STATEMENT OF ADDITIONAL INFORMATION
[american century logo]
American
Century(sm)
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
BENHAM
GROUP(R)
Premium Bond
Premium Government Reserve
Premium Capital Reserve
[front cover]
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 3, 1996
REVISED JANUARY 1, 1997
AMERICAN CENTURY PREMIUM RESERVES, INC.
This Statement is not a prospectus but should be read in conjunction with
the current Prospectus of American Century Premium Reserves, Inc. dated
September 3, 1996. Please retain this document for future reference. To obtain
the Prospectus, call American Century toll-free at 1-800-345-3533 (816-531-5575
for international calls), or write to P.O. Box 419385, Kansas City, Missouri
64141-6385.
TABLE OF CONTENTS
Investment Objectives of the Funds.............................................2
Selection of Investments.......................................................2
Investment Restrictions........................................................3
An Explanation of Fixed Income Securities Ratings..............................4
Forward Currency Exchange Contracts............................................5
Interest Rate Futures Contracts and Related Options............................6
Officers and Directors........................................................10
Management....................................................................11
Custodians....................................................................12
Independent Auditors..........................................................12
Capital Stock.................................................................12
Taxes.........................................................................13
Brokerage.....................................................................14
Performance Advertising.......................................................14
Redemptions in Kind...........................................................15
Holidays......................................................................16
Financial Statements..........................................................16
Statement of Additional Information 1
INVESTMENT OBJECTIVES OF THE FUNDS
The investment objective of each series of shares issued by American
Century Premium Reserves, Inc. is described on the cover page of the Prospectus.
In achieving its objective, each fund must conform to certain policies, some of
which are designated in the Prospectus or in this Statement of Additional
Information as "fundamental" and cannot be changed without shareholder approval.
Neither the Securities and Exchange Commission nor any other federal or
state agency participates in or supervises the management of the funds or their
investment practices or policies.
SELECTION OF INVESTMENTS
PREMIUM GOVERNMENT RESERVE
The manager will invest the Premium Government Reserve portfolio in debt
securities payable in U.S. currency. Such securities must be obligations issued
or guaranteed by the U.S. government or its agencies and instrumentalities,
including repurchase agreements for such securities. The manager intends to
purchase securities that have quality and maturity characteristics that will
allow Premium Government Reserve to be designated as a money market fund and
enable it to maintain a stable offering price per share.
The manager will invest the Premium Government Reserve portfolio in direct
obligations of the United States, such as Treasury bills, Treasury notes and
U.S. government bonds, that are supported by the full faith and credit of the
United States. The manager may also invest in agencies and instrumentalities of
the U.S. government. The securities of some of such agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; still others are supported only by the credit of the agency or
instrumentality. Such agencies and instrumentalities include, but are not
limited to, the Government National Mortgage Association, Federal National
Mortgage Association, Federal Home Loan Mortgage Corporation, Student Loan
Marketing Association, Federal Farm Credit Banks, Federal Home Loan Banks, and
Resolution Funding Corporation. Purchase of such securities may be made outright
or on a when-issued basis and may be made subject to repurchase agreements.
PREMIUM CAPITAL RESERVE
The manager will invest the Premium Capital Reserve portfolio in debt
securities payable in U.S. currency. Such securities may be obligations issued
or guaranteed by the U.S. government or its agencies and instrumentalities of
the same types and from the same issuers as described above under "Premium
Government Reserve." In addition, Premium Capital Reserve may invest in
obligations issued by corporations and others. It also may invest in repurchase
agreements for all of such securities. The manager intends to purchase
securities with quality and maturity characteristics that will allow Premium
Capital Reserve to be designated as a money market fund and enable it to
maintain a stable offering price per share.
PREMIUM BOND
The manager will invest the Premium Bond portfolio in high- and
medium-grade debt securities payable in both U.S. and foreign currencies. The
fund may invest in securities that, at the time of purchase, are rated by a
nationally recognized statistical rating organization or, if not rated, are of
equivalent investment quality as determined by the management, as follows:
short-term notes within the two highest categories; corporate, sovereign
government and municipal bonds within the four highest categories; securities of
the U.S. government and its agencies and instrumentalities; and other types of
securities rated at least P-2 by Moody's or A-2 by S&P. Premium Bond may also
purchase securities under repurchase agreements as described in the Prospectus
and purchase and sell interest rate futures contracts and related options. (See
"Interest Rate Futures Contracts and Related Options," page 6.)
Premium Bond may buy and sell interest rate futures contracts relating to
debt securities ("debt futures," i.e., futures relating to debt securities, and
"bond index futures," i.e., futures relating to indices on types or groups of
bonds) and write and buy put and call options relating to interest rate futures
contracts for the purpose of hedging against (i) declines or possible declines
in the market value of debt securities or (ii) inability to participate in
advances in the
2 American Century Investments
market values of debt securities at times when the fund is not fully invested in
long-term debt securities; provided that it may not purchase or sell futures
contracts or related options if immediately thereafter the sum of the amount of
margin deposits on its existing futures positions and premiums paid for related
options would exceed 5% of the fund's assets.
INVESTMENT COMPANY ACT RULE 2A-7
Premium Government Reserve and Premium Capital Reserve each operates
pursuant to Invest-ment Company Act Rule 2a-7, which permits valuation of
portfolio securities on the basis of amortized cost. As required by the Rule,
the Board of Directors has adopted procedures designed to stabilize, to the
extent reasonably possible, each fund's price per share as computed for the
purpose of sales and redemptions at $1.00. While the day-to-day operation of
each fund has been delegated to the manager, the quality requirements
established by the procedures limit investments to certain U.S.
dollar-denominated instruments that the Board of Directors has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a nationally recognized statistical rating
organization or, in the case of an unrated security, of comparable quality. The
procedures require review of each fund's portfolio holdings at such intervals as
are reasonable in light of current market conditions to determine whether the
fund's net asset value calculated by using available market quotations deviates
from the per-share value based on amortized cost. The procedures also prescribe
the action to be taken if such deviation should occur.
INVESTMENT RESTRICTIONS
Fundamental policies that may be changed only with shareholder approval
provide that no series of shares:
(1) Intended to be designated as a money market fund shall invest more than 10%
of its assets in illiquid investments, while no non-money market series of
shares shall invest more than 15% of its assets in illiquid investments.
(2) Shall lend its portfolio securities except to unaffiliated persons and
subject to the rules and regulations adopted under the Investment Company
Act of 1940. No such rules and regulations have been issued, but it is the
fund's policy that such loans must be secured continuously by cash
collateral maintained on a current basis in an amount at least equal to the
market value of the securities loaned or by irrevocable letters of credit.
During the existence of the loan, a fund must continue to receive the
equivalent of the interest and dividends paid by the issuer on the
securities loaned and interest on the investment of the collateral; the
fund must have the right to call the loan and obtain the securities loaned
at any time on five days' notice, including the right to call the loan to
enable the fund to vote the securities. To comply with the regulations of
certain state securities administrators, such loans may not exceed
one-third of the fund's net assets taken at market.
(3) Shall, with regard to 75% of its portfolio, purchase the security of any
one issuer if such purchase would cause more than 5% of a fund's assets at
market to be invested in the securities of such issuer, except U.S.
government securities, or if the purchase would cause more than 10% of the
outstanding voting securities of any one issuer to be held in a fund's
portfolio. Note: As a matter of operating policy and not a fundamental
policy, Premium Government Reserve and Premium Capital Reserve have elected
to comply with Rule 2a-7 under the Investment Company Act, which requires
diversification of 100% of their respective portfolios, not 75% as stated
in this restriction.
(4) Shall invest for control or for management, or concentrate its investment
in a particular company or a particular industry. No more than 25% of the
assets of a fund, exclusive of cash and U.S. government securities, will be
invested in securities of any one industry.
(5) Shall buy securities on margin or sell short (unless it owns or by virtue
of its ownership of other securities has the right to obtain securities
equivalent in kind and amount to the securities sold); however, a fund may
make margin deposits in connection with the use of any financial instrument
or any transaction in securities permitted by its fundamental policies.
Statement of Additional Information 3
(6) Shall invest in the securities of other investment companies except by
purchases in the open market involving only customary brokers' commission
and no sales charges.
(7) Shall issue any senior security.
(8) Shall underwrite any securities.
(9) Shall purchase or sell commodities or commodity contracts except that
Premium Bond may, for non-speculative purposes, buy or sell interest rate
futures contracts on debt securities (debt futures and bond index futures)
and related options.
(10) Shall borrow any money, except in an amount not in excess of 5% of the
total assets of the series, and then only for emergency and extraordinary
purposes. Note: This investment restriction does not prohibit escrow and
collateral arrangements in connection with investment in interest rate
futures contracts and related options by Premium Bond.
The Investment Company Act imposes certain additional restrictions upon
acquisition by the funds of securities issued by insurance companies, brokers,
dealers, underwriters or investment advisers, and upon transactions with
affiliated persons as therein defined. It also defines and forbids the creation
of cross and circular ownership.
AN EXPLANATION OF FIXED INCOME SECURITIES RATINGS
As described in the Prospectus, the funds invest in fixed income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the Prospectus. The following is a description of the
rating categories referenced in the Prospectus disclosure.
The following summarizes the highest four ratings used by Standard & Poor's
Corporation for bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only to a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher- rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes
and indicates very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a plus (+) designation.
The following summarizes the highest four ratings used by Moody's
Investors Service, Inc. for bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered ade-
4 American Century Investments
quate, but elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 with respect to bonds rated
Aa, A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of that generic
rating category.
The rating Prime-1 or P-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 or P-2 (or related supporting institutions)
are considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
FORWARD CURRENCY EXCHANGE CONTRACTS
Premium Bond conducts its foreign currency exchange transactions either on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into forward currency exchange contracts
("forward contracts") to purchase or sell foreign currencies.
The fund expects to use forward contracts under two circumstances:
(1) When the manager wishes to "lock in" the U.S. dollar price of a security
when the fund is purchasing or selling a security denominated in a foreign
currency, the fund would be able to enter into a forward contract to do so;
(2) When the manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, a fund would be
able to enter into a forward contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of its portfolio
securities denominated in such foreign currency.
As to the first circumstance, when the fund enters into a trade for the
purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering
into forward contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the fund will be able
to protect itself against a possible loss between trade and settlement dates
resulting from the adverse change in the relationship between the U.S. dollar
and the subject foreign currency.
Under the second circumstance, when the manager believes that the currency
of a particular country may suffer a substantial decline relative to the U.S.
dollar, a fund could enter into a forward contract to sell for a fixed dollar
amount the amount in foreign currencies approximating the value of some or all
of its portfolio securities denominated in such foreign currency. The fund will
place cash or high-grade liquid securities in a separate account with its
custodian in an amount equal to the value of the forward contracts entered into
under the second circumstance. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account equals the amount of
the fund's commitments with respect to such contracts.
The precise matching of forward contracts in the amounts and values of
securities involved generally would not be possible since the future values of
such
Statement of Additional Information 5
foreign currencies will change as a consequence of market movements in the
values of those securities between the date the forward contract is entered into
and the date it matures. Predicting short-term currency market movements is
extremely difficult, and the successful execution of short-term hedging strategy
is highly uncertain. The manager does not intend to enter into such contracts on
a regular basis. Normally, consideration of the prospect for currency parities
will be incorporated into the long-term investment decisions made with respect
to overall diversification strategies. However, the manager believes that it is
important to have flexibility to enter into such forward contracts when it
determines that the fund's best interests may be served.
Generally, the fund will not enter into a forward contract with a term of
greater than one year. At the maturity of the forward contract, the fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" forward contract with the same currency
trader obligating the fund to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the forward contract. Accordingly, it
may be necessary for the fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the fund is obligated to deliver.
INTEREST RATE FUTURES CONTRACTS AND
RELATED OPTIONS
Premium Bond may buy and sell interest rate futures contracts relating to
debt securities ("debt futures," i.e., futures relating to debt securities, and
"bond index futures," i.e., futures relating to indices on types or groups of
bonds) and write and buy put and call options relating to interest rate futures
contracts.
The fund will not purchase or sell futures contracts and options thereon
for speculative purposes but rather only for the purpose of hedging against
changes in the market value of its portfolio securities or changes in the market
value of securities that the management team may wish to include in the
portfolio of the fund. The fund may sell a future, write a call or purchase a
put on a future if the management anticipates that a general market or market
sector decline may adversely affect the market value of any or all of the fund's
holdings. The fund may buy a future, purchase a call or sell a put on a future
if the fund management anticipates a significant market advance in the type of
securities it intends to purchase for the fund's portfolio at a time when the
fund is not invested in debt securities to the extent permitted by its
investment policies. The fund may purchase a future or a call option thereon as
a temporary substitute for the purchase of individual securities, which may then
be purchased in an orderly fashion. As securities are purchased, corresponding
futures positions would be terminated by offsetting sales.
The "sale" of a debt future means the acquisition by the fund of an
obligation to deliver the related debt securities (i.e., those called for by the
contract) at a specified price on a specified date. The "purchase" of a debt
future means the acquisition by the fund of an obligation to acquire the related
debt securities at a specified time on a specified date. The "sale" of a bond
index future means the acquisition by the fund of an obligation to deliver an
amount of cash equal to a specified dollar amount times the difference between
the index value at the close of the last trading day of the future and the price
at which the future is originally struck. No physical delivery of the bonds
making up the index is expected to be made. The "purchase" of a bond index
future means the acquisition by the fund of an obligation to take delivery of
such an amount of cash.
Unlike when the fund purchases or sells a bond, no price is paid or
received by the fund upon the purchase or sale of a futures contract. Initially,
the fund will be required to deposit an amount of cash or securities equal to a
varying specified percentage of the contract amount. This amount is known as
initial margin. Cash held in the margin account is not income producing.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying debt securities or index
fluctuates, making the futures contract
6 American Century Investments
more or less valuable, a process known as mark to the market. Changes in
variation margin are recorded by the fund as unrealized net gains or losses. At
any time prior to expiration of the future, the fund may elect to close the
position by taking an opposite position that will operate to terminate its
position in the future. A final determination of variation margin is then made;
additional cash is required to be paid by or released to the fund and the fund
realizes a loss or a gain.
When the fund writes an option on a futures contract it becomes obligated,
in return for the premium received, to assume a position in a specified futures
contract at a specified exercise price at any time during the term of the
option. If the fund has written a call, it becomes obligated to assume a "long"
position in a futures contract, which means that it is required to take delivery
of the underlying securities. If it has written a put, it is obligated to assume
a "short" position in a futures contract.
If the fund writes an option on a futures contract it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
on a future are included in the initial margin deposit.
For options sold, the fund will segregate cash or high-quality debt
securities equal to the value of securities underlying the option unless the
option is otherwise covered.
The fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it has
purchased less any margin deposited on its long position. It may hold cash or
acquire such debt obligations for the purpose of making these deposits.
Changes in variation margin are recorded by the fund as unrealized gains or
losses. Initial margin payments will be deposited in the fund's custodian bank
in an account registered in the broker's name; access to the assets in that
account may be made by the broker only under specified conditions. At any time
prior to expiration of a futures contract or an option thereon, the fund may
elect to close the position by taking an opposite position that will operate to
terminate its position in the futures contract or option. A final determination
of variation margin is made at that time; additional cash is required to be paid
by or released to it and it realizes a loss or gain.
Although futures contracts by their terms call for the actual delivery or
acquisition of the underlying securities or cash, in most cases the contractual
obligation is fulfilled without having to make or take delivery. The fund does
not intend to make or take delivery of the underlying obligation. All
transactions in futures contracts and options thereon are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
instruments are traded. Although the fund intends to buy and sell futures
contracts only on exchanges where there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular futures contract at any particular time. In such event, it may not be
possible to close a futures contract position. Similar market liquidity risks
occur with respect to options.
The use of futures contracts and options thereon to attempt to protect
against the market risk of a decline in the value of portfolio securities is
referred to as having a "short futures position." The use of futures contracts
and options thereon to attempt to protect against the market risk that a fund
might not be fully invested at a time when the value of the securities in which
it invests is increasing is referred to as having a "long futures position." The
fund must operate within certain restrictions as to long and short positions in
futures contracts and options thereon under a rule adopted by the Commodity
Futures Trading Commission under the Commodity Exchange Act to be eligible for
the exclusion provided by the rule from registration by the fund with the CFTC
as a "commodity pool operator" (as defined under the Commodity Exchange Act),
and must represent to the CFTC that it will operate within such restrictions.
Under these restrictions, the fund will not, as to any positions, whether long,
short or a combination thereof, enter into futures contracts and options thereon
for which the aggregate initial margins and premiums exceed 5% of the fair
market value of the fund's assets after taking into account unrealized profits
and losses on options the fund has entered into; in the case of an option that
is "in-the-money" (as defined under the Commodity Exchange Act), the
in-the-money amount may be excluded in
Statement of Additional Information 7
computing such 5%. (In general, a call option on a futures contract is
in-the-money if the value of the futures contract that is the subject of the put
is exceeded by the strike price of the put.) Under the restrictions, the fund
also must, as to short positions, use futures contracts and options thereon
solely for bona fide hedging purposes within the meaning and intent of the
applicable provisions under the Commodity Exchange Act. As to its long positions
that are used as part of the fund's portfolio strategy and are incidental to the
fund's activities in the underlying cash market, the "underlying commodity
value" (see next page) of the fund's futures contracts and options thereon must
not exceed the sum of (i) cash set aside in an identifiable manner, or
short-term U.S. debt obligations or other U.S. dollar-denominated, high-quality,
short-term money market instruments so set aside, plus any funds deposited as
margin; (ii) cash proceeds from existing investments due in 30 days; and (iii)
accrued profits held at the futures commission merchant. (There are described
above the segregated accounts that a fund must maintain with its custodian bank
as to its options and futures contracts activities due to Securities and
Exchange Commission requirements. The fund will, as to its long positions, be
required to abide by the more restrictive of these SEC and CFTC requirements.)
The underlying commodity value of a futures contract is computed by multiplying
the size (dollar amount) of the futures contract by the daily settlement price
of the futures contract. For an option on a futures contract, that value is the
underlying commodity value of the futures contract underlying the option.
Since futures contracts and options thereon can replicate movements in the
cash markets for the securities in which the fund invests without the large cash
investments required for dealing in such markets, they may subject the fund to
greater and more volatile risks than might otherwise be the case. The principal
risks related to the use of such instruments are (i) the correlation between
movements in the market price of the portfolio investment (held or intended)
being hedged and in the price of the offsetting futures contract or option may
be imperfect; (ii) possible lack of liquid secondary market for closing out
futures or options positions; (iii) the need for additional portfolio management
skills and techniques; (iv) losses due to unanticipated market price movements;
and (v) the bankruptcy or failure of a futures commission merchant holding
margin deposits made by the fund and the fund's inability to obtain repayment of
all or part of such deposits. For a hedge to be completely effective, the price
change of the hedging instrument should equal the price change of the security
being hedged. Such equal price changes are not always possible because the
investment underlying the hedging instrument may not be the same investment that
is being hedged. The manager will attempt to create a closely correlated hedge,
but hedging activity may not be completely successful in eliminating market
value fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the natures of those markets, are subject to
the following factors, which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions that could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by fund management may
still not result in a successful transaction. The management may be incorrect in
its expectations as to the extent of various interest rate movements or the time
span within which the movements take place.
The risk of imperfect correlation between movements in the price of a bond
index future and movements in the price of the securities that are the subject
of the hedge increases as the composition of the fund's portfolio diverges from
the securities included in the applicable index. The price of the bond index
future may move more than or less than the price of the securities being hedged.
If the price of the bond
8 American Century Investments
index future moves less than the price of the securities that are the subject of
the hedge, the hedge will not be fully effective, but if the price of the
securities being hedged has moved in an unfavorable direction, the fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the futures contract. If the price of the futures
contract moves more than the price of the security, the fund will experience
either a loss or a gain on the futures contract that will not be completely
offset by movements in the price of the securities that are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
the securities being hedged and movements in the price of the bond index
futures, the fund may buy or sell bond index futures in a greater dollar amount
than the dollar amount of securities being hedged if the historical volatility
of the prices of such securities being hedged is less than the historical
volatility of the bond index. It is also possible that, where the fund has sold
futures contracts to hedge its securities against a decline in the market, the
market may advance and the value of securities held in the portfolio may
decline. If this occurred, the fund would lose money on the futures contract and
also experience a decline in value in its portfolio securities. However, while
this could occur for a brief period or to a very small degree, over time the
value of a portfolio of debt securities will tend to move in the same direction
as the market indices upon which the futures contracts are based.
Where bond index futures are purchased to hedge against a possible increase
in the price of funds before the fund is able to invest in securities in an
orderly fashion, it is possible that the market may decline instead; if the fund
then concludes not to invest in securities at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
The risks of investment in options on bond indices may be greater than
options on securities. Because exercises of bond index options are settled in
cash, when the fund writes a call on a bond index it cannot provide in advance
for its potential settlement obligations by acquiring and holding the underlying
securities. The fund can offset some of the risk of its writing position by
holding a portfolio of bonds similar to those on which the underlying index is
based. However, the fund cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same securities as the underlying index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index. Even if the fund could assemble a portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the fund, as the call writer, will
not learn that it has been assigned an option until the next business day at the
earliest. The time lag between exercise and notice of assignment poses no risk
for the writer of a covered call on a specific underlying security because
there, the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligation by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising option holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligation by
delivering those securities. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; by the time it
learns that it has been assigned, the index may have declined with a
corresponding decline in the value of its portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding securities positions.
If the fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the fund will be required to pay the
difference between the
Statement of Additional Information 9
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer.
OFFICERS AND DIRECTORS
The principal officers and directors of the corporation, their principal
business experience during the past five years, and their affiliations with the
fund's investment manager, American Century Investment Management, Inc. and its
transfer agent, American Century Services Corporation, are listed below. Unless
otherwise noted, the business address of each director and officer is American
Century Tower, 4500 Main Street, Kansas City, Missouri 64111. All persons named
as officers of the Corporation also serve in similar capacities for other funds
advised by the manager. Those directors that are "interested persons" as defined
in the Investment Company Act of 1940 are indicated by an asterisk(*).
JAMES E. STOWERS JR.,* Chairman of the Board and Director; Chairman of
the Board, Director and controlling shareholder of American Century Companies,
Inc., parent corporation of American Century Investment Management, Inc. and
American Century Services Corporation; Chairman of the Board and Director of
American Century Investment Management, Inc. and American Century Services
Corporation; father of James E. Stowers III.
JAMES E. STOWERS III,* President, Chief Executive Officer and Director;
President, Chief Executive Officer and Director, American Century Companies,
Inc. American Century Investment Management, Inc. and American Century
Services Corporation.
THOMAS A. BROWN, Director; 2029 Wyandotte, Kansas City, Missouri; Chief
Executive Officer, Associated Bearing Company, a corporation engaged in the
sale of bearings and power transmission products.
ROBERT W. DOERING, M.D., Director; 6420 Prospect, Kansas City, Missouri;
general surgeon.
D. D. (DEL) HOCK, Director; 1225 Seventeenth Street #900, Denver,
Colorado; Chairman, President and Chief Executive Officer, Public Service
Company of Colorado.
LINSLEY L. LUNDGAARD, Vice Chairman of the Board and Director; 18648 White
Wing Drive, Rio Verde, Arizona; retired; formerly Vice President and National
Sales Manager, Flour Milling Division, Cargill, Inc.
DONALD H. PRATT, Director; P.O. Box 419917, Kansas City, Missouri;
President, Butler Manufacturing Company.
LLOYD T. SILVER JR., Director; 2300 West 70th Terrace, Mission Hills,
Kansas; President, LSC, Inc., manufacturer's representative.
M. JEANNINE STRANDJORD, Director; 908 West 121st Street, Kansas City,
Missouri; Senior Vice President and Treasurer, Sprint Corporation.
WILLIAM M. LYONS, Executive Vice President, Chief Operating Officer,
Secretary and General Counsel; Executive Vice President, Chief Operating
Officer and General Counsel, American Century Companies, Inc., American
Century Investment Management, Inc. and American Century Services Corporation.
ROBERT T. JACKSON, Executive Vice President and Principal Financial
Officer; Executive Vice President and Treasurer, American Century Companies,
Inc., American Century Investment Management, Inc. and American Century
Services Corporation; formerly Executive Vice President, Kemper Corporation.
MARYANNE ROEPKE, CPA, Vice President, Treasurer and Principal Accounting
Officer; Vice President, American Century Services Corporation.
PATRICK A. LOOBY, Vice President; Vice President, American Century
Services Corporation.
MERELE A. MAY, Controller.
C. JEAN WADE, CPA, Controller; formerly, accountant, Baird, Kurtz &
Dobson.
The Board of Directors has established four standing committees, the
Executive Committee, the Audit Committee, the Compliance Committee and the
Nominating Committee.
Messrs. Stowers Jr., Stowers III and Lundgaard constitute the Executive
Committee of the Board of Directors. The committee performs the functions of the
Board of Directors between meetings of the Board, subject to the limitations on
its power set out in the Maryland General Corporation Law, and except for
matters required by the Investment Company Act to be acted upon by the whole
Board.
Messrs. Lundgaard (chairman), Doering and Hock and Ms. Strandjord
constitute the Audit Committee. The functions of the Audit Committee include
recommending the engagement of the funds' independent accountants, reviewing
the arrangements for and scope of the annual audit, reviewing comments made by
the independent accountants with respect to internal con-
10 American Century Investments
trols and the considerations given or the corrective action taken by management,
and reviewing nonaudit services provided by the independent accountants.
Messrs. Brown (chairman), Pratt and Silver constitute the Compliance
Committee. The functions of the Compliance Committee include reviewing the
results of the funds' compliance testing program, reviewing quarterly reports
from the manager to the Board regarding various compliance matters and
monitoring the implementation of the funds' Code of Ethics, including violations
thereof.
The Nominating Committee has as its principal role the consideration and
recommendation of individuals for nomination as directors. The names of
potential director candidates are drawn from a number of sources, including
recommendations from members of the Board, management and shareholders. This
committee also reviews and makes recommendations to the Board with respect to
the composition of Board committees and other Board-related matters, including
its organization, size, composition, responsibilities, functions and
compensation. The members of the nominating committee are Messrs. Pratt
(Chairman), Lundgaard and Stowers III.
The Directors of the corporation also serve as Directors for other funds
advised by the manager. Each Director who is not an "interested person" as
defined in the Investment Company Act receives for service as a member of the
Board of all six of such investment companies an annual director's fee of
$44,000, and an additional fee of $1,000 per regular Board meeting attended and
$500 per special Board and committee meeting attended. In addition, those
Directors who are not "interested persons" who serve as chairman of a committee
of the Board of Directors receive an additional $2,000 for such services. These
fees and expenses are divided among the six investment companies based upon
their relative net assets. Under the terms of the management agreement with the
manager, the funds are responsible for paying such fees and expenses. Set forth
below is the aggregate compensation paid for the periods indicated by the funds
and by the American Century family of funds as a whole to each Director who is
not an "interested person" as defined in the Investment Company Act.
Aggregate Total Compensation from
Compensation the American Century
Director from the corporation1 Family of Funds2
- --------------------------------------------------------------------------------
Thomas A. Brown $215 $44,000
Robert W. Doering, M.D. 212 44,000
Linsley L. Lundgaard 222 46,000
Donald H Pratt 186 28,000
Lloyd T. Silver Jr. 212 44,000
Jeannine Strandjord 210 44,000
John M. Urie 222 46,000
- --------------------------------------------------------------------------------
1 Includes compensation actually paid by the corporation during the fiscal
year ended March 31, 1996.
2 Includes compensation paid by the fifteen investment company members of the
American Century family of funds for the calendar year ended December 31,
1995.
Those Directors who are "interested persons," as defined in the Investment
Company Act, receive no fee as such for serving as a Director. The salaries of
such individuals, who are also officers of the funds, are paid by the manager.
MANAGEMENT
A description of the responsibilities and method of compensation of funds'
investment manager, American Century Investment Management, Inc., appears in the
Prospectus under the caption "Management."
During its most recent fiscal year, the management fees paid to the manager
were as follows:
Year Ended Year Ended Year Ended
Fund March 31, 1996 March 31, 1995 March 31, 1994
- --------------------------------------------------------------------------------
PREMIUM GOVERNMENT
RESERVE
Management Fees $ 93,671 $ 41,736 $ 20,845
Average Net Assets 21,173,072 9,274,419 4,628,311
PREMIUM CAPITAL
RESERVE
Management Fees $ 626,948 $ 251,963 $ 101,492
Average Net Assets 140,458,302 55,990,638 22,565,287
PREMIUM BOND
Management Fees $ 68,907 $ 38,340 $ 32,413
Average Net Assets 15,955,006 8,625,557 7,204,853
- --------------------------------------------------------------------------------
Statement of Additional Information 11
The management agreement shall continue in effect until the earlier of the
expiration of two years from the date of its execution or until the first
meeting of shareholders following such execution and for as long thereafter as
its continuance is specifically approved at least annually by (i) the funds'
Board of Directors or by the vote of a majority of outstanding votes (as defined
in the Investment Company Act) and (ii) by the vote of a majority of the
Directors of the funds who are not parties to the agreement or interested
persons of the manager, cast in person at a meeting called for the purpose of
voting on such approval.
The management agreement provides that it may be terminated at any time
without payment of any penalty by the funds' Board of Directors, or by a vote of
the funds' shareholders, on 60 days' written notice to the manager and that it
shall be automatically terminated if it is assigned.
The management agreement provides that the manager shall not be liable to
the funds or its shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.
The management agreement also provides that the manager and its officers,
directors and employees may engage in other business, devote time and attention
to any other business whether of a similar or dissimilar nature, and render
services to others.
Certain investments may be appropriate for the funds and also for other
clients advised by the manager. Investment decisions for the funds and other
clients are made with a view to achieving their respective investment objectives
after consideration of such factors as their current holdings, availability of
cash for investment, and the size of their investment generally. A particular
security may be bought or sold for only one client, or in different amounts and
at different times for more than one but less than all clients. In addition,
purchases or sales of the same security may be made for two or more clients on
the same date. Such transactions will be allocated among clients in a manner
believed by the manager to be equitable to each. In some cases this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund.
In addition to managing the funds, on August 1, 1996, the manager also was
acting as an investment advisor to nine institutional accounts and to five
registered investment companies American Century Mutual Funds, Inc., American
Century World Mutual Funds, Inc., American Century Capital Portfolios, Inc.,
American Century Strategic Asset Allocations, Inc., and TCI Portfolios, Inc.
American Century Services Corporation provides physical facilities,
including computer hardware and software and personnel, for the day-to-day
administration of the funds and the manager pays American Century Services
Corporation for such services.
As stated in the Prospectus, all of the stock of American Century
Services Corporation and American Century Investment Management, Inc. is owned
by American Century Companies, Inc.
CUSTODIANS
Chase Manhattan Bank, 770 Broadway, 10th Floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serves as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds, however, may invest in
certain obligations of the custodians and may purchase or sell certain
securities from or to the custodians.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Kansas City Place, Kansas City, Missouri 64105,
serves as independent auditors for the funds, providing services including (1)
audit of the annual financial statements, (2) assistance and consultation in
connection with SEC filings and (3) review of the annual federal income tax
return filed for the funds.
CAPITAL STOCK
The funds' capital stock is described in the Prospectus under the caption,
"Further Information About American Century."
The corporation currently has three series of shares outstanding. the funds
may in the future issue one or more additional series of shares without a vote
of the shareholders. The assets belonging to each series of shares are held
separately by the custodian and the shares of each series represent a beneficial
interest in
12 American Century Investments
the principal, earnings and profits (or losses) of investment and other assets
held for that series. Your rights as a shareholder are the same for all series
of securities unless otherwise stated. Within their respective series, all
shares have equal redemption rights. Each share, when issued, is fully paid and
non-assessable. Each share, irrespective of series, is entitled to one vote for
each dollar of net asset value represented by such share on all questions.
In the event of complete liquidation or dissolution of the funds,
shareholders of each series of shares shall be entitled to receive, pro rata,
all of the assets less the liabilities of that series.
As of June 30, 1996, the following shareholders held in excess of 5% of the
votes of the stated series of the corporation:
Shareholder and
Fund Percentage Held
- --------------------------------------------------------------------------------
Premium Capital Chase Manhattan Bank
Reserve as Trustee for CTS Corp.
Retirement & Savings Plan
New York, New York - 16.0%
United Missouri Bank
as Trustee for The Insilco
Corporation Employee
Thrift Plan Trust
Kansas City, Missouri - 16.3%
Premium Chase Manhattan Bank
Government Reserve as Trustee for
Newport Service Corporation
Money Purchase
Pension Trust - 12.8%
Twentieth Century
Companies, Inc.
Kansas City, Missouri - 5.0%
Premium Bond Twentieth Century
Companies, Inc. - 15.3%
Chase Manhattan Bank
as Trustee for Old Dominion
401(k) Retirement
Plan Trust - 6.2%
United Missouri Bank
as Trustee for The Insilco
Corporation Employee
Thrift Plan Trust - 6.1%
- --------------------------------------------------------------------------------
Other than the shares owned by American Century Companies, Inc., ownership
of which company could be attributed to certain officers and directors of the
corporation, as of June 30, 1996, the shares of the corporation owned
beneficially and of record by the officers and directors of the corporation in
the aggregate were less than 1% of the shares offered by any fund.
TAXES
Each fund intends to qualify under the Internal Revenue Code as a regulated
investment company. If they qualify, they will not be subject to U.S. federal
income tax on net investment income and net capital gains, which are distributed
to its shareholders within certain time periods specified in the Internal
Revenue Code. Amounts not distributed on a timely basis would be subject to
federal and state corporate income tax and to a nondeductible 4% excise tax.
Each fund intends to distribute annually all of its net ordinary income and
net capital gains.
Distributions from net investment income and net short-term capital gains
are taxable to shareholders as ordinary income. The dividends received deduction
available to corporate shareholders for dividends received from the corporation
will apply to ordinary income distributions only to the extent that they are
attributable to the corporation's dividend income from U.S. corporations. In
addition, the dividends received deduction will be limited if the shares with
respect to which the dividends are received are treated as debt-financed or are
deemed to have been held less than 46 days by a fund.
Distributions from net long-term capital gains are taxable to a shareholder
as long-term capital gains regardless of the length of time the shares on which
such distributions are paid have been held by the shareholder. However,
shareholders should note that any loss realized upon the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any distribution of long-term capital gain to the shareholder
with respect to such shares.
Redemption of shares of a fund will be a taxable transaction for federal
income tax purposes and shareholders will generally recognize gain or loss in
Statement of Additional Information 13
an amount equal to the difference between the basis of the shares and the amount
received. Assuming that shareholders hold such shares as a capital asset, the
gain or loss will be a capital gain or loss and will generally be long term if
shareholders have held such shares for a period of more than one year. If a loss
is realized on the redemption of fund shares, the reinvestment in additional
fund shares within 30 days before or after the redemption may be subject to the
"wash sale" rules of the Internal Revenue Code, resulting in a postponement of
the recognition of such loss for federal income tax purposes.
In addition to the federal income tax consequences described above relating
to an investment in shares issued by the corporation, there may be other
federal, state or local tax considerations that depend upon the circumstances of
each particular investor. Prospective shareholders are therefore urged to
consult their tax advisers with respect to the effect of this investment on
their own situations.
BROKERAGE
Under the terms of the Management Agreement between the funds and the
manager, the manager has the responsibility for determining what securities
shall be purchased and sold and selecting the brokers or dealers to execute such
transactions. The manager seeks to obtain prompt execution of orders at the most
favorable prices or yields.
Purchases are made directly from issuers, underwriters, broker-dealers or
banks. In many transactions, the selection of the broker-dealer is determined by
the availability of the desired security and its offering price. In other
transactions, the selection is a function of the selection of market and the
negotiation of price, as well as the broker-dealer's general execution,
operational and financial capabilities in the type of transaction involved.
The manager receives statistical and other information and services without
cost from brokers and dealers. The manager evaluates such information and
services, together with all other information that it may have, in supervising
and managing the funds. Because such information and services may vary in
amount, quality and reliability, their influence in selecting brokers varies
from none to very substantial. The manager proposes to continue to place some of
the funds' brokerage business with one or more brokers who provide information
and services.
The brokerage and research services received by the manager may be used
with respect to one or more of the funds and/or the other funds and accounts
over which it has investment discretion, and not all of such services may be
used by the manager in managing the portfolios of the funds. Such information
and services are in addition to and not in lieu of the services required to be
performed by the manager. The manager does not utilize brokers that provide such
information and services for the purpose of reducing the expense of providing
required services to the funds.
PERFORMANCE ADVERTISING
FUND PERFORMANCE
Individual fund performance may be compared to various indices including
the Lehman Brothers Government Corporate Index, the Salomon Bond Index,
Donoghue's Money Fund Average and Bank Rate Monitor National Index of 21/2-year
CD rates.
Average annual total return is calculated by determining each fund's
cumulative total return for the stated period and then computing the annual
compound return that would produce the cumulative total return if the fund's
performance had been constant over that period. Cumulative total return includes
all elements of return, including reinvestment of dividends and capital gains
distributions.
The funds may also advertise average annual total return over periods of
time other than one, five and 10 years and cumulative total return over various
time periods.
The yield of Premium Government Reserve and Premium Capital Reserve is
calculated by measuring the income generated by an investment in the fund over a
seven-day period (net of fund expenses). This income is then "annualized." That
is, the amount of income generated by the investment over the seven-day period
is assumed to be generated over each similar period throughout a full year and
is shown as a percentage of the investment. The "effective yield" is calculated
in a similar manner but, when annualized, the income earned by the investment is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of the assumed reinvestment.
14 American Century Investments
Based upon these methods of calculation, the yield and effective yield for
Premium Government Reserve and Premium Capital Reserve for the seven days ended
March 31, 1996, the last seven days of the fiscal year, were as follows:
- --------------------------------------------------------------------------------
Effective
Fund Yield Yield
Premium Government Reserve 4.99% 5.12%
Premium Capital Reserve 4.94 5.07
- --------------------------------------------------------------------------------
The yield of Premium Bond is calculated by adding over a 30-day (or
one-month) period all interest and dividend income (net of fund expenses)
calculated on each day's market values, dividing this sum by the average number
of fund shares outstanding during the period, and expressing the result as a
percentage of the fund's share price on the last day of the 30-day (or
one-month) period. The percentage is then annualized. Capital gains and losses
are not included in the calculation. The yield of Premium Bond for the 30-day
period ended March 31, 1996, was 6.14%.
The funds may also elect to advertise cumulative total return and average
annual total return, computed as described above. The cumulative total return
since inception is 17.58% and average annual total return of Premium Bond for
the year ended March 31, 1996, was 11.53%.
ADDITIONAL PERFORMANCE COMPARISONS
Investors may judge the performance of the funds by comparing their
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as the EAFE(R) Index and those prepared by Dow Jones &
Co., Inc., Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The
Russell 2000 Index, and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made to
indices or data published in Money, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, Pensions and Investments, USA Today and other
similar publications or services. In addition to performance information,
general information about the funds that appears in a publication such as those
mentioned above or in the Prospectus under the heading "Performance Advertising"
may be included in advertisements and in reports to shareholders.
PERMISSIBLE ADVERTISING INFORMATION
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant market or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) testimonials
describing the experience of persons that have invested in one or more of the
funds. The funds may also include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any of the funds.
REDEMPTIONS IN KIND
While the funds expect that, under normal conditions, all redemptions will
be paid in cash, if the manager determines that it would be detrimental to the
best interests of a fund's remaining shareholders to make payment in cash, that
fund may pay redemption proceeds in amounts in excess of $250,000 in whole or in
part by a distribution in kind of readily marketable securities.
In addition to the policy just mentioned, the funds have elected to be
governed by Rule 18f-1 under the Investment Company Act, pursuant to which the
funds are obligated to redeem shares solely in cash up
Prospectus Information Regarding the Funds 15
to the lesser of $250,000 or 1% of the net asset value of a fund during any
90-day period for any one shareholder. Should redemptions by any shareholder
exceed such limitation, the fund will have the option, subject to the necessary
finding by the manager stated above, of redeeming the excess in cash or in kind.
If shares are redeemed in kind, the redeeming shareholder might incur brokerage
costs in converting the assets to cash. The securities delivered will be
selected at the sole discretion of the manager. Such securities will not
necessarily be representative of the entire portfolio and may be securities that
the manager regards as least desirable. The method of valuing securities used to
make redemptions in kind will be the same as the method of valuing portfolio
securities described in the Prospectus under the caption "How Share Price is
Determined," and such valuation will be made as of the same time the redemption
price is determined.
HOLIDAYS
The funds do not determine the net asset value of their shares on days when
the New York Stock Exchange is closed. Currently, the Exchange is closed on
Saturdays and Sundays and on holidays, namely New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
FINANCIAL STATEMENTS
The financial statements of the funds for the fiscal year ended March 31,
1996, are included in the Annual Report to shareholders for that period, which
is incorporated herein by reference. In addition, the funds' unaudited financial
statements for the six months ended September 30, 1996, are included in the
Semiannual Report to shareholders which is incorporated herein by reference.
With respect to the unaudited financial statements incorporated herein, all
adjustments, in the opinion of management, necessary for a fair presentation of
the financial position and results of operation for the periods indicated have
been made. The results of operations of the funds for the respective periods
indicated are not necessarily indicative of the results for the entire year. You
may receive copies of the Annual and Semiannual Reports without charge upon
request to the funds at the address and phone number shown on the cover of this
Statement.
16 American Century Investments
NOTES
American Century Investments Notes 17
P.O. Box 419385
Kansas City, Missouri
64141-6385
Person-to-person assistance:
1-800-345-3533 or 816-531-5575
Automated Information Line:
1-800-345-8765
Telecommunications Device for the Deaf:
1-800-345-1833 or 816-753-0700
Fax: 816-340-4360
Internet: www.americancentury.com
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