AMERICAN CENTURY CAPITAL PRESERVATION FUND II INC, 485BPOS, 1997-07-31

AMERICAN CENTURY CAPITAL PRESERVATION FUND II INC
485BPOS, 1997-07-31

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----

File No. 2-67189:

Pre-Effective Amendment No.____

Post-Effective Amendment No._35_ X
-----
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----

File No. 811-3036:

Amendment No._35_

AMERICAN CENTURY CAPITAL PRESERVATION FUND II, INC.
(Exact Name of Registrant as Specified in Charter)

4500 Main Street, Kansas City, MO 64141-6200
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: 415-965-8300

Douglas A. Paul
Vice President and Associate General Counsel
1665 Charleston Road, Mountain View, CA 94043
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
(first offered 5/14/80)

It is proposed that this filing become effective:

_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on August 1, 1997 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
_____ 75 days after filing pursuant to paragraph (a) (2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485

- --------------------------------------------------------------------------------
Registrant has elected to register an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. On May 30, 1997, the Registrant filed a Rule
24f-2 Notice on Form 24f-2 with respect to its fiscal year ended March 31, 1997.
<PAGE>
AMERICAN CENTURY CAPITAL PRESERVATION FUND II
1933 Act Post-Effective Amendment No. 35
1940 Act Amendment No. 35

FORM N-1A
CROSS-REFERENCE SHEET

PART A: PROSPECTUS

ITEM PROSPECTUS CAPTION

1 Cover Page; Investment Objectives of the Funds

2 Transaction and Operating Expense Table

3 Financial Highlights; Performance Advertising

4 Management; Further Information About American Century, Investment
Objectives of the Funds; Investment Policies of the Funds, Risk
Factors and Investment Techniques; Other Investment Practices, Their
Characteristics and Risks

5 Management

5A Not Applicable

6 Further Information About American Century, How to Redeem Shares;
Cover Page; Distributions; Taxes

7 Cover Page; Distribution of Fund Shares; How to Open an Account; Share
Price; Transfer and Administrative Services

8 How to Redeem Shares; Transfer and Administrative Services

9 Not Applicable

PART B: STATEMENT OF ADDITIONAL INFORMATION

ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION

10 Cover Page

11 Table of Contents

12 Not Applicable

13 Investment Policies and Techniques, Investment Restrictions, Portfolio
Transactions

14 Directors and Officers

15 Additional Purchase and Redemption Information, Directors and Officers

16 Investment Advisory Services; Transfer Agent and Administrative
Services; Expense Limitation Agreement; About the Fund

17 Portfolio Transactions

18 About the Fund

19 Additional Purchase and Redemption Information, Valuation of Portfolio
Securities

20 Taxes

21 Additional Purchase and Redemption Information

22 Performance

23 Cover Page
<PAGE>
PROSPECTUS

[american century logo]
American
Century(sm)

AUGUST 1, 1997

BENHAM
GROUP(R)

Capital Preservation
Capital Preservation II
Government Agency
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
ARM Fund
GNMA Fund
Inflation-Adjusted Treasury

[front cover]

AMERICAN CENTURY INVESTMENTS
FAMILY OF FUNDS

American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios. To
help you find the funds that may meet your investment needs, American Century
funds have been divided into three groups based on investment style and
objectives. These groups, which appear below, are designed to help simplify your
fund decisions.

AMERICAN CENTURY INVESTMENTS

Benham Group American Century Group Twentieth Century(R) Group

MONEY MARKET FUNDS ASSET ALLOCATION &
GOVERNMENT BOND FUNDS BALANCED FUNDS GROWTH FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS

Capital Preservation
Capital Preservation II
Government Agency
Short-Term Treasury
Intermediate-Term Treasury
Long-Term Treasury
ARM Fund
GNMA Fund
Inflation-Adjusted Treasury

PROSPECTUS
AUGUST 1, 1997

Capital Preservation o Capital Preservation II o
Government Agency o Short-Term Treasury o
Intermediate-Term Treasury o Long-Term Treasury o
ARM Fund o GNMA Fund o
Inflation-Adjusted Treasury

AMERICAN CENTURY CAPITAL PRESERVATION FUND, INC.
AMERICAN CENTURY CAPITAL PRESERVATION FUND II, INC.
AMERICAN CENTURY GOVERNMENT INCOME TRUST

American Century Capital Preservation Fund, Inc., American Century Capital
Preservation Fund II, Inc., and American Century Government Income Trust are a
part of American Century Investments, a family of funds that includes nearly 70
no-load mutual funds covering a variety of investment opportunities. Nine of the
funds from our Benham Group that invest in U.S. government securities (the
"Funds") are described in this Prospectus. Their investment objectives are
listed on pages 2 and 3 of this Prospectus. The other funds are described in
separate prospectuses.

American Century offers investors a full line of no-load funds, investments
that have no sales charges or commissions.

This Prospectus gives you information about the Funds that you should know
before investing. Please read this Prospectus carefully and retain it for future
reference. Additional information is included in the Statement of Additional
Information dated August 1, 1997 and filed with the Securities and Exchange
Commission ("SEC"). It is incorporated into this Prospectus by reference. To
obtain a copy without charge, call or write:

American Century Investments
4500 Main Street o P.O. Box 419200
Kansas City, Missouri 64141-6200 o 1-800-345-2021
International calls: 816-531-5575
Telecommunications Device for the Deaf:
1-800-634-4113 o In Missouri: 816-444-3485
Internet: www.americancentury.com

Additional information, including this Prospectus and the Statements of
Additional Information, may be obtained by accessing the Web site maintained by
the SEC (www.sec.gov).

Investments in the Funds are not insured or guaranteed by the U.S.
government or any other agency. There is no assurance that the Money Market
Funds will be able to maintain a $1.00 share price.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus 1

INVESTMENT OBJECTIVES OF THE FUNDS

AMERICAN CENTURY--BENHAM CAPITAL
PRESERVATION FUND

Capital Preservation is a money market fund which seeks maximum safety and
liquidity. Its secondary objective is to seek to pay shareholders the highest
rate of return on their investment in the Fund consistent with safety and
liquidity. The Fund intends to pursue its investment objectives by investing
exclusively in short-term U.S. Treasury securities guaranteed by the direct full
faith and credit pledge of the U.S. government and maintaining a dollar-weighted
average portfolio maturity of not more than 90 days. On August 30, 1997, the
Fund will reorganize as "American Century-Benham Capital Preservation Fund," a
series of American Century Government Income Trust. See "Agreement and Plan of
Reorganization," page 36.

AMERICAN CENTURY--BENHAM CAPITAL
PRESERVATION FUND II

Capital Preservation II is a money market fund which seeks maximum safety
and liquidity. Its secondary objective is to seek to pay its shareholders the
highest rate of return on their investment in the Fund consistent with safety
and liquidity. The Fund intends to pursue its investment objectives by investing
primarily in repurchase agreements collateralized by securities that are backed
by the full faith and credit of the U.S. government. Such collateral may include
U.S. Treasury bills, notes, and bonds or mortgage-backed Ginnie Mae
certificates. On August 30, 1997, the Fund will reorganize as "American
Century-Benham Capital Preservation Fund," a series of American Century
Government Income Trust. See "Agreement and Plan of Reorganization," page 36.

AMERICAN CENTURY--BENHAM GOVERNMENT AGENCY
MONEY MARKET FUND

Government Agency is a money market fund which seeks to provide the highest
rate of current return on its investments, consistent with safety of principal
and maintenance of liquidity, by investing exclusively in short-term obligations
of the U.S. government and its agencies and instrumentalities, the income from
which is exempt from state taxes.

AMERICAN CENTURY--BENHAM SHORT-TERM
TREASURY FUND

Short-Term Treasury seeks to earn and distribute the highest level of
current income exempt from state income taxes as is consistent with preservation
of capital. The Fund intends to pursue its investment objectives by investing
primarily in securities issued or guaranteed by the U.S. Treasury and
maintaining a weighted average portfolio maturity ranging from 13 months to 3
years.

AMERICAN CENTURY--BENHAM INTERMEDIATE-TERM
TREASURY FUND

There is no assurance that the Funds will achieve their respective investment
objectives.

NO PERSON IS AUTHORIZED BY THE FUNDS TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN OTHER PRINTED
OR WRITTEN MATERIAL ISSUED BY OR ON BEHALF OF THE FUNDS, AND YOU SHOULD NOT RELY
ON ANY OTHER INFORMATION OR REPRESENTATION.

2 Investment Objectives American Century Investments

AMERICAN CENTURY--BENHAM LONG-TERM
TREASURY FUND

Long-Term Treasury seeks to provide a consistent and high level of current
income exempt from state taxes. The Fund intends to pursue its investment
objective by investing primarily in securities issued or guaranteed by the U.S.
Treasury and maintaining a weighted average portfolio maturity ranging from 20
to 30 years.

AMERICAN CENTURY--BENHAM ADJUSTABLE RATE
GOVERNMENT SECURITIES FUND

The ARM Fund seeks to provide investors with a high level of current
income, consistent with stability of principal. The Fund intends to pursue its
investment objective by investing at least 65% of the Fund's total assets in
adjustable rate mortgage securities (ARMs) and other securities collateralized
by or representing interests in mortgages (collectively, "mortgage-backed
securities").

On August 25, 1997, the ARM Fund will begin to pursue its investment
objective by investing in securities of the U.S. government and its agencies and
maintaining a weighted average duration of three years of less. Its name will
also change to "American Century--Benham Short-Term Government Fund," to reflect
this change.

AMERICAN CENTURY--BENHAM GNMA FUND

The GNMA Fund seeks to provide a high level of current income consistent
with safety of principal and maintenance of liquidity by investing primarily in
mortgage-backed Ginnie Mae certificates.

AMERICAN CENTURY -- BENHAM INFLATION-ADJUSTED
TREASURY FUND

Inflation-Adjusted Treasury seeks to provide a total return consistent with
investment in U.S. Treasury inflation-adjusted securities.

There is no assurance that the Funds will achieve their respective investment
objectives.

Prospectus Investment Objectives 3

TABLE OF CONTENTS

Investment Objectives of the Funds..........................................2
Transaction and Operating Expense Table.....................................5
Financial Highlights........................................................6

INFORMATION REGARDING THE FUNDS

Investment Policies of the Funds...........................................15
The Money Market Funds.....................................................15
Capital Preservation....................................................15
Capital Preservation II.................................................15
Government Agency ......................................................15
The U.S. Treasury Funds....................................................16
Short-Term Treasury.....................................................16
Intermediate-Term Treasury..............................................16
Long-Term Treasury......................................................16
Inflation-Adjusted Treasury.............................................16
The Mortgage Securities Funds..............................................17
ARM Fund................................................................17
GNMA Fund ..............................................................18
Risk Factors and Investment Techniques.....................................18
U.S. Government Securities..............................................18
Mortgage-Backed Securities..............................................19
Adjustable-Rate Mortgage Securities.....................................19
Collateralized Mortgage Obligations.....................................20
Stripped Mortgage-Backed Securities.....................................20
Treasury Inflation-Adjusted Securities..................................20
Development of Inflation-Adjusted
Securities Market..................................................21
Share Price Volatility................................................22
Repurchase Agreements...................................................22
Other Investment Practices, Their Characteristics
and Risks...............................................................22
Portfolio Turnover......................................................22
When-Issued and Forward Commitment
Agreements...........................................................23
Cash Management.........................................................23
Other Techniques........................................................23
Performance Advertising....................................................23

HOW TO INVEST WITH AMERICAN CENTURY INVESTMENTS

American Century Investments...............................................25
Investing in American Century..............................................25
How to Open an Account.....................................................25
By Mail...............................................................25
By Wire...............................................................25
By Exchange...........................................................25
In Person.............................................................26
Subsequent Investments..................................................26
By Mail...............................................................26
By Telephone..........................................................26
By Online Access......................................................26
By Wire...............................................................26
In Person.............................................................26
Automatic Investment Plan...............................................26
How to Exchange from One Account to Another ...............................26
By Mail ..............................................................26
By Telephone..........................................................27
By Online Access......................................................27
How to Redeem Shares.......................................................27
By Mail...............................................................27
By Telephone..........................................................27
By Check-A-Month......................................................27
Other Automatic Redemptions...........................................27
Redemption Proceeds.....................................................27
By Check..............................................................27
By Wire and ACH.......................................................27
Redemption of Shares in Low-Balance Accounts............................27
Signature Guarantee........................................................28
Special Shareholder Services...............................................28
Automated Information Line............................................28
Online Account Access.................................................28
CheckWriting..........................................................28
Open Order Service....................................................29
Tax-Qualified Retirement Plans........................................29
Important Policies Regarding Your Investments..............................29
Reports to Shareholders....................................................30
Employer-Sponsored Retirement Plans and
Institutional Accounts..................................................30

ADDITIONAL INFORMATION YOU SHOULD KNOW

Share Price................................................................31
When Share Price Is Determined..........................................31
How Share Price Is Determined...........................................31
Where to Find Information About Share Price.............................32
Distributions..............................................................32
Taxes 32
Tax-Deferred Accounts...................................................32
Taxable Accounts........................................................33
Management.................................................................34
Investment Management...................................................34
Code of Ethics..........................................................35
Transfer and Administrative Services....................................35
Special Meeting of Shareholders.........................................36
Agreement and Plan of Reorganization....................................36
Distribution of Fund Shares................................................36
Expenses...................................................................37
Further Information About American Century.................................37

4 Table of Contents American Century Investments

TRANSACTION AND OPERATING EXPENSE TABLE
Short-
Term
Treasury,
Intermediate-
Term
Treasury,
Inflation- Long-
Capital Capital Government Adjusted Term ARM Fund,
Preservation Preservation II Agency Treasury Treasury GNMA Fund
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases.......... none none none none none none

Maximum Sales Load Imposed on
Reinvested Dividends.......................... none none none none none none

Deferred Sales Load.............................. none none none none none none

Redemption Fee(1)................................ none none none none none none

Exchange Fee..................................... none none none none none none

ANNUAL FUND OPERATING EXPENSES:(2)
(as a percentage of net assets)

Management Fees(3).............................. 0.27% 0.43% 0.48% 0.48% 0.52% 0.60%

12b-1 Fees....................................... none none none none none none

Other Expenses(4)............................... 0.24% 0.30% 0.00% 0.02% 0.00% 0.00%

Total Fund Operating Expenses................... 0.51% 0.73% 0.48% 0.50% 0.52% 0.60%

EXAMPLE:
You would pay the following
expenses on a $1,000 investment, 1 year $ 5 $ 7 $ 5 $ 6 $ 5 $ 6
assuming a 5% annual return 3 years 16 23 15 16 17 19
and redemption at the end 5 years 29 41 27 28 29 33
of each time period: 10 years 64 91 60 63 65 75

(1) Redemption proceeds sent by wire are subject to a $10 processing fee.

(2) Benham Management Corporation (with respect to Capital Preservation and
Capital Preservation II, the "Manager") has agreed to limit Capital
Preservation's and Capital Preservation II's total operating expenses to
specified percentages of each Fund's average daily net assets. The
agreement provides that the Manager may recover amounts absorbed on behalf
of each of Capital Preservation and Capital Preservation II during the
preceding 11 months if, and to the extent that, for any given month, total
expenses of either were less than the expense limit in effect at that time.
The current expense limit for Capital Preservation is 0.53%. The current
expense limit for Capital Preservation II is 0.73%. American Century
Investment Management, Inc. (with respect to all Funds except Capital
Preservation and Capital Preservation II, the "Manager") has agreed to
waive the expenses of Inflation-Adjusted Treasury, until May 31, 1998, to
0.50% of its net assets. If this waiver was not in effect, the Management
Fees, Other Expenses and Total Fund Operating Expenses would be 0.52%,
0.02% and 0.54%, respectively.

(3) A portion of the management fee may be paid by American Century Investment
Management, Inc. to unaffiliated third parties who provide recordkeeping
and administrative services that would otherwise be performed by an
affiliate of the Manager. See "Management - Transfer and Administrative
Services," page 35.

(4) With respect to all Funds except Capital Preservation and Capital
Preservation II, Other Expenses, which includes the fees and expenses
(including legal counsel fees) of those Trustees who are not interested
persons' as defined in the Investment Company Act of 1940, are expected to
be less than 0.01 of 1% of average net assets for the current fiscal year.
For Capital Preservation and Capital Preservation II, Other Expenses
include administrative and transfer agent fees paid to American Century
Services Corporation.
</TABLE>

The purpose of the above table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the class of shares of the Funds offered by
this Prospectus. The example set forth above assumes reinvestment of all
dividends and distributions and uses a 5% annual rate of return as required by
Securities and Exchange Commission regulations.

NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE
CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS
AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

The shares offered by this Prospectus are Investor Class shares and have no
up-front or deferred sales charges, commissions, or 12b-1 fees. The Investor
Class is currently the only class of shares offered by the Funds.

Prospectus Transaction and Operating Expense Table 5

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CAPITAL PRESERVATION

The Financial Highlights for each of the periods presented have been
audited by KPMG Peat Marwick LLP, independent auditors whose report thereon
appears in the Fund's annual report, which is incorporated by reference into the
Statement of Additional Information. The semiannual and annual reports contain
additional performance information and will be made available upon request and
without charge. The information presented is for a share outstanding throughout
the years ended March 31, except as noted.

1997 1996 1995 1994 1993(1) 1992 1991 1990 1989 1988
PER-SHARE DATA

Net Asset Value,

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

Income From Investment Operations
Net Investment Income .............. 0.05 0.05 0.04 0.03 0.01 0.04 0.06 0.08 0.08 0.06

Distributions
From Net Investment Income.......... (0.05) (0.05) (0.04) (0.03) (0.01) (0.04) (0.06) (0.08) (0.08) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net Asset Value, End of Period.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

Total Return(2)..................... 4.82% 5.21% 4.31% 2.63% 1.35% 3.88% 6.27% 7.77% 8.27% 6.30%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3)............ 0.49% 0.51% 0.50% 0.51% 0.50%(4) 0.51% 0.52% 0.56% 0.57% 0.59%

Ratio of Net Investment Income
to Average Net Assets(3)............ 4.66% 5.07% 4.24% 2.59% 2.68%(4) 3.82% 6.03% 7.50% 8.00% 6.08%

Net Assets, End
of Period (in millions)............. $2,978 $3,078 $2,883 $2,787 $2,943 $3,046 $3,376 $3,099 $2,737 $2,187

(1) The Fund's fiscal year-end was changed from September 30 to March 31
beginning with the period ended March 31, 1993, resulting in a six-month
period in 1993.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for periods subsequent to March 31, 1995 include expenses paid
through expense offset arrangements.

(4) Annualized.
</TABLE>

6 Financial Highlights American Century Investments

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CAPITAL PRESERVATION II

1997 1996 1995 1994 1993(1) 1992 1991 1990 1989 1988
PER-SHARE DATA

Net Asset Value,

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period...................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

Income From Investment Operations
Net Investment Income ............... 0.05 0.05 0.04 0.02 0.01 0.03 0.06 0.08 0.08 0.06

Distributions
From Net Investment Income........... (0.05) (0.05) (0.04) (0.02) (0.01) (0.03) (0.06) (0.08) (0.08) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net Asset Value, End of Period........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====

Total Return(2)...................... 4.69% 5.15% 4.17% 2.40% 1.21% 3.42% 6.07% 7.91% 8.64% 6.46%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3)............. 0.74% 0.76% 0.75% 0.75% 0.75%(4) 0.74% 0.70% 0.69% 0.71% 0.73%

Ratio of Net Investment Income
to Average Net Assets(3)............. 4.56% 5.03% 4.06% 2.37% 2.40%(4) 3.41% 5.91% 7.64% 8.34% 6.26%

Net Assets, End
of Period (in millions).............. $226 $246 $262 $283 $314 $340 $475 $618 $708 $538

(1) The Fund's fiscal year-end was changed from September 30 to March 31
beginning with the period ended March 31, 1993, resulting in a six-month
period in 1993.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for periods subsequent to March 31, 1995 include expenses paid
through expense offset arrangements.

(4) Annualized.
</TABLE>

Prospectus Financial Highlights 7

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GOVERNMENT AGENCY

1997 1996 1995 1994 1993 1992 1991 1990(1)
PER-SHARE DATA

Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period.............................$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

Income From Investment Operations
Net Investment Income ........................0.05 0.05 0.04 0.03 0.03 0.05 0.07 0.03

Distributions
From Net Investment Income.................. (0.05) (0.05) (0.04) (0.03) (0.03) (0.05) (0.07) (0.03)
----- ----- ----- ----- ----- ----- ----- -----

Net Asset Value, End of Period..................$1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== =====

Total Return(2)..............................4.89% 5.35% 4.47% 2.69% 3.07% 5.29% 7.97% 2.65%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3).....................0.57% 0.51% 0.50% 0.50% 0.50% 0.30% -- --

Ratio of Net Investment Income
to Average Net Assets(3).....................4.76% 5.20% 4.35% 2.65% 3.04% 5.17% 7.42% 8.25%(4)

Net Assets, End
of Period (in millions).......................$471 $503 $462 $562 $646 $906 $1,074 $62

(1) From December 5, 1989 (commencement of operations) through March 31, 1990.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for periods subsequent to March 31, 1995 include expenses paid
through expense offset arrangements.

(4) Annualized.
</TABLE>

8 Financial Highlights American Century Investments

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
SHORT-TERM TREASURY

1997 1996 1995 1994 1993(1)
PER-SHARE DATA

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $9.84 $9.73 $9.86 $10.04 $10.00

Income From Investment Operations
Net Investment Income ......................... 0.52 0.53 0.50 0.36 0.25

Net Realized and Unrealized Gains
(Losses) on Investment Transactions............ (0.07) 0.11 (0.13) (0.14) 0.04
----- ---- ----- ----- ----

Total From Investment Operations............... 0.45 0.64 0.37 0.22 0.29
---- ---- ---- ---- ----

Distributions
From Net Investment Income..................... (0.52) (0.53) (0.50) (0.36) (0.25)

From Net Realized Gains
on Investment Transactions..................... (0.09) -- -- (0.03) --

In Excess of Net Realized Gains
on Investment Transactions..................... -- -- -- (0.01) --
----- ---- ----- ----- ----

Total Distributions............................ (0.61) (0.53) (0.50) (0.40) (0.25)
----- ----- ----- ----- -----

Net Asset Value, End of Period.................... $9.68 $9.84 $9.73 $9.86 $10.04
===== ===== ===== ===== ======

Total Return(2)................................ 4.62% 6.71% 3.85% 2.16% 2.79%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3)....................... 0.61% 0.67% 0.67% 0.58% 0%

Ratio of Net Investment Income
to Average Net Assets(3)....................... 5.26% 5.39% 5.22% 3.53% 4.50%(4)

Portfolio Turnover Rate........................ 234% 224% 141% 262% 158%

Net Assets, End
of Period (in millions)........................ $36 $36 $56 $25 $15

(1) From September 8, 1992 (commencement of operations) through March 31,
1993.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for the periods subsequent to March 31, 1995 include expenses
paid through expense offset arrangements.

(4) Annualized.
</TABLE>

Prospectus Financial Highlights 9

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE-TERM TREASURY

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
PER-SHARE DATA

Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period........................ $10.24 $9.99 $10.18 $10.73 $10.52 $10.23 $9.87 $9.63 $10.11 $10.91

Income From Investment Operations
Net Investment Income .................. 0.58 0.58 0.53 0.48 0.56 0.69 0.75 0.77 0.76 0.75

Net Realized and Unrealized
Gains (Losses) on
Investment Transactions ................ (0.18) 0.25 (0.19) (0.27) 0.69 0.29 0.36 0.24 (0.49) (0.60)
----- ---- ----- ----- ---- ---- ---- ---- ----- -----

Total From Investment Operations........ 0.40 0.83 0.34 0.21 1.25 0.98 1.11 1.01 0.27 0.15
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Distributions

From Net Investment Income.............. (0.58) (0.58) (0.53) (0.48) (0.56) (0.69) (0.75) (0.77) (0.75) (0.92)

From Net Realized Gains
on Investment Transactions.............. -- -- -- (0.06) (0.48) -- -- -- -- (0.03)

In Excess of Net Realized Gains
on Investment Transactions.............. -- -- -- (0.22) -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Distributions..................... (0.58) (0.58) (0.53) (0.76) (1.04) (0.69) (0.75) (0.77) (0.75) (0.95)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net Asset Value, End of Period............. $10.06 $10.24 $9.99 $10.18 $10.73 $10.52 $10.23 $9.87 $9.63 $10.11
====== ====== ===== ====== ====== ====== ====== ===== ===== ======

Total Return(1)......................... 4.05% 8.42% 3.54% 1.85% 12.36% 9.92% 11.59% 10.61% 2.78% 1.60%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(2)................ 0.51% 0.53% 0.53% 0.51% 0.53% 0.59% 0.73% 0.75% 0.75% 0.75%

Ratio of Net Investment Income
to Average Net Assets(2)................ 5.72% 5.65% 5.35% 4.50% 5.18% 6.55% 7.49% 7.66% 7.67% 7.36%

Portfolio Turnover Rate................. 110% 168% 92% 213% 299% 149% 70% 217% 386% 465%

Net Assets, End
of Period (in millions)................. $329 $311 $305 $351 $392 $303 $159 $97 $72 $54

(1) Total return assumes reinvestment of dividends and capital gain
distributions, if any.

(2) The ratios for the periods subsequent to March 31, 1995 include expenses
paid through expense offset arrangements.
</TABLE>

10 Financial Highlights American Century Investments

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
LONG-TERM TREASURY

1997 1996 1995 1994 1993(1)
PER-SHARE DATA

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.67 $9.05 $9.38 $10.24 $10.00
Income From Investment Operations
Net Investment Income.............................. 0.60 0.60 0.60 0.63 0.39

Net Realized and Unrealized Gains
(Losses) on Investment Transactions................ (0.35) 0.62 (0.33) (0.27) 0.24
----- ---- ----- ----- ----

Total From Investment Operations................... 0.25 1.22 0.27 0.36 0.63
---- ---- ---- ---- ----

Distributions
From Net Investment Income......................... (0.60) (0.60) (0.60) (0.63) (0.39)

From Net Realized Gains
on Investment Transactions......................... -- -- -- (0.45) --

In Excess of Net Realized Gains
on Investment Transactions......................... -- -- -- (0.14) --
----- ---- ----- ----- ----

Total Distributions................................ (0.60) (0.60) (0.60) (1.22) (0.39)
----- ----- ----- ----- -----

Net Asset Value, End of Period......................... $9.32 $9.67 $9.05 $9.38 $10.24
===== ===== ===== ===== ======

Total Return(2).................................... 2.65% 13.46% 3.25% 2.87% 6.48%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3)........................... 0.60% 0.67% 0.67% 0.57% --

Ratio of Net Investment Income
to Average Net Assets(3)........................... 6.28% 5.93% 6.84% 5.89% 7.18%(4)

Portfolio Turnover Rate............................ 40% 112% 147% 200% 57%

Net Assets, End of Period (in millions)............ $127 $111 $35 $18 $21

(1) From September 8, 1992 (commencement of operations) through March 31,
1993.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for the periods subsequent to March 31, 1995 include expenses
paid through expense offset arrangements.

(4) Annualized.
</TABLE>

Prospectus Financial Highlights 11

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
ARM FUND

1997 1996 1995 1994 1993 1992(1)
PER-SHARE DATA

<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $9.47 $9.42 $9.75 $9.97 $10.04 $10.00

Income From Investment Operations
Net Investment Income ........................... 0.53 0.54 0.49 0.54 0.57 0.40

Net Realized and Unrealized Gains
(Losses) on Investment Transactions.............. 0.04 0.05 (0.33) (0.22) (0.07) 0.04
---- ---- ----- ----- ----- ----

Total From Investment Operations................. 0.57 0.59 0.16 0.32 0.50 0.44
---- ---- ---- ---- ---- ----

Distributions
From Net Investment Income....................... (0.53) (0.54) (0.49) (0.54) (0.57) (0.40)
----- ----- ----- ----- ----- -----

Total Distributions.............................. (0.53) (0.54) (0.49) (0.54) (0.57) (0.40)
----- ----- ----- ----- ----- -----

Net Asset Value, End of Period...................... $9.51 $9.47 $9.42 $9.75 $9.97 $10.04
===== ===== ===== ===== ===== ======

Total Return(2).................................. 6.17% 6.42% 1.75% 3.27% 5.13% 4.55%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(3)......................... 0.59% 0.60% 0.57% 0.51% 0.45% 0%

Ratio of Net Investment Income
to Average Net Assets(3)......................... 5.59% 5.70% 4.98% 5.47% 5.66% 7.02%(4)

Portfolio Turnover Rate.......................... 193% 221% 60% 92% 83% 82%

Net Assets, End of Period (in millions).......... $236 $299 $397 $937 $1,495 $886

(1) From September 3, 1991 (commencement of operations) through March 31,
1992.

(2) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(3) The ratios for the periods subsequent to March 31, 1995 include expenses
paid through expense offset arrangements.

(4) Annualized.
</TABLE>

12 Financial Highlights American Century Investments

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GNMA FUND

1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
PER-SHARE DATA

Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period......................... $10.45 $10.18 $10.35 $10.88 $10.52 $10.21 $9.85 $9.56 $9.96 $10.42

Income From Investment Operations
Net Investment Income ................... 0.71 0.74 0.72 0.66 0.79 0.86 0.88 0.90 0.89 0.89

Net Realized and Unrealized Gains
(Losses) on Investment Transactions...... (0.12) 0.27 (0.18) (0.52) 0.36 0.31 0.36 0.29 (0.40) (0.40)
----- ---- ----- ----- ---- ---- ---- ---- ----- -----

Total From Investment Operations......... 0.59 1.01 0.54 0.14 1.15 1.17 1.24 1.19 0.49 0.49
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Distributions

From Net Investment Income............... (0.71) (0.74) (0.71) (0.66) (0.79) (0.86) (0.88) (0.90) (0.89) (0.95)

From Net Realized Gains
on Investment Transactions............... -- -- -- (0.01) -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Total Distributions...................... (0.71) (0.74) (0.71) (0.67) (0.79) (0.86) (0.88) (0.90) (0.89) (0.95)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net Asset Value, End of Period.............. $10.33 $10.45 $10.18 $10.35 $10.88 $10.52 $10.21 $9.85 $9.56 $9.96
====== ====== ====== ====== ====== ====== ====== ===== ===== =====

Total Return(1).......................... 5.84% 10.08% 5.53% 1.30% 11.28% 11.85% 13.16% 12.73% 5.07% 5.23%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(2)................. 0.55% 0.58% 0.58% 0.54% 0.56% 0 .62% 0.72% 0.75% 0.75% 0.73%

Ratio of Net Investment Income
to Average Net Assets(2)................. 6.84% 6.98% 7.08% 6.12% 7.31% 8.18% 8.85% 9.04% 9.11% 8.94%

Portfolio Turnover Rate.................. 105% 64% 120% 49% 71% 97% 207% 433% 497% 497 %

Net Assets, End
of Period (in millions).................. $1,119 $1,120 $980 $1,129 $1,160 $ 724 $409 $290 $253 $259

(1) Total return assumes reinvestment of dividends and capital gain
distributions, if any.

(2) The ratios for the periods subsequent to March 31, 1995 include expenses
paid through expense offset arrangements.
</TABLE>

Prospectus Financial Highlights 13

<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INFLATION-ADJUSTED TREASURY

The Financial Highlights for the period ended March 31, 1997, have been
audited by KPMG Peat Marwick LLP, independent auditors (except as noted) whose
report thereon appears in the Fund's annual report, which is incorporated by
reference into the Statement of Additional Information. The annual report
contains additional performance information and will be made available upon
request and without charge. The information presented is for a share outstanding
throughout the period ended March 31, except as noted.

June 30, March 31,
1997(1) 1997(2)
PER-SHARE DATA

<S> <C> <C>
Net Asset Value, Beginning of Period.................... $9.74 $10.00
----- ------

Income From Investment Operations
Net Investment Income .............................. 0.13 0.06

Net Unrealized
(Loss) on Investment Transactions................... (0.05) (0.26)
----- -----

Total From Investment Operations.................... 0.08 (0.20)
---- -----

Distributions

From Net Investment Income.......................... (0.13) (0.06)
----- -----

Net Asset Value, End of Period.......................... $9.69 $9.74
===== =====

Total Return(3)..................................... 0.85% (1.98)%

RATIOS/SUPPLEMENTAL DATA

Ratio of Operating Expenses
to Average Net Assets(4)............................ 0.50% 0.50%

Ratio of Net Investment Income
to Average Net Assets(4)............................ 5.30% 5.03%

Portfolio Turnover Rate............................. 32% --

Net Assets, End of Period (in thousands)............ $4,312 $2,277

(1) Three months ended June 30, 1997 (unaudited).

(2) February 10, 1997 (inception) through March 31, 1997.

(3) Total return assumes reinvestment of dividends and capital gain
distributions, if any, and are not annualized.

(4) Annualized.
</TABLE>

14 Financial Highlights American Century Investments

INFORMATION REGARDING THE FUNDS

INVESTMENT POLICIES OF THE FUNDS

The Funds have adopted certain investment restrictions that are set forth
in the Statement of Additional Information. Those restrictions, as well as the
investment objectives of the Funds identified on pages 2 and 3 of this
Prospectus and any other investment policies which are designated as
"fundamental" in this Prospectus or in the Statement of Additional Information,
cannot be changed without shareholder approval. The Funds have implemented
additional investment policies and practices to guide their activities in the
pursuit of their respective investment objectives. These policies and practices,
which are described throughout this Prospectus, are not designated as
fundamental policies and may be changed without shareholder approval.

Each Fund (except Capital Preservation II, ARM Fund and GNMA Fund) seeks
income exempt from state taxes by investing exclusively in U.S. government
securities whose interest payments are state tax-exempt. As a result, these
Funds' dividend distributions are expected to be exempt from state income tax.
See page 32 for more information on tax treatment of the Funds' distributions.

THE MONEY MARKET FUNDS

Each of the Money Market Funds seeks to maintain a $1.00 share price,
although there is no guarantee they will be able to do so. Shares of the Money
Market Funds are neither insured nor guaranteed by the U.S. government.

CAPITAL PRESERVATION

Capital Preservation seeks maximum safety and liquidity. Its secondary
objective is to seek to pay its shareholders the highest rate of return on their
investment in Capital Preservation consistent with safety and liquidity. Capital
Preservation pursues its investment objectives by investing exclusively in
short-term U.S. Treasury securities guaranteed by the direct full faith and
credit pledge of the U.S. government. Capital Preservation's dollar-weighted
average portfolio maturity will not exceed 90 days.

While the risks associated with investing in short-term U.S. Treasury
securities are very low, an investment in Capital Preservation is not risk-free.

CAPITAL PRESERVATION II

Capital Preservation II seeks maximum safety and liquidity. Its secondary
objective is to seek to pay its shareholders the highest rate of return on their
investment in the Fund consistent with safety and liquidity. Capital
Preservation II pursues its investment objectives by investing primarily in
repurchase agreements collateralized by securities that are backed by the full
faith and credit of the U.S. government. Such collateral may include U.S.
Treasury bills, notes, and bonds or mortgage-backed Ginnie Mae certificates.
Ginnie Mae certificates are guaranteed by the Government National Mortgage
Association (GNMA) and backed by the full faith and credit of the U.S.
government. Repurchase agreements held by the Fund normally have maturities of
seven days or less. The Fund may invest directly in U.S. Treasury securities
from time to time.

Capital Preservation II restricts its average portfolio maturity to seven
days or less. Because of this restriction, its yield responds more quickly to
interest rate increases or decreases than do yields on most other money market
funds and enhances portfolio liquidity. See page 22 for a discussion of the
market and credit risks associated with investing in repurchase agreements.

GOVERNMENT AGENCY

Government Agency seeks to provide the highest rate of current return on
its investments, consistent with safety of principal and maintenance of
liquidity, by investing exclusively in short-term obligations of the U.S.
government and its agencies and instrumentalities, the income from which is
exempt from state taxes. Under normal conditions, at least 65% of the Fund's
total assets are invested in securities issued by agencies and instrumentalities
of the U.S. government.

Prospectus Information Regarding the Fund 15

Assets not invested in these securities are invested in U.S. Treasury
securities. For temporary defensive purposes, the Fund may invest up to 100% of
its assets in U.S. Treasury securities. The Fund's weighted average portfolio
maturity will not exceed 90 days.

The U.S. government provides varying levels of financial support to its
agencies and instrumentalities.

THE U.S. TREASURY FUNDS

Short-Term Treasury, Intermediate-Term Treasury and Long-Term Treasury are
quite similar to one another but can be differentiated by their dollar-weighted
average maturities. Among these Funds, the longer its dollar-weighted average
maturity, the more its share price will fluctuate when interest rates change.

This pattern is due, in part, to the time value of money. A bond's worth is
determined in part by the present value of its future cash flows. Consequently,
changing interest rates have a greater effect on the present value of a
long-term bond than a short-term bond. Because of this interplay between market
interest rates and share price, investors are encouraged to evaluate Fund
performance on the basis of total return.

SHORT-TERM TREASURY

Short-Term Treasury seeks to earn and distribute the highest level of
current income exempt from state income taxes as is consistent with preservation
of capital. Short-Term Treasury pursues this objective by investing primarily in
securities issued or guaranteed by the U.S. Treasury.

Within this framework, Short-Term Treasury invests primarily in securities
with remaining maturities of 3 years or less, and, under normal conditions,
maintains a weighted average portfolio maturity ranging from 13 months to 3
years. Short-Term Treasury's portfolio may consist of any combination of these
securities consistent with investment strategies employed by the Manager.

Short-Term Treasury may be appropriate for investors who are seeking higher
current yields than those available from money market funds and who can tolerate
some share price volatility.

INTERMEDIATE-TERM TREASURY

Intermediate-Term Treasury seeks to earn and distribute the highest level
of current income consistent with the conservation of assets and the safety
provided by U.S. Treasury bills, notes, and bonds. Intermediate-Term Treasury
pursues this objective by investing primarily in U.S. Treasury notes, which
carry the direct full faith and credit pledge of the U.S. government.
Intermediate-Term Treasury may also invest in U.S. Treasury bills, bonds, and
zero-coupon securities, all of which are also backed by the direct full faith
and credit pledge of the U.S. government. Intermediate-Term Treasury's weighted
average portfolio maturity ranges from 3 to 10 years, under normal market
conditions.

The Manager seeks a current yield for Intermediate-Term Treasury higher
than that of Short-Term Treasury, with correspondingly greater share price
volatility.

LONG-TERM TREASURY

Long-Term Treasury seeks to provide a consistent and high level of current
income exempt from state taxes. Long-Term Treasury pursues this objective by
investing primarily in securities issued or guaranteed by the U.S. Treasury and
agencies or instrumentalities of the U.S. government. Long-Term Treasury's
portfolio may consist of any combination of these securities consistent with
investment strategies employed by the Manager. Within this framework, the Fund
invests primarily in securities with maturities of 10 or more years and, under
normal conditions, maintains a weighted average portfolio maturity ranging from
20 to 30 years.

By maintaining an average portfolio maturity of 20 to 30 years, Long-Term
Treasury offers investors the potential to earn higher current yields than those
typically available from bond funds (such as Short-Term Treasury and
Intermediate-Term Treasury) that maintain shorter average maturities. Long-Term
Treasury may also offer greater potential for capital appreciation. However,
maintaining a relatively long average maturity also means that the Fund's share
price generally will be more volatile than those of funds that maintain shorter
average maturities (such as Short-Term Treasury and Intermediate-Term Treasury).

INFLATION-ADJUSTED TREASURY

Inflation-Adjusted Treasury pursues its investment objective by investing,
under normal market conditions, at least 65% of its total assets in Treasury
Inflation-Adjusted Securities that are backed by the

16 Information Regarding the Funds American Century Investments

full faith and credit of the U.S. government and indexed or otherwise structured
by the U.S. Treasury to provide protection against inflation. Treasury
Inflation-Adjusted Securities may be issued by the U.S. Treasury in the form of
notes or bonds. Up to 35% of the Fund's total assets may be invested in
Inflation-Adjusted Securities issued by U.S. government agencies and
government-sponsored organizations, when such securities become available.
Inflation-Adjusted Treasury may also invest in U.S. Treasury securities which
are not indexed to inflation for liquidity and total return, or if at any time
the Manager believes there is an inadequate supply of appropriate
Inflation-Adjusted Securities in which to invest or when such investments are
required as a temporary defensive measure. Inflation-Adjusted Treasury's
portfolio may consist of any combination of these securities consistent with
investment strategies employed by the Manager. While Inflation-Adjusted Treasury
seeks to provide a measure of inflation protection to its investors, there is no
assurance that the Fund will provide less risk than a fund investing in
conventional fixed principal Treasury securities.

There are no maturity or duration restrictions for the securities in which
Inflation-Adjusted Treasury may invest. The U.S. Treasury initially issued
Treasury Inflation-Adjusted Securities with a 10-year term to maturity. It has
announced its intention (although there is no guarantee it will do so) to issue
additional securities with a term to maturity as long as 30 years and as short
as five years. When these securities of differing maturity are issued, the
Manager will buy from among the available issues those securities that will
provide the maximum relative value to the Fund.

Inflation-Adjusted Treasury may be appropriate for investors who are
seeking to protect all or a part of their investment portfolio from the effects
of inflation. Traditional U.S. Treasury fixed-principal notes and bonds pay a
stated return or rate of interest in dollars and are redeemed at their par
amount. Inflation during the period the securities are outstanding will diminish
the future purchasing power of these dollars. Inflation-Adjusted Treasury is
designed to serve as a vehicle to protect against this diminishing effect.

Inflation-Adjusted Treasury is designed to provide total return consistent
with an investment in Treasury Inflation-Adjusted Securities. Inflation-Adjusted
Treasury's income yield will reflect both the inflation-adjusted interest income
and the inflation adjustment to principal which are features of
Inflation-Adjusted Securities. Inflation-Adjusted Treasury's yield will likely
reflect "real rates" of interest (that is, the then-prevailing current interest
rates minus the then-prevailing expectations for inflation) available in the
Treasury market. As a result, the current income generated by the Fund is
expected to be substantially below that of more traditional government
securities funds, such as Treasury bond funds or government-agency bond funds.

Inflation-Adjusted Securities in which the Fund may invest are relatively
new securities. There are special investment risks, particularly share price
volatility and potential adverse tax consequences, associated with investment in
Inflation-Adjusted Securities. These risks are described in the following
section. You should read that section carefully to make sure you understand the
nature of Inflation-Adjusted Treasury before you invest in it.

THE MORTGAGE SECURITIES FUNDS

ARM FUND

The ARM Fund seeks to provide investors with a high level of current
income, consistent with stability of principal. The ARM Fund pursues this
objective by investing primarily in adjustable rate securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Under
normal conditions, the Manager invests at least 65% of the ARM Fund's total
assets in adjustable rate mortgage securities (ARMs) and other securities
collateralized by or representing interests in mortgages (collectively,
"mortgage-backed securities"). These securities have interest rates that are
reset periodically and that are issued or guaranteed by the U.S. government or
its agencies or instrumentalities.

On August 25, 1997, the ARM Fund will begin to pursue its investment
objective by investing in securities of the U.S. government and its agencies and
maintaining a weighted average duration of three years or less. The Fund will
therefore no longer be subject to the requirement that it invest 65% of its
total assets in ARMs, although it may continue to invest in these securities.

Prospectus Information Regarding the Funds 17

ARMs are pass-through certificates representing ownership interests in
pools of adjustable rate mortgages and in the cash flows from those mortgages.
The ARMs in which the Fund may invest are issued or guaranteed by GNMA, FNMA or
FHLMC.

The Fund may also invest in collateralized mortgage obligations (CMOs),
including CMO floaters and inverse floaters; stripped mortgage-backed
securities, including interest-only (IO) and principal-only (PO) securities and
IO inverse floaters; and fixed-rate mortgage securities issued or guaranteed by
GNMA, FNMA or FHLMC. All CMOs purchased by the Fund are either issued by a U.S.
government agency or rated AAA by a nationally recognized statistical rating
organization commonly referred to as a rating agency.

Assets not invested in adjustable rate or mortgage-backed securities may be
invested in U.S. Treasury bills, notes, and bonds and in other securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
these securities.

By investing primarily in mortgage-backed securities that have variable
interest rates, the ARM Fund seeks to maintain a more stable net asset value
than is characteristic of funds that invest in mortgage securities paying a
fixed rate of interest (such as the GNMA Fund). ARM prices generally fluctuate
less than fixed-rate mortgage securities prices because their interest rates are
reset periodically to reflect current interest rates. There is always a lag
between market interest rate changes and ARM rate resets, however, and resets
may be limited by caps on the rates that can be charged to borrowers.

GNMA FUND

The GNMA Fund seeks to provide a high level of current income consistent
with safety of principal and maintenance of liquidity by investing primarily in
mortgage-backed Ginnie Mae certificates.

Ginnie Mae certificates represent interests in pools of mortgage loans and
in the cash flows from those loans. These certificates are guaranteed by GNMA
and backed by the full faith and credit of the U.S. government as to the timely
payment of interest and repayment of principal, which means that the Fund
receives its share of interest and principal payments owed on the underlying
pool of mortgage loans, regardless of whether borrowers make their scheduled
mortgage payments.

Assets not invested in Ginnie Mae certificates, directly or indirectly, are
invested in other U.S. government securities, such as U.S. Treasury bills,
notes, and bonds, or repurchase agreements collateralized by U.S. government
securities. For temporary defensive purposes, the Fund may invest 100% of its
assets in these securities.

A unique feature of mortgage-backed securities, such as Ginnie Mae
certificates, is that their principal is scheduled to be paid back gradually for
the duration of the loan rather than in one lump sum at maturity. Investors
(such as the GNMA Fund) receive scheduled monthly payments of principal and
interest, but they may also receive unscheduled prepayments of principal on the
underlying mortgages. See "Mortgage-Backed Securities" on page 19 for a
discussion of prepayment risk.

RISK FACTORS AND INVESTMENT TECHNIQUES

The obligations in which the Funds may invest differ from one another in
their interest rates, maturities, dates of issuance and interest payment
schedules. The pertinent features of the types of obligations in which the Funds
may invest are described in this section.

U.S. GOVERNMENT SECURITIES

U.S. Treasury bills, notes, zero-coupon bonds, and other bonds are direct
obligations of the U.S. Treasury, which has never failed to pay interest and
repay principal when due. Treasury bills have initial maturities of one year or
less, Treasury notes from two to ten years, and Treasury bonds more than 10
years. Although U.S. Treasury securities carry little principal risk if held to
maturity, the prices of these securities (like all debt securities) change
between issuance and maturity in response to fluctuating market interest rates.

A number of U.S. government agencies and government-sponsored organizations
issue debt securities. These agencies generally are created by Congress to
fulfill a specific need, such as providing credit to home buyers or farmers.
Among these agencies are the Federal Home Loan Banks, the Federal Farm Credit
Banks, the Student Loan Marketing Association and the Resolution Funding
Corporation.

18 Information Regarding the Funds American Century Investments

Some agency securities are backed by the full faith and credit of the U.S.
government, and some are guaranteed only by the issuing agency. Agency
securities typically offer somewhat higher yields than U.S. Treasury securities
with similar maturities. However, these securities may involve greater risk of
default than securities backed by the U.S. Treasury.

Interest rates on agency securities may be fixed for the term of the
investment (fixed-rate agency securities) or tied to prevailing interest rates
(floating-rate agency securities). Interest rate resets on floating-rate agency
securities generally occur at intervals of one year or less, based on changes in
a predetermined interest rate index.

Floating-rate agency securities frequently have caps limiting the extent to
which coupon rates can be raised. The price of a floating-rate agency security
may decline if its capped coupon rate is lower than prevailing market interest
rates. Fixed- and floating-rate agency securities may be issued with a call date
(which permits redemption before the maturity date). The exercise of a call may
reduce an obligation's yield to maturity. Capital Preservation and Capital
Preservation II may not invest in floating-rate agency securities.

MORTGAGE-BACKED SECURITIES

The ARM and GNMA Funds may purchase mortgage pass-through securities. These
represent interests in "pools" of mortgages in which payments of both interest
and principal on the securities are generally made monthly. These monthly
mortgage payments are, in effect "passed-through" to the security holder, (minus
fees paid to the security's issuer or guarantor). Although fixed-rate mortgages
typically have stated maturities of 30 or more years, most mortgage holders pay
off their mortgages before they mature which may make these subject to
prepayment risk.

Also, mortgage-backed securities, like other fixed income securities,
generally decrease in value as a result of increases in interest rates, but
benefit less than other fixed-income securities from declining interest rates
because of the risk of prepayment resulting from homeowners' refinancing their
mortgages to take advantage of lower interest rates. On average, securities
backed by 30-year mortgages return principal within 7 to 10 years. As a result,
these securities have historically exhibited behavior comparable to 7- to
10-year Treasury notes, while offering higher yields.

The primary issuers of mortgage securities are FNMA, FHLMC and GNMA.
Payments of principal and interest on GNMA securities are guaranteed by GNMA and
backed by the full faith and credit of the U.S. government. FNMA and FHLMC have
a close relationship with the U.S. government so even though their securities
are not backed by the full faith and credit of the U.S. government, the Manager
considers them to be high-quality securities with minimal credit risks.

ADJUSTABLE-RATE MORTGAGE SECURITIES

Adjustable-rate mortgage securities (ARMs) are pass-through securities
collateralized by mortgages with adjustable, rather than fixed, interest rates.
The interest rate payments and amortization of principal on the underlying
adjustable rate mortgages are tied to changes in predetermined interest rate
indexes. ARM rates are readjusted at intervals of one year or less, subject to
maximums (caps) and minimums (floors) on the rates that can be charged to
mortgage holders during a given period and during the life of a mortgage. These
periodic rate adjustments allow the ARM Fund to participate in market interest
rate increases (to produce higher yields with less share price volatility) but
only to the extent that the current rate on the underlying mortgages remain at
or below their specified caps.

ARM interest rate resets should cause the ARM Fund's share price to
fluctuate less dramatically than it would if the Fund were substantially
invested in securities backed by long-term, fixed-rate mortgages. This means
that share price declines should be less than for funds investing in fixed-rate
mortgages when interest rates rise. This characteristic of ARMs should also
cause the potential for share price appreciation when interest rates decline to
be less than for funds investing in fixed-rate mortgages.

If ARMs are purchased at a premium, mortgage foreclosures and unscheduled
principal prepayments may result in a decline in share price. On the other hand,
if ARMs are purchased at a discount, both scheduled and unscheduled payments of
principal may accelerate the recognition of income and thereby increase the
Fund's yield and total return.

Prospectus Information Regarding the Funds 19

The mortgages that collateralize ARMs issued by GNMA are fully guaranteed
by the Federal Housing Administration or the Department of Veterans Affairs,
which are divisions of the U.S. government. The mortgages that collateralize
ARMs issued by FNMA or FHLMC typically are conventional residential mortgages
that conform to standards prescribed by FNMA or FHLMC and are guaranteed by
those instrumentalities.

COLLATERALIZED MORTGAGE OBLIGATIONS

Collateralized mortgage obligations (CMOs) are mortgage-backed securities
issued by government agencies; single-purpose, stand-alone financial
subsidiaries; trusts established by financial institutions; or similar
institutions. The ARM Fund may buy CMOs, provided that they:

o Are collateralized by pools of mortgages in which payment of principal and
interest of each mortgage is guaranteed by an agency or instrumentality of
the U.S. government;

o Are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer, and the guarantee is collateralized
by U.S. government securities; or

o Are securities in which the proceeds of the issue are invested in mortgage
securities and payments of principal and interest is supported by the
credit of an agency or instrumentality of the U.S. government.

The GNMA Fund may buy CMOs only if they are Ginnie-Mae-backed.

STRIPPED MORTGAGE-BACKED SECURITIES

Stripped mortgage-backed securities (which are permitted investments for
the ARM Fund only) are usually structured with two classes. One class will
receive all of the interest (the interest-only class, or "IO"), whereas the
other class will receive all of the principal (the principal-only class, or
"PO"). Stripped mortgage securities are likely to experience greater price
volatility than other types of mortgage securities in which the ARM Fund
invests. The yield to maturity on the IO class is extremely sensitive, not only
to changes in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying mortgage assets. If
prepayments accelerate, the ARM Fund may not fully recover its initial
investment in these securities.

The ARM Fund's investments in stripped mortgage securities together with
investments in illiquid securities may not exceed 15% of net assets.

TREASURY INFLATION-ADJUSTED SECURITIES

Treasury Inflation-Adjusted Securities are Treasury securities with a final
value and interest payment stream linked to the inflation rate. Treasury
Inflation-Adjusted Securities may be issued in either note or bond form.
Treasury inflation-adjusted notes have maturities of at least one year, but not
more than 10 years. Treasury inflation-adjusted bonds have maturities of more
than 10 years.

Treasury Inflation-Adjusted Securities may be attractive to investors
seeking an investment backed by the full faith and credit of the U.S. government
that provides a return in excess of the rate of inflation. According to the U.S.
Treasury, Treasury Inflation-Adjusted Securities are modeled after the "Real
Return Bonds" currently issued by the government of Canada. These securities are
new to the U.S. market, having first been sold in January 1997. There is
uncertainty as to how these securities will be treated by the marketplace. See
"Development of Inflation-Adjusted Securities Market" on page 21. Treasury
Inflation-Adjusted Securities will be auctioned and issued on a quarterly basis.

STRUCTURE AND INFLATION INDEX

The principal value of Treasury Inflation-Adjusted Securities will be
adjusted to reflect changes in the level of inflation. The index for measuring
the inflation rate for Treasury Inflation-Adjusted Securities is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Con-sumers published monthly by the U.S. Department of Labor's Bureau of
Labor Statistics.

Semiannual coupon interest payments are made at a fixed percentage of the
inflation-adjusted principal value. The coupon rate or "real yield" for the
semiannual interest payment of each issuance of securities will be determined at
the time the securities are sold to the public. While a reduction in inflation
will cause a reduction in the interest payment made on the securities, the
repayment of principal at the maturity

20 Information Regarding the Fund American Century Investments

of the security is guaranteed by the Treasury to be not less than the original
face or par amount of the security at issuance.

INDEXING METHODOLOGY

The principal value of Treasury Inflation-Adjusted Securities will be
indexed, or adjusted, to account for changes in the Consumer Price Index.
Semiannual coupon interest payment amounts will be determined by multiplying the
inflation-adjusted principal amount by one-half the stated rate of interest on
each interest payment date.

TAXATION

Taxation applicable to Treasury Inflation-Adjusted Securities is similar to
conventional bonds. Both interest payments and the difference between original
principal and the inflation-adjusted principal will be treated as interest
income subject to taxation. Interest payments are taxable when received or
accrued. The inflation adjustment to the principal is subject to tax in the year
adjustment is made, not at maturity of the security when the cash from the
repayment of principal is received. If an upward adjustment has been made (which
typically should happen), investors in non-tax deferred accounts will pay taxes
on this amount currently. Decreases in the indexed principal can only be
deducted from current or previous interest payments reported as income.

Treasury Inflation-Adjusted Securities therefore have a potential cash flow
mismatch to an investor, since investors must pay taxes on the
inflation-adjusted principal before the repayment of principal is received. It
is possible that, particularly for high income tax bracket investors, Treasury
Inflation-Adjusted Securities would not generate enough income in a given year
to cover the tax liability it could create. This is similar to the current tax
treatment for zero coupon bonds and other discount securities. If a Treasury
Inflation-Adjusted Security is sold prior to maturity, capital losses or gains
are realized in the same manner as traditional bonds.

Inflation-Adjusted Treasury, however, distributes all income on a monthly
basis. Investors in Inflation-Adjusted Treasury will receive dividends which
represent both the interest payments and the principal adjustments of the
Inflation-Adjusted Securities held in its portfolio. An investment in
Inflation-Adjusted Treasury may therefore be a means to avoid the cash flow
mismatch associated with a direct investment in Inflation-Adjusted Securities.
For more information about taxes and their effect on you as an investor in the
Fund, see "Taxes," on page 32.

U.S GOVERNMENT AGENCIES

A number of U.S. government agencies and government-sponsored organizations
may issue Inflation-Adjusted Securities. As of the date on which this Prospectus
was drafted, the plans of the various U.S. government agencies to issue
Inflation-Adjusted Securities were not known. It is expected that at least some
U.S. government agencies will issue Inflation-Adjusted Securities whose design
mirrors that of the Treasury Inflation-Adjusted Securities described on the
previous page.

DEVELOPMENT OF INFLATION-ADJUSTED SECURITIES MARKET

The Treasury securities market is the largest and most liquid securities
market in the world. The marketability of Treasury Inflation-Adjusted Securities
and Inflation-Adjusted Securities generally may be enhanced over time as the
Treasury issues additional Treasury Inflation-Adjusted Securities and more
investors participate in the market.

Inflation-Adjusted Treasury will purchase Inflation- Adjusted Securities at
auction or in the secondary market as the Manager deems appropriate. The
secondary market for Inflation-Adjusted Securities may not be as active as the
secondary market for Treasury and U.S. government agency fixed-principal notes
and bonds. In addition, Inflation-Adjusted Securities may not be as widely
traded or as well understood as Treasury fixed-principal securities, nor is it
known at this time exactly how the secondary market for Inflation-Adjusted
Securities will develop.

If the number of Inflation-Adjusted Securities market participants is
limited, it may result in larger spreads between bid and asked prices for
Inflation-Adjusted Securities than the bid-asked spreads for fixed-principal
notes and bonds with similar terms to maturity. Such larger bid-ask spreads
normally result in higher transactions costs and/or lower returns. If the market
does not develop sufficient liquidity, large buyers or sellers of these
securities may disproportionately negatively impact the value of the securities
and, hence, Inflation-Adjusted Treasury's net asset value.

Prospectus Information Regarding the Funds 21

The Manager currently believes that the market for Inflation-Adjusted
Securities will be sufficient to permit Inflation-Adjusted Treasury to pursue
its investment objective. However, should the market for Inflation-Adjusted
Securities prove less active than anticipated by the Manager, the Manager is
authorized to treat such an environment as an abnormal market condition. During
such a period, Inflation-Adjusted Treasury will not be fully pursuing its
investment objective.

SHARE PRICE VOLATILITY

Inflation-Adjusted Securities are designed to offer a return linked to
inflation, thereby protecting future purchasing power of the money invested in
them. Inflation-Adjusted Securities provide this "protected" return only if held
to maturity, however. In addition, Inflation-Adjusted Securities may not trade
at par value. "Real" interest rates (the market rate of interest less the
anticipated rate of inflation) change over time, as a result of many factors,
such as what investors are demanding as a true value for money. When real rates
do change, Inflation-Adjusted Securities prices will be more sensitive to these
changes than conventional bonds, since these securities were sold originally
based upon a "real" interest rate that is no longer prevailing. Should market
expectations for real interest rates rise, the price of Inflation-Adjusted
Securities and the share price of Inflation-Adjusted Treasury will fall.
Investors in the Fund should be prepared to accept not only this share price
volatility but also the possible adverse tax consequences it may cause.

An investment in securities featuring inflation-adjusted principal and/or
interest involves factors not associated with more traditional fixed principal
securities. Such factors include the possibility that the inflation index may be
subject to significant changes in interest rates, that changes in the index may
or may not correlate to changes in interest rates generally or changes in other
indices, that the resulting interest may be greater or less than that payable on
other securities of similar maturities. In the event of sustained deflation, it
is possible that the amount of semiannual interest payments, the
inflation-adjusted principal of the security and the value of the stripped
components, will decrease. If any of these possibilities are realized,
Inflation-Adjusted Treasury's net asset value could be negatively affected.

REPURCHASE AGREEMENTS

Each Fund, with the exception of Capital Preservation and Government
Agency, may invest in repurchase agreements when such transactions present an
attractive short-term return on cash that is not otherwise committed to the
purchase of securities pursuant to the investment policies of that Fund.

A repurchase agreement occurs when, at the time the Fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to repurchase it on a
specified date in the future at an agreed-upon price. The repurchase price
reflects an agreed-upon interest rate during the time the Fund's money is
invested in the security.

Since the security purchase constitutes collateral 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.

Each of the Funds, with the exception of Capital Preservation and
Government Agency, may invest in repurchase agreements with respect to any
security in which that Fund is authorized to invest, even if the remaining
maturity of the underlying security would make that security ineligible for
purchase by such Fund.

OTHER INVESTMENT PRACTICES, THEIR CHARACTERISTICS
AND RISKS

For additional information regarding the investment practices of any of the
Funds, see the Statement of Additional Information.

PORTFOLIO TURNOVER

The portfolio turnover rates of the U.S. Treasury Funds and the Mortgage
Securities Funds are shown in the Financial Highlights tables on pages 6-14 of
this Prospectus.

22 Information Regarding the Funds American Century Investments

Investment decisions to purchase and sell secu-rities are based on the
anticipated contribution of the security in question to a particular Fund's
objectives. The Manager believes that the rate of portfolio turnover is
irrelevant when it determines a change is in order to achieve those objectives
and, accordingly, the annual portfolio turnover rate cannot be accurately
anticipated.

The portfolio turnover of each Fund may be higher than other mutual funds
with similar investment objectives. Higher turnover would generate
correspondingly greater brokerage commissions, which is a cost that the Funds
pay directly. Portfolio turnover may also affect the character of capital gains,
if any, realized and distributed by a Fund since short-term capital gains are
taxable as ordinary income.

WHEN-ISSUED AND FORWARD COMMITMENT
AGREEMENTS

Each of the Funds may purchase new issues of securities on a when-issued or
forward commitment basis when, in the opinion of the Manager, such purchases
will further the investment objectives of the Fund. The price of when-issued
securities is established at the time the commitment to purchase is made.
Delivery of and payment for these securities typically occurs 15 to 45 days
after the commitment to purchase. Market rates of interest on debt securities at
the time of delivery may be higher or lower than those contracted for on the
security. Accordingly, the value of each security may decline prior to delivery,
which could result in a loss to the Fund.

CASH MANAGEMENT

For cash management purposes, each of the Funds (except the Money Market
Funds) may invest in any money market fund advised by the Manager, provided that
the investment is consistent with the Fund's investment policies and
restrictions.

Up to 5% of the Funds' total assets may be invested in this manner.

OTHER TECHNIQUES

The Manager may buy other types of securities or employ other portfolio
management techniques on behalf of the Funds. When SEC guidelines require it to
do so, a Fund will set aside cash or appropriate liquid assets in a segregated
account to cover the Fund's obligations.

PERFORMANCE ADVERTISING

From time to time, the Funds may advertise performance data. Fund
performance may be shown by presenting one or more performance measurements,
including cumulative total return or average annual total return, yield,
effective yield and tax-equivalent yield (for tax-exempt funds).

Cumulative total return data is computed by considering all elements of
return, including reinvestment of dividends and capital gains distributions,
over a stated period of time. Average annual total return is determined by
computing the annual compound return over a stated period of time that would
have produced the fund's cumulative total return over the same period if the
fund's performance had remained constant throughout.

A quotation of yield reflects a fund's income over a stated period
expressed as a percentage of the fund's share price. In the case of the Money
Market Funds, yield is calculated by measuring the income generated by an
investment in the Fund over a seven-day period (net of Fund expenses). This
income is then annualized, that is, the amount of income generated by the
investment over the seven-day period is assumed to be generated over each
similar period each week throughout a full year and is shown as a percentage of
the investment. The effective yield is calculated in a similar manner but, when
annualized, the income earned by the investment is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect on the assumed reinvestment.

With respect to the U.S. Treasury Funds and the Mortgage Securities Funds,
yield is calculated by adding over a 30-day (or one-month) period all interest
and dividend income (net of fund expenses) calculated on each day's market
values, dividing this sum by the average number of fund shares outstanding
during the period, and expressing the result as a percentage of the fund's share
price on the last day of the 30-day (or one month) period. The percentage is
then annualized. Capital gains and losses are not included in the calculation.
The effective yield is calculated in a

Prospectus Information Regarding the Funds 23

similar manner but, when annualized, the income earned by the investment is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect on the assumed reinvestment.

Yields are calculated according to accounting methods that are standardized
in accordance with SEC rules. Because yield accounting methods differ from the
methods used for other accounting purposes, a Fund's yield may not equal the
income paid on its shares or the income reported in the Fund's financial
statements.

A tax-equivalent yield demonstrates the taxable yield necessary to produce
after-tax yield equivalent to that of a mutual fund which invests in exempt
obligations. Each Fund (with the exception of Capital Preservation II, the ARM
Fund and the GNMA Fund) may quote tax-equivalent yield, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yield. As a prospective investor in these Funds, you should determine whether
your tax-equivalent yield is likely to be higher with a taxable or with a
tax-exempt fund. To determine this, you may use the formulas depicted below.

You can calculate your tax-equivalent yield for a Fund (taking into account
only federal income taxes and not any applicable state taxes) using the
following equation:

Fund's State Tax-Free Yield Your Tax-
--------------------------- = -----------------
100% - State Tax Rate Equivalent Yield

The Funds may also include in advertisements data comparing performance
with the performance of non-related investment media, published editorial
comments and performance rankings compiled by independent organizations (such as
Lipper Analytical Services or IBC's Money Fund Report) and publications that
monitor the performance of mutual funds. Performance information may be quoted
numerically or may be presented in a table, graph or other illustration. In
addition, Fund performance may be compared to well-known indices of market
performance including the IBC's Money Fund Average and Bank Rate Monitor
National Index of 21/2-year CD rates. Fund performance may also be compared, on
a relative basis, to the other funds in our fund family. This relative
comparison, which may be based upon historical or expected fund performance,
volatility or other fund characteristics, may be presented numerically,
graphically or in text. Fund performance may also be combined or blended with
other funds in our fund family, and that combined or blended performance may be
compared to the same indices to which individual funds may be compared.

All performance information advertised by the Funds is historical in nature
and is not intended to represent or guarantee future results. The value of Fund
shares when redeemed may be more or less than their original cost.

24 Prospectus Information Regarding the Funds

HOW TO INVEST WITH
AMERICAN CENTURY INVESTMENTS

AMERICAN CENTURY INVESTMENTS

The Funds offered by this Prospectus are a part of the American Century
Investments family of mutual funds. Our family provides a full range of
investment opportunities, from the aggressive equity growth funds in our
Twentieth Century Group, to the fixed income funds in our Benham Group, to the
moderate risk and specialty funds in our American Century Group. Please call
1-800-345-2021 for a brochure or prospectuses for the other funds in the
American Century Investments family.

INVESTING IN AMERICAN CENTURY

The following section explains how to invest in American Century funds,
including purchases, redemptions, exchanges and special services. You will find
more detail about doing business with us by referring to the Investor Services
Guide that you will receive when you open an account.

If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan or through a bank, broker-dealer or other
financial intermediary, the following sections, as well as the information
contained in our Investor Services Guide, may not apply to you. Please read
"Employer-Sponsored Retirement Plans and Institutional Accounts," page 30.

HOW TO OPEN AN ACCOUNT

To open an account, you must complete and sign an application, furnishing
your taxpayer identification number. (You must also certify whether you are
subject to withholding for failing to report income to the IRS.) Investments
received without a certified taxpayer identification number will be returned.

The minimum investment is $2,500 ($1,000 for IRA accounts).

The minimum investment requirements may be different for some types of
retirement accounts. Call one of our Investor Services Representatives for
information on our retirement plans, which are available for individual
investors or for those investing through their employers.

Please note: If you register your account as belonging to multiple owners
(e.g., as joint tenants) you must provide us with specific authorization on your
application in order for us to accept written or telephone instructions from a
single owner. Otherwise, all owners will have to agree to any transactions that
involve the account (whether the transaction request is in writing or over the
telephone).

You may invest in the following ways:

BY MAIL

Send a completed application and check or money order payable in U.S.
dollars to American Century Investments.

BY WIRE

You may make your initial investment by wiring funds. To do so, call us or
mail a completed application and provide your bank with the following
information:

o RECEIVING BANK AND ROUTING NUMBER:
Commerce Bank, N.A. (101000019)

o BENEFICIARY (BNF):
American Century Services Corporation
4500 Main St., Kansas City, Missouri 64111

o BENEFICIARY ACCOUNT NUMBER (BNF ACCT):
2804918

o REFERENCE FOR BENEFICIARY (RFB):
American Century account number into which you are investing. If more than
one, leave blank and see "Bank to Bank Information" below.

o ORIGINATOR TO BENEFICIARY (OBI):
Name and address of owner of account into which you are investing.

o BANK TO BANK INFORMATION
(BBI or Free Form Text):

o Taxpayer identification or Social Security number

o If more than one account, account numbers and amount to be invested in
each account.

o Current tax year, previous tax year or rollover designation if an IRA.
Specify whether IRA, SEP-IRA, SARSEP-IRA, SIMPLE Employer or SIMPLE
Employee.

BY EXCHANGE

Call 1-800-345-2021 from 7 a.m. to 7 p.m. Central time to get information
on opening an account by exchanging from another American Century account.

Prospectus How to Invest with American Century Investments 25

See page 26 for more information on exchanges.

IN PERSON

If you prefer to work with a representative in person, please visit one of
our Investor Centers, located at:

4500 Main Street
Kansas City, Missouri 64111

4917 Town Center Drive
Leawood, Kansas 66211

1665 Charleston Road
Mountain View, California 94043

2000 S. Colorado Blvd.
Denver, Colorado 80222

SUBSEQUENT INVESTMENTS

Subsequent investments may be made by an automatic bank, payroll or
government direct deposit (see "Automatic Investment Plan" on this page) or by
any of the methods below. The minimum investment requirement for subsequent
investments: $250 for checks submitted without the investment slip portion of a
previous statement or confirmation, $50 for all other types of subsequent
investments.

BY MAIL

When making subsequent investments, enclose your check with the investment
slip portion of the confirmation of a previous statement or confirmation. If the
investment slip is not available, indicate your name, address and account number
on your check or a separate piece of paper. (Please be aware that the investment
minimum for subsequent investments is higher without an investment slip.)

BY TELEPHONE

Once your account is open, you may make investments by telephone if you
have authorized us (by choosing "Full Services" on your application) to draw on
your bank account. You may call an Investor Services Representative or use our
Automated Information Line.

BY ONLINE ACCESS

Once your account is open, you may make investments online if you have
authorized us (by choosing "Full Services" on your application) to draw on your
bank account.

BY WIRE

You may make subsequent investments by wire. Follow the wire transfer
instructions on page 25 and indicate your account number.

IN PERSON

You may make subsequent investments in person at one of our Investor
Centers. The locations of our four Investor Centers are listed on this page.

AUTOMATIC INVESTMENT PLAN

You may elect on your application to make investments automatically by
authorizing us to draw on your bank account regularly. Such investments must be
at least the equivalent of $50 per month. You also may choose an automatic
payroll or government direct deposit. If you are establishing a new account,
check the appropriate box under "Automatic Investments" on your application to
receive more information. If you would like to add a direct deposit to an
existing account, please call one of our Investor Services Representatives.

HOW TO EXCHANGE FROM ONE
ACCOUNT TO ANOTHER

As long as you meet any minimum investment requirements, you may exchange
your Fund shares to our other funds up to six times per year per account. An
exchange request will be processed the same day it is received if it is received
before the funds' net asset values are calculated, which is one hour prior to
the close of the New York Stock Exchange for the funds issued by American
Century Target Maturities Trust, and at the close of the Exchange for all of our
other funds. See "When Share Price is Determined," page 31.

For any single exchange, the shares of each fund being acquired must have a
value of at least $100. However, we will allow investors to set up an Automatic
Exchange Plan between any two funds in the amount of at least $50 per month. See
our Investor Services Guide for further information about exchanges.

BY MAIL

You may direct us in writing to exchange your shares from one American
Century account to another. For additional information, please see our Investor
Services Guide.

26 How to Invest with American Century Investments American Century Investments

BY TELEPHONE

You can make exchanges over the telephone (either with an Investor Services
Representative or using our Automated Information Line--see page 28) if you have
authorized us to accept telephone instructions. You can authorize this by
selecting "Full Services" on your application or by calling us at 1-800-345-2021
to get the appropriate form.

BY ONLINE ACCESS

You can make exchanges online if you have authorized us to accept
instructions over the Internet. You can authorize this by selecting "Full
Services" on your application or by calling us at 1-800-345-2021 to get the
appropriate form.

HOW TO REDEEM SHARES

We will redeem or "buy back" your shares at any time. Redemptions will be
made at the next net asset value determined after a complete redemption request
is received.

Please note that a request to redeem shares in an IRA or 403(b) plan must
be accompanied by an executed IRS Form W4-P and a reason for withdrawal as
specified by the IRS.

BY MAIL

Your written instructions to redeem shares may be made either by a
redemption form, which we will send to you upon request, or by a letter to us.
Certain redemptions may require a signature guarantee. Please see "Signature
Guarantee," page 28.

BY TELEPHONE

If you have authorized us to accept telephone instructions, you may redeem
your shares by calling an Investor Services Representative.

BY CHECK-A-MONTH

If you have at least a $10,000 balance in your U.S. Treasury Fund or
Mortgage Securities Fund account, or if you have a Money Market Fund account,
you may redeem shares by Check-A-Month. A Check-A-Month plan automatically
redeems enough shares each month to provide you with a check in an amount you
choose (minimum $50). To set up a Check-A-Month plan, please call and request
our Check-A-Month brochure.

OTHER AUTOMATIC REDEMPTIONS

If you have at least a $10,000 balance in your U.S. Treasury Fund or
Mortgage Securities Fund account, or if you have a Money Market Fund account,
you may elect to make redemptions automatically by authorizing us to send funds
directly to you or to your account at a bank or other financial institution. To
set up automatic redemptions, call one of our Investor Services Representatives.

REDEMPTION PROCEEDS

Please note that shortly after a purchase of shares is made by check or
electronic draft (also known as an ACH draft) from your bank, we may wait up to
15 days or longer to send redemption proceeds (to allow your purchase funds to
clear). No interest is paid on the redemption proceeds after the redemption is
processed but before your redemption proceeds are sent.

Redemption proceeds may be sent to you in one of the following ways:

BY CHECK

Ordinarily, all redemption checks will be made payable to the registered
owner of the shares and will be mailed only to the address of record. For more
information, please refer to our Investor Services Guide.

BY WIRE AND ACH

You may authorize us to transmit redemption proceeds by wire or ACH. These
services will be effective 15 days after we receive the authorization.

Your bank will usually receive wired funds within 48 hours of transmission.
Funds transferred by ACH may be received up to seven days after transmission.
Wired funds are subject to a $10 fee to cover bank wire charges, which is
deducted from redemption proceeds. Once the funds are transmitted, the time of
receipt and the funds' availability are not under our control.

REDEMPTION OF SHARES IN
LOW-BALANCE ACCOUNTS

Whenever the shares held in an account have a value of less than the
required minimum, a letter will be sent advising you of the necessity to bring
the value of the shares held in the account up to the minimum. If action is not
taken within 90 days of the letter's date,

Prospectus How to Invest with American Century Investments 27

the shares held in the account will be redeemed and proceeds from the redemption
will be sent by check to your address of record. We reserve the right to
increase the investment minimums.

SIGNATURE GUARANTEE

To protect your accounts from fraud, some transactions will require a
signature guarantee. Which transactions will require a signature guarantee will
depend on which service options you elect when you open your account. For
example, if you choose "In Writing Only," a signature guarantee will be required
when:

o redeeming more than $25,000; or

o establishing or increasing a Check-A-Month or automatic transfer on an
existing account.

You may obtain a signature guarantee from a bank or trust company, credit
union, broker-dealer, securities exchange or association, clearing agency or
savings association, as defined by federal law.

For a more in-depth explanation of our signature guarantee policy, or if
you live outside the United States and would like to know how to obtain a
signature guarantee, please consult our Investor Services Guide.

We reserve the right to require a signature guarantee on any transaction,
or to change this policy at any time.

SPECIAL SHAREHOLDER SERVICES

We offer several service options to make your account easier to manage.
These are listed on the account application. Please make note of these options
and elect the ones that are appropriate for you. Be aware that the "Full
Services" option offers you the most flexibility. You will find more information
about each of these service options in our Investor Services Guide.

Our special investor services include:

AUTOMATED INFORMATION LINE

We offer an Automated Information Line, 24 hours a day, seven days a week,
at 1-800-345-8765. By calling the Automated Information Line, you may listen to
fund prices, yields and total return figures. You may also use the Automated
Information Line to make investments into your accounts (if we have your bank
information on file) and obtain your share balance, value and most recent
transactions. If you have authorized us to accept telephone instructions, you
also may exchange shares from one fund to another via the Automated Information
Line. Redemption instructions cannot be given via the Automated Information
Line.

ONLINE ACCOUNT ACCESS

You may contact us 24 hours a day, seven days a week at
www.americancentury.com to access your funds' daily share prices, receive
updates on major market indexes and view historical performance of your funds.
If you select "Full Services" on your application, you can use your personal
access code and Social Security number to view your account balances and account
activity, make subsequent investments from your bank account or exchange shares
from one fund to another.

CHECKWRITING

We offer CheckWriting as a service option for your account in any of the
Money Market or Mortgage Securities Funds. CheckWriting allows you to redeem
shares in your account by writing a draft ("check") against your account
balance. (Shares held in certificate form may not be redeemed by check.) There
is no limit on the number of checks you can write, but each one must be for at
least $100.

When you write a check, you will continue to receive dividends on all
shares until your check is presented for payment to our clearing bank. If you
redeem all shares in your account by check, any accrued distributions on the
redeemed shares will be paid to you in cash on the next monthly distribution
date.

If you want to add CheckWriting to an existing account that offers
CheckWriting, contact us by telephone or mail for an appropriate form. For a new
account, you may elect CheckWriting on your purchase application by choosing the
"Full Services" option. CheckWriting is not available for any account held in an
IRA or 403(b) plan.

CheckWriting redemptions may only be made on checks provided by us.
Currently, there is no charge for checks or for the CheckWriting service.

We will return checks drawn on insufficient funds or on funds from
investments made by means other than by wire within the previous 15 days.
Neither the company nor our clearing bank will be liable for any

28 How to Invest with American Century Investments American Century Investments

loss or expenses associated with returned checks. Your account may be assessed a
$15 service charge for checks drawn on insufficient funds.

A stop payment may be ordered on a check written against your account. We
will use reasonable efforts to stop a payment, but we cannot guarantee that we
will be able to do so. If we are successful in fulfilling a stop-payment order,
your account may be assessed a $15 fee.

OPEN ORDER SERVICE

Through our open order service, you may designate a price at which to buy
shares of a variable-priced fund by exchange from one of our money market funds,
or a price at which to sell shares of a variable-priced fund by exchange to one
of our money market funds. The designated purchase price must be equal to or
lower, or the designated sale price equal to or higher, than the variable-priced
fund's net asset value at the time the order is placed. If the designated price
is met within 90 calendar days, we will execute your exchange order
automatically at that price (or better). Open orders not executed within 90 days
will be canceled.

If the fund you have selected deducts a distribution from its share price,
your order price will be adjusted accordingly so the distribution does not
inadvertently trigger an open order transaction on your behalf. If you close or
re-register the account from which the shares are to be redeemed, your open
order will be canceled.

Because of their time-sensitive nature, open order transactions are
accepted only by telephone or in person. These transactions are subject to
exchange limitations described in each fund's prospectus, except that orders and
cancellations received before 2 p.m. Central time are effective the same day,
and orders or cancellations received after 2 p.m. Central time are effective the
next business day.

TAX-QUALIFIED RETIREMENT PLANS

Each Fund is available for your tax-deferred retirement plan. Call or write
us and request the appropriate forms for:

o Individual Retirement Accounts ("IRA"s);

o 403(b) plans for employees of public school systems and non-profit
organizations; or

o Profit sharing plans and pension plans for corporations and other
employers.

If your IRA and 403(b) accounts do not total $10,000, each account is
subject to an annual $10 fee, up to a total of $30 per year.

You can also transfer your tax-deferred plan to us from another company or
custodian. Call or write us for a Request to Transfer form.

IMPORTANT POLICIES REGARDING YOUR INVESTMENTS

Every account is subject to policies that could affect your investment.
Please refer to the Investor Services Guide for further information about the
policies discussed below, as well as further detail about the services we offer.

(1) We reserve the right for any reason to suspend the offering of shares for
a period of time, or to reject any specific purchase order (including
purchases by exchange). Additionally, purchases may be refused if, in the
opinion of the Manager, they are of a size that would disrupt the
management of the Fund.

(2) We reserve the right to make changes to any stated investment
requirements, including those that relate to purchases, transfers and
redemptions. In addition, we may also alter, add to or terminate any
investor services and privileges. Any changes may affect all shareholders
or only certain series or classes of shareholders.

(3) Shares being acquired must be qualified for sale in your state of
residence.

(4) Transactions requesting a specific price and date, other than open orders,
will be refused. Once you have mailed or otherwise transmitted your
transaction instructions to us, they may not be modified or canceled.

(5) If a transaction request is made by a corporation, partnership, trust,
fiduciary, agent or unincorporated association, we will require evidence
satisfactory to us of the authority of the individual making the request.

(6) We have established procedures designed to assure the authenticity of
instructions received by telephone. These procedures include requesting
personal identification from callers, recording telephone calls, and
providing written confirmations of telephone transactions. These
procedures are designed to protect share-holders from unauthorized or
fraudulent instructions. If we do not employ reasonable procedures to con-

Prospectus How to Invest with American Century Invetments 29

firm the genuineness of instructions, then we may be liable for losses due
to unauthorized or fraudulent instructions. The company, its transfer
agent and investment advisor will not be responsible for any loss due to
instructions they reasonably believe are genuine.

(7) All signatures should be exactly as the name appears in the registration.
If the owner's name appears in the registration as Mary Elizabeth Jones,
she should sign that way and not as Mary E. Jones.

(8) Unusual stock market conditions have in the past resulted in an increase
in the number of shareholder telephone calls. If you experience difficulty
in reaching us during such periods, you may send your transaction
instructions by mail, express mail or courier service, or you may visit
one of our Investor Centers. You may also use our Automated Information
Line if you have requested and received an access code and are not
attempting to redeem shares.

(9) If you fail to provide us with the correct certified taxpayer
identification number, we may reduce any redemption proceeds by $50 to
cover the penalty the IRS will impose on us for failure to report your
correct taxpayer identification number on information reports.

(10) We will perform special inquiries on shareholder accounts. A research fee
of $15 per hour may be applied.

REPORTS TO SHAREHOLDERS

At the end of each calendar quarter, we will send you a consolidated
statement that summarizes all of your American Century holdings, as well as an
individual statement for each fund you own that reflects all year-to-date
activity in your account. You may request a statement of your account activity
at any time.

With the exception of most automatic transactions and transactions by
CheckWriting, each time you invest, redeem, transfer or exchange shares, we will
send you a confirmation of the transactions. Transactions initiated by
CheckWriting will be confirmed on a monthly basis. See the Investor Services
Guide for more detail.

Carefully review all the information relating to transactions on your
statements and confirmations to ensure that your instructions were acted on
properly. Please notify us immediately in writing if there is an error. If you
fail to provide notification of an error with reasonable promptness, i.e.,
within 30 days of non-automatic transactions or within 30 days of the date of
your consolidated quarterly statement, in the case of automatic transactions, we
will deem you to have ratified the transaction.

No later than January 31st of each year, we will send you reports that you
may use in completing your U.S. income tax return. See the Investor Services
Guide for more information.

Each year, we will send you an annual and a semiannual report relating to
your fund, each of which is incorporated herein by reference. The annual report
includes audited financial statements and a list of portfolio securities as of
the fiscal year end. The semiannual report includes unaudited financial
statements for the first six months of the fiscal year, as well as a list of
portfolio securities at the end of the period. You also will receive an updated
prospectus at least once each year. Please read these materials carefully, as
they will help you understand your fund.

EMPLOYER-SPONSORED RETIREMENT PLANS AND
INSTITUTIONAL ACCOUNTS

Information contained in our Investor Services Guide pertains to
shareholders who invest directly with American Century rather than through an
employer-sponsored retirement plan or through a financial intermediary.

If you own or are considering purchasing Fund shares through an
employer-sponsored retirement plan, your ability to purchase shares of the
Funds, exchange them for shares of other American Century funds, and redeem them
will depend on the terms of your plan.

If you own or are considering purchasing Fund shares through a bank,
broker-dealer, insurance company or other financial intermediary, your ability
to purchase, exchange and redeem shares will depend on your agreement with, and
the policies of, such financial intermediary.

You may reach one of our Institutional Service Representatives by calling
1-800-345-3533 to request information about our funds and services, to obtain a
current prospectus or to get answers to any questions about our funds that you
are unable to obtain through your plan administrator or financial intermediary.

30 How to Invest with American Century Investments American Century Investments

ADDITIONAL INFORMATION YOU SHOULD KNOW

SHARE PRICE

WHEN SHARE PRICE IS DETERMINED

The price of your shares is also referred to as their net asset value. Net
asset value is determined by calculating the total value of a Fund's assets,
deducting total liabilities and dividing the result by the number of shares
outstanding. For all American Century funds except funds issued by American
Century Target Maturities Trust, net asset value is determined as of the close
of regular trading on each day that the New York Stock Exchange is open, usually
3 p.m. Central time. Net asset values for Target Maturities funds are determined
one hour prior to the close of the Exchange.

Investments and requests to redeem or exchange shares will receive the
share price next determined after receipt by us of the investment or redemption
or exchange request. For example, investments and requests to redeem or exchange
shares of a fund received by us or one of our agents before the time as of which
the net asset value of the fund is determined, are effective on, and will
receive the price determined, that day. Investment, redemption and exchange
requests received thereafter are effective on, and receive the price determined
as of the close of the Exchange on the next day the Exchange is open.

Investments are considered received only when payment is received by us.
Wired funds are considered received on the day they are deposited in our bank
account if they are deposited before the time as of which the net asset value of
the funds is determined.

Investments by telephone pursuant to your prior authorization to us to draw
on your bank account are considered received at the time of your telephone call.

Investment and transaction instructions received by us on any business day
by mail prior to the time as of which the net asset value is determined will
receive that day's price. Investments and instructions received after that time
will receive the price determined on the next business day.

If you invest in Fund shares through an employer-sponsored retirement plan
or other financial intermediary, it is the responsibility of your plan
recordkeeper or financial intermediary to transmit your purchase, exchange and
redemption requests to the Funds' transfer agent prior to the applicable cut-off
time for receiving orders and to make payment for any purchase transactions in
accordance with the Funds' procedures or any contractual arrangement with the
Funds or the Funds' distributor in order for you to receive that day's price.

HOW SHARE PRICE IS DETERMINED

The valuation of assets for determining net asset value may be summarized
as follows:

Portfolio securities of each Fund, except as otherwise noted, listed or
traded on a domestic securities exchange are valued at the last sale price on
that exchange. Portfolio securities primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on the exchange where primarily traded. Depending on local convention
or regulation, securities traded over-the-counter are priced at the mean of the
latest bid and asked prices, or at the last sale price. When market quotations
are not readily available, securities and other assets are valued at fair value
as determined in accordance with procedures adopted by the Board of
Directors/Trustees.

Debt securities not traded on a principal securities exchange are valued
through valuations obtained from a commercial pricing service or at the most
recent mean of the bid and asked prices provided by investment dealers in
accordance with procedures established by the Board of Directors/Trustees.

Pursuant to a determination by the Money Market Funds' Board of
Directors/Trustees and Rule 2a-7 under the Investment Company Act of 1940 (the
"Invest-ment Company Act"), portfolio securities of the Funds are valued at
amortized cost. When a security is valued at amortized cost, it is valued at its
cost when purchased, and thereafter by assuming a constant amortization to
maturity of any discount or pre-

Prospectus Additional Information You Sould Know 31

mium, regardless of the impact of fluctuating interest rates on the market value
of the instrument.

WHERE TO FIND INFORMATION ABOUT SHARE PRICE

The net asset values of the Funds are published in leading newspapers
daily. The yields of the Money Market Funds are published weekly in leading
financial publications and daily in many local newspapers. The net asset values,
as well as yield information on the Funds and the other funds in the American
Century family of funds, may also be obtained by calling us or by accessing our
Web site at www.americancentury.com.

DISTRIBUTIONS

At the close of each day including Saturdays, Sundays and holidays, net
income of the U.S. Treasury Funds and the Mortgage Securities Funds is
determined and declared as a distribution. The distribution will be paid monthly
on the last Friday of each month, except for year-end distributions which will
be made on the last business day of the year. For the Money Market Funds,
dividends are declared and credited (i.e., available for redemption) daily and
distributed monthly on the last Friday of each month.

You will begin to participate in the distributions the day after your
purchase is effective. See "When Share Price is Determined," page 31. If you
redeem shares, you will receive the distribution declared for the day of the
redemption. If all shares are redeemed (other than by CheckWriting), the
distribution on the redeemed shares will be included with your redemption
proceeds.

Distributions from net realized capital gains in the Variable Price Funds,
if any, generally are declared and paid once a year, but the Funds may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner consistent
with the provisions of the Investment Company Act. The Money Market Funds do not
expect to realize any long-term capital gains and, accordingly, do not expect to
make any capital gains distributions.

Participants in employer-sponsored retirement or savings plans must
reinvest all distributions. For shareholders investing through taxable accounts,
distributions will be reinvested unless you elect to receive them in cash.
Distributions of less than $10 generally will be reinvested. Distributions made
shortly after a purchase by check or ACH may be held up to 15 days. You may
elect to have distributions on shares held in Individual Retirement Accounts and
403(b) plans paid in cash only if you are at least 591/2 years old or
permanently and totally disabled. Distribution checks normally are mailed within
seven days after the record date. Please consult our Investor Services Guide for
further information regarding your distribution options.

A distribution from shares of a U.S. Treasury or Mortgage Securities Fund
does not increase the value of your shares or your total return. At any given
time the value of your shares includes the undistributed net gains, if any,
realized by the Fund on the sale of portfolio securities, and undistributed
dividends and interest received, less Fund expenses.

Because such gains and dividends are included in the value of your shares,
when they are distributed the value of your shares is reduced by the amount of
the distribution. If you buy your shares through a taxable account just before
the distribution, you will pay the full price for your shares, and then receive
a portion of the purchase price back as a taxable distribution.

TAXES

Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code, which means that to the extent its
income is distributed to shareholders, it pays no income taxes.

TAX-DEFERRED ACCOUNTS

If Fund shares are purchased through tax-deferred accounts, such as a
qualified employer-sponsored retirement or savings plan, income and capital
gains distributions paid by the Funds will generally not be subject to current
taxation, but will accumulate in your account under the plan on a tax-deferred
basis.

Employer-sponsored retirement and savings plans are governed by complex tax
rules. If you elect to participate in your employer's plan, consult your plan
administrator, your plan's summary plan description, or a professional tax
advisor regarding the tax consequences of participation in the plan,
contributions to, and withdrawals or distributions from the plan.

32 Additional Information You Should Know American Century Investments

TAXABLE ACCOUNTS

If Fund shares are purchased through taxable accounts, distributions of net
investment income and net short-term capital gains are taxable to you as
ordinary income, except as described below. The dividends from net income of the
Funds do not qualify for the 70% dividends-received deduction for corporations
since they are derived from interest income. Dividends representing income
derived from tax-exempt bonds generally retain the bonds' tax-exempt character
in a shareholder's hands. Distributions from net long-term capital gains are
taxable as long-term capital gains regardless of the length of time you have
held the shares on which such distributions are paid. However, you should note
that any loss realized upon the sale or redemption of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
distribution of long-term capital gain to you with respect to such shares.

Inflation-Adjusted Securities purchased by Inflation-Adjusted Treasury
accrue additional interest for federal income tax purposes in addition to the
current interest paid. This additional interest is commonly referred to as
"imputed income." Inflation-Adjusted Treasury must distribute this imputed
income to shareholders as ordinary income dividends, which are subject to
federal taxes but generally exempt from state taxes. In periods of high
inflation, it is possible that the imputed income earned by Inflation-Adjusted
Treasury will exceed current interest earned.

Distributions are taxable to you regardless of whether they are taken in
cash or reinvested, even if the value of your shares is below your cost. If you
purchase shares shortly before a capital gain distribution, you must pay income
taxes on the distribution, even though the value of your investment (plus cash
received, if any) will not have increased. In addition, the share price at the
time you purchase shares may include unrealized gains in the securities held in
the investment portfolio of the Fund. If these portfolio securities are
subsequently sold and the gains are realized, they will, to the extent not
offset by capital losses, be paid to you as a distribution of capital gains and
will be taxable to you as short-term or long-term capital gains.

In January of the year following the distribution, if you own shares in a
taxable account, you will receive a Form 1099-DIV notifying you of the status of
your distributions for federal income tax purposes.

Distributions may also be subject to state and local taxes, even if all or
a substantial part of such distribution are derived from interest on U.S.
government obligations which, if you received them directly, would be exempt
from state income tax. However, most but not all states allow this tax exemption
to pass through to Fund shareholders when a Fund pays distributions to its
shareholders. You should consult your tax advisor about the tax status of such
distributions in your own state.

If you have not complied with certain provisions of the Internal Revenue
Code, we are required by federal law to withhold and remit to the IRS 31% of
reportable payments (which may include dividends, capital gains distributions
and redemptions). Those regulations require you to certify that the Social
Security number or tax identification number you provide is correct and that you
are not subject to 31% withholding for previous under-reporting to the IRS. You
will be asked to make the appropriate certification on your application.
Payments reported by us that omit your Social Security number or tax
identification number will subject us to a penalty of $50, which will be charged
against your account if you fail to provide the certification by the time the
report is filed, and is not refundable.

Redemption of shares of a Fund (including redemptions made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
shareholders will generally recognize a gain or loss in an amount equal to the
difference between the basis of the shares and the amount received. Assuming
that shareholders hold such shares as a capital asset, the gain or loss will be
a capital gain or loss and will generally be long term if shareholders have held
such shares for a period of more than one year. If a loss is realized on the
redemption of Fund shares, the reinvestment in additional Fund shares within 30
days before or after the redemption may be subject to the "wash sale" rules of
the Internal Revenue Code, resulting in a postponement of the recognition of
such loss for federal income tax purposes.

Prospectus Additional Information You Should Know 33

MANAGEMENT

INVESTMENT MANAGEMENT

All of the Funds except Capital Preservation and Capital Preservation II
are series of the American Century Government Income Trust (the "Trust"). Under
the laws of the Commonwealth of Massachusetts, the Board of Trustees is
responsible for managing the business and affairs of the Trust. Acting pursuant
to an investment management agreement entered into with the Funds, American
Century Investment Management, Inc. (ACIM) serves as the investment manager of
each of the Funds except Capital Preservation and Capital Preservation II. Its
principal place of business American Century Tower, 4500 Main Street, Kansas
City, Missouri 64111. American Century Investment Management, Inc. has been
providing investment advisory services to investment companies and institutional
clients since it was founded in 1958.

American Century Capital Preservation Fund, Inc. and American Century
Capital Preservation Fund II, Inc. are the assumed names of Capital Preservation
Fund, Inc. and Capital Preservation Fund II, Inc., respectively (the
"Companies") and are both California corporations. Capital Preservation is the
sole series of American Century Capital Preservation Fund, Inc., and Capital
Preservation II is the sole series of American Century Capital Preservation Fund
II, Inc. Under the laws of the State of California, the Board of Directors is
responsible for managing the business and affairs of the Companies. The Board of
Directors of the Companies is identical in composition to the Board of Trustees
of the Trust.

Acting pursuant to an investment advisory agreement entered into with
Capital Preservation and Capital Preservation II, Benham Management Corporation
serves as the investment advisor of Capital Preservation and Capital
Preservation II. Its principal place of business is 1665 Charleston Road,
Mountain View, California 94043. Benham Management Corporation has been
providing investment advisory services to investment companies and other clients
since it was founded in 1971 as is wholly-owned by American Century Companies,
Inc., the parent company of American Century Investment Management, Inc.

The Manager supervises and manages the investment portfolio of each Fund
and directs the purchase and sale of their investment securities. It utilizes a
team of portfolio managers, assistant portfolio managers and analysts acting
together to manage the assets of the Funds. The team meets regularly to review
portfolio holdings and to discuss purchase and sale activity. The team adjusts
holdings in the Funds' portfolios as it deems appropriate in pursuit of the
Funds' investment objectives. Individual portfolio manager members of the team
may also adjust portfolio holdings of the Funds or of sectors of the Funds as
necessary between team meetings.

The portfolio manager members of the teams managing the Funds described in
this Prospectus and their work experience for the last five years are listed as
follows:

ROBERT V. GAHAGAN has been primarily responsible for the day-to-day
operations of Short-Term Treasury since March, 1996. He is a Vice President and
Portfolio Manager. Mr. Gahagan has a B.A. and M.B.A. from the University of
Missouri in Kansas City and has over 12 years of investment experience. He
joined American Century in 1983.

BRIAN HOWELL has been primarily responsible for the management of Capital
Preservation and Government Agency since May, 1995. Mr. Howell joined the
Manager in 1987 as a research analyst and was promoted to his current position
in January 1994.

DENISE TABACCO has been primarily responsible for the day-to-day operations
of Capital Preservation II since June, 1995, and has co-managed both Capital
Preservation and Government Agency since January, 1996. Ms. Tabacco joined the
Manager in 1988, the Portfolio Department in 1991 and was promoted to her
current position in 1995.

DAVID SCHROEDER joined the Manager in 1990 and has been primarily
responsible for the day-to-day operations of Intermediate-Term Treasury since
January, 1992, and Long-Term Treasury since September, 1992. Mr. Schroeder has
co-managed the GNMA Fund since January, 1996.

CASEY COLTON has co-managed the GNMA Fund since January, 1994, and
Intermediate-Term Treasury, and Long-Term Treasury since January, 1996. Mr.
Colton joined the Manager in 1990 as a Municipal Analyst and was promoted to his
current position in

34 Additional Information You Should Know American Century Investments

1995. Mr. Colton is a Chartered Financial Analyst (CFA).

NEWLIN RANKIN has been primarily responsible for the day-to-day operations
of the ARM Fund since January, 1995, and has co-managed Short-Term Treasury
since March, 1996. Mr. Rankin joined the Manager in 1994 and prior to that was
Assistant Vice-President at Wells Fargo Bank from 1991 to 1993.

The activities of American Century Investment Management, Inc. are subject
only to directions of the Trust's Board of Trustees. The activities of Benham
Management Corporation are subject only to directions of the Company's Board of
Directors. American Century Investment Management, Inc. pays all the expenses of
the Trust's Funds except brokerage, taxes, portfolio insurance, interest, fees
and expense of the non-interested person directors (including counsel fees) and
extraordinary expenses. See "Expenses" for information about the expenses paid
by Capital Preservation and Capital Preservation II.

For the services provided to each Fund of the Trust, American Century
Investment Management, Inc. receives a monthly fee based on a percentage of the
average net assets of the 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 of the funds of its investment category managed by the
Manager (the "Investment Category Fee"). For example, when calculating the fee
for a Money Market Fund, all of the assets of the money market funds managed by
the Manager are aggregated. The three investment categories are: Money Market
Funds, Bond Funds and Equity Funds. Second, a separate fee rate schedule is
applied to the assets of all of the funds managed by the Manager (the "Complex
Fee"). The Investment Category Fee and the Complex Fee are then added to
determine the unified management fee payable by the Fund to the Manager.
Currently, the Investment Category Fee for each of the Trust's Funds is an
annual rate of the average net assets of the Fund as follows: Government Agency,
0.18%; Short-Term Treasury, Intermediate-Term Treasury and Long-Term Treasury,
0.22%; Inflation-Adjusted Treasury, 0.20%; and ARM Fund and GNMA Fund, 0.30%.
The Complex Fee is currently an annual rate of 0.30% of the average net assets
of each of the Trust's Funds. Further information about the calculation of the
annual management fee is contained in the Statement of Additional Information.

For the services provided to Capital Preservation and Capital Preservation
II by Benham Management Corporation, each pay Benham Management Corporation a
monthly investment advisory fee equal to the dollar amount derived from applying
the Fund's average daily net assets to an investment advisory fee schedule. The
investment advisory fee rate ranges from 0.50% to 0.19% of average daily net
assets dropping as the Funds' respective assets increase.

On the first business day of each month, the Funds pay a management fee
(advisory fee in the case of Capital Preservation and Capital Preservation II)
to its Manager for the previous month at the specified rate. The fee for the
previous month is calculated by multiplying the applicable fee for a Fund by the
aggregate average daily closing value of a Fund's net assets during the previous
month by a fraction, the numerator of which is the number of days in the
previous month and the denominator of which is 365 (366 in leap years).

CODE OF ETHICS

The Funds and the Manager have adopted a Code of Ethics, which restricts
personal investing practices by employees of the Manager and its affiliates.
Among other provisions, the Code of Ethics requires that employees with access
to information about the purchase or sale of securities in the Funds' portfolios
obtain preclearance before executing personal trades. With respect to Portfolio
Managers and other investment personnel, the Code of Ethics prohibits
acquisition of securities in an initial public offering, as well as profits
derived from the purchase and sale of the same security within 60 calendar days.
These provisions are designed to ensure that the interests of the Fund
shareholders come before the interests of the people who manage those Funds.

TRANSFER AND ADMINISTRATIVE SERVICES

American Century Services Corporation, 4500 Main Street, Kansas City,
Missouri 64111, acts as transfer agent and dividend-paying agent for the Funds.
It provides facilities, equipment and personnel to the Funds. For administrative
services, Capital Preservation and Capital Preservation II each pay the transfer
agent a monthly fee equal to its pro rata share of the dollar amount derived
from applying the aver-

Prospectus Additional Information You Should Know 35

age daily net assets of all of the Funds managed by Benham Management
Corporation. The administrative fee rate ranges from 0.11% to 0.08% of average
daily net assets, dropping as assets managed by the Benham Management
Corporation increase. For transfer agent services, Capital Preservation and
Capital Preservation II each pay the transfer agent a monthly fee for each
shareholder account maintained and for each shareholder transaction executed
during that month. With respect to administrative services and transfer agent
services to the Funds of the Trust, American Century Services Corporation is
paid for such services by American Century Investment Management, Inc.

The Funds charge no sales commissions, or "loads," of any kind. However,
investors who do not choose to purchase or sell Fund shares directly from the
transfer agent may purchase or sell Fund shares through registered
broker-dealers and other qualified service providers, who may charge investors
fees for their services. These broker-dealers and service providers generally
provide shareholder, administrative and/or accounting services which would
otherwise be provided by the transfer agent. To accommodate these investors, the
Manager and its affiliates have entered into agreements with some broker-dealers
and service providers to provide these services. Fees for such services are
borne normally by the Funds at the rates normally paid to the transfer agent,
which would otherwise provide the services. Any distribution expenses associated
with these arrangements are borne by the Manager.

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 Manager
or its affiliates.

The Manager and the transfer agent are both wholly owned by ACC. James E.
Stowers Jr., Chairman of the Board of Directors of ACC, controls ACC by virtue
of his ownership of a majority of its common stock.

Special Meeting of Shareholders

At a Special Meeting of Shareholders held on July 30, 1997, shareholders of
each of the Funds except Capital Preservation and Capital Preservation II
approved, among other things, a new Management Agreement between the Funds
(except Capital Preservation and Capital Preservation II) with American Century
Investment Management, Inc. This new Management Agreement will become effective
on August 1, 1997 and replaces these Funds' current investment advisory
agreement with Benham Management Corporation, an affiliate of American Century
Investment Management, Inc.

At the meeting, shareholders of the Funds (except Capital Preservation and
Capital Preservation II) also ratified the selection of Coopers & Lybrand LLP as
the independent auditors for each Fund's current fiscal year and approved the
adoption of standardized investment limitations by amending or eliminating
certain of these Funds' fundamental investment limitations. These changes are
reflected in this Prospectus Supplement and in the revised Statement of
Additional Information of the Funds (except Capital Preservation and Capital
Preservation II).

AGREEMENT AND PLAN OF REORGANIZATION

In addition, shareholders of Capital Preservation and Capital Preservation
II approved an Agreement and Plan of Reorganization with American Century-Benham
Capital Preservation Fund, a series of American Century Government Income Trust
(the "new CPF"). The new CPF is identical in investment objective and investment
management technique to Capital Preservation.

The Agreement was approved by shareholders of each of Capital Preservation
and Capital Preservation II at a Special Meeting of Shareholders held on July
30, 1997. The reorganization is expected to occur on August 30, 1997. Following
the reorganization, shareholders of Capital Preservation and Capital
Preservation II will own shares of the new CPF in the same dollar amount as
their Capital Preservation and Capital Preservation II shares at the close of
business on August 30, 1997.

DISTRIBUTION OF FUND SHARES

The Funds' 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 promot-

36 Additional Information You Should Know American Century Investments

ing and distributing the Fund shares offered by this Prospectus. The Funds do
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.

EXPENSES

Capital Preservation and Capital Preservation II each pay certain operating
expenses directly, including, but not limited to: custodian, audit and legal
fees; fees of the independent directors; costs of printing and mailing
prospectuses, statements of additional information, proxy statements, notices
and reports to shareholders; insurance expenses; and costs of registering the
funds' shares for sale under federal and state securities laws. See the
Statement of Additional Information for a more detailed discussion of
independent Director compensation.

FURTHER INFORMATION ABOUT AMERICAN CENTURY

American Century Capital Preservation, Inc. and American Century Capital
Preservation II, Inc. were organized as California corporations on October 28,
1971 and April 2, 1980, respectively. The American Century Government Income
Trust was organized as a Massachusetts business trust in July 24, 1985. Capital
Preservation, Capital Preservation II and the Trust are diversified, open-end
management investment companies. Their business and affairs are managed by its
officers under the direction of their respective Boards.

The principal office of the Funds is American Century Tower, 4500 Main
Street, P.O. Box 419200, Kansas City, Missouri 64141-6200. All inquiries made by
mail should be directed to the address and phone numbers on the cover, or by
phone to 1-800-345-2021 (international calls: 816-531-5575).

Capital Preservation and Capital Preservation II issue shares with no par
value. The remaining Funds are individual series of the Trust which also issues
shares with no par value. The assets belonging to each series of shares are held
separately by the custodian and in effect each series is a separate fund.

Each share, irrespective of series, is entitled to one vote for each dollar
of net asset value applicable to such share on all questions, except, in the
case of the Trust, those matters which must be voted on separately by the series
of shares affected. Matters affecting only one Fund are voted upon only by that
Fund.

Shares of the Trust have non-cumulative voting rights, which means that the
holders of more than 50% of the votes cast in an election of Trustees can elect
all of the Trustees if they choose to do so, and in such event the holders of
the remaining votes will not be able to elect any person or persons to the Board
of Trustees. Shares of the Companies have cumulative voting rights only to the
extent conferred upon them by California law, which gives shareholders of the
Companies the right to cumulate votes in the election (or removal) of the
Companies' respective directors.

Unless required by the 1940 Act, it will not be necessary for the Trust or
the Companies to hold annual meetings of shareholders. As a result, shareholders
may not vote each year on the election of members of their Boards or the
appointment of auditors. However, pursuant to the Trust's and the Companies'
by-laws, the holders of shares representing at least 10% of the votes entitled
to be cast may request that the Trust or the Company, as the case may be, hold a
special meeting of shareholders. The Trust or the Companies will assist in the
communication with other shareholders.

WE RESERVE THE RIGHT TO CHANGE ANY OF ITS POLICIES, PRACTICES AND
PROCEDURES DESCRIBED IN THIS PROSPECTUS, INCLUDING THE STATEMENT OF ADDITIONAL
INFORMATION, WITHOUT SHAREHOLDER APPROVAL EXCEPT IN THOSE INSTANCES WHERE
SHAREHOLDER APPROVAL IS EXPRESSLY REQUIRED.

THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF A FUND ONLY IN
THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED OR OTHERWISE QUALIFIED
FOR SALE. A FUND WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES
WHERE THE FUND'S SHARES ARE NOT REGISTERED.

Prospectus Additional Information You Should Know 37

P.O. Box 419200
Kansas City, Missouri
64141-6200

Investor Services:
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

[american century logo]
American
Century(sm)

9708 [recycled logo]
SH-BKT-9245 Recycled
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

[american century logo]
American
Century(sm)

AUGUST 1, 1997

BENHAM
GROUP(R)

CAPITAL PRESERVATION II

[front cover]

STATEMENT OF ADDITIONAL INFORMATION
AUGUST 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 August 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.............................................. 6
Directors and Officers...................................... 7
Investment Advisory Services................................ 9
Transfer and Administrative Services........................ 9
Distribution of Fund Shares................................ 10
Direct Fund Expenses....................................... 10
Expense Limitation Agreement............................... 10
Additional Purchase and Redemption
Information............................................. 10
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.

Benham Management Corporation (the "Manager") attempts to minimize the risks
associated with repurchase agreements by adhering to written guidelines which
govern repurchase agreements. These guidelines strictly govern (1) the type of
securities which may be acquired and held under repurchase agreements; (2)
collateral requirements for sellers under repurchase agreements; (3) the amount
of the Fund's net assets that may be committed to repurchase agreements that
mature in more than seven days; and (4) the manner in which the Fund must take
delivery of securities subject to repurchase agreements. Moreover, the Board of
Directors reviews and approves, on a quarterly basis, the creditworthiness of
brokers, dealers and banks with whom the Fund may enter into repurchase
agreements. The Fund may enter into a repurchase agreement only with an entity
that appears on a list of those which have been approved by the Board as
sufficiently creditworthy.

The Fund has received permission from the Securities and Exchange Commission
(SEC) to participate in joint repurchase agreements collateralized by U.S.
government securities with other mutual funds advised by the Manager. Joint
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 "Investment Company 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
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

2 American Century Investments

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 extra-ordinary 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.

(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.

Statement of Additional Information 3

(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, 1997.

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),
Martin Luther King Jr. Day, 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 gains or losses. Net income equals the return on the
Fund's investment portfolio minus Fund expenses. Income and expenses are accrued
daily.

INVESTMENT COMPANY ACT RULE 2A-7

The Fund operates pursuant to Investment Company Act Rule 2a-7, which permits
valuation

4 American Century Investments

of portfolio securities on the basis of amortized cost. As required by the Rule,
the Board of Directors has adopted procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. While the day-to-day operation of the
Fund has been delegated to the Manager, the quality requirements established by
the procedures limit investments to certain 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 nationally
recognized statistical rating organization 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 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.

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, 1997, the Fund's yield was 4.93%, and
its effective yield was 5.05%.

Total return quoted in advertising and sales literature reflects 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

Statement of Additional Information 5

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 requirement 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

6 American Century Investments

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 BANKS: 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
banks include (a) settling portfolio purchases and sales, (b) reporting failed
trades, (c) identifying and collecting portfolio income, and (d) providing
safekeeping of securities. The custodians take 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 the audit of annual financial statements.

For the current fiscal year, which started April 1, 1997, the Directors of the
Fund have selected Coopers & Lybrand LLP to serve as independent auditors of the
Fund. The address of Coopers & Lybrand LLP is City Center Square, 1100 Main
Street, Suite 900, Kansas City, Missouri 64105-2140.

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 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

Statement of Additional Information 7

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 Chief Executive
Officer and Director of ACC, President, Chief Executive Officer and Director of
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); President, Chief Operating
Officer and General Counsel of ACC; Executive Vice President, Chief Operating
Officer and General Counsel of ACS and ACIS; Assistant Secretary of ACC;
Secretary of 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 below summarizes the compensation that the Directors received from the
Fund for the Fund's fiscal year ended March 31, 1997, as well as the
compensation received for serving as a Director or Trustee of all other funds
advised by the Manager.

As of July 3, 1997, the Fund's officers and Directors, as a group, owned less
than 1% of the outstanding shares of the Fund.

DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MARCH 31, 1997

Aggregate Pension or Retirement Estimated Total Compensation
Name of Compensation Benefits Accrued As Part Annual Benefits From The American Century
Director* From The Fund of Fund Expenses Upon Retirement Family of Funds**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert A. Eisenstat $2,387 Not Applicable Not Applicable $72,250
Ronald J. Gilson $2,343 Not Applicable Not Applicable $70,250
Myron S. Scholes $2,217 Not Applicable Not Applicable $63,500
Kenneth E. Scott $2,535 Not Applicable Not Applicable $80,250
Ezra Solomon*** $1,707 Not Applicable Not Applicable $26,167
Isaac Stein $2,362 Not Applicable Not Applicable $71,250
Jeanne D. Wohlers $2,476 Not Applicable Not Applicable $77,000
- -----------------------------------------------------------------------------------------------------------------------

*Interested Directors receive no compensation for their services as such.

**Includes compensation paid by the fifteen investment company members of the
American Century family of funds.

***Retired, December 1996.
</TABLE>

8 American Century Investments

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.

Investment advisory fees paid by the Fund to the Manager for the fiscal periods
ended March 31, 1997, 1996, and 1995, 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 3/31/97 $1,047,574
Year ended 3/31/96 1,152,933
Year ended 3/31/95 1,202,074
- ------------------------------------------------------
*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 trans-action
executed during the month.

Statement of Additional Information 9

Administrative service and transfer agent fees paid by the Fund for the fiscal
periods ended March 31, 1997, 1996, and 1995, 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 3/31/97 $226,237 $281,206
Year ended 3/31/96 $244,651 $311,969
Year ended 3/31/95 $270,400 $354,585
- ------------------------------------------------------
*Net of reimbursement

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 pro-moting and distributing the Funds shares.
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.

The Expense Limitation Agreement provides that the Manager may recover amounts
(representing expenses in excess of the contractual limit) reimbursed 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 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, 1997,
1996, and 1995, are indicated in the following table.

Fiscal Period Net Amounts Absorbed (Recouped)
- ------------------------------------------------------
Year ended 3/31/97 $54,941
Year ended 3/31/96 8,733
Year ended 3/31/95 43,426
- ------------------------------------------------------

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 3, 1997, 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.

10 American Century Investments

Share purchases and redemptions are governed by California law.

OTHER INFORMATION

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

P.O. Box 419200
Kansas City, Missouri
64141-6200

Investor Services:
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

[american century logo]
American
Century(sm)

9707 [recycled logo]
SH-BKT-9298 Recycled
<PAGE>
AMERICAN CENTURY CAPITAL PRESERVATION FUND II

1933 Act Post-Effective Amendment No. 35
1940 Act Amendment No. 35
- --------------------------------------------------------------------------------

PART C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) FINANCIAL STATEMENTS. Audited financial statements for Capital
Preservation Fund II, Inc. for the fiscal year ended March 31, 1997,
are filed herein as included in the Fund's Statement of Additional
Information by reference to the Annual Report dated March 31, 1997,
filed on May 30, 1997 (Accession # 0000773674-97-000008).

(b) EXHIBITS

(1) Amended and Restated Articles of Incorporation dated December 18,
1992 are incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession
# 0000315961-96-000002).

(2) Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No.
33 filed on May 30, 1996 (Accession # 0000315961-96-000002).

(3) Not applicable.

(4) Specimen copy of American Century Capital Preservation Fund II
share certificate is incorporated herein by reference to Exhibit
4 to the registration statement filed on May 14, 1980.

(5) Investment Advisory Agreement between American Century Capital
Preservation Fund II and Benham Management Corporation, dated
June 1, 1995, is incorporated herein by reference to Exhibit 5 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession
# 0000315961-96-000002).

(6) Distribution Agreement between American Century Capital
Preservation Fund II and American Century Investment Services,
Inc. dated as of September 3, 1996, is incorporated herein by
reference to Exhibit 6 of Post-Effective Amendment No. 30 to the
Registration Statement of the American Century Government Income
Trust filed on November 25, 1996 (Accession # 773674-96-000009).

(7) Not applicable.

(8) Custodian Agreement between American Century Capital Preservation
Fund II and The Chase Manhattan Bank, dated August 9, 1996, is
incorporated herein by reference to Exhibit 8 of Post-Effective
Amendment No. 31 to the Registration Statement of American
Century Government Income Trust filed on February 7, 1997
(Accession # 773674-97-000002).

(9) Administrative Services and Transfer Agency Agreement between
American Century Capital Preservation Fund II and American
Century Services Corporation dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 9 of Post-Effective
Amendment No. 29 to the Registration Statement of American
Century Government Income Trust filed on August 30, 1996
(Accession # 773674-96-000007).

(10) Opinion and consent of counsel as to the legality of the
securities being registered, dated May 30, 1997 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 30, 1997
(Accession # 0000315961-97-000003).

(11) Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.

(12) Not applicable.

(13) Not applicable.

(14)(a) American Century Individual Retirement Account Plan, including
all instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 28 filed on September 25, 1992.

(b) American Century Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February 1992,
is incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 28 filed on September 25, 1992.

(15) Not applicable.

(16) Schedule for computation of each performance quotation provided
in response to Item 22 is included herein.

(17) Power of Attorney dated February 28, 1997 is included herein.

Item 25. Persons Controlled by or Under Common Control with Registrant.

Not applicable.

Item 26. Number of Holders of Securities.

As of June 30, 1997, Capital Preservation Fund II had 10,072 shareholders of
record.

Item 27. Indemnification.

Under the laws of the State of California, the Directors are entitled and
empowered to purchase insurance for and to provide by resolution or in the
Bylaws for indemnification out of Corporation assets for liability and for all
expenses reasonably incurred or paid or expected to be paid by a Director or
officer in connection with any claim, action, suit, or proceeding in which he or
she becomes involved by virtue of his or her capacity or former capacity with
the Corporation. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the Bylaws or in a
resolution adopted by the Board of Directors.

Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended on May 17, 1995, appearing as
Exhibit 2 of Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).

Item 28. Business and Other Connections of Investment Advisor.

The Registrant's investment advisor, Benham Management Corporation, provides
investment advisory services for various collective investment vehicles and
institutional clients and serves as investment advisor to a number of open-end
investment companies.

Item 29. Principal Underwriters.

The Registrant's distribution agent, American Century Investment Services, Inc.,
is distribution agent to American Century Capital Preservation Fund, Inc.,
American Century Capital Preservation Fund II, Inc., American Century California
Tax-Free and Municipal Funds, American Century Government Income Trust, American
Century Municipal Trust, American Century Target Maturities Trust, American
Century Quantitative Equity Funds, American Century International Bond Funds,
American Century Investment Trust, American Century Manager Funds, American
Century Variable Portfolios, Inc., American Century Capital Portfolios, Inc.,
American Century Mutual Funds, Inc., American Century Premium Reserves, Inc.,
American Century Strategic Asset Allocations, Inc. and American Century World
Mutual Funds, Inc. The information required with respect to each director,
officer or partner of American Century Investment Services, Inc. is incorporated
herein by reference to American Century Investment Services, Inc. Form B-D filed
on November 21, 1985 (SEC File No. 8-35220; Firm CRD No. 17437).

Item 30. Location of Accounts and Records.

Benham Management Corporation, the Registrant's investment advisor, maintains
its principal office at 1665 Charleston Road, Mountain View, CA 94043. The
Registrant and its agent for transfer and administrative services, American
Century Investment Services, Inc., maintain their principal office at 4500 Main
St., Kansas City, MO 64111. American Century Investment Services, Inc. maintains
physical possession of each account, book, or other document, and shareholder
records as required by ss.31(a) of the 1940 Act and rules thereunder. The
computer and data base for shareholder records are located at Central Computer
Facility, 401 North Broad Street, Sixth Floor, Philadelphia, PA 19108.

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

Registrant undertakes to furnish each person to whom a Prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 35/Amendment No. 35 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, and State of
California, on the 25th day of July, 1997. I hereby certify that this Amendment
meets the requirements for immediate effectiveness pursuant to Rule 485(b).

AMERICAN CENTURY CAPITAL PRESERVATION FUND II

By: /s/ Douglas A. Paul
Douglas A. Paul
Vice President, Secretary, and General Counsel

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 35/Amendment No. 35 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C> <C>
* Chairman of the Board of Directors, July 25, 1997
- --------------------------------- President, and Chief
James M. Benham Executive Officer

* Director July 25, 1997
- ---------------------------------
Albert A. Eisenstat

* Director July 25, 1997
- ---------------------------------
Ronald J. Gilson

* Director July 25, 1997
- ---------------------------------
Myron S. Scholes

* Director July 25, 1997
- ---------------------------------
Kenneth E. Scott

* Director July 25, 1997
- ---------------------------------
Isaac Stein

* Director July 25, 1997
- ---------------------------------
James E. Stowers III

* Director July 25, 1997
- ---------------------------------
Jeanne D. Wohlers

* Chief Financial Officer, Treasurer July 25, 1997
- ---------------------------------
Maryanne Roepke
</TABLE>

/s/ Douglas A. Paul
*by Douglas A. Paul, Attorney in Fact (pursuant to a Power of Attorney dated
February 28, 1997).

EXHIBIT DESCRIPTION

EX-99.B1 Amended and Restated Articles of Incorporation dated December 18,
1992 are incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).

EX-99.B2 Amended and Restated Bylaws dated May 17, 1995 are incorporated
herein by reference to Exhibit 2 of Post-Effective Amendment No.
33 filed on May 30, 1996 (Accession # 0000315961-96-000002).

EX-99.B4 Specimen copy of American Century Capital Preservation Fund II
share certificate is incorporated herein by reference to Exhibit 4
to the registration statement filed on May 14, 1980.

EX-99.B5 Investment Advisory Agreement between American Century Capital
Preservation Fund II and Benham Management Corporation, dated June
1, 1995, is incorporated herein by reference to Exhibit 5 of
Post-Effective Amendment No. 33 filed on May 30, 1996 (Accession #
0000315961-96-000002).

EX-99.B6 Distribution Agreement between American Century Capital
Preservation Fund II and American Century Investment Services,
Inc. dated as of September 3, 1996, is incorporated herein by
reference to Exhibit 6 of Post-Effective Amendment No. 30 to the
Registration Statement of the American Century Government Income
Trust filed on November 25, 1996 (Accession # 773674-96-000009).

EX-99.B8 Custodian Agreement between American Century Capital Preservation
Fund II and The Chase Manhattan Bank, dated August 9, 1996, is
incorporated herein by reference to Exhibit 8 of Post-Effective
Amendment No. 31 to the Registration Statement of American Century
Government Income Trust filed on February 7, 1997 (Accession #
773674-97-000002).

EX-99.B9 Administrative Services and Transfer Agency Agreement between
American Century Capital Preservation Fund II and American Century
Services Corporation dated as of September 3, 1996, is
incorporated herein by reference to Exhibit 9 of Post-Effective
Amendment No. 29 to the Registration Statement of American Century
Government Income Trust filed on August 30, 1996 (Accession #
773674-96-000007).

EX-99.B10 Opinion and consent of counsel as to the legality of the
securities being registered, dated May 30, 1997 is incorporated
herein by reference to Rule 24f-2 Notice filed on May 30, 1997
(Accession # 0000315961-97-000003).

EX-99.B11 Consent of KPMG Peat Marwick LLP, independent auditors, is
included herein.

EX-99.B14 a) American Century Individual Retirement Account Plan, including
all instructions and other relevant documents, dated February
1992, is incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 28 filed on September 25, 1992.

b) American Century Pension/Profit Sharing Plan, including all
instructions and other relevant documents, dated February 1992, is
incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 28 filed on September 25, 1992.

EX-99.B16 Schedule for computation of each performance quotation provided in
response to Item 22 is included herein.

EX-99.B17 Power of Attorney dated February 28, 1997 is included herein.

EX-27.4.1 Financial Data Schedule

Consent of Independent Auditors

The Board of Directors and Shareholders
American Century Capital Preservation Fund II, Inc.:

We consent to the inclusion in American Century-Benham Capital Preservation Fund
II, Inc.'s Post-Effective Amendment No. 35 to the Registration Statement No.
2-67189 on Form N-1A under the Securities Act of 1933 and Amendment No. 35 to
the Registration Statement No. 811-3036 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated May 2, 1997 on the financial statements
and financial highlights of the American Century-Benham Capital Preservation
Fund II (the assumed business name of Capital Preservation Fund II, Inc.) for
the periods indicated therein, which reports have been incorporated by reference
into the Statement of Additional Information of American Century-Benham Capital
Preservation Fund II, Inc.. We also consent to the reference to our firm under
the heading "Financial Highlights" in the Prospectus and under the heading
"About the Fund" in the Statement of Additional Information which are
incorporated by reference in the Prospectus.

/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Kansas City, Missouri
July 29, 1997

BENHAM CAPITAL PRESERVATION II
Yield Calculation
3/31/97

365/7
Effective Yield: = [ (Base Period Return + 1) ] - 1

Base Period Return = 0.00094530

7 Day Effective Yield = 5.05%

Yield: = I/B X 365/7

Y = Yield
I = total income of hypothetical account over the seven
day period
B = beginning account value

I = 0.00094530
B = $1.00

7 Day Yield = 4.93%

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, AMERICAN CENTURY
CAPITAL PRESERVATION FUND II, INC., hereinafter called the "Corporation" and
certain directors and officers of the Corporation, do hereby constitute and
appoint James M. Benham, James E. Stowers, III, William M. Lyons, Douglas A.
Paul, and Patrick A. Looby, and each of them individually, their true and lawful
attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable the Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules regulations, orders,
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the name of
the Corporation in its behalf and to affix its corporate seal, and to sign the
names of each of such directors and officers in their capacities as indicated,
to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement; the Registration Statement on Form N-14 and any amendments or
supplements thereto to be filed with the Securities and Exchange Commission
under the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, and to any instruments or documents filed or to be filed as part of or
in connection with such Registration Statement; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents shall do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the Corporation has caused this Power to be
executed by its duly authorized officers on this the 28th day of February, 1997.

AMERICAN CENTURY CAPITAL PRESERVATION FUND II, INC.
(A California Corporation)

By: /s/ James M. Benham
James M. Benham, President

SIGNATURE AND TITLE

/s/ James M. Benham /s/ Isaac Stein
James M. Benham Isaac Stein
Chairman Director

/s/ Albert A. Eisenstat /s/ Jeanne D. Wohlers
Albert A. Eisenstat Jeanne D. Wohlers
Director Director

/s/ Ronald J Gilson /s/ James E. Stowers III
Ronald J. Gilson James E. Stowers, III
Director Director

/s/ Myron S. Scholes /s/ Maryanne Roepke
Myron S. Scholes Maryanne Roepke
Director Treasurer

/s/ Kenneth E. Scott
Kenneth E. Scott
Director Attest:

By: /s/ Douglas A. Paul
Douglas A. Paul, Secretary

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF AMERICAN CENTURY MUTUAL FUNDS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> AMERICAN CENTURY CAPITAL PRESERVATION FUND II, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 226,000,000
<INVESTMENTS-AT-VALUE> 226,000,000
<RECEIVABLES> 190,074
<ASSETS-OTHER> 1,551,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,741,451
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,268,590
<TOTAL-LIABILITIES> 1,268,590
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 226,472,861
<SHARES-COMMON-STOCK> 226,472,861
<SHARES-COMMON-PRIOR> 245,576,178
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 226,472,861
<DIVIDEND-INCOME> 0
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</TABLE>