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._32_ 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._33_
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
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
__X__ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On May 16, 1996, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended March 31, 1996.
<PAGE>
This Post-Effective Amendment is being filed to add the American Century Capital
Preservation Fund to the Trust's Registration statement. The Prospectus for the
American Century Government Agency, Short-Term Treasury, Intermediate-Term
Treasury, Long-Term Treasury, ARM and GNMA Funds is not being filed in this
Post-Effective Amendment and is incorporated herein by reference.
<PAGE>
AMERICAN CENTURY GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 32
1940 Act Amendment No. 33
American Century - Benham Capital
Preservation 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 Management, 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
<PAGE>
PROSPECTUS
[american century logo]
American
Century(sm)
__________, 1997
BENHAM
GROUP(R)
Capital Preservation
[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
Capital Preservation
PROSPECTUS
_________, 1997
Capital Preservation
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 from our Benham
Group that invests in U.S. government securities, American Century-Benham
Capital Preservation Fund (the "Fund"), is described in this Prospectus. Its
investment objectives are 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 _________, 1997 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. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
$1.00 SHARE PRICE.
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.
INVESTMENT OBJECTIVES OF THE FUND
AMERICAN CENTURY--BENHAM CAPITAL
PRESERVATION FUND
Capital Preservation is a money market fund which seeks maximum safety and
liquidity. Its secondary objective is to seek to pay shareholders the highest
rate of return on their investment in the Fund consistent with safety and
liquidity. The Fund intends to pursue its investment objectives by investing
exclusively in short-term U.S. Treasury securities guaranteed by the direct full
faith and credit pledge of the U.S. government and maintaining a dollar-weighted
average portfolio maturity of not more than 90 days.
There is no assurance that the Fund will achieve its investment objectives.
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.
TABLE OF CONTENTS
Transaction and Operating Expense Table...............................4
Financial Highlights..................................................5
INFORMATION REGARDING THE FUND
Investment Policies of the Fund......................................13
Risk Factors and Investment Techniques...............................15
U.S. Government Securities......................................16
Other Investment Practices, Their Characteristics
and Risks.......................................................18
When-Issued and Forward Commitment
Agreements..................................................18
Cash Management.................................................18
Other Techniques................................................18
Performance Advertising..............................................18
HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS
American Century Investments.........................................20
Investing in American Century........................................20
How to Open an Account...............................................20
By Mail.....................................................20
By Wire.....................................................20
By Exchange.................................................20
In Person...................................................21
Subsequent Investments..........................................21
By Mail.....................................................21
By Telephone................................................21
By Online Access............................................21
By Wire.....................................................21
In Person...................................................21
Automatic Investment Plan.......................................21
How to Exchange from One Account to Another .........................21
By Mail ....................................................21
By Telephone................................................21
By Online Access............................................22
How to Redeem Shares.................................................22
By Mail.....................................................22
By Telephone................................................22
By Check-A-Month............................................22
Other Automatic Redemptions.................................22
Redemption Proceeds.............................................22
By Check....................................................22
By Wire and ACH.............................................22
Redemption of Shares in Low-Balance Accounts....................22
Signature Guarantee..................................................23
Special Shareholder Services.........................................23
Automated Information Line..................................23
Online Account Access.......................................23
CheckWriting................................................23
Tax-Qualified Retirement Plans..............................24
Important Policies Regarding Your Investments........................24
Reports to Shareholders..............................................25
Employer-Sponsored Retirement Plans and
Institutional Accounts............................................25
ADDITIONAL INFORMATION YOU SHOULD KNOW
Share Price..........................................................26
When Share Price Is Determined..................................26
How Share Price Is Determined...................................26
Where to Find Information About Share Price.....................27
Distributions........................................................27
Taxes ............................................................27
Tax-Deferred Accounts...........................................27
Taxable Accounts................................................28
Management...........................................................28
Investment Management...........................................28
Code of Ethics..................................................30
Transfer and Administrative Services............................30
Distribution of Fund Shares..........................................30
Further Information About American Century...........................31
TRANSACTION AND OPERATING EXPENSE TABLE
Capital Preservation
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:
(as a percentage of net assets)
Management Fees ................... .50%
12b-1 Fees......................... none
Other Expenses..................... .00%
Total Fund Operating
Expenses........................... .50%
EXAMPLE:
You would pay the 1 year $ 5
following expenses 3 years 16
on a $1,000 investment, 5 years 28
investment, assuming 10 years 63
assuming a 5% annual
return and redemption at
the end of each time period:
(1) Redemption proceeds sent by wire are subject to a $10 processing fee.
The Fund pays American Century Investment Management, Inc. (the
"Manager") investment management fees equal to an annualized percentage of its
average daily net assets.
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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CAPITAL PRESERVATION
The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors (except as noted). Their
report thereon appears in the Fund's annual report, which is incorporated by
reference into the Statement of Additional Information. The semiannual and
annual reports contain additional performance information and will be made
available upon request and without charge. The information presented is for a
share outstanding throughout the years ended March 31, except as noted.
September 30,
1996
(unaudited) 1996 1995 1994 1993(1) 1992 1991 1990 1989 1988 1987
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment
Operations
Net Investment Income ...... .0234 .0521 .0424 .0259 .0134 .0382 .0603 .0750 .0800 .0608 .0531
Distributions
From Net Investment
Income......................(.0234) (.0521) (.0424) (.0259) (.0134) (.0382) (.0603) (.0750) (.0800) (.0608) (.0531)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(2)............. 2.39% 5.21% 4.31% 2.63% 1.35% 3.88% 6.27% 7.77% 8.27% 6.30% 5.48%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets(3)................49%(4) .51% .50% .51% .50%(4) .51% .52% .56% .57% .59% .63%
Ratio of Net Investment
Income to Average
Net Assets(3)...............4.68%(4) 5.07% 4.24% 2.59% 2.68%(4) 3.82% 6.03% 7.50% 8.00% 6.08% 5.31%
Net Assets, End
of Period (in millions)..... $3,016 $3,078 $2,883 $2,787 $2,943 $3,046 $3,376 $3,099 $2,737 $2,187 $1,793
(1) The Fund's fiscal year-end was changed from September 30 to March 31
beginning with the period ended March 31, 1993, resulting in a six-month
period in 1993.
(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.
(3) The ratios for the year ended March 31, 1996 include expenses paid through
expense offset arrangements.
(4) Annualized.
</TABLE>
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 objectives 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
objectives. These policies and practices, which are described throughout this
Prospectus, are not designated as fundamental policies and may be changed
without shareholder approval.
The Fund seeks to maintain a $1.00 share price, although there is no
guarantee it will be able to do so. Shares of the Fund are neither insured nor
guaranteed by the U.S. government.
The Fund seeks maximum safety and liquidity. Its secondary objective is to
seek to pay its shareholders the highest rate of return on their investment in
the Fund consistent with safety and liquidity. The Fund pursues its investment
objectives by investing exclusively in short-term U.S. Treasury securities
guaranteed by the direct full faith and credit pledge of the U.S. government.
Capital Preservation's dollar-weighted average portfolio maturity will not
exceed 90 days.
While the risks associated with investing in short-term U.S. Treasury
securities are very low, an investment in the Fund is not risk-free.
RISK FACTORS AND INVESTMENT TECHNIQUES
The obligations in which the Fund may invest differ from one another in
their interest rates, maturities, dates of issuance and interest payment
schedules. The pertinent features of the types of obligations in which the Fund
may invest are described in this section.
U.S. GOVERNMENT SECURITIES
U.S. Treasury bills, notes, zero-coupon bonds, and other bonds are direct
obligations of the U.S. Treasury, which has never failed to pay interest and
repay principal when due. Treasury bills have initial maturities of one year or
less, Treasury notes from two to ten years, and Treasury bonds more than 10
years. Although U.S. Treasury securities carry little principal risk if held to
maturity, the prices of these securities (like all debt securities) change
between issuance and maturity in response to fluctuating market interest rates.
A number of U.S. government agencies and government-sponsored organizations
issue debt securities. These agencies generally are created by Congress to
fulfill a specific need, such as providing credit to home buyers or farmers.
Among these agencies are the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Student Loan Marketing Association and the Resolution Funding
Corporation.
Some agency securities are backed by the full faith and credit of the U.S.
government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury securities
with similar maturities. However, these securities may involve greater risk of
default than securities backed by the U.S. Treasury.
Interest rates on agency securities may be fixed for the term of the
investment (fixed-rate agency securities) or tied to prevailing interest rates
(floating-rate agency securities). Interest rate resets on floating-rate agency
securities generally occur at intervals of one year or less, based on changes in
a predetermined interest rate index.
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS
AND RISKS
For additional information regarding the investment practices of the Fund,
see the Statement of Additional Information.
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 objectives of the Fund. The price of when-issued
securities is established at the time the 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 other investment companies, provided the investment
is consistent with the Fund's investment policies and restrictions.
OTHER TECHNIQUES
The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Fund. When SEC guidelines require it to
do so, the Fund will set aside cash or appropriate liquid assets in a segregated
account to cover the Fund's obligations.
PERFORMANCE ADVERTISING
From time to time, the Fund may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including yield and effective yield.
A quotation of yield reflects the Fund's income over a stated period
expressed as a percentage of its share price. Yield is calculated by measuring
the income generated by an investment in the Fund over a seven-day period (net
of Fund expenses). This income is then annualized, that is, the amount of income
generated by the investment over the seven-day period is assumed to be generated
over each similar period each week throughout a full year and is shown as a
percentage of the investment. The effective yield is calculated in a similar
manner but, when annualized, the income earned by the investment is assumed to
be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect on the assumed reinvestment.
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.
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.
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 __.
HOW TO OPEN AN ACCOUNT
To open an account, you must complete and sign an application, furnishing
your taxpayer identification number. (You must also certify whether you are
subject to withholding for failing to report income to the IRS.) Investments
received without a certified taxpayer identification number will be returned.
The minimum investment is $2,500 ($1,000 for IRA accounts).
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple owners
(e.g., as joint tenants) you must provide us with specific authorization on your
application in order for us to accept written or telephone instructions from a
single owner. Otherwise, all owners will have to agree to any transactions that
involve the account (whether the transaction request is in writing or over the
telephone).
You may invest in the following ways:
By Mail
Send a completed application and check or money order payable in U.S.
dollars to 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.
By Exchange
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information
on opening an account by exchanging from another American Century account. See
page __ 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," 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 __ 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 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 investment requirements, you may exchange
your Fund shares to our other funds up to six times per year per account. An
exchange request will be processed the same day it is received if it is received
before the fund's net asset values are calculated, which is one hour prior to
the close of the New York Stock Exchange for the funds in 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 __.
For any single exchange, the shares of each fund being acquired must have a
value of at least $100. However, we will allow investors to set up an Automatic
Exchange Plan between any two funds in the amount of at least $50 per month. See
our Investor Services Guide for further information about exchanges.
By Mail
You may direct us in writing to exchange your shares from one American
Century account to another. For additional information, please see our Investor
Services Guide.
By Telephone
You can make exchanges over the telephone (either with an Investor Services
Representative or using our Automated Information Line--see page __) if you have
authorized us to accept telephone instructions. You can authorize this by
selecting "Full Services" on your application or by calling us at 1-800-345-2021
to 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 __.
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
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
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 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 investor services include:
Automated Information Line
We offer an Automated Information Line, 24 hours a day, seven days a week,
at 1-800-345-8765. By calling the Automated Information Line, you may listen to
Fund prices, yields and total return figures. You may also use the Automated
Information Line to make investments into your accounts (if we have your bank
information on file) and obtain your share balance, value and most recent
transactions. If you have authorized us to accept telephone instructions, you
also may exchange shares from one fund to another via the Automated Information
Line. Redemption instructions cannot be given via the Automated Information
Line.
Online Account Access
You may contact us 24 hours a day, seven days a week at
www.americancentury.com to access your funds' 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.
CheckWriting
We offer CheckWriting as a service option for your account. CheckWriting
allows you to redeem shares in your account by writing a draft ("check") against
your account balance. (Shares held in certificate form may not be redeemed by
check.) There is no limit on the number of checks you can write, but each one
must be for at least $100.
When you write a check, you will continue to receive dividends on all shares
until your check is presented for payment to our clearing bank. If you redeem
all shares in your account by check, any accrued distributions on the redeemed
shares will be paid to you in cash on the next monthly distribution date.
If you want to add CheckWriting to an existing account that offers
CheckWriting, contact us by telephone or mail for an appropriate form. For a new
account, you may elect CheckWriting on your purchase application by choosing the
"Full Services" option. CheckWriting is not available for any account held in an
IRA or 403(b) plan.
CheckWriting redemptions may only be made on checks provided by us.
Currently, there is no charge for checks or for the CheckWriting service.
We will return checks drawn on insufficient funds or on funds from
investments made by means other than by wire within the previous 15 days.
Neither the company nor our clearing bank will be liable for any loss or
expenses associated with returned checks. Your account may be assessed a $15
service charge for checks drawn on insufficient funds.
A stop payment may be ordered on a check written against your account. We
will use reasonable efforts to stop a payment, but we cannot guarantee that we
will be able to do so. If we are successful in fulfilling a stop-payment order,
your account may be assessed a $15 fee.
Tax-Qualified Retirement Plans
The Fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
o Individual Retirement Accounts ("IRA"s);
o 403(b) plans for employees of public school systems and non-profit
organizations; 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 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.
With the exception of most automatic transactions and transactions by
CheckWriting, each time you invest, redeem, transfer or exchange shares, we will
send you a confirmation of the transactions. Transactions initiated by
CheckWriting will be confirmed on a monthly basis. See the Investor Services
Guide for more detail.
Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If you
fail to provide notification of an error with reasonable promptness, i.e.,
within 30 days of non-automatic transactions or within 30 days of the date of
your consolidated quarterly statement, in the case of automatic transactions, we
will deem you to have ratified the transaction.
No later than January 31st of each year, we will send you reports that you
may use in completing your U.S. income tax return. See the Investor Services
Guide for more information.
Each year, we will send you an annual and a semiannual report relating to
your fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully, as
they will help you understand your fund.
EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS
Information contained in our Investor Services Guide pertains to
shareholders who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the Fund,
exchange them for shares of other American Century funds, and redeem them will
depend on the terms of your plan.
If you own or are considering purchasing Fund shares through a bank,
broker-dealer, insurance company or other financial intermediary, your ability
to purchase, exchange and redeem shares will depend on your agreement with, and
the policies of, such financial intermediary.
You may reach one of our Institutional 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.
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 the 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
of the fund 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 Fund's 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.
Pursuant to a determination by the Fund's Board of Trustees and Rule 2a-7
under the Investment Company Act of 1940 (the "1940 Act"), portfolio securities
of the Fund are valued at amortized cost. When a security is valued at amortized
cost, it is valued at its cost when purchased, and thereafter by assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The yield of the Fund is published weekly in leading financial publications
and daily in many local newspapers. The net asset values, as well as yield
information on the Fund and all the other funds in the American Century family
of funds, may also be obtained by calling us or by accessing our Web site at
www.americancentury.com.
DISTRIBUTIONS
At the close of each day including Saturdays, Sundays and holidays,
dividends are declared and credited (i.e., available for redemption) daily and
distributed monthly on the last Friday of each month, except for year-end
distributions which will be made on the last business day of the year.
You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page __. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed (other than by CheckWriting), the
distribution on the redeemed shares will be included with your redemption
proceeds.
The Fund does not expect to realize any long-term capital gains and,
accordingly, does not expect to make any capital gains distributions.
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 59 1/2 years old or
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date. Please consult our Investor Services Guide for
further information regarding your distribution options.
TAXES
The Fund has elected to be taxed 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 do not qualify for the 70% dividends-received deduction for corporations
since they are derived from interest income.
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 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 distribution are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to Fund shareholders when the 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
American Century-Benham Capital Preservation Fund is a diversified, open-end
series of American Century Government Income Trust (the "Trust"), a
Massachusetts business trust, formerly known as the Benham Government Income
Trust. 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 management agreement entered into with the
Trust, American Century Investment Management, Inc. (the "Manager") serves as
the investment manager of the Fund. The Manager pays all the expenses of Capital
Preservation except brokerage, taxes, interest, fees and expenses of the
non-interested person Trustees (including counsel fees) and extraordinary
expenses. Its principal place of business is 4500 Main Street, Kansas City,
Missouri 64111. The Manager has been providing investment management services to
investment companies and other clients since 1958.
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 portfolios and the Fund's asset mix as it deems appropriate in
pursuit of the Fund's investment objectives. Individual portfolio manager
members of the team may also adjust portfolio holdings of the Fund as necessary
between team meetings.
The portfolio manager members of the teams managing the Fund described in
this Prospectus and their work experience for the last five years are as
follows:
BRIAN HOWELL has been primarily responsible for the day-to-day management
of Capital Preservation and American Century-Benham Government Agency Money
Market Fund since May, 1995. Mr. Howell joined the Manager in 1987 as a research
analyst and was promoted to his current position in January 1994.
DENISE TOBACCO has co-managed Capital Preservation and Government Agency
since January, 1996. Ms. Tobacco joined the Manager in 1988, the Portfolio
Department in 1991 and was promoted to her current position in 1995.
The activities of the Manager are subject only to direction of the
Trustees. Each series of the Trust (except Capital Preservation) 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.
For the services provided to the Fund, the Manager receives an annual fee
which is computed at 0.50% of average net assets of the Fund. The rate at which
this fee is assessed is determined annually in a two-step process: First, a fee
rate schedule is applied to the assets of all of the money market funds managed
by the Manager (the "Investment Category Fee"). Second, a separate fee rate
schedule is applied to the assets of all of the mutual funds managed by the
Manager (the "Complex Fee"). The Investment Category Fee and the Complex Fee are
then added to determine the annual fee payable by the Fund to the Manager. For
the current fiscal year, the Investment Category Fee is 0.20% of average net
assets of the Fund. The Complex Fee is 0.30% of the average net assets of the
Fund. Further information about the calculation of the annual management fee is
contained in the Statement of Additional Information.
On the first business day of each month, the Fund pays a management fee to
the Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for the Fund by
the aggregate average daily closing value of the Fund's net assets during the
previous month by a fraction, the numerator of which is the number of days in
the previous month and the denominator of which is 365 (366 in leap years).
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
Manager. For administrative services provided to the Fund, the transfer agent is
paid by the Manager out of its management fee.
Certain recordkeeping and administrative services that would otherwise be
performed by the transfer agent may be performed by an insurance company or
other entity providing similar services for various retirement plans using
shares of the Fund as a funding medium, by broker-dealers and financial advisors
for their customers investing in shares of American Century or by sponsors of
multi mutual fund no- or low-transaction fee programs. The Manager or an
affiliate may enter into contracts to pay them for such recordkeeping and
administrative services out of its management fee.
Although there is no sales charge levied by the Fund, transactions in
shares of the Fund may be executed by brokers or investment advisors who charge
a transaction-based fee or other fee for their services. Such charges may vary
among broker-dealers and financial advisors, but in all cases will be retained
by the broker-dealer or financial advisor and not remitted to the Fund or the
Manager. You should be aware of the fact that these transactions may be made
directly with American Century without incurring such fees.
From time to time, special services may be offered to shareholders who
maintain higher share balances in our family of funds. These services may
include the waiver of minimum investment requirements, expedited confirmation of
shareholder transactions, newsletters and a team of personal representatives.
Any expenses associated with these special services will be paid by the Manager
or its affiliates.
The Manager and the transfer agent are both wholly owned by ACC. James E.
Stowers Jr., Chairman of the Board of Directors of ACC, controls ACC by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services,
Inc. (the "Distributor"), a registered broker-dealer and an affiliate of the
Manager. The Manager pays all expenses for promoting and distributing the Fund's
shares offered by this Prospectus. The Fund does not pay any commissions or
other fees to the Distributor or to any other broker-dealers or financial
intermediaries in connection with the distribution of Fund shares.
FURTHER INFORMATION ABOUT AMERICAN CENTURY
American Century Government Income Trust was organized as a Massachusetts
business trust on July 24, 1985. The Trust is a diversified, open-end management
investment company. The Trust's business and affairs are managed by its officers
under the direction of Board of Trustees.
The principal office of the Trust 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 is entitled to one vote. Matters affecting only one series are
voted upon only by that series.
Shares of the Trust have non-cumulative voting rights, which means that the
holders of more than 50% of the votes cast in an election of Trustees can elect
all of the Trustees if they choose to do so, and in such event the holders of
the remaining votes will not be able to elect any person or persons to the Board
of Trustees.
Unless required by the 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 the Board 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 THE POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL
INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE
SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF THE FUND ONLY IN
THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE QUALIFIED
FOR SALE. THE FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES
WHERE THE FUND'S SHARES ARE NOT REGISTERED.
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)
9701 [recycled logo]
SH-BKT-6157 Recycled
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
________________, 1997
AMERICAN CENTURY INVESTMENTS
Capital Preservation
Government Agency
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
ARM Fund
GNMA Fund
Inflation-Adjusted Treasury
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
________________, 1997
AMERICAN CENTURY GOVERNMENT INCOME TRUST
This Statement is not a prospectus but should be read in conjunction with
the Funds' current Prospectuses dated ______________, 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 Management....................................................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. Capital
Preservation and Government Agency are referred to as the "Money Market Funds".
INVESTMENT POLICIES AND TECHNIQUES
The following pages provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Trustees.
REPURCHASE AGREEMENTS (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 or American Century Investment Management,
Inc., with respect to Capital Preservation, (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 dealers in U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
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 AND FORWARD COMMITMENT AGREEMENTS (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 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 (ALL FUNDS)
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 (EXCEPT
CAPITAL PRESERVATION)
Interest rate resets on floating-rate U.S. government agency securities
generally occur at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indexes,
those based on U.S. Treasury securities and those derived from a calculated
measure, such as a cost of funds index. Commonly used indexes include the
three-month, six-month, and one-year Treasury bill rate; the two-year Treasury
note yield; the Eleventh District Federal Home Loan Bank Cost of Funds Index
(EDCOFI); and the London Interbank Offered Rate (LIBOR). Fluctuations in the
prices of floating-rate U.S. government agency securities are typically
attributed to differences between the coupon rates on these securities and
prevailing market interest rates between interest rate reset dates.
MASTER DEMAND NOTES (GOVERNMENT AGENCY ONLY)
Government Agency may acquire variable-rate master demand notes issued by
U.S. government agencies such as the Student Loan Marketing Association. Master
demand notes allow the Fund to lend money at varying rates of interest under
direct agreements with borrowers. The Fund may adjust the amount of money loaned
under a master demand note daily or weekly up to the full amount specified in
the agreement, and the borrower may prepay up to the full amount of the loan
without penalty. Master demand notes may or may not be backed by bank letters of
credit. Although, as direct agreements between lenders and borrowers, there is
no secondary market for master demand notes, these instruments are redeemable
(immediately repayable by the borrower) at par plus accrued interest at any
time.
SECURITIES LENDING (ALL FUNDS EXCEPT INTERMEDIATE-TERM TREASURY)
The Manager may seek approval from the Board of Trustees to engage in
securities lending on behalf of the Funds. Such loans would be made with the
intention of allowing the Funds to earn additional income. If a borrower
defaulted on a securities loan, the lending Fund could experience delays in
recovering the securities it loaned; if the value of the loaned securities
increased in the meantime, the Fund could suffer a loss. To minimize the risk of
default on securities loans, the Manager adheres to the following guidelines
prescribed by the Board of Trustees:
(1) Type and Amount of Collateral. At the time a loan is made, the Fund must
receive, from or on behalf of a borrower, collateral consisting of any
combination of cash and full faith and credit U.S. government securities
equal to not less than 102% of the market value of the securities loaned.
Cash collateral received by a Fund in connection with loans of portfolio
securities may be commingled by the 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 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 consist of fixed- or
adjustable-rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first-liens on one-
to four-family residential properties or multifamily projects. Each mortgage
loan must meet standards set forth in the FHLMC Act. A Freddie Mac certificate
group may include whole loans, participation interests in whole loans, undivided
interests in whole loans, and participations composing another Freddie Mac
certificate group.
Freddie Mac guarantees to each registered holder of a Freddie Mac
certificate the timely payment of interest at the rate provided for by the
certificate. Freddie Mac also guarantees ultimate collection of all principal on
the related mortgage loans, without any offset or deduction, but generally does
not guarantee the timely repayment of principal. Freddie Mac may remit principal
at any time after default on an underlying mortgage loan, but no later than 30
days following (a) foreclosure sale, (b) payment of a claim by any mortgage
insurer, or (c) the expiration of any right of redemption, whichever occurs
later, and in any event no later than one year after demand has been made upon
the mortgager for accelerated payment of principal. Obligations guaranteed by
Freddie Mac are not backed by the full faith and credit of the U.S. government.
Collateralized Mortgage Obligations (CMOs). A CMO is a multiclass bond
backed by a pool of mortgage pass-through certificates or mortgage loans. CMO's
may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-through
certificates, (b) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, or (d) any combination thereof.
In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called "tranches." Each CMO is a set of two
or more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven, and twenty
years.
As payments on the underlying mortgage loans are collected, the CMO issuer
pays the coupon rate of interest to the bondholders in each tranche. At the
outset, scheduled and unscheduled principal payments go to investors in the
first tranches. Investors in later tranches do not begin receiving principal
payments until the prior tranches are paid off. This basic type of CMO is known
as a "sequential pay" or "plain vanilla" CMO.
Some CMOs are structured so that the prepayment or market risks are
transferred from one tranche to another. Prepayment stability is improved in
some tranches if other tranches absorb more prepayment variability.
The final tranche of a CMO often takes the form of a Z-bond, also known as
an "accrual bond" or "accretion bond." Holders of these securities receive no
cash until the earlier tranches are paid in full. During the period that the
other tranches are outstanding, periodic interest payments are added to the
initial face amount of the Z-bond but are not paid to investors. When the prior
tranches are retired, the Z-bond receives coupon payments on its higher
principal balance plus any principal prepayments from the underlying mortgage
loans. The existence of a Z-bond tranche helps stabilize cash flow patterns in
the other tranches. In a changing interest rate environment, however, the value
of the Z-bond tends to be more volatile.
As CMOs have evolved, some classes of CMO bonds have become more prevalent.
The planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.
The existence of a PAC or TAC tranche can create higher levels of risk for
other tranches in the CMO because the stability of the PAC or TAC tranche is
achieved by creating at least one other tranche-known as a companion bond,
support, or non-PAC bond--that absorbs the variability of principal cash flows.
Because companion bonds have a high degree of average life variability, they
generally pay a higher yield. A TAC bond can have some of the prepayment
variability of a companion bond if there is also a PAC bond in the CMO issue.
Floating-rate CMO tranches (floaters) pay a variable rate of interest that
is usually tied to the London Interbank Offered Rate (LIBOR). Institutional
investors with short-term liabilities, such as commercial banks, often find
floating-rate CMOs attractive investments. "Super floaters" (which float a
certain percentage above LIBOR) and "inverse floaters" (which float inversely to
LIBOR) are variations on the floater structure that have highly variable cash
flows.
Stripped Mortgage-Backed Securities (ARM Fund only). Stripped mortgage
securities are created by segregating the cash flows from underlying mortgage
loans or mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each investor
class receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type of
security, known as an interest-only security, or IO, and all of the principal is
distributed to holders of another type of security known as a principal-only
security, or PO. Strips can be created in a pass-through structure or as
tranches of a CMO.
The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a Fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.
Adjustable-Rate Mortgage Loans (ARMs). ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest rate
for a specified period of time, generally for either the first three, six,
twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter,
the interest rates are subject to periodic adjustment based on changes in an
index.
ARMs have minimum and maximum rates beyond which the mortgage interest rate
may not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.
There are two types of indexes that provide the basis for ARM rate
adjustments: those based on market rates and those based on a calculated
measure, such as a cost of funds index or a moving average of mortgage rates.
Commonly utilized indexes include the one-year, three-year, and five-year
constant maturity U.S. Treasury rates (as reported by the Federal Reserve
Board); the three-month Treasury bill rate; the 180-day Treasury bill rate;
rates on longer-term Treasury securities; the Eleventh District Federal Home
Loan Bank Cost of Funds Index (EDCOFI); the National Median Cost of Funds Index;
the one-month, three-month, six-month, or one-year London Interbank Offered Rate
(LIBOR); or six-month CD rates. Some indexes, such as the one-year constant
maturity Treasury rate or three-month LIBOR, are highly correlated with changes
in market interest rates. Other indexes, such as the EDCOFI, tend to lag behind
changes in market rates and be somewhat less volatile over short periods of
time.
The EDCOFI reflects the monthly weighted average cost of funds of savings
and loan associations and savings banks whose home offices are located in
Arizona, California, and Nevada (the Federal Home Loan Bank Eleventh District)
and who are member institutions of the Federal Home Loan Bank of San Francisco
(the FHLB of San Francisco), as computed from statistics tabulated and published
by the FHLB of San Francisco. The FHLB of San Francisco normally announces the
Cost of Funds Index on the last working day of the month following the month in
which the cost of funds was incurred.
One-year and three-year Constant Maturity Treasury (CMT) rates are
calculated by the Federal Reserve Bank of New York, based on daily closing bid
yields on actively traded Treasury securities submitted by five leading
broker-dealers. The median bid yields are used to construct a daily yield curve.
The National Median Cost of Funds Index, similar to the EDCOFI, is
calculated monthly by the Federal Home Loan Bank Board (FHLBB) and represents
the average monthly interest expenses on liabilities of member institutions. A
median, rather than an arithmetic mean, is used to reduce the effect of extreme
numbers.
The London Interbank Offered Rate Index (LIBOR) is the rate at which banks
in London offer Eurodollars in trades between banks. LIBOR has become a key rate
in the U.S. domestic money market because it is perceived to reflect the true
global cost of money.
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."
OTHER INVESTMENT COMPANIES (CAPITAL PRESERVATION)
The Fund may invest in securities issued by open and closed-end investment
companies which are consistent with its investment objective and policies. Under
the 1940 Act, the Fund's investment in such securities, subject to certain
exceptions, currently is limited to (a) 3% of the total voting stock of any one
investment company, (b) 5% of the Fund's net assets with respect to any one
investment company and (c) 10% of the Funds net assets in the aggregate. Such
purchases will be made in the open market where no commission or profit to a
sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a Fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the management fee that the Fund bears directly in connection with its own
operations.
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.
Capital Preservation Fund may not:
1) With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities) if, as a result, (a) more than 5% of
the Fund's total assets would be invested in 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 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 33-1/3% of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings).
4) Lend any security or make any other loan if, as a result, more than 33-1/3%
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) Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by the U.S. government,
any state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and repurchase agreements secured by such
instruments, (b) wholly-owned finance companies will be considered to be in
the industries of their parents if their activities are primarily related
to financing the activities of the parents, (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric
and gas, electric and telephone will each be considered a separate
industry, and (d) personal credit and business credit businesses will be
considered separate industries.
7) Act as underwriter of securities issued by others, except to the extent
that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
8) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.
9) Invest for purposes of exercising control over management.
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 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 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
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, the
Fund may pledge or hypothecate not in excess of 331/3% of the value of its
total assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(2) Act as an underwriter of securities issued by others.
(3) Purchase, sell, or invest in real estate, commodities, commodity contracts,
foreign exchange, or interests in oil, gas, or other mineral exploration or
development programs, provided that this limitation shall not prohibit the
purchase of U.S. government securities and other debt securities secured by
real estate or interests therein.
(4) Engage in any short-selling operations.
(5) Make loans to others, except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees or for the
purchase of debt securities in accordance with the Fund's investment
objective and policies.
(6) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(7) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
(8) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(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.
(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.
Capital Preservation Fund 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
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) Purchase or sell futures contracts or call options. This limitation does
not apply to options attached to, or acquired or traded together with,
their underlying securities, and does not apply to securities that
incorporate features similar to options or futures contracts.
c) Purchase any security or enter into a repurchase agreement if, as a result,
more than 10% of its net assets would be invested in repurchase agreements
not entitling the holder to payment of principal and interest within seven
days and in securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market.
d) Except in connection with a merger, consolidation, acquisition, or
reorganization, invest in the securities of other investment companies,
including investment companies advised by the Manager, if, immediately
after such purchase or acquisition, more than 10% of the value of the
Fund's total assets would be invested in such securities.
e) Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if, as a result, more than 5%
of the total assets of the Fund would then be invested in such securities.
f) Purchase warrants, valued at the lower of cost or market, in excess of 10%
of the Fund's net assets. Included in that amount but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund in
units or attached to securities are not subject to these restrictions.
g) Invest in oil, gas or other mineral exploration or development programs or
leases.
h) Sell securities short, unless it 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.
i) 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 shall not constitute purchasing securities on
margin.
j) Purchase the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund and of its investment
advisor, who each own beneficially more than 0.5% of the outstanding
securities of such issuer, together own more than 5% of such issuer's
securities.
Government Agency may not:
(a) Invest in oil, gas, or other mineral leases.
Short-Term Treasury may not:
(a) Engage in any short-selling operations, provided that transactions in
futures and options will not constitute selling securities short.
(b) Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and
options on futures contracts will not constitute purchasing securities on
margin.
(c) Purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(d) Purchase restricted securities.
(e) Invest in securities that are not readily marketable or the disposition of
which is restricted under federal securities laws (collectively, "illiquid
securities") if, as a result, more than 10% of the Fund's net assets would
be invested in illiquid securities.
(f) Purchase or sell futures contracts or put or call options, provided that
this restriction will not apply to options attached to, or acquired or
traded together with, their underlying securities; nor will it apply to
securities that incorporate features similar to options or futures
contracts.
(g) Purchase the securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid
or purchase securities issued by other open-end investment companies,
provided that this restriction will not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(h) Purchase any equity securities, including warrants or bonds with warrants
attached, or any preferred stocks, convertible bonds, or convertible
debentures.
(i) Invest in oil, gas, or other mineral exploration or development programs or
leases.
(j) Purchase securities of any issuer if, to the knowledge of the Fund's
investment advisor, those Trustees and officers of the Trust and those
Trustees and officers of the investment advisor who individually own more
than 0.5% of the outstanding securities of such issuer, together own
(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
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 the Board of Trustees may issue 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 (except
for Inflation-Adjusted Treasury) appear in the Financial Highlights appearing in
the Prospectus. The portfolio turnover rate the Inflation-Adjusted Treasury is
not expected to exceed ____%.
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 the Money Market Funds 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 a Fund's yield. During periods of declining interest rates, for
example, the daily yield on Fund shares computed as described above may be
higher than that of a fund with identical investments priced at market value.
The converse would apply in a period of rising interest rates.
The amortized cost valuation method is permitted in accordance with Rule
2a-7 under the 1940 Act. Under the Rule, funds such as Capital Preservation and
Government Agency, holding themselves out as money market funds, must adhere to
certain quality and maturity criteria. In particular, such a fund must limit its
investments to U.S. dollar-denominated instruments that are determined by its
board of directors or trustees to present minimal credit risks and that are (a)
high-grade obligations rated in accordance with applicable rules in one of the
two highest rating categories for short-term obligations by at least two rating
agencies (or by one if only one has rated the obligation), or (b) unrated
obligations judged by the advisor, under the direction of the fund's board of
directors or trustees, to be of comparable quality. Further, pursuant to Rule
2a-7, a money market fund must maintain a dollar weighted average portfolio
maturity of 90 days or less and may not purchase instruments with remaining
maturities in excess of 397 days.
The Board of Trustees has established procedures designed to stabilize the
Money Market Funds' NAVs at $1.00 per share to the extent reasonably possible.
These procedures require the Trust's Chief Financial Officer to notify the
Trustees immediately if, at any time, Capital Preservation or Government
Agency's weighted average maturity exceeds 90 days or 60 days, respectively, or
if either Money Market Fund's 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 but are not limited to: (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 the Money Market Funds, 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
Each Money Market Fund's yield for the seven-day period ended September 30,
1996 is indicated in the following table.
Fund Yield Effective Yield
- ---------------------------------------------------
Capital Preservation 4.73% 4.85%
Government Agency 4.78 4.89
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 September 30,
1996, is indicated in the following table.
Fund 30-day Yield
- -----------------------------------------------------
Short-Term Treasury 5.70%
Intermediate-Term Treasury 6.20
Long-Term Treasury 6.54
ARM Fund 5.58
GNMA Fund 7.04
- -----------------------------------------------------
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 September 30, 1996, are indicated in the
following table.
Average Annual Total Returns
- --------------------------------------------------------------------------------
Life-of-
Fund One-Year Five-Years Ten-Years Fund
- --------------------------------------------------------------------------------
Capital Preservation 1 4.92% 3.95% 5.35% 5.34%
Government Agency 2 5.01 4.05 N/A 4.96
Short-Term Treasury3 4.64 N/A N/A 4.37
Intermediate-Term
Treasury4 4.81 6.33 6.81 8.85
Long-Term Treasury3 1.78 N/A N/A 6.66
ARM Fund5 5.74 4.60 N/A 4.76
GNMA Fund6 5.06 6.91 8.32 8.81
- --------------------------------------------------------------------------------
1 Commenced operations on October 13, 1972.
2 Commenced operations on December 5, 1989.
3 Commenced operations on September 8, 1992.
4 Commenced operations on May 16, 1980.
5 Commenced operations on September 3, 1991.
6 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.
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 its 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 31st 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 (if any)
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 eight series of the Trust as follows: American Century -
Benham Capital Preservation Fund, American Century - Benham Government 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
when issued and have no preemptive, conversion, or similar rights. Funds are
transferable without restriction.
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. 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 January 31, 1997, the Trust's officers and Trustees, as a group,
owned less than 1% of the outstanding shares of each Fund.
<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(1) From Each Fund(2) of Fund Expenses Upon Retirement Complex(3) Paid to Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert Eisenstat $1,619 (Capital Preservation) Not Applicable Not Applicable $29,500
267 (Government Agency)
20 (Short-Term)
165 (Intermediate-Term)
55 (Long-Term)
165 (ARM)
593 (GNMA)
Ronald J. Gilson $8,759 (Capital Preservation) Not Applicable Not Applicable $79,833
1,450 (Government Agency)
885 (Short-Term)
1,222 (Intermediate-Term)
929 (Long-Term)
1,252 (ARM)
2,178 (GNMA)
Myron S. Scholes $10,740 (Capital Preservation) Not Applicable Not Applicable $69,500
1,776 (Government Agency)
1,066 (Short-Term)
1,492 (Intermediate-Term)
1,110 (Long-Term)
1,549 (ARM)
2,683 (GNMA)
Kenneth E. Scott $12,282 (Capital Preservation) Not Applicable Not Applicable $75,773
2,032 (Government Agency)
1,084 (Short-Term)
1,649 (Intermediate-Term)
1,169 (Long-Term)
2,702 (ARM)
3,258 (GNMA)
Ezra Solomon $10,654 (Capital Preservation) Not Applicable Not Applicable $70,249
1,765 (Government Agency)
1,060 (Short-Term)
1,481 (Intermediate-Term)
1,118 (Long-Term)
1,523 (ARM)
2,661 (GNMA)
Isaac Stein $10,842 (Capital Preservation) Not Applicable Not Applicable $70,500
1,791 (Government Agency)
1,068 (Short-Term)
1,503 (Intermediate-Term)
1,120 (Long-Term)
1,557 (ARM)
2,727 (GNMA)
Jeanne D. Wohlers $11,033 (Capital Preservation) Not Applicable Not Applicable $71,250
1,825 (Government Agency)
1,069 (Short-Term)
1,521 (Intermediate-Term)
1,127 (Long-Term)
1,571 (ARM)
2,799 (GNMA)
- ------------------------------------------------------------------------------------------------------------------------------------
1 Interested Trustees receive no compensation for their services as such.
2 For the Fiscal year ended March 31, 1996, Capital Preservation paid fees to
the Trustees as an investment portfolio in American Century Capital
Preservations Fund, Inc., registered investment company within the fund
complex, as described in footnote 3 below.
3 American Century family of funds includes nearly 70 no-load mutual funds in
16 registered investment companies.
</TABLE>
INVESTMENT MANAGEMENT
The Funds (except for Capital Preservation) have an investment advisory
agreement with Benham Management Corporation dated June 1, 1995, that was
approved by shareholders on May 31, 1995. Capital Preservation has an investment
management agreement with American Century Investment Management, Inc. (ACIM)
dated __________, 1997.
Benham Management Corporation is a California corporation and became a
wholly owned subsidiary of ACC on June 1, 1995. Benham Management Corporation
has served as investment advisor to the Funds since each Fund's inception.
Effective ________, 1997, ACIM will provide investment management services to
Capital Preservation. 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. Benham Management Corporation has been a
registered investment advisor since 1971.
Each Fund's investment agreement with its 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 agreement is terminable on sixty days' written
notice, either by the Fund or by its Manager, to the other party, and terminates
automatically in the event of its assignment.
Pursuant to the investment agreements, the Managers provide each Fund with
investment advice and portfolio management services in accordance with each
Fund's investment objectives, policies, and restrictions. The Managers determine
what securities will be purchased and sold by a Fund and assist the Trust's
officers in carrying out decisions made by the Board of Trustees. For these
services, each Fund with the exception of Capital Preservation 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.
The Manager pays all the expenses of Capital Preservation except brokerage,
taxes, interest, fees and expenses of the non-interested person Trustees
(including counsel fees) and extraordinary expenses.
For the services provided to Capital Preservation, the Manager receives an
annual fee which is computed at 0.50% of average net assets of the Fund. The
rate at which this fee is assessed is determined annually in a two-step process:
First, a fee rate schedule is applied to the assets of all of the money market
funds managed by the Manager (the "Investment Category Fee"). Second, a separate
fee rate schedule is applied to the assets of all of the mutual funds managed by
the Manager (the "Complex Fee"). The Investment Category Fee and the Complex Fee
are then added to determine the annual fee payable by Capital Preservation to
the Manager. For the current fiscal year, the Investment Category Fee is 0.20%
of average net assets of Capital Preservation. The Complex Fee is 0.30% of the
average net assets of Capital Preservation. The computation of these fees is
described below.
Calculation of the Investment Category Fee (Capital Preservation)
The Investment Category Fee is calculated based on the following schedule
Investment Category Assets Under
Management Fee Rate
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Assets greater than $50 billion 0.1570%
The calculation of the Investment Category Fee is based on applying the
schedule above to the assets of the funds managed by the Manager within its
Investment Category. There are three Investment Categories: Bond Funds, Equity
Funds and Money Market Funds. The funds included within an Investment Category
are all of the open-end investment companies managed by the Manager and
distributed by American Century Investment Services, Inc. Private label funds
and non-investment company clients are excluded from the asset base for
calculation of the fees for the funds.
To calculate a particular fund's fee, the fund's Investment Category Fee
schedule is applied to the total assets within the Investment Category. The
fund's fee is its pro rata share of the resulting fee.
Calculation of the Complex Fee (Capital Preservation)
The Complex Fee is calculated based on the following schedule:
Complex Assets Under Management Fee Rate
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2900%
The calculation of the Investment Category Fee is based on applying the
schedule above to the assets of all of the funds managed by the Manager in the
three Fund Type categories. To calculate a particular fund's Complex Fee, the
Complex Fee schedule is applied to the total complex assets. The fund's fee is
its pro rata share of the resulting fee.
On the first business day of each month, Capital Preservation pays a
management fee to the Manager for the previous month at the specified annual
rate. The fee for the previous month is calculated by multiplying the applicable
fee for Capital Preservation by the aggregate average daily closing value of the
Fund's net assets during the previous month by a fraction, the numerator of
which is the number of days in the previous month and the denominator of which
is 365 (366 in leap years).
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
- --------------------------------------------------------------------------------
Capital Preservation $8,039,420 $7,631,805 $7,677,592
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 Fund with the exception of
Capital Preservation. For Capital Preservation, the Manager pays for such
services. For administrative services, each Fund (except Capital Preservation)
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 administrative services provided to Capital Preservation, ACS is paid
by the Manager out of its management fee.
For transfer agent services, each Fund (except Capital Preservation) 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."
Administrative Fees
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Capital Preservation $2,896,754 $2,781,843 $2,759,738
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
- --------------------------------------------------------------------------------
Capital Preservation $2,536,792 $2,582,343 $2,728,965
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 with the exception of Capital Preservation) pays certain
operating expenses that are not assumed by the Manager or ACS. These include
fees and expenses of the independent trustees; custodian, audit, tax
preparation, and pricing fees; fees of outside counsel and counsel employed
directly by the Trust; costs of printing and mailing prospectuses, statements of
additional information, proxy statements, 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 Funds; costs for
incoming WATS lines maintained to receive and handle shareholder inquiries; and
organizational costs. The Manager pays all the expenses of Capital Preservation
except brokerage, taxes, interest, fees and expenses of the non-interested
person Trustees (including counsel fees) and extraordinary expenses.
EXPENSE LIMITATION AGREEMENT
The Manager has agreed to limit each Fund's expenses (with the exception of
Capital Preservation'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
- ------------------------------------------------------------------------
Capital Preservation .54% .57%
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 below:
Net Expense Absorbed (Recouped)
- --------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Fund 1996 1995 1994
- --------------------------------------------------------------------------------
Capital Preservation $0 $0 $0
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%
- --------------------------------------------------------------------------------
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.
OTHER INFORMATION
For further information, please refer to registration statement and
exhibits on file with the SEC in Washington, DC. 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.
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
<PAGE>
AMERICAN CENTURY GOVERNMENT INCOME TRUST
1933 Act Post-Effective Amendment No. 32
1940 Act Amendment No. 33
- --------------------------------------------------------------------------------
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 incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 31 filed on February 7, 1997
(Accession # 0000773674-97-000002).
(c) Amendment to the Declaration of Trust dated January 20,
1997 with respect to the American Century - Benham Inflation-
Adjusted Treasury Fund is incorporated herein by reference to
Exhibit 1 of Post-Effective Amendment No. 31 filed on February
7, 1997 (Accession # 0000773674-97-000002).
(2) Amended and Restated Bylaws, dated May 17, 1995, are
incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 28 filed on May 29, 1996
(Accession # 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
incorporated herein by reference to Exhibit 4 of
Post-Effective Amendment No. 31 filed on February 7, 1997
(Accession # 0000773674-97-000002).
(h) Specimen copy of American Century - Benham Capital
Preservation Fund to be filed by amendment.
(5) (a) Investment Advisory Agreement between 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 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).
(b) Investment Management Agreement between American Century -
Benham Capital Preservation Fund and American Century
Investment Management, Inc., dated -----------, 1997 to
be filed by amendment.
(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
incorporated herein by reference to Exhibit 8 of
Post-Effective Amendment No. 31 filed on February 7, 1997
(Accession # 0000773674-97-000002).
(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 incorporated herein by reference to
Exhibit 10 of Post-Effective Amendment No. 31 filed on
February 7, 1997 (Accession # 0000773674-97-000002).
(c) Opinion and consent of counsel as to the legality of the
American Century - Benham Capital Preservation Fund is to be
filed by amendment.
(11) Consent of KPMG Peat Marwick LLP, independent auditors, is
to be filed by amendment.
(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 January 31, 1997, each series of Benham Government Income Trust had the
following number shareholders of record:
American Century - Benham Government Agency Money Market Fund 17,163
American Century - Benham Short-Term Treasury Fund 1,155
American Century - Benham Intermediate-Term Treasury Fund 9,917
American Century - Benham Long-Term Treasury Fund 3,021
American Century - Benham Adjustable Rate Government Securities Fund 12,269
American Century - Benham GNMA Fund 37,900
American Century - Benham Inflation-Adjusted Treasury Fund 0
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.
Benham Management Corporation, the investment advisor to each of the
Registrant's Funds, with the exception of American Century - Benham Capital
Preservation Fund, 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. American Century Investment
Management, Inc., the investment advisor to American Century - Benham Capital
Preservation Fund, is engaged in the business of managing investments for
deferred compensation plans and other institutional investors.
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 investment advisor to each of the
Registrant's Funds, with the exception of American Century - Benham Capital
Preservation Fund, 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 commencement of operations.
(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.
(d) Registrant hereby undertakes to file, with respect to American
Century--Benham Capital Preservation Fund, a post-effective amendment using
financial statements which need not be certified, within four to six months
from the commencement of operations.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 32/Amendment No. 33 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 10th day of March, 1997.
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. 32/Amendment No. 33 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, March 10, 1997
- --------------------------------- President, and
James M. Benham Chief Executive Officer
* Trustee March 10, 1997
- ---------------------------------
Albert A. Eisenstat
* Trustee March 10, 1997
- ---------------------------------
Ronald J. Gilson
* Trustee March 10, 1997
- ---------------------------------
Myron S. Scholes
* Trustee March 10, 1997
- ---------------------------------
Kenneth E. Scott
* Trustee March 10, 1997
- ---------------------------------
Isaac Stein
* Trustee March 10, 1997
- ---------------------------------
James E. Stowers III
* Trustee March 10, 1997
- ---------------------------------
Jeanne D. Wohlers
* Chief Financial Officer, Treasurer March 10, 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
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 31 filed on February 7, 1997 (Accession #
0000773674-97-000002).
c) Amendment to the Declaration of Trust dated January 20, 1997 with
respect to the American Century - Benham Inflation-Adjusted Treasury
Fund is incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 31 filed on February 7, 1997 (Accession
# 0000773674-97-000002).
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 incorporated herein by reference
to Exhibit 4 of Post-Effective Amendment No. 31 filed on February 7,
1997 (Accession # 0000773674-97-000002).
h) Specimen copy of American Century - Benham Capital Preservation
Fund to be filed by amendment.
EX-99.B5 a) Investment Advisory Agreement between 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 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).
b) Investment Management Agreement between American Century - Benham
Capital Preservation Fund and American Century Investment
Management, Inc., dated -----------, 1997 to be filed by amendment.
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 incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 31
filed on February 7, 1997 (Accession # 0000773674-97-000002).
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 incorporated herein by reference to Exhibit 10 of
Post-Effective Amendment No. 31 filed on February 7, 1997 (Accession
# 0000773674-97-000002).
c) Opinion and consent of counsel as to the legality of the American
Century - Benham Capital Preservation Fund is to be filed by
amendment.
EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is to be
filed by amendment.
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.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> AMERICAN CENTURY - BENHAM GNMA FUND
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 1,129,431,463
<INVESTMENTS-AT-VALUE> 1,124,075,837
<RECEIVABLES> 7,617,323
<ASSETS-OTHER> 3,444,054
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,135,137,214
<PAYABLE-FOR-SECURITIES> 11,400,238
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,466,751
<TOTAL-LIABILITIES> 16,866,989
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,151,255,414
<SHARES-COMMON-STOCK> 108,106,970
<SHARES-COMMON-PRIOR> 107,220,778
<ACCUMULATED-NII-CURRENT> 25,484
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,655,047)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,355,626)
<NET-ASSETS> 1,118,270,225
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,156,984
<OTHER-INCOME> 0
<EXPENSES-NET> 3,028,759
<NET-INVESTMENT-INCOME> 38,128,225
<REALIZED-GAINS-CURRENT> (3,946,624)
<APPREC-INCREASE-CURRENT> (6,955,903)
<NET-CHANGE-FROM-OPS> 27,225,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,085,694
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,611,713
<NUMBER-OF-SHARES-REDEEMED> 16,555,822
<SHARES-REINVESTED> 2,830,301
<NET-CHANGE-IN-ASSETS> (1,749,011)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,538,387
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,082,604
<AVERAGE-NET-ASSETS> 1,103,449,105
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 20.37
<PER-SHARE-DIVIDEND> 0.36
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> 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
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,262,091
<TOTAL-LIABILITIES> 1,262,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,282,121
<SHARES-COMMON-STOCK> 29,954,516
<SHARES-COMMON-PRIOR> 30,370,621
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,440,824)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,644,533)
<NET-ASSETS> 305,199,022
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,332,594
<OTHER-INCOME> 0
<EXPENSES-NET> 782,665
<NET-INVESTMENT-INCOME> 8,549,929
<REALIZED-GAINS-CURRENT> 76,129
<APPREC-INCREASE-CURRENT> (1,670,477)
<NET-CHANGE-FROM-OPS> 6,955,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,546,608
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,319,706
<NUMBER-OF-SHARES-REDEEMED> 4,434,457
<SHARES-REINVESTED> 698,646
<NET-CHANGE-IN-ASSETS> (5,820,892)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 418,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 792,508
<AVERAGE-NET-ASSETS> 294,852,171
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 204.75
<PER-SHARE-DIVIDEND> 0.29
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<NAME> AMERICAN CENTURY - BENHAM GOVERNMENT AGENCY MONEY MARKET
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<NAME> AMERICAN CENTURY - BENHAM ADJUSTABLE RATE GOV'T SECURITIES
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<NAME> AMERICAN CENTURY - BENHAM LONG-TERM TREASURY FUND
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