STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
Revised January 1, 1997
BENHAM
GROUP(R)
CAPITAL PRESERVATION II
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY CAPITAL PRESERVATION FUND II, INC.
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus dated September 3, 1996, revised January 1, 1997.
Please retain this document for future reference. To obtain the Prospectus, call
American Century Investments toll-free at 1-800-345-2021 (international calls:
816-531-5575), or write P.O. Box 419200, Kansas City, Missouri 64141-6200.
TABLE OF CONTENTS
Investment Policies and Techniques..................2
Investment Restrictions.............................3
Portfolio Transactions..............................4
Valuation of Portfolio Securities...................4
Performance.........................................5
Taxes...............................................6
About the Fund......................................7
Directors and Officers..............................7
Investment Advisory Services........................9
Transfer and Administrative Services...............10
Distribution of Fund Shares........................10
Direct Fund Expenses...............................10
Expense Limitation Agreement.......................10
Additional Purchase and Redemption
Information.....................................11
Other Information..................................11
Statement of Additional Information 1
INVESTMENT POLICIES AND TECHNIQUES
The following paragraphs provide a more detailed description of the securities
and investment practices identified in the Prospectus. Unless otherwise noted,
the policies described in this Statement of Additional Information are not
fundamental and may be changed by the Board of Directors.
REPURCHASE AGREEMENTS
In a repurchase agreement (a "repo"), the Fund buys a security at one price and
simultaneously agrees to sell it back to the seller at an agreed upon price on a
specified date (usually within seven days from the date of purchase) or on
demand. The repurchase price exceeds the purchase price by an amount that
reflects an agreed upon rate of return and that is unrelated to the interest
rate on the underlying security. Delays or losses could result if the other
party to the agreement defaults or becomes bankrupt.
The investment advisor attempts to minimize the risks associated with repurchase
agreements by adhering to the following criteria:
(1) Limiting the securities acquired and held by the Fund under repurchase
agreements to U.S. government securities;
(2) Entering into repurchase agreements only with primary dealers in U.S.
government securities (including bank affiliates) that are deemed to be
creditworthy under guidelines established by a nationally recognized
statistical rating organization (a "rating agency") and approved by the
Fund's Board of Directors;
(3) Monitoring the creditworthiness of all firms involved in repurchase
agreement transactions;
(4) Requiring the seller to establish and maintain collateral equal to 102% of
the agreed upon resale price, provided however that the Board of Directors
may determine that a broker-dealer's credit standing is sufficient to allow
collateral to fall to as low as 101% of the agreed upon resale price before
the broker-dealer deposits additional securities with the Fund's custodian;
(5) Taking delivery of securities subject to repurchase agreements and holding
them in a segregated account at the Fund's custodian bank.
The Fund has received permission from the Securities and Exchange Commission
(SEC) to participate in pooled repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by its investment advisor,
Benham Management Corporation (the "Manager"). Pooled repos are expected to
increase the income the Fund can earn from repo transactions without increasing
the risks associated with these transactions.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase agreements
are considered to be loans.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AGREEMENTS
The Fund may engage in securities transactions on a when-issued or forward
commitment basis in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future date
(typically 15 to 45 days later).
When purchasing securities on a when-issued or forward commitment basis, the
Fund assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. While the Fund will make commitments on a when-issued or
forward commitment basis 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, U.S. government securities, and other high-quality liquid
debt securities in an amount sufficient to meet the purchase price. When the
time comes to pay for such securities, the Fund will meet its obligations with
available cash, through the sale of securities, or, although it would not
normally expect to do so, by selling the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Selling securities to meet when-issued or forward commitment
obligations may generate taxable capital gains or losses.
There is a risk that the party with whom the Fund enters into a forward
commitment agreement will not uphold its commitment, which could cause the Fund
2 American Century Investments
to miss a favorable price or yield opportunity or to suffer a loss. To minimize
this risk, the Manager limits when-issued or forward commitment transactions to
20% of the Fund's net assets of which no more than 10% of the Fund's net assets
may be committed to transactions in which the settlement date occurs more than
30 days after the trade date. The Fund will establish a segregated account as
described above to meet all payment obligations arising as a result of these
types of transactions.
ROLL TRANSACTIONS
The Fund may sell a security and at the same time make a commitment to purchase
the same or a comparable security at a future date and specified price.
Conversely, the Fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as "dollar-rolls", "cash and carry" or financing transactions. For
example, a broker-dealer may seek to purchase a particular security that the
Fund owns. The Fund will sell that security to the broker-dealer and
simultaneously enter into an agreement to buy it back at a future date. This
type of transaction generates income for the Fund if the dealer is willing to
execute the transaction at a favorable price in order to acquire a specific
security. As an operating policy, the Fund will limit roll transactions to 20%
of net assets.
In engaging in roll transactions, the Fund will maintain until the settlement
date a segregated account consisting of cash, cash equivalents, or high-quality
liquid debt securities in an amount sufficient to meet the purchase price, as
described above.
INVESTMENT RESTRICTIONS
The Fund's investment restrictions set forth below are fundamental and may not
be changed without the approval of a majority of the votes of shareholders of
the Fund as determined in accordance with the 1940 Act.
THE FUND MAY NOT:
(1) Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities) if,
as a result (a) more than 5% of its total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
(2) Borrow amounts in excess of 331/3% of the market value of its total assets,
and then only from a bank and as a temporary measure to satisfy redemption
requests or for extraordinary or emergency purposes, and provided that
immediately after any such borrowing there is an asset coverage of at least
300 per centum for all such borrowings. To secure any such borrowing, the
Fund may pledge or hypothecate not in excess of 331/3% of the value of its
total assets. The Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(3) Act as an underwriter of securities issued by others.
(4) Invest more than 25% of its total assets in any one industry (this
restriction does not apply to securities of the U.S. government or its
corporate instrumentalities or agencies or to certificates of deposit or
bankers' acceptances of U.S. commercial banks having assets over $10
billion).
(5) Purchase or sell real estate, commodities, or commodity contracts, or buy
or sell foreign exchange.
(6) Engage in any short-selling operations.
(7) Lend money other than through the purchase of debt securities in accordance
with its investment policies (management considers that this restriction
precludes purchase of other than publicly held debt securities).
(8) Purchase any equity securities in any companies, including warrants or
bonds with warrants attached, or any preferred stocks, convertible bonds,
or convertible debentures.
(9) Purchase any debt securities that are not rated AA or AAA, or the
equivalent thereof, by either of the major statistical rating services
(Moody's or Standard & Poor's) or that, in the Fund's opinion, are the
equivalent thereof.
(10) Engage in margin transactions or in transactions involving puts, calls,
straddles, or spreads.
Statement of Additional Information 3
(11) Purchase securities for which the Fund might be liable for further payment
or liability.
(12) Invest in portfolio securities that the Fund may not be free to sell to the
public without registering under the Securities Act of 1933 or taking
similar action under other securities laws.
(13) Issue or sell any class of senior security, except to the extent that notes
evidencing temporary borrowings might be deemed such.
(14) Acquire or retain the securities of any other investment company.
(15) Purchase securities of companies in which Directors or management personnel
of the Fund or its advisor have a substantial interest. (The Fund may not
purchase or retain securities of any company of which an officer or
Director of the Fund or its advisor is an officer, Director, or security
holder if such officers and Directors, who individually own beneficially
more than one-half of one percent (0.5%) of the shares or securities of
such company, together own beneficially more than 5% of the shares or
securities of such company. Portfolio securities of the Fund may not be
purchased from or sold to the Fund's advisor or its Directors, officers, or
employees.)
The Fund is also subject to the following restriction that is not fundamental
and may therefore be changed by the Board of Directors without shareholder
approval.
THE FUND MAY NOT:
(a) Acquire securities for the purpose of exercising control over management.
Unless otherwise indicated, percentage limitations included in the restrictions
apply at the time the Fund enters into a transaction. Accordingly, any later
increase or decrease beyond the specified limitation resulting from a change in
the Fund's net assets will not be considered in determining whether it has
complied with its investment restrictions.
PORTFOLIO TRANSACTIONS
The Fund's assets are invested by the Manager in a manner consistent with the
Fund's investment objectives, policies, and restrictions, and with any
instructions the Board of Directors may issue from time to time. Within this
framework, the Manager is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Fund.
In placing orders for the purchase and sale of portfolio securities, the Manager
will use its best efforts to obtain the best possible price and execution and
will otherwise place orders with broker-dealers subject to and in accordance
with any instructions the Board of Directors may issue from time to time. The
Manager will select broker-dealers to execute portfolio transactions on behalf
of the Fund solely on the basis of best price and execution.
U.S. government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.
On behalf of the Fund, the Manager transacts in round lots ($100,000 to $10
million or more) whenever possible. Since commissions are not charged for
round-lot transactions of U.S. Treasury securities, the Fund's transaction costs
consist solely of custodian charges and dealer mark-ups. The Fund may hold its
portfolio securities to maturity or sell or swap them for other securities,
depending upon the level and slope of, and anticipated changes in, the yield
curve. The Fund paid no brokerage commissions during the fiscal year ended March
31, 1996.
VALUATION OF PORTFOLIO 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") usually at 3:00 p.m.
Central time each day the Exchange is open for business. The Exchange has
designated the following holiday closings for 1997: New Year's Day (observed),
Presidents` Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas (observed). Although the Fund expects the same
holiday schedule to be observed in the future, the Exchange may modify its
holiday schedule at any time.
The Fund declares as daily dividends substantially all of its net income, plus
or minus any recognizable
4 American Century Investments
gains or losses. Net income equals the return on the Fund's investment portfolio
minus Fund expenses. Income and expenses are accrued daily.
Securities held by the Fund are valued on the basis of amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the Fund's
yield. During periods of declining interest rates, for example, the daily yield
on Fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in
periods of rising interest rates.
The Manager typically completes its trading on behalf of the Fund in various
markets before the Exchange closes for the day. The amortized cost valuation
method is permitted in accordance with Rule 2a-7 under the 1940 Act. Under the
Rule, a fund such as CPF II, holding itself out as a money market fund, must
adhere to certain quality and maturity criteria. In particular, such a fund must
limit its investments to U.S. dollar-denominated instruments determined by its
board of directors or trustees to present minimal credit risks and that are (a)
high-grade obligations rated in accordance with applicable rules in one of the
two highest rating categories for short-term obligations by at least two rating
agencies (or by one if only one has rated the obligation), or (b) unrated
obligations judged by the advisor, under the direction of the fund's board of
directors or trustees, to be of comparable quality. Further, pursuant to Rule
2a-7, a money market fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less and may not purchase instruments with remaining
maturities in excess of 397 days. As an operating policy, the Fund maintains a
dollar-weighted average maturity of seven days or less.
The Board of Directors has established procedures designed to stabilize the
Fund's NAV, to the extent reasonably possible, at $1.00 per share. These
procedures require the Fund's Chief Financial Officer to notify the Directors
immediately if, at any time, the Fund's NAV, as determined by using available
market quotations, deviates from its amortized cost per share by .25% or more.
If such deviation exceeds .40%, a meeting of the Board of Directors' audit
committee will be called to consider what actions, if any, should be taken. If
such deviation exceeds .50%, the Fund's Chief Financial Officer is instructed to
adjust daily dividend distributions immediately to the extent necessary to
reduce the deviation to .50% or lower and to call a meeting of the Board of
Directors to consider further action.
Actions the Board of Directors may consider under these circumstances include
but are not limited to (a) selling portfolio securities prior to maturity; (b)
withholding dividends or distributions from capital; (c) authorizing a one-time
dividend adjustment; (d) discounting share purchases and initiating redemptions
in kind; or (e) valuing portfolio securities at market value for purposes of
calculating NAV.
PERFORMANCE
The Fund's yield and total return may be quoted in advertising and sales
literature. Yield and total return will vary, and past performance should not be
considered an indication of future results.
Yield quotations are based on the change in the value of a hypothetical
investment (excluding realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of securities) over a seven-day period
(base period) and stated as a percentage of the investment at the start of the
base period (base-period return). The base-period return is then annualized by
multiplying it by 365/7, with the resulting yield figure carried to at least the
nearest hundredth of one percent.
Calculations of effective yield begin with the same base-period return used to
calculate yield, but the return is then annualized to reflect weekly compounding
according to the following formula:
Effective Yield = [(Base-Period Return + 1)365/7] - 1
For the seven-day period ended March 31, 1996, the Fund's yield was 4.62%, and
its effective yield was 4.73%.
Statement of Additional Information 5
Total return quoted in advertising and sales literature reflect all aspects of
the Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value during the
period.
Average annual total return is calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would result in 100% growth on a compounded basis in
10 years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the 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 a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Performance information may be quoted numerically or in a table, graph,
or similar illustration.
The Fund's performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indexes of market
performance. This may include comparisons with funds that, unlike American
Century funds, are sold with a sales charge or deferred sales charge. Sources of
economic data that may be considered in making such comparisons may include, but
are not limited to, U.S. Treasury bill, note, and bond yields, money market fund
yields, U.S. government debt and percentage held by foreigners, the U.S. money
supply, net free reserves, and yields on current-coupon GNMAs (source: Board of
Governors of the Federal Reserve System); the federal funds and discount rates
(source: Federal Reserve Bank of New York); yield curves for U.S. Treasury
securities and AA/AAA-rated corporate securities (source: Bloomberg Financial
Markets); yield curves for AAA-rated tax-free municipal securities (source:
Telerate); yield curves for foreign government securities (sources: Bloomberg
Financial Markets and Data Resources, Inc.); total returns on foreign bonds
(source: J.P. Morgan Securities Inc.); various U.S. and foreign government
reports; the junk bond market (source: Data Resources, Inc.); the CRB Futures
Index (source: Commodity Index Report); the price of gold (sources: London
a.m./p.m. fixing and New York Comex Spot Price); rankings of any mutual fund or
mutual fund category tracked by Lipper Analytical Services, Inc. or Morningstar,
Inc.; mutual fund rankings published in major nationally distributed
periodicals; data provided by the Investment Company Institute; Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation; major indexes of stock market
performance; and indexes and historical data supplied by major securities
brokerage or investment advisory firms. The Fund may also utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance.
The Fund's shares are sold without a sales charge (or load). No-load funds offer
an advantage to investors when compared to load funds with comparable investment
objectives and strategies.
The Fund may quote performance in various ways. Historical performance
information will be used in advertising and sales literature and is not
indicative of future results. The Fund's share price, yield and return will vary
with changing market conditions.
The Manager may obtain Fund ratings from one or more rating agencies and may
publish these ratings in advertisements and sales literature.
TAXES
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code"). By
so qualifying, the Fund will not incur federal income or state taxes on its net
investment income and on net realized capital gains to the extent distributed to
shareholders.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution require-
6 American Century Investments
ment are subject to a nondeductible 4% excise tax at the Fund level. To avoid
the tax, the Fund must distribute during each calendar year an amount equal to
the sum of (a) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (b) at least 98% of its capital
gains in excess of capital losses (adjusted for certain ordinary losses) for a
one-year period generally ending on October 31st of the calendar year, and (c)
all ordinary income and capital gains for previous years that were not
distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are taxable to shareholders as ordinary income for federal and state tax
purposes, regardless of whether such dividends are taken in cash or reinvested
in additional shares. Distributions made from the Fund's net realized long-term
capital gains (if any) and designated as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of the length of time shares
are held. Corporate investors are not eligible for the dividends-received
deduction with respect to distributions from the Fund. A distribution will be
treated as paid on December 31st of a calendar year if it is declared by the
Fund in October, November or December of the year with a record date in such a
month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders in the calendar year the
distributions are declared, rather than the calendar year in which the
distributions are received.
The information above is only a summary of some of the tax considerations
affecting the Fund and its shareholders. No attempt has been made to discuss
individual tax consequences. To determine whether the Fund is a suitable
investment based on his or her situation, a prospective investor may wish to
consult a tax advisor.
ABOUT THE FUND
American Century Capital Preservation Fund II, Inc. (formerly known as Capital
Preservation Fund II, Inc.), doing business as American Century--Benham Capital
Preservation Fund II (formerly known as Benham Capital Preservation Fund II), is
a registered open-end management investment company that was organized as a
California corporation on April 2, 1980. The Fund is authorized to issue ten
billion (10,000,000,000) shares of common stock, which may be issued in two or
more series. Of the ten billion shares, five billion (5,000,000,000) are
designated "Series A Common Stock." The remaining five billion shares may be
designated and classified as additional series from time to time at the
discretion of the Board of Directors.
Each share of Series A Common Stock is entitled to one vote and to equal
participation in dividends and distributions. Fund shares are fully paid and
nonassessable when issued and have no preemptive, conversion, exchange, or
similar rights. Fund shares are transferable without restriction.
Each shareholder is entitled to cast one vote for each share held in his or her
name as of the record date for a shareholder meeting. Under California
Corporations Code Section 708, shareholders have the right to cumulate votes in
the election (or removal) of Directors. For example, if six Directors are
proposed for election, a shareholder may cast six votes for a single candidate,
or three votes for each of two candidates, etc.
CUSTODIAN BANK: Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, New
York 11245 and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64106,
serve as custodians of the Fund's assets. Services provided by the custodian
bank include (a) settling portfolio purchases and sales, (b) reporting failed
trades, (c) identifying and collecting portfolio income, and (d) providing
safekeeping of securities. The custodian takes no part in determining the Fund's
investment policies or in determining which securities are sold or purchased by
the Fund.
INDEPENDENT AUDITORS: KPMG Peat Marwick LLP, 1000 Walnut, Suite 1600, Kansas
City, Missouri 64106, serves as the Fund's independent auditors and provides
services including (a) audit of annual financial statements and (b) preparation
of annual federal income tax returns filed on behalf of the Fund.
DIRECTORS AND OFFICERS
The Fund's activities are overseen by a Board of Directors, including six
independent Directors. The individuals listed below whose names are marked by an
asterisk (*) are "interested persons" of the Fund (as defined in the 1940 Act)
by virtue of, among other
Statement of Additional Information 7
considerations, their affiliation with either the Fund; the Fund's investment
advisor, Benham Management Corporation; the Fund's agent for transfer and
administrative services, American Century Services Corporation (ACS); the Fund's
distribution agent, American Century Investment Services, Inc.; their parent
corporation, American Century Companies, Inc. (ACC) or ACC's subsidiaries; or
other funds advised by the Manager. Each Director listed below serves as a
Trustee or Director of other funds advised by the Manager. Unless otherwise
noted, dates in parentheses indicate the dates the Director or Officer began his
or her service in a particular capacity. The Directors' and Officers' address
with the exception of Mr. Stowers III and Ms. Roepke is 1665 Charleston Road,
Mountain View, California 94043. The address of Mr. Stowers III and Ms. Roepke
is 4500 Main Street, Kansas City, Missouri 64111.
DIRECTORS
*JAMES M. BENHAM, Chairman of the Board of Directors (1980), President and Chief
Executive Officer (1996). Mr. Benham is also President and Chairman of the Board
of the Manager (1971) and a member of the Board of Governors of the Investment
Company Institute (1988). Mr. Benham has been in the securities business since
1963, and he frequently comments through the media on economic conditions,
investment strategies, and the securities markets.
ALBERT A. EISENSTAT, independent Director (1995). Mr. Eisenstat is an
independent Director of each of Commercial Metals Co. (1982), Sungard Data
Systems (1991) and Business Objects S/A (1994). Previously, he served as Vice
President of Corporate Development and Corporate Secretary of Apple Computer and
served on its Board of Directors (1985 to 1993).
RONALD J. GILSON, independent Director (1995); Charles J. Meyers Professor of
Law and Business at Stanford Law School (1979) and the Mark and Eva Stern
Professor of Law and Business at Columbia University School of Law (1992);
counsel to Marron, Reid & Sheehy (a San Francisco law firm, 1984).
MYRON S. SCHOLES, independent Director (1980). Mr. Scholes is a principal of
Long-Term Capital Management (1993). He is also Frank E. Buck Professor of
Finance at the Stanford Graduate School of Business (1983) and a Director of
Dimensional Fund Advisors (1982) and the Smith Breeden Family of Funds (1992).
From August 1991 to June 1993, Mr. Scholes was a Managing Director of Salomon
Brothers Inc. (securities brokerage).
KENNETH E. SCOTT, independent Director (1980). Mr. Scott is Ralph M. Parsons
Professor of Law and Business at Stanford Law School (1972) and a Director of
RCM Capital Funds, Inc. (1994).
ISAAC STEIN, independent Director (1992). Mr. Stein is former Chairman of the
Board (1990 to 1992) and Chief Executive Officer (1991 to 1992) of Esprit de
Corp. (clothing manufacturer). He is a member of the Board of Raychem
Corporation (electrical equipment, 1993), President of Waverley Associates, Inc.
(private investment firm, 1983), and a Director of ALZA Corporation
(pharmaceuticals, 1987). He is also a Trustee of Stanford University (1994) and
Chairman of Stanford Health Services (hospital, 1994).
*JAMES E. STOWERS III, Director (1995). Mr. Stowers III is President, Chief
Executive Officer, and Director of ACC, ACS and ACIS.
JEANNE D. WOHLERS, independent Director (1984). Ms. Wohlers is a private
investor and an Independent Director and Partner of Windy Hill Productions, LP.
Previously, she served as Vice President and Chief Financial Officer of Sybase,
Inc. (software company, 1988 to 1992).
OFFICERS
*JAMES M. BENHAM, President and Chief Executive Officer (1996).
*WILLIAM M. LYONS, Executive Vice President (1996); Executive Vice President,
Chief Operating Officer, General Counsel and Secretary of the Manager, ACS, and
ACIS.
*DOUGLAS A. PAUL, Secretary (1988), Vice President (1990), and General Counsel
(1990); Secretary and Vice President of the funds advised by the Manager.
*C. JEAN WADE, Controller (1996).
*MARYANNE ROEPKE, CPA, Chief Financial Officer and Treasurer (1995); Vice
President and Assistant Treasurer of ACS.
The table on the following page summarizes the compensation that the Directors
received from the Fund for the Fund's fiscal year ended March 31, 1996, as well
as the compensation received for serving as a Director or Trustee of all other
funds advised by the Manager.
8 American Century Investments
As of July 31, 1996, the Fund's officers and Directors, as a group, owned less
than 1% of the outstanding shares of the Fund.
INVESTMENT ADVISORY SERVICES
The Fund has an investment advisory agreement with the Manager dated June 1,
1995, that was approved by shareholders on May 31, 1995.
The Manager is a California corporation and became a wholly owned subsidiary of
ACC on June 1, 1995. The Manager has served as investment advisor to the Fund
since the Fund's inception. ACC is a holding company that owns all of the stock
of the operating companies that provide the investment management, transfer
agency, shareholder service, and other services for the American Century family
of funds. James E. Stowers, Jr. controls ACC by virtue of his ownership of a
majority of its common stock. The Manager has been a registered investment
advisor since 1971.
The Fund's agreement with the Manager continues for an initial period of two
years and thereafter from year to year provided that, after the initial two year
period, it is approved at least annually by vote of either a majority of the
Fund's outstanding shares or by vote of a majority of the Fund's Directors,
including a majority of those Directors who are neither parties to the agreement
nor interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
The investment advisory agreement is terminable on sixty days' written notice,
either by the Fund or by the Manager, to the other party, and terminates
automatically in the event of its assignment.
Pursuant to the investment advisory agreement, the Manager provides the Fund
with investment advice and portfolio management services in accordance with the
Fund's investment objectives, policies, and restrictions. The agreement also
provides that the Manager will determine what securities will be purchased and
sold by the Fund and assist the Fund's officers in carrying out decisions made
by the Board of Directors.
For these services, the Fund pays the Manager a monthly investment advisory fee
based on applying the Fund's average daily net assets to the following
investment advisory fee rate schedule:
.50% of the first $100 million;
.45% of the next $100 million;
.40% of the next $100 million;
.35% of the next $100 million;
.30% of the next $100 million;
.25% of the next $1 billion;
.24% of the next $1 billion;
.23% of the next $1 billion;
.22% of the next $1 billion;
.21% of the next $1 billion;
.20% of the next $1 billion; and
.19% of average daily net assets over $6.5 billion.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From Fund and Fund
Director* From The Fund of Fund Expenses Upon Retirement Complex** Paid to Directors
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $ 132 Not Applicable Not Applicable $29,500
Ronald J. Gilson $1,982 Not Applicable Not Applicable $79,833
Myron S. Scholes $2,402 Not Applicable Not Applicable $69,500
Kenneth E. Scott $2,527 Not Applicable Not Applicable $75,773
Ezra Solomon $2,391 Not Applicable Not Applicable $70,249
Isaac Stein $2,410 Not Applicable Not Applicable $70,500
Jeanne D. Wohlers $2,424 Not Applicable Not Applicable $71,250
- ------------------------------------------------------------------------------------------------------------------
* Interested Directors receive no compensation for their services as such.
** American Century family of funds includes nearly 70 no-load mutual funds.
</TABLE>
Statement of Additional Information 9
Investment advisory fees paid by the Fund to the Manager for the fiscal periods
ended March 31, 1996, 1995, and 1994, are indicated in the following table. Fee
amounts are net of reimbursements as described under the section titled "Expense
Limitation Agreement."
Fiscal Period Investment Advisory Fees*
- ----------------------------------------------------------
Year ended 3/31/96 $1,152,933
Year ended 3/31/95 1,202,074
Year ended 3/31/94 1,253,912
- ----------------------------------------------------------
*Net of reimbursements
TRANSFER AND ADMINISTRATIVE SERVICES
American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, (ACS) acts as transfer, administrative services and dividend paying agent
for the Fund. ACS provides facilities, equipment and personnel to the Fund and
is paid for such services by the Fund. For administrative services, the Fund
pays ACS a monthly fee equal to its pro rata share of the dollar amount derived
from applying the average daily net assets of all of the Funds advised by the
Manager to the following administrative fee rate schedule:
Group Assets Administrative Fee Rate
- ----------------------------------------------------------
up to $4.5 billion .11%
up to $6 billion .10%
up to $9 billion .09%
over $9 billion .08%
- ----------------------------------------------------------
For transfer agent services, the Fund pays ACS a monthly fee of $1.3958 for each
shareholder account maintained and $1.35 for each shareholder transaction
executed during the month.
Administrative service and transfer agent fees paid by the Fund for the fiscal
periods ended March 31, 1996, 1995, and 1994, are indicated in the following
table. Fee amounts are net of reimbursements as described under the section
titled "Expense Limitation Agreement."
Administrative Transfer
Fiscal Period Fees* Agency Fees*
- ----------------------------------------------------------
Year ended 3/31/96 $244,651 $311,969
Year ended 3/31/95 $270,400 $354,585
Year ended 3/31/94 $289,344 $421,194
- ----------------------------------------------------------
*Net of reimbursements
DISTRIBUTION OF FUND SHARES
The Fund's shares are distributed by American Century Investment Services, Inc.
(the "Distributor"), a registered broker-dealer and an affiliate of the Manager.
The Manager pays all expenses for promoting and distributing the Funds shares
offered by this Prospectus. The Fund does not pay any commissions or other fees
to the Distributor or to any other broker-dealers or financial intermediaries in
connection with the distribution of Fund shares.
DIRECT FUND EXPENSES
The Fund pays certain operating expenses that are not assumed by the Manager or
ACS. These include fees and expenses of the independent Directors; custodian,
audit, tax preparation and pricing fees; fees of outside counsel and counsel
employed directly by the Fund; costs of printing and mailing prospectuses,
statements of additional information, proxy statements, notices, confirmations,
and reports to shareholders; fees for registering the Fund's shares under
federal and state securities laws; brokerage fees and commissions; trade
association dues; costs of fidelity and liability insurance policies covering
the Fund; costs for incoming WATS lines maintained to receive and handle
shareholder inquiries; and organizational costs.
EXPENSE LIMITATION AGREEMENT
Under an Expense Limitation Agreement between the Fund and the Manager, the
Manager is obligated to limit the Fund's expenses to .73% of average daily net
assets through May 31, 1997.
The Expense Limitation Agreement provides that the Manager may recover amounts
(representing expenses in excess of the contractual limit) reim-
10 American Century Investments
bursed to the Fund during the preceding 11 months if, and to the extent that,
for any given month, the Fund's expenses were less than the expense limitation
in effect at that time.
The expense limit is subject to annual renewal. The expense limit for the years
ended May 31, 1996 and 1995 was .75% of average daily net assets.
The former and current expense limitation agreements described above did not and
do not apply to extraordinary expenses, such as brokerage commissions and taxes.
Net amounts absorbed or recouped for the fiscal periods ended March 31, 1996,
1995, and 1994, are indicated in the following table.
Fiscal Period Net Amounts Absorbed (Recouped)
- ----------------------------------------------------------
Year ended 3/31/96 $ 8,733
Year ended 3/31/95 43,426
Year ended 3/31/94 85,055
Six-months ended 3/31/93* 38,373
- ----------------------------------------------------------
* The Fund's fiscal year-end was changed from September 30 to March 31 in 1993.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's shares are continuously offered at net asset value. Share
certificates are issued (without charge) only when requested in writing.
Certificates are not issued for fractional shares. Dividend and voting rights
are not affected by the issuance of certificates.
American Century may reject or limit the amount of an investment to prevent any
one shareholder or affiliated group from controlling the Fund; to avoid
jeopardizing the Fund's tax status; or whenever, in management's opinion, such
rejection or limitation is in the Fund's best interest.
As of July 31, 1996, to the knowledge of the Fund, no shareholder was the record
holder or beneficial owner of 5% or more of the Fund's total shares outstanding.
ACS charges neither fees nor commissions on the purchase and sale of fund
shares. However, TCS may charge fees for special services requested by a
shareholder or necessitated by acts or omissions of a shareholder. For example,
ACS may charge a fee for processing dishonored investment checks or stop-payment
requests. See the Investor Services Guide for more information.
Share purchases and redemptions are governed by California law.
OTHER INFORMATION
The Manager has been continuously registered with the Securities and Exchange
Commission (SEC) under the Investment Advisers Act of 1940 since December 14,
1971. The Fund has filed a registration statement under the Securities Act of
1933 and the 1940 Act with respect to the shares offered. Such registrations do
not imply approval or supervision of the Fund or the advisor by the SEC.
For further information, please refer to the registration statement and exhibits
on file with the SEC in Washington, D.C. These documents are available upon
payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
Statement of Additional Information 11
NOTES
12 Notes American Century Investments
NOTES
Statement of Additional Information Notes 13
P.O. Box 419200
Kansas City, Missouri
64141-6200
Person-to-person assistance:
1-800-345-2021 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-634-4113 or 816-753-1865
Fax: 816-340-7962
Internet: www.americancentury.com
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