2-18-99
ADJUSTABLE RATE MORTGAGE SECURITIES(1)
FHLMC--10.3%
- 3,857 3,857 FHLMC-ARM Pool #350053, 6.875%, due 5/1/17
- 247 247 FHLMC-ARM Pool #635104, 7.656%, due 8/1/18
- 683 683 FHLMC-ARM Pool #606095, 7.728%, due 11/1/18
- 1,720 1,720 FHLMC-ARM Pool #605775, 7.497%, due 4/1/19
- 2,072 2,072 FHLMC-ARM Pool #606116, 7.577%, due 9/1/19
- 3,316 3,316 FHLMC-ARM Pool #755188, 7.237%, due 9/1/20
- 480 480 FHLMC-ARM Pool #390263, 6.375%, due 1/1/21
- 55 55 FHLMC-ARM Pool #775473, 7.359%, due 6/1/21
- 1,067 1,067 FHLMC-ARM Pool #406645, 7.182%, due 5/1/22
- 2,208 2,208 FHLMC-ARM Pool #876559, 8.08%, due 3/1/24
- 5,478 5,478 FHLMC-ARM Pool #845986, 7.574%, due 3/1/24
- 2,892 2,892 FHLMC-ARM Pool #845898, 7.582%, due 6/1/24
- 13,271 13,271 FHLMC-ARM Pool #846018, 7.628%, due 6/1/24
- 5,783 5,783 FHLMC-ARM Pool #846061, 7.746%, due 7/1/24
- 9,046 9,046 FHLMC-ARM Pool #845995, 7.728%, due 9/1/24
- 7,612 7,612 FHLMC-ARM Pool #846197, 7.378%, due 10/1/25
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
(CONTINUATION OF COLUMN FROM PRIOR PAGE)
($ in Thousands)
------------------------------------------------
Pro
Market Forma
Value Market Combined
Short- Value Market
Term Adjustable Value
U.S. Treasury Notes, 5.75%, 9-30-97 $23,160 - $23,160
U.S. Treasury Notes, 7.375%, 11-15-97 23,517 - 23,517
U.S. Treasury Notes, 5.375%, 11-30-97 12,777 - 12,777
U.S. Treasury Notes, 5.00%, 1-31-98 10,990 - 10,990
U.S. Treasury Notes, 7.25%, 2-15-98 11,297 - 11,297
U.S. Treasury Notes, 6.125%, 3-31-98 11,075 - 11,075
U.S. Treasury Notes, 5.875%, 10-31-98 12,028 $8,018 20,046
U.S. Treasury Notes, 5.00%, 1-31-99 12,711 - 12,711
U.S. Treasury Notes, 5.00%, 2-15-99 18,288 - 18,288
U.S. Treasury Notes, 6.75%, 5-31-99 10,840 - 10,840
U.S. Treasury Notes, 7.75%, 2-15-01 4,969 - 4,969
U.S. Treasury Notes, 7.00%, 7-15-06 - 5,225 5,225
------- ------ -------
151,652 13,243 164,895
------- ------ -------
FHLB, 5.99%, 2-9-98 44,657 - 44,657
FHLB, 6.25%, 3-9-98 6,041 - 6,041
FHLMC, 5.19%, 1-20-99 9,129 - 9,129
FNMA, 6.01%, 10-9-98 25,060 - 25,060
FNMA, 5.20%, 2-18-99 5,894 - 5,894
------- ------ -------
90,781 - 90,781
------- ------ -------
FHLMC-ARM Pool #350053, 6.875%, due 5/1/17 - 3,957 3,957
FHLMC-ARM Pool #635104, 7.656%, due 8/1/18 - 254 254
FHLMC-ARM Pool #606095, 7.728%, due 11/1/18 - 699 699
FHLMC-ARM Pool #605775, 7.497%, due 4/1/19 - 1,794 1,794
FHLMC-ARM Pool #606116, 7.577%, due 9/1/19 - 2,152 2,152
FHLMC-ARM Pool #755188, 7.237%, due 9/1/20 - 3,410 3,410
FHLMC-ARM Pool #390263, 6.375%, due 1/1/21 - 478 478
FHLMC-ARM Pool #775473, 7.359%, due 6/1/21 - 55 55
FHLMC-ARM Pool #406645, 7.182%, due 5/1/22 - 1,083 1,083
FHLMC-ARM Pool #876559, 8.08%, due 3/1/24 - 2,268 2,268
FHLMC-ARM Pool #845986, 7.574%, due 3/1/24 - 5,708 5,708
FHLMC-ARM Pool #845898, 7.582%, due 6/1/24 - 2,975 2,975
FHLMC-ARM Pool #846018, 7.628%, due 6/1/24 - 13,843 13,843
FHLMC-ARM Pool #846061, 7.746%, due 7/1/24 - 6,032 6,032
FHLMC-ARM Pool #845995, 7.728%, due 9/1/24 - 9,436 9,436
FHLMC-ARM Pool #846197, 7.378%, due 10/1/25 - 7,807 7,807
------- ------ -------
- 61,951 61,951
------- ------ -------
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
Adjustable Pro Forma
Short-Term Rate Combined
Principal Principal Principal
Amount Amount Amount
FNMA--10.9%
- 217 217 FNMA-ARM Pool #066254, 6.059%, due 2/1/99
- 230 230 FNMA-ARM Pool #066376, 8.00%, due 2/1/01
- 358 358 FNMA-ARM Pool #066221, 7.50%, due 9/1/03
- 373 373 FNMA-ARM Pool #020155, 7.491%, due 8/1/14
- 63 63 FNMA-ARM Pool #009781, 7.067%. due 10/1/14
- 1,031 1,031 FNMA-ARM Pool #105320, 7.37%, due 7/1/15
- 129 129 FNMA-ARM Pool #020635, 7.18%, due 8/1/15
- 517 517 FNMA-ARM Pool #025432, 6.625%, due 4/1/16
- 103 103 FNMA-ARM Pool #009883, 7.375%, due 7/1/16
- 434 434 FNMA-ARM Pool #036922, 7.875% , due 8/1/16
- 612 612 FNMA-ARM Pool #105843, 7.902%, due 1/1/17
- 2,621 2,621 FNMA-ARM Pool #061401, 7.822%, due 5/1/17
- 1,624 1,624 FNMA-ARM Pool #066415, 7.197%, due 7/1/17
- 521 521 FNMA-ARM Pool #061392, 7.505%, due 7/1/17
- 406 406 FNMA-ARM Pool #070088, 7.383%, due 12/1/17
- 5,171 5,171 FNMA-ARM Pool #099782, 7.157%, due 1/1/18
- 491 491 FNMA-ARM Pool #064708, 7.875%, due 2/1/18
- 1,950 1,950 FNMA-ARM Pool #086885, 7.284%, due 3/1/18
- 527 527 FNMA-ARM Pool #070224, 7.625%, due 4/1/18
- 1,984 1,984 FNMA-ARM Pool #162880, 7.436%, due 5/1/18
- 450 450 FNMA-ARM Pool #070186, 7.142%, due 6/1/18
- 851 851 FNMA-ARM Pool #063167, #063623, #063658, 7.75%,
due 7/1/18
- 1,093 1,093 FNMA-ARM Pool #013786, 7.896%, due 8/1/18
- 1,376 1,376 FNMA-ARM Pool #099577, 7.44%, due 12/1/18
- 248 248 FNMA-ARM Pool #075462, 7.825%, due 5/1/19
- 686 686 FNMA-ARM Pool #244477, 7.203%, due 8/1/19
- 5,863 5,863 FNMA-ARM Pool #142402, 7.518%, due 9/1/19
- 1,903 1,903 FNMA-ARM Pool #070595, 6.98%, due 1/1/20
- 1,541 1,541 FNMA-ARM Pool #113709, 7.707%, due 4/1/20
- 1,087 1,087 FNMA-ARM Pool #070909, 7.43%, due 12/1/20
- 983 983 FNMA-ARM Pool #336479, 7.876%, due 3/1/21
- 361 361 FNMA-ARM Pool #129482, 6.525%. due 8/1/21
- 976 976 FNMA-ARM Pool #145556, 7.375%, due 1/1/22
- 1,577 1,577 FNMA-ARM Pool #163993, 7.262%, due 5/1/22
- 989 989 FNMA-ARM Pool #334441, 7.29%, due 5/1/22
- 959 959 FNMA-ARM Pool #169868, 7.31%, due 6/1/22
- 638 638 FNMA-ARM Pool #173165, 7.276%, due 7/1/22
- 684 684 FNMA-ARM Pool #178295, 7.405%, due 9/1/22
- 707 707 FNMA-ARM Pool #220498, 8.119%, due 6/1/23
- 518 518 FNMA-ARM Pool #222649, 8.125%, due 7/1/23
- 5,389 5,389 FNMA-ARM Pool #303336, 7.366%, due 8/1/23
- 1,348 1,348 FNMA-ARM Pool #190647, 7.689%, due 8/1/23
- 2,979 2,979 FNMA-ARM Pool #291248, 7.853%, due 8/1/24
- 1,032 1,032 FNMA-ARM Pool #318767, 7.708%, due 10/1/25
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
(CONTINUATION OF COLUMN FROM PRIOR PAGE)
($ in Thousands)
Pro
Market Forma
Value Market Combined
Short- Value Market
Term Adjustable Value
FNMA-ARM Pool #066254, 6.059%, due 2/1/99 - 216 216
FNMA-ARM Pool #066376, 8.00%, due 2/1/01 - 228 228
FNMA-ARM Pool #066221, 7.50%, due 9/1/03 - 356 356
FNMA-ARM Pool #020155, 7.491%, due 8/1/14 - 375 375
FNMA-ARM Pool #009781, 7.067%. due 10/1/14 - 63 63
FNMA-ARM Pool #105320, 7.37%, due 7/1/15 - 1,060 1,060
FNMA-ARM Pool #020635, 7.18%, due 8/1/15 - 132 132
FNMA-ARM Pool #025432, 6.625%, due 4/1/16 - 526 526
FNMA-ARM Pool #009883, 7.375%, due 7/1/16 - 104 104
FNMA-ARM Pool #036922, 7.875% , due 8/1/16 - 446 446
FNMA-ARM Pool #105843, 7.902%, due 1/1/17 - 639 639
FNMA-ARM Pool #061401, 7.822%, due 5/1/17 - 2,752 2,752
FNMA-ARM Pool #066415, 7.197%, due 7/1/17 - 1,685 1,685
FNMA-ARM Pool #061392, 7.505%, due 7/1/17 - 544 544
FNMA-ARM Pool #070088, 7.383%, due 12/1/17 - 420 420
FNMA-ARM Pool #099782, 7.157%, due 1/1/18 - 5,314 5,314
FNMA-ARM Pool #064708, 7.875%, due 2/1/18 - 509 509
FNMA-ARM Pool #086885, 7.284%, due 3/1/18 - 2,010 2,010
FNMA-ARM Pool #070224, 7.625%, due 4/1/18 - 549 549
FNMA-ARM Pool #162880, 7.436%, due 5/1/18 - 2,051 2,051
FNMA-ARM Pool #070186, 7.142%, due 6/1/18 - 463 463
FNMA-ARM Pool #063167, #063623, #063658, 7.75%,
due 7/1/18 - 881 881
FNMA-ARM Pool #013786, 7.896%, due 8/1/18 - 1,103 1,103
FNMA-ARM Pool #099577, 7.44%, due 12/1/18 - 1,418 1,418
FNMA-ARM Pool #075462, 7.825%, due 5/1/19 - 257 257
FNMA-ARM Pool #244477, 7.203%, due 8/1/19 - 700 700
FNMA-ARM Pool #142402, 7.518%, due 9/1/19 - 6,100 6,100
FNMA-ARM Pool #070595, 6.98%, due 1/1/20 - 1,953 1,953
FNMA-ARM Pool #113709, 7.707%, due 4/1/20 - 1,607 1,607
FNMA-ARM Pool #070909, 7.43%, due 12/1/20 - 1,128 1,128
FNMA-ARM Pool #336479, 7.876%, due 3/1/21 - 1,025 1,025
FNMA-ARM Pool #129482, 6.525%. due 8/1/21 - 362 362
FNMA-ARM Pool #145556, 7.375%, due 1/1/22 - 996 996
FNMA-ARM Pool #163993, 7.262%, due 5/1/22 - 1,618 1,618
FNMA-ARM Pool #334441, 7.29%, due 5/1/22 - 1,012 1,012
FNMA-ARM Pool #169868, 7.31%, due 6/1/22 - 977 977
FNMA-ARM Pool #173165, 7.276%, due 7/1/22 - 647 647
FNMA-ARM Pool #178295, 7.405%, due 9/1/22 - 695 695
FNMA-ARM Pool #220498, 8.119%, due 6/1/23 - 736 736
FNMA-ARM Pool #222649, 8.125%, due 7/1/23 - 539 539
FNMA-ARM Pool #303336, 7.366%, due 8/1/23 - 5,537 5,537
FNMA-ARM Pool #190647, 7.689%, due 8/1/23 - 1,390 1,390
FNMA-ARM Pool #291248, 7.853%, due 8/1/24 - 3,072 3,072
FNMA-ARM Pool #318767, 7.708%, due 10/1/25 - 1,068 1,068
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
Adjustable Pro Forma
Short-Term Rate Combined
Principal Principal Principal
Amount Amount Amount
- - 777 777 FNMA-ARM Pool #325305, 6.033% , due 11/1/25
- 148 148 FNMA-ARM Pool #062836, 6.658%, due 4/1/26
- 230 230 FNMA-ARM Pool #062835, 6.741%, due 1/1/27
- 284 284 FNMA-ARM Pool #070184, 7.40%, due 1/1/27
- 183 183 FNMA-ARM Pool #091688, 7.302%, due 2/1/27
- 3,663 3,663 FNMA-ARM Pool #062688, 6.059%, due 5/1/28
- 381 381 FNMA-ARM Pool #070716, 6.63%, due 1/1/29
- 298 298 FNMA-ARM Pool #091689, 7.289%, due 2/1/29
- 4,873 4,873 FNMA-ARM Pool #316518, 6.391%, due 10/1/30
GNMA--12.5%
- 379 379 GNMA-ARM Pool #008230, 7.125%, due 5/20/17
- 407 407 GNMA-ARM Pool #008763, 7.00%, due 2/20/21
- 633 633 GNMA-ARM Pool #008867, 7.00%, due 11/20/21
- 480 480 GNMA-ARM Pool #008872, 7.50%, due 11/20/21
- 13 13 GNMA-ARM Pool #008902, 6.50%, due 1/20/22
- 9,166 9,166 GNMA-ARM Pool #008038, 7.00%, due 8/20/22
- 1,981 1,981 GNMA-ARM Pool #008180, 7.125%, due 4/20/23
- 2,531 2,531 GNMA-ARM Pool #008484, 7.25%, due 8/20/24
- 12,828 12,828 GNMA-ARM Pool #008663, 7.00%, due 7/20/25
- 17,099 17,099 GNMA-ARM Pool #008684, 6.00%, due 8/20/25
- 3,524 3,524 GNMA-ARM Pool #008706, 7.50%, due 9/20/25
- 8,260 8,260 GNMA-ARM Pool #008744, 5.50%, due 11/20/25
- 6,783 6,783 GNMA-ARM Pool #008767, 6.00%, due 12/20/25
- 9,964 9,964 GNMA-ARM Pool #008989, 6.00%, due 12/20/26
Total Adjustable Rate Mortgage Securities--33.7%
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ in Thousands)
Pro
Market Forma
Value Market Combined
Short- Value Market
Term Adjustable Value
FNMA-ARM Pool #325305, 6.033% , due 11/1/25 - 804 804
FNMA-ARM Pool #062836, 6.658%, due 4/1/26 - 146 146
FNMA-ARM Pool #062835, 6.741%, due 1/1/27 - 226 226
FNMA-ARM Pool #070184, 7.40%, due 1/1/27 - 295 295
FNMA-ARM Pool #091688, 7.302%, due 2/1/27 - 185 185
FNMA-ARM Pool #062688, 6.059%, due 5/1/28 - 3,648 3,648
FNMA-ARM Pool #070716, 6.63%, due 1/1/29 - 382 382
FNMA-ARM Pool #091689, 7.289%, due 2/1/29 - 301 301
FNMA-ARM Pool #316518, 6.391%, due 10/1/30 - 4,910 4,910
------- ------ -------
- 66,160 66,160
------- ------ -------
GNMA-ARM Pool #008230, 7.125%, due 5/20/17 - 383 383
GNMA-ARM Pool #008763, 7.00%, due 2/20/21 - 416 416
GNMA-ARM Pool #008867, 7.00%, due 11/20/21 - 645 645
GNMA-ARM Pool #008872, 7.50%, due 11/20/21 - 493 493
GNMA-ARM Pool #008902, 6.50%, due 1/20/22 - 14 14
GNMA-ARM Pool #008038, 7.00%, due 8/20/22 - 9,348 9,348
GNMA-ARM Pool #008180, 7.125%, due 4/20/23 - 2,021 2,021
GNMA-ARM Pool #008484, 7.25%, due 8/20/24 - 2,583 2,583
GNMA-ARM Pool #008663, 7.00%, due 7/20/25 - 13,094 13,094
GNMA-ARM Pool #008684, 6.00%, due 8/20/25 - 17,414 17,414
GNMA-ARM Pool #008706, 7.50%, due 9/20/25 - 3,597 3,597
GNMA-ARM Pool #008744, 5.50%, due 11/20/25 - 8,331 8,331
GNMA-ARM Pool #008767, 6.00%, due 12/20/25 - 6,902 6,902
GNMA-ARM Pool #008989, 6.00%, due 12/20/26 - 9,989 9,989
------- ------- -------
- 75,230 75,230
------- ------- -------
- 203,341 203,341
------- ------- -------
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
Adjustable Pro Forma
Short-Term Rate Combined
Principal Principal Principal
Amount Amount Amount
FIXED RATE MORTGAGE SECURITIES(1)
FHLMC
- 4 4 FHLMC-FRM Pool #250918, 13.25%, due 9/1/13
GNMA--1.0%
- 13 13 GNMA-FRM Pool #059438, 11.50%, due 5/15/98
- 38 38 GNMA-FRM Pool #113802, 12.50%, due 6/15/99
- 13 13 GNMA-FRM Pool #127619, 12.50%, due 6/15/00
- 38 38 GNMA-FRM Pool #126325, 11.50%, due 8/15/00
- 244 244 GNMA-FRM Pool #001565, 5.50%, due 1/20/09
- 236 236 GNMA-FRM Pool #187019, 9.00%, due 11/20/16
- 278 278 GNMA-FRM Pool #179457, 9.00%, due 12/20/16
- 90 90 GNMA-FRM Pool #199973, 9.00%, due 12/20/16
- 530 530 GNMA-FRM Pool #220128, 9.00%, due 8/20/17
- 322 322 GNMA-FRM Pool #220134, 9.50%, due 8/20/17
- 418 418 GNMA-FRM Pool #234860, 9.50%, due 10/20/17
- 1,173 1,173 GNMA-FRM Pool #001291, 9.50%, due 11/20/19
- 2,306 2,306 GNMA-FRM Pool #001376, 8.00%, due 9/20/23
Total Fixed Rate Mortgage Securities--1.0%
COLLATERALIZED MORTGAGE OBLIGATIONS(1)
FHLMC(2)--4.8%
- 7,075 7,075 FHLMC 1581 F, 5.9375%, due 9/15/98
- 2,512 2,512 FHLMC 1234 G, 5.7375%, due 5/15/99
- 1,447 1,447 FHLMC 1110 F, 6.2375%, due 5/15/05
- 10,000 10,000 FHLMC 1580 FA, 5.9875%, due 9/15/08
- 8,000 8,000 FHLMC 1640 FC, 5.9375%, due 12/15/08
FNMA(2)--0.8%
- 4,445 4,445 FNMA 92-199 F, 5.90625%, due 11/25/99
Private Label (2)
- 182 182 Dean Witter CMO Trust I Floater DW I-A,
Underlying Collateral FHLMC, 6.125%, due
4/20/18
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ in Thousands)
Pro
Market Forma
Value Market Combined
Short- Value Market
Term Adjustable Value
FHLMC-FRM Pool #250918, 13.25%, due 9/1/13 - 5 5
GNMA-FRM Pool #059438, 11.50%, due 5/15/98 - 14 14
GNMA-FRM Pool #113802, 12.50%, due 6/15/99 - 41 41
GNMA-FRM Pool #127619, 12.50%, due 6/15/00 - 15 15
GNMA-FRM Pool #126325, 11.50%, due 8/15/00 - 41 41
GNMA-FRM Pool #001565, 5.50%, due 1/20/09 - 229 229
GNMA-FRM Pool #187019, 9.00%, due 11/20/16 - 248 248
GNMA-FRM Pool #179457, 9.00%, due 12/20/16 - 292 292
GNMA-FRM Pool #199973, 9.00%, due 12/20/16 - 94 94
GNMA-FRM Pool #220128, 9.00%, due 8/20/17 - 556 556
GNMA-FRM Pool #220134, 9.50%, due 8/20/17 - 344 344
GNMA-FRM Pool #234860, 9.50%, due 10/20/17 - 447 447
GNMA-FRM Pool #001291, 9.50%, due 11/20/19 - 1,253 1,253
GNMA-FRM Pool #001376, 8.00%, due 9/20/23 - 2,344 2,344
----- ----- -----
- 5,918 5,918
----- ----- -----
- 5,923 5,923
----- ----- -----
FHLMC 1581 F, 5.9375%, due 9/15/98 - 7,085 7,085
FHLMC 1234 G, 5.7375%, due 5/15/99 - 2,524 2,524
FHLMC 1110 F, 6.2375%, due 5/15/05 - 1,452 1,452
FHLMC 1580 FA, 5.9875%, due 9/15/08 - 10,090 10,090
FHLMC 1640 FC, 5.9375%, due 12/15/08 - 8,045 8,045
----- ----- -----
- 29,196 29,196
----- ----- -----
FNMA 92-199 F, 5.90625%, due 11/25/99 - 4,477 4,477
----- ----- -----
Dean Witter CMO Trust I Floater DW I-A,
Underlying Collateral FHLMC, 6.125%,
due 4/20/18 - 182 182
----- ----- -----
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
Adjustable Pro Forma
Short-Term Rate Combined
Principal Principal Principal
Amount Amount Amount
Remics--17.4%
15,177 - 15,177 FHLMC Series 1344 B TAC REMIC, 6.00%,10-15-05
6,500 - 6,500 FHLMC Series 1836 C PAC REMIC, 6.25%, 6-15-14
6,650 - 6,650 FHLMC Series 1822 B PAC REMIC, 6.50%, 2-15-16
14,404 - 14,404 FHLMC Series 1834 A PAC REMIC, 7.00%, 1-15-20
14,515 - 14,515 FHLMC Series 1861 E PAC REMIC, 6.50%, 8-15-20
9,988 - 9,988 FNMA 93 Series 93 C PAC REMIC, 5.50%, 2-25-06
4,372 - 4,372 FNMA 93 Series 185 PB PAC REMIC, 4.90%, 4-25-09
8,996 - 8,996 FNMA 96 Series 10 A PAC REMIC, 6.50%, 11-25-17
9,915 - 9,915 FNMA 96 Series 12 A PAC REMIC, 6.50%, 12-25-17
7,418 - 7,418 FNMA G93 Series 29 A PAC REMIC, 6.65%, 10-25-18
7,509 - 7,509 FNMA 96 Series 16 D PAC REMIC, 7.00%, 8-25-21
continued
Pro Forma Combining
Benham Short-Term Government Fund and
Benham Adjustable Rate Government Securities Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ in Thousands)
Pro
Market Forma
Value Market Combined
Short- Value Market
Term Adjustable Value
FHLMC Series 1344 B TAC REMIC, 6.00%,10-15-05 15,105 - 15,105
FHLMC Series 1836 C PAC REMIC, 6.25%, 6-15-14 6,493 - 6,493
FHLMC Series 1822 B PAC REMIC, 6.50%, 2-15-16 6,685 - 6,685
FHLMC Series 1834 A PAC REMIC, 7.00%, 1-15-20 14,490 - 14,490
FHLMC Series 1861 E PAC REMIC, 6.50%, 8-15-20 14,436 - 14,436
FNMA 93 Series 93 C PAC REMIC, 5.50%, 2-25-06 9,870 - 9,870
FNMA 93 Series 185 PB PAC REMIC, 4.90%, 4-25-09 4,346 - 4,346
FNMA 96 Series 10 A PAC REMIC, 6.50%, 11-25-17 8,999 - 8,999
FNMA 96 Series 12 A PAC REMIC, 6.50%, 12-25-17 9,923 - 9,923
FNMA G93 Series 29 A PAC REMIC, 6.65%, 10-25-18 7,415 - 7,415
FNMA 96 Series 16 D PAC REMIC, 7.00%, 8-25-21 7,535 - 7,535
----- ----- -----
105,297 - 105,297
----- ----- -----
Total Collaterlized Mortgage Obligations--23.0% 105,297 33,855 139,152
------- ------- -------
TOTAL INVESTMENT SECURITIES--100.0% $347,730 $256,362 $604,092
======= ======= =======
Notes to Schedule of Investments
FHLB - Federal Home Loan Banks
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
(1) Final maturity indicated. Expected remaining average life used for purposes
of calculating the weighted average portfolio maturity.
(2) Interest rates shown are effective October 31, 1996. The coupons on these
securities reset frequently (monthly or quarterly) and are not restricted
by low periodic or lifetime caps, so their price volatility is similar to
Adjustable Rate Mortgage Securities.
</TABLE>
<TABLE>
<CAPTION>
BENHAM INTERMEDIATE-TERM TAX-EXEMPT FUND
BENHAM INTERMEDIATE-TERM TAX-FREE FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
Benham Benham Pro Forma
October 31, 1996 (Unaudited) Intermediate-Term Intermediate-Term Combined
Tax-Exempt Fund Tax-Free Fund Adjustments (Note 1)
------------($ in Thousands, Except Per-Share Amounts)--------------
--------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Investment securities, at value (identified cost of
$77,976 and $59,846, respectively) $79,959 $62,240 $142,199
Cash - 262 (216) (b) 46
Interest receivable 1,333 1,046 2,379
--------------------------------------------------------------------
81,292 63,548 (216) 144,624
--------------------------------------------------------------------
LIABILITIES
Disbursements in excess of demand deposit cash 493 - (216) (b) 277
Payable for capital shares redeemed 128 216 344
Dividends payable 62 51 113
Payable to affiliates - 36 (36) (c) -
Accrued management fee 41 - 26 (c) 67
--------------------------------------------------------------------
724 303 (226) 801
--------------------------------------------------------------------
Net Assets Applicable to Outstanding Shares $80,568 $63,245 $10 $143,823
====================================================================
CAPITAL SHARES (NOTE 3)
Outstanding 7,788 5,857 253 (a) 13,898
====================================================================
Net Asset Value Per Share $10.35 $10.80 $10.35
================================== =============
NET ASSETS CONSIST OF:
Capital paid in $78,401 $61,143 $10 (c) $139,554
Accumulated undistributed net realized
gain (loss) from investment transactions 184 (292) (108)
Net unrealized appreciation (depreciation) on investments 1,983 2,394 4,377
--------------------------------------------------------------------
$80,568 $63,245 $10 $143,823
====================================================================
(a) Adjustment to reflect the issuance of Intermediate-Term Tax-Free shares (at
the Intermediate-Term Tax-Exempt net asset value per share since this fund
is the accounting survivor) in connection with the proposed organization.
(b) Adjustment to net bank overdraft of the Intermediate-Term Tax-Exempt Fund
with cash of the Intermediate-Term Tax-Free Fund.
(c) Adjustment restates the funds' accrued management fees to reflect the
unitary fee structure at the proposed rate of the reorganized entity.
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
<TABLE>
<CAPTION>
BENHAM INTERMEDIATE-TERM TAX-EXEMPT FUND
BENHAM INTERMEDIATE-TERM TAX-FREE FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
Year Ended October 31, 1996 (Unaudited) Benham Benham Pro Forma
Intermediate-Term Intermediate-Term Combined
Tax-Exempt Fund Tax-Free Fund Adjustments (Note 1)
--------------------------($ in Thousands)------------------------------
INVESTMENT INCOME
Income:
<S> <C> <C> <C> <C>
Interest $4,273 $3,507 $7,780
---------------------------------- -----------------
Expenses:
Management fees 485 - 314 (a) 799
Investment advisory fees - 278 (278) (a) -
Administrative fees - 61 (61) (a) -
Transfer agency fees - 45 (45) (a) -
Custodian fees - 12 (12) (a) -
Printing and postage - 19 (19) (a) -
Registration and filing fees - 17 (17) (a) -
Directors' fees and expenses 1 4 (4) (a) 1
Auditing and legal fees - 17 (17) (a) -
Other operating expenses - 17 (17) (a) -
--------------------------------------------------------------------
Total expenses 486 470 (156) 800
Amount waived - (33) 33 (a) -
Custodian earnings credits - (2) 2 (a) -
--------------------------------------------------------------------
Net expenses 486 435 (121) 800
--------------------------------------------------------------------
Net investment income 3,787 3,072 121 6,980
--------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 185 94 279
Change in net unrealized appreciation (depreciation) (538) (391) (929)
---------------------------------- -----------------
Net realized and unrealized gain (loss) on investments (353) (297) (650)
---------------------------------- -----------------
Net Increase in Net Assets
Resulting from Operations $3,434 $2,775 $121 $6,330
====================================================================
(a) Adjustment restates the funds' management fees to reflect the unitary fee
structure at the proposed rate of the reorganized entity and the expected
savings when the two funds become one.
See Notes to Pro Forma Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
MUNICIPAL SECURITIES
Alabama--0.7%
<S> <C> <C> <C>
- - $1,000 $1,000 Alabama Municipal Electric Power Auth. Rev.,
6.10%, 9-1-99 (MBIA)
Alaska--0.4%
- - 500 500 Anchorage Hospital Rev., Series 1991,
(Sisters of Providence), 6.50%, 10-1-99
Arizona--0.9%
$750 - 750 Maricopa County Certificates of
Participation, 5.625%, 6-1-00
- - 410 410 Pinal County Unified School District No. 43
Apache Junction GO, Series A,
6.80%, 7-1-08 (FGIC)
California--8.7%
- - 1,250 1,250 California Health Facility Auth. Rev.
Refunding, (Sisters of Providence),
6.20%, 10-1-03 (MBIA)
- - 2,170 2,170 California Housing Finance Agency Rev.,
5.60%,8-1-09 (MBIA)
- - 1,000 1,000 California Public Works Board Lease Rev.
6.00%, 1-1-05 (AMBAC)
- - 1,100 1,100 California Public Works Board Rev., (Various
Universities), 6.15%, 11-1-09
- - 1,060 1,060 Ontario Redevelopment Finance Auth. Special
Assessment, (Local Agency Series A),
5.90%, 9-2-07 (FSA)
- - 1,100 1,100 Sacramento Regional Transportation
Certificates of Participation,
Series A, 6.20%, 3-1-00
- - 1,000 1,000 Sacramento Schools Ins. Auth. Rev.,
Worker's Compensation Program,
Series C, 5.75%, 6-1-03
- - 1,000 1,000 San Bernardino County
Certificates of Participation,
5.75%, 8-1-06 (MBIA)
- - 1,000 1,000 State of California GO, 5.75%, 10-1-10
- - 1,080 1,080 Y/S School Facility Finance Auth. Rev.,
Series 1990, 5.65%, 9-1-06 (MBIA)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
---------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Alabama Municipal Electric Power Auth. Rev.,
6.10%, 9-1-99 (MBIA) - $1,050 $1,050
------ ------ ------
Anchorage Hospital Rev., Series 1991,
(Sisters of Providence), 6.50%, 10-1-99 - 528 528
------ ------ ------
Maricopa County Certificates of
Participation, 5.625%, 6-1-00 $767 - 767
Pinal County Unified School District No. 43
Apache Junction GO, Series A,
6.80%, 7-1-08 (FGIC) - 472 472
------ ------ ------
767 472 1,239
------ ------ ------
California Health Facility Auth. Rev.
Refunding, (Sisters of Providence),
6.20%, 10-1-03 (MBIA) - 1,358 1,358
California Housing Finance Agency Rev.,
5.60%,8-1-09 (MBIA) - 2,206 2,206
California Public Works Board Lease Rev.
6.00%, 1-1-05 (AMBAC) - 1,080 1,080
California Public Works Board Rev., (Various
Universities), 6.15%, 11-1-09 - 1,161 1,161
Ontario Redevelopment Finance Auth. Special
Assessment, (Local Agency Series A),
5.90%, 9-2-07 (FSA) - 1,123 1,123
Sacramento Regional Transportation
Certificates of Participation,
Series A, 6.20%, 3-1-00 - 1,156 1,156
Sacramento Schools Ins. Auth. Rev.,
Worker's Compensation Program,
Series C, 5.75%, 6-1-03 - 1,049 1,049
San Bernardino County
Certificates of Participation,
5.75%, 8-1-06 (MBIA) - 1,062 1,062
State of California GO, 5.75%, 10-1-10 - 1,047 1,047
Y/S School Facility Finance Auth. Rev.,
Series 1990, 5.65%, 9-1-06 (MBIA) - 1,117 1,117
------ ------ ------
- 12,359 12,359
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Colorado--0.8%
1,000 - 1,000 Denver Sales Tax Rev., Series A,
(Major League Baseball Stadium District),
6.10%, 10-1-01 (FGIC)
District of Columbia--0.7%
1,000 - 1,000 District Columbia Hospital Rev., Series A,
(Medlantic Health Care Group),
5.25%, 8-15-02 (MBIA)
Florida--3.5%
- - 700 700 Broward Cnty School Dist GO, 6.75%, 2-15-00
1,250 - 1,250 Hillsborough County Aviation Auth. Rev.,
Series A, (Tampa Intl Airport),
6.60%, 10-1-03 (FGIC)
1,000 775 1,775 Lakeland Electric and Water Rev.,
Series B, 6.00%, 10-1-09 (FGIC)
1,000 - 1,000 Miami Beach Florida Water and Sewer
Rev., 5.10%, 9-1-05 (FSA)
Georgia--3.5%
1,000 - 1,000 Atlanta Airport Facilities Rev., 7.00%, 1-1-01
- - 2,000 2,000 Fulton County Water and Sewer
Rev. Refunding, 6.25%, 1-1-09
(FGIC)
500 - 500 Georgia State GO, Series B, 6.30%, 3-1-08
1,000 - 1,000 Metropolitan Atlanta Rapid Transit Auth.
Sales Tax Rev., Series M, 6.05%, 7-1-01
Hawaii--0.8%
- - 1,000 1,000 Hawaii GO, Series A,
7.00%, 6-1-00 (FGIC)(1)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
---------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Denver Sales Tax Rev., Series A,
(Major League Baseball Stadium District),
6.10%, 10-1-01 (FGIC) 1,072 - 1,072
------ ------ ------
District Columbia Hospital Rev., Series A,
(Medlantic Health Care Group),
5.25%, 8-15-02 (MBIA) 1,024 - 1,024
------ ------ ------
Broward Cnty School Dist GO, 6.75%, 2-15-00 - 747 747
Hillsborough County Aviation Auth. Rev.,
Series A, (Tampa Intl Airport),
6.60%, 10-1-03 (FGIC) 1,336 - 1,336
Lakeland Electric and Water Rev.,
Series B, 6.00%, 10-1-09 (FGIC) 1,079 836 1,915
Miami Beach Florida Water and Sewer
Rev., 5.10%, 9-1-05 (FSA) 1,019 - 1,019
------ ------ ------
3,434 1,583 5,017
------ ------ ------
Atlanta Airport Facilities Rev., 7.00%, 1-1-01 1,084 - 1,084
Fulton County Water and Sewer
Rev. Refunding, 6.25%, 1-1-09
(FGIC) - 2,194 2,194
Georgia State GO, Series B, 6.30%, 3-1-08 554 - 554
Metropolitan Atlanta Rapid Transit Auth.
Sales Tax Rev., Series M, 6.05%, 7-1-01 1,061 - 1,061
------ ------ ------
2,699 2,194 4,893
------ ------ ------
Hawaii GO, Series A,
7.00%, 6-1-00 (FGIC)(1) - 1,086 1,086
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Illinois--5.8%
2,000 - 2,000 Chicago O'Hare International Airport
Rev., Series A, 5.00%, 1-1-00 (MBIA)
- - 2,000 2,000 City of Chicago GO, (Emergency Telephone),
5.25%, 1-1-04 (FGIC)
- - 700 700 City of Chicago Metropolitan Water
Reclamation District GO, 7.25%, 1-1-99,
Prerefunded at 100% of Par
- - 1,000 1,000 Illinois Education Facility Auth. Rev., Series A,
(Loyola University), 6.30%, 7-1-98
2,250 - 2,250 Illinois State GO, 6.00%, 10-1-01
- - 30 30 Metropolitan Pier and Exposition Auth. Rev.,
(McCormick Place Project),
5.20%, 6-15-99(1)
Indiana--1.0%
- - 500 500 Indiana University Student Fee Rev.,
Series F, 7.10%, 8-1-97
- - 1,000 1,000 South Montgomery Industrial Building
Improvement Certificates of
Participation, 4.29%, 1-1-98 (AMBAC)(2)
Kentucky--0.7%
1,000 - 1,000 Kenton County Airport Rev., Series A,
(Cincinnati/Northern Kentucky),
6.00%, 3-1-03 (MBIA)
Maryland--0.8%
1,000 - 1,000 Maryland Health and Higher Educational
Facilities Auth. Rev., (Francis Scott Key
Hospital), 5.00%, 7-1-03 (FGIC)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
-----------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Chicago O'Hare International Airport
Rev., Series A, 5.00%, 1-1-00 (MBIA) 2,036 - 2,036
City of Chicago GO, (Emergency Telephone),
5.25%, 1-1-04 (FGIC) - 2,046 2,046
City of Chicago Metropolitan Water
Reclamation District GO, 7.25%, 1-1-99,
Prerefunded at 100% of Par - 744 744
Illinois Education Facility Auth. Rev., Series A,
(Loyola University), 6.30%, 7-1-98 1,035 1,035
Illinois State GO, 6.00%, 10-1-01 2,387 - 2,387
Metropolitan Pier and Exposition Auth. Rev.,
(McCormick Place Project),
5.20%, 6-15-99(1) - 31 31
------ ------ ------
4,423 3,856 8,279
------ ------ ------
Indiana University Student Fee Rev.,
Series F, 7.10%, 8-1-97 - 512 512
South Montgomery Industrial Building
Improvement Certificates of
Participation, 4.29%, 1-1-98 (AMBAC)(2) - 952 952
------ ------ ------
- 1,464 1,464
------ ------ ------
Kenton County Airport Rev., Series A,
(Cincinnati/Northern Kentucky),
6.00%, 3-1-03 (MBIA) 1,057 - 1,057
------ ------ ------
Maryland Health and Higher Educational
Facilities Auth. Rev., (Francis Scott Key
Hospital), 5.00%, 7-1-03 (FGIC) 1,017 - 1,017
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Massachusetts--6.1%
2,605 - 2,605 Massachusetts Bay Transportation Auth.
Rev., Series C, 5.40%, 3-1-00
1,000 - 1,000 Massachusetts GO,
Series B, (Consolidated Loan),
5.50%, 6-1-05 (FGIC)
1,500 1,000 2,500 Massachusetts GO,
Series B, 5.40%, 11-1-07 (MBIA)
2,000 - 2,000 Massachusetts Housing Finance Agency
Rev., Series A, 5.90%, 1-1-03 (AMBAC)
360 - 360 Massachusetts Water Resources Auth.
Rev., Series A, 6.90%, 4-1-97(1)
Michigan--1.1%
- - 1,500 1,500 Detroit Water Supply System Rev.,
Series A, 5.30%, 7-1-09 (MBIA)
Mississippi--1.4%
2,000 - 2,000 Mississippi Hospital Equipment and Facilities
Auth. Rev., (North Miss. Health Service),
5.00%, 5-15-00 (AMBAC)
Missouri--0.7%
1,000 - 1,000 Missouri Board of Public Buildings State Office
Buildings Special Obligation Rev.,
Rev., 6.30%, 12-1-05
Nebraska--1.5%
2,000 - 2,000 Nebraska Investment Finance Auth. Hospital
Rev., (Methodist Health System),
6.55%, 3-1-99 (MBIA)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
-----------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Massachusetts Bay Transportation Auth.
Rev., Series C, 5.40%, 3-1-00 2,683 - 2,683
Massachusetts GO,
Series B, (Consolidated Loan),
5.50%, 6-1-05 (FGIC) 1,042 - 1,042
Massachusetts GO,
Series B, 5.40%, 11-1-07 (MBIA) 1,544 1,029 2,573
Massachusetts Housing Finance Agency
Rev., Series A, 5.90%, 1-1-03 (AMBAC) 2,053 - 2,053
Massachusetts Water Resources Auth.
Rev., Series A, 6.90%, 4-1-97(1) 365 - 365
------ ------ ------
7,687 1,029 8,716
------ ------ ------
Detroit Water Supply System Rev.,
Series A, 5.30%, 7-1-09 (MBIA) - 1,506 1,506
------ ------ ------
Mississippi Hospital Equipment and Facilities
Auth. Rev., (North Miss. Health Service),
5.00%, 5-15-00 (AMBAC) 2,029 - 2,029
------ ------ ------
Missouri Board of Public Buildings State Office
Buildings Special Obligation Rev.,
Rev., 6.30%, 12-1-05 1,062 - 1,062
------ ------ ------
Nebraska Investment Finance Auth. Hospital
Rev., (Methodist Health System),
6.55%, 3-1-99 (MBIA) 2,101 - 2,101
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
New Jersey--4.8%
1,030 - 1,030 Atlantic City Board of Education
GO, 6.00%, 12-1-06 (AMBAC)
1,410 - 1,410 New Jersey Educational Facility Auth. Rev.,
Series A, (N.J. Institute of Technology),
5.90%, 7-1-08 (MBIA)
1,000 - 1,000 New Jersey Health Care Facilities
Financing Auth. Rev., (Atlantic City
Medical Center), 6.15%, 7-1-99
1,000 - 1,000 New Jersey State Turnpike Auth. Rev.,
Series A, 6.20%, 1-1-00
1,000 - 1,000 New Jersey Transportation System Trust
Fund Auth. Rev., Series A,
6.25%, 12-15-03(1)
- - 1,000 1,000 New Jersey Transportation Trust
Fund Auth. Rev., Series A, 6.00%,
12-15-05 (MBIA)
New York--9.2%
1,950 - 1,950 City University of New York Certificates of
Participation, (John Jay College),
5.00%, 8-15-09 (AMBAC)
2,500 - 2,500 Nassau County, Series T,
5.20%, 9-1-05 (FGIC)
1,500 - 1,500 New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5-15-04
1,000 - 1,000 New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5-15-06
1,740 - 1,740 New York State Medical Care Facilities Finance
Agency Rev., (Hospital and Nursing Home),
5.95%, 8-15-09
685 - 685 New York State Thruway Auth. Rev.,
(Service Contract), 5.25%, 4-1-03
- - 1,000 1,000 New York State Thruway Auth Service
Contract, 5.30%, 4-1-04
- - 1,000 1,000 New York State Urban Development Corp.
Rev., 6.25%, 4-1-05 (MBIA)
1,260 - 1,260 New York State Urban Development Corp.
Rev., (Correctional Facilities),
5.40%, 1-1-06 (AMBAC)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
-------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Atlantic City Board of Education
GO, 6.00%, 12-1-06 (AMBAC) 1,100 - 1,100
New Jersey Educational Facility Auth. Rev.,
Series A, (N.J. Institute of Technology),
5.90%, 7-1-08 (MBIA) 1,490 - 1,490
New Jersey Health Care Facilities
Financing Auth. Rev., (Atlantic City
Medical Center), 6.15%, 7-1-99 1,038 - 1,038
New Jersey State Turnpike Auth. Rev.,
Series A, 6.20%, 1-1-00 1,047 - 1,047
New Jersey Transportation System Trust
Fund Auth. Rev., Series A,
6.25%, 12-15-03(1) 1,094 - 1,094
New Jersey Transportation Trust
Fund Auth. Rev., Series A, 6.00%,
12-15-05 (MBIA) - 1,084 1,084
------ ------ ------
5,769 1,084 6,853
------ ------ ------
City University of New York Certificates of
Participation, (John Jay College),
5.00%, 8-15-09 (AMBAC) 1,883 - 1,883
Nassau County, Series T,
5.20%, 9-1-05 (FGIC) 2,556 - 2,556
New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5-15-04 1,623 - 1,623
New York State Dorm. Auth. Rev.,
Series A, 6.50%, 5-15-06 1,087 - 1,087
New York State Medical Care Facilities Finance
Agency Rev., (Hospital and Nursing Home),
5.95%, 8-15-09 1,773 - 1,773
New York State Thruway Auth. Rev.,
(Service Contract), 5.25%, 4-1-03 690 - 690
New York State Thruway Auth Service
Contract, 5.30%, 4-1-04 - 1,005 1,005
New York State Urban Development Corp.
Rev., 6.25%, 4-1-05 (MBIA) - 1,090 1,090
New York State Urban Development Corp.
Rev., (Correctional Facilities),
5.40%, 1-1-06 (AMBAC) 1,298 - 1,298
------ ------ ------
10,910 2,095 13,005
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
North Carolina--1.5%
- - 2,000 2,000 North Carolina Eastern Municipal
Power Agency Rev., Series 1993,
6.00%, 1-1-06 (FSA)
Ohio--5.1%
1,450 - 1,450 Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12-1-07 (FGIC)
1,000 - 1,000 Ohio Public Facility Commission Rev.,
Series IIA, (Mental Health Facility),
5.625%, 12-1-98
- - 1,000 1,000 Ohio State Building Auth. Rev., Series A,
Correctional Facility), 6.25%, 10-1-00
3,320 - 3,320 Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12-1-05 (MBIA)
Oklahoma--2.0%
- - 2,500 2,500 Oklahoma Industrial Auth. Health System
Rev. Refunding, Series 1995 C, 7.00%,
8-15-04 (AMBAC)
Oregon--2.1%
1,805 - 1,805 Lane County School District #19 GO,
(Springfield), 6.375%, 10-15-05 (MBIA)
1,000 - 1,000 Oregon State Department Transportation Rev.,
5.50%, 6-1-00 (MBIA)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
---------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
North Carolina Eastern Municipal
Power Agency Rev., Series 1993,
6.00%, 1-1-06 (FSA) - 2,136 2,136
------ ------ ------
Ohio Higher Educational Facility
Commission Rev., (University of
Dayton), 5.55%, 12-1-07 (FGIC) 1,495 - 1,495
Ohio Public Facility Commission Rev.,
Series IIA, (Mental Health Facility),
5.625%, 12-1-98 1,030 - 1,030
Ohio State Building Auth. Rev., Series A,
Correctional Facility), 6.25%, 10-1-00 - 1,064 1,064
Ohio Water Development Auth.
Pollution Control Facilities Rev.,
6.00%, 12-1-05 (MBIA) 3,579 - 3,579
------ ------ ------
6,104 1,064 7,168
------ ------ ------
Oklahoma Industrial Auth. Health System
Rev. Refunding, Series 1995 C, 7.00%,
8-15-04 (AMBAC) - 2,851 2,851
------ ------ ------
Lane County School District #19 GO,
(Springfield), 6.375%, 10-15-05 (MBIA) 1,997 - 1,997
Oregon State Department Transportation Rev.,
5.50%, 6-1-00 (MBIA) 1,037 - 1,037
------ ------ ------
3,034 3,034
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Pennsylvania--4.6%
1,000 - 1,000 Harrisburg Auth. Lease Rev.,
6.25%, 6-1-00 (FSA)(1)
1,500 - 1,500 Pennsylvania Turnpike Commission Rev.,
Series L, 6.25%, 6-1-01 (AMBAC)
2,000 - 2,000 Philadelphia Gas Works Rev.,
14th Series, 5.70%, 7-1-00 (FSA)
1,000 845 1,845 Philadelphia Water & Wastewater Rev.,
5.00%, 6-15-12 (FGIC)
Puerto Rico--0.7%
1,000 - 1,000 Puerto Rico Electric Power Auth. Rev.,
Series R, 5.70%, 7-1-00 (MBIA)
South Carolina--1.4%
1,000 - 1,000 Richland Lexington Airport District Rev.,
Series C, 5.25%, 1-1-06 (AMBAC)
- - 1,000 1,000 South Carolina Public Service Rev.,
6.25%, 1-1-00 (AMBAC)
Texas--14.0%
- - 115 115 Austin County GO, 6.75%, 9-1-00 ,
Prerefunded at Par(1)
- - 885 885 Austin County GO, Series C, 6.75%, 9-1-01
535 - 535 Austin Utility System Rev.,
Series A, 7.50%, 11-15-98
(Acquired 2-3-95, Cost $547)(1)(3)
2,000 - 2,000 Brazos Higher Education Auth. Rev.,
Series A-1, 5.50%, 12-1-98
1,875 - 1,875 Brownsville Utility System Rev.,
6.00%, 9-1-08 (AMBAC)
1,000 - 1,000 Dallas-Fort Worth Regional Airport Rev.,
Series A, 5.90%, 11-1-08 (MBIA)
1,340 - 1,340 Harris County Health Facilities Development
Corp. (St. Luke's Episcopal
Hospital), 6.40%, 2-15-00
- - 1,500 1,500 Harris County Health Facility Memorial
Hospital Rev., (Systems Project),
6.80%, 6-1-01
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
-----------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Harrisburg Auth. Lease Rev.,
6.25%, 6-1-00 (FSA)(1) 1,055 - 1,055
Pennsylvania Turnpike Commission Rev.,
Series L, 6.25%, 6-1-01 (AMBAC) 1,609 - 1,609
Philadelphia Gas Works Rev.,
14th Series, 5.70%, 7-1-00 (FSA) 2,081 - 2,081
Philadelphia Water & Wastewater Rev.,
5.00%, 6-15-12 (FGIC) 952 805 1,757
------ ------ ------
5,697 805 6,502
------ ------ ------
Puerto Rico Electric Power Auth. Rev.,
Series R, 5.70%, 7-1-00 (MBIA) 1,047 - 1,047
------ ------ ------
Richland Lexington Airport District Rev.,
Series C, 5.25%, 1-1-06 (AMBAC) 1,001 - 1,001
South Carolina Public Service Rev.,
6.25%, 1-1-00 (AMBAC) - 1,055 1,055
------ ------ ------
1,001 1,055 2,056
------ ------ ------
Austin County GO, 6.75%, 9-1-00 ,
Prerefunded at Par(1) - 124 124
Austin County GO, Series C, 6.75%, 9-1-01 - 953 953
Austin Utility System Rev.,
Series A, 7.50%, 11-15-98 571 - 571
(Acquired 2-3-95, Cost $547)(1)(3)
Brazos Higher Education Auth. Rev.,
Series A-1, 5.50%, 12-1-98 2,046 - 2,046
Brownsville Utility System Rev.,
6.00%, 9-1-08 (AMBAC) 2,019 - 2,019
Dallas-Fort Worth Regional Airport Rev.,
Series A, 5.90%, 11-1-08 (MBIA) 1,041 - 1,041
Harris County Health Facilities Development
Corp. (St. Luke's Episcopal
Hospital), 6.40%, 2-15-00 1,416 - 1,416
Harris County Health Facility Memorial
Hospital Rev., (Systems Project),
6.80%, 6-1-01 - 1,618 1,618
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
- - 1,000 1,000 Houston Independent School District GO,
(Guaranteed by Texas Permanent
School Fund), 8.375%, 8-15-98
- - 1,500 1,500 Houston Water and Sewer System Rev.,
5.60%, 12-1-02 (MBIA)
- - 500 500 North Texas Higher Education Student Loan
Rev., 6.875%, 4-1-02 (AMBAC)
1,000 - 1,000 Tarrant County Health Facility Development
Corporation Health System
Rev., (Harris Methodist Health System),
5.00%, 9-1-07 (AMBAC)
- - 2,000 2,000 Texas Municipal Power Agency Rev.,
5.75%, 9-1-02 (MBIA)
- - 1,000 1,000 Texas Public Financing Agency GO, Series
1995, (Systems Project), 6.50%, 10-1-03
1,500 - 1,500 Texas State Public Finance Auth. Building
Rev., (Technical College),
6.25%, 8-1-09 (MBIA)
- - 1,000 1,000 Texas Turnpike Auth. Rev., Series 1990 A,
7.00%, 1-1-99, Prerefunded at 102%
of Par (AMBAC)(1)
Utah--2.6%
1,000 - 1,000 Salt Lake County Municipal Building Auth.
Lease Rev., Series A, 6.00%, 10-1-07 (MBIA)
- - 1,600 1,600 Utah Housing Finance Agency Single Family
Mortgage Rev., 5.65%, 7-1-06
- - 1,000 1,000 Utah State MFC University Rev., Series 1991,
(Utah Hospital), 6.60%, 5-15-00
Virginia--1.7%
1,275 - 1,275 Metropolitan Washington D.C. Airports Auth.
Rev., Series A, 6.30%, 10-1-03 (MBIA)
- - 1,000 1,000 Virginia State Public Building Auth. Rev.
Refunding, Series A, 5.70%, 8-1-00
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
--------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Houston Independent School District GO,
(Guaranteed by Texas Permanent
School Fund), 8.375%, 8-15-98 - 1,076 1,076
Houston Water and Sewer System Rev.,
5.60%, 12-1-02 (MBIA) - 1,580 1,580
North Texas Higher Education Student Loan
Rev., 6.875%, 4-1-02 (AMBAC) - 529 529
Tarrant County Health Facility Development
Corporation Health System
Rev., (Harris Methodist Health System),
5.00%, 9-1-07 (AMBAC) 979 - 979
Texas Municipal Power Agency Rev.,
5.75%, 9-1-02 (MBIA) - 2,118 2,118
Texas Public Financing Agency GO, Series
1995, (Systems Project), 6.50%, 10-1-03 - 1,109 1,109
Texas State Public Finance Auth. Building
Rev., (Technical College),
6.25%, 8-1-09 (MBIA) 1,640 - 1,640
Texas Turnpike Auth. Rev., Series 1990 A,
7.00%, 1-1-99, Prerefunded at 102%
of Par (AMBAC)(1) - 1,078 1,078
------ ------ ------
9,712 10,185 19,897
------ ------ ------
Salt Lake County Municipal Building Auth.
Lease Rev., Series A, 6.00%, 10-1-07 (MBIA) 1,063 - 1,063
Utah Housing Finance Agency Single Family
Mortgage Rev., 5.65%, 7-1-06 - 1,637 1,637
Utah State MFC University Rev., Series 1991,
(Utah Hospital), 6.60%, 5-15-00 - 1,066 1,066
------ ------ ------
1,063 2,703 3,766
------ ------ ------
Metropolitan Washington D.C. Airports Auth.
Rev., Series A, 6.30%, 10-1-03 (MBIA) 1,382 - 1,382
Virginia State Public Building Auth. Rev.
Refunding, Series A, 5.70%, 8-1-00 - 1,045 1,045
------ ------ ------
1,382 1,045 2,427
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Washington--7.1%
- - 1,000 1,000 Pierce County School District No. 3 GO,
Series B, 5.80%, 12-1-99
- - 1,000 1,000 Pierce County School District #320 GO,
5.75%, 12-1-02
- - 2,000 2,000 Snohomish County Public Utility District Rev.,
Series 1993, 5.625%, 1-1-05 (FGIC)
- - 1,000 1,000 Snohomish County School District #15 GO,
6.125%, 12-1-03
1,000 - 1,000 Tacoma Electric System
Rev., 6.10%, 1-1-07 (FGIC)
- - 1,000 1,000 Washington Public Power Supply System Rev.,
(Project #1), 5.50%, 7-1-04 (FGIC)
- - 1,000 1,000 Washington Public Power Supply System Rev.,
(Project #1), 7.10%, 7-1-01 (FGIC)
- - 500 500 Washington Public Power Supply System Rev.,
Series C, 7.00%, 7-1-01 (FGIC)
1,000 - 1,000 Washington State Public Power Supply Rev.,
Series C, (Project 2), 7.30%, 7-1-00
Wisconsin--2.7%
1,590 1,000 2,590 Wisconsin State Health and Educational Facility
Auth. Rev., (Aurora Medical Group),
6.00%, 11-15-10 (FSA)
- - 1,060 1,060 Wisconsin State Health Facility Rev., Series B,
(Wausau Hospital), 6.30%, 8-15-00 (AMBAC)
Total Municipal Securities--98.6%
MUNICIPAL DERIVATIVES--1.4%
2,000 - 2,000 Philadelphia Water and Wastewater
Rev., Inverse Floater,
(Fixed Airs), 5.15%, 6-15-04 (4)
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
----------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
Pierce County School District No. 3 GO,
Series B, 5.80%, 12-1-99 - 1,041 1,041
Pierce County School District #320 GO,
5.75%, 12-1-02 - 1,050 1,050
Snohomish County Public Utility District Rev.,
Series 1993, 5.625%, 1-1-05 (FGIC) - 2,083 2,083
Snohomish County School District #15 GO,
6.125%, 12-1-03 - 1,059 1,059
Tacoma Electric System
Rev., 6.10%, 1-1-07 (FGIC) 1,068 - 1,068
Washington Public Power Supply System Rev.,
(Project #1), 5.50%, 7-1-04 (FGIC) - 1,025 1,025
Washington Public Power Supply System Rev.,
(Project #1), 7.10%, 7-1-01 (FGIC) - 1,096 1,096
Washington Public Power Supply System Rev.,
Series C, 7.00%, 7-1-01 (FGIC) - 547 547
Washington State Public Power Supply Rev.,
Series C, (Project 2), 7.30%, 7-1-00 1,084 - 1,084
------ ------ ------
2,152 7,901 10,053
------ ------ ------
Wisconsin State Health and Educational Facility
Auth. Rev., (Aurora Medical Group),
6.00%, 11-15-10 (FSA) 1,692 1,064 2,756
Wisconsin State Health Facility Rev., Series B,
(Wausau Hospital),
6.30%, 8-15-00 (AMBAC) - 1,125 1,125
------ ------ ------
1,692 2,189 3,881
------ ------ ------
77,935 62,240 140,175
------ ------ ------
Philadelphia Water and Wastewater
Rev., Inverse Floater,
(Fixed Airs), 5.15%, 6-15-04 (4) 2,017 - 2,017
------ ------ ------
continued
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
TEMPORARY CASH INVESTMENTS
7,000 Units of Participation in Provident
Institutional Funds (Muni Fund Portfolio)
Pro Forma Combining
Benham Intermediate-Term Tax-Exempt Fund and
Benham Intermediate-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
--------------------------------------
Benham
Benham Inter-
Inter- mediate- Pro
mediate- Term Forma
Term Tax- Tax-Free Combined
Exempt Fund Fund Market
Market Market Value
Value Value (Note 1)
7,000 Units of Participation in Provident
Institutional Funds (Muni Fund Portfolio) 7 - 7
------ ------ ------
TOTAL INVESTMENT SECURITIES--100.0% $79,959 $62,240 $142,199
====== ====== ======
Notes
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Association
GO = General Obligation
MBIA = Municipal Bond Insurance Association
(1) Escrowed in U.S. Government Securities.
(2) This security is a zero-coupon municipal bond. The yield to maturity at
current market value is shown instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
(3) Security was purchased under Rule 144A of the Securities Act of 1933 and,
unless registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. The aggregate value of
restricted securities at October 31, 1996, was $571,129, which represented
0.7% of the net assets of the Intermediate-Term Tax-Exempt Fund.
(4) Inverse floaters bear interest rates that move inversely to market interest
rates. Inverse floaters typically have durations twice as long as long-term
bonds, which may cause their value to be twice as volatile as long-term
bonds when market interest rates change.
END SCHEDULE OF INVESTMENTS
</TABLE>
<TABLE>
<CAPTION>
BENHAM LONG-TERM TAX-EXEMPT FUND
BENHAM LONG-TERM TAX-FREE FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
Benham Benham Pro Forma
October 31, 1996 (Unaudited) Long-Term Long-Term Combined
Tax-Exempt Fund Tax-Free Fund Adjustments (Note 1)
---------------($ in Thousands, Except Per-Share Amounts)---------------
-----------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Investment securities, at value (identified cost of
$57,253 and $50,587, respectively) $60,223 $53,431 $113,654
Interest receivable 1,023 1,029 2,052
-----------------------------------------------------------------------
61,246 54,460 0 115,706
-----------------------------------------------------------------------
LIABILITIES
Disbursements in excess of demand deposit cash 391 5 396
Payable for capital shares redeemed - 35 35
Dividends payable 52 46 98
Payable to affiliates - 30 (30) (b) -
Accrued management fee 31 - 23 (b) 54
Accrued expenses and other liabilities - 1 (1) (b) -
-----------------------------------------------------------------------
474 117 (8) 583
-----------------------------------------------------------------------
Net Assets Applicable to Outstanding Shares $60,772 $54,343 $8 $115,123
=======================================================================
CAPITAL SHARES (NOTE 3)
Outstanding 5,744 4,694 442 (a) 10,880
=======================================================================
Net Asset Value Per Share $10.58 $11.58 $10.58
=================================== ==================
NET ASSETS CONSIST OF:
Capital paid in $57,802 $51,687 $8 (b) $109,497
Accumulated undistributed net realized 0
gain (loss) from investment transactions - (188) (188)
Net unrealized appreciation (depreciation) on investments 2,970 2,844 5,814
-----------------------------------------------------------------------
$60,772 $54,343 $8 $115,123
=======================================================================
(a) Adjustment to reflect the issuance of Long-Term Tax-Free shares (at the
Long-Term Tax-Exempt net asset value per share since this fund is the
accounting survivor) in connection with the proposed reorganization.
(b) Adjustment restates the funds' accrued management fees to reflect the
unitary fee structure at the proposed rate of the reorganized entity.
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BENHAM LONG-TERM TAX-EXEMPT FUND
BENHAM LONG-TERM TAX-FREE FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
Benham Benham Pro Forma
Year Ended October 31, 1996 (Unaudited) Long-Term Long-Term Combined
Tax-Exempt Fund Tax-Free Fund Adjustments (Note 1)
----------------------------($ in Thousands)-----------------------------
INVESTMENT INCOME
Income:
<S> <C> <C> <C> <C>
Interest $3,361 $3,168 $6,529
------------------------------------ ------------------
Expenses:
Management fees 353 - 271 (a) 624
Investment advisory fees - 234 (234) (a) -
Administrative fees - 52 (52) (a) -
Transfer agency fees - 42 (42) (a) -
Custodian fees - 11 (11) (a) -
Printing and postage - 16 (16) (a) -
Registration and filing fees - 21 (21) (a) -
Directors' fees and expenses 1 4 (4) (a) 1
Auditing and legal fees - 15 (15) (a) -
Other operating expenses - 12 (12) (a) -
------------------------------------------------------------------------
Total expenses 354 407 (136) 625
Amount waived - (35) 35 (a) -
Custodian earnings credits - (4) 4 (a) -
------------------------------------------------------------------------
Net expenses 354 368 (97) 625
------------------------------------------------------------------------
Net investment income 3,007 2,800 97 5,904
------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) 27 642 669
Change in net unrealized appreciation (depreciation) 134 (595) (461)
------------------------------------ ------------------
Net realized and unrealized gain (loss) on investments 161 47 208
------------------------------------ ------------------
Net Increase in Net Assets
Resulting from Operations $3,168 $2,847 $97 $6,112
========================================================================
(a) Adjustment restates the funds' management fees to reflect the unitary fee
structure at the proposed rate of the reorganized entity and the expected
savings when the two funds become one.
See Notes to Pro Forma Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments
October 31, 1996 (Unaudited)
($ In Thousands)
-----------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
MUNICIPAL SECURITIES
<S> <C> <C> <C>
Alaska--0.1%
$60 - $60 Alaska State Housing Finance Corp Rev.
Series B, 8.75%, 12-1-16
(LOC: Swiss Bank)
Alabama--1.6%
- - $2,000 2,000 Alabama Special Care Facility
Financing Auth. Rev., (Daughters
of Charity), 5.00%, 11-1-25
Arizona--1.6%
- - 1,750 1,750 Phoenix Civic Improvement Corporation
Water System Rev., 6.00%, 7-1-19
California--11.2%
1,000 - 1,000 California Educational Facilities Auth. Rev.,
(Pooled College & University Project)
5.60%, 12-1-20
2,000 - 2,000 California State Public Works Lease Rev.,
(Department Corrections Prisons A), 5.00%
12-1-19 (AMBAC)
1,000 - 1,000 California State Public Works Lease Rev.,
(University Project A), 6.20%, 10-1-08
1,225 - 1,225 Long Beach Water Rev., 6.125%, 5-1-19
1,500 - 1,500 Los Angeles Community Redevelopment
Agency Rev., (Bunker Hill), 6.50%
12-1-14 (FSA)
- - 1,700 1,700 Los Angeles Wastewater Rev., Series
1993 D, 4.70%, 11-1-19 (FGIC)
1,500 - 1,500 Metropolitan Water District Rev.,
Series A, (Southern California)
5.75%, 7-1-21
1,850 - 1,850 Northern California Power Agency Rev., Series A,
(Hydroelectric Project #1), 6.25%
7-1-12 (MBIA)
1,000 - 1,000 San Jose Redevelopment Agency
Tax Allocation, Series D, 5.75%, 8-1-24
Colorado--0.3%
300 - 300 Colorado Housing Finance Auth. Rev.,
Series C, (Single Family Residential)
8.70%, 9-1-07
continued
<PAGE>
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Alaska State Housing Finance Corp Rev.
Series B, 8.75%, 12-1-16
(LOC: Swiss Bank) $62 - $62
------ ------ ------
Alabama Special Care Facility
Financing Auth. Rev., (Daughters
of Charity), 5.00%, 11-1-25 - $1,783 1,783
------ ------ ------
Phoenix Civic Improvement Corporation
Water System Rev., 6.00%, 7-1-19 - 1,787 1,787
------ ------ ------
California Educational Facilities Auth. Rev.,
(Pooled College & University Project)
5.60%, 12-1-20 974 - 974
California State Public Works Lease Rev.,
(Department Corrections Prisons A), 5.00%
12-1-19 (AMBAC) 1,869 - 1,869
California State Public Works Lease Rev.,
(University Project A), 6.20%, 10-1-08 1,066 - 1,066
Long Beach Water Rev., 6.125%, 5-1-19 1,261 - 1,261
Los Angeles Community Redevelopment
Agency Rev., (Bunker Hill), 6.50%
12-1-14 (FSA) 1,634 - 1,634
Los Angeles Wastewater Rev., Series
1993 D, 4.70%, 11-1-19 (FGIC) - 1,475 1,475
Metropolitan Water District Rev.,
Series A, (Southern California)
5.75%, 7-1-21 1,553 - 1,553
Northern California Power Agency Rev., Series A,
(Hydroelectric Project #1), 6.25%
7-1-12 (MBIA) 1,956 - 1,956
San Jose Redevelopment Agency
Tax Allocation, Series D, 5.75%, 8-1-24 987 - 987
------ ------ ------
11,300 1,475 12,775
------ ------ ------
Colorado Housing Finance Auth. Rev.,
Series C, (Single Family Residential)
8.70%, 9-1-07 315 - 315
------ ------ ------
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Connecticut--2.7%
1,000 - 1,000 Connecticut GO, Series E, 6.00%, 3-15-12
1,880 - 1,880 Connecticut State Development Auth. Rev.,
Series A, 6.375%, 10-15-24
District of Columbia--0.9%
1,000 - 1,000 Metropolitan Area Transportation Auth. Rev.,
6.00%, 7-1-10 (FGIC)
Florida--5.3%
- - 890 890 Broward County Resource Recovery
Facility Rev., Series 1984, (South
Project), 7.95%, 12-1-08
- - 1,000 1,000 Orlando Water and Electric Auth.
Rev., Series D, 6.75%, 10-1-17
1,500 - 1,500 Reedy Creek Utility Rev.,
Series 1, 5.00%, 10-1-19 (MBIA)
- - 1,000 1,000 St. Petersburg Health Auth. Rev.,
(Allegheny Health), 7.00%, 12-1-15
(MBIA)
1,350 - 1,350 Tampa Sports Auth. Sales Tax Rev.,
(Tampa Bay Arena Project)
5.75%, 10-1-25 (MBIA)
Georgia--1.0%
- - 1,000 1,000 Georgia Municipal Electric Auth.
Rev., 6.50%, 1-1-12 (MBIA)
Illinois--13.1%
1,000 - 1,000 City of Chicago Rev., (Peoples Gas,
Light and Coke Co.), 7.50%, 3-1-15
- - 1,965 1,965 Chicago Metropolitan Water
Reclamation District Capital
Improvement, 6.25%, 12-1-14
1,000 - 1,000 Cook County GO, 7.00%, 11-1-10,
Prerefunded 11-1-00 at 102% of Par
(MBIA)(1)
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Connecticut GO, Series E, 6.00%, 3-15-12 1,072 - 1,072
Connecticut State Development Auth. Rev.,
Series A, 6.375%, 10-15-24 1,998 - 1,998
------ ------ ------
3,070 - 3,070
------ ------ ------
Metropolitan Area Transportation Auth. Rev.,
6.00%, 7-1-10 (FGIC) 1,075 - 1,075
------ ------ ------
Broward County Resource Recovery
Facility Rev., Series 1984, (South
Project), 7.95%, 12-1-08 - 981 981
Orlando Water and Electric Auth.
Rev., Series D, 6.75%, 10-1-17 - 1,171 1,171
Reedy Creek Utility Rev.,
Series 1, 5.00%, 10-1-19 (MBIA) 1,385 - 1,385
St. Petersburg Health Auth. Rev.,
(Allegheny Health), 7.00%, 12-1-15 - 1,117 1,117
(MBIA)
Tampa Sports Auth. Sales Tax Rev.,
(Tampa Bay Arena Project)
5.75%, 10-1-25 (MBIA) 1,406 - 1,406
------ ------ ------
2,791 3,269 6,060
------ ------ ------
Georgia Municipal Electric Auth.
Rev., 6.50%, 1-1-12 (MBIA) - 1,116 1,116
------ ------ ------
City of Chicago Rev., (Peoples Gas,
Light and Coke Co.), 7.50%, 3-1-15 1,091 - 1,091
Chicago Metropolitan Water
Reclamation District Capital
Improvement, 6.25%, 12-1-14 - 2,067 2,067
Cook County GO, 7.00%, 11-1-10,
Prerefunded 11-1-00 at 102% of Par
(MBIA)(1) 1,111 - 1,111
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
500 1,500 2,000 Illinois Dedicated Tax Rev.,
(Civic Center Project)
6.25%, 12-15-20 (AMBAC)
- - 1,500 1,500 Illinois Development Finance Auth.
Pollution Control Rev., Series B,
(Central Illinois Public Service),
7.60%, 3-1-14
- - 1,840 1,840 Illinois Health Facilities Auth. Rev.
Refunding, Series C,
(Evangelical Hospital), 6.75%, 4-15-12
1,500 - 1,500 Illinois GO, 6.25%, 10-1-06
1,000 - 1,000 Illinois Regional Transportation Auth. Rev.,
Series A, 7.20%, 11-1-20 (AMBAC)
- - 2,000 2,000 Springfield Water Rev., 6.50%, 3-1-15
Indiana--2.9%
- - 1,000 1,000 Indiana Municipal Power Agency Rev.,
Series A, 7.10%, 1-1-00, Prerefunded
at 102% of Par (AMBAC)(1)
1,000 - 1,000 Indiana State Toll Finance Auth. Rev.,
6.875%, 7-1-12,
Prerefunded 1-1-97 at 102% of Par
(FGIC)(1)
- - 1,000 1,000 Indiana Transportation Financing Auth.
Highway Rev., Series A, 7.25%, 6-1-15
Kansas--0.9%
1,000 - 1,000 Kansas City Utility System Rev.,
6.375%, 9-1-23 (FGIC)
Kentucky--1.3%
1,000 - 1,000 Carroll County Pollution Control Rev., Series A,
(Kentucky Utilities Company Project),
7.45%, 9-15-16
270 - 270 Kentucky Housing Corp. Rev., Series C,
7.90%, 1-1-21 (FHA)
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
-----------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Illinois Dedicated Tax Rev.,
(Civic Center Project)
6.25%, 12-15-20 (AMBAC) 546 1,638 2,184
Illinois Development Finance Auth.
Pollution Control Rev., Series B,
(Central Illinois Public Service),
7.60%, 3-1-14 - 1,637 1,637
Illinois Health Facilities Auth. Rev.
Refunding, Series C,
(Evangelical Hospital), 6.75%, 4-15-12 - 1,939 1,939
Illinois GO, 6.25%, 10-1-06 1,609 - 1,609
Illinois Regional Transportation Auth. Rev.,
Series A, 7.20%, 11-1-20 (AMBAC) 1,217 - 1,217
Springfield Water Rev., 6.50%, 3-1-15 - 2,091 2,091
------ ------ ------
5,574 9,372 14,946
------ ------ ------
Indiana Municipal Power Agency Rev.,
Series A, 7.10%, 1-1-00, Prerefunded
at 102% of Par (AMBAC)(1) - 1,099 1,099
Indiana State Toll Finance Auth. Rev.,
6.875%, 7-1-12,
Prerefunded 1-1-97 at 102% of Par
(FGIC)(1) 1,025 - 1,025
Indiana Transportation Financing Auth.
Highway Rev., Series A, 7.25%, 6-1-15 - 1,192 1,192
------ ------ ------
1,025 2,291 3,316
------ ------ ------
Kansas City Utility System Rev.,
6.375%, 9-1-23 (FGIC) 1,071 - 1,071
------ ------ ------
Carroll County Pollution Control Rev., Series A,
(Kentucky Utilities Company Project),
7.45%, 9-15-16 1,143 - 1,143
Kentucky Housing Corp. Rev., Series C,
7.90%, 1-1-21 (FHA) 285 - 285
------ ------ ------
1,428 - 1,428
------ ------ ------
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Massachusetts--7.1%
1,000 - 1,000 Boston GO, Series B,
5.875%, 8-1-12 (AMBAC)
1,000 - 1,000 Boston GO, Series B,
5.875%, 8-1-13 (AMBAC)
1,000 - 1,000 Massachusetts GO,
Series A, (Consolidated Loan)
5.40%, 11-1-06
- - 1,000 1,000 Massachusetts Health and Education Auth.
Rev., Series F, 6.25%, 7-1-12 (AMBAC)
- - 1,115 1,115 Massachusetts Housing Finance Agency
Rev., Series 1993 A, 6.375%, 4-1-21
- - 1,690 1,690 Massachusetts Housing Finance Agency
Rev., Series 1992 H, 6.75%, 11-15-12
(FNMA)
1,000 - 1,000 Massachusetts Water Resources Auth. Rev.,
Series B, 5.50%, 11-1-15
Michigan--2.1%
1,500 - 1,500 Detroit Sewer Disposal Rev.,
Series B, 5.25%, 7-1-21 (MBIA)
1,000 - 1,000 University of Michigan Hospital Rev.,
Series A, 5.75%, 12-1-12
Montana--1.6%
1,650 - 1,650 Montana State Board Investment Payroll Tax
Rev., 6.875%, 6-1-20(1)
New York--7.8%
1,000 - 1,000 Municipal Assistance Corp. Rev.,
Series 67, 7.625%, 7-1-08
1,000 - 1,000 New York Local Government Assistance Corp.
Rev., Series D, 6.75%, 4-1-07
1,000 - 1,000 New York State Dorm Auth. Rev.
City University, 6.00%, 7-1-26
1,000 - 1,000 New York State Environmental Facilities Corp.
Pollution Control Rev., Series E
6.30%, 6-15-02
1,000 2,000 3,000 New York State Urban Development Corp. Rev.,
Series 4, (Correctional Facilities)
5.375%, 1-1-23
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Boston GO, Series B,
5.875%, 8-1-12 (AMBAC) 1,032 - 1,032
Boston GO, Series B,
5.875%, 8-1-13 (AMBAC) 1,028 - 1,028
Massachusetts GO,
Series A, (Consolidated Loan)
5.40%, 11-1-06 1,028 - 1,028
Massachusetts Health and Education Auth.
Rev., Series F, 6.25%, 7-1-12 (AMBAC) - 1,088 1,088
Massachusetts Housing Finance Agency
Rev., Series 1993 A, 6.375%, 4-1-21 - 1,133 1,133
Massachusetts Housing Finance Agency
Rev., Series 1992 H, 6.75%, 11-15-12
(FNMA) - 1,786 1,786
Massachusetts Water Resources Auth. Rev.,
Series B, 5.50%, 11-1-15 981 - 981
------ ------ ------
4,069 4,007 8,076
------ ------ ------
Detroit Sewer Disposal Rev.,
Series B, 5.25%, 7-1-21 (MBIA) 1,422 - 1,422
University of Michigan Hospital Rev.,
Series A, 5.75%, 12-1-12 1,006 - 1,006
------ ------ ------
2,428 - 2,428
------ ------ ------
Montana State Board Investment Payroll Tax
Rev., 6.875%, 6-1-20(1) 1,819 - 1,819
------ ------ ------
Municipal Assistance Corp. Rev.,
Series 67, 7.625%, 7-1-08 1,096 - 1,096
New York Local Government Assistance Corp.
Rev., Series D, 6.75%, 4-1-07 1,111 - 1,111
New York State Dorm Auth. Rev.
City University, 6.00%, 7-1-26 992 - 992
New York State Environmental Facilities Corp.
Pollution Control Rev., Series E
6.30%, 6-15-02 1,083 - 1,083
New York State Urban Development Corp. Rev.,
Series 4, (Correctional Facilities)
5.375%, 1-1-23 906 1,813 2,719
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
2,000 - 2,000 New York State Urban Development Corp. Rev.,
Series 6, (Correctional Facilities)
5.375%, 1-1-15
North Carolina--1.5%
520 - 520 North Carolina Eastern Municipal Power
Agency System Rev., Series A, 7.50%,
1-1-10, Prerefunded 1-1-09 at 100% of Par(1)
1,000 - 1,000 North Carolina Municipal Power Agency #1
Rev., (Catawba Electric)
6.00%, 1-1-10 (MBIA)
Ohio--1.2%
750 - 750 Ohio Higher Educational Facility Commission
Rev., (Case Western Reserve University)
6.50%, 10-1-20
500 - 500 Ohio Higher Educational Facility Commission
Rev., (University of Dayton)
5.80%, 12-1-14 (FGIC)
Pennsylvania--5.0%
1,125 3,000 4,125 Pennsylvania Intergovernmental
Cooperative Auth.
Special Tax Rev., Series A
5.00%, 6-15-22 (MBIA)
1,000 - 1,000 Philadelphia Gas Works Rev.,
15th Series, 5.375%, 8-1-07 (FSA)
1,000 - 1,000 Philadelphia Water & Wastewater Rev.,
5.25%, 6-15-23 (MBIA)
Puerto Rico--0.5%
500 - 500 Puerto Rico Commonwealth, GO, 6.45%, 7-1-17
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
New York State Urban Development Corp. Rev.,
Series 6, (Correctional Facilities)
5.375%, 1-1-15 1,870 - 1,870
------ ------ ------
7,058 1,813 8,871
------ ------ ------
North Carolina Eastern Municipal Power
Agency System Rev., Series A, 7.50%,
1-1-10, Prerefunded 1-1-09 at 100% of Par(1) 620 - 620
North Carolina Municipal Power Agency #1
Rev., (Catawba Electric)
6.00%, 1-1-10 (MBIA) 1,074 - 1,074
------ ------ ------
1,694 - 1,694
------ ------ ------
Ohio Higher Educational Facility Commission
Rev., (Case Western Reserve University)
6.50%, 10-1-20 848 - 848
Ohio Higher Educational Facility Commission
Rev., (University of Dayton)
5.80%, 12-1-14 (FGIC) 503 - 503
------ ------ ------
1,351 - 1,351
------ ------ ------
Pennsylvania Intergovernmental
Cooperative Auth.
Special Tax Rev., Series A
5.00%, 6-15-22 (MBIA) 1,016 2,709 3,725
Philadelphia Gas Works Rev.,
15th Series, 5.375%, 8-1-07 (FSA) 1,014 - 1,014
Philadelphia Water & Wastewater Rev.,
5.25%, 6-15-23 (MBIA) 938 - 938
------ ------ ------
2,968 2,709 5,677
------ ------ ------
Puerto Rico Commonwealth, GO, 6.45%, 7-1-17 533 - 533
------ ------ ------
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Rhode Island--3.0%
- - 11,000 11,000 Rhode Island Clean Water Safe
Drinking, 6.70%, 1-1-15 (AMBAC)
1,000 1,000 2,000 Rhode Island Depositors Economic
Protection Corp.
Special Obligation Rev., Series A
6.25%, 8-1-16 (MBIA)
South Carolina--3.5%
- - 1,000 1,000 Columbia Water and Sewer Rev.,
7.10%, 2-1-01, Prerefunded at
102% of Par(1)
- - 1,500 1,500 Piedmont Municipal Power Agency
Electric Rev., 6.75%, 1-1-19 (FGIC)
- - 860 860 Piedmont Municipal Power Agency
Electric Rev. Refunding, Series 1991 A,
6.50%, 1-1-16 (FGIC)
- - 140 140 Piedmont Municipal Power Agency
Electric Rev. Refunding, Series 1991 A,
6.50%, 1-1-16(1)
Texas--8.6%
1,000 - 1,000 Alliance Airport Auth. Special Facilities Rev.,
(American Airlines Project), 7.00%, 12-1-11
1,000 - 1,000 Denton Utility System Rev.,
Series A, 5.95%, 12-1-14 (MBIA)
- - 600 600 Lower Colorado River Auth. Rev
Refunding, 5.25%, 1-1-15(1)
- - 2,000 2,000 San Antonio Electric and Gas System
Rev., 5.54%, 2-1-09 (FGIC)(2)
- - 1,000 1,000 Tarrant County Health Facility Rev.,
Series A, 6.75%, 9-1-12 (AMBAC)
2,500 1,960 4,460 Texas Municipal Power Agency Rev.,
Series A, 6.75%, 9-1-12 (AMBAC)
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Rhode Island Clean Water Safe
Drinking, 6.70%, 1-1-15 (AMBAC) - 1,213 1,213
Rhode Island Depositors Economic
Protection Corp.
Special Obligation Rev., Series A
6.25%, 8-1-16 (MBIA) 1,086 1,086 2,172
------ ------ ------
1,086 2,299 3,385
------ ------ ------
Columbia Water and Sewer Rev.,
7.10%, 2-1-01, Prerefunded at
102% of Par(1) - 1,120 1,120
Piedmont Municipal Power Agency
Electric Rev., 6.75%, 1-1-19 (FGIC) - 1,748 1,748
Piedmont Municipal Power Agency
Electric Rev. Refunding, Series 1991 A,
6.50%, 1-1-16 (FGIC) - 965 965
Piedmont Municipal Power Agency
Electric Rev. Refunding, Series 1991 A,
6.50%, 1-1-16(1) - 158 158
------ ------ ------
- 3,991 3,991
------ ------ ------
Alliance Airport Auth. Special Facilities Rev.,
(American Airlines Project), 7.00%, 12-1-11 1,100 - 1,100
Denton Utility System Rev.,
Series A, 5.95%, 12-1-14 (MBIA) 1,033 - 1,033
Lower Colorado River Auth. Rev
Refunding, 5.25%, 1-1-15(1) - 590 590
San Antonio Electric and Gas System
Rev., 5.54%, 2-1-09 (FGIC)(2) - 1,024 1,024
Tarrant County Health Facility Rev.,
Series A, 6.75%, 9-1-12 (AMBAC) - 1,061 1,061
Texas Municipal Power Agency Rev.,
Series A, 6.75%, 9-1-12 (AMBAC) 2,774 2,175 4,949
------ ------ ------
4,907 4,850 9,757
------ ------ ------
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Utah--1.1%
- - 1,000 1,000 Salt Lake City Hospital Rev. Refunding,
Series A, (Intermountain Health
Corporation), 8.125%, 5-15-15(1)
Virginia--3.0%
- - 1,000 1,000 Hampton Industrial Development Auth.
Rev., Series A, (Sentara General
Hospital), 6.50%, 11-1-12
500 - 500 Norfolk Hospital Development Auth.
Rev., (Children's Hospital),
7.00%, 6-1-11, Prerefunded 6-1-01
at 102% of Par (AMBAC)(1)
- - 1,750 1,750 Virginia State Housing Development Auth.
Rev., Series F, (Single Family Mortgage),
7.10%, 1-1-17
Washington--6.6%
- - 1,405 1,405 Port of Seattle Rev., 7.50%, 12-1-00 ,
Prerefunded at 102% of Par
(AMBAC)(1)
- - 1,625 1,625 Seattle Metropolitan Sewer Rev.,
Series T, 6.875%, 1-1-13
- - 1,000 1,000 Washington Public Power Supply
System Rev., Series 1990 C,
5.70%, 7-1-12 (AMBAC)
- - 1,000 1,000 Washington State GO, Series A,
6.75%, 2-1-15
1,000 - 1,000 Washington State GO,
Series B, 5.375%, 5-1-08
1,000 - 1,000 Washington State Public Power Supply Rev.,
Series A, (Nuclear Project #1)
5.75%, 7-1-12 (MBIA)
Wisconsin--3.1%
1,180 - 1,180 Winneconne Community School
District GO, 6.75%, 4-1-14 (FGIC)
- - 1,900 1,900 Wisconsin State Clean Water Rev.,
6.875%, 6-1-11
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Salt Lake City Hospital Rev. Refunding,
Series A, (Intermountain Health
Corporation), 8.125%, 5-15-15(1) - 1,198 1,198
------ ------ ------
Hampton Industrial Development Auth.
Rev., Series A, (Sentara General
Hospital), 6.50%, 11-1-12 - 1,044 1,044
Norfolk Hospital Development Auth.
Rev., (Children's Hospital),
7.00%, 6-1-11, Prerefunded 6-1-01
at 102% of Par (AMBAC)(1) 560 - 560
Virginia State Housing Development Auth.
Rev., Series F, (Single Family Mortgage),
7.10%, 1-1-17 - 1,849 1,849
------ ------ ------
560 2,893 3,453
------ ------ ------
Port of Seattle Rev., 7.50%, 12-1-00 ,
Prerefunded at 102% of Par
(AMBAC)(1) - 1,589 1,589
Seattle Metropolitan Sewer Rev.,
Series T, 6.875%, 1-1-13 - 1,740 1,740
Washington Public Power Supply
System Rev., Series 1990 C,
5.70%, 7-1-12 (AMBAC) - 1,002 1,002
Washington State GO, Series A,
6.75%, 2-1-15 - 1,151 1,151
Washington State GO,
Series B, 5.375%, 5-1-08 1,019 - 1,019
Washington State Public Power Supply Rev.,
Series A, (Nuclear Project #1)
5.75%, 7-1-12 (MBIA) 1,006 - 1,006
------ ------ ------
2,025 5,482 7,507
------ ------ ------
Winneconne Community School
District GO, 6.75%, 4-1-14 (FGIC) 1,285 - 1,285
Wisconsin State Clean Water Rev.,
6.875%, 6-1-11 - 2,196 2,196
------ ------ ------
1,285 2,196 3,481
------ ------ ------
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
($ In Thousands)
------------------------------------------------
Benham Benham
Long-Term Long-Term Pro Forma
Tax-Exempt Tax-Free Combined
Fund Fund Principal
Principal Principal Amount
Amount Amount (Note 1)
Wyoming--0.2%
220 - 220 Wyoming Community Development Auth. Rev.,
Series B, (Single Family Mortgage),
8.125%, 6-1-21 (FHA)
Total Municipal Bonds--98.8%
Short-Term Tax-Exempt Securities
Arizona--0.1%
- - 100 100 Phoenix Industrial Dev. Auth.
Multifamily Housing Rev. Refunding,
(Ventana Palms Apartments), VRDN, 3.60%
11-6-1996, resets monthly,
final maturity 2-1-24
California--0.4%
500 - 500 Ontario California Industrial Development
Auth. Rev., Series A, (Erenberg Partners),
4.00%, VRDN, 11-6-96, resets
weekly, final maturity 9-1-08
(LOC: Tokai Bank of California Ltd.)
New Jersey--0.7%
- - 800 800 New Jersey Economic Development
Auth. Rev., Series 1984A,
(Merck & Co., Inc.), VRDN, 4.00%,
11-6-96, resets weekly,
final maturity 10-1-19
Total Short-Term Tax-Exempt Securities--1.2%
TOTAL INVESTMENT SECURITIES--100.0%
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (Continued)
October 31, 1996 (Unaudited)
CONTINUATION OF COLUMN
($ In Thousands)
------------------------------------------
Benham Benham Pro
Long-Term Long-Term Forma
Tax-Exempt Tax-Free Combined
Fund Fund Market
Market Market Value
Value Value (Note 1)
Wyoming Community Development Auth. Rev.,
Series B, (Single Family Mortgage),
8.125%, 6-1-21 (FHA) 229 - 229
------ ------ ------
59,723 52,531 112,254
------ ------ ------
Phoenix Industrial Dev. Auth.
Multifamily Housing Rev. Refunding,
(Ventana Palms Apartments), VRDN, 3.60%
11-6-1996, resets monthly,
final maturity 2-1-24 - 100 100
Ontario California Industrial Development
Auth. Rev., Series A, (Erenberg Partners),
4.00%, VRDN, 11-6-96, resets
weekly, final maturity 9-1-08
(LOC: Tokai Bank of California Ltd.) 500 - 500
New Jersey Economic Development
Auth. Rev., Series 1984A,
(Merck & Co., Inc.), VRDN, 4.00%,
11-6-96, resets weekly,
final maturity 10-1-19
- 800 800
------ ------ ------
500 900 1,400
------ ------ ------
$60,223 $53,431 $113,654
======= ======= =======
continued
Pro Forma Combining
Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund
Schedule of Investments (continued)
October 31, 1996 (Unaudited)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FHA = Federal Housing Authority
FNMA = Federal National Mortgage Association
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
resets = The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will vary
significantly from current market rates.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 1996.
(1) Escrowed in U.S. Government Securities
(2) This security is a zero-coupon municipal bond. The yield to maturity at
current market value is shown instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
END SCHEDULE OF INVESTMENTS
</TABLE>
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination-The unaudited Pro Forma Combining Schedules of
Investments, Pro Forma Combining Statements of Assets and Liabilities and
Pro Forma Combining Statements of Operations reflect the accounts of the
Benham Short-Term Government Fund and Benham Adjustable Rate Government
Securities Fund; Benham Intermediate-Term Tax-Exempt Fund and Benham
Intermediate-Term Tax-Free Fund and Benham Long-Term Tax-Exempt Fund and
Benham Long-Term Tax-Free Fund, at and for the year ended October 31, 1996.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the non-surviving fund, in exchange for shares of
the surviving entity as stated below:
Non-Surviving Fund: Surviving Fund:
Benham Adjustable Rate Government Benham Short-Term Government Fund
Securities Fund
Benham Intermediate-Term Benham Intermediate-Term
Tax-Free Fund Tax-Exempt Fund
Benham Long-Term Tax-Free Fund Benham Long-Term Tax-Exempt Fund
In accordance with generally accepted accounting principles, the historical
cost of investment securities will be carried forward to the surviving fund
and the results of operations for pre-combination periods for the surviving
fund will not be restated. The pro forma statements do not reflect the
expenses of either fund in carrying out its obligation under the Agreement
and Plan of Reorganization. Under the terms of the Plan of Reorganization,
the combination of the funds will be treated as a tax-free business
combination and accordingly will be accounted for by a method of accounting
for tax-free mergers of investment companies (sometimes referred to as the
pooling without restatement method).
The Pro Forma Combining Schedules of Investments, Statements of Assets and
Liabilities and Statements of Operations should be read in conjunction with
the historical financial statements of the funds which are incorporated by
reference in the Statement of Additional Information.
2. Portfolio Valuation-Securities are valued through valuations obtained from
a commercial pricing service or at the mean of the most recent bid and
asked prices. When valuations are not readily available, securities are
valued at fair value as determined in accordance with procedures adopted by
the Board of Trustees.
3. Capital Shares-The pro forma net asset value per share assumes the
issuance of shares of the surviving fund which would have been issued at
October 31, 1996, in connection with the proposed reorganization. The
number of shares assumed to be issued is equal to the net asset value of
shares of the non-surviving fund, as of October 31, 1996, divided by the
net asset value per share of the shares of the surviving fund as of October
31, 1996. The pro forma total number of shares outstanding for each
combined fund consists of the following at October 31, 1996:
Additional Shares
Combined Total Outstanding Shares of Assumed Issued
Fund Shares Surviving Fund in Reorganization
Short-Term
Government Fund 64,215,708 36,940,713 27,274,995
Intermediate-Term
Tax-Exempt Fund 13,898,329 7,787,666 6,110,663
Long-Term
Tax-Exempt Fund 10,879,856 5,743,483 5,136,373
4. Investments-At October 31, 1996, the funds had the following net capital
loss carryforwards available to offset future capital gains. To the extent
that those carryforward losses are used to offset capital gains, it is
probable that any gains so offset will not be distributed.
Fund Net Capital Loss Carryforward
Adjustable Rate Government
Securities Fund $69,205,630
Short-Term Government Fund $19,957,873
Intermediate-Term Tax-Free Fund $420,126
Long-Term Tax-Free Fund $427,920
<PAGE>
PART C OTHER INFORMATION
Item 15 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 of 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."
As stated in Section 4 of the Distribution Agreement,
incorporated herein by reference to Exhibit 6 to Post-Effective
Amendment No. 30, "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."
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 #773674-96-000004).
Item 16 Exhibits
(1)
(a) Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (accession #773674-96-000002).
(b) Amendment to the Declaration of Trust dated October 21, 1996, is
incorporated herein by reference to Exhibit 1b of Post-Effective
Amendment No. 31 filed on February 7, 1997 (accession
#773674-97-000002).
(c) Amendment to the Declaration of Trust dated January 20, 1997, with
respect to the American Century - Benham Inflation-Adjusted Treasury
Fund, is incorporated herein by reference to Exhibit 1c of
Post-Effective Amendment No. 31 filed on February 7, 1997 (accession
#773674-97-000002).
(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 #773674-96-000004).
(3) Not Applicable.
(4) Agreementand Plan of Reorganization filed herewith as Appendix I to
Part A to the Form N-14 and is incorporated herein by reference.
(5) Not Applicable.
(6)
(a) Investment Advisory Agreement between American Century 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 #773674-96-000004).
(b) Form of Management Agreement between American Century Government
Income Trust and American Century Investment Management, Inc. is filed
herein.
(7) Distribution Agreement between American Century Government Income
Trust and American Century Investment Services, Inc. dated as of
September 3, 1996, is incorporated herein by reference to Exhibit 6 to
Post-Effective Amendment No. 30 filed on November 25, 1996 (accession
#773674-96-000009).
(8) Not Applicable
(9) Custodian Agreement between American Century Government Income
Trust and The Chase Manhattan Bank, dated August 9, 1996, is
incorporated herein by reference to Exhibit 8 of Post-Effective
Amendment No. 31 filed on February 7, 1997 (accession
#773674-97-000002).
(10) Not Applicable
(11) Opinion and Consent of Counsel as to the legality of the
securities being registered is filed herein.
(12) Opinion and Consent of Counsel as to the tax matters and
consequences to shareholders is filed herein.
(13) Form of Transfer Agency Agreement between American Century
Government Income Trust and American Century Services Corporation is
included herein.
(14)
(a) Consent of Baird, Kurtz & Dobson is included herein.
(b) Consent of KPMG Peat Marwick LLP is included herein.
(15) Not Applicable.
(16) Power of Attorney dated February 28, 1997, is filed herein.
(17)
(a) Form of Proxy.
(b) Prospectus dated March 1, 1997, for American Century - Benham
Intermediate-Term Government Fund and American Century - Benham
Short-Term Government Fund, filed as part of Post-Effective Amendment
No. 76 to the Registration Statement on Form N-1A on February 28,
1997(accession # 100334-97-000005), is incorporated herein by
reference.
(c) Statement of Additional Information dated March 1, 1997, for
American Century - Benham Intermediate-Term Government Fund and
American Century - Benham Short-Term Government Fund, filed as part of
Post-Effective Amendment No. 76 to the Registration Statement on Form
N-1A on February 28, 1997(accession # 100334-97-000005), is
incorporated herein by reference.
(d) Prospectus dated September 3, 1996, revised January 1, 1997, for
American Century - Benham Intermediate-Term Treasury Fund and American
Century- Benham Adjustable Rate Government Securities Fund, filed
pursuant to Rule 497(e) on December 23, 1996 (accession
#17271-96-000024), is incorporated herein by reference.
(e) Statement of Additional Information dated February 10, 1997, for
American Century - Benham Intermediate-Term Treasury Fund and American
Century - Benham Adjustable Rate Government Securities Fund, filed
pursuant to Rule 485(b) on February 7, 1997 (accession
#773674-97-000002), is incorporated herein by reference.
(f) Statement of Additional Information for American Century - Benham
Intermediate-Term Treasury Fund and American Century - Benham
Adjustable Rate Government Securities Fund, filed under Rule 485(a)(2)
on March 10, 1997 (accession #773674-97-000004), is incorporated herein
by reference.
(g) Annual Report dated October 31, 1996, for American Century - Benham
Intermediate-Term Government Fund and American Century - Benham
Short-Term Government Fund, filed on December 23, 1996 (accession
#100334-96-000018), is incorporated herein by reference.
(h) Annual Report dated March 31, 1996, for American Century - Benham
Adjustable Rate Government Securities Fund, filed on May 24, 1996
(accession #773674-96-000002), is incorporated herein by reference.
(i) Semiannual Report dated September 30, 1996, for American Century -
Benham Adjustable Rate Government Securities Fund, filed on November
26, 1996 (accession #773674-96-000010), is incorporated herein by
reference.
(j) Annual Report dated March 31, 1996, for American Century - Benham
Intermediate-Term Treasury Fund, filed on May 24, 1996 (accession
#773674-96-000003) is incorporated herein by reference.
(k) Semiannual Report dated September 30, 1996, for American Century -
Benham Intermediate-Term Treasury Fund, filed on November 26, 1996
(accession #773674-96-000011), is incorporated herein by reference.
Item 17 Undertakings
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c )
of the Securities Act of 1933, as amended, the reoffering prospectus
will contain the information called for by the applicable registration
form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment
to the registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the Registrant, in the City
of Mountain View, State of California, on the 21st day of April, 1997.
AMERICAN CENTURY GOVERNMENT INCOME TRUST
Registrant
/s/ Douglas A. Paul
Douglas A. Paul
Vice President and Associate General Counsel
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
*James M. Benham Chairman of the Board of Trustees, April 21, 1997
- --------------------------- President, and
James M. Benham Chief Executive Officer
*Albert A. Eisenstat Trustee April 21, 1997
- ---------------------------
Albert A. Eisenstat
*Ronald J. Gilson Trustee April 21, 1997
- ---------------------------
Ronald J. Gilson
*Myron S. Scholes Trustee April 21, 1997
- ---------------------------
Myron S. Scholes
*Kenneth E. Scott Trustee April 21, 1997
- ---------------------------
Kenneth E. Scott
*Isaac Stein Trustee April 21, 1997
- ---------------------------
Isaac Stein
*James E. Stowers III Trustee April 21, 1997
- ---------------------------
James E. Stowers III
*Jeanne D. Wohlers Trustee April 21, 1997
- ---------------------------
Jeanne D. Wohlers
*Maryanne Roepke Chief Financial Officer, April 21, 1997
- --------------------------- Treasurer
Maryanne Roepke
* By /s/Douglas A. Paul
---------------------------
Douglas A. Paul, Attorney in Fact
Pursuant to a Power of Attorney dated February 28, 1997
</TABLE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
EX-99.1a 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 #773674-96-000002).
EX-99.1b Amendment to the Declaration of Trust dated October 21, 1996,
is incorporated herein by reference to Exhibit 1b of
Post-Effective Amendment No. 31 filed on February 7, 1997
(accession #773674-97-000002).
EX-99.1c Amendment to the Declaration of Trust dated January 20, 1997,
with respect to the American Century - Benham
Inflation-Adjusted Treasury Fund, is incorporated herein by
reference to Exhibit 1c of Post-Effective Amendment No. 31
filed on February 7, 1997 (accession #773674-97-000002).
EX-99.2 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 #773674-96-000004).
EX-99.4 Agreement and Plan of Reorganization filed herewith as
Appendix I to Part A to the Form N-14 and is incorporated
herein by reference.
Ex-99.6a Investment Advisory Agreement between American Century
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 #773674-96-000004).
EX-99.6b Form of Management Agreement between American Century
Government Income Trust and American Century Investment
Management, Inc. is filed herein.
EX-99.7 Distribution Agreement between American Century Government
Income Trust and American Century Investment Services, Inc.
dated as of September 3, 1996, is incorporated herein by
reference to Exhibit 6 to Post-Effective Amendment No.
30 filed on November 25, 1996 (accession #773674-96-000009).
Ex-99.9 Custodian Agreement between American Century Government Income
Trust and The Chase Manhattan Bank, dated August 9, 1996, is
incorporated herein by reference to Exhibit 8 of
Post-Effective Amendment No. 31 filed on February 7, 1997
(accession #773674-97-000002).
EX-99.11 Opinion and Consent of Counsel as to the legality of the
securities being registered is filed herein.
Ex-99.12 Form of Opinion and Consent of Counsel as to the tax matters
and consequences to shareholders is filed herein.
EX-99.13 Form of Transfer Agency Agreement between American Century
Government Income Trust and American Century Services
Corporation is included herein.
EX-99.14a Consent of Baird, Kurtz & Dobson is included herein.
EX-99.14b Consent of KPMG Peat Marwick LLP is included herein.
Ex-99.16 Power of Attorney dated February 28, 1997, is filed herein.
EX-99.17 Form of Proxy.
EX-99.17b Prospectus dated March 1, 1997, for American Century - Benham
Intermediate-Term Government Fund and American Century -
Benham Short-Term Government Fund, filed as part of
Post-Effective Amendment No. 76 to the Registration Statement
on Form N-1A on February 28, 1997(accession #
100334-97-000005), is incorporated herein by reference.
EX-99.17c Statement of Additional Information dated March 1, 1997, for
American Century - Benham Intermediate-Term Government Fund
and American Century - Benham Short-Term Government Fund,
filed as part of Post-Effective Amendment No. 76 to the
Registration Statement on Form N-1A on February 28,
1997(accession # 100334-97-000005), is incorporated herein by
reference.
EX-99.17d Prospectus dated September 3, 1996, revised January 1, 1997,
for American Century - Benham Intermediate-Term Treasury Fund
and American Century- Benham Adjustable Rate Government
Securities Fund, filed pursuant to Rule 497(e) on December 23,
1996 (accession #17271-96-000024), is incorporated herein by
reference.
EX-99.17e Statement of Additional Information dated February 10, 1997,
for American Century - Benham Intermediate-Term Treasury Fund
and American Century - Benham Adjustable Rate Government
Securities Fund, filed pursuant to Rule 485(b) on February 7,
1997 (accession #773674-97-000002), is incorporated herein by
reference.
EX-99.17f Statement of Additional Information for American Century -
Benham Intermediate-Term Treasury Fund and American Century -
Benham Adjustable Rate Government Securities Fund, filed on
March 10, 1997 (accession #773674-97-000004), is incorporated
herein by reference.
EX-99.17g Annual Report dated October 31, 1996, for American Century -
Benham Intermediate-Term Government Fund and American Century
- Benham Short-Term Government Fund, filed on December 23,
1996 (accession #100334-96-000018), is incorporated herein by
reference.
EX-99.17h Annual Report dated March 31, 1996, for American Century -
Benham Adjustable Rate Government Securities Fund, filed on
May 24, 1996 (accession #773674-96-000002), is incorporated
herein by reference.
EX-99.17i Semiannual Report dated September 30, 1996, for American
Century - Benham Adjustable Rate Government Securities Fund,
filed on November 26, 1996 (accession #773674-96-000010), is
incorporated herein by reference.
EX-99.17j Annual Report dated March 31, 1996, for American Century -
Benham Intermediate-Term Treasury Fund, filed on May 24, 1996
(accession #773674-96-000003) is incorporated herein by
reference.
EX-99.17k Semiannual Report dated September 30, 1996, for American
Century - Benham Intermediate-Term Treasury Fund, filed on
November 26, 1996 (accession #773674-96-000011), is
incorporated herein by reference.
FORM OF MANAGEMENT AGREEMENT
THIS AGREEMENT made as of the ____ day of ________, 1997, is by and
between the registered investment companies listed on Exhibit A to this
Agreement (the "Companies") and American Century Investment Management, Inc., a
Delaware corporation (hereinafter called the "Investment Manager").
IN CONSIDERATION of the mutual promises and agreements herein
contained, the parties agree as follows:
1. INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall supervise
the investments of each series of shares of the Companies contemplated
as of the date hereof, and such subsequent series of shares as the
Companies shall select the Investment Manager to manage. In such
capacity, the Investment Manager shall maintain a continuous investment
program for each such series, determine what securities shall be
purchased or sold by each series, secure and evaluate such information
as it deems proper and take whatever action is necessary or convenient
to perform its functions, including the placing of purchase and sale
orders.
2. COMPLIANCE WITH LAWS. All functions undertaken by the Investment
Manager hereunder shall at all times conform to, and be in accordance
with, any requirements imposed by:
(a) the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules and regulations promulgated thereunder;
(b) any other applicable provisions of law;
(c) the Declaration of Trust or Articles of Incorporation
applicable to each of the Companies as amended from time to
time;
(d) the By-Laws of the Companies as amended from time to time; and
(e) the registration statement of the Companies, as amended from
time to time, filed under the Securities Act of 1933 and the
1940 Act.
3. BOARD SUPERVISION. All of the functions undertaken by the Investment
Manager hereunder shall at all times be subject to the direction of the
Board of Trustees or Board of Directors (collectively, the "Board of
Directors") of the Companies, its executive committee, or any committee
or officers of the Companies acting under the authority of the Board of
Directors.
4. PAYMENT OF EXPENSES. The Investment Manager will pay all of the
expenses of each series of the Companies' shares that it shall manage,
other than interest, taxes, brokerage commissions, extraordinary
expenses and the fees and expenses of those Directors who are not
"interested persons" as defined in 1940 Act (hereinafter referred to
as the "Independent Directors") (including counsel fees). The
Investment Manager will provide the Companies with all physical
facilities and personnel required to carry on the business of each
series that the Investment Manager shall manage, including but not
limited to office space, office furniture, fixtures and equipment,
office supplies, computer hardware and software and salaried and
hourly paid personnel. The Investment Manager may at its expense
employ others to provide all or any part of such facilities and
personnel.
5. ACCOUNT FEES. The Companies, by resolution of the Board of Directors,
including a majority of the Independent Directors, may from time to
time authorize the imposition of a fee as a direct charge against
shareholder accounts of one or more of the series, such fee to be
retained by the appropriate Company or to be paid to the Investment
Manager to defray expenses which would otherwise be paid by the
Investment Manager in accordance with the provisions of paragraph 4 of
this Agreement. At least 60 days' prior written notice of the intent to
impose such fee must be given to the shareholders of the affected
series.
6. MANAGEMENT FEES.
(a) In consideration of the services provided by the Investment
Manager, each series of shares of the Companies managed by the
Investment Manager shall pay to the Investment Manager a per
annum management fee (hereinafter, the "Applicable Fee"). The
calculation of the Applicable Fee for a series is performed as
follows:
(i) Each series is assigned to one of three categories
based on its overall investment objective
("Investment Category"). The Investment Category
assignments appear in Exhibit B to this Agreement.
(ii) Each series is assigned a fee schedule within its
Investment Category in Exhibit C to this Agreement.
The Investment Category assets managed by the
Investment Manager determines the first component of
a series' fee. This fee is referred to as the
"Investment Category Fee". The determination of the
Investment Category assets is as follows:
a) Money Market Fund Category. The assets which
are used to determine the fee for this
Investment Category is the sum the assets of
all of the open-end investment company
series which are subject to Rule 2a-7 under
the 1940 Act, managed by the Investment
Manager and distributed to the public by
American Century Investment Services, Inc.
b) Bond Fund Category. The assets which are
used to determine the fee for this
Investment Category is the sum the assets of
all of the open-end investment company
series which invest primarily in debt
securities, are not subject to Rule 2a-7
under the 1940 Act, are managed by the
Investment Manager and are distributed to
the public by American Century Investment
Services, Inc.
c) Equity Fund Category. The assets which are
used to determine the fee for this
Investment Category is the sum the assets of
all of the open-end investment company
series which invest primarily in equity
securities, are managed by the Investment
Manager and are distributed to the public by
American Century Investment Services, Inc.
(iii) A fee which is based on the total assets in all of
the Investment Categories is determined by the
schedule which appears in Exhibit D. This fee is
referred to as the series' "Complex Fee".
(iv) The Applicable Fee for a series is the sum of the
Investment Category Fee and the Complex Fee.
(v) Whether a particular investment company's assets will
be used to calculate the Applicable Fee shall be
determined by the Directors of the Companies.
(b) On the first business day of each month, each series of shares
shall pay the management fee at the rate specified by
subparagraph (a) of this paragraph 6 to the Investment Manager
for the previous month. The fee for the previous month shall
be calculated by multiplying the Applicable Fee for such
series by the aggregate average daily closing value of the
series' net assets during the previous month, and further
multiplying that product by a fraction, the numerator of which
shall be the number of days in the previous month, and the
denominator of which shall be 365 (366 in leap years).
(c) In the event that the Board of Directors of a Company shall
determine to issue any additional series of shares for which
it is proposed that the Investment Manager serve as investment
manager, the Company and the Investment Manager shall enter
into an Addendum to this Agreement setting forth the name of
the series, the Applicable Fee and such other terms and
conditions as are applicable to the management of such series
of shares.
7. CONTINUATION OF AGREEMENT. This Agreement shall continue in effect,
unless sooner terminated as hereinafter provided, for a period of two
years from the execution hereof, and for as long thereafter as its
continuance is specifically approved, as to each series of the
Companies, at least annually (i) by the Board of Directors of the
Companies or by the vote of a majority of the outstanding voting
securities of the Companies, and (ii) by the vote of a majority of the
Directors of the Companies, who are not parties to the agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
8. TERMINATION. This Agreement may be terminated, with respect to any
series, by the Investment Manager at any time without penalty upon
giving the appropriate Company 60 days' written notice, and may be
terminated, with respect to any series, at any time without penalty by
the Board of Directors of a Company or by vote of a majority of the
outstanding voting securities of such series on 60 days' written notice
to the Investment Manager.
9. EFFECT OF ASSIGNMENT. This Agreement shall automatically terminate in
the event of assignment by the Investment Manager, the term
"assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act.
10. OTHER ACTIVITIES. Nothing herein shall be deemed to limit or restrict
the right of the Investment Manager, or the right of any of its
officers, directors or employees (who may also be a trustee, officer or
employee of a Company), to engage in any other business or to devote
time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or
association.
11. STANDARD OF CARE. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of its obligations or duties
hereunder on the part of the Investment Manager, it, as an inducement
to it to enter into this Agreement, shall not be subject to liability
to the Companies or to any shareholder of the Companies for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
12. SEPARATE AGREEMENT. The parties hereto acknowledge that certain
provisions of the 1940 Act, in effect, treat each series of shares of a
registered investment company as a separate investment company.
Accordingly, the parties hereto hereby acknowledge and agree that, to
the extent deemed appropriate and consistent with the 1940 Act, this
Agreement shall be deemed to constitute a separate agreement between
the Investment Manager and each series of shares of the Companies
managed by the Investment Manager.
13. USE OF THE NAMES "AMERICAN CENTURY" AND "BENHAM." The name "American
Century" and all rights to the use of the names "American Century" and
"Benham" are the exclusive property of American Century Services
Corporation ("ACSC"), an affiliate of the Investment Manager. ACSC
has consented to, and granted a non-exclusive license for, the use by
the Companies and their respective series of the names "American
Century" and "Benham" in the name of the Companies and any series of
shares thereof. Such consent and non-exclusive license may be revoked
by ACSC in its discretion if ACSC, the Investment Manager, or a
subsidiary or affiliate of either of them is not employed as the
investment manager of each series of shares of the Corporation. In
the event of such revocation, the Companies and each series of shares
thereof using the name "American Century" or "Benham" shall cease
using the name "American Century" or "Benham", unless otherwise
consented to by ACSC or any successor to its interest in such names.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
AMERICAN CENTURY CALIFORNIA
TAX-FREE AND MUNICIPAL FUNDS
AMERICAN CENTURY GOVERNMENT INCOME
TRUST AMERICAN CENTURY
INTERNATIONAL BOND FUNDS AMERICAN
CENTURY INVESTMENT TRUST AMERICAN
CENTURY MUNICIPAL TRUST AMERICAN
CENTURY QUANTITATIVE EQUITY FUNDS
AMERICAN CENTURY TARGET MATURITIES
TRUST
Attest:
William M. Lyons James E. Stowers III
Secretary President
Attest: AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
William M. Lyons James E. Stowers III
Secretary President
Exhibit A
REGISTERED INVESTMENT COMPANIES SUBJECT TO THIS AGREEMENT
<TABLE>
<CAPTION>
REGISTERED INVESTMENT COMPANY SERIES
<S> <C>
American Century California Tax-Free and
Municipal Funds Benham California High Yield Municipal Fund
Benham California Insured Tax-Free Fund
Benham California Intermediate-Term Tax-Free Fund
Benham California Limited-Term Tax-Free Fund
Benham California Long-Term Tax-Free Fund
Benham California Municipal Money Market Fund
Benham California Tax-Free Money Market Fund
American Century Government Income Trust Benham Adjustable Rate Government Securities Fund
Benham Capital Preservation Fund
Benham GNMA Fund
Benham Government Agency Money Market Fund
Benham Inflation-Adjusted Treasury Fund
Benham Intermediate-Term Treasury Fund
Benham Long-Term Treasury Fund
Benham Short-Term Treasury Fund
American Century International Bond Funds Benham European Government Bond Fund
American Century Investment Trust Benham Prime Money Market Fund
American Century Municipal Trust Benham Arizona Intermediate-Term Municipal Fund
Benham Florida Intermediate-Term Municipal Fund
Benham Florida Municipal Money Market Fund
Benham Intermediate-Term Tax-Free Fund
Benham Limited-Term Tax-Free Fund
Benham Long-Term Tax-Free Fund
Benham Tax-Free Money Market Fund
American Century Quantitative Equity Funds American Century Equity Growth Fund
American Century Global Gold Fund
American Century Global Natural Resources Fund
American Century Income & Growth Fund
American Century Utilities Fund
American Century Target Maturities Trust Benham Target Maturities Trust: 2000
Benham Target Maturities Trust: 2005
Benham Target Maturities Trust: 2010
Benham Target Maturities Trust: 2015
Benham Target Maturities Trust: 2020
Benham Target Maturities Trust: 2025
</TABLE>
Exhibit B
SERIES INVESTMENT CATEGORIES
<TABLE>
<CAPTION>
INVESTMENT CATEGORY SERIES
<S> <C>
Money Market Funds Benham California Municipal Money Market Fund
Benham California Tax-Free Money Market Fund
Benham Capital Preservation Fund
Benham Florida Municipal Money Market Fund
Benham Government Agency Money Market Fund
Benham Prime Money Market Fund
Benham Tax-Free Money Market Fund
Bond Funds Benham Adjustable Rate Government Securities Fund
Benham Arizona Intermediate-Term Municipal Fund
Benham California High Yield Municipal Fund
Benham California Insured Tax-Free Fund
Benham California Intermediate-Term Tax-Free Fund
Benham California Limited-Term Tax-Free Fund
Benham California Long-Term Tax-Free Fund
Benham European Government Bond Fund
Benham Florida Intermediate-Term Municipal Fund
Benham GNMA Fund
Benham Inflation-Adjusted Treasury Fund
Benham Intermediate-Term Tax-Free Fund
Benham Intermediate-Term Treasury Fund
Benham Limited-Term Tax-Free Fund
Benham Long-Term Tax-Free Fund
Benham Long-Term Treasury Fund
Benham Short-Term Treasury Fund
Benham Target Maturities Trust: 2000
Benham Target Maturities Trust: 2005
Benham Target Maturities Trust: 2010
Benham Target Maturities Trust: 2015
Benham Target Maturities Trust: 2020
Benham Target Maturities Trust: 2025
Equity Funds American Century Equity Growth Fund
American Century Global Gold Fund
American Century Global Natural Resources Fund
American Century Income & Growth Fund
American Century Utilities Fund
</TABLE>
Exhibit C
INVESTMENT CATEGORY FEE SCHEDULES: MONEY MARKET FUNDS
SCHEDULE 1 FUNDS:
Benham Capital Preservation Fund
Benham Government Agency Money Market Fund
Category Assets Fee Rate
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Thereafter 0.1570%
SCHEDULE 2 FUNDS:
Benham California Tax-Free Money Market Fund
Benham California Municipal Money Market Fund
Benham Florida Municipal Money Market Fund
Benham Tax-Free Money Market Fund
Category Assets Fee Rate
First $1 billion 0.3000%
Next $1 billion 0.2570%
Next $3 billion 0.2160%
Next $5 billion 0.1990%
Next $15 billion 0.1880%
Next $ 25 billion 0.1875%
Thereafter 0.1870%
SCHEDULE 3 FUNDS:
Benham Prime Money Market Fund
Category Assets Fee Rate
First $1 billion 0.3700%
Next $1 billion 0.3270%
Next $3 billion 0.2860%
Next $5 billion 0.1690%
Next $15 billion 0.2580%
Next $25 billion 0.2575%
Thereafter 0.2570%
CATEGORY FEE SCHEDULES: BOND FUNDS
SCHEDULE 1 FUNDS:
Benham Short-Term Treasury Fund
Benham Intermediate-Term Treasury Fund
Benham Long-Term Treasury Fund
Benham California Limited-Term Municipal Fund
Benham California Intermediate-Term Municipal Fund
Benham California Long-Term Municipal Fund
Benham California Insured Tax-Free Fund
Benham Arizona Intermediate-Term Municipal Fund
Benham Florida Intermediate-Term Municipal Fund
Benham Limited-Term Tax-Free Fund
Benham Intermediate-Term Tax-Free Fund
Benham Long-Term Tax-Free Fund
Category Assets Fee Rate
First $1 billion 0.3100%
Next $1 billion 0.2580%
Next $3 billion 0.2280%
Next $5 billion 0.2080%
Next $15 billion 0.1950%
Next $25 billion 0.1935%
Thereafter 0.1925%
SCHEDULE 2 FUNDS:
Benham Adjustable Rate Government Securities Fund
Benham California High-Yield Municipal Fund
Benham GNMA Fund
Benham Target Maturities Trust: 2000
Benham Target Maturities Trust: 2005
Benham Target Maturities Trust: 2010
Benham Target Maturities Trust: 2015
Benham Target Maturities Trust: 2020
Benham Target Maturities Trust: 2025
Category Assets Fee Rate
First $1 billion 0.3600%
Next $1 billion 0.3080%
Next $3 billion 0.2780%
Next $5 billion 0.2580%
Next $15 billion 0.2450%
Next $25 billion 0.2435%
Thereafter 0.2425%
SCHEDULE 3 FUNDS:
Benham European Government Bond Fund
Category Assets Fee Rate
First $1 billion 0.6100%
Next $1 billion 0.5580%
Next $3 Billion 0.5280%
Next $5 billion 0.5080%
Next $15 billion 0.4950%
Next $25 billion 0.4935%
Thereafter 0.4925%
CATEGORY FEE SCHEDULES: EQUITY FUNDS
SCHEDULE 1 FUNDS:
American Century Equity Growth Fund
American Century Global Gold Fund
American Century Global Natural Resources Fund
American Century Income & Growth Fund
American Century Utilities Fund
Category Assets Fee Rate
First $1 billion 0.5200%
Next $5 billion 0.4600%
Next $15 billion 0.4160%
Next $25 billion 0.3690%
Next $50 billion 0.3420%
Next $150 billion 0.3390%
Thereafter 0.3380%
COMPLEX FEE SCHEDULE
Complex Assets Fee Rate
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
Patrick A. Looby
Attorney At Law
4500 Main Street
Kansas City, Missouri 64111
Telephone (816) 340-4349
Telecopier (816) 340-4964
April 21, 1997
American Century Government Income Trust
4500 Main Street
Kansas City, Missouri 64111
RE: Opinion Regarding the Legality of Shares of American Century
Government Income Trust (the "Trust")
(Registration Nos. 2-99222/811-4363)
Dear Ladies and Gentlemen:
I am counsel to American Century Government Income Trust, and as such,
I am generally familiar with its affairs. Based upon that familiarity, and upon
examination of such documents as I deemed relevant, it is my opinion that the
issuance and sale of shares by the Trust in connection with the transactions
contemplated by the Registration Statement on Form N-14, of which this opinion
is an exhibit, has been duly and validly authorized by all appropriate action
and, upon the delivery thereof and payment therefor in accordance and in
connection with the reorganization, the shares will be legally issued, fully
paid and non assessable by the Trust.
For the record, it should be noted that I am an employee of American
Century Services Corporation, an affiliated corporation of Benham Management
Corporation, the investment adviser of American Century Government Income Trust.
I hereby consent to the inclusion of this opinion with the filing of
the Registration Statement on Form N-14.
Sincerely,
/s/ Patrick A. Looby
Patrick A. Looby
Vice President and
Associate General Counsel
DRAFT
________, 1997
Board of Directors
Intermediate-Term Government Fund
American Century Mutual Funds, Inc.
4500 Main Street
Kansas City, Missouri 64141-6200
Board of Trustees
Intermediate-Term Treasury Fund
American Century Government Income Trust
4500 Main Street
Kansas City, Missouri 64141-6200
Gentlemen:
You have requested our opinion regarding certain Federal income tax
consequences to Intermediate-Term Government Fund (the "Fund"), a portfolio of
American Century Mutual Funds, Inc., to Intermediate-Term Treasury Fund
("Acquiring"), a portfolio of American Century Government Income Trust, and to
the holders of the shares of common stock of the Fund, in connection with the
proposed transfer of substantially all of the properties of the Fund to
Acquiring, in exchange solely for voting shares of beneficial interest of
Acquiring ("Acquiring Shares") and the assumption by Acquiring of all of the
liabilities of the Fund followed by the distribution of such Acquiring Shares
received by the Fund in complete liquidation and termination of the Fund, all
pursuant to the Agreement and Plan of Reorganization (the "Agreement") to be
executed by the Fund and Acquiring and included as an exhibit to Form N-14.
For purposes of this opinion, we have examined and rely upon (1) the
Agreement, (2) the Form N-14, dated _____, 1997, and filed by Acquiring on said
date with the Securities and Exchange Commission, and (3) letters of
representation furnished to us by Fund and Acquiring, and (4) such other
documents and instruments as we have deemed necessary or appropriate for
purposes of rendering this opinion. We assume that the transaction that is the
subject of this letter will be carried out in accordance with the terms of the
Agreement and as described in the documents we have examined. This opinion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), United
States Treasury regulations, judicial decisions, and administrative rulings and
pronouncements of the Internal Revenue Service, all as in effect on the date
hereof.
Based upon the foregoing, it is our opinion that, for Federal income
tax purposes:
(1) The acquisition by Acquiring of substantially all of the properties
of the Fund in exchange solely for Acquiring Shares and the assumption by
Acquiring of the liabilities of the Fund followed by the distribution of
Acquiring Shares to the shareholders of the Fund in exchange for their Fund
shares in complete liquidation and termination of the Fund, will constitute a
reorganization within the meaning of Section 368 of the Code. The Fund and
Acquiring will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
(2) The Fund will recognize no gain or loss upon transferring its
properties to Acquiring in exchange solely for Acquiring Shares and the
assumption by Acquiring of certain liabilities of the Fund or upon distributing
to its shareholders the Acquiring Shares received by the Fund in the transaction
pursuant to the Agreement.
(3) Acquiring will recognize no gain or loss upon receiving the
properties of the Fund in exchange for Acquiring Shares and the assumption by
Acquiring of certain liabilities of the Fund.
(4) The aggregate adjusted basis to Acquiring of the properties of the
Fund will be the same as the aggregate adjusted basis of those properties in the
hands of the Fund immediately before the exchange.
(5) Acquiring' holding periods with respect to the properties of the
Fund that Acquiring acquires in the transaction will include the respective
periods for which those properties were held by the Fund (except where
investment activities of Acquiring have the effect of reducing or eliminating a
holding period with respect to an asset).
(6) The shareholders of the Fund will recognize no gain or loss upon
receiving Acquiring Shares solely in exchange for Fund shares.
(7) The aggregate basis of the Acquiring Shares received by a
shareholder of the Fund in the transaction will be the same as the aggregate
basis of the Fund shares surrendered by the shareholder in exchange therefor.
(8) A Fund shareholder's holding period for the Acquiring Shares
received by the shareholder in the transaction will include the holding period
during which the shareholder held the Fund shares surrendered in exchange
therefor, provided that the shareholder held such shares as a capital asset on
the date of Reorganization.
We express no opinion as to the tax consequences of the Reorganization
except as expressly set forth above, or as to any transaction except those
consummated in accordance with the Agreement and the representations to be made
to us.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 filed by Acquiring with the Securities and
Exchange Commission.
Very truly yours,
DECHERT PRICE & RHOADS
<PAGE>
DRAFT
________, 1997
Board of Directors
Short-Term Government Fund
American Century Mutual Funds, Inc.
4500 Main Street
Kansas City, Missouri 64141-6200
Board of Trustees
Short-Term Government Fund
American Century Government Income Trust
4500 Main Street
Kansas City, Missouri 64141-6200
Gentlemen:
You have requested our opinion regarding certain Federal income tax
consequences to the Short-Term Government Fund (the "Fund"), a portfolio of
American Century Mutual Funds, Inc., to Short-Term Government Fund
("Acquiring"), a portfolio of American Century Government Income Trust, and to
the holders of the shares of common stock of the Fund, in connection with the
proposed transfer of substantially all of the properties of the Fund to
Acquiring, in exchange solely for voting shares of beneficial interest of
Acquiring ("Acquiring Shares") and the assumption by Acquiring of all of the
liabilities of the Fund followed by the distribution of such Acquiring Shares
received by the Fund in complete liquidation and termination of the Fund, all
pursuant to the Agreement and Plan of Reorganization (the "Agreement") to be
executed by the Fund and Acquiring and included as an exhibit to Form N-14.
For purposes of this opinion, we have examined and rely upon (1) the
Agreement, (2) the Form N-14, dated _____, 1997, and filed by Acquiring on said
date with the Securities and Exchange Commission, and (3) letters of
representation furnished to us by Fund and Acquiring, and (4) such other
documents and instruments as we have deemed necessary or appropriate for
purposes of rendering this opinion. We assume that the transaction that is the
subject of this letter will be carried out in accordance with the terms of the
Agreement and as described in the documents we have examined. This opinion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), United
States Treasury regulations, judicial decisions, and administrative rulings and
pronouncements of the Internal Revenue Service, all as in effect on the date
hereof.
Based upon the foregoing, it is our opinion that, for Federal income
tax purposes:
(1) The acquisition by Acquiring of substantially all of the properties
of the Fund in exchange solely for Acquiring Shares and the assumption by
Acquiring of the liabilities of the Fund followed by the distribution of
Acquiring Shares to the shareholders of the Fund in exchange for their Fund
shares in complete liquidation and termination of the Fund, will constitute a
reorganization within the meaning of Section 368 of the Code. The Fund and
Acquiring will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
(2) The Fund will recognize no gain or loss upon transferring its
properties to Acquiring in exchange solely for Acquiring Shares and the
assumption by Acquiring of certain liabilities of the Fund or upon distributing
to its shareholders the Acquiring Shares received by the Fund in the transaction
pursuant to the Agreement.
(3) Acquiring will recognize no gain or loss upon receiving the
properties of the Fund in exchange for Acquiring Shares and the assumption by
Acquiring of certain liabilities of the Fund.
(4) The aggregate adjusted basis to Acquiring of the properties of the
Fund will be the same as the aggregate adjusted basis of those properties in the
hands of the Fund immediately before the exchange.
(5) Acquiring' holding periods with respect to the properties of the
Fund that Acquiring acquires in the transaction will include the respective
periods for which those properties were held by the Fund (except where
investment activities of Acquiring have the effect of reducing or eliminating a
holding period with respect to an asset).
(6) The shareholders of the Fund will recognize no gain or loss upon
receiving Acquiring Shares solely in exchange for Fund shares.
(7) The aggregate basis of the Acquiring Shares received by a
shareholder of the Fund in the transaction will be the same as the aggregate
basis of the Fund shares surrendered by the shareholder in exchange therefor.
(8) A Fund shareholder's holding period for the Acquiring Shares
received by the shareholder in the transaction will include the holding period
during which the shareholder held the Fund shares surrendered in exchange
therefor, provided that the shareholder held such shares as a capital asset on
the date of Reorganization.
We express no opinion as to the tax consequences of the Reorganization
except as expressly set forth above, or as to any transaction except those
consummated in accordance with the Agreement and the representations to be made
to us.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 filed by Acquiring with the Securities and
Exchange Commission.
Very truly yours,
DECHERT PRICE & RHOADS
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT, made as of ____________, is by and between the
registered investment companies listed on Exhibit A to this Agreement (the
"Companies"), and American Century Services Corporation, a Missouri corporation
("Services").
1. By action of their respective Board of Directors, the Companies
appointed Services as their transfer agent, and Services accepted such
appointment.
2. As transfer agent for the Companies, Services shall perform all the
functions usually performed by transfer agents of investment companies,
in accordance with the policies and practices of the Companies as
disclosed in the prospectuses of the Companies or of their various
series or otherwise communicated to Services from time to time,
including, but not limited to, the following:
(a) Recording the ownership, transfer, conversion and
cancellation of ownership of shares of the
Companies on the books of the Companies;
(b) Causing the issuance, transfer, conversion and cancellation
of stock certificates of the Companies;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment of redemption proceeds due
from the Companies on redemption of shares and notices of
reinvestment in additional shares of dividends, stock
dividends or stock splits declared by the Companies on shares
of the Companies;
(e) Furnishing to shareholders such information as may be
reasonably required by the Companies,including confirmation
of shareholder transactions and appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semiannual reports; addressing and mailing proxy materials
for shareholder meetings prepared by or on behalf of the
Companies, and tabulating the proxy votes;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to usual and
customary procedures and conditions;
(h) Maintaining such books and records relating to transactions
effected by Services pursuant to this Agreement as are
required by the Investment Company Act of 1940, or by rules or
regulations thereunder, or by any other applicable provisions
of law, to be maintained by the Companies or their appointed
transfer agent with respect to such transactions; preserving,
or causing to be preserved, any such books and records for
such periods as may be required by any such law, rule or
regulation; furnishing Companies such information as to such
transactions and at such times as may be reasonably required
by it to comply with applicable laws and regulations,
including but not limited to the laws of the several states of
the United States;
(i) Dealing with and answering all correspondence from or on
behalf of shareholders relating to its functions under this
Agreement.
3. The Companies may perform on site inspection of records and accounts
and perform audits directly pertaining to the Companies' shareholder
accounts serviced by Services hereunder at Services' facilities in
accordance with reasonable procedures at the frequency necessary to
show proper administration of this agreement and the proper audit of
the Companies' financial statements. Services will cooperate with the
Companies' auditors and the representatives of appropriate regulatory
agencies and furnish all reasonably requested records and data.
4. (a) Services will at all times exercise due diligence and good
faith in performing its duties hereunder. Services will make
every reasonable effort and take all reasonably available
measures to assure the adequacy of its personnel and
facilities as well as the accurate performance of all services
to be performed by it hereunder within the time requirements
of any applicable statutes, rules or regulations or as
disclosed in any of the Companies' prospectuses.
(b) Services shall not be responsible for, and the Companies agree
to indemnify Services, for any losses, damages or expenses
(including reasonable counsel fees and expenses) (a) resulting
from any claim, demand, action or suit not resulting from
Services failure to exercise good faith or due diligence and
arising out of or in connection with Services' duties on
behalf of the fund hereunder; (b) for any delay, error, or
omission by reason or circumstance beyond its control,
including acts of civil or military authority, national
emergencies, labor difficulties (except with response to
Services employees), fire, mechanical breakdowns beyond its
control, flood or catastrophe, act of God, insurrection, war,
riot or failure beyond its control of transportation,
communication or power supply; or (c) for any action taken or
omitted to be taken by Services in good faith in reliance on
(i) the authenticity of any instrument or communication
reasonably believed by it to be genuine and to have been
properly made and signed or endorsed by an appropriate person,
or (ii) the accuracy of any records or information provided to
it by the Companies, (iii) any authorization or instruction
contained in any officers' instruction, or (iv) any advise of
counsel approved by the Companies who may be internally
employed counsel or outside counsel, in either case for the
Companies or Services.
5. Services shall not look to the Companies for compensation for its
services described herein. It shall be compensated entirely by American
Century Investment Management, Inc., pursuant to the management
agreement between American Century Investment Management, Inc. and the
Companies, which requires American Century Investment Management, Inc.
to pay, with certain exceptions, all of the expenses of the Companies.
6. (a) This Agreement may be terminated by either party at any time
without penalty upon giving the other party 60 days written
notice (which notice may be waived by either party).
(b) Upon termination, Services will deliver to the Companies all
microfilm records pertaining to shareholder accounts of the
Companies, and all records of shareholder accounts in machine
readable form in the format in which they are maintained by
Services.
(c) All data processing programs used by Services in connection
with the performance of its duties under this Agreement are
the sole and exclusive property of Services, and after the
termination of this Agreement, the Companies shall have no
right to use the same.
IN WITNESS WHEREOF, the parties have executed this instrument as of the day and
year first above written.
AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
AMERICAN CENTURY GOVERNMENT INCOME TRUST AMERICAN CENTURY
INTERNATIONAL BOND FUNDS AMERICAN CENTURY INVESTMENT TRUST
AMERICAN CENTURY MUNICIPAL TRUST AMERICAN CENTURY QUANTITATIVE
EQUITY FUNDS AMERICAN CENTURY TARGET MATURITIES TRUST
By:
James E. Stowers III
President
AMERICAN CENTURY SERVICES CORPORATION
By:
William M. Lyons
Executive Vice President
Exhibit A
REGISTERED INVESTMENT COMPANIES SUBJECT TO THIS AGREEMENT
<TABLE>
<CAPTION>
REGISTERED INVESTMENT COMPANY SERIES
<S> <C>
American Century California Tax-Free and
Municipal Funds Benham California High Yield Municipal Fund
Benham California Insured Tax-Free Fund
Benham California Intermediate-Term Tax-Free Fund
Benham California Limited-Term Tax-Free Fund
Benham California Long-Term Tax-Free Fund
Benham California Municipal Money Market Fund
Benham California Tax-Free Money Market Fund
American Century Government Income Trust Benham Adjustable Rate Government Securities Fund
Benham Capital Preservation Fund
Benham GNMA Fund
Benham Government Agency Money Market Fund
Benham Inflation-Adjusted Treasury Fund
Benham Intermediate-Term Treasury Fund
Benham Long-Term Treasury Fund
Benham Short-Term Treasury Fund
American Century International Bond Funds Benham European Government Bond Fund
American Century Investment Trust Benham Prime Money Market Fund
American Century Municipal Trust Benham Arizona Intermediate-Term Municipal Fund
Benham Florida Intermediate-Term Municipal Fund
Benham Florida Municipal Money Market Fund
Benham Intermediate-Term Tax-Free Fund
Benham Limited-Term Tax-Free Fund
Benham Long-Term Tax-Free Fund
Benham Tax-Free Money Market Fund
American Century Quantitative Equity Funds American Century Equity Growth Fund
American Century Global Gold Fund
American Century Global Natural Resources Fund
American Century Income & Growth Fund
American Century Utilities Fund
American Century Target Maturities Trust Benham Target Maturities Trust: 2000
Benham Target Maturities Trust: 2005
Benham Target Maturities Trust: 2010
Benham Target Maturities Trust: 2015
Benham Target Maturities Trust: 2020
Benham Target Maturities Trust: 2025
</TABLE>
BAIRD, KURTZ & DOBSON
Certified Public Accountants
City Center Square * Suite 2700
1100 Main Street
Kansas City, Missouri 64105
Telephone (816) 221-6300
Fax (816) 221-6380
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
American Century Mutual Funds, Inc.
American Century Tower
4500 Main Street
Kansas City, Missouri 64111
We hereby consent to the incorporation by reference in this combined
prospectus/proxy statement under the Securities Act of 1933 and the Investment
Company Act of 1940, both on form N-14, of our report dated November 20, 1996,
accompanying and pertaining to the financial statements of the Short-Term
Government Fund, Intermediate Term Government Fund, Limited-Term Tax-Exempt
Fund, Intermediate-Term Tax-Exempt Fund, Long-Term Tax-Exempt Fund, each a
series of American Century Mutual Funds, Inc. (formerly Twentieth Century
Investors, Inc.), as of October 31, 1996.
/s/ BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
April 18, 1997
Independent Auditors' Consent
The Board of Trustees
American Century Government Income Trust
We consent to the use of our reports incorporated herein by reference and the
reference to our Firm under the headings "COMPARISON OF CERTAIN INFORMATION
REGARDING THE FUNDS" and "FINANCIAL STATEMENTS" in the Prospectus contained in
Part A of the combined Prospectus/Proxy Statement on Form N-14.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
April 21, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, AMERICAN CENTURY
GOVERNMENT INCOME TRUST, hereinafter called the "Trust" and certain trustees and
officers of the Trust, do hereby constitute and appoint James M. Benham, James
E. Stowers, III, William M. Lyons, Douglas A. Paul, and Patrick A. Looby, and
each of them individually, their true and lawful attorneys and agents to take
any and all action and execute any and all instruments which said attorneys and
agents may deem necessary or advisable to enable the Trust to comply with the
Securities Act of 1933 and/or the Investment Company Act of 1940, as amended,
and any rules regulations, orders, or other requirements of the United States
Securities and Exchange Commission thereunder, in connection with the
registration under the Securities Act of 1933 and/or the Investment Company Act
of 1940, as amended, including specifically, but without limitation of the
foregoing, power and authority to sign the name of the Trust in its behalf and
to affix its seal, and to sign the names of each of such trustees and officers
in their capacities as indicated, to any amendment or supplement to the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed as a part of
or in connection with such Registration Statement; the Registration Statement on
Form N-14 and any amendments or supplements thereto to be filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as part of or in connection with such Registration
Statement; and each of the undersigned hereby ratifies and confirms all that
said attorneys and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused this Power to be executed by
its duly authorized officers on this the 28th day of February, 1997.
AMERICAN CENTURY GOVERNMENT INCOME TRUST
(A Massachusetts Business Trust)
By: /s/James M. Benham
James M. Benham, President
SIGNATURE AND TITLE
/s/ James M. Benham /s/ Isaac Stein
James M. Benham Isaac Stein
Chairman Director
/s/ Albert A. Eisenstat /s/ Jeanne D. Wohlers
Albert A. Eistenstat Jeanne D. Wohlers
Director Director
/s/ Ronald J. Gilson /s/ James E. Stowers, III
Ronald J. Gilson James E. Stowers, III
Direcotr Director
/s/ Myron S. Scholes /s/ Maryanne Roepke
Myron S. Scholes Maryanne Roepke
Director Treasurer
/s/ Kenneth E. Scott Attest:
Kenneth E. Scott
Director By: /s/ Douglas A. Paul
Douglas A. Paul, Secretary
American Century Mutual Funds
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF American Century
Mutual Funds, Inc. for use at a meeting of shareholders to be held at 10:00 a.m.
(Central time) on July 30, 1997 at American Century Tower I, 4500 Main Street,
Kansas City, Missouri.
I hereby appoint ______________ and __________, and each of them, with
full power of substitution as my proxy to vote at the meeting and at all
adjournments or postponements thereof, all shares of beneficial interest,
evidencing interests in any one or more of the American Century - Benham
Short-Term Government Fund, American Century - Benham Intermediate-Term
Government Fund, American Century - Benham Limited-Term Tax-Exempt Fund,
American Century - Benham Intermediate-Term Tax-Exempt Fund and American Century
- - Benham Long-Term Tax-Exempt Fund (the "Liquidating Funds") which I held of
record on May 17, 1997, the record date for the meeting, upon the following
matters and upon any other matter which may come before the meeting, in their
discretion:
1. Proposal to approve an Agreement and Plan of
Reorganization and the transactions contemplated
thereby, including:
(a) the transfer of substantially all of the assets
and liabilities of the:
Short-Term Government to the Adjustable Rate
Government Securities Fund;
Intermediate Term Government Fund to the
Intermediate Term Treasury Fund;
Limited-Term Tax-Exempt Fund to the Limited-Term
Tax-Exempt Fund;
Intermediate-Term Tax-Exempt Fund to the
Intermediate-Term Tax-Free Fund;
Long-Term Tax-Exempt Fund to the Long-Term
Tax-Free Fund;
(b) the distribution of the Liquidating Fund shares to
their shareholders according to their respective
interests; and
(c) the termination under state law and the Investment
Company Act of 1940, as amended, of the Liquidating
Funds.
FOR AGAINST ABSTAIN
/ / / / / /
2. In their discretion, the parties are authorized to vote
upon such other business as may properly come before the
meeting.
FOR AGAINST ABSTAIN
/ / / / / /
Every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as GRANTING
authority to vote FOR Proposals 1 and 2.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as executor,
Administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
Dated: _____________________________________________
X__________________________________________________
Signature
X__________________________________________________
Signature, if held jointly
PLEASE EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE EACH ACCOMPANYING
PROXY CARD WHICH IS BEING SOLICITED BY YOUR BOARD OF TRUSTEES. PLEASE RETURN
YOUR PROXY CARD EVEN IF YOU ARE PLANNING TO ATTEND THE MEETING. THIS IS
IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME
BEFORE THEY ARE EXERCISED BY SUBMITTING TO A WRITTEN NOTICE OF REVOCATION OR A
SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
