SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
*File No. 333-46922
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
File No. 811-10155
Amendment No. 2 [X]
(Check appropriate box or boxes.)
AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
_________________________________________________________________
(Exact Name of Registrant as Specified in Charter)
4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (816) 531-5575
David C. Tucker, Esq., 4500 Main Street, Kansas City, MO 64141-6200
_________________________________________________________________
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: January 16, 2001
Your
AMERICAN CENTURY
prospectus
VP Prime Money Market Fund
JANUARY 16, 2001
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.
American Century Investment
Services, Inc., Distributor
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American
Century
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TABLE OF CONTENTS
An Overview of the Fund .................................................... 2
Objectives, Strategies and Risks ........................................... 3
Basics of Fixed-Income Investing ........................................... 4
Management ................................................................. 6
Share Price, Distributions and Taxes ....................................... 8
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Throughout this book you'll find definitions of key investment terms and
phrases. When you see a word printed in BLUE ITALICS, look for its definition in
the left margin.
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This symbol highlights special information and helpful tips.
American Century Investments
AN OVERVIEW OF THE FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
VP Prime Money Market seeks to earn the highest level of current income while
preserving the value of your investment.
WHAT ARE THE FUND'S PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?
The fund invests most of its assets in high-quality, very short-term DEBT
SECURITIES issued by corporations, banks and governments.
The interest paid by the high-quality debt securities in which the fund invests
is among the lowest for income-paying securities. Accordingly, the yield on this
fund will likely be lower than funds that invest in longer-term or lower-quality
securities.
Investments in debt securities also involve interest rate risk. However, the
fund's investments in very short-term debt securities are designed to minimize
this risk.
WHO MAY WANT TO INVEST IN THE FUND?
The fund may be a good investment if you are
* more concerned with preservation of capital than long-term investment
performance
* seeking some current income
* seeking diversification by investing in a fixed-income mutual fund
WHO MAY NOT WANT TO INVEST IN THE FUND?
The fund may not be a good investment if you are
* investing for long-term growth
* looking for the added security of FDIC insurance
Fund Performance History
As a new fund, the fund's performance history is not available as of the date of
this Prospectus. When this class of the fund has investment results for a full
calendar year, this section will feature charts that show annual total returns,
highest and lowest quarterly returns and average annual returns.
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DEBT SECURITIES include fixed-income investments such as notes, bonds,
commercial paper and debentures.
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An investment in the fund is not a bank deposit, and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although a money market fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
it.
For current performance information, please call us at 1-800-345-6488 or visit
us at www.americancentury.com.
2 American Century Investments 1-800-345-2021
OBJECTIVES, STRATEGIES AND RISKS
VP PRIME MONEY MARKET FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
VP Prime Money Market seeks to earn the highest level of current income while
preserving the value of your investment.
HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?
The fund buys HIGH-QUALITY, very short-term debt securities. These securities
are short-term obligations of banks, governments and corporations that are
payable in U.S. dollars.
For more information about the fund's credit quality standards and about credit
risk, please see Basics of Fixed-Income Investing beginning on page 4.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
Because high-quality, very short-term debt securities are among the safest
securities available, the interest they pay is among the lowest for
income-paying securities. Accordingly, the yield on this fund will likely be
lower than the yield on funds that invest in longer-term or lower-quality
securities.
The fund is offered only to insurance companies for the purpose of offering the
fund as an investment option under variable annuity or variable life insurance
contracts. Although the fund does not foresee any disadvantages to contract
owners due to the fact that it offers its shares as an investment medium for
both variable annuity and variable life products, the interests of various
contract owners participating in the fund might, at some time, be in conflict
due to future differences in tax treatment of variable products or other
considerations. Consequently, the fund's Board of Directors will monitor events
in order to identify any material irreconcilable conflicts that may possibly
arise and to determine what action, if any, should be taken in response to such
conflicts. If a conflict were to occur, an insurance company separate account
might be required to withdraw its investments in the fund, and the fund might
be forced to sell securities at disadvantageous prices to redeem such
investments.
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A HIGH-QUALITY debt security is one that has been determined to be in the top
two credit quality categories. This can be established in a number of ways. For
example, independent rating agencies may rate the security in their higher
rating categories. The fund's advisor also can analyze an unrated security to
determine if its credit quality is high enough for investment. Details of the
fund's credit quality standards are described in the Statement of Additional
Information.
www.americancentury.com American Century Investments 3
BASICS OF FIXED-INCOME INVESTING
DEBT SECURITIES
When a fund buys a debt security, also called a fixed-income security, it is
essentially lending money to the security's issuer. Notes, bonds, commercial
paper and debentures are examples of debt securities. After the debt security is
first sold by the issuer, it may be bought and sold by other investors. The
price of the security may rise or fall based on many factors, including changes
in interest rates, liquidity and credit quality.
The fund managers decide which debt securities to buy and sell by
* determining which securities help a fund meet its maturity requirements
* identifying securities that satisfy a fund's credit quality standards
* evaluating the current economic conditions and assessing the risk of
inflation
* evaluating special features of the securities that may make them more or less
attractive
WEIGHTED AVERAGE MATURITY
Like most loans, debt securities eventually must be repaid, or refinanced, at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, generally the more sensitive it is to
changes in interest rates.
Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all the debt securities the fund owns
to evaluate the interest rate sensitivity of the entire portfolio. This average
is weighted according to the size of the fund's individual holdings and is
called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.
Amount of Percent of Remaining Weighted
Security Owned Portfolio Maturity Maturity
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Debt Security A $100,000 25% 1,000 days 250 days
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Debt Security B $300,000 75% 10,000 days 7,500 days
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Weighted Average Maturity 7,750 days
TYPES OF RISK
The basic types of risk the fund faces are described below.
Interest Rate Risk
Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the fund invests primarily in
debt securities, changes in interest rates will affect the fund's performance.
This sensitivity to interest rate changes is called interest rate risk.
The degree to which interest rate changes affect a fund's performance varies and
is related to the weighted average maturity of a particular fund. For example,
when interest rates rise, you can expect the share value of a long-term bond
fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true.
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The longer a fund's weighted average maturity, the more sensitive it is to
interest rate changes.
WEIGHTED AVERAGE MATURITY is a tool the fund managers use to approximate the
remaining term to maturity of a fund's investment portfolio.
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When interest rates change, longer maturity bonds generally experience a greater
change in price. The following table shows the likely effect of a 1% increase in
interest rates on the price of 7% coupon bonds of differing maturities:
Remaining Maturity Current Price Price After 1% Increase Change in Price
1 year $100.00 $99.06 -0.94%
3 years $100.00 $97.38 -2.62%
10 years $100.00 $93.20 -6.80%
30 years $100.00 $88.69 -11.31%
Credit Risk
Credit risk is the risk that an obligation won't be paid and a loss will result.
A high credit rating indicates a high degree of confidence by the rating
organization that the issuer will be able to withstand adverse business,
financial or economic conditions and be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.
The fund managers do not invest solely on the basis of a security's credit
rating; they also consider other factors, including potential returns. Higher
credit ratings usually mean lower interest rate payments, so investors often
purchase securities that aren't the highest rated to increase return. If a fund
purchases lower-rated securities, it assumes additional credit risk.
Liquidity Risk
Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.
The fund engages in a variety of investment techniques as it pursues its
investment objective. Each technique has its own characteristics, and may pose
some level of risk to the fund. To learn more about these techniques, you should
review the Statement of Additional Information before making an investment.
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Credit quality may be lower when the issuer has any of the following
* a high debt level
* a short operating history
* a senior level of debt
* a difficult, competitive environment
* a less stable cash flow
www.americancentury.com American Century Investments 5
MANAGEMENT
WHO MANAGES THE FUND?
The Board of Directors, investment advisor and fund management team play key
roles in the management of the fund.
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the fund, it has hired an investment advisor to do so.
More than two-thirds of the directors are independent of the fund's advisor;
that is, they are not employed by and have no financial interest in the advisor.
THE INVESTMENT ADVISOR
The fund's investment advisor is American Century Investment Management, Inc.
The advisor has been managing mutual funds since 1958 and is headquartered at
4500 Main Street, Kansas City, Missouri 64111.
The advisor is responsible for managing the investment portfolios of the fund
and directing the purchase and sale of its investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the fund to operate.
For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the average net assets of the fund. The
rate of the management fee for a fund is determined monthly using a two-step
formula that takes into account the fund's strategy (money market, bond or
equity) and the total amount of mutual fund assets the advisor manages. When
calculating the fee for a money market fund, all of the assets of the money
market funds managed by the advisor are aggregated and the category fee rate is
applied to the total. Then, the complex fee schedule is applied to the assets of
all the funds managed by the advisor. These two amounts are then added to
determine the unified management fee payable by a fund to the advisor.
The fund was not in operation for the full fiscal year ended December 31, 2000.
The fund will pay the advisor a unified management fee calculated by adding the
appropriate investment category and complex fees from the schedules below:
Investment Category Fee Schedule
for VP Prime Money Market
Category Assets Fee Rate
First $1 billion 0.3700%
Next $1 billion 0.3270%
Next $3 billion 0.2860%
Next $5 billion 0.2690%
Next $15 billion 0.2580%
Next $25 billion 0.2575%
Thereafter 0.2570%
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The Complex Fee is determined according
to the schedules below.
Complex Fee Schedule
Complex Assets Fee Rate
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor pays all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent directors (including legal
counsel fees), and extraordinary expenses. A portion of the management fee may
be paid by the fund's advisor to unaffiliated third parties who provide
recordkeeping and administrative services that would otherwise be performed by
an affiliate of the advisor.
THE FUND MANAGEMENT TEAM
The advisor uses a team of portfolio managers, assistant portfolio managers and
analysts to manage the fund. The team meets regularly to review portfolio
holdings and discuss purchase and sale activity. Team members buy and sell
securities for the fund as they see fit, guided by the fund's investment
objective and strategy.
The portfolio manager who leads the team is identified below:
DENISE TABACCO
Ms. Tabacco, Portfolio Manager, has been a member of the team that manages VP
Prime Money Market since its inception in December 2000. She joined American
Century in 1988, becoming a member of its portfolio department in 1991. She has
a bachelor's degree in accounting from San Diego State University and an MBA in
finance from Golden Gate University.
FUND PERFORMANCE
VP Prime Money Market has the same management team and investment policies as
another fund in the American Century family of funds. The fees and expenses of
the funds are expected to be similar, and they will be managed with
substantially the same investment objective and strategies. Notwithstanding
these general similarities, this fund and the retail fund are separate mutual
funds that will have different investment performance. Differences in cash
flows into the two funds, the size of their portfolios and specific investments
held by the two funds, as well as the additional expenses of the insurance
product, will cause performance to differ.
Please consult the separate account prospectus for a description of the
insurance product through which the fund is offered and its associated fees.
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies contained in the Statement of Additional
Information and the investment objective of the fund may not be changed without
a shareholder vote. The Board of Directors may change any other policies and
investment strategies.
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CODE OF ETHICS
American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the fund.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. In addition, the Code of Ethics requires portfolio managers and other
employees with access to information about the purchase or sale of securities
by the fund to obtain approval before executing permitted personal trades.
www.americancentury.com American Century Investments 7
SHARE PRICE, DISTRIBUTIONS AND TAXES
PURCHASE AND REDEMPTION OF SHARES
For instructions on how to purchase and redeem shares, read the prospectus of
your insurance company separate account. Your order will be priced at the net
asset value next determined after your request is received in the form required
by the insurance company separate account. There are no sales commissions or
redemption charges. However, certain sales or deferred sales charges and other
charges may apply to the variable annuity or life insurance contracts. Those
charges are disclosed in the separate account prospectus.
ABUSIVE TRADING PRACTICES
We do not permit market timing or other abusive trading practices in our funds.
Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the fund and its shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor we believe has a history
of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control. We also reserve the right
to delay delivery of redemption proceeds up to seven days.
MODIFYING OR CANCELING AN INVESTMENT
Investment instructions are irrevocable. That means that once you have mailed or
otherwise transmitted your investment instruction, you may not modify or cancel
it. The fund reserves the right to suspend the offering of shares for a period
of time, and the fund reserves the right to reject any specific purchase order
(including purchases by exchange or conversion). Additionally, we may refuse a
purchase if, in our judgment, it is of a size that would disrupt the management
of a fund.
SHARE PRICE
American Century determines the NET ASSET VALUE (NAV) of the fund as of the
close of regular trading on the New York Stock Exchange (usually 4 p.m. Eastern
time) on each day the Exchange is open. On days when the Exchange is not open
(including certain U.S. holidays), we do not calculate the NAV. The NAV of a
fund share is the current value of the fund's assets, minus any liabilities,
divided by the number of fund shares outstanding.
If current market prices of securities owned by a fund are not readily
available, the advisor may determine their fair value in accordance with
procedures adopted by the fund's Board. Trading of securities in foreign markets
may not take place every day the Exchange is open. Also, trading in some foreign
markets and on some electronic trading networks may take place on weekends or
holidays when a fund's NAV is not calculated. So, the value of a fund's
portfolio may be affected on days when you can't purchase or redeem shares of
the fund.
We will price your purchase, exchange or redemption at the NAV next determined
after the insurance company separate account receives your transaction request
in good order.
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The NET ASSET VALUE, or NAV, of a fund is the price of the fund's shares.
8 American Century Investments 1-800-345-2021
DISTRIBUTIONS
Federal tax laws require the fund to make distributions to its shareholders in
order to qualify as a "regulated investment company." Qualification as a
regulated investment company means the fund will not be subject to state or
federal income tax on amounts distributed. The distributions generally consist
of dividends and interest received. The fund's dividends are declared and
available for redemption daily. The fund does not expect to have CAPITAL GAINS.
If it does, it will distribute them to shareholders when realized.
You will participate in fund distributions, when they are declared, starting the
day after your purchase is effective. For example, if you purchase shares on a
day that a distribution is declared, you will not receive that distribution. If
you redeem shares, you will receive any distribution declared on the day you
redeem. If you redeem all shares, we will include any such distributions
received with your redemption proceeds. All distributions from the fund will be
invested in additional shares.
TAXES
Consult the prospectus of your insurance company separate account for a
discussion of the tax status of your variable contract.
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CAPITAL GAINS are increases in the values of capital assets, such as stock, from
the time the assets are purchased.
www.americancentury.com American Century Investments 9
MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period.
Statement of Additional Information
(SAI) The SAI contains a more detailed, legal description of the fund's
operations, investment restrictions, policies and practices. The SAI is
incorporated by reference into this Prospectus. This means that it is legally
part of this Prospectus, even if you don't request a copy.
You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the fund or your accounts, by contacting American Century at the
address or telephone numbers listed below.
You also can get information about the fund (including the SAI) from the
Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to
provide copies of this information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for
location and hours.
On the Internet * EDGAR database at www.sec.gov
* By email request at [email protected]
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-10155
[american century logo and text logo (reg. sm)]
American Century Investments
P.O. Box 419385
Kansas City, Missouri 64141-6385
1-800-345-6488 or 816-531-5575
0101
SH-PRS-22673
AMERICAN CENTURY
statement of
additional information
VP Prime Money Market Fund
[american century logo and text logo (reg. sm)]
American
Century
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January 16, 2001
American Century Variable Portfolios II, Inc.
THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUND'S
PROSPECTUS, DATED JANUARY 16, 2001, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S CURRENT
PROSPECTUS. IF YOU WOULD LIKE A COPY OF THE PROSPECTUS, PLEASE CONTACT US AT ONE
OF THE ADDRESSES OR TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT
AMERICAN CENTURY'S WEB SITE AT WWW.AMERICANCENTURY.COM.
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUND'S ANNUAL AND SEMIANNUAL REPORTS, WHICH ARE
DELIVERED TO ALL SHAREHOLDERS. YOU MAY OBTAIN A FREE COPY OF THE FUND'S ANNUAL
OR SEMIANNUAL REPORT BY CALLING 1-800-345-6488.
American Century Investment
Services, Inc., Distributor
TABLE OF CONTENTS
The Fund's History ........................................................ 2
Fund Investment Guidelines ................................................ 2
Portfolio Composition ..................................................... 2
Fund Investments and Risks ................................................ 3
Investment Strategies and Risks ...................................... 3
Investment Policies .................................................. 8
Temporary Defensive Measures ......................................... 10
Management ................................................................ 10
The Board of Directors ............................................... 10
Officers ............................................................. 14
Code of Ethics ....................................................... 15
Service Providers ......................................................... 16
Investment Advisor ................................................... 16
Transfer Agent and Administrator ..................................... 18
Distributor .......................................................... 18
Other Service Providers ................................................... 18
Custodian Banks ...................................................... 18
Independent Accountants .............................................. 18
Brokerage Allocation ...................................................... 19
Information about Fund Shares ............................................. 19
Valuation of a Fund's Securities ..................................... 19
Taxes ..................................................................... 20
Federal Income Tax ................................................... 20
How Fund Performance Information Is Calculated ............................ 20
Performance Comparison .................................................... 21
Permissible Advertising Information .................................. 22
Financial Statements ...................................................... 22
Report of Independent Accountants .................................... 23
Statement of Net Assets .............................................. 24
Explanation of Fixed-Income Securities Ratings ............................ 25
Bond Ratings ......................................................... 25
Commercial Paper Ratings ............................................. 26
Note Ratings ......................................................... 26
www.americancentury.com American Century Investments 1
THE FUND'S HISTORY
American Century Variable Portfolios II, Inc. is a registered open-end
management investment company that was organized as a Maryland Corporation on
September 19, 2000.
The fund described in this Statement of Additional Information is a separate
series of the Corporation. The Corporation may issue other series; the fund
would operate for many purposes as if it were an independent company from any
such future series.
Inception Date
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VP Prime Money Market Fund January 16, 2001
FUND INVESTMENT GUIDELINES
This section explains the extent to which the fund's advisor, American Century
Investment Management, Inc., can use various investment vehicles and strategies
in managing the fund's assets. Descriptions of the investment techniques and
risks associated with each appear in the section, Investment Strategies and
Risks, which begins on page 3. In the case of the fund's principal investment
strategies, these descriptions elaborate upon discussion contained in the
Prospectus.
The fund is a diversified, open-end investment company as defined in the
Investment Company Act of 1940 (the Investment Company Act). Diversified means
that, with respect to 75% of its total assets, the fund will not invest more
than 5% of its total assets in the securities of a single issuer or own more
than 10% of the outstanding voting securities of a single issuer (other than the
U.S. government).
The fund operates pursuant to Rule 2a-7 under the Investment Company Act, which
permits the valuation of portfolio securities on the basis of amortized cost. To
rely on the rule, the fund must be diversified with regard to 100% of its assets
other than U.S. government securities. This operating policy is more
restrictive than the Investment Company Act, which requires a diversified
investment company to be diversified with regard to only 75% of its assets.
To meet federal tax requirements for qualification as a regulated investment
company, the fund must limit its investments so that at the close of each
quarter of its taxable year (1) no more than 25% of its total assets are
invested in the securities of a single issuer (other than the U.S. government or
a regulated investment company), and (2) with respect to at least 50% of its
total assets, no more than 5% of its total assets are invested in the
securities of a single issuer.
PORTFOLIO COMPOSITION
Eligible Investments
The fund buys high-quality (first-tier), U.S. dollar-denominated money market
instruments and other short-term obligations of banks, governments and
corporations. Some of the fund's possible investments are listed in the
following table. The obligations referenced in the table and the risks
associated with investing in them are described in the section titled Investment
Strategies and Risks, which begins on page 3.
Issuers Types of Obligations
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Domestic and foreign financial institutions Negotiable certificates of deposit, bankers'
(e.g., banks, broker-dealers, insurance acceptances, bank notes and commercial
companies, leasing and financing paper (including floating-rate
corporations) securities)
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Issuers Types of Obligations
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Domestic and foreign Commercial paper and short-term
nonfinancial corporations corporate debt obligations (including
fixed- and variable-rate notes and bonds)
U.S. government and its agencies U.S. Treasury bills, notes, bonds and
and instrumentalities U.S. government agency obligations
(including floating-rate agency securities)
Foreign governments and their Commercial paper and discount notes
agencies and instrumentalities (including floating-rate agency securities)
Portfolio Investment Quality and Maturity Criteria
The fund managers follow regulatory guidelines on quality and maturity for the
fund's investments, which are designed to help maintain a stable $1.00 share
price. In particular, the fund: (1) buys only U.S. dollar-denominated
obligations with remaining maturities of 13 months or less (and variable- and
floating-rate obligations with demand features that effectively shorten their
maturities to 13 months or less); (2) maintains a dollar-weighted average
portfolio maturity of 90 days or less; (3) restricts its investments to
high-quality obligations determined by the advisor to present minimal credit
risks, pursuant to guidelines established by the Board of Directors.
To be considered high-quality, an obligation must be one of the following: (1) a
U.S. government obligation; (2) rated (or issued by an issuer rated with respect
to a class of short-term debt obligations) within the two highest rating
categories for short-term debt obligations by at least two nationally recognized
statistical rating organizations (rating agencies) (or one if only one has rated
the obligation); (3) an unrated obligation judged by the advisor, pursuant to
guidelines established by the Board of Directors, to be of comparable quality.
The fund managers intend to buy only obligations designated as first-tier
securities as defined by the SEC; that is, securities with the highest rating.
The acquisition of securities that are unrated or rated by only one rating
agency must be approved or ratified by the Board of Directors.
Industry Concentration
Under normal market conditions, 25% or more of the fund's total assets are
invested in obligations of issuers in the financial services industry.
FUND INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
This section describes various investment vehicles and techniques the fund
managers can use in managing the fund's assets. It also details the risks
associated with each, because each investment vehicle and technique contributes
to a fund's overall risk profile.
www.americancentury.com American Century Investments 3
Commercial Paper
Commercial paper (CP) is issued by utility, financial, and industrial companies
and supranational organizations. Rating agencies assign ratings to CP issuers
indicating the agencies' assessment of credit risk. Investment-grade CP ratings
assigned by four rating agencies are provided in the following table.
Moody's Investors Standard Duff & Fitch Investors
Service, Inc. & Poor's Phelps, Inc. Service, Inc.
--------------------------------------------------------------------------------
Highest Ratings Prime-1 A-1/A-1+ D-1/D-1+ F-1/F-1+
--------------------------------------------------------------------------------
Prime-2 A-2 D-2 F-2
--------------------------------------------------------------------------------
Prime-3 A-3 D-3 F-3
If an obligation has been assigned different ratings by multiple rating
agencies, at least two rating agencies must have assigned their highest rating
as indicated above in order for the advisor to determine that the obligation is
eligible for purchase by the fund or, if unrated, the obligation must be
determined to be of comparable quality by the advisor.
Some examples of CP and CP issuers are provided in the following paragraphs.
Domestic CP is issued by U.S. industrial and finance companies, utility
companies, thrifts and bank holding companies. Foreign CP is issued by non-U.S.
industrial and finance companies and financial institutions. Domestic and
foreign corporate issuers occasionally have the underlying support of a
well-known, highly rated commercial bank or insurance company. Bank support is
provided in the form of a letter of credit (an LOC) or irrevocable revolving
credit commitment (an IRC). Insurance support is provided in the form of a
surety bond.
Bank holding company CP is issued by the holding companies of many well-known
domestic banks, including Citicorp, J.P. Morgan & Company Incorporated and First
Union National Bank. Bank holding company CP may be issued by the parent of a
money center or regional bank.
Thrift CP is issued by major federal or state-chartered savings and loan
associations and savings banks.
Schedule B Bank CP is short-term, U.S. dollar-denominated CP issued by Canadian
subsidiaries of non-Canadian banks (Schedule B banks). Whether issued as
commercial paper, a certificate of deposit or a promissory note, each instrument
issued by a Schedule B bank ranks equally with any other deposit obligation.
Paper issued by Schedule B banks provides an investor with the comfort and
reduced risk of a direct and unconditional parental bank guarantee. Schedule B
instruments generally offer higher rates than the short-term instruments of the
parent bank or holding company.
Bank Obligations
Negotiable certificates of deposit (CDs) evidence a bank's obligation to repay
money deposited with it for a specified period of time. The following table
identifies the types of CDs the fund may buy.
CD Type Issuer
--------------------------------------------------------------------------------
Domestic Domestic offices of U.S. banks
--------------------------------------------------------------------------------
Yankee U.S. branches of foreign banks
--------------------------------------------------------------------------------
Eurodollar Issued in London by U.S., Canadian, European and Japanese banks
--------------------------------------------------------------------------------
Schedule B Canadian subsidiaries of non-Canadian banks
--------------------------------------------------------------------------------
Bankers' acceptances are used to finance foreign commercial trade. Issued by a
bank with an importer's name on them, these instruments allow the importer to
back up its own pledge to pay for imported goods with a bank's obligation to
cover the transaction if the importer fails to do so.
4 American Century Investments 1-800-345-2021
Bank notes are senior unsecured promissory notes issued in the United States by
domestic commercial banks.
Time deposits are non-negotiable bank deposits maintained for up to seven days
at a stated interest rate. These instruments may be withdrawn on demand,
although early withdrawals may be subject to penalties.
The bank obligations the fund managers may buy generally are not insured by the
FDIC or any other insurer.
U.S. Government Securities
The fund may invest in U.S. government securities, including bills, notes and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some U.S. government
securities are supported by the direct full faith and credit pledge of the U.S.
government; others are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as securities issued by the Federal National
Mortgage Association (FNMA), are supported by the discretionary authority of the
U.S. government to purchase the agencies' obligations; and others are supported
only by the credit of the issuing or guaranteeing instrumentality. There is no
assurance that the U.S. government will provide financial support to an
instrumentality it sponsors when it is not obligated by law to do so.
U.S. Dollar-Denominated Foreign Securities
The fund invests exclusively in U.S. dollar-denominated instruments, some of
which may be issued by foreign entities as described in the table on page 4.
Consequently, the fund may be subject to risks different than those incurred by
a fund that invests only in debt obligations of domestic issuers.
Currently, the only securities held outside the United States in which the fund
expects to invest are EuroCDs, which are held in England. As a result, the
fund's exposure to these foreign investment risks is expected to be lower than
funds that invest more broadly in securities held outside the United States.
Regulatory limits specified in the section titled Portfolio Investment Quality
and Maturity Criteria on page 3 apply equally to securities of foreign and
domestic issuers.
Variable- and Floating-Rate Instruments
Variable- and floating-rate instruments are issued by corporations, financial
institutions and government agencies and instrumentalities.
Floating-rate instruments have interest rates that change whenever there is a
change in a designated base rate, whereas variable-rate instruments provide for
specified periodic interest rate adjustments. The interest rate on variable- and
floating-rate instruments is ordinarily determined by reference to (or is a
percentage of) an objective standard, such as the Federal Funds effective rate,
the 90-day U.S. Treasury bill rate or LIBOR.
Although the fund typically limits its investments to securities with remaining
maturities of 13 months or less, it may invest in variable- and floating-rate
instruments that have nominal (or stated) maturities in excess of 13 months,
provided that such instruments (1) have demand features consistent with
regulatory requirements for money market funds, or (2) are securities issued by
the U.S. government or a U.S. government agency that meet certain regulatory
requirements for money market funds.
www.americancentury.com American Century Investments 5
Loan Participations
The fund may purchase loan participations, which represent interests in the cash
flow generated by commercial loans. Each loan participation requires three
parties: a participant (or investor), a lending bank and a borrower. The
investor purchases a share in a loan originated by a lending bank, and this
participation entitles the investor to a percentage of the principal and
interest payments made by the borrower.
Loan participations are attractive because they typically offer higher yields
than other money market instruments. However, along with these higher yields
come certain risks, not least of which is the risk that the borrower will be
unable to repay the loan. Generally, because the lending bank does not guarantee
payment, the investor is directly exposed to risk of default by the borrower.
Second, the investor is not a direct creditor of the borrower. The participation
represents an interest in assets owned by the lending bank. If the lending bank
becomes insolvent, the investor could be considered an unsecured creditor of the
bank instead of the holder of a participating interest in a loan. Because of
these risks, the manager must carefully consider the creditworthiness of both
the borrower and the lender.
Another concern is liquidity. Because there is no established secondary market
for loan participations, the fund's ability to sell them for cash is limited.
Some participation agreements place limitations on the investor's right to
resell the loan participation, even when a buyer can be found.
Repurchase Agreements
The fund may invest in repurchase agreements when they present an attractive
short-term return on cash that is not otherwise committed to the purchase of
securities pursuant to the investment policies of that fund.
A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.
Because the security purchased constitutes security for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the ability of the seller to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.
The fund managers will limit repurchase agreement transactions to securities
issued by the U.S. government, and its agencies and instrumentalities, and will
enter into such transactions with those banks and securities dealers who are
deemed creditworthy by the fund's advisor.
Repurchase agreements maturing in more than seven days would count toward the
fund's 10% limit on illiquid securities.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund managers transfer possession of (or
sells) securities to another party, such as a bank or broker-dealer, for cash
and agrees to later repay cash plus interest for the return (or repurchase) of
the same securities. To collateralize the transaction, the value of the
securities transferred is slightly greater than the amount of cash the fund
receives in exchange for the securities.
6 American Century Investments 1-800-345-2021
If the purchaser reneged on the agreement and failed to return the securities,
the fund might suffer a loss. The fund's loss could be even greater if the
market value of the securities transferred increased in the meantime. To
protect against these risks, the fund will enter into reverse repurchase
agreements only with parties whose creditworthiness is determined to be
satisfactory by the advisor. While a reverse repurchase agreement is
outstanding, the fund will segregate appropriate securities to cover its
obligation under the agreement.
Taxable Municipal Obligations
Taxable municipal obligations are state and local obligations whose interest
payments are subject to federal income tax because of the degree of
non-government involvement in the transaction or because federal tax code
limitations on the issuance of tax-exempt bonds that benefit private entities
have been exceeded. Some typical examples of taxable municipal obligations
include industrial revenue bonds and economic development bonds issued by state
or local governments to aid private enterprise. The interest on a taxable
municipal bond is often exempt from state taxation in the issuing state.
Portfolio Lending
In order to realize additional income, the fund managers may lend portfolio
securities. Such loans may not exceed one-third of the fund's net assets valued
at market except (i) through the purchase of debt securities in accordance with
its investment objective, policies and limitations, or (ii) by engaging in
repurchase agreements with respect to portfolio securities.
When-Issued and Forward Commitment Agreements
The fund managers may sometimes purchase new issues of securities on a
when-issued or forward commitment basis in which the transaction price and yield
are each fixed at the time the commitment is made, but payment and delivery
occur at a future date (typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, the
fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. Market rates of interest on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. Accordingly, the value of the security may decline prior to delivery,
which could result in a loss to the fund. While the fund will make commitments
to purchase or sell securities with the intention of actually receiving or
delivering them, it may sell the securities before the settlement date if doing
so is deemed advisable as a matter of investment strategy.
In purchasing securities on a when-issued or forward commitment basis, the fund
will establish and maintain until the settlement date a segregated account
consisting of cash or other appropriate liquid securities in an amount
sufficient to meet the purchase price. When the time comes to pay for the
when-issued securities, the fund will meet its obligations with available cash,
through the sale of securities, or, although it would not normally expect to do
so, by selling the when-issued securities themselves (which may have a market
value greater or less than the fund's payment obligation). Selling securities to
meet when-issued or forward commitment obligations may generate taxable capital
gains or losses.
www.americancentury.com American Century Investments 7
Restricted and Illiquid Securities
The fund may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the fund's criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered "restricted securities," they are not necessarily
illiquid.
With respect to securities eligible for resale under Rule 144A, the staff of the
Securities and Exchange Commission (SEC) has taken the position that the
liquidity of such securities in the portfolio of a fund offering redeemable
securities is a question of fact for the Board of Directors to determine, such
determination to be based upon a consideration of the readily available trading
markets and the review of any contractual restrictions. Accordingly, the Board
of Directors is responsible for developing and establishing the guidelines and
procedures for determining the liquidity of Rule 144A securities. As allowed by
Rule 144A, the Board of Directors has delegated the day-to-day function of
determining the liquidity of Rule 144A securities to the fund managers. The
board retains the responsibility to monitor the implementation of the guidelines
and procedures it has adopted.
Because the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. The fund will not acquire illiquid securities if, as
a result, illiquid securities would comprise more than 10% of the value of the
fund's net assets.
INVESTMENT POLICIES
Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions described below apply at the time a fund enters into
a transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund's net assets will not be considered
in determining whether it has complied with its investment restrictions.
For purposes of the fund's investment restrictions, the party identified as the
"issuer" of a municipal security depends on the form and conditions of the
security. When the assets and revenues of a political subdivision are separate
from those of the government that created the subdivision and the security is
backed only by the assets and revenues of the subdivision, the subdivision is
deemed the sole issuer. Similarly, in the case of an Industrial Development
Bond, if the bond were backed only by the assets and revenues of a
non-governmental user, the non-governmental user would be deemed the sole
issuer. If, in either case, the creating government or some other entity were to
guarantee the security, the guarantee would be considered a separate security
and treated as an issue of the guaranteeing entity.
Fundamental Investment Policies
The fund's fundamental investment restrictions are listed below. These
investment restrictions may not be changed without approval of a majority of
the outstanding votes of the fund's investors, as determined in accordance with
the Investment Company Act.
Subject Policy
--------------------------------------------------------------------------------
Senior Securities The fund may not issue senior securities, except as permitted
under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing The fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in an
amount not exceeding 33-1/3% of the fund's total assets
(including the amount borrowed) less liabilities
(other than borrowings).
--------------------------------------------------------------------------------
8 American Century Investments 1-800-345-2021
Subject Policy
--------------------------------------------------------------------------------
Lending The fund may not lend any security or make any other loan if,
as a result, more than 33-1/3% of the fund's total assets would
be lent to other parties, except (i) through the purchase of debt
securities in accordance with its investment objective, policies
and limitations or (ii) by engaging in repurchase agreements with
respect to portfolio securities.
--------------------------------------------------------------------------------
Real Estate The fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments.
This policy shall not prevent the fund from investing in securities
or other instruments backed by real estate or securities of companies
that deal in real estate or are engaged in the real estate business.
--------------------------------------------------------------------------------
Concentration The fund may not concentrate its investments in securities of
issuers in a particular industry (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities), except that the fund may invest more than 25% of
its total assets in the financial services industry.
--------------------------------------------------------------------------------
Underwriting The fund may not act as an underwriter of securities issued by
others, except to the extent that the fund may be considered an
underwriter within the meaning of the Securities Act of 1933 in the
disposition of restricted securities.
--------------------------------------------------------------------------------
Commodities The fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments,
provided that this limitation shall not prohibit the fund from purchasing
or selling options and futures contracts or from investing in securities
or other instruments backed by physical commodities.
--------------------------------------------------------------------------------
Control The fund may not invest for purposes of exercising control
over management.
--------------------------------------------------------------------------------
For purposes of the investment restrictions relating to lending and borrowing,
the fund has received an exemptive order from the SEC regarding interfund
lending. Under the terms of the exemptive order, the fund may borrow money from
or lend money to other funds advised by ACIM that permit such transactions. All
such transactions will be subject to the limits set above for borrowing and
lending. The fund will borrow money through the program only when the costs are
equal to or lower than the cost of short-term bank loans. Interfund loans and
borrowing normally extend only overnight, but can have a maximum duration of
seven days. The fund will lend through the program only when the returns are
higher than those available from other short-term instruments (such as
repurchase agreements). The fund may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund could result in a lost investment opportunity or
additional borrowing costs.
For purposes of the investment restriction relating to concentration, the fund
shall not purchase any securities that would cause 25% or more of the value of
the fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry (except financial industries), provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and repurchase agreements secured by such instruments,
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, and electric and
telephone will each be considered a separate industry, and (d) personal credit
and business credit businesses will be considered separate industries.
www.americancentury.com American Century Investments 9
Nonfundamental Investment Policies
In addition, the fund is subject to the following investment restrictions that
are not fundamental and may be changed by the Board of Directors.
Subject Policy
-------------------------------------------------------------------------------------------------
Leveraging The fund may not purchase additional investment securities
at any time during which outstanding borrowings exceed 5%
of the total assets of the fund.
-------------------------------------------------------------------------------------------------
Futures and options The fund may not purchase or sell futures contracts or
call options. This limitation does not apply to options attached
to, or acquired or traded together with, their underlying securities,
and does not apply to securities that incorporate features similar
to options or futures contracts.
-------------------------------------------------------------------------------------------------
Liquidity The fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 10% of its net
assets would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days
and in securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market.
-------------------------------------------------------------------------------------------------
Short Sales The fund may not sell securities short, unless it owns or
has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts
and options are not deemed to constitute selling securities short.
-------------------------------------------------------------------------------------------------
Margin The fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
-------------------------------------------------------------------------------------------------
Temporary Defensive Measures
For temporary defensive purposes, the fund may invest in securities that may not
fit its investment objective or its stated market. During a temporary defensive
period, the fund may direct its assets to the following investment vehicles:
* interest-bearing bank accounts or certificates of deposit
* U.S. government securities and repurchase agreements collateralized by U.S.
government securities
* other money market funds
MANAGEMENT
THE BOARD OF DIRECTORS
The Board of Directors oversees the management of the fund and meets at least
quarterly to review reports about fund operations. Although the Board of
Directors does not manage the fund, it has hired the advisor to do so.
Two-thirds of the directors are independent of the fund's advisor; that is, they
are not employed by and have no financial interest in the advisor.
The individuals listed in the following table whose names are marked by an
asterisk (*) are interested persons of the fund (as defined in the Investment
Company Act) by virtue of, among other considerations, their affiliation with
either the fund; the advisor, American Century Investment Management, Inc.
(ACIM); the fund's agent for transfer and administrative services, American
Century Services Corporation (ACSC); the parent corporation, American Century
Companies, Inc. (ACC) or ACC's subsidiaries; the fund's distribution agent,
American Century Investment Services, Inc. (ACIS) or other funds advised by the
advisor. Each director (except James E. Stowers III) listed below serves as a
trustee or director of seven other registered investment companies in the
10 American Century Investments 1-800-345-2021
American Century family of funds, which are also advised by the advisor. James
E. Stowers III serves as a trustee or director of 13 other registered investment
companies in the American Century family of funds.
Name (Age) Position(s) Held Principal Occupation(s)
Address With Fund During Past Five Years
-------------------------------------------------------------------------------------------------
Albert A. Eisenstat (69) Director General Partner, Discovery Ventures
1665 Charleston Road (venture capital firm, 1996 to 1998)
Mountain View, CA 94043 Independent Director, Sungard Data Systems
(1991 to present) Independent Director,
Business Objects S/A (software and
programming, 1994 to present)
Independent Director, Commercial
Metals Co. (1982 to 2000)
-------------------------------------------------------------------------------------------------
Ronald J. Gilson (53) Director Charles J. Meyers Professor of Law
1665 Charleston Road and Business, Stanford Law School
Mountain View, CA 94043 (1979 to present)
Marc and Eva Stern Professor of Law
and Business, Columbia University
School of Law (1992 to present)
Counsel, Marron, Reid & Sheehy
(a San Francisco law firm, 1984 to present)
-------------------------------------------------------------------------------------------------
William M. Lyons* (44) Director Chief Executive Officer, President, Chief Operating
4500 Main Street Officer and Assistant
Kansas City, MO 64111 Secretary, ACC;
Executive Vice President, Chief
Operating Officer,
ACIM, ACSC, ACIS and 14 other ACC subsidiaries
Secretary, ACIM, ACSC, ACIS and five
other ACC subsidiaries
-------------------------------------------------------------------------------------------------
Myron S. Scholes (59) Director Partner, Oak Hill Capital
1665 Charleston Road Management (1999 to present)
Mountain View, CA 94043 Principal, Long-Term Capital
Management (investment advisor,
1993 to January 1999)
Frank E. Buck Professor of Finance,
Stanford Graduate School of Business
(1981 to present)
Director, Dimensional Fund Advisors
(investment advisor, 1982 to present)
Director, Smith Breeden Family
of Funds (1992 to present)
-------------------------------------------------------------------------------------------------
Kenneth E. Scott (71) Director Ralph M. Parsons Professor of Law and
1665 Charleston Road Business, Stanford Law School
Mountain View, CA 94043 (1972 to present)
Director, RCM Capital Funds, Inc.
(1994 to present)
-------------------------------------------------------------------------------------------------
www.americancentury.com American Century Investments 11
Name (Age) Position(s) Held Principal Occupation(s)
Address With Fund During Past Five Years
-------------------------------------------------------------------------------------------------
James E. Stowers III* (41) Director, Co-Chairman and Director, ACC
4500 Main Street Chairman of Chief Executive Officer, ACIM ACSC, ACIS and six
Kansas City, MO 64111 the Board other ACC subsidiaries
Director, ACIM, ACSC, ACIS and 11 other ACC
subsidiaries
-------------------------------------------------------------------------------------------------
Jeanne D. Wohlers (55) Director Director, Indus International (software
1665 Charleston Road solutions, January 1999 to present)
Mountain View, CA 94043 Director, Quintus Corporation,
(automation solutions, 1995 to present)
Director and Partner, Windy Hill
Productions, LP
(educational software, 1994 to 1998)
-------------------------------------------------------------------------------------------------
Committees
The board has four standing committees to oversee specific functions of the
fund's operations. Information about these committees appears below. The
director first named serves as chairman of the committee.
Committee Members Function of Committee
--------------------------------------------------------------------------------
Audit Kenneth E. Scott The Audit Committee selects and oversees
Albert A. Eisenstat the activities of the fund's independent
Jeanne D. Wohlers auditor. The committee receives reports
from the advisor's Internal Audit
Department, which is accountable solely
to the committee. The committee also
receives reporting about compliance
matters affecting the fund.
--------------------------------------------------------------------------------
Nominating Kenneth E. Scott The Nominating Committee primarily
Albert A. Eisenstat considers and recommends
Ronald J. Gilson individuals for nomination as directors.
Myron S. Scholes The names of potential director
Jeanne D. Wohlers 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.
--------------------------------------------------------------------------------
12 American Century Investments 1-800-345-2021
Committee Members Function of Committee
--------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly
Ronald J. Gilson the investment activities and strategies
used to manage fund assets. The
committee regularly receives reports
from portfolio managers, credit analysts
and other investment personnel concerning
the fund's investments.
--------------------------------------------------------------------------------
Quality of Ronald J. Gilson The Quality of Service Committee reviews
Service William Lyons the level and quality of transfer agent
Myron S. Scholes and administrative services provided to
the fund and its shareholders. It receives
and reviews reports comparing those
services to fund competitors' services and
seeks to improve such services where feasible
and appropriate.
--------------------------------------------------------------------------------
Compensation of Directors
The directors also serve as directors for seven American Century investment
companies other than the corporation. Each director who is not an interested
person as defined in the Investment Company Act receives compensation for
service as a member of the board of all seven such companies based on a schedule
that is based on the number of meetings attended and the assets of the fund for
which the meetings are held. These fees and expenses are divided among the eight
investment companies based, in part, upon their relative net assets. Under the
terms of the management agreement with the advisor, the fund is responsible for
paying such fees and expenses.
The following table shows the aggregate compensation paid for the periods
indicated by the corporation and by the seven investment companies served by
this board to each director who is not an interested person as defined in the
Investment Company Act.
Aggregate Director Compensation for Fiscal Year Ended February 29, 2000
Total Compensation Total from the American
Name of Director Compensation from the Fund Century Family of Funds(1)
--------------------------------------------------------------------------------
Albert A. Eisenstat N/A $78,000
Ronald J. Gilson N/A $82,500
Myron S. Scholes N/A $73,750
Kenneth E. Scott N/A $83,000
Isaac Stein N/A $80,250(2)
Jeanne D. Wohlers N/A $77,250
--------------------------------------------------------------------------------
(1) Includes compensation paid by the seven investment company members of the
American Century family of funds served by this Board.
(2) Mr. Stein retired from the Board on September 15, 2000.
The fund has adopted the American Century Mutual Funds Deferred Compensation
Plan for Non-Interested Directors. Under the plan, the independent directors may
defer receipt of all or any part of the fees to be paid to them for serving as
directors of the fund.
All deferred fees are credited to an account established in the name of the
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 director. The account balance
continues to fluctuate in accordance with the performance of the selected fund
or funds until final payment of all amounts is credited to the account.
Directors are allowed to change their designation of mutual funds from time to
time.
www.americancentury.com American Century Investments 13
No deferred fees are payable until such time as a 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, the fund has no obligation to
segregate assets to secure or fund the deferred fees. To date, the fund has
voluntarily funded its obligations. The rights of directors to receive their
deferred fee account balances are the same as the rights of a general unsecured
creditor of the fund. 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 directors under the plan during the fiscal
year ended February 29, 2000.
OFFICERS
Background information about the officers of the fund is provided below. All
persons named as officers of the fund also serve in similar capacities for the
13 other investment companies advised by ACIM. Not all officers of the fund are
listed; only those officers with policy-making functions for the fund are
listed. No officer is compensated for his or her service as an officer of the
fund. The individuals listed in the following table are interested persons of
the fund (as defined in the Investment Company Act) by virtue of, among other
considerations, their affiliation with either the fund, ACC, ACC's subsidiaries
(including ACIM and ACSC) or the fund's distributor (ACIS), as specified in the
following table.
Name (Age) Positions Held with Principal Occupation(s)
Address the Funds During Past Five Years
-------------------------------------------------------------------------------------------------
William M. Lyons (44) President Chief Executive Officer, ACC
4500 Main St. (September 2000 to present)
Kansas City, MO 64111 President, ACC (June 1997 to present)
Chief Operating Officer, ACC
(June 1995 to present)
General Counsel, ACC, ACIM, ACIS,
ACSC and other ACC subsidiaries
(June 1989 to June 1998)
Executive Vice President, ACC,
(January 1995 to June 1997)
Also serves as: Executive Vice President
and Chief Operating Officer, ACIM, ACIS,
ACSC and other ACC subsidiaries, and
Executive Vice President of other ACC
subsidiaries
-------------------------------------------------------------------------------------------------
Robert T. Jackson (54) Executive Vice Chief Administrative Officer and Chief Financial
4500 Main St. President and Officer, ACC (August 1997 to present)
Kansas City, MO 64111 Chief Financial President, ACSC (January 1999 to present)
Officer Executive Vice President, ACC
(May 1995 to present)
Also serves as: Executive Vice President,
ACIM, ACIS and other ACC subsidiaries,
and Treasurer of ACC and other ACC subsidiaries
-------------------------------------------------------------------------------------------------
Maryanne Roepke, CPA (44) Senior Vice Senior Vice President and Assistant
4500 Main St. President, Treasurer, ACSC
Kansas City, MO 64111 Treasurer and Chief
Accounting Officer
-------------------------------------------------------------------------------------------------
14 American Century Investments 1-800-345-2021
Name (Age) Positions Held with Principal Occupation(s)
Address the Funds During Past Five Years
-------------------------------------------------------------------------------------------------
David C. Tucker (42) Senior Vice Senior Vice President, ACIM, ACIS,
4500 Main St. President and ACSC and other ACC subsidiaries
Kansas City, MO 64111 General Counsel (June 1998 to present)
General Counsel, ACC, ACIM, ACIS, ACSC
and other ACC subsidiaries
(June 1998 to present)
Consultant to mutual fund industry
(May 1997 to April 1998)
Vice President and General Counsel,
Janus Companies (1990 to 1997)
-------------------------------------------------------------------------------------------------
Charles A. Etherington (42) Vice President Vice President (October 1996 to present)
4500 Main St. and Associate General Counsel
Kansas City, MO 64111 (December 1998 to present), ACSC
Counsel to ACSC
(February 1994 to December 1998)
-------------------------------------------------------------------------------------------------
Charles C. S. Park (32) Vice President Vice President (February 2000 to present)
1665 Charleston Road and Assistant General Counsel
Mountain View, CA 94043 (January 1998 to present),
ACSC Counsel to ACSC
(October 1995 to January 1998)
-------------------------------------------------------------------------------------------------
David H. Reinmiller (36) Vice President Vice President (February 2000 to present)
4500 Main Street and Assistant General Counsel
Kansas City, MO 64111 (August 1996 to present),
ACSC Counsel to ACSC
(January 1994 to August 1996)
-------------------------------------------------------------------------------------------------
Paul Carrigan Jr. (51) Secretary Secretary, ACC (February 1998 to present)
4500 Main St. Director of Legal Operations, ACSC
Kansas City, MO 64111 (February 1996 to present)
Board Communications Manager
(April 1994 to January 1996)
-------------------------------------------------------------------------------------------------
Jon Zindel (33) Tax Officer Vice President of Taxation, ACSC
4500 Main Street (1996 to present)
Kansas City, MO 64111 Vice President, ACIM, ACIS and other
ACC subsidiaries (April 1999 to present)
President, American Century Employee Benefit
Services, Inc. (January 2000 to present)
Treasurer, American Century Ventures, Inc.
(December 1999 to present)
Tax Manager, Price Waterhouse LLP
(1989 to 1996)
-------------------------------------------------------------------------------------------------
CODE OF ETHICS
The fund, its investment advisor and principal underwriter have adopted codes of
ethics under Rule 17j-1 of the Investment Company Act. The codes of ethics of
the fund, its investment advisor and American Century Investment Services, Inc.,
the fund's principal underwriter, permit access persons (personnel who have
access to portfolio transaction information) to invest in securities, including
securities that may be purchased or held by the fund, provided that they first
obtain approval from their appropriate compliance department before making such
investments.
www.americancentury.com American Century Investments 15
SERVICE PROVIDERS
The fund has no employees. To conduct its day-to-day activities, the fund has
hired a number of service providers. Each service provider has a specific
function to fill on behalf of the fund and is described below.
ACIM, ACSC and ACIS are wholly owned by ACC. James E. Stowers Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.
INVESTMENT ADVISOR
A description of the responsibilities of the advisor appears in the Prospectus
under the heading Management.
For the services provided to the funds, the advisor receives a monthly fee based
on a percentage of the average net assets of a fund. The annual rate at which
this fee is assessed is determined monthly in a two-step process. First, a fee
rate schedule is applied to the assets of all the funds of its investment
category managed by the advisor (the Investment Category Fee). The three
investment categories are money market funds, bond funds and equity funds. When
calculating the fee for a money market fund, for example, all of the assets of
the money market funds managed by the advisor are aggregated and the fee rate is
applied to the total. Second, a separate fee rate schedule is applied to the
assets of all the funds managed by the advisor (the Complex Fee). The amounts
calculated using the Investment Category Fee and the Complex Fee are then added
to determine the unified management fee payable by a fund to the advisor. The
schedules by which the unified management fee is determined are shown in the
following tables. The Investment Category Fees are determined according to the
schedule below.
Investment Category Fee Schedule for VP Prime Money Market
Category Assets Fee Rate
First $1 billion 0.3700%
Next $1 billion 0.3270%
Next $3 billion 0.2860%
Next $5 billion 0.2690%
Next $15 billion 0.2580%
Next $25 billion 0.2575%
Thereafter 0.2570%
The Complex Fee is determined according to the schedules below.
Complex Fee Schedule
Complex Assets Fee Rate
First $2.5 billion 0.3100%
Next $7.5 billion 0.3000%
Next $15.0 billion 0.2985%
Next $25.0 billion 0.2970%
Next $50.0 billion 0.2960%
Next $100.0 billion 0.2950%
Next $100.0 billion 0.2940%
Next $200.0 billion 0.2930%
Next $250.0 billion 0.2920%
Next $500.0 billion 0.2910%
Thereafter 0.2900%
16 American Century Investments 1-800-345-2021
On the first business day of each month, the fund pays a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month. This number is then multiplied by a fraction, the numerator of which is
the number of days in the previous month and the denominator of which is 365
(366 in leap years).
The management 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 the fund's Board
of Directors, or by the vote of a majority of outstanding votes (as defined in
the Investment Company Act) and by the vote of a majority of the directors of
the fund who are not parties to the agreement or interested persons of the
advisor, 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 fund's Board of Directors, or by a vote of a
majority of outstanding votes, on 60 days' written notice to the advisor, and
that it shall be automatically terminated if it is assigned.
The management agreement states the advisor shall not be liable to the fund or
its shareholders for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the advisor and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the fund and also for other clients
advised by the advisor. Investment decisions for the fund 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 fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor 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 advisor may aggregate purchase and sale orders of the fund with purchase and
sale orders of its other clients when the advisor believes that such aggregation
provides the best execution for the fund. The Board of Directors has approved
the policy of the advisor with respect to the aggregation of portfolio
transactions. Where portfolio transactions have been aggregated, the fund
participates 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 advisor will
not aggregate portfolio transactions of the fund unless it believes such
aggregation is consistent with its duty to seek best execution on behalf of the
fund and the terms of the management agreement. The advisor receives no
additional compensation or remuneration as a result of such aggregation.
www.americancentury.com American Century Investments 17
TRANSFER AGENT AND ADMINISTRATOR
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, acts as transfer agent and dividend-paying agent for the fund. It
provides physical facilities, computer hardware and software, and personnel for
the day-to-day administration of the fund and the advisor. The advisor pays
ACSC for these services.
From time to time, special services may be offered to shareholders who maintain
higher share balances in our family of funds. These services may include the
waiver of minimum investment requirements, expedited confirmation of shareholder
transactions, newsletters and a team of personal representatives. Any expenses
associated with these special services will be paid by the advisor.
DISTRIBUTOR
The fund's shares are distributed by ACIS, a registered broker-dealer. ACIS is a
wholly owned subsidiary of ACC, and is located at 4500 Main Street, Kansas City,
Missouri 64111.
The distributor is the principal underwriter of the fund's shares. The
distributor makes a continuous, best-efforts underwriting of the fund's shares.
This means the distributor has no liability for unsold shares.
OTHER SERVICE PROVIDERS
CUSTODIAN BANKS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York 10003-9598,
and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105, each serves
as custodian of the assets of the fund. The custodians take no part in
determining the investment policies of the fund or in deciding which securities
are purchased or sold by the fund. The fund, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent accountants of the fund. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th Floor, Kansas
City, Missouri 64105. As the independent accountants of the fund,
PricewaterhouseCoopers provides services including
(1) audit of the annual financial statements for the fund, (2) assistance and
consultation in connection with SEC filings, and (3) review of the annual
federal income tax return filed for the fund.
18 American Century Investments 1-800-345-2021
BROKERAGE ALLOCATION
The fund generally purchases and sells debt securities through principal
transactions, meaning the fund normally purchases securities directly from the
issuer or a primary market-maker acting as principal for the securities on a net
basis. The fund does not pay brokerage commissions on these transactions,
although the purchase price for debt securities usually includes an undisclosed
compensation. Purchases from underwriters or securities typically include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market-makers typically include a dealer's mark-up
(i.e., a spread between the bid and asked prices).
INFORMATION ABOUT FUND SHARES
VP Prime Money Market Fund is a series of shares issued by the corporation, and
shares of the fund have equal voting rights.
Each fund votes separately on matters affecting that fund exclusively. Voting
rights are not cumulative, so that investors holding more than 50% of the
corporation's outstanding shares may be able to elect a Board of Directors. The
corporation undertakes dollar-based voting, meaning that the number of votes a
shareholder is entitled to is based upon the dollar amount of the shareholder's
investment. The election of directors is determined by the votes received from
all the corporation's shareholders without regard to whether a majority of
shares of any one fund voted in favor of a particular nominee or all nominees as
a group.
The assets belonging to each series of shares are held separately by the
custodian and each series represents a beneficial interest in the principal,
earnings and profit (or losses) of investments and other assets held for each
series. Within their respective fund, all shares have equal redemption rights.
Each share, when issued, is fully paid and non-assessable.
In the event of complete liquidation or dissolution of the fund, 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.
Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.
VALUATION OF A FUND'S SECURITIES
The fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange) each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. The
Exchange typically observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Although the fund expects
the same holidays to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The advisor typically completes its trading on behalf of the fund in various
markets before the Exchange closes for the day. Foreign currency exchange rates
also are determined prior to the close of the Exchange. However, if
extraordinary events occur that are expected to affect the value of a portfolio
security after the close of the primary exchange on which it is traded, the
security will be valued at fair market value as determined in good faith under
the direction of the Board of Directors. The fund's share price is calculated by
adding the value of all portfolio securities and other assets, deducting
liabilities, and dividing the result by the number of shares outstanding.
Expenses and interest earned on portfolio securities are accrued daily.
www.americancentury.com American Century Investments 19
Securities held by the fund are valued at amortized cost. This method involves
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the fund's
yields. During periods of declining interest rates, for example, the daily yield
on fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in a
period of rising interest rates.
The fund operates pursuant to Investment Company Act Rule 2a-7, which permits
valuation of portfolio securities on the basis of amortized cost. As required by
the rule, the Board of Directors has adopted procedures designed to stabilize,
to the extent reasonably possible, a money market fund's price per share as
computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the fund has been delegated to the fund managers, the
quality requirements established by the procedures limit investments to certain
instruments that the Board of Directors has determined present minimal credit
risks and that have been rated in one of the two highest rating categories as
determined by a rating agency or, in the case of unrated securities, 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 money market 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.
The Board of Directors monitors the levels of illiquid securities, however if
the levels are exceeded, they will take action to rectify these levels.
Actions the Board of Directors may consider under these circumstances include i)
selling portfolio securities prior to maturity, (ii) withholding dividends or
distributions from capital, (iii) authorizing a one-time dividend adjustment,
(iv) discounting share purchases and initiating redemptions in kind, or (v)
valuing portfolio securities at market price for purposes of calculating NAV.
TAXES
FEDERAL INCOME TAX
The fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal and state income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains (if any) to investors. If the fund fails to qualify
as a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to investors and eliminating investors' ability to
treat distributions of the fund in the manner they were realized by the fund.
HOW FUND PERFORMANCE INFORMATION IS CALCULATED
The fund may quote performance in various ways. Fund performance may be shown by
presenting one or more performance measurements, including cumulative total
return, average annual total return or yield.
20 American Century Investments 1-800-345-2021
All performance information advertised by the fund is historical in nature and
is not intended to represent or guarantee future results. The value of fund
shares when redeemed may be more or less than their original cost.
Yield quotations are based on the change in the value of a hypothetical
investment (excluding realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of securities) over a seven-day period
(base period) and stated as a percentage of the investment at the start of the
base period (base-period return). The base-period return is then annualized by
multiplying by 365/7 with the resulting yield figure carried to at least the
nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gains
distributions (if any) and any change in the fund's NAV per share during the
period.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as percentages or as dollar amounts and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) to illustrate the
relationship of these factors and their contributions to total return.
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.
As a new fund, performance information is not available as of the date of this
Statement of Additional Information.
Performance Comparison
The fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that, unlike the American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be used for such comparisons may include, but are not
limited to: U.S. Treasury bill, note and bond yields, money market fund yields,
U.S. government debt and percentage held by foreigners, the U.S. money supply,
net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds
www.americancentury.com American Century Investments 21
and discount rates (source: Federal Reserve Bank of New York); yield curves for
U.S. Treasury securities and AA/AAA-rated corporate securities (source:
Bloomberg Financial Markets); yield curves for AAA-rated tax-free municipal
securities (source: Telerate); yield curves for foreign government securities
(sources: Bloomberg Financial Markets and Data Resources, Inc.); total returns
on foreign bonds (source: J.P. Morgan Securities Inc.); various U.S. and foreign
government reports; the junk bond market (source: Data Resources, Inc.); the CRB
Futures Index (source: Commodity Index Report); the price of gold (sources:
London a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual
fund or mutual fund category tracked by Lipper, Inc. or Morningstar, Inc.;
mutual fund rankings published in major, nationally distributed periodicals;
data provided by the Investment Company Institute; Ibbotson Associates, Stocks,
Bonds, Bills and Inflation; major indices of stock market performance; and
indices and historical data supplied by major securities brokerage or investment
advisory firms. The fund also may utilize reprints from newspapers and magazines
furnished by third parties to illustrate historical performance or to provide
general information about the fund.
Permissible Advertising Information
From time to time, the fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to investors:
(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 the fund's past or anticipated portfolio
holdings; (5) descriptions of the fund's investment strategies; (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 fund; (7) comparisons of investment products
(including the fund) 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 who have invested in the fund. The fund also may include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the fund.
FINANCIAL STATEMENTS
The Statement of Net Assets at December 26, 2000, as described in the
Independent Accountants' Report, has been audited by PricewaterhouseCoopers LLP,
independent accountants.
22 American Century Investments 1-800-345-2021
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of the American Century Variable Portfolios II, Inc.:
In our opinion, the accompanying statement of net assets presents fairly, in all
material respects, the financial position of VP Prime Money Market Fund (the
"Fund") at December 26, 2000, in conformity with accounting principles generally
accepted in the United States. This financial statement is the responsibility of
the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit, which
included confirmation of a security at December 26, 2000 by correspondence with
the custodian, provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
December 26, 2000
www.americancentury.com American Century Investments 23
AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
VP PRIME MONEY MARKET FUND
Statement of Net Assets
December 26, 2000
Assets
Federal Home Loan Bank Discount Note, 6.26%, 12/27/00 $ 100,000
-------------------
Net assets applicable to outstanding shares $ 100,000
===================
Capital Shares
Authorized 50,000,000
===================
Outstanding 100,000
===================
Net asset value per share $ 1.00
===================
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION - Amercian Century Variable Portfolios II, Inc. (the company) was
organized as a Maryland corporation on September 19, 2000 and is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company of the series type with each series, in effect,
representing a separate fund. There is currently only one series. Shares
outstanding on December 26, 2000 for the series were issued to American Century
Companies, Inc. (ACI), the parent corporation of the company's investment
manager.
ORGANIZATION COSTS - The cost of the organization will be paid by ACI.
RELATED PARTIES - The corporation has entered into a management agreement with
American Century Investment Management, Inc.(ACIM), under which ACIM will
provide the fund with investment advisory and management services. The
distributor of the company is American Century Investment Services, Inc. The
transfer agent of the company is American Century Services, Corporation.
24 American Century Investments 1-800-345-2021
EXPLANTION OF FIXED-INCOME SECURITIES RATINGS
As described in the Prospectus, the fund invests in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus and in this Statement of Additional Information. The
following is a summary of the rating categories referenced in the prospectus
disclosure.
Bond Ratings
S&P Moody's Description
--------------------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to a
debt obligation. They indicate an extremely strong capacity to pay
interest and repay principal.
--------------------------------------------------------------------------------------------
AA Aa Debt rated in this category is considered to have a very
strong capacity to pay interest and repay principal. It differs
from AAA/Aaa issues only in a small degree.
--------------------------------------------------------------------------------------------
A 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.
--------------------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------------------
BBB Baa Debt rated BBB/Baa is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than
in higher-rated categories.
--------------------------------------------------------------------------------------------
BB Ba Debt rated BB/Ba has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned
an actual or implied BBB- rating.
--------------------------------------------------------------------------------------------
B B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category also
is used for debt subordinated to senior debt that is assigned an
actual or implied BB/Ba or BB-/Ba3 rating.
--------------------------------------------------------------------------------------------
CCC Caa Debt rated CCC/Caa has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC/Caa rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied
B or B-/B3 rating.
--------------------------------------------------------------------------------------------
CC Ca The rating CC/Ca typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC/Caa rating.
--------------------------------------------------------------------------------------------
C C The rating C typically is applied to debt subordinated to
senior debt, which is assigned an actual or implied CCC-/Caa3 debt rating.
The C rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued.
--------------------------------------------------------------------------------------------
CI - The rating CI is reserved for income bonds on which no
interest is being paid.
--------------------------------------------------------------------------------------------
D D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace
period. The D rating also is used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
--------------------------------------------------------------------------------------------
www.americancentury.com American Century Investments 25
To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.
Commercial Paper Ratings
S&P Moody's Description
--------------------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding timely
(P-1) payment is strong. Standard & Poor's rates those
issues determined to possess extremely strong safety
characteristics as A-1+.
--------------------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------------------
A-2 Prime-2 Capacity for timely payment on commercial paper is
(P-2) satisfactory, but the relative degree of safety is
not as high as for issues designated A-1. 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.
--------------------------------------------------------------------------------------------
A-3 Prime-3 This indicates satisfactory capacity for timely repayment.
(P-3) Issues that carry this rating are somewhat more vulnerable
to the adverse changes in circumstances than obligations
carrying the higher designations.
--------------------------------------------------------------------------------------------
Note Ratings
S&P Moody's Description
--------------------------------------------------------------------------------------------
SP-1 MIG-1; VMIG-1 Notes are of the highest quality enjoying strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
--------------------------------------------------------------------------------------------
SP-2 MIG-2; VMIG-2 Notes are of high quality, with margins of protection ample,
although not so large as in the preceding group.
--------------------------------------------------------------------------------------------
SP-3 MIG-3; VMIG-3 Notes are of favorable quality, with all security
elements accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is
likely to be less well-established.
--------------------------------------------------------------------------------------------
SP-4 MIG-4; VMIG-4 Notes are of adequate quality, carrying specific
risk but having protection and not distinctly or
predominantly speculative.
--------------------------------------------------------------------------------------------
26 American Century Investments 1-800-345-2021
MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS
Annual and Semiannual Reports
Annual and semiannual reports contain more information about the fund's
investments and the market conditions and investment strategies that
significantly affected the fund's performance during the most recent fiscal
period. The annual and semiannual reports are incorporated by reference into
this SAI. This means that these are legally part of this SAI.
You can receive a free copy of the annual and semiannual reports, and ask any
questions about the fund or your accounts, by contacting American Century at the
address or telephone numbers listed below.
If you own or are considering purchasing fund shares through
* an employer-sponsored retirement plan
* a bank
* a broker-dealer
* an insurance company
* another financial intermediary
you can receive the annual and semiannual reports directly from them.
You also can get information about the fund from the Securities and Exchange
Commission (SEC). The SEC charges a duplicating fee to provide copies of this
information.
In person SEC Public Reference Room
Washington, D.C.
Call 202-942-8090 for location
and hours.
On the Internet * EDGAR database at
www.sec.gov
* By email request at
[email protected]
By mail SEC Public Reference Section
Washington, D.C. 20549-0102
Investment Company Act File No. 811-10155
[american century logo and text logo (reg. sm)]
American
Century
AMERICAN CENTURY INVESTMENTS
P.O. Box 419385
Kansas City, Missouri 64141-6385
INVESTMENT PROFESSIONAL SERVICE
REPRESENTATIVE
1-800-345-6488 or 816-531-5575
FAX
816-340-4360
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485
SH-SAI-22674 0101
AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
PART C OTHER INFORMATION
ITEM 23 EXHIBITS (all exhibits not filed herewith are being incorporated
herein by reference).
(a) (1) Articles of Incorporation of American Century Variable Portfolios
II, Inc. dated September 15,2000, (filed electronically as Exhibit a1
to the Initial Registration Statement on September 29, 2000, File No.
333-46922).
(2) Articles Supplementary of American Century Variable Portfolios II,
Inc. is included herein.
(b) By-Laws of American Century Variable Portfolios II, Inc. is included
herein.
(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article Fifth, Article Seventh and Article Eighth of
Registrant's Articles of Incorporation, appearing as Exhibit a1 to
Initial Registration Statement on Form N-1A of the Registrant, and
Sections 3, 4, 5, 6, 7, 8, 9, 10, 11, 22, 24, 25, 30, 31, 32, 35, 41,
42, 47, 48, 49, and 50 of Registrant's By-Laws appearing as Exhibit b1
to Post-Effective Amendment No. 1 on Form N-1A of the Registrant.
(d) (1) Investor Class Management Agreement between American Century
California Tax-Free and Municipal Funds and American Century
Investment Management, Inc. dated August 1, 1997 (filed electronically
as Exhibit 5 to Post-Effective Amendment No. 33 to the Registration
Statement on Form N-1A, filed July 31, 1997, File No. 2-99222).
(2) Amendment to the Investor Class Management Agreement between
American Century California Tax-Free and Municipal Funds and American
Century Investment Management, Inc. dated March 31, 1998 (filed
electronically as Exhibit 5b to Post-effective Amendment No. 23 on
Form N-1A of American Century Municipal Trust, File No. 2-91229).
(3) Amendment to the Investor Class Management Agreement between
American Century California Tax Free and Municipal Funds and American
Century Investment Management, Inc., dated July 1, 1998 (filed
electronically as Exhibit d3 of Post-Effective Amendment No. 39 to the
Registration Statement on Form N-1A of the Registrant, filed on July
28,1999 File No. 2-99222).
(4) Amendment No. 1 to the Management Agreement between American
Century Variable Portfolios II, Inc. and American Century Investment
Management, Inc. is included herein.
(e) (1) Distribution Agreement between American Century Variable
Portfolios II, Inc. and American Century Investment Services, Inc.
dated March 13, 2000 (filed electronically as Exhibit e7 to
Post-Effective Amendment No. 17 to the Registration Statement of
American Century World Mutual Funds, Inc. on March 30, 2000, File No
33-39242).
(2) Amendment No. 1 to the Distribution Agreement between American
Century Variable Portfolios II, Inc. and American Century Investment
Services, Inc. dated June 1, 2000 (filed electronically as Exhibit e9
to Post-Effective Amendment No. 19 to the Registration Statement of
American Century World Mutual Funds, Inc. on May 25, 2000, File No.
33-39242).
(3) Amendment No. 2 to the Distribution Agreement between American
Century Variable Portfolios II, Inc. and American Century Investment
Services, Inc. dated November 20, 2000 (filed electronically as
Exhibit e9 to Post-Effective Amendment No. 29 to the Registration
Statement of American Century Variable Portfolios, Inc. on December 1,
2000, File No. 33-14567).
(f) Not applicable.
(g) (1) Global Custody Agreement between The Chase Manhattan Bank and the
Twentieth Century and Benham Funds, dated August 9, 1996 (filed
electronically as Exhibit 8 to Post-Effective Amendment No. 31 to the
Registration Statement of American Century Government Income Trust, on
February 7, 1997, File No. 2-99222).
(2) Amendment to Global Custody Agreement between The Chase Manhattan
Bank and the Twentieth Century and Benham Funds, dated December 9,
2000 is included herein.
(3) Master Agreement by and between American Century Services
Corporation (formerly known as Twentieth Century Services, Inc.) and
Commerce Bank, N.A. dated January 22, 1997 (filed electronically as
Exhibit 8e to Post-Effective Amendment No. 76 to the Registration
Statement of American Century Mutual Funds, Inc. on February 28, 1997,
File No. 33-14213).
(h) (1) Transfer Agency Agreement between American Century Variable
Portfolios II, Inc. and American Century Services Corporation, dated
August 1, 1997 (filed electronically as Exhibit 9 to Post-Effective
Amendment No. 33 to the Registration Statement of American Century
Government Income Trust on July 31, 1997, File No. 2-99222).
(2) Amendment dated March 9, 1998 to the Transfer Agency Agreement
between American Century Variable Portfolios II, Inc. and American
Century Services Corporation (filed electronically as Exhibit 9 to
Post-Effective Amendment No. 23 to the Registration Statement of
American Century Municipal Trust on March 26, 1998, File No. 2-91229).
(3) Amendment No. 1 dated June 29, 1998 to the Transfer Agency
Agreement between American Century Variable Portfolios II, Inc. and
American Century Services Corporation (filed electronically as Exhibit
b9b to Post-Effective Amendment No. 23 to the Registration Statement
of American Century Quantitative Equity Funds, File No. 33-19589).
(4) Amendment No. 2 dated November 20, 2000 to the Transfer Agency
Agreement between American Century Variable Portfolios II, Inc. and
American Century Services Corporation is included herein.
(5) Credit Agreement between American Century Funds and The Chase
Manhattan Bank, as Administrative Agent dated as of December 21, 1999
(filed electronically as Exhibit h3 to Post-Effective Amendment No. 29
to the Registration Statement of American Century California Tax-Free
and Municipal Funds on December 29, 1999, File No. 2-82734).
(i) Opinion and Consent of Counsel (filed electronically as Exhibit i to
the Initial Registration Statement on September 29, 2000, File No.
333-46922).
(j) (1) Consent of PricewaterhouseCoopers LLP.
(2) Power of Attorney dated September 15, 2000 (filed electronically
as Exhibit j2 to the Initial Registration Statement on September 29,
2000, File No. 333-46922).
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Not applicable.
(p) American Century Investments Code of Ethics is included herein.
ITEM 24. Persons Controlled by or Under Common Control with Registrant - None.
ITEM 25. Indemnification
The Registrant is a Maryland corporation. Section 2- 418 of the
Maryland General Corporation Law allows a Maryland corporation to
indemnify its officers, directors, employees and agents to the extent
provided in such statute.
Article IX of the Registrant's Articles of Incorporation, requires the
indemnification of the Registrant's directors and officers to the
extent permitted by Section 2-418 of the Maryland General Corporation
Law, the Investment Company Act of 1940 and all other applicable laws.
The Registrant has purchased an insurance policy insuring its officers
and directors against certain liabilities which such officers and
directors may incur while acting in such capacities and providing
reimbursement to the Registrant for sums which it may be permitted or
required to pay to its officers and directors by way of
indemnification against such liabilities, subject in either case to
clauses respecting deductibility and participation.
ITEM 26. Business and Other Connections of Investment Advisor.
American Century Investment Management, Inc., the investment manager
to each of the Registrant's Funds, is engaged in the business of
managing investments for deferred compensation plans and other
institutional investors.
ITEM 27. Principal Underwriters.
I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.
ACIS is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
ACIS is located at 4500 Main Street, Kansas City, Missouri 64111. ACIS is a
wholly-owned subsidiary of American Century Companies, Inc.
(b) The following is a list of the executive officers and partners of ACIS:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------------------------------------------------------------------------
W. Gordon Snyder President none
James E. Stowers III Co-Chairman Director
William M. Lyons Chief Executive Officer, President
Executive Vice President and Director
Robert T. Jackson Executive Vice President Executive Vice
and Chief Financial Officer President and
Chief Financial
Officer
Kevin Cuccias Senior Vice President none
Brian Jeter Senior Vice President none
Mark Killen Senior Vice President none
Tom Kmak Senior Vice President none
David C. Tucker Senior Vice President Senior Vice President
and General Counsel
* All addresses are 4500 Main Street, Kansas City, Missouri 64111
(c) Not applicable.
ITEM 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules promulgated thereunder,
are in the possession of Registrant, American Century Services
Corporation and American Century Investment Management, Inc., all
located at American Century Tower, 4500 Main Street, Kansas City,
Missouri 64111.
ITEM 29. Management Services - Not applicable.
ITEM 30. Undertakings - Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, American Century Variable Portfolios II, Inc.,
the Registrant, certifies that it meets all the requirements for effectiveness
of this Pre-Effective Amendment No. 2 to its Registration Statement pursuant to
Rule 485(b) promulgated under the Securities Act of 1933, as amended, and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kansas City, State of
Missouri on the 9th day of January, 2001.
American Century Variable Portfolios II, Inc.
(Registrant)
By:/*/William M. Lyons
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
*William M. Lyons President and January 9, 2001
--------------------------------- Principal Executive
William M. Lyons Officer
*Maryanne Roepke Senior Vice President, January 9, 2001
--------------------------------- Treasurer and Chief
Maryanne Roepke Accounting Officer
*James E. Stowers III Director and January 9, 2001
--------------------------------- Chairman of the Board
James E. Stowers III
*Albert A. Eisenstat Director January 9, 2001
---------------------------------
Albert A. Eisenstat
*Ronald J. Gilson Director January 9, 2001
---------------------------------
Ronald J. Gilson
*Myron S. Scholes Director January 9, 2001
---------------------------------
Myron S. Scholes
*Kenneth E. Scott Director January 9, 2001
---------------------------------
Kenneth E. Scott
*Jeanne D. Wohlers Director January 9, 2001
---------------------------------
Jeanne D. Wohlers
/s/Janet A. Nash
*by Janet A. Nash, Attorney in Fact (pursuant to a Power of Attorney dated
September 15, 2000).
