SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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File No. 2-99222
Pre-Effective Amendment No. ____
Post-Effective Amendment No._31_ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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File No. 811-4363
Amendment No._32_
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: (816) 531-5575
Douglas A. Paul
V. P. and Associate General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 9/23/85)
It is proposed that this filing become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on February 10, 1997 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On May 16, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended March 31, 1996.
AMERICAN CENTURY GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 31
1940 Act Amendment No. 32
American Century - Benham Inflation-
Adjusted Treasury Fund
FORM N-1A
CROSS-REFERENCE SHEET
PART A: PROSPECTUS
ITEM PROSPECTUS CAPTION
1 Cover Page
2 Transaction and Operating Expense Table
3 Performance Advertising
4 Management, Further Information About American Century, Investment
Policies of the Fund, Risk Factors and Investment Techniques, Other
Investment Practices, Their Characteristics and Risks
5 Management
5A Not Applicable
6 Further Information About American Century, How to Redeem Shares,
Cover Page, Distributions, Taxes
7 Cover Page, Distribution of Fund Shares, How to Open an Account, Share
Price, Transfer and Administrative Services
8 How to Redeem Shares, Transfer and Administrative Services
9 Not Applicable
PART B: STATEMENT OF ADDITIONAL INFORMATION
ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions
14 Trustee and Officers
15 Additional Purchase and Redemption Information, Trustees and Officers
16 Investment Advisory Services, Transfer and Administrative Services,
Expense Limitation Agreement, About the Trust
17 Portfolio Transactions
18 About the Trust
19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities
20 Taxes
21 Additional Purchase and Redemption Information
22 Performance
23 Cover Page
PROSPECTUS
[American Century logo]
American
Century(sm)
FEBRUARY 10, 1997
BENHAM
GROUP(R)
Inflation-Adjusted Treasury
[front cover]
AMERICAN CENTURY INVESTMENTS
FAMILY OF FUNDS
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios. To
help you find the funds that may meet your investment needs, American Century
funds have been divided into three groups based on investment style and
objectives. These groups, which appear below, are designed to help simplify your
fund decisions.
American Century Investments
Benham Group American Century Group Twentieth Century(R) Group
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
Inflation-Adjusted
Treasury
PROSPECTUS
FEBRUARY 10, 1997
Inflation-Adjusted
Treasury
AMERICAN CENTURY GOVERNMENT INCOME TRUST
American Century Government Income Trust is a part of American Century
Investments, a family of funds that includes nearly 70 no-load mutual funds
covering a variety of investment opportunities. One of the funds that invests in
U.S. Treasury securities from our Benham Group, the American Century--Benham
Inflation-Adjusted Treasury Fund (the "Fund"), is described in this Prospectus.
Its investment objective is listed on page 2 of this Prospectus. The other funds
are described in separate prospectuses.
American Century offers investors a full line of no-load funds, investments
that have no sales charges or commissions.
This Prospectus gives you information about the Fund that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated September 3, 1996, revised as of the date of this prospectus
and filed with the Securities and Exchange Commission ("SEC"). It is
incorporated into this Prospectus by reference. To obtain a copy without charge,
call or write:
AMERICAN CENTURY INVESTMENTS
4500 Main Street o P.O. Box 419200
Kansas City, Missouri 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: www.americancentury.com
Additional information, including this Prospectus and the Statement of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).
INVESTMENTS IN THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus 1
INVESTMENT OBJECTIVE OF THE FUND
AMERICAN CENTURY -- BENHAM INFLATION-ADJUSTED
TREASURY FUND
Inflation-Adjusted Treasury seeks to provide a total return consistent with
investment in U.S. Treasury inflation-adjusted securities. There is no assurance
that the Fund will achieve its investment objective.
NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUND, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2 Investment Objective American Century Investments
TABLE OF CONTENTS
Transaction and Operating Expense Table...............................4
INFORMATION REGARDING THE FUND
Investment Policies of the Fund.......................................5
Investment Strategy..............................................5
Risk Factors and Investment Techniques................................5
Treasury Inflation-Adjusted Securities...........................6
Development of Inflation-Adjusted
Securities Market ...........................................7
Share Price Volatility...........................................7
Treasury Securities..............................................8
Zero Coupon ("Stripped")
Inflation-Adjusted Securities................................8
Repurchase Agreements............................................8
Other Investment Practices, Their Characteristics
and Risks........................................................8
Portfolio Turnover...............................................8
When-Issued And Forward Commitment
Agreements...................................................8
Cash Management..................................................8
Other Techniques.................................................8
Performance Advertising...............................................9
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
American Century Investments.........................................10
Investing in American Century........................................10
How to Open an Account...............................................10
By Mail.....................................................10
By Wire.....................................................10
By Exchange.................................................11
In Person...................................................11
Subsequent Investments..........................................11
By Mail.....................................................11
By Telephone................................................11
By Online Access............................................11
By Wire.....................................................11
In Person...................................................11
Automatic Investment Plan.......................................11
How to Exchange from One Account to Another..........................11
By Mail.....................................................12
By Telephone................................................12
By Online Access............................................12
How to Redeem Shares.................................................12
By Mail.....................................................12
By Telephone................................................12
By Check-A-Month............................................12
Other Automatic Redemptions.................................12
Redemption Proceeds.............................................12
By Check....................................................12
By Wire and ACH.............................................12
Redemption of Shares in Low-Balance Accounts....................12
Signature Guarantee..................................................13
Special Shareholder Services.........................................13
Automated Information Line..................................13
Online Account Access.......................................13
Open Order Service..........................................13
Tax-Qualified Retirement Plans..............................14
Important Policies Regarding Your Investments........................14
Reports to Shareholders..............................................14
Employer-Sponsored Retirement Plans and
Institutional Accounts..........................................15
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price..........................................................16
When Share Price Is Determined..................................16
How Share Price Is Determined...................................16
Where To Find Information About Share Price.....................16
Distributions........................................................17
Taxes ............................................................17
Tax-Deferred Accounts...........................................17
Taxable Accounts................................................17
Management...........................................................18
Investment Management...........................................18
Code Of Ethics..................................................19
Transfer And Administrative Services............................19
Distribution Of Fund Shares..........................................20
Expenses 20
Further Information About American Century...........................20
Prospectus Table of Contents 3
TRANSACTION AND OPERATING EXPENSE TABLE
Inflation-Adjusted
Treasury
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases........................... none
Maximum Sales Load Imposed on Reinvested Dividends................ none
Deferred Sales Load............................................... none
Redemption Fee(1)................................................. none
Exchange Fee...................................................... none
ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets)
Advisory Fees .................................................... .27%
12b-1 Fees ....................................................... none
Other Expenses.................................................... .23%
Total Fund Operating Expenses..................................... .50%
EXAMPLE:
You would pay the following expenses on a $1,000 1 year $ 5
investment, assuming a 5% annual return and 3 years 16
redemption at the end of each time period: 5 years N/A
10 years N/A
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
(2) Estimated. Benham Management Corporation (the "Manager") has agreed to
limit each Fund's total operating expenses to specified percentages of each
Fund's average daily net assets. The agreement provides that the Manager
may recover amounts absorbed on behalf of the Fund during the preceding 11
months if, and to the extent that, for any given month, Fund expenses were
less than the expense limit in effect at that time. The current expense
limitation for the Fund is .50%. This expense limitation expires on March
1, 1998. If the expense limitation was not in effect, Other Expenses and
Total Fund Operating Expenses for the Fund are estimated to be .43% and
.70%, respectively.
The Fund pays the Manager investment advisory fees equal to an annualized
percentage of its average daily net assets. Other expenses include
administrative and transfer agent fees paid to American Century Services
Corporation.
The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the shares of the Fund offered by this
Prospectus. The example set forth above assumes reinvestment of all dividends
and distributions and uses a 5% annual rate of return as required by SEC
regulations.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4 Transaction and Operating Expense Table American Century Investments
INFORMATION REGARDING THE FUND
INVESTMENT POLICIES OF THE FUND
The Fund has adopted certain investment restrictions that are set forth in
the Statement of Additional Information. Those restrictions, as well as the
investment objective of the Fund identified on page 2 of this Prospectus and any
other investment policies which are designated as "fundamental" in this
Prospectus or in the Statement of Additional Information, cannot be changed
without shareholder approval. The Fund has implemented additional investment
policies and practices to guide its activities in the pursuit of its investment
objective. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
INVESTMENT STRATEGY
The Fund pursues its investment objective by investing, under normal market
conditions, at least 65% of its total assets in Inflation-Adjusted Securities
that are backed by the full faith and credit of the U.S. government and indexed
or otherwise structured by the U.S. Treasury to provide protection against
inflation. Inflation-Adjusted Securities may be issued by the U.S. Treasury in
the form of notes or bonds. Up to 35% of the Fund's total assets may be invested
in Inflation-Adjusted Securities issued by U.S. government agencies and
government-sponsored organizations, when such securities become available. The
Fund may also invest in U.S. Treasury securities which are not indexed to
inflation for liquidity and total return, or if at any time the Manager believes
there is an inadequate supply of appropriate Inflation-Adjusted Securities in
which to invest. The Fund's portfolio may consist of any combination of these
securities consistent with investment strategies employed by the Manager.
There are no maturity or duration restrictions for the securities in which
the Fund may invest. The U.S. Treasury initially is issuing Treasury
Inflation-Adjusted Securities with a 10-year term to maturity. It has announced
its intention (although there is no guarantee it will do so) to issue additional
securities with a term to maturity as long as 30 years and as short as five
years. When these securities of differing maturity are issued, the Manager will
buy from among the available issues those securities that will provide the
maximum relative value to the Fund.
The Fund may be appropriate for investors who are seeking to protect all or
a part of their investment portfolio from the effects of inflation. Traditional
U.S. Treasury fixed-principal notes and bonds pay a stated return or rate of
interest in dollars and are redeemed at their par amount. Inflation during the
period the securities are outstanding will diminish the future purchasing power
of these dollars. The Fund is designed to serve as a vehicle to protect against
this diminishing effect.
The Fund is designed to provide total return consistent with an investment
in U.S. Treasury Inflation-Adjusted Securities. The Fund's income yield will
reflect both the inflation-adjusted interest income and the inflation adjustment
to principal which are features of Inflation-Adjusted Securities. The Fund's
yield will likely reflect "real rates" of interest (that is, the then-prevailing
current interest rates minus the then-prevailing expectations for inflation)
available in the Treasury market. As a result, the current income generated by
the Fund is expected to be substantially below that of more traditional
government securities funds, such as Treasury bond funds or government-agency
bond funds.
Inflation-Adjusted Securities in which the Fund may invest are new
securities. There are special investment risks, particularly share price
volatility and potential adverse tax consequences, associated with investment in
Inflation-Adjusted Securities. These risks are described in the following
section. You should read that section carefully to make sure you understand the
nature of the Fund before you invest in it.
RISK FACTORS AND INVESTMENT TECHNIQUES
The obligations in which the Fund may invest will differ from one another
in their interest rates, maturities, dates of issuance and interest-payment
schedules. The pertinent features of the types of obligations in which the Fund
may invest are described in this section. To the extent that these features
impact the value of Fund holdings, they will in turn impact the net asset value
of the Fund. While the Fund seeks to provide a measure of inflation protection
to its investors, there is no assurance that the Fund will
Prospectus Information Regarding the Fund 5
provide less risk than a fund investing in conventional fixed principal Treasury
securities.
TREASURY INFLATION-ADJUSTED SECURITIES
Treasury Inflation-Adjusted Securities are Treasury securities with a final
value and interest payment stream linked to the inflation rate. Treasury
Inflation-Adjusted Securities may be issued in either note or bond form.
Treasury inflation-adjusted notes have maturities of at least one year, but not
more than 10 years. Treasury inflation-adjusted bonds have maturities of more
than 10 years.
Treasury Inflation-Adjusted Securities may be attractive to investors
seeking an investment backed by the full faith and credit of the U.S. government
that provides a return in excess of the rate of inflation. According to the U.S.
Treasury, Treasury Inflation-Adjusted Securities are modeled after the "Real
Return Bonds" currently issued by the government of Canada. These securities are
new to the U.S. market, having first been sold in January 1997. There is
uncertainty as to how these securities will be treated by the marketplace. See
"Development of Inflation-Adjusted Securities Market" on page 7. Treasury
Inflation-Adjusted Securities will be auctioned and issued on a quarterly basis.
STRUCTURE AND INFLATION INDEX
The principal value of Treasury Inflation-Adjusted Securities will be
adjusted to reflect changes in the level of inflation. The index for measuring
the inflation rate for Treasury Inflation-Adjusted Securities is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Consumers published monthly by the U.S. Department of Labor's Bureau of
Labor Statistics.
Semiannual coupon interest payments are made at a fixed percentage of the
inflation-adjusted principal value. The coupon rate or "real yield" for the
semiannual interest payment of each issuance of securities will be determined at
the time the securities are sold to the public. While a reduction in inflation
will cause a reduction in the interest payment made on the securities, the
repayment of principal at the maturity of the security is guaranteed by the
Treasury to be not less than the original face or par amount of the security at
issuance.
INDEXING METHODOLOGY
The principal value of Treasury Inflation-Adjusted Securities will be
indexed, or adjusted, to account for changes in the Consumer Price Index.
Semiannual coupon interest payment amounts will be determined by multiplying the
inflation-adjusted principal amount by one-half the stated rate of interest on
each interest payment date.
TAXATION
Taxation applicable to Treasury Inflation-Adjusted Securities is similar to
conventional bonds. Both interest payments and the difference between original
principal and the inflation-adjusted principal will be treated as interest
income subject to taxation. Interest payments are taxable when received or
accrued. The inflation adjustment to the principal is subject to tax in the year
adjustment is made, not at maturity of the security when the cash from the
repayment of principal is received. If an upward adjustment has been made (which
typically should happen), investors in non-tax deferred accounts will pay taxes
on this amount currently. Decreases in the indexed principal can only be
deducted from current or previous interest payments reported as income.
Treasury Inflation-Adjusted Securities therefore have a potential cash flow
mismatch to an investor, since investors must pay taxes on the
inflation-adjusted principal before the repayment of principal is received. It
is possible that, particularly for high income tax bracket investors, Treasury
Inflation-Adjusted Securities would not generate enough income in a given year
to cover the tax liability it could create. This is similar to the current tax
treatment for zero coupon bonds and other discount securities. If a Treasury
Inflation-Adjusted Security is sold prior to maturity, capital losses or gains
are realized in the same manner as traditional bonds.
The Fund, however, distributes all income on a monthly basis. Investors in
the Fund will receive dividends which represent both the interest payments and
the principal adjustments of the Inflation-Adjusted Securities held in its
portfolio. An investment in the Fund may therefore be a means to avoid the cash
flow mismatch associated with a direct investment in Inflation-Adjusted
Securities. For more information about taxes and their effect on you as an
investor in the Fund, see "Taxes," on page 17.
U.S GOVERNMENT SECURITIES
A number of U.S. government agencies and government-sponsored organizations
may issue Inflation-Adjusted Securities. These agencies generally are created by
Congress to fulfill a specific need, such as
6 Information Regarding the Fund American Century Investments
providing credit to home buyers or farmers. Among these agencies are the Federal
Home Loan Banks, the Federal Farm Credit Banks, the Student Loan Marketing
Association and the Resolution Funding Corporation.
Some agency securities are backed by the full faith and credit of the U.S.
government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than comparable U.S. Treasury
securities with similar maturities. However, these securities may involve
greater risk of default than securities backed by the U.S. Treasury.
As of the date on which this Prospectus was drafted, the plans of the
various U.S. government agencies to issue Inflation-Adjusted Securities were not
known. It is expected that at least some U.S. government agencies will issue
Inflation-Adjusted Securities whose design mirrors that of the Treasury
Inflation-Adjusted Securities described on the previous page.
DEVELOPMENT OF INFLATION-ADJUSTED
SECURITIES MARKET
The Treasury securities market is the largest and most liquid securities
market in the world. The marketability of Treasury Inflation-Adjusted Securities
and Inflation-Adjusted Securities generally may be enhanced over time as the
Treasury issues additional Treasury Inflation-Adjusted Securities and more
investors participate in the market.
The Fund will purchase Inflation-Adjusted Securities at auction or in the
secondary market as the Manager deems appropriate. The secondary market for
Inflation-Adjusted Securities may not be as active as the secondary market for
Treasury and U.S. government agency fixed-principal notes and bonds. In
addition, Inflation-Adjusted Securities may not be as widely traded or as well
understood as Treasury fixed-principal securities, nor is it known at this time
exactly how the secondary market for Inflation-Adjusted Securities will develop.
If the number of Inflation-Adjusted Securities market participants is
limited, it may result in larger spreads between bid and asked prices for
Inflation-Adjusted Securities than the bid-asked spreads for fixed-principal
notes and bonds with similar terms to maturity. Such larger bid-ask spreads
normally result in higher transactions costs and/or lower returns. If the market
does not develop sufficient liquidity, large buyers or sellers of these
securities may disproportionately negatively impact the value of the securities
and, hence, the Fund's net asset value.
The Manager currently believes that the market for Inflation-Adjusted
Securities will be sufficient to permit the Fund to pursue its investment
objective. However, should the market for Inflation-Adjusted Securities prove
less active than anticipated by the Manager, the Manager is authorized to treat
such an environment as an abnormal market condition. This means that the Manager
may purchase other types of Treasury securities in excess of 35% of the Fund's
total assets without seeking shareholder approval. During such a period, the
Fund will not be fully pursuing its investment objective.
SHARE PRICE VOLATILITY
Inflation-Adjusted Securities are designed to offer a return linked to
inflation, thereby protecting future purchasing power of the money invested in
them. Inflation-Adjusted Securities provide this "protected" return only if held
to maturity, however. In addition, Inflation-Adjusted Securities may not trade
at par value. "Real" interest rates (the market rate of interest less the
anticipated rate of inflation) change over time, as a result of many factors,
such as what investors are demanding as a true value for money. When real rates
do change, Inflation-Adjusted Securities prices will be more sensitive to these
changes than conventional bonds, since these securities were sold originally
based upon a "real" interest rate that is no longer prevailing. Should market
expectations for real interest rates rise, the price of Inflation-Adjusted
Securities and the share price of the Fund will fall. Investors in the Fund
should be prepared to accept not only this share price volatility but also the
possible adverse tax consequences it may cause.
An investment in securities featuring inflation-adjusted principal and/or
interest involves factors not associated with more traditional fixed principal
securities. Such factors include the possibility that the inflation index may be
subject to significant changes in interest rates, that changes in the index may
or may not correlate to changes in interest rates generally or changes in other
indices, that the resulting interest may be greater or less than that payable on
other securities of similar maturities. In the event of sustained deflation, it
is possible that the amount of semiannual interest payments, the
inflation-adjusted principal of the security and the value of the stripped
components, will decrease. If any of these possibilities are realized, the
Fund's net asset value could be negatively affected.
Prospectus Information Regarding the Fund 7
TREASURY SECURITIES
Under certain circumstances the Fund will invest in fixed principal amount
U.S. Treasury bills, notes, zero-coupon bonds and other bonds. These securities
are direct obligations of the U.S. Treasury. Treasury bills have initial
maturities of one year or less, Treasury notes from two to 10 years, and
Treasury bonds more than 10 years. These securities are issued with a fixed
interest coupon rate and a fixed final value at maturity. Although U.S. Treasury
securities carry little principal risk if held to maturity, the prices of these
securities (like all debt securities) change between issuance and maturity in
response to fluctuating market interest rates.
ZERO COUPON ("STRIPPED")
INFLATION-ADJUSTED SECURITIES
The Fund may invest in zero coupon ("stripped") Inflation-Adjusted
Securities if they become available. Further information about such securities
is currently contained in the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements when such transactions present
an attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of the Fund.
A repurchase agreement occurs when, at the time the Fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to repurchase it on a
specified date in the future at an agreed-upon price. The repurchase price
reflects an agreed-upon interest rate during the time the Fund's money is
invested in the security.
Since the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collat-eralized by
the security purchased. The Fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
Fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the Fund could experience a loss.
The Fund may invest in repurchase agreements with respect to any security
in which it is authorized to invest.
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS
AND RISKS
For additional information regarding the investment practices of the Fund,
see the Statement of Additional Information.
PORTFOLIO TURNOVER
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to the Fund's objective.
The Manager believes that the rate of portfolio turnover is irrelevant when it
determines a change is in order to achieve this objective and, accordingly, the
annual portfolio turnover rate cannot be accurately anticipated.
The portfolio turnover of the Fund may be higher than other mutual funds
with similar investment objectives. Higher turnover would generate
correspondingly greater transaction costs that are borne directly by the Fund.
Portfolio turnover may also affect the character of capital gains, if any,
realized and distributed by the Fund since short-term capital gains are taxable
as ordinary income.
WHEN-ISSUED AND FORWARD COMMITMENT AGREEMENTS
The Fund may purchase new issues of securities on a when-issued or forward
commitment basis when, in the opinion of the Manager, such purchases will
further the investment objective of the Fund. The price of when-issued
securities is established at the time commitment to purchase is made. Delivery
of and payment for these securities typically occurs 15 to 45 days after the
commitment to purchase. Market rates of interest on debt securities at the time
of delivery may be higher or lower than those contracted for on the security.
Accordingly, the value of each security may decline prior to delivery, which
could result in a loss to the Fund.
CASH MANAGEMENT
For cash management purposes, the Fund may invest up to an aggregate total
of 5% of its total assets in any money market fund advised by the Manager,
provided that the investment is consistent with the Fund's investment policies
and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it to
8 Information Regarding the fund American Century Investments
do so, the Fund will set aside cash or appropriate liquid assets in a segregated
account to cover the Fund's obligations.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield,
effective yield and tax-equivalent yield.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced a fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. Yield is calculated by
adding over a 30-day (or one-month) period all interest and dividend income (net
of fund expenses) calculated on each day's market values, dividing this sum by
the average number of fund shares outstanding during the period, and expressing
the result as a percentage of the fund's share price on the last day of the
30-day (or one month) period. The percentage is then annualized. Capital gains
and losses are not included in the calculation. The effective yield is
calculated in a similar manner but, when annualized, the income earned by the
investment is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect on the assumed
reinvestment.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules. The SEC yield should be regarded as an estimate of
the Fund's rate of investment income, and it may not equal the Fund's actual
income distribution rate, the income paid to a shareholder's account or the
income reported in the Fund's financial statements.
A tax-equivalent yield demonstrates the taxable yield necessary to produce
after-tax yield equivalent to that of a mutual fund which invests in exempt
obligations. The Fund may quote tax-equivalent yield, which show the taxable
yield an investor would have to earn before taxes to equal the Fund's tax-free
yield. As a prospective investor in the Fund, you should determine whether your
tax-equivalent yield is likely to be higher with a taxable or with a tax-exempt
fund. To determine this, you may use the formulas depicted below.
You can calculate your tax-equivalent yield for the Fund (taking into
account only federal income taxes and not any applicable state taxes) using the
following equation:
Fund's State Tax-Free Yield Your Tax-
---------------------------
100% - State Tax Rate = Equivalent Yield
The Fund may also include in advertisements data comparing performance with
the performance of non-related investment media, published editorial comments
and performance rankings compiled by independent organizations (such as Lipper
Analytical Services or Donoghue's Money Fund Report) and publications that
monitor the performance of mutual funds. Performance information may be quoted
numerically or may be presented in a table, graph or other illustration. In
addition, Fund performance may be compared to well-known indices of market
performance including the Donoghue's Money Fund Average and Bank Rate Monitor
National Index of 21/2 year CD rates. Fund performance may also be compared, on
a relative basis, to the other funds in our fund family. This relative
comparison, which may be based upon historical or expected fund performance,
volatility or other fund characteristics, may be presented numerically,
graphically or in text. Fund performance may also be combined or blended with
other funds in our fund family, and that combined or blended performance may be
compared to the same indices to which individual funds may be compared.
All performance information advertised by the Fund is historical in nature
and is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.
Prospectus Information Regarding the Fund 9
HOW TO INVEST WITH
AMERICAN CENTURY INVESTMENTS
AMERICAN CENTURY INVESTMENTS
The Fund offered by this Prospectus is a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities, from the aggressive equity growth funds in our
Twentieth Century Group, to the fixed income funds in our Benham Group, to the
moderate risk and specialty funds in our American Century Group. Please call
1-800-345-2021 for a brochure or prospectuses for the other funds in the
American Century Investments family.
INVESTING IN AMERICAN CENTURY
The following section explains how to invest in American Century funds,
including purchases, redemptions, exchanges and special services. You will find
more detail about doing business with us by referring to the Investor Services
Guide that you will receive when you open an account.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 15.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application, furnishing
your taxpayer identification number. (You must also certify whether you are
subject to withholding for failing to report income to the IRS.) Investments
received without a certified taxpayer identification number will be returned.
The minimum investment is $2,500 ($1,000 for IRAs).
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple owners
(e.g., as joint tenants) you must provide us with specific authorization on your
application in order for us to accept written or telephone instructions from a
single owner. Otherwise, all owners will have to agree to any transactions that
involve the account (whether the transaction request is in writing or over the
telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to American Century Investments.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us
or mail a completed application and provide your bank with the following
information:
o RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
o BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111
o BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
o Reference for Beneficiary (RFB):
American Century account number into which you are investing. If more than
one, leave blank and see "Bank to Bank Information" below.
o ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
o BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or Social Security number
o If more than one account, account numbers and amount to be
invested in each account.
o Current tax year, previous tax year or rollover designation if
an IRA. Specify whether IRA, SEP-IRA or SARSEP-IRA.
Prospectus How To Invest with American Century Investment 10
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information
on opening an account by exchanging from another American Century account. See
below for more information on exchanges.
IN PERSON
If you prefer to work with a representative in person, please visit one of
our Investors Centers, located at:
4500 Main Street
Kansas City, Missouri 64111
1665 Charleston Road
Mountain View, California 94043
2000 S. Colorado Blvd.
Denver, Colorado 80222
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by any
of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the remittance
portion of the confirmation of a previous investment. If the investment slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper. (Please be aware that the investment minimum for
subsequent investments is higher without an investment slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw on
your bank account. You may call an Investor Services Representative or use our
Automated Information Line.
BY ONLINE ACCESS
Once your account is open, you may make investments online if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 10 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must be
at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application to
receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your Fund shares to our other funds up to six times per year per
account. An exchange request will be processed the same day it is received if it
is received before the fund's net asset value is calculated, which is one hour
prior to the close of the New York Stock Exchange for the funds in American
Century Target Maturities Trust, and at the close of the Exchange for all of our
other funds. See "When Share Price is Determined," page 16.
For any single exchange, the shares of each fund being acquired must have a
value of at least $100. However, we will allow investors to set up an Automatic
Exchange Plan between any two funds in the amount of at least $50 per month. See
our Investor Services Guide for further information about exchanges.
11 How To Invest with American Century Investments American Century Investments
BY MAIL
You may direct us in writing to exchange your shares from one American
Century account to another. For additional information, please see our Investor
Services Guide.
BY TELEPHONE
You can make exchanges over the telephone (either with an Investor Services
Representative or using our Automated Information Line--see page 13) if you have
authorized us to accept telephone instructions. You can authorize this by
selecting "Full Services" on your application or by calling us at 1-800-345-2021
to get the appropriate form.
BY ONLINE ACCESS
You can make exchanges online if you have authorized us to accept
instructions over the Internet. You can authorize this by selecting "Full
Services" on your application or by calling us at 1-800-345-2021 to get the
appropriate form.
HOW TO REDEEM SHARES
We will redeem or "buy back" your shares at any time. Redemptions will be
made at the next net asset value determined after a complete redemption request
is received.
Please note that a request to redeem shares in an IRA or 403(b) plan must
be accompanied by an executed IRS Form W4-P and a reason for withdrawal as
specified by the IRS.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee. Please see "Signature
Guarantee," page 13.
BY TELEPHONE
If you have authorized us to accept telephone instructions, you may redeem
your shares by calling an Investor Services Representative.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with a check in an amount you choose (minimum
$50). To set up a Check-A-Month plan, please call and request our Check-A-Month
brochure.
OTHER AUTOMATIC REDEMPTIONS
If you have at least a $10,000 balance in your account, you may elect to
make redemptions automatically by authorizing us to send funds directly to you
or to your account at a bank or other financial institution. To set up automatic
redemptions, call one of our Investor Services Representatives.
REDEMPTION PROCEEDS
Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up to
15 days or longer to send redemption proceeds (to allow your purchase funds to
clear). No interest is paid on the redemption proceeds after the redemption is
processed but before your redemption proceeds are sent.
Redemption proceeds may be sent to you in one of the following ways:
BY CHECK
Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For more
information, please refer to our Investor Services Guide.
BY WIRE AND ACH
You may authorize us to transmit redemption proceeds by wire or ACH. These
services will be effective 15 days after we receive the authorization.
Your bank will usually receive wired funds within 48 hours of transmission.
Funds transferred by ACH may be received up to seven days after transmission.
Wired funds are subject to a $10 fee to cover bank wire charges, which is
deducted from redemption proceeds. Once the funds are transmitted, the time of
receipt and the funds' availability are not under our control.
REDEMPTION OF SHARES IN
LOW-BALANCE ACCOUNTS
Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to bring
the value of the shares held in the account up to the minimum. If action
Prospectus How To Invest with American Century Investments 12
is not taken within 90 days of the letter's date, the shares held in the account
will be redeemed and proceeds from the redemption will be sent by check to your
address of record. We reserve the right to increase the investment minimums.
SIGNATURE GUARANTEE
To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee will
depend on which service options you elect when you open your account. For
example, if you choose "In Writing Only," a signature guarantee will be required
when:
o redeeming more than $25,000; or
o establishing or increasing a Check-A-Month or automatic transfer
on an existing account.
You may obtain a signature guarantee from a bank or trust company, credit
union, broker-dealer, securities exchange or association, clearing agency or
savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any transaction,
or to change this policy at any time.
SPECIAL SHAREHOLDER SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these options
and elect the ones that are appropriate for you. Be aware that the "Full
Services" option offers you the most flexibility. You will find more information
about each of these service options in our Investor Services Guide.
Our special shareholder services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a week,
at 1-800-345-8765. By calling the Automated Information Line, you may listen to
fund prices, yields and total return figures. You may also use the Automated
Information Line to make investments into your accounts (if we have your bank
information on file) and obtain your share balance, value and most recent
transactions. If you have authorized us to accept telephone instructions, you
also may exchange shares from one fund to another via the Automated Information
Line. Redemption instructions cannot be given via the Automated Information
Line.
ONLINE ACCOUNT ACCESS
You may contact us 24 hours a day, seven days a week at
www.americancentury.com to access your fund's daily share prices, receive
updates on major market indexes and view historical performance of your funds.
If you select "Full Services" on your application, you can use your personal
access code and Social Security number to view your account balances and account
activity, make subsequent investments from your bank account or exchange shares
from one fund to another.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to buy
shares of a variable-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced fund by exchange to one
of our money market funds. The designated purchase price must be equal to or
lower, or the designated sale price equal to or higher, than the variable-priced
fund's net asset value at the time the order is placed. If the designated price
is met within 90 calendar days, we will execute your exchange order
automatically at that price (or better). Open orders not executed within 90 days
will be canceled.
If the fund you have selected deducts a distribution from its share price,
your order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open-order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders and
cancellations received before 2 p.m. Central time are effective the same day,
and orders or cancellations received after 2 p.m. Central time are effective the
next business day.
13 How To Invest with American Century Investments American Century Investments
TAX-QUALIFIED RETIREMENT PLANS
Each Fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
o Individual Retirement Accounts ("IRAs");
o 403(b) plans for employees of public school systems and non-profit
organizations; or
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares for a
period of time, or to reject any specific purchase order (including
purchases by exchange). Additionally, purchases may be refused if, in the
opinion of the Manager, they are of a size that would disrupt the
management of the Fund.
(2) We reserve the right to make changes to any stated investment requirements,
including those that relate to purchases, transfers and redemptions. In
addition, we may also alter, add to or terminate any investor services and
privileges. Any changes may affect all shareholders or only certain series
or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open orders,
will be refused. Once you have mailed or otherwise transmitted your
transaction instructions to us, they may not be modified or canceled.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require evidence
satisfactory to us of the authority of the individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These procedures
are designed to protect shareholders from unauthorized or fraudulent
instructions. If we do not employ reasonable procedures to confirm the
genuineness of instructions, then we may be liable for losses due to
unauthorized or fraudulent instructions. The company, its transfer agent
and investment advisor will not be responsible for any loss due to
instructions they reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the registration.
If the owner's name appears in the registration as Mary Elizabeth Jones,
she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an increase in
the number of shareholder telephone calls. If you experience difficulty in
reaching us during such periods, you may send your transaction instructions
by mail, express mail or courier service, or you may visit one of our
Investors Centers. You may also use our Automated Information Line if you
have requested and received an access code and are not attempting to redeem
shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to
cover the penalty the IRS will impose on us for failure to report your
correct taxpayer identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research fee
of $15 per hour may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your American Century holdings, as well as an
individual statement for each fund you own that reflects all year-to-date
activity in your account. You may request a statement of your account activity
at any time.
Prospectus How To Invest with American Century Investments 14
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transactions. See the Investor Services Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If you
fail to provide notification of an error with reasonable promptness, i.e.,
within 30 days of non-automatic transactions or within 30 days of the date of
your consolidated quarterly statement, in the case of automatic transactions, we
will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that you
may use in completing your U.S. income tax return. See the Investor Services
Guide for more information.
Each year, we will send you an annual and a semiannual report relating to
your fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully as
they will help you understand your fund.
EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide pertains to
shareholders who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the
funds, exchange them for shares of other American Century funds, and redeem them
will depend on the terms of your plan.
If you own or are considering purchasing fund shares through a bank,
broker-dealer, insurance company or other financial intermediary, your ability
to purchase, exchange and redeem shares will depend on your agreement with, and
the policies of, such financial intermediary.
You may reach one of our Institutional Service Representatives by calling
1-800-345-3533 to request information about our funds and services, to obtain a
current prospectus or to get answers to any questions about our funds that you
are unable to obtain through your plan administrator or financial intermediary.
15 How To Invest with American Century Investments American Century Investments
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a Fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. For all American Century funds except American Century Target
Maturities Trust, net asset value is determined at the close of regular trading
on each day that the New York Stock Exchange is open, usually 3 p.m. Central
time. Net asset value for Target Maturities is determined one hour prior to the
close of the Exchange.
Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment or redemption
or exchange request. For example, investments and requests to redeem or exchange
shares of a fund received by us or one of our agents before the net asset value
is determined are effective on, and will receive the price determined, that day.
Investment, redemption and exchange requests received thereafter are effective
on, and receive the price determined on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by us. Wired funds are considered received on the day they are
deposited in our bank account if they are deposited before the net asset value
is determined.
Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day
by mail before the net asset value is determined will receive that day's price.
Investments and instructions received after that time will receive the price
determined on the next business day.
If you invest in Fund shares through an employer-sponsored retirement plan
or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange and
redemption requests to the Funds' transfer agent prior to the applicable cut-off
time for receiving orders and to make payment for any purchase transactions in
accordance with the Fund's procedures or any contractual arrangement with the
Fund or the Fund's distributor in order for you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of the Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
prices is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices, or
at the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the Board of Trustees.
Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of trustees.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the funds are published in leading newspapers
daily. The net asset value, as well as yield information on the Fund and other
funds in the American Century family of funds, may be obtained by calling us or
by accessing our Web site at www.americancentury.com.
Prospectus Additional Information You should Know 16
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays, net
income of the Fund, including amounts attributable to increases in the principal
amount of Inflation-Adjusted Securities, is determined and declared as a
distribution. The distribution will be paid monthly.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page 16. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed, the distribution on the redeemed shares
will be included with your redemption proceeds.
Distributions from net realized capital gains, if any, generally are
declared and paid once a year, but the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code, in all events in a manner consistent with the provisions of the
1940 Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable accounts,
distributions will be reinvested unless you elect to receive them in cash.
Distributions of less than $10 generally will be reinvested. Distributions made
shortly after a purchase by check or ACH may be held up to 15 days. You may
elect to have distributions on shares held in Individual Retirement Accounts and
403(b) plans paid in cash only if you are at least 591/2 years old or
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date. Please consult our Investor Services Guide for
further information regarding your distribution options.
A distribution of shares of the Fund does not increase the value of your
shares or your total return. At any given time the value of your shares includes
the undistributed net gains, if any, realized by the Fund on the sale of
portfolio securities, and undistributed dividends and interest received, less
Fund expenses.
Because such gains and dividends are included in the value of your shares,
when they are distributed the value of your shares is reduced by the amount of
the distribution. If you buy your shares through a taxable account just before
the distribution, you will pay the full price for your shares, and then receive
a portion of the purchase price back as a taxable distribution.
TAXES
The Fund has elected to be taxed under Subchapter M of the Internal Revenue
Code, which means that to the extent its income is distributed to shareholders,
it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If Fund shares are purchased through tax-deferred accounts, such as a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions paid by the Fund will generally not be subject to current
taxation, but will accumulate in your account under the plan on a tax-deferred
basis.
Employer-sponsored retirement and savings plans are governed by complex tax
rules. If you elect to participate in your employer's plan, consult your plan
administrator, your plan's summary plan description, or a professional tax
advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If Fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of the
Fund does not qualify for the 70% dividends-received deduction for corporations
since they are derived from interest income. Dividends representing income
derived from tax-exempt bonds generally retain the bonds' tax-exempt character
in a shareholder's hands. Distributions from net long-term capital gains are
taxable as long-term capital gains regardless of the length of time you have
held the shares on which such distributions are paid. However, you should note
that any loss realized upon the sale or redemption of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
distribution of long-term capital gain to you with respect to such shares.
Inflation-Adjusted Securities purchased by the Fund accrue additional
interest for federal income tax purposes in addition to the current interest
paid. This additional interest is commonly referred to as "imputed income." The
Fund must distribute this imputed income to shareholders as ordinary income
dividends, which are subject to federal taxes but gen-
17 Additional Information You Should Know American Century Investments
erally exempt from state taxes. In periods of high inflation, it is possible
that the imputed income earned by the Fund will exceed current interest earned.
Distributions are taxable to you regardless of whether they are taken in
cash or reinvested, even if the value of your shares is below your cost. If you
purchase shares shortly before a capital gain distribution, you must pay income
taxes on the distribution, even though the value of your investment (plus cash
received, if any) will not have increased. In addition, the share price at the
time you purchase shares may include unrealized gains in the securities held in
the investment portfolio of the Fund. If these portfolio securities are
subsequently sold and the gains are realized, they will, to the extent not
offset by capital losses, be paid to you as a distribution of capital gains and
will be taxable to you as short-term or long-term capital gains.
In January of the year following the distribution, if you own shares in a
taxable account, you will receive a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes.
Distributions may also be subject to state and local taxes, even if all or
a substantial part of such distributions are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to Fund shareholders when a Fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code, we are required by federal law to withhold and remit to the IRS 31% of
reportable payments (which may include dividends, capital gains distributions
and redemptions). Those regulations require you to certify that the Social
Security number or tax identification number you provide is correct and that you
are not subject to 31% withholding for previous under-reporting to the IRS. You
will be asked to make the appropriate certification on your application.
Payments reported by us that omit your Social Security number or tax
identification number will subject us to a penalty of $50, which will be charged
against your account if you fail to provide the certification by the time the
report is filed, and is not refundable.
Redemption of shares of the Fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize a gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. Assuming
that shareholders hold such shares as a capital asset, the gain or loss will be
a capital gain or loss and will generally be long term if shareholders have held
such shares for a period of more than one year. If a loss is realized on the
redemption of Fund shares, the reinvestment in additional Fund shares within 30
days before or after the redemption may be subject to the "wash sale" rules of
the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
The Fund is a series of the American Century Government Income Trust, a
Massachusetts business trust formerly known as the Benham Government Income
Trust (the "Trust"), and is officially designated as "American Century -- Benham
Treasury Inflation-Adjusted Securities Fund." Under the laws of the Commonwealth
of Massachusetts, the Board of Trustees is responsible for managing the business
and affairs of the Trust.
Acting pursuant to an investment advisory agreement entered into with the
Trust, Benham Manage-ment Corporation (the "Manager") serves as the investment
advisor of the Fund. Its principal place of business is 1665 Charleston Road,
Mountain View, California 94043. The Manager has been providing investment
advisory services to investment companies and other clients since 1971.
In June 1995, American Century Companies, Inc. ("ACC"), acquired Benham
Management Inter-national, Inc., the then-parent company of the Manager. ACC is
the parent company of American Century Investment Management, Inc. ("ACIM"),
which provides investment advisory services to many funds in the American
Century family of funds. In the acquisition, the Manager became a wholly owned
subsidiary of ACC. Certain employees of the Manager
Prospectus Additional Information You Should Know 18
provide investment management services to funds managed by ACIM, while certain
ACIM employees provide investment management services to funds advised by the
Manager.
The Manager supervises and manages the investment portfolio of the Fund and
directs the purchase and sale of its investment securities. It utilizes a team
of portfolio managers, assistant portfolio managers and analysts acting together
to manage the assets of the Fund. The team meets regularly to review portfolio
holdings and to discuss purchase and sale activity. The team adjusts holdings in
the Fund's portfolio and the Fund's asset mix as it deems appropriate in pursuit
of the Fund's investment objective. Individual portfolio manager members of the
team may also adjust portfolio holdings of the Fund as necessary between team
meetings.
The portfolio manager member of the team managing the Fund described in
this Prospectusand his work experience for the last five years is as follows:
DAVID SCHROEDER joined the Manager in 1990 and has been primarily
responsible for the day-to-day operations of the Fund since its inception and is
in charge of the team managing the Fund. Mr. Schroeder also has managed the
American Century--Benham Intermediate-Term Treasury Fund since January 1992, the
American Century--Benham Long-Term Treasury Fund since September 1992, and
American Century Target Maturities Trust since July 1990. Mr. Schroeder has
co-managed the American Century--Benham GNMA Fund since January 1996.
The activities of the Manager are subject only to direction of the
Trustees. Each series of the Trust pays the Manager a monthly investment
advisory fee equal to its pro rata share of the dollar amount derived from
applying the Trust's average daily net assets to an investment advisory fee
schedule.
The investment advisory fee rate ranges from 0.50% to 0.19% of average
daily net assets, dropping as the Fund's assets increase.
CODE OF ETHICS
The Fund and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with access
to information about the purchase or sale of securities in the Fund's portfolio
obtain preclearance before executing personal trades. With respect to Portfolio
Managers and other investment personnel, the Code of Ethics prohibits
acquisition of securities in an initial public offering, as well as profits
derived from the purchase and sale of the same security within 60 calendar days.
These provisions are designed to ensure that the interests of the Fund
shareholders come before the interests of the people who manage the Fund.
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri, 64111, (the "transfer agent") acts as transfer agent and
dividend-paying agent for the Fund. The transfer agent provides facilities,
equipment and personnel to the Fund and is paid for such services by the Fund.
For administrative services, the Fund pays the transfer agent a monthly fee
equal to its pro rata share of the dollar amount derived from applying the
average daily net assets of all of the funds advised by the Manager. The
administrative fee rate ranges from 0.11% to 0.08% of average daily net assets,
dropping as assets advised by the Manager increase. For transfer agent services,
each Fund pays the transfer agent a monthly fee for each shareholder account
maintained and for each shareholder transaction executed during that month.
The Fund charges no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from the
transfer agent may purchase or sell Fund shares through registered
broker-dealers and other qualified service providers, who may charge investors
fees for their services. These broker-dealers and service providers generally
provide shareholder, administrative and/or accounting services, which would
otherwise be provided by the transfer agent. To accommodate these investors, the
Manager and its affiliates have entered into agreements with some broker-dealers
and service providers to provide these services. Fees for such services are
borne normally by the Fund at the rates normally paid to the transfer agent,
which would otherwise provide the services. Any distribution expenses associated
with these arrangements are borne by the Manager.
19 Additional Information You Should Know American Century Investments
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation of
shareholder transactions, newsletters and a team of personal representatives.
Any expenses associated with these special services will be paid by the Manager
or its affiliates.
The Manager and the transfer agent are both wholly owned by ACC. James E.
Stowers Jr., Chairman of the Board of Directors of ACC, controls ACC by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services,
Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting and distributing the Fund's
shares offered by this Prospectus. The Fund does not pay any commissions or
other fees to the Distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of Fund shares.
EXPENSES
The Fund pays certain operating expenses directly, including, but not
limited to: custodian, audit, and legal fees; fees of the independent Trustees;
costs of printing and mailing prospectuses, statements of additional
information, proxy statements, notices, and reports to shareholders; insurance
expenses; and costs of registering the Fund's shares for sale under federal and
state securities laws. See the Statement of Additional Information for a more
detailed discussion of independent Trustee compensation.
FURTHER INFORMATION ABOUT AMERICAN CENTURY
The Trust was organized as a Massachusetts business trust on July 24, 1985.
The Trust is a diversified, open-end management investment company. Their
business and affairs are managed by its officers under the direction of the
Board of Trustees.
The principal office of the Fund is American Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries made
by mail should be directed to the address and phone numbers on the cover, or
by phone to 1-800-345-2021. (international calls: 816-531-5575.)
The Fund is an individual series of the Trust which issues shares with no
par value. The assets belonging to each series of shares are held separately by
the custodian and in effect each series is a separate fund.
Each share, irrespective of series, is entitled to one vote for each dollar
of net asset value applicable to such share on all questions, except, in the
case of the Trust, those matters which must be voted on separately by the series
of shares affected. Matters affecting only one Fund are voted upon only by that
Fund.
Shares of the Trust have noncumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect all of the Trustees if they choose to do so, and in such event the holders
of the remaining votes will not be able to elect any person or persons to the
Board of Trustees.
Unless required by the 1940 Act, it will not be necessary for the Trust to
hold annual meetings of shareholders. As a result, shareholders may not vote
each year on the election of members of their Boards or the appointment of
auditors. However, pursuant to the Trust's by-laws, the holders of shares
representing at least 10% of the votes entitled to be cast may request that the
Trust hold a special meeting of shareholders. The Trust will assist in the
communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF ITS POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROS-PECTUS, INCLUDING THE STATEMENT OF ADDITIONAL
INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE
SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF THE FUND ONLY IN
THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE QUALIFIED
FOR SALE. THE FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES
WHERE THE FUND'S SHARES ARE NOT REGISTERED.
Prospectus Additional Information You Should Know 20
NOTES
Prospectus Notes 21
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
[American Century logo]
American
Century(sm)
9702 [recycled logo]
SH-BKT-6963 Recycled
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
Revised FEBRUARY 10, 1997
BENHAM
GROUP(R)
Government Agency
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
ARM Fund
GNMA Fund
Inflation-Adjusted Treasury
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED FEBRUARY 10, 1997
AMERICAN CENTURY GOVERNMENT INCOME TRUST
This Statement is not a prospectus but should be read in conjunction with
the Funds' current Prospectuses dated September 3, 1996, revised January 1, 1997
(except Inflation-Adjusted Treasury, which is dated February 10, 1997). The
Funds' annual reports for the fiscal year ended March 31, 1996 are incorporated
herein by reference. Please retain this document for future reference. To obtain
the Prospectus, call American Century Investments toll-free at 1-800-345-2021
(international calls: 816-531-5575), or write P.O. Box 419200, Kansas City,
Missouri 64141-6200.
TABLE OF CONTENTS
Investment Policies and Techniques........................................2
Investment Restrictions...................................................8
Portfolio Transactions...................................................14
Valuation of Portfolio Securities........................................14
Performance..............................................................15
Taxes....................................................................17
About the Trust..........................................................17
Trustees and Officers....................................................18
Investment Advisory Services.............................................19
Transfer and Administrative Services.....................................21
Distribution of Fund Shares..............................................22
Direct Fund Expenses.....................................................22
Expense Limitation Agreement.............................................22
Additional Purchase and Redemption
Information...........................................................23
Other Information........................................................24
NOTE: Throughout this document, Short-Term Treasury, Intermediate-Term
Treasury, Long-Term Treasury, ARM Fund, GNMA Fund and Inflation-Adjusted
Treasury are referred to collectively as the "Variable-Price Funds."
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Trustees.
REPURCHASE AGREEMENTS (VARIABLE-PRICE FUNDS)
The Funds may engage in repurchase agreements collateralized by U.S.
Treasury bills, notes, and bonds, or by mortgage-backed GNMA certificates, which
are guaranteed by the Government National Mortgage Association and backed by the
full faith and credit of the U.S. government.
Repos may involve risks not associated with direct investments in U.S.
government debt securities. If the seller fails to complete the terms of the
agreement, the Fund may experience delays in recovering its cash or incur costs
in the disposal of securities it has purchased under the agreement. The Fund
could also suffer a loss if the securities decline in value before they can be
sold in the open market.
In a repurchase agreement (a "repo"), the Fund buys a security at one price
and simultaneously agrees to sell it back to the seller at an agreed upon price
on a specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed upon rate of return and that is unrelated to the interest
rate on the underlying security. Delay or losses could result if the other party
to the agreement defaults or becomes bankrupt.
Benham Management Corporation, (the "Manager") attempts to minimize the
risks associated with repurchase agreements by adhering to the following
criteria:
(1) Limiting the securities acquired and held by a Fund underrepurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealersin U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established bya nationally recognized
statistical rating organization (a "rating agency") and approved by the
Funds' Board of Trustees;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed upon resale price, provided however that the Board of Trustees
may determine that a broker-dealer's credit standing is sufficient to allow
collateral to fall to as low as 101% of the agreed upon resale price before
the broker-dealer deposits additional securities with the Funds' custodian;
(5) Investing no more than 10% of a Fund's total assets in repurchase
agreements of more than seven days' duration (although the underlying
securities usually will have longer maturities);
(6) Taking delivery of securities subject to repurchase agreements and holding
them in a segregated account at the Funds' custodian bank.
The Funds have received permission from the Securities and Exchange
Commission (SEC) to participate in pooled repurchase agreements collateralized
by U.S. government securities with other mutual funds advised by the Manager or
its affiliates. Pooled repos are expected to increase the income a Fund can earn
from repo transactions without increasing the risks associated with these
transactions.
Under the Investment Company Act of 1940 (the "1940 Act"), repos are
considered to be loans.
WHEN-ISSUED PURCHASES AND FORWARD
COMMITMENTS (ALL FUNDS)
The Funds may engage in securities transactions on a when-issued or forward
commitment basis, in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis,
each Fund assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. Although a Fund will make commitments to purchase or
sell securities with the intention of actually receiving or delivering them, it
may sell the securities before the settlement date if doing so is deemed
advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, a
Fund will establish and
2 American Century Investments
maintain until the settlement date a segregated account consisting of cash, U.S.
government securities, or other high-quality liquid debt securities in an amount
sufficient to meet the purchase price. When the time comes to pay for such
securities, the Fund will meet its obligations with available cash, through the
sale of securities, or, although it would not normally expect to do so, by
selling the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation). Selling securities to meet
when-issued or forward commitment obligations may generate taxable capital gains
or losses.
ROLL TRANSACTIONS
A Fund may sell a security and at the same time make a commitment to
purchase the same or a comparable security at a future date and specified price.
Conversely, a Fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as "dollar-rolls", "cash-and-carry", or financing transactions. For
example, a broker-dealer may seek to purchase a particular security that a Fund
owns. The Fund will sell that security to the broker-dealer and simultaneously
enter into a forward commitment agreement to buy it back at a future date. This
type of transaction generates income for the Fund if the dealer is willing to
execute the transaction at a favorable price in order to acquire a specific
security. As an operating policy, the Manager limits forward commitment
transactions (including roll transactions) to 35% of a Fund's total assets and
will not enter into when-issued or forward commitment transactions with
settlement dates that exceed 120 days.
In engaging in roll transactions, the Fund will maintain until the
settlement date a segregated account consisting of cash, cash equivalents, or
high-quality liquid securities in an amount sufficient to meet the purchase
price, as described above.
INTEREST RATE RESETS ON FLOATING-RATE
U.S. GOVERNMENT AGENCY SECURITIES
Interest rate resets on floating-rate U.S. government agency securities
generally occur at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indexes,
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost of funds index. Commonly used indexes include the
three-month, six-month, and one-year Treasury bill rate; the two-year Treasury
note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index
(EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the
prices of floating-rate U.S. government agency securities are typically
attributed to differences between the coupon rates on these securities and
prevailing market interest rates between interest rate reset dates.
MASTER DEMAND NOTES
(GOVERNMENT AGENCY ONLY)
Government Agency may acquire variable-rate master demand notes issued by
U.S. government agencies such as the Student Loan Marketing Association. Master
demand notes allow the Fund to lend money at varying rates of interest under
direct agreements with borrowers. The Fund may adjust the amount of money loaned
under a master demand note daily or weekly up to the full amount specified in
the agreement, and the borrower may prepay up to the full amount of the loan
without penalty. Master demand notes may or may not be backed by bank letters of
credit. Although, as direct agreements between lenders and borrowers, there is
no secondary market for master demand notes, these instruments are redeemable
(immediately repayable by the borrower) at par plus accrued interest at any
time.
SECURITIES LENDING (ALL FUNDS EXCEPT
INTERMEDIATE-TERM TREASURY)
The Manager may seek approval from the Board of Trustees to engage in
securities lending on behalf of the Funds. Such loans would be made with the
intention of allowing the Funds to earn additional income. If a borrower
defaulted on a securities loan, the lending Fund could experience delays in
recovering the securities it loaned; if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss. To minimize the risk of
default on securities loans, the Manager adheres to the following guidelines
prescribed by the Board of Trustees:
(1) TYPE AND AMOUNT OF COLLATERAL. At the time a loan is made, the Fund must
receive, from or on
Statement of Additional Information 3
behalf of a borrower, collateral consisting of any combination of cash and
full faith and credit U.S. government securities equal to not less than
102% of the market value of the securities loaned. Cash collateral received
by a Fund in connection with loans of portfolio securities may be
commingled by the Funds' custodian with other cash and marketable
securities, provided that the loan agreement expressly allows such
commingling.
(2) ADDITIONS TO COLLATERAL. Collateral must be marked to market daily, and the
borrower must agree to add collateral to the extent necessary to maintain
the 102% level specified in guideline (1) above. The borrower must deposit
additional collateral no later than the business day following the business
day on which a collateral deficiency occurs or collateral appears to be
inadequate.
(3) TERMINATION OF LOAN. The Fund must have the option to terminate a loan of
portfolio securities at any time. The borrower must be obligated to
redeliver the borrowed securities within the normal settlement period
following receipt of the termination notice. The normal settlement period
for U.S. government securities is typically two trading days.
(4) REASONABLE RETURN ON LOAN. The borrower must agree that the Fund (a) will
receive all dividends, interest, or other distributions on loaned
securities and (b) will be paid a reasonable return on such loans either in
the form of a loan fee or premium or from the retention by the Fund of part
or all of the earnings and profits realized from the investment of cash
collateral in full faith and credit U.S. government securities.
(5) LIMITATIONS ON PERCENTAGE OF FUND ASSETS ON LOAN. A Fund's loans may not
exceed 331/3% of its total assets.
(6) CREDIT ANALYSIS. As part of the regular monitoring procedures set forth by
the Board of Trustees that the Manager follows to evaluate banks and
broker-dealers in connection with, for example, repurchase agreements and
municipal securities credit issues, the Manager will analyze and monitor
the creditworthiness of all borrowers with which portfolio lending
arrangements are contemplated or entered into.
MORTGAGE-BACKED SECURITIES (ARM FUND
AND GNMA FUND)
BACKGROUND. A mortgage-backed security represents an ownership interest in
a pool of mortgage loans. The loans are made by financial institutions to
finance home and other real estate purchases. As the loans are repaid, investors
receive payments of both interest and principal.
Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest over the life of the security. However,
unlike a bond, which returns principal to the investor in one lump sum at
maturity, mortgage-backed securities return principal to the investor in
increments over the life of the security.
Because the timing and speed of principal repayments vary, the cash flow on
mortgage securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages, or default on their loans, the
principal is distributed pro rata to investors.
As with other fixed-income securities, the prices of mortgage securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage securities rise, and vice versa. Changing interest rates have
additional significance for mortgage-backed securities investors, however,
because they influence prepayment rates (the rates at which mortgage holders
prepay their mortgages), which in turn affect the yields on mortgage-backed
securities. When interest rates decline, prepayment rates generally increase.
Mortgage holders take advantage of the opportunity to refinance their mortgages
at lower rates with lower monthly payments. When interest rates rise, mortgage
holders are less inclined to refinance their mortgages. The effect of prepayment
activity on yield depends on whether the mortgage-backed security was purchased
at a premium or at a discount.
A Fund may get back principal sooner than it expected because of
accelerated prepayments. Under these circumstances, the Fund might have to
reinvest returned principal at rates lower than it would have earned if
principal payments were made on schedule. Conversely, a mortgage-backed security
may exceed its anticipated life if prepayment rates decelerate unexpectedly.
Under these circumstances, a Fund
4 American Century Investments
might miss an opportunity to earn interest at higher prevailing rates.
GINNIE MAE CERTIFICATES. The Government National Mortgage Association (GNMA
or Ginnie Mae) is a wholly owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. The National Housing Act
of 1934 (Housing Act), as amended, authorizes Ginnie Mae to guarantee the timely
payment of interest and repayment of principal on certificates that are backed
by a pool of mortgage loans insured by the Federal Housing Administration under
the Housing Act, or by Title V of the Housing Act of 1949 (FHA Loans), or
guaranteed by the Veterans' Administration under the Servicemen's Readjustment
Act of 1944 (VA Loans), as amended, or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit of the U.S.
government is pledged to the payment of all amounts that may be required to be
paid under any guarantee. Ginnie Mae has unlimited authority to borrow from the
U.S. Treasury in order to meet its obligations under this guarantee.
Ginnie Mae certificates represent a pro rata interest in one or more pools
of the following types of mortgage loans: (a) fixed-rate level payment mortgage
loans; (b) fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate
growing equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower's monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.
FANNIE MAE CERTIFICATES. The Federal National Mortgage Association (FNMA or
Fannie Mae) is a federally chartered and privately owned corporation established
under the Federal National Mortgage Association Charter Act. Fannie Mae was
originally established in 1938 as a U.S. government agency designed to provide
supplemental liquidity to the mortgage market and was reorganized as a
stockholder-owned and privately managed corporation by legislation enacted in
1968. Fannie Mae acquires capital from investors who would not ordinarily invest
in mortgage loans directly and thereby expands the total amount of funds
available for housing. This money is used to buy home mortgage loans from local
lenders, replenishing the supply of capital available for mortgage lending.
Fannie Mae certificates represent a pro rata interest in one or more pools
of FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a governmental agency) of
the following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.
Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.
FREDDIE MAC CERTIFICATES. The Federal Home Loan Mortgage Corporation (FHLMC
or Freddie Mac) is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970 (FHLMC Act), as amended.
Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit. Its principal activity consists of purchasing
first-lien conventional residential mortgage loans (and participation interests
in such mortgage loans) and reselling these loans in the form of mortgage-backed
securities, primarily Freddie Mac certificates.
Freddie Mac certificates represent a pro rata interest in a group of
mortgage loans (a Freddie Mac certificate group) purchased by Freddie Mac. The
mortgage loans underlying Freddie Mac certificates
Statement of Additional Information 5
consist of fixed- or adjustable-rate mortgage loans with original terms to
maturity of between ten and thirty years, substantially all of which are secured
by first-liens on one- to four-family residential properties or multifamily
projects. Each mortgage loan must meet standards set forth in the FHLMC Act. A
Freddie Mac certificate group may include whole loans, participation interests
in whole loans, undivided interests in whole loans, and participations composing
another Freddie Mac certificate group.
Freddie Mac guarantees to each registered holder of a Freddie Mac
certificate the timely payment of interest at the rate provided for by the
certificate. Freddie Mac also guarantees ultimate collection of all principal on
the related mortgage loans, without any offset or deduction, but generally does
not guarantee the timely repayment of principal. Freddie Mac may remit principal
at any time after default on an underlying mortgage loan, but no later than 30
days following (a) foreclosure sale, (b) payment of a claim by any mortgage
insurer, or (c) the expiration of any right of redemption, whichever occurs
later, and in any event no later than one year after demand has been made upon
the mortgager for accelerated payment of principal. Obligations guaranteed by
Freddie Mac are not backed by the full faith and credit of the U.S. government.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). A CMO is a multiclass bond
backed by a pool of mortgage pass-through certificates or mortgage loans. CMO's
may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, or (d) any combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called "tranches." Each CMO is a set of two
or more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven, and twenty
years.
As payments on the underlying mortgage loans are collected, the CMO issuer
pays the coupon rate of interest to the bondholders in each tranche. At the
outset, scheduled and unscheduled principal payments go to investors in the
first tranches. Investors in later tranches do not begin receiving principal
payments until the prior tranches are paid off. This basic type of CMO is known
as a "sequential pay" or "plain vanilla" CMO.
Some CMOs are structured so that the prepayment or market risks are
transferred from one tranche to another. Prepayment stability is improved in
some tranches if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as
an "accrual bond" or "accretion bond." Holders of these securities receive no
cash until the earlier tranches are paid in full. During the period that the
other tranches are outstanding, periodic interest payments are added to the
initial face amount of the Z-bond but are not paid to investors. When the prior
tranches are retired, the Z-bond receives coupon payments on its higher
principal balance plus any principal prepayments from the underlying mortgage
loans. The existence of a Z-bond tranche helps stabilize cash flow patterns in
the other tranches. In a changing interest rate environment, however, the value
of the Z-bond tends to be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent.
The planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for
other tranches in the CMO because the stability of the PAC or TAC tranche is
achieved by creating at least one other tranche-known as a companion bond,
support, or non-PAC bond--that absorbs the variability of principal cash flows.
Because companion bonds have a high degree of average life variability, they
generally pay a higher
6 American Century Investments
yield. A TAC bond can have some of the prepayment variability of a companion
bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that
is usually tied to the London Interbank Offered Rate (LIBOR). Institutional
investors with short-term liabilities, such as commercial banks, often find
floating-rate CMOs attractive investments. "Super floaters" (which float a
certain percentage above LIBOR) and "inverse floaters" (which float inversely to
LIBOR) are variations on the floater structure that have highly variable cash
flows.
STRIPPED MORTGAGE-BACKED SECURITIES (ARM FUND ONLY). Stripped mortgage
securities are created by segregating the cash flows from underlying mortgage
loans or mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each investor
class receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type of
security, known as an interest-only security, or IO, and all of the principal is
distributed to holders of another type of security known as a principal-only
security, or PO. Strips can be created in a pass-through structure or as
tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a Fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
ADJUSTABLE-RATE MORTGAGE LOANS (ARMS). ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes in an
index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate
may not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indexes that provide the basis for ARM rate
adjustments: those based on market rates and those based on a calculated
measure, such as a cost of funds index or a moving average of mortgage rates.
Commonly utilized indexes include the one-year, three-year, and five-year
constant maturity U.S. Treasury rates (as reported by the Federal Reserve
Board); the three-month Treasury bill rate; the 180-day Treasury bill rate;
rates on longer-term Treasury securities; the Eleventh District Federal Home
Loan Bank Cost of Funds Index (EDCOFI); the National Median Cost of Funds Index;
the one-month, three-month, six-month, or one-year London Interbank Offered Rate
(LIBOR); or six-month CD rates. Some indexes, such as the one-year constant
maturity Treasury rate or three-month LIBOR, are highly correlated with changes
in market interest rates. Other indexes, such as the EDCOFI, tend to lag behind
changes in market rates and be somewhat less volatile over short periods of
time.
The EDCOFI reflects the monthly weighted average cost of funds of savings
and loan associations and savings banks whose home offices are located in
Arizona, California, and Nevada (the Federal Home Loan Bank Eleventh District)
and who are member institutions of the Federal Home Loan Bank of San Francisco
(the FHLB of San Francisco), as computed from statistics tabulated and published
by the FHLB of San Francisco. The FHLB of San Francisco normally announces the
Cost of Funds Index on the last working day of the month following the month in
which the cost of funds was incurred.
Statement of Addiitional Information 7
One-year and three-year Constant Maturity Treasury (CMT) rates are
calculated by the Federal Reserve Bank of New York, based on daily closing bid
yields on actively traded Treasury securities submitted by five leading
broker-dealers. The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is
calculated monthly by the Federal Home Loan Bank Board (FHLBB) and represents
the average monthly interest expenses on liabilities of member institutions. A
median, rather than an arithmetic mean, is used to reduce the effect of extreme
numbers.
The London Interbank Offered Rate Index (LIBOR) is the rate at which banks
in London offer Eurodollars in trades between banks. LIBOR has become a key rate
in the U.S. domestic money market because it is perceived to reflect the true
global cost of money.
The Manager may invest in ARMs whose periodic interest rate adjustments are
based on new indexes as these indexes become available.
ZERO-COUPON SECURITIES (SHORT-TERM TREASURY,
INTERMEDIATE-TERM TREASURY, LONG-TERM
TREASURY AND INFLATION-ADJUSTED TREASURY)
Zero-coupon U.S. Treasury securities are the unmatured interest coupons and
underlying principal portions of U.S. Treasury notes and bonds. Originally,
these securities were created by broker-dealers who bought Treasury notes and
bonds and deposited these securities with a custodian bank. The broker-dealers
then sold receipts representing ownership interests in the coupons or principal
portions of the notes and bonds. Some examples of zero-coupon securities sold
through custodial receipt programs are CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and generic TRs
(Treasury Receipts).
The U.S. Treasury subsequently introduced a program called Separate Trading
of Registered Interest and Principal of Securities (STRIPS). In this program,
eligible securities may be presented to the U.S. Treasury and exchanged for
their component parts, which are then traded in book-entry form. (Book-entry
trading eliminated the bank credit risks associated with broker-dealer sponsored
custodial receipt programs.) STRIPS are direct obligations of the U.S.
government and have the same credit risks as other U.S. Treasury securities.
Principal and interest on bonds issued by the Resolution Funding
Corporation (REFCORP) have also been separated and issued as stripped
securities. The U.S. government and its agencies may issue securities in
zero-coupon form. These securities are referred to as "original issue
zero-coupon securities."
INVESTMENT RESTRICTIONS
The Funds' investment restrictions set forth below are fundamental and may
not be changed without approval of a majority of the votes of shareholders of
the Fund, as determined in accordance with the Investment Company Act of 1940.
GOVERNMENT AGENCY MAY NOT:
(1) Borrow money in excess of 331/3% of the market value of its total assets.
The Fund may borrow from a bank as a temporary measure to satisfy
redemption requests or for extraordinary or emergency purposes, provided
that immediately after any such borrowing there is an asset coverage of at
least 300 per centum for all such borrowings. To secure any such borrowing,
the Fund may pledge or hypothecate not in excess of 331/3% of the value of
its total assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding. The Fund may
also borrow money for temporary or emergency purposes from other funds or
portfolios for which Benham Management Corporation is the investment
advisor, or from a joint account of such funds or portfolios, as permitted
by federal regulatory agencies.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines
8 American Century Investments
established by the Board of Trustees or for the purchase of debt securities
in accordance with the Fund's investment objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities which are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and Trustees of the Trust and of its
investment advisor, who each own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities.
SHORT-TERM TREASURY MAY NOT:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, (a) more than
5% of the Fund's total assets would be invested in the securities of that
issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
(2) Issue senior securities, except as permitted under the Investment Company
Act of 1940 and except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(3) Borrow money, except for temporary or emergency purposes, and then only
from a bank. Such borrowings may not exceed 331/3% of the Fund's total
assets.
(4) Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in disposing of restricted securities.
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
(6) Purchase or sell real estate unless acquired as result of ownership of
securities or other instruments, provided that this limitation will not
prohibit the Fund from purchasing U.S. government securities secured by
real estate or interests therein.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, provided that this limitation
will not prohibit the Fund from purchasing and selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.
(8) Make loans, other than loans of portfolio securities pursuant to guidelines
established by the Board of Trustees, provided that this restriction will
not prohibit the Fund from purchasing debt securities in accordance with
its investment objectives and policies. Loans, in the aggregate, will be
limited to 331/3% of the Fund's total assets.
INTERMEDIATE-TERM TREASURY MAY NOT:
(1) Purchase the securities of any issuer other than the U.S. Treasury. This
restriction shall not apply to repurchase agreements consisting of U.S.
government securities or to purchases by the Fund of shares of other
investment companies, provided that not more than 3% of such investment
company's outstanding shares would be held by the Fund, not more than 5% of
the value of the Fund's assets would be invested in
Statement of Additional Information 9
shares of such company, and not more than 10% of the value of the Fund's
assets would be invested in shares of investment companies in the
aggregate.
(2) Engage in any short-selling operations.
(3) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(4) Purchase or sell real estate, commodities, or commodity contracts, or buy
and sell foreign exchange.
(5) Purchase securities for which the Fund might be liable for further payment
or liability.
(6) Invest in portfolio securities that the Fund may not be free to sell to the
public without registration under the Securities Act of 1933 or the taking
of similar actions under other securities laws relating to the sale of
securities.
(7) Issue or sell any class of senior security, except to the extent that notes
evidencing temporary borrowing might be deemed such.
(8) Lend money other than through the purchase of debt securities in accordance
with its investment policy (this restriction does not apply to repurchase
agreements).
(9) Borrow money except from a bank as a temporary measure to satisfy
redemption requests, or for extraordinary or emergency purposes and then
only in an amount not exceeding 331/3% of the market value of the Fund's
total assets, so that immediately after any such borrowing there is an
asset coverage of at least 300 per centum for all such borrowings. To
secure any such borrowing, the Fund may not pledge or hypothecate in excess
of 331/3% of the value of its total assets. The Fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding.
LONG-TERM TREASURY MAY NOT:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result (a) more than
5% of the Fund's total assets would be invested in the securities of that
issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
(2) Issue senior securities, except as permitted under the Investment Company
Act of 1940 and except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(3 Borrow money, except for temporary or emergency purposes, and then only
from a bank. Such borrowings may not exceed 331/3% of the Fund's total
assets.
(4) Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in disposing of restricted securities.
(5) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
(6) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, provided that this limitation will not
prohibit the Fund from purchasing U.S. government securities secured by
real estate or interests therein.
(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, provided that this limitation
will not prohibit the Fund from purchasing and selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.
(8) Make loans, other than loans of portfolio securities pursuant to guidelines
established by the Board of Trustees, provided that this restriction will
not prohibit the Fund from purchasing debt securities in accordance with
its investment objectives and policies. Loans, in the aggregate, will be
limited to 331/3% of the Fund's total assets.
ARM FUND MAY NOT:
(1) Borrow money in excess of 331/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests or for extraordinary or emergency purposes, and provided that
imme-
10 American Century Investments
diately after any such borrowing there is an asset coverage of at least 300
per centum for all such borrowings. To secure any such borrowing, the Fund
may pledge or hypothecate not in excess of 331/3% of the value of its total
assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% ofthe Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company if, as a
result, more than 3% of such investment company's outstanding shares would
be held by the Fund, more than 5% of the value of the Fund's assets would
be invested in shares of such investment company, or more than 10% of the
value of the Fund's assets would be invested in shares of investment
companies in the aggregate, or except in connection with a merger,
consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and Trustees of the Trust and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer together own beneficially more than
5% of such securities.
GNMA FUND MAY NOT:
(1) Borrow money in excess of 331/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests or for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, the
Fund may pledge or hypothecate not in excess of 331/3% of the value of its
total assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
Statement of Additional Information 11
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(9) Issue or sell any class of senior security as defined in the Investment
Company Act of 1940 except to the extent that notes evidencing temporary
borrowings or the purchase of securities on a when-issued or
delayed-delivery basis might be deemed such.
(10) Acquire or retain the securities of any other investment company except in
connection with a merger, consolidation, acquisition, or reorganization.
(11) Purchase or retain securities of any issuer if, to the knowledge of the
Trust's management, those officers and Trustees of the Trust and of its
investment advisor who each own beneficially more than 0.5% of the
outstanding securities of such issuer together own beneficially more than
5% of such securities.
INFLATION-ADJUSTED TREASURY MAY NOT:
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, more than 5% of its
total assets would be invested in securities of that issuer, or it would
hold more than 10% of the outstanding voting securities of that issuer.
(2) Issue senior securities, except as permitted under the 1940 Act.
(3) Borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 331/3% of the Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including Sundays
and holidays) to the extent necessary to comply with the 331/3 %
limitation.
(4) Lend any security or make any other loan if, as a result, more than 331/3%
of the Fund's total assets would be lent to other parties, except, (a)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective, policies and limitations, or (b)
by engaging in repurchase agreements with respect to portfolio securities.
(5) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
(6) Act as underwriter of securities issued by others, except to the extent
that the Fund may be considered as underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
(7) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.
Some of the Funds are also subject to the following restrictions that are
not fundamental and may therefore be changed by the Board of Trustees without
shareholder approval.
GOVERNMENT AGENCY MAY NOT:
(a) Invest in oil, gas, or other mineral leases.
SHORT-TERM TREASURY MAY NOT:
(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) Purchase restricted securities.
(e) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
12 American Century Investments
(f) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(g) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(h) Purchase any equity securities, including warrants or bonds with warrants
attached, or any preferred stocks, convertible bonds, or convertible
debentures.
(i) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(j) Purchase securities of any issuer if, to the knowledge of the Fund's
investment advisor, those Trustees and officers of the Trust and those
Trustees and officers of the investment advisor who individually own more
than 0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
(k) Invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation and securities of issuers which are
restricted as to disposition (including 144A securities).
LONG-TERM TREASURY MAY NOT:
(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(e) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(f) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(g) Purchase any equity securities, including warrants or bonds with warrants
attached, or any preferred stocks, convertible bonds, or convertible
debentures.
(h) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(i) Purchase securities of any issuer if, to the knowledge of the Fund's
investment advisor, those Trustees and officers of the Trust, and those
Trustees and officers of the investment advisor who individually own more
than 0.5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
(j) Invest more than 15% of the Fund's total assets in the securities of
issuers which together with any predecessors have a record of less than
three year's continuous operation and securities of issuers which are
restricted as to disposition (including 144A securities).
(k) Purchase restricted securities.
ARM FUND MAY NOT:
(a) Invest in oil, gas, or other mineral leases.
INFLATION-ADJUSTED TREASURY MAY NOT:
(a) Lend assets other than securities to other parties, except by (a) lending
money (up to 5% of the Fund's net assets) to a registered investment
Statement of Additional Information 13
company or portfolio for which its investment advisor or an affiliate
serves as investment advisor or (b) acquiring loans, loan participation,
or other forms of direct debt instruments and in connection therewith,
assuming any associated unfunded commitments of the sellers. (This
limitation does not apply to purchases of debt securities or to repurchase
agreements.)
(b) Sell securities short, unless its owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transaction in futures contracts and options are not deemed
to constitute selling securities short.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
Unless otherwise indicated, with the exception of the percentage limitation
on borrowing, percentage limitations included in the restrictions apply at the
time transactions are entered into. Accordingly, any later increase or decrease
beyond the specified limitation resulting from a change in the Fund's net assets
will not be considered in determining whether it has complied with its
investment restrictions.
PORTFOLIO TRANSACTIONS
Each Fund's assets are invested by the Manager in a manner consistent with
the Fund's investment objectives, policies, and restrictions, and with any
instructions from the Board of Trustees that may be issued from time to time.
Within this framework, the Manager is responsible for making all determinations
as to the purchase and sale of portfolio securities and for taking all steps
necessary to implement securities transactions on behalf of the Funds.
In placing orders for the purchase and sale of portfolio securities, the
Manager will use its best efforts to obtain the best possible price and
execution and will otherwise place orders with broker-dealers subject to and in
accordance with any instructions the Board of Trustees may issue from time to
time. The Manager will select broker-dealers to execute portfolio transactions
on behalf of the Funds solely on the basis of best price and execution.
U.S. government securities generally are traded in the over-the-counter
market through broker-dealers. A broker-dealer is a securities firm or bank
that makes a market for securities by offering to buy at one price and sell at
a slightly higher price. The difference between the prices is known as a
spread.
On behalf of the Funds, the Manager transacts in round lots ($100,000 to
$10 million or more) whenever possible. Since commissions are not charged for
round-lot transactions of U.S. Treasury securities, the Funds' transaction costs
consist solely of custodian charges and dealer mark-ups. Each Fund may hold its
portfolio securities to maturity or sell or swap them for others, depending upon
the level and slope of, and anticipated changes in, the yield curve. The Funds
paid no brokerage commissions during the fiscal year ended March 31, 1996.
The portfolio turnover rates for each of the Variable-Price Funds appear in
the Financial Highlights appearing in the Prospectus.
VALUATION OF PORTFOLIO SECURITIES
Each Fund's net asset value per share ("NAV") is calculated as of the close
of business of the New York Stock Exchange (the "Exchange"), usually at 3:00
p.m. Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas (observed). Although the Funds expect the same
holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
Each Fund's share price is calculated by adding the value of all portfolio
securities and other assets, deducting liabilities, and dividing the result by
the number of shares outstanding. Expenses and interest on portfolio securities
are accrued daily.
Securities held by Government Agency are valued on the basis of amortized
cost. This method involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium paid at
the time of purchase. Although this method provides certainty in valuation, it
generally disregards the effect of fluctuating interest rates on an instrument's
market value. Consequently, the instrument's amortized cost value may be higher
or lower than its market value, and this discrepancy may be reflected in the
Fund's yield. During periods
14 American Century Investments
of declining interest rates, for example, the daily yield on Fund shares
computed as described above may be higher than that of a fund with identical
investments priced at market value. The converse would apply in a period of
rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule
2a-7 under the 1940 Act. Under the Rule, a fund such as Government Agency,
holding itself out as a money market fund, must adhere to certain quality and
maturity criteria which are described in the Prospectus.
The Board of Trustees has established procedures designed to stabilize the
Government Agency's NAV at $1.00 per share to the extent reasonably possible.
These procedures require the Fund's Chief Financial Officer to notify the
Trustees immediately if, at any time, the Fund's weighted average maturity
exceeds 60 days, or its NAV, as determined by using available market quotations,
deviates from its amortized cost per share by .25% or more. If such deviation
exceeds .40%, a meeting of the Board of Trustees' audit committee will be called
to consider what action, if any, should be taken. If such deviation exceeds
.50%, the Fund's Chief Financial Officer is instructed to adjust daily dividend
distributions immediately to the extent necessary to reduce the deviation to
.50% or lower and to call a meeting of the Board of Trustees to consider further
action.
Actions the Board of Trustees may consider under these circumstances
include (a) selling portfolio securities prior to maturity, (b) withholding
dividends or distributions from capital, (c) authorizing a one-time dividend
adjustment, (d) discounting share purchases and initiating redemptions in kind,
or (e) valuing portfolio securities at market for purposes of calculating NAV.
Most securities held by the Variable-Price Funds are valued at current
market value as provided by an independent pricing service. Other securities are
priced at fair value as determined in good faith pursuant to guidelines
established by the Funds' Board of Trustees.
PERFORMANCE
A Fund may quote performance in various ways. Historical performance
information will be used in advertising and sales literature and is not
indicative of future results. A Fund's share price, yield and return will vary
with changing market conditions.
For GOVERNMENT AGENCY, yield quotations are based on the change in the
value of a hypothetical investment (excluding realized gains and losses from the
sale of securities and unrealized appreciation and depreciation of securities)
over a seven-day period (base period) and stated as a percentage of the
investment at the start of the base period (base-period return). The base-period
return is then annualized by multiplying it by 365/7, with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used
to calculate yield, but the return is then annualized to reflect weekly
compounding according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the seven-day period ended March 31, 1996, Government Agency's yield
was 4.73% and its effective yield was 4.84%.
For the VARIABLE-PRICE FUNDS, yield quotations are based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and are computed by dividing the
Fund's net investment income by its share price on the last day of the period,
according to the following formula:
YIELD = 2 [(a - b + 1)6 - 1]
-----
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.
Each Variable-Price Fund's yield for the 30-day period ended March 31,
1996, is indicated in the following table.
Fund 30-day Yield
- --------------------------------------------------------------------------------
Short-Term Treasury 5.02%
Intermediate-Term Treasury 5.43
Long-Term Treasury 6.18
ARM Fund 5.43
GNMA Fund 6.86
- --------------------------------------------------------------------------------
Statement of Additional Information 15
Total returns quoted in advertising and sales literature reflect all
aspects of a Fund's return, including the effect of reinvesting dividends and
capital gain distributions and any change in the Fund's NAV during the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in a Fund over a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative return of 100% over 10
years would produce an average annual total return of 7.18%, which is the steady
annual rate that would result in 100% growth on a compounded basis in 10 years.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Funds' performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to actual year-to-year
performance.
The Funds' average annual returns for the one-year, five-year, ten-year,
and life-of-fund periods ended March 31, 1996, are indicated in the following
table.
Average Annual Total Returns
- --------------------------------------------------------------------------------
Life-of-
Fund One-Year Five-Years Ten-Years Fund
- --------------------------------------------------------------------------------
Government Agency(1) 5.35% 4.17% N/A 4.98%
Short-Term Treasury(2) 6.71 N/A N/A 4.35
Intermediate-Term
Treasury(3) 8.42 7.14 6.85% 8.98
Long-Term Treasury(2) 13.46 N/A N/A 7.26
ARM Fund(4) 6.42 N/A N/A 4.62
GNMA Fund5(5) 10.08 7.93 8.50 9.00
- --------------------------------------------------------------------------------
1 Commenced operations on December 5, 1989.
2 Commenced operations on September 8, 1992.
3 Commenced operations on May 16, 1980.
4 Commenced operations on September 3, 1991.
5 Commenced operations on September 23, 1985.
In addition to average annual total returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Performance information may be quoted numerically or in a table, graph,
or similar illustration.
The Funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to, U.S. Treasury bill, note, and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock market
performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The Funds may also utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.
The Funds' shares are sold without a sales charge (or load). No-load funds
offer an advantage to investors when compared to load funds with comparable
investment objectives and strategies.
16 American Century Investments
TAXES
FEDERAL INCOME TAX
Each Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By so qualifying, each Fund will not incur federal or state income
taxes on its net investment income and on net realized capital gains to the
extent distributed as dividends to shareholders.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, a Fund must distribute during each calendar
year an amount equal to the sum of (a) at least 98% if its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are federally taxable to shareholders as ordinary income, regardless of
whether such dividends are taken in cash or reinvested in additional shares.
Distributions made from a Fund's net realized long-term capital gains and
designated as capital gain dividends are taxable to shareholders as long-term
capital gains, regardless of the length of time shares are held. Corporate
investors are not eligible for the dividends-received deduction with respect to
distributions from the Funds. A distribution will be treated as paid on December
31st of a calendar year if it is declared by a Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
Upon redeeming, selling, or exchanging shares of a Variable-Price Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares liquidated. The gain or loss generally will be long-term or
short-term depending on the length of time the shares were held. However, a loss
recognized by a shareholder in the disposition of shares on which capital gain
dividends were paid (or deemed paid) before the shareholder had held his or her
shares for more than six months would be treated as a long-term capital loss for
tax purposes to the extent of capital gain dividends paid (or deemed paid).
As of March 31, 1996, capital loss carryovers were as follows: $7,505,846
(Intermediate-Term Treasury), $857,191 (Long-Term Treasury), $69,205,630 (ARM
Fund), and $23,041,420 (GNMA Fund). All loss carryovers will expire during the
period March 31, 2000, through March 31, 2004. A Fund will not make capital gain
distributions to its shareholders until all of its capital loss carryovers have
been offset or expired.
The Funds may invest in obligations issued at a discount. In that case, a
portion of the discount element generally is included in the Fund's investment
company taxable income in each taxable period in which the obligation is held.
Such amounts are subject to the Fund's tax-related distribution requirements
even if not received by the Fund in cash in that period.
Dividends paid by Government Agency, Short-Term Treasury, Intermediate-Term
Treasury, Long-Term Treasury and Inflation-Adjusted Treasury are exempt from
state personal income taxes in all states to the extent these Funds derive their
income from debt securities of the U.S. government, whose interest payments are
state tax-exempt.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences. The Funds' distributions may also be
subject to state, local, or foreign taxes. To determine whether a Fund is a
suitable investment based on his or her tax situation, a prospective investor
may wish to consult a tax advisor.
ABOUT THE TRUST
American Century Government Income Trust (the "Trust"), formerly known as
Benham Government Income Trust, is a registered open-end management investment
company that was organized as a Massachusetts business trust on July 24, 1985.
Currently, there are seven series of the Trust as follows: American
Century--Benham Government
Statement of Additional Information 17
Agency Money Market Fund (formerly known as Benham Government Agency Fund),
American Century--Benham Short-Term Treasury Fund (formerly known as Benham
Short-Term Treasury and Agency Fund), American Century--Benham Intermediate-Term
Treasury Fund (formerly known as Benham Treasury Note Fund), American
Century--Benham Long-Term Treasury Fund (formerly known as Benham Long-Term
Treasury and Agency Fund), American Century--Benham Adjustable Rate Government
Securities Fund (formerly known as Benham Adjustable Rate Government Securities
Fund), American Century--Benham GNMA Fund (formerly known as Benham GNMA Income
Fund), and American Century--Benham Inflation-Adjusted Treasury Fund. The Board
of Trustees may create additional series from time to time.
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest without par value, which
may be issued in series (funds). Shares issued are fully paid and nonassessable
and have no preemptive, conversion, or similar rights.
Each series votes separately on matters affecting that series exclusively.
Voting rights are not cumulative, so that investors holding more than 50% of the
Trust's (i.e., all series') outstanding shares may elect a Board of Trustees.
The Trust has instituted dollar-based voting, meaning that the number of votes
you are entitled to is based upon the dollar value of your investment. The
election of Trustees is determined by the votes received from all Trust
shareholders, without regard to whether a majority of shareholders of any one
series voted in favor of a particular nominee or all nominees as a group. Shares
of each series have equal rights as to dividends and distributions declared by
the series and in the net assets of such series upon its liquidation or
dissolution.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding, and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees, and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss because of shareholder
liability is limited to circumstances in which both inadequate insurance exists
and the Trust is unable to meet its obligations.
CUSTODIAN BANKS: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn,
New York 11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri
64106, serve as custodians of the Funds' assets. Services provided by the
custodian banks include (a) settling portfolio purchases and sales, (b)
reporting failed trades, (c) identifying and collecting portfolio income, and
(d) providing safekeeping of securities. The custodians take no part in
determining the Funds' investment policies or in determining which securities
are sold or purchased by the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600,
Kansas City, Missouri 64106, serves as the Trust's independent auditors and
provides services including the audit of annual financial statements.
TRUSTEES AND OFFICERS
The Trust's activities are overseen by a Board of Trustees, including six
independent Trustees. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Trust (as defined in the Investment
Company Act of 1940) by virtue of, among other considerations, their affiliation
with either the Trust; the Trust's investment advisor, Benham Management
Corporation; the Trust's agent for transfer and administrative services,
American Century Services Corporation (ACS); the Trust's distribution agent,
American Century Investment Services, Inc. (ACIS); their parent corporation,
American Century Companies, Inc. (ACC) or ACC's subsidiaries; or other funds
advised by the Manager. Each Trustee listed below serves as Trustee or Director
of other funds advised by the Manager.
18 American Century Investments
Unless otherwise noted, a date in parentheses indicates the date the Trustee or
officer began his or her service in a particular capacity. The Trustees' and
officers' address with the exception of Mr. Stowers and Ms. Roepke is 1665
Charleston Road, Mountain View, California 94043. The address of Mr. Stowers and
Ms. Roepke is 4500 Main Street, Kansas City, Missouri 64111.
TRUSTEES
*JAMES M. BENHAM, Chairman of the Board of Trustees (1985), President and
Chief Executive Officer (1996). Mr. Benham is also President and Chairman of the
Board of the Manager (1971), and a member of the Board of Governors of the
Investment Company Institute (1988). Mr. Benham has been in the securities
business since 1963, and he frequently comments through the media on economic
conditions, investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Trustee (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer and
served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Trustee (1995); Charles J. Meyers Professor
of Law and Business at Stanford Law School (1979) and the Mark and Eva Stern
Professor of Law and Business at Columbia University School of Law (1992);
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Trustee (1985). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983) and a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Trustee (1985). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Funds, Inc. (1994).
ISAAC STEIN, independent Trustee (1992). Mr. Stein is former Chairman of
the Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS , Trustee (1995). Mr. Stowers is President, Chief
Executive Officer and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Trustee (1985). Ms. Wohlers is a private
investor and an independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice
President, Chief Operating Officer, General Counsel and Secretary of the
Manager, ACS, and ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General
Counsel (1990); Secretary and Vice President of the funds advised by the
Manager.
*C. JEAN WADE, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
The table on the next page summarizes the compensation that the Trustees of
the Funds received for the Funds' fiscal year ended March 31, 1996, as well as
the compensation received for serving as a Director or Trustee of all other
funds advised by the Manager.
As of July 31, 1996, the Trust's officers and Trustees, as a group, owned
less than 1% of the outstanding shares of each Fund.
INVESTMENT ADVISORY SERVICES
The Funds have an investment advisory agree-ment with Benham Management
Corporation dated June 1, 1995, that was approved by shareholders on May 31,
1995.
The Manager is a California corporation and became a wholly owned
subsidiary of ACC on June 1, 1995. The Manager has served as investment
Statement of Additional Information 19
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Each Fund and Fund
Trustee* From Each Fund of Fund Expenses Upon Retirement Complex** Paid to Trustees
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert Eisenstat $267 (Government Not Applicable Not Applicable $29,500
Agency)
20 (Short-Term)
165 (Intermediate-Term)
55 (Long-Term)
165 (ARM)
593 (GNMA)
Ronald J. Gilson $1,450 (Government Not Applicable Not Applicable $79,833
Agency)
885 (Short-Term)
1,222 (Intermediate-Term)
929 (Long-Term)
1,252 (ARM)
2,178 (GNMA)
Myron S. Scholes $1,776 (Government Not Applicable Not Applicable $69,500
Agency)
1,066 (Short-Term)
1,492 (Intermediate-Term)
1,110 (Long-Term)
1,549 (ARM)
2,683 (GNMA)
Kenneth E. Scott $2,032 (Government Not Applicable Not Applicable $75,773
Agency)
1,084 (Short-Term)
1,649 (Intermediate-Term)
1,169 (Long-Term)
2,702 (ARM)
3,258 (GNMA)
Ezra Solomon $1,765 (Government Not Applicable Not Applicable $70,249
Agency)
1,060 (Short-Term)
1,481 (Intermediate-Term)
1,118 (Long-Term)
1,523 (ARM)
2,661 (GNMA)
Isaac Stein $1,791 (Government Not Applicable Not Applicable $70,500
1,068 (Short-Term)
Agency)
1,503 (Intermediate-Term)
1,120 (Long-Term)
1,557 (ARM)
2,727 (GNMA)
Jeanne D. Wohlers $1,825 (Government Not Applicable Not Applicable $71,250
Agency)
1,069 (Short-Term)
1,521 (Intermediate-Term)
1,127 (Long-Term)
1,571 (ARM)
2,799 (GNMA)
- -----------------------------------------------------------------------------------------------------------------------------------
* Interested Trustees receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
20 American Century Investments
advisor to the Funds since each Fund's inception. ACC is a holding company that
owns all of the stock of the operating companies that provide the investment
management, transfer agency, shareholder service, and other services for the
American Century family of funds. James E. Stowers, Jr. controls ACC by virtue
of his ownership of a majority of its common stock. The Manager has been a
registered investment advisor since 1971.
Each Fund's agreement with the Manager continues for an initial period of
two years and thereafter from year to year provided that, after the initial two
year period, it is approved at least annually by vote of a majority of the
Fund's shareholders or by vote of either a majority of the Trust's Trustees,
including a majority of those Trustees who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
Each Fund's investment advisory agreement is terminable on sixty days'
written notice, either by the Fund or by the Manager, to the other party, and
terminates automatically in the event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides each
Fund with investment advice and portfolio management services in accordance with
the Fund's investment objectives, policies, and restrictions. The Manager
determines what securities will be purchased and sold by the Fund and assist the
Trust's officers in carrying out decisions made by the Board of Trustees.
For these services, each Fund pays the Manager a monthly investment
advisory fee based on a percentage of the Trust's average daily net assets to
the following investment advisory fee schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
Investment advisory fees paid by each Fund to the Manager for the fiscal
years ended March 31, 1996, 1995 and 1994, are indicated in the following table.
Fee amounts are net of reimbursements as described below:
Investment Advisory Fees*
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Government Agency $1,104,214 $1,014,951 $1,073,248
Short-Term Treasury 118,721 60,440 11,846
Intermediate-Term
Treasury 867,876 875,087 1,020,441
Long-Term Treasury 174,665 33,915 7,598
ARM Fund 971,274 1,646,614 3,282,058
GNMA Fund 2,980,327 2,807,230 3,322,727
- --------------------------------------------------------------------------------
*Net of Reimbursements
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri, 64111, (ACS) acts as transfer, administrative services and dividend
paying agent for the Funds. ACS provides facilities, equipment and personnel to
the Funds and is paid for such services by the Funds. For administrative
services, each Fund pays ACS a monthly fee equal to its pro rata share of the
dollar amount derived from applying the average daily net assets of all of the
Funds advised by the Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- --------------------------------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10
up to $9 billion .09
over $9 billion .08
- --------------------------------------------------------------------------------
For transfer agent services, each Fund pays ACS a monthly fee of $1.3958
for each shareholder account maintained and $1.35 for each shareholder
transaction executed during that month.
Administrative service and transfer agent fees paid by each Fund for the
fiscal years ended March 31, 1996, 1995, and 1994 are indicated in the following
tables. Fee amounts are net of reimbursements as described under the Section
titled "Expense Limitation Agreement."
Statement of Additional Information 21
Administrative Fees*
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Government Agency $475,745 $478,410 $564,901
Short-Term Treasury 39,657 30,662 21,286
Intermediate-Term
Treasury 301,079 312,814 378,294
Long-Term Treasury 69,302 23,884 19,336
ARM Fund 423,862 595,079 1,215,816
GNMA Fund 1,149,339 1,003,636 1,232,514
- --------------------------------------------------------------------------------
*Net of Reimbursements
Transfer Agent Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Government Agency $591,421 $636,462 $863,944
Short-Term Treasury 44,415 36,254 29,973
Intermediate-Term
Treasury 283,949 317,653 356,584
Long-Term Treasury 120,818 37,365 26,909
ARM Fund 329,830 684,702 1,141,251
GNMA Fund 1,033,782 1,178,768 1,348,081
- --------------------------------------------------------------------------------
*Net of Reimbursements
DISTRIBUTION OF FUND SHARES
The Funds' shares are distributed by American Century Investment Services,
Inc. (ACIS), a registered broker-dealer and an affiliate of the Manager. The
Manager pays all expenses for promoting and distributing the Funds' shares
offered by this Prospectus. The Funds do not pay any commissions or other fees
to ACIS or to any other broker-dealers or financial intermediaries in connection
with the distribution of Fund shares.
DIRECT FUND EXPENSES
Each Fund pays certain operating expenses that are not assumed by the
Manager or ACS. These include fees and expenses of the independent trustees;
custodian, audit, and pricing fees; fees of outside counsel and counsel employed
directly by the Trust; costs of printing and mailing prospectuses, statements of
additional information, notices, confirmations, and reports to shareholders;
fees for registering the Funds' shares under federal and state securities laws;
brokerage fees and commissions; trade association dues; costs of fidelity and
liability insurance policies covering the Fund; costs for incoming WATS lines
maintained to receive and handle shareholder inquiries; and organizational
costs.
EXPENSE LIMITATION AGREEMENT
The Manager has agreed to limit each Fund's expenses to a specified
percentage of its average daily net assets during the year ending May 31, 1997,
as follows:
- --------------------------------------------------------------------------------
Government Agency .60%
Short-Term Treasury .60%
Intermediate-Term Treasury .60%
Long-Term Treasury .60%
ARM Fund .60%
GNMA Fund .60%
Inflation-Adjusted Treasury* .50%
- --------------------------------------------------------------------------------
*Expense limitation expires March 1, 1998.
The Manager may recover amounts absorbed on behalf of the Funds during the
preceding 11 months if, and to the extent that, for any given month, a Fund's
expenses were less than the expense limit in effect at that time. Each Fund's
expense limit for the years ended May 31, 1996 and 1995, as a percentage of
average daily net assets, was as follows:
1996 1995
- --------------------------------------------------------------------------------
Government Agency .50% .50%
Short-Term Treasury .65% .66%
Intermediate-Term
Treasury .65% .66%
Long-Term Treasury .65% .66%
ARM Fund .65% .60%
GNMA Fund .65% .66%
- --------------------------------------------------------------------------------
Net amounts absorbed or recouped for the fiscal years ended March 31, 1996,
1995, and 1994, are indicated in the table on the following page:
22 American Century Investments
Net Expense Absorbed (Recouped)
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Government Agency $267,261 $323,152 $451,622
Short-Term Treasury (4,468) 25,537 45,651
Intermediate-Term
Treasury 0 0 0
Long-Term Treasury 25,358 33,125 44,468
ARM Fund (20,799) 11,331 0
GNMA Fund 0 0 0
- --------------------------------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' shares are continuously offered at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
American Century may reject or limit the amount of an investment to prevent
any one shareholder or affiliated group from controlling the Trust or one of its
series; to avoid jeopardizing a Fund's tax status; or whenever, in management's
opinion, such rejection is in the Trust's or a Fund's best interest.
As of January 31, 1997, to the knowledge of the Trust, the shareholders
listed in the following chart were the only record holders of greater than 5% of
the outstanding shares of the individual Funds.
FUND SHORT-TERM TREASURY
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
# of Shares Held 648,994.237
% of Total Shares
Outstanding 18.5%
- --------------------------------------------------------------------------------
Shareholder Name and J. Harris Morgan
Address P.O. Box 556
Greenville, TX 75401
# of Shares Held 314,615.935
% of Total Shares
Outstanding 8.5%
- --------------------------------------------------------------------------------
Shareholder Name and Allied Clearings Co.
Address P.O. Box 94303
Pasadena, CA 91109
# of Shares Held 294,701.089
% of Total Shares
Outstanding 8.0%
- --------------------------------------------------------------------------------
FUND INTERMEDIATE-TERM TREASURY
- --------------------------------------------------------------------------------
Shareholder Name and Chase Manhattan Bank NA
Address 770 Broadway 10th FL
New York, NY 10003
# of Shares Held 3,267,134.187
% of Total Shares
Outstanding 9.7%
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
# of Shares Held 3,243,089.633
% of Total Shares
Outstanding 9.7%
- --------------------------------------------------------------------------------
FUND LONG-TERM TREASURY
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
# of Shares Held 6,257,951.157
% of Total Shares
Outstanding 50.8%
- --------------------------------------------------------------------------------
Statement of Additional Information 23
FUND ARM FUND
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
# of Shares Held 1,457,039.198
% of Total Shares
Outstanding 5.7%
- --------------------------------------------------------------------------------
Fund GNMA Fund
- --------------------------------------------------------------------------------
Shareholder Name and Charles Schwab & Co.
Address 101 Montgomery Street
San Francisco, CA 94104
# of Shares Held 18,712,115.632
% of Total Shares
Outstanding 17.3%
- --------------------------------------------------------------------------------
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, ACS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
For further information, please refer to registration statement and
exhibits on file with the SEC in Washington, D.C. These documents are available
upon payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
24 American Century Investments
NOTES
Statement of Additional Information Notes 25
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
[American Century logo]
American
Century(sm)
9702 [recycled logo]
SH-BKT-7642 Recycled
AMERICAN CENTURY GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 31
1940 Act Amendment No. 32
- --------------------------------------------------------------------------------
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS. Audited financial statements for each series of
American Century Government Income Trust for the fiscal year ended
March 31, 1996, are filed herein as included in the Trust's Statement
of Additional Information by reference to the Annual Report dated
March 31, 1996, filed on May 24, 1996 (Accession #
0000773674-96-000002).
(b) EXHIBITS.
(1) (a) Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(b) Amendment to the Declaration of Trust dated October 21,
1996 is included herein.
(c) Amendment to the Declaration of Trust dated January 20,
1997 with respect to the American Century - Benham Inflation-
Adjusted Treasury Fund is included herein.
(2) Amended and Restated Bylaws, dated May 17, 1995, are
incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
(3) Not applicable.
(4) (a) Specimen copy of American Century - Benham GNMA Fund share
certificate is incorporated herein by reference to Exhibit 4
to the registration statement filed on July 26, 1985.
(b) Specimen copy of American Century - Benham Adjustable Rate
Government Securities Fund share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment
No. 17 filed on September 30, 1991.
(c) Specimen copy of American Century - Benham
Intermediate-Term Treasury Fund share certificate is
incorporated herein by reference to Exhibit 4 to
Post-Effective Amendment No. 18 filed on November 27, 1991.
(d) Specimen copy of American Century - Benham Government
Agency Money Market Fund share certificate is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment
No. 18 filed on November 27, 1991.
(e) Specimen copy of American Century - Benham Short-Term
Treasury Fund share certificate is incorporated herein by
reference to Exhibit 4(e) to Post-Effective Amendment No. 24
filed on November 29, 1992.
(f) Specimen copy of American Century - Benham Long-Term
Treasury Fund share certificate is incorporated herein by
reference to Exhibit 4(f) to Post-Effective Amendment No. 24
filed on November 29, 1992.
(g) Specimen copy of American Century - Benham
Inflation-Adjusted Treasury Fund share certificate is included
herein.
(5) 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 # 0000773674-96-000004).
(6) 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).
(7) Not applicable.
(8) Custodian Agreement between American Century Government Income
Trust and The Chase Manhattan Bank, dated August 9, 1996, is
included herein.
(9) Administrative Services and Transfer Agency Agreement between
American Century Government Income Trust and American Century
Services Corporation, dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 30 filed on November 25, 1996
(Accession #773674-96-000009).
(10) (a) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is
incorporated herein by reference to Rule 24f-2 Notice filed on
May 16, 1996 (Accession # 773674-96-000001).
(b) Opinion and consent of counsel as to the legality of the
American Century - Benham Inflation-Adjusted Treasury Fund
dated February 7, 1997 is included herein.
(11) Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.
(12) Not applicable.
(13) Not applicable.
(14) (a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
(b) Benham Pension/Profit Sharing plan, including all
instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 23 filed on September 28, 1992.
(15) Not applicable.
(16) Schedule for computation of each performance quotation
provided in response to Item 22 is incorporated herein by
reference to Exhibit 16 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004).
(17) Power of Attorney dated March 4, 1996 is incorporated herein
by reference to Exhibit 17 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004).
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of November 22, 1996, each series of Benham Government Income Trust had the
following number shareholders of record:
American Century - Benham Government Agency Money Market Fund 18,582
American Century - Benham Short-Term Treasury Fund 1,186
American Century - Benham Intermediate-Term Treasury Fund 10,803
American Century - Benham Long-Term Treasury Fund 3,238
American Century - Benham Adjustable Rate Government Securities Fund 13,605
American Century - Benham GNMA Fund 41,823
Item 27. Indemnification.
As stated in Article VII, Section 3 of the Declaration of Trust, incorporated
herein by reference to Exhibit 1 to the Registration Statement, "The Trustees
shall be entitled and empowered to the fullest extent permitted by law to
purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."
Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 to Post-Effective Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004).
Item 28. Business and Other Connections of Investment Advisor.
The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.
Item 29. Principal Underwriters.
The Registrant's distribution agent, American Century Investment Services, Inc.,
is distribution agent to American Century Capital Preservation Fund, Inc.,
American Century Capital Preservation Fund II, Inc., American Century California
Tax-Free and Municipal Funds, American Century Government Income Trust, American
Century Municipal Trust, American Century Target Maturities Trust, American
Century Quantitative Equity Funds, American Century International Funds,
American Century Investment Trust, American Century Manager Funds, TCI
Portfolios, Inc., American Century Capital Portfolios, Inc., American Century
Mutual Funds, Inc., American Century Premium Reserves, Inc., American Century
Strategic Asset Allocations, Inc. and American Century World Mutual Funds, Inc.
The information required with respect to each director, officer or partner of
American Century Investment Services, Inc. is incorporated herein by reference
to American Century Investment Services, Inc. Form B-D filed on November 21,
1985 (SEC File No. 8-35220; Firm CRD No. 17437).
Item 30. Location of Accounts and Records.
Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, American
Century Services Corporation, maintain their principal office at 4500 Main St.,
Kansas City, MO 64111. American Century Services Corporation maintains physical
possession of each account, book, or other document, and shareholder records as
required by ss.31(a) of the 1940 Act and rules thereunder. The computer and data
base for shareholder records are located at Central Computer Facility, 401 North
Broad Street, Sixth Floor, Philadelphia, PA 19108.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest report to shareholders,
upon request and without charge.
(b) Registrant hereby undertakes to file, with respect to American
Century--Benham Inflation-Adjusted Treasury Fund, a post-effective
amendment using financial statements which need not be certified, within
four to six months from the effective date of this Amendment.
(c) Registrant hereby undertakes to call a meeting of shareholders of the Trust
upon written request of shareholders owning at least one-tenth of the
outstanding shares.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 31/Amendment No. 32 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 7th day of February, 1997. I hereby certify that this
Amendment meets the requirements for immediate effectiveness pursuant to Rule
485(a).
AMERICAN CENTURY GOVERNMENT INCOME TRUST
By: /s/ Douglas A. Paul
Douglas A. Paul
Vice President and Associate General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 31/Amendment No. 32 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
* Chairman of the Board of Trustees, February 7, 1997
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee February 7, 1997
- ---------------------------------
Albert A. Eisenstat
* Trustee February 7, 1997
- ---------------------------------
Ronald J. Gilson
* Trustee February 7, 1997
- ---------------------------------
Myron S. Scholes
* Trustee February 7, 1997
- ---------------------------------
Kenneth E. Scott
* Trustee February 7, 1997
- ---------------------------------
Isaac Stein
* Trustee February 7, 1997
- ---------------------------------
James E. Stowers III
* Trustee February 7, 1997
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer February 7, 1997
- ---------------------------------
Maryanne Roepke
</TABLE>
/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
March 4, 1996).
EXHIBIT DESCRIPTION
EX-99.B1 a) Agreement and Declaration of Trust dated May 31, 1995, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 28 filed on May 29, 1996 (Accession #
0000773674-96-000004).
b) Amendment to the Declaration of Trust dated October 21, 1996 is
included herein.
c) Amendment to the Declaration of Trust dated January 20, 1997 with
respect to the American Century - Benham Inflation-Adjusted Treasury
Fund is included herein.
EX-99.B2 Amended and Restated Bylaws, dated May 17, 1995, are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No. 28
filed on May 29, 1996 (Accession # 0000773674-96-000004).
EX-99.B4) a) Specimen copy of American Century - Benham GNMA Fund share
certificate is incorporated herein by reference to Exhibit 4 to the
registration statement filed on July 26, 1985.
b) Specimen copy of American Century - Benham Adjustable Rate
Government Securities Fund share certificate is incorporated herein
by reference to Exhibit 4 to Post-Effective Amendment No. 17 filed
on September 30, 1991.
c) Specimen copy of American Century - Benham Intermediate-Term
Treasury Fund share certificate is incorporated herein by reference
to Exhibit 4 to Post-Effective Amendment No. 18 filed on November
27, 1991.
d) Specimen copy of American Century - Benham Government Agency
Money Market Fund share certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 18 filed on
November 27, 1991.
e) Specimen copy of American Century - Benham Short-Term Treasury
Fund share certificate is incorporated herein by reference to
Exhibit 4(e) to Post-Effective Amendment No. 24 filed on November
29, 1992.
f) Specimen copy of American Century - Benham Long-Term Treasury
Fund share certificate is incorporated herein by reference to
Exhibit 4(f) to Post-Effective Amendment No. 24 filed on November
29, 1992.
g) Specimen copy of American Century - Benham Inflation-Adjusted
Treasury Fund share certificate is included herein.
EX-99.B5 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 #
0000773674-96-000004).
EX-99.B6 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.B8 Custodian Agreement between American Century Government Income Trust
and The Chase Manhattan Bank, dated August 9, 1996, is included
herein.
EX-99.B9 Administrative Services and Transfer Agency Agreement between
American Century Government Income Trust and American Century
Services Corporation, dated as of September 3, 1996, is incorporated
herein by reference to Exhibit 9 to Post-Effective Amendment No. 30
filed on November 25, 1996 (Accession #773674-96-000009).
EX-99.B10 a) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 16, 1996 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 16, 1996
(Accession # 773674-96-000001).
b) Opinion and consent of counsel as to the legality of the American
Century - Benham Inflation-Adjusted Treasury Fund dated February 7,
1997 is included herein.
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is included
herein.
EX-99.B14 a) Benham Individual Retirement Account Plan, including all
instructions and other relevant documents, dated February 1992, is
incorporated herein by reference to Exhibit 14(a) to Post-Effective
Amendment No. 23 filed on September 28, 1992.
b) Benham Pension/Profit Sharing plan, including all instructions
and other relevant documents, dated February 1992, is incorporated
herein by reference to Exhibit 14(b) to Post-Effective Amendment No.
23 filed on September 28, 1992.
EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is incorporated herein by reference to Exhibit
16 of Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 0000773674-96-000004).
EX-99.B17 Power of Attorney dated March 4, 1996 is incorporated herein by
reference to Exhibit 17 of Post-Effective Amendment No. 28 filed on
May 29, 1996 (Accession # 0000773674-96-000004).
EX-27.5.1 FDS for American Century - Benham GNMA Fund.
EX-27.5.2 FDS for American Century - Benham Intermediate-Term Treasury Fund.
EX-27.4.3 FDS for American Century - Benham Government Agency Money Market
Fund.
EX-27.5.4 FDS for American Century - Benham Adjustable Rate Government
Securities Fund.
EX-27.5.5 FDS for American Century - Benham Short-Term Treasury Fund.
EX-27.5.6 FDS for American Century - Benham Long-Term Treasury Fund.
AMENDMENT
TO THE
DECLARATION OF TRUST
OF
BENHAM GOVERNMENT INCOME TRUST
October 21, 1996
WHEREAS, Section 1 of Article I of the Declaration of Trust provides
that the Trustees may designate a new name for the Trust, or any Series, to be
effective upon execution by a majority of the Trustees of an instrument setting
forth the new names;
WHEREAS, the Trustees have determined that it is appropriate and in the
interests of the Trust to change the name of the Trust and its Series as set
forth below;
RESOLVED, that the Trust shall henceforth be known as the "American
Century Government Income Trust";
RESOLVED FURTHER, that the existing Series be renamed as follows (new
language appears in boldface type, deleted language is struck through):
<TABLE>
<S> <C>
FORMER NAME NEW NAME
- ------------------------------------------------------------ --------------------------------------------------------
Benham Short-Term Treasury & Agency Fund American Century - Benham Short-Term Treasury
Fund
- ------------------------------------------------------------ --------------------------------------------------------
Benham Treasury Note Fund American Century - Benham Intermediate-Term
Treasury Fund
- ------------------------------------------------------------ --------------------------------------------------------
Benham Long-Term Treasury & Agency Fund American Century - Benham Long-Term Treasury Fund
- ------------------------------------------------------------ --------------------------------------------------------
Benham Government Agency Fund American Century - Benham Government Agency
Money Market Fund
- ------------------------------------------------------------ --------------------------------------------------------
Benham Adjustable Rate Government Securities Fund American Century - Benham Adjustable Rate
Government Securities Fund
- ------------------------------------------------------------ --------------------------------------------------------
Benham GNMA Income Fund American Century - Benham GNMA Fund
- ------------------------------------------------------------ --------------------------------------------------------
TRUSTEES OF THE BENHAM GOVERNMENT INCOME TRUST
/s/ James M. Benham 10/21/96 /s/ Ezra Solomon 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
James M. Benham* Date Ezra Solomon* Date
/s/ Albert A. Eisenstat 10/21/96 /s/ Isaac Stein 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Albert A. Eisenstat* Date Isaac Stein* Date
/s/ Ronald J. Gilson 10/21/96 /s/ James E. Stowers III 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Ronald J. Gilson* Date James E. Stowers III* Date
/s/ Myron S. Scholes 10/21/96 /s/ Jeanne D. Wohlers 10/21/96
- ---------------------------------------- ------------- ---------------------------------------- --------
Myron S. Scholes* Date Jeanne D. Wohlers* Date
/s/ Kenneth E. Scott 10/21/96
- ---------------------------------------- --------
Kenneth E. Scott* Date
*By: /s/Douglas A. Paul Date: October 21, 1996
--------------------------------------------------
Douglas A. Paul, Esq.
Pursuant to Power of Attorney dated March 4, 1996
</TABLE>
AMENDMENT NO. 2
TO THE
DECLARATION OF TRUST
OF
AMERICAN CENTURY GOVERNMENT INCOME TRUST
Effective January 20, 1997
WHEREAS, Section 5(a) of Article III of the Declaration of Trust
provides that the Trustees may establish and designate a new Series of Shares to
be effective upon execution by a majority of the Trustees of an instrument
setting forth the new names;
WHEREAS, the Trustees have determined that it is appropriate and in the
interests of the Trust to establish a new Series of Shares to be designated as
"American Century - Benham Inflation-Adjusted Treasury Fund";
RESOLVED, that Article III, Section 8 of the Declaration of Trust for
the American Century Government Income Trust is hereby amended as follows:
Section 8. Trustees' Establishment and Designation of Series.
The Board of Trustees hereby establishes and designates American
Century - Benham GNMA Fund, American Century - Benham Government Agency
Money Market Fund, American Century - Benham Short-Term Treasury Fund,
American Century - Benham Intermediate-Term Treasury Fund, American
Century - Benham Long-Term Treasury Fund and American Century - Benham
Inflation Adjusted Treasury Fund as Series of the Trust with the
relative rights and preferences as described in Section 6 of Article
III.
RESOLVED FURTHER, that the assets and liabilities of the Trust shall be
allocated among the series of the Trust as set forth in Article III, Section 6
of the Declaration of Trust.
<TABLE>
TRUSTEES OF THE BENHAM GOVERNMENT INCOME TRUST
<S> <C> <C> <C>
/s/ James M. Benham 1/20/97 /s/ Ezra Solomon 1/20/97
- ---------------------------------------- ------------- ---------------------------------------- -------
James M. Benham* Date Ezra Solomon* Date
/s/ Albert A. Eisenstat 1/20/97 /s/ Isaac Stein 1/20/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Albert A. Eisenstat* Date Isaac Stein* Date
/s/ Ronald J. Gilson 1/20/97 /s/ James E. Stowers III 1/20/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Ronald J. Gilson* Date James E. Stowers III* Date
/s/ Myron S. Scholes 1/20/97 /s/ Jeanne D. Wohlers 1/20/97
- ---------------------------------------- ------------- ---------------------------------------- -------
Myron S. Scholes* Date Jeanne D. Wohlers* Date
/s/ Kenneth E. Scott 1/20/97
- ---------------------------------------- -------
Kenneth E. Scott* Date
*By: /s/Douglas A. Paul Date: January 20, 1997
-------------------------------------------------
Douglas A. Paul, Esq.
Pursuant to Power of Attorney dated March 4, 1996
</TABLE>
AMERICAN CENTURY - BENHAM INFLATION-ADJUSTED TREASURY FUND
A Series of the Capital Stock of
American Century Government Income Trust
Organized Under the Laws of the State of Massachusetts
NUMBER DATED SHARES
This is to Certify that
IS THE OWNER OF THE FULLY PAID AND NON-ASSESSABLE SHARES STATED ABOVE OF
American Century - Benham Inflation-Adjusted Treasury Fund
Investor Class
A series of the Capital Stock, No Par Value, of American Century Government
Income Trust
[american century logo]
American
Century(sm)
[printed vertically along right margin]
Countersigned:
By----------------------Transfer Clerk
The Corporation will furnish without charge to each Shareholder who so requests
in writing the preferences, voting powers, qualifications, and special and
relative rights of the shares each class and series of stock of the Corporation.
This certificate and the shares represented hereby are issued and shall be held
subject to all the provisions of the Articles of Incorporation of the
Corporation and all amendments thereto, copes of which are on file at the
executive offices of the Corporation, and the holder hereof by acceptance of
this certificate consents and agrees to be bound by all of said provisions. This
certificate is not valid until countersigned by an authorized Transfer Clerk of
the Corporation. WITNESS the facsimile signatures of the Corporation's duly
authorized officers.
/s/Douglas A. Paul /s/James M. Benham
Douglas A. Paul James M. Benham
SECRETARY PRESIDENT
[front of certificate]
FOR VALUE RECEIVED,--------------HEREBY SELL, ASSIGN AND TRANSFER
unto ---------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the Common Stock represented by the within Certificate, and to hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said Stock on the books of the within names issuer with full
power of substitution in the premises.
DATED:-------------------- ---------------------------
Signature
---------------------------
Signature
(signature guarantee stamp)
[printed vertically along far right margin]
NOTICE: The signatures(s) on this assignment must correspond with the
name(s) as written upon the face of the certificate, in every particular,
without alteration or any change whatever.
The signature(s) must be guaranteed by a bank or trust company, credit
union, broker-dealer, securities exchange or association, clearing agency or
savings associations, as defined by federal law. Notarized or witnessed
signatures are not acceptable as guaranteed signatures.
[back of certificate]
[chase logo]CHASE
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective August 9, 1996, and is among THE CHASE
MANHATTAN BANK ("Bank"), each of the TWENTIETH CENTURY and BENHAM funds listed
on Appendix A hereto (each a "Customer") and INVESTORS RESEARCH CORPORATION
("IRC").
1. Customer Accounts.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by Bank or its Subcustodian (as defined in
Section 3) for the account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for
any and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft or
check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
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Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule A
and Customer reserves the right to reject any additional Subcustodian, it being
understood that Customer shall have no right to require Bank to appoint a
Subcustodian. Upon request by Customer, Bank shall identify the name, address
and principal place of business of any Subcustodian of Customer's Assets and the
name and address of the governmental agency or other regulatory authority that
supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to
Customer.
(b) A Subcustodian shall hold such Assets together with assets
belonging to other customers of Bank in accounts identified on such
Subcustodian's books as custody accounts for the exclusive benefit of customers
of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject to
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
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(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion, may
advance Customer such excess amount which shall be deemed a loan payable on
demand, bearing interest at the rate customarily charged by Bank on similar
loans.
(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification Customer shall advise bank of the reasons therefor
and Bank shall give reasonable consideration thereto; provided that Bank shall
be entitled, upon oral or written notification to Customer, to reverse such
credit by debiting the Deposit Account for the amount previously credited. Bank
or its Subcustodian shall have no duty or obligation to institute legal
proceedings, file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such amount, but may act
for Customer upon Instructions after consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are actually
received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle within a
reasonable period, determined by Bank in its discretion, after the
contractual settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6
are returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
(c) In reviewing bearer Securities (excluding STRIPS), Bank shall, as
part of the delivery to and settlement for the Account by it, use reasonable
efforts to cross-reference the certificate number for any such securities
against the applicable Securities Information Center ("SIC") report. In the
event that Bank confirms that a Security is identified on such report, it shall
promptly so advise Customer in writing. Bank expressly disclaims any liability
for the: (i) accuracy or completeness of both any SIC report and Bank's own
review process; and (ii) validity, legality or authenticity of any Security.
Customer acknowledges the foregoing limitations of liability and shall hold Bank
harmless with respect to Bank's performance as described herein.
7. Actions of Bank.
Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
3
(i) Present for payment any Securities which are called,
redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation, to the
extent that Bank or Subcustodian is actually aware of such
opportunities.
(ii) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(iii) Exchange interim receipts or temporary Securities for
definitive Securities.
(iv) Appoint brokers and agents for any transaction involving
the Securities, including, without limitation, Affiliates of Bank or
any Subcustodian.
(v) Issue statements to Customer, at times mutually agreed
upon, identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of
Customer. Bank shall have no liability for any loss occasioned by delay in the
actual receipt of notice by Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which Bank has agreed to take any action hereunder.
8. Corporate Actions; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), Bank
shall give Customer notice of such Corporate Actions to the extent that Bank's
central corporate actions department has actual knowledge of a Corporate Action
in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as defined in Section 10),
but if Instructions are not received in time for Bank to take timely action, or
actual notice of such Corporate Action was received too late to seek
Instructions, Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Deposit Account with the proceeds or take any other
action it reasonably deems, in good faith, to be appropriate in which case it
shall be held harmless for any such action.
(b) Tax Reclaims.
4
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Securities for the benefit of Customer which Bank believes
may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is
conditional upon Bank receiving from the beneficial owner of Securities
(A) a declaration of its identity and place of residence and (B)
certain other documentation (pro forma copies of which are available
from Bank). Customer acknowledges that, if Bank does not receive such
declarations, documentation and information, additional United Kingdom
taxation shall be deducted from all income received in respect of
Securities issued outside the United Kingdom and that U.S. non-resident
alien tax or U.S. backup withholding tax shall be deducted from U.S.
source income. Customer shall provide to Bank such documentation and
information as it may require in connection with taxation, and warrants
that, when given, this information shall be true and correct in every
respect, not misleading in any way, and contain all material
information. Customer undertakes to notify Bank immediately if any such
information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third party
for any taxes, fines or penalties payable by Bank for the account of
Customer or by Customer, and shall be indemnified accordingly, whether
these result from the inaccurate completion of documents by Customer or
any third party, or as a result of the provision by Customer to Bank or
any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third
party, or as a result of any delay of any revenue authority or any
other matter beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from
any cash received or credited to the Deposit Account any taxes or
levies required by any revenue or governmental authority for whatever
reason in respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect
to taxation levied by the revenue authorities of the countries notified
to Customer from time to time and Bank may, by notification in writing,
at its absolute discretion, supplement or amend the markets in which
the tax reclaim services are offered. Other than as expressly provided
in this sub-clause, Bank shall have no responsibility with regard to
Customer's tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Securities and/or Cash held for
Customer.
(vii) Tax reclaim services may be provided by Bank or, in
whole or in part, by one or more third parties appointed by Bank (which
may be Affiliates of Bank); provided that Bank shall be liable for the
performance of any such third party to the same extent as Bank would
have been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Securities
to cease to be registered in the name of any such nominee and to be registered
in the name of Customer.
5
In the event that any Securities registered in a nominee name are called for
partial redemption by the issuer, Bank may allot the called portion to the
respective beneficial holders of such class of security in any manner Bank deems
to be fair and equitable. IRC shall hold Bank, Subcustodians, and their
respective nominees harmless from any liability arising directly or indirectly
from their status as a mere record holder of Securities in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers who have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make available
to Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties
as are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its
obligations hereunder and the safekeeping of Assets. Bank shall be
liable to Customer for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of such Assets to the same extent that Bank would be
liable to Customer if Bank were holding such Assets in New York. In the
event of any loss to Customer by reason of the failure of Bank or its
Subcustodian to utilize reasonable care, Bank shall be liable to
Customer only to the extent of Customer's direct damages, to be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances. Bank shall have
no liability whatsoever for any consequential, special, indirect or
speculative loss or damages (including, but not limited to, lost
profits) suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even if
Bank has been advised as to the possibility of the same and regardless
of the form of the action. Bank shall not be responsible for the
insolvency of any Subcustodian which is not a branch or Affiliate of
Bank.
6
(ii) Bank shall not be responsible for any act, omission,
default or the solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was made negligently or
in bad faith.
(iii) Bank shall be indemnified by IRC, and without liability
to Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or
omission was in good faith, without negligence. In performing its
obligations hereunder, Bank may rely on the genuineness of any document
which it reasonably believes in good faith to have been validly
executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges not caused by the negligence of
Bank, and any related expenses with respect to income from or Assets in
the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for Customer) on all matters and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.
(vi) Bank need not maintain any insurance specifically for the
benefit of Customer.
(vii) Without limiting the foregoing, Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or
2) investing or holding Assets in a particular country including, but
not limited to, losses resulting from malfunction, interruption of or
error in the transmission of information caused by any machines or
system or interruption of communication facilities, abnormal operating
conditions, nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which
prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) No party shall be liable to the other parties for any
loss due to forces beyond its control including, but not limited to
strikes or work stoppages, acts of war (whether declared or undeclared)
or terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions which appear to Bank to contain all
information reasonably necessary for Bank to act or make any
suggestions to Customer or an Authorized Person regarding such
Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party
to which Securities are delivered or payments are made pursuant hereto;
and
7
(v) review or reconcile trade confirmations received from
brokers. Customer or its Authorized Persons issuing Instructions shall
bear any responsibility to review such confirmations against
Instructions issued to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act in the
same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
IRC shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. Bank shall have a lien on and is authorized to
charge any Accounts of Customer for any amount owing to Bank under any provision
hereof.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, Bank is authorized to enter into
spot or forward foreign exchange contracts with Customer or an Authorized Person
for Customer and may also provide foreign exchange through its subsidiaries,
Affiliates or Subcustodians. Instructions, including standing instructions, may
be issued with respect to such contracts but Bank may establish rules or
limitations concerning any foreign exchange facility made available. In all
cases where Bank, its subsidiaries, Affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions of the
then current foreign exchange contract of Bank, its subsidiary, Affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply to
such transaction.
(b) Certification of Residency, etc. Customer and IRC each certifies
for itself that it is a resident of the United States and shall notify Bank of
any changes in residency. Bank may rely upon this certification or the
certification of such other facts as may be required to administer Bank's
obligations hereunder. Customer and IRC shall indemnify Bank against all losses,
liability, claims or demands arising directly or indirectly from their
respective certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law; Successors and Assigns, Captions THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable by any party,
but shall bind the successors in interest of Customer, IRC and Bank. The
captions given to the sections and subsections of this Agreement are for
convenience of reference only and are not to be used to interpret this
Agreement.
8
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
--- Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
-X- Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
--- Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - ------- and the following Rider(s)
[Check applicable rider(s)]:
--- ERISA
-X- INVESTMENT COMPANY
--- PROXY VOTING
-X- SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between or among the parties. Any
amendment hereto must be in writing, executed by the parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of a party in exercising any power or right hereunder operates as a
waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement is its
legal, valid and binding obligation, enforceable in accordance with its terms;
(D) it shall have full authority and power to borrow moneys and enter into
foreign exchange transactions; and (E) it has not relied on any oral or written
representation made by Bank or any person on its behalf, and acknowledges that
this Agreement sets out to the fullest extent the duties of Bank. (ii) Bank
hereby represents and warrants to Customer that: (A) it has the full authority
and power to perform its obligations hereunder, (B) this Agreement is its legal,
valid and binding obligation; enforceable in accordance with its terms; and (C)
that it has taken all necessary action to authorize the execution and delivery
hereof. (iii) IRC hereby represents and warrants to Bank that: (A) it has all
necessary authority to furnish the indemnities and make the payments
contemplated hereby; (B) this Agreement is its legal, valid and binding
obligation, enforceable in accordance with its terms; and (C) it has not relied
on any oral or written representation made by Bank or any person on its behalf,
and acknowledges that this Agreement sets out to the fullest extent the duties
of Bank.
9
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent by a party to the other parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
(a) Bank: THE CHASE MANHATTAN BANK, 4 Chase MetroTech Center, Brooklyn, N.Y.
11245, Attention: Global Investor Services, Investment Management Group; and (b)
Customer: TWENTIETH CENTURY/BENHAM 4500 Main Street, Kansas City, MO 64105 Attn:
General Counsel (c) IRC: INVESTORS RESEARCH CORPORATION 4500 Main Street, Kansas
City, MO 64105 Attn: General Counsel
(j) Termination. This Agreement may be terminated by a given Customer
with respect to it or Bank by giving sixty (60) days written notice to the
other, provided that such notice to Bank shall specify the names of the persons
to whom Bank shall deliver the Assets in the Accounts. If notice of termination
is given by Bank, Customer shall, within sixty (60) days following receipt of
the notice, deliver to Bank Instructions specifying the names of the persons to
whom Bank shall deliver the Assets. In either case Bank shall deliver the Assets
to the persons so specified, after payment by IRC of any amounts which Bank
determines in good faith to be owed to it under Section 13. If within sixty (60)
days following receipt of a notice of termination by Bank, Bank does not receive
Instructions from Customer specifying the names of the persons to whom Bank
shall deliver the Assets, Bank, at its election, may deliver the Assets to a
bank or trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions hereof, or to Authorized Persons, or may
continue to hold the Assets until Instructions are provided to Bank.
(k) Imputation of certain information. Bank shall not be held
responsible for and shall not be required to have regard to information held by
any person by imputation or information of which Bank is not aware by virtue of
a "Chinese Wall" arrangement. If Bank becomes aware of confidential information
which in good faith it feels inhibits it from effecting a transaction hereunder
Bank may elect to refrain from effecting it and Bank shall promptly notify
Customer of any such election.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first-above written
THE CHASE MANHATTAN BANK
By: /s/ Kathleen Roeder
Title: Vice President
Date: /s/ 1-9-97
INVESTORS RESEARCH CORPORATION
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
and, EACH OF THE FOLLOWING FUNDS INDIVIDUALLY:
I - TWENTIETH CENTURY FUNDS:
TWENTIETH CENTURY INVESTORS, INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
TWENTIETH CENTURY WORLD INVESTORS,
INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
TCI PORTFOLIOS, INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
11
<PAGE>
TWENTIETH CENTURY PREMIUM RESERVES,
INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
TWENTIETH CENTURY CAPITAL PORTFOLIOS,
INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
TWENTIETH CENTURY STRATEGIC ASSET
ALLOCATIONS, INC.
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
TWENTIETH CENTURY INSTITUTIONAL
GROWTH TRUST
/s/ William M. Lyons
By: William M. Lyons
Title: EVP and COO
Date:
and
II - THE BENHAM FUNDS:
BENHAM EQUITY FUNDS
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
12
<PAGE>
BENHAM MANAGER FUNDS
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
BENHAM TARGET MATURITIES TRUST
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
CAPITAL PRESERVATION FUND, INC.
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
CAPITAL PRESERVATION FUND II, INC.
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
BENHAM GOVERNMENT INCOME TRUST
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
BENHAM INVESTMENT TRUST
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
13
<PAGE>
BENHAM MUNICIPAL TRUST
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
BENHAM CALIFORNIA TAX-FREE AND
MUNICIPAL FUNDS
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
BENHAM INTERNATIONAL FUNDS
/s/ Douglas A. Paul
By: Douglas A. Paul
Title: Secretary & General Counsel
Date:
83392
14
<PAGE>
Investment Company Rider to Global Custody Agreement
among THE CHASE MANHATTAN BANK, TWENTIETH CENTURY/BENHAM
and INVESTORS RESEARCH CORPORATION
effective August 9, 1996
Customer represents that the Assets being placed in Bank's custody are
subject to the Investment Company Act of 1940, as amended (the "1940 Act"), as
the same may be amended from time to time.
Except to the extent that Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the Securities and Exchange Commission ("SEC") or the Exemptive
Order applicable to accounts of this nature issued to Bank (1940 Act, Release
No. 12053, November 20, 1981), as amended, or unless Bank has otherwise
specifically agreed, Customer shall be solely responsible to assure that the
maintenance of Assets hereunder complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used herein shall
mean a branch of a qualified U.S. bank, an eligible foreign custodian
or an eligible foreign securities depository, which are further defined
as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company, incorporated or organized under the laws of a country
other than the United States, that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof) as of the close of its fiscal year most
recently completed prior to the date hereof, (ii) a majority owned
direct or indirect subsidiary of a qualified U.S. bank or bank holding
company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in
excess of $100 million in U.S. currency (or a foreign currency
equivalent thereof) as of the close of its fiscal year most recently
completed prior to the date hereof, (iii) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States which has such other qualifications as shall be specified
in Instructions and approved by Bank; or (iv) any other entity that
shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.
1
Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A hereto and the terms of the subcustody
agreements between Bank and each Subcustodian, which are attached as Exhibits I
through of Schedule A, and further represents that its Board has determined that
the use of each Subcustodian and the terms of each subcustody agreement are
consistent with the best interests of the Fund(s) and its (their) shareholders.
Bank shall supply Customer with any amendment to Schedule A for approval.
Customer has supplied or shall supply Bank with certified copies of its Board of
Directors resolution(s) with respect to the foregoing prior to placing Assets
with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 hereof may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction
is to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions
applicable to Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to Customer;
(i) For the purpose of redeeming shares of the capital stock of
Customer and the delivery to, or the crediting to the account of, Bank,
its Subcustodian or Customer's transfer agent, such shares to be
purchased or redeemed;
(j) For the purpose of redeeming in kind shares of Customer against
delivery to Bank, its Subcustodian or Customer's transfer agent of such
shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among Customer, Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of The National
Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing
2
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to Bank of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, Bank shall receive from brokers the
Securities previously deposited. Bank shall act strictly in accordance
with Instructions in the delivery of Securities to be held in escrow
and shall have no responsibility or liability for any such Securities
which are not returned promptly when due other than to make proper
request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing Customer; and
(o) Upon the termination hereof as set forth in Section 14(j).
Section 12. Standard of Care; Liabilities.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. Bank, each eligible foreign
custodian and each eligible foreign securities depository holding
Customer's Securities pursuant hereto afford protection for such
Securities at least equal to that afforded by Bank's established
procedures with respect to similar securities held by Bank and its
securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from Customer, Bank shall furnish Customer such
reports (or portions thereof) of Bank's system of internal accounting
controls applicable to Bank's duties hereunder. Bank shall endeavor to
obtain and furnish Customer with such similar reports as it may
reasonably request with respect to each Subcustodian and securities
depository holding Assets.
3
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent provisions
of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by Bank for this purpose.
4
February 7, 1997
American Century Government Income Trust
4500 Main Street
Kansas City, MO 64111
Dear Sirs:
As counsel for the American Century Government Income Trust (the "Trust"), I am
familiar with the Trust's registration under the Investment Company Act of 1940
and with the registration statement relating to its Common Shares (the "Shares")
under the Securities Act of 1933 (File No. 2-99222) (the "Registration
Statement"). I have also examined such other corporate records, agreements,
documents and instruments as I deemed appropriate in connection with the
establishment of a new series of the Trust, American Century-Benham
Inflation-Adjusted Treasury Fund (the "Fund") .
Based upon the foregoing, it is my opinion that the Shares to be sold at the
public offering price and delivered by the Fund against receipt of the net asset
value of the Shares in compliance with the terms of the Registration Statement
and the requirements of applicable law, will be, when sold, duly and validly
authorized, and fully paid and non-assessable.
I consent to the filing of this opinion in connection with the Post-Effective
Amendment Number 31 to the Trust's Registration Statement under the Securities
Act of 1933 and Investment Company Act of 1940 to be filed with respect to the
Fund with the Securities and Exchange Commission.
Very truly yours,
/s/ Douglas A. Paul
Douglas A. Paul
Vice President, Secretary
and General Counsel
Consent of Independent Auditors
The Board of Trustees and Shareholders
American Century Government Income Trust:
We consent to the inclusion in American Century Government Income Trust's
Post-Effective Amendment No. 31 to the Registration Statement No. 2-99222 on
Form N-1A under the Securities Act of 1933 and Amendment No. 32 to the
Registration Statement No. 811-4363 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated May 3, 1996 on the financial statements
and financial highlights of the American Century-Benham Short-Term Treasury
Fund, American Century-Benham Intermediate-Term Treasury Fund, American
Century-Benham Long-Term Treasury Fund, American Century-Benham GNMA Fund,
American Century-Benham Adjustable Rate Government Securities Fund, American
Century-Benham Government Agency Money Market Fund and American Century-Benham
Inflation-Adjusted Treasury Fund (the seven funds comprising American Century
Government Income Trust) for the periods indicated therein, which reports have
been incorporated by reference into the Statement of Additional Information of
American Century Government Income Trust. We also consent to the reference to
our firm under the heading "Financial Highlights" in the Prospectus and under
the heading "About the Trust" in the Statement of Additional Information which
is incorporated by reference in the Prospectus.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
February 5, 1997
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<NUMBER> 1
<NAME> AMERICAN CENTURY - BENHAM GNMA FUND
<S> <C>
<PERIOD-TYPE> 6-mos
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<PERIOD-END> SEP-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 2
<NAME> AMERICAN CENTURY - BENHAM INTERMEDIATE-TERM TREASURY FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 303,621,958
<INVESTMENTS-AT-VALUE> 301,977,425
<RECEIVABLES> 4,201,175
<ASSETS-OTHER> 282,513
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 306,461,113
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,262,091
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<PAID-IN-CAPITAL-COMMON> 314,282,121
<SHARES-COMMON-STOCK> 29,954,516
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,440,824)
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 3
<NAME> AMERICAN CENTURY - BENHAM GOVERNMENT AGENCY MONEY MARKET
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
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<NAME> AMERICAN CENTURY - BENHAM ADJUSTABLE RATE GOV'T SECURITIES
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</TABLE>
<TABLE> <S> <C>
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<NAME> AMERICAN CENTURY - BENHAM SHORT-TERM TREASURY FUND
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
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<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 108,008
<NET-INVESTMENT-INCOME> 904,223
<REALIZED-GAINS-CURRENT> (237,323)
<APPREC-INCREASE-CURRENT> 90,667
<NET-CHANGE-FROM-OPS> 757,567
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 904,223
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 857,413
<NUMBER-OF-SHARES-REDEEMED> 999,989
<SHARES-REINVESTED> 71,075
<NET-CHANGE-IN-ASSETS> (837,440)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,212
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<GROSS-EXPENSE> 131,727
<AVERAGE-NET-ASSETS> 34,791,468
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.25
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> AMERICAN CENTURY - BENHAM LONG-TERM TREASURY FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
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