AMERICAN CENTURY MUTUAL FUNDS INC
497, 1997-03-12
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                      STATEMENT OF ADDITIONAL INFORMATION

                            [american century logo]
                                    American
                                  Century(sm)


                                 MARCH 1, 1997



                                AMERICAN CENTURY
                               MUTUAL FUNDS, INC.

                                 [FRONT COVER]



                      STATEMENT OF ADDITIONAL INFORMATION


                                 MARCH 1, 1997


                      AMERICAN CENTURY MUTUAL FUNDS, INC.


This  statement  is not a  prospectus  but  should be read in  conjunction  with
American Century's current  prospectuses dated March 1, 1997. Please retain this
document for future  reference.  To obtain a prospectus,  call American  Century
toll-free at 1-800-345-2021  (international  calls:  816-531-5575),  or write to
P.O. Box 419200, Kansas City, Missouri 64141-6200.


TABLE OF CONTENTS

Investment Objectives of the Funds ............................2
Fundamental Policies of the Funds .............................2
Additional Investment Restrictions ............................4
Forward Currency Exchange Contracts ...........................6
An Explanation of Fixed Income Securities Ratings .............7
Short Sales ...................................................8
Portfolio Turnover ............................................8
Interest Rate Futures Contracts and Related Options ...........9
Municipal Leases .............................................13
Officers and Directors .......................................13
Management ...................................................15
Custodians ...................................................17
Independent Accountants ......................................17
Capital Stock ................................................17
Multiple Class Structure .....................................18
Brokerage ....................................................20
Performance Advertising ......................................21
Redemptions in Kind ..........................................23
Holidays .....................................................23
Financial Statements .........................................23



Statement of Additional Information                           1



INVESTMENT OBJECTIVES OF THE FUNDS

     The investment  objective of each fund comprising  American  Century Mutual
Funds, Inc. is described on page 2 of the applicable prospectus.  One feature of
the various series of shares (funds) merits further explanation. As described in
the Growth 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  its  objective,  a fund must  conform to certain  fundamental
policies that may not be changed without shareholder approval, as follows:

SELECT,  HERITAGE,  GROWTH,  ULTRA, VISTA,  GIFTRUST,  NEW OPPORTUNITIES AND THE
EQUITY INVESTMENTS OF BALANCED

     In general,  within the restrictions outlined herein,  American 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  is  our  policy  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 the manager's  intention that each of these  portfolios
will  generally  consist of common stocks.  However,  the 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 objective.  Senior securities that, in the opinion of the manager, are
high-grade issues may also be purchased for defensive purposes. [Note: The above
statement of fundamental  policy gives American  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,  the  manager 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

     The manager  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.

CASH RESERVE

     The  manager  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


2                                           American Century Investments


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.

SHORT-TERM GOVERNMENT FUND AND
INTERMEDIATE-TERM GOVERNMENT FUND

     The manager will invest the  portfolios of Short-Term  Government  Fund and
Intermediate-Term  Government  Fund 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.  The  manager 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 BENHAM BOND

     The manager 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 9.

LIMITED-TERM TAX-EXEMPT, INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT

     The manager 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



Statement of Additional Information                           3



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, the manager 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 9.

BENHAM BOND, LIMITED-TERM TAX-EXEMPT,
INTERMEDIATE-TERM TAX-EXEMPT AND LONG-TERM TAX-EXEMPT

     Benham Bond,  Limited-Term  Tax-Exempt,  Intermediate-Term  Tax-Exempt  and
Long-Term  Tax-Exempt  (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;  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 New  Opportunities,  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 secur-




4                                           American Century Investments



     ities   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 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,  Benham  Bond,  Limited-Term
     Tax-Exempt,  Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt 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,    Benham   Bond,    Limited-Term    Tax-Exempt,
     Intermediate-Term Tax-Exempt and Long-Term Tax-Exempt.

   
     Paragraphs  3, 5, 8 and 9 shall also apply as  fundamental  policies of New
Opportunities.  Paragraphs  1, 6, 7,  10,  11 and 12  shall  also  apply  to New
Opportunities,  but shall not be considered  fundamental  policies.  Paragraph 4
shall apply to New Opportunities  with respect to 75% of its portfolio and shall
not be considered a fundamental policy.
    

     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.

     The Investment Company Act also provides that the funds may not invest more
than 25% of their  assets  in the  securities  of  issuers  engaged  in a single
industry.  In determining  industry  groups for purposes of this  standard,  the
Securities  and  Exchange  Commission  ordinarily  uses  the  Standard  Industry
Classification  codes  developed by the United States  Office of Management  and
Budget. In the interest of ensuring adequate diversification,  the funds monitor
industry concentration




Statement of Additional Information                           5




using a more  restrictive  list of industry groups than that  recommended by the
SEC. The funds believe that these  classifications are reasonable and are not so
broad that the primary  economic  characteristics  of the  companies in a single
class  are  materially   different.   The  use  of  these  restrictive  industry
classifications may, however, cause the funds to forego investment possibilities
which may otherwise be available to them under the Investment Company Act.

     Neither  the SEC nor any other  agency of the  federal or state  government
participates in or supervise the funds' management or their investment practices
or policies.

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 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



6                                           American Century Investments


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 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 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. 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



Statement of Additional Information                           7




 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  flows,  superior
liquidity  support  or  demonstrated   broad-based  access  to  the  market  for
refinancing.

SHORT SALES

     The 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 manager 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 funds intend to purchase a given security whenever the manager 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,  the manager
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  manager  believes  that it is not  fulfilling  its
purpose, either because, among other things, it did not live up to the manager'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





8                                           American Century Investments



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  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 manager believes that
the rate of  portfolio  turnover is  irrelevant  when it 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 manager  does not take  portfolio  turnover  rate into account in
making investment  decisions,  (1) the manager 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,  Benham  Bond,  Limited-Term
Tax-Exempt,  Intermediate-Term  Tax-Exempt and Long-Term  Tax-Exempt (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  American  Century  Investment  Management,  Inc.  (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 fund as unrealized
gains or losses. At any time prior to expiration



Statement of Additional Information                           9




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  under the Commodity  Exchange Act to be
eligible for the exclusion  provided by the CFTC Rule from  registration  by the
fund with the CFTC as a "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





10                                          American Century Investments





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 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  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



Statement of Additional Information                           11




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
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





12                                          American Century Investments




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  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 the
fund's investment manager, American Century Investment Management,  Inc. and its
transfer agent, American Century Services Corporation,  are listed below. Unless
otherwise  noted,  the business address of each director and officer is American
Century Tower, 4500 Main Street,  Kansas City, Missouri 64111. All persons named
as officers of the Corporation also serve in similar  capacities for other funds
advised by the manager. Those directors that are "interested persons" as defined
in the Investment Company Act of 1940 are indicated by an asterisk(*).

     JAMES E. STOWERS JR.,* Chairman of the Board and Director;  Chairman of the
Board, Director and controlling shareholder of American Century Companies, Inc.,
parent corporation of American Century Investment Management,  Inc. and American
Century  Services  Corporation;  Chairman of the Board and  Director of American
Century Investment  Management,  Inc. and American Century Services Corporation;
father of James E. Stowers III.

     JAMES E. STOWERS III,*  President,  Chief  Executive  Officer and Director;
President,  Chief Executive  Officer and Director,  American Century  Companies,
Inc., American Century Investment Management, Inc. and American Century Services
Corporation.

     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.

     ROBERT W. DOERING,  M.D., Director;  6420 Prospect,  Kansas City, Missouri;
general surgeon.

     D. D. (DEL) HOCK, Director; 1225 Seventeenth Street #900, Denver, Colorado;
Chairman,  President and Chief  Executive  Officer,  Public  Service  Company of
Colorado.



Statement of Additional Information                           13





     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.

     DONALD  H.  PRATT,  Director;  P.O.  Box  419917,  Kansas  City,  Missouri;
President, Butler Manufacturing Company.

     LLOYD T. SILVER  JR.,  Director;  2300 West 70th  Terrace,  Mission  Hills,
Kansas; President, LSC, Inc., manufacturer's representative.

     M.  JEANNINE  STRANDJORD,  Director;  908 West 121st  Street,  Kansas City,
Missouri; Senior Vice President and Treasurer, Sprint Corporation.

     WILLIAM M.  LYONS,  Executive  Vice  President,  Chief  Operating  Officer,
Secretary and General Counsel; Executive Vice President, Chief Operating Officer
and  General  Counsel,  American  Century  Companies,   Inc.,  American  Century
Investment Management, Inc. and American Century Services Corporation.

     ROBERT  T.  JACKSON,  Executive  Vice  President  and  Principal  Financial
Officer;  Executive Vice President and Treasurer,  American  Century  Companies,
Inc., American Century Investment Management, Inc. and American Century Services
Corporation; formerly Executive Vice President, Kemper Corporation.

     MARYANNE ROEPKE,  CPA, Vice President,  Treasurer and Principal  Accounting
Officer; Vice President, American Century Services Corporation.

     PATRICK A. LOOBY, Vice President; Vice President, American Century Services
Corporation.

     MERELE A. MAY, Controller.

     C. JEAN WADE, CPA, Controller; 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 Lundgaard  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),   Doering  and  Hock  and  Ms.  Strandjord
constitute the Audit  Committee.  The functions of the Audit  Committee  include
recommending the engagement of the funds' 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 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.  Pratt
(Chairman), Lundgaard and Stowers III.

     The  Directors of the  corporation  also serve as Directors for other funds
advised by the  manager.  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
$44,000,  and an additional fee of $1,000 per regular Board meeting attended and
$500 per special  Board  meeting and committee  meeting  attended.  In addition,
those  Directors  who are not  "interested  persons"  and 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 six investment companies
based  upon  their  relative  net  assets.  Under  the  terms of the  management
agreement with the manager,  the funds are  responsible for paying such fees and
expenses. Set





14                                          American Century Investments




forth below is the aggregate  compensation paid for the periods indicated by the
funds and by the American  Century  family of 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 American Century
Director             from the corporation 1       Family of Funds 2
- ------------------------------------------------------------------------
Thomas A. Brown            40,880.74                 45,000
Robert W. Doering, M.D.    38,046.00                 41,500
Linsley L. Lundgaard       41,179.13                 45,000
Donald H. Pratt            39,388.80                 43,333
Lloyd T. Silver Jr.        39,388.80                 43,000
M. Jeannine Strandjord     39,388.80                 42,500
John M. Urie 3             41,179.13                 37,167
Del Hock 3                     0                      7,500
- ------------------------------------------------------------------------

1 Includes  compensation actually paid by the corporation during the fiscal year
ended October 31, 1996.

2 Includes  compensation paid by the fifteen  investment  company members of the
American Century family of funds for the calendar year ended December 31, 1996.

3 Del Hock replaced Jack Urie as an independent  director  effective October 31,
1996.

     The  corporation  has adopted the American  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 American  Century  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,  American  Century has no
obligation to 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 funds, are paid by the manager.


MANAGEMENT

     A description of the  responsibilities  and method of  compensation  of the
funds' investment manager, American Century Investment Management, Inc., appears
in each prospectus under the caption, "Management."

     During the past three years, the management fees of the manager were:


FUND                                     Years Ended October 31,
- ------------------------------------------------------------------------
                                  1996            1995           1994
- ------------------------------------------------------------------------
SELECT
     Management fees       $  39,305,054  $   40,918,896   $   46,147,911
     Average net assets    3,935,124,830   4,100,172,070    4,616,441,587
HERITAGE
     Management fees          10,572,605       8,900,956        8,238,322
     Average net assets    1,065,351,654     899,947,177      822,480,118
GROWTH
     Management fees          47,632,557      45,713,727       43,916,916
     Average net assets    4,789,339,586   4,575,064,437    4,404,299,518
ULTRA
     Management fees         162,207,777     113,284,379       91,474,921
     Average net asset    16,286,747,712  11,330,063,925    9,149,558,371
VISTA
     Management fees          20,199,050      11,104,694        7,226,302
     Average net assets    2,041,214,251   1,123,979,069      732,311,586
GIFTRUST
     Management fees           7,161,935       3,840,425        1,875,098
     Average net assets      731,222,156     389,827,724      189,487,155



Statement of Additional Information                           15




FUND                                        Years Ended October 31,
- ------------------------------------------------------------------------
                                1996             1995            1994
- ------------------------------------------------------------------------
BALANCED
     Management fees       $  8,345,585     $  7,303,148     $  6,861,248
     Average net assets     844,937,283      743,379,550      687,079,027
CASH RESERVE
     Management fees          9,593,595        9,546,843       10,282,495
     Average net assets   1,375,448,677    1,367,481,447    1,294,838,404
SHORT-TERM GOVERNMENT FUND
     Management fees          2,570,178        2,708,850        3,611,805
     Average net assets     370,206,942      387,845,926      447,658,784
INTERMEDIATE-TERM
GOVERNMENT FUND
     Management fees            179,763          104,141           19,566
     Average net assets      24,215,896       14,092,947        3,821,083
LIMITED-TERM
TAX-EXEMPT
     Management fees            205,918(1)         0                 0
     Average net assets      53,836,145       59,645,970       57,545,359
INTERMEDIATE-TERM
TAX-EXEMPT
     Management fees            484,914          471,159          537,893
     Average net assets      81,296,908       78,781,379       89,751,385
LONG-TERM TAX-EXEMPT
     Management fees            352,945          317,622          361,732
     Average net assets      59,479,341       53,244,618       60,383,665
LIMITED-TERM BOND
     Management fees             52,116           40,530           17,509
     Average net assets       7,680,716        5,906,790        3,690,814
INTERMEDIATE-TERM BOND
     Management fees            108,870           59,552           17,532
     Average net assets      14,807,295        8,128,357        3,458,399
BENHAM BOND
     Management fees          1,148,428        1,038,120        1,233,251
     Average net assets     146,071,676      132,239,065      141,750,838

- ------------------------------------------------------------------------
1 Net of fees waived by the manager.


The Advisor  Class of Ultra and Vista  commenced  operations on October 2, 1996.
The  management  fees shown above include $7,146 paid on Advisor Class shares of
Ultra and  $3,127  paid on Advisor  Class  shares of Vista for the 29 day period
ended October 31, 1996.


     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 funds'
Board of Directors,  or by the vote of a majority of the  outstanding  votes (as
defined in the  Investment  Company Act),  and (ii) by the vote of a majority of
the  Directors of the funds who are not parties to the  agreement or  interested
persons of the  manager,  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 funds' Board of Directors, or by a vote of
a  majority  of the  funds'  shareholders,  on 60 days'  written  notice  to the
manager, and that it shall be automatically terminated if it is assigned.

     The management  agreement  provides that the manager shall not be liable to
the funds 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 the manager 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 funds and also for
other  clients  advised by the manager.  Investment  decisions for the funds and
other  clients are made with a view to  achieving  their  respective  investment
objectives  after  consideration  of such  factors  as their  current  holdings,
availability of cash for investment, and the size of their investment generally.
A particular security may be bought or sold for only one client or 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 the manager 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.

     The  manager  may  aggregate  purchase  and sale  orders of the funds  with
purchase  and sale orders of its other  clients when the manager  believes  that
such aggregation  provides the best execution for the funds. The funds' Board of
Directors has approved the policy of the manager with respect to the aggregation
of portfolio  transactions.  Where portfolio  transactions have been aggregated,
the funds  participate at the average share price for all  transactions  in that
security on a given day and share  transaction  costs on a pro rata  basis.  The
manager  will not  aggregate  portfolio  transactions  of the  funds  unless  it
believes such  aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the




16                                          American Century Investments


management  agreement.  The  manager  receives  no  additional  compensation  or
remuneration as a result of such aggregation.

     On January 31, 1997, the manager was acting as an investment  advisor to 12
institutional  accounts with an aggregate value of  $498,426,343.  While each of
these clients has unique investment  restrictions and guidelines,  some have all
elected to have their portfolios managed in a manner similar to the portfolio of
either Growth or Select. 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.  The manager anticipates acquiring additional such
accounts in the future.

     American  Century  Services   Corporation   provides  physical  facilities,
including  computer  hardware  and software and  personnel,  for the  day-to-day
administration  of the funds  and of the  manager.  The  manager  pays  American
Century Services  Corporation for such services.  The payments by the manager to
American  Century  Services  Corporation  for the years ending October 31, 1996,
1995  and  1994  have  been,   respectively,   $118,664,664,   $100,504,910  and
$139,895,701.

     As stated in each prospectus, all of the stock of American Century Services
Corporation  and  American  Century  Investment  Management,  Inc.  is  owned by
American Century Companies, Inc.

CUSTODIANS

     Chase  Manhattan  Bank,  770  Broadway,  10th  Floor,  New  York,  New York
10003-9598,  Commerce Bank, N.A., 1000 Walnut,  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.

INDEPENDENT ACCOUNTANTS

     Beginning  with the 1997 fiscal year,  Delloitte and Touche LLP, 1010 Grand
Avenue,  Kansas City,  Missouri 64106,  has been selected to serve as the fund'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

     The  funds'  capital  stock is  described  in the  prospectuses  under  the
caption, "Further Information About American Century."

     American  Century  may in the future  issue  additional  series or class of
shares without a vote of  shareholders.  The assets  belonging to each series or
classes 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 American  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 January 31, 1997,  in excess of 5% of the  outstanding  shares of the
following funds were owned of record by:

NAME OF                             SHAREHOLDER
FUND                                AND PERCENTAGE
- ------------------------------------------------------------------------
Growth                              Nationwide Life Insurance Company
                                    Columbus, Ohio -- 13.0%
Ultra                               Charles Schwab & Co.
                                    San Francisco, California -- 8.7%
Vista                               Charles Schwab & Co. -- 6.9%
Heritage                            Charles Schwab & Co. -- 6.2%
                                    Bankers Trust Company as trustee for Kraft
                                    General Foods -- 11.3%
Limited-Term
Tax-Exempt                          Twentieth Century Companies, Inc.-- 14.5%
Long-Term
Tax-Exempt                          Twentieth Century Companies, Inc. -- 6.7%
Limited-Term Bond                   Twentieth Century Companies, Inc. -- 38.3%



Statement of Additional Information                           17



NAME OF                             SHAREHOLDER
FUND                                AND PERCENTAGE
- --------------------------------------------------------------------------------
Intermediate-Term
Bond                                Twentieth Century Companies, Inc.-- 17.6%
                                    The Chase Manhattan Bank as Trustee for
                                    Gza Geo Environmental Inc. Restated
                                    401(k) Profit Sharing Plan and Trust
                                    New York, New York -- 6.8%

                                    The Chase Manhattan Bank as trustee for
                                    Fujisawa USA Inc. Savings and Retirement
                                    Plan Trust New York, New York-- 5.2%
Short-Term
Government Fund                     Nationwide Life Insurance Company -- 10.2%
Intermediate-Term
Government Fund                     The Chase Manhattan Bank as Trustee for
                                    Robert Bosch Corporation Star Plan and    
                                    Trust New York, New York -- 14.1%
New Opportunities                   Trustees of Twentieth Century Profit
                                    Sharing and 401(k) Savings Distribution
                                    Reinvested Plan and Trust -- 6.2%
- --------------------------------------------------------------------------------


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 SEC.  Pursuant to such
plan,  the funds may issue up to four classes of funds:  an Investor  Class,  an
Institutional  Class, a Service Class and an Advisor Class.  Not all funds offer
all four classes.

     The  Investor  Class  is  made  available  to  investors  directly  by  the
investment  manager  through  its  affiliated  broker-dealer,  American  Century
Investment Services, Inc., for a single unified management fee, without any load
or commission. The Institutional, Service and Advisor Classes are made available
to institutional  shareholders or through financial  intermediaries  that do not
require  the same level of  shareholder  and  administrative  services  from the
manager as  Investor  Class  shareholders.  As a result,  the manager is able to
charge these classes a lower  management fee. In addition to the management fee,
however,  Service  Class  shares are  subject  to a  Shareholder  Services  Plan
(described  below),  and the  Advisor  Class  shares  are  subject  to a  Master
Distribution and Shareholder  Services Plan (also described  below).  Both plans
have been adopted by the funds' board of directors  and initial  shareholder  in
accordance with Rule 12b-1 adopted by the SEC under the 1940 Act.

RULE 12-B1

     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  Prospectuses,  the funds'  Service Class of shares are
made available to participants in employer-sponsored retirement or savings plans
and to persons purchasing through financial




18                                          American Century Investments



intermediaries,  such as banks,  broker-dealers and insurance companies. In such
circumstances,  certain  recordkeeping  and  administrative  services  that  are
provided by the funds' transfer agent for the Investor Class shareholders may be
performed by a plan sponsor (or its agents) or by a financial  intermediary.  To
enable the funds' shares to be made  available  through such plans and financial
intermediaries,  and to compensate them for such services, the funds' investment
manager has reduced its  management  fee by 0.25% per annum with  respect to the
Service Class shares and the funds' Board of Directors has adopted a Shareholder
Services  Plan.  Pursuant to the  Shareholder  Services  Plan, the Service Class
shares pay a shareholder services fee of 0.25% annually of the aggregate average
daily assets of the funds' Service Class shares.

     American Century Investment Services,  Inc. (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 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  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  Prospectuses,  the funds'  Advisor Class of shares are
also made available to participants in employer-sponsored  retirement or savings
plans and to persons purchasing through financial intermediaries, such as banks,
broker-dealers  and insurance  companies.  The Distributor enters into contracts
with various  banks,  broker-dealers,  insurance  companies and other  financial
intermediaries  with respect to the sale of the funds'  shares and/or the use of
the funds' shares in various  investment  products or in connection with various
financial services.

     As with the Service Class, certain recordkeeping and aministrative services
that  are  provided  by  the  funds'  transfer  agent  for  the  Investor  Class
shareholders  may be  performed  by a  plan  sponsor  (or  its  agents)  or by a
financial  intermediary  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




Statement of Additional Information                           19




to result in the sale of Advisor  Class shares,  which  services may include but
are not limited to, (a) the payment of sales commission, ongoing commissions and
other payments to brokers,  dealers,  financial  institutions or others who sell
Advisor  Class  shares  pursuant  to Selling  Agreements;  (b)  compensation  to
registered  representatives  or other  employees of Distributor who engage in or
support  distribution of the funds' Advisor Class shares;  (c)  compensation to,
and expenses (including  overhead and telephone  expenses) of, Distributor;  (d)
the printing of prospectuses,  statements of additional  information and reports
for  other  than  existing  shareholders;  (e)  the  preparation,  printing  and
distribution  of sales  literature  and  advertising  materials  provided to the
funds'  shareholders and prospective  shareholders;  (f) receiving and 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 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

     Under the  management  agreement  between  the funds and the  manager,  the
manager  has the  responsibility  of  selecting  brokers  to  execute  portfolio
transactions.  The  funds'  policy is to secure  the most  favorable  prices and
execution  of orders on its  portfolio  transactions.  So long as that policy is
met, the manager may take into  consideration  the factors  discussed under this
caption when selecting brokers.

     The manager receives statistical and other information and services without
cost from  brokers and  dealers.  The manager  evaluates  such  information  and
services,  together with all other  information that it may have, in supervising
and managing the investment  portfolios of the funds.  Because such  information
and services may vary in amount,  quality and  reliability,  their  influence in
selecting brokers varies from none to very substantial.  The manager proposes to
continue to place some of the funds' 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 the manager.
The manager does not utilize brokers that provide such  information and services
for the purpose of reducing  the expense of providing  required  services to the
funds.

     In the  years  ended  October  31,  1996,  1995  and  1994,  the  brokerage
commissions of each fund were as follows:

                             Years Ended October 31,
- ------------------------------------------------------------------------
Fund                 1996               1995             1994
- ------------------------------------------------------------------------
SELECT            $8,157,658        $11,363,976      $14,844,437
HERITAGE           3,093,265          3,180,082        3,620,144
GROWTH            10,712,208         13,577,767       10,144,618
ULTRA             22,985,927         18,911,590       19,240,703
VISTA              2,246,175          1,750,665        1,895,400
GIFTRUST             886,460            571,349          588,145
BALANCED           1,038,530            875,207          979,903
- ------------------------------------------------------------------------

     In 1996, $49,120,223 of the total brokerage commissions was paid to brokers
and  dealers  who  provided   information   and  services  on   transactions  of
$56,023,070,599 (92% of all transactions).

     The brokerage  commissions paid by the funds may exceed those which another
broker might have charged for  effecting the same  transactions,  because of the
value of the brokerage and research  services  provided by the broker.  Research
services   furnished  by  brokers  through  whom  the  funds  effect  securities
transactions  may be used by the manager in servicing all of its  accounts,  and
not all such  services may be used by the manager in managing the  portfolios of
the funds.




20                                          American Century Investments




     The  staff of the SEC 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 the funds and the manager believe that the facilities,  expert  personnel and
technological systems of a broker often enable the funds 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.  The  funds  regularly  place 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,  SHORT-TERM  GOVERNMENT FUND,  INTERMEDIATE-TERM  GOVERNMENT FUND,
LIMITED-TERM BOND, INTERMEDIATE-TERM BOND, BENHAM BOND, LIMITED-TERM TAX-EXEMPT,
INTERMEDIATE-TERM   TAX-EXEMPT,   LONG-TERM  TAX-EXEMPT  AND  THE  FIXED  INCOME
INVESTMENTS OF BALANCED

     Under the  management  agreement  between  the funds and the  manager,  the
manager  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.  The manager will seek to obtain prompt execution
of orders at the most  favorable  prices or yields.  The  manager  may choose to
purchase and sell portfolio  securities to and from dealers who provide services
or research,  statistical and other information to the funds and to the manager.
Such  information  or  services  will be in  addition  to and not in lieu of the
services  required  to be  performed  by the  manager,  and the  expenses of the
manager  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  21/2-year CD
rates.

EQUITY FUNDS

     The  following  table sets forth the  average  annual  total  return of the
equity  funds and Balanced  for the one-,  five- and 10-year  periods (or period
since inception) ended October 31, 1996, 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  Inception (1)
- ------------------------------------------------------------------------
SELECT            19.76%   9.67%    11.27%        --
HERITAGE          10.44%  13.27%      --        15.57%
GROWTH             8.18%   9.32%    13.56%        --
ULTRA             10.79%  15.62%    19.92%        --
VISTA              6.96%  14.61%    14.67%        --
GIFTRUST           9.72%  24.31%    21.71%        --
BALANCED          14.04%   8.50%      --        12.21%
- ------------------------------------------------------------------------
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 equity funds
and Balanced  since their  respective  dates of inception.  The table also shows
annual  compound  rates  for  Growth  and  Select  from  June  30,  1971,  which
corresponds with the funds'  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, 1996.



Statement of Additional Information                           21





                 Cumulative Total        Average Annual
Fund          Return Since Inception      Compound Rate
- ------------------------------------------------------------------------
SELECT              4776.98%                16.58%
HERITAGE             266.32%                15.57%
GROWTH              6728.19%                18.14%
ULTRA               1051.37%                17.70%
VISTA                442.07%                13.96%
GIFTRUST            1109.27%                21.26%
BALANCED             152.24%                12.21%
- ------------------------------------------------------------------------



FIXED INCOME FUNDS AND BALANCED

     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, 1996,  the last seven days of
the fund's fiscal year, was 4.74% and 4.85%, respectively.

     Other Fixed Income Funds and Balanced. 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 the fixed income funds
(other than Cash  Reserve) and Balanced for the 30-day  period ended October 31,
1996, the last day of the fiscal year pursuant to computation methods prescribed
by the SEC.

                                                    Intermediate-
  Short-Term     Intermediate-Term  Limited-Term        Term              
Government Fund   GovernmentFund       Bond             Bond
- ------------------------------------------------------------------------
     5.36%            5.68%            5.55%           6.31%
- ------------------------------------------------------------------------
                               Intermediate-
 Benham       Limited-Term         Term       Long-Term      Balanced
  Bond         Tax-Exempt       Tax-Exempt   Tax-Exempt
- ------------------------------------------------------------------------        
  6.30%          3.69%            4.34%        4.80%          2.29%
- ------------------------------------------------------------------------

     The following table sets forth  tax-equivalent  yields for the Limited-Term
Tax-Exempt,  Intermediate-Term Tax-Exempt and the Long-Term Tax-Exempt funds for
the 30-day  period ended October 31, 1996.  The example  assumes a 36% tax rate.
The tax-equivalent yield is computed as follows:


tax-
equivalent =     tax-exempt yield   + non tax-exempt yield
yield           ------------------
                1-assumed tax rate



Tax-Exempt        Tax-Exempt        Tax-Exempt
Short-Term    Intermediate-Term     Long-Term
- ----------------------------------------------------
     5.77%        6.78%               7.50%
- ----------------------------------------------------

     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 the fixed income funds since their respective dates of inception
(as noted below) through October 31, 1996.

                           Cumulative
                           Total Return     Average Annual    Date of
FUND                       Since Inception  Total Return      Inception
- ------------------------------------------------------------------------
SHORT-TERM
GOVERNMENT FUND            167.78%          7.36%             12/15/82

INTERMEDIATE-TERM
GOVERNMENT FUND             15.01%          5.38%               3/1/94

LIMITED-TERM BOND           14.77%          5.30%               3/1/94

INTERMEDIATE-TERM BOND      16.74%          5.97%               3/1/94

BENHAM BOND                104.68%          7.69%               3/2/87

LIMITED-TERM
TAX-EXEMPT                  16.40%          4.23%               3/1/93

INTERMEDIATE-TERM
TAX-EXEMPT                  74.65%          5.94%               3/2/87

LONG-TERM TAX-EXEMPT        94.55%          7.13%               3/2/87
- ------------------------------------------------------------------------



22                                          American Century Investments






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.

REDEMPTIONS IN KIND

     The funds' 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 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

     The funds do 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  American
Century  (other than New  Opportunities)  for the fiscal year ended  October 31,
1996, are included in the annual report to  shareholders,  which is incorporated
herein by reference.  You may receive  copies of the report  without charge upon
request to American  Century at the address and phone  number shown on the cover
of this Statement of Additional Information.




Statement of Additional Information                           23





     The unaudited  financial  statements of Twentieth Century New Opportunities
for the period  from  December  26,  1996  (inception)  to January  31, 1997 are
included  in this  Statement  of  Additional  Information.  While the  financial
statements  respecting such fund contained herein are unaudited,  in the opinion
of  the  manager,  all  adjustments  necessary  for a fair  presentation  of the
financial  position and the results of operation at January 31, 1997 and for the
period from December 26, 1996  (inception) to January 31, 1997,  have been made.
The  results  of  operations  for  the  period  indicated  are  not  necessarily
indicative of the results for an entire year.





24                                          American Century Investments



                      STATEMENT OF ASSETS AND LIABILITIES
 
                                                                  NEW
JANUARY 31, 1997 (Unaudited)                                  OPPORTUNITIES
- --------------------------------------------------------------------------------

ASSETS

Investment securities,
   at value (identified cost of $119,093,317)
   (Note 3) ................................................  $119,847,813
Cash .......................................................     5,029,586
Receivable for capital shares sold .........................       124,235
Dividends and interest receivable ..........................         2,340
                                                                 ---------
                                                               125,003,974
                                                                ----------

LIABILITIES

Payable for investments purchased ..........................    21,621,743
Accrued management fees (Note 2) ...........................        44,058
Other liabilities ..........................................           128
                                                                ----------
                                                                21,665,929
                                                                ----------
Net Assets Applicable to Outstanding Shares ................  $103,338,045
                                                              ============

CAPITAL SHARES, $.01 PAR VALUE

Authorized .................................................   100,000,000
                                                               ===========

Outstanding ................................................    20,840,529
                                                               ===========


Net Asset Value Per Share ..................................         $4.96
                                                               ===========

NET ASSETS CONSIST OF:

Capital (par value and paid-in surplus) ....................  $103,044,301
Undistributed net investment income ........................        27,913
Accumulated undistributed net realized
   (loss) from investment transactions .....................      (488,665)
Net unrealized appreciation on investments (Note 3) ........       754,496
                                                                ----------
                                                              $103,338,045

See Notes to Financial Statements



Statement of Additional Information                                    25



                            STATEMENT OF OPERATIONS

DECEMBER 26, 1996 (INCEPTION)                                      NEW
THROUGH JANUARY 31, 1997 (Unaudited)                          OPPORTUNITIES
- --------------------------------------------------------------------------------

INVESTMENT INCOME

Income:
     Interest ..............................................    $70,129
     Dividends .............................................      2,340
                                                             ----------
                                                                 72,469
                                                             ----------
Expenses:
     Management fees (Note 2) ..............................     44,428
     Directors' fees and expenses ..........................        128
                                                             ----------
                                                                 44,556
                                                             ----------
Net investment income ......................................     27,913
                                                             ----------



REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3)
     Net realized (loss) ...................................   (488,665)
     Change in net unrealized appreciation .................    754,496
                                                             ----------
Net realized and unrealized gain on investments ............    265,831
                                                             ----------
Net Increase in Net Assets Resulting from Operations .......   $293,744



See Notes to Financial Statements


26                                          American Century Investments




                       STATEMENT OF CHANGES IN NET ASSETS



DECEMBER 26, 1996 (INCEPTION)                                NEW
THROUGH JANUARY 31, 1997 (Unaudited)                    OPPORTUNITIES
- --------------------------------------------------------------------------------

Increase in Net Assets

OPERATIONS

Net investment income .........................................   $      27,913
Net realized (loss) on investments ............................        (488,665)
Change in net unrealized appreciation on investments ..........         754,496
                                                                  -------------
Net increase in net assets resulting from operations                    293,744
                                                                  -------------

CAPITAL SHARE TRANSACTIONS

Proceeds from shares sold
                                                                    103,105,758
Payments for shares redeemed ..................................         (61,457)
                                                                  -------------
Net increase in net assets
   from capital share transactions ............................     103,044,301
                                                                  -------------
Net increase in net assets ....................................     103,338,045

NET ASSETS

Beginning of period ...........................................            --
                                                                  -------------
End of period .................................................   $ 103,338,045

                                                                  -------------
                                                                  -------------
Undistributed net investment income ...........................   $      27,913
                                                                  -------------
                                                                  -------------

TRANSACTIONS IN SHARES OF THE FUND

Sold
                                                                     20,852,883
Redeemed ......................................................         (12,354)
                                                                  -------------
Net increase ..................................................   $  20,840,529



See Notes to Financial Statements


Statement of Additional Information                                    27




                         NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 1997 (UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES

     ORGANIZATION -- American  Century Mutual Funds,  Inc. (the  Corporation) is
registered under the Investment  Company Act of 1940 as an open-end  diversified
management investment company. Twentieth Century New Opportunities (the Fund) is
one of the  seventeen  series of funds  issued by the  Corporation.  The  Fund's
investment objective is capital growth. The Fund seeks to achieve its investment
objective  by  investing  primarily  in common  stocks  that are  considered  by
management to have better-than-average prospects for appreciation. The following
significant  accounting  policies,  related to the Fund, are in accordance  with
accounting policies generally accepted in the investment company industry.

     SECURITY VALUATIONS -- Portfolio securities traded primarily on a principal
securities  exchange are valued at the last reported sales price, or the mean of
the  latest  bid and  asked  prices  where no last  sales  price  is  available.
Securities traded  over-the-counter are valued at the mean of the latest bid and
asked prices or, in the case of certain foreign securities, at the last reported
sales price,  depending on local  convention or regulation.  When valuations are
not readily  available,  securities  are valued at fair value as  determined  in
accordance with procedures adopted by the Board of Directors.

     SECURITY  TRANSACTIONS  -- Security  transactions  are accounted for on the
date  purchased or sold.  Net realized  gains and losses are  determined  on the
identified cost basis, which is also used for federal income tax purposes.

     INVESTMENT INCOME -- Dividend income, less foreign taxes withheld (if any),
is  recorded  as of the  ex-dividend  date.  Interest  income is recorded on the
accrual basis and includes amortization of discounts and premiums.

     REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
institutions that the Fund's  investment  manager,  American Century  Investment
Management,  Inc. (ACIM),  has determined are creditworthy  pursuant to criteria
adopted by the Board of  Directors.  Each  repurchase  agreement  is recorded at
cost.  The  Fund  requires  that  the  securities   purchased  in  a  repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Fund to obtain those  securities in the event of a default under the  repurchase
agreement.  ACIM  monitors,  on a  daily  basis,  the  value  of the  securities
transferred  to  ensure  that the  value,  including  accrued  interest,  of the
securities  under each repurchase  agreement is equal to or greater than amounts
owed to the Fund under each repurchase agreement.

     JOINT  TRADING  ACCOUNT -- Pursuant  to an  Exemptive  Order  issued by the
Securities  and  Exchange  Commission,  the Fund,  along with  other  registered
investment   companies  having  management   agreements  with  ACIM  and  Benham
Management  Corporation,  may transfer  uninvested  cash  balances  into a joint
trading  account.  These  balances  are  invested  in  one  or  more  repurchase
agreements that are collaterized by U.S. Treasury or Agency obligations.

     INCOME TAX STATUS -- It is the policy of the Fund to distribute all taxable
income and capital gains to shareholders and to otherwise qualify as a regulated
investment  company under provisions of the Internal Revenue Code.  Accordingly,
no provision has been made for federal income taxes.

     DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the  ex-dividend  date.  Distributions  from net  investment  income  and net
realized gains are declared and paid annually.

     The  character of  distributions  made during the year from net  investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes.  These differences are primarily due to differences
in the  recognition of income and expense items for financial  statement and tax
purposes.

     SUPPLEMENTARY   INFORMATION  --  Certain  officers  and  directors  of  the
Corporation are also officers  and/or  directors,  and, as a group,  controlling
stockholders   of  American   Century   Companies,   Inc.,  the  parent  of  the
Corporation's investment manager, ACIM, the Corporation's distributor,  American
Century  Investment  Services,  Inc.,  and  the  Corporation's  transfer  agent,
American Century Services Corporation.

     USE OF ESTIMATES -- The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements, and the reported amounts of increases and decreases in
net assets from  operations  during the reporting  period.  Actual results could
differ from those estimates.





28                                          American Century Investments




                         NOTES TO FINANCIAL STATEMENTS


2. TRANSACTIONS WITH RELATED PARTIES

     The  Corporation  has entered  into a Management  Agreement  with ACIM that
provides the Fund with investment  advisory and management  services in exchange
for a single, unified fee. The Agreement provides that all expenses of the Fund,
except brokerage commissions,  taxes, interest,  expenses of those directors who
are not considered "interested persons" as defined in the Investment Company Act
of 1940 (including  counsel fees) and  extraordinary  expenses,  will be paid by
ACIM.  The fee is computed  daily and paid monthly  based on the Fund's  average
daily closing net assets during the previous  month.  The annual  management fee
for the Fund is 1.5%.

3. INVESTMENT TRANSACTIONS

     The aggregate cost of investment securities purchased (excluding short-term
investments)  for the period December 26, 1996  (inception)  through January 31,
1997, totaled $90,556,978 for common stocks. Proceeds from investment securities
sold (excluding short-term investments) totaled $2,065,528 for common stocks. As
of January 31, 1997, accumulated net unrealized  appreciation on investments was
$754,496,  consisting of unrealized  appreciation  of $2,651,084  and unrealized
depreciation of $1,896,588. The aggregate cost of investments for federal income
tax purposes was the same as the cost for financial reporting purposes.

4. AFFILIATED COMPANY TRANSACTIONS

     A summary of transactions  for each issuer who is or was an affiliate at or
during the period  December  26, 1996  (inception)  through  January  31,  1997,
follows:



                                                  JANUARY 31, 1997
                                        --------------------------------
ISSUER                     PURCHASE         SHARE             MARKET
                           COST             BALANCE           VALUE
- ------------------------------------------------------------------------
Brightpoint, Inc.        $ 2,238,278        80,300         $  2,263,456
NBTY Inc.                  1,687,018        82,400            1,761,300
Pomeroy Computer
Resources, Inc.            1,761,427        53,900            1,677,638
Rational Software Corp.    3,269,444       113,200            2,851,225
Teledata Communication
Ltd.                       1,715,977        64,500            1,685,063
- ------------------------------------------------------------------------
                         $10,672,144                        $10,238,682
- ------------------------------------------------------------------------


Statement of Additional Information                  29




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