TWENTIETH CENTURY
Conservative Equity Funds
Advisor Class Prospectus
SEPTEMBER 3,
1996
TWENTIETH CENTURY CAPITAL PORTFOLIOS
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TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc., a member of the Twentieth
Century family of funds, is an open-end diversified management investment
company whose Advisor Class shares are offered to investors without a sales
charge. Two series of shares, or "funds," are described in this Prospectus,
Twentieth Century Value and Twentieth Century Equity Income. The investment
objectives of the funds are listed on the inside cover of this Prospectus.
Each fund's shares offered in this Prospectus (the Advisor Class shares)
are sold at their net asset value with no sales charges or commissions. The
Advisor Class shares are subject to a Rule 12b-1 shareholder services fee and
distribution fee as described in this Prospectus.
The Advisor Class shares are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through broker-dealers, banks, insurance companies and other financial
intermediaries that provide various administrative and distribution services.
This Prospectus gives you information about the funds that you should know
before investing. You should read this Prospectus carefully and retain it for
future reference. Additional information is included in the Statement of
Additional Information dated September 3, 1996, and filed with the Securities
and Exchange Commission. It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419385
Kansas City, MO 64141-6385 o 1-800-345-3533
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-345-1833 o In Missouri: 816-753-0700
Internet: http://www.twentieth-century.com
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, 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.
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INVESTMENT OBJECTIVES OF THE FUNDS
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TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
investment objectives by investing in securities that management believes to be
undervalued at the time of purchase.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective. The
fund attempts to achieve its objectives by investing primarily in
income-producing equity securities. In the pursuit of its objectives, the fund
seeks a yield that exceeds the yield of securities comprising the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500").
There is no assurance that the funds will achieve their respective
investment objectives.
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NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2
TABLE OF CONTENTS
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TRANSACTION AND
OPERATING EXPENSE TABLE ......................................... 4
FINANCIAL HIGHLIGHTS .............................................. 5
INFORMATION REGARDING THE FUNDS
INVESTMENT POLICIES OF THE FUNDS .................................. 7
Twentieth Century Value ......................................... 7
Twentieth Century Equity Income ................................. 7
Policies Applicable to Both Funds ............................... 7
OTHER INVESTMENT PRACTICES, THEIR
CHARACTERISTICS AND RISKS ..................................... 9
Foreign Securities .............................................. 9
Equity Securities ............................................... 9
Forward Currency Exchange Contracts ............................. 9
Portfolio Turnover .............................................. 10
Repurchase Agreements ........................................... 11
Index Futures Contracts ......................................... 11
Derivative Securities ........................................... 12
Portfolio Lending ............................................... 12
When-Issued Securities .......................................... 13
Short Sales ..................................................... 13
Rule 144A Securities ............................................ 13
PERFORMANCE ADVERTISING ........................................... 14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO PURCHASE AND SELL
TWENTIETH CENTURY FUNDS ......................................... 15
HOW TO EXCHANGE YOUR INVESTMENT FROM
ONE TWENTIETH CENTURY FUND
TO ANOTHER ...................................................... 15
HOW TO REDEEM SHARES .............................................. 15
Special Requirements for
Large Redemptions ............................................... 16
TELEPHONE SERVICES ................................................ 16
Investors Line .................................................. 16
Automated Information Line ...................................... 16
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE ....................................................... 17
When Share Price Is Determined .................................. 17
How Share Price Is Determined ................................... 17
Where to Find Information
About Share Price .............................................. 18
DISTRIBUTIONS ..................................................... 18
TAXES ............................................................. 18
Tax-Deferred Accounts ........................................... 18
Taxable Accounts ................................................ 19
MANAGEMENT ........................................................ 20
Investment Management ........................................... 20
Code of Ethics .................................................. 20
Transfer and Administrative Services ............................ 21
DISTRIBUTION OF FUND SHARES ....................................... 21
Service and Distribution Fees ................................... 21
FURTHER INFORMATION
ABOUT TWENTIETH CENTURY ......................................... 22
3
TRANSACTION AND OPERATING EXPENSE TABLE
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Twentieth Century Value
and Twentieth Century
Equity Income
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Load Imposed on Purchases....................... none
Maximum Sales Load Imposed on Reinvested Dividends............ none
Deferred Sales Load........................................... none
Redemption Fee................................................ none
Exchange Fee.................................................. none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Management Fees............................................... 0.75%
12b-1 Fees(1)................................................. 0.50%
Other Expenses(2)............................................. 0.00%
Total Fund Operating Expenses................................. 1.25%
Example: You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption
at the end of each time period: 1 year $13
3 years 40
5 years 68
10 years 150
(1) The 12b-1 fee is designed to permit investors to purchase Advisor Class
shares through broker-dealers, banks, insurance companies and other
financial intermediaries. A portion of the fee is used to compensate them
for ongoing recordkeeping and administrative services that would otherwise
be performed by an affiliate of the manager, and a portion is used to
compensate them for distribution and other shareholder services. See
"Service and Distribution Fees," page 21.
(2) Other expenses, which include the fees and expenses (including legal counsel
fees) of those directors who are not "interested persons" as defined in the
Investment Company Act, were .00111 of 1% of average net assets for the most
recent fiscal year.
The purpose of this 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 class of shares of the funds 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
Securities and Exchange Commission 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.
The shares offered by this Prospectus are Advisor Class shares. The funds
offer three other classes of shares, one of which is primarily made available to
retail investors and two that are primarily made available to institutional
investors. The other classes have different fee structures than the Advisor
Class, resulting in different performance for those other classes. For
additional information about the various classes, see "Further Information About
Twentieth Century," page 22.
4
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FINANCIAL HIGHLIGHTS--VALUE
(For a share outstanding throughout the period)
The Advisor Class of the funds was established September 3, 1996. The
financial information in these tables regarding selected per share data for each
of the funds reflects the performance of the funds' Investor Class of shares,
which has a total expense ratio that is 0.25% lower than the Advisor Class. Had
the Advisor Class been in existence for such funds for the time periods
presented, the funds' performance information would be lower as a result of the
additional expense.
The Financial Highlights for each of the periods presented have been
examined by Ernst & Young LLP, independent auditors, whose report thereon
appears in the corporation's annual report, which is incorporated by reference
into the Statement of Additional Information. The annual report contains
additional performance information and will be made available upon request and
without charge.
Years Ended March 31, September 1, 1993
----------------------- (inception) through
1996 1995 March 31, 1994
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NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.46 $4.98 $5.01
----- ----- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1)....................... 0.13 0.12 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.34 0.75 (0.04)
---- ---- -----
Total from
Investment Operations........... 1.47 0.87 0.04
---- ---- -----
DISTRIBUTIONS
From Net
Investment Income............... (0.12) (0.12) (0.07)
In Excess of Net Investment.....
Income (0.01) -- --
From Net Realized
Gains on Investment
Transactions.................... (0.48) (0.27) --
---- ---- ----
Total Distributions............. (0.61) (0.39) (0.07)
---- ---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.32 $5.46 $4.98
==== ==== ====
TOTAL RETURN(2)................. 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.97% 1.00% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets...................... 2.17% 2.65% 3.37%(3)
Portfolio Turnover Rate......... 145% 94% 79%
Average Commission Paid per
Investment Security Traded...... $0.0409 --(4) --(4)
Net Assets, End
of Period (in thousands)........$881,885 $348,281 $87,798
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(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
5
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FINANCIAL HIGHLIGHTS--EQUITY INCOME
(continued)
August 1, 1994
Year Ended (inception) through
March 31, 1996 March 31, 1995
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NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.42 $5.00
---- ----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1).................... 0.20 0.09
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.13 0.44
---- ----
Total from
Investment Operations........ 1.33 0.53
---- ----
DISTRIBUTIONS
From Net
Investment Income............ (0.19) (0.09)
In Excess of Net Investment
Income....................... (0.01) --
From Net Realized
Gains on Investment
Transactions................. (0.45) (0.02)
---- ----
Total Distributions.......... (0.65) (0.11)
---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.10 $5.42
==== ====
TOTAL RETURN(2)................... 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........ 0.98% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets................... 3.51% 4.04%(3)
Portfolio Turnover Rate...... 170% 45%
Average Commission Paid per
Investment Security Traded... $0.0378 --(4)
Net Assets, End
of Period (in thousands)..... $116,692 $52,213
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(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
6
INFORMATION REGARDING THE FUNDS
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INVESTMENT POLICIES OF THE FUNDS
The funds have adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as the
investment objective of the funds, as identified on the inside front cover page,
and any other investment policies designated as "fundamental" in this Prospectus
or in the Statement of Additional Information, cannot be changed without the
approval of the shareholders entitled to cast a majority of the outstanding
votes of the corporation, as defined by the Investment Company Act. The funds
have implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are not
designated as fundamental policies and may be changed without shareholder
approval.
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
objectives by investing primarily in equity securities of well-established
companies with intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
Securities may be undervalued because they are temporarily out of favor in
the market due to market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the issuer of the security or its
industry, or because the market has overlooked them. Under normal market
conditions, the fund expects to invest at least 80% of the value of its total
assets in equity securities. The fund's investments will typically be
characterized by lower price-to-earnings, price-to-cash flow and/or
price-to-book value ratios relative to the equity market in general. Its
investments also may have above-average current dividend yields.
It is management's intention that the fund will primarily consist of
domestic equity securities. However, the fund also may invest in other types of
domestic or foreign securities consistent with the accomplishment of the fund's
objective. The other securities the fund may invest in are convertible
securities (see "Other Investment Practices, Their Characteristics and
Risks--Equity Securities," page 9), preferred stocks, bonds, notes and debt
securities of companies and debt obligations of governments and their agencies.
Investments in these securities will be made when the manager believes that the
total return potential on these securities equals or exceeds the potential
return on common stocks.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective of
the fund. The fund seeks to achieve its objectives by screening companies
primarily for favorable dividend paying history (yield) and prospects for
continuing and/or increasing dividend paying ability and secondarily for capital
appreciation potential. The fund seeks a yield that exceeds the yield of
securities comprising the S&P 500. Total return for the fund will consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
Under normal circumstances, the fund will invest at least 65% of the fund's
total assets in equity securities and at least 85% of the fund's total assets
will be invested in income-paying securities. The fund's portfolio will consist
primarily of domestic securities.
POLICIES APPLICABLE TO BOTH FUNDS
Each fund's holdings will be spread among industry groups that meet its
investment criteria to help reduce certain of the risks inherent in
7
common stock investments. These investments will primarily be securities listed
on major exchanges or traded in the over-the-counter markets.
Income is a primary or secondary objective of each fund. As a result, a
portion of the portfolio of each fund may consist of fixed income securities.
The value of fixed income securities fluctuates based on changes in
interest rates and in the credit quality of the issuer. Debt securities that
comprise part of a fund's fixed income portfolio will primarily be limited to
"investment grade" obligations. However, each fund may invest up to 5% of its
assets in "high yield" securities. "Investment grade" means that at the time of
purchase, such obligations are rated within the four highest categories by a
nationally recognized statistical rating organization [for example, at least Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P")], or, if not rated, are of equivalent investment quality as
determined by the investment manager. According to Moody's, bonds rated Baa are
medium-grade and possess some speculative characteristics. A BBB rating by S&P
indicates S&P's belief that a security exhibits a satisfactory degree of safety
and capacity for repayment, but is more vulnerable to adverse economic
conditions and changing circumstances.
"High yield" securities, sometimes referred to as "junk bonds," are higher
risk, non-convertible debt obligations that are rated below investment grade
securities, or are unrated, but with similar credit quality.
There are no credit or maturity restrictions on the fixed income securities
in which the high yield portion of fund's portfolio may be invested. Debt
securities rated lower than Baa by Moody's or BBB by S&P or their equivalent are
considered by many to be predominantly speculative. Changes in economic
conditions or other circumstances are more likely to lead a weakened capacity to
make principal and interest payments on such securities that is the case with
higher quality debt securities. Regardless of rating levels, all debt securities
considered for purchase by the fund are analyzed by the investment manager to
determine, to the extent reasonably possible, that the planned investment is
sound, given the investment objective of the fund. See "An Explanation of Fixed
Income Securities Ratings" in the Statement of Additional Information.
The funds will not necessarily dispose of high yield securities if the
aggregate value of such securities exceeds 5% of a fund's assets if such level
is exceeded as a result of market appreciation of the value of such securities
or market depreciation of the value of the other assets of the fund. Rather, the
manager will cease purchasing any additional high yield securities until the
value of such securities is less than 5% of the fund's assets and will monitor
such investments to determine whether continuing to hold such investments is
likely to assist the fund in meeting its investment objectives.
In addition, the value of a fund's investments in fixed income securities
will change as prevailing interest rates change. In general, the prices of such
securities vary inversely with interest rates. As prevailing interest rates
fall, the prices of bonds and other securities that trade on a yield basis rise.
When prevailing interest rates rise, bond prices fall. These changes in value
may, depending upon the particular amount and type of fixed income securities
holdings of a fund, impact the net asset value of that fund's shares.
Notwithstanding the fact the funds will primarily invest in equity
securities, under exceptional market or economic conditions, the funds may
temporarily invest all or a substantial portion of their assets in cash or
investment grade short-term securities (denominated in U.S. dollars or foreign
currencies).
To the extent that a fund assumes a defensive position, it will not be
investing for capital growth.
8
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information, see "Investment Restrictions" in the Statement
of Additional Information.
FOREIGN SECURITIES
Each fund may invest up to 25% of its assets in the securities of foreign
issuers, including debt securities of foreign governments and their agencies,
when these securities meet its standards of selection. The manager defines
"foreign issuer" as an issuer of securities that is domiciled outside the United
States, derives at least 50% of its total revenue from production or sales
outside of the United States, and/or whose principal trading market is outside
the United States. The principal business activities of such issuers will be
located in developed countries.
The funds may make such investments either directly in foreign securities
or indirectly by purchasing depositary receipts or depositary shares of similar
instruments ("DRs") for foreign securities. DRs are securities that are listed
on exchanges or quoted in the domestic over-the-counter markets in one country
but represent shares of issuers domiciled in another country. Direct investments
in foreign securities may be made either on foreign securities exchanges or in
the over-the-counter markets.
Subject to its investment objective and policies, each fund may invest in
common stocks, convertible securities, preferred stocks, bonds, notes and other
debt securities of foreign issuers and debt securities of foreign governments
and their agencies. The credit quality standards applicable to domestic
securities purchased by each fund are also applicable to its foreign securities
investments.
Investments in foreign securities may present certain risks, including
those resulting from fluctuations in currency exchange rates, future political
and economic developments, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
EQUITY SECURITIES
In addition to investing in common stocks, the funds may invest in other
equity securities and equity equivalents. Other equity securities and equity
equivalents include securities that permit the fund to receive an equity
interest in an issuer, the opportunity to acquire an equity interest in an
issuer, or the opportunity to receive a return on its investment that permits
the fund to benefit from the growth over time in the equity of an issuer.
Examples of equity securities and equity equivalents include preferred stock,
convertible preferred stock and convertible debt securities.
Each fund will limit its purchase of convertible debt securities to those
that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or
if not rated by S&P or Moody's are of equivalent investment quality as
determined by the manager. Debt securities rated below the four highest
categories are not considered "investment grade" obligations. These securities
have speculative characteristics and present more credit risk than investment
grade obligations. For a description of the S&P and Moody's ratings categories,
see "An Explanation of Fixed Income Securities Ratings," page 7 of the Statement
of Additional Information. Equity equivalents may also include securities whose
value or return is derived from the value or return of a different security.
Depositary receipts are an example of the type of derivative security in which
the fund might invest.
FORWARD CURRENCY EXCHANGE CONTRACTS
Some of the securities held by the funds may be denominated
in foreign currencies. Other
9
securities, such as DRs, may be denominated in U.S. dollars but have a value
that is dependent on the performance of a foreign security, as valued in the
currency of its home country. As a result, the value of a fund's portfolio may
be affected by changes in the exchange rate between foreign currencies and the
U.S. dollar, as well as by changes in the market value of the securities
themselves. The performance of foreign currencies relative to the dollar may be
a factor in a fund's overall performance.
To protect against adverse movements in exchange rates between currencies,
the funds may, for hedging purposes only, enter into forward currency exchange
contracts. A forward currency exchange contract obligates the fund to purchase
or sell a specific currency at a future date at a specific price.
Each fund may elect to enter into a forward currency exchange contract with
respect to a specific purchase or sale of a security, or with respect to the
fund's portfolio positions generally.
By entering into a forward currency exchange contract with respect to the
specific purchase or sale of a security denominated in a foreign currency, the
funds can "lock in" an exchange rate between the trade and settlement dates for
that purchase or sale. This practice is sometimes referred to as "transaction
hedging." Each fund may enter into transaction hedging contracts with respect to
all or a substantial portion of its foreign securities trades.
When the manager believes that a particular currency may decline in value
compared to the dollar, the funds may enter into forward currency exchange
contracts to sell an amount of foreign currency equal to the value of some or
all of a fund's portfolio securities either denominated in, or whose value is
tied to, that currency. This practice is sometimes referred to as "portfolio
hedging." A fund may not enter into a portfolio hedging transaction where the
fund would be obligated to deliver an amount of foreign currency in excess of
the aggregate value of the fund's portfolio securities or other assets
denominated in, or whose value is tied to, that currency.
The funds will make use of portfolio hedging to the extent deemed
appropriate by the manager. However, it is anticipated that the funds will enter
into portfolio hedges much less frequently than transaction hedges.
If a fund enters into a forward currency exchange contract, the fund, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the fund's commitment. At any given time, no more than 10% of a fund's
assets will be committed to a segregated account in connection with portfolio
hedging transactions.
Predicting the relative future values of currencies is very difficult, and
there is no assurance that any attempt to protect the funds against adverse
currency movements through the use of forward currency exchange contracts will
be successful. In addition, the use of forward currency exchange contracts tends
to limit the potential gains that might result from a positive change in the
relationship between the foreign currency and the U.S. dollar.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights table on pages 5 and 6 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a fund's objectives. The
manager believes that the rate of portfolio turnover is irrelevant when it
believes a change is in order to achieve those objectives and, accordingly, the
annual portfolio turnover rate cannot be accurately predicted.
10
The portfolio turnover of the funds may be higher than other investment
companies with similar investment objectives. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost that the funds
pay directly. Portfolio turnover may also affect the character of capital gains,
if any, realized and distributed by a fund since short-term capital gains are
taxable as ordinary income.
REPURCHASE AGREEMENTS
Each fund may invest up to 20% of its assets in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the fund's
investment policies.
A repurchase agreement occurs when a fund purchases an interest-bearing
obligation from a bank or broker-dealer registered under the Securities Exchange
Act of 1934 and simultaneously agrees to sell it back on a specified date in the
future (usually less than one week later) at a higher price. The repurchase
price reflects an agreed-upon interest rate during the time the fund's money is
invested in the security and is considered by the staff of the Securities and
Exchange Commission to be a loan by the fund.
A fund's risk in connection with repurchase agreements is the ability of
the seller to pay the repurchase price on the repurchase date. If the seller
defaults, the fund may incur costs, delays or losses. Management monitors the
creditworthiness of sellers.
The funds will not invest more than 15% of their respective assets in
repurchase agreements maturing in more than seven days.
The funds will enter into repurchase agreements only with those commercial
banks and broker-dealers whose creditworthiness has been reviewed and found
satisfactory by the funds' management pursuant to criteria adopted by the funds'
board of directors.
INDEX FUTURES CONTRACTS
Each fund may enter into domestic stock index futures contracts. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. Rather than actually purchasing the securities
of an index, the manager may purchase a futures contract, which reflects the
value of such underlying securities. For example, S&P 500 futures reflect the
value of the underlying companies that comprise the S&P 500 Composite Stock
Price Index. If the aggregate market value of the underlying index securities
increases or decreases during the contract period, the value of the S&P 500
futures can be expected to reflect such increase or decrease. As a result, the
manager is able to expose to the equity markets cash that is maintained by the
funds to meet anticipated redemptions or held for future investment
opportunities. Because futures generally settle within a day from the date they
are closed out (compared with three days for the types of equity securities
primarily invested in by the funds) the manager believes that this use of
futures allows the funds to effectively be fully invested in equity securities
while maintaining the liquidity needed by the funds.
When a fund enters into a futures contract, it must make deposit of cash or
high-quality debt securities, known as "initial margin," as partial security for
its performance under the contract. As the value of the index fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. Assets set aside by a fund as initial or variable margin may not be
disposed of so long as the fund maintains the contract.
The funds may not purchase leveraged futures. A fund will deposit in a
segregated account with its custodian bank cash or high-quality debt securities
in an amount equal to the fluctuating market value of the index contracts it
11
has purchased, less any margin deposited on its position. The funds will only
invest in exchange-traded futures. In addition, the value of index futures
contracts purchased by a fund may not exceed 5% of the fund's total assets.
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each of
the funds may invest in securities that are commonly referred to as "derivative"
securities. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Certain derivative securities are more accurately described as
"index/structured" securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts or S&P 500 futures), currencies, interest rates, indices
or other financial indicators ("reference indices").
Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to
use them. Futures and options are commonly used for traditional hedging purposes
to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the S&P 500 Index would
be a permissible investment since each of the funds may invest in the securities
of companies comprising the S&P 500 Index (assuming they otherwise meet the
other requirements for the fund), while a security whose underlying value is
linked to the price of oil would not be a permissible investment since the funds
may not invest in oil and gas leases or futures.
The return of a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio manager
anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a
position when desired;
o the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The board of directors has approved the manager's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The manager will report on fund activity in
derivative securities to the board of directors as necessary. In addition, the
board will review the manager's policy for investments in derivative securities
annually.
PORTFOLIO LENDING
In order to realize additional income, each fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash, collateral or by
irrevocable letters of credit maintained on a current basis in
12
an amount at least equal to the market value of the securities loaned. During
the existence of the loan, the funds must continue to receive the equivalent of
the interest and dividends paid by the issuer on the securities loaned and
interest on the investment of the collateral. The funds must have the right to
call the loan and obtain the securities loaned at any time on five days' notice,
including the right to call the loan to enable the fund to vote the securities.
Such loans may not exceed one-third of either fund's net assets valued at
market. The portfolio lending policy described in this paragraph is fundamental
policy that may be changed only by a vote of a majority of the fund's
shareholders.
WHEN-ISSUED SECURITIES
Each fund may purchase new issues of securities on a when-issued basis
without limit when, in the opinion of management, such purchases will further
the investment objectives of such 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 occur 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 when-issued security.
Accordingly, the value of such security may decline prior to delivery, which
could result in a loss to the fund. A separate account consisting of cash or
high-quality liquid debt securities in an amount at least equal to the
when-issued commitments will be established and maintained with the custodian.
No income will accrue to the fund prior to delivery.
SHORT SALES
Each fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost. These transactions allow a fund to hedge against
price fluctuations by locking in a sale price for securities it does not wish to
sell immediately.
A fund may make a short sale when it wants to sell the security it owns at
a current attractive price, but also wishes to defer recognition of gain or loss
for federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
RULE 144A SECURITIES
The funds may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the funds'
criteria for selection. Rule 144A securities are securities that are privately
placed with and traded among qualified institutional investors rather than the
general public. Although Rule 144A securities are considered "restricted
securities," they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff
of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the board
of directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the board of directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the manager.
The board retains the responsibility to monitor the implementation of the
guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A security
that is illiquid. In such an event, the fund's manager will consider appropriate
remedies to minimize the effect on such fund's liquidity. Neither fund may
13
invest more than 15% of its assets in illiquid securities (securities that may
not be sold within seven days at approximately the price used in determining the
net asset value of fund shares).
PERFORMANCE ADVERTISING
From time to time, the funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return. Performance
data may be quoted separately for the Advisor Class and the other classes
offered by the funds.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules for all stock and bond funds. Because yield
accounting methods differ from the methods used for other accounting purposes, a
fund's yield may not equal the income paid on its shares or the income reported
in the fund's financial statements.
Each fund also may 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) 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, such as the
Standard & Poor's 500 Index, the Dow Jones Industrial Average, the S&P/Barra
Value Index (with regard to Twentieth Century Value) and the Lipper Equity
Income Fund Index (with regard to Twentieth Century Equity Income). The
performance of a fund may also be compared, on a relative basis, to 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.
All performance information advertised by the funds is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
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The following section explains how to purchase, exchange and redeem Advisor
Class shares of the funds offered by this Prospectus.
HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS
One or more of the funds offered by this Prospectus is available as an
investment option under your employer-sponsored retirement or savings plan or
through or in connection with a program, product or service offered by a
financial intermediary, such as a bank, broker-dealer or an insurance company.
Since all records of your share ownership are maintained by your plan sponsor,
plan recordkeeper, or other financial intermediary, all orders to purchase,
exchange and redeem shares must be made through your employer or other financial
intermediary, as applicable.
If you are purchasing through a retirement or savings plan, the
administrator of your plan or your employee benefits office can provide you with
information on how to participate in your plan and how to select Twentieth
Century funds as an investment option.
If you are purchasing through a financial intermediary, you should contact
your service representative at the financial intermediary for information about
how to select Twentieth Century funds.
If you have questions about a fund, see "Investment Policies of the Funds,"
page 7, or call our Investors Line at 1-800-345-3533.
Orders to purchase shares are effective on the day we receive payment. See
"When Share Price is Determined," page 17.
We may discontinue offering shares generally in the funds (including any
class of shares of a fund) or in any particular state without notice to
shareholders.
HOW TO EXCHANGE YOUR INVESTMENT FROM ONE
TWENTIETH CENTURY FUND TO ANOTHER
Your plan or program may permit you to exchange your investment in the
shares of a fund for shares of another fund in our family. See your plan
administrator, employee benefits office or financial intermediary for details on
the rules in your plan governing exchanges.
Exchanges are made at the respective net asset values, next computed after
receipt of the exchange instruction by us. If in any 90-day period, the total of
the exchanges and redemptions from the account of any one plan participant or
financial intermediary client exceeds the lesser of $250,000 or 1% of a fund's
assets, further exchanges may be subject to special requirements to comply with
our policy on large equity fund redemptions. See "Special Requirements for Large
Redemptions," page 16.
HOW TO REDEEM SHARES
Subject to any restrictions imposed by your employer's plan or financial
intermediary's program, you can sell ("redeem") your shares through the plan or
financial intermediary at their net asset value. Your plan administrator,
trustee, or financial intermediary or other designated person must provide us
with redemption instructions. The shares will be redeemed at the net asset value
next computed after receipt of the instructions in good order. See "When Share
Price Is Determined," page 17. If you have any questions about how to redeem,
contact your plan administrator, employee benefits office, or service
representative at your financial intermediary, as applicable.
15
SPECIAL REQUIREMENTS FOR
LARGE REDEMPTIONS
We have elected to be governed by Rule 18f-1 under the Investment Company
Act, which obligates each fund to redeem shares in cash, with respect to any one
participant account during any 90-day period, up to the lesser of $250,000 or 1%
of the assets of the fund. Although redemptions in excess of this limitation
will also normally be paid in cash, we reserve the right to honor these
redemptions by making payment in whole or in part in readily marketable
securities (a "redemption-in-kind"). If payment is made in securities, the
securities will be selected by the fund, will be valued in the same manner as
they are in computing the fund's net asset value and will be provided to the
redeeming plan participant or financial intermediary in lieu of cash without
prior notice.
If you expect to make a large redemption and would like to avoid any
possibility of being paid in securities, you may do so by providing us with an
unconditional instruction to redeem at least 15 days prior to the date on which
the redemption transaction is to occur. The instruction must specify the dollar
amount or number of shares to be redeemed and the date of the transaction.
Receipt of your instruction 15 days prior to the transaction provides the fund
with sufficient time to raise the cash in an orderly manner to pay the
redemption and thereby minimizes the effect of the redemption on the fund and
its remaining shareholders.
Despite the funds' right to redeem fund shares through a
redemption-in-kind, we do not expect to exercise this option unless a fund has
an unusually low level of cash to meet redemptions and/or is experiencing
unusually strong demands for its cash. Such a demand might be caused, for
example, by extreme market conditions that result in an abnormally high level of
redemption requests concentrated in a short period of time. Absent these or
similar circumstances, we expect redemptions in excess of $250,000 to be paid in
cash in any fund with assets of more than $50 million if total redemptions from
any one account in any 90-day period do not exceed one-half of 1% of the total
assets of the fund.
TELEPHONE SERVICES
INVESTORS LINE
You may reach one of our Institutional Service Representatives by calling
our Investors Line at 1-800-345-3533. On our Investors Line you may request
information about our funds and a current prospectus, or get answers to any
questions that you may have about the funds and the services we offer.
AUTOMATED INFORMATION LINE
In addition to reaching us on our Investors Line, you may also reach us by
telephone on our 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.
16
ADDITIONAL INFORMATION YOU SHOULD KNOW
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SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. Net asset value is determined at the close of regular trading on
each day that the New York Stock Exchange is open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares received by us or one of our authorized agents before the close of
business on the New York Stock Exchange, usually 3 p.m. Central time, are
effective on, and will receive the price determined, that day as of the close of
the Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined, as of the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by us. Wired funds are considered received on the day they are
deposited in our bank account if your phone call is received before the close of
business on the Exchange and the money is deposited that day.
It is the responsibility of your plan recordkeeper or financial
intermediary to transmit your purchase, exchange and redemption requests to the
funds' transfer agent prior to the applicable cut-off time and to make payment
for any purchase transactions in accordance with the funds' procedures or any
contractual arrangement with the funds or the funds' distributor in order for
you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of each fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
price is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices or at
the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the board of directors.
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 directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange if that
is earlier. That value is then converted to dollars at the prevailing foreign
exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, which was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the board of directors.
Trading of these securities in foreign markets may not take place on every
New York Stock Exchange business day. In addition,
17
trading may take place in various foreign markets on Saturdays or on other days
when the New York Stock Exchange is not open and on which a fund's net asset
value is not calculated. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of many of the portfolio
securities used in such calculation and the value of a fund's portfolio may be
affected on days when shares of the fund may not be purchased or redeemed.
WHERE TO FIND INFORMATION ABOUT SHARE PRICE
The net asset values of the Investor Class of the funds are published in
leading newspapers daily. The net asset value of the Advisor Class of each fund
may be obtained by calling us.
DISTRIBUTIONS
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized securities gains, if any, generally are declared
and paid annually, usually in December, but the funds may make distributions on
a more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the Investment
Company Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders in 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
purchase by check or ACH may be held up to 15 days. You may elect to have
distributions on shares of Individual Retirement Accounts and 403(b) plans paid
in cash only if you are 591/2 years old or permanently and totally disabled.
Distribution checks normally are mailed within seven days after the record date.
The board of directors may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
A distribution on shares of a fund does not increase the value of your
shares or your total return. At any given time, the value of your shares
includes the undistributed net gains, if any, realized by the fund on the sale
of portfolio securities and undistributed dividends and interest received, less
fund expenses.
Because undistributed gains and dividends are included in the value of your
shares prior to distribution, when they are distributed, the value of your
shares will be reduced by the amount of the distribution. If you buy your shares
through a taxable account just before the distribution, you will pay the full
price for your shares and then receive a portion of the purchase price back as a
taxable distribution. See "Taxes," this page.
TAXES
Each fund has elected to be taxed as a regulated investment company under
Sub-chapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the 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 funds will generally not be subject to current
taxation, but will accumulate in your account 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
adviser regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
18
TAXABLE ACCOUNTS
If the 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. Distributions from net long-term capital gains are taxable as
long-term capital gains regardless of the length of time you have held the
shares on which such distributions are paid. However, you should note that any
loss realized upon the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of any distribution of
long-term capital gain to you with respect to such shares.
Dividends and interest received by the funds on foreign securities, and, in
limited circumstances capital gains realized by the funds upon the sale of such
securities, may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Foreign countries generally do not impose taxes
on capital gains in respect of investments by non-resident investors. The
foreign taxes paid by a fund will reduce its dividends.
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 distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) remains the same. In addition, the share price at the time you purchase
shares may include unrealized gains in the securities held in the investment
portfolio of the fund. If these portfolio securities are subsequently sold and
the gains are realized, they will, to the extent not offset by capital losses,
be paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains. See "Distributions," page 18.
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 made to taxable accounts also may be subject to state and
local taxes, even if all or a substantial part of such distributions are derived
from interest on U.S. government obligations, which, if you received them
directly, would be exempt from state income tax. However, most but not all
states allow this tax exemption to pass through to fund shareholders when a fund
pays distributions to its shareholders. You should consult your tax adviser
about the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, either we or your financial intermediary is 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
TWENTIETH CENTURY THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION
NUMBER WILL SUBJECT TWENTIETH CENTURY 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. THIS CHARGE IS NOT REFUNDABLE.
Redemption of shares of a fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize 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 generally will 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
19
days before or after the redemption may be subject to the "wash sale" rules of
the Code, resulting in a postponement of the recognition of such loss for
federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
Under the laws of the State of Maryland, the board of directors is
responsible for managing the business and affairs of the funds. Acting pursuant
to an investment management agreement entered into with the funds, Investors
Research Corporation ("Investors Research") serves as the investment manager of
the funds. Its principal place of business is Twentieth Century Tower, 4500 Main
Street, Kansas City, Missouri, 64111. Investors Research has been providing
investment advisory services to investment companies and institutional clients
since 1958.
Investors Research supervises and manages the investment portfolio of the
funds and directs the purchase and sale of their investment securities.
Investors Research utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the funds' portfolios as it deems
appropriate in pursuit of the funds' investment objectives. Individual Portfolio
manager members of the team may also adjust portfolio holdings of the funds as
necessary between team meetings.
The portfolio manager members of the team managing the funds described in
this Prospectus and their work experience for the last five years are as
follows:
PETER A. ZUGER, Vice President and Portfolio Manager, joined Twentieth
Century in June 1993 as a Portfolio Manager. Prior to joining Twentieth Century,
Mr. Zuger served as an investment manager in the Trust Department of NBD Bancorp
in Detroit, Michigan.
PHILLIP N. DAVIDSON, Vice President and Portfolio Manager, joined Twentieth
Century in September 1993 as a Portfolio Manager. Prior to joining Twentieth
Century, Mr. Davidson served as an investment manager for Boatmen's Trust
Company in St. Louis, Missouri.
The activities of Investors Research are subject only to directions of the
funds' board of directors. Investors Research pays all the expenses of the funds
except brokerage, taxes, interest, fees and expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses.
For the services provided to the funds, Investors Research receives an
annual fee of 0.75% of the average net assets of each fund offered by this
Prospectus. On the first business day of each month, each fund pays the
management fee to the manager for the previous month at the specified rate. The
fee for the previous month is calculated by multiplying 0.75% of the aggregate
average daily closing value of each 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).
The management fees paid by the funds to Investors Research may be higher
than those paid by many investment companies. However, most if not all of such
companies also pay, in addition, certain of their own expenses, while virtually
all of the funds' expenses, except as specified above, are paid by Investors
Research.
CODE OF ETHICS
The funds and Investors Research have adopted a Code of Ethics, which
restricts personal investing practices by employees of Investors Research and
its affiliates. Among other provisions, the Code of Ethics requires that
employees with access to information about the
20
purchase or sale of securities in the funds' portfolios obtain preclearance
before executing personal trades. With respect to portfolio managers and other
investment personnel, the Code of Ethics prohibits acquisition of securities in
an initial public offering, as well as profits derived from the purchase and
sale of the same security within 60 calendar days. These provisions are designed
to ensure that the interests of fund shareholders come before the interests of
the people who manage those funds.
TRANSFER AND ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, acts as transfer, administrative services and dividend paying agent for
Twentieth Century. It provides facilities, equipment and personnel to Twentieth
Century and is paid for such services by Investors Research.
From time to time, special services may be offered to shareholders who
maintain higher share balances in the Twentieth Century 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 Investors Research.
Investors Research and Twentieth Century Services, Inc., are both wholly
owned by Twentieth Century Companies, Inc. James E. Stowers Jr., chairman of the
board of directors of the funds, controls Twentieth Century Companies by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the
investment manager. The Distributor enters into contracts with various banks,
broker-dealers, insurance companies and other financial intermediaries with
respect to the sale of the funds' shares and/or the use of the funds' shares in
various financial services. The Distributor pays all expenses incurred in
promoting sales of, and distributing, the Advisor Class and in securing such
services.
SERVICE AND DISTRIBUTION FEES
Rule 12b-1 adopted by the Securities and Exchange Commission ("SEC") under
the 1940 Act permits investment companies that adopt a written plan to pay
certain expenses associated with the distribution of their shares. Pursuant to
that rule, the funds' Board of Directors and the initial shareholder of the
funds' Advisor Class shares have approved and entered into a Master Distribution
and Shareholder Services Plan (the "Plan") with the Distributor. Pursuant to the
Plan, each fund pays a shareholder services fee and a distribution fee, each
equal to .25% (for a total of .50%) per annum of the average daily net assets of
the shares of the fund's Advisor Class. The shareholder services fee is paid for
the purpose of paying the costs of securing certain shareholder and
administrative services, and the distribution fee is paid for the purpose of
paying the costs of providing various distribution services. All or a portion of
such fees are paid by the Distributor to the banks, broker-dealers, insurance
companies or other financial intermediaries through which such shares are made
available.
The Plan has been adopted and will be administered in accordance with the
requirements of Rule 12b-1 under the 1940 Act. For additional information about
the Plan and its terms, see "Master Distribution and Shareholder Services Plan"
in the Statement of Additional Information. Fees paid pursuant to the Plan may
be paid for shareholder services and the maintenance of accounts and therefore
may
21
constitute "service fees" for purposes of applicable rules of the National
Association of Securities Dealers.
FURTHER INFORMATION ABOUT TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc. was organized as
a Maryland corporation on June 14, 1993.
Twentieth Century Capital Portfolios is a diversified, open-end management
investment company whose shares were first offered for sale September 1, 1993.
Its business and affairs are managed by its officers under the direction of its
board of directors.
The principal office of Twentieth Century Capital Portfolios is Twentieth
Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri,
64141-6200. All inquiries may be made by mail to that address, or by phone to
1-800-345-3533. (International calls: 816-531-5575.)
Twentieth Century Capital Portfolios issues two series of $0.01 par value
shares, Twentieth Century Value and Twentieth Century Equity Income. Each series
is commonly referred to as a fund. The assets belonging to each series of shares
are held separately by the custodian.
Each of the funds described in this Prospectus offers four classes of
shares: an Investor Class, an Institutional Class, a Service Class, and an
Advisor Class. The shares offered by this Prospectus are Advisor Class shares.
The Investor Class is primarily made available to retail investors. The
Institutional Class and Service Class are primarily offered to institutional
investors or through institutional distribution channels, such as
employer-sponsored retirement plans or through banks, broker-dealers, insurance
companies or other financial intermediaries. The other classes have different
fees, expenses, and/or minimum investment requirements than the Advisor Class.
Different fees and expenses will affect performance. For additional information
concerning the Investor Class of shares, call one of our Investor Service
Representatives at 1-800-345-2021. For information concerning the Institutional
Class or Service Class of shares, call one of our Institutional Service
Representatives at 1-800-345-3533 or contact a sales representative or financial
intermediary who offers those classes of shares.
Except as described below, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the various classes are (a) each class
may be subject to different expenses specific to that class, (b) each class has
a different identifying designation or name, (c) each class has exclusive voting
rights with respect to matters solely affecting such class, (d) each class may
have different exchange privileges, and (e) the Institutional Class may provide
for automatic conversion from that class into shares of another class of the
same fund.
Each share, irrespective of series or class, is entitled to one vote for
each dollar of net asset value applicable to such share on all questions, except
for those matters that must be voted on separately by the series or class of
shares affected. Matters affecting only one series or class are voted upon only
by that series or class.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors if they choose to do so, and in such event the holders of the
remaining shares will not be able to elect any person or persons to the board of
directors.
Unless required by the Investment Company Act, it will not be necessary for
the funds to hold annual meetings of shareholders. As a result, shareholders may
not vote each year on the election of directors or the appointment of auditors.
However, pursuant to the funds' bylaws, the holders of at least 10% of the votes
entitled to be cast may request the funds to hold a special meeting of
shareholders. We will assist in the communication with other shareholders.
22
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR 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.
23
TWENTIETH CENTURY
Conservative
Equity Funds
Advisor Class
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- -------------------------------------------
P.O. Box 419385
Kansas City, Missouri
64141-6385
- -------------------------------------------
Person-to-person assistance:
1-800-345-3533 or 816-531-5575
- -------------------------------------------
Automated Information Line:
1-800-345-8765
- -------------------------------------------
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0700
- -------------------------------------------
Fax: 816-340-4655
- -------------------------------------------
Internet: http://www.twentieth-century.com
- -------------------------------------------
TWENTIETH CENTURY
CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
SH-BKT-5415 [recycled logo]
9608 Recycled
<PAGE>
TWENTIETH CENTURY
Conservative Equity Funds
Institutional Class Prospectus
September 3,
1996
TWENTIETH CENTURY CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc.,a member of the Twentieth
Century family of funds, is an open-end diversified management investment
company. Two series of shares, or "funds," are described in this Prospectus,
Twentieth Century Value and Twentieth Century Equity Income. The investment
objectives of the funds are listed on the inside cover of this Prospectus.
Each fund's shares offered in this Prospectus (the Institutional Class
shares) are sold at their net asset value with no sales charges or commissions.
The Institutional Class shares are made available for purchase by large
institutional shareholders, such as bank trust departments, corporations,
endowments, foundations, and financial advisors that meet the funds' minimum
investment requirements. Institutional Class shares are not available for
purchase by insurance companies or participant-directed employer-sponsored
retirement plans.
This Prospectus gives you information about the funds that you should know
before investing. You should read this Prospectus carefully and retain it for
future reference. Additional information is included in the Statement of
Additional Information dated September 3, 1996, and filed with the Securities
and Exchange Commission. It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419385
Kansas City, MO 64141-6385 o 1-800-345-3533
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-345-1833 o In Missouri: 816-753-0700
Internet: http://www.twentieth-century.com
- --------------------------------------------------------------------------------
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.
<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
investment objectives by investing in securities that management believes to be
undervalued at the time of purchase.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective. The
fund attempts to achieve its objectives by investing primarily in
income-producing equity securities. In the pursuit of its objectives, the fund
seeks a yield that exceeds the yield of securities comprising the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500").
There is no assurance that the funds will achieve their respective
investment objectives.
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
TRANSACTION AND
OPERATING EXPENSE TABLE ............................................ 4
FINANCIAL HIGHLIGHTS ................................................. 5
INFORMATION REGARDING THE FUNDS
INVESTMENT POLICIES OF THE FUNDS ..................................... 7
Twentieth Century Value .......................................... 7
Twentieth Century Equity Income .................................. 7
Policies Applicable to Both Funds ................................ 7
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS .................................... 9
Foreign Securities ............................................... 9
Equity Securities ................................................ 9
Forward Currency Exchange Contracts............................... 9
Portfolio Turnover ............................................... 10
Repurchase Agreements ............................................ 11
Index Futures Contracts .......................................... 11
Derivative Securities ............................................ 11
Portfolio Lending ................................................ 12
When-Issued Securities ........................................... 13
Short Sales ...................................................... 13
Rule 144A Securities ............................................. 13
PERFORMANCE ADVERTISING .............................................. 14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO OPEN AN ACCOUNT ............................................... 15
By Mail .......................................................... 15
By Wire .......................................................... 15
By Exchange ...................................................... 15
In Person ........................................................ 15
Subsequent Investments ............................................... 16
By Mail .......................................................... 16
By Telephone ..................................................... 16
By Wire .......................................................... 16
In Person ........................................................ 16
Automatic Investment Plan ............................................ 16
MINIMUM INVESTMENTS .................................................. 16
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER ................................................... 16
By Mail .......................................................... 16
By Telephone ..................................................... 17
HOW TO REDEEM SHARES ................................................. 17
By Telephone ..................................................... 17
By Mail .......................................................... 17
By Check-A-Month ................................................. 17
Other Automatic Redemptions ...................................... 17
Redemption Proceeds .................................................. 17
By Check ......................................................... 17
By Wire and ACH .................................................. 17
Special Requirements for Large Redemptions ........................... 18
SIGNATURE GUARANTEE .................................................. 18
SPECIAL SHAREHOLDER SERVICES ......................................... 18
Automated Information Line ....................................... 18
Open Order Service ............................................... 19
Tax-Qualified Retirement Plans ................................... 19
Important Policies Regarding
Your Investments .................................................... 19
REPORTS TO SHAREHOLDERS .............................................. 20
CUSTOMERS OF BANKS, BROKER-DEALERS
AND OTHER FINANCIAL INTERMEDIARIES ................................. 20
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE .......................................................... 22
When Share Price Is Determined ................................... 22
How Share Price Is Determined .................................... 22
Where to Find Information
About Share Price ............................................... 23
DISTRIBUTIONS ........................................................ 23
TAXES ................................................................ 23
Tax-Deferred Accounts ............................................ 24
Taxable Accounts ................................................. 24
MANAGEMENT ........................................................... 25
Investment Management ............................................ 25
Code of Ethics ................................................... 26
Transfer and Administrative Services ............................. 26
DISTRIBUTION OF FUND SHARES .......................................... 26
FURTHER INFORMATION
ABOUT TWENTIETH CENTURY ............................................ 26
3
TRANSACTION AND OPERATING EXPENSE TABLE
- --------------------------------------------------------------------------------
Twentieth Century Value
and Twentieth Century
Equity Income
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases.....................none
Maximum Sales Load Imposed on Reinvested Dividends..........none
Deferred Sales Load.........................................none
Redemption Fee..............................................none
Exchange Fee................................................none
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS):
Management Fees............................................0.80%
12b-1 Fees..................................................none
Other Expenses(1)..........................................0.00%
Total Fund Operating Expenses..............................0.80%
Example: You would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
and redemption at the end of each time period: 1 year $ 8
3 years 26
5 years 44
10 years 99
(1) Other expenses, which include the fees and expenses (including legal counsel
fees) of those directors who are not "interested persons" as defined in the
Investment Company Act, were .00111 of 1% of average net assets for the most
recent fiscal year.
The purpose of this 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 class of shares of the funds 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
Securities and Exchange Commission 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.
The shares offered by this Prospectus are Institutional Class shares. The
funds offer three other classes of shares, one of which is primarily made
available to retail investors and two that are primarily made available to
institutional investors. The other classes have different fee structures than
the Institutional Class, resulting in different performance for those classes.
For additional information about the various classes, see "Further Information
About Twentieth Century," page 26.
4
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--VALUE
(For a share outstanding throughout the period)
The Institutional Class of the funds was established September 3, 1996. The
financial information in these tables regarding selected per share data for each
of the funds reflects the performance of the funds' Investor Class of shares,
which has a total expense ratio that is 0.20% higher than the Institutional
Class. Had the Institutional Class been in existence for such funds for the time
periods presented, the funds' performance information would be higher as a
result of the lower expenses.
The Financial Highlights for each of the periods presented have been
examined by Ernst & Young LLP, independent auditors, whose report thereon
appears in the corporation's annual report, which is incorporated by reference
into the Statement of Additional Information. The annual report contains
additional performance information and will be made available upon request and
without charge.
Years Ended March 31, September 1, 1993
----------------------- (inception) through
1996 1995 March 31, 1994
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.46 $4.98 $5.01
----- ----- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1)....................... 0.13 0.12 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.34 0.75 (0.04)
---- ---- -----
Total from
Investment Operations........... 1.47 0.87 0.04
---- ---- -----
DISTRIBUTIONS
From Net
Investment Income............... (0.12) (0.12) (0.07)
In Excess of Net Investment.....
Income (0.01) -- --
From Net Realized
Gains on Investment
Transactions.................... (0.48) (0.27) --
---- ---- ----
Total Distributions............. (0.61) (0.39) (0.07)
---- ---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.32 $5.46 $4.98
==== ==== ====
TOTAL RETURN(2)................. 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.97% 1.00% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets...................... 2.17% 2.65% 3.37%(3)
Portfolio Turnover Rate......... 145% 94% 79%
Average Commission Paid per
Investment Security Traded...... $0.0409 --(4) --(4)
Net Assets, End
of Period (in thousands)........$881,885 $348,281 $87,798
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
5
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--EQUITY INCOME
(continued)
August 1, 1994
Year Ended (inception) through
March 31, 1996 March 31, 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.42 $5.00
---- ----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1).................... 0.20 0.09
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.13 0.44
---- ----
Total from
Investment Operations........ 1.33 0.53
---- ----
DISTRIBUTIONS
From Net
Investment Income............ (0.19) (0.09)
In Excess of Net Investment
Income....................... (0.01) --
From Net Realized
Gains on Investment
Transactions................. (0.45) (0.02)
---- ----
Total Distributions.......... (0.65) (0.11)
---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.10 $5.42
==== ====
TOTAL RETURN(2)................... 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........ 0.98% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets................... 3.51% 4.04%(3)
Portfolio Turnover Rate...... 170% 45%
Average Commission Paid per
Investment Security Traded... $0.0378 --(4)
Net Assets, End
of Period (in thousands)..... $116,692 $52,213
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
6
INFORMATION REGARDING THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES OF THE FUNDS
The funds have adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as the
investment objective of the funds, as identified on the inside front cover page,
and any other investment policies designated as "fundamental" in this Prospectus
or in the Statement of Additional Information, cannot be changed without the
approval of the shareholders entitled to cast a majority of the outstanding
votes of the corporation, as defined by the Investment Company Act. The funds
have implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are not
designated as fundamental policies and may be changed without shareholder
approval.
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
objectives by investing primarily in equity securities of well-established
companies with intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
Securities may be undervalued because they are temporarily out of favor in
the market due to market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the issuer of the security or its
industry, or because the market has overlooked them. Under normal market
conditions, the fund expects to invest at least 80% of the value of its total
assets in equity securities. The fund's investments will typically be
characterized by lower price-to-earnings, price-to-cash flow and/or
price-to-book value ratios relative to the equity market in general. Its
investments also may have above-average current dividend yields.
It is management's intention that the fund will primarily consist of
domestic equity securities. However, the fund also may invest in other types of
domestic or foreign securities consistent with the accomplishment of the fund's
objective. The other securities the fund may invest in are convertible
securities (see "Other Investment Practices, Their Characteristics and
Risks--Equity Securities," page 9), preferred stocks, bonds, notes and debt
securities of companies and debt obligations of governments and their agencies.
Investments in these securities will be made when the manager believes that the
total return potential on these securities equals or exceeds the potential
return on common stocks.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective of
the fund. The fund seeks to achieve its objectives by screening companies
primarily for favorable dividend paying history (yield) and prospects for
continuing and/or increasing dividend paying ability and secondarily for capital
appreciation potential. The fund seeks a yield that exceeds the yield of
securities comprising the S&P 500. Total return for the fund will consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
Under normal circumstances, the fund will invest at least 65% of the fund's
total assets in equity securities and at least 85% of the fund's total assets
will be invested in income-paying securities. The fund's portfolio will consist
primarily of domestic securities.
POLICIES APPLICABLE TO BOTH FUNDS
Each fund's holdings will be spread among industry groups that meet its
investment criteria
7
to help reduce certain of the risks inherent in common stock investments. These
investments will primarily be securities listed on major exchanges or traded in
the over-the-counter markets.
Income is a primary or secondary objective of each fund. As a result, a
portion of the portfolio of each fund may consist of fixed income securities.
The value of fixed income securities fluctuates based on changes in
interest rates and in the credit quality of the issuer. Debt securities that
comprise part of a fund's fixed income portfolio will primarily be limited to
"investment grade" obligations. However, each fund may invest up to 5% of its
assets in "high yield" securities. "Investment grade" means that at the time of
purchase, such obligations are rated within the four highest categories by a
nationally recognized statistical rating organization [for example, at least Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P")], or, if not rated, are of equivalent investment quality as
determined by the investment manager. According to Moody's, bonds rated Baa are
medium-grade and possess some speculative characteristics. A BBB rating by S&P
indicates S&P's belief that a security exhibits a satisfactory degree of safety
and capacity for repayment, but is more vulnerable to adverse economic
conditions and changing circumstances.
"High yield" securities, sometimes referred to as "junk bonds," are higher
risk, non-convertible debt obligations that are rated below investment grade
securities, or are unrated, but with similar credit quality.
There are no credit or maturity restrictions on the fixed income securities
in which the high yield portion of fund's portfolio may be invested. Debt
securities rated lower than Baa by Moody's or BBB by S&P or their equivalent are
considered by many to be predominantly speculative. Changes in economic
conditions or other circumstances are more likely to lead a weakened capacity to
make principal and interest payments on such securities that is the case with
higher quality debt securities. Regardless of rating levels, all debt securities
considered for purchase by the fund are analyzed by the investment manager to
determine, to the extent reasonably possible, that the planned investment is
sound, given the investment objective of the fund. See "An Explanation of Fixed
Income Securities Ratings" in the Statement of Additional Information.
The funds will not necessarily dispose of high yield securities if the
aggregate value of such securities exceeds 5% of a fund's assets if such level
is exceeded as a result of market appreciation of the value of such securities
or market depreciation of the value of the other assets of the fund. Rather, the
manager will cease purchasing any additional high yield securities until the
value of such securities is less than 5% of the fund's assets and will monitor
such investments to determine whether continuing to hold such investments is
likely to assist the fund in meeting its investment objectives.
In addition, the value of a fund's investments in fixed income securities
will change as prevailing interest rates change. In general, the prices of such
securities vary inversely with interest rates. As prevailing interest rates
fall, the prices of bonds and other securities that trade on a yield basis rise.
When prevailing interest rates rise, bond prices fall. These changes in value
may, depending upon the particular amount and type of fixed income securities
holdings of a fund, impact the net asset value of that fund's shares.
Notwithstanding the fact the funds will primarily invest in equity
securities, under exceptional market or economic conditions, the funds may
temporarily invest all or a substantial portion of their assets in cash or
investment grade short-term securities (denominated in U.S. dollars or foreign
currencies).
To the extent that a fund assumes a defensive position, it will not be
investing for capital growth.
8
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information, see "Investment Restrictions" in the Statement
of Additional Information.
FOREIGN SECURITIES
Each fund may invest up to 25% of its assets in the securities of foreign
issuers, including debt securities of foreign governments and their agencies,
when these securities meet its standards of selection. The manager defines
"foreign issuer" as an issuer of securities that is domiciled outside the United
States, derives at least 50% of its total revenue from production or sales
outside of the United States, and/or whose principal trading market is outside
the United States. The principal business activities of such issuers will be
located in developed countries.
The funds may make such investments either directly in foreign securities
or indirectly by purchasing depositary receipts or depositary shares of similar
instruments ("DRs") for foreign securities. DRs are securities that are listed
on exchanges or quoted in the domestic over-the-counter markets in one country
but represent shares of issuers domiciled in another country. Direct investments
in foreign securities may be made either on foreign securities exchanges or in
the over-the-counter markets.
Subject to its investment objective and policies, each fund may invest in
common stocks, convertible securities, preferred stocks, bonds, notes and other
debt securities of foreign issuers and debt securities of foreign governments
and their agencies. The credit quality standards applicable to domestic
securities purchased by each fund are also applicable to its foreign securities
investments.
Investments in foreign securities may present certain risks, including
those resulting from fluctuations in currency exchange rates, future political
and economic developments, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
EQUITY SECURITIES
In addition to investing in common stocks, the funds may invest in other
equity securities and equity equivalents. Other equity securities and equity
equivalents include securities that permit the fund to receive an equity
interest in an issuer, the opportunity to acquire an equity interest in an
issuer, or the opportunity to receive a return on its investment that permits
the fund to benefit from the growth over time in the equity of an issuer.
Examples of equity securities and equity equivalents include preferred stock,
convertible preferred stock and convertible debt securities.
Each fund will limit its purchase of convertible debt securities to those
that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or
if not rated by S&P or Moody's are of equivalent investment quality as
determined by the manager. Debt securities rated below the four highest
categories are not considered "investment grade" obligations. These securities
have speculative characteristics and present more credit risk than investment
grade obligations. For a description of the S&P and Moody's ratings categories,
see "An Explanation of Fixed Income Securities Ratings," page 7 of the Statement
of Additional Information. Equity equivalents may also include securities whose
value or return is derived from the value or return of a different security.
Depositary receipts are an example of the type of derivative security in which
the fund might invest.
FORWARD CURRENCY
EXCHANGE CONTRACTS
Some of the securities held by the funds may be denominated in foreign
currencies. Other securities, such as DRs, may be denominated in U.S. dollars
but have a value that is dependent on
9
the performance of a foreign security, as valued in the currency of its home
country. As a result, the value of a fund's portfolio may be affected by changes
in the exchange rate between foreign currencies and the U.S. dollar, as well as
by changes in the market value of the securities themselves. The performance of
foreign currencies relative to the dollar may be a factor in a fund's overall
performance.
To protect against adverse movements in exchange rates between currencies,
the funds may, for hedging purposes only, enter into forward currency exchange
contracts. A forward currency exchange contract obligates the fund to purchase
or sell a specific currency at a future date at a specific price.
Each fund may elect to enter into a forward currency exchange contract with
respect to a specific purchase or sale of a security, or with respect to the
fund's portfolio positions generally.
By entering into a forward currency exchange contract with respect to the
specific purchase or sale of a security denominated in a foreign currency, the
funds can "lock in" an exchange rate between the trade and settlement dates for
that purchase or sale. This practice is sometimes referred to as "transaction
hedging." Each fund may enter into transaction hedging contracts with respect to
all or a substantial portion of its foreign securities trades.
When the manager believes that a particular currency may decline in value
compared to the dollar, the funds may enter into forward currency exchange
contracts to sell an amount of foreign currency equal to the value of some or
all of a fund's portfolio securities either denominated in, or whose value is
tied to, that currency. This practice is sometimes referred to as "portfolio
hedging." A fund may not enter into a portfolio hedging transaction where the
fund would be obligated to deliver an amount of foreign currency in excess of
the aggregate value of the fund's portfolio securities or other assets
denominated in, or whose value is tied to, that currency.
The funds will make use of portfolio hedging to the extent deemed
appropriate by the manager. However, it is anticipated that the funds will enter
into portfolio hedges much less frequently than transaction hedges.
If a fund enters into a forward currency exchange contract, the fund, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the fund's commitment. At any given time, no more than 10% of a fund's
assets will be committed to a segregated account in connection with portfolio
hedging transactions.
Predicting the relative future values of currencies is very difficult, and
there is no assurance that any attempt to protect the funds against adverse
currency movements through the use of forward currency exchange contracts will
be successful. In addition, the use of forward currency exchange contracts tends
to limit the potential gains that might result from a positive change in the
relationship between the foreign currency and the U.S. dollar.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights table on pages 5 and 6 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a fund's objectives. The
manager believes that the rate of portfolio turnover is irrelevant when it
believes a change is in order to achieve those objectives and, accordingly, the
annual portfolio turnover rate cannot be accurately predicted.
The portfolio turnover of the funds may be higher than other investment
companies with similar investment objectives. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost that the funds
pay directly. Portfolio turnover may also
10
affect the character of capital gains, if any, realized and distributed by a
fund since short-term capital gains are taxable as ordinary income.
REPURCHASE AGREEMENTS
Each fund may invest up to 20% of its assets in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the fund's
investment policies.
A repurchase agreement occurs when a fund purchases an interest-bearing
obligation from a bank or broker-dealer registered under the Securities Exchange
Act of 1934 and simultaneously agrees to sell it back on a specified date in the
future (usually less than one week later) at a higher price. The repurchase
price reflects an agreed-upon interest rate during the time the fund's money is
invested in the security and is considered by the staff of the Securities and
Exchange Commission to be a loan by the fund.
A fund's risk in connection with repurchase agreements is the ability of
the seller to pay the repurchase price on the repurchase date. If the seller
defaults, the fund may incur costs, delays or losses. Management monitors the
creditworthiness of sellers.
The funds will not invest more than 15% of their respective assets in
repurchase agreements maturing in more than seven days.
The funds will enter into repurchase agreements only with those commercial
banks and broker-dealers whose creditworthiness has been reviewed and found
satisfactory by the funds' management pursuant to criteria adopted by the funds'
board of directors.
INDEX FUTURES CONTRACTS
Each fund may enter into domestic stock index futures contracts. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. Rather than actually purchasing the securities
of an index, the manager may purchase a futures contract, which reflects the
value of such underlying securities. For example, S&P 500 futures reflect the
value of the underlying companies that comprise the S&P 500 Composite Stock
Price Index. If the aggregate market value of the underlying index securities
increases or decreases during the contract period, the value of the S&P 500
futures can be expected to reflect such increase or decrease. As a result, the
manager is able to expose to the equity markets cash that is maintained by the
funds to meet anticipated redemptions or held for future investment
opportunities. Because futures generally settle within a day from the date they
are closed out (compared with three days for the types of equity securities
primarily invested in by the funds) the manager believes that this use of
futures allows the funds to effectively be fully invested in equity securities
while maintaining the liquidity needed by the funds.
When a fund enters into a futures contract, it must make deposit of cash or
high-quality debt securities, known as "initial margin," as partial security for
its performance under the contract. As the value of the index fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. Assets set aside by a fund as initial or variable margin may not be
disposed of so long as the fund maintains the contract.
The funds may not purchase leveraged futures. A fund will deposit in a
segregated account with its custodian bank cash or high-quality debt securities
in an amount equal to the fluctuating market value of the index contracts it has
purchased, less any margin deposited on its position. The funds will only invest
in exchange-traded futures. In addition, the value of index futures contracts
purchased by a fund may not exceed 5% of the fund's total assets.
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each of
the funds may
11
invest in securities that are commonly referred to as "derivative" securities.
Generally, a derivative is a financial arrangement the value of which is based
on, or "derived" from, a traditional security, asset, or market index. Certain
derivative securities are more accurately described as "index/structured"
securities. Index/structured securities are derivative securities whose value or
performance is linked to other equity securities (such as depositary receipts or
S&P 500 futures), currencies, interest rates, indices or other financial
indicators ("reference indices").
Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to
use them. Futures and options are commonly used for traditional hedging purposes
to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the S&P 500 Index would
be a permissible investment since each of the funds may invest in the securities
of companies comprising the S&P 500 Index (assuming they otherwise meet the
other requirements for the fund), while a security whose underlying value is
linked to the price of oil would not be a permissible investment since the funds
may not invest in oil and gas leases or futures.
The return of a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio manager
anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a
position when desired;
o the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The board of directors has approved the manager's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The manager will report on fund activity in
derivative securities to the board of directors as necessary. In addition, the
board will review the manager's policy for investments in derivative securities
annually.
PORTFOLIO LENDING
In order to realize additional income, each fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash, collateral or by
irrevocable letters of credit maintained on a current basis in an amount at
least equal to the market value of the securities loaned. During the existence
of the loan, the funds must continue to receive the equivalent of the interest
and dividends paid by the issuer on the securities loaned and interest on the
investment of the collateral. The funds must have the right to call the loan and
obtain the securities loaned at any time on five days' notice, including the
right to call the loan to enable the fund to vote the securities. Such loans may
not exceed one-third of either fund's net
12
assets valued at market. The portfolio lending policy described in this
paragraph is fundamental policy that may be changed only by a vote of a majority
of the fund's shareholders.
WHEN-ISSUED SECURITIES
Each fund may purchase new issues of securities on a when-issued basis
without limit when, in the opinion of management, such purchases will further
the investment objectives of such 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 occur 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 when-issued security.
Accordingly, the value of such security may decline prior to delivery, which
could result in a loss to the fund. A separate account consisting of cash or
high-quality liquid debt securities in an amount at least equal to the
when-issued commitments will be established and maintained with the custodian.
No income will accrue to the fund prior to delivery.
SHORT SALES
Each fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost. These transactions allow a fund to hedge against
price fluctuations by locking in a sale price for securities it does not wish to
sell immediately.
A fund may make a short sale when it wants to sell the security it owns at
a current attractive price, but also wishes to defer recognition of gain or loss
for federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
RULE 144A SECURITIES
The funds may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the funds'
criteria for selection. Rule 144A securities are securities that are privately
placed with and traded among qualified institutional investors rather than the
general public. Although Rule 144A securities are considered "restricted
securities," they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff
of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the board
of directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the board of directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the manager.
The board retains the responsibility to monitor the implementation of the
guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A security
that is illiquid. In such an event, the fund's manager will consider appropriate
remedies to minimize the effect on such fund's liquidity. Neither fund may
invest more than 15% of its assets in illiquid securities (securities that may
not be sold within seven days at approximately the price used in determining the
net asset value of fund shares).
13
PERFORMANCE ADVERTISING
From time to time, the funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return. Performance
data may be quoted separately for the Institutional Class and the other classes
offered by the funds.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules for all stock and bond funds. Because yield
accounting methods differ from the methods used for other accounting purposes, a
fund's yield may not equal the income paid on its shares or the income reported
in the fund's financial statements.
Each fund also may 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) 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, such as the
Standard & Poor's 500 Index, the Dow Jones Industrial Average, the S&P/Barra
Value Index (with regard to Twentieth Century Value) and the Lipper Equity
Income Fund Index (with regard to Twentieth Century Equity Income). The
performance of a fund may also be compared, on a relative basis, to 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.
All performance information advertised by the funds is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
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The following section explains how to invest with Twentieth Century Mutual
Funds and The Benham Group, including purchases, redemptions, exchanges and
special services. You will find more detail about doing business with us by
referring to the Investor Services Guide that you will receive when you open an
account.
If you own or are considering purchasing fund shares through 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 "Minimum Investments," page 16 and "Customers of Banks,
Broker-Dealers and Other Financial Intermediaries," page 21.
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.
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century Mutual Funds.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us or
mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64141-6200
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more than
one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social
security number.
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
BY EXCHANGE
Call 1-800-345-3533. from 7 a.m. to 7 p.m. Central time to get information
on opening an account by exchanging from another Twentieth Century or Benham
account. See page 16 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, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222
15
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by any
of the methods below.
BY MAIL
When making subsequent investments, enclose your check with the remittance
portion of the confirmation of a previous investment. If the remittance slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper.
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 Institutional Service Representative or use
our Automated Information
Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 15 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 15.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. 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 Institutional Service
Representatives.
MINIMUM INVESTMENTS
The minimum investment is $5 million ($3 million for endowments and
foundations). If you come to us through a financial intermediary, the minimum
investment requirement may be met by aggregating the investments of various
clients of your financial intermediary. The minimum investment requirement may
be waived if you or your financial intermediary, if applicable, has an aggregate
investment in our family of funds of $10 million or more ($5 million for
endowments and foundations). If your balance or the balance of your financial
intermediary, if applicable, falls below the minimum investment requirements due
to redemptions or exchanges, we reserve the right to convert your shares to
Investor Class shares of the same fund. The Investor Class shares have a unified
management fee that is .20% higher than the Institutional Class shares.
HOW TO EXCHANGE FROM
ONE ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50 per
month. See our Investor Services Guide for further information about exchanges.
If, in any 90-day period, the total of your exchanges and your redemptions
from any one account exceeds the lesser of $250,000 or 1% of the fund's assets,
further exchanges will be subject to special requirements to comply with our
policy on large redemptions. See "Special Requirements for Large Redemptions,"
page 18.
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham
16
account to another. For additional information, please see our Investor Services
Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Institutional Service
Representative or using our Automated Information Line -- see page 18) 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 1-800-345-3533
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. For large redemptions, please read "Special Requirements for Large
Redemptions," page 18.
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 TELEPHONE
If you have authorized us to accept telephone instructions, you may redeem
your shares by calling an Institutional Service Representative.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee.
Please see "Signature Guarantee," page 18.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you with redemption proceeds in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-a-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to send
funds to you or your account at a bank or other financial institution. To set up
automatic redemptions, call one of our Institutional Service 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.
Once the funds are transmitted, the time of receipt and the funds' availability
are not under our control.
17
SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS
We have elected to be governed by Rule 18f-1 under the Investment Company
Act, which obligates each fund to make certain redemptions in cash. This
requirement to pay redemptions in cash applies to situations where one
shareholder redeems, during any 90-day period, up to the lesser of $250,000 or
1% of the assets of the fund. Although redemptions in excess of this limitation
will also normally be paid in cash, we reserve the right under unusual
circumstances to honor these redemptions by making payment in whole or in part
in readily marketable securities (a "redemption-in-kind").
If payment is made in securities, the securities will be selected by the
fund, will be valued in the same manner as they are in computing the fund's net
asset value and will be provided without prior notice.
If your redemption would exceed this limit and you would like to avoid
being paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
Despite its right to redeem fund shares through a redemption-in-kind, we do
not expect to exercise this option unless a fund has an unusually low level of
cash to meet redemptions and/or is experiencing unusually strong demands for its
cash. Such a demand might be caused, for example, by extreme market conditions
that result in an abnormally high level of redemption requests concentrated in a
short period of time. Absent these or similar circumstances, we expect
redemptions in excess of $250,000 to be paid in cash in any fund with assets of
more than $50 million if total redemptions from any one account in any 90-day
period do not exceed one-half of 1% of the total assets of the fund.
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 would 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 can obtain a signature guarantee from a bank or trust company, credit
union, broker, dealer, securities exchange or association, clearing agency or
savings association, as defined by federal law.
For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.
We reserve the right to require a signature guarantee on any transaction,
or to change this policy at any time.
SPECIAL SHAREHOLDER SERVICES
We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these options
and elect the ones that are appropriate for you. Be aware that the Full Services
option offers you the most flexibility. You will find more information about
each of these service options in our Investor Services Guide.
Our special shareholder services include:
AUTOMATED INFORMATION LINE
We offer an Automated Information Line, 24 hours a day, seven days a week,
at 1-800-345-8765. By calling the Automated
18
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.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to buy
shares of a variable-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced fund by exchange to one
of our money market funds. The designated purchase price must be equal to or
lower, or the designated sale price equal to or higher, than the variable-priced
fund's net asset value at the time the order is placed. If the designated price
is met within 90 calendar days, we will execute your exchange order
automatically at that price (or better). Open orders not executed within 90 days
will be canceled.
If the fund you have selected deducts a distribution from its share price,
your order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders and
cancellations received before 2 p.m. Central time are effective the same day,
and orders or cancellations received after 2 p.m. Central time are effective the
next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
o Individual Retirement Accounts (IRAs);
o 403(b)plans for employees of public school systems and non-profit
organizations; or
o Profit sharing plans and pension plans for corporations and other
employers.
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares
for a period of time, or to reject any specific purchase order (including
purchases by exchange). Additionally, purchases may be refused if, in the
opinion of the manager, they are of a size that would disrupt the management of
the fund.
(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any investor
services and privileges. Any changes may affect all shareholders or only certain
series or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of
residence.
(4) Transactions requesting a specific price and date, other than open
orders, will be refused.
(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 request-
19
ing personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These procedures are
designed to protect shareholders from unauthorized or fraudulent instructions.
If we do not employ reasonable procedures to confirm the genuineness of
instructions, then we may be liable for losses due to unauthorized or fraudulent
instructions. The company, its transfer agent and investment adviser will not be
responsible for any loss due to instructions they reasonably believe are
genuine.
(7) All signatures should be exactly as the name appears in the
registration. If the owner's name appears in the registration as Mary Elizabeth
Jones, she should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an
increase in the number of shareholder telephone calls. If you experience
difficulty in reaching us during such periods, you may send your transaction
instructions by mail, express mail or courier service, or you may visit one of
our Investors Centers. You may also use our Automated Information Line if you
have requested and received an access code and are not attempting to redeem
shares.
(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to cover the
penalty the IRS will impose on us for failure to report your correct taxpayer
identification number on information reports.
(10) We will perform special inquiries on shareholder accounts. A research
fee of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings, as
well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transaction. 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 31 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. 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.
CUSTOMERS OF BANKS,
BROKER-DEALERS AND
OTHER FINANCIAL INTERMEDIARIES
Information contained in our Investor Services Guide pertains to
shareholders who invest directly with Twentieth Century rather than through a
bank, broker-dealer or other financial intermediary.
If you own or are considering purchasing fund shares through a bank,
broker-dealer or other financial intermediary, your ability to purchase,
exchange and redeem shares will
20
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.
21
ADDITIONAL INFORMATION YOU SHOULD KNOW
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SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. Net asset value is determined at the close of regular trading on
each day that the New York Stock Exchange is open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares received by us or one of our authorized agents before the close of
business on the New York Stock Exchange, usually 3 p.m. Central time, are
effective on, and will receive the price determined, that day as of the close of
the Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined, as of the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by us. Wired funds are considered received on the day they are
deposited in our bank account if your telephone call is received before the
close of business on the Exchange and the money is deposited that day.
Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day
by mail prior to the close of business on the Exchange will receive that day's
price. Investments and instructions received after that time will receive the
price determined on the next business day.
If you invest in fund shares through an employer-sponsored retirement plan
or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange and
redemption requests to the funds' transfer agent prior to the applicable cut-off
time and to make payment for any purchase transactions in accordance with the
funds' procedures or any contractual arrangement with the funds or the funds'
distributor in order for you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of each fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
price is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices or at
the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the board of directors.
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 directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange if that
is earlier. That value is then converted to dollars at the prevailing foreign
exchange rate.
22
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, which was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the board of directors.
Trading of these securities in foreign markets may not take place on every
New York Stock Exchange business day. In addition, trading may take place in
various foreign markets on Saturdays or on other days when the New York Stock
Exchange is not open and on which a fund's net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and the value of a fund's portfolio may be affected on days when
shares of the fund may not be purchased or redeemed.
WHERE TO FIND INFORMATION
ABOUT SHARE PRICE
The net asset values of the Investor Class of the funds are published in
leading newspapers daily. The net asset value of the Institutional Class of each
fund may be obtained by calling us.
DISTRIBUTIONS
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized securities gains, if any, generally are declared
and paid annually, usually in December, but the funds may make distributions on
a more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the Investment
Company Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders in 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 made by check or ACH may be held up to 15 days. You may elect to have
distributions on shares of Individual Retirement Accounts and 403(b) plans paid
in cash only if you are 591/2 years old or permanently and totally disabled.
Distribution checks normally are mailed within seven days after the record date.
Please consult our Investor Services Guide for further information regarding
your distribution options.
The board of directors may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
A distribution on shares of a fund does not increase the value of your
shares or your total return. At any given time, the value of your shares
includes the undistributed net gains, if any, realized by the fund on the sale
of portfolio securities and undistributed dividends and interest received, less
fund expenses.
Because undistributed gains and dividends are included in the value of your
shares prior to distribution, when they are distributed, the value of your
shares will be reduced by the amount of the distribution. If you buy your shares
through a taxable account just before the distribution, you will pay the full
price for your shares and then receive a portion of the purchase price back as a
taxable distribution. See "Taxes," this page.
TAXES
The funds have elected to be taxed as a regulated investment company under
Sub-chapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
23
TAX-DEFERRED ACCOUNTS
If the fund shares are purchased through tax-deferred accounts, such as a
qualified employer-sponsored retirement or savings plan, (excluding
participant-directed employer-sponsored retirement plans, which are ineligible
to invest in Institutional Class shares) income and capital gains distributions
paid by the funds will generally not be subject to current taxation, but will
accumulate in your account 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 the 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. Distributions from net long-term capital gains are taxable as
long-term capital gains regardless of the length of time you have held the
shares on which such distributions are paid. However, you should note that any
loss realized upon the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of any distribution of
long-term capital gain to you with respect to such shares.
Dividends and interest received by the funds on foreign securities, and, in
limited circumstances capital gains realized by the funds upon the sale of such
securities, may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Foreign countries generally do not impose taxes
on capital gains in respect of investments by non-resident investors. The
foreign taxes paid by a fund will reduce its dividends.
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 distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) remains the same. In addition, the share price at the time you purchase
shares may include unrealized gains in the securities held in the investment
portfolio of the fund. If these portfolio securities are subsequently sold and
the gains are realized, they will, to the extent not offset by capital losses,
be paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains. See "Distributions," page 23.
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 made to taxable accounts also may be subject to state and
local taxes, even if all or a substantial part of such distributions are derived
from interest on U.S. government obligations, which, if you received them
directly, would be exempt from state income tax. However, most but not all
states allow this tax exemption to pass through to fund shareholders when a fund
pays distributions to its shareholders. You should consult your tax adviser
about the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, we are required by federal law to withhold and remit to
the IRS 31% of reportable payments (which may include dividends, capital gains
distributions and redemptions). Those regulations require you to certify that
the Social Security number or tax identification number you provide is correct
and that you are not subject to 31% withholding for previous under-reporting to
the IRS. You will be asked to make the appropriate certification on your
application. PAYMENTS REPORTED BY TWENTIETH CENTURY THAT OMIT YOUR SOCIAL
SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT TWENTIETH
24
CENTURY 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. THIS CHARGE
IS NOT REFUNDABLE.
Redemption of shares of a fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize 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 generally will 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 Code, resulting in a postponement of the recognition of such loss for
federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
Under the laws of the State of Maryland, the board of directors is
responsible for managing the business and affairs of the funds. Acting pursuant
to an investment management agreement entered into with the funds, Investors
Research Corporation ("Investors Research") serves as the investment manager of
the funds. Its principal place of business is Twentieth Century Tower, 4500 Main
Street, Kansas City, Missouri, 64111. Investors Research has been providing
investment advisory services to investment companies and institutional clients
since 1958.
Investors Research supervises and manages the investment portfolio of the
funds and directs the purchase and sale of their investment securities.
Investors Research utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the funds' portfolios as it deems
appropriate in pursuit of the funds' investment objectives. Individual Portfolio
manager members of the team may also adjust portfolio holdings of the funds as
necessary between team meetings.
The portfolio manager members of the team managing the funds described in
this Prospectus and their work experience for the last five years are as
follows:
PETER A. ZUGER, Vice President and Portfolio Manager, joined Twentieth
Century in June 1993 as a Portfolio Manager. Prior to joining Twentieth Century,
Mr. Zuger served as an investment manager in the Trust Department of NBD Bancorp
in Detroit, Michigan.
PHILLIP N. DAVIDSON, Vice President and Portfolio Manager, joined Twentieth
Century in September 1993 as a Portfolio Manager. Prior to joining Twentieth
Century, Mr. Davidson served as an investment manager for Boatmen's Trust
Company in St. Louis, Missouri.
The activities of Investors Research are subject only to directions of the
funds' board of directors. Investors Research pays all the expenses of the funds
except brokerage, taxes, interest, fees and expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses.
For the services provided to the funds, Investors Research receives an
annual fee of 0.80% of the average net assets of each fund offered by this
Prospectus. On the first business day of each month, each fund pays the
management fee to the manager for the previous month at the specified rate. The
fee for the previous month is calculated by multiplying 0.80% of the aggregate
average daily closing value of each 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).
The management fees paid by the funds to Investors Research may be higher
than those paid by many investment companies. However,
25
most if not all of such companies also pay, in addition, certain of their own
expenses, while virtually all of the funds' expenses, except as specified above,
are paid by Investors Research.
CODE OF ETHICS
The funds and Investors Research have adopted a Code of Ethics, which
restricts personal investing practices by employees of Investors Research and
its affiliates. Among other provisions, the Code of Ethics requires that
employees with access to information about the purchase or sale of securities in
the funds' portfolios obtain preclearance before executing personal trades. With
respect to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
fund shareholders come before the interests of the people who manage those
funds.
TRANSFER AND
ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, acts as transfer, administrative services and dividend paying agent for
Twentieth Century. It provides facilities, equipment and personnel to Twentieth
Century and is paid for such services by Investors Research.
From time to time, special services may be offered to shareholders who
maintain higher share balances in the Twentieth Century 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 Investors Research.
Investors Research and Twentieth Century Services, Inc., are both wholly
owned by Twentieth Century Companies, Inc. James E. Stowers Jr., chairman of the
board of directors of the funds, controls Twentieth Century Companies by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the funds'
investment manager. Investors Research pays all expenses for promoting sales of,
and distributing the Institutional Class of the fund shares offered by this
Prospectus. The Institutional Class of shares 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 TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc. was organized as a Maryland
corporation on June 14, 1993.
Twentieth Century Capital Portfolios is a diversified, open-end management
investment company whose shares were first offered for sale September 1, 1993.
Its business and affairs are managed by its officers under the direction of its
board of directors.
The principal office of Twentieth Century Capital Portfolios is Twentieth
Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri,
64141-6200. All inquiries may be made by mail to that address, or by phone to
1-800-345-3533. (International calls:
816-531-5575.)
Twentieth Century Capital Portfolios issues two series of $0.01 par value
shares, Twentieth Century Value and Twentieth Century Equity Income. Each series
is commonly referred to as a fund. The assets belonging to each series of shares
are held separately by the custodian.
Each of the funds described in this Prospectus offers four classes of
shares: an
26
Investor Class, an Institutional Class, a Service Class, and an Advisor Class.
The shares offered by this Prospectus are Institutional Class shares and have no
up-front charges, commissions, or 12b-1 fees.
The Investor Class is primarily made available to retail investors. The
Service Class and Advisor Class are primarily offered to institutional investors
or through institutional distribution channels, such as employer-sponsored
retirement plans or through banks, broker-dealers, insurance companies or other
financial intermediaries. The other classes have different fees, expenses,
and/or minimum investment requirements than the Institutional Class. Different
fees and expenses will affect performance. For additional information concerning
the Investor Class of shares, call one of our Investor Services Representatives
at 1-800-345-2021. For information concerning the Services Class or Advisor
Class of shares, call one of our Institutional Service Representatives at
1-800-345-3533 or contact a sales representative or financial intermediary who
offers those classes of shares.
Except as described below, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the various classes are (a) each class
may be subject to different expenses specific to that class, (b) each class has
a different identifying designation or name, (c) each class has exclusive voting
rights with respect to matters solely affecting such class, (d) each class may
have different exchange privileges, and (e) the Institutional Class may provide
for automatic conversion from that class into shares of the Investor Class of
the same fund.
Each share, irrespective of series or class, is entitled to one vote for
each dollar of net asset value applicable to such share on all questions, except
for those matters that must be voted on separately by the series or class of
shares affected. Matters affecting only one series or class are voted upon only
by that series or class.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors if they choose to do so, and in such event the holders of the
remaining shares will not be able to elect any person or persons to the board of
directors.
Unless required by the Investment Company Act, it will not be necessary for
the funds to hold annual meetings of shareholders. As a result, shareholders may
not vote each year on the election of directors or the appointment of auditors.
However, pursuant to the funds' bylaws, the holders of at least 10% of the votes
entitled to be cast may request the funds to hold a special meeting of
shareholders. We will assist in the communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR 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.
27
TWENTIETH CENTURY
Conservative
Equity Funds
Institutional Class
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. Box 419385
Kansas City, Missouri
64141-6385
- --------------------------------------------
Person-to-person assistance:
1-800-345-3533 or 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0700
- --------------------------------------------
Fax: 816-340-4655
- --------------------------------------------
Internet: http://www.twentieth-century.com
- --------------------------------------------
TWENTIETH CENTURY
CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
SH-BKT-5413 [recycled logo]
9608 Recycled
<PAGE>
TWENTIETH CENTURY
CONSERVATIVE EQUITY FUNDS
INVESTOR CLASS PROSPECTUS
SEPTEMBER 3,
1996
TWENTIETH CENTURY CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc., a member of the Twentieth
Century family of funds, is an open-end diversified management investment
company whose Investor Class shares are offered to investors without a sales
charge. Two series of shares, or "funds," are described in this Prospectus,
Twentieth Century Value and Twentieth Century Equity Income. The investment
objectives of the funds are listed on the inside cover of this Prospectus.
Through its Investor Class of shares, Twentieth Century offers investors a
full line of no-load mutual funds that have no sales charges or commissions.
This Prospectus gives you information about the funds that you should know
before investing. You should read this Prospectus carefully and retain it for
future reference. Additional information is included in the Statement of
Additional Information dated September 3, 1996, and filed with the Securities
and Exchange Commission. It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419200
Kansas City, MO 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-753-1865
Internet: http://www.twentieth-century.com
- --------------------------------------------------------------------------------
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.
<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
investment objectives by investing in securities that management believes to be
undervalued at the time of purchase.
TWENTIETH CENTURY
EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective. The
fund attempts to achieve its objectives by investing primarily in
income-producing equity securities. In the pursuit of its objectives, the fund
seeks a yield that exceeds the yield of securities comprising the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500").
There is no assurance that the funds will achieve their respective investment
objectives.
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
TRANSACTION AND
OPERATING EXPENSE TABLE...........................4
FINANCIAL HIGHLIGHTS................................5
INFORMATION REGARDING THE FUNDS
INVESTMENT POLICIES OF THE FUNDS....................7
Twentieth Century Value...........................7
Twentieth Century Equity Income...................7
Policies Applicable to Both Funds.................7
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS.................9
Foreign Securities................................9
Equity Securities.................................9
Forward Currency Exchange Contracts...............9
Portfolio Turnover...............................10
Repurchase Agreements............................11
Index Futures Contracts..........................11
Derivative Securities............................12
Portfolio Lending................................12
When-Issued Securities...........................13
Short Sales......................................13
Rule 144A Securities.............................13
PERFORMANCE ADVERTISING............................14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO OPEN AN ACCOUNT.............................15
By Mail..........................................15
By Wire..........................................15
By Exchange......................................16
In Person........................................16
Subsequent Investments...........................16
By Mail..........................................16
By Telephone.....................................16
By Wire..........................................16
In Person........................................16
Automatic Investment Plan........................16
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER................................16
By Mail..........................................17
By Telephone.....................................17
HOW TO REDEEM SHARES.............................17
By Telephone.....................................17
By Mail..........................................17
By Check-A-Month.................................17
Other Automatic Redemptions......................17
Redemption Proceeds..............................17
By Check.........................................17
By Wire and ACH..................................17
Special Requirements for
Large Redemptions...............................18
Redemption of Shares in Low-Balance
Accounts........................................18
SIGNATURE GUARANTEE................................18
SPECIAL SHAREHOLDER SERVICES.......................19
Automated Information Line.......................19
Open Order Service...............................19
Tax-Qualified Retirement Plans...................19
Important Policies Regarding
Your Investments................................19
REPORTS TO SHAREHOLDERS............................20
EMPLOYER-SPONSORED RETIREMENT
PLANS AND INSTITUTIONAL ACCOUNTS...................21
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE........................................22
When Share Price Is Determined...................22
How Share Price Is Determined....................22
Where to Find Information
About Share Price...............................23
DISTRIBUTIONS......................................23
TAXES..............................................23
Tax-Deferred Accounts............................24
Taxable Accounts.................................24
MANAGEMENT.........................................25
Investment Management............................25
Code of Ethics...................................26
Transfer and Administrative Services.............26
DISTRIBUTION OF FUND SHARES........................26
FURTHER INFORMATION
ABOUT TWENTIETH CENTURY..........................26
3
TRANSACTION AND OPERATING EXPENSE TABLE
- --------------------------------------------------------------------------------
TWENTIETH CENTURY VALUE
AND TWENTIETH CENTURY
EQUITY INCOME
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.......................................................1.00%
12b-1 Fees.............................................................none
Other Expenses(2).....................................................0.00%
Total Fund Operating Expenses.........................................1.00%
Example: You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption
at the end of each time period: 1 year $10
3 years 32
5 years 55
10 years 122
(1) Redemption proceeds sent by wire transfer are subject to a $10 processing
fee.
(2) Other expenses, which include the fees and expenses (including legal counsel
fees) of those directors who are not "interested persons" as defined in the
Investment Company Act, were .00111 of 1% of average net assets for the most
recent fiscal year.
The purpose of this 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 class of shares of the funds 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
Securities and Exchange Commission 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.
The shares offered by this Prospectus are Investor Class shares and have no
up-front or deferred sales charges, commissions, or 12b-1 fees. The funds offer
three other classes of shares, primarily to institutional investors, that have
different fee structures than the Investor Class, resulting in different
performance for the other classes. For additional information about the various
classes, see "Further Information About Twentieth Century," page 26.
4
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--VALUE
(For a share outstanding throughout the period)
The Financial Highlights for each of the periods presented have been
examined by Ernst & Young LLP, independent auditors, whose report thereon
appears in the corporation's annual report, which is incorporated by reference
into the Statement of Additional Information. The annual report contains
additional performance information and will be made available upon request and
without charge.
Years Ended March 31, September 1, 1993
----------------------- (inception) through
1996 1995 March 31, 1994
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.46 $4.98 $5.01
----- ----- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1)....................... 0.13 0.12 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.34 0.75 (0.04)
---- ---- -----
Total from
Investment Operations........... 1.47 0.87 0.04
---- ---- -----
DISTRIBUTIONS
From Net
Investment Income............... (0.12) (0.12) (0.07)
In Excess of Net Investment.....
Income (0.01) -- --
From Net Realized
Gains on Investment
Transactions.................... (0.48) (0.27) --
---- ---- ----
Total Distributions............. (0.61) (0.39) (0.07)
---- ---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.32 $5.46 $4.98
==== ==== ====
TOTAL RETURN(2)................. 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.97% 1.00% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets...................... 2.17% 2.65% 3.37%(3)
Portfolio Turnover Rate......... 145% 94% 79%
Average Commission Paid per
Investment Security Traded...... $0.0409 --(4) --(4)
Net Assets, End
of Period (in thousands)........$881,885 $348,281 $87,798
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
5
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--EQUITY INCOME
(continued)
August 1, 1994
Year Ended (inception) through
March 31, 1996 March 31, 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.42 $5.00
---- ----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1).................... 0.20 0.09
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.13 0.44
---- ----
Total from
Investment Operations........ 1.33 0.53
---- ----
DISTRIBUTIONS
From Net
Investment Income............ (0.19) (0.09)
In Excess of Net Investment
Income....................... (0.01) --
From Net Realized
Gains on Investment
Transactions................. (0.45) (0.02)
---- ----
Total Distributions.......... (0.65) (0.11)
---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.10 $5.42
==== ====
TOTAL RETURN(2)................... 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........ 0.98% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets................... 3.51% 4.04%(3)
Portfolio Turnover Rate...... 170% 45%
Average Commission Paid per
Investment Security Traded... $0.0378 --(4)
Net Assets, End
of Period (in thousands)..... $116,692 $52,213
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
6
INFORMATION REGARDING THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
OF THE FUNDS
The funds have adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as the
investment objective of the funds, as identified on the inside front cover page,
and any other investment policies designated as "fundamental" in this Prospectus
or in the Statement of Additional Information, cannot be changed without the
approval of the shareholders entitled to cast a majority of the outstanding
votes of the corporation, as defined by the Investment Company Act. The funds
have implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are not
designated as fundamental policies and may be changed without shareholder
approval.
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
objectives by investing primarily in equity securities of well-established
companies with intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
Securities may be undervalued because they are temporarily out of favor in
the market due to market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the issuer of the security or its
industry, or because the market has overlooked them. Under normal market
conditions, the fund expects to invest at least 80% of the value of its total
assets in equity securities. The fund's investments will typically be
characterized by lower price-to-earnings, price-to-cash flow and/or
price-to-book value ratios relative to the equity market in general. Its
investments also may have above-average current dividend yields.
It is management's intention that the fund will primarily consist of
domestic equity securities. However, the fund also may invest in other types of
domestic or foreign securities consistent with the accomplishment of the fund's
objective. The other securities the fund may invest in are convertible
securities (see "Other Investment Practices, Their Characteristics and
Risks--Equity Securities," page 9), preferred stocks, bonds, notes and debt
securities of companies and debt obligations of governments and their agencies.
Investments in these securities will be made when the manager believes that the
total return potential on these securities equals or exceeds the potential
return on common stocks.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective of
the fund. The fund seeks to achieve its objectives by screening companies
primarily for favorable dividend paying history (yield) and prospects for
continuing and/or increasing dividend paying ability and secondarily for capital
appreciation potential. The fund seeks a yield that exceeds the yield of
securities comprising the S&P 500. Total return for the fund will consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
Under normal circumstances, the fund will invest at least 65% of the fund's
total assets in equity securities and at least 85% of the fund's total assets
will be invested in income-paying securities. The fund's portfolio will consist
primarily of domestic securities.
POLICIES APPLICABLE TO BOTH FUNDS
Each fund's holdings will be spread among industry groups that meet its
investment criteria to help reduce certain of the risks inherent in
7
common stock investments. These investments will primarily be securities listed
on major exchanges or traded in the over-the-counter markets.
Income is a primary or secondary objective of each fund. As a result, a
portion of the portfolio of each fund may consist of fixed income securities.
The value of fixed income securities fluctuates based on changes in
interest rates and in the credit quality of the issuer. Debt securities that
comprise part of a fund's fixed income portfolio will primarily be limited to
"investment grade" obligations. However, each fund may invest up to 5% of its
assets in "high yield" securities. "Investment grade" means that at the time of
purchase, such obligations are rated within the four highest categories by a
nationally recognized statistical rating organization [for example, at least Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P")], or, if not rated, are of equivalent investment quality as
determined by the investment manager. According to Moody's, bonds rated Baa are
medium-grade and possess some speculative characteristics. A BBB rating by S&P
indicates S&P's belief that a security exhibits a satisfactory degree of safety
and capacity for repayment, but is more vulnerable to adverse economic
conditions and changing circumstances.
"High yield" securities, sometimes referred to as "junk bonds," are higher
risk, non-convertible debt obligations that are rated below investment grade
securities, or are unrated, but with similar credit quality.
There are no credit or maturity restrictions on the fixed income securities
in which the high yield portion of fund's portfolio may be invested. Debt
securities rated lower than Baa by Moody's or BBB by S&P or their equivalent are
considered by many to be predominantly speculative. Changes in economic
conditions or other circumstances are more likely to lead a weakened capacity to
make principal and interest payments on such securities that is the case with
higher quality debt securities. Regardless of rating levels, all debt securities
considered for purchase by the fund are analyzed by the investment manager to
determine, to the extent reasonably possible, that the planned investment is
sound, given the investment objective of the fund. See "An Explanation of Fixed
Income Securities Ratings" in the Statement of Additional Information.
The funds will not necessarily dispose of high yield securities if the
aggregate value of such securities exceeds 5% of a fund's assets if such level
is exceeded as a result of market appreciation of the value of such securities
or market depreciation of the value of the other assets of the fund. Rather, the
manager will cease purchasing any additional high yield securities until the
value of such securities is less than 5% of the fund's assets and will monitor
such investments to determine whether continuing to hold such investments is
likely to assist the fund in meeting its investment objectives.
In addition, the value of a fund's investments in fixed income securities
will change as prevailing interest rates change. In general, the prices of such
securities vary inversely with interest rates. As prevailing interest rates
fall, the prices of bonds and other securities that trade on a yield basis rise.
When prevailing interest rates rise, bond prices fall. These changes in value
may, depending upon the particular amount and type of fixed income securities
holdings of a fund, impact the net asset value of that fund's shares.
Notwithstanding the fact the funds will primarily invest in equity
securities, under exceptional market or economic conditions, the funds may
temporarily invest all or a substantial portion of their assets in cash or
investment grade short-term securities (denominated in U.S. dollars or foreign
currencies).
To the extent that a fund assumes a defensive position, it will not be
investing for capital growth.
8
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information, see "Investment Restrictions" in the Statement
of Additional Information.
FOREIGN SECURITIES
Each fund may invest up to 25% of its assets in the securities of foreign
issuers, including debt securities of foreign governments and their agencies,
when these securities meet its standards of selection. The manager defines
"foreign issuer" as an issuer of securities that is domiciled outside the United
States, derives at least 50% of its total revenue from production or sales
outside of the United States, and/or whose principal trading market is outside
the United States. The principal business activities of such issuers will be
located in developed countries.
The funds may make such investments either directly in foreign securities
or indirectly by purchasing depositary receipts or depositary shares of similar
instruments ("DRs") for foreign securities. DRs are securities that are listed
on exchanges or quoted in the domestic over-the-counter markets in one country
but represent shares of issuers domiciled in another country. Direct investments
in foreign securities may be made either on foreign securities exchanges or in
the over-the-counter markets.
Subject to its investment objective and policies, each fund may invest in
common stocks, convertible securities, preferred stocks, bonds, notes and other
debt securities of foreign issuers and debt securities of foreign governments
and their agencies. The credit quality standards applicable to domestic
securities purchased by each fund are also applicable to its foreign securities
investments.
Investments in foreign securities may present certain risks, including
those resulting from fluctuations in currency exchange rates, future political
and economic developments, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
EQUITY SECURITIES
In addition to investing in common stocks, the funds may invest in other
equity securities and equity equivalents. Other equity securities and equity
equivalents include securities that permit the fund to receive an equity
interest in an issuer, the opportunity to acquire an equity interest in an
issuer, or the opportunity to receive a return on its investment that permits
the fund to benefit from the growth over time in the equity of an issuer.
Examples of equity securities and equity equivalents include preferred stock,
convertible preferred stock and convertible debt securities.
Each fund will limit its purchase of convertible debt securities to those
that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or
if not rated by S&P or Moody's are of equivalent investment quality as
determined by the manager. Debt securities rated below the four highest
categories are not considered "investment grade" obligations. These securities
have speculative characteristics and present more credit risk than investment
grade obligations. For a description of the S&P and Moody's ratings categories,
see "An Explanation of Fixed Income Securities Ratings," page 7 of the Statement
of Additional Information. Equity equivalents may also include securities whose
value or return is derived from the value or return of a different security.
Depositary receipts are an example of the type of derivative security in which
the fund might invest.
FORWARD CURRENCY
EXCHANGE CONTRACTS
Some of the securities held by the funds may be denominated in foreign
currencies. Other securities, such as DRs, may be denominated in
9
U.S. dollars but have a value that is dependent on the performance of a foreign
security, as valued in the currency of its home country. As a result, the value
of a fund's portfolio may be affected by changes in the exchange rate between
foreign currencies and the U.S. dollar, as well as by changes in the market
value of the securities themselves. The performance of foreign currencies
relative to the dollar may be a factor in a fund's overall performance.
To protect against adverse movements in exchange rates between currencies,
the funds may, for hedging purposes only, enter into forward currency exchange
contracts. A forward currency exchange contract obligates the fund to purchase
or sell a specific currency at a future date at a specific price.
Each fund may elect to enter into a forward currency exchange contract with
respect to a specific purchase or sale of a security, or with respect to the
fund's portfolio positions generally.
By entering into a forward currency exchange contract with respect to the
specific purchase or sale of a security denominated in a foreign currency, the
funds can "lock in" an exchange rate between the trade and settlement dates for
that purchase or sale. This practice is sometimes referred to as "transaction
hedging." Each fund may enter into transaction hedging contracts with respect to
all or a substantial portion of its foreign securities trades.
When the manager believes that a particular currency may decline in value
compared to the dollar, the funds may enter into forward currency exchange
contracts to sell an amount of foreign currency equal to the value of some or
all of a fund's portfolio securities either denominated in, or whose value is
tied to, that currency. This practice is sometimes referred to as "portfolio
hedging." A fund may not enter into a portfolio hedging transaction where the
fund would be obligated to deliver an amount of foreign currency in excess of
the aggregate value of the fund's portfolio securities or other assets
denominated in, or whose value is tied to, that currency.
The funds will make use of portfolio hedging to the extent deemed
appropriate by the manager. However, it is anticipated that the funds will enter
into portfolio hedges much less frequently than transaction hedges.
If a fund enters into a forward currency exchange contract, the fund, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the fund's commitment. At any given time, no more than 10% of a fund's
assets will be committed to a segregated account in connection with portfolio
hedging transactions.
Predicting the relative future values of currencies is very difficult, and
there is no assurance that any attempt to protect the funds against adverse
currency movements through the use of forward currency exchange contracts will
be successful. In addition, the use of forward currency exchange contracts tends
to limit the potential gains that might result from a positive change in the
relationship between the foreign currency and the U.S. dollar.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights table on pages 5 and 6 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a fund's objectives. The
manager believes that the rate of portfolio turnover is irrelevant when it
believes a change is in order to achieve those objectives and, accordingly, the
annual portfolio turnover rate cannot be accurately predicted.
The portfolio turnover of the funds may be higher than other investment
companies with similar investment objectives. Higher turnover
10
would generate correspondingly greater brokerage commissions, which is a cost
that the funds pay directly. Portfolio turnover may also affect the character of
capital gains, if any, realized and distributed by a fund since short-term
capital gains are taxable as ordinary income.
REPURCHASE AGREEMENTS
Each fund may invest up to 20% of its assets in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the fund's
investment policies.
A repurchase agreement occurs when a fund purchases an interest-bearing
obligation from a bank or broker-dealer registered under the Securities Exchange
Act of 1934 and simultaneously agrees to sell it back on a specified date in the
future (usually less than one week later) at a higher price. The repurchase
price reflects an agreed-upon interest rate during the time the fund's money is
invested in the security and is considered by the staff of the Securities and
Exchange Commission to be a loan by the fund.
A fund's risk in connection with repurchase agreements is the ability of
the seller to pay the repurchase price on the repurchase date. If the seller
defaults, the fund may incur costs, delays or losses. Management monitors the
creditworthiness of sellers.
The funds will not invest more than 15% of their respective assets in
repurchase agreements maturing in more than seven days.
The funds will enter into repurchase agreements only with those commercial
banks and broker-dealers whose creditworthiness has been reviewed and found
satisfactory by the funds' management pursuant to criteria adopted by the funds'
board of directors.
INDEX FUTURES CONTRACTS
Each fund may enter into domestic stock index futures contracts. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. Rather than actually purchasing the securities
of an index, the manager may purchase a futures contract, which reflects the
value of such underlying securities. For example, S&P 500 futures reflect the
value of the underlying companies that comprise the S&P 500 Composite Stock
Price Index. If the aggregate market value of the underlying index securities
increases or decreases during the contract period, the value of the S&P 500
futures can be expected to reflect such increase or decrease. As a result, the
manager is able to expose to the equity markets cash that is maintained by the
funds to meet anticipated redemptions or held for future investment
opportunities. Because futures generally settle within a day from the date they
are closed out (compared with three days for the types of equity securities
primarily invested in by the funds) the manager believes that this use of
futures allows the funds to effectively be fully invested in equity securities
while maintaining the liquidity needed by the funds.
When a fund enters into a futures contract, it must make deposit of cash or
high-quality debt securities, known as "initial margin," as partial security for
its performance under the contract. As the value of the index fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. Assets set aside by a fund as initial or variable margin may not be
disposed of so long as the fund maintains the contract.
The funds may not purchase leveraged futures. A fund will deposit in a
segregated account with its custodian bank cash or high-quality debt securities
in an amount equal to the fluctuating market value of the index contracts it has
purchased, less any margin deposited on its position. The funds will only invest
in exchange-traded futures. In addition, the value of index futures contracts
purchased by a fund may not exceed 5% of the fund's total assets.
11
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each of
the funds may invest in securities that are commonly referred to as "derivative"
securities. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Certain derivative securities are more accurately described as
"index/structured" securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts or S&P 500 futures), currencies, interest rates, indices
or other financial indicators ("reference indices").
Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to
use them. Futures and options are commonly used for traditional hedging purposes
to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the S&P 500 Index would
be a permissible investment since each of the funds may invest in the securities
of companies comprising the S&P 500 Index (assuming they otherwise meet the
other requirements for the fund), while a security whose underlying value is
linked to the price of oil would not be a permissible investment since the funds
may not invest in oil and gas leases or futures.
The return of a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio manager
anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a
position when desired;
o the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The board of directors has approved the manager's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The manager will report on fund activity in
derivative securities to the board of directors as necessary. In addition, the
board will review the manager's policy for investments in derivative securities
annually.
PORTFOLIO LENDING
In order to realize additional income, each fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash, collateral or by
irrevocable letters of credit maintained on a current basis in an amount at
least equal to the market value of the securities loaned. During the existence
of the loan, the funds must continue to receive the equivalent of the interest
and dividends paid by the issuer on the securities loaned and interest on the
investment of the collateral. The funds
12
must have the right to call the loan and obtain the securities loaned at any
time on five days' notice, including the right to call the loan to enable the
fund to vote the securities. Such loans may not exceed one-third of either
fund's net assets valued at market. The portfolio lending policy described in
this paragraph is fundamental policy that may be changed only by a vote of a
majority of the fund's shareholders.
WHEN-ISSUED SECURITIES
Each fund may purchase new issues of securities on a when-issued basis
without limit when, in the opinion of management, such purchases will further
the investment objectives of such 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 occur 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 when-issued security.
Accordingly, the value of such security may decline prior to delivery, which
could result in a loss to the fund. A separate account consisting of cash or
high-quality liquid debt securities in an amount at least equal to the
when-issued commitments will be established and maintained with the custodian.
No income will accrue to the fund prior to delivery.
SHORT SALES
Each fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost. These transactions allow a fund to hedge against
price fluctuations by locking in a sale price for securities it does not wish to
sell immediately.
A fund may make a short sale when it wants to sell the security it owns at
a current attractive price, but also wishes to defer recognition of gain or loss
for federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
RULE 144A SECURITIES
The funds may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the funds'
criteria for selection. Rule 144A securities are securities that are privately
placed with and traded among qualified institutional investors rather than the
general public. Although Rule 144A securities are considered "restricted
securities," they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff
of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the board
of directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the board of directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the manager.
The board retains the responsibility to monitor the implementation of the
guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A security
that is illiquid. In such an event, the fund's manager will consider appropriate
remedies to minimize the effect on such fund's liquidity. Neither fund may
invest more than 15% of its assets in illiquid securities (securities that may
not be sold within seven days at approximately the price used in determining the
net asset value of fund shares).
13
PERFORMANCE ADVERTISING
From time to time, the funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return. Performance
data may be quoted separately for the Investor Class and the other classes
offered by the funds.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules for all stock and bond funds. Because yield
accounting methods differ from the methods used for other accounting purposes, a
fund's yield may not equal the income paid on its shares or the income reported
in the fund's financial statements.
Each fund also may 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) 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, such as the
Standard & Poor's 500 Index, the Dow Jones Industrial Average, the S&P/Barra
Value Index (with regard to Twentieth Century Value) and the Lipper Equity
Income Fund Index (with regard to Twentieth Century Equity Income). The
performance of a fund may also be compared, on a relative basis, to 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.
All performance information advertised by the funds is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
- --------------------------------------------------------------------------------
The following section explains how to invest with Twentieth Century and The
Benham Group, including purchases, redemptions, exchanges and special services.
You will find more detail about doing business with us by referring to the
Investor Services Guide that you will receive when you open an account.
If you own or are considering purchasing fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 21.
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 and Uniform
Gifts/Transfers to Minors Acts ("UGMA/UTMA") accounts]. These minimums will be
waived if you establish an automatic investment plan to your account that is the
equivalent of at least $50 per month. See "Automatic Investment Plan," page 16.
The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.
Please note: If you register your account as belonging to multiple owners
(e.g., as joint tenants), you must provide us with specific authorization on
your application in order for us to accept written or telephone instructions
from a single owner. Otherwise, all owners will have to agree to any
transactions that involve the account (whether the transaction request is in
writing or over the telephone).
You may invest in the following ways:
BY MAIL
Send a completed application and check or money order payable in U.S.
dollars to Twentieth Century Mutual Funds.
BY WIRE
You may make your initial investment by wiring funds. To do so, call us or
mail a completed application and provide your bank with the following
information:
RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)
BENEFICIARY (BNF):
Twentieth Century Services, Inc.
4500 Main St., Kansas City, MO 64141-6200
BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918
REFERENCE FOR BENEFICIARY (RFB):
Twentieth Century account number into which you are investing. If more than
one, leave blank and see Bank to Bank Information below.
ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.
BANK TO BANK INFORMATION
(BBI OR FREE FORM TEXT):
o Taxpayer identification or social
security number.
o If more than one account, account numbers and amount to be invested in
each account.
o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA or SARSEP-IRA.
15
BY EXCHANGE
Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information
on opening an account by exchanging from another Twentieth Century or Benham
account. See this 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, MO 64111
1665 Charleston Road
Mountain View, CA 94043
2000 S. Colorado Blvd.
Denver, CO 80222
SUBSEQUENT INVESTMENTS
Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan," this page) or by any
of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the remittance portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.
BY MAIL
When making subsequent investments, enclose your check with the remittance
portion of the confirmation of a previous investment. If the remittance slip is
not available, indicate your name, address and account number on your check or a
separate piece of paper. (Please be aware that the investment minimum for
subsequent purchases is higher without a remit slip.)
BY TELEPHONE
Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw on
your bank account. You may call an Investor Services Representative or use our
Automated Information Line.
BY WIRE
You may make subsequent investments by wire. Follow the wire transfer
instructions on page 15 and indicate your account number.
IN PERSON
You may make subsequent investments in person at one of our Investors
Centers. The locations of our three Investors Centers are listed on this page.
AUTOMATIC INVESTMENT PLAN
You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must be
at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application to
receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.
HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER
As long as you meet any minimum initial investment requirements, you may
exchange your fund shares to our other funds up to six times per year per
account. For any single exchange, the shares of each fund being acquired must
have a value of at least $100. However, we will allow investors to set up an
Automatic Exchange Plan between any two funds in the amount of at least $50 per
month. See our Investor Services Guide for further information about exchanges.
If, in any 90-day period, the total of your exchanges and your redemptions
from any one account exceeds the lesser of $250,000 or 1% or
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the fund's assets, further exchanges will be subject to special requirements to
comply with our policy on large redemptions. See "Special Requirements for Large
Redemptions," page 18.
BY MAIL
You may direct us in writing to exchange your shares from one Twentieth
Century or Benham account to another. For additional information, please see our
Investor Services Guide.
BY TELEPHONE
You can make exchanges over the phone (either with an Investor Services
Representative or using our Automated Information Line -- see page 19) 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.
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 TELEPHONE
If you have authorized us to accept telephone instructions, you may redeem
your shares by calling an Investor Services Representative.
BY MAIL
Your written instructions to redeem shares may be made either by a
redemption form, which we will send you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee. Please see "Signature
Guarantee," page 18.
BY CHECK-A-MONTH
If you have at least a $10,000 balance in your account, you may redeem
shares by Check-A-Month. A Check-A-Month plan automatically redeems enough
shares each month to provide you redemption proceeds in an amount you choose
(minimum $50). To set up a Check-A-Month plan, please call and request our
Check-A-Month brochure.
OTHER AUTOMATIC REDEMPTIONS
You may elect to make redemptions automatically by authorizing us to send
funds to you or 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
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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.
SPECIAL REQUIREMENTS FOR LARGE
REDEMPTIONS
We have elected to be governed by Rule 18f-1 under the Investment Company
Act, which obligates each fund make certain redemptions in cash. This
requirement to pay redemptions in cash applies to situations where one
shareholder redeems, during any 90-day period, up to the lesser of $250,000 or
1% of the assets of the fund. Although redemptions in excess of this limitation
will also normally be paid in cash, we reserve the right under unusual
circumstances to honor these redemptions by making payment in whole or in part
in readily marketable securities (a "redemption-in-kind").
If payment is made in securities, the securities will be selected by the
fund, will be valued in the same manner as they are in computing the fund's net
asset value and will be provided without prior notice.
If your redemption would exceed this limit and you would like to avoid
being paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining shareholders.
Despite its right to redeem fund shares through a redemption-in-kind, we do
not expect to exercise this option unless a fund has an unusually low level of
cash to meet redemptions and/or is experiencing unusually strong demands for its
cash. Such a demand might be caused, for example, by extreme market conditions
that result in an abnormally high level of redemption requests concentrated in a
short period of time. Absent these or similar circumstances, we expect
redemptions in excess of $250,000 to be paid in cash in any fund with assets of
more than $50 million if total redemptions from any one account in any 90-day
period do not exceed one-half of 1% of the total assets of the fund.
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 or to establish an
automatic investment that is the equivalent of at least $50 per month. If action
is not taken within 90 days of the letter's date, the shares held in the account
will be redeemed and the 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 would be
required when:
o Redeeming more than $25,000
o Establishing or increasing a Check-A-Month or automatic transfer on an
existing account
You can 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.
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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.
OPEN ORDER SERVICE
Through our open order service, you may designate a price at which to buy
shares of a variable-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced fund by exchange to one
of our money market funds. The designated purchase price must be equal to or
lower, or the designated sale price equal to or higher, than the variable-priced
fund's net asset value at the time the order is placed. If the designated price
is met within 90 calendar days, we will execute your exchange order
automatically at that price (or better). Open orders not executed within 90 days
will be canceled.
If the fund you have selected deducts a distribution from its share price,
your order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.
Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders and
cancellations received before 2 p.m. Central time are effective the same day,
and orders or cancellations received after 2 p.m. Central time are effective the
next business day.
TAX-QUALIFIED RETIREMENT PLANS
Each fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:
o Individual Retirement Accounts (IRAs)
o 403(b) plans for employees of public school systems and non-profit
organizations
o Profit sharing plans and pension plans for corporations and other
employers
If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.
You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.
IMPORTANT POLICIES REGARDING
YOUR INVESTMENTS
Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.
(1) We reserve the right for any reason to suspend the offering of shares for a
period of time, or to reject any specific purchase order (including
purchases by 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.
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(2) We reserve the right to make changes to any stated investment requirements,
including those that relate to purchases, transfers and redemptions. In
addition, we may also alter, add to or terminate any investor services and
privileges. Any changes may affect all shareholders or only certain series
or classes of shareholders.
(3) Shares being acquired must be qualified for sale in your state of residence.
(4) Transactions requesting a specific price and date, other than open orders,
will be refused.
(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require evidence
satisfactory to us of the authority of the individual making the request.
(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These procedures
are designed to protect shareholders from unauthorized or fraudulent
instructions. If we do not employ reasonable procedures to confirm the
genuineness of instructions, then we may be liable for losses due to
unauthorized or fraudulent instructions. The company, its transfer agent and
investment adviser will not be responsible for any loss due to instructions
they reasonably believe are genuine.
(7) All signatures should be exactly as the name appears in the registration. If
the owner's name appears in the registration as Mary Elizabeth Jones, she
should sign that way and not as Mary E. Jones.
(8) Unusual stock market conditions have in the past resulted in an increase in
the number of shareholder telephone calls. If you experience difficulty in
reaching us during such periods, you may send your transaction instructions
by mail, express mail or courier service, or you may visit one of our
Investors Centers. You may also use our Automated Information Line if you
have requested and received an access code and are not attempting to redeem
shares.
(9) If you fail to provide us with the correct certified taxpayer identification
number, we may reduce any redemption proceeds by $50 to cover the penalty
the IRS will impose on us for failure to report your correct taxpayer
identification number on information reports.
(10)We will perform special inquiries on shareholder accounts. A research fee
of $15 may be applied.
REPORTS TO SHAREHOLDERS
At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your Twentieth Century and Benham holdings, as
well as an individual statement for each fund you own that reflects all
year-to-date activity in your account. You may request a statement of your
account activity at any time.
With the exception of most automatic transactions, each time you invest,
redeem, transfer or exchange shares, we will send you a confirmation of the
transaction. 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 31 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.
20
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 Twentieth Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.
If you own or are considering purchasing fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the
funds, exchange them for shares of other Twentieth Century or Benham funds, and
redeem them will depend on the terms of your plan. If you own or are considering
purchasing fund shares through a bank, broker-dealer, insurance company or other
financial intermediary, your ability to purchase, exchange and redeem shares
will depend on your agreement with, and the policies of, such financial
intermediary.
You may reach one of our Institutional 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.
21
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. Net asset value is determined at the close of regular trading on
each day that the New York Stock Exchange is open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares received by us or one of our authorized agents before the close of
business on the New York Stock Exchange, usually 3 p.m. Central time, are
effective on, and will receive the price determined, that day as of the close of
the Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined, as of the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by us. Wired funds are considered received on the day they are
deposited in our bank account if your phone call is received before the close of
business on the Exchange and the money is deposited that day.
Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.
Investment and transaction instructions received by us on any business day
by mail prior to the close of business on the Exchange will receive that day's
price. Investments and instructions received after that time will receive the
price determined on the next business day.
If you invest in fund shares through an employer-sponsored retirement plan
or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange and
redemption requests to the funds' transfer agent prior to the applicable cut-off
time and to make payment for any purchase transactions in accordance with the
funds' procedures or any contractual arrangement with the funds or the funds'
distributor in order for you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of each fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
price is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices or at
the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the board of directors.
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 directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange if that
is earlier. That value is then converted to dollars at
22
the prevailing foreign exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, which was likely to materially change the
net asset value, then that security would be valued at fair value as determined
in accordance with procedures adopted by the board of directors.
Trading of these securities in foreign markets may not take place on every
New York Stock Exchange business day. In addition, trading may take place in
various foreign markets on Saturdays or on other days when the New York Stock
Exchange is not open and on which a fund's net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and the value of a fund's portfolio may be affected on days when
shares of the fund may not be purchased or redeemed.
WHERE TO FIND INFORMATION
ABOUT SHARE PRICE
The net asset values of Investor Class of funds are published in leading
newspapers daily. The net asset value of each fund may also be obtained by
calling us.
DISTRIBUTIONS
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized securities gains, if any, generally are declared
and paid annually, usually in December, but the funds may make distributions on
a more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the Investment
Company Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders in 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
purchase by check or ACH may be held up to 15 days. You may elect to have
distributions on shares of Individual Retirement Accounts and 403(b) plans paid
in cash only if you are 591/2 years old or permanently and totally disabled.
Distribution checks normally are mailed within seven days after the record date.
Please consult our Investor Services Guide for further information regarding
your distribution options.
The board of directors may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
A distribution on shares of a fund does not increase the value of your
shares or your total return. At any given time, the value of your shares
includes the undistributed net gains, if any, realized by the fund on the sale
of portfolio securities and undistributed dividends and interest received, less
fund expenses.
Because undistributed gains and dividends are included in the value of your
shares prior to distribution, when they are distributed, the value of your
shares will be reduced by the amount of the distribution. If you buy your shares
through a taxable account just before the distribution, you will pay the full
price for your shares and then receive a portion of the purchase price back as a
taxable distribution. See "Taxes," this page.
TAXES
Each fund has elected to be taxed as a regulated investment company under
Sub-chapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
23
TAX-DEFERRED ACCOUNTS
If the 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 funds will generally not be subject to current
taxation, but will accumulate in your account 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
adviser regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If the 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. Distributions from net long-term capital gains are taxable as
long-term capital gains regardless of the length of time you have held the
shares on which such distributions are paid. However, you should note that any
loss realized upon the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of any distribution of
long-term capital gain to you with respect to such shares.
Dividends and interest received by the funds on foreign securities, and, in
limited circumstances capital gains realized by the funds upon the sale of such
securities, may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Foreign countries generally do not impose taxes
on capital gains in respect of investments by non-resident investors. The
foreign taxes paid by a fund will reduce its dividends.
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 distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) remains the same. In addition, the share price at the time you purchase
shares may include unrealized gains in the securities held in the investment
portfolio of the fund. If these portfolio securities are subsequently sold and
the gains are realized, they will, to the extent not offset by capital losses,
be paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains. See "Distributions," page 23.
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 made to taxable accounts also may be subject to state and
local taxes, even if all or a substantial part of such distributions are derived
from interest on U.S. government obligations, which, if you received them
directly, would be exempt from state income tax. However, most but not all
states allow this tax exemption to pass through to fund shareholders when a fund
pays distributions to its shareholders. You should consult your tax adviser
about the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, we are required by federal law to withhold and remit to
the IRS 31% of reportable payments (which may include dividends, capital gains
distributions and redemptions). Those regulations require you to certify that
the Social Security number or tax identification number you provide is correct
and that you are not subject to 31% withholding for previous under-reporting to
the IRS. You will be asked to make the appropriate certification on your
application. PAYMENTS REPORTED BY TWENTIETH CENTURY THAT OMIT YOUR SOCIAL
SECURITY NUMBER OR TAX
24
IDENTIFICATION NUMBER WILL SUBJECT TWENTIETH CENTURY 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. THIS CHARGE IS NOT REFUNDABLE.
Redemption of shares of a fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize 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 generally will 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 Code, resulting in a postponement of the recognition of such loss for
federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
Under the laws of the State of Maryland, the board of directors is
responsible for managing the business and affairs of the funds. Acting pursuant
to an investment management agreement entered into with the funds, Investors
Research Corporation ("Investors Research") serves as the investment manager of
the funds. Its principal place of business is Twentieth Century Tower, 4500 Main
Street, Kansas City, Missouri, 64111. Investors Research has been providing
investment advisory services to investment companies and institutional clients
since 1958.
Investors Research supervises and manages the investment portfolio of the
funds and directs the purchase and sale of their investment securities.
Investors Research utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the funds' portfolios as it deems
appropriate in pursuit of the funds' investment objectives. Individual portfolio
manager members of the team may also adjust portfolio holdings of the funds as
necessary between team meetings.
The portfolio manager members of the team managing the funds described in
this Prospectus and their work experience for the last five years are as
follows:
PETER A. ZUGER, Vice President and Portfolio Manager, joined Twentieth
Century in June 1993 as a Portfolio Manager. Prior to joining Twentieth Century,
Mr. Zuger served as an investment manager in the Trust Department of NBD Bancorp
in Detroit, Michigan.
PHILLIP N. DAVIDSON, Vice President and Portfolio Manager, joined Twentieth
Century in September 1993 as a Portfolio Manager. Prior to joining Twentieth
Century, Mr. Davidson served as an investment manager for Boatmen's Trust
Company in St. Louis, Missouri.
The activities of Investors Research are subject only to directions of the
funds' board of directors. Investors Research pays all the expenses of the funds
except brokerage, taxes, interest, fees and expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses.
For the services provided to the funds, Investors Research receives an
annual fee of 1% of the average net assets of each fund offered by this
Prospectus. On the first business day of each month, each fund pays the
management fee to the manager for the previous month at the specified rate. The
fee for the previous month is calculated by multiplying 1% of the aggregate
average daily closing value of each fund's net
25
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).
The management fees paid by the funds to Investors Research may be higher
than those paid by many investment companies. However, most if not all of such
companies also pay, in addition, certain of their own expenses, while virtually
all of the funds' expenses, except as specified above, are paid by Investors
Research.
CODE OF ETHICS
The funds and Investors Research have adopted a Code of Ethics, which
restricts personal investing practices by employees of Investors Research and
its affiliates. Among other provisions, the Code of Ethics requires that
employees with access to information about the purchase or sale of securities in
the funds' portfolios obtain preclearance before executing personal trades. With
respect to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
fund shareholders come before the interests of the people who manage those
funds.
TRANSFER AND
ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, acts as transfer, administrative services and dividend paying agent for
Twentieth Century. It provides facilities, equipment and personnel to Twentieth
Century and is paid for such services by Investors Research.
From time to time, special services may be offered to shareholders who
maintain higher share balances in the Twentieth Century 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 Investors Research.
Investors Research and Twentieth Century Services, Inc., are both wholly
owned by Twentieth Century Companies, Inc. James E. Stowers Jr., chairman of the
board of directors of the funds, controls Twentieth Century Companies by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the funds'
investment manager. Investors Research pays all expenses for promoting sales of,
and distributing the Investor Class of the fund shares offered by this
Prospectus. The Investor Class of shares 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 TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc. was organized as a Maryland
corporation on June 14, 1993.
Twentieth Century Capital Portfolios is a diversified, open-end management
investment company whose shares were first offered for sale September 1, 1993.
Its business and affairs are managed by its officers under the direction of its
board of directors.
The principal office of Twentieth Century Capital Portfolios is Twentieth
Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri,
64141-6200. All inquiries may be
26
made by mail to that address, or by phone to 1-800-345-2021. (International
calls: 816-531-5575.)
Twentieth Century Capital Portfolios issues two series of $0.01 par value
shares, Twentieth Century Value and Twentieth Century Equity Income. Each series
is commonly referred to as a fund. The assets belonging to each series of shares
are held separately by the custodian.
Each of the funds described in this Prospectus offers four classes of
shares: an Investor Class, an Institutional Class, a Service Class, and an
Advisor Class. The shares offered by this Prospectus are Investor Class shares
and have no up-front charges, commissions, or 12b-1 fees.
The other classes of shares are primarily offered to institutional
investors or through institutional distribution channels, such as
employer-sponsored retirement plans or through banks, broker-dealers, insurance
companies or other financial intermediaries. The other classes have different
fees, expenses, and/or minimum investment requirements than the Investor Class.
Different fees and expenses will affect performance. For additional information
concerning the other classes of shares not offered by this Prospectus, call us
at 1-800-345-3533 or contact a sales representative or financial intermediary
who offers those classes of shares.
Except as described below, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the various classes are (a) each class
may be subject to different expenses specific to that class, (b) each class has
a different identifying designation or name, (c) each class has exclusive voting
rights with respect to matters solely affecting such class, (d) each class may
have different exchange privileges, and (e) the Institutional Class may provide
for automatic conversion from that class into shares of another class of the
same fund.
Each share, irrespective of series or class, is entitled to one vote for
each dollar of net asset value applicable to such share on all questions, except
for those matters that must be voted on separately by the series or class of
shares affected. Matters affecting only one series or class are voted upon only
by that series or class.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors if they choose to do so, and in such event the holders of the
remaining shares will not be able to elect any person or persons to the board of
directors.
Unless required by the Investment Company Act, it will not be necessary for
the funds to hold annual meetings of shareholders. As a result, shareholders may
not vote each year on the election of directors or the appointment of auditors.
However, pursuant to the funds' bylaws, the holders of at least 10% of the votes
entitled to be cast may request the funds to hold a special meeting of
shareholders. We will assist in the communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR 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.
27
TWENTIETH CENTURY
Conservative
Equity Funds
Investor Class
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- -------------------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- -------------------------------------------
Person-to-person assistance:
1-800-345-2021 OR 816-531-5575
- -------------------------------------------
Automated Information Line:
1-800-345-8765
- -------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 OR 816-753-1865
- -------------------------------------------
Fax: 816-340-7962
- -------------------------------------------
Internet: Http://Www.Twentieth-Century.Com
- -------------------------------------------
TWENTIETH CENTURY
CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
SH-BKT-5309 [recycled logo]
9608 Recycled
<PAGE>
TWENTIETH CENTURY
CONSERVATIVE EQUITY FUNDS
Service Class Prospectus
SEPTEMBER 3,
1996
TWENTIETH CENTURY CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc., a member of the Twentieth
Century family of funds, is an open-end diversified management investment
company whose Service Class shares are offered to investors without a sales
charge. Two series of shares, or "funds," are described in this Prospectus,
Twentieth Century Value and Twentieth Century Equity Income. The investment
objectives of the funds are listed on the inside cover of this Prospectus.
Each fund's shares offered in this Prospectus (the Service Class shares)
are sold at their net asset value with no sales charges or commissions. The
Service Class shares are subject to a Rule 12b-1 shareholder services fee and
distribution fee as described in this Prospectus.
The Service Class shares are intended for purchase by participants in
employer-sponsored retirement or savings plans and for persons purchasing shares
through intermediaries, such as banks, broker-dealers and insurance companies,
that provide various recordkeeping and administrative services.
This Prospectus gives you information about the funds that you should know
before investing. You should read this Prospectus carefully and retain it for
future reference. Additional information is included in the Statement of
Additional Information dated September 3, 1996, and filed with the Securities
and Exchange Commission. It is incorporated in this Prospectus by reference. To
obtain a copy without charge, call or write:
Twentieth Century Mutual Funds
4500 Main Street o P.O. Box 419385
Kansas City, MO 64141-6385 o 1-800-345-3533
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-345-1833 o In Missouri: 816-753-0700
Internet: http://www.twentieth-century.com
- --------------------------------------------------------------------------------
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.
<PAGE>
INVESTMENT OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
investment objectives by investing in securities that management believes to be
undervalued at the time of purchase.
TWENTIETH CENTURY
EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective. The
fund attempts to achieve its objectives by investing primarily in
income-producing equity securities. In the pursuit of its objectives, the fund
seeks a yield that exceeds the yield of securities comprising the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500").
There is no assurance that the funds will achieve their respective investment
objectives.
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
TRANSACTION AND
OPERATING EXPENSE TABLE .......................................... 4
FINANCIAL HIGHLIGHTS ................................................ 5
INFORMATION REGARDING THE FUNDS
INVESTMENT POLICIES OF THE FUNDS .................................... 7
Twentieth Century Value .......................................... 7
Twentieth Century Equity Income .................................. 7
Policies Applicable to Both Funds ................................ 7
OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS AND RISKS ......... 9
Foreign Securities ............................................... 9
Equity Securities ................................................ 9
Forward Currency Exchange Contracts .............................. 9
Portfolio Turnover ............................................... 10
Repurchase Agreements ............................................ 11
Index Futures Contracts .......................................... 11
Derivative Securities ............................................ 12
Portfolio Lending ................................................ 12
When-Issued Securities ........................................... 13
Short Sales ...................................................... 13
Rule 144A Securities ............................................. 13
PERFORMANCE ADVERTISING ............................................. 14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
HOW TO PURCHASE AND SELL
TWENTIETH CENTURY FUNDS .......................................... 15
HOW TO EXCHANGE YOUR INVESTMENT FROM
ONE TWENTIETH CENTURY FUND TO ANOTHER ............................ 15
HOW TO REDEEM SHARES ................................................ 15
Special Requirements for
Large Redemptions ................................................ 16
TELEPHONE SERVICES .................................................. 16
Investors Line ................................................... 16
Automated Information Line ....................................... 16
ADDITIONAL INFORMATION YOU SHOULD KNOW
SHARE PRICE ......................................................... 17
When Share Price Is Determined ................................... 17
How Share Price Is Determined .................................... 17
Where to Find Information About Share Price
18
DISTRIBUTIONS ....................................................... 18
TAXES ............................................................... 18
Tax-Deferred Accounts ............................................ 18
Taxable Accounts ................................................. 19
MANAGEMENT .......................................................... 20
Investment Management ............................................ 20
Code of Ethics ................................................... 21
Transfer and Administrative Services ............................. 21
Distribution of Fund Shares ...................................... 21
Service Fees ..................................................... 21
FURTHER INFORMATION
ABOUT TWENTIETH CENTURY .......................................... 22
3
TRANSACTION AND OPERATING EXPENSE TABLE
- --------------------------------------------------------------------------------
TWENTIETH CENTURY VALUE
AND TWENTIETH CENTURY
EQUITY INCOME
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases.......................none
Maximum Sales Load Imposed on Reinvested Dividends............none
Deferred Sales Load...........................................none
Redemption Fee................................................none
Exchange Fee..................................................none
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets):
Management Fees...............................................0.75%
12b-1 Fees(1).................................................0.25%
Other Expenses(2).............................................0.00%
Total Fund Operating Expenses.................................1.00%
Example: You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption
at the end of each time period: 1 year $10
3 years 32
5 years 55
10 years 122
(1) The 12b-1 fee is designed to permit investors to purchase Service Class
shares through retirement and pension plans and financial intermediaries and
is used to compensate service providers for on-going recordkeeping and
administrative services that would otherwise be performed by an affiliate of
the manager. See "Service Fees," page 21.
(2) Other expenses, which include the fees and expenses (including legal counsel
fees) of those directors who are not "interested persons" as defined in the
Investment Company Act, were .00111 of 1% of average net assets for the most
recent fiscal year.
The purpose of this 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 class of shares of the funds 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
Securities and Exchange Commission 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.
The shares offered by this Prospectus are Service Class shares. The funds
offer three other classes of shares, one of which is primarily made available to
retail investors and two that are primarily made available to institutional
investors. The other classes have different fee structures than the Service
Class, resulting in different performance for those classes, see "Further
Information About Twentieth Century," page 22.
4
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--VALUE
(For a share outstanding throughout the period)
The Service Class of the funds was established September 3, 1996. The
financial information in these tables regarding selected per share data for each
of the funds reflects the performance of the funds' Investor Class of shares,
which has the same total expense ratio as the Service Class shares.
The Financial Highlights for each of the periods presented have been
examined by Ernst & Young LLP, independent auditors, whose report thereon
appears in the corporation's annual report, which is incorporated by reference
into the Statement of Additional Information. The annual report contains
additional performance information and will be made available upon request and
without charge.
Years Ended March 31, September 1, 1993
----------------------- (inception) through
1996 1995 March 31, 1994
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.46 $4.98 $5.01
----- ----- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1)....................... 0.13 0.12 0.08
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.34 0.75 (0.04)
---- ---- -----
Total from
Investment Operations........... 1.47 0.87 0.04
---- ---- -----
DISTRIBUTIONS
From Net
Investment Income............... (0.12) (0.12) (0.07)
In Excess of Net Investment.....
Income (0.01) -- --
From Net Realized
Gains on Investment
Transactions.................... (0.48) (0.27) --
---- ---- ----
Total Distributions............. (0.61) (0.39) (0.07)
---- ---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.32 $5.46 $4.98
==== ==== ====
TOTAL RETURN(2)................. 28.06% 18.56% 0.83%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........... 0.97% 1.00% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets...................... 2.17% 2.65% 3.37%(3)
Portfolio Turnover Rate......... 145% 94% 79%
Average Commission Paid per
Investment Security Traded...... $0.0409 --(4) --(4)
Net Assets, End
of Period (in thousands)........$881,885 $348,281 $87,798
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
5
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--EQUITY INCOME
(continued)
August 1, 1994
Year Ended (inception) through
March 31, 1996 March 31, 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD............... $5.42 $5.00
---- ----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income(1).................... 0.20 0.09
Net Realized and Unrealized Gain
(Loss) on Investment Transactions 1.13 0.44
---- ----
Total from
Investment Operations........ 1.33 0.53
---- ----
DISTRIBUTIONS
From Net
Investment Income............ (0.19) (0.09)
In Excess of Net Investment
Income....................... (0.01) --
From Net Realized
Gains on Investment
Transactions................. (0.45) (0.02)
---- ----
Total Distributions.......... (0.65) (0.11)
---- ----
NET ASSET VALUE,
END OF PERIOD..................... $6.10 $5.42
==== ====
TOTAL RETURN(2)................... 25.67% 10.69%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets........ 0.98% 1.00%(3)
Ratio of Net Investment
Income to Average
Net Assets................... 3.51% 4.04%(3)
Portfolio Turnover Rate...... 170% 45%
Average Commission Paid per
Investment Security Traded... $0.0378 --(4)
Net Assets, End
of Period (in thousands)..... $116,692 $52,213
- --------------------------------------------------------------------------------
(1) Computed using average shares outstanding throughout the period.
(2) Total returns for periods less than one year are not annualized. Total
return assumes reinvestment of dividends and capital gains distribution, if
any.
(3) Annualized
(4) Not computed for the period indicated.
6
INFORMATION REGARDING THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT POLICIES
OF THE FUNDS
The funds have adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as the
investment objective of the funds, as identified on the inside front cover page,
and any other investment policies designated as "fundamental" in this Prospectus
or in the Statement of Additional Information, cannot be changed without the
approval of the shareholders entitled to cast a majority of the outstanding
votes of the corporation, as defined by the Investment Company Act. The funds
have implemented additional investment policies and practices to guide their
activities in the pursuit of their respective investment objectives. These
policies and practices, which are described throughout this Prospectus, are not
designated as fundamental policies and may be changed without shareholder
approval.
TWENTIETH CENTURY VALUE
The investment objective of Twentieth Century Value is long-term capital
growth. Income is a secondary objective. The fund seeks to achieve its
objectives by investing primarily in equity securities of well-established
companies with intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
Securities may be undervalued because they are temporarily out of favor in
the market due to market decline, poor economic conditions, or actual or
anticipated unfavorable developments affecting the issuer of the security or its
industry, or because the market has overlooked them. Under normal market
conditions, the fund expects to invest at least 80% of the value of its total
assets in equity securities. The fund's investments will typically be
characterized by lower price-to-earnings, price-to-cash flow and/or
price-to-book value ratios relative to the equity market in general. Its
investments also may have above-average current dividend yields.
It is management's intention that the fund will primarily consist of
domestic equity securities. However, the fund also may invest in other types of
domestic or foreign securities consistent with the accomplishment of the fund's
objective. The other securities the fund may invest in are convertible
securities (see "Other Investment Practices, Their Characteristics and
Risks--Equity Securities," page 9), preferred stocks, bonds, notes and debt
securities of companies and debt obligations of governments and their agencies.
Investments in these securities will be made when the manager believes that the
total return potential on these securities equals or exceeds the potential
return on common stocks.
TWENTIETH CENTURY EQUITY INCOME
The investment objective of Twentieth Century Equity Income is the
production of current income. Capital appreciation is a secondary objective of
the fund. The fund seeks to achieve its objectives by screening companies
primarily for favorable dividend paying history (yield) and prospects for
continuing and/or increasing dividend paying ability and secondarily for capital
appreciation potential. The fund seeks a yield that exceeds the yield of
securities comprising the S&P 500. Total return for the fund will consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
Under normal circumstances, the fund will invest at least 65% of the fund's
total assets in equity securities and at least 85% of the fund's total assets
will be invested in income-paying securities. The fund's portfolio will consist
primarily of domestic securities.
POLICIES APPLICABLE TO BOTH FUNDS
Each fund's holdings will be spread among industry groups that meet its
investment criteria to help reduce certain of the risks inherent in
7
common stock investments. These investments will primarily be securities listed
on major exchanges or traded in the over-the-counter markets.
Income is a primary or secondary objective of each fund. As a result, a
portion of the portfolio of each fund may consist of fixed income securities.
The value of fixed income securities fluctuates based on changes in
interest rates and in the credit quality of the issuer. Debt securities that
comprise part of a fund's fixed income portfolio will primarily be limited to
"investment grade" obligations. However, each fund may invest up to 5% of its
assets in "high yield" securities. "Investment grade" means that at the time of
purchase, such obligations are rated within the four highest categories by a
nationally recognized statistical rating organization [for example, at least Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Corporation ("S&P")], or, if not rated, are of equivalent investment quality as
determined by the investment manager. According to Moody's, bonds rated Baa are
medium-grade and possess some speculative characteristics. A BBB rating by S&P
indicates S&P's belief that a security exhibits a satisfactory degree of safety
and capacity for repayment, but is more vulnerable to adverse economic
conditions and changing circumstances.
"High yield" securities, sometimes referred to as "junk bonds," are higher
risk, non-convertible debt obligations that are rated below investment grade
securities, or are unrated, but with similar credit quality.
There are no credit or maturity restrictions on the fixed income securities
in which the high yield portion of fund's portfolio may be invested. Debt
securities rated lower than Baa by Moody's or BBB by S&P or their equivalent are
considered by many to be predominantly speculative. Changes in economic
conditions or other circumstances are more likely to lead a weakened capacity to
make principal and interest payments on such securities that is the case with
higher quality debt securities. Regardless of rating levels, all debt securities
considered for purchase by the fund are analyzed by the investment manager to
determine, to the extent reasonably possible, that the planned investment is
sound, given the investment objective of the fund. See "An Explanation of Fixed
Income Securities Ratings" in the Statement of Additional Information.
The funds will not necessarily dispose of high yield securities if the
aggregate value of such securities exceeds 5% of a fund's assets if such level
is exceeded as a result of market appreciation of the value of such securities
or market depreciation of the value of the other assets of the fund. Rather, the
manager will cease purchasing any additional high yield securities until the
value of such securities is less than 5% of the fund's assets and will monitor
such investments to determine whether continuing to hold such investments is
likely to assist the fund in meeting its investment objectives.
In addition, the value of a fund's investments in fixed income securities
will change as prevailing interest rates change. In general, the prices of such
securities vary inversely with interest rates. As prevailing interest rates
fall, the prices of bonds and other securities that trade on a yield basis rise.
When prevailing interest rates rise, bond prices fall. These changes in value
may, depending upon the particular amount and type of fixed income securities
holdings of a fund, impact the net asset value of that fund's shares.
Notwithstanding the fact the funds will primarily invest in equity
securities, under exceptional market or economic conditions, the funds may
temporarily invest all or a substantial portion of their assets in cash or
investment grade short-term securities (denominated in U.S. dollars or foreign
currencies).
To the extent that a fund assumes a defensive position, it will not be
investing for capital growth.
8
OTHER INVESTMENT PRACTICES,
THEIR CHARACTERISTICS AND RISKS
For additional information, see "Investment Restrictions" in the Statement
of Additional Information.
FOREIGN SECURITIES
Each fund may invest up to 25% of its assets in the securities of foreign
issuers, including debt securities of foreign governments and their agencies,
when these securities meet its standards of selection. The manager defines
"foreign issuer" as an issuer of securities that is domiciled outside the United
States, derives at least 50% of its total revenue from production or sales
outside of the United States, and/or whose principal trading market is outside
the United States. The principal business activities of such issuers will be
located in developed countries.
The funds may make such investments either directly in foreign securities
or indirectly by purchasing depositary receipts or depositary shares of similar
instruments ("DRs") for foreign securities. DRs are securities that are listed
on exchanges or quoted in the domestic over-the-counter markets in one country
but represent shares of issuers domiciled in another country. Direct investments
in foreign securities may be made either on foreign securities exchanges or in
the over-the-counter markets.
Subject to its investment objective and policies, each fund may invest in
common stocks, convertible securities, preferred stocks, bonds, notes and other
debt securities of foreign issuers and debt securities of foreign governments
and their agencies. The credit quality standards applicable to domestic
securities purchased by each fund are also applicable to its foreign securities
investments.
Investments in foreign securities may present certain risks, including
those resulting from fluctuations in currency exchange rates, future political
and economic developments, reduced availability of public information concerning
issuers, and the fact that foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic issuers.
EQUITY SECURITIES
In addition to investing in common stocks, the funds may invest in other
equity securities and equity equivalents. Other equity securities and equity
equivalents include securities that permit the fund to receive an equity
interest in an issuer, the opportunity to acquire an equity interest in an
issuer, or the opportunity to receive a return on its investment that permits
the fund to benefit from the growth over time in the equity of an issuer.
Examples of equity securities and equity equivalents include preferred stock,
convertible preferred stock and convertible debt securities.
Each fund will limit its purchase of convertible debt securities to those
that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or
if not rated by S&P or Moody's are of equivalent investment quality as
determined by the manager. Debt securities rated below the four highest
categories are not considered "investment grade" obligations. These securities
have speculative characteristics and present more credit risk than investment
grade obligations. For a description of the S&P and Moody's ratings categories,
see "An Explanation of Fixed Income Securities Ratings," page 7 of the Statement
of Additional Information. Equity equivalents may also include securities whose
value or return is derived from the value or return of a different security.
Depositary receipts are an example of the type of derivative security in which
the fund might invest.
FORWARD CURRENCY
EXCHANGE CONTRACTS
Some of the securities held by the funds may be denominated
in foreign currencies. Other
9
securities, such as DRs, may be denominated in U.S. dollars but have a value
that is dependent on the performance of a foreign security, as valued in the
currency of its home country. As a result, the value of a fund's portfolio may
be affected by changes in the exchange rate between foreign currencies and the
U.S. dollar, as well as by changes in the market value of the securities
themselves. The performance of foreign currencies relative to the dollar may be
a factor in a fund's overall performance.
To protect against adverse movements in exchange rates between currencies,
the funds may, for hedging purposes only, enter into forward currency exchange
contracts. A forward currency exchange contract obligates the fund to purchase
or sell a specific currency at a future date at a specific price.
Each fund may elect to enter into a forward currency exchange contract with
respect to a specific purchase or sale of a security, or with respect to the
fund's portfolio positions generally.
By entering into a forward currency exchange contract with respect to the
specific purchase or sale of a security denominated in a foreign currency, the
funds can "lock in" an exchange rate between the trade and settlement dates for
that purchase or sale. This practice is sometimes referred to as "transaction
hedging." Each fund may enter into transaction hedging contracts with respect to
all or a substantial portion of its foreign securities trades.
When the manager believes that a particular currency may decline in value
compared to the dollar, the funds may enter into forward currency exchange
contracts to sell an amount of foreign currency equal to the value of some or
all of a fund's portfolio securities either denominated in, or whose value is
tied to, that currency. This practice is sometimes referred to as "portfolio
hedging." A fund may not enter into a portfolio hedging transaction where the
fund would be obligated to deliver an amount of foreign currency in excess of
the aggregate value of the fund's portfolio securities or other assets
denominated in, or whose value is tied to, that currency.
The funds will make use of portfolio hedging to the extent deemed
appropriate by the manager. However, it is anticipated that the funds will enter
into portfolio hedges much less frequently than transaction hedges.
If a fund enters into a forward currency exchange contract, the fund, when
required, will instruct its custodian bank to segregate cash or liquid
high-grade securities in a separate account in an amount sufficient to cover its
obligation under the contract. Those assets will be valued at market daily, and
if the value of the segregated securities declines, additional cash or
securities will be added so that the value of the account is not less than the
amount of the fund's commitment. At any given time, no more than 10% of a fund's
assets will be committed to a segregated account in connection with portfolio
hedging transactions.
Predicting the relative future values of currencies is very difficult, and
there is no assurance that any attempt to protect the funds against adverse
currency movements through the use of forward currency exchange contracts will
be successful. In addition, the use of forward currency exchange contracts tends
to limit the potential gains that might result from a positive change in the
relationship between the foreign currency and the U.S. dollar.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights table on pages 5 and 6 of this Prospectus.
Investment decisions to purchase and sell securities are based on the
anticipated contribution of the security in question to a fund's objectives. The
manager believes that the rate of portfolio turnover is irrelevant when it
believes a change is in order to achieve those objectives and, accordingly, the
annual portfolio turnover rate cannot be accurately predicted.
The portfolio turnover of the funds may be higher than other investment
companies with similar investment objectives. Higher turnover
10
would generate correspondingly greater brokerage commissions, which is a cost
that the funds pay directly. Portfolio turnover may also affect the character of
capital gains, if any, realized and distributed by a fund since short-term
capital gains are taxable as ordinary income.
REPURCHASE AGREEMENTS
Each fund may invest up to 20% of its assets in repurchase agreements when
such transactions present an attractive short-term return on cash that is not
otherwise committed to the purchase of securities pursuant to the fund's
investment policies.
A repurchase agreement occurs when a fund purchases an interest-bearing
obligation from a bank or broker-dealer registered under the Securities Exchange
Act of 1934 and simultaneously agrees to sell it back on a specified date in the
future (usually less than one week later) at a higher price. The repurchase
price reflects an agreed-upon interest rate during the time the fund's money is
invested in the security and is considered by the staff of the Securities and
Exchange Commission to be a loan by the fund.
A fund's risk in connection with repurchase agreements is the ability of
the seller to pay the repurchase price on the repurchase date. If the seller
defaults, the fund may incur costs, delays or losses. Management monitors the
creditworthiness of sellers.
The funds will not invest more than 15% of their respective assets in
repurchase agreements maturing in more than seven days.
The funds will enter into repurchase agreements only with those commercial
banks and broker-dealers whose creditworthiness has been reviewed and found
satisfactory by the funds' management pursuant to criteria adopted by the funds'
board of directors.
INDEX FUTURES CONTRACTS
Each fund may enter into domestic stock index futures contracts. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. Rather than actually purchasing the securities
of an index, the manager may purchase a futures contract, which reflects the
value of such underlying securities. For example, S&P 500 futures reflect the
value of the underlying companies that comprise the S&P 500 Composite Stock
Price Index. If the aggregate market value of the underlying index securities
increases or decreases during the contract period, the value of the S&P 500
futures can be expected to reflect such increase or decrease. As a result, the
manager is able to expose to the equity markets cash that is maintained by the
funds to meet anticipated redemptions or held for future investment
opportunities. Because futures generally settle within a day from the date they
are closed out (compared with three days for the types of equity securities
primarily invested in by the funds) the manager believes that this use of
futures allows the funds to effectively be fully invested in equity securities
while maintaining the liquidity needed by the funds.
When a fund enters into a futures contract, it must make deposit of cash or
high-quality debt securities, known as "initial margin," as partial security for
its performance under the contract. As the value of the index fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. Assets set aside by a fund as initial or variable margin may not be
disposed of so long as the fund maintains the contract.
The funds may not purchase leveraged futures. A fund will deposit in a
segregated account with its custodian bank cash or high-quality debt securities
in an amount equal to the fluctuating market value of the index contracts it has
purchased, less any margin deposited on its position. The funds will only invest
in exchange-traded futures. In addition, the value of index futures contracts
purchased by a fund may not exceed 5% of the fund's total assets.
11
DERIVATIVE SECURITIES
To the extent permitted by its investment objectives and policies, each of
the funds may invest in securities that are commonly referred to as "derivative"
securities. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Certain derivative securities are more accurately described as
"index/structured" securities. Index/structured securities are derivative
securities whose value or performance is linked to other equity securities (such
as depositary receipts or S&P 500 futures), currencies, interest rates, indices
or other financial indicators ("reference indices").
Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.
There are many different types of derivatives and many different ways to
use them. Futures and options are commonly used for traditional hedging purposes
to attempt to protect a fund from exposure to changing interest rates,
securities prices, or currency exchange rates and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.
No fund may invest in a derivative security unless the reference index or
the instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the S&P 500 Index would
be a permissible investment since each of the funds may invest in the securities
of companies comprising the S&P 500 Index (assuming they otherwise meet the
other requirements for the fund), while a security whose underlying value is
linked to the price of oil would not be a permissible investment since the funds
may not invest in oil and gas leases or futures.
The return of a derivative security may increase or decrease, depending
upon changes in the reference index or instrument to which it relates.
There are a range of risks associated with derivative investments,
including:
o the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio manager
anticipates;
o the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a
position when desired;
o the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and
o the risk that the counterparty will fail to perform its obligations.
The board of directors has approved the manager's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The manager will report on fund activity in
derivative securities to the board of directors as necessary. In addition, the
board will review the manager's policy for investments in derivative securities
annually.
PORTFOLIO LENDING
In order to realize additional income, each fund may lend its portfolio
securities to persons not affiliated with it and who are deemed to be
creditworthy. Such loans must be secured continuously by cash, collateral or by
irrevocable letters of credit maintained on a current basis in an amount at
least equal to the market value of the securities loaned. During the existence
of the loan, the funds must continue to receive the equivalent of the interest
and dividends paid by the issuer on the securities loaned and interest on the
investment of the collateral. The funds
12
must have the right to call the loan and obtain the securities loaned at any
time on five days' notice, including the right to call the loan to enable the
fund to vote the securities. Such loans may not exceed one-third of either
fund's net assets valued at market. The portfolio lending policy described in
this paragraph is fundamental policy that may be changed only by a vote of a
majority of the fund's shareholders.
WHEN-ISSUED SECURITIES
Each fund may purchase new issues of securities on a when-issued basis
without limit when, in the opinion of management, such purchases will further
the investment objectives of such 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 occur 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 when-issued security.
Accordingly, the value of such security may decline prior to delivery, which
could result in a loss to the fund. A separate account consisting of cash or
high-quality liquid debt securities in an amount at least equal to the
when-issued commitments will be established and maintained with the custodian.
No income will accrue to the fund prior to delivery.
SHORT SALES
Each fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost. These transactions allow a fund to hedge against
price fluctuations by locking in a sale price for securities it does not wish to
sell immediately.
A fund may make a short sale when it wants to sell the security it owns at
a current attractive price, but also wishes to defer recognition of gain or loss
for federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal Revenue Code.
RULE 144A SECURITIES
The funds may, from time to time, purchase Rule 144A securities when they
present attractive investment opportunities that otherwise meet the funds'
criteria for selection. Rule 144A securities are securities that are privately
placed with and traded among qualified institutional investors rather than the
general public. Although Rule 144A securities are considered "restricted
securities," they are not necessarily illiquid.
With respect to securities eligible for resale under Rule 144A, the staff
of the Securities and Exchange Commission has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the board of directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the board
of directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the board of directors of the funds has delegated the day-to-day
function of determining the liquidity of Rule 144A securities to the manager.
The board retains the responsibility to monitor the implementation of the
guidelines and procedures it has adopted.
Since the secondary market for such securities is limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A security
that is illiquid. In such an event, the fund's manager will consider appropriate
remedies to minimize the effect on such fund's liquidity. Neither fund may
invest more than 15% of its assets in illiquid securities (securities that may
not be sold within seven days at approximately the price used in determining the
net asset value of fund shares).
13
PERFORMANCE ADVERTISING
From time to time, the funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return. Performance
data may be quoted separately for the Service Class and the other classes
offered by the funds.
Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.
A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price.
Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules for all stock and bond funds. Because yield
accounting methods differ from the methods used for other accounting purposes, a
fund's yield may not equal the income paid on its shares or the income reported
in the fund's financial statements.
Each fund also may 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) 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, such as the
Standard & Poor's 500 Index, the Dow Jones Industrial Average, the S&P/Barra
Value Index (with regard to Twentieth Century Value) and the Lipper Equity
Income Fund Index (with regard to Twentieth Century Equity Income). The
performance of a fund may also be compared, on a relative basis, to 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.
All performance information advertised by the funds is historical in nature
and is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
14
HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP
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The following section explains how to purchase, exchange and redeem Service
Class shares of the funds offered by this Prospectus.
HOW TO PURCHASE AND
SELL TWENTIETH CENTURY FUNDS
One or more of the funds offered by this Prospectus is available as an
investment option under your employer-sponsored retirement or savings plan or
through or in connection with a program, product or service offered by a
financial intermediary, such as a bank, broker-dealer or an insurance company.
Since all records of your share ownership are maintained by your plan sponsor,
plan recordkeeper, or other financial intermediary, all orders to purchase,
exchange and redeem shares must be made through your employer or other financial
intermediary, as applicable.
If you are purchasing through a retirement or savings plan, the
administrator of your plan or your employee benefits office can provide you with
information on how to participate in your plan and how to select Twentieth
Century funds as an investment option.
If you are purchasing through a financial intermediary, you should contact
your service representative at the financial intermediary for information about
how to select Twentieth Century funds.
If you have questions about a fund, see "Investment Policies of the Funds,"
page 7, or call our Investors Line at 1-800-345-3533.
Orders to purchase shares are effective on the day we receive payment. See
"When Share Price is Determined," page 17.
We may discontinue offering shares generally in the funds (including any
class of shares of a fund) or in any particular state without notice to
shareholders.
HOW TO EXCHANGE YOUR
INVESTMENT FROM ONE TWENTIETH
CENTURY FUND TO ANOTHER
Your plan or program may permit you to exchange your investment in the
shares of a fund for shares of another fund in our family. See your plan
administrator, employee benefits office or financial intermediary for details on
the rules in your plan governing exchanges.
Exchanges are made at the respective net asset values, next computed after
receipt of the exchange instruction by us. If in any 90-day period, the total of
the exchanges and redemptions from the account of any one plan participant or
financial intermediary client exceeds the lesser of $250,000 or 1% of a fund's
assets, further exchanges may be subject to special requirements to comply with
our policy on large equity fund redemptions. See "Special Requirements for Large
Redemptions," page 16.
HOW TO REDEEM SHARES
Subject to any restrictions imposed by your employer's plan or financial
intermediary's program, you can sell ("redeem") your shares through the plan or
financial intermediary at their net asset value. Your plan administrator,
trustee, or financial intermediary or other designated person must provide us
with redemption instructions. The shares will be redeemed at the net asset value
next computed after receipt of the instructions in good order. See "When Share
Price Is Determined," page 17. If you have any questions about how to redeem,
contact your plan administrator, employee benefits office, or service
representative at your financial intermediary, as applicable.
15
SPECIAL REQUIREMENTS FOR
LARGE REDEMPTIONS
We have elected to be governed by Rule 18f-1 under the Investment Company
Act, which obligates each fund to redeem shares in cash, with respect to any one
participant account during any 90-day period, up to the lesser of $250,000 or 1%
of the assets of the fund. Although redemptions in excess of this limitation
will also normally be paid in cash, we reserve the right to honor these
redemptions by making payment in whole or in part in readily marketable
securities (a "redemption-in-kind"). If payment is made in securities, the
securities will be selected by the fund, will be valued in the same manner as
they are in computing the fund's net asset value and will be provided to the
redeeming plan participant or financial intermediary in lieu of cash without
prior notice.
If you expect to make a large redemption and would like to avoid any
possibility of being paid in securities, you may do so by providing us with an
unconditional instruction to redeem at least 15 days prior to the date on which
the redemption transaction is to occur. The instruction must specify the dollar
amount or number of shares to be redeemed and the date of the transaction.
Receipt of your instruction 15 days prior to the transaction provides the fund
with sufficient time to raise the cash in an orderly manner to pay the
redemption and thereby minimizes the effect of the redemption on the fund and
its remaining shareholders.
Despite its right to redeem fund shares through a redemption-in-kind, we do
not expect to exercise this option unless a fund has an unusually low level of
cash to meet redemptions and/or is experiencing unusually strong demands for its
cash. Such a demand might be caused, for example, by extreme market conditions
that result in an abnormally high level of redemption requests concentrated in a
short period of time. Absent these or similar circumstances, we expect
redemptions in excess of $250,000 to be paid in cash in any fund with assets of
more than $50 million if total redemptions from any one account in any 90-day
period do not exceed one-half of 1% of the total assets of the fund.
TELEPHONE SERVICES
INVESTORS LINE
You may reach one of our Institutional Service Representatives by calling
our Investors Line at 1-800-345-3533. On our Investors Line you may request
information about our funds and a current prospectus, or get answers to any
questions that you may have about the funds and the services we offer.
AUTOMATED INFORMATION LINE
In addition to reaching us on our Investors Line, you may also reach us by
telephone on our 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.
16
ADDITIONAL INFORMATION YOU SHOULD KNOW
- --------------------------------------------------------------------------------
SHARE PRICE
WHEN SHARE PRICE IS DETERMINED
The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. Net asset value is determined at the close of regular trading on
each day that the New York Stock Exchange is open.
Investments and requests to redeem or exchange shares will receive the
share price next determined after we receive your investment, redemption or
exchange request. For example, investments and requests to redeem or exchange
shares received by us or one of our authorized agents before the close of
business on the New York Stock Exchange, usually 3 p.m. Central time, are
effective on, and will receive the price determined, that day as of the close of
the Exchange. Investment, redemption and exchange requests received thereafter
are effective on, and receive the price determined, as of the close of the
Exchange on the next day the Exchange is open.
Investments are considered received only when your check or wired funds are
received by us. Wired funds are considered received on the day they are
deposited in our bank account if your phone call is received before the close of
business on the Exchange and the money is deposited that day.
It is the responsibility of your plan recordkeeper or financial
intermediary to transmit your purchase, exchange and redemption requests to the
funds' transfer agent prior to the applicable cut-off time and to make payment
for any purchase transactions in accordance with the funds' procedures or any
contractual arrangement with the funds or the funds' distributor in order for
you to receive that day's price.
HOW SHARE PRICE IS DETERMINED
The valuation of assets for determining net asset value may be summarized
as follows:
Portfolio securities of each fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. If no sale is reported, or if
local convention or regulation so provides, the mean of the latest bid and asked
price is used. Depending on local convention or regulation, securities traded
over-the-counter are priced at the mean of the latest bid and asked prices or at
the last sale price. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in accordance
with procedures adopted by the board of directors.
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 directors.
The value of an exchange-traded foreign security is determined in its
national currency as of the close of trading on the foreign exchange on which it
is traded or as of the close of business on the New York Stock Exchange if that
is earlier. That value is then converted to dollars at the prevailing foreign
exchange rate.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day that the New York Stock Exchange is open. If an event
were to occur after the value of a security was established, but before the net
asset value per share was determined, which was likely to
17
materially change the net asset value, then that security would be valued at
fair value as determined in accordance with procedures adopted by the board of
directors.
Trading of these securities in foreign markets may not take place on every
New York Stock Exchange business day. In addition, trading may take place in
various foreign markets on Saturdays or on other days when the New York Stock
Exchange is not open and on which a fund's net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and the value of a fund's portfolio may be affected on days when
shares of the fund may not be purchased or redeemed.
WHERE TO FIND INFORMATION
ABOUT SHARE PRICE
The net asset values of the Investor Class of the funds are published in
leading newspapers daily. The net asset value of the Service Class of each fund
may be obtained by calling us.
DISTRIBUTIONS
Distributions from net investment income are declared and paid quarterly.
Distributions from net realized securities gains, if any, generally are declared
and paid annually, usually in December, but the funds may make distributions on
a more frequent basis to comply with the distribution requirements of the Code,
in all events in a manner consistent with the provisions of the Investment
Company Act.
Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders in 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 made by check or ACH may be held up to 15 days. You may elect to have
distributions on shares of Individual Retirement Accounts and 403(b) plans paid
in cash only if you are 59 1/2 years old or permanently and totally disabled.
Distribution checks normally are mailed within seven days after the record date.
The board of directors may elect not to distribute capital gains in whole
or in part to take advantage of loss carryovers.
A distribution on shares of a fund does not increase the value of your
shares or your total return. At any given time, the value of your shares
includes the undistributed net gains, if any, realized by the fund on the sale
of portfolio securities and undistributed dividends and interest received, less
fund expenses.
Because undistributed gains and dividends are included in the value of your
shares prior to distribution, when they are distributed, the value of your
shares will be reduced by the amount of the distribution. If you buy your shares
through a taxable account just before the distribution, you will pay the full
price for your shares and then receive a portion of the purchase price back as a
taxable distribution. See "Taxes," this page.
TAXES
Each fund has elected to be taxed as a regulated investment company under
Sub-chapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.
TAX-DEFERRED ACCOUNTS
If the 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 funds will generally not be subject to current
taxation, but will accumulate in your account on a tax-deferred basis.
Employer-sponsored retirement and savings plans are governed by complex tax
rules. If you
18
elect to participate in your employer's plan, consult your plan administrator,
your plan's summary plan description, or a professional tax adviser regarding
the tax consequences of participation in the plan, contributions to, and
withdrawals or distributions from the plan.
TAXABLE ACCOUNTS
If the 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. Distributions from net long-term capital gains are taxable as
long-term capital gains regardless of the length of time you have held the
shares on which such distributions are paid. However, you should note that any
loss realized upon the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of any distribution of
long-term capital gain to you with respect to such shares.
Dividends and interest received by the funds on foreign securities, and, in
limited circumstances capital gains realized by the funds upon the sale of such
securities, may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Foreign countries generally do not impose taxes
on capital gains in respect of investments by non-resident investors. The
foreign taxes paid by a fund will reduce its dividends.
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 distribution, you must pay income taxes on the
distribution, even though the value of your investment (plus cash received, if
any) remains the same. In addition, the share price at the time you purchase
shares may include unrealized gains in the securities held in the investment
portfolio of the fund. If these portfolio securities are subsequently sold and
the gains are realized, they will, to the extent not offset by capital losses,
be paid to you as a distribution of capital gains and will be taxable to you as
short-term or long-term capital gains. See "Distributions," page 18.
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 made to taxable accounts also may be subject to state and
local taxes, even if all or a substantial part of such distributions are derived
from interest on U.S. government obligations, which, if you received them
directly, would be exempt from state income tax. However, most but not all
states allow this tax exemption to pass through to fund shareholders when a fund
pays distributions to its shareholders. You should consult your tax adviser
about the tax status of such distributions in your own state.
If you have not complied with certain provisions of the Internal Revenue
Code and Regulations, either we or your financial intermediary is 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
TWENTIETH CENTURY THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION
NUMBER WILL SUBJECT TWENTIETH CENTURY 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. THIS CHARGE IS NOT REFUNDABLE.
Redemption of shares of a fund (including
19
redemptions made in an exchange transaction) will be a taxable transaction for
federal income tax purposes and shareholders will generally recognize 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 generally will 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 Code, resulting in a postponement of the
recognition of such loss for federal income tax purposes.
MANAGEMENT
INVESTMENT MANAGEMENT
Under the laws of the State of Maryland, the board of directors is
responsible for managing the business and affairs of the funds. Acting pursuant
to an investment management agreement entered into with the funds, Investors
Research Corporation ("Investors Research") serves as the investment manager of
the funds. Its principal place of business is Twentieth Century Tower, 4500 Main
Street, Kansas City, Missouri, 64111. Investors Research has been providing
investment advisory services to investment companies and institutional clients
since 1958.
Investors Research supervises and manages the investment portfolio of the
funds and directs the purchase and sale of their investment securities.
Investors Research utilizes a team of portfolio managers, assistant portfolio
managers and analysts acting together to manage the assets of the funds. The
team meets regularly to review portfolio holdings and to discuss purchase and
sale activity. The team adjusts holdings in the funds' portfolios as it deems
appropriate in pursuit of the funds' investment objectives. Individual Portfolio
manager members of the team may also adjust portfolio holdings of the funds as
necessary between team meetings.
The portfolio manager members of the team managing the funds described in
this Prospectus and their work experience for the last five years are as
follows:
PETER A. ZUGER, Vice President and Portfolio Manager, joined Twentieth
Century in June 1993 as a Portfolio Manager. Prior to joining Twentieth Century,
Mr. Zuger served as an investment manager in the Trust Department of NBD Bancorp
in Detroit, Michigan.
PHILLIP N. DAVIDSON, Vice President and Portfolio Manager, joined Twentieth
Century in September 1993 as a Portfolio Manager. Prior to joining Twentieth
Century, Mr. Davidson served as an investment manager for Boatmen's Trust
Company in St. Louis, Missouri.
The activities of Investors Research are subject only to directions of the
funds' board of directors. Investors Research pays all the expenses of the funds
except brokerage, taxes, interest, fees and expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses.
For the services provided to the funds, Investors Research receives an
annual fee of 0.75% of the average net assets of each fund offered by this
Prospectus. On the first business day of each month, each fund pays the
management fee to the manager for the previous month at the specified rate. The
fee for the previous month is calculated by multiplying 0.75% of the aggregate
average daily closing value of each 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).
The management fees paid by the funds to Investors Research may be higher
than those paid by many investment companies. However, most if not all of such
companies also pay, in addition, certain of their own expenses, while virtually
all of the funds' expenses, except as
20
specified above, are paid by Investors Research.
CODE OF ETHICS
The funds and Investors Research have adopted a Code of Ethics, which
restricts personal investing practices by employees of Investors Research and
its affiliates. Among other provisions, the Code of Ethics requires that
employees with access to information about the purchase or sale of securities in
the funds' portfolios obtain preclearance before executing personal trades. With
respect to portfolio managers and other investment personnel, the Code of Ethics
prohibits acquisition of securities in an initial public offering, as well as
profits derived from the purchase and sale of the same security within 60
calendar days. These provisions are designed to ensure that the interests of
fund shareholders come before the interests of the people who manage those
funds.
TRANSFER AND
ADMINISTRATIVE SERVICES
Twentieth Century Services, Inc., 4500 Main Street, Kansas City, Missouri,
64111, acts as transfer, administrative services and dividend paying agent for
Twentieth Century. It provides facilities, equipment and personnel to Twentieth
Century and is paid for such services by Investors Research.
From time to time, special services may be offered to shareholders who
maintain higher share balances in the Twentieth Century 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 Investors Research.
Investors Research and Twentieth Century Services, Inc., are both wholly
owned by Twentieth Century Companies, Inc. James E. Stowers Jr., chairman of the
board of directors of the funds, controls Twentieth Century Companies by virtue
of his ownership of a majority of its common stock.
DISTRIBUTION OF FUND SHARES
The funds' shares are distributed by Twentieth Century Securities, Inc.
(the "Distributor") a registered broker-dealer and an affiliate of the funds'
investment manager. Investors Research pays all expenses for promoting sales of,
and distributing the fund shares offered by this Prospectus. The Service Class
of shares does not pay any commissions or other fees to the Distributor or to
any other broker-dealers or financial intermediaries in connection with
distribution of fund shares.
SERVICE FEES
Certain recordkeeping and administrative services that are provided by the
funds' transfer agent for Investor Class shareholders may be performed by
insurance companies, retirement and pension plan administrators and
recordkeepers for retirement plans using Service Class shares as a funding
medium, by broker-dealers for their customers investing in shares of the funds,
by sponsors of multi mutual fund no (or low) transaction fee programs and other
financial intermediaries.
The funds' boards of directors have adopted a Shareholder Services Plan
with respect to the Service Class shares of each fund. Under the Plan, each fund
pays a shareholder services fee of 0.25% annually of the aggregate average daily
net assets of the funds' Service Class shares for the purpose of paying the
costs and expenses incurred by such financial intermediaries in providing such
services. The Distributor enters into contracts with each financial intermediary
to make such shares available through such plans or programs and for the
provision of such services.
The Shareholder Services Plan has been adopted and will be administered in
accordance with the requirements of Rule 12b-1 under the 1940 Act. For
additional information about the
21
Plan and its terms, see "Shareholder Services Plan" in the Statement of
Additional Information. Fees paid pursuant to the Plan may be paid for
shareholder services and the maintenance of accounts and therefore may
constitute "service fees" for purposes of applicable NASD rules.
FURTHER INFORMATION
ABOUT TWENTIETH CENTURY
Twentieth Century Capital Portfolios, Inc. was organized as a Maryland
corporation on June 14, 1993.
Twentieth Century Capital Portfolios is a diversified, open-end management
investment company whose shares were first offered for sale September 1, 1993.
Its business and affairs are managed by its officers under the direction of its
board of directors.
The principal office of Twentieth Century Capital Portfolios is Twentieth
Century Tower, 4500 Main Street, P.O. Box 419200, Kansas City, Missouri,
64141-6200. All inquiries may be made by mail to that address, or by phone to
1-800-345-3533. (International calls: 816-531-5575.)
Twentieth Century Capital Portfolios issues two series of $0.01 par value
shares, Twentieth Century Value and Twentieth Century Equity Income. Each series
is commonly referred to as a fund. The assets belonging to each series of shares
are held separately by the custodian.
Each of the funds described in this Prospectus offers four classes of
shares: an Investor Class, an Institutional Class, a Service Class, and an
Advisor Class. The shares offered by this Prospectus are Service Class shares.
The Investor Class is primarily made available to retail investors. The
Institutional Class and Advisor Class are primarily offered to institutional
investors or through institutional distribution channels, such as
employer-sponsored retirement plans or through banks, broker-dealers, insurance
companies or other financial intermediaries. The other classes have different
fees, expenses, and/or minimum investment requirements than the Service Class.
Different fees and expenses will affect performance. For additional information
concerning the Investor Class of shares, call one of our Investor Service
Representatives at 1-800-345-2021. For information concerning the Institutional
Class or Advisor Class of shares, call one of our Institutional Service
Representatives at 1-800-345-3533 or contact a sales representative or financial
intermediary who offers those classes of shares.
Except as described below, all classes of shares of a fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among the various classes are (a) each class
may be subject to different expenses specific to that class, (b) each class has
a different identifying designation or name, (C) each class has exclusive voting
rights with respect to matters solely affecting such class, (d) each class may
have different exchange privileges, and (e) the Institutional Class may provide
for automatic conversion from that class into shares of another class of the
same fund.
Each share, irrespective of series or class, is entitled to one vote for
each dollar of net asset value applicable to such share on all questions, except
for those matters that must be voted on separately by the series or class of
shares affected. Matters affecting only one series or class are voted upon only
by that series or class.
Shares have non-cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect all
of the directors if they choose to do so, and in such event the holders of the
remaining shares will not be able to elect any person or persons to the board of
directors.
Unless required by the Investment Company Act, it will not be necessary for
the funds to hold annual meetings of shareholders. As a result, shareholders may
not vote each year on the election of directors or the appointment of auditors.
However, pursuant to the funds' bylaws,
22
the holders of at least 10% of the votes entitled to be cast may request the
funds to hold a special meeting of shareholders. We will assist in the
communication with other shareholders.
WE RESERVE THE RIGHT TO CHANGE ANY OF OUR 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.
23
TWENTIETH CENTURY
Conservative
Equity Funds
Service Class
Prospectus
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- ---------------------------------------------
P.O. Box 419385
Kansas City, Missouri
64141-6385
- ---------------------------------------------
Person-to-person assistance:
1-800-345-3533 or 816-531-5575
- ---------------------------------------------
Automated Information Line:
1-800-345-8765
- ---------------------------------------------
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0700
- ---------------------------------------------
Fax: 816-340-4655
- ---------------------------------------------
Internet: http://www.twentieth-century.com
- ---------------------------------------------
TWENTIETH CENTURY
CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
SH-BKT-5414 [recycled logo]
9608 Recycled
<PAGE>
TWENTIETH CENTURY
CONSERVATIVE EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
TWENTIETH CENTURY CAPITAL PORTFOLIOS
- --------------------------------------------------------------------------------
This statement is not a prospectus but should be read in conjunction with the
current prospectus of Twentieth Century Capital Portfolios, Inc., dated
September 3, 1996. Please retain this document for future reference.
To obtain the Prospectus, call Twentieth Century 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
Page
Herein
Investment Objective of the Funds 3
Investment Restrictions 3
Forward Currency Exchange Contracts 4
Index Futures Contracts 5
An Explanation of Fixed Income
Securities Ratings 7
Short Sales 9
Portfolio Turnover 9
Officers and Directors 10
Management 12
Custodians 13
Independent Auditors 14
Capital Stock 14
Multiple Class Structure 14
Taxes 17
Brokerage 18
Performance Advertising 18
Redemptions in Kind 20
Holidays 20
Financial Statements 20
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVE OF THE FUNDS
The investment objective of each series of shares of Twentieth Century
Capital Portfolios, Inc. is described on the inside front cover page of the
Prospectus. In achieving its objective, a fund must conform to certain policies,
some of which are designated in the Prospectus or in this Statement of
Additional Information as "fundamental" and cannot be changed except with the
approval of the shareholders entitled to cast a majority of the outstanding
votes of the fund as defined in the Investment Company Act of 1940 (the
"Investment Company Act").
The following paragraph is also a statement of fundamental policy with
respect to selection of investments:
In general, within the restrictions outlined herein, each series has broad
powers with respect to investing funds or holding them uninvested. Investments
are varied according to what is judged advantageous under changing economic
conditions. It is the policy of Twentieth Century to retain maximum flexibility
in management without restrictive provisions as to the proportion of one or
another class of securities that may be held, subject to the investment
restrictions described below. It is management's intention that each fund will
generally consist of equity securities. However, the investment manager may
invest the assets of a fund in varying amounts in other instruments and in
senior securities, such as bonds, debentures, preferred stocks and convertible
issues, when such a course is deemed appropriate in order to attempt to attain
its financial objective.
Neither the Securities and Exchange Commission nor any other federal or
state agency participates in or supervises the management of the funds or their
investment practices or policies.
INVESTMENT RESTRICTIONS
Fundamental policies that may be changed only with shareholder approval
provide that neither series of shares:
(1) Shall invest more than 15% of its assets in illiquid investments.
(2) Shall invest in the securities of companies that, including predecessors,
have a record of less than three years of continuous operation.
(3) Shall lend its portfolio securities except to unaffiliated persons and
subject to the rules and regulations adopted under the Investment Company
Act. No such rules and regulations have been issued, but it is Twentieth
Century's policy that such loans must be secured continuously by cash
collateral maintained on a current basis in an amount at least equal to the
market value of the securities loaned or by irrevocable letters of credit.
During the existence of the loan, a fund must continue to receive the
equivalent of the interest and dividends paid by the issuer on the
securities loaned and interest on the investment of the collateral; the fund
must have the right to call the loan and obtain the securities loaned at any
time on five days' notice, including the right to call the loan to enable
the fund to vote the securities. To comply with the regulations of certain
state securities administrators, such loans may not exceed one-third of the
fund's net assets valued at market.
(4) Shall, with regard to 75% of its portfolio, purchase the security of any one
issuer if such purchase would cause more than 5% of the fund's assets at
market to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of the
outstanding voting securities of any one issuer to be held in a fund's
portfolio.
3
(5) Shall invest for control or for management or concentrate its investment in
a particular company or a particular industry. No more than 25% of the
assets of a fund, exclusive of cash and U.S. government securities, will be
invested in securities of any one industry.
(6) Shall buy securities on margin or sell short (unless it owns or by virtue of
its ownership of other securities has the right to obtain securities
equivalent in kind and amount to the securities sold without additional
cost); however, a fund may make margin deposits in connection with the use
of any financial instrument or any transaction in securities permitted by
its fundamental policies.
(7) Shall invest in the securities of other investment companies except by
purchases in the open market involving only customary brokers' commission
and no sales charges.
(8) Shall issue any senior security.
(9) Shall underwrite any securities.
(10)Shall borrow any money, except in an amount not in excess of 5% of the
total assets of the series and then only for emergency and extraordinary
purposes. Note: This investment restriction does not prohibit escrow and
collateral arrangements in connection with investment in futures contracts
and related options by a fund.
(11)Shall purchase or sell real estate, except that a fund may purchase
securities of issuers that deal in real estate and may purchase securities
that are secured by interests in real estate.
The Investment Company Act imposes certain additional restrictions upon
acquisition by the fund of securities issued by insurance companies, brokers,
dealers, underwriters or investment advisers, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
To comply with the requirements of state security administrators, Twentieth
Century may, from time to time, agree to additional investment restrictions. For
example, the fund has agreed not to invest in oil, gas or other mineral leases,
or in warrants, except that a fund may purchase securities with warrants
attached. In addition, the fund will not invest in puts, calls, straddles,
spreads or any combination thereof (other than hedging positions or positions
covered by cash or securities). These types of restrictions are not fundamental
policies and may be adopted, revised or withdrawn as required or permitted by
the various state securities administrators.
Neither the Securities and Exchange Commission nor any other agency of the
federal or state government participates in or supervises the fund's management
or its investment practices or policies.
FORWARD CURRENCY
EXCHANGE CONTRACTS
Each fund conducts its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into forward currency exchange contracts
("forward contracts") to purchase or sell foreign currencies.
Each fund expects to use forward contracts under two circumstances:
(1) When the manager wishes to "lock in" the U.S. dollar price of a security
when a fund is purchasing or selling a security denominated in a foreign
currency, the fund would be able to enter into a forward contract to do so;
(2) When the manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, a fund would be
able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities either denominated in, or whose value is tied to, such foreign
currency.
As to the first circumstance, when a fund enters into a trade for the
purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S.
4
dollar cost or proceeds. By entering into forward contracts in U.S. dollars for
the purchase or sale of a foreign currency involved in an underlying security
transaction, the fund will be able to protect itself against a possible loss
between trade and settlement dates resulting from the adverse change in the
relationship between the U.S. dollar and the subject foreign currency.
Under the second circumstance, when the manager believes that the currency
of a particular country may suffer a substantial decline relative to the U.S.
dollar, a fund could enter into a forward contract to sell for a fixed dollar
amount the amount in foreign currencies approximating the value of some or all
of its portfolio securities either denominated in, or whose value is tied to,
such foreign currency. The fund will place cash or high-grade liquid securities
in a separate account with its custodian in an amount equal to the value of the
forward contracts entered into under the second circumstance. If the value of
the securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account equals the amount of the fund's commitments with respect to such
contracts.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The manager does not intend to enter into such
contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the manager
believes that it is important to have flexibility to enter into such forward
contracts when it determines that a fund's best interests may be served.
Generally, a fund will not enter into a forward contract with a term of
greater than one year. At the maturity of the forward contract, the fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" forward contract with the same currency
trader obligating the fund to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for a fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
INDEX FUTURES CONTRACTS
As described in the Prospectus, each fund may enter into domestic stock
index futures contracts. Unlike when a fund purchases securities, no purchase
price for the underlying securities is paid by the fund at the time it purchases
a futures contract. When a futures contract is entered into, both the buyer and
seller of the contract are required to deposit with a futures commission
merchant ("FCM") cash or high-grade debt securities in an amount equal to a
percentage of the contract's value, as set by the exchange on which the contract
is traded. This amount is known as "initial margin" and is held by the Fund's
custodian for the benefit of the FCM in the event of any default by the fund in
the payment of any future obligations.
The value of the index futures is adjusted daily to reflect the fluctuation
of the value of the underlying securities that comprise the index.
5
This is a process known as marking the contract to market. If the value of a
party's position declines, that party is required to make additional "variation
margin" payments to the FCM to settle the change in value. The party that has a
gain may be entitled to receive all or a portion of this amount. The FCM may
have access to the funds' margin account only under specified conditions of
default.
The funds maintain from time to time a percentage of their assets in cash
or high-grade liquid securities to provide for redemptions or to hold for future
investment in securities consistent with the funds' investment objectives. The
funds may enter into index futures contracts as an efficient means to expose the
funds' cash position to the domestic equity market. The manager believes that
the purchase of futures contracts is an efficient means to effectively be fully
invested in equity securities.
The funds intend to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the
Commodity Futures Trading Commission ("CFTC") and the National Futures
Association, which regulate trading in the futures markets. To do so, the
aggregate initial margin required to establish such positions may not exceed 5%
of the fair market value of a fund's net assets, after taking into account
unrealized profits and unrealized losses on any contracts it has entered into.
The principal risks generally associated with the use of futures include:
o the possible absence of a liquid secondary market for any particular
instrument may make it difficult or impossible to close out a position
when desired (liquidity risk);
o the risk that the counter party to the contract may fail to perform its
obligations or the risk of bankruptcy of the FCM holding margin deposits
(counter party risk);
o the risk that the index of securities to which the futures contract
relates may go down in value (market risk); and
o adverse price movements in the underlying index can result in losses
substantially greater than the value of a fund's investment in that
instrument because only a fraction of a contract's value is required to be
deposited as initial margin (leverage risk); PROVIDED, HOWEVER, that the
funds may not purchase leveraged futures, so there is no leverage risk
involved in the funds' use of futures.
A liquid secondary market is necessary to close out a contract. The funds
seek to manage liquidity risk by investing only in exchange-traded futures.
Exchange-traded index futures pose less risk that there will not be a liquid
secondary market than privately negotiated instruments. Through their clearing
corporations, the futures exchanges guarantee the performance of the contracts.
Futures contracts are generally settled within a day from the date they are
closed out, as compared to three days for most types of equity securities. As a
result, futures contracts can provide more liquidity than an investment in the
actual underlying securities. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. Liquidity may also be influenced by an exchange-imposed daily
price fluctuation limit, which halts trading if a contract's price moves up or
down more than the established limit on any given day. On volatile trading days
when the price fluctuation limit is reached, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until liquidity in the market is re-established. As a result, such
fund's access to other assets held to cover its futures positions also could be
impaired until liquidity in the market is re-established.
The funds manage counter-party risk by investing in exchange-traded index
futures. In the event of the bankruptcy of the FCM that holds margin on behalf
of a fund, that fund may
6
be entitled to the return of margin owed to such fund only in proportion to the
amount received by the FCM's other customers. The manager will attempt to
minimize the risk by monitoring the creditworthiness of the FCMs with which the
funds do business.
The prices of futures contracts depend primarily on the value of their
underlying instruments. As a result, the movement in market price of index
futures contracts will reflect the movement in the aggregate market price of the
entire portfolio of securities comprising the index. Since the funds are not
index funds, a fund's investment in futures contracts will not correlate
precisely with the performance of such fund's other equity investments. However,
the manager believes that an investment in index futures will more closely
reflect the investment performance of the funds than an investment in U.S.
government or other highly liquid, short-term debt securities, which is where
the cash position of the funds would otherwise be invested.
The policy of the manager is to remain fully invested in equity securities.
There may be times when the manager deems it advantageous to the funds not to
invest excess cash in index futures, but such decision will generally not be the
result of an active effort to use futures to time or anticipate market movements
in general.
AN EXPLANATION OF FIXED
INCOME SECURITIES RATINGS
As described in the Prospectus, the funds may invest in fixed income
securities. With the exception of convertible securities, the funds may invest
only in investment grade obligations.
Fixed income securities ratings provide the investment manager with current
assessment of the credit rating of an issuer with respect to a specific fixed
income security. The following is a description of the rating categories
utilized by the rating services referenced in the Prospectus disclosure:
The following summarizes the ratings used by Standard & Poor's Corporation
("S&P") for bonds:
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA--Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only to a small
degree.
A--Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
7
CCC--Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C--The rating C typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
To provide more detailed indications of credit quality, the ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the ratings used by Moody's Investors Service,
Inc. ("Moody's") for bonds:
Aaa--Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risk appear somewhat
larger than the Aaa securities.
A--Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment some time in the
future.
Baa--Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Ba--Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
8
B--Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa--Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds that are rated C are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
SHORT SALES
A fund may engage in short sales if, at the time of the short sale, the
fund owns or has the right to acquire an equal amount of the security being sold
short at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. To make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If a fund engages in a short sale, the collateral account will be
maintained by the fund's custodian. There will be certain additional transaction
costs associated with short sales, but the fund will endeavor to offset these
costs with income from the investment of the cash proceeds of short sales.
A fund may make a short sale, as described above, when it wants to sell the
security it owns at a current attractive price but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such a case, all or some part of any future losses in
the fund's long position in substantially identical securities may not become
deductible for tax purposes until all or some part of the short position has
been closed.
PORTFOLIO TURNOVER
The portfolio turnover rates of the funds are shown in the Financial
Highlights table in the Prospectus.
With respect to each series of shares, management will purchase and sell
securities without regard to the length of time the security has been held.
Accordingly, the rate of portfolio turnover may be greater than other investment
companies with similar investment objectives.
The corporation intends to purchase a given security whenever management
believes it will contribute to the stated objective of a fund, even if the same
security has only recently been sold. In selling a given security, management
keeps in mind that (1) profits from sales of securities held less than three
months must be limited in order to meet the requirements of Subchapter M of the
Internal Revenue Code, and (2) profits from sales of securities are taxed to
shareholders. Subject to those considerations, the corporation will sell a given
security, no matter for how long or how short a period it has been held in the
portfolio and no matter whether the sale is at a gain or at a loss, if
management believes that the security is
9
not fulfilling its purpose, either because, among other things, it did not live
up to management's expectations, or because it may be replaced with another
security holding greater promise, or because it has reached its optimum
potential, or because of a change in the circumstances of a particular company
or industry or in general economic conditions, or because of some combination of
such reasons.
When a general decline in security prices is anticipated, a fund may
decrease or eliminate entirely its equity position and increase its cash
position, and when a rise in price levels is anticipated, a fund may increase
its equity position and decrease its cash position. It should be expected,
however, that the funds will, under most circumstances, be essentially fully
invested in equity securities and equity equivalents.
Since investment decisions are based on the anticipated contribution of the
security in question to a fund's objectives, management believes that the rate
of portfolio turnover is irrelevant when management believes a change is in
order to achieve those objectives.
OFFICERS AND DIRECTORS
The principal officers and directors of the corporation, their principal
business experience during the past five years, and their affiliation with
Investors Research Corporation and its affiliated companies are listed below.
Unless otherwise noted, the business address of each director and officer is
4500 Main Street, Kansas City, Missouri 64111. Those directors who are
"interested persons" as defined in the Investment Company Act are indicated by
an asterisk (*).
JAMES E. STOWERS, Jr.,* chairman, principal executive officer and director;
chairman, director and controlling shareholder of Twentieth Century Companies,
Inc., parent corporation of Investors Research Corporation and Twentieth Century
Services, Inc.; chairman and director of Investors Research Corporation,
Twentieth Century Services, Inc., Twentieth Century Investors, Inc., Twentieth
Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., TCI
Portfolios, Inc., and Twentieth Century Strategic Asset Allocations, Inc.
JAMES E. STOWERS III,* president and director; president and director,
Investors Research Corporation, Twentieth Century Services, Inc., Twentieth
Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth
Century Premium Reserves, Inc., TCI Portfolios, Inc., Twentieth Century
Strategic Asset Allocations, Inc. and Twentieth Century Companies, Inc.
THOMAS A. BROWN, director; 2029 Wyandotte, Kansas City, Missouri; chief
executive officer, Associated Bearing Company, a corporation engaged in the sale
of bearings and power transmission products; director, Twentieth Century
Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century
Premium Reserves, Inc., TCI Portfolios, Inc. and Twentieth Century Strategic
Asset Allocations, Inc.
ROBERT W. DOERING, M.D., director; 6406 Prospect, Kansas City, Missouri;
general surgeon; director, Twentieth Century Investors, Inc., Twentieth Century
World Investors, Inc., Twentieth Century Premium Reserves, Inc., TCI Portfolios,
Inc. and Twentieth Century Strategic Asset Allocations, Inc.
LINSLEY L. LUNDGAARD, vice chairman of the board and director; 18630 East
Via Hermosa, Rio Verde, Arizona; retired; formerly vice president and national
sales manager, Flour Milling Division, Cargill, Inc.; director, Twentieth
Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth
Century Premium Reserves, Inc., TCI Portfolios, Inc. and Twentieth Century
Strategic Asset Allocations, Inc.
DONALD H. PRATT, director; P.O. Box 419917, Kansas City, Missouri;
president, Butler Manufacturing Company; director, Twentieth Century Investors,
Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium
Reserves, Inc., TCI Portfolios, Inc. and Twentieth Century Strategic Asset
Allocations, Inc.
10
LLOYD T. SILVER JR., director; 2300 West 70th Terrace, Mission Hills,
Kansas; president, LSC, Inc., manufacturer representative; director, Twentieth
Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth
Century Premium Reserves, Inc., TCI Portfolios, Inc. and Twentieth Century
Strategic Asset Allocations, Inc.
M. JEANNINE STRANDJORD, director; 2330 Shawnee Mission Parkway, Westwood,
Kansas; senior vice president and treasurer, Sprint Corporation; director,
Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc.,
Twentieth Century Premium Reserves, Inc., TCI Portfolios, Inc. and Twentieth
Century Strategic Asset Allocations, Inc.
JOHN M. URIE, director; 5511 N.W. Flint Ridge Road, Kansas City, Missouri;
consultant; formerly director of finance, City of Kansas City, Missouri;
director, Twentieth Century Investors, Inc., Twentieth Century World Investors,
Inc., Twentieth Century Premium Reserves, Inc., TCI Portfolios, Inc. and
Twentieth Century Strategic Asset Allocations, Inc.
WILLIAM M. LYONS, executive vice president and general counsel; executive
vice president, secretary and general counsel, Twentieth Century Investors, Inc.
and Twentieth Century World Investors, Inc.; executive vice president and
general counsel, Twentieth Century Premium Reserves, Inc., TCI Portfolios, Inc.,
Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century
Companies, Inc., Investors Research Corporation and Twentieth Century Services,
Inc.
ROBERT T. JACKSON, executive vice president-finance and principal financial
officer; treasurer, Twentieth Century Companies, Inc. and Investors Research
Corporation; executive vice president and treasurer, Twentieth Century Services,
Inc.; executive vice president-finance, Twentieth Century Investors, Inc., TCI
Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century
Premium Reserves, Inc. and Twentieth Century Strategic Asset Allocations, Inc.;
formerly executive vice president, Kemper Corporation.
PATRICK A. LOOBY, vice president and secretary; vice president and
secretary, Twentieth Century Premium Reserves, Inc., TCI Portfolios and
Twentieth Century Strategic Asset Allocations, Inc.; vice president, Twentieth
Century Investors, Inc., Twentieth Century World Investors, Inc. and Twentieth
Century Services, Inc.
MARYANNE ROEPKE, CPA, vice president, treasurer and principal accounting
officer; vice president and treasurer, Twentieth Century Investors, Inc.,
Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves,
Inc. and TCI Portfolios, Inc.; vice president, Twentieth Century Services, Inc.
MERELE A. MAY, controller; controller, Twentieth Century Investors, Inc.,
TCI Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc.
The board of directors has established four standing committees: the
executive committee, the audit committee, the compliance committee and the
nominating committee.
Messrs. Stowers Jr., Stowers III and Urie constitute the executive
committee of the board of directors. The committee performs the functions of the
board of directors between meetings of the board, subject to the limitations on
its power set out in the Maryland General Corporation Law and except for matters
required by the Investment Company Act to be acted upon by the whole board.
Messrs. Lundgaard (chairman), Urie and Doering and Ms. Strandjord
constitute the audit committee. The functions of the audit committee include
recommending the engagement of the corporation's independent auditors, reviewing
the arrangements for and scope of the annual audit, reviewing comments made by
the independent auditors with respect to internal controls and the
considerations given or the corrective action taken by management and reviewing
nonaudit services provided by the independent auditors.
11
Messrs. Brown (chairman), Pratt and Silver constitute the compliance
committee. The functions of the compliance committee include reviewing the
results of the funds' compliance testing program, reviewing quarterly reports
from the manager of the funds regarding various compliance matters and
monitoring the implementation of the funds' Code of Ethics, including any
violations thereof.
The nominating committee has, as its principal role, the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the board, management and shareholders. This
committee also reviews and makes recommendations to the board with respect to
the composition of board committees and other board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Urie
(chairman), Lundgaard and Stowers III.
The directors of the corporation also serve as directors of Twentieth
Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth
Century Premium Reserves, Inc., Twentieth Century Strategic Asset Allocations,
Inc. and TCI Portfolios, Inc., registered investment companies. Each director
who is not an "interested person" as defined in the Investment Company Act
receives for service as a member of the board of all six companies an annual
director's fee of $36,000, a fee of $1,000 per regular board meeting attended
and $500 per special board meeting and committee meeting attended. In addition,
those directors who are not "interested persons" who serve as chairman of a
committee of the board of directors receive an additional $2,000 for such
services. These fees and expenses are divided among the Twentieth Century
investment companies based upon their relative net assets. Under the terms of
the management agreement with Investors Research Corporation, the funds are
responsible for paying such fees and expenses. For the most recent fiscal year,
Twentieth Century Value's share of such fees and expenses was $6,570 and
Twentieth Century Equity Income's share was $950.
Set forth below is the aggregate compensation paid for the periods
indicated by the corporation and by the Twentieth Century Family of Mutual Funds
as a whole to each director of the corporation who is not an "interested person"
as defined in the Investment Company Act.
Aggregate Total Compensation from
Compensation the Twentieth Century
Director from the corporation1 Family of Funds2
- --------------------------------------------------------------------------------
Thomas A. Brown $ 986.73 $44,000
Robert W. Doering, M.D. 975.64 44,000
Linsley L. Lundgaard 1,019.99 46,000
Donald H. Pratt 853.69 28,000
Lloyd T. Silver Jr. 975.64 44,000
M. Jeannine Strandjord 964.56 44,000
John M. Urie 1,019.99 46,000
- --------------------------------------------------------------------------------
1 Includes compensation actually paid by the corporation during the fiscal year
ended March 31, 1996.
2 Includes compensation paid by the six investment company members of the
Twentieth Century family of funds for the calendar year ended December 31,
1995.
Those directors who are "interested persons," as defined in the Investment
Company Act, receive no fee as such for serving as a director. The salaries of
such individuals, who also are officers of the corporation, are paid by
Investors Research Corporation.
MANAGEMENT
A description of the responsibilities and method of compensation of
Twentieth Century's investment manager, Investors Research Corporation
("Investors Research"), appears in the Prospectus under the caption
"Management."
During the fiscal years ended March 31, 1994, 1995 and 1996, the management
fees paid by Twentieth Century Value and Twentieth Century
12
Equity Income to Investors Research were:
FUND Year Ended March 31
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
VALUE
Management fees $5,747,940 $1,514,154 $309,388*
Average net assets 590,608,755 151,415,400 30,938,800*
EQUITY INCOME
Management fees 831,887 145,270**
Average net assets 84,610,230 14,527,000**
- --------------------------------------------------------------------------------
* Since inception (September 1, 1993) through March 31, 1994.
**Since inception (August 1, 1994) through March 31, 1995.
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (i) the board of
directors of Twentieth Century or by the vote of a majority of outstanding votes
(as defined in the Investment Company Act) and (ii) by the vote of a majority of
the directors of Twentieth Century who are not parties to the agreement or
interested persons of Investors Research, cast in person at a meeting called for
the purpose of voting on such approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the board of directors of Twentieth Century,
or by a vote of Twentieth Century's shareholders, on 60 days' written notice to
Investors Research and that it shall be automatically terminated if it is
assigned.
The management agreement provides that Investors Research shall not be
liable to Twentieth Century or its shareholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
The management agreement also provides that Investors Research and its
officers, directors and employees may engage in other business, devote time and
attention to any other business whether of a similar or dissimilar nature, and
render services to others.
Certain investments may be appropriate for the funds and also for other
clients advised by Investors Research. Investment decisions for the funds and
other clients are made with a view to achieving their respective investment
objectives after consideration of such factors as their current holdings,
availability of cash for investment, and the size of their investment generally.
A particular security may be bought or sold for only one client, or in different
amounts and at different times for more than one but less than all clients. In
addition, purchases or sales of the same security may be made for two or more
clients on the same date. Such transactions will be allocated among clients in a
manner believed by Investors Research to be equitable to each. In some cases
this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.
In addition to managing the funds, on August 1, 1996, Investors Research
was also acting as an investment adviser to nine institutional accounts and to
six registered investment companies within the Twentieth Century mutual fund
complex: Twentieth Century Investors, Inc., Twentieth Century World Investors,
Inc., Twentieth Century Premium Reserves, Inc., TCI Portfolios, Inc., Twentieth
Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset
Allocations, Inc.
Twentieth Century Services, Inc. provides physical facilities, including
computer hardware and software and personnel, for the day-to-day administration
of Twentieth Century and Investors Research. Investors Research pays Twentieth
Century Services, Inc., for such services.
As stated in the Prospectus, all of the stock of Twentieth Century
Services, Inc., and Investors Research is owned by Twentieth Century Companies,
Inc.
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, Boatmen's First National Bank of Kansas City, 10th and Baltimore,
Kansas City, Missouri 64105
13
and United Missouri Bank of Kansas City, N.A., 10th and Grand, Kansas City,
Missouri 64105, each serves as custodian of the assets of the funds. The
custodians take no part in determining the investment policies of the funds or
in deciding which securities are purchased or sold by the funds. The funds,
however, may invest in certain obligations of the custodians and may purchase or
sell certain securities from or to the custodians.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri 64105, serves as Twentieth Century's independent auditors, providing
services including (1) audit of the annual financial statements, (2) assistance
and consultation in connection with SEC filings and (3) review of the annual
federal income tax return filed for each fund by Twentieth Century.
CAPITAL STOCK
Twentieth Century's capital stock is described in the Prospectus under the
caption "Further Information About Twentieth Century."
The corporation currently has two series of shares outstanding. Each series
of shares is further divided into four classes. Twentieth Century may in the
future issue one or more additional series or class of shares without a vote of
the shareholders. The assets belonging to each series or class of shares are
held separately by the custodian and the shares of each series or class
represent a beneficial interest in the principal, earnings and profits (or
losses) of investment and other assets held for that series or class. Your
rights as a shareholder are the same for all series or classes of securities
unless otherwise stated. Within their respective series or class, all shares
will have equal redemption rights. Each share, when issued, is fully paid and
non-assessable. Each share, irrespective of series or class, is entitled to one
vote for each dollar of net asset value represented by such share on all
questions.
In the event of complete liquidation or dissolution of Twentieth Century,
shareholders of each series or class of shares will be entitled to receive, pro
rata, all of the assets less the liabilities of that series or class.
As of June 30, 1996, in excess of 5% of the outstanding shares of either
series of Twentieth Century were owned of record as follows: Charles Schwab &
Co., San Francisco, California, owned 14.9% of Twentieth Century Value and 21.5%
of Twentieth Century Equity Income.
As of June 30, 1996, the shares of the corporation owned beneficially and
of record by the officers and directors of the corporation in the aggregate were
less than 1% of either series of shares offered by Twentieth Century.
MULTIPLE CLASS STRUCTURE
The funds' board of directors has adopted a multiple class plan (the
"Multiclass Plan") pursuant to Rule 18f-3 adopted by the Securities and Exchange
Commission ("SEC"). Pursuant to such plan, Twentieth Century funds may issue up
to four classes of funds: an Investor Class, an Institutional Class, a Service
Class and an Advisor Class. Not all funds offer all four classes.
The Investor Class is made available to investors directly by the
investment manager through its affiliated broker-dealer, Twentieth Century
Services, Inc., for a single unified management fee, without any load or
commission. The Institutional, Service and Advisor Classes are made available to
institutional shareholders or through financial intermediaries that do not
require the same level of shareholder and administrative services from the
manager as Investor Class shareholders. As a result, the manager is able to
charge these classes a lower management fee. In addition to the management fee,
however, Service Class shares are subject to a Shareholder Services Plan
(described below), and the Advisor Class shares are subject to a Master
Distribution and Shareholder Services Plan (also described below). Both plans
have been adopted by the
14
funds' board of directors and initial shareholder in accordance with Rule 12b-1
adopted by the SEC under the 1940 Act.
RULE 12B-1
Rule 12b-1 permits an investment company to pay expenses associated with
the distribution of its shares in accordance with a plan adopted by the
investment company's board of directors and approved by its shareholders.
Pursuant to such rule, the board of directors and initial shareholder of the
funds' Service Class and Advisor Class have approved and entered into a
Shareholder Services Plan, with respect to the Service Class, and a Master
Distribution and Shareholder Services Plan, with respect to the Advisor Class
(collectively, the "Plans"). Both Plans are described below.
In adopting the Plans, the board of directors (including a majority of
directors who are not "interested persons" of the funds (as defined in the 1940
Act), hereafter referred to as the "independent directors") determined that
there was a reasonable likelihood that the Plans would benefit the funds and the
shareholders of the affected classes. Pursuant to Rule 12b-1, information with
respect to revenues and expenses under the Plans is presented to the board of
directors quarterly for its consideration in connection with its deliberations
as to the continuance of the Plans. Continuance of the Plans must be approved by
the board of directors (including a majority of the independent directors)
annually. The Plans may be amended by a vote of the board of directors
(including a majority of the independent directors), except that the Plans may
not be amended to materially increase the amount to be spent for distribution
without majority approval of the shareholders of the affected class. The Plans
terminate automatically in the event of an assignment and may be terminated upon
a vote of a majority of the independent directors or by vote of a majority of
the outstanding voting securities of the affected class.
All fees paid under the plans will be made in accordance with Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers.
SHAREHOLDER SERVICES PLAN
As described in the Prospectus, the funds' Service Class of shares are made
available to participants in employer-sponsored retirement or savings plans and
to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. In such circumstances, certain
recordkeeping and administrative services that are provided by the funds'
transfer agent for the Investor Class shareholders may be performed by a plan
sponsor (or its agents) or by a financial intermediary. To enable the funds'
shares to be made available through such plans and financial intermediaries, and
to compensate them for such services, the funds' investment manager has reduced
its management fee by 0.25% per annum with respect to the Service Class shares
and the funds' board of directors has adopted a Shareholder Services Plan.
Pursuant to the Shareholder Services Plan, the Service Class shares pay a
shareholder services fee of 0.25% annually of the aggregate average daily net
assets of the funds' Service Class shares.
The Distributor enters into contracts with each financial intermediary for
the provision of certain shareholder services and utilizes the shareholder
services fees under the Shareholder Services Plan to pay for such services.
Payments may be made for a variety of shareholder services, including, but are
not limited to, (a) receiving, aggregating and processing purchase, exchange and
redemption request from beneficial owners (including contract owners of
insurance products that utilize the funds as underlying investment medium) of
shares and placing purchase, exchange and redemption orders with the
Distributor; (b) providing shareholders with a service that
15
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (c) processing dividend payments from a fund on
behalf of shareholders and assisting shareholders in changing dividend options,
account designations and addresses; (d) providing and maintaining elective
services such as check writing and wire transfer services; (e) acting as
shareholder of record and nominee for beneficial owners; (f) maintaining account
records for shareholders and/or other beneficial owners; (g) issuing
confirmations of transactions; (h) providing subaccounting with respect to
shares beneficially owned by customers of third parties or providing the
information to a fund as necessary for such subaccounting; (i) preparing and
forwarding shareholder communications from the funds (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to shareholders and/or other beneficial owners;
(j) providing other similar administrative and sub-transfer agency services; and
(k) paying "service fees" for the provision of personal, continuing services to
investors, as contemplated by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (NASD") (collectively referred to as
"Shareholder Services"). Shareholder Services do not include those activities
and expenses that are primarily intended to result in the sale of additional
shares of the funds.
MASTER DISTRIBUTIONS AND
SHAREHOLDER SERVICES PLAN
As described in the Prospectus, the funds' Advisor Class of shares are also
made available to participants in employer-sponsored retirement or savings plans
and to persons purchasing through financial intermediaries, such as banks,
broker-dealers and insurance companies. The Distributor enters into contracts
with various banks, broker-dealers, insurance companies and other financial
intermediaries with respect to the sale of the funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.
As with the Service Class, certain recordkeeping and administrative
services that are provided by the funds' transfer agent of the Investor Class
shareholders may be performed by a plan sponsor (or its agents) or by a
financial intermediary for shareholders in the Advisor Class. In addition to
such services, the financial intermediaries provide various distribution
services.
To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
investment manager has reduced its management fee by 0.25% per annum with
respect to the Advisor Class shares and the funds' board of directors has
adopted a Master Distribution and Shareholder Services Plan (the "Distribution
Plan"). Pursuant to such Plan, the Advisor Class shares pay a fee of 0.50%
annually of the aggregate average daily net assets of the funds' Advisor Class
shares, 0.25% of which is paid for Shareholder Services (as described above) and
0.25% of which is paid for distribution services.
Distribution services include any activity undertaken or expense incurred
that is primarily intended to result in the sale of Advisor Class shares, which
services may include but are not limited to, (a) the payment of sales
commission, ongoing commissions and other payments to brokers, dealers,
financial institutions or others who sell Advisor Class shares pursuant to
Selling Agreements; (b) compensation to registered representatives or other
employees of Distributor who engage in or support distribution of the funds'
Advisor Class shares; (c) compensation to, and expenses (including overhead and
telephone expenses) of, Distributor; (d) the printing of prospectuses,
statements of additional information and reports for other than existing
shareholders; (e) the preparation, printing and distribution of sales literature
and advertising materials provided to the funds' shareholders and prospective
shareholders; (f) receiving and
16
answering correspondence from prospective shareholders including distributing
prospectuses, statements of additional information, and shareholder reports; (g)
the providing of facilities to answer questions from prospective investors about
fund shares; (h) complying with federal and state securities laws pertaining to
the sale of fund shares; (i) assisting investors in completing application forms
and selecting dividend and other account options: (j) the providing of other
reasonable assistance in connection with the distribution of fund shares; (k)
the organizing and conducting of sales seminars and payments in the form of
transactional compensation or promotional incentives; (l) profit on the
foregoing; (m) the payment of "service fees" for the provision of personal,
continuing services to investors, as contemplated by the Rules of Fair Practice
of the National Association of Securities Dealers; Inc. ("NASD") and (n) such
other distribution and services activities as the manager determines may be paid
for by the funds pursuant to the terms of this Agreement and in accordance with
Rule 12b-1of the 1940 Act.
TAXES
Each fund intends to qualify under the Internal Revenue Code (the "Code")
as a regulated investment company. If they qualify, they will not be subject to
U.S. federal income tax on net investment income and net capital gains, which
are distributed to its shareholders within certain time periods specified in the
Code. Amounts not distributed on a timely basis would be subject to federal and
state corporate income tax and to a nondeductible 4% excise tax.
Each fund intends to distribute annually all of its net ordinary income and
net capital gains.
Distributions from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. The dividends received deduction
available to corporate shareholders for dividends received from a fund will
apply to ordinary income distributions only to the extent that they are
attributable to the fund's dividend income from U.S. corporations. In addition,
the dividends received deduction will be limited if the shares with respect to
which the dividends are received are treated as debt-financed or are deemed to
have been held less than 46 days by a fund.
Distributions from net long-term capital gains are taxable to a shareholder
as long-term capital gains regardless of the length of time the shares on which
such distributions are paid have been held by the shareholder. However,
shareholders should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distribution of long-term capital gain to the shareholder
with respect to such shares.
Redemption of shares of a fund will be a taxable transaction for federal
income tax purposes and shareholders will generally recognize 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 Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating
to an investment in shares of the funds, there may be other federal, state or
local tax considerations that depend upon the circumstances of each particular
investor. Prospective shareholders are therefore urged to consult their tax
advisers with respect to the effect of this investment on their own situations.
17
BROKERAGE
Under the terms of the Management Agreement between Twentieth Century and
Investors Research, Investors Research has the responsibility of selecting
brokers to execute portfolio transactions. Twentieth Century's policy is to
secure the most favorable prices and execution of orders on its portfolio
transactions. So long as that policy is met, Investors Research may take into
consideration the factors discussed below when selecting brokers.
Investors Research receives statistical and other information and services
without cost from brokers and dealers. Investors Research evaluates such
information and services, together with all other information that it may have,
in supervising and managing the investment portfolios of Twentieth Century.
Because such information and services may vary in amount, quality and
reliability, their influence in selecting brokers varies from none to very
substantial. Investors Research proposes to continue to place some of Twentieth
Century's brokerage business with one or more brokers who provide information
and services.
Such information and services will be in addition to and not in lieu of the
services required to be performed by Investors Research. Investors Research does
not utilize brokers who provide such information and services for the purpose of
reducing the expense of providing required services to Twentieth Century.
In the years ended March 31, 1996, 1995 and 1994, the brokerage commissions
of each fund were as follows:
Fund Years Ended March 31,
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1996 1995 1994
- --------------------------------------------------------------------------------
Value $2,929,681 $607,139 $175,983(1)
Equity Income $325,185 $51,427(1)
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(1) Since inception.
The brokerage commissions paid by the funds may exceed those that another
broker might have charged for effecting the same transactions because of the
value of the brokerage and/or research services provided by the broker. Research
services furnished by brokers through whom Twentieth Century effects securities
transactions may be used by Investors Research in servicing all of its accounts,
and not all such services may be used by Investors Research in managing the
portfolios of Twentieth Century.
The staff of the Securities and Exchange Commission has expressed the view
that the best price and execution of over-the-counter transactions in portfolio
securities may be secured by dealing directly with principal market makers,
thereby avoiding the payment of compensation to another broker. In certain
situations, the officers of Twentieth Century and the manager believe that the
facilities, expert personnel and technological systems of a broker enable the
corporation to secure as good a net price by dealing with a broker instead of a
principal market maker, even after payment of the compensation to the broker.
Twentieth Century normally places its over-the-counter transactions with
principal market makers but also may deal on a brokerage basis when utilizing
electronic trading networks or as circumstances warrant.
PERFORMANCE ADVERTISING
Individual fund performance may be compared to various indices, including
the Standard & Poor's 500 Index, the Consumer Price Index, the Dow Jones
Industrial Average and the S&P/Barra Value (with regard to Twentieth Century
Value) and the Lipper Equity Income Fund Index (with regard to Twentieth Century
Equity Income). Fund performance also may be compared to the rankings prepared
by Lipper Analytical Services, Inc.
The following table sets forth the average annual total return of the funds
for the periods indicated. Average annual total return is calculated by
determining each fund's cumulative total return for the stated period and then
computing the annual compound return that would produce the cumulative total
return if the fund's perfor-
18
mance had been constant over that period. Cumulative total return includes all
elements of return, including reinvestment of dividends and capital gains
distributions. Annualization of a fund's return assumes that the partial year
performance will be constant throughout the period. Actual return through the
period may be greater or less than the annualized data.
Average Annual
TWENTIETH CENTURY VALUE Total Return
- --------------------------------------------------------------------------------
Year ended March 31, 1996 28.06%
September 1, 1993 (Inception)
through March 31, 1996 17.94%
- --------------------------------------------------------------------------------
Average Annual
TWENTIETH CENTURY EQUITY INCOME Total Return
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Year Ended March 31, 1996 25.67%
August 1, 1994 (Inception)
through March 31, 1996 21.92%
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The funds also may elect to advertise cumulative total return and average
annual total return, computed as described above, over periods of time other
than one, five and 10 years and cumulative total return over various time
periods. The following table shows the cumulative total returns and the average
annual returns for the funds since their respective dates of inception.
Cumulative Total Average Annual
FUND Return Since Inception Compound Rate
- --------------------------------------------------------------------------------
VALUE 53.10% 17.94%
EQUITY INCOME 39.12% 21.92%
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ADDITIONAL PERFORMANCE COMPARISONS
Investors may judge the performance of the funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the EAFE(R) Index and those prepared by Dow Jones &
Co., Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The
Russell 2000 Index, and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made to
indices or data published in Money, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, Pensions and Investments, USA Today, and
other similar publications or services. In addition to performance information,
general information about the funds that appears in a publication such as those
mentioned above or in the Prospectus under the heading "Performance Advertising"
may be included in advertisements and in reports to shareholders.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
19
REDEMPTIONS IN KIND
In order to protect the investments of the remaining shareholders,
Twentieth Century has adopted a policy regarding large redemptions. That policy
is described in detail in the applicable fund prospectuses under the heading
"Special Requirements for Large Redemptions."
In addition to the policy just mentioned, the funds have elected to be
governed by Rule 18f-1 under the Investment Company Act of 1940, pursuant to
which the funds are obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of a fund during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed such
limitation, Twentieth Century will have the option of redeeming the excess in
cash or in kind. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage costs in converting the assets to cash. The securities delivered
will be selected at the sole discretion of the manager and will not necessarily
be representative of the entire portfolio and will be securities that the
manager regards as least desirable. The method of valuing securities used to
make redemptions in kind will be the same as the method of valuing portfolio
securities described in the Prospectus under the heading "How Share Price is
Determined," and such valuation will be made as of the same time the redemption
price is determined.
HOLIDAYS
Twentieth Century does not determine the net asset value of its shares on
days when the New York Stock Exchange is closed. Currently, the Exchange is
closed on Saturdays and Sundays and on holidays, namely New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
FINANCIAL STATEMENTS
The financial statements of the various series of shares of Twentieth
Century for the fiscal year ended March 31, 1996, are included in the annual
report to shareholders, which are incorporated herein by reference. You may
receive copies without charge upon request to Twentieth Century at the address
and phone numbers shown on the cover of this statement.
20
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TWENTIETH CENTURY
Conservative
Equity Funds
Statement of
Additional Information
September 3, 1996
TWENTIETH CENTURY MUTUAL FUNDS
and THE BENHAM GROUP
- --------------------------------------------
P.O. BOX 419200
KANSAS CITY, MISSOURI
64141-6200
- --------------------------------------------
Person-to-person assistance:
1-800-345-2021 OR 816-531-5575
- --------------------------------------------
Automated Information Line:
1-800-345-8765
- --------------------------------------------
Telecommunications Device for the Deaf:
1-800-634-4113 OR 816-753-1865
- --------------------------------------------
Fax: 816-340-7962
- --------------------------------------------
Internet: Http://Www.Twentieth-Century.Com
- --------------------------------------------
TWENTIETH CENTURY
CAPITAL PORTFOLIOS
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SH-BKT-5312 [recycled logo]
9608 Recycled
