SEMIANNUAL
REPORT
[american century logo]
American
Century(reg.sm)
SEPTEMBER 30, 1997
BENHAM
GROUP
Premium Government Reserve
Premium Capital Reserve
Premium Bond
TABLE OF CONTENTS
Report Highlights .......................................................... 1
Our Message to You ......................................................... 2
Market Perspective ......................................................... 3
Premium Government Reserve
Performance & Portfolio Information ............................. 4
Management Q & A ................................................ 5
Schedule of Investments ......................................... 7
Financial Highlights ............................................ 27
Premium Capital Reserve
Performance & Portfolio Information ............................. 8
Management Q & A ................................................ 9
Schedule of Investments ......................................... 11
Financial Highlights ............................................ 28
Premium Bond
Performance & Portfolio Information ............................. 14
Management Q & A ................................................ 15
Schedule of Investments ......................................... 18
Financial Highlights ............................................ 29
Statements of Assets and Liabilities ....................................... 22
Statements of Operations ................................................... 23
Statements of Changes in Net Assets ........................................ 24
Notes to Financial Statements .............................................. 25
Proxy Voting Results ....................................................... 30
Retirement Account Information ............................................. 33
Background Information
Investment Philosophy & Policies ................................ 36
Comparative Indices ............................................. 36
Lipper Rankings ................................................. 36
Investment Team Leaders ......................................... 36
Glossary ................................................................... 37
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups to help you identify those
that best fit your needs. These groups, which appear below, are designed to help
simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century(reg. tm)
Group(reg. tm) Group Group
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- -------------------------------------------------------------------------------
Premium Government Reserve
Premium Capital Reserve
Premium Bond
We welcome your comments or questions about this report. See the back cover for
ways to contact us by mail, phone or e-mail.
Twentieth Century and American Century are registered marks of American Century
Services Corporation. Benham Group is a registered mark of Benham Management
Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MARKET PERSPECTIVE
* U.S. fixed-income securities produced strong returns during the six-month
period as yields fell substantially, especially during the latter part of
the period.
* Yields rose early in the period in response to a short-term interest rate
increase by the Federal Reserve and uncertainty over inflation.
* Longer-maturity bonds, which typically benefit more from declining
interest rates, outperformed shorter-maturity issues.
* Corporate securities were the best-performing fixed-income sector,
followed by mortgage-backed and Treasury securities.
PREMIUM GOVERNMENT RESERVE
* Amy O'Donnell took over the reins of the fund in May after three years of
managing Benham Prime Money Market Fund.
* The fund's total return for the period was 2.59%, matching the average
return of its peers.
* We basically kept the fund's average maturity neutral compared with its
peers during the period due to our lack of conviction about the timing of
changes in short-term interest rates.
* Going forward, we will likely continue to avoid floating rate notes until
we strongly believe interest rates will rise.
PREMIUM CAPITAL RESERVE
* Denise Tabacco took over the reins of the fund in May, after two years of
managing Benham Capital Preservation Fund II.
* The fund performed well over the period, matching the 2.64% average return
of its peers.
* We kept the fund's average maturity neutral during the period due to our
lack of conviction about the timing of changes in short-term interest
rates.
* Going forward, we will likely add to the fund's asset-backed holdings if
we can find some of these securities at attractive values.
PREMIUM BOND
* The fund's total return was 6.68% over the six-month period.
* We continued shifting the fund's emphasis away from corporate securities,
moving it more toward an aggregate bond fund.
* As we introduced more asset-backed and Treasury securities into the fund's
portfolio, the percentage of securities rated AAA grew.
* Going forward, we will likely maintain the fund's average maturity at a
neutral position until we feel more strongly about the direction of the
U.S. economy.
PREMIUM GOVERNMENT
TOTAL RETURNS: AS OF 9/30/97
6 Months 2.59%*
1 Year 5.16%
7-DAY CURRENT YIELD: 5.10%
NET ASSETS: $45.0 million
(AS OF 9/30/97)
INCEPTION DATE: 4/1/93
TICKER SYMBOL: TWPXX
PREMIUM CAPITAL
TOTAL RETURNS: AS OF 9/30/97
6 Months 2.64%*
1 Year 5.23%
7-DAY CURRENT YIELD: 5.26%
NET ASSETS: $163.6 million
(AS OF 9/30/97)
INCEPTION DATE: 4/1/93
TICKER SYMBOL: TCRXX
PREMIUM BOND
TOTAL RETURNS: AS OF 9/30/97
6 Months 6.68%*
1 Year 9.32%
NET ASSETS: $60.9 million
(AS OF 9/30/97)
INCEPTION DATE: 4/1/93
TICKER SYMBOL: ACBPX
* Not annualized.
SEMIANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
During the six months ended September 30, 1997, money market yields fell
overall after the Federal Reserve raised short-term interest rates in March.
Corporate bonds outperformed other debt securities--including mortgage-backed,
government agency and Treasury bonds--as corporate yield spreads continued to
narrow. In the following pages, the funds' investment team provides details
about the market and how your fund was managed during the period.
We've made some changes to the funds' investment team. Amy O'Donnell--who
also manages Benham's flagship Capital Preservation Fund--has taken the helm of
Premium Government Reserve. Denise Tabacco, a manager on the corporate money
market investment team, now manages Premium Capital Reserve.
We also made some important corporate changes. In June, Bill Lyons, American
Century's chief operating officer, became president, assuming full
responsibility for the company's day-to-day operations. With this change, Jim
Stowers, Jr. and Jim Stowers III will be able to spend more time developing and
refining new investment technologies and tools that build on the proprietary
system they pioneered 25 years ago. One of our goals is to ensure that we
continue to evolve and innovate--building the investment tools today that will
lead us and our investors to success in the next century.
During the summer, American Century held its largest proxy vote ever, asking
shareholders to approve measures to simplify fund management and eliminate
overlapping funds. Most notably, shareholders approved a unified fee for all
funds. In the past, many of our funds had both a management fee and separate
administrative and transfer agency fees. Under the new fee structure, fund
shareholders pay one annual management fee, based on a percentage of fund
assets.
In July, American Century agreed to enter into a business partnership with
J.P. Morgan & Co., Inc., one of the strongest and most respected firms in the
financial services industry. J.P. Morgan will become a significant minority
owner of American Century Companies, Inc. Through this proposed business
partnership, we see many opportunities to expand the range of investment choices
and services we offer you. A global financial services firm, J.P. Morgan has
been in business for more than 150 years, serving institutions, governments and
individuals with complex financial needs.
Within the framework of this proposed relationship, American Century will
continue to operate as an independent company. No changes in your fund's
investment managers, policies or fees are anticipated as a result of this
transaction. Our corporate management team will remain the same, and the Stowers
family will retain voting control of the company.
In closing, we want to reassure you that American Century remains committed
to serving your investment needs first and foremost. Thank you for your trust
and confidence.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
Chief Executive Officer Vice Chairman
American Century Companies, Inc. American Century Companies, Inc.
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
TREASURY YIELD CURVES
Years to Maturity 3/31/97 9/30/97
1 5.99 5.43
2 6.41 5.77
3 6.56 5.84
4 6.65 5.94
5 6.74 5.98
6 6.80 6.03
7 6.85 6.08
8 6.87 6.09
9 6.88 6.09
10 6.90 6.10
11 6.93 6.14
12 6.96 6.17
13 6.99 6.21
14 7.02 6.24
15 7.05 6.28
16 7.08 6.32
17 7.11 6.35
18 7.14 6.39
19 7.17 6.42
20 7.20 6.46
21 7.19 6.45
22 7.18 6.45
23 7.17 6.44
24 7.16 6.44
25 7.15 6.43
26 7.14 6.42
27 7.13 6.42
28 7.11 6.41
29 7.10 6.41
30 7.09 6.40
Source: Bloomberg Financial Markets
STRONG RETURNS
U.S. fixed-income securities provided solid returns during the six months
ended September 30, 1997. Yields fell substantially across the maturity spectrum
(see the accompanying graph), causing the prices of Treasury and other
fixed-income securities to rise. Longer-term bonds, which typically benefit the
most from falling interest rates, outperformed shorter-term securities--the
two-year Treasury note returned 4.36%, while the 30-Year Treasury posted a gain
of 12.90%.
LOW INFLATION
Yields on fixed-income securities were rising as the period began before
finally peaking in mid-April. Prompting that rise was surprisingly strong U.S.
economic growth during the first quarter of 1997 that led to fears of rising
inflation. Hoping to prevent inflation from accelerating, the Federal Reserve
(the Fed) raised short-term interest rates in March, shortly before the
six-month period began.
Though the pace of economic growth moderated during the second and third
quarters of 1997, it remained at a level that has historically been accompanied
by rising prices. But those rising prices never materialized--the consumer price
index, viewed as the broadest gauge of costs for goods and services, rose at an
annual rate of only 1.8% for the six-month period. As the trend of moderate
economic growth and low inflation continued, yields on fixed-income securities
fell. The non-inflationary growth also allowed the Fed to refrain from raising
interest rates during the period.
SHRINKING SUPPLY, HIGHER DEMAND
Fixed-income securities also benefited from a narrowing budget deficit
during the period. With the deficit shrinking, the Treasury reduced the amount
of new securities issued to finance government debt.
Stock-market volatility was another factor supporting bond prices. Investors
turned to bonds as a safe haven from equity-market volatility. Also supporting
bond prices were high "real" interest rates (nominal interest rates minus
inflation), making fixed-income securities more attractive. In addition, U.S.
interest rates were generally higher than foreign rates, which sparked increased
demand for U.S. assets from overseas investors. Thus, fewer securities combined
with increased demand from both domestic and overseas investors supported bond
prices.
CORPORATES WERE BEST
Corporate securities were the best-performing fixed-income sector during the
six-month period. These securities continued to benefit from a vibrant national
economy, which has helped strengthen U.S. businesses and boost corporate
profits. Mortgage-backed securities also provided strong returns during the
period, slightly outperforming Treasury and government agency securities.
SEMIANNUAL REPORT MARKET PERSPECTIVE 3
<TABLE>
<CAPTION>
PREMIUM GOVERNMENT RESERVE
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF
FUND(1)
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS
OF SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
Premium Government Reserve ................ 2.59% 5.16% 5.28% 4.56%
90-Day Treasury Bill Index ................ 2.55% 5.15% 5.33% 4.71%
Average Institutional U.S. Government
Money Market Fund(2) ...................... 2.61% 5.21% 5.32% 4.64%(3)
Fund's Ranking Among Institutional
U.S. Government
Money Market Funds(2) ..................... -- 50 out of 81 43 out of 68 34 out of 51(3)
</TABLE>
- ----------
(1) Inception date was April 1, 1993.
(2) According to Lipper Analytical Services.
(3) Returns since 4/30/93, the date nearest the fund's inception for which
return data are available.
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
YIELDS AS OF SEPTEMBER 30, 1997
7-DAY 7-DAY
CURRENT EFFECTIVE
YIELD YIELD
Premium Government Reserve 5.10% 5.23%
Yields are defined in the Glossary on page 37.
PORTFOLIO AT A GLANCE
9/30/97 3/31/97
Number of Securities 15 29
Weighted Average Maturity 41 days 40 days
Expense Ratio 0.45%* 0.45%
* Annualized.
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
Many of the investment terms in this report are defined in the Glossary on page
37.
4 PREMIUM GOVERNMENT RESERVE AMERICAN CENTURY INVESTMENTS
PREMIUM GOVERNMENT RESERVE
MANAGEMENT Q & A
An interview with Amy O'Donnell, a portfolio manager on the Premium Reserve
funds investment team. Amy took over the reins of the fund in May after three
years of managing Benham Prime Money Market Fund.
HOW DID THE FUND PERFORM?
The fund performed well over the period, matching the return of its peers.
For the six months ended September 30, 1997, the fund's total return was 2.59%,
compared with the 2.61% average return of the 83 "Institutional U.S. Government
Money Market Funds" tracked by Lipper Analytical Services. The fund also matched
the 2.55% return of the fund's benchmark, the 90-Day Treasury Bill (T-bill)
Index. (See the Total Returns table on the previous page for other fund
performance comparisons.)
HOW WAS THE FUND POSITIONED DURING THE PERIOD?
We basically kept the fund's average maturity neutral compared with its
peers during the period due to conflicting economic reports. Although inflation
remained low after the Federal Reserve (the Fed) raised short-term interest
rates in March, we felt the best strategy was to keep the fund in a neutral to
short position. That strategy allowed us to provide shareholders with
competitive returns compared with our peers, while positioning the fund to
benefit if the Fed had continued to raise rates.
WHAT PROMPTED YOU TO INCREASE THE AMOUNT OF GOVERNMENT AGENCY DISCOUNT NOTES IN
THE FUND?
We increased the amount of agency discount notes from 75% to 93% of fund
assets during the period for a few reasons. First, when we expect rates to stay
in a fairly stable range, we tend to buy more discount notes because these
securities are highly liquid. Second, we believe government agency discount
notes are one of the most conservative and generic investments the fund can make
and are a good investment choice for the fund when the strength of the economy
is uncertain. Overall, these securities performed well for the fund, especially
as short-term rates leveled off after sharp declines in May.
WHY DID YOU DECREASE THE FUND'S POSITION IN GOVERNMENT AGENCY FLOATING-RATE
NOTES (FLOATERS)?
In late March and early April it made sense to hold floaters because of the
Fed's interest rate hike. At the time, interest rates were rising, providing an
ideal environment for these securities, because they reset their interest rates
periodically. However, as it became more evident that the Federal Reserve would
remain on hold, we let these securities mature and did not purchase new ones
since we felt discount notes offered better values.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 9/30/97)
U.S. Government Agency
Discount Notes 93%
U.S. Government Agency
Floating-Rate Notes 4%
U.S. Government
Agency Notes 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 3/31/97)
U.S. Government Agency
Discount Notes 75%
U.S. Government Agency
Floating-Rate Notes 11%
U.S. Government
Agency Notes 11%
Repurchase Agreements 3%
SEMIANNUAL REPORT PREMIUM GOVERNMENT RESERVE 5
PREMIUM GOVERNMENT RESERVE
WHY DID THE FLOATERS BECOME OVERPRICED?
Most floaters reset based on the three-month T-bill yield. Therefore, when
T-bills are trading at expensive levels, floaters become a less attractive
investment for the fund. That was the case during the period.
With the Treasury issuing fewer T-bills due to the shrinking budget deficit,
there were less of these securities available. Other things being equal, lower
supply means higher prices and lower yields for existing Treasury debt. Strong
foreign demand for U.S. money market securities during the period compounded
this effect.
The combination of limited supply and increased demand caused the
three-month T-bill, which should closely track the federal funds rate target, to
trade 30-60 basis points lower.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES OVER THE NEXT SIX MONTHS?
We expect supply and demand factors to continue dominating the market in the
coming months. Smaller federal budget deficits mean we could see lower levels of
Treasury and government agency debt issuance going forward. That would likely
keep prices high and yields low on agency securities. But the Fed is concerned
that strong economic growth, low unemployment and rising wages could translate
into inflation down the road. Though we don't think the Fed needs to raise
interest rates, we wouldn't be surprised if they decided to take out some
insurance against inflation by doing just that.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX
MONTHS?
Going forward, we will likely continue to avoid floaters until they become
available at more attractive prices. Instead of buying these securities, we will
likely maintain the fund's large position in agency discount notes until we have
a better feel for the direction interest rates are headed. We also plan to keep
the fund's average maturity short to neutral compared with its peers. This
position should improve the fund's performance if the Fed decides to raise rates
because we will be able to add the new, higher-yielding securities to its
portfolio more quickly.
[pie charts]
PORTFOLIO COMPOSITION BY MATURITY (as of 9/30/97)
1-30 Days 70%
31-60 Days 1%
61-90 Days 7%
91-180 Days 22%
PORTFOLIO COMPOSITION BY MATURITY (as of 3/31/97)
1-30 Days 55%
31-60 Days 15%
61-90 Days 21%
91-180 Days 8%
181-397 Days 1%
6 PREMIUM GOVERNMENT RESERVE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
PREMIUM GOVERNMENT RESERVE
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES(1)
$6,125,000 FHLB Discount Note,
5.42% - 5.62%, 10/2/97 $ 6,124,075
1,000,000 FHLB Discount Note, 5.64%,
10/9/97 998,745
1,300,000 FHLB Discount Note, 5.39%,
10/17/97 1,296,883
500,000 FHLB Discount Note, 5.30%,
11/21/97 496,246
3,000,000 FHLB Discount Note, 5.37%,
12/26/97 2,961,515
7,000,000 FHLB Discount Note, 5.39%,
1/30/98 6,873,186
2,110,000 FHLB Discount Note, 5.45%,
2/11/98 2,067,516
262,000 FHLMC Discount Note, 6.05%,
10/1/97 262,000
3,000,000 FHLMC Discount Note, 5.42%,
10/7/97 2,997,290
5,000,000 FHLMC Discount Note, 5.50%,
10/15/97 4,989,306
9,245,000 FNMA Discount Note, 5.44%,
10/8/97 9,235,221
2,200,000 FNMA Discount Note, 5.37%,
10/23/97 2,192,780
1,500,000 TVA Discount Note, 5.43%,
10/22/97 1,495,249
-------------------
TOTAL U.S. GOVERNMENT
AGENCY DISCOUNT NOTES--92.9% 41,990,012
-------------------
OTHER U.S. GOVERNMENT AGENCY SECURITIES(1)
1,225,000 FFCB, 5.53%, 2/2/98 1,224,141
2,000,000 SLMA, VRN, 5.27%, 10/7/97,
resets weekly off the 3-month
T-Bill rate plus 0.21% with
no caps 1,999,822
-------------------
TOTAL OTHER U.S. GOVERNMENT
AGENCY SECURITIES--7.1% 3,223,963
-------------------
TOTAL INVESTMENT SECURITIES--100.0% $45,213,975
===================
NOTES TO SCHEDULE OF INVESTMENTS
FFCB = Federal Farm Credit Bank
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
SLMA = Student Loan Marketing Association
TVA = Tennessee Valley Authority
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Coupon rate indicated
is effective September 30, 1997.
resets= The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more
frequently a security resets, the less risk the investor is taking that
the coupon will vary significantly from current market rates.
(1) The rates for U.S. Government Agency Discount Notes are the yield to
maturity at purchase. The rates for U.S. Government Agency securities are
the stated coupon rates.
See Notes to Financial Statements
SEMIANNUAL REPORT PREMIUM GOVERNMENT RESERVE 7
<TABLE>
<CAPTION>
PREMIUM CAPITAL RESERVE
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF
FUND(1)
- --------------------------------------------------------------------------------------------------
TOTAL RETURNS AS
OF SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
Premium Capital Reserve ......... 2.64% 5.23% 5.36% 4.63%
90-Day Treasury Bill Index ...... 2.55% 5.15% 5.33% 4.71%
Average Institutional
Money Market Fund(2) ............ 2.65% 5.25% 5.37% 4.72%(3)
Fund's Ranking Among
Institutional
Money Market Funds(2) ........... -- 98 out of 174 80 out of 139 63 out of 98(3)
</TABLE>
- ----------
(1) Inception date was April 1, 1993.
(2) According to Lipper Analytical Services.
(3) Returns since 4/30/93, the date nearest the fund's inception for which
return data are available.
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
YIELDS AS OF SEPTEMBER 30, 1997
7-DAY 7-DAY
CURRENT EFFECTIVE
YIELD YIELD
Premium Capital Reserve 5.26% 5.40%
Yields are defined in the Glossary on page 37.
PORTFOLIO AT A GLANCE
9/30/97 3/31/97
Number of Securities 67 51
Weighted Average Maturity 55 days 46 days
Expense Ratio 0.45%* 0.45%
* Annualized.
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
Many of the investment terms in this report are defined in the Glossary on page
37.
8 PREMIUM CAPITAL RESERVE AMERICAN CENTURY INVESTMENTS
PREMIUM CAPITAL RESERVE
MANAGEMENT Q & A
An interview with Denise Tabacco, a portfolio manager on the Premium Reserve
funds investment team. Denise took over the reins of the fund in May, after two
years of managing Benham Capital Preservation Fund II.
HOW DID THE FUND PERFORM?
The fund performed well over the period, matching the average returns of its
peers. For the six months ended September 30, 1997, the fund's total return was
2.64%, compared with the 2.65% average return of the 180 "Institutional Money
Market Funds" tracked by Lipper Analytical Services. (See the Total Returns
table on the previous page for other fund performance comparisons.)
HOW WAS THE FUND POSITIONED DURING THE PERIOD?
We kept the fund's average maturity neutral to just slightly long of its
peers during the period due to our lack of conviction about the timing of
changes in short-term interest rates. Inflation remained low after the Federal
Reserve (the Fed) raised short-term interest rates in March, so we felt the best
strategy was to keep the fund in a neutral position. That strategy allowed us to
provide shareholders with competitive returns compared with our peers, while
positioning the fund to benefit if the Fed had continued to raise rates.
YOU ADDED SOME ASSET-BACKED SECURITIES TO THE FUND'S PORTFOLIO DURING THE
PERIOD. WHAT WAS THE ATTRACTION?
Asset-backed securities enable the fund to reach for higher yields while
retaining a high degree of credit quality. Asset-backed securities are debt
securities that represent ownership in a pool of assets, such as auto loans or
credit cards.
We are taking a very conservative approach toward these securities and
adding them selectively. We've hired a number of credit analysts who specialize
in asset-backed securities to help us in this effort and we plan to stick with
the most "plain-vanilla" versions.
WHAT ROLE DOES YOUR CORPORATE CREDIT RESEARCH TEAM PLAY IN FINDING SECURITIES
FOR THE FUND?
A significant one. By making accurate assessments of specific credit
situations, the group has helped us steer clear of many issues not appropriate
for purchase, while locating attractively valued securities that our competition
may not have the time to uncover.
WHY THE INCREASE IN FLOATING-RATE NOTES (FLOATERS) DURING THE PERIOD?
The majority of the floaters we picked up during the period were issued by
insurance agencies. Not only did these securities offer attractive yields, but
the credit rating on them
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 9/30/97)
Commercial Paper 68%
Floating-Rate Notes 17%
Asset-Backed Securities 10%
CDs 4%
Other 1%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 3/31/97)
Commercial Paper 83%
Floating-Rate Notes 7%
Asset-Backed Securities 5%
U.S. Government Agency
Floating-Rate Notes 3%
Cds 2%
SEMIANNUAL REPORT PREMIUM CAPITAL RESERVE 9
PREMIUM CAPITAL RESERVE
was also very high. Given the market's uncertainty over the direction of
short-term rates, we purchased these securities hoping to provide the fund with
extra yield, while keeping the fund's position neutral. Finding these securities
was not an easy task, however, and is a good example of why our credit research
staff is important to the fund's success.
BUT YOU DECREASED THE AMOUNT OF GOVERNMENT AGENCY FLOATERS. WHAT'S THE
DIFFERENCE BETWEEN THESE TWO TYPES OF FLOATERS?
The floaters we picked up during the period are different from government
agency floaters on several points. For one thing, the government floaters
typically reset based on the three-month Treasury bill (T-bill), while the
securities we picked up reset based on the three-month London Interbank Offered
Rate. The primary difference, however, is that the government agency floaters
don't offer the additional yield that the types of floaters we purchased offer.
We decreased our holdings of government agency floaters during the period
because we felt they had become overpriced. With the Treasury issuing fewer
T-bills due to the shrinking budget deficit, there were less of these securities
available. Other things being equal, lower supply means higher prices and lower
yields for existing Treasury debt. Strong foreign demand for U.S. money market
securities during the period compounded this effect.
The combination of limited supply and increased demand caused the
three-month T-bill, which should closely track the federal funds rate target, to
trade 30-60 basis points lower.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES OVER THE NEXT SIX MONTHS?
We expect supply and demand factors to continue dominating the market in the
coming months. Smaller federal budget deficits mean we could see lower levels of
Treasury and government agency debt issuance going forward. That would likely
keep yields low on agency securities. But the Fed is concerned that strong
economic growth, low unemployment and rising wages could translate into
inflation down the road. If economic growth continues at a moderate to strong
pace and unemployment levels remain low, we would not be surprised to see the
Fed raise short-term interest rates. While we believe such a rate increase is
likely, we do not feel that the Fed will do so aggressively.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX
MONTHS?
Going forward, we will continue to work with our strong credit team to look
for securities such as asset-backed commercial paper that we feel will enhance
the fund's returns. We also plan to keep the fund's average maturity fairly
neutral compared with its peers. This position should improve the fund's
performance if the Fed decides to raise rates because we will be able to add the
new, higher-yielding securities to its portfolio more quickly.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 9/30/97)
A1+ 74%
A1 21%
A2 5%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 3/31/97)
A1+ 70%
A1 25%
A2 3%
Unrated U.S. Government
Agency Securities 2%
10 PREMIUM CAPITAL RESERVE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
PREMIUM CAPITAL RESERVE
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER(1)
AEROSPACE & DEFENSE--1.5%
$2,500,000 AlliedSignal Inc., 5.58%, 10/7/97 $ 2,497,675
---------------
AGRICULTURE--2.5%
4,300,000 Cargill, Inc., 5.51%, 12/8/97 4,255,247
---------------
BANKING--7.9%
2,750,000 ABN-Amro North America
Finance, Inc., 5.55%, 12/15/97 2,718,232
1,500,000 Bil North America, Inc., 5.53%,
10/8/97 1,498,387
3,000,000 Generale Bank S.A., 5.55%,
1/23/98 2,947,275
5,154,000 IMI Funding Co. (USA), 5.53% -
5.60%, 10/16/97 through
2/19/98 5,067,081
1,000,000 PEMEX Capital, Inc., Series B,
5.52%, 11/17/97 992,793
---------------
13,223,768
---------------
COMMUNICATIONS SERVICES--1.0%
1,732,000 Ameritech Corp., 5.50%,
12/29/97 1,708,450
---------------
COMPUTER SYSTEMS--2.8%
4,700,000 Hitachi America, Ltd., 5.51% -
5.54%, 11/25/97 through
1/27/98 4,630,309
---------------
DIVERSIFIED COMPANIES--2.9%
4,800,000 Mitsubishi International, 5.50% -
5.54%, 10/15/97 through
10/20/97 4,787,413
---------------
FINANCIAL SERVICES--11.8%
2,300,000 AI Credit Corp., 5.50%, 10/23/97 2,292,270
1,400,000 American Express Co., 5.53%,
10/22/97 1,395,484
4,800,000 Ford Motor Credit, 5.50%,
12/15/97 through 1/2/98 4,736,939
2,800,000 General Electric Capital Corp.,
5.52%, 10/8/97 2,796,994
5,800,000 General Motors Acceptance Corp.,
5.54% - 5.69%, 11/5/97
through 12/29/97 5,749,505
Principal Amount Value
- --------------------------------------------------------------------------------
$2,700,000 Hitachi Credit America Corp.,
5.53%, 10/16/97 $ 2,693,779
---------------
19,664,971
---------------
FOOD & BEVERAGE--1.2%
2,000,000 Heinz (H.J.) Co., 5.51%,
10/29/97 1,991,429
---------------
INSURANCE--10.1%
3,000,000 American Family Financial
Services, Inc., 5.50%, 10/9/97 2,996,333
5,900,000 General Re Corp., 5.51% - 5.53%,
12/31/97 through 1/7/98 5,813,545
5,000,000 Prudential Funding Corp., 5.52%,
11/26/97 4,957,067
3,000,000 SAFECO Corporation, 5.62%,
10/20/97 (Acquired 9/29/97,
Cost $2,990,165)(2) 2,991,102
---------------
16,758,047
---------------
MACHINERY--1.6%
2,600,000 Dover Corp., 5.55%, 10/2/97
(Acquired 9/3/97, Cost
$2,588,376)(2) 2,599,599
---------------
METALS & MINING--1.5%
2,600,000 RTZ America Inc., 5.52%, 2/4/98
(Acquired 8/4/97, Cost
$2,526,645)(2) 2,549,768
---------------
PETROLEUM REFINING--8.2%
5,200,000 Chevron Transport, 5.52%,
10/7/97 5,195,216
3,500,000 Chevron U.K. Investment PLC,
5.52%, 10/21/97 through
10/27/97 3,487,887
2,200,000 Koch Industries, Inc., 5.50%,
10/1/97 (Acquired 8/25/97,
Cost $2,187,564)(2) 2,200,000
2,800,000 Statoil-Den Norske Stats, 5.56%,
10/20/97 2,791,783
---------------
13,674,886
---------------
PHARMACEUTICALS--1.2%
2,000,000 Glaxo Wellcome PLC, 5.53%,
11/28/97 1,982,181
---------------
See Notes to Financial Statements
SEMIANNUAL REPORT PREMIUM CAPITAL RESERVE 11
SCHEDULE OF INVESTMENTS
PREMIUM CAPITAL RESERVE
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
SECURITY BROKERS & DEALERS--8.3%
$5,000,000 BT Securities Corp., 5.54%,
11/12/97 4,967,683
4,600,000 Merrill Lynch & Co., 5.52% - 5.53%,
10/9/97 through 11/3/97 4,584,367
4,200,000 Morgan Stanley, Dean Witter,
Discover & Co., 5.51%,
10/10/97 through 10/14/97 4,192,378
---------------
13,744,428
---------------
TRANSPORTATION--1.2%
2,000,000 United Parcel Service of America,
Inc., 5.50%, 12/12/97 1,978,000
---------------
UTILITIES--4.0%
6,764,000 National Rural Utilities Cooperative
Finance Corp., 5.54%, 1/9/98 6,659,909
---------------
TOTAL COMMERCIAL PAPER--67.7% 112,706,080
---------------
ASSET-BACKED SECURITIES(3)
1,908,302 Americredit Automobile
Receivables Trust, Series 1997-C,
Cl A1, 5.66%, 9/5/98 1,908,302
3,000,000 ABSIT 97-C, VRN, 5.65%,
10/15/97, resets monthly off the
1-month LIBOR with no caps
(Acquired 6/11/97, Cost
$3,000,000)(2) 3,000,000
2,000,000 Barnett Auto Trust, Series 1997-A,
Cl A1, 5.65%, 10/15/98
(Acquired 9/18/97, Cost
$2,000,000)(2) 2,000,000
2,000,000 Dakota Certificates (Citibank),
Series 1995-7, 5.36%, 11/3/97
(Acquired 8/18/97, Cost
$1,976,344)(2) 1,989,861
4,000,000 Dakota Certificates (Citibank),
Series 1995-7,
5.36%, 11/14/97 (Acquired 8/14/97,
Cost $3,943,369)(2) 3,972,916
1,400,000 Dakota Certificates (Citibank),
Series 1995-7,
5.36%, 12/10/97 (Acquired 9/10/97,
Cost $1,380,430)(2) 1,384,946
Principal Amount Value
- --------------------------------------------------------------------------------
$3,000,000 Racers Series 1997-MM-8-5, VRN,
5.65%, 10/29/97,
resets monthly off the 1-month
LIBOR minus 0.01%
with no caps (Acquired 8/29/97,
Cost $3,000,000)(2) $ 3,000,000
171,133 WFS Financial Owner Trust, Series
1997-A, Cl A1, 5.63%, 3/20/98 171,133
---------------
TOTAL ASSET-BACKED SECURITIES--10.5% 17,427,158
---------------
CERTIFICATES OF DEPOSIT
2,000,000 Bayerische Landesbank
Girozentrale (New York Branch),
5.50%, 12/4/97 1,998,753
2,000,000 Caisse Nationale de Credit Agricole
Indosuez, 5.90%, 8/11/98 2,000,000
3,000,000 Societe Generale, 5.70%,
12/19/97 2,999,254
---------------
TOTAL CERTIFICATES OF DEPOSIT--4.2% 6,998,007
---------------
OTHER CORPORATE DEBT
5,000,000 Abbey National Treasury Services
PLC, Series 1A,
VRN, 5.54%, 10/15/97,
resets monthly off the
1-month LIBOR minus 0.12%
with no caps 4,997,653
2,500,000 American Express Centurion Bank,
VRN, 5.63%, 10/23/97, resets
monthly off the 1-month LIBOR
minus 0.03% with no caps 2,500,000
2,000,000 First Bank N.A., VRN, 5.56%,
10/15/97, resets monthly off the
1-month LIBOR minus 0.10%
with no caps 1,999,381
1,800,000 First Bank N.A., Minneapolis, VRN,
5.62%, 10/15/97, resets monthly
off the 1-month LIBOR minus
0.04% with no caps 1,800,000
1,500,000 General American Life Insurance
Company, VRN, 5.83%, 10/1/97,
resets monthly off the 1-month
LIBOR plus 0.20% with no caps
(Acquired 7/7/97, Cost
$1,500,000)(2) 1,500,000
See Notes to Financial Statements
12 PREMIUM CAPITAL RESERVE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
PREMIUM CAPITAL RESERVE
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$4,500,000 General American Life Insurance
Company, VRN, 5.83%, 10/1/97,
resets monthly off the 1-month
LIBOR plus 0.20% with no caps,
(Acquired 1/3/97, Cost
$4,500,000)(2) $ 4,500,000
1,000,000 General Motors Acceptance Corp.,
MTN, 8.25%, 1/20/98 1,007,014
6,000,000 Transamerica Occidental Life
Insurance Co., VRN,
5.66%, 10/1/97, resets
monthly off the
1-month LIBOR with no caps 6,000,000
1,600,000 Travelers Insurance Company (The),
VRN, 5.71%, 10/9/97, resets
monthly off the 1-month LIBOR
plus 0.05% with no caps
(Acquired 6/9/97, Cost
$1,600,000)(2) 1,600,000
3,000,000 Travelers Insurance Company (The),
VRN, 5.71%, 10/23/97, resets
monthly off the 1-month LIBOR
plus 0.05% with no caps
(Acquired 5/23/97, Cost
$3,000,000)(2) 3,000,000
---------------
TOTAL OTHER CORPORATE DEBT--17.4% 28,904,048
---------------
TEMPORARY CASH INVESTMENTS--0.2%
373,000 FHLMC Discount Note, 6.05%,
10/1/97(1) 373,000
---------------
TOTAL INVESTMENT SECURITIES--100.0% $166,408,293
---------------
NOTES TO SCHEDULE OF INVESTMENTS
FHLMC = Federal Home Loan Mortgage Corporation
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Coupon rate indicated
is effective September 30, 1997.
resets= The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more
frequently a security resets, the less risk the investor is taking that
the coupon will vary significantly from current market rates.
(1) The rates for commercial paper and discount notes are the yield to
maturity at purchase.
(2) Security was purchased under Rule 144A or Section 4(2) of the Securities
Act of 1933 or is otherwise restricted as to resale and, unless registered
under the Act or exempted from registration, may only be sold to qualified
institutional investors. The aggregate value of restricted securities at
September 30, 1997, was $36,288,192, which represented 22.2% of net
assets.
(3) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
See Notes to Financial Statements
SEMIANNUAL REPORT PREMIUM CAPITAL RESERVE 13
<TABLE>
<CAPTION>
PREMIUM BOND
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS LIFE OF
FUND(1)
- ---------------------------------------------------------------------------------------------
TOTAL RETURNS AS
OF SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
Premium Bond .............. 6.68% 9.32% 9.46% 6.22%
Lehman Aggregate
Bond Index ................ 7.12% 9.71% 9.49% 6.69%
Average A-Rated
Corporate Debt Fund(2) .... 7.17% 9.60% 9.13% 6.30%(3)
Fund's Ranking Among
A-Rated Corporate
Debt Funds(2) ............. -- 73 out of 126 32 out of 97 32 out of 65(3)
</TABLE>
- ----------
(1) Inception date was April 1, 1993.
(2) According to Lipper Analytical Services.
(3) Returns since 4/30/93, the date nearest the fund's inception for which
return data are available.
See pages 36-37 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $100,000 OVER LIFE OF FUND
$100,000 investment made 4/1/93
Value on 9/30/97
Premium Bond Lehman Aggregate Bond Index
4/1/93 $100,000 $100,000
Apr-93 $100,740 $100,700
May-93 $100,300 $100,820
Jun-93 $101,870 $102,650
Jul-93 $102,460 $103,230
Aug-93 $104,460 $105,040
Sep-93 $104,620 $105,330
Oct-93 $104,890 $105,720
Nov-93 $104,020 $104,820
Dec-93 $104,530 $105,390
Jan-94 $105,970 $106,820
Feb-94 $103,370 $104,960
Mar-94 $100,910 $102,370
Apr-94 $99,910 $101,550
May-94 $99,770 $101,540
Jun-94 $99,530 $101,320
Jul-94 $101,650 $103,330
Aug-94 $101,540 $103,460
Sep-94 $100,020 $101,930
Oct-94 $99,810 $101,840
Nov-94 $99,590 $101,620
Dec-94 $100,250 $102,320
Jan-95 $102,120 $104,340
Feb-95 $104,630 $106,820
Mar-95 $105,430 $107,480
Apr-95 $106,990 $108,980
May-95 $111,950 $113,200
Jun-95 $112,630 $114,030
Jul-95 $112,070 $113,770
Aug-95 $113,680 $115,150
Sep-95 $114,820 $116,270
Oct-95 $116,560 $117,780
Nov-95 $118,530 $119,540
Dec-95 $120,400 $121,220
Jan-96 $121,110 $122,030
Feb-96 $118,510 $119,910
Mar-96 $117,580 $119,070
Apr-96 $116,750 $118,400
May-96 $116,420 $118,160
Jun-96 $117,860 $119,750
Jul-96 $118,130 $120,080
Aug-96 $117,910 $119,880
Sep-96 $119,980 $121,960
Oct-96 $122,820 $124,670
Nov-96 $125,150 $126,800
Dec-96 $123,690 $125,620
Jan-97 $123,960 $126,010
Feb-97 $124,310 $126,320
Mar-97 $122,960 $124,920
Apr-97 $124,600 $126,790
May-97 $125,630 $127,990
Jun-97 $127,030 $129,510
Jul-97 $130,500 $133,000
Aug-97 $129,230 $131,870
Sep-97 $131,170 $133,810
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
9/30/97 3/31/97
Number of Securities 77 47
Weighted Average Maturity 10.7 years 8.6 years
Average Duration 4.5 years 4.6 years
Expense Ratio 0.45%* 0.45%
* Annualized.
YIELD AS OF SEPTEMBER 30, 1997
30-DAY
SEC
YIELD
Premium Bond 5.97%
Yield is defined in the Glossary on page 37.
Many of the investment terms in this report are defined in the Glossary on page
37.
14 PREMIUM BOND AMERICAN CENTURY INVESTMENTS
PREMIUM BOND
MANAGEMENT Q & A
An interview with Bud Hoops and Jeff Houston, portfolio managers on the
Premium Reserve funds investment team.
HOW DID THE FUND PERFORM?
For the six months ended September 30, 1997, the fund's total return was
6.68%, compared with the 7.17% average return of the 131 "A-Rated Corporate Debt
Funds" tracked by Lipper Analytical Services. The fund's performance lagged its
benchmark, the Lehman Aggregate Bond Index, which returned 7.12% for the period.
(See the Total Returns table on the previous page for other fund performance
comparisons.)
WHAT CAUSED THE DISPARITY BETWEEN THE FUND'S PERFORMANCE AND THAT OF ITS PEERS?
The disparity largely resulted from a difference in holdings. During the
period, we shifted the fund's assets toward that of an aggregate bond fund,
rather than the corporate-security focus of the fund's peers.
We may petition Lipper Analytical Services to switch the fund's peer group
category in the future. However, for now we are concentrating on managing the
fund against its benchmark, rather than its current Lipper category.
[bar graph - data below]
PREMIUM BOND'S ONE-YEAR RETURNS SINCE INCEPTION
(Periods ended September 30)
Premium Lehman Aggregate
Bond Bond Index
9/93 4.62% 5.33%
9/94 -4.39% -3.22%
9/95 14.80% 14.06%
9/96 4.49% 4.90%
9/97 9.32% 9.71%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 36 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
SEMIANNUAL REPORT PREMIUM BOND 15
PREMIUM BOND
WHY DID THE FUND'S RETURN FALL A BIT SHORT OF ITS BENCHMARK?
The fund's underperformance versus its benchmark can partially be attributed
to a modestly defensive stance and an underweighting in mortgage-backed
securities early in the period. At that time, we were still looking to bring the
fund's holdings more in line with those of its benchmark and move away from the
fund's corporate-security focus. Unfortunately, the beginning of the period is
when mortgage-backed securities performed best.
The other reason the fund's return was lower than the index was because of
fund management expenses, which reduced performance by around 20 basis points.
WHY THE ADJUSTMENT TO THE FUND'S HOLDINGS?
We want to provide investors with a fund that will represent the performance
of the entire fixed-income market. The large cash inflows the fund received
during the period helped us to accomplish that adjustment, which is nearly
complete. The adjustment accomplishes a few important goals.
First, the fund's holdings are now more in line with those of its benchmark,
allowing for more meaningful performance comparisons between the two going
forward. Second, the shift allows us to offer investors a fund that more closely
represents the performance of the fixed-income market as a whole, rather than
only the corporate sector.
THE AMOUNT OF SECURITIES IN THE FUND'S PORTFOLIO RATED AAA INCREASED
SIGNIFICANTLY DURING THE PERIOD. WHY THE CHANGE?
The increased amount of securities rated AAA in the fund resulted primarily
from our efforts to bring its holdings more in line with its benchmark. In order
to accomplish this shift, we increased the amount of mortgage-backed and
Treasury securities in the fund's portfolio. Since these securities carried very
high credit ratings, the fund's holdings of bonds rated AAA increased to 79%,
from 48% of the fund's assets.
WHY DID CORPORATE SECURITIES PERFORM SO WELL DURING THE PERIOD?
These securities continued to benefit from improving credit conditions and
strong demand. However, the yield spread, or interest rate difference, between
comparable- maturity corporate and Treasury securities continued to decrease as
investors reached for the higher yields of corporate bonds. This continued
compression made finding attractively valued securities in this sector more
difficult. We were able to overcome this obstacle thanks in part to our strong
credit research team.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 9/30/97)
U.S. Treasury Securities 47%
Corporate Bonds 18%
Mortgage-Backed
Securities 17%
Cash 7%
U.S. Government
Agency Notes 5%
Other 6%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 3/31/97)
U.S. Treasury Securities 40%
Corporate Bonds 32%
Mortgage-Backed
Securities 17%
Sovereign Governments &
Agencies 10%
Cash 1%
16 PREMIUM BOND AMERICAN CENTURY INVESTMENTS
PREMIUM BOND
SPEAKING OF CORPORATE SECURITIES, THE FUND'S HOLDINGS IN THIS SECTOR DROPPED
SIGNIFICANTLY. WHY THE CHANGE?
As discussed previously, the main reason is the fund's shift to a
diversified bond fund. We have therefore been selling some of the fund's
corporate holdings at a profit and putting the money to work in other, more
attractively valued sectors that help to diversify the fund's fixed-income
holdings.
WHAT ARE SOME OF THE POSITIVE FACTORS THAT COULD COME INTO PLAY FOR FIXED-INCOME
SECURITIES OVER THE NEXT SIX MONTHS?
Several fairly recent developments could continue to work in bonds' favor
going forward. One of those would be continued benign inflation levels. Another
factor would be further improvements in reducing the budget deficit. As the
Treasury continues to issue lower amounts of securities, the value of existing
ones are bid higher. Stock market volatility could also play a hand in boosting
returns for fixed-income securities. If stocks remain volatile, more investors
could seek fixed-income securities as a safe haven investment alternative.
DO YOU HAVE ANY CONCERNS ABOUT THE MARKET GOING FORWARD?
Yes, we have a few. The U.S. economy is now in its seventh year of
expansion, making this current period of growth very old from a historical
perspective. Generally, rising prices and other cyclical pressures tend to
appear this far into an expansionary phase. We believe the historical threat of
such pressures is part of the reason why the Federal Reserve remains concerned
about the prospects for inflation, and we share this concern.
WHAT MIGHT CAUSE THIS CONCERN TO BECOME REALITY?
Basically, any signs that wage pressures are causing inflation to accelerate
could do the trick. If employment costs begin to rise, they could be a harbinger
of higher interest rates. That's because such pressures could force the Federal
Reserve to raise short-term interest rates in order to keep inflation within
manageable levels.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We plan to maintain the fund's average maturity at a neutral position until
we feel more strongly about the direction of the U.S. economy. This positioning
should allow us to minimize any price declines if interest rates climb. We will
also continue working closely with our research staff to uncover attractively
valued securities with the potential to enhance the fund's return.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 9/30/97)
AAA 79%
AA 3%
A 9%
BBB 9%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 3/31/97)
AAA 48%
AA 14%
A 20%
BBB 18%
SEMIANNUAL REPORT PREMIUM BOND 17
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
PREMIUM BOND
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- -------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
<S> <C> <C>
$ 700,000 U.S. Treasury Notes, 5.75%,
12/31/98 $ 700,437
1,600,000 U.S. Treasury Notes, 5.875%,
1/31/99 1,603,000
10,000,000 U.S. Treasury Notes, 6.25%,
3/31/99 10,071,870
300,000 U.S. Treasury Notes, 7.125%,
9/30/99 307,406
400,000 U.S. Treasury Notes, 7.75%,
1/31/00 416,250
1,000,000 U.S. Treasury Notes, 6.375%,
5/15/00 1,012,500
200,000 U.S. Treasury Notes, 6.625%,
7/31/01 204,500
1,000,000 U.S. Treasury Notes, 7.50%,
11/15/01 1,054,687
2,000,000 U.S. Treasury Notes, 6.625%,
3/31/02 2,048,750
600,000 U.S. Treasury Notes, 6.25%,
8/31/02 605,812
1,500,000 U.S. Treasury Notes, 7.25%,
8/15/04 1,596,093
300,000 U.S. Treasury Notes, 7.00%,
7/15/06 316,406
1,000,000 U.S. Treasury Notes, 6.625%,
5/15/07 1,033,125
1,000,000 U.S. Treasury Bonds, 12.00%,
8/15/08 1,441,875
1,000,000 U.S. Treasury Bonds, 9.25%,
2/15/16 1,299,062
1,400,000 U.S. Treasury Bonds, 8.875%,
8/15/17 1,774,062
400,000 U.S. Treasury Bonds, 7.125%,
2/15/23 431,375
300,000 U.S. Treasury Bonds, 7.50%,
11/15/24 338,906
475,000 U.S. Treasury Bonds, 7.625%,
2/15/25 544,469
300,000 U.S. Treasury Bonds, 6.00%,
2/15/26 281,906
2,175,000 U.S. Treasury Bonds, 6.625%,
2/15/27 2,227,335
Principal Amount Value
- -------------------------------------------------------------------------------------
$ 400,000 U.S. Treasury Bonds, 6.375%,
8/16/27 $ 398,250
--------------------
TOTAL U.S. TREASURY SECURITIES--46.8% 29,708,076
--------------------
(Cost $29,070,543)
U.S. GOVERNMENT AGENCY SECURITIES
1,000,000 FHLMC, 6.10%, 11/27/00,
Call Date 11/27/98 998,193
500,000 FHLMC, 7.09%, 11/24/06,
Call Date 11/24/99 503,169
500,000 FNMA MTN, 7.00%, 2/20/07,
Call Date 2/20/02 509,743
1,000,000 FNMA MTN, 7.49%, 5/22/07,
Call Date 5/22/00 1,025,861
--------------------
TOTAL U.S. GOVERNMENT
AGENCY SECURITIES--4.8% 3,036,966
--------------------
(Cost $2,996,877)
MORTGAGE-BACKED SECURITIES(1)
497,564 FHLMC Pool #D75034, 8.50%,
10/1/26 520,382
1,389,746 FNMA Pool #272894, 6.00%,
2/1/09 1,360,199
978,749 FNMA Pool #392607, 7.00%,
7/1/12 989,515
1,349,468 GNMA Pool #313107, 7.00%,
11/15/22 1,358,400
114,521 GNMA Pool #407141, 9.25%,
2/15/25 123,258
390,260 GNMA Pool #408099, 8.75%,
3/15/25 416,040
189,019 GNMA Pool #407254, 9.25%,
3/15/25 203,439
995,215 GNMA Pool #447692, 7.50%,
5/15/27 1,013,406
987,859 GNMA Pool #423061, 8.00%,
6/15/27 1,022,769
--------------------
TOTAL MORTGAGE-BACKED
SECURITIES--11.1% 7,007,408
--------------------
(Cost $6,895,669)
See Notes to Financial Statements
18 PREMIUM BOND AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
PREMIUM BOND
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- -------------------------------------------------------------------------------------
FORWARD COMMITMENTS
$2,000,000 FNMA purchase, 7.00%, settlement
10/14/97 $ 1,994,374
1,000,000 FNMA purchase, 7.50%, settlement
10/14/97 1,017,812
1,000,000 FNMA purchase, 7.50%, settlement
10/31/97 1,015,937
--------------------
TOTAL FORWARD COMMITMENTS--6.4% 4,028,123
--------------------
(Cost $3,972,500)
ASSET-BACKED SECURITIES(1)
600,000 Green Tree Financial Corp., Series
1995-7, Class A3, 6.35%,
11/15/26 603,816
500,000 Textron Financial Corp. Receivables
Trust, Series 1997-A, Class A,
6.05%, 3/16/09 (Acquired
9/18/97, Cost $499,337)(2) 499,300
500,000 United Companies Financial Corp.
Home Equity Loan, Series
1996-D1, Class A5, 6.92%,
10/15/18 504,385
500,000 United Companies Financial Corp.
Home Equity Loan, Series
1997-C, Class A7, 6.85%,
1/15/29 503,672
400,000 World Omni Automobile Lease
Securitization, Series 1996-B,
Class A2, 6.20%, 11/15/02 402,716
--------------------
TOTAL ASSET-BACKED SECURITIES--4.0% 2,513,889
--------------------
(Cost $2,498,115)
CORPORATE BONDS
AIRLINES--0.8%
479,305 Delta Air Lines, Inc., 7.54%,
10/11/11 493,685
--------------------
AUTOMOBILES & AUTO PARTS--0.6%
350,000 General Motors Co., 7.00%,
6/15/03 357,437
--------------------
Principal Amount Value
- -------------------------------------------------------------------------------------
BANKING--3.7%
$250,000 Corestates Capital Corp., 5.875%,
10/15/03 $ 241,250
200,000 First Union Corp., 8.77%,
11/15/04 209,750
300,000 MBNA Corp., 6.875%, 10/1/99 303,375
500,000 MBNA Global Capital Securities,
VRN, 6.52%, 11/3/97,
resets quarterly off the
3-month LIBOR
plus 0.80% with no caps 462,490
500,000 National Bank of Canada, 8.125%,
8/15/04 539,375
300,000 NationsBank Capital Trust III, VRN,
6.30%, 10/15/97, resets
quarterly off the 3-month LIBOR
plus 0.55% with no caps 296,206
300,000 Santander Financial Issuances Ltd.,
6.375%, 2/15/11 285,000
--------------------
2,337,446
--------------------
CHEMICALS & RESINS--0.6%
300,000 ARCO Chemical Co., 10.25%,
11/1/10 392,625
--------------------
COMMUNICATIONS SERVICES--1.5%
500,000 TCI Communications, Inc., 10.50%,
10/30/07, Call Date 10/30/99 557,500
400,000 WorldCom, Inc., 7.55%, 4/1/04 417,000
--------------------
974,500
--------------------
ELECTRICAL & ELECTRONIC
COMPONENTS--0.3%
200,000 Anixter International Inc., 8.00%,
9/15/03 209,250
--------------------
ENERGY (PRODUCTION & MARKETING)--0.6%
400,000 Seagull Energy Corp., 7.50%,
9/15/27 395,500
--------------------
FINANCIAL SERVICES--3.8%
500,000 Associates Corp., NA, 6.625%,
6/15/05 499,375
200,000 Ford Motor Credit Co., 6.75%,
5/15/05 201,000
550,000 Lehman Brothers Holdings Inc.,
6.625%, 11/15/00 552,750
See Notes to Financial Statements
SEMIANNUAL REPORT PREMIUM BOND 19
SCHEDULE OF INVESTMENTS
PREMIUM BOND
SEPTEMBER 30, 1997 (UNAUDITED)
Principal Amount Value
- -------------------------------------------------------------------------------------
$300,000 Paine Webber Group Inc., 7.875%,
2/15/03 $ 313,875
450,000 Price REIT, Inc. (The), 7.25%,
11/1/00 459,000
400,000 Wharf International Finance Ltd.,
7.625%, 3/13/07 (Acquired
3/6/97, Cost $396,836)(2) 408,000
--------------------
2,434,000
--------------------
INSURANCE--0.8%
450,000 Zurich Capital Trust I, 8.38%,
6/1/37, Call Date
6/1/07 (Acquired 5/28/97 through
6/11/97, Cost $452,966)(2) 482,062
--------------------
LEISURE--0.5%
350,000 Hilton Hotels Corp., 7.00%,
7/15/04 350,438
--------------------
MEDIA & BROADCASTING--0.5%
300,000 Time Warner Inc., 6.85%, 1/15/26,
Put Date 1/15/03 306,750
--------------------
OFFICE EQUIPMENT--0.6%
350,000 Xerox Capital Trust I, 8.00%,
2/1/27, Call Date 2/1/07
(Acquired 7/17/97, Cost
$364,084)(2) 367,500
--------------------
RAILROADS--0.6%
350,000 Norfolk Southern Corp., 7.90%,
5/15/97 379,313
--------------------
REAL ESTATE--0.8%
500,000 Spieker Properties, Inc., 6.80%,
12/15/01 505,000
--------------------
RETAIL (GENERAL MERCHANDISE)--0.6%
300,000 Sears, Roebuck & Co., Inc.,
9.375%, 11/1/11 367,500
--------------------
TOBACCO--0.4%
250,000 Philip Morris Companies Inc.,
7.00%, 7/15/05 252,500
--------------------
Principal Amount Value
- -------------------------------------------------------------------------------------
UTILITIES--1.4%
$500,000 Columbia Gas System, Inc. (The),
6.80%, 11/28/05 $ 504,375
400,000 Duke Power Co., 6.875%, 8/1/23 382,000
--------------------
886,375
--------------------
TOTAL CORPORATE BONDS--18.1% 11,491,881
--------------------
(Cost $11,295,430)
SOVEREIGN GOVERNMENTS & AGENCIES
500,000 Hydro-Quebec, 8.05%, 7/7/24,
Put Date 7/7/06 558,750
500,000 Korea Electric Power, 6.375%,
12/1/03 480,000
--------------------
TOTAL SOVEREIGN GOVERNMENTS
& AGENCIES--1.6% 1,038,750
--------------------
(Cost $1,043,663)
TEMPORARY CASH INVESTMENTS
3,000,000 Koch Industries Inc. CP,
6.49%, 10/1/97 (Acquired
9/30/97, Cost $2,999,459)(2)(3) 3,000,000
1,592,000 Units of Participation in Chase
Vista Prime Money Market Fund
(Institutional Shares), 5.52%,
10/1/97 1,592,000
--------------------
TOTAL TEMPORARY CASH INVESTMENTS--7.2% 4,592,000
--------------------
(Cost $4,592,000)
TOTAL INVESTMENT SECURITIES--100.0% $63,417,093
====================
(Cost $62,364,797)
</TABLE>
See Notes to Financial Statements
20 PREMIUM BOND AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
PREMIUM BOND
NOTES TO SCHEDULE OF INVESTMENTS
CP = Commercial Paper
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
GNMA = Government National Mortgage Association
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
VRN = Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Coupon rate indicated
is effective September 30, 1997.
resets= The frequency with which a fixed-income security's coupon changes,
based on current market conditions or an underlying index. The more
frequently a security resets, the less risk the investor is taking that
the coupon will vary significantly from current market rates.
(1) Final maturity indicated. Expected remaining maturity used for purposes of
calculating the weighted average portfolio maturity.
(2) Security was purchased under Rule 144A or section 4(2) of the Securities
Act of 1933 and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at September 30, 1997, was
$4,756,862, which represented 7.8% of net assets.
(3) Rate disclosed is the yield to maturity at purchase.
See Notes to Financial Statements
SEMIANNUAL REPORT PREMIUM BOND 21
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
SEPTEMBER 30, 1997 (UNAUDITED) RESERVE RESERVE BOND
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(amortized cost for
Government Reserve and
Capital Reserve;
identified cost of $62,364,797
for Bond) (Note 3) ............ $ 45,213,975 $ 166,408,293 $ 63,417,093
Cash ............................ 7,777 -- --
Receivable for
capital shares sold ............. -- -- 1,199,034
Interest receivable ............. 33,802 404,056 611,508
-------------- --------------- ------------
45,255,554 166,812,349 65,227,635
-------------- --------------- ------------
LIABILITIES
Disbursements in excess
of demand deposit cash ........ 1,266 2,958,868 2,934
Payable for investments
purchased ..................... -- -- 3,982,764
Payable for capital
shares redeemed ............... 230,743 144,877 306,255
Accrued management
fees (Note 2) ................. 16,965 61,172 21,677
Dividends payable ............... 24,979 94,966 39,469
-------------- --------------- ------------
273,953 3,259,883 4,353,099
-------------- --------------- ------------
Net Assets Applicable
to Outstanding Shares ......... $ 44,981,601 $ 163,552,466 $ 60,874,536
============== =============== ============
CAPITAL SHARES
Authorized ...................... 1,000,000,000 1,000,000,000 100,000,000
============== =============== ============
Outstanding ..................... 44,981,946 163,555,261 6,026,668
============== =============== ============
Net Asset Value
Per Share ....................... $ 1.00 $ 1.00 $ 10.10
============== =============== ============
NET ASSETS CONSIST OF:
Capital paid in ................. $ 44,981,601 $ 163,555,281 $ 59,568,226
Accumulated undistributed
net realized gain (loss)
on investments ................ -- (2,815) 254,014
Net unrealized appreciation
on investments (Note 3) ....... -- -- 1,052,296
-------------- --------------- ------------
$ 44,981,601 $ 163,552,466 $ 60,874,536
============== =============== ============
</TABLE>
See Notes to Financial Statements
22 STATEMENTS OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PREMIUM PREMIUM
FOR THE SIX MONTHS ENDED GOVERNMENT CAPITAL PREMIUM
SEPTEMBER 30, 1997 (UNAUDITED) RESERVE RESERVE BOND
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ........................ $1,246,220 $ 4,416,724 $1,709,705
---------- ----------- ----------
Expenses:
Management fees (Note 2) ........ 100,538 350,618 117,083
Directors' fees and expenses .... 218 752 251
---------- ----------- ----------
100,756 351,370 117,334
---------- ----------- ----------
Net investment income ........... 1,145,464 4,065,354 1,592,371
---------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss)
on investments ................ -- (1,770) 282,050
Change in net unrealized
appreciation on investments ... -- -- 1,485,921
---------- ----------- ----------
Net realized and unrealized
gain (loss) on investments .... -- (1,770) 1,767,971
---------- ----------- ----------
Net Increase in Net Assets
Resulting from Operations ..... $1,145,464 $ 4,063,584 $3,360,342
========== =========== ==========
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT STATEMENTS OF OPERATIONS 23
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND YEAR ENDED MARCH 31, 1997
PREMIUM GOVERNMENT PREMIUM CAPITAL PREMIUM
RESERVE RESERVE BOND
Sept. 30, March 31, Sept. 30, March 31, Sept. 30, March 31,
Increase in Net Assets 1997 1997 1997 1997 1997 1997
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ............ $ 1,145,464 $ 1,536,552 $ 4,065,354 $ 7,139,688 $ 1,592,371 $ 1,269,694
Net realized gain (loss)
on investments .................. -- -- (1,770) (387) 282,050 (7,433)
Change in net unrealized
appreciation (depreciation)
on investments .................. -- -- -- -- 1,485,921 (393,769)
Net increase in net assets
resulting from operations ....... 1,145,464 1,536,552 4,063,584 7,139,301 3,360,342 868,492
------------ ------------ ------------- ------------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ....... (1,145,464) (1,536,552) (4,065,354) (7,139,688) (1,592,371) (1,269,694)
------------ ------------ ------------- ------------- ------------ ------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold ........ 33,303,044 57,200,249 174,402,982 244,535,922 46,440,199 7,964,953
Proceeds from
reinvestment of distributions ... 1,114,538 1,457,750 3,884,623 6,775,632 1,559,181 1,246,658
Payments for shares redeemed ..... (28,273,969) (46,010,775) (168,691,202) (230,769,999) (10,642,806) (7,339,935)
------------ ------------ ------------- ------------- ------------ ------------
Net increase in net assets from
capital share transactions ...... 6,143,613 12,647,224 9,596,403 20,541,555 37,356,574 1,871,676
------------ ------------ ------------- ------------- ------------ ------------
Net increase in net assets ....... 6,143,613 12,647,224 9,594,633 20,541,168 39,124,545 1,470,474
NET ASSETS
Beginning of period .............. 38,837,988 26,190,764 153,957,833 133,416,665 21,749,991 20,279,517
------------ ------------ ------------- ------------- ------------ ------------
End of period .................... $ 44,981,601 $ 38,837,988 $ 163,552,466 $ 153,957,833 $ 60,874,536 $ 21,749,991
============ ============ ============= ============= ============ ============
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ............................. 33,303,044 57,200,249 174,402,982 244,535,922 4,708,788 805,036
Issued in reinvestment
of distributions ................ 1,114,883 1,457,750 3,884,623 6,775,632 156,495 126,431
Redeemed ......................... (28,273,969) (46,010,775) (168,691,202) (230,769,999) (1,068,025) (743,472)
------------ ------------ ------------- ------------- ------------ ------------
Net increase ..................... 6,143,958 12,647,224 9,596,403 20,541,555 3,797,258 187,995
============ ============ ============= ============= ============ ============
</TABLE>
See Notes to Financial Statements
24 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century Premium Reserves, Inc. (the Corporation) is
registered under the Investment Company Act of 1940 as an open-end diversified
management investment company. Three series of funds, investing primarily in
fixed-income securities, are currently issued as : American Century - Benham
Premium Government Reserve Fund (Government Reserve), American Century - Benham
Premium Capital Reserve Fund (Capital Reserve) and American Century - Benham
Premium Bond Fund (Premium Bond) (the Funds). The investment objective of
Government Reserve and Capital Reserve is to obtain as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity. The investment objective of Premium Bond is to obtain a high level of
income from investments in a portfolio of bonds and other debt obligations
having a weighted average maturity of three and one-half years or more. The
following significant accounting policies, related to the Funds, are in
accordance with accounting policies generally accepted in the investment company
industry.
SECURITY VALUATIONS--Securities held by Government Reserve and Capital
Reserve are valued at amortized cost, which approximates current value.
Securities held by Premium Bond are valued through valuations obtained through a
commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Directors.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income is recorded on the accrual basis and
includes amortization of premiums and discounts. Premiums and discounts are
amortized daily on a straight-line basis for securities held by Government
Reserve and Capital Reserve. Premiums and discounts for long-term investments
are amortized using the effective interest rate method and discounts for
short-term investments are amortized on a straight-line basis for Premium Bond.
FORWARD COMMITMENTS--Premium Bond may purchase and sell U.S. government
securities on a firm commitment basis. Under these arrangements, the securities'
prices and yields are fixed on the date of the commitment, but payment and
delivery are scheduled for a future date. During this period, securities are
subject to market fluctuations. The Fund maintains segregated accounts
consisting of cash or liquid securities in an amount sufficient to meet the
purchase price.
REPURCHASE AGREEMENTS--The Funds may enter into repurchase agreements with
institutions that the Funds' investment manager, American Century Investment
Management, Inc. (ACIM), has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The Funds require that the securities purchased in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable the
Funds to obtain those securities in the event of a default under the repurchase
agreement. ACIM monitors, on a daily basis, the value of the securities
transferred to ensure the value including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to the
Funds under each repurchase agreement.
JOINT TRADING ACCOUNT--Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having management agreements with ACIM, may transfer
uninvested cash balances into a joint trading account held at the Funds'
custodian. These balances are invested in one or more repurchase agreements that
are collateralized by U.S. Treasury or Agency obligations.
INCOME TAX STATUS--It is the Funds' policy to distribute all net investment
income and net realized capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and distributed monthly. Government Reserve and Capital Reserve
do not expect to realize any long-term capital gains and, accordingly do not
expect to pay any long-term capital gains distributions. Distributions from net
realized gains for Premium Bond are declared and paid annually.
At March 31, 1997, accumulated net realized short-term capital loss
carryovers for Capital Reserve and Premium Bond of $1,045 and $22,631,
respectively, (expiring 2003 through 2005) may be used to offset future taxable
gains.
The character of distributions made during the year from net investment
income or net realized capital gains may differ from their ultimate
characterization for federal income tax purposes. These differences are due to
differences in the recognition of income and expense items for financial
statement and tax purposes.
SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 25
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
SUPPLEMENTARY INFORMATION--Certain officers and directors of the Corporation
are also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Corporation's investment
manager, ACIM, the Corporation's distributor, American Century Investment
Services, Inc., and the Corporation's transfer agent, American Century Services
Corporation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The Corporation has entered into a Management Agreement with ACIM that
provides the Funds with investment advisory and management services in exchange
for a single, unified fee. The Agreement provides that all expenses of the
Funds, except brokerage commissions, taxes, interest, expenses of those
directors who are not considered "interested persons" as defined in the
Investment Company Act of 1940 (including counsel fees) and extraordinary
expenses, will be paid by ACIM. The fee is computed daily and paid monthly based
on each Fund's average daily closing net assets during the previous month. The
annual management fee for each Fund is 0.45%.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities for Premium Bond, excluding short-term
investments, totaled $60,464,938, including U.S. Treasury and Agency obligations
totaling $54,213,665. Sales of investment securities for Premium Bond, excluding
short-term investments, totaled $24,937,257 including U.S. Treasury and Agency
obligations totaling $23,886,216.
As of September 30, 1997, accumulated net unrealized appreciation was
$1,052,296 for Premium Bond, based on the aggregate cost of investments for
federal income tax purposes of $62,364,797. Accumulated net unrealized
appreciation consisted of unrealized appreciation of $1,115,015, and unrealized
depreciation of $62,719. The aggregate cost of investments for federal income
tax purposes was the same as the cost for financial reporting purposes.
26 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
PREMIUM GOVERNMENT RESERVE
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1997(1) 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ................. $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ............. 0.03 0.05 0.05 0.05 0.03
--------- --------- --------- --------- ---------
Distributions
From Net Investment Income ........ (0.03) (0.05) (0.05) (0.05) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ...... $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= =========
Total Return(2) ................... 2.59% 5.07% 5.49% 4.62% 2.75%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.45%(3) 0.45% 0.44% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ............... 5.13%(3) 4.96% 5.30% 4.84% 2.72%
Net Assets, End
of Period (in thousands) ............ $44,982 $38,838 $26,191 $16,381 $5,459
</TABLE>
- ----------
(1) Six months ended September 30, 1997 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 27
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
PREMIUM CAPITAL RESERVE
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1997(1) 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .................. $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.03 0.05 0.05 0.05 0.03
--------- --------- --------- --------- ---------
Distributions
From Net Investment Income ......... (0.03) (0.05) (0.05) (0.05) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ....... $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= =========
Total Return(2) .................... 2.64% 5.13% 5.58% 4.66% 2.81%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.45%(3) 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ................ 5.22%(3) 5.01% 5.50% 4.76% 2.83%
Net Assets, End
of Period (in thousands) .............$163,552 $153,958 $133,417 $138,428 $38,823
</TABLE>
- ----------
(1) Six months ended September 30, 1997 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements
28 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
PREMIUM BOND
For a Share Outstanding Throughout the Years Ended March 31 (except as noted)
1997(1) 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .................. $9.76 $9.93 $9.46 $9.64 $10.00
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .............. 0.30 0.61 0.61 0.59 0.46
Net Realized and Unrealized
Gain (Loss) on Investments ......... 0.34 (0.17) 0.47 (0.18) (0.36)
--------- --------- --------- --------- ---------
Total From
Investment Operations ................ 0.64 0.44 1.08 0.41 0.10
--------- --------- --------- --------- ---------
Distributions
From Net Investment Income ......... (0.30) (0.61) (0.61) (0.59) (0.46)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ....... $10.10 $9.76 $9.93 $9.46 $9.64
========= ========= ========= ========= =========
Total Return(2) .................... 6.68% 4.57% 11.53% 4.48% 0.92%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.45%(3) 0.45% 0.43% 0.45% 0.45%
Ratio of Net Investment Income
to Average Net Assets ................ 6.11%(3) 6.20% 6.08% 6.30% 4.65%
Portfolio Turnover ................... 53% 63% 92% 51% 144%
Net Assets, End
of Period (in thousands) ............. $60,875 $21,750 $20,280 $10,334 $8,080
</TABLE>
- ----------
(1) Six months ended September 30, 1997 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 29
PROXY VOTING RESULTS
An annual meeting of shareholders was held on July 30, 1997, to vote on the
following proposals. All of the proposals received the required majority of
votes and were adopted.
A summary of voting results is listed below each proposal.
PROPOSAL 1:
To elect a Board of Directors of nine members to hold office for the ensuing
year or until their successors are elected and qualified.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
James E. Stowers, Jr
For: 29,698,796 113,783,354 4,252,771
Withheld: 769,700 1,153,239 20,382
James E. Stowers III
For: 29,698,796 113,783,354 4,252,771
Withheld: 769,700 1,153,239 20,382
Thomas A. Brown
For: 29,698,796 113,791,580 4,252,771
Withheld: 769,700 1,145,013 20,382
Robert W. Doering, M.D
For: 29,698,796 113,791,580 4,252,771
Withheld: 769,700 1,145,013 20,382
D.D. (Del) Hock
For: 29,698,796 113,791,580 4,252,771
Withheld: 769,700 1,145,013 20,382
Linsley L. Lundgaard
For: 29,698,796 113,791,580 4,252,771
Withheld: 769,700 1,145,013 20,382
Donald H. Pratt
For: 29,698,796 113,490,665 4,252,771
Withheld: 769,700 1,445,928 20,382
Lloyd T. Silver, Jr
For: 29,698,796 113,490,665 4,252,771
Withheld: 769,700 1,445,928 20,382
M. Jeannine Strandjord
For: 29,698,796 113,791,580 4,252,771
Withheld: 769,700 1,145,013 20,382
PROPOSAL 2:
To vote on approval of a Management Agreement with American Century
Investment Management, Inc.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,475,781 113,146,117 4,252,771
Against: 992,715 780,131 20,382
Abstain: -- 1,010,345 --
PROPOSAL 3:
To vote on the selection by the Board of Directors of Deloitte & Touche LLP
as independent auditors for the Corporation.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,716,751 113,760,226 4,273,153
Against: 751,745 1,176,367 --
Abstain: -- -- --
30 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
PROXY VOTING RESULTS
PROPOSAL 4:
To vote on the adoption of standardized investment limitations for the
following items:
* Eliminate the fundamental investment limitation concerning diversification of
investments.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,624,826
Against: 1,098,695 3,732,891 648,327
Abstain: 159,241 -- --
* Amend the fundamental investment limitation concerning the issuance of senior
securities.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,535,302
Against: 1,098,695 3,732,891 717,469
Abstain: 159,241 -- 20,382
* Amend the fundamental investment limitation concerning borrowing.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 112,287,326 3,604,444
Against: 1,098,695 2,649,267 648,327
Abstain: 159,241 -- 20,382
* Amend the fundamental investment limitation concerning lending.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 112,287,326 3,604,444
Against: 1,098,695 2,649,267 648,327
Abstain: 159,241 -- 20,382
* Amend the fundamental investment limitation concerning concentration of
investments in a particular industry.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 110,337,201 3,604,444
Against: 1,098,695 4,599,392 648,327
Abstain: 159,241 -- 20,382
* Eliminate the fundamental investment limitation regarding investments in
illiquid securities.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,604,444
Against: 1,098,695 3,732,891 648,327
Abstain: 159,241 -- 20,382
* Eliminate the fundamental limitation concerning investment in other
investment companies.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,604,444
Against: 1,098,695 3,732,891 648,327
Abstain: 159,241 -- 20,382
* Amend the fundamental investment limitation concerning investments in real
estate.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 110,997,390 3,604,444
Against: 1,098,695 3,939,203 648,327
Abstain: 159,241 -- 20,382
SEMIANNUAL REPORT PROXY VOTING RESULTS 31
PROXY VOTING RESULTS
* Amend the fundamental investment limitation concerning underwriting.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,604,444
Against: 1,098,695 3,732,891 648,327
Abstain: 159,241 -- 20,382
* Amend the fundamental investment limitation concerning commodities.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,535,302
Against: 1,098,695 3,732,891 717,469
Abstain: 159,241 -- 20,382
* Eliminate the fundamental limitation concerning investments in issuers with
less than three years of continuous operations.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 111,203,702 3,604,444
Against: 1,098,695 3,732,891 648,327
Abstain: 159,241 -- 20,382
* Eliminate the fundamental limitation concerning short sales.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 28,650,232 111,116,839 3,604,444
Against: 1,659,023 3,819,754 648,327
Abstain: 159,241 -- 20,382
* Eliminate the fundamental investment limitation concerning margin purchases
of securities.
PREMIUM PREMIUM
GOVERNMENT CAPITAL PREMIUM
RESERVE RESERVE BOND
For: 29,210,560 110,448,424 3,604,444
Against: 1,098,695 4,488,169 648,327
Abstain: 159,241 -- 20,382
32 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
RETIREMENT ACCOUNT INFORMATION
As required by law, any distributions you receive from an IRA and certain
403(b) distributions [not eligible for rollover to an IRA or to another 403(b)]
are subject to federal income tax withholding at the rate of 10% of the total
amount withdrawn, unless you elect not to have withholding apply. If you don't
want us to withhold on this amount, you may send us a written notice not to have
the federal income tax withheld. Your written notice is valid for six months
from the date of receipt at American Century. Even if you plan to roll over the
amount you withdraw to another tax-deferred account, the withholding rate still
applies to the withdrawn amount unless we have received a written notice not to
withhold federal income tax within six months prior to the withdrawal.
When you plan to withdraw, you may make your election by completing our
Exchange/ Redemption form or an IRS Form W-4P. Call American Century for either
form. Your written election is valid for only six months from the date of
receipt at American Century. You may revoke your election at any time by sending
a written notice to us.
Remember, even if you elect not to have income tax withheld, you are liable
for paying income tax on the taxable portion of your withdrawal. If you elect
not to have income tax withheld or you don't have enough income tax withheld,
you may be responsible for payment of estimated tax. You may incur penalties
under the estimated tax rules if your withholding and estimated tax payments are
not sufficient.
SEMIANNUAL REPORT RETIREMENT ACCOUNT INFORMATION 33
NOTES
34 NOTES AMERICAN CENTURY INVESTMENTS
NOTES
SEMIANNUAL REPORT NOTES 35
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The Benham Group offers 38 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies:
PREMIUM GOVERNMENT RESERVE and PREMIUM CAPITAL RESERVE are money market
funds that seek to obtain as high a level of current income as is consistent
with the preservation of capital and maintenance of liquidity. The funds will
purchase only securities having remaining maturities of 13 months or less and
maintain a weighted average portfolio maturity of not more than 90 days.
An investment in the funds is neither insured nor guaranteed by the U.S.
government. Yields will fluctuate, and there can be no assurance that the funds
will be able to maintain a stable net asset value of $1 per share. Past
performance is no guarantee of future results.
PREMIUM BOND seeks a high level of income from investment in longer-term
bonds and other debt instruments. It is designed for investors whose primary
goal is a level of income higher than is generally provided by money market or
short- and intermediate-term securities and who can accept the generally greater
price volatility associated with longer-term bonds.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The 90-DAY TREASURY BILL INDEX is derived from secondary market interest
rates as published by the Federal Reserve Bank.
The LEHMAN AGGREGATE BOND INDEX is composed of the Lehman
Government/Corporate Index and the Lehman Mortgage-Backed Securities Index. It
reflects the price fluctuations of Treasury securities, U.S. government agency
securities, corporate bond issues and mortgage-backed securities.
LIPPER RANKINGS
LIPPER ANALYTICAL SERVICES, INC. is an independent mutual fund ranking
service that groups funds according to their investment objectives. Rankings are
based on average annual returns for each fund in a given category for the
periods indicated. Rankings are not included for periods less than one year.
The Lipper category for the Premium Reserve funds are:
INSTITUTIONAL U.S. GOVERNMENT MONEY MARKET FUNDS (Premium Government
Reserve)--funds with dollar-weighted average maturities of less than 90 days
that intend to maintain a stable net asset value and that invest principally in
financial instruments issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
INSTITUTIONAL MONEY MARKET FUNDS (Premium Capital Reserve)--funds with
dollar-weighted average maturities of less than 90 days that intend to maintain
a stable net asset value and that invest in high-quality financial instruments
rated in the top two grades.
CORPORATE DEBT FUNDS RATED A (Premium Bond)--funds that invest at least 65%
of their assets in government issues or corporate debt issues rated A or better
- --------------------------------------------------------------------------------
INVESTMENT TEAM LEADERS
- --------------------------------------------------------------------------------
Portfolio Managers Bud Hoops, Amy O'Donnell,
Denise Tabacco
Credit Research Manager Greg Afiesh
- --------------------------------------------------------------------------------
36 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 27-29.
YIELDS
* 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
* 7-DAY EFFECTIVE YIELD is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
PORTFOLIO STATISTICS
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount. The
longer the WAM, the more interest rate exposure and sensitivity the portfolio
has.
* AVERAGE DURATION--another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio. As the
duration of a portfolio increases, so does the impact of a change in interest
rates on the value of the portfolio.
* EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets.
TYPES OF FIXED-INCOME SECURITIES
* CERTIFICATES OF DEPOSIT (CDS)--CDs represent a bank's obligation to repay
money deposited with it for a specified period of time.
* COMMERCIAL PAPER (CP)--short-term debt issued by large corporations to raise
cash and to cover current expenses in anticipation of future revenues.
* CORPORATE BONDS--debt securities or instruments issued by companies and
corporations.
* FLOATING-RATE NOTES (FLOATERS)--debt securities whose interest rates change
when a designated base rate changes. The base rate is often the federal funds
rate, the 90-day Treasury bill rate or the London Interbank Offered Rate.
* FOREIGN GOVERNMENT SECURITIES--debt securities issued or guaranteed by foreign
governments or their political subdivisions. Some of these securities are direct
obligations of the issuing government; others are backed by some form of
government sponsorship.
* MORTGAGE-BACKED SECURITIES--debt securities that represent ownership in pools
of mortgage loans.
* REPURCHASE AGREEMENTS (REPOS)--short-term debt agreements in which a fund buys
a security at one price and simultaneously agrees to sell it back to the seller
at a slightly higher price on a specified date (usually within seven days).
* U.S. GOVERNMENT AGENCY SECURITIES--debt securities issued by U.S. government
agencies (such as the Federal Home Loan Bank and the Federal Farm Credit Bank).
Government agency securities include discount notes (maturing in one year or
less) and medium-term notes, debentures and bonds (maturing in three months to
50 years).
* U.S. TREASURY SECURITIES--debt securities issued by the U.S. Treasury and
backed by the direct "full faith and credit" pledge of the U.S. government.
Treasury securities include bills (maturing in one year or less), notes
(maturing in two to 10 years) and bonds (maturing in more than 10 years).
SEMIANNUAL REPORT GLOSSARY 37
[american century logo]
American
Century(reg.sm)
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 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
AMERICAN CENTURY PREMIUM RESERVES, INC.
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
AMERICAN CENTURY INVESTMENT SERVICES, INC.
9711 [recycled logo]
SH-BKT-10283 Recycled
