-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RFbxTx1tA+iRzeXhOzx8l5J6H9k7wUxkritzywezwtfKXB3fzxdCsTGzQPVZQXhB NB5DQNAt/03RZeW2EfmGBA== 0000100334-96-000011.txt : 19960617 0000100334-96-000011.hdr.sgml : 19960617 ACCESSION NUMBER: 0000100334-96-000011 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 31 FILED AS OF DATE: 19960614 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TWENTIETH CENTURY INVESTORS INC CENTRAL INDEX KEY: 0000100334 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 446006315 STATE OF INCORPORATION: MO FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-14213 FILM NUMBER: 96580763 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00816 FILM NUMBER: 96580764 BUSINESS ADDRESS: STREET 1: 4500 MAIN ST STREET 2: P O BOX 419200 CITY: KANSAS CITY STATE: MO ZIP: 64141 BUSINESS PHONE: 8165315575 MAIL ADDRESS: STREET 1: TWENTIETH CENTURY INVESTORS INC STREET 2: 4500 MAIN STREET CITY: KANSAS CITY STATE: MO ZIP: 64141-6200 485APOS 1 POST-EFFECTIVE AMENDMENT As filed with the Securities and Exchange Commission on June 14, 1996 1933 Act File No. 2-14213; 1940 Act File No. 811-0816 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X__ Pre-Effective Amendment No.____ ____ Post-Effective Amendment No._75 _X__ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X__ Amendment No._75_ (check appropriate box or boxes.) TWENTIETH CENTURY INVESTORS, INC. --------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Twentieth Century Tower, 4500 Main Street, Kansas City, MO 64111 ---------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: 816-531-5575 James E. Stowers III Twentieth Century Tower, 4500 Main Street, Kansas City, MO 64111 ---------------------------------------------------------------- (Name and address of Agent for service) Approximate Date of Proposed Public Offering: September 3, 1996 It is proposed that this filing will become effective (check appropriate box) ____ immediately upon filing pursuant to paragraph (b) of Rule 485 ____ on (date) pursuant to paragraph (b) of Rule 485 ____ 60 days after filing pursuant to paragraph (a) of Rule 485 ____ on (date) pursuant to paragraph (a)(1) of Rule 485 ____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485 _X__ on September 3, 1996 pursuant to paragraph (a)(2) of Rule 485 The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 notice for the fiscal year ending October 31, 1995, was filed on November 14, 1995. ================================================================================ CROSS REFERENCE SHEET - -------------------------------------------------------------------------------- ITEM PAGE NO. NO. - ------------------------------------------------------------------------------- Growth Funds Part A. Prospectus - ------------------------------------------------------------------------------- 1. Cover Page Cover Page 2. Synopsis 4 3. Condensed Financial Information 5-9 4. General Description of Registrant 10-15, 29-30 5. Management of the Fund 27-29 5A. Management's Discussion of Fund Performance 5 6. Capital Stock and Other Securities 19-20, 25-27, 29-30 7. Purchase of Securities Being Offered 17-18, 24, 29-30 8. Redemption or Repurchase 19-20 9. Pending Legal Proceedings N/A - -------------------------------------------------------------------------------- Part B. - Statement of Additional Information - -------------------------------------------------------------------------------- 10. Cover Page Cover Page 11. Table of Contents Cover Page 12. General Information N/A 13. Investment Objectives and Policies 2-15 14. Management of the Fund 15-20 15. Control Persons and Principal Holders of Securities 20 16. Investment Advisory and Other Services 18-23 17. Brokerage Allocation 23-24 18. Capital Stock and Other Securities 20 19. Purchase, Redemptions and Pricing of Securities Being Offered N/A 20. Tax Status N/A 21. Underwriters N/A 22. Calculation of Performance Data 24-26 23. Financial Statements 27 ================================================================================ TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS RETAIL CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Five of the funds that invest primarily in equity securities are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. There is no minimum investment requirement for any of the funds described in this prospectus. However, if the value of the shares held in any one fund account is less than $2,500 ($1,000 for IRA and UGMA/UTMA accounts), you must establish an automatic investment program of $50 or more per month in each such account. (See "Automatic Investment Plan," page 18 and "Automatic Redemption of Shares," page 20). 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- SELECT INVESTORS HERITAGE INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. GROWTH INVESTORS ULTRA INVESTORS VISTA INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. 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 FOR 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 INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS ............................................. 10 Growth Equity Funds ............................................... 10 Select and Heritage Investors ..................................... 10 Growth, Ultra and Vista Investors ................................. 10 OTHER INVESTMENT PRACTICES .......................................... 11 Foreign Securities ................................................ 11 Forward Currency Exchange Contracts ............................... 11 Portfolio Turnover ................................................ 12 Repurchase Agreements ............................................. 13 Derivative Securities ............................................. 13 Portfolio Lending ................................................. 14 When-Issued Securities ............................................ 14 Rule 144A Securities .............................................. 14 Short Sales ....................................................... 15 PERFORMANCE ADVERTISING ............................................. 15 HOW TO INVEST WITH TWENTIETH CENTURY HOW TO OPEN AN ACCOUNT .............................................. 17 By Mail ........................................................... 17 By Wire ........................................................... 17 By Exchange ....................................................... 17 In Person ......................................................... 17 Subsequent Investments ............................................ 18 By Mail ........................................................... 18 By Telephone ...................................................... 18 By Wire ........................................................... 18 In Person ......................................................... 18 Automatic Investment Plan ......................................... 18 HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER ................................................ 18 By Mail ........................................................... 18 By Telephone ...................................................... 18 HOW TO REDEEM SHARES ................................................ 19 By Telephone ...................................................... 19 By Mail ........................................................... 19 By Check-A-Month .................................................. 19 Other Automatic Redemptions ....................................... 19 Redemption Proceeds ............................................... 19 By Check .......................................................... 19 By Wire and ACH ................................................... 19 Special Requirements for Large Redemptions ............................................... 19 Automatic Redemption of Shares .................................... 20 SIGNATURE GUARANTEE ................................................. 20 SPECIAL SHAREHOLDER SERVICES ........................................ 20 Automated Information Line ........................................ 20 Open Order Service ................................................ 21 Tax-Qualified Retirement Plans .................................... 21 Important Policies Regarding Your Investments ................................................ 21 REPORTS TO SHAREHOLDERS ............................................. 22 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS ............................................ 22 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ......................................................... 24 When Share Price Is Determined .................................... 24 How Share Price Is Determined ..................................... 24 Where to Find Information About Share Price ............................................... 25 DISTRIBUTIONS ....................................................... 25 TAXES ............................................................... 26 Tax-Deferred Accounts ............................................. 26 Taxable Accounts .................................................. 26 MANAGEMENT .......................................................... 27 Investment Management ............................................. 27 Code of Ethics .................................................... 28 Transfer and Administrative Services .............................. 28 Distribution of Fund Shares ....................................... 29 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ........................................... 29 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- Applicable to Select, Heritage, SHAREHOLDER TRANSACTION EXPENSES: Growth, Ultra and Vista 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 1 year $10 investment, assuming (1) a 5% annual return and 3 years 32 (2) redemption at the end of each time period: 5 years 55 10 years 122 (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 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 retail 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 retail class, resulting in different performance for the other classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 29. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--SELECT INVESTORS (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 $26.48 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 .43 Net Realized and Unrealized Gains (Losses)................. 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 9.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 9.44 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) (.515) From Net Realized Gains on Investment Transactions..................(2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) -- In Excess of Net Realized Gains.................(.125) -- (.016) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) (.515) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)............... 15.02% (7.37%) 22.20% 1.76% 27.05% (2.03%) 32.59% 7.31% 3.47% 36.13% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% 1.6% Portfolio Turnover Rate........ 106% 126% 82% 95% 84% 83% 93% 140% 123% 85% Average Commission Paid per Share Traded..........$.046 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 $1,978 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 5
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--HERITAGE INVESTORS (continued) Years ended October 31 Nov. 1, 1987 ---------------------- (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD......$10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)............ .05(1) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gains (Losses)........... 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.... 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........ (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions............. (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains........... (.030) (.006) -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...... (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD............$11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2).......... 21.04% (1.13%) 28.64% 9.65% 33.25% (11.62%) 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets....... .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets............... .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(3) Portfolio Turnover Rate.. 121% 136% 116% 119% 146% 127% 159% 130%(3) Average Commission Paid per Share Traded.... $.042 -- -- -- -- -- -- -- Net Assets, End of Period (in millions)..$1,008 $897 $702 $369 $269 $199 $117 $55 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--GROWTH INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD ..........$22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 $14.16 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 .12 Net Realized and Unrealized Gains (Losses)................. 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 5.37 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 5.49 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) (.182) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions..................(3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) -- In Excess of Net Realized Gains................ (.040) (.002) (.013) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) (.182) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)................22.31% 2.66% 8.48% 5.96% 60.64% (11.72%) 42.74% 3.18% 9.32% 39.09% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .4% .3% .2% (.1%) .2% .6% .5% 2.4% .2% .6% Portfolio Turnover Rate........ 141% 100% 94% 53% 69% 118% 98% 143% 114% 105% Average Commission Paid per Share Traded..........$.040 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$5,129 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 $965 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 7
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--ULTRA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 $7.13 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................. (.07)(1)(.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) .00 Net Realized and Unrealized Gains (Losses)................ 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations......... 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income............. -- -- -- -- -- (.196) -- -- (.007) (.010) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions.................. (.645) -- -- -- (.028) (.947) -- (3.258) -- -- In Excess of Net Realized Gains................ -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions........... (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) (.010) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 36.89% (2.08%) 39.78% (.45%) 101.51% (9.02%) 40.37% 19.52% (3.23%) 27.22% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets.................... (.3%) (.1%) (.6%) (.4%) (.5%) (.3%) 2.2% (.3%) (.5%) -- Portfolio Turnover Rate....... 87% 78% 53% 59% 42% 141% 132% 140% 137% 99% Average Commission Paid per Share Traded......... $.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)......$14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 $315 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 8
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--VISTA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 $4.68 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. (.08)(1)(.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) (.02) Net Realized and Unrealized Gains (Losses)................. 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) 2.22 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.......... 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) 2.20 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income.............. -- -- -- -- -- -- (.012) -- -- -- In Excess of Net Investment Income From Net Realized Gains on Investment Transactions...................(.300) (1.663) (.641) -- -- (.693) -- (.462) (.651) -- In Excess of Net Realized Gains................. -- (.012) (.006) -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions............ (.30) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 44.20% 4.16% 17.71% 4.55% 67.67% (22.17%) 48.19% 11.41% (7.70%) 47.00% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... (.6%) (.8%) (.6%) (.4%) (.3%) (.1%) (.4%) .2% (.7%) (.3%) Portfolio Turnover Rate........ 89% 111% 133% 87% 92% 103% 125% 145% 123% 121% Average Commission Paid per Share Traded..........$.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$1,676 $792 $847 $830 $622 $341 $264 $206 $187 $160 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 9 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the equity funds offered by this prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years continuous operation. SELECT INVESTORS, HERITAGE INVESTORS Securities of companies chosen for Select and Heritage Investors are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated below under the caption "Growth Investors, Ultra Investors and Vista Investors" below, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this prospectus. GROWTH INVESTORS, ULTRA INVESTORS AND VISTA INVESTORS Management selects, for the portfolios of Growth, Ultra and Vista, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth, generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista 10 invests in medium-sized and smaller companies. As of February 1, 1996, the size of the companies (as reflected by their capitalizations) held by the funds is as follows: Median Capitalization of Companies Held - -------------------------------------------------------------------------------- Growth Investors $5,076,231,000 Ultra Investors $3,542,263,000 Vista Investors $ 871,313,000 - -------------------------------------------------------------------------------- The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined above are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds 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 funds will limit their purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the funds' portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the funds. 11 To protect against adverse movements in ex-change 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. A 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, a fund 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, a fund may enter into forward currency exchange contracts to sell the value of some or all of the 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 it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward 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 a fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-9 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 rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that each fund pays 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. 12 REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 13 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for each fund 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. 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 buyers 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 14 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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). SHORT SALES The funds 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. 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 and, yield. Performance data may be quoted separately for the retail class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. 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. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other 15 funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 16 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 22. 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 18. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 18 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 17 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 17 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 17. 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 Shareholder 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 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 19. 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 Shareholder 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 20) 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 800-345-2021 to get the appropriate form. 18 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," this page). 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 20. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. 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 19 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. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either 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 Shareholder 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 Shareholder Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated 20 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 Shareholder 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 requesting personal identification from callers, 21 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 Shareholder 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 Shareholder 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. EMPLOYER SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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, 22 and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 1-800-345-3533 to request information about our funds, 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. 23 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or its 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, 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 record keeper 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 arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by 24 assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then exchanged 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Net asset values may also be obtained by calling Twentieth Century. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DIS-TRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder service 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. 25 Because such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," on this page). TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the retail class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the retail class 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 a fund on foreign 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. If more than 50% of the value of a fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not 26 have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemption 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 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. 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 advisory 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. 27 Investors Research supervises and manages the investment portfolios of each fund and directs the purchase and sale of its investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem 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 teams managing the funds described in this prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. He is a member of the teams that manage Select Investors, Ultra Investors and Vista Investors. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages Select Investors. CHRISTOPHER K. BOYD, Vice President and Portfolio Manager, joined Twentieth Century in March 1988 as an Investment Analyst, a position he held until December 1990. At that time he was promoted to Assistant Portfolio Manager, and then was promoted to Portfolio Manager in December 1992. He is a member of the team that manages Growth Investors and Ultra Investors. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista Investors. DEREK FELSKE, Vice President and Portfolio Manager, joined Twentieth Century in September 1993 as a Portfolio Manager. He is a member of the team that manages Growth Investors. Prior to joining Twentieth Century, Mr. Felske served as a member of the portfolio management team of RCM Capital Management, a San Francisco, California-based investment management firm, a position he held from May 1991 to September 1993. From September 1989 to May 1991, Mr. Felske attended the University of Pennsylvania-Wharton School of Business, where he obtained an MBA in finance. NANCY B. PRIAL, Vice President and Portfolio Manager, joined Twentieth Century in February 1994 as a Portfolio Manager. She is a member of the team that manages Heritage Investors. For more than four years prior to joining Twentieth Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. 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 of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of the funds' expenses except as specified above are paid by Investors Research. 28 CODE OF ETHICS The funds and Investors Research have adopted a Code of Ethics that restricts personnel 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 agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 funds' board of directors, 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 retail class of, the fund shares offered by this prospectus. The retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575). Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of each of the funds offered by this prospectus: a retail class, an institutional class, a services class, 29 and an advisor class. The shares offered by this prospectus are retail 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 retail class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this prospectus, call Twentieth Century 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) each 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 which 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 less-than-50% of the 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' by-laws, the holders of shares representing 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. 30 (THIS PAGE LEFT BLANK INTENTIONALLY.) 31 TWENTIETH CENTURY TWENTIETH CENTURY INVESTORS, INC. RETAIL CLASS GROWTH FUNDS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - --------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - --------------------------------------- Fax: 816-340-4655 - -------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5014 9603 Recycled TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS INSTITUTIONAL CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Five of the funds that invest primarily in equity securities are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- SELECT INVESTORS HERITAGE INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. GROWTH INVESTORS ULTRA INVESTORS VISTA INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. 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 FOR 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 INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS ............................................. 10 Growth Equity Funds ............................................. 10 Select and Heritage Investors ................................... 10 Growth, Ultra and Vista Investors ............................... 10 OTHER INVESTMENT PRACTICES ........................................ 11 Foreign Securities ................................................ 11 Forward Currency Exchange Contracts ............................... 11 Portfolio Turnover ................................................ 12 Repurchase Agreements ............................................. 13 Derivative Securities ............................................. 13 Portfolio Lending ................................................. 14 When-Issued Securities ............................................ 14 Rule 144A Securities .............................................. 14 Short Sales ....................................................... 15 PERFORMANCE ADVERTISING ............................................. 15 HOW TO INVEST WITH TWENTIETH CENTURY HOW TO OPEN AN ACCOUNT .............................................. 17 By Mail ........................................................... 17 By Wire ........................................................... 17 By Exchange ....................................................... 17 In Person ......................................................... 17 SUBSEQUENT INVESTMENTS .............................................. 18 By Mail ........................................................... 18 By Telephone ...................................................... 18 By Wire ........................................................... 18 In Person ......................................................... 18 AUTOMATIC INVESTMENT PLAN ........................................... 18 HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER ................................................ 18 By Mail ........................................................... 18 By Telephone ...................................................... 18 HOW TO REDEEM SHARES ................................................ 19 By Telephone ...................................................... 19 By Mail ........................................................... 19 By Check-A-Month .................................................. 19 Other Automatic Redemptions ....................................... 19 REDEMPTION PROCEEDS ................................................. 19 By Check .......................................................... 19 By Wire and ACH ................................................... 19 SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS ................................................. 19 AUTOMATIC REDEMPTION OF SHARES ...................................... 20 SIGNATURE GUARANTEE ................................................. 20 SPECIAL SHAREHOLDER SERVICES ........................................ 20 Automated Information Line ........................................ 20 Open Order Service ................................................ 21 Tax-Qualified Retirement Plans .................................... 21 IMPORTANT POLICIES REGARDING YOUR INVESTMENTS .................................................. 21 REPORTS TO SHAREHOLDERS ............................................. 22 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS ............................................ 22 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ......................................................... 24 When Share Price Is Determined .................................... 24 How Share Price Is Determined ..................................... 24 Where to Find Information About Share Price ............................................... 25 DISTRIBUTIONS ....................................................... 25 TAXES ............................................................... 26 Tax-Deferred Accounts ............................................. 26 Taxable Accounts .................................................. 26 MANAGEMENT .......................................................... 27 Investment Management ............................................. 27 Code of Ethics .................................................... 28 Transfer and Administrative Services .............................. 29 Distribution of Fund Shares ....................................... 29 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ........................................... 29 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 .80% 12b-1 Fees none Other Expenses(1) 0.00% Total Fund Operating Expenses .80% Example You would pay the following expenses on a $1,000 1 year $8 investment, assuming (1) a 5% annual return and 3 years 26 (2) redemption at the end of each time period: 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 0.0014 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 29. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--SELECT INVESTORS (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' retail 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 (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 $26.48 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 .43 Net Realized and Unrealized Gains (Losses)................. 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 9.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 9.44 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) (.515) From Net Realized Gains on Investment Transactions..................(2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) -- In Excess of Net Realized Gains.................(.125) -- (.016) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) (.515) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)............... 15.02% (7.37%) 22.20% 1.76% 27.05% (2.03%) 32.59% 7.31% 3.47% 36.13% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% 1.6% Portfolio Turnover Rate........ 106% 126% 82% 95% 84% 83% 93% 140% 123% 85% Average Commission Paid per Share Traded..........$.046 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 $1,978 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 5
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--HERITAGE INVESTORS (continued) Years ended October 31 Nov. 1, 1987 ---------------------- (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD......$10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)............ .05(1) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gains (Losses)........... 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.... 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........ (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions............. (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains........... (.030) (.006) -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...... (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD............$11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2).......... 21.04% (1.13%) 28.64% 9.65% 33.25% (11.62%) 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets....... .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets............... .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(3) Portfolio Turnover Rate.. 121% 136% 116% 119% 146% 127% 159% 130%(3) Average Commission Paid per Share Traded.... $.042 -- -- -- -- -- -- -- Net Assets, End of Period (in millions)..$1,008 $897 $702 $369 $269 $199 $117 $55 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--GROWTH INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD ..........$22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 $14.16 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 .12 Net Realized and Unrealized Gains (Losses)................. 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 5.37 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 5.49 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) (.182) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions..................(3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) -- In Excess of Net Realized Gains................ (.040) (.002) (.013) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) (.182) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)................22.31% 2.66% 8.48% 5.96% 60.64% (11.72%) 42.74% 3.18% 9.32% 39.09% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .4% .3% .2% (.1%) .2% .6% .5% 2.4% .2% .6% Portfolio Turnover Rate........ 141% 100% 94% 53% 69% 118% 98% 143% 114% 105% Average Commission Paid per Share Traded..........$.040 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$5,129 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 $965 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 7
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--ULTRA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 $7.13 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................. (.07)(1)(.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) .00 Net Realized and Unrealized Gains (Losses)................ 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations......... 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income............. -- -- -- -- -- (.196) -- -- (.007) (.010) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions.................. (.645) -- -- -- (.028) (.947) -- (3.258) -- -- In Excess of Net Realized Gains................ -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions........... (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) (.010) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 36.89% (2.08%) 39.78% (.45%) 101.51% (9.02%) 40.37% 19.52% (3.23%) 27.22% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets.................... (.3%) (.1%) (.6%) (.4%) (.5%) (.3%) 2.2% (.3%) (.5%) -- Portfolio Turnover Rate....... 87% 78% 53% 59% 42% 141% 132% 140% 137% 99% Average Commission Paid per Share Traded......... $.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)......$14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 $315 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 8
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--VISTA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 $4.68 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. (.08)(1)(.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) (.02) Net Realized and Unrealized Gains (Losses)................. 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) 2.22 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.......... 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) 2.20 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income.............. -- -- -- -- -- -- (.012) -- -- -- In Excess of Net Investment Income From Net Realized Gains on Investment Transactions...................(.300) (1.663) (.641) -- -- (.693) -- (.462) (.651) -- In Excess of Net Realized Gains................. -- (.012) (.006) -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions............ (.30) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 44.20% 4.16% 17.71% 4.55% 67.67% (22.17%) 48.19% 11.41% (7.70%) 47.00% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... (.6%) (.8%) (.6%) (.4%) (.3%) (.1%) (.4%) .2% (.7%) (.3%) Portfolio Turnover Rate........ 89% 111% 133% 87% 92% 103% 125% 145% 123% 121% Average Commission Paid per Share Traded..........$.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$1,676 $792 $847 $830 $622 $341 $264 $206 $187 $160 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 9 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the equity funds offered by this prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years continuous operation. SELECT INVESTORS, HERITAGE INVESTORS Securities of companies chosen for Select and Heritage Investors are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated below under the caption "Growth Investors, Ultra Investors and Vista Investors" below, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this prospectus. GROWTH INVESTORS, ULTRA INVESTORS AND VISTA INVESTORS Management selects, for the portfolios of Growth, Ultra and Vista, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth, generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista 10 invests in medium-sized and smaller companies. As of February 1, 1996, the size of the companies (as reflected by their capitalizations) held by the funds is as follows: Median Capitalization of Companies Held - -------------------------------------------------------------------------------- Growth Investors $5,076,231,000 Ultra Investors $3,542,263,000 Vista Investors $ 871,313,000 - -------------------------------------------------------------------------------- The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined above are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds 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 funds will limit their purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the funds' portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the funds. 11 To protect against adverse movements in ex-change 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. A 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, a fund 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, a fund may enter into forward currency exchange contracts to sell the value of some or all of the 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 it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward 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 a fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-9 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 rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that each fund pays 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. 12 REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 13 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for each fund 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. 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 buyers 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 14 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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). SHORT SALES The funds 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. 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 and, yield. Performance data may be quoted separately for the institutional class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. 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. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. 15 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. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 16 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 22. 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 $5 million ($3 million for endowments and foundations). The minimum investment requirement may be waived if the investor has an aggregate investment in our family of funds of $10 million or more ($5 million for endowments and foundations). The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 18 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 17 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 17 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 17. 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 Shareholder 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 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 19. 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 Shareholder 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 20) 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 800-345-2021 to get the appropriate form. 18 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," this page.) 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 20. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. 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 19 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. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either 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 Shareholder 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 Shareholder 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 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 20 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 Shareholder 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 requesting personal identification from callers, 21 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 Shareholder 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 Shareholder 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. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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 22 with, and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 1-800-345-3533 to request information about our funds, 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. 23 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received by us on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then 24 exchanged 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Net asset values of the institutional class may be obtained by calling us. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DISTRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our Shareholder Service 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 such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," page 26.) 25 TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the institutional class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the institutional class 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 a fund on foreign 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. If more than 50% of the value of a fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. 26 In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from us notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 advisory 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolios of the funds and directs the purchase and sale of their investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the 27 funds' portfolios as they deem 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 teams managing the funds described in this prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. He is a member of the teams that manage Select Investors, Ultra Investors and Vista Investors. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages Select Investors. CHRISTOPHER K. BOYD, Vice President and Portfolio Manager, joined Twentieth Century in March 1988 as an Investment Analyst, a position he held until December 1990. At that time he was promoted to Assistant Portfolio Manager, and then was promoted to Portfolio Manager in December 1992. He is a member of the team that manages Growth Investors and Ultra Investors. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista Investors. DEREK FELSKE, Vice President and Portfolio Manager, joined Twentieth Century in September 1993 as a Portfolio Manager. He is a member of the team that manages Growth Investors. Prior to joining Twentieth Century, Mr. Felske served as a member of the portfolio management team of RCM Capital Management, a San Francisco, California-based investment management firm, a position he held from May 1991 to September 1993. From September 1989 to May 1991, Mr. Felske attended the University of Pennsylvania-Wharton School of Business, where he obtained an MBA in finance. NANCY B. PRIAL, Vice President and Portfolio Manager, joined Twentieth Century in February 1994 as a Portfolio Manager. She is a member of the team that manages Heritage Investors. For more than four years prior to joining Twentieth Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. 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 .80% of the average net assets of each of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 the investment advisory fees paid by many funds. However, most if not all of such funds also pay in addition many 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 that restricts personnel investing practices by employees of Investors Research and its affiliates. Among other provisions, the Code of Ethics requires that 28 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 agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 funds' board of directors, 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 retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of each of the funds offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are institutional class shares and have no up-front charges, commissions, or 12b-1 fees. The retail class is primarily made available to retail investors. The service class and distribution class are primarily offered to institutional investors or through institutional distribution 29 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the service or distribution classes of shares not offered by this prospectus, 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 which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request a fund to hold a special meeting of shareholders. The manager 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. 30 (This page left blank intentionally.) 31 TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS INSTITUTIONAL CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5013 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Five of the funds that invest primarily in equity securities are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS 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 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 financial intermediaries, such as banks, broker dealers and insurance companies, that provide various recordkeeping and administrative services. The minimum initial investment amount for the funds can be found on page 17. 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- SELECT INVESTORS HERITAGE INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. GROWTH INVESTORS ULTRA INVESTORS VISTA INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. 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 FOR 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 Information About Investment Policies of the Funds ............................................. 10 Growth Equity Funds ............................................. 10 Select and Heritage Investors ................................... 10 Growth, Ultra and Vista Investors ............................... 10 Other Investment Practices ........................................ 11 Foreign Securities .............................................. 11 Forward Currency Exchange Contracts ............................. 11 Portfolio Turnover ................................................ 12 Repurchase Agreements ............................................. 13 Derivative Securities ............................................. 13 Portfolio Lending ................................................. 14 When-Issued Securities ............................................ 14 Rule 144A Securities .............................................. 14 Short Sales ....................................................... 15 Performance Advertising ............................................. 15 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds ........................................... 17 How to Exchange Your Investment from One Twentieth Century Fund to Another ................................................... 17 How to Redeem Shares ................................................ 17 Special Requirements for Large Equity Fund Redemptions ......................................... 17 Telephone Services .................................................. 18 Investors Line .................................................... 18 Automated Information Line ........................................ 18 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ......................................................... 19 When Share Price Is Determined .................................... 19 How Share Price Is Determined ..................................... 19 Where to Find Information About Share Price ............................................... 20 Distributions ....................................................... 20 Taxes ............................................................... 21 Management .......................................................... 22 Investment Management ............................................. 22 Code of Ethics .................................................... 23 Transfer and Administrative Services .............................. 24 Service Fees ...................................................... 24 Distribution of Fund Shares ....................................... 24 Further Information About Twentieth Century ........................................... 25 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 1 year $10 investment, assuming (1) a 5% annual return and 3 years 32 (2) redemption at the end of each time period: 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 plan administrators and other financial intermediaries and is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Service Fees," page 24. (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 0.0014 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. For additional information about the various classes, see "Further Information About Twentieth Century," page 25. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--SELECT INVESTORS (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' retail class of shares, which has the same total expense ratio as the service class shares. The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.......... $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 $26.48 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................ .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 .43 Net Realized and Unrealized Gains (Losses)............... 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 9.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations........ 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 9.44 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income............ (.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) (.515) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions................. (2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) -- In Excess of Net Realized Gains............... (.125) -- (.016) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions.......... (3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) (.515) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD................ $39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2).............. 15.02% (7.37%) 22.20% 1.76% 27.05% (2.03%) 32.59% 7.31% 3.47% 36.13% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets................... .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% 1.6% Portfolio Turnover Rate...... 106% 126% 82% 95% 84% 83% 93% 140% 123% 85% Average Commission Paid per Share Traded........ $.046 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)...... $4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 $1,978 - -------------------------------------------------------------------------------------------------------------------- (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 distributions, if any.
5
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--HERITAGE INVESTORS (Continued) Years ended October 31 Nov. 1, 1987 ----------------------------------------------------------------------------------------(inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD......$10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)............ .05(1) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gains (Losses)........... 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.... 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income........ (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) In Excess of Net Investment Income........ From Net Realized Gains on Investment Transactions............. (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains........... (.030) (.006) -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...... (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD............$11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2).......... 21.04% (1.13%) 28.64% 9.65% 33.25% (11.62%) 32.65% 25.75% ------ ------ ------ ------ ------ ------ ------ ------ RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets....... .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets............... .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(3) Portfolio Turnover Rate.. 121% 136% 116% 119% 146% 127% 159% 130%(3) Average Commission Paid per Share Traded ... $.042 -- -- -- -- -- -- -- Net Assets, End of Period (in millions)..$1,008 $897 $702 $369 $269 $199 $117 $55 - ------------------------------------------------------------------------------------------------------------------------------------ (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 distributions, if any. (3) Annualized
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- ---------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--GROWTH INVESTORS (Continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.......... $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 $14.16 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................ .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 .12 Net Realized and Unrealized Gains (Losses)............... 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 5.37 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations........ 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 5.49 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income............ (.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) (.182) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions................. (3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) -- In Excess of Net Realized Gains............... (.040) (.002) (.013) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions.......... (3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) (.182) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD................ $23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2).............. 22.31% 2.66% 8.48% 5.96% 60.64% (11.72%) 42.74% 3.18% 9.32% 39.09% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets................... .4% .3% .2% (.1%) .2% .6% .5% 2.4% .2% .6% Portfolio Turnover Rate...... 141% 100% 94% 53% 69% 118% 98% 143% 114% 105% Average Commission Paid per Share Traded........ $.040 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)...... $5,129 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 $965 - ---------------------------------------------------------------------------------------------------------------------- (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 distributions, if any.
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- ---------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--ULTRA INVESTORS (Continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD.......... $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 $7.13 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................ (.07)(1)(.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) .00 Net Realized and Unrealized Gains (Losses)............... 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) 1.94 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations........ 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) 1.94 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income............ -- -- -- -- -- (.196) -- -- (.007) (.010) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions................. (.645) -- -- -- (.028) (.947) -- (3.258) -- -- In Excess of Net Realized Gains............... -- -- -- -- -- -- -- -- -- -- Total Distributions.......... (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) (.010) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Asset Value, END OF PERIOD................ $28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ------ ------ ------ ------ ------ ----- ----- ----- ----- ----- TOTAL RETURN(2).............. 36.89% (2.08%) 39.78% (.45%) 101.51% (9.02%) 40.37% 19.52% (3.23%) 27.22% ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets........... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets................... (.3%) (.1%) (.6%) (.4%) (.5%) (.3%) 2.2% (.3%) (.5%) -- Portfolio Turnover Rate...... 87% 78% 53% 59% 42% 141% 132% 140% 137% 99% Average Commission Paid per Share Traded........ $.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)......$14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 $315 - ---------------------------------------------------------------------------------------------------------------------- (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 distributions, if any.
8
- ---------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--VISTA INVESTORS (Continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD..........$10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 $4.68 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................ (.08)(1) (.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) (.02) Net Realized and Unrealized Gains (Losses)............... 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) 2.22 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations........ 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) 2.20 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income............ -- -- -- -- -- -- (.012) -- -- -- In Excess of Net Investment Income From Net Realized Gains on Investment Transactions................. (.300) (1.663) (.641) -- -- (.693) -- (.462) (.651) -- In Excess of Net Realized Gains............... -- (.012) (.006) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions.......... (.30) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD................$15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2).............. 44.20% 4.16% 17.71% 4.55% 67.67% (22.17%) 48.19% 11.41% (7.70%) 47.00% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets........... .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets................... (.6%) (.8%) (.6%) (.4%) (.3%) (.1%) (.4%) .2% (.7%) (.3%) Portfolio Turnover Rate...... 89% 111% 133% 87% 92% 103% 125% 145% 123% 121% Average Commission Paid per Share Traded........ $.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)......$1,676 $792 $847 $830 $622 $341 $264 $206 $187 $160 - ---------------------------------------------------------------------------------------------------------------------- (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 distributions, if any.
9 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the equity funds offered by this prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years continuous operation. SELECT INVESTORS, HERITAGE INVESTORS Securities of companies chosen for Select and Heritage Investors are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated below under the caption "Growth Investors, Ultra Investors and Vista Investors" below, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this prospectus. GROWTH INVESTORS, ULTRA INVESTORS AND VISTA INVESTORS Management selects, for the portfolios of Growth, Ultra and Vista, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth, generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista 10 invests in medium-sized and smaller companies. As of February 1, 1996, the size of the companies (as reflected by their capitalizations) held by the funds is as follows: Median Capitalization of Companies Held - ---------------------------------------------------- Growth Investors $5,076,231,000 Ultra Investors $3,542,263,000 Vista Investors $ 871,313,000 - ---------------------------------------------------- The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined above are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds 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 funds will limit their purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the funds' portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the funds. 11 To protect against adverse movements in ex-change 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. A 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, a fund 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, a fund may enter into forward currency exchange contracts to sell the value of some or all of the 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 it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward 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 a fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-9 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 rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that each fund pays 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. 12 REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 13 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for each fund 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. 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 buyers 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 14 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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). SHORT SALES The funds 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. 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 and, yield. Performance data may be quoted separately for the service class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. 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. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow 15 Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 16 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- 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 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. There is no minimum initial investment requirement for any of the funds described in this prospectus. However, if the value of the shares held in any one fund account is less than $2,500 ($1,000 for UGMA/UTMA accounts), you must establish an investment program of $50 or more per month in each such account. If you have questions about a fund, see "Information About Investment Policies of the Funds," page 10, 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 19.) 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 Equity Fund Redemptions," on this page.) 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 19.) 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. SPECIAL REQUIREMENTS FOR LARGE EQUITY FUND 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 17 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 recemption 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 Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 18 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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 19 on the New York Stock Exchange, usually 3 p.m. Central time, if that is earlier. That value is then exchanged 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Net asset values of the service class may be obtained by calling us. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DISTRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our shareholder service 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 such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," page 21.) 20 TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the service class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the service class 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 a fund on foreign 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. If more than 50% of the value of a fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you 21 will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 advisory 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolios of the funds and directs the purchase and sale of their investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. 22 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 teams managing the funds described in this prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. He is a member of the teams that manage Select Investors, Ultra Investors and Vista Investors. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages Select Investors. CHRISTOPHER K. BOYD, Vice President and Portfolio Manager, joined Twentieth Century in March 1988 as an Investment Analyst, a position he held until December 1990. At that time he was promoted to Assistant Portfolio Manager, and then was promoted to Portfolio Manager in December 1992. He is a member of the team that manages Growth Investors and Ultra Investors. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista Investors. DEREK FELSKE, Vice President and Portfolio Manager, joined Twentieth Century in September 1993 as a Portfolio Manager. He is a member of the team that manages Growth Investors. Prior to joining Twentieth Century, Mr. Felske served as a member of the portfolio management team of RCM Capital Management, a San Francisco, California-based investment management firm, a position he held from May 1991 to September 1993. From September 1989 to May 1991, Mr. Felske attended the University of Pennsylvania-Wharton School of Business, where he obtained an MBA in finance. NANCY B. PRIAL, Vice President and Portfolio Manager, joined Twentieth Century in February 1994 as a Portfolio Manager. She is a member of the team that manages Heritage Investors. For more than four years prior to joining Twentieth Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. 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 .75% of the average net assets of each of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many 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 that restricts personnel 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' 23 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 agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 funds' board of directors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. SERVICE FEES Certain recordkeeping and administrative services that are provided by the funds' transfer agent for retail 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 Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily 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 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. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by 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 service class of, 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 the distribution of fund shares. 24 FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of each of the funds offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are service class shares and have no up-front charges or commissions. The retail 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 retail class of shares, call a one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the institutional or advisor classes 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 which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request 25 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. 26 TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. Box 419385 Kansas City, Missouri 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 or 816-531-5575 - --------------------------------------- Automated information line: 1-800-345-1833 or 816-753-0700 - --------------------------------------- Fax: 816-340-4655 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5012 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- TWENTIETH CENTURY Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that offers 68 no-load mutual funds covering a variety of investment opportunities. Five of the funds that invest primarily in equity securities are described in this prospectus. Their investment objectives and minimum investment requirements are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. 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 Rule 12b-1 shareholder services and distribution fees 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. The minimum investment amounts for the funds can be found on page 17. 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- SELECT INVESTORS HERITAGE INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks of companies that are considered by management to have better-than-average prospects for appreciation. As a matter of fundamental policy, 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends or have committed themselves to the payment of regular dividends, or otherwise produce income. GROWTH INVESTORS ULTRA INVESTORS VISTA INVESTORS seek capital growth. The funds intend to pursue their investment objectives by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. 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 FOR 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 INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS ............................................... 10 Growth Equity Funds ............................................... 10 Select Investors, Heritage Investors .............................. 10 Growth Investors, Ultra Investors, and Vista Investors ............................................. 10 OTHER INVESTMENT PRACTICES .......................................... 11 Foreign Securities .................................................. 11 Forward Currency Exchange Contracts ................................. 11 Portfolio Turnover .................................................. 12 Repurchase Agreements ............................................... 13 Derivative Securities ............................................... 13 Portfolio Lending ................................................... 14 When-Issued Securities .............................................. 14 Rule 144A Securities ................................................ 14 Short Sales ......................................................... 15 PERFORMANCE ADVERTISING ............................................. 15 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds ........................................... 17 HOW TO EXCHANGE YOUR INVESTMENT FROM ONE TWENTIETH CENTURY FUND TO ANOTHER ................................................... 17 HOW TO REDEEM SHARES ................................................ 17 Special Requirements for Large Equity Fund Redemptions ......................................... 17 TELEPHONE SERVICES .................................................. 18 Investors Line .................................................... 18 Automated Information Line ........................................ 18 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ......................................................... 19 When Share Price Is Determined .................................... 19 How Share Price Is Determined ..................................... 19 Where to Find Information About Share Price ............................................... 20 DISTRIBUTIONS ....................................................... 20 TAXES ............................................................... 21 Tax-Deferred Accounts ............................................. 21 Taxable Accounts .................................................. 21 MANAGEMENT .......................................................... 22 Investment Management ............................................. 22 Code of Ethics .................................................... 23 Transfer and Administrative Services .............................. 24 Distribution Services ............................................. 24 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ........................................... 24 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 1 year $13 investment, assuming (1) a 5% annual return and 3 years 40 (2) redemption at the end of each time period: 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 "Distribution Services," page 24. (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 0.0014 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 classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 24. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--SELECT INVESTORS (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' retail 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 (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 $26.48 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .33(1) .40 .46 .53 .63 .62 1.10 .64 .33 .43 Net Realized and Unrealized Gains (Losses)................. 4.68 (3.59) 7.94 .34 8.17 (1.29) 7.74 1.37 .80 9.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 5.01 (3.19) 8.40 .87 8.80 (.67) 8.84 2.01 1.13 9.44 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.281) (.432) (.495) (.653) (.652) (1.116) (.707) (.481) (.380) (.515) From Net Realized Gains on Investment Transactions..................(2.750) (4.466) (1.313) (1.823) (1.551) -- -- (6.367) (3.462) -- In Excess of Net Realized Gains.................(.125) -- (.016) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.156) (4.898) (1.824) (2.476) (2.203) (1.116) (.707) (6.848) (3.842) (.515) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$39.52 $37.67 $45.76 $39.18 $40.79 $34.19 $35.98 $27.85 $32.69 $35.40 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)............... 15.02% (7.37%) 22.20% 1.76% 27.05% (2.03%) 32.59% 7.31% 3.47% 36.13% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .9% 1.0% 1.1% 1.4% 1.7% 1.8% 3.4% 2.2% 1.1% 1.6% Portfolio Turnover Rate........ 106% 126% 82% 95% 84% 83% 93% 140% 123% 85% Average Commission Paid per Share Traded..........$.046 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$4,008 $4,278 $5,160 $4,534 $4,163 $2,953 $2,721 $2,367 $2,417 $1,978 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 5
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--HERITAGE INVESTORS (continued) Years ended October 31 Nov. 1, 1987 ---------------------- (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD......$10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 $5.00 ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)............ .05(1) .07 .07 .10 .11 .10 .08 .06 Net Realized and Unrealized Gains (Losses)........... 1.96 (.21) 2.43 .72 2.04 (.94) 1.93 1.16 ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.... 2.01 (.14) 2.50 .82 2.15 (.84) 2.01 1.22 ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........ (.033) (.068) (.093) (.113) (.110) (.065) (.066) (.013) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions............. (.514) (.500) (.679) -- -- (.691) -- -- In Excess of Net Realized Gains........... (.030) (.006) -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...... (.577) (.574) (.772) (.113) (.110) (.756) (.066) (.013) ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD............$11.75 $10.32 $11.03 $9.30 $8.59 $6.55 $8.15 $6.21 ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2).......... 21.04% (1.13%) 28.64% 9.65% 33.25% (11.62%) 32.65% 25.75% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets....... .99% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets............... .5% .7% .7% 1.1% 1.5% 1.6% 1.3% 1.4%(3) Portfolio Turnover Rate.. 121% 136% 116% 119% 146% 127% 159% 130%(3) Average Commission Paid per Share Traded.... $.042 -- -- -- -- -- -- -- Net Assets, End of Period (in millions)..$1,008 $897 $702 $369 $269 $199 $117 $55 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--GROWTH INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD ..........$22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 $14.16 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. .08(1) .06 .06 (.02) .04 .09 .08 .30 .01 .12 Net Realized and Unrealized Gains (Losses)................. 4.08 .48 1.94 1.35 8.47 (2.05) 5.14 .13 1.30 5.37 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations.......... 4.16 .54 2.00 1.33 8.51 (1.96) 5.22 .43 1.31 5.49 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ DISTRIBUTIONS From Net Investment Income..............(.051) (.056) -- (.013) (.111) (.079) (.320) (.046) (.086) (.182) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions..................(3.183) (2.764) (.353) -- (.891) (.592) -- (3.460) (5.076) -- In Excess of Net Realized Gains................ (.040) (.002) (.013) -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions...........(3.274) (2.822) (.366) (.013) (1.002) (.671) (.320) (3.506) (5.162) (.182) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.................$23.88 $22.99 $25.27 $23.64 $22.32 $14.81 $17.44 $12.54 $15.62 $19.47 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2)................22.31% 2.66% 8.48% 5.96% 60.64% (11.72%) 42.74% 3.18% 9.32% 39.09% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... .4% .3% .2% (.1%) .2% .6% .5% 2.4% .2% .6% Portfolio Turnover Rate........ 141% 100% 94% 53% 69% 118% 98% 143% 114% 105% Average Commission Paid per Share Traded..........$.040 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$5,129 $4,363 $4,641 $4,472 $3,193 $1,697 $1,597 $1,229 $1,188 $965 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 7
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--ULTRA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 $7.13 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss)................. (.07)(1)(.03) (.09) (.05) (.03) (.03) .19 (.02) (.07) .00 Net Realized and Unrealized Gains (Losses)................ 7.58 (.42) 6.24 (.02) 7.86 (.73) 2.58 1.38 (.22) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations......... 7.51 (.45) 6.15 (.07) 7.83 (.76) 2.77 1.36 (.29) 1.94 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income............. -- -- -- -- -- (.196) -- -- (.007) (.010) In Excess of Net Investment Income From Net Realized Gains on Investment Transactions.................. (.645) -- -- -- (.028) (.947) -- (3.258) -- -- In Excess of Net Realized Gains................ -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions........... (.645) -- -- -- (.028) (1.143) -- (3.258) (.007) (.010) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$28.03 $21.16 $21.61 $15.46 $15.53 $7.73 $9.63 $6.86 $8.76 $9.06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 36.89% (2.08%) 39.78% (.45%) 101.51% (9.02%) 40.37% 19.52% (3.23%) 27.22% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets.................... (.3%) (.1%) (.6%) (.4%) (.5%) (.3%) 2.2% (.3%) (.5%) -- Portfolio Turnover Rate....... 87% 78% 53% 59% 42% 141% 132% 140% 137% 99% Average Commission Paid per Share Traded......... $.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions)......$14,376 $10,344 $8,037 $4,275 $2,148 $330 $347 $258 $236 $315 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 8
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS--VISTA INVESTORS (continued) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...........$10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 $4.68 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss).................. (.08)(1)(.08) (.07) (.04) (.02) (.01) (.03) .01 (.05) (.02) Net Realized and Unrealized Gains (Losses)................. 4.90 .45 1.95 .52 4.27 (1.76) 2.87 .63 (.45) 2.22 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.......... 4.82 .37 1.88 .48 4.25 (1.77) 2.84 .64 (.50) 2.20 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income.............. -- -- -- -- -- -- (.012) -- -- -- In Excess of Net Investment Income From Net Realized Gains on Investment Transactions...................(.300) (1.663) (.641) -- -- (.693) -- (.462) (.651) -- In Excess of Net Realized Gains................. -- (.012) (.006) -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions............ (.30) (1.675) (.647) -- -- (.693) (.012) (.462) (.651) -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................$15.73 $10.94 $12.24 $11.01 $10.53 $6.28 $8.74 $5.91 $5.73 $6.88 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)............... 44.20% 4.16% 17.71% 4.55% 67.67% (22.17%) 48.19% 11.41% (7.70%) 47.00% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... (.6%) (.8%) (.6%) (.4%) (.3%) (.1%) (.4%) .2% (.7%) (.3%) Portfolio Turnover Rate........ 89% 111% 133% 87% 92% 103% 125% 145% 123% 121% Average Commission Paid per Share Traded..........$.033 -- -- -- -- -- -- -- -- -- Net Assets, End of Period (in millions).......$1,676 $792 $847 $830 $622 $341 $264 $206 $187 $160 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. 9 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. GROWTH EQUITY FUNDS All of the equity funds offered by this prospectus seek capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the funds' manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the funds fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the funds' actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The funds may purchase securities only of companies that have a record of at least three years continuous operation. SELECT INVESTORS, HERITAGE INVESTORS Securities of companies chosen for Select and Heritage Investors are chosen primarily for their growth potential. Additionally, as a matter of fundamental policy 80% of the assets of Select Investors and of Heritage Investors must be invested in securities of companies that have a record of paying dividends, or have committed themselves to the payment of regular dividends, or otherwise produce income. The remaining 20% of fund assets may be invested in any otherwise permissible securities that the manager believes will contribute to the funds' stated investment objectives. The income payments of equity securities are only a secondary consideration; therefore, the income return that Select and Heritage provide may not be significant. Otherwise, Select and Heritage follow the same investment techniques described below for Growth, Ultra and Vista. Since Select is one of our larger funds and Heritage is substantially smaller, Select will invest in shares of larger companies with larger share trading volume, and Heritage will tend to invest in smaller companies with smaller share trading volume. However, the two funds are not mutually exclusive, and a given security may be owned by both funds. For the reasons stated below under the caption "Growth Investors, Ultra Investors and Vista Investors" below, it should be expected that Heritage will be more volatile and subject to greater short-term risk and long-term opportunity than Select. Because of its size, and because it invests primarily in securities that pay dividends or are committed to the payment of dividends, Select may be expected to be the least volatile of the funds described in this prospectus. GROWTH INVESTORS, ULTRA INVESTORS AND VISTA INVESTORS Management selects, for the portfolios of Growth, Ultra and Vista, securities of companies whose earnings and revenue trends meet management's standards of selection. Growth, generally invests in large, established companies. Ultra generally invests in medium to large size companies, while Vista 10 invests in medium-sized and smaller companies. As of February 1, 1996, the size of the companies (as reflected by their capitalizations) held by the funds is as follows: Median Capitalization of Companies Held - -------------------------------------------------------------------------------- Growth Investors $5,076,231,000 Ultra Investors $3,542,263,000 Vista Investors $ 871,313,000 - -------------------------------------------------------------------------------- The median capitalization of the companies in a given fund may change over time. In addition, the criteria outlined above are not mutually exclusive, and a given security may be owned by more than one of the funds. The size of companies in which a fund invests tends to give each fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that funds investing in smaller companies would be more volatile than funds investing in larger companies. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES Each of the funds may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The funds may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. Subject to their individual investment objectives and policies, the funds 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 funds will limit their purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the funds' portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the funds. 11 To protect against adverse movements in ex-change 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. A 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, a fund 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, a fund may enter into forward currency exchange contracts to sell the value of some or all of the 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 it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. Each fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that a fund will enter into portfolio hedges much less frequently than transaction hedges. If a fund enters into a forward 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 a fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-9 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 rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that each fund pays 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. 12 REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 13 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for each fund 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. 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 buyers 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 14 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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). SHORT SALES The funds 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. 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 and, yield. Performance data may be quoted separately for the advisor class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. 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. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other 15 funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 16 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- 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 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. There is no minimum investment requirement required for any of the funds described in this prospectus. However, if the value of the shares held in any one fund account is less than $2,500 ($1,000 for UGMA/UTMA accounts), you must establish an investment program of $50 or more per month in each such account. If you have questions about a fund, see "Information About Investment Policies of the Funds," page 10, 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 19.) 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 Equity Fund Redemptions," on this page.) 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 19.) 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. SPECIAL REQUIREMENTS FOR LARGE EQUITY FUND 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 17 $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 recemption 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 Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 18 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then 19 exchanged 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Because the total expense ratio for the advisor class shares is 25% higher than the retail class, their net asset values will be lower than the retail class. Net asset values of the advisor class may be obtained by calling us. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains if any, are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions from investment income and from net profits realized on the sale of securities, if any, will be declared annually on or before December 31. THE OBJECTIVE OF THESE FUNDS IS CAPITAL APPRECIATION AND NOT THE PRODUCTION OF DIS-TRIBUTIONS. YOU SHOULD MEASURE THE SUCCESS OF YOUR INVESTMENT BY THE VALUE OF YOUR INVESTMENT AT ANY GIVEN TIME AND NOT BY THE DISTRIBUTIONS YOU RECEIVE. Participants in employer-sponsored retirement or savings plan must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder service 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 such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," page 21.) 20 TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the advisor class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the advisor class 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 a fund on foreign 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. If more than 50% of the value of a fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If a fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you 21 will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemption 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 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. 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 advisory 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolios of each fund and directs the purchase and sale of its investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the 22 team may also adjust portfolio holdings of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. He is a member of the teams that manage Select Investors, Ultra Investors and Vista Investors. CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages Select Investors. CHRISTOPHER K. BOYD, Vice President and Portfolio Manager, joined Twentieth Century in March 1988 as an Investment Analyst, a position he held until December 1990. At that time he was promoted to Assistant Portfolio Manager, and then was promoted to Portfolio Manager in December 1992. He is a member of the team that manages Growth Investors and Ultra Investors. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. He is a member of the team that manages Vista Investors. DEREK FELSKE, Vice President and Portfolio Manager, joined Twentieth Century in September 1993 as a Portfolio Manager. He is a member of the team that manages Growth Investors. Prior to joining Twentieth Century, Mr. Felske served as a member of the portfolio management team of RCM Capital Management, a San Francisco, California-based investment management firm, a position he held from May 1991 to September 1993. From September 1989 to May 1991, Mr. Felske attended the University of Pennsylvania-Wharton School of Business, where he obtained an MBA in finance. NANCY B. PRIAL, Vice President and Portfolio Manager, joined Twentieth Century in February 1994 as a Portfolio Manager. She is a member of the team that manages Heritage Investors. For more than four years prior to joining Twentieth Century, Ms. Prial served as Senior Vice President and Portfolio Manager at Frontier Capital Management Company, Boston, Massachusetts. 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 .75% of the average net assets of each of the funds. On the first business day of each month, each series of shares pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many 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 that restricts personnel 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 23 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 agent and dividend-paying agent for the funds. It provides facilities, equipment and personnel to the funds, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 funds' board of directors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION SERVICES 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. 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 the Distributor 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 constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on 24 February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of each of the funds offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are advisor class shares. The retail 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the institutional or service classes 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 which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request a fund 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. 25 (This page left blank intentionally.) 26 TWENTIETH CENTURY INVESTORS, INC. GROWTH FUNDS ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5011 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. DISCOVERY FUND PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. One of the funds, Discovery Fund, is described in this prospectus. The other funds are described in separate prospectuses. Discovery Fund seeks capital growth. It pursues its investment objective by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the fund will achieve its investment objective. The fund is only available for purchase by participants in the Twentieth Century Priority Investors Program and employees of the affiliated companies comprising the Twentieth Century family of funds. The minimum initial investment for this fund is $10,000; the maximum investment is $500,000. The manager intends to close the fund to new investors when the fund reaches $400,000,000 in net assets. SHARES OF THE FUND REDEEMED OR EXCHANGED WITHIN [5] YEARS OF THEIR PURCHASE ARE SUBJECT TO A REDEMPTION FEE OF [2]% OF THE VALUE OF THE SHARES REDEEMED OR EXCHANGED. THIS REDEMPTION FEE IS RETAINED BY THE FUND. This prospectus gives you information about the fund 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- TRANSACTION AND OPERATING EXPENSE TABLE ............................. 3 INFORMATION REGARDING THE FUND A LONG-TERM INVESTMENT .............................................. 4 INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND .............................................. 4 Investment Approach ............................................... 4 Investments in Smaller Companies .................................. 4 OTHER INVESTMENT PRACTICES .......................................... 4 Foreign Securities ................................................ 4 Forward Currency Exchange Contracts ............................... 5 Portfolio Turnover ................................................ 6 Repurchase Agreements ............................................. 6 Derivative Securities ............................................. 6 Portfolio Lending ................................................. 7 When-Issued Securities ............................................ 7 Rule 144A Securities .............................................. 7 Short Sales ....................................................... 8 PERFORMANCE ADVERTISING ............................................. 8 HOW TO INVEST WITH TWENTIETH CENTURY HOW TO OPEN AN ACCOUNT .............................................. 10 By Mail ........................................................... 10 By Wire ........................................................... 10 By Exchange ....................................................... 10 In Person ......................................................... 11 SUBSEQUENT INVESTMENTS .............................................. 11 By Mail ........................................................... 11 By Telephone ...................................................... 11 By Wire ........................................................... 11 In Person ......................................................... 11 AUTOMATIC INVESTMENT PLAN ........................................... 11 HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER ................................................ 11 By Mail ........................................................... 12 By Telephone ...................................................... 12 HOW TO REDEEM SHARES ................................................ 12 By Telephone ...................................................... 12 By Mail ........................................................... 12 By Check-A-Month .................................................. 12 Other Automatic Redemptions ....................................... 12 REDEMPTION PROCEEDS ................................................. 12 By Check .......................................................... 13 By Wire and ACH ................................................... 13 SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS ................................................. 13 AUTOMATIC REDEMPTION OF SHARES ...................................... 13 SIGNATURE GUARANTEE ................................................. 13 SPECIAL SHAREHOLDER SERVICES ........................................ 14 Automated Information Line ........................................ 14 Open Order Service ................................................ 14 Tax-Qualified Retirement Plans .................................... 14 IMPORTANT POLICIES REGARDING YOUR INVESTMENTS .................................................. 15 REPORTS TO SHAREHOLDERS ............................................. 15 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS ........................................ 15 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 MANAGEMENT .......................................................... 20 Investment Management ............................................. 20 Code of Ethics .................................................... 20 Transfer and Administrative Services .............................. 21 Distribution of Fund Shares ....................................... 21 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ........................................... 21 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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) [2]%(2) Exchange Fee none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees 1.5% 12b-1 Fees none Other Expenses(3) 0.00% Total Fund Operating Expenses 1.5% Example You would pay the following expenses on a $10,000 1 yr $ 15 investment, assuming (1) a 5% annual return and 3 yr 47 (2) redemption at the end of each time period: The purpose of the table is to help you understand the various costs and expenses that you, as an investor in the fund, will bear directly or indirectly. 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. (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Shares of the fund redeemed or exchanged within [5] years of their purchase are subject to a redemption fee of [2]% of the value of the shares redeemed or exchanged. This redemption fee, which is retained by the fund, is intended to demonstrate to potential investors the manager's belief of the proper time horizon for an investment in a fund, as well as minimize the impact that shareholder short-term investment behavior has on fund performance and hence, on the other shareholders of the fund. See "A Warning for Short-Term Investors," page 10. (3) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, are expected to be less than .001 of 1% of average net assets for the most recent fiscal year. 3 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- A LONG TERM INVESTMENT An investment in Discovery Fund should be considered as a long-term investment. The manager has adopted a number of policies regarding investments in the fund to help insure that prospective shareholders are willing to make a long-term commitment to the fund before investing. These policies are described under "A Warning for Short-term Investors", page 10. THOSE PROSPECTIVE INVESTORS WHO DO NOT WANT TO, OR ARE NOT ABLE TO, COMMIT TO LEAVE THEIR INVESTMENT IN THE FUND FOR AT LEAST 5 YEARS SHOULD NOT INVEST IN THE FUND. INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND Discovery Fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on the cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH Discovery Fund seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (primarily relating to accelerating earnings and revenues) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the fund intends to stay fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the fund's actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. INVESTMENTS IN SMALLER COMPANIES Discovery Fund presently intends to invest primarily in the equity securities of smaller companies (although it can be expected that, as the fund gets larger, it will begin to invest in medium size and larger companies). These smaller companies may present greater opportunities for capital appreciation, but may also involve greater risks than large, mature issuers. Such companies may have limited product lines, markets or financial resources, and their securities may trade less frequently and in more limited volume than the securities of larger companies. In addition, available information regarding these smaller companies may be less available and, when available, may be incomplete or inaccurate. The securities of such companies may also be more likely to be delisted from trading on their primary exchange. As a result, the securities of smaller companies may experience significantly more price volatility and less liquidity than securities of larger companies, and any resulting volatility and limited liquidity will impact the net asset value of the fund. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary 4 Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 5 any given time, no more than 10% of the 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 fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays 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 The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES The fund 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), 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 6 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. The fund may not 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 price of oil would not be a permissible investment since the fund may not invest in oil and gas leases or futures. The return on 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, the 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. 7 RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 fund 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 the 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 the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined 8 or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which the fund may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The funds may also be compared, on a relative basis, to the other funds in our family of funds. 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. 9 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder Services Guide that you will receive when you open an account. A WARNING TO SHORT TERM INVESTORS In order to protect the fund's performance potential, it is the desire of the manager that only investors that intend to leave their money in the fund for the long term, i.e., for over five years, actually invest in the fund. Two policies have been adopted to highlight for potential investors that an investment in the fund should be viewed as a long term commitment. First, the minimum initial investment for the fund is $10,000. Second, shares that are redeemed or exchanged within [5] years of their purchase will be subject to a redemption fee of [2%] of the value of the shares redeemed or exchanged. This fee will be retained by the fund to help minimize the impact such redemptions and exchanges have on fund performance and, hence, on the other shareholders of the fund. BECAUSE OF THE SIGNIFICANT NEGATIVE IMPACT THAT THE FEE WILL HAVE ON REDEMPTIONS OR EXCHANGES MADE WITHIN FIVE YEARS OF PURCHASE, THOSE PROSPECTIVE INVESTORS WHO DO NOT WANT TO, OR ARE NOT ABLE TO, COMMIT TO LEAVE THEIR INVESTMENT IN THE FUND FOR AT LEAST FIVE YEARS SHOULD NOT INVEST IN THE FUND. HOW TO OPEN AN ACCOUNT Shares of the fund are only available for purchase by participants in our Priority Investors program and employees of the affiliated companies comprising the Twentieth Century family of funds. 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 initial investment for this fund is $10,000. The maximum amount any single investor may invest in the fund is $500,000. Distributions from the fund that are reinvested in the fund do not count against this $500,000 maximum. The manager currently intends to close the fund to new investors when the fund reaches $400,000,000 in net assets. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. 10 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 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 10 and indicate your account number. IN PERSON You may make subsequent investments in person at one of our Investors Centers. The locations of our three Investors Centers are listed on this page. AUTOMATIC INVESTMENT PLAN You may elect on your application to make investments automatically by authorizing us to draw on your bank account regularly. Such investments must be at least the equivalent of $50 per month. You also may choose an automatic payroll or government direct deposit. If you are establishing a new account, check the appropriate box under "Automatic Investments" on your application to receive more information. If you would like to add a direct deposit to an existing account, please call one of our Investor Services Representatives. HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER As long as you meet any minimum initial investment requirements, you may exchange your fund shares to our other funds up to six times per year per account. 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 11 least $50 per month. See our Shareholder Services Guide for further information about exchanges. EXCHANGES OF SHARES MADE WITHIN [5] YEARS OF THEIR PURCHASE WILL BE SUBJECT TO A REDEMPTION FEE OF [2%] OF THE VALUE OF THE SHARES EXCHANGED. See "A Warning to Short Term Investors," page 10. 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 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 13. 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 Shareholder 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 14) 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 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. (For large redemptions, please read "Special Requirements for Large Redemptions," page 13.) REDEMPTION OF SHARES MADE WITHIN [5] YEARS OF THEIR PURCHASE WILL BE SUBJECT TO A REDEMPTION FEE OF [2%] OF THE VALUE OF THE SHARES REDEEMED. See "A Warning to Short Term Investors," page 10. 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 13. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. 12 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 Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. 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. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and 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: 13 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 Shareholder 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 Shareholder 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 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 The 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 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. 14 IMPORTANT POLICIES REGARDING YOUR INVESTMENTS Every account is subject to policies that could affect your investment. Please refer to the Shareholder 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 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 Shareholder 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 15 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 Shareholder 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. 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 the 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 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 purchase check or wired funds are received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. Investments by telephone pursuant to your prior authorization to us to draw on a 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, usually 3 p.m. Central time, will receive that day's price. Investments and instructions received after that time, will receive the price determined on the next business day. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the fund's board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, 17 usually 3 p.m. Central time, 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 that 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 the 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 Twentieth Century's funds are published in leading newspapers daily. The net asset value of Discovery Fund will be published in newspapers when the fund meets the minimum size requirements for listing. The net asset value may also be obtained by calling Twentieth Century. DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid annually on or before December 31, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder 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 the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares 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," on this page.) TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. 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 18 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 fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, we will send you a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. 19 Redemption of shares of the fund (including redemption 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 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. 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 fund. Acting pursuant to an investment management agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC will be providing investment management services to Twentieth Century funds, while certain Twentieth Century employees will be providing investment management services to Benham funds. Investors Research supervises and manages the investment portfolios of the fund and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Discovery Fund and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of 1.5% of the average net assets the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which is the number of days in the previous month and the denominator of which is 365 (366 in leap years). 20 The unified management fee paid by the fund to Investors Research may be higher than the investment advisory fee paid by many investment companies. However, most if not all of such companies also pay in addition many of their own expenses, while virtually all of the fund's expenses, except as specified above, are paid by Investors Research. CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that 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 fund's 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 the fund. It provides facilities, equipment and personnel to the fund, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by Twentieth Century Securities, Inc., a registered broker dealer and an affiliate of the fund's investment manager. Investors Research pays all expenses for promoting sales of, and distributing the fund. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Discovery Fund is one of 16 series of shares ($.01 par value per share) issued by Twentieth Century Investors. The assets belonging to each series of shares are held separately by the custodian, and in effect each series is a separate fund. 21 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 which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund 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. 22 TWENTIETH CENTURY INVESTORS, INC. DISCOVERY FUND PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - --------------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - --------------------------------------------- Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 - --------------------------------------------- Fax: 816-340-4655 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5003 9609 Recycled Twentieth Century Investors, Inc. Giftrust Investors Prospectus September 3, 1996 [Giftrust logo] TWENTIETH CENTURY INVESTORS, INC. [Giftrust logo] Investors Prospectus September 3, 1996 - -------------------------------------------------------------------------------- Giftrust Investors seeks capital growth. It pursues its investment objective by investing primarily in common stocks that are considered by management to have better-than-average prospects for appreciation. There is no assurance that the fund will achieve its investment objective. Giftrust Investors is a unique way to give a gift to a child, grandchild or other individual. You may not invest in the fund. Rather, your gift, which is irrevocable, will be invested in the fund by the Giftrust Trustee in accordance with a trust established under a "Giftrust Agreement." The minimum initial gift requirement for Giftrust Investors is $500. This prospectus gives you information about Giftrust Investors that you should know before making an investment decision. 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. 1 TABLE OF CONTENTS - -------------------------------------------------------------------------------- Transaction and Operating Expense Table .............................. 3 Financial Highlights ................................................. 4 INFORMATION REGARDING THE FUND A Unique Gift ........................................................ 6 Information About Investment Policies of the Fund .................... 6 Investment Approach ............................................. 6 Other Investment Practices ........................................... 7 Foreign Securities .............................................. 7 Forward Currency Exchange Contracts ............................. 7 Portfolio Turnover .............................................. 9 Repurchase Agreements ........................................... 9 Derivative Securities ........................................... 9 Portfolio Lending ............................................... 10 When-Issued Securities .......................................... 11 Rule 144A Securities ............................................ 11 Short Sales ..................................................... 12 Performance Advertising .............................................. 12 HOW TO ESTABLISH A GIFTRUST ACCOUNT Twentieth Century Family of Funds .................................... 13 Purchase of Fund Shares .............................................. 13 By Mail ......................................................... 13 By Telephone .................................................... 13 By Wire ......................................................... 13 Automatic Investments ........................................... 13 Additional Information About Gifts .............................. 14 Special Shareholder Services ......................................... 14 Exchanges of Fund Shares ............................................. 14 How to Redeem Shares ................................................. 15 By Telephone .................................................... 15 By Mail ......................................................... 15 By Check-A-Month ................................................ 15 Signature Guarantee ............................................. 15 Redemption Proceeds .................................................. 16 By Mail ......................................................... 16 By Wire and ACH ................................................. 16 Additional Information About Redemptions ........................ 16 Telephone Services ................................................... 17 Investors Line .................................................. 17 Automated Information Line ...................................... 17 How to Change the Address of Record .................................. 17 Reports to Shareholders .............................................. 18 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price .......................................................... 19 When Share Price Is Determined .................................. 19 How Share Price Is Determined ................................... 19 Where to Find Information About Share Price ..................... 20 Distributions ........................................................ 20 Taxes ................................................................ 21 Management ........................................................... 23 Investment Management ........................................... 23 Code of Ethics .................................................. 24 Transfer and Administrative Services ............................ 24 Distribution of Fund Shares ..................................... 24 Further Information About Twentieth Century .......................... 24 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES1 Maximum Sales Load Imposed on Purchases none Maximum Sales Load Imposed on Reinvested Dividends none Deferred Sales Load none Redemption Fee2 none Exchange Fee none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees 1.00% 12b-1 Fees none Other Expenses3 0.00% Total Fund Operating Expenses 1.00% Example A $1,000 investment in Giftrust Investors would 1 year $ 10 bear the expenses set forth to the right, assuming 3 years 32 (1) a 5% annual return and (2) redemption at the 5 years 55 end of each time period. It should be noted that, in 10 years 122 most instances, a gift made in the fund must be made in trust for a minimum term of ten years. The purpose of the table is to help you understand the various costs and expenses that an investment in the fund will bear directly or indirectly. 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. 1 A $100 administrative fee will be charged against each Giftrust account established after March 1, 1996 to help cover the costs incurred as a result of the Giftrust reaching maturity. (See "Information About Investment Policies of the Fund," page 6.) 2 Redemption proceeds sent by wire are subject to a $10 processing fee. 3 Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 of 1% of average net assets for the most recent fiscal year. Also, a $10 fee will be charged against each Giftrust account for which an annual tax return is filed. (See "Taxes," page 21.) 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the fund'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.
GIFTRUST INVESTORS Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR.............$20.50 $19.23 $13.57 $12.94 $7.25 $9.94 $6.84 $6.67 $8.19 $5.75 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment (Loss)................... (.16)1 (.10) (.09) (.08) (.06) (.05) (.04) (.01) (.04) (.03) Net Realized and Unrealized Gains (Losses) 6.37 3.28 7.18 1.41 5.77 (1.72) 3.35 1.04 (.23) 2.65 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.... 6.21 3.18 7.09 1.33 5.71 (1.77) 3.31 1.03 (.27) 2.62 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Realized Gains on Investment Transactions.............(1.085) (1.911) (1.425) (.697) (.025) (.924) (.206) (.856) (1.250) (.179) In Excess of Net Realized Gains on Investment Transactions.. -- -- (.007) -- -- -- -- -- -- -- Total Distributions......(1.085) (1.911) (1.432) (.697) (.025) (.924) (.206) (.856) (1.250) (.179) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF YEAR...................$25.63 $20.50 $19.23 $13.57 $12.94 $7.25 $9.94 $6.84 $6.67 $8.19 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN............. 32.52% 18.75% 55.84% 10.32% 79.04% (19.77%) 49.81% 16.28% (4.00%) 46.67% ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets.... .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment (Loss) to Average Net Assets............... (.7%) (.7%) (.7%) (.7%) (.6%) (.6%) (.5%) (.1%) (.5%) (.4%) Portfolio Turnover Rate.. 105% 115% 143% 134% 143% 137% 160% 157% 130% 123% Average Commission Paid per Share Traded.... $.026 -- -- -- -- -- -- -- -- -- Net Assets, End of Year (in thousands).$561,112 $265,601 $153,997 $77,518 $54,963 $25,296 $22,541 $13,167 $9,560 $7,127 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Computed using net investment income and average shares outstanding for the period.
4 & 5 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- A UNIQUE GIFT A Giftrust is a unique way to give a gift to a child or any individual. You cannot establish or make investments in a Giftrust for yourself or your spouse, nor can a Giftrust be established that designates anyone other than an individual (such as a corporation, partnership or other profit or nonprofit organization) as a beneficiary. The minimum initial gift in Giftrust is $500. The shares in a Giftrust are held in trust by an independent trustee until the maturity date you specify. The duration of the trust may be as long as you wish, but must be at least 10 years from the time you make the first gift in the Giftrust or until the recipient reaches the age of majority, whichever is later. The recipient will then receive the shares in the account. The Giftrust is irrevocable. Before the maturity date you specify, neither you nor the beneficiary may amend the terms of the trust in any way. After the maturity of the Giftrust, the beneficiary may continue to own the Giftrust shares but, except for reinvestment of distributions, may not make additional Giftrust investments. Each Giftrust account for which a tax return is filed will be charged a $10 fee to help off-set a portion of the cost of preparing such return. (See "Taxes," page 21.) Additionally, each maturing Giftrust account established after March 1, 1996 will be charged a $100 administrative fee to help cover the costs incurred by the Trustee as a result of the Giftrust reaching maturity. The tax laws applicable to trusts in general are quite complex. You should consider consulting your tax adviser or attorney before opening a Giftrust account. (For information on Giftrusts and taxes, see "Taxes," page 21.) INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on page 1 of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH Giftrust Investors seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenue acceleration) and have, in the opinion of the fund's manager, better-than-average potential for appreciation. So long as a sufficient number of such securi- 6 ties are available, the fund intends to stay fully invested in these securities regardless of the movement of stock prices generally. In most circumstances, the fund's actual level of cash and cash equivalents will fluctuate between 0% and 10% of total assets with 90% to 100% of its assets committed to equity and equity equivalent investments. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The size of companies in which a fund invests tends to give a fund its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that Giftrust Investors will be relatively more volatile than most of our other growth funds since it tends to invest in smaller companies. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund may be denominated in foreign currencies. Other securities, such as DRs, may be denominated in U.S. dollars, but have a value that is 7 dependent on the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. To protect against adverse movements in exchange rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 the 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 fund 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 relationships between the foreign currency and the U.S. dollar. 8 PORTFOLIO TURNOVER The total portfolio turnover rate of the fund is shown in the Financial Highlights table on pages 4 and 5 of this prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays 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 The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES The fund 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 9 derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), 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. The fund may not 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 price of oil would not be a permissible investment since the fund may not invest in oil and gas leases or futures. The return on 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, the 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 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, the fund must continue to receive the equivalent of the interest and dividends paid 10 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 fund 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 the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the 11 fund's manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our family, and that combined or blended performance may be compared to the same indices to which the fund may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 12 HOW TO ESTABLISH A GIFTRUST ACCOUNT - -------------------------------------------------------------------------------- TWENTIETH CENTURY FAMILY OF FUNDS In addition to the fund offered by this prospectus, the Twentieth Century family of funds also offers a full line of over 60 funds. Please call the Investors Line for a prospectus and additional information about any of the other funds in the Twentieth Century family of funds. PURCHASE OF FUND SHARES The minimum initial gift to a Giftrust account is $500. SUBSEQUENT GIFTS TO PURCHASE ADDITIONAL SHARES MADE BY CHECK WITHOUT USING THE REMITTANCE PORTION OF A STATEMENT FROM A PREVIOUS GIFT MUST BE IN AN AMOUNT OF $250 OR MORE. ALL OTHER SUBSEQUENT GIFTS MUST BE IN AN AMOUNT OF $50 OR MORE. Once a Giftrust has matured, no future investments (other than reinvestments of distributions) may be made. You may make gifts in the following ways: BY MAIL Send your completed Giftrust application and check or money order to Twentieth Century. Checks must be payable in U.S. dollars. ADDITIONAL GIFTS. When making additional gifts by mail, please enclose your check with the return remittance portion of the confirmation of your previous gift, if available. If the remittance slip is not available, indicate on your check or a separate piece of paper your name, address and account number. Orders to purchase shares are effective on the day Twentieth Century receives the purchase check or money order. (See "When Share Price is Determined," page 19.) BY TELEPHONE Once the Giftrust account is open, additional gifts may be made by telephone. Please call Twentieth Century for further details. BY WIRE You may make subsequent gifts in Giftrust Investors by wiring funds. To do so: (1) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri, ABA routing number 101000019. (2) BE SURE TO SPECIFY ON THE WIRE: (a) TWENTIETH CENTURY MUTUAL FUNDS (b) THE ACCOUNT NUMBER (c) YOUR NAME (d) YOUR CITY AND STATE Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the New York Stock Exchange, usually 3 p.m. Central time. (See "When Share Price Is Determined," page 19.) AUTOMATIC INVESTMENTS Once a Giftrust account is open, you may make additional gifts to the Giftrust account automatically by authorizing us to draw on your bank account. SUCH ADDITIONAL GIFTS MUST BE IN AMOUNTS OF NOT LESS THAN $50. 13 You may change the date or amount of your automatic gift anytime by letter or telephone call to us at least five business days before the change is to become effective. ADDITIONAL INFORMATION ABOUT GIFTS WE CANNOT ACCEPT GIFTS TO A GIFTRUST ACCOUNT SPECIFYING A CERTAIN PRICE, DATE OR NUMBER OF SHARES AND WILL RETURN THESE REQUESTS. Once you have mailed or otherwise transmitted your gift instruction to us, it may not be modified or cancelled. The fund reserves the right to suspend the offering of shares for a period of time, and the fund reserves the right to reject any specific gift instruction. Additionally, gift instructions and requests may be refused if, in the opinion of the manager, they are of a size that would disrupt the management of the fund. SPECIAL SHAREHOLDER SERVICES As the grantor of a Giftrust, you may establish one or more special services designed to provide an easy way to do business with us. By electing these services on your application or by completing the appropriate forms, you may authorize: o Investments by phone o Automatic investments Once a Giftrust matures, the beneficiary may authorize: o Exchanges or redemptions by phone o Redemptions in writing without a signature guarantee With regard to the service which enables the beneficiary of a matured Giftrust to exchange and redeem by phone or in writing, and with respect to redemptions, without a signature guarantee, the fund, its transfer agent and investment adviser will not be responsible for any loss for instructions that they reasonably believe are genuine. We intend to employ reasonable procedures to confirm that instructions received by us in fact are genuine. Such procedures will include requiring personal information to verify the identity of callers, providing written confirmations of telephone transactions, and recording telephone calls. 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. EXCHANGES OF FUND SHARES The beneficiary of a matured Giftrust may exchange his/her shares for shares of any of the other funds in our family of funds, subject to any applicable minimum initial investment requirements of the funds into which the beneficiary wishes to exchange. Please call the Investors Line for a prospectus and additional information about the other funds in our family of funds. Exchanges from a matured Giftrust account are limited to six times in any one calendar year. In addition, the shares being exchanged and the shares of each fund being acquired must have a current value of at least $100 and otherwise meet the minimum investment requirement, if any, of the fund being acquired. 14 No exchanges out of a Giftrust account may be made prior to the maturity of the Giftrust account. Exchanges may be requested by phone (if such service has been authorized) or by mail. Once an exchange request is telephoned or mailed, it is irrevocable and may not be modified or cancelled. HOW TO REDEEM SHARES The fund will buy back ("redeem") shares of a matured Giftrust at any time at the net asset value next determined after receipt of a redemption request from the beneficiary in good order. Prior to the maturity of a Giftrust, redemptions are allowed only by the Trustee of the Giftrust, who is authorized by the Giftrust Agreement to make redemptions for the purpose of paying applicable fees, expenses and taxes of the Giftrust account. BY TELEPHONE The beneficiary of a matured Giftrust may redeem shares by telephone if that service has been authorized by the beneficiary. ONCE MADE, A TELEPHONE REQUEST MAY NOT BE MODIFIED OR CANCELLED. All calls received before the close of the New York Stock Exchange, usually 3 p.m. Central time, will receive that day's closing price. (Before calling, read "Additional Information About Redemptions," page 16.) BY MAIL The written instructions of a matured Giftrust beneficiary to redeem shares may be in any one of the following forms: o A redemption form, available from us. o A letter to us. ONCE MAILED TO US, THE REDEMPTION REQUEST IS IRREVOCABLE AND MAY NOT BE MODIFIED OR CANCELLED. If the beneficiary has authorized redemptions without signature guarantees, no signature guarantee is required. If this special service has not been elected, signatures must be guaranteed. (See "Signature Guarantee," on this page.) The signature should be exactly as the name appears in the registration. If the matured Giftrust's beneficiary's name appears in the registration as Mary Elizabeth Jones, she should sign that way and not as Mary E. Jones. (Before writing, see "Additional Information About Redemptions," page 16.) BY CHECK-A-MONTH Our Check-A-Month plan automatically redeems enough shares each month to provide the beneficiary of a matured Giftrust having an account value of $10,000 or more with a check for a minimum of $50. Call us for more information about this service. SIGNATURE GUARANTEE When a signature guarantee is required, the signature must be guaranteed by a domestic bank or trust company, credit union, broker, dealer, national securities exchange, registered securities association, clearing agency or savings association as defined by federal law. The institution providing the guarantee must use a signature guarantee ink stamp or medallion which states "Signature(s) Guaranteed" and be signed in the 15 name of the guarantor by an authorized person with that person's title and the date. We may reject a signature guarantee if the guarantor is not a member of or participant in a signature guarantee program. Shareholders living abroad may acknowledge their signatures before a U.S. consular officer. Military personnel in foreign countries may acknowledge their signatures before officers authorized to take acknowledgements (e.g., legal officers and adjutants). We may waive the signature guarantee on a redemption of $25,000 or less if we are able to verify the signature of the beneficiary from account records. We reserve the right to amend or discontinue this waiver policy at any time and, with regard to a particular redemption transaction, to require a signature guarantee at our discretion. REDEMPTION PROCEEDS Redemption proceeds may be sent to the beneficiary of a matured Giftrust: BY MAIL If a redemption check is mailed, it is usually mailed on the second business day after receipt of a redemption request, but not later than seven days afterwards. Except as noted below, all checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. In certain instances a redemption check can be made payable to someone other than the registered owner of the shares and/or mailed to an address other than the address of record. Please call us for information about this special service. (See "Telephone Services," page 17.) BY WIRE AND ACH The beneficiary of a matured Giftrust may authorize us to transmit redemption proceeds by wire or by the automated bank clearinghouse (ACH). These services will be effective 15 days after we receive the authorization. Proceeds from the redemption of shares will normally be transmitted on the first business day, but not later than the seventh day, following the date of redemption. The destination bank usually will receive wired funds the day they are transmitted or the next day. Funds transferred by ACH will ordinarily be received within one to seven days after transmission. Once the funds are transmitted, the time of receipt and the availability of the funds are not within our control. Wired funds are subject to a charge of $10 to cover bank wire charges, which is deducted from redemption proceeds. ADDITIONAL INFORMATION ABOUT REDEMPTIONS If the beneficiary of a matured Giftrust experiences difficulty in making a telephone redemption during periods of drastic economic or market changes, the redemption request may be made by regular or express mail. It will be implemented at the net asset value next determined after the request has been received, in good order, by us. We reserve the right to revise or terminate the telephone redemption privilege at any time. 16 REDEMPTIONS SPECIFYING A CERTAIN DATE OR PRICE CANNOT BE ACCEPTED AND WILL BE RETURNED. Until a Giftrust matures, only the Trustee, as the legal owner of the shares, may redeem them. The ability of the beneficiary to compel the Trustee to redeem the shares is subject to the terms of the Giftrust. TELEPHONE SERVICES INVESTORS LINE The grantor of a Giftrust or the beneficiary of the Giftrust, if of legal age (or if not of legal age, the beneficiary's parents) may reach an Investors Services Representative by calling our Investors Line at 1-800-345-2021. On our Investors Line one may request information about our funds and a current prospectus, speak with an Investor Services Representative about his/her account, or get answers to any questions about the funds and the services we offer. UNUSUAL STOCK MARKET CONDITIONS HAVE IN THE PAST RESULTED IN AN INCREASE IN THE NUMBER OF SHAREHOLDER TELEPHONE CALLS. THOSE WHO EXPERIENCE DIFFICULTY IN REACHING US ON THE INVESTORS LINE DURING SUCH PERIODS, SHOULD CONSIDER SENDING TRANSACTION INSTRUCTIONS BY MAIL, EXPRESS MAIL OR COURIER SERVICE, OR USING OUR AUTOMATED INFORMATION LINE, IF THE CALLER HAS REQUESTED AND RECEIVED AN ACCESS CODE AND IS NOT ATTEMPTING TO REDEEM SHARES. AUTOMATED INFORMATION LINE In addition to reaching us on our Investors Line, we can also be reached 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. The beneficiary of a matured Giftrust may also obtain an access code that will allow him/her to use the Automated Information Line to make exchange transactions and obtain information about share balance, account value and the most recent transaction. REDEMPTION TRANSACTIONS CANNOT BE MADE ON THE AUTOMATED INFORMATION LINE. Please call our Investors Line at 1-800-345-2021 for more information on how to obtain an access code for our Automated Information Line. HOW TO CHANGE THE ADDRESS OF RECORD The grantor of a Giftrust or the beneficiary of the Giftrust, if of legal age (or if not of legal age, the beneficiary's parents) may notify us of changes in the address of record for the Giftrust account either by writing us or calling our Investors Line. Because the address of record impacts every piece of information we send to you, you are urged to notify us promptly of any change of address. 17 REPORTS TO SHAREHOLDERS At the end of each quarter, we will send to the address of record for the Giftrust account a statement with the complete year-to-date information on activity in the account. The grantor, or the beneficiary, if of legal age (or if not of legal age, the beneficiary's parents) may at any time also request a statement of account activity to be sent to them. With the exception of the automatic transactions noted below, each time an investment, redemption or exchange of shares is made, we will send to the address of record for the Giftrust account a confirmation of the transaction. Automatic investment purchases and exchanges made in an automatic exchange plan will be confirmed on the next quarterly statement. Please carefully review all information in the confirmation or consolidated statement relating to transactions to ensure that instructions have been acted on properly. Please notify us 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 the quarterly statement, in the case of the automatic transactions noted above) we will deem the transaction to be ratified. No later than January 31 of each year, we will send to the address of record for the Giftrust account, when applicable, the following reports, which may be used in completing U.S. income tax returns: FORM 1099-DIV Reports taxable distributions during the preceding year. (If the beneficiary does not receive taxable distributions in the previous year, he or she will not receive a 1099-DIV.) FORM 1099-B Reports proceeds paid on redemptions during the preceding year. In December of each year, we will send to the address of record for the Giftrust account an annual report that includes audited financial statements for the fiscal year ending the preceding October 31 and a list of securities in the Giftrust Investors portfolio on that date. In June of each year, we will send a semiannual report that includes unaudited financial statements for the six months ending the preceding April 30, as well as a list of securities in its portfolio on that date. We usually prepare and mail to the address of record a new prospectus dated March 1 of each year. 18 ADDITIONAL INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of Giftrust shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. Net asset value is determined at the close of regular trading on each day that the New York Stock Exchange is open. Gifts and requests to redeem or exchange shares will receive the share price next determined after receipt by us of the gift, redemption or exchange request. For example, gifts and requests to redeem or exchange shares received by us or one of our agents before the close of business on the New York Stock Exchange, usually 3:00 p.m. Central time, are effective on, and will receive the price determined, that day as of the close of the Exchange. Gifts, 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 from the Trustee only when the purchase check or wired funds representing gifts by a grantor are received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. Gifts by telephone pursuant to an authorization to us to draw on a bank account are considered received at the time of the telephone call. Gifts and transaction instructions received by us on any business day by mail prior to the close of business on the Exchange, usually 3 p.m. Central time, will receive that day's price. Gifts and instructions received after that time, will receive the price determined on the next business day. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of the fund, except as otherwise noted, listed or traded on a domestic securities exchange are valued at the last sale price on that exchange. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 19 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. Pursuant to a determination by the fund's board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, 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 that 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 the 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 our funds are published in leading newspapers daily. Net asset values may also be obtained by calling us. (See "Telephone Services," page 17.) DISTRIBUTIONS In general, distributions from net investment income and net realized securities gains, if any, are declared and paid annually on or before December 31, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions on shares of Giftrust accounts will not be paid in cash and will be reinvested. The board of directors may elect not to distribute capital gains in whole or in part to take advantage of loss carryovers. 20 A distribution on shares of the fund does not increase the value of shares or total return. At any given time the value of shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are included in the value of shares, when they are distributed the value of shares is reduced by the amount of the distribution. If shares are bought just before the distribution, the full price will be paid for the shares, and then a portion of the purchase price will be distributed as a taxable distribution. (See "Taxes," on this page.) TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. Distributions of net investment income and net short-term capital gains are taxable as ordinary income. Distributions from net long-term capital gains are taxable as long-term capital gains. Dividends and interest received by the fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by shareholders. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. Distributions are taxable, even if the value of the shares is below their cost. If shares are purchased shortly before a distribution, income taxes must be paid on the distribution, even though the value of the investment (plus cash received, if any) will not have increased. In addition, the share price at the time shares are purchased may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and 21 the gains are realized, they will, to the extent not offset by capital losses, be paid as a distribution of capital gains and will be taxable as short-term or long-term capital gains. In January of the year following the distribution, we will send, when applicable, a Form 1099-DIV notifying the beneficiary of a matured Giftrust of the status of distributions for federal income tax purposes. Distributions may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if received 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. If the beneficiary of a matured Giftrust has 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 the beneficiary of a matured Giftrust to certify that the social security number or tax identification number provided is correct and that he/she is not subject to 31% withholding for previous under-reporting to the IRS. The beneficiary of a matured Giftrust will be asked to make the appropriate certification upon maturity of the Giftrust. Redemption of Giftrust shares (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 will generally be long term if shareholders have held such shares for a period of more than one year. Because it is a gift of a future interest, an investment in a Giftrust does not qualify for the annual gift tax exclusion of $10,000. If you give a Giftrust, you must file a United States Gift Tax Return. If you make additional investments in subsequent years, a Gift Tax Return must be filed for each year's gift. No gift tax is payable until your cumulative lifetime gifts exceed the exemption equivalent of $600,000. Each gift is applied against the exemption equivalent that would otherwise be available in the future. The income of a Giftrust account is exempt from federal income tax until it exceeds $100. The Trustee of the Giftrust files federal income tax returns and pays the income tax out of the assets of the trust. A $10 fee will be charged against a Giftrust account in each year that the Trustee files a tax return on behalf of such account. The distribution to the beneficiary at the maturity of the Giftrust may be subject to the throwback rules under the Internal Revenue Code. The throwback rules may create additional tax liability for a beneficiary who is age 21 or older at the time the Giftrust matures. More than one trust for the same beneficiary may be subject to the provisions of the Internal Revenue Code with respect to multiple trusts. 22 The tax laws applicable to trusts in general are quite complex. You should consider consulting your tax adviser before opening a Giftrust account. 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 fund. Acting pursuant to an investment management agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. Investors Research supervises and manages the fund's investment portfolios and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Giftrust Investors and their work experience for the last five years are as follows: JAMES E. STOWERS III, President and Portfolio Manager, joined Twentieth Century in 1981. GLENN A. FOGLE, Vice President and Portfolio Manager, joined Twentieth Century in September 1990 as an Investment Analyst, a position he held until March 1993. At that time he was promoted to Portfolio Manager. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of 1% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which is the number of days in the previous month and the denominator of which is 365 (366 in leap years). The unified management fee paid by the fund to Investors Research may be higher than the advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of Giftrust Investors' expenses, except as specified above, are paid by Investors Research. 23 CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that 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 fund's 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 the fund. It provides facilities, equipment and personnel to the fund, and is paid for such services 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 Twentieth Century Investors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by Twentieth Century Securities, Inc. (the "Distributor"), a registered broker dealer and an affiliate of the fund's investment manager. Investors Research pays all expenses for promoting and distributing the fund shares offered by this prospectus. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Giftrust Investors is one of 16 series of shares ($.01 par value per share) issued by Twentieth Century Investors. Each series is commonly referred to as a fund. The assets 24 belonging to each series of shares are held separately by the custodian, and in effect each series is a separate fund. Each share, irrespective of series 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 which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request 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. 25 [company logo] Investments That Work(TM) ----------------------------------------- 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 ----------------------------------------- SH-BKT-4992 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS RETAIL CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. One of the funds, Balanced Investors, is described in this prospectus. The other funds are described in separate prospectuses. Balanced Investors seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objectives. NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. There is no minimum investment requirement for the fund. However, if the value of the shares held in any one fund account is less than $2,500 ($1,000 for IRA and UGMA/UTMA accounts), you must establish an automatic investment program of $50 or more per month in each such account. (See "Automatic Investment Plan," page 13 and "Automatic Redemption of Shares," page 15). This prospectus gives you information about the fund 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- TRANSACTION AND OPERATING EXPENSE TABLE ................................... 3 FINANCIAL HIGHLIGHTS ...................................................... 4 INFORMATION REGARDING THE FUND INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND .................................................... 5 Investment Approach ..................................................... 5 Equity Investments ...................................................... 5 Fixed Income Investments ................................................ 5 Other Investment Practices ................................................ 6 Foreign Securities ...................................................... 6 Forward Currency Exchange Contracts ..................................... 6 Portfolio Turnover ...................................................... 7 Repurchase Agreements ................................................... 7 Derivative Securities ................................................... 8 Portfolio Lending ....................................................... 9 When-Issued Securities .................................................. 9 Rule 144A Securities .................................................... 9 Short Sales ............................................................. 10 Performance Advertising ................................................... 10 HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP HOW TO OPEN AN ACCOUNT .................................................... 12 By Mail ................................................................. 12 By Wire ................................................................. 12 By Exchange ............................................................. 12 In Person ............................................................... 12 Subsequent Investments .................................................. 13 By Mail ................................................................. 13 By Telephone ............................................................ 13 By Wire ................................................................. 13 In Person ............................................................... 13 Automatic Investment Plan ............................................... 13 HOW TO EXCHANGE FROM ONE ACCOUNT TO ANOTHER ...................................................... 13 By Mail ................................................................. 13 By Telephone ............................................................ 13 HOW TO REDEEM SHARES ...................................................... 14 By Mail ................................................................. 14 By Check-A-Month ........................................................ 14 REDEMPTION PROCEEDS ....................................................... 14 By Check ................................................................ 14 By Wire and ACH ......................................................... 14 Special Requirements for Large Redemptions ..................................................... 14 AUTOMATIC REDEMPTION OF SHARES ............................................ 15 SIGNATURE GUARANTEE ....................................................... 15 SPECIAL SHAREHOLDER SERVICES .............................................. 15 Automated Information Line .............................................. 15 Open Order Service ...................................................... 16 Tax-Qualified Retirement Plans .......................................... 16 Important Policies Regarding Your Investments ...................................................... 16 REPORTS TO SHAREHOLDERS ................................................... 17 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS .................................................. 17 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ............................................................... 19 When Share Price Is Determined .......................................... 19 How Share Price Is Determined ........................................... 19 Where to Find Information About Share Price ..................................................... 20 DISTRIBUTIONS ............................................................. 20 TAXES ..................................................................... 20 Tax-Deferred Accounts ................................................... 21 Taxable Accounts ........................................................ 21 MANAGEMENT ................................................................ 22 Investment Management ................................................... 22 Code of Ethics .......................................................... 23 Transfer and Administrative Services .................................... 23 Distribution of Fund Shares ............................................. 24 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ................................................. 24 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 1 year $10 investment, assuming (1) a 5% annual return and 3 years 32 (2) redemption at the end of each time period: 5 years 55 10 years 122 (1) Redemption proceeds sent by wire are subject to a $10 processing fee. (2) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 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 Balanced Investors 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 retail class shares and have no up-front or deferred sales charges, commissions, or 12b -1 fees. The fund offers three other classes of shares, primarily to institutional investors, that have different fee structures than the retail class, resulting in different performance for the other classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 23. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--BALANCED INVESTORS (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 ---------------------- Oct. 20, 1988 (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) .48(1) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gains (Losses) 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ---- ----- ---- ----- ---- ----- ---- ----- Total from Investment Operations 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ---- ----- ---- --- ---- ----- ---- ----- DISTRIBUTIONS From Net Investment Income (.475) (.416) (.375) (.322) (.384) (.417) (.372) - From Net Realized Gains on Investment Transactions (.274) -- -- -- -- (.320) -- -- In Excess of Net Realized Gains -- -- -- -- -- -- -- -- Total Distributions (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2) 16.36% (.93%) 13.64% .63% 42.92% (2.10%) 20.94% (.88%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(3) Portfolio Turnover Rate 85%(3) 94% 95% 100% 116% 104% 171% 99%(3) Average Commission Paid per Share Traded $.039 -- -- -- -- -- -- -- Net Assets, End of Period (in millions) $8,155 $7,038 $7,056 $6,541 $2,548 $664 $301 $27
- -------------------------------------------------------------------------------- (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 distributions, if any. (3) Annualized 4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced Investors portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenue acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced Investors fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. Management will actively manage the portfolio, adjusting the weighted average portfolio maturity in response to expected changes in interest rates. During periods of rising interest rates, a shorter weighted 5 average maturity may be adopted in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices rising, a longer weighted average portfolio maturity may be adopted. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of management, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. 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 or changing circumstances. (See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information). OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. 6 To protect against adverse movements in ex-change rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 the 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 fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the fund is shown in the Financial Highlights table on page 5 of this prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not 7 otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 8 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, the 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 9 guidelines and procedures for determining the liquidity of Rule 144A securities. As allowed by Rule 144A, the board of directors of the fund 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 the 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 the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return and yield. Performance data may be quoted separately for the retail class and the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the 10 Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 11 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 17. 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 13. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 13 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 12 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 12 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 12. 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 Shareholder 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 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 14. 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 Shareholder 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 15) 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 800-345-2021 to get the appropriate form. 13 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," this page). 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 15. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds directly to 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 Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. 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 14 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. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either 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 Shareholder 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 Shareholder 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 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 Informa- 15 tion 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 Shareholder 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 16 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 Shareholder 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 Shareholder 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. EMPLOYER SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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 17 Fund shares through a bank, broker dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 800-345-3533 to request information about our funds, 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. 18 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or its 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, 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 record keeper or financial intermediary to transmit your purchase, exchange and recemption 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 arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' Twentieth Century's board of directors that such value represents fair value, debt securities with 19 maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then exchanged 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 that 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 the 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 the 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 value of the retail class of the fund is published in leading newspapers daily. Net asset values 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, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder 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 the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are in- cluded in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," page 21). 20 TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the retail class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the retail class 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 fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. 21 In January of the year following the distribution, if you own shares in taxable accounts you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of the fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 fund. Acting pursuant to an investment advisory agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the fund's investment portfolios and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and 22 sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced Investors and their work experience for the last five years are as follows: CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages the equity portion of Balanced Investors. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced Investors. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of 1% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 fund to Investors Research may be higher than the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of the fund's expenses except as specified above are paid by Investors Research. CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that restricts personnel 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 fund's 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 agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by Investors Research. 23 Investors Research and Twentieth Century Services, Inc. are both wholly owned by Twentieth Century Companies, Inc. James E. Stowers Jr., chairman of the fund's board of directors, 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 fund's investment manager. Investors Research pays all expenses for promoting sales of, and distributing the retail class of, the fund shares offered by this prospectus. The retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575). Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of the fund offered by this prospectus: a retail class, an institutional class, a services class, and an advisor class. The shares offered by this prospectus are retail 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 retail class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this prospectus, call Twentieth Century 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) each 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 which 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. 24 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund 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. 25 TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS RETAIL CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - --------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - --------------------------------------- Fax: 816-340-4655 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5002 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS INSTITUTIONAL CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Balanced Investors seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objectives. NO-LOAD MUTUAL FUNDS The Twentieth Century fund offered in this prospectus (the institutional class) are "no-load" investments which means there are no sales charges or commissions. The minimum investment amount for the fund can be found on page 12. 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 requirement. 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 fund 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- TRANSACTION AND OPERATING EXPENSE TABLE ................................... 3 FINANCIAL HIGHLIGHTS ...................................................... 4 INFORMATION REGARDING THE FUND INFORMATION ABOUT INVESTMENT Policies of the Fund .................................................... 5 Investment Approach ..................................................... 5 Equity Investments ...................................................... 5 Fixed Income Investments ................................................ 5 OTHER INVESTMENT PRACTICES ................................................ 6 Foreign Securities ...................................................... 6 Forward Currency Exchange Contracts ..................................... 6 Portfolio Turnover ...................................................... 7 Repurchase Agreements ................................................... 7 Derivative Securities ................................................... 8 Portfolio Lending ....................................................... 9 When-Issued Securities .................................................. 9 Rule 144A Securities .................................................... 9 Short Sales ............................................................. 10 PERFORMANCE ADVERTISING ................................................... 10 HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP HOW TO OPEN AN ACCOUNT .................................................... 12 By Mail ................................................................. 12 By Wire ................................................................. 12 By Exchange ............................................................. 12 In Person ............................................................... 12 SUBSEQUENT INVESTMENTS .................................................... 13 By Mail ................................................................. 13 By Telephone ............................................................ 13 By Wire ................................................................. 13 In Person ............................................................... 13 AUTOMATIC INVESTMENT PLAN ................................................. 13 HOW TO EXCHANGE FROM ONE Account to Another ...................................................... 13 By Mail ................................................................. 13 By Telephone ............................................................ 13 HOW TO REDEEM SHARES ...................................................... 14 By Telephone ............................................................ 14 By Mail ................................................................. 14 By Check-A-Month ........................................................ 14 OTHER AUTOMATIC REDEMPTIONS ............................................... 14 REDEMPTION PROCEEDS ....................................................... 14 By Check ................................................................ 14 By Wire and ACH ......................................................... 14 SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS ....................................................... 14 AUTOMATIC REDEMPTION OF SHARES ............................................ 15 SIGNATURE GUARANTEE ....................................................... 15 SPECIAL SHAREHOLDER SERVICES .............................................. 15 Automated Information Line .............................................. 15 Open Order Service ...................................................... 16 Tax-Qualified Retirement Plans .......................................... 16 Important Policies Regarding Your Investments ........................................................ 16 Reports to Shareholders ................................................... 17 Employer-Sponsored Retirement Plans and Institutional Accounts .................................................. 17 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ............................................................... 19 When Share Price Is Determined .......................................... 19 How Share Price Is Determined ........................................... 19 Where to Find Information About Share Price ..................................................... 20 DISTRIBUTIONS ............................................................. 20 TAXES ..................................................................... 21 Tax-Deferred Accounts ................................................... 21 Taxable Accounts ........................................................ 21 MANAGEMENT ................................................................ 22 Investment Management ................................................... 22 Code of Ethics .......................................................... 23 Transfer and Administrative Services .................................... 23 Distribution of Fund Shares ............................................. 24 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ................................................. 24 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 .80% 12b-1 Fees none Other Expenses(1) 0.00% Total Fund Operating Expenses .80% Example You would pay the following expenses on a $1,000 1 year $8 investment, assuming (1) a 5% annual return and 3 years 26 (2) redemption at the end of each time period: 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 0.0014 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 Balanced Investors 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 fund offers 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 24. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--BALANCED INVESTORS (For a Share Outstanding Throughout the Period) The institutional class of the fund was established September 3, 1996. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's retail 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 the fund for the time periods presented, the fund's performance information would be higher as a result of the lower expenses. The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 ---------------------- Oct. 20, 1988 (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) .48(1) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gains (Losses) 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ---- ----- ---- ----- ---- ----- ---- ----- Total from Investment Operations 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ---- ----- ---- --- ---- ----- ---- ----- DISTRIBUTIONS From Net Investment Income (.475) (.416) (.375) (.322) (.384) (.417) (.372) - From Net Realized Gains on Investment Transactions (.274) -- -- -- -- (.320) -- -- In Excess of Net Realized Gains -- -- -- -- -- -- -- -- Total Distributions (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2) 16.36% (.93%) 13.64% .63% 42.92% (2.10%) 20.94% (.88%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(3) Portfolio Turnover Rate 85%(3) 94% 95% 100% 116% 104% 171% 99%(3) Average Commission Paid per Share Traded $.039 -- -- -- -- -- -- -- Net Assets, End of Period (in millions) $8,155 $7,038 $7,056 $6,541 $2,548 $664 $301 $27 - ------------------------------------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 4 INFORMATION REGARDING THE FUND - ------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced Investors portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the investment manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced Investors fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. Management will actively manage the portfolio, adjusting the weighted average portfolio maturity in response to expected changes in interest rates. During periods of rising interest rates, a shorter weighted 5 average maturity may be adopted in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices rising, a longer weighted average portfolio maturity may be adopted. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of management, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. 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 or changing circumstances. (See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information). OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. 6 To protect against adverse movements in ex-change rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 the 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 fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the fund is shown in the Financial Highlights table on page 4 of this prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not 7 otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 8 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, the 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 9 guidelines and procedures for determining the liquidity of Rule 144A securities. As allowed by Rule 144A, the board of directors of the fund 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 the 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 the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return and yield. Performance data may be quoted separately for the institutional class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known 10 indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 11 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. 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 Shareholder 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 may not apply to you. Please read "Employer-Sponsored Retirement Plans and Institutional Accounts," page 17. 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 $5 million ($3 million for endowments and foundations). The minimum investment requirement may be waived if the investor has an aggregate investment in our family of funds of $10 million or more ($5 million for endowments and foundations). The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 13 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 12 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 12 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 12. 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 Shareholder 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 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 14. 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 Shareholder 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 15) 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 800-345-2021 to get the appropriate form. 13 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," this page). 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 15. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS If you have at least a $10,000 balance in your account, you may elect to make redemptions automatically by authorizing us to send funds directly to 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 Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. 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 14 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. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you to either 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 Shareholder 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 Shareholder 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 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 Informa- 16 tion 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 Shareholder 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 16 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 Shareholder 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 Shareholder 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. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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 17 fund shares through a bank, broker dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 800-345-3533 to request information about our funds, 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. 18 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received by us on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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 recemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the fund's board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then exchanged to dollars at the prevailing foreign exchange rate. 19 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 that 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 the 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 the 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 value of the retail class of the fund is published in leading newspapers daily. Net asset values of the institutional class 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, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder 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 the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are in- cluded in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," page 21). TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the institutional class 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 20 taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the institutional class 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 fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from us notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax adviser about the tax status of such distributions in your own state. 21 If you have not complied with certain provisions of the Internal Revenue Code and Regulations, 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of the fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 fund. Acting pursuant to an investment advisory agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolios of the fund and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced Investors and their work experience for the last five years are as follows: CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages the equity portion of Balanced Investors. 22 NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced Investors. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .80% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 fund to Investors Research may be higher than the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of the fund's expenses except as specified above are paid by Investors Research. CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that restricts personnel 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 fund's 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 agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund's board of directors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by Twentieth Century Securities, Inc. (the "Distributor"), a registered broker dealer and an affiliate of the fund's 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 23 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575). Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of the fund offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are institutional class shares and have no up-front charges, commissions, or 12b-1 fees. The retail class is primarily made available to retail investors. The service class and distribution class are primarily offered to 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the service or distribution classes of shares, call 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 which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 24 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. The manager 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. 25 TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS INSTITUTIONAL CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - --------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - --------------------------------------- Fax: 816-340-4655 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5005 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Balanced Investors seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objectives. The shares offered by 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 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 financial intermediaries, such as banks, broker dealers and insurance companies, that provide various recordkeeping and administrative services. The minimum initial investment amount for the fund can be found on page 12. This prospectus gives you information about the fund 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- TRANSACTION AND OPERATING EXPENSE TABLE ................................... 3 FINANCIAL HIGHLIGHTS ...................................................... 4 INFORMATION REGARDING THE FUND INFORMATION ABOUT INVESTMENT Policies of the Fund .................................................... 5 Investment Approach ..................................................... 5 Equity Investments ...................................................... 5 Fixed Income Investments ................................................ 5 OTHER INVESTMENT PRACTICES ................................................ 6 Foreign Securities ...................................................... 6 Forward Currency Exchange Contracts ..................................... 6 Portfolio Turnover ...................................................... 7 Repurchase Agreements ................................................... 7 Derivative Securities ................................................... 8 Portfolio Lending ....................................................... 9 When-Issued Securities .................................................. 9 Rule 144A Securities .................................................... 9 Short Sales ............................................................. 10 PERFORMANCE ADVERTISING ................................................... 10 HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS ................................................. 12 HOW TO EXCHANGE YOUR INVESTMENT FROM ONE TWENTIETH CENTURY FUND TO ANOTHER ......................................................... 12 HOW TO REDEEM SHARES ...................................................... 12 Special Requirements for Large Equity Fund Redemptions ............................................... 12 TELEPHONE SERVICES ........................................................ 13 Investors Line .......................................................... 13 Automated Information Line .............................................. 13 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ............................................................... 14 When Share Price Is Determined .......................................... 14 How Share Price Is Determined ........................................... 14 Where to Find Information About Share Price ..................................................... 15 DISTRIBUTIONS ............................................................. 15 TAXES ..................................................................... 15 Tax-Deferred Accounts ................................................... 15 Taxable Accounts ........................................................ 16 MANAGEMENT ................................................................ 17 Investment Management ................................................... 17 Code of Ethics .......................................................... 18 Transfer and Administrative Services .................................... 18 Service Fees ............................................................ 19 Distribution of Fund Shares ............................................. 19 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ................................................... 19 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 0.00% Total Fund Operating Expenses 1.00% Example You would pay the following expenses on a $1,000 1 year $10 investment, assuming (1) a 5% annual return and 3 years 32 (2) redemption at the end of each time period: 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 plan administrators and other financial intermediaries and is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Service Fees," page 19. (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 0.0014 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 Balanced Investors 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. For additional information about the various classes, see "Further Information About Twentieth Century," page 19. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--BALANCED INVESTORS (For a Share Outstanding Throughout the Period) The service class of the fund was established September 3, 1996. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's retail class of shares, which has the same total expense ratio as the service class shares. The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 ---------------------- Oct. 20, 1988 (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) .48(1) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gains (Losses) 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ---- ----- ---- ----- ---- ----- ---- ----- Total from Investment Operations 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ---- ----- ---- --- ---- ----- ---- ----- DISTRIBUTIONS From Net Investment Income (.475) (.416) (.375) (.322) (.384) (.417) (.372) - From Net Realized Gains on Investment Transactions (.274) -- -- -- -- (.320) -- -- In Excess of Net Realized Gains -- -- -- -- -- -- -- -- Total Distributions (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2) 16.36% (.93%) 13.64% .63% 42.92% (2.10%) 20.94% (.88%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(3) Portfolio Turnover Rate 85%(3) 94% 95% 100% 116% 104% 171% 99%(3) Average Commission Paid per Share Traded $.039 -- -- -- -- -- -- -- Net Assets, End of Period (in millions) $8,155 $7,038 $7,056 $6,541 $2,548 $664 $301 $27
- -------------------------------------------------------------------------------- (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 distributions, if any. (3) Annualized 4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced Investors portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced Investors fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. Management will actively manage the portfolio, adjusting the weighted average portfolio maturity in response to expected changes in interest rates. During periods of rising interest rates, a shorter weighted 5 average maturity may be adopted in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices rising, a longer weighted average portfolio maturity may be adopted. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of management, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. 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 or changing circumstances. (See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information). OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. 6 To protect against adverse movements in ex-change rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 the 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 fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the fund is shown in the Financial Highlights table on page 4 of this prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not 7 otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 8 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, the 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 9 guidelines and procedures for determining the liquidity of Rule 144A securities. As allowed by Rule 144A, the board of directors of the fund 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 the 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 the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return and yield. Performance data may be quoted separately for the service class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known 10 indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 11 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 mutual funds covering a variety of investment opportunities. The following section explains how purchase, exchange and redeem service class shares of the funds offered by this prospectus. HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS The fund 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 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. There is no minimum investment requirement required for the fund described in this prospectus. However, if the value of the shares held in the fund account is less than $2,500 ($1,000 for UGMA/UTMA accounts), you must establish an investment program of $50 or more per month in each such account. If you have questions about the fund, see "Information About Investment Policies of the Funds," page 5, 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 14). We may discontinue offering shares generally in the fund (including any class of shares of the 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 the 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 Equity Fund Redemptions," on this page). 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 23.) 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. 12 SPECIAL REQUIREMENTS FOR LARGE EQUITY FUND REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates the 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 recemption 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 the 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 Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 13 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the funds or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the fund's board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then exchanged to dollars at the prevailing foreign exchange rate. 14 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 that 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 the 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 the 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 value of the retail class of the fund is published in leading newspapers daily. Net asset values of the service class of the 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, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder 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 the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are in- cluded in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," on this page). TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. TAX-DEFERRED ACCOUNTS If the service class 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 15 taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the service class 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 fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own fund shares in taxable accounts you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays 16 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of the fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 fund. Acting pursuant to an investment advisory agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to The Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provides investment management services to Twentieth Century funds, while certain Twentieth Century employees provides investment management services to Benham funds. Investors Research supervises and manages the fund's investment portfolios and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced Investors and their work experience for the last five years are as follows: 17 CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages the equity portion of Balanced Investors. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced Investors. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .75% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 fund to Investors Research may be higher than the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of the fund's expenses except as specified above are paid by Investors Research. CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that restricts personnel 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 fund's 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 agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund's board of directors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. 18 SERVICE FEES Certain recordkeeping and administrative services that are provided by the fund's transfer agent for retail 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 fund's boards of directors has adopted a Shareholder Services Plan with respect to the service class shares of the fund. Under the Plan, the fund pays Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily assets of the fund's 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 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. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by the Distributor, a registered broker dealer and an affiliate of the fund's investment manager. Investors Research pays all expenses for promoting sales of, and distributing the service class of, 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 the distribution of fund shares. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575). Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of the fund offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are service class shares and have no up-front charges or commissions. The retail 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 19 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the institutional or advisor classes 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 the 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 which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. The manager 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. 20 TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - -------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - -------------------------------------- Fax: 816-340-4655 - -------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5004 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Balanced Investors seeks capital growth and current income. It is management's intention to maintain approximately 60% of the fund's assets in common stocks that are considered by management to have better-than-average prospects for appreciation and the remainder in bonds and other fixed income securities. There is no assurance that the fund will achieve its investment objectives. The Twentieth Century fund offered in this prospectus (the advisor class shares) is sold at its net asset value with no sales charges or commissions. The advisor class shares are subject to Rule 12b-1 shareholder services and distribution fees 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. The minimum investment amount for the fund can be found on page 12. This prospectus gives you information about the fund 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- TRANSACTION AND OPERATING EXPENSE TABLE ................................... 3 FINANCIAL HIGHLIGHTS ...................................................... 4 INFORMATION REGARDING THE FUND INFORMATION ABOUT INVESTMENT Policies of the Fund .................................................... 5 Investment Approach ..................................................... 5 Equity Investments ...................................................... 5 Fixed Income Investments ................................................ 5 OTHER INVESTMENT PRACTICES ................................................ 6 Foreign Securities ...................................................... 6 Forward Currency Exchange Contracts ..................................... 6 Portfolio Turnover ...................................................... 7 Repurchase Agreements ................................................... 7 Derivative Securities ................................................... 8 Portfolio Lending ....................................................... 9 When-Issued Securities .................................................. 9 Rule 144A Securities .................................................... 9 Short Sales ............................................................. 10 PERFORMANCE ADVERTISING ................................................... 10 HOW TO INVEST WITH TWENTIETH CENTURY AND THE BENHAM GROUP HOW TO PURCHASE AND SELL Twentieth Century Funds ................................................. 12 HOW TO EXCHANGE YOUR INVESTMENT from One Twentieth Century Fund to Another ......................................................... 12 HOW TO REDEEM SHARES ...................................................... 12 Special Requirements for Large Equity Fund Redemptions ............................................... 12 TELEPHONE SERVICES ........................................................ 13 Investors Line .......................................................... 13 Automated Information Line .............................................. 13 ADDITIONAL INFORMATION YOU SHOULD KNOW SHARE PRICE ............................................................... 14 When Share Price Is Determined .......................................... 14 How Share Price Is Determined ........................................... 14 Where to Find Information About Share Price ..................................................... 15 DISTRIBUTIONS ............................................................. 15 TAXES ..................................................................... 15 Tax-Deferred Accounts ................................................... 16 Taxable Accounts ........................................................ 16 MANAGEMENT ................................................................ 17 Investment Management ................................................... 17 Code of Ethics .......................................................... 18 Transfer and Administrative Services .................................... 18 Distribution Services ................................................... 19 FURTHER INFORMATION ABOUT TWENTIETH CENTURY ................................................. 19 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 1 year $13 investment, assuming (1) a 5% annual return and 3 years 40 (2) redemption at the end of each time period: 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 "Distribution Services," page 19. (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 0.0014 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 Balanced Investors 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 fund offers 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 classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 19. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--BALANCED INVESTORS (For a Share Outstanding Throughout the Period) The advisor class of the fund was established September 3, 1996. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's retail 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 the fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented (except at noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, whose report thereon appears in the corporation's annual report, which is incorporated by reference to the statement of additional information. The annual report contains additional performance information and will be made available upon request and without charge.
Years ended October 31 ---------------------- Oct. 20, 1988 (inception) through 1995 1994 1993 1992 1991 1990 1989 Oct. 31, 1988 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 $10.22 ------ ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) .48(1) .42 .38 .33 .38 .41 .37 .01 Net Realized and Unrealized Gains (Losses) 2.03 (.58) 1.62 (.23) 4.22 (.62) 1.71 (.10) ---- ----- ---- ----- ---- ----- ---- ----- Total from Investment Operations 2.51 (.16) 2.00 .10 4.60 (.21) 2.08 (.09) ---- ----- ---- --- ---- ----- ---- ----- DISTRIBUTIONS From Net Investment Income (.475) (.416) (.375) (.322) (.384) (.417) (.372) - From Net Realized Gains on Investment Transactions (.274) -- -- -- -- (.320) -- -- In Excess of Net Realized Gains -- -- -- -- -- -- -- -- Total Distributions (.749) (.416) (.375) (.322) (.384) (.737) (.372) -- ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $17.70 $15.94 $16.52 $14.89 $15.11 $10.89 $11.84 $10.13 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN(2) 16.36% (.93%) 13.64% .63% 42.92% (2.10%) 20.94% (.88%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets 2.9% 2.7% 2.4% 2.4% 3.1% 3.8% 4.2% 4.4%(3) Portfolio Turnover Rate 85%(3) 94% 95% 100% 116% 104% 171% 99%(3) Average Commission Paid per Share Traded $.039 -- -- -- -- -- -- -- Net Assets, End of Period (in millions) $8,155 $7,038 $7,056 $6,541 $2,548 $664 $301 $27 - ------------------------------------------------------------------------------------------------------------------------------------ (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 distributions, if any. (3) Annualized
4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its investment objective. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. INVESTMENT APPROACH The manager intends to invest approximately 60% of the fund's assets in equity securities, while the remainder will be invested in bonds and other fixed income securities. A description of the investment style for each class of investment follows. EQUITY INVESTMENTS With the equity portion of the Balanced Investors portfolio, the manager seeks capital growth by investing in securities, primarily common stocks, that meet certain fundamental and technical standards of selection (relating primarily to earnings and revenues acceleration) and have, in the opinion of the manager, better-than-average potential for appreciation. So long as a sufficient number of such securities are available, the manager intends to keep the equity portion of Balanced Investors fully invested in these securities regardless of the movement of stock prices generally. The fund may purchase securities only of companies that have a record of at least three years continuous operation. The manager selects, for the equity portion of the portfolio, securities of companies whose earnings and revenue trends meet management's standards of selection. The size of the companies in which a fund invests tends to give it its own characteristics of volatility and risk. These differences come about because developments such as new or improved products or methods, which would be relatively insignificant to a large company, may have a substantial impact on the earnings and revenues of a small company and create a greater demand and a higher value for its shares. However, a new product failure which could readily be absorbed by a large company can cause a rapid decline in the value of the shares of a smaller company. Hence, it could be expected that the volatility of the fund will be impacted by the size of companies in which it invests. FIXED INCOME INVESTMENTS The manager intends to maintain approximately 40% of the fund's assets in fixed income securities with a minimum of 25% of that amount in fixed income senior securities. The fixed income securities in the fund will be chosen based on their level of income production and price stability. The fund may invest in a diversified portfolio of debt and other fixed-rate securities payable in United States currency. These may include obligations of the United States government, its agencies and instrumentalities; corporate securities (bonds, notes, preferreds and convertible issues), and sovereign government, municipal, mortgage-backed and other asset-backed securities. There are no maturity restrictions on the fixed income securities in which the fund invests. Under normal market conditions the weighted average portfolio maturity for the fixed income portfolio will be in the three- to 10-year range. Management will actively manage the portfolio, adjusting the weighted average portfolio maturity in response to expected changes in interest rates. During periods of rising interest rates, a shorter weighted 5 average maturity may be adopted in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices rising, a longer weighted average portfolio maturity may be adopted. It is the manager's intention to invest the fund's fixed income holdings in high-grade securities. At least 80% of fixed income assets will be invested in securities which at the time of purchase are rated within the three highest categories by a nationally recognized statistical rating organization [at least A by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corp. (S&P)]. The remaining portion of the fixed income assets may be invested in issues in the fourth highest category (Baa by Moody's or BBB by S&P), or, if not rated, are of equivalent investment quality as determined by the manager and which, in the opinion of management, can contribute meaningfully to the fund's results without compromising its objectives. Such issues might include a lower-rated issue where research suggests the likelihood of a rating increase; or a convertible issue of a company deemed attractive by the equity management team. 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 or changing circumstances. (See "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information.) OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, primarily from developed markets, when these securities meet its standards of selection. The fund may make such investments either directly in foreign securities, or by purchasing Depositary Receipts ("DRs") for foreign securities. DRs are securities listed on exchanges or quoted in the over-the-counter market in one country but represent the shares of issuers domiciled in other countries. DRs may be sponsored or unsponsored. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter markets. The 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 fund will limit its purchase of debt securities to investment grade obligations. 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. FORWARD CURRENCY EXCHANGE CONTRACTS Some of the foreign securities held by the fund 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 the performance of a foreign security, as valued in the currency of its home country. As a result, the value of the fund's portfolios may be affected by changes in the exchange rates between foreign currencies and the dollar, as well as by changes in the market values of the securities themselves. The performance of foreign currencies relative to the dollar may be a factor in the overall performance of the fund. 6 To protect against adverse movements in ex-change rates between currencies, the fund 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. The 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 fund 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." The 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 fund may enter into forward currency exchange contracts to sell the value of some or all of the fund's portfolio securities either denominated in, or whose value is tied to, that currency. This practice is sometimes referred to as "portfolio hedging." The fund may not enter into a portfolio hedging transaction where it would be obligated to deliver an amount of foreign currency in excess of the aggregate value of its portfolio securities or other assets denominated in, or whose value is tied to, that currency. The fund will make use of the portfolio hedging to the extent deemed appropriate by the manager. However, it is anticipated that the fund will enter into portfolio hedges much less frequently than transaction hedges. If the fund enters into a forward 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 the 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 fund 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 relationships between the foreign currency and the U.S. dollar. PORTFOLIO TURNOVER The total portfolio turnover rates of the fund is shown in the Financial Highlights table on page 4 of this prospectus. Investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the fund's objectives. The rate of portfolio turnover is irrelevant when the manager believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of the fund may be higher than other mutual funds with similar investment objectives. Higher turnover would generate correspondingly greater brokerage commissions, which is a cost that the fund pays directly. Portfolio turnover may also affect the character of capital gains, if any, realized and distributed by the fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not 7 otherwise committed to the purchase of securities pursuant to the investment policies of the fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the fund's board of directors. The fund will invest no more than 15% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not 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 price of oil would not be a permissible investment since the funds may not invest in oil and gas leases or futures. The return on 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; 8 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, the 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 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, the 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. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of a majority of the fund's shareholders. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically 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 for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 9 guidelines and procedures for determining the liquidity of Rule 144A securities. As allowed by Rule 144A, the board of directors of the fund 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 the 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 the fund's liquidity. The fund may not 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). SHORT SALES The 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 the fund to hedge against price fluctuations by locking in a sale price for securities it does not wish to sell immediately. The 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. PERFORMANCE ADVERTISING From time to time, the fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return, average annual total return and yield. Performance data may be quoted separately for the advisor class and the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known 10 indices of market performance including the Standard & Poor's (S&P) 500 Index and the Dow Jones Industrial Average. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 11 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that offers 68 mutual funds covering a variety of investment opportunities. The following section explains how to purchase, exchange and redeem advisor class shares of the fund offered by this prospectus. HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS The fund 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 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. There is no minimum investment requirement required for the fund described in this prospectus. However, if the value of the shares held in the fund account is less than $2,500 ($1,000 for UGMA/UTMA accounts), you must establish an investment program of $50 or more per month in each such account. If you have questions about the fund, see "Information About Investment Policies of the Fund," page 5, 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 14.) We may discontinue offering shares generally in the fund (including any class of shares of the 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 the 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 Equity Fund Redemptions," on this page.) 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 14.) 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. 12 SPECIAL REQUIREMENTS FOR LARGE EQUITY FUND REDEMPTIONS We have elected to be governed by Rule 18f-1 under the Investment Company Act, which obligates the 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 recemption 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 the 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 Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 13 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 receipt by us of the investment, redemption or exchange request. For example, investments and requests to redeem or exchange shares received by us or our authorized agents before the close of business on the 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the fund's board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, if that is earlier. That value is then exchanged to dollars at the prevailing foreign exchange rate. 14 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 that 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 the 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 the 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 value of the retail class of the fund is published in leading newspapers daily. Because the total expense ratio for the advisor class shares is .25% higher than the retail class, their net asset values will be lower than the retail class. Net asset values of the advisor class 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, are declared and paid once a year, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the Investment Company Act. Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in Individual Retirement Accounts and 403(b) plans paid in cash only if you are 591/2 years old or permanently and totally disabled. Distribution checks normally are mailed within seven days after the record date. Please consult our shareholder 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 the fund does not increase the value of your shares or your total return. At any given time the value of your shares includes the undistributed net gains, if any, realized by the fund on the sale of portfolio securities, and undistributed dividends and interest received, less fund expenses. Because such gains and dividends are in- cluded in the value of your shares, when they are distributed the value of your shares is reduced by the amount of the distribution. If you buy your shares through a taxable account just before the distribution, you will pay the full price for your shares, and then receive a portion of the purchase price back as a taxable distribution. (See "Taxes," on this page.) TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders it pays no income tax. 15 TAX-DEFERRED ACCOUNTS If the advisor class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the advisor class 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 fund on foreign 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 the fund will reduce its dividends. If more than 50% of the value of the fund's total assets at the end of each quarter of its fiscal year consists of securities of foreign corporations, the fund may qualify for and make an election with the Internal Revenue Service with respect to such fiscal year so that fund shareholders may be able to claim a foreign tax credit in lieu of a deduction for foreign income taxes paid by the fund. If such an election is made, the foreign taxes paid by the fund will be treated as income received by you. If the fund purchases the securities of certain foreign investment funds or trusts called passive foreign investment companies, capital gains on the sale of such holdings will be deemed to be ordinary income regardless of how long the fund holds its investment. The fund may also be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders. In the alternative, the fund may elect to recognize cumulative gains on such investments as of the last day of its fiscal year and distribute it to shareholders. 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived 16 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of the fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 fund. Acting pursuant to an investment advisory agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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 Twentieth Century since it was founded in 1958. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment advisor to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the fund's investment portfolios and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the fund's portfolios as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund as necessary between team meetings. The portfolio manager members of the team managing Balanced Investors and their work experience for the last five years are as follows: 17 CHARLES M. DUBOC, Senior Vice President and Portfolio Manager, joined Twentieth Century in August 1985, and served as Fixed Income Portfolio Manager from that time until April 1993. In April 1993, Mr. Duboc joined Twentieth Century's equity investment efforts. He is a member of the team that manages the equity portion of Balanced Investors. NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. He is a member of the team that manages the fixed income portion of Balanced Investors. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .75% of the average net assets of the fund. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the rate specified. The fee for the previous month is calculated by multiplying the applicable fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which 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 fund to Investors Research may be higher than the investment advisory fee paid by many funds. However, most if not all of such funds also pay in addition many of their own expenses, while virtually all of the fund's expenses except as specified above are paid by Investors Research. CODE OF ETHICS The fund and Investors Research have adopted a Code of Ethics that restricts personnel 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 fund's 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 agent and dividend-paying agent for the fund. It provides facilities, equipment and personnel to the fund, 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund's board of directors, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. 18 DISTRIBUTION SERVICES The fund's 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 fund's shares and/or the use of the fund's 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. 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 fund's Board of Directors and the initial shareholder of the fund's advisor class shares have approved and entered into a Master Distribution and Shareholder Services Plan (the "Plan") with the Distributor. Pursuant to the Plan, the fund pays the Distributor 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 constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers four classes of the funds offered by this prospectus: a retail class, an institutional class, a service class, and the advisor class. The shares offered by this prospectus are advisor class shares. The retail 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 19 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 retail class of shares, call one of our retail Investor Services Representative at 1-800-345-2021. For information concerning the institutional or service classes 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 the 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 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 which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund 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. 20 (THIS PAGE LEFT BLANK INTENTIONALLY.) 21 (THIS PAGE LEFT BLANK INTENTIONALLY.) 22 (THIS PAGE LEFT BLANK INTENTIONALLY.) 23 (THIS PAGE LEFT BLANK INTENTIONALLY.) 24 (THIS PAGE LEFT BLANK INTENTIONALLY.) 25 (THIS PAGE LEFT BLANK INTENTIONALLY.) 26 (THIS PAGE LEFT BLANK INTENTIONALLY.) 27 TWENTIETH CENTURY INVESTORS, INC. BALANCED INVESTORS ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. BOX 419385 KANSAS CITY, MISSOURI 64141-6385 - --------------------------------------- Person-to-person assistance: 1-800-345-3533 OR 816-531-5575 - --------------------------------------- Automated information line: 1-800-345-1833 OR 816-753-0700 - --------------------------------------- Fax: 816-340-4655 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5003 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. CASH RESERVE RETAIL CLASS PROSPECTUS September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. One of the funds, Cash Reserve, is described in this prospectus. The other funds are described in separate prospectuses. Cash Reserve is a money market fund which seeks to obtain maximum current income consistent with the preservation of principal and maintenance of liquidity. The fund intends to pursue its investment objective by investing substantially all of its assets in a portfolio of money market instruments and maintaining a weighted average maturity of not more than 90 days. There is no assurance that the fund will achieve its investment objective. AN INVESTMENT IN CASH RESERVE IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE. THE MINIMUM INVESTMENT REQUIREMENT IS $2,500 ($1,000 FOR IRA AND UGMA/UTMA ACCOUNTS). (See "Automatic Redemption of Shares," page 11.) NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. This prospectus gives you information about the fund that you should know before investing. 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Transaction and Operating Expense Table ............................ 3 Financial Highlights ............................................... 4 INFORMATION REGARDING THE FUND Information About Investment Policies of the Fund .................. 5 Cash Reserve .................................................. 5 Other Investment Practices ......................................... 5 Repurchase Agreements ......................................... 5 Derivative Securities ......................................... 6 Portfolio Lending ............................................. 7 Foreign Securities ............................................ 7 When-Issued Securities ........................................ 7 Rule 144A Securities .......................................... 7 Performance Advertising ............................................ 8 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP How to Open an Account ............................................. 9 By Mail ................................................... 9 By Wire ................................................... 9 By Exchange ............................................... 9 In Person ................................................. 9 Subsequent Investments ........................................10 By Mail ...................................................10 By Telephone ..............................................10 By Wire ...................................................10 In Person .................................................10 Automatic Investment Plan .....................................10 How to Exchange from One Account to Another ........................10 By Mail ...................................................10 By Telephone ..............................................10 How to Redeem Shares ...............................................11 By Telephone ..............................................11 By Mail ...................................................11 By Check-A-Month ..........................................11 Other Automatic Redemptions ...............................11 Redemption Proceeds ...........................................11 By Check ..................................................11 By Wire and ACH ...........................................11 Automatic Redemptions of Shares ...............................11 Signature Guarantee ................................................12 Special Shareholder Services .......................................12 Automated Information Line ................................12 CheckWriting ..............................................12 Open Order Service ........................................13 Tax-Qualified Retirement Plans ............................13 Important Policies Regarding Your Investments .................13 Reports to Shareholders ............................................14 Employer-Sponsored Retirement Plans and Institutional Accounts .....15 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ........................................................16 When Share Price Is Determined ................................16 How Share Price Is Determined .................................16 Where to Find Yield Information ...............................16 Distributions ......................................................16 Taxes ..............................................................17 Tax-Deferred Accounts .........................................17 Taxable Accounts ..............................................17 Management .........................................................18 Investment Management .........................................18 Code of Ethics ................................................18 Transfer and Administrative Services ..........................19 Distribution of Fund Shares ...................................19 Further Information About Twentieth Century ........................19 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 .70% 12b-1 Fees none Other Expenses(2) 0.00% Total Fund Operating Expenses .70% Example You would pay the following expenses on a $1,000 investment, 1 year $ 7 assuming (1) a 5% annual 3 years 22 return and (2) redemption at the 5 years 39 end of each time period: 10 years 87 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 Cash Reserve 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 retail class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The fund offers two other classes of shares, primarily to institutional investors, that have different fee structures than the retail class, resulting in different performance for the other classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 19. 3
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS - CASH RESERVE (1) (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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. CASH RESERVE(1) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income.................... .05(2) .03 .02 .04 .06 .07 .08 .07 .06 .06 Net Realized and Unrealized Gains (Losses)............ -- -- -- -- -- -- -- -- -- .001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations..... .05 .03 .02 .04 .06 .07 .08 .07 .06 .06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income......... (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.062) From Net Realized Gains on Investment Transactions.............. -- -- -- -- -- -- -- -- -- (.001) In Excess of Net Realized Gains............ -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions....... (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.063) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(3)........... 5.38% 3.21% 2.30% 3.74% 5.95% 7.67% 8.66% 6.73% 5.75% 6.46% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets........ .70% .80% 1.00% .98%(4) .97%(4) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets................ 5.27% 3.18% 2.30% 3.62% 5.75% 7.40% 8.35% 6.52% 5.80% 5.83% Net Assets, End of Period (in thousands)..$1,469,546 $1,298,982 $1,256,012 $1,487,961 $1,236,309 $953,687 $639,115 $488,781 $447,917 $134,958 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 100 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its 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. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. CASH RESERVE Cash Reserve, which seeks to obtain a level of current income consistent with preservation of capital and maintenance of liquidity, requires a minimum investment of $2,500 ($1,000 for IRA and UGMA/UTMA accounts). Cash Reserve is designed for investors who want income and no fluctuation in their principal. Cash Reserve expects, but cannot guarantee, that it will maintain a constant share price of $1.00. The fund follows industry-standard guidelines on the quality and maturity of its investments, purchasing only securities having remaining maturities of not more than 13 months and by maintaining a weighted average portfolio maturity of not more than 90 days. Cash Reserve invests substantially all of its assets in a diversified portfolio of U.S. dollar denominated high quality money market instruments, consisting of: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities (2) Commercial Paper (3) Certificates of Deposit and Euro Dollar Certificates of Deposit (4) Bankers' Acceptances (5) Short-term notes, bonds, debentures, or other debt instruments (6) Repurchase agreements These classes of securities may be held in any proportion, and such proportion may vary as market conditions change. All portfolio holdings are limited to those which at the time of purchase have a short-term rating of A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Services ("Moody's"), or if they have no short-term rating are issued or guaranteed by an entity having a long-term rating of at least AA by S&P or Aa by Moody's. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 5 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. The fund may invest in repurchase agreements with respect to any security in which the fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. The fund will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund. The return on 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. 6 PORTFOLIO LENDING In order to realize additional income, the 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet its standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The fund will limit its purchase of debt securities to U.S. dollar denominated obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 fund has 7 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 the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 10% 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 fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and effective yield. Performance data may be quoted separately for the retail class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. In the case of Cash Reserve, yield is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period each week throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 8 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-sponsored Retirement Plans and Institutional Accounts," page 15. HOW TO OPEN AN ACCOUNT To open an account, you must complete and sign an application, furnishing your taxpayer identification number. (You must also certify whether you are subject to withholding for failing to report income to the IRS.) Investments received without a certified taxpayer identification number will be returned. The minimum investment is $2,500 [$1,000 for IRA and Uniform Gifts/Transfers to Minors Acts ("UGMA/UTMA") accounts]. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 10 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 9 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," on this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the remittance slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without a 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 9 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 pages 9-10. 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 Shareholder Services Guide for further information about exchanges. 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 Shareholder Services Guide. BY TELEPHONE You may make exchanges over the phone (either with an Investor Services Representative or using our Automated Information Line -- see page 12) if you have authorized us to accept telephone instructions. You can authorize this by 10 selecting "Full Services" on your application or by calling us at 1-800-345-2021 to receive the appropriate form. HOW TO REDEEM SHARES We will redeem or "buy back" your shares at any time. Redemptions will be made at the next net asset value determined after a completed 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 12. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner(s) of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. AUTOMATIC REDEMPTION OF SHARES 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 of bringing the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the 11 proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee will be required when: o Redeeming more than $25,000 o Establishing or increasing a Check-A-Month or automatic transfer on an existing account You may obtain a signature guarantee from a bank or trust company, credit union, broker, dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Shareholder 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 Shareholder Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. CHECKWRITING We offer CheckWriting as a service option for your Cash Reserve account. CheckWriting allows you to redeem shares in your account by writing a draft ("check") against your account balance. (Shares held in certificate form may not be redeemed by check.) There is no limit on the number of checks you can write, but each one must be for at least $100. When you write a check, you will continue to receive dividends on all shares until your check is presented for payment to our clearing bank. If you redeem all shares in your account by check, any accrued distributions on the redeemed shares will be paid to you in cash on the next monthly distribution date. If you want to add CheckWriting to an existing account that offers CheckWriting, contact us by phone or mail for an appropriate form. For a new account, you may elect CheckWriting on your purchase application by choosing the Full Services option. CheckWriting is not available for any account held in an IRA or 403(b) plan. CheckWriting redemptions may only be made on checks provided by us. Currently, there is no charge for checks or for the CheckWriting service. We will return checks drawn on insufficient 12 funds or on funds from investments made by any means other than by wire within the previous 15 days. Neither the company nor our clearing bank will be liable for any loss or expenses associated with returned checks. Your account may be assessed a $15 service charge for checks drawn on insufficient funds. A stop payment may be ordered on a check written against your account. We will use reasonable efforts to stop a payment, but we cannot guarantee that we will be able to do so. If we are successful in fulfilling a stop-payment order, your account may be assessed a $15 fee. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS The 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 Shareholder 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 13 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 Shareholder 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 Shareholder 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. 14 EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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, to obtain a current prospectus or to get answers to any questions about our funds that you are unable to obtain through your plan administrator or financial intermediary. 15 ADDITIONAL INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. 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 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 or our 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 account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, will receive that day's price. Investments and instructions received after that time will receive the price determined on the next business day. If you invest in fund shares through an employer-sponsored retirement plan or other financial intermediary, it is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangement with the fund or the fund's distributor in order for you to receive that days price. HOW SHARE PRICE IS DETERMINED The securities held by the fund are valued on the basis of amortized cost. This method involves initially valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium paid at the time of the purchase, rather than determining the security's market value from day to day. WHERE TO FIND YIELD INFORMATION The yield of the retail class of Cash Reserve is published weekly in leading financial publications and daily in many local newspapers. Yield information may also be obtained by calling Twentieth Century. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," above.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed (other than by CheckWriting), the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply 16 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the retail class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the retail class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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. Distributions are taxable to you regardless of whether they are taken in cash or reinvested. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 17 appropriate certification on your application. PAYMENTS REPORTED BY US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. 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 fund. Acting pursuant to an investment management agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio and the asset mix as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund or of sectors of the fund as necessary between team meetings. The portfolio manager members of the teams managing the fund and their work experience for the last five years are as follows: ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for Twentieth Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. AMY O'DONNELL joined Benham in 1988, becoming a member of its portfolio department in 1988. In 1992 she assumed her current position as a portfolio manager of three Benham funds. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .70% of the average net assets of Cash Reserve. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for the fund by the aggregate average daily closing value of the fund's net assets during the previous month by a fraction, the numerator of which is the number of days in the previous month and the denominator of which is 365 (366 in leap years). CODE OF ETHICS The fund and 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 18 employees with access to information about the purchase or sale of securities in the fund's 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 the fund. It provides facilities, equipment and personnel to the fund 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by Twentieth Century Securities, Inc. (the "Distributor"), a registered broker dealer and an affiliate of the fund's investment manager. Investors Research pays all expenses for promoting and distributing the retail class of fund shares offered by this prospectus. The retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and an advisor class. The shares offered by this prospectus are retail 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 19 investment requirements than the retail class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this prospectus, call Twentieth Century 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) each 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 those matters which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund 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. 20 This page is left blank intentionally. 21 This page is left blank intentionally. 22 Twentieth Century Investors, Inc. Cash Reserve Retail Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5000 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. CASH RESERVE Service Class Prospectus September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. One of the funds, Cash Reserve, is described in this prospectus. The other funds are described in separate prospectuses. Cash Reserve is a money market fund which seeks to obtain maximum current income consistent with the preservation of principal and maintenance of liquidity. The fund intends to pursue its investment objective by investing substantially all of its assets in a portfolio of money market instruments and maintaining a weighted average maturity of not more than 90 days. There is no assurance that the fund will achieve its investment objective. AN INVESTMENT IN CASH RESERVE IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE. The minimum investment requirement is $2,500 ($1,000 for IRA and UGMA/UTMA accounts). The shares offered by this prospectus (the service class shares) are "no-load" investments, which means there are no sales charges or commissions. The service class shares are subject to a Rule 12b-1 shareholder services 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 financial intermediaries, such as banks, broker dealers and insurance companies, that provide various recordkeeping and administrative services. This prospectus gives you information about the fund 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Transaction and Operating Expense Table ............................. 3 Financial Highlights ................................................ 4 INFORMATION REGARDING THE FUND Information About Investment Policies of the Fund ................... 5 Cash Reserve ................................................... 5 Other Investment Practices .......................................... 5 Repurchase Agreements .......................................... 5 Derivative Securities .......................................... 6 Portfolio Lending .............................................. 7 Foreign Securities ............................................. 7 When-Issued Securities ......................................... 7 Rule 144A Securities ........................................... 7 Performance Advertising ............................................. 8 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds .................... 9 How to Exchange Your Investment from One Twentieth Century Fund to Another ................................................ 9 How to Redeem Shares ................................................ 9 Telephone Services .................................................. 9 Investors Line ................................................. 9 Automated Information Line ..................................... 9 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ......................................................... 10 When Share Price Is Determined ................................. 10 How Share Price Is Determined .................................. 10 Where to Find Yield Information ................................ 10 Distributions ....................................................... 10 Taxes ............................................................... 11 Tax-Deferred Accounts .......................................... 11 Taxable Accounts ............................................... 11 Management .......................................................... 12 Investment Management .......................................... 12 Code of Ethics ................................................. 12 Transfer and Administrative Services ........................... 13 Service Fees ................................................... 13 Distribution of Fund Shares .................................... 13 Further Information About Twentieth Century ......................... 13 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 0.45% 12b-1 Fees(1) 0.25% Other Expenses(2) 0.00% Total Fund Operating Expenses 0.70% Example You would pay the following expenses on a $1,000 investment, 1 year $ 7 assuming (1) a 5% annual 3 years 22 return and (2) redemption at the 5 years 39 end of each time period: 10 years 87 (1) The 12b-1 fee is designed to permit investors to purchase service class shares through retirement and pension plan administrators and other financial intermediaries and is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Service Fees," page 13. (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 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 Cash Reserve 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 fund offers two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the service class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 13. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- CASH RESERVE(1) (For a Share Outstanding Throughout the Period) The service class of the fund was established September 3, 1996. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's retail class of shares, which has the same total expense ratio as the service class shares. The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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 October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income................... .05(2) .03 .02 .04 .06 .07 .08 .07 .06 .06 Net Realized and Unrealized Gains (Losses)........... -- -- -- -- -- -- -- -- -- .001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations.... .05 .03 .02 .04 .06 .07 .08 .07 .06 .06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........ (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.062) From Net Realized Gains on Investment Transactions............. -- -- -- -- -- -- -- -- -- (.001) In Excess of Net Realized Gains........... -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...... (.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.063) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(3).......... 5.38% 3.21% 2.30% 3.74% 5.95% 7.67% 8.66% 6.73% 5.75% 6.46% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....... .70% .80% 1.00% .98%(4) .97%(4) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets............... 5.27% 3.18% 2.30% 3.62% 5.75% 7.40% 8.35% 6.52% 5.80% 5.83% Net Assets, End of Period (in thousands)$1,469,546 $1,298,982 $1,256,012 $1,487,961 $1,236,309 $953,687 $639,115 $488,781 $447,917 $134,958 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 100 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its 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. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. CASH RESERVE Cash Reserve, which seeks to obtain a level of current income consistent with preservation of capital and maintenance of liquidity, requires a minimum investment of $2,500 ($1,000 for IRA and UGMA/UTMA accounts). Cash Reserve is designed for investors who want income and no fluctuation in their principal. Cash Reserve expects, but cannot guarantee, that it will maintain a constant share price of $1.00. The fund follows industry-standard guidelines on the quality and maturity of its investments, purchasing only securities having remaining maturities of not more than 13 months and by maintaining a weighted average portfolio maturity of not more than 90 days. Cash Reserve invests substantially all of its assets in a diversified portfolio of U.S. dollar denominated high quality money market instruments, consisting of: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities (2) Commercial Paper (3) Certificates of Deposit and Euro Dollar Certificates of Deposit (4) Bankers' Acceptances (5) Short-term notes, bonds, debentures, or other debt instruments (6) Repurchase agreements These classes of securities may be held in any proportion, and such proportion may vary as market conditions change. All portfolio holdings are limited to those which at the time of purchase have a short-term rating of A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Services ("Moody's"), or if they have no short-term rating are issued or guaranteed by an entity having a long-term rating of at least AA by S&P or Aa by Moody's. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 5 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. The fund may invest in repurchase agreements with respect to any security in which the fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. The fund will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund. The return on 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. 6 PORTFOLIO LENDING In order to realize additional income, the 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet its standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The fund will limit its purchase of debt securities to U.S. dollar denominated obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 fund has 7 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 the fund may, from time to time, hold a Rule 144A security that is illiquid. In such an event, the manager will consider appropriate remedies to minimize the effect on the fund's liquidity. The fund may not invest more than 10% 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 fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and effective yield. Performance data may be quoted separately for the service class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. In the case of Cash Reserve, yield is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period each week throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 8 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- The following section explains how to purchase, exchange and redeem service class shares of the Twentieth Century fund offered by this prospectus. HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS The fund 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about the fund, see "Information About Investment Policies of the Funds," page 5, or call Twentieth Century's 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 10.) We may discontinue offering shares generally in the fund (including any class of shares of the 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 the 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. 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 10.) 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. TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 9 ADDITIONAL INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. 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 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 payment is received by us. Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The securities held by the fund are valued on the basis of amortized cost. This method involves initially valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium paid at the time of the purchase, rather than determining the security's market value from day to day. WHERE TO FIND YIELD INFORMATION The yield of the retail class of Cash Reserve is published weekly in leading financial publications and daily in many local newspapers. Yield information on the service class may be obtained by calling Twentieth Century. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," above.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed (other than by CheckWriting), the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. 10 Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the service class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the service class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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. Distributions are taxable to you regardless of whether they are taken in cash or reinvested. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT 11 IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. 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 fund. Acting pursuant to an investment management agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio and the asset mix as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund or of sectors of the fund as necessary between team meetings. The portfolio manager members of the teams managing the fund and their work experience for the last five years are as follows: ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for Twentieth Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. AMY O'DONNELL joined Benham in 1988, becoming a member of its portfolio department in 1988. In 1992 she assumed her current position as a portfolio manager of three Benham funds. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .45% of the average net assets of Cash Reserve. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for the fund by the aggregate average daily closing value of the fund's net assets during the previous month by a fraction, the numerator of which is the number of days in the previous month and the denominator of which is 365 (366 in leap years). CODE OF ETHICS The fund and 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 fund's portfolios obtain preclearance before executing personal trades. With respect to portfolio managers and other investment personnel, the 12 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 the fund. 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 the fund. It provides facilities, equipment and personnel to the fund 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. SERVICE FEES Certain recordkeeping and administrative services that are provided by the fund's transfer agent for retail 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 fund, by sponsors of multi mutual fund no (or low) transaction fee programs and other financial intermediaries. The fund's boards of directors have adopted a Shareholder Services Plan with respect to the service class shares of the fund. Under the Plan, the fund pays Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily assets of the fund's 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 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. DISTRIBUTION OF FUND SHARES The fund's shares are distributed by the Distributor, a registered broker dealer and an affiliate of the fund's investment manager. Investors Research pays all expenses for promoting sales of, and distributing the service class of, 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 the distribution of fund shares. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with 13 Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of the fund offered by this prospectus: a retail class, a service class, and the advisor class. The shares offered by this prospectus are service class shares and have no up-front charges or commissions. The retail class is primarily made available to retail investors. The advisor class is 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 that class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. The manager 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. 14 Twentieth Century Investors, Inc. Cash Reserve Service Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4999 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. CASH RESERVE Advisor Class Prospectus September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. One of the funds, Cash Reserve, is described in this prospectus. The other funds are described in separate prospectuses. Cash Reserve is a money market fund which seeks to obtain maximum current income consistent with the preservation of principal and maintenance of liquidity. The fund intends to pursue its investment objective by investing substantially all of its assets in a portfolio of money market instruments and maintaining a weighted average maturity of not more than 90 days. There is no assurance that the fund will achieve its investment objective. AN INVESTMENT IN CASH RESERVE IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE PER SHARE. The minimum investment requirement is $2,500 ($1,000 for IRA and UGMA/UTMA accounts). The shares offered by 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 Rule 12b-1 shareholder services and distribution fees 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 fund 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Transaction and Operating Expense Table ............................. 3 Financial Highlights ................................................ 4 INFORMATION REGARDING THE FUND Information About Investment Policies of the Fund ................... 5 Cash Reserve ................................................... 5 Other Investment Practices .......................................... 5 Repurchase Agreements .......................................... 5 Derivative Securities .......................................... 6 Portfolio Lending .............................................. 7 Foreign Securities ............................................. 7 When-Issued Securities ......................................... 7 Rule 144A Securities ........................................... 7 Performance Advertising ............................................. 8 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds .................... 9 How to Exchange Your Investment from One Twentieth Century Fund to Another ................................................ 9 How to Redeem Shares ................................................ 9 Telephone Services .................................................. 9 Investors Line ................................................. 9 Automated Information Line ..................................... 9 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ......................................................... 10 When Share Price Is Determined ................................. 10 How Share Price Is Determined .................................. 10 Where to Find Yield Information ................................ 10 Distributions ....................................................... 10 Taxes ............................................................... 11 Tax-Deferred Accounts .......................................... 11 Taxable Accounts ............................................... 11 Management .......................................................... 12 Investment Management .......................................... 12 Code of Ethics ................................................. 12 Transfer and Administrative Services ........................... 13 Distribution Services .......................................... 13 Further Information About Twentieth Century ......................... 13 - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED BY THE FUND TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED OR WRITTEN MATERIAL ISSUED BY OR FOR THE FUND, AND YOU SHOULD NOT RELY ON ANY OTHER INFORMATION OR REPRESENTATION. 2 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- 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 0.45% 12b-1 Fees(1) 0.50% Other Expenses(2) 0.00% Total Fund Operating Expenses 0.95% Example You would pay the following expenses on a $1,000 investment, 1 year $10 assuming (1) a 5% annual 3 years 30 return and (2) redemption at the 5 years 52 end of each time period: 10 years 116 (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 "Distribution Services," page 13. (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 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 Cash Reserve 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 fund offers two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the advisor class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 13. 3 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- CASH RESERVE(1) (For a Share Outstanding Throughout the Period) The advisor class of the fund was established September 3, 1996. The financial information in this table regarding selected per share data for the fund reflects the performance of the fund's retail 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 fund for the time periods presented, the fund's performance information would be lower as a result of the additional expense. The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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 October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD............$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income...................... .05(2) .03 .02 .04 .06 .07 .08 .07 .06 .06 Net Realized and Unrealized Gains (Losses).............. -- -- -- -- -- -- -- -- -- .001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations....... .05 .03 .02 .04 .06 .07 .08 .07 .06 .06 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income...........(.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.062) From Net Realized Gains on Investment Transactions................ -- -- -- -- -- -- -- -- -- (.001) In Excess of Net Realized Gains.............. -- -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions.........(.052) (.032) (.023) (.037) (.058) (.074) (.083) (.065) (.056) (.063) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD..................$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(3)............. 5.38% 3.21% 2.30% 3.74% 5.95% 7.67% 8.66% 6.73% 5.75% 6.46% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets.......... .70% .80% 1.00% .98%(4) .97%(4) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets.................. 5.27% 3.18% 2.30% 3.62% 5.75% 7.40% 8.35% 6.52% 5.80% 5.83% Net Assets, End of Period (in thousands)..$1,469,546 $1,298,982 $1,256,012 $1,487,961 $1,236,309 $953,687 $639,115$488,781 $447,917 $134,958 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 100 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
4 INFORMATION REGARDING THE FUND - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUND The fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objective of the fund identified on the front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The fund has implemented additional investment policies and practices to guide its activities in the pursuit of its 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. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. CASH RESERVE Cash Reserve, which seeks to obtain a level of current income consistent with preservation of capital and maintenance of liquidity, requires a minimum investment of $2,500 ($1,000 for IRA and UGMA/UTMA accounts). Cash Reserve is designed for investors who want income and no fluctuation in their principal. Cash Reserve expects, but cannot guarantee, that it will maintain a constant share price of $1.00. The fund follows industry-standard guidelines on the quality and maturity of its investments, purchasing only securities having remaining maturities of not more than 13 months and by maintaining a weighted average portfolio maturity of not more than 90 days. Cash Reserve invests substantially all of its assets in a diversified portfolio of U.S. dollar denominated high quality money market instruments, consisting of: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities (2) Commercial Paper (3) Certificates of Deposit and Euro Dollar Certificates of Deposit (4) Bankers' Acceptances (5) Short-term notes, bonds, debentures, or other debt instruments (6) Repurchase agreements These classes of securities may be held in any proportion, and such proportion may vary as market conditions change. All portfolio holdings are limited to those which at the time of purchase have a short-term rating of A-1 by Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Services ("Moody's"), or if they have no short-term rating are issued or guaranteed by an entity having a long-term rating of at least AA by S&P or Aa by Moody's. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. REPURCHASE AGREEMENTS The fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 5 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The fund will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. The fund may invest in repurchase agreements with respect to any security in which the fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. The fund will not invest more than 10% of its assets in repurchase agreements maturing in more than seven days. DERIVATIVE SECURITIES To the extent permitted by its investment objectives and policies, the fund 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), 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. The fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund. The return on 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. 6 PORTFOLIO LENDING In order to realize additional income, the 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The fund may invest an unlimited amount of its assets in the securities of foreign issuers, including foreign governments, when these securities meet its standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The fund will limit its purchase of debt securities to U.S. dollar denominated obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES The fund may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for the fund 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. RULE 144A SECURITIES The fund may, from time to time, purchase Rule 144A securities when they present attractive investment opportunities that otherwise meet the fund's criteria for selection. Rule 144A securities are securities that are privately placed with and traded among qualified institutional buyers 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 fund has 7 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 the 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 the fund's liquidity. The fund may not invest more than 10% 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 fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and effective yield. Performance data may be quoted separately for the advisor class and for the other classes offered by the fund. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. In the case of Cash Reserve, yield is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period each week throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. 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, the fund's yield may not equal the income paid on your shares or the income reported in the fund's financial statements. The fund may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the fund is historical in nature and is not intended to represent or guarantee future results. The fund may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 8 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- The following section explains how to purchase, exchange and redeem advisor class shares of the Twentieth Century fund offered by this prospectus. HOW TO PURCHASE AND SELL TWENTIETH CENTURY FUNDS The fund 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about the fund, see "Information About Investment Policies of the Fund," page 5, or call Twentieth Century's 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 10.) We may discontinue offering shares generally in the fund (including any class of shares of the 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 the 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. 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 10.) 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. TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 9 ADDITIONAL INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- SHARE PRICE WHEN SHARE PRICE IS DETERMINED The price of your shares is also referred to as their net asset value. Net asset value is determined by calculating the total value of the fund's assets, deducting total liabilities and dividing the result by the number of shares outstanding. 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 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 payment is received by us. Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the fund's transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the fund's procedures or any contractual arrangements with the fund or the fund's distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The securities held by the fund are valued on the basis of amortized cost. This method involves initially valuing a security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium paid at the time of the purchase, rather than determining the security's market value from day to day. WHERE TO FIND YIELD INFORMATION The yield of the retail class of Cash Reserve is published weekly in leading financial publications and daily in many local newspapers. Because the total expense ratio for the advisor class shares is .25% higher than the retail class shares, the yield will be lower than the retail class. Yield information of the advisor class may be obtained by calling Twentieth Century. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," above.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed (other than by CheckWriting), the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 10 distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES The fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the advisor class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the fund will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the advisor class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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. Distributions are taxable to you regardless of whether they are taken in cash or reinvested. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 11 REPORTED BY US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. 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 fund. Acting pursuant to an investment management agreement entered into with the fund, Investors Research Corporation ("Investors Research") serves as the investment manager of the fund. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the fund and directs the purchase and sale of its investment securities. Investors Research utilizes a team of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the fund. The team meets regularly to review portfolio holdings and to discuss purchase and sale activity. The team adjusts holdings in the portfolio and the asset mix as it deems appropriate in pursuit of the fund's investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the fund or of sectors of the fund as necessary between team meetings. The portfolio manager members of the teams managing the fund and their work experience for the last five years are as follows: ROBERT V. GAHAGAN, Vice President and Portfolio Manager, has worked for Twentieth Century since May 1983. He became a Portfolio Manager in December 1991. Prior to that he served as Assistant Portfolio Manager. AMY O'DONNELL joined Benham in 1988, becoming a member of its portfolio department in 1988. In 1992 she assumed her current position as a portfolio manager of three Benham funds. The activities of Investors Research are subject only to directions of the fund's board of directors. Investors Research pays all the expenses of the fund 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 fund, Investors Research receives an annual fee of .45% of the average net assets of Cash Reserve. On the first business day of each month, the fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for the fund by the aggregate average daily closing value of the fund's net assets during the previous month by a fraction, the numerator of which is the number of days in the previous month and the denominator of which is 365 (366 in leap years). CODE OF ETHICS The fund and 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 fund's portfolios obtain preclearance before executing 12 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 the fund. 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 the fund. It provides facilities, equipment and personnel to the fund 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 fund, controls Twentieth Century Companies by virtue of his ownership of a majority of its common stock. DISTRIBUTION SERVICES The fund's 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 fund's shares and/or the use of the fund's 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. 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 fund's Board of Directors and the initial shareholder of the fund's advisor class shares have approved and entered into a Master Distribution and Shareholder Services Plan (the "Plan") with the Distributor. Pursuant to the Plan, the fund pays the Distributor 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 constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with 13 Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of the fund offered by this prospectus: a retail class, a service class, and the advisor class. The shares offered by this prospectus are advisor class shares. The retail class is primarily made available to retail investors. The service class is 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 that class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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 fund 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 fund's by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the fund to hold a special meeting of shareholders. The manager 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. 14 Twentieth Century Investors, Inc. Cash Reserve Advisor Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4998 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. U.S. GOVERNMENTS SHORT-TERM U.S. GOVERNMENTS INTERMEDIATE-TERM RETAIL CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Two of the funds that invest primarily in debt instruments of the U.S. government and its agencies are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. The minimum investment requirement for each of the funds offered by this prospectus is $2,500 ($1,000 for IRA and UGMA/UTMA accounts). (See "Automatic Redemption of Shares," page 15.) 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- U.S. GOVERNMENTS SHORT-TERM seeks income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three years or less. MINIMUM INVESTMENT $2,500. U.S. GOVERNMENTS INTERMEDIATE-TERM seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds ............................................... 7 U.S. Governments Short-Term and U.S. Governments Intermediate-Term ................................ 7 Fundamentals of Fixed Income Investing ............................................. 8 Other Investment Practices .......................................... 9 Portfolio Turnover ................................................ 9 Repurchase Agreements ............................................. 9 Derivative Securities ............................................. 10 Portfolio Lending ................................................. 11 When-Issued Securities ............................................ 11 Performance Advertising ............................................. 11 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP How to Open an Account .............................................. 13 By Mail ........................................................... 13 By Wire ........................................................... 13 By Exchange ....................................................... 13 In Person ......................................................... 13 Subsequent Investments .............................................. 14 By Mail ........................................................... 14 By Telephone ...................................................... 14 By Wire ........................................................... 14 In Person ......................................................... 14 Automatic Investment Plan ........................................... 14 How to Exchange from One Account to Another ................................................. 14 By Mail ........................................................... 14 By Telephone ...................................................... 14 How to Redeem Shares ................................................ 14 By Telephone ...................................................... 15 By Mail ........................................................... 15 By Check-A-Month .................................................. 15 Other Automatic Redemptions ....................................... 15 Redemption Proceeds ................................................. 15 By Check .......................................................... 15 By Wire and ACH ................................................... 15 Automatic Redemption of Shares ...................................... 15 Signature Guarantee ................................................. 15 Special Shareholder Services ........................................ 16 Automated Information Line ........................................ 16 Open Order Service ................................................ 16 Tax-Qualified Retirement Plans .................................... 16 Important Policies Regarding Your Investments ................................................... 17 Reports to Shareholders ............................................. 17 Employer-Sponsored Retirement Plans and Institutional Accounts ................................... 18 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ......................................................... 19 When Share Price Is Determined .................................... 19 How Share Price Is Determined ..................................... 19 Where to Find Information About Share Price ................................................ 19 Distributions ....................................................... 19 Taxes ............................................................... 20 Tax Deferred Accounts ............................................. 20 Taxable Accounts .................................................. 20 Management .......................................................... 21 Investment Management ............................................. 21 Code of Ethics .................................................... 22 Transfer and Administrative Services .............................. 22 Distribution of Fund Shares ....................................... 23 Further Information About Twentieth Century ............................................ 23 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- U.S. Governments Intermediate- U.S. Governments Term Short-Term SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none Maximum Sales Load Imposed on Reinvested Dividends none none Deferred Sales Load none none Redemption Fee(1) none none Exchange Fee none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees .75% .70% 12b-1 Fees none none Other Expenses(2) 0.00% 0.00% Total Fund Operating Expenses .75% .70% Example You would pay the following expenses on a $1,000 investment, 1 year $ 8 $ 7 assuming (1) a 5% annual 3 years 24 22 return and (2) redemption at the 5 years 42 39 end of each time period: 10 years 93 87 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 retail class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The funds offer two other classes of shares, primarily to institutional investors, that have different fee structures than the retail class, resulting in different performance for the other classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 23. 4
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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. U.S. GOVERNMENTS SHORT-TERM(3) Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD............ $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 $10.16 $9.95 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income......................... .52 .40 .36 .44 .63 .79 .84 .81 .79 .87 Net Realized and Unrealized Gains (Losses) on Securities.................. (.24) (.40) (.26) .20 .33 (.24) (.10) (.13) (.49) .27 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- Total from Investment Operations.......... .76 - .10 .64 .96 .55 .74 .68 .30 1.14 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- DISTRIBUTIONS From Net Investment Income.............. (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.792) (.871) From Net Realized Gains on Security Transactions.......... - - - - - - - - (.122) (.056) In Excess of Net Realized Gains on Security Transactions.......... - - - - - - - - - - ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- Total Distributions............ (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.914) (.927) ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- NET ASSET VALUE, END OF PERIOD.................. 9.51 9.27 9.67 9.61 9.41 9.08 9.32 9.41 9.55 10.16 ----- ----- ----- ----- ----- ----- ----- ----- ------ ----- TOTAL RETURN(1)................ 8.42% .07% 4.45% 6.85% 10.99% 6.28% 8.36% 7.44% 3.14% 11.89% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. .70% .81% 1.00% .99%(2) .99%(2) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets..................... 5.53% 4.17% 3.73% 4.62% 6.88% 8.64% 9.10% 8.60% 8.10% 8.54% Portfolio Turnover Rate........ 128% 470% 413% 391% 779% 620% 567% 578% 468% 464% Net Assets, End of Period (in thousands)......$391,331 $396,753 $511,981 $569,430 $534,515 $455,536 $443,475 $440,380 $335,601 $254,714 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Actual total return for period indicated, unless otherwise noted. (2) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period. (3) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993.
5 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) U.S. GOVERNMENTS INTERMEDIATE-TERM Year Ended Mar. 1, 1994 (inception) Oct. 31, 1995 through Oct. 31, 1994 - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............... $9.55 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income............................ .58 .34 Net Realized and Unrealized Gains (Losses) on Securities..................... .49 (.45) ----- ----- Total from Investment Operations............. 1.07 (.11) ----- ----- DISTRIBUTIONS From Net Investment Income................. (.583) (.343) From Net Realized Gains on Security Transactions............. - - In Excess of Net Realized Gains on Security Transactions............. - - ----- ----- Total Distributions............... (.583) (.343) ----- ----- NET ASSET VALUE, END OF PERIOD..................... 10.04 9.55 ----- ----- TOTAL RETURN(1)................... 11.58% (1.01%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets................ .74% .75%(2) Ratio of Net Investment Income to Average Net Assets........................ 5.99% 5.43%(2) Portfolio Turnover Rate........... 137% 205%(2) Net Assets, End of Period (in thousands).......... $21,981 $6,280 - -------------------------------------------------------------------------------- (1) Actual total return for period indicated, unless otherwise noted. (2) Annualized. 6 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. U.S. GOVERNMENTS SHORT-TERM AND U.S. GOVERNMENTS INTERMEDIATE-TERM These funds seek to provide a competitive level of income and limited price volatility by investing in securities of the United States government and its agencies, securities that are considered to be of the highest credit quality. Both funds require a minimum investment of $2,500 ($1,000 for IRA accounts). The two funds differ in the weighted average maturities of their portfolios and accordingly, in their degree of risk and level of income. Generally, the longer the weighted average maturity of a fund's portfolio, the higher the yield and the greater the price volatility. U.S. Governments Short-Term will maintain a weighted average portfolio maturity of three years or less. The fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available from money market securities, but who do not want as much price volatility as is inherent in longer-term securities. U.S. Governments Intermediate-Term will maintain a weighted average portfolio maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term government securities and who are willing to accept a greater degree of price fluctuation. The market value of the securities in which U.S. Governments Short-Term and U.S. Governments Intermediate-Term invest will fluctuate, and accordingly, the value of your shares will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 8.) Both funds may invest in (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. 7 The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager will consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-year 20-year 3-Month Treasury Tax-Exempt Treasury Bonds Bonds Bills 1/91 8.19% 7.14% 6.38% 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% YEARS TO MATURITY [bar graph - graph data] U.S. GOVERNMENTS SHORT-TERM Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-3 years U.S. GOVERNMENTS INTERMEDIATE-TERM Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years 8 Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D ------------------------------------------------------ U. S. Governments Short-Term x U. S. Governments Intermediate-Term x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The portfolio maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5 and 6 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 9 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 10 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. PERFORMANCE ADVERTISING From time to time, 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 and yield. Performance data may be quoted separately for the retail class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 11 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 12 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-sponsored Retirement Plans and Institutional Accounts," page 18. 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]. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 14 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 13 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see Automatic Investment Plan, below) 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 13 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 13. 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 Shareholder Services Guide for further information about exchanges. 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 Shareholder 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 13) if you have authorized us to accept telephone instructions. You can authorize this by selecting "Full Services" on your application or by calling us at 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. 14 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 15. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and 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 15 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 Shareholder 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 Shareholder 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 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 16 $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 Shareholder 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 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 17 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 Shareholder 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 Shareholder 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. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS If you own or are considering purchasing Fund shares through an employer-sponsored retirement plan, your ability to purchase shares of the Funds, exchange them for shares of other Twentieth Century or Benham funds, and redeem them will depend on the terms of your plan. If you own or are considering purchasing Fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 800-345-3533 to request information about our funds, 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. 18 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 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 they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, 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: The portfolio securities of each fund, except as otherwise noted, 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the retail class of our funds are published in leading newspapers daily. Net asset values also may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined 19 and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day AFTER your purchase is effective. (See "When Share Price is Determined," page 19.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX DEFERRED ACCOUNTS If the retail class shares are purchased through tax deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the retail class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable, 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized 20 gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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 and the funds' 21 asset mix 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 or of sectors of the funds as necessary between team meetings. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of nine Benham funds. 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 at the following rates: o .70 of 1% of the average net assets of U.S. Governments Short-Term; and o .75 of 1% of the average net assets of U.S. Governments Intermediate-Term. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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). CODE OF ETHICS The funds and Investors Research have adopted a Code of Ethics that 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by Investors Research. Investors Research and Twentieth Century Services, Inc., are both wholly owned by Twentieth Century Companies, Inc. James E. 22 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 and distributing the retail class of fund shares offered by this prospectus. The retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and an advisor class. The shares offered by this prospectus are retail class shares and have no up-front charges, commissions, or 12b-1 fees. The other classes of shares are primarily made available 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 information concerning the other classes of shares not offered by this prospectus, call a Twentieth Century institutional investor services representative 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) each 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 those matters which 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 23 elect all of the directors if they choose to do so, and in such event the holders of the remaining less-than-50% of the shares will not be able to elect any person or persons to the board of 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' by-laws, the holders of shares representing 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. 24 (This page left blank intentionally.) 25 Twentieth Century Investors, Inc. U.S. Governments Short-Term U.S. Governments Intermediate-Term Retail Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5026 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. U.S. GOVERNMENTS SHORT-TERM U.S. GOVERNMENTS INTERMEDIATE-TERM SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Two of the funds that invest primarily in debt instruments of the U.S. government and its agencies are described in this prospectus. Their investment objectives and minimum investment requirements are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS Each of the 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 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 financial 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- U.S. GOVERNMENTS SHORT-TERM seeks income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three years or less. MINIMUM INVESTMENT $2,500. U.S. GOVERNMENTS INTERMEDIATE-TERM seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds ................................................... 7 U.S. Governments Short-Term and U.S. Governments Intermediate-Term ..................................... 7 Fundamentals of Fixed Income Investing .................................................. 8 Other Investment Practices ................................................ 9 Portfolio Turnover ...................................................... 9 Repurchase Agreements ................................................... 9 Derivative Securities ................................................... 10 Portfolio Lending ....................................................... 11 When-Issued Securities .................................................. 11 Performance Advertising ................................................... 11 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds ................................................. 13 How to Exchange Your Investment from One Twentieth Century Fund to Another ......................................................... 13 How to Redeem Shares ...................................................... 13 Telephone Services ........................................................ 14 Investors Line .......................................................... 14 Automated Information Line .............................................. 14 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ............................................................... 15 When Share Price Is Determined .......................................... 15 How Share Price Is Determined ........................................... 15 Where to Find Information About Share Price ...................................................... 15 Distributions ............................................................. 15 Taxes ..................................................................... 16 Tax Deferred Accounts ................................................... 16 Taxable Accounts ........................................................ 16 Management ................................................................ 17 Investment Management ................................................... 17 Code of Ethics .......................................................... 18 Transfer and Administrative Services .................................... 18 Service Fees ............................................................ 18 Distribution of Fund Shares ............................................. 19 Further Information About Twentieth Century ................................................. 19 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- U.S. Governments Intermediate- U.S. Governments Term Short-Term SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none Maximum Sales Load Imposed on Reinvested Dividends none none Deferred Sales Load none none Redemption Fee none none Exchange Fee none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees 0.50% 0.45% 12b-1 Fees(1) 0.25% 0.25% Other Expenses(2) 0.00% 0.00% Total Fund Operating Expenses 0.75% 0.70% Example You would pay the following expenses on a $1,000 investment, 1 year $ 8 $ 7 assuming (1) a 5% annual 3 years 24 22 return and (2) redemption at the 5 years 42 39 end of each time period: 10 years 93 87 (1) The 12b-1 fee is designed to permit investors to purchase service class shares through retirement and pension plan administrators and other financial intermediaries and is used to compensate them for ongoing recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Service Fees," page 18. (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 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the service class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 19. 4
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- U.S. GOVERNMENTS SHORT-TERM(1) (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' retail class of shares, which has the same total expense ratio as the service class shares. The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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 October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 $10.16 $9.95 INCOME FROM INVESTMENT OPERATIONS Net Investment Income .52(2) .40 .36 .44 .63 .79 .84 .81 .79 .87 Net Realized and Unrealized Gains (Losses) on Securities (.24) (.40) (.26) .20 .33 (.24) (.10) (.13) (.49) .27 Total from Investment Operations .76 - .10 .64 .96 .55 .74 .68 .30 1.14 DISTRIBUTIONS From Net Investment Income (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.792) (.871) From Net Realized Gains on Security Transactions - - - - - - - - (.122) (.056) In Excess of Net Realized Gains on Security Transactions - - - - - - - - - - Total Distributions (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.914) (.927) NET ASSET VALUE, END OF PERIOD 9.51 9.27 9.67 9.61 9.41 9.08 9.32 9.41 9.55 10.16 TOTAL RETURN(3) 8.42% .07% 4.45% 6.85% 10.99% 6.28% 8.36% 7.44% 3.14% 11.89% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .70% .81% 1.00% .99%(4) .99%(4) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets 5.53% 4.17% 3.73% 4.62% 6.88% 8.64% 9.10% 8.60% 8.10% 8.54% Portfolio Turnover Rate 128% 470% 413% 391% 779% 620% 567% 578% 468% 464% Net Assets, End of Period (in thousands) $391,331 $396,753 $511,981 $569,430 $534,515 $455,536 $443,475 $440,380 $335,601 $254,714 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestmen of dividends and captial gains, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period. 5
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- U.S. GOVERNMENTS INTERMEDIATE TERM (continued) Year Ended Mar. 1, 1994 (inception) Oct. 31, 1995 through Oct. 31, 1994 NET ASSET VALUE, BEGINNING OF PERIOD $9.55 $10.00 INCOME FROM INVESTMENT OPERATIONS Net Investment Income .58(1) .34 Net Realized and Unrealized Gains (Losses) on Securities .49 (.45) Total from Investment Operations 1.07 (.11) DISTRIBUTIONS From Net Investment Income (.583) (.343) From Net Realized Gains on Security Transactions - - In Excess of Net Realized Gains on Security Transactions - - Total Distributions (.583) (.343) NET ASSET VALUE, END OF PERIOD 10.04 9.55 TOTAL RETURN(2) 11.58% (1.01%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .74% .75%(3) Ratio of Net Investment Income to Average Net Assets 5.99% 5.43%(3) Portfolio Turnover Rate 137% 205%(3) Net Assets, End of Period (in thousands) $21,981 $6,280 - ------------------------------------------------------------------------------- (1) Computed using average shares outstanding throughout the period. (2) Total returns for periods less than one year are not annualized. Total return assumes reinvestmen of dividends and captial gains, if any. (3) Annualized. 6 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. U.S. GOVERNMENTS SHORT-TERM AND U.S. GOVERNMENTS INTERMEDIATE-TERM These funds seek to provide a competitive level of income and limited price volatility by investing in securities of the United States government and its agencies, securities that are considered to be of the highest credit quality. Both funds require a minimum investment of $2,500 ($1,000 for IRA accounts). The two funds differ in the weighted average maturities of their portfolios and accordingly, in their degree of risk and level of income. Generally, the longer the weighted average maturity of a fund's portfolio, the higher the yield and the greater the price volatility. U.S. Governments Short-Term will maintain a weighted average portfolio maturity of three years or less. The fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available from money market securities, but who do not want as much price volatility as is inherent in longer-term securities. U.S. Governments Intermediate-Term will maintain a weighted average portfolio maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term government securities and who are willing to accept a greater degree of price fluctuation. The market value of the securities in which U.S. Governments Short-Term and U.S. Governments Intermediate-Term invest will fluctuate, and accordingly, the value of your shares will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 8.) Both funds may invest in (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. 7 The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager will consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILL 1/91 8.19 7.14 6.38 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% YEARS TO MATURITY [bar graph - graph data] U.S. GOVERNMENTS SHORT-TERM Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-3 years U.S. GOVERNMENTS INTERMEDIATE-TERM Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years 8 Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The portfolio maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5 and 6 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 9 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 10 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. PERFORMANCE ADVERTISING From time to time, 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 and yield. Performance data may be quoted separately for the service class and for the other classes. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 11 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 12 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- The following section explains how to purchase, exchange and redeem service class shares of the Twentieth Century 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about a fund, see "Information About 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 15.) Twentieth Century 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. 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 15.) 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. 13 TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 14 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. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangement with the funds or the funds' distributor in order for you to receive that day's price. HOW SHARE PRICE IS DETERMINED The valuation of assets for determining net asset value may be summarized as follows: The portfolio securities of each fund, except as otherwise noted, 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the retail class of our funds are published in leading newspapers daily. Net asset values of the service class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day AFTER your purchase is effective. (See "When Share Price is Determined," above.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Code, in all events in a manner consistent with the provisions of the Investment Company Act. 15 Participants in employer-sponsored retirement or savings plans must reinvest all distributions. For shareholders investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the service class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the service class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable, 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax. Distributions to taxable accounts may also be 16 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. 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 and the funds' asset mix as it deems appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. 17 The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of nine Benham funds. 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 at the following rates: o .45 of 1% of the average net assets of U.S. Governments Short-Term; and o .50 of 1% of the average net assets of U.S. Governments Intermediate-Term. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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 the investment advisory fees paid by many funds. However, most if not all of such funds also pay in addition many 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 that 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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. SERVICE FEES Certain recordkeeping and administrative services that are provided by the funds' transfer agent for retail class shareholders may be performed by insurance companies, retirement and pension plan administrators and 18 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 Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily 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 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. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by 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 service class of, 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 the distribution of fund shares. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and the advisor class. The shares offered by this prospectus are service class shares and have no up-front charges or commissions. The retail class is primarily made available to retail investors. The advisor class is 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 19 retail class of shares, call one of our Retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 the advisor class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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' by-laws, the holders of shares representing 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. 20 (This page left blank intentionally.) 21 TWENTIETH CENTURY INVESTORS, INC. U.S. GOVERNMENTS SHORT-TERM U.S. GOVERNMENTS INTERMEDIATE-TERM SERVICE CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- 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 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5024 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. U.S. GOVERNMENTS SHORT-TERM U.S. GOVERNMENTS INTERMEDIATE-TERM ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- TWENTIETH CENTURY Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Two of the funds that invest primarily in debt instruments of the U.S. government and its agencies are described in this prospectus. Their investment objectives and minimum investment requirements are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. 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 Rule 12b-1 shareholder services and distribution fees 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- U.S. GOVERNMENTS SHORT-TERM seeks income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three years or less. MINIMUM INVESTMENT $2,500. U.S. GOVERNMENTS INTERMEDIATE-TERM seeks a competitive level of income. The fund intends to pursue its investment objective by investing in securities of the United States government and its agencies and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds ................................................... 7 U.S. Governments Short-Term and U.S. Governments Intermediate-Term .................................... 7 Fundamentals of Fixed Income Investing .................................................. 8 Other Investment Practices ................................................ 9 Portfolio Turnover ...................................................... 9 Repurchase Agreements ................................................... 9 Derivative Securities ................................................... 10 Portfolio Lending ....................................................... 11 When-Issued Securities .................................................. 11 Performance Advertising ................................................... 11 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds ................................................. 13 How to Exchange Your Investment from One Twentieth Century Fund to Another ......................................................... 13 How to Redeem Shares ...................................................... 13 Telephone Services ........................................................ 14 Investors Line .......................................................... 14 Automated Information Line .............................................. 14 ADDITIONAL INFORMATION YOU SHOULD KNOW Share Price ............................................................... 15 When Share Price Is Determined .......................................... 15 How Share Price Is Determined ........................................... 15 Where to Find Information About Share Price ..................................................... 15 Distributions ............................................................. 15 Taxes ..................................................................... 16 Tax-Deferred Accounts ................................................... 16 Taxable Accounts ........................................................ 16 Management ................................................................ 17 Investment Management ................................................... 17 Code of Ethics .......................................................... 18 Transfer and Administrative Services .................................... 18 Distribution Services ................................................... 19 Further Information About Twentieth Century ................................................. 19 3 TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- U.S. Governments Intermediate- U.S. Governments Term Short-Term SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none Maximum Sales Load Imposed on Reinvested Dividends none none Deferred Sales Load none none Redemption Fee none none Exchange Fee none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees 0.75% 0.70% 12b-1 Fees(1) 0.50% 0.50% Other Expenses(2) 0.00% 0.00% Total Fund Operating Expenses 1.25% 1.20% Example You would pay the following expenses on a $1,000 investment, 1 year $13 $12 assuming (1) a 5% annual 3 years 40 38 return and (2) redemption at the 5 years 68 66 end of each time period: 10 years 150 145 (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 "Distribution Services," page 19. (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 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the advisor class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 19. 4
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- U.S. GOVERNMENTS SHORT-TERM(1) (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' retail 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 (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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 October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $9.27 $9.67 $9.61 $9.41 $9.08 $9.32 $9.42 $9.55 $10.16 $9.95 INCOME FROM INVESTMENT OPERATIONS Net Investment Income .52(2) .40 .36 .44 .63 .79 .84 .81 .79 .87 Net Realized and Unrealized Gains (Losses) on Securities (.24) (.40) (.26) .20 .33 (.24) (.10) (.13) (.49) .27 Total from Investment Operations .76 - .10 .64 .96 .55 .74 .68 .30 1.14 DISTRIBUTIONS From Net Investment Income (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.792) (.871) From Net Realized Gains on Security Transactions - - - - - - - - (.122) (.056) In Excess of Net Realized Gains on Security Transactions - - - - - - - - - - Total Distributions (.519) (.402) (.036) (.441) (.635) (.789) (.843) (.816) (.914) (.927) NET ASSET VALUE, END OF PERIOD 9.51 9.27 9.67 9.61 9.41 9.08 9.32 9.41 9.55 10.16 TOTAL RETURN(3) 8.42% .07% 4.45% 6.85% 10.99% 6.28% 8.36% 7.44% 3.14% 11.89% RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .70% .81% 1.00% .99%(4) .99%(4) 1.00% 1.00% 1.00% 1.00% 1.01% Ratio of Net Investment Income to Average Net Assets 5.53% 4.17% 3.73% 4.62% 6.88% 8.64% 9.10% 8.60% 8.10% 8.54% Portfolio Turnover Rate 128% 470% 413% 391% 779% 620% 567% 578% 468% 464% Net Assets, End of Period (in thousands) $391,331 $396,753 $511,981 $569,430 $534,515 $455,536 $443,475 $440,380 $335,601 $254,714 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestmen of dividends and captial gains, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
5 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- U.S. GOVERNMENTS INTERMEDIATE TERM (continued) Year Ended Mar. 1, 1994 (inception) Oct. 31, 1995 through Oct. 31, 1994 - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $9.55 $10.00 INCOME FROM INVESTMENT OPERATIONS Net Investment Income .58(1) .34 Net Realized and Unrealized Gains (Losses) on Securities .49 (.45) Total from Investment Operations 1.07 (.11) DISTRIBUTIONS From Net Investment Income (.583) (.343) From Net Realized Gains on Security Transactions - - In Excess of Net Realized Gains on Security Transactions - - Total Distributions (.583) (.343) NET ASSET VALUE, END OF PERIOD 10.04 9.55 TOTAL RETURN(2) 11.58% (1.01%) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets .74% .75%(3) Ratio of Net Investment Income to Average Net Assets 5.99% 5.43%(3) Portfolio Turnover Rate 137% 205%(3) Net Assets, End of Period (in thousands) $21,981 $6,280 - -------------------------------------------------------------------------------- (1) Computed using average shares outstanding throughout the period. (2) Total returns for periods less than one year are not annualized. Total return assumes reinvestmen of dividends and captial gains, if any. (3) Annualized. 6 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. U.S. GOVERNMENTS SHORT-TERM AND U.S. GOVERNMENTS INTERMEDIATE-TERM These funds seek to provide a competitive level of income and limited price volatility by investing in securities of the United States government and its agencies, securities that are considered to be of the highest credit quality. Both funds require a minimum investment of $2,500 ($1,000 for IRA accounts). The two funds differ in the weighted average maturities of their portfolios and accordingly, in their degree of risk and level of income. Generally, the longer the weighted average maturity of a fund's portfolio, the higher the yield and the greater the price volatility. U.S. Governments Short-Term will maintain a weighted average portfolio maturity of three years or less. The fund is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available from money market securities, but who do not want as much price volatility as is inherent in longer-term securities. U.S. Governments Intermediate-Term will maintain a weighted average portfolio maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term government securities and who are willing to accept a greater degree of price fluctuation. The market value of the securities in which U.S. Governments Short-Term and U.S. Governments Intermediate-Term invest will fluctuate, and accordingly, the value of your shares will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 8.) Both funds may invest in (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. 7 The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager will consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILLS 1/91 8.19 7.14 6.38% 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% YEARS TO MATURITY [bar graph - graph data] U.S. GOVERNMENTS SHORT-TERM Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-3 years U.S. GOVERNMENTS INTERMEDIATE-TERM Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The portfolio maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5 and 6 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase 9 date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 10 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. 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 and yield. Performance data may be quoted separately for the advisor class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 11 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 12 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- The following section explains how to purchase, exchange and redeem advisor class shares of the Twentieth Century 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about a fund, see "Information About 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 15.) Twentieth Century 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. 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 15.) 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. 13 TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. By calling the Automated Information Line you may listen to fund prices, yields and total return figures. 14 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 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 payment is received by us. Wired funds are considered received on the day they are deposited in our bank account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The portfolio securities of each fund, except as otherwise noted, 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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. WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the retail class of the funds are published in leading newspapers daily. Because the total expense ratio for the advisor class shares is .25% higher than the retail class, their net asset values will be lower than the retail class. Net asset values of the advisor class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. 15 You will begin to participate in the distributions the day AFTER your purchase is effective. (See "When Share Price is Determined," page 15.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the advisor class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the advisor class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable, 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, 16 they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. The funds will advise shareholders of the percentage, if any, of the dividends not exempt from federal income tax. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. 17 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 and the funds' asset mix as it deems appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of nine Benham funds. 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 at the following rates: o .70 of 1% of the average net assets of U.S. Governments Short-Term; and o .75 of 1% of the average net assets of U.S. Governments Intermediate-Term. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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 the investment advisory fees paid by many funds. However, most if not all such funds also pay in addition many 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 that 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses 18 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 SERVICES 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. 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 the Distributor 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 constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the fund is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a 19 retail class, a service class, and an advisor class. The shares offered by this prospectus are advisor class shares. The retail class is primarily made available to retail investors. The service class is primarily made available 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 information concerning the retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 the service class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. The manager 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. 20 (This page left blank intentionally.) 21 TWENTIETH CENTURY INVESTORS, INC. U.S. GOVERNMENTS SHORT-TERM U.S. GOVERNMENTS INTERMEDIATE-TERM ADVISOR CLASS PROSPECTUS SEPTEMBER 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------- P.O. Box 419385 Kansas City, Missouri 64141-6200 - --------------------------------------- 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 - --------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5023 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. LIMITED-TERM BOND INTERMEDIATE-TERM BOND LONG-TERM BOND RETAIL CLASS PROSPECTUS September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Three of the funds that invest primarily in corporate fixed income or debt instruments are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. The minimum investment requirement for each of the funds offered by this prospectus is $2,500 ($1,000 for IRA and UGMA/UTMA accounts). (See "Automatic Redemption of Shares," page 18.) 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- LIMITED-TERM BOND seeks income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of five years or less. MINIMUM INVESTMENT $2,500. INTERMEDIATE-TERM BOND seeks a competitive level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. LONG-TERM BOND seeks a high level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of 10 years or greater. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds ................... 8 Limited-Term Bond, Intermediate-Term Bond and Long-Term Bond ...... 8 Fundamentals of Fixed Income Investing ...............................10 Other Investment Practices ...........................................11 Portfolio Turnover ................................................11 Repurchase Agreements .............................................11 Derivative Securities .............................................11 Portfolio Lending .................................................12 Foreign Securities ................................................13 When-Issued Securities ............................................13 Rule 144A Securities ..............................................13 Interest Rate Futures Contracts and Options Thereon ...............14 Performance Advertising ..............................................14 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP How to Open an Account ...............................................16 By Mail .........................................................16 By Wire .........................................................16 By Exchange .....................................................16 In Person .......................................................16 Subsequent Investments ............................................17 By Mail .........................................................17 By Telephone ....................................................17 By Wire .........................................................17 In Person .......................................................17 Automatic Investment Plan .........................................17 How to Exchange from One Account to Another ..........................17 By Mail .........................................................17 By Telephone ....................................................17 How to Redeem Shares .................................................18 By Telephone ....................................................18 By Mail .........................................................18 By Check-A-Month ................................................18 Other Automatic Redemptions .....................................18 Redemption Proceeds ...............................................18 By Check ........................................................18 By Wire and ACH .................................................18 Automatic Redemptions of Shares ...................................18 Signature Guarantee ..................................................19 Special Shareholder Services .........................................19 Automated Information Line ......................................19 Open Order Service ..............................................19 Tax-Qualified Retirement Plans ..................................20 Important Policies Regarding Your Investments .....................20 Reports to Shareholders ..............................................21 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 ................................................................24 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 - ---------------------------------------------------------------------------------------------- Long-Term Intermediate-Term Limited-Term Bond Bond Bond SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none none Maximum Sales Load Imposed on Reinvested Dividends none none none Deferred Sales Load none none none Redemption Fee(1) none none none Exchange Fee none none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees .80% .75% .70% 12b-1 Fees none none none Other Expenses(2) 0.00% 0.00% 0.00% Total Fund Operating Expenses .80% .75% .70% Example You would pay the following expenses on a $1,000 investment, 1 year $8 $8 $7 assuming (1) a 5% annual 3 years 26 24 22 return and (2) redemption at the 5 years 44 42 39 end of each time period: 10 years 99 93 87 (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 of 1% of average net assets for the most recent fiscal year.
The purpose of the 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 Twentieth Century 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 retail class shares and have no up-front or deferred sales charges, commissions, or 12b-1 fees. The funds offer two other classes of shares to investors, primarily to institutional investors, that have different fee structures than the retail 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 (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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.
LIMITED-TERM BOND Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - --------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD ........... $9.68 $10.00 ----- ------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income..................... .56 .31 Net Realized and Unrealized Gains (Losses)............. .28 (.32) ----- ----- Total from Investment Operations...... .84 (.01) ----- ----- DISTRIBUTIONS From Net Investment Income.......... (.557) (.312) From Net Realized Gains on Investment Transactions............... -- -- In Excess of Net Realized Gains............. -- -- ----- ----- Total Distributions........ (.557) (.312) ----- ----- NET ASSET VALUE, END OF PERIOD.................. $9.96 $9.68 ----- ----- TOTAL RETURN(1)............ 8.89% (.08%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets...... .69% .70%(2) Ratio of Net Investment Income to Average Net Assets................. 5.70% 4.79%(2) Portfolio Turnover Rate.... 116% 48% Net Assets, End of Period (in thousands)...... $7,193 $4,375 - --------------------------------------------------------------------------------------------- (1) Actual total return for period indicated, unless otherwise noted. (2) Annualized.
5
- --------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period) INTERMEDIATE-TERM BOND Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - --------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............ $9.53 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income...................... .59 .34 Net Realized and Unrealized Gains (Losses).............. .54 (.47) ----- ----- Total from Investment Operations....... 1.13 (.13) ----- ----- DISTRIBUTIONS From Net Investment Income........... (.587) (.337) From Net Realized Gains on Investment Transactions................ -- -- In Excess of Net Realized Gains.............. -- -- ----- ----- Total Distributions......... (.587) (.337) ----- ----- NET ASSET VALUE, END OF PERIOD..................$10.07 $9.53 ----- ----- TOTAL RETURN(1)............. 12.19% (1.24%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....... .74% .75%(2) Ratio of Net Investment Income to Average Net Assets.................. 6.05% 5.23%(2) Portfolio Turnover Rate..... 133% 48% Net Assets, End of Period (in thousands)......$12,827 $4,262 - --------------------------------------------------------------------------------------------- (1) Actual total return for period indicated, unless otherwise noted. (2) Annualized.
6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period) LONG-TERM BOND(1) March 2, 1987 (inception) through October 31, Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD............ $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.18 $8.96 $10.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income.................... .61(2) .58 .66 .63 .75 .80 .82 .84 .48 Net Realized and Unrealized Gains (Losses)............ .87 (1.12) 1.88 .35 .66 (.64) .36 .23 (1.05) ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations..... 1.48 (.54) 2.54 .98 1.41 .16 1.18 1.07 (.57) ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income......... (.611) (.576) (.662) (.622) (.746) (.796) (.819) (.836) (.475) From Net Realized Gains on Investment Transactions.............. -- (.186) (1.587) -- -- (.006) -- -- -- In Excess of Net Realized Gains............ -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions....... (.611) (.762) (2.249) (.622) (.746) (.802) (.819) (.836) (.475) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................. $9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(2)........... 17.16% (5.47%) 11.81% 10.40% 16.44% 1.93% 13.51% 12.31% (8.63%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets..... .78% .88% 1.00% .98%(4) .96(4) 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets................ 6.53% 6.07% 6.54% 6.30% 8.06% 8.81% 8.83% 9.15% 8.10%(3) Portfolio Turnover Rate... 105% 78% 113% 186% 219% 98% 216% 280% 146%(3) Net Assets, End of Period (in thousands)..... $149,223 $121,012 $172,120 $154,031 $114,342 $77,270 $62,302 $25,788 $9,403 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period. (5) Annualized.
7 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS Each fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND LONG-TERM BOND These funds, which seek to provide investors with income through investments in bonds and other debt instruments, require a minimum investment of $2,500. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of five years or less. The fund is designed for investors seeking a competitive level of current income with limited price volatility. Intermediate-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term corporate and government securities and who are willing to accept a greater degree of price fluctuation. Long-Term Bond will invest primarily in investment grade corporate bonds and other debt instruments and will maintain, under normal market conditions, a weighted average portfolio maturity of 10 years or greater. The fund is designed for investors whose primary goal is a level of current income higher than is generally provided by money market or short- and intermediate-term securities and who can accept the generally greater price volatility associated with longer-term bonds. The value of the shares of all three of these funds will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 10.) Under normal market conditions, each fund will maintain at least 65% of the value of its total assets in investment grade bonds and other debt instruments. Under normal market conditions, each of the funds may invest up to 35% of its assets, and for temporary defensive purposes, up to 100% of its assets, in short-term money market instruments. The manager will actively manage the portfolios, adjusting the weighted average portfolio maturities as necessary in response to expected changes in interest rates. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices are rising, the weighted average portfolio maturity may be moved toward the longer end of its maturity range. To achieve their objectives, the funds may invest in diversified portfolios of high- and medium-grade debt securities payable in United 8 States currency. The funds may invest in securities which at the time of purchase are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories, e.g., at least MIG-2 by Moody's Investor Services ("Moody's") or SP-2 by Standard and Poor's Corporation ("S&P"); corporate, sovereign government, and municipal bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); securities of the United States government and its agencies and instrumentalities (described below); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&Ps belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The government securities in which the funds may invest include: (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager shall consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. (See "Fundamentals of Fixed Income Investing," page 10.) As noted, each fund may invest up to 35% of its assets, and for temporary defensive purposes 9 as determined by the manager, up to 100% of its assets in short-term money market instruments. Those instruments may include: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities; (2) Commercial Paper; (3) Certificates of Deposit and Euro Dollar Certificates of Deposit; (4) Bankers' Acceptances; (5) Short-term notes, bonds, debentures, or other debt instruments; and (6) Repurchase agreements. These investments must meet the rating standards for the funds. To the extent a fund assumes a defensive position, the weighted average maturity of its portfolio may not fall within the ranges stated for the fund. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILLS 1/91 8.19% 7.14% 6.38% 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price - ---------------------------------------------------------- 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM BOND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM BOND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years LONG-TERM BOND Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D ----------------------------------------------------- Limited-Term Bond x x x x Intermediate-Term Bond x x x x Long-Term Bond x x x x 10 In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity and asset quality of each fund have implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5, 6 and 7 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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 11 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset 12 for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The funds may invest an unlimited amount of their assets in the securities of foreign issuers, including foreign governments, when these securities meet their standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The funds will limit their purchase of debt securities to U.S. dollar denominated investment grade obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. 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 buyers 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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 INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. Management will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by management may still not result in a successful transaction. Management may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. 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 and yield. Performance data may be quoted separately for the retail class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. 14 A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 15 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 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]. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 17 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 16 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see "Automatic Investment Plan," on this page) or by any of the methods below. The minimum investment requirement for subsequent investments: $250 for checks submitted without the remittance portion of a previous statement or confirmation, $50 for all other types of subsequent investments. BY MAIL When making subsequent investments, enclose your check with the remittance portion of the confirmation of a previous investment. If the remittance slip is not available, indicate your name, address and account number on your check or a separate piece of paper. (Please be aware that the investment minimum for subsequent investments is higher without a 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 16 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 pages 16-17. 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 Shareholder Services Guide for further information about exchanges. 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 Shareholder Services Guide. BY TELEPHONE You may 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 receive the appropriate form. 17 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 completed 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 19. BY CHECK-A-MONTH If you have at least a $10,000 balance in your account, you may redeem shares by Check-A-Month. A Check-A-Month plan automatically redeems enough shares each month to provide you with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner(s) of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. AUTOMATIC REDEMPTION OF SHARES 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 of bringing the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. 18 SIGNATURE GUARANTEE To protect your accounts from fraud, some transactions will require a signature guarantee. Which transactions will require a signature guarantee will depend on which service options you elect when you open your account. For example, if you choose "In Writing Only," a signature guarantee will be required when: o Redeeming more than $25,000 o Establishing or increasing a Check-A-Month or automatic transfer on an existing account You may obtain a signature guarantee from a bank or trust company, credit union, broker, dealer, securities exchange or association, clearing agency or savings association, as defined by federal law. For a more in-depth explanation of our signature guarantee policy, or if you live outside the United States and would like to know how to obtain a signature guarantee, please consult our Shareholder 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 Shareholder Services Guide. Our special shareholder services include: AUTOMATED INFORMATION LINE We offer an Automated Information Line, 24 hours a day, seven days a week, at 1-800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. 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. 19 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 Shareholder 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 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. 20 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 Shareholder 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 Shareholder 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. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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, 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 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 they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, 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 request to the funds' transfer agent prior to the applicable cut-off time and to make payment for 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the 22 impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Net asset values may also be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income of the funds is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," page 22.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. 23 TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the retail class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of participation in the plan, contributions to, and withdrawals or distributions from the plan. TAXABLE ACCOUNTS If the retail class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, 24 WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the funds and directs the purchase and sale of their investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios and the funds' asset mix as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of Benham Treasury Note, Benham Short-Term, and Benham Long-Term Funds. He also manages Benham Target Maturities Trust. 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, 25 Investors Research receives an annual fee at the following rates: o .70% of the average net assets of Limited-Term Bond; o .75% of the average net assets of Intermediate-Term Bond; and o .80% of the average net assets of Long-Term Bond. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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). 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 and distributing the retail class of fund shares offered by this prospectus. The retail 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and 26 directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and an advisor class. The shares offered by this prospectus are retail 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 retail class. Different fees and expenses will affect performance. For additional information concerning the other classes of shares not offered by this prospectus, call Twentieth Century 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) each 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 those matters which 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. 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 less-than-50% of the 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' by-laws, the holders of shares representing 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 Investors, Inc. Limited-Term Bond Intermediate-Term Bond Long-Term Bond Retail Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4991 9606 Recycled TWENTIETH CENTURY INVESTORS, INC. LIMITED-TERM BOND INTERMEDIATE-TERM BOND, LONG-TERM BOND Service Class Prospectus September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Three of the funds that invest primarily in corporate fixed income or debt instruments are described in this prospectus. Their investment objectives and minimum investment requirements are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS 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 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 financial 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- LIMITED-TERM BOND seeks income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of five years or less. MINIMUM INVESTMENT $2,500. INTERMEDIATE-TERM BOND seeks a competitive level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. LONG-TERM BOND seeks a high level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of 10 years or greater. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds .................. 8 Limited-Term Bond, Intermediate-Term Bond and Long-Term Bond ... 8 Fundamentals of Fixed Income Investing .............................. 10 Other Investment Practices .......................................... 11 Portfolio Turnover ............................................. 11 Repurchase Agreements .......................................... 11 Derivative Securities .......................................... 11 Portfolio Lending .............................................. 12 Foreign Securities ............................................. 13 When-Issued Securities ......................................... 13 Rule 144A Securities ........................................... 13 Interest Rate Futures Contracts and Options Thereon ............ 14 Performance Advertising ............................................. 14 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Funds .................... 16 How to Exchange Your Investment from One Twentieth Century Fund to Another ................................................ 16 How to Redeem Shares ................................................ 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 Service Fees ................................................... 21 Distribution of Fund Shares .................................... 21 Further Information About Twentieth Century ......................... 22 3
TRANSACTION AND OPERATING EXPENSE TABLE - ----------------------------------------------------------------------------------------------- Long-Term Intermediate-Term Limited-Term Bond Bond Bond SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none none Maximum Sales Load Imposed on Reinvested Dividends none none none Deferred Sales Load none none none Redemption Fee none none none Exchange Fee none none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees .55% .50% .45% 12b-1 Fees(1) .25% .25% .25% Other Expenses(2) 0.00% 0.00% 0.00% Total Fund Operating Expenses .80% .75% .70% Example You would pay the following expenses on a $1,000 investment, 1 year $ 8 $ 8 $ 7 assuming (1) a 5% annual 3 years 26 24 22 return and (2) redemption at the 5 years 44 42 39 end of each time period: 10 years 99 93 87 (1) The 12b-1 fee is designed to permit investors to purchase service class shares through retirement and pension plan administrators and other financial intermediaries and is used to compensate them for ongoing 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 0.0014 of 1% of average net assets for the most recent fiscal year.
The purpose of the 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 Twentieth Century 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 two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the service class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 22. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- LIMITED-TERM BOND (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' retail class of shares, which has the same total expense ratio as the service class shares. The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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.
Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD................... $9.68 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income........................... .56(1) .31 Net Realized and Unrealized Gains (Losses)................... .28 (.32) ----- ----- Total from Investment Operations............ .84 (.01) ----- ----- DISTRIBUTIONS From Net Investment Income................ (.557) (.312) From Net Realized Gains on Investment Transactions..................... -- -- In Excess of Net Realized Gains................... -- -- ----- ----- Total Distributions.............. (.557) (.312) ----- ----- NET ASSET VALUE, END OF PERIOD......................... $9.96 $9.68 ----- ----- TOTAL RETURN(2).................. 8.89% (.08%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets............ .69% .70%(3) Ratio of Net Investment Income to Average Net Assets....................... 5.70% 4.79%(3) Portfolio Turnover Rate.......... 116% 48% Net Assets, End of Period (in thousands)............$7,193 $4,375 - ------------------------------------------------------------------------------------------------------ (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 distributions, if any. (3) Annualized
5
- ------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- INTERMEDIATE-TERM BOND (Continued) Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD................... $9.53 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income........................... .59(1) .34 Net Realized and Unrealized Gains (Losses)................... .54 (.47) ----- ----- Total from Investment Operations............ 1.13 (.13) ----- ----- DISTRIBUTIONS From Net Investment Income................ (.587) (.337) From Net Realized Gains on Investment Transactions..................... -- -- In Excess of Net Realized Gains................... -- -- ----- ----- Total Distributions.............. (.587) (.337) ----- ----- NET ASSET VALUE, END OF PERIOD......................... $10.07 $9.53 ----- ----- TOTAL RETURN(2).................. 12.19% (1.24%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets............ .74% .75%(3) Ratio of Net Investment Income to Average Net Assets....................... 6.05% 5.23%(3) Portfolio Turnover Rate.......... 133% 48% Net Assets, End of Period (in thousands)............$12,827 $4,262 - ------------------------------------------------------------------------------------------------------ (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 distributions, if any. (3) Annualized
6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- LONG-TERM BOND(1) (Continued) March 2, 1987 (inception) through October 31, Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD................ $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.18 $8.96 $10.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income........................ .61(2) .58 .66 .63 .75 .80 .82 .84 .48 Net Realized and Unrealized Gains (Losses)................ .87 (1.12) 1.88 .35 .66 (.64) .36 .23 (1.05) ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations......... 1.48 (.54) 2.54 .98 1.41 .16 1.18 1.07 (.57) ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income............. (.611) (.576) (.662) (.622) (.746) (.796) (.819) (.836) (.475) From Net Realized Gains on Investment Transactions.................. -- (.186) (1.587) -- -- (.006) -- -- -- In Excess of Net Realized Gains................ -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions........... (.611) (.762) (2.249) (.622) (.746) (.802) (.819) (.836) (.475) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD...................... $9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(3)............... 17.16% (5.47%) 11.81% 10.40% 16.44% 1.93% 13.51% 12.31% (8.63%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets......... .78% .88% 1.00% .98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets.................... 6.53% 6.07% 6.54% 6.30% 8.06% 8.81% 8.83% 9.15% 8.10%(5) Portfolio Turnover Rate....... 105% 78% 113% 186% 219% 98% 216% 280% 146%(5) Net Assets, End of Period (in thousands).......$149,223 $121,012 $172,120 $154,031 $114,342 $77,270 $62,302 $25,788 $9,403 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period. (5) Annualized
7 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND LONG-TERM BOND These funds, which seek to provide investors with income through investments in bonds and other debt instruments, require a minimum investment of $2,500. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of five years or less. The fund is designed for investors seeking a competitive level of current income with limited price volatility. Intermediate-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term corporate and government securities and who are willing to accept a greater degree of price fluctuation. Long-Term Bond will invest primarily in investment grade corporate bonds and other debt instruments and will maintain, under normal market conditions, a weighted average portfolio maturity of 10 years or greater. The fund is designed for investors whose primary goal is a level of current income higher than is generally provided by money market or short- and intermediate-term securities and who can accept the generally greater price volatility associated with longer-term bonds. The value of the shares of all three of these funds will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 10.) Under normal market conditions, each fund will maintain at least 65% of the value of its total assets in investment grade bonds and other debt instruments. Under normal market conditions, each of the funds may invest up to 35% of its assets, and for temporary defensive purposes, up to 100% of its assets, in short-term money market instruments. The manager will actively manage the portfolios, adjusting the weighted average portfolio maturities as necessary in response to expected changes in interest rates. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices are rising, the weighted average portfolio maturity may be moved toward the longer end of its maturity range. To achieve their objectives, the funds may invest in diversified portfolios of high- and medium-grade debt securities payable in United 8 States currency. The funds may invest in securities which at the time of purchase are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories, e.g., at least MIG-2 by Moody's Investor Services ("Moody's") or SP-2 by Standard and Poor's Corporation ("S&P"); corporate, sovereign government, and municipal bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); securities of the United States government and its agencies and instrumentalities (described below); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&Ps belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The government securities in which the funds may invest include: (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager shall consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. (See "Fundamentals of Fixed Income Investing," page 10.) As noted, each fund may invest up to 35% of its assets, and for temporary defensive purposes 9 as determined by the manager, up to 100% of its assets in short-term money market instruments. Those instruments may include: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities; (2) Commercial Paper; (3) Certificates of Deposit and Euro Dollar Certificates of Deposit; (4) Bankers' Acceptances; (5) Short-term notes, bonds, debentures, or other debt instruments; and (6) Repurchase agreements. These investments must meet the rating standards for the funds. To the extent a fund assumes a defensive position, the weighted average maturity of its portfolio may not fall within the ranges stated for the fund. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILLS 1/91 8.19% 7.14% 6.38% 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price - -------------------------------------------------------------------------------- 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% - -------------------------------------------------------------------------------- YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM BOND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM BOND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years LONG-TERM BOND Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Limited-Term Bond x x x x Intermediate-Term Bond x x x x Long-Term Bond x x x x 10 In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity and asset quality of each fund have implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restriction" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5, 6 and 7 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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 11 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset 12 for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The funds may invest an unlimited amount of their assets in the securities of foreign issuers, including foreign governments, when these securities meet their standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The funds will limit their purchase of debt securities to U.S. dollar denominated investment grade obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. 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 buyers 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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 INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. Management will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by management may still not result in a successful transaction. Management may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. 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 and yield. Performance data may be quoted separately for the service class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. 14 A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 15 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about a fund, see "Information About Investment Policies of the Funds," page 8, 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. 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. TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. 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 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 payment is received by us. Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, 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 17 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 that 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 retail class of Twentieth Century's funds are published in leading newspapers daily. Net asset values of the service class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income of the funds is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," page 17.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES The funds have elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the service class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. Employer-sponsored retirement and savings plans are governed by complex tax rules. If you elect to participate in your employer's plan, consult your plan administrator, your plan's summary plan description, or a professional tax advisor regarding the tax consequences of 18 participation in the plan, contributions to, and withdrawals from the plan. TAXABLE ACCOUNTS If the service class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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" 19 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the funds and directs the purchase and sale of their investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios and the funds' asset mix as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of Benham Treasury Note, Benham Short-Term, and Benham Long-Term Funds. He also manages Benham Target Maturities Trust. 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 at the following rates: o .45 of 1% of the average net assets of Limited-Term Bond; o .50 of 1% of the average net assets of Intermediate-Term Bond; o .55 of 1% of the average net assets of Long-Term Bond. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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). 20 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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. SERVICE FEES Certain recordkeeping and administrative services that are provided by the funds' transfer agent for retail 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 Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily 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 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. DISTRIBUTION OF FUND SHARES The funds' shares are distributed by 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 service class of, the fund shares offered by this prospectus. The service class of shares does not 21 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 Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385, Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and the advisor class. The shares offered by this prospectus are service class shares and have no up-front charges or commissions. The retail class is primarily made available to retail investors. The advisor class is 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 that class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 22 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. The manager 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 Investors, Inc. Limited-Term Bond Intermediate-Term Bond Long-Term Bond Service Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4995 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. LIMITED-TERM BOND INTERMEDIATE-TERM BOND, LONG-TERM BOND Advisor Class Prospectus September 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Three of the funds that invest primarily in corporate fixed income or debt instruments are described in this prospectus. Their investment objectives and minimum investment requirements are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. TWENTIETH CENTURY 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 Rule 12b-1 shareholder services and distribution fees 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 1-800-345-3533 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-345-1833 In Missouri: 816-753-0700 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- LIMITED-TERM BOND seeks income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of five years or less. MINIMUM INVESTMENT $2,500. INTERMEDIATE-TERM BOND seeks a competitive level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $2,500. LONG-TERM BOND seeks a high level of income. The fund intends to pursue its investment objective by investing in bonds and other debt obligations and maintaining a weighted average maturity of 10 years or greater. MINIMUM INVESTMENT $2,500. 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 FOR 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 Information About Investment Policies of the Funds .................. 8 Limited-Term Bond, Intermediate-Term Bond and Long-Term Bond ... 8 Fundamentals of Fixed Income Investing .............................. 10 Other Investment Practices .......................................... 11 Portfolio Turnover ............................................. 11 Repurchase Agreements .......................................... 11 Derivative Securities .......................................... 11 Portfolio Lending .............................................. 12 Foreign Securities ............................................. 13 When-Issued Securities ......................................... 13 Rule 144A Securities ........................................... 13 Interest Rate Futures Contracts and Options Thereon ............ 14 Performance Advertising ............................................. 14 HOW TO INVEST WITH TWENTIETH CENTURY How to Purchase and Sell Twentieth Century Mutual Funds ............. 16 How to Exchange Your Investment from One Twentieth Century Fund to Another ................................................ 16 How to Redeem Shares ................................................ 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 Services .......................................... 21 Further Information About Twentieth Century ......................... 22 3
TRANSACTION AND OPERATING EXPENSE TABLE - ------------------------------------------------------------------------------------------------------- Long-Term Intermediate-Term Limited-Term Bond Bond Bond SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Load Imposed on Purchases none none none Maximum Sales Load Imposed on Reinvested Dividends none none none Deferred Sales Load none none none Redemption Fee none none none Exchange Fee none none none ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets): Management Fees .55% .50% .45% 12b-1 Fees(1) .50% .50% .50% Other Expenses(2) 0.00% 0.00% 0.00% Total Fund Operating Expenses 1.05% 1.00% .95% Example You would pay the following expenses on a $1,000 investment, 1 year $11 $10 $10 assuming (1) a 5% annual 3 years 33 32 30 return and (2) redemption at the 5 years 58 55 52 end of each time period: 10 years 128 122 116
(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 "Distribution Services," 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 0.0014 of 1% of average net assets for the most recent fiscal year. The purpose of the 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 Twentieth Century 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 two other classes of shares, one of which is primarily made available to retail investors and one that is primarily made available to institutional investors. The other classes have different fee structures than the advisor class, resulting in different performance for those classes. For additional information about the various classes, see "Further Information About Twentieth Century," page 22. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- LIMITED-TERM BOND (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' retail 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 (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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.
Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...................... $9.68 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income.............................. .56(1) .31 Net Realized and Unrealized Gains (Losses)...................... .28 (.32) ----- ----- Total from Investment Operations............... .84 (.01) ----- ----- DISTRIBUTIONS From Net Investment Income................... (.557) (.312) From Net Realized Gains on Investment Transactions........................ -- -- In Excess of Net Realized Gains...................... -- -- ----- ----- Total Distributions................. (.557) (.312) ----- ----- NET ASSET VALUE, END OF PERIOD............................ $9.96 $9.68 ----- ----- TOTAL RETURN(2)..................... 8.89% (.08%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets............... .69% .70%(3) Ratio of Net Investment Income to Average Net Assets.......................... 5.70% 4.79%(3) Portfolio Turnover Rate............. 116% 48% Net Assets, End of Period (in thousands)...............$7,193 $4,375 - ------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 5
- ------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- INTERMEDIATE-TERM BOND (Continued) Year Ended Oct. 31, 1995 Mar. 1 (inception) through Oct. 31, 1994 - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD...................... $9.53 $10.00 ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income.............................. .59(1) .34 Net Realized and Unrealized Gains (Losses)...................... .54 (.47) ----- ----- Total from Investment Operations............... 1.13 (.13) ----- ----- DISTRIBUTIONS From Net Investment Income................... (.587) (.337) From Net Realized Gains on Investment Transactions........................ -- -- In Excess of Net Realized Gains...................... -- -- ----- ----- Total Distributions................. (.587) (.337) ----- ----- NET ASSET VALUE, END OF PERIOD............................$10.07 $9.53 ----- ----- TOTAL RETURN(2)..................... 12.19% (1.24%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets............... .74% .75%(3) Ratio of Net Investment Income to Average Net Assets.......................... 6.05% 5.23%(3) Portfolio Turnover Rate............. 133% 48% Net Assets, End of Period (in thousands)..............$12,827 $4,262 - ------------------------------------------------------------------------------------------------------
(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 distributions, if any. (3) Annualized 6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS -- LONG-TERM BOND(1) (Continued) March 2, 1987 (inception) through October 31, Years ended October 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD................$8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.18 $8.96 $10.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income........................ .61(2) .58 .66 .63 .75 .80 .82 .84 .48 Net Realized and Unrealized Gains (Losses)................ .87 (1.12) 1.88 .35 .66 (.64) .36 .23 (1.05) ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations......... 1.48 (.54) 2.54 .98 1.41 .16 1.18 1.07 (.57) ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income.............(.611) (.576) (.662) (.622) (.746) (.796) (.819) (.836) (.475) From Net Realized Gains on Investment Transactions.................. -- (.186) (1.587) -- -- (.006) -- -- -- In Excess of Net Realized Gains................ -- -- -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...........(.611) (.762) (2.249) (.622) (.746) (.802) (.819) (.836) (.475) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD......................$9.78 $8.91 $10.21 $9.92 $9.56 $8.90 $9.54 $9.19 $8.96 ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(3)...............17.16% (5.47%) 11.81% 10.40% 16.44% 1.93% 13.51% 12.31% (8.63%) RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets......... .78% .88% 1.00% .98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(5) Ratio of Net Investment Income to Average Net Assets.................... 6.53% 6.07% 6.54% 6.30% 8.06% 8.81% 8.83% 9.15% 8.10%(5) Portfolio Turnover Rate....... 105% 78% 113% 186% 219% 98% 216% 280% 146%(5) Net Assets, End of Period (in thousands)......$149,223 $121,012 $172,120 $154,031 $114,342 $77,270 $62,302 $25,788 $9,403 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (2) Computed using average shares outstanding throughout the period. (3) Total returns for periods less than one year are not annualized. Total return assumes reinvestment of dividends and capital gains distributions, if any. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period. (5) Annualized
7 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS Each fund has adopted certain investment restrictions that are set forth in the Statement of Additional Information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the Statement of Additional Information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND LONG-TERM BOND These funds, which seek to provide investors with income through investments in bonds and other debt instruments, require a minimum investment of $2,500. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Limited-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of five years or less. The fund is designed for investors seeking a competitive level of current income with limited price volatility. Intermediate-Term Bond will invest primarily in investment grade corporate securities and other debt instruments and will maintain, under normal market conditions, a weighted average maturity of three to 10 years. The fund is designed for investors seeking a higher level of current income than is generally available from shorter-term corporate and government securities and who are willing to accept a greater degree of price fluctuation. Long-Term Bond will invest primarily in investment grade corporate bonds and other debt instruments and will maintain, under normal market conditions, a weighted average portfolio maturity of 10 years or greater. The fund is designed for investors whose primary goal is a level of current income higher than is generally provided by money market or short- and intermediate-term securities and who can accept the generally greater price volatility associated with longer-term bonds. The value of the shares of all three of these funds will vary from day to day. (See "Fundamentals of Fixed Income Investing," page 10.) Under normal market conditions, each fund will maintain at least 65% of the value of its total assets in investment grade bonds and other debt instruments. Under normal market conditions, each of the funds may invest up to 35% of its assets, and for temporary defensive purposes, up to 100% of its assets, in short-term money market instruments. The manager will actively manage the portfolios, adjusting the weighted average portfolio maturities as necessary in response to expected changes in interest rates. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range in order to reduce the effect of bond price declines on the fund's net asset value. When interest rates are falling and bond prices are rising, the weighted average portfolio maturity may be moved toward the longer end of its maturity range. To achieve their objectives, the funds may invest in diversified portfolios of high- and medium-grade debt securities payable in United 8 States currency. The funds may invest in securities which at the time of purchase are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories, e.g., at least MIG-2 by Moody's Investor Services ("Moody's") or SP-2 by Standard and Poor's Corporation ("S&P"); corporate, sovereign government, and municipal bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); securities of the United States government and its agencies and instrumentalities (described below); other types of securities rated at least P-2 by Moody's or A-2 by S&P. According to Moody's, bonds rated Baa are medium-grade and possess some speculative characteristics. A BBB rating by S&P indicates S&Ps belief that a security exhibits a satisfactory degree of safety and capacity for repayment, but is more vulnerable to adverse economic conditions or changing circumstances. The government securities in which the funds may invest include: (1) direct obligations of the United States, such as Treasury bills, notes and bonds, which are supported by the full faith and credit of the United States, and (2) obligations (including mortgage-related securities) issued or guaranteed by agencies and instrumentalities of the United States government that are established under an act of Congress. The securities of some of these agencies and instrumentalities, such as the Government National Mortgage Association, are guaranteed as to principal and interest by the U.S. Treasury, and other securities are supported by the right of the issuer, such as the Federal Home Loan Banks, to borrow from the Treasury. Other obligations, including those issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. Mortgage-related securities in which the funds may invest include collateralized mortgage obligations ("CMOs") issued by a United States agency or instrumentality. A CMO is a debt security that is collateralized by a portfolio or pool of mortgages or mortgage-backed securities. The issuer's obligation to make interest and principal payments is secured by the underlying pool or portfolio of mortgages or securities. The market value of mortgage-related securities, even those in which the underlying pool of mortgage loans is guaranteed as to the payment of principal and interest by the United States government, is not insured. When interest rates rise, the market value of those securities may decrease in the same manner as other debt, but when interest rates decline, their market value may not increase as much as other debt instruments because of the prepayment feature inherent in the underlying mortgages. If such securities are purchased at a premium, the fund will suffer a loss if the obligation is prepaid. Prepayments will be reinvested at prevailing rates, which may be less than the rate paid by the prepaid obligation. For the purpose of determining the weighted average portfolio maturity of the funds, the manager shall consider the maturity of a mortgage-related security to be the remaining expected average life of the security. The average life of such securities is likely to be substantially less than the original maturity as a result of prepayments of principal on the underlying mortgages, especially in a declining interest rate environment. In determining the remaining expected average life, the manager makes assumptions regarding prepayments on underlying mortgages. In a rising interest rate environment, those prepayments generally decrease, and may decrease below the rate of prepayment assumed by the manager when purchasing those securities. Such slowdown may cause the remaining maturity of those securities to lengthen, which will increase the relative volatility of those securities and, hence, the fund holding the securities. (See "Fundamentals of Fixed Income Investing," page 10.) As noted, each fund may invest up to 35% of its assets, and for temporary defensive purposes 9 as determined by the manager, up to 100% of its assets in short-term money market instruments. Those instruments may include: (1) Securities issued or guaranteed by the U.S. government and its agencies and instrumentalities; (2) Commercial Paper; (3) Certificates of Deposit and Euro Dollar Certificates of Deposit; (4) Bankers' Acceptances; (5) Short-term notes, bonds, debentures, or other debt instruments; and (6) Repurchase agreements. These investments must meet the rating standards for the funds. To the extent a fund assumes a defensive position, the weighted average maturity of its portfolio may not fall within the ranges stated for the fund. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-YEAR 20-YEAR 3-MONTH TREASURY TAX-EXEMPT TREASURY BONDS BONDS BILLS 1/91 8.19% 7.14% 6.38% 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price - -------------------------------------------------------------------------------- 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% - -------------------------------------------------------------------------------- YEARS TO MATURITY [bar graph - graph data] LIMITED-TERM BOND Likely Maturities of Individual Holdings 0-8 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years INTERMEDIATE-TERM BOND Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years LONG-TERM BOND Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Limited-Term Bond x x x x Intermediate-Term Bond x x x x Long-Term Bond x x x x 10 In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity and asset quality of each fund have implications for the degree of price volatility and the yield level to be expected from each. OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5, 6 and 7 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS Each fund may invest in repurchase agreements when such transactions present an attractive short-term return on cash that is not otherwise committed to the purchase of securities pursuant to the investment policies of that fund. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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 11 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), 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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 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, the 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, if applicable, the right to call the loan to enable the fund to vote the securities. Such loans may not exceed one-third of the fund's net assets taken at market. Interest on loaned securities may not exceed 10% of the annual gross income of the fund (without offset 12 for realized capital gains). The portfolio lending policy described in this paragraph is a fundamental policy that may be changed only by a vote of fund shareholders. FOREIGN SECURITIES The funds may invest an unlimited amount of their assets in the securities of foreign issuers, including foreign governments, when these securities meet their standards of selection. Securities of foreign issuers may trade in the U.S. or foreign securities markets. The funds will limit their purchase of debt securities to U.S. dollar denominated investment grade obligations. Such securities will be primarily from developed markets. Investments in foreign securities may present certain risks, including those resulting from 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. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. 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 buyers 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 funds' manager will consider appropriate remedies to minimize the effect on such fund's liquidity. No 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 INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. Management will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by management may still not result in a successful transaction. Management may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. 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 and yield. Performance data may be quoted separately for the advisor class and for 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 a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. 14 A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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 your shares or the income reported in a fund's financial statements. The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 15 HOW TO INVEST WITH TWENTIETH CENTURY - -------------------------------------------------------------------------------- The following section explains how to purchase, exchange and redeem advisor class shares of the Twentieth Century 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 a Twentieth Century fund 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 a Twentieth Century fund. If you have questions about a fund, see "Information About Investment Policies of the Funds," page 8, 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.) Twentieth Century 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. 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. TELEPHONE SERVICES INVESTORS LINE You may reach one of our Institutional Service Representatives by calling our Investor 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 1-800-345-8675. 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 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 payment is received by us. Wired funds are considered received on the day they are deposited in our account if they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. It is the responsibility of your plan recordkeeper or financial intermediary to transmit your purchase, exchange and redemption requests to the funds' transfer agent prior to the applicable cut-off time for receiving orders and to make payment for any purchase transactions in accordance with the funds' procedures or any contractual arrangements 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: The 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. If no sale is reported, the mean of the latest bid and asked price is used. Portfolio securities primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on the exchange where primarily traded. If no sale is reported, or if local convention or regulation so provides, the mean of the latest bid and asked prices is used. Depending on local convention or regulation, securities traded over-the-counter are priced at the mean of the latest bid and asked prices, or at the last sale price. When market quotations are not readily available, securities and other assets are valued at fair value as determined in accordance with procedures adopted by the board of directors. 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 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, usually 3 p.m. Central time, 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 17 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 that 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 retail class of the funds are published in leading newspapers daily. Because the total expense ratio for the advisor class shares is .25% higher than the retail class, their net asset values will be lower than the retail class. The net asset values of the advisor class may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income of the funds is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day after your purchase is effective. (See "When Share Price is Determined," page 17.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed, the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the 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 investing through taxable accounts, distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. You may elect to have distributions on shares held in 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. Please consult our Shareholder 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. TAXES Each fund has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. TAX-DEFERRED ACCOUNTS If the advisor class shares are purchased through tax-deferred accounts, such as a qualified employer-sponsored retirement or savings plan, income and capital gains distributions paid by the funds will generally not be subject to current taxation, but will accumulate in your account under the plan on a tax-deferred basis. 18 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 from the plan. TAXABLE ACCOUNTS If the advisor class shares are purchased through taxable accounts, distributions of net investment income and net short-term capital gains are taxable to you as ordinary income, except as described below. The dividends from net income of the fixed income funds do not qualify for the 70% dividends-received deduction for corporations since they are derived from interest income. Distributions from net long-term capital gains are taxable 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions 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) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, if you own shares in taxable accounts, you will receive a Form 1099-DIV from either us or your financial intermediary notifying you of the status of your distributions for federal income tax purposes. Distributions to taxable accounts may also be subject to state and local taxes, even if all or a substantial part of such distributions are derived from interest on U.S. government obligations which, if you received them directly, would be exempt from state income tax. However, most but not all states allow this tax exemption to pass through to fund shareholders when a fund pays distributions to its shareholders. You should consult your tax 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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 19 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. Investors Research supervises and manages the investment portfolio of the funds and directs the purchase and sale of their investment securities. Investors Research utilizes teams of portfolio managers, assistant portfolio managers and analysts acting together to manage the assets of the funds. The teams meet regularly to review portfolio holdings and to discuss purchase and sale activity. The teams adjust holdings in the funds' portfolios and the funds' asset mix as they deem appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the teams may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this prospectus and their work experience for the last five years are as follows: NORMAN E. HOOPS, Senior Vice President and Fixed Income Portfolio Manager, joined Twentieth Century as Vice President and Portfolio Manager in November 1989. In April 1993, he became Senior Vice President. DAVID SCHROEDER, Vice President and Portfolio Manager for BMC, joined BMC in July 1990. In addition to the funds, Mr. Schroeder has primary responsibility for the day-to-day operations of Benham Treasury Note, Benham Short-Term, and Benham Long-Term Funds. He also manages Benham Target Maturities Trust. 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 at the following rates: o .45 of 1% of the average net assets of Limited-Term Bond; o .50 of 1% of the average net assets of Intermediate-Term Bond; o .55 of 1% of the average net assets of Long-Term Bond. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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). 20 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 the funds. It provides facilities, equipment and personnel to the funds 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 our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by 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 SERVICES 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. 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 the Distributor 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 21 accounts and therefore may constitute "service fees" for purposes of applicable rules of the National Association of Securities Dealers. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds is Twentieth Century Tower, 4500 Main Street, P.O. Box 419385 Kansas City, Missouri 64141-6385. All inquiries may be made by mail to that address, or by phone to 1-800-345-3533. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. Twentieth Century offers three classes of each of the funds offered by this prospectus: a retail class, a service class, and the advisor class. The shares offered by this prospectus are advisor class shares. The retail class is primarily made available to retail investors. The service class is 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 retail class of shares, call one of our retail Investor Services Representatives at 1-800-345-2021. For information concerning the 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 that class 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, and (d) each class may have different exchange privileges. 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 those matters which 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 less-than-50% of the 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' by-laws, the holders of shares representing at least 22 10% of the votes entitled to be cast may request the funds to hold a special meeting of shareholders. The manager 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 Investors, Inc. Limited-Term Bond Intermediate-Term Bond Long-Term Bond Advisor Class Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4997 9609 Recycled TWENTIETH CENTURY INVESTORS, INC. TAX-EXEMPT FUNDS PROSPECTUS SEPTEMBER 3, 1996 - -------------------------------------------------------------------------------- Twentieth Century Investors, Inc. is a member of the Twentieth Century family of funds, a family that includes 68 no-load mutual funds covering a variety of investment opportunities. Three of the funds that invest in tax-exempt fixed income or debt instruments are described in this prospectus. Their investment objectives are listed on the inside cover of this prospectus. The other funds are described in separate prospectuses. NO-LOAD MUTUAL FUNDS Twentieth Century offers retail investors a full line of "no-load" funds, investments that have no sales charges or commissions. The minimum investment requirement for each of the funds offered by this prospectus is $5000. (See "Automatic Redemption of Shares," page 17.) 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 1-800-345-2021 Local and international calls: 816-531-5575 Telecommunications device for the deaf: 1-800-634-4113 In Missouri: 816-753-1865 The Internet address for Twentieth Century is: 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. INVESTMENT OBJECTIVES OF THE FUNDS - -------------------------------------------------------------------------------- TAX-EXEMPT SHORT-TERM seeks income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in tax-exempt bonds and maintaining a weighted average maturity of three years or less. MINIMUM INVESTMENT $5,000. TAX-EXEMPT INTERMEDIATE-TERM seeks a competitive level of income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in tax-exempt bonds and maintaining a weighted average maturity of three to 10 years. MINIMUM INVESTMENT $5,000. TAX-EXEMPT LONG-TERM seeks a high level of income generally exempt from federal income taxes. The fund intends to pursue its investment objective by investing in longer-term tax-exempt bonds and maintaining a weighted average maturity of 10 years or greater. MINIMUM INVESTMENT $5,000. 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 FOR 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 Information About Investment Policies of the Funds .............................................. 8 Fundamentals of Fixed Income Investing ............................................. 9 Tax-Exempt Securities ............................................... 10 Other Investment Practices .......................................... 11 Portfolio Turnover ................................................. 11 Repurchase Agreements .............................................. 11 Derivative Securities .............................................. 11 When-Issued Securities ............................................. 12 Rule 144A Securities ............................................... 12 Interest Rate Futures Contracts and Options Thereon ................................................... 13 Performance Advertising ............................................. 14 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS 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 How to Exchange from One Account to Another ................................................. 16 By Mail ............................................................ 16 By Telephone ....................................................... 16 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 Automatic Redemption of Shares ...................................... 17 Signature Guarantee ................................................. 18 Special Shareholder Services ........................................ 18 Automated Information Line ......................................... 18 CheckWriting ....................................................... 18 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 ................................... 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 Management .......................................................... 24 Investment Management .............................................. 24 Code of Ethics ..................................................... 25 Transfer and Administrative Services ............................... 25 Distribution of Fund Shares ........................................ 26 Further Information About Twentieth Century ............................................ 26 3 TRANSACTION AND OPERATING EXPENSE TABLE (applicable to each fund) - -------------------------------------------------------------------------------- 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(2) .60% 12b-1 Fees none Other Expenses(3) 0.00% Total Fund Operating Expenses .60% Example You would pay the following expenses on a $1,000 investment, 1 year $ 6 assuming (1) a 5% annual 3 years 19 return and (2) redemption at the 5 years 34 end of each time period: 10 years 75 The purpose of the 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. (1) Redemption proceeds sent by wire are subject to a $10 processing charge. (2) A portion of the management fee may be paid by the funds' manager to unaffiliated third parties who provide recordkeeping and administrative services that would otherwise be performed by an affiliate of the manager. See "Management - Transfer and Administrative Services," page 30. (3) Other expenses, the fees and expenses of those directors who are not "interested persons" as defined in the Investment Company Act, were 0.0014 of 1% of average net assets for the most recent fiscal year. 4 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout the Period) The Financial Highlights for each of the periods presented (except as noted) have been audited by Baird, Kurtz & Dobson, independent certified public accountants, 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. TAX-EXEMPT SHORT-TERM Year Ended Oct. 31, Mar. 1, 1993 (inception) 1995 1994 through Oct. 31, 1993 - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD............$9.95 $10.04 $10.00 ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income......................... .44 .36 .21 Net Realized and Unrealized Gains (Losses) on Securities.................. .14 (.09) .04 ----- ----- ----- Total from Investment Operations.......... .58 .27 .25 ----- ----- ----- DISTRIBUTIONS From Net Investment Income..............(.440) (.362) (.214) From Net Realized Gains on Security Transactions.......... - - - In Excess of Net Realized Gains on Security Transactions.......... - - - ----- ----- ----- Total Distributions............(.440) (.362) (.214) ----- ----- ----- NET ASSET VALUE, END OF PERIOD..................10.09 9.95 10.04 ----- ----- ----- TOTAL RETURN(1)................ 5.95% 2.75% 3.83%(2) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets............. -(3) -(3) -(3) Ratio of Net Investment Income to Average Net Assets..................... 4.38% 3.62% 3.09%(2) Portfolio Turnover Rate........ 78% 42% 3%(2) Net Assets, End of Period (in thousands).....$58,837 $60,857 $52,265 - -------------------------------------------------------------------------------- (1) Actual total return for period indicated, unless otherwise noted. (2) Annualized. (3) Investors Research Corporation voluntarily waived its management fee on the Tax-Exempt Short-Term fund from fund inception until December 31, 1995. In the absence of the waiver, the ratio of operating expenses to average net assets would have been .60%. 5
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS (Continued) TAX-EXEMPT INTERMEDIATE-TERM(2) Year Ended Oct. 31, ------------------------------------------------------------------------ Mar. 2, 1987 (inception) 1995 1994 1993 1992 1991 1990 1989 1988 through Oct. 31, 1987 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD.........$10.01 $10.75 $10.27 $10.06 $9.66 $9.67 $9.73 $9.42 $10.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income...................... .49 .48 .48 .48 .54 .56 .56 .54 .30 Net Realized and Unrealized Gains (Losses) on Securities............... .52 (.61) .55 .21 .40 (.01) (.06) .31 (.58) ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations....... 1.01 (.13) 1.03 .69 .94 .55 .50 .85 (.28) ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........... (.487) (.476) (.476) (.481) (.536) (.560) (.558) (.539) (.300) From Net Realized Gains on Security Transactions....... (.082) (.133) (.078) - - - - - - In Excess of Net Realized Gains on Security Transactions....... - - - - - - - - - ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions......... (.569) (.609) (.554) (.481) (.536) (.560) (.558) (.539) (.300) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD............... 10.45 10.01 10.75 10.27 10.06 9.66 9.67 9.73 9.42 ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(1)............. 10.41% (1.25%) 10.25% 7.00% 9.91% 5.89% 5.30% 9.18% (4.34%)(3) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets.......... .60% .60% .72% .98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets.................. 4.77% 4.59% 4.51% 4.68% 5.40% 5.80% 5.79% 5.57% 4.80%(3) Portfolio Turnover Rate..... 32% 74% 38% 36% 62% 102% 74% 86% 92%(3) Net Assets, End of Period (in thousands)...$80,248 $81,400 $98,740 $76,745 $45,359 $25,587 $20,616 $14,286 $8,262 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Actual total return for period indicated, unless otherwise noted. (2) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (3) Annualized. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
6
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS (Continued) TAX-EXEMPT LONG-TERM (2) Year Ended Oct. 31, ------------------------------------------------------------------------ Mar. 2, 1987 (inception) 1995 1994 1993 1992 1991 1990 1989 1988 through Oct. 31, 1987 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD......... $9.75 $11.10 $10.36 $10.23 $9.62 $9.84 $9.73 $9.09 $10.00 ----- ----- ----- ----- ----- ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS Net Investment Income...................... .53 .52 .53 .53 .57 .60 .62 .61 .37 Net Realized and Unrealized Gains (Losses) on Securities............... .83 (1.01) .90 .22 .61 (.12) .11 .64 (.91) ----- ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Operations....... 1.36 (.49) 1.43 .75 1.18 .48 .73 1.25 (.54) ----- ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS From Net Investment Income........... (.532) (.519) (.529) (.530) (.572) (.604) (.623) (.609) (.370) From Net Realized Gains on Security Transactions....... (.044) (.342) (.161) (.088) - (.094) - - - In Excess of Net Realized Gains on Security Transactions....... - - (.003) - - - - - - ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions......... (.576) (.861) (.693) (.618) (.572) (.698) (.623) (.609) (.370) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD............... 10.54 9.75 11.10 10.36 10.23 9.62 9.84 9.73 9.09 ----- ----- ----- ----- ----- ----- ----- ----- ----- TOTAL RETURN(1)............. 14.45% (4.70%) 14.32% 7.43% 12.54% 5.04% 7.75% 14.15% (8.21%)(3) RATIOS/SUPPLEMENTAL DATA Ratio of Expenses to Average Net Assets.......... .59% .60% .73% 98%(4) .96%(4) 1.00% 1.00% 1.00% 1.00%(3) Ratio of Net Investment Income to Average Net Assets.................. 5.24% 5.00% 4.90% 5.07% 5.73% 6.22% 6.36% 6.43% 6.20%(3) Portfolio Turnover Rate..... 61% 66% 81% 88% 110% 144% 120% 215% 94%(3) Net Assets, End of Period (in thousands)...$57,997 $50,964 $70,757 $61,825 $39,229 $27,862 $20,217 $12,407 $6,426 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Actual total return for period indicated, unless otherwise noted. (2) The data presented has been restated to give effect to a 10 shares for 1 stock split in the form of a stock dividend that occurred on November 13, 1993. (3) Annualized. (4) Expenses are shown net of management fees waived by Investors Research Corporation for low-balance account fees collected during period.
7 INFORMATION REGARDING THE FUNDS - -------------------------------------------------------------------------------- INFORMATION ABOUT INVESTMENT POLICIES OF THE FUNDS The funds have adopted certain investment restrictions that are set forth in the statement of additional information. Those restrictions, as well as the investment objectives of the funds identified on the inside front cover page of this prospectus, and any other investment policies designated as "fundamental" in this prospectus or in the statement of additional information, cannot be changed without shareholder approval. The funds have implemented additional investment policies and practices to guide their activities in the pursuit of their respective investment objectives. These policies and practices, which are described throughout this prospectus, are not designated as fundamental policies and may be changed without shareholder approval. For an explanation of the securities ratings referred to in the following discussion, see "An Explanation of Fixed Income Securities Ratings" in the Statement of Additional Information. TAX-EXEMPT SHORT-TERM, TAX-EXEMPT INTERMEDIATE-TERM AND TAX-EXEMPT LONG-TERM These funds, which seek to provide investors with income generally exempt from federal income taxes, require a minimum initial investment of $5,000. The three funds differ in the weighted average maturities of their portfolios and accordingly in their degree of risk and level of income. Generally, the longer the weighted average maturity, the higher the yield and the greater the price volatility. Tax-Exempt Short-Term invests primarily in short-term tax-exempt bonds. The fund intends to maintain a weighted average portfolio maturity of three years or less. It is designed for investors who can accept some fluctuation in principal in order to earn a higher level of current income than is generally available on tax-exempt money market securities. Tax-Exempt Intermediate-Term invests in tax-exempt bonds and, under normal market conditions, will maintain a weighted average portfolio maturity of three to 10 years. It is designed for investors seeking a higher level of current income than is generally available on tax-exempt short-term bonds and money market securities and who are willing to accept a greater degree of fluctuation in principal. Tax-Exempt Long-Term invests in longer-term tax-exempt bonds and, under normal market conditions, will maintain a weighted average portfolio maturity of 10 years or greater. The fund is designed for the investor seeking a higher level of current income and who can accept the relatively high degree of price volatility associated with longer-term bonds. As a fundamental policy, at least 80% of each fund's portfolio will consist of securities whose income is not subject to federal income tax, including the alternative minimum tax. All such securities must be accompanied by an opinion of Counsel to the issuer that the income is not subject to federal income taxes. (See "Tax-Exempt Securities," page 10.) Under normal market conditions, Tax-Exempt Short-Term may invest up to 100% of its assets and Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term may invest up to 20% of their assets in tax-exempt short-term securities. For temporary defensive purposes, Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term may invest 100% of their assets in such securities and all three funds may invest up to 20% of assets in taxable short-term securities. The tax-exempt funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the manager, as follows: short-term notes within the two highest categories [for example, at least MIG-2 by Moody's Investors Services (Moody's) or SP-2 by Standard & Poor's Corporation (S&P)]; bonds within the four highest categories (for example, at least Baa by Moody's or BBB by S&P); other 8 types of securities rated at least P-2 by Moody's or A-2 by S&P. 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 or changing circumstances. The manager will actively manage each portfolio, adjusting the average maturity as necessary in response to expected changes in interest rates in general and for tax-exempt securities specifically. During periods of rising interest rates, the weighted average maturity of a fund may be moved to the shorter end of its maturity range in order to reduce the effect of bond price declines on the fund's net asset value. Conversely, when prevailing interest rates are falling and bond prices are rising, the weighted average portfolio maturity of a fund may be moved toward the longer end of its maturity range. Tax-exempt securities are issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities. Interest on these securities is exempt from federal income taxes and, in some instances, applicable state or local income taxes. These securities are issued to obtain funds for various public purposes, or for specified privately operated facilities. From time to time, each fund may invest more than 25% of its assets in tax-exempt securities which are related in such a way that an economic, business, or political development or change affecting one such security could also affect the other securities; for example, securities whose issuers are located in the same state. Furthermore, each fund may invest up to 40% of its assets in securities issued on behalf of educational facilities and 40% in securities issued on behalf of qualified health facilities. To the extent that a fund's assets are concentrated in securities payable from revenues on similar facilities, the fund will be subject to the peculiar risks presented by such facilities to a greater extent than it would if the fund's assets were not so concentrated. Such facilities could be adversely affected by, among other things, legislation, regulatory actions, a decline in public and private support and increased competition. FUNDAMENTALS OF FIXED INCOME INVESTING HISTORICAL YIELDS [line graph - graph data] 30-Year 20-Year 3-Month Treasury Tax-Exempt Treasury Bonds Bonds Bills 1/91 8.19 7.14 6.38 2/91 8.20 7.00 6.26 3/91 8.25 6.84 5.93 4/91 8.18 6.67 5.69 5/91 8.26 6.65 5.69 6/91 8.4 6.72 5.69 7/91 8.34 6.61 5.68 8/91 8.06 6.6 5.48 9/91 7.81 6.43 5.25 10/91 7.91 6.4 4.97 11/91 7.94 6.5 4.46 12/91 7.4 6.25 3.96 1/92 7.76 6.33 3.94 2/92 7.79 6.35 4.02 3/92 7.96 6.4 4.14 4/92 8.04 6.43 3.77 5/92 7.84 6.25 3.77 6/92 7.78 6.13 3.65 7/92 7.46 5.78 3.24 8/92 7.41 6.01 3.22 9/92 7.38 6.04 2.74 10/92 7.62 6.34 3.01 11/92 7.6 6.08 3.34 12/92 7.4 6.04 3.14 1/93 7.2 5.9 2.97 2/93 6.9 5.45 3 3/93 6.92 5.61 2.96 4/93 6.93 5.52 2.96 5/93 6.98 5.54 3.11 6/93 6.67 5.32 3.08 7/93 6.56 5.38 3.1 8/93 6.09 5.15 3.07 9/93 6.02 4.99 2.98 10/93 5.97 5 3.1 11/93 6.3 5.24 3.2 12/93 6.35 5.1 3.06 1/94 6.24 4.97 3.03 2/94 6.66 5.26 3.43 3/94 7.09 5.87 3.55 4/94 7.31 6.04 3.95 5/94 7.43 5.99 4.24 6/94 7.61 6.05 4.22 7/94 7.39 5.91 4.36 8/94 7.45 5.96 4.66 9/94 7.82 6.17 4.77 10/94 7.97 6.36 5.15 11/94 8 6.64 5.71 12/94 7.88 6.45 5.69 1/95 7.7 6.12 6 2/95 7.44 5.78 5.94 3/95 7.43 5.77 5.87 4/95 7.34 5.81 5.86 5/95 6.65 5.55 5.8 6/95 6.62 5.77 5.57 7/95 6.85 5.77 5.58 8/95 6.65 5.73 5.45 9/95 6.5 5.67 5.41 10/95 6.33 5.49 5.51 11/95 6.13 5.31 5.49 12/95 5.95 5.18 5.08 BOND PRICE VOLATILITY For a given change in interest rates, longer maturity bonds experience a greater change in price, as shown below: Price of a 7% Price of same coupon bond bond if its Percent Years to now trading yield increases change Maturity to yield 7% to 8% in price 1 year $100.00 $99.06 -0.94% 3 years 100.00 97.38 -2.62% 10 years 100.00 93.20 -6.80% 30 years 100.00 88.69 -11.31% YEARS TO MATURITY TAX-EXEMPT SHORT-TERM Likely Maturities of Individual Holdings 0-6 years Expected Weighted Average Portfolio Maturity Range 6 mos.-5 years TAX-EXEMPT INTERMEDIATE-TERM Likely Maturities of Individual Holdings 0-20 years Expected Weighted Average Portfolio Maturity Range 3-10 years TAX-EXEMPT LONG-TERM Likely Maturities of Individual Holdings 0-30 years Expected Weighted Average Portfolio Maturity Range 10-20 years 9 Over time, the level of interest rates available in the marketplace changes. As prevailing rates fall, the prices of bonds and other securities that trade on a yield basis rise. On the other hand, when prevailing interest rates rise, bond prices fall. Generally, the longer the maturity of a debt security, the higher its yield and the greater its price volatility. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. These factors operating in the marketplace have a similar impact on bond portfolios. A change in the level of interest rates causes the net asset value per share of any bond fund, except money market funds, to change. If sustained over time, it would also have the impact of raising or lowering the yield of the fund. In addition to the risk arising from fluctuating interest rate levels, debt securities are subject to credit risk. When a security is purchased, its anticipated yield is dependent on the timely payment by the borrower of each interest and principal installment. Credit analysis and resultant bond ratings take into account the relative likelihood that such timely payment will occur. As a result, lower-rated bonds tend to sell at higher yield levels than top-rated bonds of similar maturity. AUTHORIZED QUALITY RANGES A-1 A-2 A-3 P-1 P-2 P-3 MIG-1 MIG-2 MIG-3 SP-1 SP-2 SP-3 AAA AA A BBB BB B CCC CC C D Tax-Exempt Short-Term x x x x Tax-Exempt Intermediate-Term x x x x Tax-Exempt Long-Term x x x x In addition, as economic, political and business developments unfold, lower-quality bonds, which possess lower levels of protection with regard to timely payment, usually exhibit more price fluctuation than do higher-quality bonds of like maturity. The investment practices of our fixed income funds take into account these relationships. The maturity of each fund has implications for the degree of price volatility and the yield level to be expected from each. TAX-EXEMPT SECURITIES Historically, interest paid on securities issued by states, cities, counties, school districts and other political subdivisions of the United States has been exempt from federal income taxes. Legislation since 1985, however, affects the tax treatment of certain types of municipal bonds issued after certain dates and, in some cases, subjects the income from certain bonds to differing tax treatment depending on the tax status of its recipient. The tax-exempt funds should be expected to invest some portion of their assets in bonds which, in the hands of some holders, would be subject to the alternative minimum tax, as long as management determines it is in the best interest of shareholders generally to invest in such securities. (See "Taxes," page 23.) As a prospective investor in tax-exempt securities, you should determine whether your after-tax return is likely to be higher with a taxable or with a tax-exempt security. To determine this, you may use the analysis shown in the following example: Suppose your maximum tax rate is 36% and you want to determine whether you should purchase a 6% tax-exempt yield or a 9% taxable security. 6% 6% -------------- = ---- = 9.375% taxable yield 1-.36 tax rate .64 Your after-tax return will be higher with the 6% tax-exempt yield if taxable yields are less than 9.375%. In this example, the tax-exempt is more attractive than the 9% taxable yield. 10 OTHER INVESTMENT PRACTICES For additional information, see "Additional Investment Restrictions" in the Statement of Additional Information. PORTFOLIO TURNOVER The total portfolio turnover rates of the funds are shown in the Financial Highlights table on pages 5-7 of this prospectus. With respect to each series of shares, investment decisions to purchase and sell securities are based on the anticipated contribution of the security in question to the particular fund's objectives. The rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives and accordingly, the annual portfolio turnover rate cannot be anticipated. The portfolio turnover of each fund may be higher than other mutual funds with similar investment objectives. A high turnover rate involves correspondingly higher transaction costs that are borne directly by a fund. It may also affect the character of capital gains, if any, realized and distributed by a fund since short-term capital gains are taxable as ordinary income. REPURCHASE AGREEMENTS While the funds are authorized to invest in repurchase agreements it is not expected that they will regularly make such investments, because the interest earned on them typically is not tax-exempt. Repurchase agreements could be used, however, if it is deemed in the best interest of the funds' shareholders to invest in securities that are not exempt from federal income taxes. A repurchase agreement occurs when, at the time the fund purchases an interest-bearing obligation, the seller (a bank or a broker-dealer registered under the Securities Exchange Act of 1934) agrees to repurchase it on a specified date in the future at an agreed-upon price. The repurchase price reflects an agreed-upon interest rate during the time the fund's money is invested in the security. Since the security purchased constitutes security for the repurchase obligation, a repurchase agreement can be considered a loan collateralized by the security purchased. The fund's risk is the ability of the seller to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. To the extent the value of the security decreases, the fund could experience a loss. The funds will limit repurchase agreement transactions to securities issued by the United States government, its agencies and instrumentalities, and will enter into such transactions with those banks and securities dealers who are deemed creditworthy pursuant to criteria adopted by the funds' board of directors. Each of the funds may invest in repurchase agreements with respect to any security in which that fund is authorized to invest, even if the remaining maturity of the underlying security would make that security ineligible for purchase by such fund. No fund will invest more than 15% of its assets in repurchase agreements maturing in more than seven days. 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), currencies, interest rates, indices or other financial indicators ("reference indices"). 11 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 bond whose interest rate is indexed to the return on two year treasury securities would be a permissible investment (assuming it otherwise meets the other requirements for the funds), 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 on 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. WHEN-ISSUED SECURITIES Each of the funds may sometimes purchase new issues of securities on a when-issued basis without the limit when, in the opinion of the manager, such purchases will further the investment objectives of the fund. The price of when-issued securities is established at the time commitment to purchase is made. Delivery of and payment for these securities typically occurs 15 to 45 days after the commitment to purchase. Market rates of interest on debt securities at the time of delivery may be higher or lower than those contracted for on the when-issued security. Accordingly, the value of each security may decline prior to delivery, which could result in a loss to the fund. A separate account for each fund 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. 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 buyers rather than the general public. Although Rule 12 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. No 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). INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON The funds may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. For options sold, a fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations in an amount equal to the fluctuating market value of long futures contracts it has purchased, less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. A fund will purchase or sell futures contracts and options thereon only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that it may wish to include in its portfolio. A fund will enter into future and option transactions only to the extent that the sum of the amount of margin deposits on its existing futures positions and premiums paid for related options do not exceed 5% of its assets. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (1) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (2) possible lack of a liquid secondary market for closing out futures or option positions; (3) the need for additional portfolio management skills and techniques; and (4) losses due to unanticipated market price movements. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the securities being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between 13 prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of general interest rate trends by the manager may still not result in a successful transaction. The manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. See the Statement of Additional Information for further information about these instruments and their risks. PERFORMANCE ADVERTISING From time to time, the funds may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including cumulative total return or average annual total return, yield and tax-equivalent yield. Cumulative total return data is computed by considering all elements of return, including reinvestment of dividends and capital gains distributions, over a stated period of time. Average annual total return is determined by computing the annual compound return over a stated period of time that would have produced a fund's cumulative total return over the same period if the fund's performance had remained constant throughout. A quotation of yield reflects a fund's income over a stated period expressed as a percentage of the fund's share price. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. 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 your shares or the income reported in a fund's financial statements. A tax-equivalent yield demonstrates the taxable yield necessary to produce an after-tax yield equivalent to that of a fund which invests in exempt obligations. (See "Tax-Exempt Securities," page 10, for a description of the method of comparing yields and tax-equivalent yields.) The funds may also include in advertisements data comparing performance with the performance of non-related investment media, published editorial comments and performance rankings compiled by independent organizations (such as Lipper Analytical Services or Donoghue's Money Fund Report) and publications that monitor the performance of mutual funds. Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, fund performance may be compared to well-known indices of market performance including the Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 21/2-year CD rates. Fund performance may also be compared to other funds in our fund family. It may also be combined or blended with other funds in our fund family, and that combined or blended performance may be compared to the same indices to which individual funds may be compared. All performance information advertised by the funds is historical in nature and is not intended to represent or guarantee future results. The value of fund shares when redeemed may be more or less than their original cost. The funds may also be compared, on a relative basis, to the other funds in our fund family. This relative comparison, which may be based upon historical or expected fund performance, volatility or other fund characteristics, may be presented numerically, graphically or in text. 14 HOW TO INVEST WITH TWENTIETH CENTURY MUTUAL FUNDS AND THE BENHAM GROUP - -------------------------------------------------------------------------------- The following section explains how to invest with Twentieth Century Mutual Funds and The Benham Group, including purchases, redemptions, exchanges and special services. You will find more detail about doing business with us by referring to the Shareholder 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 may not apply to you. Please read "Employer-sponsored Retirement Plans and Institutional Accounts," page 20. 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 $5,000. The minimum investment requirements may be different for some types of retirement accounts. Call one of our Investor Services representatives for information on our retirement plans, which are available for individual investors or for those investing through their employers. Please note: If you register your account as belonging to multiple owners (e.g., as joint tenants), you must provide us with specific authorization on your application in order for us to accept written or telephone instructions from a single owner. Otherwise, all owners will have to agree to any transactions that involve the account (whether the transaction request is in writing or over the telephone). You may invest in the following ways: BY MAIL Send a completed application and check or money order payable in U.S. dollars to Twentieth Century. BY WIRE You may make your initial investment by wiring funds. To do so: (1) Call us or mail a completed application. (2) Instruct your bank to wire funds to Commerce Bank of Kansas City, Missouri. ABA routing number 101000019. (3) Be sure to specify on the wire: (a) Twentieth Century Mutual Funds (b) The fund you are buying (and account number, if you have one) (c) The amount (d) Your name (e) Your city and state (f) Your taxpayer identification number BY EXCHANGE Call 800-345-2021 from 7 a.m. to 7 p.m. Central time to get information on opening an account by exchanging from another Twentieth Century or Benham account. See page 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 816-340-7050 1665 Charleston Road Mountain View, CA 94043 415-965-8300 2000 S. Colorado Blvd. Denver, CO 80222 303-759-8382 15 SUBSEQUENT INVESTMENTS Subsequent investments may be made by an automatic bank, payroll or government direct deposit (see Automatic Investments, page 16) 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 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. 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 Shareholder Services Guide for further information about exchanges. 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 Shareholder 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 15) 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 800-345-2021 to get the appropriate form. 16 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 with a check for an amount you choose (minimum $50). To set up a Check-A-Month plan, please contact an Investor Services Representative or refer to the Shareholder Services Guide. OTHER AUTOMATIC REDEMPTIONS You may elect to make redemptions automatically by authorizing us to send funds directly to your account at a bank or other financial institution. To set up automatic redemptions, call one of our Investor Services Representatives. REDEMPTION PROCEEDS Please note that shortly after a purchase of shares is made by check or electronic draft (also known as an ACH draft) from your bank, we may wait up to 15 days or longer to send redemption proceeds (to allow your purchase funds to clear). No interest is paid on the redemption proceeds after the redemption is processed but before your redemption proceeds are sent. Redemption proceeds may be sent to you in one of the following ways: BY CHECK Ordinarily, all redemption checks will be made payable to the registered owner of the shares and will be mailed only to the address of record. For more information, please refer to our Shareholder 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. Electronically transferred funds may be received up to seven days after transmission. Wired funds are subject to a $10 fee to cover bank wire charges, which is deducted from redemption proceeds. Once the funds are transmitted, the time of receipt and the funds' availability are not under our control. AUTOMATIC REDEMPTION OF SHARES Whenever the shares held in an account have a value of less than the required minimum, a letter will be sent advising you of the necessity to bring the value of the shares held in the account up to the minimum. If action is not taken within 90 days of the letter's date, the shares held in the account will be redeemed and the proceeds from the redemption will be sent by check to your address of record. We reserve the right to increase the investment minimums. 17 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 Shareholder 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 Shareholder 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 800-345-8765. By calling the Automated Information Line, you may listen to fund prices, yields and total return figures. You may also use the Automated Information Line to make investments into your accounts (if we have your bank information on file) and obtain your share balance, value and most recent transactions. If you have authorized us to accept telephone instructions, you also may exchange shares from one fund to another via the Automated Information Line. Redemption instructions cannot be given via the Automated Information Line. CHECKWRITING We offer CheckWriting as a service option for Tax-Exempt Short-Term accounts. CheckWriting allows you to redeem shares in your account by writing a draft ("check") against your account balance. (Shares held in certificate form may not be redeemed by check.) There is no limit on the number of checks you can write, but each one must be for at least $100. When you write a check, you will continue to receive dividends on all shares until your check is presented for payment to our clearing bank. If you redeem all shares in your account by check, any accrued distributions on the redeemed shares will be paid to you in cash on the next monthly distribution date. If you want to add CheckWriting to an existing Tax-Exempt Short-Term account, contact us by phone or mail for an appropriate form. For a new account, you may elect CheckWriting on your purchase application by choosing the Full Services option. CheckWriting is not available for any account held in an IRA or 403(b) plan. CheckWriting redemptions may only be made on checks provided by us. Currently, there is no charge for checks or for the CheckWriting service. We will return checks drawn on insufficient funds or on funds from investments made by any means other than by wire within the previous 15 days. Neither the company nor our clearing bank will be liable for any loss or expenses associated with returned checks. Your account may be assessed a $15 service charge for checks drawn on insufficient funds. 18 A stop payment may be ordered on a check written against your account. We will use reasonable efforts to stop a payment, but we cannot guarantee that we will be able to do so. If we are successful in fulfilling a stop-payment order, your account may be assessed a $15 fee. OPEN ORDER SERVICE Through our open order service, you may designate a price at which to buy shares of a variable-priced fund by exchange from one of our money market funds, or a price at which to sell shares of a variable-priced fund by exchange to one of our money market funds. The designated purchase price must be equal to or lower, or the designated sale price equal to or higher, than the variable-priced fund's net asset value at the time the order is placed. If the designated price is met within 90 calendar days, we will execute your exchange order automatically at that price (or better). Open orders not executed within 90 days will be canceled. If the fund you have selected deducts a distribution from its share price, your order price will be adjusted accordingly so the distribution does not inadvertently trigger an open order transaction on your behalf. If you close or re-register the account from which the shares are to be redeemed, your open order will be canceled. Because of their time-sensitive nature, open order transactions are accepted only by telephone or in person. These transactions are subject to exchange limitations described in each fund's prospectus, except that orders and cancellations received before 2 p.m. Central time are effective the same day, and orders or cancellations received after 2 p.m. Central time are effective the next business day. TAX-QUALIFIED RETIREMENT PLANS Each fund is available for your tax-deferred retirement plan. Call or write us and request the appropriate forms for: o Individual Retirement Accounts (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 Shareholder 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 19 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 Shareholder 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 Shareholder 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. EMPLOYER-SPONSORED RETIREMENT PLANS AND INSTITUTIONAL ACCOUNTS 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 20 redeem them will depend on the terms of your plan. If you own or are considering purchasing Fund shares through a bank, broker-dealer, insurance company or other financial intermediary, your ability to purchase, exchange and redeem shares will depend on your agreement with, and the policies of, such financial intermediary. You may reach one of our Institutional Investor Services Representatives by calling 800-345-3533 to request information about our funds, 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 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 they are deposited before the close of business on the Exchange, usually 3 p.m. Central time. 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, usually 3 p.m. Central time, 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: The 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. If no sale is reported, 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. Pursuant to a determination by the funds' board of directors that such value represents fair value, debt securities with maturities of 60 days or less are valued at amortized cost. When a security is valued at amortized cost, it is valued at its cost when purchased, and thereafter by assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. 22 WHERE TO FIND INFORMATION ABOUT SHARE PRICE The net asset values of the funds are published in leading newspapers daily. Net asset values may be obtained by calling us. DISTRIBUTIONS At the close of each day, including Saturdays, Sundays and holidays, net income is determined and declared as a distribution. The distribution will be paid monthly on the last Friday of each month. You will begin to participate in the distributions the day AFTER your purchase is effective. (See "When Share Price is Determined," page 22.) If you redeem shares, you will receive the distribution declared for the day of the redemption. If all shares are redeemed the distribution on the redeemed shares will be included with your redemption proceeds. Distributions from net realized securities gains, if any, generally are declared and paid once a year, but the funds may make distributions on a more frequent basis to comply with the distribution requirements of the Code, in all events in a manner consistent with the provisions of the Investment Company Act. Distributions will be reinvested unless you elect to receive them in cash. Distributions of less than $10 and distributions on shares purchased within the last 15 days, however, will not be paid in cash and will be reinvested. Distribution checks normally are mailed within seven days after the record date. Please consult our Shareholder 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. TAXES Each of the funds has elected to be taxed under Subchapter M of the Internal Revenue Code, which means that to the extent its income is distributed to shareholders, it pays no income taxes. Dividends representing income derived from tax-exempt bonds generally retain the bonds' tax-exempt character in a shareholder's hands. Distributions which represent short-term capital gains are taxable as ordinary income. Distributions from net long-term capital gains are taxable, 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, you should note that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to you with respect to such shares. Distributions of capital gains are taxable to you regardless of whether they are taken in cash or reinvested, even if the value of your shares is below your cost. If you purchase shares shortly before a capital gain distribution, you must pay income taxes on the distribution, even though the value of your investment (plus cash received, if any) will not have increased. In addition, the share price at the time you purchase shares may include unrealized gains in the securities held in the investment portfolio of the fund. If these portfolio securities are subsequently sold and the gains are realized, they will, to the extent not offset by capital losses, be paid to you as a distribution of capital gains and will be taxable to you as short-term or long-term capital gains. In January of the year following the distribution, we will send you a Form 1099-DIV notifying you of the status of your distributions for federal income tax purposes. The tax-exempt funds anticipate that substantially all of the dividends to be paid by the funds will be exempt from federal income taxes to an individual unless, due to that person's own tax situation, he or she is subject to the alternative minimum tax. In that case, it is likely that a portion of the dividends will be taxable to that shareholder, while remaining tax-exempt in the hands of most other shareholders. The funds will advise shareholders of the 23 percentage, if any, of the dividends not exempt from federal income tax, and the percentage, if any, subject to the individual alternative minimum tax should a shareholder be subject to it. 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 US THAT OMIT YOUR SOCIAL SECURITY NUMBER OR TAX IDENTIFICATION NUMBER WILL SUBJECT US TO A PENALTY OF $50, WHICH WILL BE CHARGED AGAINST YOUR ACCOUNT IF YOU FAIL TO PROVIDE THE CERTIFICATION BY THE TIME THE REPORT IS FILED, AND IS NOT REFUNDABLE. Redemption of shares of a fund (including redemptions made in an exchange transaction) will be a taxable transaction for federal income tax purposes and shareholders will generally recognize 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. 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. In June 1995, Twentieth Century Companies, Inc. ("TCC"), the parent of Investors Research, acquired Benham Management International, Inc. In the acquisition, Benham Management Corporation ("BMC"), the investment adviser to the Benham Group of Mutual Funds, became a wholly owned subsidiary of TCC. Certain employees of BMC provide investment management services to Twentieth Century funds, while certain Twentieth Century employees provide investment management services to Benham funds. 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 and the funds' asset mix as it deems appropriate in pursuit of the funds' investment objectives. Individual portfolio manager members of the team may also adjust portfolio holdings of the funds or of sectors of the funds as necessary between team meetings. The portfolio manager members of the teams managing the funds described in this 24 prospectus and their work experience for the last five years are as follows: G. DAVID MACEWEN joined Benham in 1991 as a Senior Municipal Portfolio Manager, and currently maintains principal management responsibility for six Benham funds. Mr. MacEwen is a member of the team that manages Tax-Exempt Long-Term. Prior to joining Benham, Mr. MacEwen was Vice President and Municipal Portfolio Manager with Provident Institutional Management Corporation, Wilmington, Delaware. JOEL SILVA joined Benham in 1989, serving first as a customer service representative, then moving to a position as a municipal bond trader. As a Municipal Portfolio Manager, Mr. Silva is responsible for the management of two Benham funds. He is a member of the team that manages Tax-Exempt Short-Term and Tax-Exempt Intermediate-Term. 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 .60% of each of the funds. On the first business day of each month, each fund pays a management fee to the manager for the previous month at the specified rate. The fee for the previous month is calculated by multiplying the applicable fee for such fund by 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). 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 the funds. It provides facilities, equipment and personnel to the funds and is paid for such services by Investors Research. Certain recordkeeping and administrative services that would otherwise be performed by Twentieth Century Services, Inc., may be performed by an insurance company or other entity providing similar services for various retirement plans using shares of the funds as a funding medium, by broker-dealers for their customers investing in shares of the funds or by sponsors of multi mutual fund no- or low-transaction fee programs. Investors Research may enter into contracts to pay them for such recordkeeping and administrative services out of its unified management fee. From time to time, special services may be offered to shareholders who maintain higher share balances in our family of funds. These services may include the waiver of minimum investment requirements, expedited confirmation of shareholder transactions, newsletters and a team of personal representatives. Any expenses associated with these special services will be paid by Investors Research. 25 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 and distributing the funds. FURTHER INFORMATION ABOUT TWENTIETH CENTURY Twentieth Century Investors, Inc. was organized as a Maryland corporation on July 2, 1990. The corporation commenced operations on February 28, 1991, the date it merged with Twentieth Century Investors, Inc., a Delaware corporation which had been in business since October 1958. Pursuant to the terms of the Agreement and Plan of Merger dated July 27, 1990, the Maryland corporation was the surviving entity and continued the business of the Delaware corporation with the same officers and directors, the same shareholders and the same investment objectives, policies and restrictions. The principal office of the funds 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 1-800-345-2021. (For local Kansas City area or international callers: 816-531-5575.) Twentieth Century Investors issues 16 series of $.01 par value shares. Each series is commonly referred to as a fund. The assets belonging to each series of shares are held separately by the custodian. 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 those matters which 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 less-than-50% of the 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' by-laws, the holders of shares representing 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. 26 (This page left blank intentionally.) 27 Twentieth Century Investors, Inc. Tax-Exempt Funds Prospectus September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-5029 9606 Recycled Twentieth Century Investors, Inc. Statement of Additional Information September 3, 1996 - -------------------------------------------------------------------------------- This statement is not a prospectus but should be read in conjunction with Twentieth Century's current prospectuses 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 (816-531-5575 for local or international calls), or write to P.O. Box 419200, Kansas City, Missouri 64141-6200. TABLE OF CONTENTS Page Herein Investment Objectives of the Funds 2 Fundamental Policies of the Funds 2 Additional Investment Restrictions 5 Forward Currency Exchange Contracts 6 An Explanation of Fixed Income Securities Ratings 7 Short Sales 9 Portfolio Turnover 9 Interest Rate Futures Contracts and Related Options 10 Municipal Leases 14 Officers and Directors 15 Management 18 Custodians 19 Independent Accountants 20 Capital Stock 20 Multiple Class Structure 20 Brokerage 23 Performance Advertising 24 Redemptions in Kind 27 Holidays 27 Financial Statements 27 ================================================================================ - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES OF THE FUNDS The investment objective of each fund comprising Twentieth Century Investors, Inc. is described on the outside or inside front cover page of the applicable prospectus. One feature of the various series of shares (funds) merits further explanation. As described in the equity funds prospectus, the chief investment difference among Growth, Ultra and Vista, and between Select and Heritage, is the size of the fund, which affects the nature of the investments in the fund's portfolio. A smaller fund tends to be more responsive to changes in the value of its portfolio securities. For example, if a $1,000,000 fund buys $5,000 of stock which then doubles in value, the value of the fund increases by only one-half of 1%. However, if a $100,000 fund buys $5,000 of such stock which then doubles in value, the value of the fund increases by 5%, or at a rate 10 times as great. By the same token, if the value of such stock declines by one-half, the small fund would decline in value by 2.5%, while the larger fund would decline in value by only one-half of 1% or at a rate only one-tenth as great. Thus, a small fund with the same objective as a large fund, and similarly managed, likely will have a greater potential for profit and for loss as well. FUNDAMENTAL POLICIES OF THE FUNDS In achieving their objectives, the funds must conform to certain fundamental policies that may not be changed without shareholder approval, as follows: SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST, DISCOVERY FUND AND THE EQUITY INVESTMENTS OF BALANCED INVESTORS In general, within the restrictions outlined herein, Twentieth Century 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 will be 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 of these portfolios will generally consist of common stocks. However, the investment manager may invest the assets of each series 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 objectives. Senior securities that, in the opinion of management, are high-grade issues may also be purchased for defensive purposes. [Note: The above statement of fundamental policy gives Twentieth Century authority to invest in securities other than common stocks and traditional debt and convertible issues. Though the funds have not made such investments in the past, management may invest in master limited partnerships (other than real estate partnerships) and royalty trusts which are traded on domestic stock exchanges when such investments are deemed appropriate for the attainment of the funds' investment objectives.] BALANCED INVESTORS Management will invest approximately 60% of the Balanced portfolio in common stocks and the balance in fixed income securities. Common stock investments are described above. At least 80% of the fixed income assets will be invested in securities that are rated at the time of purchase by a nationally recognized statistical rating organization to be within the three highest categories. The fund may invest in securities of the United States government and its agencies and instrumentalities, corporate, sovereign government, municipal, mortgage-backed, and other asset-backed securities. It can be expected that management will invest from time to time in bonds and preferred stock convertible into common stock. 2 CASH RESERVE Management will invest the Cash Reserve portfolio in debt securities payable in United States currency. Such securities may be obligations issued or guaranteed by the United States government or its agencies and instrumentalities or obligations issued by corporations and others, including repurchase agreements, of such quality and with such maturities to permit Cash Reserve to be designated as a money market fund and to enable it to maintain a stable offering price per share. The fund operates pursuant to a rule under the Investment Company Act that permits valuation of portfolio securities on the basis of amortized cost. As required by the rule, the board of directors has adopted procedures designed to stabilize, to the extent reasonably possible, the fund's price per share as computed for the purpose of sales and redemptions at $1.00. While the day-to-day operation of the fund has been delegated to the manager, the quality requirements established by the procedures limit investments to certain United States dollar-denominated instruments which the board of directors has determined present minimal credit risks and which have been rated in one of the two highest rating categories as determined by a nationally recognized statistical rating organization or, in the case of an unrated security, of comparable quality. The procedures require review of the fund's portfolio holdings at such intervals as are reasonable in light of current market conditions to determine whether the fund's net asset value calculated by using available market quotations deviates from the per-share value based on amortized cost. The procedures also prescribe the action to be taken if such deviation should occur. U.S. GOVERNMENTS SHORT-TERM AND U.S. GOVERNMENTS INTERMEDIATE-TERM Management will invest the portfolios of U.S. Governments Short-Term and U.S. Governments Intermediate-Term in direct obligations of the United States, such as Treasury bills, Treasury notes and U.S. government bonds, that are supported by the full faith and credit of the United States. Manage-ment may also invest in agencies and instrumentalities of the United States government that are established under the authority of an act of Congress. The securities of some of such agencies and instrumentalities are supported by the full faith and credit of the United States Treasury; others are supported by the right of the issuer to borrow from the Treasury; still others are supported only by the credit of the instrumentality. Such agencies and instrumentalities include, but are not limited to, the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Student Loan Marketing Association, Federal Farm Credit Banks, Federal Home Loan Banks, and Resolution Funding Corporation. Purchase of such securities may be made outright or on a when-issued basis and may be made subject to repurchase agreements. LIMITED-TERM BOND, INTERMEDIATE-TERM BOND AND LONG-TERM BOND Management will invest the portfolios of the corporate bond funds in high- and medium-grade debt securities payable in United States currency. The funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories; corporate, sovereign government and municipal bonds within the four highest categories; securities of the United States government and its agencies and instrumentalities; and other types of securities rated at least P-2 by Moody's or A-2 by S&P. The funds may also purchase securities under repurchase agreements as described in the prospectus and purchase and sell interest rate futures contracts and related options. (See "Interest Rate Futures Contracts and Related Options," page 10.) 3 TAX-EXEMPT SHORT-TERM, TAX-EXEMPT INTERMEDIATE-TERM AND TAX-EXEMPT LONG-TERM Management will invest the tax-exempt portfolios in high- and medium-grade securities. At least 80% of each fund's net assets will be invested in securities whose income is not subject to federal income taxes, including the alternative minimum tax. The two principal classifications of tax-exempt securities are notes and bonds. Tax-exempt notes are of short maturity, generally less than three years, and are issued to provide for short-term capital needs. These include tax anticipation notes and revenue anticipation notes, among others, as well as tax-exempt commercial paper. Tax-exempt bonds, which meet long-term capital needs, generally have maturities longer than one year. The two categories of tax-exempt bonds, general obligation and revenue, may be held by the funds in any proportion. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a project or facility or from the proceeds of a specific revenue source, but not from the general taxing power. Industrial development revenue bonds are a type of revenue bond secured by payments from a private user, and generally do not enjoy a call upon the resources of the municipality that issued the bond on behalf of the user. The funds may invest in fixed-, floating- and variable-rate securities. Fixed-rate securities pay interest at the fixed rate until maturity. Floating- and variable-rate securities normally have a stated maturity in excess of one year, but may have a provision permitting the holder to demand payment of principal and interest upon not more than seven days' notice. Floating rates of interest are tied to a percentage of a designated base rate, such as rates on Treasury bills or the prime rate at a major bank, and change whenever the designated rate changes. Variable-rate securities provide for a periodic adjustment in the rate. For the purpose of determining the maturity of an individual security or the average weighted portfolio maturity of one of the funds, management shall consider the maturity to be the shorter of final maturity, the remaining expected average life of a sinking fund bond, the remaining time until a mandatory put date, the time until payment as the result of exercising a put or demand-for-payment option, or the remaining time until the pre-refunding payment date of a security whose redemption on a call date in advance of final maturity is assured through contractual agreement and with high-quality collateral in escrow. The funds may invest in securities that, at the time of purchase, are rated by a nationally recognized statistical rating organization or, if not rated, are of equivalent investment quality as determined by the management, as follows: short-term notes within the two highest categories, bonds within the four highest categories, and other types of securities rated at least P-2 by Moody's or A-2 by S&P. The funds may invest more than 25% of their assets in industrial development revenue bonds. Each of the funds may invest in interest rate futures contracts and related options. (See "Interest Rate Futures Contracts and Related Options," page 10.) LONG-TERM BOND, TAX-EXEMPT SHORT-TERM, TAX-EXEMPT INTERMEDIATE-TERM AND TAX-EXEMPT LONG-TERM Long-Term Bond, Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term (the funds) may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts for the purpose of hedging against (i) declines or possible declines in the market value of debt securities or (ii) inability to participate in advances in the market values of debt securities at times when the funds are not fully invested in long-term debt securities; 4 provided that, the funds may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on a fund's existing futures positions and premiums paid for related options would exceed 5% of the fund's assets. ADDITIONAL INVESTMENT RESTRICTIONS Additional fundamental policies that may be changed only with shareholder approval provide that, with the exception of Twentieth Century Discovery Fund, each series of shares: (1) Shall not invest more than 15% of its assets in illiquid investments, except for any fund intended to be a money market fund, which shall not invest more than 10% of its assets in illiquid investments. (2) Shall not invest in the securities of companies that, including predecessors, have a record of less than three years of continuous operation. (3) Shall not lend its portfolio securities except to unaffiliated persons, and is subject to the rules and regulations adopted under the Investment Company Act. No such rules and regulations have been promulgated, but it is the corporation'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, the corporation 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 corporation 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 corporation to vote the securities. To comply with the regulations of certain state securities administrators, such loans may not exceed one-third of the corporation's net assets taken at market. It is the policy of the corporation not to permit interest on loaned securities of any series to exceed 10% of the annual gross income of that series (without offset for realized capital gains). (4) Shall not purchase the security of any one issuer if such purchase would cause more than 5% of the corporation's assets at market to be invested in the securities of such issuer, except United States government securities, or if the purchase would cause more than 10% of the outstanding voting securities of any one issuer to be held in the corporation's portfolio. (5) Shall not 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 each series, exclusive of cash and government securities, will be invested in securities of any one industry. The corporation's policy in this respect includes the statement, "The management's definition of the phrase `any one industry' shall be conclusive unless clearly unreasonable." That statement may be ineffective because it may be an attempt to waive a provision of the law, and such waivers are void. (6) Shall not buy securities on margin nor 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); however, the corporation's funds may make margin deposits in connection with the use of any financial instrument or any transaction in securities permitted by their fundamental policies. (7) Shall not invest in the securities of other investment companies except by purchases in the open market involving only customary brokers' commissions and no sales charges. (8) Shall not issue any senior security. (9) Shall not underwrite any securities. (10) Shall not purchase or sell real estate. (In the opinion of management, this restriction will 5 not preclude the corporation from investing in securities of corporations that deal in real estate.) (11) Shall not purchase or sell commodities or commodity contracts; except that Limited-Term Bond, Intermediate-Term Bond, Long-Term Bond, Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term may, for non-speculative purposes, buy or sell interest rate futures contracts on debt securities (debt futures and bond index futures) and related options. (12) Shall not borrow any money with respect to any series of its stock, except in an amount not in excess of 5% of the total assets of the series, and then only for emergency and extraordinary purposes; this does not prohibit the escrow and collateral arrangements in connection with investment in interest rate futures contracts and related options by Limited-Term Bond, Intermediate-Term Bond, Long-Term Bond, Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term. Paragraphs 3, 5, 8 and 9 shall also apply to Twentieth Century Discovery Fund. The Investment Company Act imposes certain additional restrictions upon acquisition by the corporation 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. Neither the Securities and Exchange Commission nor any other agency of the federal government participates in or supervises the corporation's management or its investment practices or policies. To comply with the requirements of a state securities administrator, the corporation has agreed on behalf of all funds other than Twentieth Century Discovery Fund not to invest in oil, gas or other mineral leases, or in warrants, except that securities with warrants attached may be purchased. FORWARD CURRENCY EXCHANGE CONTRACTS The funds conduct their 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 foreign currency exchange contracts to purchase or sell foreign currencies. The funds expect 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 fund's 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. 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 at 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 foreign contract to sell for a fixed dollar amount the amount in foreign currencies approximating the value of some or all of its 6 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 sufficient to cover its obligation under the contract. 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 would not generally 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 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. AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS As described in the applicable prospectus, certain of the funds will have, at any given time, investments in fixed income securities. Those investments, however, are subject to certain credit quality restrictions, as noted in the applicable prospectus. The following is a description of the rating categories referenced in the prospectus fund disclosure. The following summarizes the highest four 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 in 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. To provide more detailed indications of 7 credit quality, the AA, A and BBB ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating SP-1 is the highest rating assigned by S&P to municipal notes and indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a plus (+) designation. The following summarizes the highest four 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 by an 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 which make the long-term risks appear somewhat larger than in Aaa securities. A - Debt which is rated A possesses many favorable investment attributes and is to be considered as an upper medium-grade obligation. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Debt which is rated Baa is considered as a medium-grade obligation, i.e., it is 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 debt lacks outstanding investment characteristics and in fact has speculative characteristics as well. Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa, A and Baa. 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 that the bond ranks in the lower end of its generic rating category. The rating Prime-1 or P-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of short-term promissory obligations. Issuers rated Prime-2 or P-2 (or related supporting institutions) are considered to have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriated, may be more affected by external conditions. Ample alternate liquidity is maintained. The following summarized the highest rating used by Moody's for short-term notes and variable rate demand obligations: MIG-1; VMIG-1 - Obligations bearing these designations are of the best quality, enjoying strong protection by established cash 8 flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. SHORT SALES Twentieth Century's common stock funds and the balanced 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. While the short sale is open, the fund will maintain in a segregated custodial account an amount of securities convertible into, or exchangeable for, such equivalent securities at no additional cost. These securities would constitute the fund's long position. 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, any future losses in the fund's long position should be reduced by a gain in the short position. The extent to which such gains or losses are reduced would depend upon the amount of the security sold short relative to the amount the fund owns. 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. PORTFOLIO TURNOVER The portfolio turnover rates of the funds are shown in the Financial Highlights table in the prospectuses. With respect to each series of shares, the management will purchase and sell securities without regard to the length of time the security has been held and, accordingly, it can be expected that the rate of portfolio turnover may be substantial. The corporation intends to purchase a given security whenever management believes it will contribute to the stated objective of the series, 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 as ordinary income. Subject to those considerations, the corporation will sell a given security, no matter for how long or for 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 the management believes that it is 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, the equity funds may decrease or eliminate entirely their equity positions and increase their cash positions, and when a rise in price levels is anticipated, the equity funds may increase their equity positions and decrease their cash positions. However, these funds have followed the practice of remaining essentially 9 fully invested in equity securities. Since investment decisions are based on the anticipated contribution of the security in question to the corporation's objectives, the rate of portfolio turnover is irrelevant when management believes a change is in order to achieve those objectives, and the corporation's annual portfolio turnover rate cannot be anticipated and may be comparatively high. This disclosure regarding portfolio turnover is a statement of fundamental policy and may be changed only by a vote of the shareholders. Since the management does not take portfolio turnover rate into account in making investment decisions, (1) the management has no intention of accomplishing any particular rate of portfolio turnover, whether high or low, and (2) the portfolio turnover rates in the past should not be considered as a representation of the rates which will be attained in the future. INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS Limited-Term Bond, Intermediate-Term Bond, Long-Term Bond, Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and Tax-Exempt Long-Term (the funds) may buy and sell interest rate futures contracts relating to debt securities ("debt futures," i.e., futures relating to debt securities, and "bond index futures," i.e., futures relating to indexes on types or groups of bonds) and write and buy put and call options relating to interest rate futures contracts. A fund will not purchase or sell futures contracts and options thereon for speculative purposes but rather only for the purpose of hedging against changes in the market value of its portfolio securities or changes in the market value of securities that Investors Research Corporation (manager) anticipates that it may wish to include in the portfolio of a fund. A fund may sell a future or write a call or purchase a put on a future if the manager anticipates that a general market or market sector decline may adversely affect the market value of any or all of the fund's holdings. A fund may buy a future or purchase a call or sell a put on a future if the manager anticipates a significant market advance in the type of securities it intends to purchase for the fund's portfolio at a time when the fund is not invested in debt securities to the extent permitted by its investment policies. A fund may purchase a future or a call option thereon as a temporary substitute for the purchase of individual securities which may then be purchased in an orderly fashion. As securities are purchased, corresponding futures positions would be terminated by offsetting sales. The "sale" of a debt future means the acquisition by the fund of an obligation to deliver the related debt securities (i.e., those called for by the contract) at a specified price on a specified date. The "purchase" of a debt future means the acquisition by the fund of an obligation to acquire the related debt securities at a specified time on a specified date. The "sale" of a bond index future means the acquisition by the fund of an obligation to deliver an amount of cash equal to a specified dollar amount times the difference between the index value at the close of the last trading day of the future and the price at which the future is originally struck. No physical delivery of the bonds making up the index is expected to be made. The "purchase" of a bond index future means the acquisition by the fund of an obligation to take delivery of such an amount of cash. Unlike when the fund purchases or sells a bond, no price is paid or received by the fund upon the purchase or sale of the future. Initially, the fund will be required to deposit an amount of cash or securities equal to a varying specified percentage of the contract amount. This amount is known as initial margin. Cash held in the margin account is not income producing. Subsequent payments, called variation margin, to and from the broker, will be made on a daily basis as the price of the underlying debt securities or index fluctuates, making the future more or less valuable, a process known as mark to the market. Changes in variation margin are recorded by the 10 fund as unrealized gains or losses. At any time prior to expiration of the future, the fund may elect to close the position by taking an opposite position that will operate to terminate its position in the future. A final determination of variation margin is then made; additional cash is required to be paid by or released to the fund and the fund realizes a loss or a gain. When a fund writes an option on a futures contract it becomes obligated, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the term of the option. If a fund has written a call, it becomes obligated to assume a "long" position in a futures contract, which means that it is required to take delivery of the underlying securities. If it has written a put, it is obligated to assume a "short" position in a futures contract, which means that it is required to deliver the underlying securities. When the fund purchases an option on a futures contract it acquires a right in return for the premium it pays to assume a position in a futures contract. If a fund writes an option on a futures contract it will be required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option on a future are included in the initial margin deposit. For options sold, the fund will segregate cash or high-quality debt securities equal to the value of securities underlying the option unless the option is otherwise covered. A fund will deposit in a segregated account with its custodian bank high-quality debt obligations maturing in one year or less, or cash, in an amount equal to the fluctuating market value of long futures contracts it has purchased less any margin deposited on its long position. It may hold cash or acquire such debt obligations for the purpose of making these deposits. Changes in variation margin are recorded by a fund as unrealized gains or losses. Initial margin payments will be deposited in the fund's custodian bank in an account registered in the broker's name; access to the assets in that account may be made by the broker only under specified conditions. At any time prior to expiration of a futures contract or an option thereon, a fund may elect to close the position by taking an opposite position that will operate to terminate its position in the futures contract or option. A final determination of variation margin is made at that time; additional cash is required to be paid by or released to it and it realizes a loss or gain. Although futures contracts by their terms call for the actual delivery or acquisition of the underlying securities or cash, in most cases the contractual obligation is so fulfilled without having to make or take delivery. The funds do not intend to make or take delivery of the underlying obligation. All transactions in futures contracts and options thereon are made, offset or fulfilled through a clearinghouse associated with the exchange on which the instruments are traded. Although the funds intend to buy and sell futures contracts only on exchanges where there appears to be an active secondary market, there is no assurance that a liquid secondary market will exist for any particular future at any particular time. In such event, it may not be possible to close a futures contract position. Similar market liquidity risks occur with respect to options. The use of futures contracts and options thereon to attempt to protect against the market risk of a decline in the value of portfolio securities is referred to as having a "short futures position." The use of futures contracts and options thereon to attempt to protect against the market risk that a fund might not be fully invested at a time when the value of the securities in which it invests is increasing is referred to as having a "long futures position." The funds must operate within certain restrictions as to long and short positions in futures contracts and options thereon under a rule (CFTC Rule) adopted by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA) to be eligible for the exclusion provided by the CFTC Rule from registration by the fund with the CFTC as a 11 "commodity pool operator" (as defined under the CEA), and must represent to the CFTC that it will operate within such restrictions. Under these restrictions a fund will not, as to any positions, whether long, short or a combination thereof, enter into futures contracts and options thereon for which the aggregate initial margins and premiums exceed 5% of the fair market value of the fund's assets after taking into account unrealized profits and losses on options the fund has entered into; in the case of an option that is "in-the-money" (as defined under the CEA), the in-the-money amount may be excluded in computing such 5%. (In general, a call option on a futures contract is in-the-money if the value of the future exceeds the strike, i.e., exercise, price of the call; a put option on a futures contract is in-the-money if the value of the futures contract that is the subject of the put is exceeded by the strike price of the put.) Under the restrictions, a fund also must, as to short positions, use futures contracts and options thereon solely for bona fide hedging purposes within the meaning and intent of the applicable provisions under the CEA. As to its long positions that are used as part of a fund's portfolio strategy and are incidental to the fund's activities in the underlying cash market, the "underlying commodity value" (see below) of the fund's futures contract and options thereon must not exceed the sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt obligations or other U.S. dollar-denominated, high-quality, short-term money market instruments so set aside, plus any funds deposited as margin; (ii) cash proceeds from existing investments due in 30 days; and (iii) accrued profits held at the futures commission merchant. [There are described above the segregated accounts that a fund must maintain with its custodian bank as to its options and futures contracts activities due to Securities and Exchange Commission (SEC) requirements. The fund will, as to its long positions, be required to abide by the more restrictive of these SEC and CFTC requirements.] The underlying commodity value of a futures contract is computed by multiplying the size (dollar amount) of the futures contract by the daily settlement price of the futures contract. For an option on a futures contract, that value is the underlying commodity value of the future underlying the option. Since futures contracts and options thereon can replicate movements in the cash markets for the securities in which a fund invests without the large cash investments required for dealing in such markets, they may subject a fund to greater and more volatile risks than might otherwise be the case. The principal risks related to the use of such instruments are (i) the offsetting correlation between movements in the market price of the portfolio investments (held or intended) being hedged and in the price of the futures contract or option may be imperfect; (ii) possible lack of a liquid secondary market for closing out futures or options positions; (iii) the need for additional portfolio management skills and techniques; (iv) losses due to unanticipated market price movements; and (v) the bankruptcy or failure of a futures commission merchant holding margin deposits made by the funds and the funds' inability to obtain repayment of all or part of such deposits. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the security being hedged. Such equal price changes are not always possible because the investment underlying the hedging instrument may not be the same investment that is being hedged. The manager will attempt to create a closely correlated hedge, but hedging activity may not be completely successful in eliminating market value fluctuation. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to the following factors which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures 12 markets. Second, the liquidity of the futures market depends on participants entering into off-setting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest trends by the manager may still not result in a successful transaction. The manager may be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. The risk of imperfect correlation between movements in the price of a bond index future and movements in the price of the securities that are the subject of the hedge increases as the composition of a fund's portfolio diverges from the securities included in the applicable index. The price of the bond index future may move more than or less than the price of the securities being hedged. If the price of the bond index future moves less than the price of the securities that are the subject of the hedge, the hedge will not be fully effective, but if the price of the securities being hedged has moved in an unfavorable direction, the fund would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the futures contract. If the price of the futures contract moves more than the price of the security, a fund will experience either a loss or a gain on the futures contract that will not be completely offset by movements in the price of the securities that are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the bond index futures, a fund may buy or sell bond index futures in a greater dollar amount than the dollar amount of securities being hedged if the historical volatility of the prices of such securities being hedged is less than the historical volatility of the bond index. It is also possible that, where a fund has sold futures contracts to hedge its securities against a decline in the market, the market may advance and the value of securities held in the portfolio may decline. If this occurred, a fund would lose money on the futures contract and also experience a decline in value in its portfolio securities. However, while this could occur for a brief period or to a very small degree, over time the value of a portfolio of debt securities will tend to move in the same direction as the market indexes upon which the futures contracts are based. Where bond index futures are purchased to hedge against a possible increase in the price of bonds before a fund is able to invest in securities in an orderly fashion, it is possible that the market may decline instead; if the fund then concludes not to invest in securities at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of the securities it had anticipated purchasing. The risks of investment in options on bond indexes may be greater than options on securities. Because exercises of bond index options are settled in cash, when a fund writes a call on a bond index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A fund can offset some of the risk of its writing position by holding a portfolio of bonds similar to those on which the underlying index is based. However, a fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as the underlying index and, as a result, bears a risk that the value of the securities held will vary from the value of the index. Even if a fund could assemble a portfolio that exactly reproduced the composition of the underlying index, it still would not be fully 13 covered from a risk standpoint because of the "timing risk" inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when the option is exercised. As with other kinds of options, a fund, as the call writer, will not learn that it has been assigned until the next business day at the earliest. The time lag between exercise and notice of assignment poses no risk for the writer of a covered call on a specific underlying security because there, the writer's obligation is to deliver the underlying security, not to pay its value as of a fixed time in the past. So long as the writer already owns the underlying security, it can satisfy its settlement obligations by simply delivering it, and the risk that its value may have declined since the exercise date is borne by the exercising holder. In contrast, even if the writer of an index call holds securities that exactly match the composition of the underlying index, it will not be able to satisfy its assignment obligations by delivering those securities against payment of the exercise price. Instead, it will be required to pay cash in an amount based on the closing index value of the exercise date; and by the time it learns that it has been assigned, the index may have declined with a corresponding decline in the value of its portfolio. This "timing risk" is an inherent limitation on the ability of index call writers to cover their risk exposure by holding securities positions. If a fund has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the fund exercising the option must pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer. MUNICIPAL LEASES The tax-exempt funds may invest in municipal lease obligations and certificates of participation in such obligations (collectively, lease obligations). A lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, although the lease obligation is ordinarily backed by the municipality's covenant to budget for the payments due under the lease obligation. Certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease obligation payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In evaluating a potential investment in such a lease obligation, management will consider: (i) the credit quality of the obligor, (ii) whether the underlying property is essential to a governmental function, and (iii) whether the lease obligation contains covenants prohibiting the obligor from substituting similar property if the obligor fails to make appropriations for the lease obligation. Municipal lease obligations may be determined to be liquid in accordance with the guidelines established by the funds' board of directors for purposes of complying with the funds' investment restrictions. In determining the liquidity of a lease obligation, the manager will consider: (1) the frequency of trades and quotes for the lease obligation, (2) the number of dealers willing to purchase or sell the lease obligation and the number of other potential purchasers, (3) dealer undertakings to make a market in the lease obligation, (4) the nature of the marketplace trades, including the time needed to dispose of the lease obligation, the method of soliciting offers, and the mechanics of transfer, (5) whether the lease obligation is of a size that will be attractive to institutional 14 investors, (6) whether the lease obligation contains a non-appropriation clause and the likelihood that the obligor will fail to make an appropriation therefore, and (7) such other factors as the manager may determine to be relevant to such determination. OFFICERS AND DIRECTORS The principal officers and directors of the corporation, their principal business experience during the past five years, and their affiliations 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., TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. JAMES E. STOWERS III,* president and director; president and director, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century Companies, Inc., Investors Research Corporation and Twentieth Century Services, 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, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. ROBERT W. DOERING, M.D., director; 6406 Prospect, Kansas City, Missouri; general surgeon; director, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. LINSLEY L. LUNDGAARD, vice chairman of the board and director; 18648 White Wing Drive, Rio Verde, Arizona; retired; formerly vice president and national sales manager, Flour Milling Division, Cargill, Inc.; director, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital 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 World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc., TCI Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. LLOYD T. SILVER JR., director; 2300 West 70th Terrace, Mission Hills, Kansas; president, LSC, Inc., manufacturer's representative; director, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital 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 World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc., TCI Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. 15 JOHN M. URIE, director; 5511 NW Flint Ridge Road, Kansas City, Missouri; consultant; formerly, director of finance, City of Kansas City, Missouri; director, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. WILLIAM M. LYONS, executive vice president, secretary and general counsel; executive vice president, secretary and general counsel, Twentieth Century World Investors, Inc. and Twentieth Century Strategic Asset Allocations, Inc.; executive vice president and general counsel, TCI Portfolios, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Companies, Inc., Investors Research Corporation and Twentieth Century Services, Inc. ROBERT T. JACKSON, executive vice president 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, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc.; formerly executive vice president, Kemper Corporation. MARYANNE ROEPKE, CPA, vice president, treasurer and principal accounting officer; vice president and treasurer, TCI Portfolios, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc.; vice president, Twentieth Century Services, Inc. PATRICK A. LOOBY, vice president; vice president and secretary, Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and TCI Portfolios, Inc.; vice president, Twentieth Century World Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century Services, Inc. MERELE A. MAY, controller; controller, TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. C. JEAN WADE, CPA, controller; controller, Twentieth Century Premium Reserves, Inc. and Twentieth Century Strategic Asset Allocations, Inc.; formerly, accountant, Baird, Kurtz & Dobson. 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 accountants, reviewing the arrangements for and scope of the annual audit, reviewing comments made by the independent accountants with respect to internal controls and the considerations given or the corrective action taken by management, and reviewing nonaudit services provided by the independent accountants. 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 to the board regarding various compliance matters and monitoring the implementation of the funds' Code of Ethics, including violations thereof. The nominating committee has as its 16 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 World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, 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 Twentieth Century investment companies an annual director's fee of $36,000, and an additional fee of $1,000 per regular board meeting attended and $500 per special board meeting and audit 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. Set forth below is the aggregate compensation paid for the periods indicated by the funds and by the Twentieth Century family of mutual funds as a whole to each director 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 $37,370.13 $44,000 Robert W. Doering, M.D. 37,370.13 44,000 Linsley L. Lundgaard 38,052.39 44,000 Donald H. Pratt 21,292.80 32,000 Lloyd T. Silver Jr. 37,370.13 44,000 M. Jeannine Strandjord 37,370.13 44,000 John M. Urie 39,269.48 46,000 - -------------------------------------------------------------------------------- 1 Includes compensation actually paid by the corporation during the fiscal year ended October 31, 1995. 2 Includes compensation paid by the twelve investment company members of the Twentieth Century family of funds for the calendar year ended December 31, 1995. The corporation has adopted the Twentieth Century Mutual Funds Deferred Compensation Plan for Non-Interested Directors. Under the Plan, the non-interested person directors may defer receipt of all or any part of the fees to be paid to them for serving as directors of the corporation. Under the Plan, all deferred fees are credited to an account established in the name of the participating directors. The amounts credited to the account then increase or decrease, as the case may be, in accordance with the performance of one or more of the Twentieth Century Mutual Funds that are selected by the participating director. The account balance continues to fluctuate in accordance with the performance of the selected fund or funds until final payment of all amounts credited to the account. Directors are allowed to change their designation of mutual funds from time to time. No deferred fees are payable until such time as a participating director resigns, retires or otherwise ceases to be a member of the board of directors. Directors may receive deferred fee account balances either in a lump sum payment or in substantially equal installment payments to be made over a period not to exceed 10 years. Upon the death of a director, all remaining deferred fee account balances are paid to the director's beneficiary or, if none, to the director's estate. The Plan is an unfunded plan and, accordingly, Twentieth Century has no obligation to 17 segregate assets to secure or fund the deferred fees. The rights of directors to receive their deferred fee account balances are the same as the rights of a general unsecured creditor of the corporation. The Plan may be terminated at any time by the administrative committee of the Plan. If terminated, all deferred fee account balances will be paid in a lump sum. No deferred fees were paid to any participating directors under the Plan during the fiscal year ended October 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 are also 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 past three years, the management fees of Investors Research were: FUND Year Ended October 31 - -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- SELECT INVESTORS Management fees $ 40,918,896 $ 46,147,911 $ 48,480,096 Average net assets 4,100,172,070 4,616,441,587 4,848,159,470 HERITAGE INVESTORS Management fees 8,900,956 8,238,322 5,498,048 Average net assets 899,947,177 822,480,118 548,884,570 GROWTH INVESTORS Management fees 45,713,727 43,916,916 47,176,779 Average net assets 4,575,064,437 4,404,299,518 4,709,124,282 ULTRA INVESTORS Management fees 113,284,379 91,474,921 60,984,145 Average net assets 11,330,063,925 9,149,558,371 6,112,235,221 VISTA INVESTORS Management fees 11,104,694 7,226,302 8,705,024 Average net assets 1,123,979,069 732,311,586 871,068,426 GIFTRUST INVESTORS Management fees 3,840,425 1,875,098 1,124,267 Average net assets 389,827,724 189,487,155 112,725,430 BALANCED INVESTORS Management fees 7,303,148 6,861,248 6,958,709 Average net assets 743,379,550 687,079,027 693,537,849 CASH RESERVE Management fees 9,546,843 10,282,495 13,085,631 Average net assets 1,367,481,447 1,294,838,404 1,306,730,840 U.S. GOVERNMENTS SHORT-TERM Management fees 2,708,850 3,611,805 5,286,712 Average net assets 387,845,926 447,658,784 530,918,127 LONG-TERM BOND Management fees 1,038,120 1,233,251 1,639,343 Average net assets 132,239,065 141,750,838 164,545,497 TAX-EXEMPT SHORT-TERM Management fees 0 0 0 Average net assets 59,645,970 57,545,359 35,996,656 TAX-EXEMPT INTERMEDIATE-TERM Management fees 471,159 537,893 632,802 Average net assets 78,781,379 89,751,385 87,858,747 TAX-EXEMPT LONG-TERM Management fees 317,622 361,732 471,123 Average net assets 53,244,618 60,383,665 64,889,290 LIMITED-TERM BOND Management fees 40,530 17,509 -- Average net assets 5,906,790 3,690,814 -- INTERMEDIATE-TERM BOND Management fees 59,552 17,532 -- Average net assets 8,128,357 3,458,399 -- U.S. GOVERNMENTS INTERMEDIATE-TERM Management fees 104,141 19,566 -- Average net assets 14,092,947 3,821,083 -- - -------------------------------------------------------------------------------- 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 the outstanding votes (as defined in the Investment Company Act) of Twentieth Century, and (ii) by the vote of a majority of the directors 18 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 a majority 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 or 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 one or more series of shares of Twentieth Century and also for other clients advised by Investors Research. Investment decisions for Twentieth Century 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 series, or in different amounts and at different times for more than one but less than all clients or series. In addition, purchases or sales of the same security may be made for two or more clients or series on the same date. Such transactions will be allocated among clients or series 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. On February 1, 1996, Investors Research was acting as investment adviser to 10 institutional accounts with an aggregate value of $369,906,144. While each of these clients has unique investment restrictions and guidelines, they have all elected to have their portfolios managed in a manner similar to the portfolio of either Growth Investors or Select Investors. Accordingly, anytime a security is being bought or sold for the Growth or Select funds, it may also be bought or sold for some or all of such institutional accounts. Investors Research anticipates acquiring additional such accounts in the future. Twentieth Century Services, Inc. provides physical facilities, including computer hardware and software and personnel, for the day-to-day administration of Twentieth Century and of Investors Research. Investors Research pays Twentieth Century Services, Inc. for such services. The payments by Investors Research to Twentieth Century Services, Inc. for the years ending October 31, 1995, 1994 and 1993 have been, respectively, $100,504,910, $139,895,701, and $99,610,260. 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, 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. 19 INDEPENDENT ACCOUNTANTS Baird, Kurtz & Dobson, 1100 Main Street, Kansas City, Missouri 64105, serves as Twentieth Century's independent accountants, 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. CAPITAL STOCK Twentieth Century's capital stock is described in the prospectuses under the caption, "Further Information About Twentieth Century." Twentieth Century may in the future issue additional series or class of shares without a vote of 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 profit (or losses) of investments and other assets held for each series or class. Your rights as a shareholder are the same for all series or class of securities unless otherwise stated. Within their respective series or class, all shares 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 shall be entitled to receive, pro rata, all of the assets less the liabilities of that series or class. As of February 5, 1996, in excess of 5% of the outstanding shares of the following funds were owned of record by: NAME OF SHAREHOLDER FUND AND PERCENTAGE - -------------------------------------------------------------------------------- Growth Investors Nationwide Life Insurance Company Columbus, Ohio -- 12.2% Ultra Investors Charles Schwab & Co. San Francisco, California -- 9.2% Vista Investors Charles Schwab & Co.-- 9.8% Heritage Investors Charles Schwab & Co. -- 6.6% Bankers Trust Company as trustee for Kraft General Foods -- 7.3% Cash Reserve Twentieth Century Companies, Inc.-- 5.6% Kansas City, Missouri Tax-Exempt Short-Term Twentieth Century Companies, Inc.-- 11.9% Tax-Exempt Long-Term Twentieth Century Companies, Inc.-- 6.4% Limited-Term Bond Twentieth Century Companies, Inc.-- 36.5% Intermediate-Term Bond Twentieth Century Companies, Inc.--19.3% The Chase Manhattan Bank as Trustee for Gza Geo Environmental Inc. Restated 401(k) Profit Sharing Plan and Trust New York, New York-- 5.6% The Chase Manhattan Bank as trustee for Fujisawa USA Inc. Savings and Retirement Plan Trust New York, New York-- 5.3% U.S. Governments Short-Term Nationwide Life Insurance Company-- 8.6% U.S. Governments Intermediate-Term The Chase Manhattan Bank as Trustee for Robert Bosch Corporation Star Plan and Trust New York, New York-- 15.7% The Chase Manhattan Bank as Trustee for The Petroleum Helicopters Inc. 401(k) Retirement Plan and Trust New York, New York-- 5.7% - -------------------------------------------------------------------------------- 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: a retail class, an institutional class, a service class and an advisor class. Not all funds offer all four classes. The retail 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 20 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 retail 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 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 record keeping and administrative services that are provided by the funds' transfer agent for the retail 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 Twentieth Century Securities, Inc. (the "Distributor") a shareholder services fee of 0.25% annually of the aggregate average daily assets of the fundsi 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 received under the 21 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 media) of shares and placing purchase, exchange and redemption orders with the Distributor; (B) providing shareholders with a service that 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 DISTRIBUTION 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 fundsi 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 for the retail 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 the Distributor a fee of 0.50% annually of the aggregate average daily 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 22 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 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-1 of the 1940 Act. BROKERAGE SELECT, HERITAGE, GROWTH, ULTRA, VISTA, GIFTRUST AND THE EQUITY INVESTMENTS OF BALANCED INVESTORS Under 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 under this caption 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 services required to be performed by Investors Research. Investors Research does not utilize brokers that provide such information and services for the purpose of reducing the expense of providing required services to Twentieth Century. In the years ended October 31, 1995, 1994 and 1993, the brokerage commissions of each fund were as follows: Year Ended October 31 - -------------------------------------------------------------------------------- FUND 1995 1994 1993 - -------------------------------------------------------------------------------- SELECT INVESTORS $11,363,976 $14,844,437 $10,619,773 HERITAGE INVESTORS 3,180,082 3,620,144 1,952,642 GROWTH INVESTORS 13,577,767 10,144,618 10,384,958 ULTRA INVESTORS 18,911,590 19,240,703 9,269,314 VISTA INVESTORS 1,750,665 1,895,400 3,034,885 GIFTRUST INVESTORS 571,349 588,145 359,785 BALANCED INVESTORS 875,207 979,903 1,023,195 - -------------------------------------------------------------------------------- In 1995, $43,452,273 of the total brokerage commissions was paid to brokers and dealers who provided information and services on transactions of $24,992,668,210 (69% of all transactions). 23 The brokerage commissions paid by Twentieth Century may exceed those which another broker might have charged for effecting the same trans-actions, because of the value of the brokerage and 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 often 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 regularly places its over-the-counter transactions with principal market makers, but may also deal on a brokerage basis when utilizing electronic trading networks or as circumstances warrant. CASH RESERVE, U.S. GOVERNMENTS SHORT-TERM, U.S. GOVERNMENTS INTERMEDIATE-TERM, LIMITED-TERM BOND, INTERMEDIATE-TERM BOND, LONG-TERM BOND, TAX-EXEMPT SHORT-TERM, TAX-EXEMPT INTERMEDIATE-TERM, TAX-EXEMPT LONG-TERM AND THE FIXED INCOME INVESTMENTS OF BALANCED INVESTORS Under the management agreement between Twentieth Century and Investors Research, Investors Research has the responsibility of selecting brokers and dealers to execute portfolio transactions. In many transactions, the selection of the broker or dealer is determined by the availability of the desired security and its offering price. In other transactions, the selection of broker or dealer is a function of the selection of market and the negotiation of price, as well as the broker's general execution and operational and financial capabilities in the type of transaction involved. Investors Research will seek to obtain prompt execution of orders at the most favorable prices or yields. Investors Research may choose to purchase and sell portfolio securities to and from dealers who provide services or research, statistical and other information to Twentieth Century and to Investors Research. Such information or services will be in addition to and not in lieu of the services required to be performed by Investors Research, and the expenses of Investors Research will not necessarily be reduced as a result of the receipt of such supplemental information. PERFORMANCE ADVERTISING Individual fund performance may be compared to various indices including the Standard & Poor's 500 index, the Dow Jones Industrial Average, Donoghue's Money Fund Average and the Bank Rate Monitor National Index of 2 1/2-year CD rates. EQUITY FUNDS The following table sets forth the average annual total return of Twentieth Century's equity funds and the balanced fund for the one-, five- and 10-year periods (or period since inception) ended October 31, 1995, the last day of the funds' fiscal year. 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 performance had been constant over that period. Cumulative total return includes all elements of return, including reinvestment of dividends and capital gains distributions. From FUND 1 year 5 year 10 year Inception1 - -------------------------------------------------------------------------------- SELECT INVESTORS 15.02% 10.98% 12.70% -- HERITAGE INVESTORS 21.04% 17.60% -- 16.23% 24 From FUND 1 year 5 year 10 year Inception1 - -------------------------------------------------------------------------------- GROWTH INVESTORS 22.31% 18.32% 16.45% -- ULTRA INVESTORS 36.89% 30.32% 21.59% -- VISTA INVESTORS 44.20% 25.39% 18.38% -- GIFTRUST INVESTORS 32.52% 37.11% 25.29% -- BALANCED INVESTORS 16.36% 13.51% -- 11.95% - -------------------------------------------------------------------------------- 1 Data from inception shown for funds that are less than 10 years old. The funds may also advertise average annual total return 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 return of the Twentieth Century equity funds and the balanced fund since their respective dates of inception. The table also shows annual compound rates for Growth and Select from June 30, 1971, which corresponds with Twentieth Century's implementation of its current investment philosophy and practices and for all other funds from their respective dates of inception (as noted previously) through October 31, 1995. Cumulative Total Average Annual FUND Return Since Inception Compound Rate - -------------------------------------------------------------------------------- SELECT INVESTORS 3972.41% 16.45% HERITAGE INVESTORS 231.68% 16.23% GROWTH INVESTORS 6212.00% 18.56% ULTRA INVESTORS 939.25% 18.21% VISTA INVESTORS 406.80% 14.57% GIFTRUST INVESTORS 1002.15% 22.28% BALANCED INVESTORS 121.18% 11.95% - -------------------------------------------------------------------------------- FIXED INCOME FUNDS AND THE BALANCED FUND Cash Reserve. The yield of Cash Reserve is calculated by measuring the income generated by an investment in the fund over a seven-day period (net of fund expenses). This income is then "annualized." That is, the amount of income generated by the investment over the seven-day period is assumed to be generated over each similar period throughout a full year and is shown as a percentage of the investment. The "effective yield" is calculated in a similar manner but, when annualized, the income earned by the investment is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of the assumed reinvestment. Based upon these methods of computation, the yield and effective yield for Cash Reserve for the seven days ended October 31, 1995, the last seven days of the fund's fiscal year, was 5.16% and 5.30%, respectively. Other Fixed Income Funds and the Balanced Fund. Yield is calculated by adding over a 30-day (or one-month) period all interest and dividend income (net of fund expenses) calculated on each day's market values, dividing this sum by the average number of fund shares outstanding during the period, and expressing the result as a percentage of the fund's share price on the last day of the 30-day (or one-month) period. The percentage is then annualized. Capital gains and losses are not included in the calculation. The following table sets forth yield quotations for Twentieth Century's fixed income funds (other than Cash Reserve) and the balanced fund for the 30-day period ended October 31, 1995, the last day of the fiscal year pursuant to computation methods prescribed by the Securities and Exchange Commission. U.S. U.S Intermediate- Governments Governments Limited-Term Term Short-Term Intermediate-Term Bond Bond - -------------------------------------------------------------------------------- 5.18% 5.39% 5.59% 5.63% - -------------------------------------------------------------------------------- Tax-Exempt Long-Term Tax-Exempt Intermediate- Tax-Exempt Balanced Bond Short-Term Term Long-Term Investors - -------------------------------------------------------------------------------- 6.16% 4.18% 4.21% 4.79% 2.42% - -------------------------------------------------------------------------------- The following table sets forth tax-equivalent yields for the Tax-Exempt Short-Term, Tax-Exempt Intermediate-Term and the Tax-Exempt Long-Term funds for the 30-day period ended October 31, 1995. The example assumes a 36% tax rate. The tax-equivalent yield is computed as follows: 25 tax- tax-exempt yield equivalent = ------------------- + non tax-exempt yield yield 1-assumed tax rate Tax-Exempt Tax-Exempt Tax-Exempt Short-Term Intermediate-Term Long-Term - -------------------------------------------------------------------------------- 6.53% 6.58% 7.48% - -------------------------------------------------------------------------------- The fixed income funds may also elect to advertise cumulative total return and average annual total return, computed as described above. The table below shows the cumulative total return and the average annual total return of Twentieth Century's fixed income funds since their respective dates of inception (as noted below) through October 31, 1995. Cumulative Total Return Average Annual Date of FUND Since Inception Total Return Inception - -------------------------------------------------------------------------------- U.S. GOVERNMENTS SHORT-TERM 154.81% 7.53% 12/15/82 U.S. GOVERNMENTS INTERMEDIATE-TERM 10.46% 6.14% 3/1/94 LIMITED-TERM BOND 8.81% 5.19% 3/1/94 INTERMEDIATE-TERM BOND 10.80% 6.34% 3/1/94 LONG-TERM BOND 95.10% 8.02% 3/2/87 TAX-EXEMPT SHORT-TERM 11.65% 4.22% 3/1/93 TAX-EXEMPT INTERMEDIATE-TERM 67.17% 6.11% 3/2/87 TAX-EXEMPT LONG-TERM 84.24% 7.31% 3/2/87 - -------------------------------------------------------------------------------- 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. 26 REDEMPTIONS IN KIND Twentieth Century's policy with regard to redemptions in excess of the lesser of one half of 1% of a fund's assets or $250,000 from its equity funds and Balanced Investors is described in the applicable fund prospectus under the heading "Special Requirements for Large Redemptions." The funds have elected to be governed by Rule 18f-1 under the Investment Company Act, 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 the fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets to cash. The method of valuing portfolio securities used to make redemptions in kind will be the same as the method of valuing portfolio securities described in the prospectus under the caption "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 October 31, 1995, are included in the annual reports to shareholders, and the financial statements for the six months ended April 30, 1996 are included in the semiannual report to shareholders. Both reports are incorporated herein by reference. While the financial statements incorporated herein from the Semiannual Report are unaudited, all adjustments, in the opinion of management, necessary for a fair presentation of the financial position and results of operations at April 30, 1996 and for the six months ended April 30, 1996, have been made. You may receive copies without charge upon request to Twentieth Century at the address and phone number shown on the cover of this statement. 27 Twentieth Century Investors, Inc. Statement of Additional Information September 3, 1996 [company logo] Investments That Work(TM) - --------------------------------------------- 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 Address: http://www.twentieth-century.com - --------------------------------------------- [company logo] ================================================================================ - -------------------------------------------------------------------------------- SH-BKT-4993 9609 Recycled PART C. OTHER INFORMATION. ITEM 24. Financial Statements and Exhibits. (a) Financial Statements (i) Financial Statements filed in Part A of the Registration Statement: 1. Financial Highlights. (ii) Financial Statements filed in Part B of the Registration Statement (each of the following financial statements is contained in the Registrant's Annual Reports dated October 31, 1995, and which are incorporated by reference in Part B of this Registration Statement): 1. Statement of Assets and Liabilities at October 31, 1995. 2. Statement of Operations for the year ended October 31, 1995. 3. Statement of Changes in Net Assets for the year ended October 31, 1995. 4. Notes to Financial Statements as of October 31, 1995. 5. Schedule of Investments as of October 31, 1995. 6. Report of Independent Certified Public Accountants dated November 27, 1995. (iii) Financial Statements filed in Part B of the Registration Statement (each of the following financial statements is contained in the Registrant's Semiannual Reports dated April 30, 1996, which are incorporated by reference in Part B of this Registration Statement): 1. Statement of Assets and Liabilities at April 30, 1996 (unaudited). 2. Statement of Operations for the six months ended April 30, 1996 and 1995 (unaudited). 3. Statement of Changes in Net Assets for the six months ended April 30, 1996 (unaudited). 4. Notes to Financial Statements as of April 30, 1996 (audited). 5. Schedule of Investments as of April 30, 1996 (unaudited). (b) Exhibits (all exhibits not filed herewith are being incorporated herein by reference) 1. (a) Articles of Incorporation of Twentieth Century Investors, Inc., dated July 2, 1990 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (b) Articles of Amendment of Twentieth Century Investors, Inc., dated November 20, 1990 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (c) Articles of Merger of Twentieth Century Investors, Inc., a Maryland corporation and Twentieth Century Investors, Inc., a Delaware corporation, dated February 22, 1991 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (d) Articles of Amendment of Twentieth Century Investors, Inc., dated August 11, 1993 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (e) Articles Supplementary of Twentieth Century Investors, Inc., dated September 3, 1993 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (f) Articles Supplementary of Twentieth Century Investors, Inc., dated April 28, 1995 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (g) Articles Supplementary of Twentieth Century Investors, Inc., dated November 17, 1995 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (h) Articles Supplementary of Twentieth Century Investors, Inc., dated January 30, 1996 (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). (i) Articles Supplementary of Twentieth Century Investors, Inc., dated March 11, 1996 (filed herewith as EX-99.B1i). 2. By-laws of Twentieth Century Investors, Inc. (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). 3. Voting Trust Agreements - None. 4. Specimen copy of stock certificate - all series (filed as an Exhibit to Post-Effective Amendment No. 67 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213). 5. (a) Management Agreement between Twentieth Century Investors, Inc. and Investors Research Corporation dated August 1, 1994 (filed herewith as EX-99.B5a). (b) Addendum to Management Agreement between Twentieth Century Investors, Inc. and Investors Research Corporation dated August 1, 1996 (filed herewith as EX-99.B5b). (c) Management Agreement-Advisor Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed herewith as EX-99.B5c). (d) Management Agreement-Service Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed herewith as EX-99.B5d). (e) Management Agreement-Institutional Class between Twentieth Century Investors, Inc. and Investors Research Corporation dated September 1, 1996 (filed herewith as EX-99.B5e). 6. Distribution Agreement between TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century World Investors, Inc. and Twentieth Century Securities, Inc. dated September 3, 1996 (filed herewith as EX-99.B6). 7. Bonus and Profit Sharing Plan, Etc. - None. 8. (a) Custodian Agreement between Twentieth Century Investors, Inc. and United States Trust Company of New York (filed as an Exhibit to Post-Effective Amendment No. 46 on Form N-1A of the Registrant, Commission File No. 2-14213). (b) Letter Re Remuneration dated May 8, 1985 (filed as an Exhibit to Post-Effective Amendment No. 53 on Form N-1A of the Registrant, Commission File No. 2-14213). (c) Letter Agreement between Twentieth Century Investors, Inc. and United States Trust Company of New York dated February 28, 1991 (filed as an Exhibit to Post-Effective Amendment No. 67 on Form N-1A of the Registrant, Commission File No. 2-14213). (d) Custodian Agreement between Twentieth Century Investors, Inc. and First National Bank of Kansas City (filed as an Exhibit to Post-Effective Amendment No. 49 on Form N-1A of the Registrant, Commission File No. 2-14213). (e) Letter Agreement between Twentieth Century Investors, Inc. and Boatmen's First National Bank of Kansas City (filed as an Exhibit to Post-Effective Amendment No. 67 on Form N-1A of the Registrant, Commission File No. 2-14213). (f) Custodian Agreement dated September 21, 1994 for ACH transactions, between Twentieth Century Investors, Inc. and United Missouri Bank of Kansas City, N.A. (filed as an Exhibit to Post-Effective Amendment No. 72 on Form N-1A of the Registrant, Commission File No. 2-14213). (g) Custody Agreement dated September 12, 1995, between UMB Bank, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc. and Twentieth Century Capital Portfolios, Inc. (filed as an Exhibit to Pre-Effective Amendment No. 4 on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482). (h) Amendment No. 1 to Custody Agreement dated January 25, 1996, between UMB Bank, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. (filed as an Exhibit to Pre-Effective Amendment No. 4 on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482). 9. Transfer Agency Agreement between Twentieth Century Investors, Inc. and Twentieth Century Services, Inc. (filed as Exhibit 9 to Post-Effective Amendment No. 66 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1990). 10. Opinion and Consent of Counsel (filed herewith as EX-99.B10). 11. Consent of Baird, Kurtz & Dobson (filed herewith as EX-99.B11). 12. (a) Equity Funds and Fixed Income Funds Annual Reports, dated October 31, 1995 (filed electronically on December 22, 1995). (b) Equity Funds and Fixed Income Funds Semiannual Reports, dated April 30, 1996 (to be filed on or about June 28, 1996). 13. Agreements for Initial Capital, Etc. - None. 14. Model Retirement Plans (filed on May 6, 1991, as Exhibits 14(a)-(d) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A of Twentieth Century World Investors, Inc., Commission File No. 33-39242). 15. (a) Master Distribution and Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Advisor Class) dated September 3, 1996 (filed herewith as EX-99.B15a). (b) Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Service Class) dated September 3, 1996 (filed herewith as EX-99.B15b). 16. Schedules For Computation of Advertising Performance Quotations (filed herewith as EX-99.B16). 17. Power of Attorney (filed electronically as an Exhibit to Post-Effective Amendment No. 73 on Form N-1A on February 29, 1996, File No. 2-14213). 18. Multiple Class Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. dated September 3, 1996 (filed herewith as EX-99.B18). 27. (a) Financial Data Schedules for Growth Investors (EX-27.1.1). (b) Financial Data Schedules for Select Investors (EX-27.1.2). (c) Financial Data Schedules for Ultra Investors (EX-27.1.3). (d) Financial Data Schedules for Vista Investors (EX-27.1.4). (e) Financial Data Schedules for Giftrust Investors (EX-27.1.5). (f) Financial Data Schedules for U.S. Governments Short-Term (EX-27.5.6). (g) Financial Data Schedules for Cash Reserve (EX-27.4.7). (h) Financial Data Schedules for Long-Term Bond (EX-27.5.8). (i) Financial Data Schedules for Tax-Exempt Intermediate-Term (EX-27.5.9). (j) Financial Data Schedules for Tax-Exempt Long-Term (EX-27.5.10). (k) Financial Data Schedules for Heritage Investors (EX-27.1.11). (l) Financial Data Schedules for Balanced Investors (EX-27.7.12). (m) Financial Data Schedules for Tax-Exempt Short-Term (EX-27.5.13). (n) Financial Data Schedules for Limited-Term (EX-27.5.14). (o) Financial Data Schedules for Intermediate-Term (EX-27.5.15). (p) Financial Data Schedules for U.S. Governments Intermediate-Term (EX-27.5.16). ITEM 25. Persons Controlled by or Under Common Control with Registrant - None. ITEM 26. Number of Holders of Securities Title of Class Number of Record Holders as of May 31, 1996 Twentieth Century Growth Investors 299,335 Twentieth Century Select Investors 273,342 Twentieth Century Ultra Investors 837,186 Twentieth Century U.S. Governments Short Term 24,405 Twentieth Century Vista Investors 167,151 Twentieth Century Giftrust Investors 242,672 Twentieth Century Cash Reserve 111,022 Twentieth Century Long-Term Bond 3,950 Twentieth Century Tax-Exempt Short Term 1,204 Twentieth Century Tax-Exempt Intermediate Term 2,584 Twentieth Century Tax-Exempt Long Term 1,987 Twentieth Century Heritage Investors 91,035 Twentieth Century Balanced Investors 60,677 Twentieth Century Limited Term Bond 396 Twentieth Century Intermediate Term Bond 983 Twentieth Century U.S. Governments Intermediate Term 1,287 ITEM 27. Indemnification. The Corporation is a Maryland corporation. Section 2-418 of the General Corporation Law of Maryland allows a Maryland corporation to indemnify its directors, officers, employees and agents to the extent provided in such statute. Article Eighth of the Articles of Incorporation requires the indemnification of the corporation's directors and officers to the extent permitted by the General Corporation Law of Maryland, the Investment Company Act and all other applicable laws. The registrant has purchased an insurance policy insuring its officers and directors against certain liabilities which such officers and directors may incur while acting in such capacities and providing reimbursement to the registrant for sums which it may be permitted or required to pay to its officers and directors by way of indemnification against such liabilities, subject in either case to clauses respecting deductibility and participation. ITEM 28. Business and Other Connections of Investment Advisor. Investors Research Corporation, the investment advisor, is engaged in the business of managing investments for deferred compensation plans and other institutional investors. ITEM 29. Principal Underwriters - None. ITEM 30. Location of Accounts and Records. All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act, and the rules promulgated thereunder, are in the possession of Twentieth Century Investors, Inc., Twentieth Century Services, Inc. and Investors Research Corporation, all located at Twentieth Century Tower, 4500 Main Street, Kansas City, Missouri 64111. ITEM 31. Management Services - None. ITEM 32. Undertakings a. Not Applicable. b. Registrant hereby undertakes to file a Post-Effective Amendment to this Registration Statement, using reasonable current financial statements which need not be certified, within four to six months from the first offering of shares of any new fund being registered by this registration statement. c. Registrant hereby undertakes to furnish each person to whom a prospectus is delivered a copy of Registrant's latest annual report to shareholders, upon request and without charge. d. The Registrant hereby undertakes that it will, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, call a meeting of shareholders for the purpose of voting upon the question of the removal of a director and to assist in communication with other shareholders as required by Section 16(c). SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, Twentieth Century Investors, Inc., the Registrant, has duly caused this Post-Effective Amendment No. 75 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri on the 14th day of June, 1996. Twentieth Century Investors, Inc. (Registrant) By: /s/James E. Stowers III James E. Stowers III, President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 74 has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date *James E. Stowers, Jr. Chairman, Director and June 14, 1996 James E. Stowers, Jr. Principal Executive Officer *James E. Stowers III President and Director June 14, 1996 James E. Stowers III *Robert T. Jackson Executive Vice President June 14, 1996 Robert T. Jackson and Principal Financial Officer *Maryanne Roepke Vice President, Treasurer and June 14, 1996 Maryanne Roepke Principal Accounting Officer *Thomas A. Brown Director June 14, 1996 Thomas A. Brown *Robert W. Doering, M.D. Director June 14, 1996 Robert W. Doering, M.D. *Linsley L. Lundgaard Director June 14, 1996 Linsley L. Lundgaard *Donald H. Pratt Director June 14, 1996 Donald H. Pratt *Lloyd T. Silver, Jr. Director June 14, 1996 Lloyd T. Silver, Jr. *M. Jeannine Strandjord Director June 14, 1996 M. Jeannine Strandjord *John M. Urie Director June 14, 1996 John M. Urie *By /s/James E. Stowers III James E. Stowers III Attorney-in-Fact EX-99 2 EXHIBIT INDEX EXHIBIT INDEX EXHIBIT DESCRIPTION OF DOCUMENT NUMBER EX-99.B1a Articles of Incorporation of Twentieth Century Investors, Inc., dated July 2, 1990. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1b Articles of Amendment of Twentieth Century Investors, Inc., dated November 20, 1990. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1c Articles of Merger of Twentieth Century Investors, Inc., a Maryland corporation and Twentieth Century Investors, Inc., a Delaware corporation, dated February 22, 1991. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1d Articles of Amendment of Twentieth Century Investors, Inc., dated August 11, 1993. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1e Articles Supplementary of Twentieth Century Investors, Inc., dated September 3, 1993. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1f Articles Supplementary of Twentieth Century Investors, Inc., dated April 28, 1995. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1g Articles Supplementary of Twentieth Century Investors, dated November 17, 1995. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1h Articles Supplementary of Twentieth Century Investors, Inc., dated January 30, 1996. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B1i Articles Supplementary of Twentieth Century Investors, Inc., dated March 11, 1996. EX-99.B2 Bylaws of Twentieth Century Investors, Inc. (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference.) EX-99.B4 Specimen certificate representing shares of common stock of Twentieth Century Investors, Inc. (filed as Exhibit 4 to Post-Effective Amendment No. 67 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1991, and incorporated herein by reference). EX-99.B5a Management Agreement, dated as of August 1, 1994, between Twentieth Century Investors, Inc. and Investors Research Corporation. EX-99.B5b Addendum to Management Agreement, dated as of August 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation. EX-99.B5c Management Agreement-Advisor Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation. EX-99.B5d Management Agreement-Service Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation. EX-99.B5e Management Agreement-Institutional Class, dated as of September 1, 1996, between Twentieth Century Investors, Inc. and Investors Research Corporation. EX-99.B6 Distribution Agreement between TCI Portfolios, Inc., Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Strategic Asset Allocations, Inc., Twentieth Century World Investors, Inc. and Twentieth Century Securities, Inc. dated September 3, 1996. EX-99.B8a Custodian Agreement, dated as of December 1, 1982, by and between Twentieth Century Investors, Inc. and United States Trust Company of New York (filed as Exhibit 8(a) to Post-Effective Amendment No. 46 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1982, and incorporated herein by reference). EX-99.B8b Letter Agreement re Remuneration dated May 8, 1985 (filed as Exhibit 8(b) to Post-Effective Amendment No. 51 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1985, and incorporated herein by reference). EX-99.B8c Letter Agreement between Twentieth Century Investors, Inc. and United States Trust Company of New York, dated February 28, 1991 (filed as Exhibit 8(c) to Post-Effective Amendment No. 67 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1991, and incorporated herein by reference). EX-99.B8d Custodian Agreement between Twentieth Century Investors, Inc. and First National Bank of Kansas City (filed as Exhibit 8(d) to Post-Effective Amendment No. 49 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 30, 1993, and incorporated herein by reference). EX-99.B8e Letter Agreement between Twentieth Century Investors, Inc. and Boatmen's First National Bank of Kansas City (filed as Exhibit 8(e) to Post-Effective Amendment No. 67 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1991, and incorporated herein by reference). EX-99.B8f Custodian Agreement for ACH transactions, dated September 21, 1994 between Twentieth Century Investors, Inc. and United Missouri Bank of Kansas City, N.A. (filed as Exhibit 8(f) to Post-Effective Amendment No. 73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 27, 1995, and incorporated herein by reference). EX-99.B8g Custody Agreement dated September 12, 1995, between United Missouri Bank of Kansas City, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc. and Twentieth Century Capital Portfolios, Inc. (filed as Exhibit 8(e) to Pre-Effective Amendment No. 4 to the Registration Statement on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482, filed February 5, 1996). EX-99.B8h Amendment No. 1 to Custody Agreement dated January 25, 1996, between United Missouri Bank of Kansas City, N.A., Investors Research Corporation, Twentieth Century Investors, Inc., Twentieth Century World Investors, Inc., Twentieth Century Premium Reserves, Inc., Twentieth Century Capital Portfolios, Inc. and Twentieth Century Strategic Asset Allocations, Inc. (filed as Exhibit 8(e) to Pre-Effective Amendment No. 4 to the Registration Statement on Form N-1A of Twentieth Century Strategic Asset Allocations, Inc., Commission File No. 33-79482, filed February 5, 1996). EX-99.B9 Transfer Agency Agreement dated as of March 1, 1991, by and between Twentieth Century Investors, Inc. and Twentieth Century Services, Inc. (filed as Exhibit 9 to Post-Effective Amendment No. 66 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on December 31, 1990, and incorporated herein by reference). EX-99.B10 Opinion and Consent of Patrick A. Looby, Esq. EX-99.B11 Consent of Baird, Kurtz & Dobson. EX-99.B12a Equity Funds Annual Report and Fixed Income Funds Annual Reports of Twentieth Century Investors, Inc. dated October 31, 1995, filed on December 22, 1995, and incorporated herein by reference. EX-99.B12b Equity Funds Semiannual Report and Fixed Income Funds Semiannual Report of Twentieth Century Investors, Inc. dated April 30, 1996, to be filed on or about June 28, 1996. EX-99.B14 Model Retirement Plans (filed as Exhibits 14(a), 14(b), 14(c) and 14(d) to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A of Twentieth Century World Investors, Inc., Commission File No. 33-39242, filed May 6, 1991, and incorporated herein by reference). EX-99.B15a Master Distribution and Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Advisor Class) dated September 3, 1996. EX-99.B15b Shareholder Services Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. (Service Class) dated September 3, 1996. EX-99.B16 Schedules for Computations of Advertising Performance Quotations. EX-99.B17 Power of Attorney (filed as a part of Post-Effective Amendment #73 to the Registration Statement on Form N-1A of the Registrant, Commission File No. 2-14213, filed on February 29, 1996, and incorporated herein by reference). EX-99.B18 Multiple Class Plan of Twentieth Century Capital Portfolios, Inc., Twentieth Century Investors, Inc., Twentieth Century Strategic Asset Allocations, Inc. and Twentieth Century World Investors, Inc. dated September 3, 1996. EX-27.1.1 Financial Data Schedule for Growth Investors. EX-27.1.2 Financial Data Schedule for Select Investors. EX-27.1.3 Financial Data Schedule for Ultra Investors. EX-27.1.4 Financial Data Schedule for Vista Investors. EX-27.1.5 Financial Data Schedule for Giftrust Investors. EX-27.5.6 Financial Data Schedule for U.S. Governments Short-Term. EX-27.4.7 Financial Data Schedule for Cash Reserve. EX-27.5.8 Financial Data Schedule for Long-Term Bond. EX-27.5.9 Financial Data Schedule for Tax-Exempt Intermediate-Term. EX-27.5.10 Financial Data Schedule for Tax-Exempt Long-Term. EX-27.1.11 Financial Data Schedule for Heritage Investors. EX-27.7.12 Financial Data Schedule for Balanced Investors. EX-27.5.13 Financial Data Schedule for Tax-Exempt Short-Term. EX-27.5.14 Financial Data Schedule for Limited-Term. EX-27.5.15 Financial Data Schedule for Intermediate-Term. EX-27.5.16 Financial Data Schedule for U.S. Governments Intermediate-Term. EX-99.B1I 3 ARTICLES SUPPLEMENTARY TWENTIETH CENTURY INVESTORS, INC. ARTICLES SUPPLEMENTARY TWENTIETH CENTURY INVESTORS, INC., a Maryland corporation whose principal Maryland office is located in Baltimore, Maryland (the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Corporation is registered as an open-end company under the Investment Company Act of 1940. SECOND: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article SEVENTH of the Charter of the Corporation, the Board of Directors of the Corporation has duly established sixteen (16) different series for the Corporation's stock (each hereinafter referred to as a "Series") and allocated Ten Billion Five Hundred Million (10,500,000,000) shares of the Eleven Billion One Hundred Million (11,100,000,000) shares of authorized capital stock of the Corporation, par value One Cent ($.01) per share, for an aggregate par value of One Hundred Eleven Million Dollars ($111,000,000), among such Series as follows:
Number Number of Shares of Shares Aggregate Series Before Increase As Increased Par Value - ------ ---------------- ------------ --------- Growth Investors 300,000,000 1,000,000,000 $ 10,000,000 Select Investors 150,000,000 500,000,000 5,000,000 Ultra Investors 600,000,000 1,500,000,000 15,000,000 Vista Investors 160,000,000 1,000,000,000 10,000,000 Heritage Investors 120,000,000 500,000,000 5,000,000 Giftrust Investors 40,000,000 200,000,000 2,000,000 Balanced Investors 60,000,000 200,000,000 2,000,000 Cash Reserve 2,000,000,000 4,000,000,000 40,000,000 U.S. Governments Short-Term 60,000,000 200,000,000 2,000,000 Long-Term Bond 21,000,000 200,000,000 2,000,000 Tax-Exempt Intermediate-Term 14,000,000 200,000,000 2,000,000 Tax-Exempt Long-Term 11,000,000 200,000,000 2,000,000 Tax-Exempt Short-Term 30,000,000 200,000,000 2,000,000 U.S. Governments Intermediate-Term 20,000,000 200,000,000 2,000,000 Limited Term Bond 20,000,000 200,000,000 2,000,000 Intermediate-Term Bond 20,000,000 200,000,000 2,000,000 The par value of each share of stock in each Series is One Cent ($0.01) per share.
THIRD: Except as otherwise provided by the express provisions of these Articles Supplementary, nothing herein shall limit, by inference or otherwise, the discretionary right of the Board of Directors to serialize, classify or reclassify and issue any unissued shares of any Series or any unissued shares that have not been allocated to a Series, and to fix or alter all terms thereof, to the full extent provided by the Charter of the Corporation. FOURTH: A description of the Series, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions for redemption is set forth in the Charter of the Corporation and is not changed by these Articles Supplementary. FIFTH: The Board of Directors of the Corporation duly adopted resolutions dividing into Series the authorized capital stock of the Corporation and allocating shares to each Series as set forth in these Articles Supplementary. IN WITNESS WHEREOF, TWENTIETH CENTURY INVESTORS, INC. has caused these Articles Supplementary to be signed and acknowledged in its name and on its behalf by its Vice President and its corporate seal to be hereunto affixed and attested to by its Secretary as of the 11 day of March, 1996. ATTEST: TWENTIETH CENTURY INVESTORS, INC. /s/William M. Lyons By: /s/Patrick A. Looby Name: William M. Lyons Name: Patrick A. Looby Title: Secretary Title: Vice President THE UNDERSIGNED Vice President of TWENTIETH CENTURY INVESTORS, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary to the Charter, of which this certificate is made a part, hereby acknowledges, in the name of and on behalf of said Corporation, the foregoing Articles Supplementary to the Charter to be the corporate act of said Corporation, and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects under the penalties of perjury. Dated: March 11, 1996 /s/Patrick A. Looby Patrick A. Looby Vice President EX-99.B5A 4 MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT THIS AGREEMENT made as of the 1st day of August, 1994, is by and between Twentieth Century Investors, Inc., a Maryland corporation (hereinafter called the "Corporation") and Investors Research Corporation, a Delaware corporation (hereinafter called the "Investment Manager"). IN CONSIDERATION of the mutual promises and agreements herein contained, the parties agree as follows: 1. INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall supervise the investments of each series of shares of the Corporation contemplated as of the date hereof, and such subsequent series of shares as the Corporation shall select the Investment Manager to manage. In such capacity, the Investment Manager shall maintain a continuous investment program for each such series, determine what securities shall be purchased or sold by each series, secure and evaluate such information as it deems proper and take whatever action is necessary or convenient to perform its functions, including the placing of purchase and sale orders. 2. COMPLIANCE WITH LAWS. All functions undertaken by the Investment Manager hereunder shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act of 1940, as amended (the "Investment Company Act"), and any rules and regulations promulgated thereunder; (2) any other applicable provisions of law; (3) the Articles of Incorporation of the Corporation as amended from time to time; (4) the By-laws of the Corporation as amended from time to time; and (5) the registration statements of the Corporation, as amended from time to time, filed under the Securities Act of 1933 and the Investment Company Act. 3. BOARD SUPERVISION. All of the functions undertaken by the Investment Manager hereunder shall at all times be subject to the direction of the Board of Directors of the Corporation, its executive committee, or any committee or officers of the Corporation acting under the authority of the Board of Directors. 4. PAYMENT OF EXPENSES. The Investment Manager will pay all of the expenses of each series of the Corporation's shares that it shall manage, other than interest, taxes, brokerage commissions, extraordinary expenses and the fees and expenses of those directors who are not "interested persons" as defined in Investment Company Act (hereinafter referred to as the "Independent Directors") (including counsel fees). The Investment Manager will provide the Corporation with all physical facilities and personnel required to carry on the business of each series that the Investment Manager shall manage, including but not limited to office space, office furniture, fixtures and equipment, office supplies, computer hardware and software and salaried and hourly paid personnel. The Investment Manager may at its expense employ others to provide all or any part of such facilities and personnel. 5. ACCOUNT FEES. The Corporation, by resolution of the Board of Directors, including a majority of the Independent Directors, may from time to time authorize the imposition of a fee as a direct charge against shareholder accounts of one or more of the series, such fee to be retained by the Corporation or to be paid to the Investment Manager to defray expenses which would otherwise be paid by the Investment Manager in accordance with the provisions of paragraph 4 of this Agreemet. At least 60 days' prior written notice of the intent to impose such fee must be given to the shareholders of the affected series. 6. MANAGEMENT FEES. (a) In consideration of the services provided by the Investment Manager, each series of shares of the Corporation managed by the Investment Manager shall pay to the Investment Manager a per annum management fee (hereinafter, the "Applicable Fee"), as follows: NAME OF SERIES APPLICABLE FEE Select Investors 1.0% Heritage Investors 1.0% Growth Investors 1.0% Ultra Investors 1.0% Vista Investors 1.0% Giftrust Investors 1.0% Balanced Investors 1.0% Cash Reserve 0.70% U.S. Governments Short-Term 0.70% Limited-Term Bond 0.70% U.S. Governments Intermediate-Term 0.75% Intermediate-Term Bond 0.75% Long-Term Bond 0.80% Tax-Exempt Short-Term 0.6% Tax-Exempt Intermediate-Term 0.6% Tax-Exempt Long-Term 0.6% (b) On the first business day of each month, each series of shares shall pay the management fee at the rate specified by subparagraph (a) of this paragraph 6 to the Investment Manager for the previous month. The fee for the previous month shall be calculated by multiplying the Applicable Fee for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which shall be the number of days in the previous month, and the denominator of which shall be 365 (366 in leap years). (c) In the event that the Board of Directors of the Corporation shall determine to issue any additional series of shares for which it is proposed that the Investment Manager serve as investment manager, the Corporation and the Investment Manager shall enter into an Addendum to this Agreement setting forth the name of the series, the Applicable Fee and such other terms and conditions as are applicable to the management of such series of shares. 7. CONTINUATION OF AGREEMENT. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of two years from the execution hereof, and for as long thereafter as its continuance is specifically approved at least annually (i) by the Board of Directors of the Corporation or by the vote of a majority of the outstanding voting securities of the Corporation, and (ii) by the vote of a majority of the directors of the Corporation, who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 8. TERMINATION. This Agreement may be terminated by the Investment Manager at any time without penalty upon giving the Corporation 60 days' written notice, and may be terminated at any time without penalty by the Board of Directors of the Corporation or by vote of a majority of the outstanding voting securities of the Corporation on 60 days' written notice to the Investment Manager. 9. EFFECT OF ASSIGNMENT. This Agreement shall automatically terminate in the event of assignment by the Investment Manager, the term "assignment" for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act. 10. OTHER ACTIVITIES. Nothing herein shall be deemed to limit or restrict the right of the Investment Manager, or the right of any of its officers, directors or employees (who may also be a director, officer or employee of the Corporation), to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other corporation, firm, individual or association. 11. STANDARD OF CARE. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of the Investment Manager, it, as an inducement to it to enter into this Agreement, shall not be subject to liability to the Corporation or to any shareholder of the Corporation for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 12. SEPARATE AGREEMENT. The parties hereto acknowledge that certain provisions of the Investment Company Act, in effect, treat each series of shares of an investment company as a separate investment company. Accordingly, the parties hereto hereby acknowledge and agree that, to the extent deemed appropriate and consistent with the Investment Company Act, this Agreement shall be deemed to constitute a separate agreement between the Investment Manager and each series of shares of the Corporation managed by the Investment Manager. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. Attest: TWENTIETH CENTURY INVESTORS, INC. /s/ William M. Lyons /s/ James E. Stowers III William M. Lyons James E. Stowers III Secretary President Attest: INVESTORS RESEARCH CORPORATION /s/ William M. Lyons /s/ James E. Stowers III William M. Lyons James E. Stowers III Secretary President EX-99.B5B 5 ADDENDUM TO MANAGEMENT AGREEMENT ADDENDUM TO MANAGEMENT AGREEMENT THIS ADDENDUM, dated as of August 1, 1996, supplements the Management Agreement (the "Agreement") dated as of August 1, 1994, by and between Twentieth Century Investors, Inc. (the "Corporation") and Investors Research Corporation (the "Investment Manager"). All capitalized terms used herein and not otherwise defined have the meaning given them in the Agreement. IN CONSIDERATION of the mutual promises and conditions herein contained, the parties agree as follows: 1. The Investment Manager shall manage the following series (the "New Series") to be issued by the Corporation, and for such management shall receive the Applicable Fee set forth below: Name of Series Applicable Fee Twentieth Century Discovery Fund 1.5% 2. The Investment Manager shall manage the New Series in accordance with the terms and conditions specified in the Agreement for its existing management responsibilities. IN WITNESS WHEREOF, the parties have caused this Addendum to the Agreement to be executed by their respective duly authorized officers as of the day and year first above written. TWENTIETH CENTURY INVESTORS, INC. Attest: /s/William M. Lyons By: /s/James E. Stowers III William M. Lyons James E. Stowers III Secretary President INVESTORS RESEARCH CORPORATION Attest: /s/William M. Lyons By: /s/James E. Stowers III William M. Lyons James E. Stowers III Secretary President EX-99.B5C 6 MANAGEMENT AGREEMENT - ADVISOR CLASS MANAGEMENT AGREEMENT ADVISOR CLASS THIS AGREEMENT, made as of the 1st day of September, 1996, is by and between TWENTIETH CENTURY INVESTORS, INC., a Maryland corporation (hereinafter called the "Corporation") and Investors Research Corporation, a Delaware corporation (hereinafter called the "Investment Manager"). WHEREAS, the Corporation has adopted a Multiple Class Plan dated as of September 3, 1996 (as the same may be amended from time to time, the "Multiple Class Plan"), pursuant to Rule 18f-3 of the Investment Company Act of 1940, as amended (the "Investment Company Act"); and WHEREAS, the Multiple Class Plan establishes four classes of shares of certain series of shares of the Corporation: the Retail Class, the Institutional Class, the Services Class, and the Advisor Class; and WHEREAS, the sole class of shares issued by each series of shares of the Corporation prior to the adoption of the Multiple Class Plan has been designated as the Retail Class, the investment management services for which are provided by the Investment Manager pursuant to that certain Management Agreement dated as of August 1, 1994; and WHEREAS, the parties hereto desire to enter into this Agreement to arrange for investment management services to be provided by Investment Manager for the new Advisor Class of shares issued by the Corporation; NOW, THEREFORE, IN CONSIDERATION of the mutual promises and agreements herein contained, the parties agree as follows: 1. INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall supervise the investments of the Advisor Class of each series of shares of the Corporation contemplated as of the date hereof, and the Advisor Class of such subsequent series of shares as the Corporation shall select the Investment Manager to manage. In such capacity, the Investment Manager shall maintain a continuous investment program for the Advisor Class of each such series, determine what securities shall be purchased or sold by each series, secure and evaluate such information as it deems proper and take whatever action is necessary or convenient to perform its functions, including the placing of purchase and sale orders. In performing its duties hereunder, Investment Manager will manage the portfolio of all classes of a particular series as a single portfolio. 2. COMPLIANCE WITH LAWS. All functions undertaken by the Investment Manager hereunder shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act, and any rules and regulations promulgated thereunder; (2) any other applicable provisions of law; (3) the Articles of Incorporation of the Corporation; (4) the By-laws of the Corporation; (5) the Multiple Class Plan; and (6) the registration statements of the Corporation, to time, filed under the Securities Act of 1933 and the Investment Company Act, each as amended from time to time. 3. BOARD SUPERVISION. All of the functions undertaken by the Investment Manager hereunder shall at all times be subject to the direction of the Board of Directors of the Corporation, its executive committee, or any committee or officers of the Corporation acting under the authority of the Board of Directors. 4. PAYMENT OF EXPENSES. The Investment Manager will pay all of the expenses of the Advisor Class of each series of the Corporation's shares that it shall manage, other than interest, taxes, brokerage commissions, extraordinary expenses, the fees and expenses of those directors who are not "interested persons" as defined in Investment Company Act (hereinafter referred to as the "Independent Directors") (including counsel fees) and expenses incurred in connection with the provision of Shareholder Services and distribution services under the Master Distribution and Shareholder Services Plan dated as of September 3, 1996. The Investment Manager will provide the Corporation with all physical facilities and personnel required to carry on the business of the Advisor Class of each series that the Investment Manager shall manage, including but not limited to office space, office furniture, fixtures and equipment, office supplies, computer hardware and software and salaried and hourly paid personnel. The Investment Manager may at its expense employ others to provide all or any part of such facilities and personnel. 5. ACCOUNT FEES. The Corporation, by resolution of the Board of Directors, including a majority of the Independent Directors, may from time to time authorize the imposition of a fee as a direct charge against shareholder accounts of the Advisor Class of one or more of the series, such fee to be retained by the Corporation or to be paid to the Investment Manager to defray expenses that would otherwise be paid by the Investment Manager in accordance with the provisions of paragraph 4 of this Agreement. At least sixty (60) days prior written notice of the intent to impose such fee must be given to the shareholders of the affected series. 6. MANAGEMENT FEES. (a) In consideration of the services provided by the Investment Manager, the Advisor Class of each series of shares of the Corporation managed by the Investment Manager shall pay to the Investment Manager a per annum management fee (hereinafter, the "Applicable Fee"), as follows: Name of Series Applicable Fee Rate -------------- ------------------- Select Investors .75% Heritage Investors .75% Growth Investors .75% Ultra Investors .75% Vista Investors .75% Balanced Investors .75% Cash Reserve .45% U.S. Governments Short-Term .45% Limited-Term Bond .45% U.S. Governments Intermediate-Term .50% Intermediate-Term Bond .50% Long-Term Bond .55% (b) On the first business day of each month, the Advisor Class of each series of shares shall pay the Investment Manager the Applicable Fee at the rate specified by subparagraph (a) of this paragraph 6 for the previous month. The fee for the previous month shall be calculated by multiplying the Applicable Fee Rate set forth above for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which shall be the number of days in the previous month, and the denominator of which shall be 365 (366 in leap years). (c) In the event that the Board of Directors of the Corporation shall determine to issue a Advisor Class of any additional series of shares for which it is proposed that the Investment Manager serve as investment manager, the Corporation and the Investment Manager shall enter into an Addendum to this Agreement setting forth the name of the series, the Applicable Fee and such other terms and conditions as are applicable to the management of such series of shares. 7. CONTINUATION OF AGREEMENT. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of two years from the execution hereof, and for as long thereafter as its continuance is specifically approved at least annually (i) by the Board of Directors of the Corporation or by the vote of a majority of the outstanding Advisor Class of voting securities of the Corporation, and (ii) by the vote of a majority of the directors of the Corporation, who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 8. TERMINATION. This Agreement may be terminated by the Investment Manager at any time without penalty upon giving the Corporation 60 days' written notice, and may be terminated at any time without penalty by the Board of Directors of the Corporation or by vote of a majority of the outstanding Advisor Class of voting securities of the Corporation on 60 days' written notice to the Investment Manager. 9. EFFECT OF ASSIGNMENT. This Agreement shall automatically terminate in the event of assignment by the Investment Manager, the term "assignment" for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act. 10. OTHER ACTIVITIES. Nothing herein shall be deemed to limit or restrict the right of the Investment Manager, or the right of any of its officers, directors or employees (who may also be a director, officer or employee of the Corporation), to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other corporation, firm, individual or association. 11. STANDARD OF CARE. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of the Investment Manager, it, as an inducement to it to enter into this Agreement, shall not be subject to liability to the Corporation or to any shareholder of the Corporation for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 12. SEPARATE AGREEMENT. The parties hereto acknowledge that certain provisions of the Investment Company Act, in effect, treat each series of shares of an investment company as a separate investment company. Accordingly, the parties hereto hereby acknowledge and agree that, to the extent deemed appropriate and consistent with the Investment Company Act, this Agreement shall be deemed to constitute a separate agreement between the Investment Manager and each series of shares of the Corporation managed by the Investment Manager. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. Attest: TWENTIETH CENTURY INVESTORS, INC. /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman Attest: INVESTORS RESEARCH CORPORATION /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman EX-99.B5D 7 MANAGEMENT AGREEMENT - SERVICES CLASS MANAGEMENT AGREEMENT SERVICES CLASS THIS AGREEMENT, made as of the 1st day of September, 1996, is by and between TWENTIETH CENTURY INVESTORS, INC., a Maryland corporation (hereinafter called the "Corporation") and Investors Research Corporation, a Delaware corporation (hereinafter called the "Investment Manager"). WHEREAS, the Corporation has adopted a Multiple Class Plan dated as of September 3, 1996 (as the same may be amended from time to time, the "Multiple Class Plan"), pursuant to Rule 18f-3 of the Investment Company Act of 1940, as amended (the "Investment Company Act"); and WHEREAS, the Multiple Class Plan establishes four classes of shares of certain series of shares of the Corporation: the Retail Class, the Institutional Class, the Services Class, and the Advisor Class; and WHEREAS, the sole class of shares issued by each series of shares of the Corporation prior to the adoption of the Multiple Class Plan has been designated as the Retail Class, the investment management services for which are provided by the Investment Manager pursuant to that certain Management Agreement dated as of August 1, 1994; and WHEREAS, the parties hereto desire to enter into this Agreement to arrange for investment management services to be provided by Investment Manager for the new Services Class of shares issued by the Corporation; NOW, THEREFORE, IN CONSIDERATION of the mutual promises and agreements herein contained, the parties agree as follows: 1. INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall supervise the investments of the Services Class of each series of shares of the Corporation contemplated as of the date hereof, and the Services Class of such subsequent series of shares as the Corporation shall select the Investment Manager to manage. In such capacity, the Investment Manager shall maintain a continuous investment program for the Services Class of each such series, determine what securities shall be purchased or sold by each series, secure and evaluate such information as it deems proper and take whatever action is necessary or convenient to perform its functions, including the placing of purchase and sale orders. In performing its duties hereunder, Investment Manager will manage the portfolio of all classes of a particular series as a single portfolio. 2. COMPLIANCE WITH LAWS. All functions undertaken by the Investment Manager hereunder shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act, and any rules and regulations promulgated thereunder; (2) any other applicable provisions of law; (3) the Articles of Incorporation of the Corporation; (4) the By-laws of the Corporation; (5) the Multiple Class Plan; and (6) the registration statements of the Corporation, to time, filed under the Securities Act of 1933 and the Investment Company Act, each as amended from time to time. 3. BOARD SUPERVISION. All of the functions undertaken by the Investment Manager hereunder shall at all times be subject to the direction of the Board of Directors of the Corporation, its executive committee, or any committee or officers of the Corporation acting under the authority of the Board of Directors. 4. PAYMENT OF EXPENSES. The Investment Manager will pay all of the expenses of the Services Class of each series of the Corporation's shares that it shall manage, other than interest, taxes, brokerage commissions, extraordinary expenses, the fees and expenses of those directors who are not "interested persons" as defined in Investment Company Act (hereinafter referred to as the "Independent Directors") (including counsel fees) and expenses incurred in connection with the provision of Shareholder Services under the Shareholder Services Plan dated as of September 3, 1996. The Investment Manager will provide the Corporation with all physical facilities and personnel required to carry on the business of the Services Class of each series that the Investment Manager shall manage, including but not limited to office space, office furniture, fixtures and equipment, office supplies, computer hardware and software and salaried and hourly paid personnel. The Investment Manager may at its expense employ others to provide all or any part of such facilities and personnel. 5. ACCOUNT FEES. The Corporation, by resolution of the Board of Directors, including a majority of the Independent Directors, may from time to time authorize the imposition of a fee as a direct charge against shareholder accounts of the Services Class of one or more of the series, such fee to be retained by the Corporation or to be paid to the Investment Manager to defray expenses that would otherwise be paid by the Investment Manager in accordance with the provisions of paragraph 4 of this Agreement. At least sixty (60) days prior written notice of the intent to impose such fee must be given to the shareholders of the affected series. 6. MANAGEMENT FEES. (a) In consideration of the services provided by the Investment Manager, the Services Class of each series of shares of the Corporation managed by the Investment Manager shall pay to the Investment Manager a per annum management fee (hereinafter, the "Applicable Fee"), as follows: Name of Series Applicable Fee Rate Select Investors .75% Heritage Investors .75% Growth Investors .75% Ultra Investors .75% Vista Investors .75% Balanced Investors .75% Cash Reserve .45% U.S. Governments Short-Term .45% Limited-Term Bond .45% U.S. Governments Intermediate-Term .50% Intermediate-Term Bond .50% Long-Term Bond .55% (b) On the first business day of each month, the Services Class of each series of shares shall pay the Investment Manager the Applicable Fee at the rate specified by subparagraph (a) of this paragraph 6 for the previous month. The fee for the previous month shall be calculated by multiplying the Applicable Fee Rate set forth above for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which shall be the number of days in the previous month, and the denominator of which shall be 365 (366 in leap years). (c) In the event that the Board of Directors of the Corporation shall determine to issue a Services Class of any additional series of shares for which it is proposed that the Investment Manager serve as investment manager, the Corporation and the Investment Manager shall enter into an Addendum to this Agreement setting forth the name of the series, the Applicable Fee and such other terms and conditions as are applicable to the management of such series of shares. 7. CONTINUATION OF AGREEMENT. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of two years from the execution hereof, and for as long thereafter as its continuance is specifically approved at least annually (i) by the Board of Directors of the Corporation or by the vote of a majority of the outstanding Services Class of voting securities of the Corporation, and (ii) by the vote of a majority of the directors of the Corporation, who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 8. TERMINATION. This Agreement may be terminated by the Investment Manager at any time without penalty upon giving the Corporation 60 days' written notice, and may be terminated at any time without penalty by the Board of Directors of the Corporation or by vote of a majority of the outstanding Services Class of voting securities of the Corporation on 60 days' written notice to the Investment Manager. 9. EFFECT OF ASSIGNMENT. This Agreement shall automatically terminate in the event of assignment by the Investment Manager, the term "assignment" for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act. 10. OTHER ACTIVITIES. Nothing herein shall be deemed to limit or restrict the right of the Investment Manager, or the right of any of its officers, directors or employees (who may also be a director, officer or employee of the Corporation), to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other corporation, firm, individual or association. 11. STANDARD OF CARE. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of the Investment Manager, it, as an inducement to it to enter into this Agreement, shall not be subject to liability to the Corporation or to any shareholder of the Corporation for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 12. SEPARATE AGREEMENT. The parties hereto acknowledge that certain provisions of the Investment Company Act, in effect, treat each series of shares of an investment company as a separate investment company. Accordingly, the parties hereto hereby acknowledge and agree that, to the extent deemed appropriate and consistent with the Investment Company Act, this Agreement shall be deemed to constitute a separate agreement between the Investment Manager and each series of shares of the Corporation managed by the Investment Manager. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. Attest: TWENTIETH CENTURY INVESTORS, INC. /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman Attest: INVESTORS RESEARCH CORPORATION /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman EX-99.B5E 8 MANAGEMENT AGREEMENT - INSTITUTIONAL CLASS MANAGEMENT AGREEMENT INSTITUTIONAL CLASS THIS AGREEMENT, made as of the 1st day of September, 1996, is by and between TWENTIETH CENTURY INVESTORS, INC., a Maryland corporation (hereinafter called the "Corporation") and Investors Research Corporation, a Delaware corporation (hereinafter called the "Investment Manager"). WHEREAS, the Corporation has adopted a Multiple Class Plan dated as of September 3, 1996 (as the same may be amended from time to time, the "Multiple Class Plan"), pursuant to Rule 18f-3 of the Investment Company Act of 1940, as amended (the "Investment Company Act"); and WHEREAS, the Multiple Class Plan establishes four classes of shares of certain series of shares of the Corporation: the Retail Class, the Institutional Class, the Services Class, and the Advisor Class; and WHEREAS, the sole class of shares issued by each series of shares of the Corporation prior to the adoption of the Multiple Class Plan has been designated as the Retail Class, the investment management services for which are provided by the Investment Manager pursuant to that certain Management Agreement dated as of August 1, 1994; and WHEREAS, the parties hereto desire to enter into this Agreement to arrange for investment management services to be provided by Investment Manager for the new Institutional Class of shares issued by the Corporation; NOW, THEREFORE, IN CONSIDERATION of the mutual promises and agreements herein contained, the parties agree as follows: 1. INVESTMENT MANAGEMENT SERVICES. The Investment Manager shall supervise the investments of the Institutional Class of each series of shares of the Corporation contemplated as of the date hereof, and the Institutional Class of such subsequent series of shares as the Corporation shall select the Investment Manager to manage. In such capacity, the Investment Manager shall maintain a continuous investment program for the Institutional Class of each such series, determine what securities shall be purchased or sold by each series, secure and evaluate such information as it deems proper and take whatever action is necessary or convenient to perform its functions, including the placing of purchase and sale orders. In performing its duties hereunder, Investment Manager will manage the portfolio of all classes of a particular series as a single portfolio. 2. COMPLIANCE WITH LAWS. All functions undertaken by the Investment Manager hereunder shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act, and any rules and regulations promulgated thereunder; (2) any other applicable provisions of law; (3) the Articles of Incorporation of the Corporation; (4) the By-laws of the Corporation; (5) the Multiple Class Plan; and (6) the registration statements of the Corporation, to time, filed under the Securities Act of 1933 and the Investment Company Act, each as amended from time to time. 3. BOARD SUPERVISION. All of the functions undertaken by the Investment Manager hereunder shall at all times be subject to the direction of the Board of Directors of the Corporation, its executive committee, or any committee or officers of the Corporation acting under the authority of the Board of Directors. 4. PAYMENT OF EXPENSES. The Investment Manager will pay all of the expenses of the Institutional Class of each series of the Corporation's shares that it shall manage, other than interest, taxes, brokerage commissions, extraordinary expenses and the fees and expenses of those directors who are not "interested persons" as defined in Investment Company Act (hereinafter referred to as the "Independent Directors") (including counsel fees). The Investment Manager will provide the Corporation with all physical facilities and personnel required to carry on the business of the Institutional Class of each series that the Investment Manager shall manage, including but not limited to office space, office furniture, fixtures and equipment, office supplies, computer hardware and software and salaried and hourly paid personnel. The Investment Manager may at its expense employ others to provide all or any part of such facilities and personnel. 5. ACCOUNT FEES. The Corporation, by resolution of the Board of Directors, including a majority of the Independent Directors, may from time to time authorize the imposition of a fee as a direct charge against shareholder accounts of the Institutional Class of one or more of the series, such fee to be retained by the Corporation or to be paid to the Investment Manager to defray expenses that would otherwise be paid by the Investment Manager in accordance with the provisions of paragraph 4 of this Agreement. At least sixty (60) days prior written notice of the intent to impose such fee must be given to the shareholders of the affected series. 6. MANAGEMENT FEES. (a) In consideration of the services provided by the Investment Manager the Institutional Class of each series of shares of the Corporation managed by the Investment Manager shall pay to the Investment Manager a per annum management fee (hereinafter, the "Applicable Fee"), as follows: Name of Series Applicable Fee Rate -------------- ------------------- Select Investors .80% Heritage Investors .80% Growth Investors .80% Ultra Investors .80% Vista Investors .80% Balanced Investors .80% (b) On the first business day of each month, the Institutional Class of each series of shares shall pay the Investment Manager the Applicable Fee at the rate specified by subparagraph (a) of this paragraph 6 for the previous month. The fee for the previous month shall be calculated by multiplying the Applicable Fee Rate set forth above for such series by the aggregate average daily closing value of the series' net assets during the previous month, and further multiplying that product by a fraction, the numerator of which shall be the number of days in the previous month, and the denominator of which shall be 365 (366 in leap years). (c) In the event that the Board of Directors of the Corporation shall determine to issue a Institutional Class of any additional series of shares for which it is proposed that the Investment Manager serve as investment manager, the Corporation and the Investment Manager shall enter into an Addendum to this Agreement setting forth the name of the series, the Applicable Fee and such other terms and conditions as are applicable to the management of such series of shares. 7. CONTINUATION OF AGREEMENT. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of two years from the execution hereof, and for as long thereafter as its continuance is specifically approved at least annually (i) by the Board of Directors of the Corporation or by the vote of a majority of the outstanding Institutional Class of voting securities of the Corporation, and (ii) by the vote of a majority of the directors of the Corporation, who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 8. TERMINATION. This Agreement may be terminated by the Investment Manager at any time without penalty upon giving the Corporation 60 days' written notice, and may be terminated at any time without penalty by the Board of Directors of the Corporation or by vote of a majority of the outstanding Institutional Class of voting securities of the Corporation on 60 days' written notice to the Investment Manager. 9. EFFECT OF ASSIGNMENT. This Agreement shall automatically terminate in the event of assignment by the Investment Manager, the term "assignment" for this purpose having the meaning defined in Section 2(a)(4) of the Investment Company Act. 10. OTHER ACTIVITIES. Nothing herein shall be deemed to limit or restrict the right of the Investment Manager, or the right of any of its officers, directors or employees (who may also be a director, officer or employee of the Corporation), to engage in any other business or to devote time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, or to render services of any kind to any other corporation, firm, individual or association. 11. STANDARD OF CARE. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of the Investment Manager, it, as an inducement to it to enter into this Agreement, shall not be subject to liability to the Corporation or to any shareholder of the Corporation for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 12. SEPARATE AGREEMENT. The parties hereto acknowledge that certain provisions of the Investment Company Act, in effect, treat each series of shares of an investment company as a separate investment company. Accordingly, the parties hereto hereby acknowledge and agree that, to the extent deemed appropriate and consistent with the Investment Company Act, this Agreement shall be deemed to constitute a separate agreement between the Investment Manager and each series of shares of the Corporation managed by the Investment Manager. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. Attest: TWENTIETH CENTURY INVESTORS, INC. /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman Attest: INVESTORS RESEARCH CORPORATION /s/William M. Lyons By: /s/James E. Stowers, Jr. William M. Lyons James E. Stowers, Jr. Secretary Chairman EX-99.B6 9 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT TWENTIETH CENTURY MUTUAL FUNDS THIS DISTRIBUTION AGREEMENT is made and entered into by and between each of the open-end management investment companies listed on SCHEDULE A, attached hereto, as of the dates noted on such SCHEDULE A, together with all other open end management investment companies subsequently established and made subject to this Agreement in accordance with SECTION 11 (the "Issuers") and TWENTIETH CENTURY SECURITIES, INC. ("Distributor"), a Delaware corporation. WHEREAS, the common stock of each of the Issuers is currently divided into a number of separate series of shares, or funds, each corresponding to a distinct portfolio of securities, and many of which are also divided into multiple classes of shares; and WHEREAS, Distributor is a registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc.; and WHEREAS, the Boards of Directors of the Funds (the "Board") wish to engage the Distributor to act as the distributor of the Funds; NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties agree as follows: SECTION 1. GENERAL RESPONSIBILITIES Each Issuer hereby engages Distributor to act as exclusive distributor of the shares of each class of its separate series, and any other series and classes as may be designated from time to time hereafter (the "Funds"). The Funds subject to this Distribution Agreement are identified on SCHEDULE A, as the same may be amended from time to time. Sales of a Fund's shares shall be made only to investors residing in those states in which such Fund is registered. After effectiveness of each Fund's registration statement, Distributor will hold itself available to receive, and will receive, by mail, telex, telephone, and/or such other method as may be agreed upon between Distributor and Issuers, orders for the purchase of Fund shares, and will accept or reject such orders on behalf of the Funds in accordance with the provisions of the applicable Fund's prospectus. Distributor will be available to transmit such orders as are so accepted to the Fund's transfer agent as promptly as possible for processing at the shares' net asset value next determined in accordance with the prospectuses. a. Offering Price. All shares sold by Distributor under this Agreement shall be sold at the net asset value per share ("Net Asset Value") determined in the manner described in each Fund's prospectus, as it may be amended from time to time, next computed after the order is accepted by Distributor or its agents or affiliates. Each Fund shall determine and promptly furnish to Distributor a statement of the Net Asset Value of shares of said Fund's series at least once on each day on which the Fund is open for business, as described in its current prospectus. b. Promotion Support. Each Fund shall furnish to Distributor for use in connection with the sale of its shares such written information with respect to said Fund as Distributor may reasonably request. Each Fund represents and warrants that such information, when authenticated by the signature of one of its officers, shall be true and correct. Each Fund shall also furnish to Distributor copies of its reports to its shareholders and such additional information regarding said Fund's financial condition as Distributor may reasonably request. Any and all representations, statements and solicitations respecting a Fund's shares made in advertisements, sales literature and in any other manner whatsoever shall be limited to and conform in all respects to the information provided hereunder. c. Regulatory Compliance. Each Fund shall furnish to Distributor copies of its current form of prospectus, as filed with the SEC, in such quantity as Distributor may reasonably request from time to time, and authorizes Distributor to use the prospectus in connection with the sale of such Fund's shares. All such sales shall be initiated by offer of, and conducted in accordance with, such prospectus and all of the provisions of the Securities Act of 1933, the Investment Company Act of 1940 ("1940 Act") and all the rules and regulations thereunder. Distributor shall furnish applicable federal and state regulatory authorities with any information or reports related to its services under this Agreement which such authorities may lawfully request in order to ascertain whether the Funds' operations are being conducted in a manner consistent with any applicable law or regulations. d. Acceptance. All orders for the purchase of its shares are subject to acceptance by each Fund. SECTION 2. COMPENSATION a. Retail Class and Institutional Class Shares. Except for the promises of the Funds contained in this Agreement and their performance thereof, Distributor shall not be entitled to compensation for its services hereunder with respect to the Retail Class or the Services Class of shares. b. Distribution Class and Service Class Shares. For the services provided and expenses incurred by Distributor as described in SECTION 2 AND SECTION 3 of the Master Distribution and Shareholder Services Plan adopted by the Board with respect to the Distribution Class of such Funds, Distributor shall receive the compensation described in SECTION 1 of such Plan. For the services provided and expenses incurred by Distributor as described in SECTION 2 of the Shareholder Services Plan adopted by the Board with respect to the Service Class of such Funds, Distributor shall receive the compensation described in SECTION 1 of such Plan. SECTION 3. EXPENSES a. Distributor shall pay all expenses incurred by it in connection with the performance of its distribution duties hereunder and under the Master Distribution and Shareholder Services Plan, dated as of September 3, 1996, with respect to the Advisor Class of the Funds' shares, including, but not limited to (A) 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 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", as contemplated by the Rules of Fair Practice of the National Association of Securities Dealers , Inc.; and (N) such other distribution and services activities as the Issuers determine may be paid for by the Issuers pursuant to the terms of this Agreement and in accordance with Rule 12b-1 of the 1940 Act. b. Distributor shall pay all expenses incurred by it in connection with the performance of its shareholder and administrative services duties under the Shareholder Services Plan, dated as of September 3, 1996, with respect to the Service Class of the Funds' shares and under the Master Distribution and Shareholder Services Plan, dated as of September 3, 1996, with respect to the Distribution Class, including, but not limited to, (A) receiving, aggregating and processing purchase, exchange and redemption request from beneficial owners of Service Class shares (including contract owners of insurance products that utilize the Funds as underlying investment media) and placing purchase, exchange and redemption orders with the Distributor; (B) providing shareholders with a service that 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," as contemplated by the Rules of Fair Practice of the NASD. Shareholder Services do not include those activities and expenses that are primarily intended to result in the sale of additional shares of the Service Class of the Funds. c. In addition to paying the above expenses with respect to the Advisor Class and the Service Class, Distributor shall pay all expenses incurred with respect to the Funds' other classes in connection with their registration under the Securities Act of 1933 and the 1940 Act, the qualification of such shares for sale in each jurisdiction designated by the Funds' investment adviser, the issue and transfer of such shares (including the expenses of confirming purchase and redemption orders and of supplying the information, prices and other data to be furnished by the Funds under this Agreement), the registration of Distributor as a broker, and the registration and qualification of its officers, directors and representatives under applicable federal and state laws. SECTION 4. INDEPENDENT CONTRACTOR Distributor shall be an independent contractor. Neither Distributor nor any of its officers, trustees, employees or representatives is or shall be an employee of a Fund in connection with the performance of Distributor's duties hereunder. Distributor shall be responsible for its own conduct and the employment, control, compensation and conduct of its agents and employees, and for any injury to such agents or employees or to others through its agents and employees. SECTION 5. AFFILIATION WITH THE FUNDS Subject to and in accordance with each Fund's formative documents, Section 10 of the 1940 Act, it is understood: that the directors, officers, agents and shareholders of the Funds are or may be interested in Distributor as directors, officers, or shareholders of Distributor; that directors, officers, agents or shareholders of Distributor are or may be interested in the Funds as directors, officers, shareholders (directly or indirectly) or otherwise; and that the affect of any such interest shall be governed by the 1940 Act and SECTION 4. SECTION 6. BOOKS AND RECORDS It is expressly understood and agreed that all documents, reports, records, books, files and other materials ("Fund Records") relating to this Agreement and the services to be performed hereunder shall be the sole property of the Funds and that such property, to the extent held by Distributor, shall be held by Distributor as agent during the effective term of this Agreement. All Fund Records shall be delivered to the applicable Fund upon the termination of this Agreement, free from any claim or retention of rights by Distributor. SECTION 7. SERVICES NOT EXCLUSIVE The services of Distributor to the Funds hereunder are not to be deemed exclusive, and Distributor shall be free to render similar services to others. SECTION 8. RENEWAL AND TERMINATION a. Term and Annual Renewal. The term of this Agreement shall be from the date of its approval by the vote of a majority of the Board of each Issuer, and it shall continue in effect from year to year thereafter only so long as such continuance is specifically approved at least annually by the vote of a majority of its Board, and the vote of a majority of said directors who are neither parties to the Agreement nor interested persons of any such party, cast at a meeting called for the purpose of voting on such approval. "Approved at least annually" shall mean approval occurring, with respect to the first continuance of the Agreement, during the 90 days prior to and including the date of its termination in the absence of such approval, and with respect to any subsequent continuance, during the 90 days prior to and including the first anniversary of the date upon which the most recent previous annual continuance of the Agreement became effective. The effective date of the Agreement with respect to each Fund is identified in the Schedules attached to this Agreement. b. Termination. This Agreement may be terminated at any time, without payment of any penalty, by a Fund's Board, upon 60 days' written notice to Distributor, and by Distributor upon 60 days' written notice to the Fund. This Agreement shall terminate automatically in the event of its assignment. The term "assignment" shall have the meaning set forth for such term in Section 2(a)(4) of the 1940 Act. SECTION 9. SEVERABILITY If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or similar authority, the remainder of this Agreement shall not be affected thereby. SECTION 10. APPLICABLE LAW This Agreement shall be construed in accordance with the laws of the State of Missouri. SECTION 11. AMENDMENT This Agreement and the Schedules forming a part hereof may be amended at any time by a writing signed by each of the parties hereto. In the event that the Board or trustees of any additional funds indicate by resolution that such funds are to be made parties to this Agreement, whether such funds were in existence at the time of the effective date of this Agreement or subsequently formed, SCHEDULE A hereto shall be amended to reflect the addition of such new funds and such new funds shall thereafter become parties hereto. In the event that such new funds issue multiple classes of shares, SCHEDULES B, C, D, AND E, as appropriate, shall be amended to reflect the addition of such new funds' classes. In the event that any of the Funds listed on SCHEDULE A terminates its registration as a management investment company, or otherwise ceases operations, SCHEDULE A (and, as appropriate, SCHEDULES B, C, D, AND E) shall be amended to reflect the deletion of such Fund and its various classes. TWENTIETH CENTURY SECURITIES, INC. By: /s/James E. Stowers III James E. Stowers III President TCI PORTFOLIOS, INC. TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY PREMIUM RESERVES, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. TWENTIETH CENTURY WORLD INVESTORS, INC. By: /s/William M. Lyons William M. Lyons Executive Vice President of each of the Issuers TWENTIETH CENTURY SECURITIES, INC. DISTRIBUTION AGREEMENT SCHEDULE A COMPANIES AND FUNDS COVERED BY THIS DISTRIBUTION AGREEMENT FUND DATE OF AGREEMENT - ---- ----------------- TCI PORTFOLIOS, INC. TCI Advantage September 3, 1996 TCI Balanced September 3, 1996 TCI Growth September 3, 1996 TCI International September 3, 1996 TCI Value September 3, 1996 TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 Giftrust Investors September 3, 1996 Tax Exempt Short-Term September 3, 1996 Tax Exempt Intermediate-Term September 3, 1996 Tax Exempt Long-Term September 3, 1996 TWENTIETH CENTURY PREMIUM RESERVES, INC. Twentieth Century Premium Government Reserve September 3, 1996 Twentieth Century Premium Capital Reserve September 3, 1996 Twentieth Century Premium Managed Bond September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 SCHEDULE B RETAIL CLASS FUNDS FUND DATE OF AGREEMENT - ---- ----------------- TCI PORTFOLIOS, INC. TCI Advantage September 3, 1996 TCI Balanced September 3, 1996 TCI Growth September 3, 1996 TCI International September 3, 1996 TCI Value September 3, 1996 TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 Giftrust Investors September 3, 1996 Tax Exempt Short-Term September 3, 1996 Tax Exempt Intermediate-Term September 3, 1996 Tax Exempt Long-Term September 3, 1996 TWENTIETH CENTURY PREMIUM RESERVES, INC. Twentieth Century Premium Government Reserve September 3, 1996 Twentieth Century Premium Capital Reserve September 3, 1996 Twentieth Century Premium Managed Bond September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 SCHEDULE C INSTITUTIONAL CLASS FUNDS FUND DATE OF AGREEMENT - ---- ----------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Select Investors September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 SCHEDULE D SERVICE CLASS FUNDS FUND DATE OF AGREEMENT - ---- ----------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 SCHEDULE E DISTRIBUTION CLASS FUNDS FUND DATE OF AGREEMENT - ---- ----------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 EX-99.B10 10 OPINION AND CONSENT OF COUNSEL Patrick A. Looby Attorney and Counselor at Law 4500 Main Street P.O. Box 418210 Kansas City, Missouri 64141-9210 Telephone (816) 340-4349 Telecopier (816) 340-4964 -------------------------- June 14, 1996 Twentieth Century Investors, Inc. Twentieth Century Tower 4500 Main Street Kansas City, Missouri 64111 Ladies and Gentlemen: As counsel to Twentieth Century Investors, Inc., I am generally familiar with its affairs. Based upon this familiarity, and upon the examination of such documents as I have deemed relevant, it is my opinion that the shares of the Corporation described in Post-Effective Amendment No. 75 to its Registration Statement on Form N-1A, to be filed with the Securities and Exchange Commission on June 14, 1996, will, when issued, be validly issued, fully paid and nonassessable. For the record, it should be noted that I am an officer of Twentieth Century Investors, Inc. and of Twentieth Century Services, Inc. an affiliated corporation of Investors Research Corporation, the investment adviser of Twentieth Century Investors, Inc. I hereby consent to the use of this opinion as an exhibit to Post-Effective Amendment No. 75. Very truly yours, /s/ Patrick A. Looby Patrick A. Looby EX-99.B11 11 INDEPENDENT AUDITOR'S CONSENT CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT Twentieth Century Investors, Inc. Twentieth Century Tower 4500 Main Street Kansas City, Missouri 64111 We hereby consent to the use in this Post-Effective Amendment No. 75 to the Registration Statement under the Securities Act of 1933 and this Amendment No. 75 to the Registration Statement under the Investment Company Act of 1940, both on form N-1A, of our report dated November 27, 1995, accompanying and pertaining to the financial statements of Twentieth Century Investors, Inc., as of October 31, 1995, which are included in such Post-Effective Amendments. /s/ BAIRD, KURTZ & DODSON BAIRD, KURTZ & DOBSON Kansas City, Missouri June 14, 1996 EX-99.B15A 12 MASTER DISTRIBUTION AND SHAREHOLDER SVCS. PLAN MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLAN OF TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. TWENTIETH CENTURY WORLD INVESTORS, INC. Advisor Class WHEREAS, each of the above named corporations (the "Issuers") is an open-ended, management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the common stock of each Issuer is currently divided into a number of separate series of shares, or funds, each corresponding to a distinct portfolio of securities; and WHEREAS, pursuant to Rule 18f-3 of the 1940 Act, the Issuers' Boards of Directors (the "Board") have established multiple classes of shares of the various funds of the Issuers, including an Advisor Class of shares; and WHEREAS, the Board desires to authorize the funds identified in SCHEDULE A (the "Funds") to bear expenses of distribution of certain of their shares by adopting this Master Distribution and Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Advisor Class shares of each of the Funds; and WHEREAS, INVESTORS RESEARCH CORPORATION ("IRC") is the registered investment adviser to the Issuers; and WHEREAS, the Issuers have entered into a Distribution Agreement (the "Distribution Agreement") with TWENTIETH CENTURY SECURITIES, INC. (the "Distributor") pursuant to which Distributor serves as distributor of the various classes of the Funds, including the Advisor Class. NOW, THEREFORE, the Issuers hereby adopt, on behalf of the Funds, this Plan, in accordance with Rule 12b-1 under the 1940 Act on the following terms and conditions: SECTION 1. DISTRIBUTION FEES a. Distribution Fee. For purposes of paying costs and expenses incurred by Distributor in providing the distribution services set forth in SECTION 2 below, the Funds shall pay Distributor a fee equal to 25 basis points (0.25%) per annum of the average daily net assets of the shares of the Funds' Advisor Class of shares (the "Distribution Fee"). b. Shareholder Services Fee. For purposes of paying costs and expenses incurred by Distributor in providing the shareholder and administrative services set forth in SECTION 3 below, the Funds shall pay Distributor a fee equal to 25 basis points (0.25%) per annum of the average daily net assets of the shares of the Funds' Advisor Class of shares (the "Shareholder Services Fee"). c. Calculation and Assessment. Distribution Fees and Shareholder Services Fees under this Plan will be calculated and accrued daily by each Fund and paid monthly to the Distributor or at such other intervals as the Issuers and the Distributor may agree. SECTION 2. DISTRIBUTION SERVICES a. The amount set forth in SECTION 1 of this Plan shall be paid for Distributor's services in connection with any activities undertaken or expenses incurred primarily intended to result in the sale of Advisor Class shares of the Funds, 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 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", 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 Issuers determine may be paid for by the Issuers pursuant to the terms of this Agreement and in accordance with Rule 12b-1 of the 1940 Act. b. For purposes of the Plan, "service fees" shall mean payments in connection with the provision of personal, continuing services to investors in each Fund and/or the maintenance of shareholder accounts, excluding (i) transfer agent and subtransfer agent services for beneficial owners of a Fund's Advisor Class shares, (ii) aggregating and processing purchase and redemption orders, (iii) providing beneficial owners with account statements, processing dividend payments, (iv) providing subaccounting services for Advisor Class shares held beneficially, (v) forwarding shareholder communications to beneficial owners, and (vi) receiving, tabulating and transmitting proxies executed by beneficial owners; provided, however, that if the NASD adopts a definition of "service fees" for purposes of Section 26(d) of the Rules of Fair Practice of the NASD that differs from the definition of "service activities" hereunder, or if the NASD adopts a related definition intended to define the same concept, the definition of "service fees" in this Section shall be automatically amended, without further action of the parties, to conform to such NASD definition. Overhead and other expenses of Distributor related to its service activities, including telephone and other communications expenses, may be included in the information regarding amounts expended for such activities. SECTION 3. SHAREHOLDER SERVICES DEFINED. As manager of the Funds' Advisor Class of shares, IRC may cause one of its affiliates to provide shareholder and administrative services to the shareholders of the Advisor Class shares of the Funds ("Shareholder Services") or it may engage third parties to do so. The payments authorized by this Plan are intended to reimburse IRC for expenses incurred as a result of these arrangements. Such Shareholder Services and related expenses may include, but are not limited to, (A) receiving, aggregating and processing purchase, exchange and redemption request from beneficial owners of Advisor Class shares (including contract owners of insurance products that utilize the Funds as underlying investment media) and placing purchase, exchange and redemption orders with the Distributor; (B) providing shareholders with a service that 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," as contemplated by the Rules of Fair Practice of the NASD. Shareholder Services do not include those activities and expenses that are primarily intended to result in the sale of additional shares of the Advisor Class of the Funds. SECTION 4. EFFECTIVENESS This Plan shall become effective as of September 3, 1996. SECTION 5. TERM AND RENEWAL This Plan will continue in effect until September 3, 1997, and will continue thereafter in full force and effect for successive periods of up to one year, provided that each such continuance is approved by the Board to the extent and in the manner required by the 1940 Act. SECTION 6. REPORTING REQUIREMENTS IRC shall administer this Plan in accordance with Rule 12b-1 of the 1940 Act. Distributor will provide to each Issuer's Board, and the Independent Directors will review and approve, in exercise of their fiduciary duties, at least quarterly, a written report of the amounts expended with respect to the Advisor Class shares of each Fund by Distributor under this Plan and such other information as may be required by the 1940 Act and Rule 12b-1 thereunder. SECTION 7. TERMINATION This Plan may be terminated at any time with respect to the Advisor Class shares of any Fund by vote of the Board of the Issuer of which the Fund is a series, by votes of a majority of the Independent Directors, or by vote of a majority of the outstanding voting Advisor Class shares of that Fund. Termination of the Plan with respect to the Advisor Class shares of one Fund will not affect the continued effectiveness of this Plan with respect to the Advisor Class shares of any other Fund. SECTION 8. AMENDMENTS TO THIS PLAN This Plan may not be amended to increase materially the amount of compensation a Fund is authorized to pay under SECTION 1 hereof unless such amendment is approved by the Board, as required by the 1940 Act, and such amendment is further approved by a majority of the outstanding voting securities of the Advisor Class shares of the Fund. No other material amendment to the Plan shall be made unless approved by the Board in the manner provided for annual renewal of the Plan in SECTION 5 hereof. This Agreement may be amended to include additional series of shares of the Issuers, whether or not such series were in existence at the time of original adoption of this Agreement or subsequently established, and series of additional Issuers, by adoption of this Plan in the manner required by the 1940 Act and the rules and regulations thereunder. Such new funds will become subject to this Plan and will commence paying the Distribution Fee set forth in SECTION 1(A) and the Shareholder Services Fee set forth in SECTION 1(B) on the date of the adoption of this Plan by the Board, unless the Board specifies otherwise. After the effective date of adoption of this Plan by the Board with respect to the Advisor Class of shares of such new funds, the term "Funds" under this Plan shall thereafter be deemed to include the new funds. SECTION 9. RECORDKEEPING The Issuers will preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to SECTION 6 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. IN WITNESS WHEREOF, the Issuers have executed this Distribution Plan as of September 3, 1996. TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Attest: TWENTIETH CENTURY WORLD INVESTORS, INC. By: /s/Patrick A. Looby By: /s/James E. Stowers III PATRICK A. LOOBY JAMES E. STOWERS III Assistant Secretary President SCHEDULE A SERIES OFFERING ADVISOR CLASS SHARES SERIES DATE PLAN ADOPTED - ------ ----------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 EX-99.B15B 13 SHAREHOLDER SERVICES PLAN SHAREHOLDER SERVICES PLAN OF TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. TWENTIETH CENTURY WORLD INVESTORS, INC. Service Class WHEREAS, each of the above named corporations (the "Issuers") is an open-ended, management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the common stock of each Issuer is currently divided into a number of separate series of shares, or funds, each corresponding to a distinct portfolio of securities; and WHEREAS, pursuant to Rule 18f-3 of the 1940 Act, the Boards of Directors of the Issuers (the "Board of Directors") have established multiple classes of shares of the various funds of the Issuers, including a Service Class of shares; and WHEREAS, the Board of Directors desires to authorize the funds identified in SCHEDULE A (the "Funds") to authorize the Service Class of shares of such Funds to bear the expenses for Shareholder Services (as defined herein) provided to the Service Class shareholders by IRC or its affiliates, or by independent third parties by adopting this Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Service Class shares of each of the Funds; and WHEREAS, INVESTORS RESEARCH CORPORATION ("IRC") is the registered investment adviser to the Issuers; and NOW, THEREFORE, the Issuers hereby adopt, on behalf of the Funds, this Plan, in accordance with Rule 12b-1 under the 1940 Act on the following terms and conditions: SECTION 1. SHAREHOLDER SERVICE FEES a. Amount of Fee. For purposes of paying costs and expenses incurred in providing shareholder and administrative services to each Fund's Service Class of shares as set forth in SECTION 2 below, the Funds' shall pay the Distributor a fee equal to 25 basis points (0.25%) per annum of the average daily net assets of the Funds' Service Class of shares (the "Shareholder Services Fee"). b. Calculation and Assessment. Shareholder Service Fees under this Plan shall be calculated and accrued daily by each Fund and paid monthly to the Distributor or at such other intervals as the Issuers and the Distributor shall agree. SECTION 2. SHAREHOLDER SERVICES DEFINED As manager of the Funds' Service Class of shares, IRC may cause one of its affiliates to provide shareholder and administrative services to the shareholders of the Service Class shares of the Funds ("Shareholder Services") or it may engage third parties to do so. The payments authorized by this Plan are intended to reimburse IRC for expenses incurred as a result of these arrangements. Such Shareholder Services and related expenses may include, but are not limited to, (A) receiving, aggregating and processing purchase, exchange and redemption request from beneficial owners of Service Class shares (including contract owners of insurance products that utilize the Funds as underlying investment media) and placing purchase, exchange and redemption orders with the Distributor; (B) providing shareholders with a service that 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," as contemplated by the Rules of Fair Practice of the NASD. Shareholder Services do not include those activities and expenses that are primarily intended to result in the sale of additional shares of the Service Class of the Funds. SECTION 3. EFFECTIVENESS This Plan shall become effective September 3, 1996. SECTION 4. TERM AND RENEWAL This Plan will continue in effect until September 3, 1997, and will continue thereafter in full force and effect for successive periods of up to one year, provided that each such continuance is approved by the Board to the extent and in the manner required by the 1940 Act. SECTION 5. REPORTING REQUIREMENTS IRC shall administer this Plan in accordance with Rule 12b-1 of the 1940 Act. Distributor will provide to each Issuer's Board and the Independent Directors will review and approve, in exercise of their fiduciary duties, at least quarterly, a written report of the amounts expended with respect to the Service Class shares of each Fund by the Distributor under this Plan and such other information as may be required by the 1940 Act and Rule 12b-1 thereunder. SECTION 6. TERMINATION This Plan may be terminated at any time with respect to the Service Class shares of any Fund by vote of the Board of Directors of the Issuer of which the Fund is a series or by vote of a majority of the Independent Directors. Termination of the Plan with respect to the Service Class shares of one Fund shall not affect the continued effectiveness of this Plan with respect to the Service Class shares of any other Fund. SECTION 7. AMENDMENTS TO THIS PLAN This Plan may not be amended to increase materially the amount of compensation a Fund is authorized to pay under SECTION 1 hereof unless such amendment is approved by the Board, as required by the 1940 Act, and such amendment is further approved by a majority of the outstanding voting securities of the Service Class shares of the Fund. No other material amendment to the Plan shall be made unless approved by the Board in the manner provided for annual renewal of the Plan in SECTION 4 hereof. This Agreement may be amended to include additional series of shares of the Issuers, whether or not such series were in existence at the time of original adoption of this Agreement or subsequently established, and series of additional Issuers, by adoption of this Plan in the manner required by the 1940 Act and the rules and regulations thereunder. Such new funds will become subject to this Plan and will commence paying the Shareholder Services Fee set forth in SECTION 1(A) on the date of the adoption of this Plan by the Board, unless the Board specifies otherwise. After the effective date of adoption of this Plan by the Board with respect to the Service Class of shares of such new funds, the term "Funds" under this Plan shall thereafter be deemed to include the existing or new funds. SECTION 8. RECORDKEEPING The Issuers shall preserve copies of this Plan (including any amendments thereto) and any related agreements and all reports made pursuant to SECTION 5 hereof for a period of not less than six years from the date of this Plan, the first two years in an easily accessible place. IN WITNESS WHEREOF, the Issuers have executed this Shareholder Services Plan as of September 3, 1996. TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Attest: TWENTIETH CENTURY WORLD INVESTORS, INC. /s/Patrick A. Looby /s/James E. Stowers III PATRICK A. LOOBY JAMES E. STOWERS III Assistant Secretary President SCHEDULE A SERIES OFFERING SERVICE CLASS SHARES SERIES DATE PLAN ADOPTED - ------ ----------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income September 3, 1996 Twentieth Century Value September 3, 1996 TWENTIETH CENTURY INVESTORS, INC. Balanced Investors September 3, 1996 Cash Reserve September 3, 1996 Growth Investors September 3, 1996 Heritage Investors September 3, 1996 Intermediate-Term Bond September 3, 1996 Limited-Term Bond September 3, 1996 Long-Term Bond September 3, 1996 Select Investors September 3, 1996 U.S. Governments Intermediate-Term September 3, 1996 U.S. Governments Short-Term September 3, 1996 Ultra Investors September 3, 1996 Vista Investors September 3, 1996 TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive September 3, 1996 Strategic Allocation: Conservative September 3, 1996 Strategic Allocation: Moderate September 3, 1996 TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth September 3, 1996 Twentieth Century International Equity September 3, 1996 EX-99.B16 14 SCHEDULES OF COMPUTATION Schedule of Computation of Performance Advertising Quotations A. Representative Total Return Calculations Set forth below are representative calculations of each type of total return performance quotation included in the Statement of Additional Information of Twentieth Century Investors, Inc. 1. Average annual total return. The five year average annual return of Growth Investors, as quoted in the Statement of Additional Information, was 18.32%. This return was calculated as follows: P(1+T)n=ERV where, P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of the hypothetical $1,000 payment at the end of 5 years. Applying the actual return figures of Growth Investors for the 5 year period ended October 31, 1995: 1,000 (1+18.32%)5 = $2,318.95 T = 2,318.95 1/5 - 1 1,000.00 T = 18.32% 2. Cumulative total return. The cumulative total return of Growth Investors from 6/30/71 to 10/31/95 as quoted in the Statement of Additional Information, was 6,212.00% This return was calculated as follows: C = (ERV - P) P where, C = cumulative total return P = a hypothetical initial payment of $1,000 ERV = ending redeemable value of the hypothetical $1,000 payment at the end of the 24.3 year period Applying the actual return figures of Growth Investors for the 24.3 year period ended October 31, 1995: C = (63,120 - 1,000) 1,000 C = 6,212.00% B. Yield Calculations Set forth below are representative calculations of each type of yield quotation included in the Statement of Additional Information of Twentieth Century Investors, Inc. 1. Cash Reserve Yield. The yield for Cash Reserve for the current seven days ended October 31, 1995, as quoted in the Statement of Additional Information, was 5.16%. The yield was computed as follows: Y = I x 365 B 7 where, Y = yield I = total income of hypothetical account of one share over seven day period B = beginning account value ($1) Applying the actual figures of Cash Reserve for the seven day period ended October 31, 1995: Y = .000990334 x 365 ---------- --- 1 7 Y = 5.16% Thirty-day yields are calculated similarly, with the appropriate substitutions. 2. Cash Reserve Effective Yield. The effective yield for Cash Reserve for the seven days ended October 31, 1995 as quoted in the Statement of Additional Information, was 5.30%. The effective yield was computed as follows: EF = (1 + I) - 1 B where, EF - effective yield I = total income of hypothetical account of one share over seven day period B = beginning account value ($1) Applying the actual figures of Cash Reserve for the seven day period ended October 31, 1994: EF = 1 + .0990334 365 - 1 -------- --- 1 7 EF = 5.30% 3. Other Fixed-Income Funds and the Balanced Fund Yield. The yield for U.S. Governments for the thirty days ended October 31, 1995, as quoted in the Statement of Additional Information, was 5.18%. The yield was calculated as follows: Y = a - b + 1 6 - 1 *2 ----- c*d where, Y = yield a = total income during thirty day period b = expense accrued for the period c = average daily number of shares outstanding during the period d = maximum offering price per share on last day of period Applying the actual figures of U.S. Governments for the thirty day period ended October 31, 1995: 1,891,818.76 - 220,043.54 +1 6 - 1 *2 ------------------------- 41,143,971.501 * 9.51 Y = 5.18% 4. Tax-Equivalent Yield. The tax-equivalent yield for Tax-Exempt Intermediate Term for the thirty days ended October 31, 1995, as quoted in the Statement of Additional Information, was 6.58%. The tax-equivalent yield was calculated as follows: EY = Y - Yt _______ + Yt 1 - A where, EY = tax-equivalent yield Y = yield (as computed above) A = assumed tax rate of 36% Yt = portion of the yield that was not tax-exempt Applying the actual figures of Tax-Exempt Intermediate Term for the thirty days ended October 31, 1995: EY = 4.21 1-.36 EY = 6.58% Cumulative total return and average annual total return quotations for the fixed-income funds (other than Cash Reserve) are calculated in the same manner as cumulative total return and average annual total return quotations for the Twentieth Century common stock funds and the Balanced Fund as described under paragraphs A1 and A2 of this Schedule. EX-99.B18 15 MULTIPLE CLASS PLAN MULTIPLE CLASS PLAN OF TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. TWENTIETH CENTURY INVESTORS, INC. TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. TWENTIETH CENTURY WORLD INVESTORS, INC. WHEREAS, each of the above-named corporations (the "Issuers") is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the common stock of the Issuers are currently divided into a number of separate series of shares; and WHEREAS, the Issuers desire to offer multiple classes of certain of such series of shares pursuant to Rule 18f-3 under the 1940 Act; and WHEREAS, Rule 18f-3 requires that the Board of Directors of the Issuers adopt a written plan setting forth (1) the specific arrangement for shareholder services and the distribution of securities for each class, (2) the allocation of expenses for each class and (3) any related conversion features or exchange privileges; and WHEREAS, the Board of Directors of the Issuers, including a majority of the Independent Directors, as defined in SECTION 3D below, have determined that the following plan (the "Plan"), adopted pursuant to Rule 18f-3 under the 1940 Act, is in the best interests of each class individually and the Issuers as a whole; NOW, THEREFORE, the Issuers hereby adopt, on behalf of the Funds (as defined in SECTION 2A below), this Plan, in accordance with Rule 18f-3 under the 1940 Act on the following terms and conditions: SECTION 1. ESTABLISHMENT OF PLAN As required by Rule 18f-3 under the 1940 Act, this Plan describes the multiple class system for certain series of shares of the Issuers, including the separate class arrangements for shareholder services and/or distribution of shares, the method for allocating expenses to classes and any related conversion features or exchange privileges applicable to the classes. Upon the effective date of this Plan, the Issuers elect to offer multiple classes of their shares, as described herein, pursuant to Rule 18f-3 and this Plan. SECTION 2. FEATURES OF THE CLASSES a. Division into Classes. Each series of shares of the Issuers identified in SCHEDULE A attached hereto, and each series of shares of any Issuer subsequently added to this Plan (collectively, the "Funds"), may offer two or more classes of shares: the Retail Class, the Institutional Class, the Service Class, and the Advisor Class. The classes that each Fund is authorized to issue pursuant to this Plan are set forth in SCHEDULE A. Shares of each class of a Fund shall represent an equal pro rata interest in such Fund, and generally, shall have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, and terms and conditions, except that: (A) each class shall have a different designation; (B) each class of shares shall bear any Class Expenses, as defined in SECTION 3D(3) below; (C) each class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its service arrangement; and (D) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. b. Management Fees. (1) Retail Class Unified Fee. The Issuers of the Funds listed on SCHEDULE A are each party to a Management Agreement with Investors Research Corporation ("IRC"), the Funds' investment adviser, for the provision of investment advisory and management services in exchange for a single, unified fee. Such Management Agreement and such unified fee applies to each Fund's Retail Class of shares. Shares issued and outstanding prior to the effective date of this Plan shall become Retail Class shares following the effective date. (2) Institutional Class Unified Fee. The Issuers of the Funds listed on SCHEDULE A as being authorized to issue Institutional Class shares shall enter into a Management Agreement with IRC providing for a unified fee of 20 basis points less than the existing unified fee in place for the corresponding Retail Class of such Funds, as described in each Fund's current prospectus or prospectus supplement. Institutional Class shares will be made available to large institutional shareholders, such as corporations and retirement plans that are not participant directed, and to other pooled accounts that meet certain investment minimums established from time to time by IRC. Institutional Class shares are not eligible for purchase by insurance companies, except in connection with a product for defined benefit plans not involving a group annuity contract. (3) Service Class and Advisor Class Unified Fee. The Issuers of the Funds listed on SCHEDULE A as being authorized to issue Service Class or Advisor Class shares shall enter into a Management Agreement with IRC providing for a unified fee of 25 basis points less than the existing unified fee in place for the corresponding Retail Class of such Funds, as described in each Fund's current prospectus or prospectus supplement. The Service Class and Advisor Class are intended to be sold to employer-sponsored retirement plans (including participant directed plans), insurance companies, broker dealers, banks and other financial intermediaries. c. Shareholder Services and Distribution Services. (1) Shareholder Services Plan. Shares of the Service Class of each Fund are offered subject to a Shareholder Services Plan (the "Shareholder Services Plan") between the Issuers and Twentieth Century Securities, Inc., the Funds' distributor (the "Distributor"). Shareholders of the Service Class of each Fund typically receive most or all shareholder services from independent third parties rather than from Twentieth Century Services, Inc., the Funds' transfer agent. The cost of some or all of such services is borne by the shareholders of the Services Class through the payment of the Shareholder Services Fee under the Shareholder Services Plan. Under the Shareholder Services Plan, each Fund is authorized to pay to the Distributor, as compensation for shareholder service activities rendered by IRC, its affiliates, or independent third party service providers, to holders of shares of the Service Class of a Fund, a shareholder service fee at the rate of 0.25% on an annualized basis of the average net asset value of each such class of shares of the Fund (the "Shareholder Services Fee"). Under the Shareholder Services Plan, shareholder and administrative service activities may include: (A) receiving, aggregating and processing purchase, exchange and redemption request from beneficial owners of Service Class shares (including contract owners of insurance products that utilize the Funds as underlying investment media) and placing purchase, exchange and redemption orders with the Distributor; (B) providing shareholders with a service that 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 sole shareholder of record and nominee for beneficial owners; (F) maintaining account records for shareholders; (G) issuing confirmations of transactions; (H) providing subaccounting with respect to shares beneficially owned by customers or providing the information to a Fund as necessary for such subaccounting; (I) creating 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 (J) providing other similar administrative and sub-transfer agency services. (2) Distribution Plan. Shares of the Advisor Class of each Fund are offered subject to a Master Distribution and Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan") between the Issuers and the Distributor. Advisor Class shares of each Fund shall pay the Distributor for "distribution expenses" incurred in connection with providing distribution services for shares of the Funds, as provided in the 12b-1 Plan, at an annual rate of .25% of the average daily net assets of such class. Under the Distribution Agreement, "distribution expenses" include, but are not limited to, expenses incurred in connection with (A) 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 employees of Distributor who engage in or support distribution of the Fund's 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 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", as contemplated by the Rules of Fair Practice of the National Association of Securities Dealers; and (N) such other distribution and services activities as the Issuers determine may be paid for by the Issuers pursuant to the terms of this Agreement and in accordance with Rule 12b-1 of the 1940 Act. SECTION 3. ALLOCATION OF INCOME AND EXPENSES a. Daily Dividend Funds. Funds that declare distributions of net investment income daily to maintain the same net asset value per share in each class ("Daily Dividend Funds") will allocate gross income and expenses (other than Class Expenses, as defined below) to each class on the basis of "relative net assets (settled shares)". Realized and unrealized capital gains and losses will be allocated to each class on the basis of relative net assets. "Relative net assets (settled shares)," for this purpose, are net assets valued in accordance with generally accepted accounting principles but excluding the value of subscriptions receivable, in relation to the net assets of the particular Daily Dividend Fund. Expenses to be so allocated include Issuer Expenses and Fund Expenses, each as defined below. b. Non-Daily Dividend Funds. The gross income, realized and unrealized capital gains and losses and expenses (other than Class Expenses) of each Fund, other than the Daily Dividend Funds, shall be allocated to each class on the basis of its net asset value relative to the net asset value of the Fund. Expenses to be so allocated also include Issuer Expenses and Fund Expenses. c. Apportionment of Certain Expenses. Expenses of a Fund shall be apportioned to each class of shares depending on the nature of the expense item. Issuer Expenses and Fund Expenses will be allocated among the classes of shares pro rata based on their relative net asset values in relation to the net asset value of all outstanding shares in the Fund. Approved Class Expenses shall be allocated to the particular class to which they are attributable. In addition, certain expenses may be allocated differently if their method of imposition changes. Thus, if a Class Expense can no longer be attributed to a class, it shall be charged to a Fund for allocation among classes, as determined by IRC. d. Definitions. (1) Issuer Expenses. "Issuer Expenses" include expenses of an Issuer that are not attributable to a particular Fund or class of a Fund. Issuer Expenses include fees and expenses of those Directors who are not "interested persons" as defined in the 1940 Act ("Independent Directors"), including counsel fees for the Independent Directors, and certain extraordinary expenses of the Issuer that are not attributable to a particular Fund or class of a Fund. (2) Fund Expenses. "Fund Expenses" include expenses of an Issuer that are attributable to a particular fund but are not attributable to a particular class of the Fund. Fund Expenses include (i) interest expenses, (ii) taxes, (iii) brokerage expenses, and (iv) certain extraordinary expenses of a Fund that are not attributable to a particular class of a Fund. (3) Class Expenses. "Class Expenses" are expenses that are attributable to a particular class of a Fund and shall be limited to: (i) applicable unified fee; (ii) payments made pursuant to a Rule 12b-1 Plan ("12b-1 Plan Fee"); (iii) payments made pursuant to the shareholder Services Plan; and (iv) certain extraordinary expenses of an Issuer or Fund that are attributable to a particular class of a Fund. (4) Extraordinary Expenses. "Extraordinary expenses" shall be allocated as an Issuer Expense, a Fund Expense or a Class Expense in such manner and utilizing such methodology as IRC shall reasonably determine, which determination shall be subject to ratification or approval of the Board of Directors and shall be consistent with applicable legal principles and requirements under the 1940 Act and the Internal Revenue Code, as amended. IRC shall report to the Board of Directors quarterly regarding those extraordinary expenses that have been allocated as Class Expenses. Any such allocations shall be reviewed by, and subject to the approval of, the Board of Directors. SECTION 4. EXCHANGE PRIVILEGES Subject to the restrictions and conditions set forth in the Funds' prospectuses, shareholders may (i) exchange shares of one class of a Fund for shares of the same class of another Fund, (ii) exchange Retail Class shares for shares of any fund within the Twentieth Century family of funds that only offers a single class of shares (a "Single Class Fund"), and (iii) exchange shares of any Single Class Fund for Retail Class shares of another Fund, provided that the amount to be exchanged meets the applicable minimum investment requirements and the shares to be acquired in the exchange are qualified for sale in the stockholder's state of residence. SECTION 5. CONVERSION FEATURES Conversions from one class of shares into another class of shares are not permitted; provided, however, that if a shareholder of a particular class is no longer eligible to own shares of that class, such shareholders' shares will be converted to shares of the same Fund but of another class in which such shareholder is eligible to invest. Similarly, if a shareholder becomes eligible to invest in shares of another class that has lower expenses than the class in which such shareholder is invested, such shareholder may be eligible to convert into shares of the same Fund but of the class with the lower expenses. To the extent a Fund and IRC are parties to any agreement whereby IRC is obligated to reimburse a portion of its unified fee to a financial intermediary or other third party for recordkeeping or other administrative services, on the effective date all such shares held in accounts subject to any such agreements shall be automatically converted, and all Fund shares subsequently purchased pursuant to any such agreements shall be, Service Class shares. SECTION 6. QUARTERLY AND ANNUAL REPORTS The Board of Directors shall receive quarterly and annual reports concerning all allocated Class Expenses and distribution and servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to time. In the reports, only expenditures properly attributable to the sale or servicing of a particular class of shares will be used to justify any distribution or servicing fee or other expenses charged to that class. Expenditures not related to the sale or servicing of a particular class shall not be presented to the Board of Directors to justify any fee attributable to that class. The reports, including the allocations upon which they are based, shall be subject to the review and approval of the Independent Directors of the Issuers who have no direct or indirect financial interest in the operation of this Plan in the exercise of their fiduciary duties. SECTION 7. WAIVER OR REIMBURSEMENT OF EXPENSES Expenses may be waived or reimbursed by any adviser to the Issuers, by the Issuers' underwriter or by any other provider of services to the Issuers without the prior approval of the Issuers' Board of Directors, provided that the fee is waived or reimbursed to all shares of a particular Fund in proportion to their relative average daily net asset values. SECTION 8. EFFECTIVENESS OF PLAN Upon receipt of approval by votes of a majority of both (a) the Board of Directors of the Issuers and (b) the Independent Directors, this Plan shall become effective September 3, 1996. SECTION 9. MATERIAL MODIFICATIONS This Plan may not be amended to modify materially its terms unless such amendment is approved in the manner provided for initial approval in SECTION 8 herein. IN WITNESS WHEREOF, the Issuers have adopted this Multiple Class Plan as of the 31st day of May, 1996, to be effective September 3, 1996. TWENTIETH CENTURY INVESTORS, TWENTIETH CENTURY WORLD INVESTORS INC. INC. By: By: TWENTIETH CENTURY CAPITAL TWENTIETH CENTURY STRATEGIC ASSET PORTFOLIOS, INC. ALLOCATIONS, INC. By: By: SCHEDULE A
COMPANIES AND FUNDS COVERED BY THIS MULTICLASS PLAN - --------------------------------------------------------------------------------------------------------------------------- RETAIL INSTITUTIONAL SERVICES ADVISOR FUND CLASS CLASS CLASS CLASS - --------------------------------------------------------------------------------------------------------------------------- TWENTIETH CENTURY CAPITAL PORTFOLIOS, INC. Twentieth Century Equity Income Yes Yes Yes Yes Twentieth Century Value Yes Yes Yes Yes - --------------------------------------------------------------------------------------------------------------------------- TWENTIETH CENTURY INVESTORS, INC. Balanced Investors Yes Yes Yes Yes Cash Reserve Yes No Yes Yes Growth Investors Yes Yes Yes Yes Heritage Investors Yes Yes Yes Yes Intermediate-Term Bond Yes No Yes Yes Limited-Term Bond Yes No Yes Yes Long-Term Bond Yes No Yes Yes Select Investors Yes Yes Yes Yes U.S. Governments Intermediate-Term Yes No Yes Yes U.S. Governments Short-Term Yes No Yes Yes Ultra Investors Yes Yes Yes Yes Vista Investors Yes Yes Yes Yes Giftrust Investors Yes No No No Tax Exempt Short-Term Yes No No No Tax Exempt Intermediate-Term Yes No No No Tax Exempt Long-Term Yes No No No - --------------------------------------------------------------------------------------------------------------------------- TWENTIETH CENTURY STRATEGIC ASSET ALLOCATIONS, INC. Strategic Allocation: Aggressive Yes No Yes Yes Strategic Allocation: Conservative Yes No Yes Yes Strategic Allocation: Moderate Yes No Yes Yes - --------------------------------------------------------------------------------------------------------------------------- TWENTIETH CENTURY WORLD INVESTORS, INC. Twentieth Century International Emerging Growth Yes Yes Yes Yes Twentieth Century International Equity Yes Yes Yes Yes - ---------------------------------------------------------------------------------------------------------------------------
EX-27.1.1 16 FDS GROWTH INVESTORS FUND
6 1 GROWTH INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 4344143 5206898 45561 4801 0 5257260 115368 0 11998 127366 2148 3610415 214805 189806 11867 0 639741 0 865723 5129894 54450 8941 0 45770 17621 642082 276216 935919 0 9560 610062 0 34079 42012 32932 766418 11142 600385 0 0 45714 0 45770 4579949 22.99 0.08 4.08 0.05 3.22 0 23.88 1.00 0 0
EX-27.1.2 17 FDS SELECT INVESTORS FUND
6 2 SELECT INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 3499790 4033769 61001 8442 0 4103212 77121 0 17653 94774 1014 2989829 101434 113552 20688 0 462093 0 534814 4008438 70142 8029 0 40970 37201 455886 76341 569428 0 31233 319512 0 10704 33197 10375 (269405) 36129 304310 0 0 40919 0 40970 4091449 37.67 0.33 4.68 0.28 2.87 0 39.52 1.00 0 0
EX-27.1.3 18 FDS ULTRA INVESTORS FUND
6 3 ULTRA INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 9128766 14297200 142318 9556 0 14449074 41100 0 32072 73172 5128 8531518 512810 488847 0 0 669968 0 5169288 14375902 49864 27303 0 113421 (36254) 619125 3146594 3729465 0 0 308428 0 143246 134889 15606 4031629 0 304953 0 0 113284 0 113421 11377593 21.16 (0.07) 7.58 0 0.65 0 28.03 1.00 0 0
EX-27.1.4 19 FDS VISTA INVESTORS FUND
6 4 VISTA INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 1115763 1675577 21369 1232 0 1698178 17646 0 4615 22261 1065 1005259 106542 72451 0 0 109778 0 559815 1675917 316 3608 0 11118 (7194) 111473 328626 432905 0 0 2161 0 88066 54178 203 883574 0 467 0 0 11105 0 11118 1129411 10.94 (0.08) 4.90 0 0.03 0 15.73 0.98 0 0
EX-27.1.5 20 FDS GIFTRUST INVESTORS FUND
6 5 GIFTRUST INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 421356 566494 6155 546 0 573195 11590 0 493 12083 219 367700 21896 12956 0 0 48055 0 145138 561112 181 907 0 3844 (2756) 50818 66656 114718 0 0 14781 0 8277 153 816 295511 0 14775 0 0 3840 0 3844 391410 20.50 (0.16) 6.37 0.00 1.09 0 25.63 0.98 0 0
EX-27.5.6 21 FDS U.S. GOVERNMENTS SHORT-TERM FUND
6 6 U.S. GOVERMENTS SHORT-TERM - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 383464 387146 5920 0 0 393066 0 0 1735 1735 412 406856 41168 42810 0 0 (19619) 0 3682 391331 0 24200 0 2714 21486 506 9263 31255 0 21486 0 0 9240 13034 2152 (5422) 0 (20105) 0 0 2709 0 2714 388916 9.27 0.52 0.24 0.52 0 0 9.51 0.70 0 0
EX-27.4.7 22 FDS CASH RESERVE FUND
6 7 CASH RESERVE - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 1470341 1470341 1305 6211 0 1477857 0 0 8311 8311 14696 1454930 1469626 1298982 0 0 (80) 0 0 1469546 0 81341 0 9564 71777 (80) 0 71697 0 71777 0 0 1917043 1815596 69197 170564 0 0 0 0 9547 0 9564 1379253 1.00 0.05 0 0.05 0 0 1.00 0.70 0 0
EX-27.5.8 23 FDS LONG-TERM BOND FUND
6 8 LONG-TERM BOND - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 141217 146760 2732 0 10204 159696 9989 0 484 10473 153 143336 15251 13588 0 0 191 0 5543 149223 0 9707 0 1040 8667 412 12096 21175 0 8667 0 0 6052 5244 855 28211 0 (220) 0 0 1038 0 1040 140278 8.91 0.61 0.87 0.61 0 0 9.78 0.78 0 0
EX-27.5.9 24 FDS TAX-EXEMPT INTERMEDIATE-TERM FUND
6 9 TAX-EXEMPT INT-TERM - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 75215 77736 3899 0 0 81635 0 0 1387 1387 77 77102 7677 8134 0 0 548 0 2521 80248 0 4236 0 472 3764 553 3482 7799 0 3764 639 0 1538 2366 371 (1152) 0 634 0 0 471 0 472 79476 10.01 0.49 0.52 0.49 0.08 0 10.45 0.60 0 0
EX-27.5.10 25 FDS TAX-EXEMPT LONG-TERM FUND
6 10 TAX-EXEMPT LONG-TERM - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 54234 57070 955 64 0 58089 0 0 92 92 55 55133 5503 5230 0 0 (27) 0 2836 57997 0 3119 0 318 2801 (24) 4424 7201 0 2801 225 0 1921 1906 258 7033 0 222 0 0 317 0 318 55619 9.75 0.53 0.83 0.53 0.04 0 10.54 0.59 0 0
EX-27.1.11 26 FDS HERITAGE INVESTORS FUND
6 11 HERITAGE INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 824572 1006229 15029 1443 0 1022701 12289 0 2089 14378 858 769742 85837 86923 3755 0 51932 0 182036 1008323 10789 2149 0 8912 4026 53285 110287 167598 0 2831 46480 0 23942 30345 5317 111560 4177 43510 0 0 8901 0 8912 903305 10.32 0.05 1.96 0.03 0.54 0.03 11.75 0.99 0 0
EX-27.7.12 27 FDS BALANCED INVESTORS FUND
6 12 BALANCED INVESTORS - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 711568 808748 15901 1994 0 826643 9175 0 1898 11073 461 669332 46083 44160 2054 0 46454 0 97269 815570 5522 23509 0 7312 21719 47518 45137 114374 0 21381 12064 0 11370 11520 2073 111704 1820 10896 0 0 7303 0 7312 742695 15.94 0.48 2.03 0.48 0.27 0 17.70 0.98 0 0
EX-27.5.13 28 FDS TAX-EXEMPT SHORT-TERM FUND
6 13 TAX-EXEMPT SHORT-TERM - 1995 1000 YEAR OCT-31-1995 OCT-31-1995 60601 61094 972 0 0 62066 2748 0 481 3229 58 58293 5829 6115 0 0 (7) 0 493 58837 0 2615 0 1 2614 25 829 3468 0 2614 0 0 3071 3589 232 (2020) 0 (32) 0 0 358 0 1 58423 9.95 0.44 0.14 0.44 0 0 10.09 0 0 0
EX-27.5.14 29 FDS LIMITED-TERM FUND
6 14 LIMITED-TERM BOND - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 7061 7144 103 0 1 7248 0 0 55 55 7 7114 722 452 0 0 (11) 0 83 7193 0 378 0 41 337 15 167 519 0 337 0 0 377 140 33 2818 0 (26) 0 0 41 0 41 7766 9.68 0.56 0.28 0.56 0 0 9.96 0.69 0 0
EX-27.5.15 30 FDS INTERMEDIATE-TERM BOND FUND
6 15 INTERMEDIATE-TERM BOND - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 12454 12661 188 0 11 12860 0 0 33 33 13 12476 1274 447 0 0 131 0 207 12827 0 550 0 60 490 152 340 982 0 490 0 0 1072 292 47 8565 0 (20) 0 0 60 0 60 9954 9.53 0.59 0.54 0.59 0 0 10.07 0.74 0 0
EX-27.5.16 31 FDS U.S. GOVERNMENTS INTERMEDIATE-TERM FUND
6 16 U.S. GOVERMENTS INTER-TERM - 1995 PORTFOLIO 1000 YEAR OCT-31-1995 OCT-31-1995 20841 21395 359 0 300 22054 0 0 73 73 22 21275 2190 657 0 0 130 0 554 21981 0 944 0 104 840 200 629 1669 0 840 0 0 2205 754 82 15701 0 (70) 0 0 104 0 104 17638 9.55 0.58 0.49 0.58 0.00 0 10.04 0.74 0 0
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